REG-Unisys Corp: Unisys Announces Third-Quarter 2017 Financial Results <Origin Href="QuoteRef">UIS.N</Origin> - Part 1
31/10/2017 07:05
Unisys Announces Third-Quarter 2017 Financial Results and Reaffirms Full-Year
Financial Guidance
BLUE BELL, Pa., Oct. 30, 2017 --
3Q 17
* Total revenue of $666 million, flat on a sequential basis, an approximately
2 percent year-over-year decline
* Technology revenue up 10 percent year-over-year to $91 million
* Services revenue of $576 million, a 4 percent year-over-year decline;
Services operating profit margin of 3 percent, a 480 basis point sequential
improvement and a 60 basis point year-over-year improvement
* Operating profit margin of (4) percent, relative to (1) percent in the
prior-year period; non-GAAP operating profit margin((4)) of 7.3 percent, up
370 basis points sequentially and up 60 basis points year-over-year
* Services backlog up 1 percent sequentially at $3.7 billion
* Unisys reaffirms full-year 2017 guidance for revenue of $2.65-2.75 billion,
non-GAAP operating profit margin of 7.25-8.25 percent and adjusted free cash
flow of $130-170 million
Unisys Corporation (http://www.unisys.com/) (NYSE: UIS) today reported
third-quarter 2017 financial results. The company's revenue for the third
quarter was $666 million, flat on a sequential basis and an approximately 2
percent year-over-year decline (4 percent decline on a constant-currency((2))
basis), an improvement of 510 basis points versus the rate of decline in the
prior-year period. Technology revenue was up 10 percent year-over-year.
Services revenue saw a 4 percent year-over-year decline (a 420 basis point
improvement relative to the rate of decline in the prior year), and Services
operating margin was up 480 basis points sequentially and up 60 basis points
year-over-year to 3 percent.
"We are pleased with the revenue trends we saw in the third quarter, as well
as new business TCV," said Unisys President and CEO Peter Altabef. "While we
still need to make additional progress on improving the profitability of our
Services business, we are encouraged by the improvement we made on that front
this quarter."
Summary of Third Quarter 2017 Business Results
Company:
Third quarter revenue of $666 million was flat on a sequential basis and an
approximately 2 percent year-over-year decline (4 percent year-over-year
decline on a constant-currency basis), an improvement of 510 basis points
versus the rate of decline in the prior-year period. Third quarter operating
profit margin was (4) percent, which includes cost-reduction and other charges
and pension expense, relative to (1) percent in the prior-year period.
Non-GAAP operating profit margin was 7.3 percent, up 370 basis points
sequentially and up 60 basis points year-over-year.
Net loss attributable to Unisys Corporation common stockholders for the third
quarter was $41 million, versus a net loss of $28 million in the prior-year
period. Adjusted EBITDA((5)) for the third quarter was $89 million, up 1
percent year-over-year. Adjusted EBITDA margin for the third quarter was 13
percent, up 50 basis points relative to the prior-year period.
In the third quarter 2017, operating cash flow was $54 million, relative to
$46 million in the prior-year period. The company generated free cash
flow((3)) of $7 million in the third quarter, versus $9 million in the third
quarter 2016. Adjusted free cash flow((6)) in the third quarter was $67
million, versus $72 million in the prior-year period. Although operating cash
flow was up year-over-year, free cash flow and adjusted free cash flow were
impacted by higher year-over-year capital expenditures related to updating
systems in our check-processing JV in the UK. Excluding these expenditures,
free cash flow and adjusted free cash flow would have been up year-over-year.
Total TCV((1)) was down 44 percent year-over-year, largely due to a tough
compare resulting from a large 12-year contract signed in the third quarter
2016. New business TCV was up 38 percent year-over-year for the third quarter.
At September 30, 2017, the company had $599 million in cash and cash
equivalents. On October 5, 2017, the company entered into a new 5-year $125
million revolving credit facility to replace the previous facility, which was
due to expire June 2018.
Services:
Services revenue of $576 million, which represented 86 percent of third
quarter total revenue, saw a 4 percent year-over-year decline as reported (a
420 basis point improvement relative to the rate of decline in the prior year)
and a decline of 5 percent in constant-currency. Services backlog ended the
third quarter at $3.7 billion, up 1 percent sequentially. Services gross
margin was up 240 basis points sequentially, although down 20 basis points
year-over-year to 16 percent. Services operating profit margin was 3 percent,
up 480 basis points sequentially, reflective of changes implemented in the
third quarter of 2017 and up 60 basis points year-over-year.
Technology:
Technology revenue in the third quarter was up 10 percent year-over-year as
reported and in constant currency to $91 million, which represented 14 percent
of total third-quarter revenue. Technology gross margin for the third quarter
was 53 percent, versus 60 percent in the prior-year period, and Technology
operating profit margin was 31 percent, relative to 32 percent in the
prior-year period. Technology margins were lower year-over-year largely due to
higher sales of lower-margin hardware and third-party products.
Key Third-Quarter Contract Signings:
The company in the third quarter entered into several key contracts in each of
its sectors including the following:
* U.S. Federal: In collaboration with a partner, Unisys won an engagement to
implement a Unisys Stealth(®) pilot solution to provide micro-segmentation
capability for the U.S. Navy in its data center environment.
* Public: One of the biggest Wastewater Treatment Companies in Brazil renewed
and expanded a five-year contract with Unisys to continue providing ClearPath
Forward™ and data analytics services software licensing, support and
maintenance services, as well as implementation of a backup virtual tape
library and disaster recovery management services.
* Commercial: Unisys signed a new contract with a leading European airline
group for business consultancy and Unisys' AirCore passenger service
solutions.
* Financial Services: A New Zealand bank engaged Unisys to manage and maintain
their core banking applications - designed to better integrate within the
banks' digital channels - as well as set up a disaster recovery system.
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 website 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.
((1)) Total Contract Value - TCV is the estimated total contractual revenue
related to signed contracts including option years and without regard for
cancellation terms. New business TCV represents TCV attributable to new scope
for existing clients and new logo contracts.
((2)) 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 and Other 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
cost-reduction and other expense. 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.
((3)) Free cash flow - The company defines free cash flow as cash flow from
operations less capital expenditures. Management believes this liquidity
measure gives investors an additional perspective on cash flow from on-going
operating activities in excess of amounts used for reinvestment.
((4)) Non-GAAP operating profit - The company recorded pretax pension expense
and pretax charges in connection with cost-reduction activities and other
expenses. For the company, non-GAAP operating profit excluded these items. 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.
((5)) EBITDA & adjusted EBITDA – 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, interest expense (net of interest income), provision
for income taxes, depreciation and amortization. Adjusted EBITDA further
excludes pension expense, cost-reduction and other expense, non-cash
share-based expense, and other (income) expense adjustment. In order to
provide investors with additional understanding of the company's operating
results, these charges are excluded from the adjusted EBITDA calculation.
((6)) Adjusted free cash flow - Because inclusion of the company's pension
contributions and cost-reduction and other 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. This liquidity measure was
provided to analysts and investors in the form of external guidance and is
used by management to measure operating liquidity.
((7)) Non-GAAP diluted earnings per share - The company has recorded pension
expense and charges in connection with cost-reduction activities and other
expenses. Management believes that investors may have a better understanding
of the company's performance and return to shareholders by excluding these
charges from the GAAP diluted earnings/loss per share calculations. The tax
amounts presented for these items for the calculation of non-GAAP diluted
earnings per share include the current and deferred tax expense and benefits
recognized under GAAP for these amounts.
About Unisys
Unisys is a global information technology company that specializes in
providing industry-focused solutions integrated with leading-edge security to
clients in the government, financial services and commercial markets. Unisys
offerings include security solutions, advanced data analytics, cloud and
infrastructure services, application services and application and server
software. For more information, visit 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, total contract value 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. In particular, statements concerning total contract value
are based, in part, on the assumption that all options of the contracts
included in the calculation of such value will be exercised and that each of
those contracts will continue for their full contracted term. 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.: 1030/9550
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 Nine Months Ended
September 30, September 30,
2017 2016 2017 2016
Revenue
Services $ 575.5 $ 600.9 $ 1,735.6 $ 1,809.8
Technology 90.8 82.4 261.4 289.2
666.3 683.3 1,997.0 2,099.0
Costs and expenses
Cost of revenue:
Services 539.7 531.3 1,570.9 1,594.1
Technology 40.5 30.4 117.3 106.5
580.2 561.7 1,688.2 1,700.6
Selling, general and administrative 102.3 120.0 325.6 345.8
Research and development 10.8 11.4 37.7 40.5
693.3 693.1 2,051.5 2,086.9
Operating profit (loss) (27.0) (9.8) (54.5) 12.1
Interest expense 16.4 7.7 36.4 19.9
Other income (expense), net 3.0 2.3 (8.6) 3.7
Loss before income taxes (40.4) (15.2) (99.5) (4.1)
Provision for income taxes 12.5 9.9 21.6 34.2
Consolidated net loss (52.9) (25.1) (121.1) (38.3)
Net income (loss) attributable to noncontrolling interests (11.8) 3.1 (5.3) 8.2
Net loss attributable to Unisys Corporation common shareholders $ (41.1) $ (28.2) $ (115.8) $ (46.5)
Loss per share attributable to Unisys Corporation
Basic $ (0.81) $ (0.56) $ (2.30) $ (0.93)
Diluted $ (0.81) $ (0.56) $ (2.30) $ (0.93)
Shares used in the per share computations (in thousands):
Basic 50,471 50,082 50,388 50,052
Diluted 50,471 50,082 50,388 50,052
UNISYS CORPORATION
SEGMENT RESULTS
(Unaudited)
(Millions)
Total Eliminations Services Technology
Three Months Ended September 30, 2017
Customer revenue $ 666.3 $ — $ 575.5 $ 90.8
Intersegment — (4.4) — 4.4
Total revenue $ 666.3 $ (4.4) $ 575.5 $ 95.2
Gross profit percent 12.9 % 16.5 % 53.3 %
Operating profit (loss) percent (4.1)% 3.2 % 31.1 %
Three Months Ended September 30, 2016
Customer revenue $ 683.3 $ — $ 600.9 $ 82.4
Intersegment — (5.8) — 5.8
Total revenue $ 683.3 $ (5.8) $ 600.9 $ 88.2
Gross profit percent 17.8 % 16.7 % 59.8 %
Operating profit (loss) percent (1.4)% 2.6 % 32.3 %
Total Eliminations Services Technology
Nine Months Ended September 30, 2017
Customer revenue $ 1,997.0 $ — $ 1,735.6 $ 261.4
Intersegment — (15.1) — 15.1
Total revenue $ 1,997.0 $ (15.1) $ 1,735.6 $ 276.5
Gross profit percent 15.5 % 16.3 % 53.2 %
Operating profit (loss) percent (2.7)% 2.1 % 27.8 %
Nine Months Ended September 30, 2016
Customer revenue $ 2,099.0 $ — $ 1,809.8 $ 289.2
Intersegment — (17.3) — 17.3
Total revenue $ 2,099.0 $ (17.3) $ 1,809.8 $ 306.5
Gross profit percent 19.0 % 15.9 % 60.2 %
Operating profit percent 0.6 % 1.8 % 36.0 %
UNISYS CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Millions)
September 30, 2017 December 31, 2016
Assets
Current assets:
Cash and cash equivalents $ 598.7 $ 370.6
Accounts and notes receivable, net 511.8 505.8
Inventories:
Parts and finished equipment 17.7 14.0
Work in process and materials 15.1 15.0
Prepaid expenses and other current assets 118.8 121.9
Total current assets 1,262.1 1,027.3
Properties 915.4 886.6
Less-Accumulated depreciation and amortization 766.7 741.3
Properties, net 148.7 145.3
Outsourcing assets, net 190.6 172.5
Marketable software, net 136.4 137.0
Prepaid postretirement assets 47.9 33.3
Deferred income taxes 150.8 146.1
Goodwill 181.2 178.6
Restricted cash 21.3 30.5 *
Other long-term assets 157.9 151.0 *
Total assets $ 2,296.9 $ 2,021.6
Liabilities and deficit
Current liabilities:
Current maturities of long-term-debt $ 11.3 $ 106.0
Accounts payable 195.5 189.0
Deferred revenue 326.9 337.4
Other accrued liabilities 387.8 349.2
Total current liabilities 921.5 981.6
Long-term debt 631.5 194.0
Long-term postretirement liabilities 2,195.2 2,292.6
Long-term deferred revenue 108.3 117.6
Other long-term liabilities 90.3 83.2
Commitments and contingencies
Total deficit (1,649.9) (1,647.4)
Total liabilities and deficit $ 2,296.9 $ 2,021.6
* Certain amounts have been reclassified to conform to the current-year presentation.
UNISYS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Millions)
Nine Months Ended
September 30,
2017 2016
Cash flows from operating activities
Consolidated net loss $ (121.1) $ (38.3)
Adjustments to reconcile consolidated net loss to net cash provided by (used for) operating activities:
Foreign currency transaction (gains) losses (0.5) 0.4
Non-cash interest expense 6.9 4.9
Loss on debt extinguishment 1.5 —
Employee stock compensation 8.6 7.7
Depreciation and amortization of properties 29.6 28.6
Depreciation and amortization of outsourcing assets 39.3 39.7
Amortization of marketable software 47.1 48.0
Other non-cash operating activities 3.3 1.4
Loss on disposal of capital assets 4.5 2.0
Pension contributions (110.8) (104.0)
Pension expense 69.4 63.0
Decrease (increase) in deferred income taxes, net 2.3 (2.7)
Changes in operating assets and liabilities:
Receivables, net 3.1 59.9
Inventories (2.6) 5.5
Accounts payable and other accrued liabilities (15.3) (44.9) *
Other liabilities (21.8) 10.5
Other assets 20.2 21.3 *
Net cash (used for) provided by operating activities (36.3) 103.0 *
Cash flows from investing activities
Proceeds from investments 3,663.5 3,307.3
Purchases of investments (3,632.8) (3,331.6)
Investment in marketable software (46.6) (47.1)
Capital additions of properties (21.8) (18.3)
Capital additions of outsourcing assets (60.1) (41.4)
Other (0.8) (0.8) *
Net cash used for investing activities (98.6) (131.9) *
Cash flows from financing activities
Proceeds from issuance of long-term debt 445.0 213.5
Payments for capped call transactions — (27.3)
Issuance costs relating to long-term debt (12.1) (7.3)
Payments of long-term debt (98.4) (2.1)
Payments of short-term borrowings — (65.8)
Other 0.2 (0.4) *
Net cash provided by financing activities 334.7 110.6 *
Effect of exchange rate changes on cash, cash equivalents and restricted cash 19.1 (2.3) *
Increase in cash, cash equivalents and restricted cash 218.9 79.4 *
Cash, cash equivalents and restricted cash, beginning of period 401.1 396.8 *
Cash, cash equivalents and restricted cash, end of period $ 620.0 $ 476.2 *
* Certain amounts have been reclassified to conform to the current-year presentation.
UNISYS CORPORATION
RECONCILIATION OF SELECTED GAAP MEASURES TO NON-GAAP MEASURES
(Unaudited)
(Millions, except per share data)
Three Months Nine Months
Ended September 30, Ended September 30,
2017 2016 2017 2016
GAAP net loss attributable to Unisys Corporation common shareholders $ (41.1) $ (28.2) $ (115.8) $ (46.5)
Cost reduction and other expense: pretax 46.1 34.6 100.5 71.7
tax benefit (1.2) (2.6) (10.2) (4.7)
net of tax 44.9 32.0 90.3 67.0
minority interest (11.1) — (11.1) —
net of minority interest 33.8 32.0 79.2 67.0
Pension expense: pretax 23.6 21.2 69.4 63.0
tax (benefit) provision (0.1) 0.3 1.7 0.9
net of tax 23.5 21.5 71.1 63.9
Non-GAAP net income attributable to Unisys Corporation common shareholders 16.2 25.3 34.5 84.4
Add interest expense on convertible notes 4.8 4.6 14.2 9.9
Non-GAAP net income attributable to Unisys Corporation for diluted earnings per share $ 21.0 $ 29.9 $ 48.7 $ 94.3
Weighted average shares (thousands) 50,471 50,082 50,388 50,052
Plus incremental shares from assumed conversion:
Employee stock plans 241 226 308 175
Convertible notes 21,868 21,868 21,868 15,685
Non-GAAP adjusted weighted average shares 72,580 72,176 72,564 65,912
Diluted earnings (loss) per share
GAAP basis
GAAP net loss attributable to Unisys Corporation for diluted earnings per share $ (41.1) $ (28.2) $ (115.8) $ (46.5)
Divided by adjusted weighted average shares 50,471 50,082 50,388 50,052
GAAP diluted loss per share $ (0.81) $ (0.56) $ (2.30) $ (0.93)
Non-GAAP basis
Non-GAAP net income attributable to Unisys Corporation for diluted earnings per share $ 21.0 $ 29.9 $ 48.7 $ 94.3
Divided by Non-GAAP adjusted weighted average shares 72,580 72,176 72,564 65,912
Non-GAAP diluted earnings per share $ 0.29 $ 0.41 $ 0.67 $ 1.43
UNISYS CORPORATION
RECONCILIATION OF GAAP OPERATING PROFIT TO NON-GAAP OPERATING PROFIT
(Unaudited)
(Millions)
Three Months Nine Months
Ended September 30, Ended September 30,
2017 2016 2017 2016
GAAP operating profit (loss) $ (27.0) $ (9.8) $ (54.5) $ 12.1
Cost reduction and other expense 51.8 34.6 99.6 71.7
FAS87 pension expense 23.6 21.2 69.4 63.0
Non-GAAP operating profit $ 48.4 $ 46.0 $ 114.5 $ 146.8
Customer revenue $ 666.3 $ 683.3 $ 1,997.0 $ 2,099.0
GAAP operating profit (loss) % (4.1)% (1.4)% (2.7)% 0.6 %
Non-GAAP operating profit % 7.3 % 6.7 % 5.7 % 7.0 %
UNISYS CORPORATION
RECONCILIATION OF GAAP TO NON-GAAP
(Unaudited)
(Millions)
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