3rd Quarter Results
Unisys Announces Third-Quarter 2014 Financial Results
- Revenue grows 11 percent; up 10 percent on a constant currency(1) basis
- Net income of $47.8 million vs. net loss of $11.6 million in 3Q 2013
- Diluted earnings per share of 95 cents vs. diluted loss per share of 26 cents
in 3Q 2013
- Non-GAAP diluted earnings per share(2) of $1.30 vs. 25 cents in 3Q 2013
BLUE BELL, Pa., Oct. 21, 2014 -- Unisys Corporation (NYSE: UIS)
today reported third-quarter 2014 net income of $47.8 million, or 95 cents per
diluted share, which included $17.9 million of pension expense. In the third
quarter of 2013, the company reported a net loss of $11.6 million, or a loss of
26 cents per diluted share, which included $22.6 million of pension expense.
Excluding pension expense in both periods, non-GAAP diluted earnings per share
in the third quarter of 2014 was $1.30 compared with 25 cents in the third
quarter of 2013.
Third-quarter 2014 revenue grew 11 percent to $883 million from $792 million in
the year-ago quarter. Foreign currency translations had a 1 percentage-point
positive impact on revenue comparisons in the quarter.
"This was a strong quarter for Unisys," said Unisys Chairman and CEO Ed
Coleman. "We grew our revenue double digits, with growth in both our services
and technology businesses, and more than tripled pretax profit. In our services
business, we grew both our systems integration and IT outsourcing revenue. Our
technology results benefited from significantly higher sales of our flagship
ClearPath enterprise servers. Year to date through the first nine months of
2014, our technology revenue is up 2 percent year over year."
Third-Quarter Company and Business Segment Highlights
U.S. revenue grew 12 percent in the quarter while international revenue grew 11
percent as all regions contributed to growth. On a constant currency basis,
international revenue grew 8 percent.
Reflecting the higher technology revenue, the company reported an overall
third-quarter 2014 gross profit margin of 26.6 percent, up from 21.7 percent a
year ago. Operating expenses (SG&A and R&D expenses) increased 7 percent from
the year-ago period, reflecting increased investments in the company's growth
initiatives. The company reported a third-quarter 2014 operating profit of
$76.6 million, or 8.7 percent of revenue, compared with an operating profit of
$24.0 million, or 3.0 percent of revenue, in the third quarter of 2013.
Third-quarter 2014 services revenue grew 6 percent from the prior-year quarter
as growth in systems integration and IT outsourcing more than offset declines
in infrastructure services. Third-quarter 2014 services gross profit margin was
19.5 percent compared with 21.1 percent in the year-ago quarter. Third quarter
2014 services operating profit margin was 6.9 percent compared with 7.7 percent
a year ago.
Third-quarter 2014 services orders declined as order gains for systems
integration and IT outsourcing were more than offset by declines in
infrastructure services. Services backlog at September 30, 2014 was $4.4
billion, down 7 percent from June 30, 2014 levels and down 9 percent from
December 31, 2013.
Third-quarter 2014 technology revenue grew 66 percent from the prior-year
quarter driven by significantly higher sales of ClearPath enterprise software
and servers. Reflecting the higher ClearPath sales, third-quarter 2014
technology gross profit margin increased to 61.5 percent compared with 35.3
percent in the year-ago quarter and technology operating profit (loss) margin
improved to 25.5 percent compared with (11.0) percent in the year-ago quarter.
Cash Flow and Balance Sheet Highlights
Unisys used $8 million of cash from operations in the third quarter of 2014,
including $58 million of pension contributions. In the third quarter of 2013,
the company generated $16 million of cash from operations, which included $40
million of pension contributions. Reflecting increased investments in the
company's IT outsourcing business, capital expenditures in the third quarter of
2014 increased to $54 million compared with $39 million in the year-ago
quarter. After capital expenditures, the company used $62 million of free cash
(3) in the third quarter of 2014 compared with free cash usage of $23 million
in the third quarter of 2013. Free cash usage before pension contributions was
$4 million in the third quarter of 2014 compared with free cash flow before
pension contributions of $17 million in the third quarter of 2013.
At September 30, 2014, the company reported a cash balance of $477 million and
total debt of $215 million.
Non-GAAP Information
Unisys reports its results in accordance with Generally Accepted Accounting
Principles (GAAP) in the United States. However, in an effort to provide
investors with additional perspective regarding the company's results as
determined by GAAP, the company also discusses, in its earnings press release
and/or earnings presentation materials, non-GAAP information which management
believes provides useful information to investors. Our management uses
supplemental non-GAAP financial measures internally to understand, manage and
evaluate our business and assess operational alternatives. These non-GAAP
measures may include non-GAAP diluted earnings per share, free cash flow, and
free cash flow before pension contributions.
Our non-GAAP measures are not intended to be considered in isolation or as
substitutes for results determined in accordance with GAAP and should be read
only in conjunction with our consolidated financial statements prepared in
accordance with GAAP. (See GAAP to non-GAAP reconciliations attached.)
(1) Constant currency - The company refers to growth rates at constant currency
or adjusting for currency 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 for revenue is calculated by retranslating current and prior
period results at a consistent rate. This approach is based on the pricing
currency for each country which is typically the functional currency.
Generally, when the dollar either strengthens or weakens against other
currencies, the growth at constant currency rates will be higher or lower,
respectively, than growth reported at actual exchange rates.
(2) Non-GAAP diluted earnings per share - The company recorded pension expense
of $17.9 million and $22.6 million during the third quarters of 2014 and 2013,
respectively. In an effort to provide investors with a perspective on the
company's earnings without these expenses, they are excluded from the non-GAAP
diluted earnings per share calculations.
(3) Free cash flow - To better understand the trends in our business, we
believe that it is helpful to present free cash flow, which we define as cash
flow from operations less capital expenditures. Management believes this
measure gives investors an additional perspective on cash flow from operating
activities in excess of amounts required for reinvestment. Because of the
significance of the company's pension funding obligations, free cash flow
before pension funding is also provided.
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.
About Unisys
Unisys is a global information technology company that solves complex IT
challenges at the intersection of modern and mission critical. We work with
many of the world's largest companies and government organizations to secure
and keep their mission-critical operations running at peak performance;
streamline and transform their data centers; enhance support to their end users
and constituents; and modernize their enterprise applications. We do this while
protecting and building on their legacy IT investments. Our offerings include
outsourcing and managed services, systems integration and consulting services,
high-end server technology, cybersecurity and cloud management software, and
maintenance and support services. Unisys has more than 23,000 employees serving
clients around the world. 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, 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
drive profitable growth in consulting and systems integration; the company's
ability to take on, successfully implement and grow outsourcing operations;
market demand for the company's high-end enterprise servers and maintenance on
those servers; 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 ability to effectively anticipate and
respond to volatility and rapid technological change in its industry; the
adverse effects of global economic conditions; the company's significant
pension obligations and potential requirements to make significant cash
contributions to its defined benefit pension plans; the success of the
company's program to reduce costs, focus its global resources and simplify its
business structure; the risks that the company's contracts may not be as
profitable as expected or provide the expected level of revenues and that
contracts with U.S. governmental agencies may subject it to audits, criminal
penalties, sanctions and other expenses and fines; the risk that the company
may face damage to its reputation or legal liability if its clients are not
satisfied with its services or products; the risk that breaches of data
security could expose the company to legal liability and could harm its
business and reputation; the performance and capabilities of third parties with
whom the company has commercial relationships; the risks of doing business
internationally when more than half of the company's revenue is derived from
international operations; the company's ability to access capital and credit
markets to address its liquidity needs; 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.: 1021/9286
Unisys and ClearPath are registered trademarks or trademarks of Unisys
Corporation. Any other brand or product referenced herein is acknowledged to be
a trademark or registered trademark of its respective holders.
UNISYS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Millions, except per share data)
Three Months Nine Months
Ended September 30 Ended September 30
2014 2013 2014 2013
Revenue
Services $763.0 $720.0 $2,166.8 $2,182.7
Technology 119.5 72.1 283.8 277.9
882.5 792.1 2,450.6 2,460.6
Costs and expenses
Cost of revenue:
Services 608.6 580.3 1,801.0 1,797.1
Technology 39.0 40.3 116.5 130.5
647.6 620.6 1,917.5 1,927.6
Selling, general and administrative 138.0 131.7 410.1 418.8
Research and development 20.3 15.8 50.5 50.6
805.9 768.1 2,378.1 2,397.0
Operating profit 76.6 24.0 72.5 63.6
Interest expense 2.3 2.4 6.6 7.7
Other income (expense), net 3.3 1.9 (9.0) 11.1
Income before income taxes 77.6 23.5 56.9 67.0
Provision for income taxes 26.4 27.0 62.3 71.1
Consolidated net income (loss) 51.2 (3.5) (5.4) (4.1)
Net income attributable to
noncontrolling interests 3.4 4.1 9.7 8.9
Net Income (loss) attributable to
Unisys Corporation 47.8 (7.6) (15.1) (13.0)
Preferred stock dividend - 4.0 2.7 12.1
Net income (loss) attributable to
Unisys Corporation common
shareholders $47.8 ($11.6) ($17.8) ($25.1)
Earnings (loss) per common share
attributable to Unisys Corporation
Basic $ .95 ($ .26) ($ .36) ($ .57)
Diluted $ .95 ($ .26) ($ .36) ($ .57)
Shares used in the per share computations
(thousands):
Basic 50,245 43,811 49,144 43,883
Diluted 50,422 43,811 49,144 43,883
UNISYS CORPORATION
SEGMENT RESULTS
(Unaudited)
(Millions)
Total Eliminations Services Technology
Three Months Ended
September 30, 2014
Customer revenue $882.5 $763.0 $119.5
Intersegment ($35.4) - 35.4
Total revenue $882.5 ($35.4) $763.0 $154.9
Gross profit percent 26.6% 19.5% 61.5%
Operating profit percent 8.7% 6.9% 25.5%
Three Months Ended
September 30, 2013
Customer revenue $792.1 $720.0 $72.1
Intersegment ($22.3) 0.4 21.9
Total revenue $792.1 ($22.3) $720.4 $94.0
Gross profit percent 21.7% 21.1% 35.3%
Operating profit (loss) percent 3.0% 7.7% (11.0%)
Nine Months Ended
September 30, 2014
Customer revenue $2,450.6 $2,166.8 $283.8
Intersegment ($58.8) 0.3 58.5
Total revenue $2,450.6 ($58.8) $2,167.1 $342.3
Gross profit percent 21.8% 17.4% 53.5%
Operating profit percent 3.0% 4.4% 7.2%
Nine Months Ended
September 30, 2013
Customer revenue $2,460.6 $2,182.7 $277.9
Intersegment ($56.5) 1.3 55.2
Total revenue $2,460.6 ($56.5) $2,184.0 $333.1
Gross profit percent 21.7% 18.9% 48.4%
Operating profit percent 2.6% 4.9% 6.7%
UNISYS CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Millions)
September 30, December 31,
2014 2013
Assets
Current assets
Cash and cash equivalents $476.5 $639.8
Accounts and notes receivable, net 570.2 683.1
Inventories
Parts and finished equipment 35.4 32.8
Work in process and materials 24.7 22.3
Deferred income taxes 16.0 24.1
Prepaid expense and other current assets 133.9 138.7
Total 1,256.7 1,540.8
Properties 1,095.4 1,095.5
Less accumulated depreciation and amortization 921.6 920.8
Properties, net 173.8 174.7
Outsourcing assets, net 114.1 115.5
Marketable software, net 142.6 129.1
Prepaid postretirement assets 126.0 83.7
Deferred income taxes 110.0 112.3
Goodwill 186.6 188.7
Other long-term assets 169.6 165.2
Total $2,279.4 $2,510.0
Liabilities and deficit
Current liabilities
Current maturities of long-term debt $1.0 $0.0
Accounts payable 241.0 246.7
Deferred revenue 319.4 402.4
Other accrued liabilities 351.4 375.7
Total 912.8 1,024.8
Long-term debt 214.1 210.0
Long-term postretirement liabilities 1,457.8 1,697.2
Long-term deferred revenue 109.5 122.7
Other long-term liabilities 106.4 119.2
Commitments and contingencies
Total deficit (521.2) (663.9)
Total $2,279.4 $2,510.0
UNISYS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Millions)
Nine Months Ended
September 30
2014 2013 *
Cash flows from operating
activities
Consolidated net loss ($5.4) ($4.1)
Add (deduct) items to
reconcile consolidated net
loss to net cash provided
by operating activities:
Foreign currency transaction loss 7.4 6.5
Employee stock compensation 10.6 10.8
Depreciation and amortization
of properties 38.6 35.1
Depreciation and amortization
of outsourcing assets 44.5 39.4
Amortization of marketable
software 42.5 46.4
Other non-cash operating
activities 5.1 -
Disposals of capital assets 1.0 1.4
Gain on sale of business (0.7) -
Pension contributions (161.3) (101.6)
Pension expense 55.5 69.4
Decrease in deferred income
taxes, net 15.4 29.4
Decrease in receivables, net 81.2 66.3
Increase in inventories (6.1) (5.6)
Decrease in accounts payable
and other accrued liabilities (83.8) (123.3)
Decrease in other
liabilities (39.1) (19.0)
Decrease (increase) in other
assets 7.8 (4.8)
Other 2.7 (0.1)
Net cash provided by
operating activities 15.9 46.2
Cash flows from investing
activities
Proceeds from investments 4,438.8 3,850.2
Purchases of investments (4,422.8) (3,857.8)
Investment in marketable
software (56.1) (47.3)
Capital additions of
properties (41.9) (26.1)
Capital additions of
outsourcing assets (45.9) (29.6)
Other (1.2) 1.1
Net cash used for investing
activities (129.1) (109.5)
Cash flows from financing
activities
Purchases of common stock (29.3) (11.5)
Dividends paid on preferred
shares (4.0) (12.1)
Proceeds from exercise of
stock options 3.3 4.5
Financing fees (0.6) -
Net cash used for financing
activities (30.6) (19.1)
Effect of exchange rate
changes on cash and cash
equivalents (19.5) (17.3)
Decrease in cash and cash
equivalents (163.3) (99.7)
Cash and cash equivalents,
beginning of period 639.8 655.6
Cash and cash equivalents,
end of period $476.5 $555.9
* Certain components of net cash provided by operating activities were changed
to present pension expense separately, consistent with the 2014 presentation.
(1)
UNISYS CORPORATION
RECONCILIATION OF SELECTED GAAP MEASURES TO NON-GAAP MEASURES
(Unaudited)
(Millions, except per share data)
Three Months Nine Months
Ended September Ended September
30 30
2014 2013 2014 2013
GAAP net income (loss)
attributable to Unisys Corporation
common shareholders $47.8 ($11.6) ($17.8) ($25.1)
Pension expense, net of tax 17.9 22.6 55.1 66.8
Non-GAAP net income
attributable to Unisys Corporation
common shareholders 65.7 11.0 37.3 41.7
Add preferred stock dividend 0.0 4.0 2.7 12.1
Non-GAAP net income
attributable to Unisys Corporation
for diluted earnings per share $65.7 $15.0 $40.0 $53.8
Weighted average shares (thousands) 50,245 43,811 49,144 43,883
Plus incremental shares from assumed
conversion:
Employee stock plans 177 436 319 444
Preferred stock 0 0 0 0
GAAP adjusted weighted average shares 50,422 44,247 49,463 44,327
Diluted earnings (loss) per share
GAAP basis
GAAP net income (loss)
attributable to Unisys Corporation
for diluted earnings per share $47.8 ($11.6) ($17.8) ($25.1)
Divided by adjusted weighted average 50,422 43,811 49,144 43,883
shares
GAAP earnings (loss) per diluted share $ .95 ($ .26) ($ .36) ($ .57)
Non-GAAP basis
Non-GAAP net income
attributable to Unisys Corporation
for diluted earnings per share $65.7 $11.0 $37.3 $41.7
Divided by Non-GAAP adjusted weighted
average shares 50,422 44,247 49,463 44,327
Non-GAAP earnings per diluted share $ 1.30 $ .25 $ .75 $ .94
(2)
UNISYS CORPORATION
RECONCILIATION OF GAAP TO NON-GAAP
(Unaudited)
(Millions)
FREE CASH FLOW
Three Months Nine Months
Ended September 30 Ended September 30
2014 2013 2014 2013
Cash provided by (used
for) operations ($7.5) $16.0 $15.9 $46.2
Additions to marketable
software (15.8) (17.7) (56.1) (47.3)
Additions to properties (12.9) (9.9) (41.9) (26.1)
Additions to outsourcing
assets (25.8) (11.3) (45.9) (29.6)
Free cash flow (62.0) (22.9) (128.0) (56.8)
Pension funding 58.2 40.3 161.3 101.6
Free cash flow before
pension funding ($3.8) $17.4 $33.3 $44.8
CONTACT: Investor Contact: Niels Christensen, 215-986-6651,
Niels.Christensen@unisys.com; or Media Contact: Jim Kerr, 215-986-5795,
Jim.Kerr@unisys.com
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