REG-Unisys Corp: Half-year Report <Origin Href="QuoteRef">UIS.N</Origin>
27/07/2016 07:05
Unisys Announces Second-Quarter 2016 Financial Results
BLUE BELL, Pa., July 26, 2016 --
2Q 2016:
* Operating profit margin of 6.6 percent, an increase of 1310 basis points
from operating profit margin of (6.5) percent in 2Q 2015
* Non-GAAP operating profit margin((1)) of 10.8 percent, an increase of 690
basis points from the prior year
* Diluted earnings per share of $0.36 versus ($1.17) in 2Q 2015
* Non-GAAP diluted earnings per share((2)) of $0.81 versus $0.33 in 2Q 2015
* Operating cash flow increase of $55.7 million year over year to $34.6
million; $78.7 million increase in non-GAAP adjusted free cash flow((4))
year-over-year to $54.3 million
* Revenue of $748.9 million, down 2 percent, or down less than 1 percent on a
constant-currency basis*, year over year
* Unisys re-affirms full-year guidance for total company revenue, non-GAAP
operating profit margin and adjusted free cash flow
Unisys Corporation (NYSE: UIS) today reported second quarter 2016 results
highlighted by continued year-over-year increases in operating profit margin,
operating cash flow and free cash flow((3)).
The company reported an operating profit margin of 6.6 percent including cost
reduction charges and pension expense, an increase of 1310 basis points
relative to operating profit margin of (6.5) percent in the second quarter of
2015, consistent with ongoing cost-cutting efforts and helped by increased
revenues from higher-margin technology products. Second quarter 2016 non-GAAP
operating profit margin was 10.8 percent, an increase of 690 basis points from
the prior year. In addition, operating cash flow for the quarter increased by
$55.7 million versus the prior year to $34.6 million, while adjusted free cash
flow in the second quarter of 2016 increased $78.7 million from the prior year
to $54.3 million, representing the third consecutive quarter of positive
adjusted free cash flow. The Company also reported diluted earnings per share
of $0.36 versus ($1.17) in the same quarter a year ago and non-GAAP diluted
earnings per share of $0.81 versus $0.33 in the second quarter of 2015.
Revenues for the second quarter 2016 were $748.9 million, which is down 2
percent or down less than 1 percent on a constant-currency basis relative to
the second quarter of 2015.
"Our second quarter results reflect improvement in our GAAP and non-GAAP
operating profit margin and cash flow generation. Revenues were slightly down,
less than 1 percent, on a constant-currency basis," said Unisys President and
CEO Peter Altabef. "We are continuing to execute against the strategy we
commenced in 2015, which focuses on providing security in everything we do,
growing demand for both cyber and physical security offerings, while investing
to improve our go-to-market effectiveness by aligning vertically."
Summary of Second Quarter 2016 Business Results
Company:
* Overall operating profit margin of 6.6 percent includes cost reduction
charges and pension expense. Second quarter 2016 non-GAAP operating profit
margin was 10.8 percent, an increase of 690 basis points from the prior year.
* Net income grew to $21.6 million versus $(58.2) million in the second
quarter of 2015, representing margin expansion of 1050 basis points. Adjusted
EBITDA((5)) saw growth of 71.0 percent to $123.6 million versus the prior
year, representing margin expansion of 710 basis points.
* Overall increased profitability was driven in large part by decreased
operating expenses resulting from the company's ongoing cost-cutting efforts
and was also helped by an increase in revenues from higher-margin technology
products.
* Operating cash flow increased by $55.7 million versus the prior year to
$34.6 million, while adjusted free cash flow in the second quarter 2016
increased $78.7 million from the prior year, representing the third
consecutive quarter of positive adjusted free cash flow.
* Revenue of $748.9 million declined 2.1 percent year over year or (0.9)
percent on a constant-currency basis.
Services:
* Services revenue, which represented 82.0 percent of total revenue, declined
by 7.2 percent to $613.8 million, down 6.1 percent in constant currency. The
decline in the Services business was largely offset by a strong quarter for
the Technology business, as noted below.
* Services gross margin improved 110 basis points from 15.7 percent to 16.8
percent. Services operating profit margin was 2.1 percent, a decrease of 10
basis points from the prior year, or flat on a constant-currency basis,
reflecting continued investment in the business to reach longer-term
profitability goals.
* Total Services backlog ended the second quarter at $3.8 billion, down 13.7
percent year-over-year.
Technology:
* Technology revenue, which represented 18.0 percent of total revenue,
increased 30.7 percent year-over-year, 32.4 percent in constant currency,
largely driven by increased ClearPath Forward™ sales.
* Technology operating profit margin improved to 48.0 percent from 15.6
percent in the prior year due to increased gross margins, as well as the
benefit of selling, general & administrative reductions.
Cash Flow:
* Capital expenditures declined 36.4 percent year-over-year to $34.0 million,
reflective of significant investments in outsourcing assets that were made in
the second quarter of 2015.
* Second quarter 2016 operating cash flow increased by $55.7 million versus
the prior year to $34.6 million. Free cash flow of $0.6 million improved $75.2
million year-over-year and was positive due to higher operating cash flow and
lower capital expenditures. Adjusted free cash flow in the second quarter of
2016 increased $78.7 million from the prior year to $54.3 million,
representing the third consecutive quarter of positive adjusted free cash
flow.
* During the second quarter 2016, the company executed on cost-cutting plans,
largely related to headcount reductions, that are expected to result in $30
million of annualized cost savings, bringing the total to date to $155 million
against a plan of $200 million for 2016, with another $30 million expected in
2017.
* At June 30, 2016, the company had $463.6 million in cash.
Continued Execution on Business Strategy
The company recently made several major announcements regarding security,
alliances, and groundbreaking technologies:
* A series of security-related achievements, including approval of Unisys
Stealth(®) from the U.S. National Security Agency's (NSA) Commercial
Solutions for Classified (CSfC) program in the U.S., and by the National
Information Assurance Partnership (NIAP), making Unisys Stealth eligible for
use by governments in more than 20 countries to protect their most sensitive
systems and information.
* A hardware-independent version of the ClearPath Forward MCP operating
environment software, marking the first time that Unisys has offered a
software-only version of its ClearPath Forward operating system platform.
* The new Unisys, Sandstone and PCT (USP) digital banking platform designed to
enable financial institutions to provide more secure banking services. The
platform will provide built-in adaptive biometric and data analytics to
securely identify customers and validate transactions, to reduce fraud and
enhance customer experience.
Conference Call
Unisys will hold a conference call today at 5:30 p.m. Eastern Time to discuss
its results. The listen-only Webcast, as well as the accompanying presentation
materials, can be accessed on the Unisys Investor Web site at
www.unisys.com/investor. Following the call, an audio replay of the Webcast,
and accompanying presentation materials, can be accessed through the same
link.
*Constant currency – The company refers to growth rates in constant currency
or on a constant currency basis so that the business results can be viewed
without the impact of fluctuations in foreign currency exchange rates to
facilitate comparisons of the company's business performance from one period
to another. Constant currency is calculated by retranslating current and prior
period results at a consistent rate.
Non-GAAP Information
Although appropriate under generally accepted accounting principles (GAAP),
the company's results reflect charges that the company believes are not
indicative of its ongoing operations and that can make its profitability and
liquidity results difficult to compare to prior periods, anticipated future
periods, or to its competitors' results. These items consist of pension and
restructuring costs. Management believes each of these items can distort the
visibility of trends associated with the company's ongoing performance.
Management also believes that the evaluation of the company's financial
performance can be enhanced by use of supplemental presentation of its results
that exclude the impact of these items in order to enhance consistency and
comparativeness with prior or future period results. The following measures
are often provided and utilized by the company's management, analysts, and
investors to enhance comparability of year-over-year results, as well as to
compare results to other companies in our industry.
((1)) Non-GAAP operating profit – During the second quarter 2016 and 2015,
Unisys recorded pretax pension expense and a pretax charge in connection with
cost reduction actions. The company believes that this profitability measure
is more indicative of the company's operating results and aligns those results
to the company's external guidance which is used by the company's management
to allocate resources and may be used by analysts and investors to gauge the
company's ongoing performance.
((2)) Non-GAAP diluted earnings per share – During the second quarter 2016
and 2015, Unisys recorded pension expense and a charge in connection with cost
reduction actions (both net of tax). Management believes that investors may
have a better understanding of the company's performance and return to
shareholders by excluding these charges from the non-GAAP diluted
earnings/loss per share calculations. The tax amounts netted from pension
expense and the charge in connection with cost reduction actions for the
calculation of non-GAAP diluted earnings per share include the current and
deferred tax expense and benefits recognized under GAAP for pension expense
and restructuring costs during the second quarter 2016 and 2015.
((3)) Free cash flow – The company defines free cash flow as cash flow from
operations less capital expenditures. Management believes this liquidly
measure gives investors an additional perspective on cash flow from on-going
operating activities in excess of amounts required for reinvestment.
((4)) Adjusted free cash flow – Because inclusion of the company's pension
contributions and cost reduction payments in free cash flow may distort the
visibility of the company's ability to generate cash flow from its operations
without the impact of these non-operational costs, management believes that
investors may be interested in adjusted free cash flow, which provides free
cash flow before these payments and is more indicative of its on-going
operations. This liquidity measure was provided to analysts and investors in
the form of external guidance and is used by management to measure operating
liquidly.
((5)) EBITDA & adjusted EBITDA – For the company earnings before interest,
taxes, depreciation and amortization (EBITDA) is calculated by starting with
net income (loss) attributable to Unisys Corporation common shareholders and
adding or subtracting the following items: net income attributable to
noncontrolling interests, non-cash share-based expense, other (income) expense
(net), Interest expense, provision for income taxes, depreciation and
amortization. Adjusted EBITDA further excludes both pension expense and cost
reduction charges. Unisys recorded pretax pension expense during the second
quarters of 2016 and 2015. During the second quarters 2016 and 2015, Unisys
recorded a pretax charge in connection with cost reduction actions and other
expense. In order to provide investors with additional understanding of the
company's operating results, these charges are excluded from the adjusted
EBITDA calculation. The company has also provided external guidance to
investors and analysts that it thinks will aid any interested party in
understanding and measuring the company's ongoing operations and
profitability.
About Unisys
Unisys is a global information technology company that works with many of the
world's largest companies and government organizations to solve their most
pressing IT and business challenges. Unisys specializes in providing
integrated, leading-edge solutions to clients in the government, financial
services and commercial markets. With more than 20,000 employees serving
clients around the world, Unisys offerings include cloud and infrastructure
services, application services, security solutions, and high-end server
technology. For more information, visit http://www.unisys.com/.
Forward-Looking Statements
Any statements contained in this release that are not historical facts are
forward-looking statements as defined in the Private Securities Litigation
Reform Act of 1995. Forward-looking statements include, but are not limited
to, any projections of earnings, revenues, or other financial items; any
statements of the company's plans, strategies or objectives for future
operations; statements regarding future economic conditions or performance;
and any statements of belief or expectation. All forward-looking statements
rely on assumptions and are subject to various risks and uncertainties that
could cause actual results to differ materially from expectations. Risks and
uncertainties that could affect the company's future results include the
company's ability to effectively anticipate and respond to volatility and
rapid technological innovation in its industry; the company's ability to
improve margins in its services business; the company's ability to sell new
products while maintaining its installed base in its technology business; the
company's ability to access financing markets to refinance its outstanding
debt; the company's ability to realize anticipated cost savings and to
successfully implement its cost reduction initiatives to drive efficiencies
across all of its operations; the company's significant pension obligations
and requirements to make significant cash contributions to its defined benefit
plans; the company's ability to attract, motivate and retain experienced and
knowledgeable personnel in key positions; the risks of doing business
internationally when a significant portion of the company's revenue is derived
from international operations; the potential adverse effects of aggressive
competition in the information services and technology marketplace; the
company's ability to retain significant clients; the company's contracts may
not be as profitable as expected or provide the expected level of revenues;
cybersecurity breaches could result in significant costs and could harm the
company's business and reputation; a significant disruption in the company's
IT systems could adversely affect the company's business and reputation; the
company may face damage to its reputation or legal liability if its clients
are not satisfied with its services or products; the performance and
capabilities of third parties with whom the company has commercial
relationships; the adverse effects of global economic conditions, acts of war,
terrorism or natural disasters; contracts with U.S. governmental agencies may
subject the company to audits, criminal penalties, sanctions and other
expenses and fines; the potential for intellectual property infringement
claims to be asserted against the company or its clients; the possibility that
pending litigation could affect the company's results of operations or cash
flow; the business and financial risk in implementing future dispositions or
acquisitions; and the company's consideration of all available information
following the end of the quarter and before the filing of the Form 10-Q and
the possible impact of this subsequent event information on its financial
statements for the reporting period. Additional discussion of factors that
could affect the company's future results is contained in its periodic filings
with the Securities and Exchange Commission. The company assumes no obligation
to update any forward-looking statements.
RELEASE NO.: 0726/9440
Unisys and other Unisys products and services mentioned herein, as well as
their respective logos, are trademarks or registered trademarks of Unisys
Corporation. Any other brand or product referenced herein is acknowledged to
be a trademark or registered trademark of its respective holder.
UIS-Q
UNISYS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Millions, except per share data)
Three Months Ended Six Months Ended
June 30, June 30,
2016 2015 2016 2015
Revenue
Services $ 613.8 $ 661.5 $ 1,208.9 $ 1,300.5
Technology 135.1 103.3 206.8 185.5
748.9 764.8 1,415.7 1,486.0
Costs and expenses
Cost of revenue:
Services 529.1 585.7 1,062.8 1,150.0
Technology 41.5 54.8 76.1 94.7
570.6 640.5 1,138.9 1,244.7
Selling, general and administrative 115.7 145.4 225.8 274.2
Research and development 13.1 28.4 29.1 46.6
699.4 814.3 1,393.8 1,565.5
Operating profit (loss) 49.5 (49.5) 21.9 (79.5)
Interest expense 7.8 2.7 12.2 5.3
Other income (expense), net 2.6 1.4 1.4 6.3
Income (loss) before income taxes 44.3 (50.8) 11.1 (78.5)
Provision for income taxes 18.8 5.1 24.3 18.4
Consolidated net income (loss) 25.5 (55.9) (13.2) (96.9)
Net income attributable to noncontrolling interests 3.9 2.3 5.1 4.5
Net income (loss) attributable to Unisys Corporation $ 21.6 $ (58.2) $ (18.3) $ (101.4)
Earnings (loss) per share attributable to Unisys Corporation
Basic $ 0.43 $ (1.17) $ (0.37) $ (2.03)
Diluted $ 0.36 $ (1.17) $ (0.37) $ (2.03)
Shares used in the per share computations (in thousands)
Basic 50,069 49,927 50,036 49,874
Diluted 71,786 49,927 50,036 49,874
UNISYS CORPORATION
SEGMENT RESULTS
(Unaudited)
(Millions)
Total Eliminations Services Technology
Three Months Ended June 30, 2016
Customer revenue $ 748.9 $ 613.8 $ 135.1
Intersegment $ (5.9) — 5.9
Total revenue $ 748.9 $ (5.9) $ 613.8 $ 141.0
Gross profit percent 23.8 % 16.8 % 66.9 %
Operating profit percent 6.6 % 2.1 % 48.0 %
Three Months Ended June 30, 2015
Customer revenue $ 764.8 $ 661.5 $ 103.3
Intersegment $ (22.0) 0.1 21.9
Total revenue $ 764.8 $ (22.0) $ 661.6 $ 125.2
Gross profit percent 16.3 % 15.7 % 43.9 %
Operating profit (loss) percent (6.5)% 2.2 % 15.6 %
Total Eliminations Services Technology
Six Months Ended June 30, 2016
Customer revenue $ 1,415.7 $ 1,208.9 $ 206.8
Intersegment $ (11.5) — 11.5
Total revenue $ 1,415.7 $ (11.5) $ 1,208.9 $ 218.3
Gross profit percent 19.6 % 15.5 % 60.4 %
Operating profit percent 1.5 % 1.4 % 37.4 %
Six Months Ended June 30, 2015
Customer revenue $ 1,486.0 $ 1,300.5 $ 185.5
Intersegment $ (28.7) 0.1 28.6
Total revenue $ 1,486.0 $ (28.7) $ 1,300.6 $ 214.1
Gross profit percent 16.2 % 14.9 % 46.3 %
Operating profit (loss) percent (5.3)% 0.4 % 11.3 %
UNISYS CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Millions)
June 30, 2016 December 31, 2015
Assets
Current assets
Cash and cash equivalents $ 463.6 $ 365.2
Accounts and notes receivable, net 561.1 581.6
Inventories:
Parts and finished equipment 18.2 20.9
Work in process and materials 20.9 22.9
Prepaid expenses and other current assets 130.4 120.9 *
Total 1,194.2 1,111.5 *
Properties 888.9 876.6
Less-Accumulated depreciation and amortization 743.5 722.8
Properties, net 145.4 153.8
Outsourcing assets, net 185.4 182.0
Marketable software, net 136.3 138.5
Prepaid postretirement assets 68.4 45.1
Deferred income taxes 130.5 127.4 *
Goodwill 179.7 177.4
Other long-term assets 201.7 194.3 *
Total $ 2,241.6 $ 2,130.0 *
Liabilities and deficit
Current liabilities
Notes payable $ — $ 65.8
Current maturities of long-term-debt 11.1 11.0
Accounts payable 187.2 219.3
Deferred revenue 333.2 335.1
Other accrued liabilities 352.4 329.9 *
Total 883.9 961.1 *
Long-term debt 408.8 233.7 *
Long-term postretirement liabilities 1,999.3 2,111.3
Long-term deferred revenue 139.8 123.3
Other long-term liabilities 83.4 79.2 *
Commitments and contingencies
Total deficit (1,273.6) (1,378.6)
Total $ 2,241.6 $ 2,130.0 *
* Certain amounts have been reclassified to conform to the current-year presentation.
UNISYS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Millions)
Six Months Ended June 30,
2016 2015
Cash flows from operating activities
Consolidated net loss $ (13.2) $ (96.9)
Add (deduct) items to reconcile consolidated net loss to net cash provided by (used for) operating activities:
Foreign currency transaction losses 0.4 0.6
Non-cash interest expense 2.8 —
Employee stock compensation 5.3 6.2
Depreciation and amortization of properties 19.3 22.7
Depreciation and amortization of outsourcing assets 25.7 26.1
Amortization of marketable software 32.4 32.9
Other non-cash operating activities 1.0 2.9
Loss on disposal of capital assets 1.6 5.0
Pension contributions (64.1) (75.7)
Pension expense 41.8 54.3
Increase in deferred income taxes, net (9.7) (7.2)
Decrease in receivables, net 24.9 62.3
Decrease (increase) in inventories 5.8 (10.1)
Decrease in accounts payable and other accrued liabilities (36.0) (84.1)
Increase (decrease) in other liabilities 12.3 (14.3)
Decrease in other assets 8.5 10.9
Net cash provided by (used for) operating activities 58.8 (64.4)
Cash flows from investing activities
Proceeds from investments 2,236.8 2,203.1
Purchases of investments (2,238.0) (2,174.4)
Investment in marketable software (30.2) (33.4)
Capital additions of properties (11.0) (24.7)
Capital additions of outsourcing assets (28.8) (52.7)
Other (0.7) (1.7)
Net cash used for investing activities (71.9) (83.8)
Cash flows from financing activities
Proceeds from issuance of long-term debt 213.5 31.8
Payments for capped call transactions (27.3) —
Issuance costs relating to long-term debt (7.3) —
Payments of long-term debt (1.3) (0.6)
Proceeds from exercise of stock options — 3.7
Payments of short-term borrowings (65.8) —
Net cash provided by financing activities 111.8 34.9
Effect of exchange rate changes on cash and cash equivalents (0.3) (16.2)
Increase (decrease) in cash and cash equivalents 98.4 (129.5)
Cash and cash equivalents, beginning of period 365.2 494.3
Cash and cash equivalents, end of period $ 463.6 $ 364.8
UNISYS CORPORATION
RECONCILIATION OF SELECTED GAAP MEASURES TO NON-GAAP MEASURES
(Unaudited)
(Millions, except per share data)
Three Months Six Months
Ended June 30 Ended June 30
2016 2015 2016 2015
GAAP net income (loss) attributable to Unisys Corporation common shareholders $ 21.6 $ (58.2) $ (18.3) $ (101.4)
Cost reduction expense, net of tax of ($0.1), $4.0, $2.1, $4.0, respectively 10.3 48.6 35.0 48.6
Pension expense, net of tax of ($0.3), $0.5, ($0.6), $1.0, respectively 21.8 25.9 42.4 53.3
Non-GAAP net income (loss) attributable to Unisys Corporation common shareholders 53.7 16.3 59.1 0.5
Add interest expense on convertible notes 4.5 — 5.2 —
Non-GAAP net income (loss) attributable to Unisys Corporation for diluted earnings per share $ 58.2 $ 16.3 $ 64.3 $ 0.5
Weighted average shares (thousands) 50,069 49,927 50,036 49,874
Plus incremental shares from assumed conversion:
Employee stock plans 167 155 151 187
Convertible notes 21,550 — 12,593 —
Non-GAAP adjusted weighted average shares 71,786 50,082 62,780 50,061
Diluted earnings (loss) per share
GAAP basis
GAAP net income (loss) attributable to Unisys Corporation for diluted earnings per share $ 26.1 $ (58.2) $ (18.3) $ (101.4)
Divided by adjusted weighted average shares 71,786 49,927 50,036 49,874
GAAP income (loss) per diluted share $ 0.36 $ (1.17) $ (0.37) $ (2.03)
Non-GAAP basis
Non-GAAP net income (loss) attributable to Unisys Corporation for diluted earnings per share $ 58.2 $ 16.3 $ 64.3 $ 0.5
Divided by Non-GAAP adjusted weighted average shares 71,786 50,082 62,780 50,061
Non-GAAP earnings (loss) per diluted share $ 0.81 $ 0.33 $ 1.02 $ 0.01
UNISYS CORPORATION
RECONCILIATION OF GAAP OPERATING PROFIT TO NON-GAAP OPERATING PROFIT
(Unaudited)
(Millions)
Three Months Six Months
Ended June 30 Ended June 30
2016 2015 2016 2015
GAAP operating income (loss) $ 49.5 $ (49.5) $ 21.9 $ (79.5)
Cost reduction expense 10.2 52.6 37.1 52.6
FAS87 pension expense 21.5 26.4 41.8 54.3
Non-GAAP operating profit (loss) $ 81.2 $ 29.5 $ 100.8 $ 27.4
Customer Revenue $ 748.9 $ 764.8 $ 1,415.7 $ 1,486.0
GAAP operating income (loss) % 6.6 % (6.5)% 1.5 % (5.3)%
Non-GAAP operating profit (loss) % 10.8 % 3.9 % 7.1 % 1.8 %
UNISYS CORPORATION
RECONCILIATION OF GAAP TO NON-GAAP
(Unaudited)
(Millions)
FREE CASH FLOW
Three Months Six Months
Ended June 30 Ended June 30
2016 2015 2016 2015
Cash provided by (used for) operations $ 34.6 $ (21.1) $ 58.8 $ (64.4)
Additions to marketable software (15.9) (16.7) (30.2) (33.4)
Additions to properties (4.4) (10.8) (11.0) (24.7)
Additions to outsourcing assets (13.7) (26.0) (28.8) (52.7)
Free cash flow 0.6 (74.6) (11.2) (175.2)
Pension funding 32.5 37.0 64.1 75.7
Cost reduction funding 21.2 13.2 39.2 13.2
Free cash flow before pension & cost reduction funding $ 54.3 $ (24.4) $ 92.1 $ (86.3)
CONTACT: Investor Contact - Courtney Holben, 215-986-3379,
courtney.holben@unisys.com; or Media Contact - John Clendening, 214-403-1981,
john.clendening@unisys.com
SOURCE: Unisys Corporation
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