Ana Goshko

Ana Goshko questioned the LNS revenue outlook, specifically how AI is expected to drive consumption, given the $415 million forecast for 2026 against a prior $400 million CAGR for 2027/2028. She also asked for clarification on the free cash flow guide, net debt reduction, the non-cash nature of annuity purchases, and consideration of using cash for debt buybacks.

Answer

CEO and President Mike Thomson confirmed that the $415 million LNS revenue for 2026 reflects increased consumption, driven by AI tools enhancing data use and value, and that the $400 million average for 2027/2028 already bakes in some consumption, with potential for future adjustments. CFO Deb McCann confirmed that the -$25 million free cash flow guide implies a $25 million lower cash balance at year-end 2026, and that net debt will be lower due to pension deficit reduction. She also confirmed annuity purchases are non-cash, using plan assets to reduce liabilities. McCann stated that while debt buybacks are always considered, the current preference is to conserve cash given pension obligations.

Ana Goshko asked about the L&S revenue outlook, noting Unisys's historical pattern of conservative guidance and overperformance, and the expectation of $415 million for 2026 against a previously stated $400 million average for 2027-2028. She sought clarification on the impact of AI as a continued driver of consumption. She also asked CFO Deb McCann to confirm the free cash flow guide implies a $25 million lower cash balance at year-end 2026, and if net debt would be lower due to pension deficit reduction. Finally, she inquired about the possibility of using cash to buy back debt given current market rates.

Answer

CEO Mike Thomson confirmed a more conservative guidance approach, baking in some expected overperformance for L&S revenue, with AI-driven consumption being a key factor. He stated that while $400 million is the current average estimate for 2027-2028, future adjustments based on continued consumption are possible. CFO Deb McCann confirmed that the free cash flow guide of -$25 million implies a $25 million lower cash balance at year-end 2026, and that net debt would be lower due to the pension deficit reduction (approximately $50 million). She also confirmed that annuity purchases are non-cash. Regarding debt buybacks, Deb McCann stated that Unisys always evaluates options but is currently focused on conserving cash given pension obligations, so no immediate plans for debt buybacks.

Ana Goshko sought confirmation on Cogent's commitment to deleveraging to a 4x net leverage target, particularly regarding the use of data center sale proceeds and free cash flow, given the recent dividend reduction. She also asked about the company's confidence in generating positive free cash flow this year and its potential magnitude.

Answer

CEO Dave Schaeffer unequivocally reaffirmed Cogent's commitment to achieving 4x net leverage for the entire complex before materially altering its capital return strategy, including buybacks or dividends. He clarified that cash from asset sales or free cash flow could be used to reduce debt, potentially through opportunistic debt buybacks. He expressed high confidence in generating unlevered free cash flow growth this year due to anticipated EBITDA growth and reduced capital expenditures, and likely positive levered free cash flow, even with potentially slightly higher coupon rates on refinanced debt.

Ana Goshko sought clarification on Cogent Communications' deleveraging strategy, specifically questioning the commitment to using data center sale proceeds for debt repayment, given the previous dividend reduction rationale of focusing on deleveraging to a 4x net leverage target. She also asked about the company's confidence in generating positive free cash flow for the current year.

Answer

CEO Dave Schaeffer unequivocally committed to not materially altering Cogent Communications' capital return strategy (buybacks or dividends) until achieving a 4x net leverage target for the entire complex. He explained that deleveraging is ongoing, both gross and net, and that holding cash or opportunistic debt buybacks could contribute to leverage reduction. Regarding free cash flow, Schaeffer expressed confidence in generating EBITDA growth and lower capital expenditures, leading to unlevered free cash flow growth, and likely positive levered free cash flow, even with potentially slightly higher refinancing coupons.

Ana Goshko inquired about the company's current strategic thinking, asking if further portfolio actions like divestitures are possible now that the debt profile has been addressed.

Answer

President and CEO Chuck Treadway responded that the company is currently 'head down focused on running our business.' He emphasized his excitement for the simultaneous growth opportunities in the data center, FDX, and structured cabling businesses, indicating that executing on these is the primary focus.