UNISYS CORP

Earnings Release • Apr 24, 2015

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UNISYS CORPORATION - 1st Quarter Results

PR Newswire

London, April 23

         Unisys Announces First-Quarter 2015 Financial Results-- Revenue declines 5 percent (Revenue grows 1 percent on a constant currency   (1) basis)-- Diluted loss per share of 87 cents vs $1.15 in 1Q 2014-- Non-GAAP diluted loss per share(2) of 32 cents vs 74 cents in 1Q 2014-- Company launches program to enhance competitiveness; Restructuring charge of   approximately $300 million expected over the next several quartersBLUE BELL, Pa., April 23, 2015 -- Unisys Corporation (NYSE: UIS) today reporteda first-quarter 2015 net loss of $43.2 million, or 87 cents per diluted share,which included $27.4 million of pension expense. In the first quarter of 2014,the company reported a net loss of $53.5 million, or $1.15 per diluted share,which included $19.3 million of pension expense. Excluding pension expensein both periods, the non-GAAP diluted loss per share in the first quarter of2015 was 32 cents compared to 74 cents in the first quarter of 2014.First-quarter 2015 revenue declined 5 percent to $721 million from $762 millionin the year-ago quarter. First-quarter 2015 revenue grew 1 percent on aconstant currency basis."We were pleased to see revenue growth of 1 percent on a constant currencybasis during the first quarter of 2015 and 13 percent growth in our U.S.Federal government business," said Unisys President and CEO Peter Altabef."While our technology margins increased, our service margins declined. We aretaking actions to streamline our business by enhancing our competitiveness andaccelerating the pace of innovation. Our focus is on making Unisys an agileleader that can anticipate and rapidly respond to market opportunitiesglobally."In connection with organizational initiatives designed to create a morecompetitive cost structure and rebalance the company's global skill set to takeadvantage of growth opportunities, Unisys expects to recognize a pretaxrestructuring charge currently estimated at approximately $300 million over thenext several quarters. The company expects to reduce worldwide headcount byapproximately 8 percent. As a result of these actions, the company expects togenerate annualized savings of approximately $200 million by the end of 2016.First-Quarter Company and Business Segment HighlightsU.S. and Canada revenue rose 9 percent in the quarter. Revenue from the rest ofthe world declined 16 percent. On a constant currency basis, internationalrevenue declined 5 percent.U.S. Federal government revenue in the first quarter of 2015 grew 13 percentversus the year-ago quarter. Public Sector revenue, which includes U.S. stateand local and international governments, declined 10 percent. Financialindustry revenue also declined by 10 percent. Revenue from Commercial industryclients declined 7 percent.First-quarter 2015 services revenue declined 6 percent from the prior-yearquarter. On a constant currency basis, services revenue was flat. First-quarter2015 services gross profit margin decreased to 14.1 percent from 15.8 percent ayear ago while services operating profit (loss) margin declined to (1.3)percent from 1.5 percent a year ago.First-quarter 2015 services orders increased from year-ago levels primarilydriven by higher orders for Cloud and Infrastructure Services. Services backlogat March 31, 2015 was $4.5 billion compared to $4.8 billion at December 31,2014. Services backlog at March 31, 2015 was flat compared to March 31, 2014and up on a constant currency basis.First-quarter 2015 technology revenue rose 3 percent from the prior-yearquarter driven by higher sales of our enterprise software and servers. On aconstant currency basis, technology revenue increased by 13 percent. Reflectingthe higher enterprise software and server sales, first-quarter 2015 technologygross profit margin rose to 49.6 percent from 41.3 percent in the year-agoquarter and technology operating profit (loss) margin increased to 5.2 percentfrom (16.4) percent in the year-ago quarter.The company reported an overall first-quarter 2015 gross profit margin of 16.2percent compared with 17.5 percent in the year-ago quarter. Operating expenses(SG&A and R&D expenses) declined 4 percent from the year-ago period. Thecompany reported a first-quarter 2015 operating loss of $30.0 million comparedwith an operating loss of $19.9 million in the first quarter of 2014. Pensionexpense was $8.4 million higher in the first quarter of 2015.The company reported a first-quarter 2015 pretax loss of $27.7 million comparedwith a pretax loss of $31.7 million in the year-ago quarter. Excluding pensionexpense in both periods, the company reported a non-GAAP pretax profit(3) of$0.2 million in the first quarter of 2015 compared with a non-GAAP pretax lossof $12.2 million in the first quarter of 2014.Cash Flow and Balance Sheet HighlightsUnisys used $43 million of cash from operations in the first quarter of 2015compared to $20 million in cash from operations generated in the first quarterof 2014. Cash from operations included pension contributions of $39 million inthe first quarter of 2015, a decrease from $56 million in the first quarter of2014. Capital expenditures in the first quarter of 2015 were $57 millioncompared with $45 million in the year-ago quarter. After capital expenditures,the company used $101 million of free cash(4) in the first quarter of 2015compared with free cash usage of $25 million in the first quarter of 2014. Thecompany had free cash usage before pension contributions of $62 million in thefirst quarter of 2015 compared with free cash flow before pension contributionsof $31 million in the year-ago quarter.At March 31, 2015, the company reported a cash balance of $402 million andtotal debt of $224 million.Non-GAAP InformationUnisys reports its results in accordance with Generally Accepted AccountingPrinciples (GAAP) in the United States. However, in an effort to provideinvestors with additional perspective regarding the company's results asdetermined by GAAP, the company also discusses, in its earnings press releaseand/or earnings presentation materials, non-GAAP information which managementbelieves provides useful information to investors. Our management usessupplemental non-GAAP financial measures internally to understand, manage andevaluate our business and assess operational alternatives. These non-GAAPmeasures may include constant currency, non-GAAP diluted earnings per share,non-GAAP pretax profit, free cash flow, and free cash flow before pensioncontributions.Our non-GAAP measures are not intended to be considered in isolation or assubstitutes for results determined in accordance with GAAP and should be readonly in conjunction with our consolidated financial statements prepared inaccordance 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/loss per share - Unisys recorded pension expense    of $27.4 million and $19.3 million during the first quarters of 2015 and 2014,    respectively. In an effort to provide investors with a perspective on the    company's earnings without these charges, they are excluded from the non-GAAP    diluted earnings/loss per share calculations.(3) Non-GAAP pretax profit/loss - Unisys recorded pension expense of $27.9    million and $19.5 million during the first quarters of 2015 and 2014,    respectively. In an effort to provide investors with a perspective on the    company's profitability without these charges, they are excluded from the    non-GAAP pretax profit/loss calculations.(4) 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 CallUnisys will hold a conference call today at 5:30 p.m. Eastern Time to discussits results. The listen-only Webcast, as well as the accompanying presentationmaterials, can be accessed on the Unisys Investor Web site at www.unisys.com/investor. Following the call, an audio replay of the Webcast, and accompanyingpresentation materials, can be accessed through the same link.About UnisysUnisys is a global information technology company that solves complex ITchallenges at the intersection of modern and mission critical. We work withmany of the world's largest companies and government organizations to secureand keep their mission-critical operations running at peak performance;streamline and transform their data centers; enhance support to their end usersand constituents; and modernize their enterprise applications. We do this whileprotecting and building on their legacy IT investments. Our offerings includeoutsourcing and managed services, systems integration and consulting services,high-end server technology, cybersecurity and cloud management software, andmaintenance and support services. Unisys has more than 20,000 associatesserving clients around the world. For more information, visit www.unisys.com.Forward-Looking StatementsAny statements contained in this release that are not historical facts areforward-looking statements as defined in the Private Securities LitigationReform Act of 1995. Forward-looking statements include, but are not limited to,any projections of earnings, revenues, or other financial items; any statementsof the company's plans, strategies or objectives for future operations;statements regarding future economic conditions or performance; and anystatements of belief or expectation. All forward-looking statements rely onassumptions and are subject to various risks and uncertainties that could causeactual results to differ materially from expectations. Risks and uncertaintiesthat could affect the company's future results include the company's ability toeffectively anticipate and respond to volatility and rapid technological changein its industry; the company's ability to maintain and grow its technologybusiness; the company's ability to drive profitable growth in consulting andsystems integration; the company's ability to profitably grow its outsourcingbusiness; the company's ability to attract, motivate and retain experienced andknowledgeable personnel in key positions; the potential adverse effects ofaggressive competition in the information services and technology marketplace;the company's ability to retain significant clients; the company's contractsmay not be as profitable as expected or provide the expected level of revenues;cybersecurity breaches could result in significant costs and could harm thecompany's business and reputation; a significant disruption in the company's ITsystems could adversely affect the company's business and reputation; thecompany may face damage to its reputation or legal liability if its clients arenot satisfied with its services or products; the performance and capabilitiesof third parties with whom the company has commercial relationships; thecompany's significant pension obligations and potential requirements to makesignificant cash contributions to its defined benefit pension plans; thecompany's ability to continue to simplify its operations and provide servicesmore cost efficiently; the adverse effects of global economic conditions;contracts with U.S. governmental agencies may subject the company to audits,criminal penalties, sanctions and other expenses and fines; the risks of doingbusiness internationally when more than half of the company's revenue isderived from international operations; the company's ability to access capitaland credit markets to address its liquidity needs; the potential forintellectual property infringement claims to be asserted against the company orits clients; the possibility that pending litigation could affect the company'sresults of operations or cash flow; the business and financial risk inimplementing future dispositions or acquisitions; and the company'sconsideration of all available information following the end of the quarter andbefore the filing of the Form 10-Q and the possible impact of this subsequentevent information on its financial statements for the reporting period.Additional discussion of factors that could affect the company's future resultsis contained in its periodic filings with the Securities and ExchangeCommission. The company assumes no obligation to update any forward-lookingstatements.RELEASE NO.: 0423/9330Unisys and other Unisys products and services mentioned herein, as well astheir respective logos, are trademarks or registered trademarks of UnisysCorporation. Any other brand or product referenced herein is acknowledged to bea trademark or registered trademark of its respective holder.                 UNISYS CORPORATION         CONSOLIDATED STATEMENTS OF INCOME                    (Unaudited)         (Millions, except per share data)                                                   Three Months                                                  Ended March 31                                                 2015         2014Revenue  Services                                       $639.0       $681.7    \*  Technology                                     82.2         80.0      \*                                                 721.2        761.7Costs and expenses  Cost of revenue:    Services                                     564.3        583.6     \*    Technology                                   39.9         45.1      \*                                                 604.2        628.7Selling, general and administrative              128.8        138.5Research and development                         18.2         14.4                                                 751.2        781.6Operating loss                                   (30.0)       (19.9)Interest expense                                 2.6          2.0Other income (expense), net                      4.9          (9.8)Loss before income taxes                         (27.7)       (31.7)Provision for income taxes                       13.3         16.0Consolidated net loss                            (41.0)       (47.7)Net income attributable to noncontrolling interests                        2.2          3.1Net loss attributable to Unisys Corporation                                    (43.2)       (50.8)Preferred stock dividend                          -            2.7Net loss attributable to Unisys Corporation common shareholders                 ($43.2)      ($53.5)Loss per common share attributable to Unisys Corporation   Basic                                         ($   .87)    ($  1.15)   Diluted                                       ($   .87)    ($  1.15)Shares used in the per share computations (thousands):  Basic                                          49,821       46,343  Diluted                                        49,821       46,343\* Changed to conform with the 2015 presentation.                 UNISYS CORPORATION                   SEGMENT RESULTS                    (Unaudited)                     (Millions)                                    Total   Eliminations   Services  TechnologyThree Months EndedMarch 31, 2015Customer revenue                     $721.2                $639.0    $82.2Intersegment                                  ($6.7)       -         6.7Total revenue                        $721.2   ($6.7)       $639.0    $88.9Gross profit percent                 16.2%                 14.1%     49.6%Operating profit (loss) percent      (4.2%)                (1.3%)    5.2%Three Months EndedMarch 31, 2014 \*Customer revenue                     $761.7                $681.7    $80.0Intersegment                                  ($6.1)       0.2       5.9Total revenue                        $761.7   ($6.1)       $681.9    $85.9Gross profit percent                 17.5%                 15.8%     41.3%Operating profit (loss) percent      (2.6%)                1.5%      (16.4%)\* Changed to conform with the 2015 presentation.                 UNISYS CORPORATION              CONSOLIDATED BALANCE SHEETS                    (Unaudited)                     (Millions)                                              March 31,  December 31,                                                2015        2014AssetsCurrent assetsCash and cash equivalents                       $402.0     $494.3Accounts and notes receivable, net              484.8      619.3Inventories  Parts and finished equipment                  29.0       22.2  Work in process and materials                 31.3       24.5Deferred income taxes                           16.6       16.4Prepaid expense and other current assets        142.4      140.6Total                                           1,106.1    1,317.3Properties                                      1,004.7    1,059.4Less accumulated depreciation and amortization  837.4      890.7Properties, net                                 167.3      168.7Outsourcing assets, net                         160.1      150.9Marketable software, net                        144.5      144.1Prepaid postretirement assets                   21.4       19.9Deferred income taxes                           152.4      154.6Goodwill                                        179.6      183.9Other long-term assets                          200.1      209.3Total                                           $2,131.5   $2,348.7Liabilities and deficitCurrent liabilitiesCurrent maturities of long-term debt            $2.2       $1.8Accounts payable                                230.3      262.5Deferred revenue                                316.6      348.3Other accrued liabilities                       314.2      385.1Total                                           863.3      997.7Long-term debt                                  221.6      222.2Long-term postretirement liabilities            2,272.1    2,369.9Long-term deferred revenue                      109.7      119.5Other long-term liabilities                     86.1       91.8Commitments and contingenciesTotal deficit                                   (1,421.3)  (1,452.4)Total                                           $2,131.5   $2,348.7                     UNISYS CORPORATION            CONSOLIDATED STATEMENTS OF CASH FLOWS                      (Unaudited)                       (Millions)                                                        Three Months Ended                                                             March 31                                                         2015       2014Cash flows from operating activitiesConsolidated net loss                                    ($41.0)    ($47.7)Add (deduct) items to reconcile consolidated net lossto net cash (used for) provided by operatingactivities:Foreign currency transaction loss                        -          5.8Employee stock compensation                              4.4        7.2Depreciation and amortization of properties              11.7       12.0Depreciation and amortization of outsourcing assets      12.7       13.3Amortization of marketable software                      16.3       14.7Other non-cash operating activities                      (0.1)      (0.1)Disposals of capital assets                              1.4        0.3Gain on sale of business                                 -          (0.7)Pension contributions                                    (38.7)     (55.5)Pension expense                                          27.9       19.5(Increase) decrease in deferred income taxes, net        (4.4)      2.8Decrease in receivables, net                             106.8      121.2(Increase) decrease in inventories                       (15.1)     3.0Decrease in accounts payable and other accrued           (106.4)    (66.0)liabilitiesDecrease in other liabilities                            (11.1)     (9.6)Increase in other assets                                 (7.7)      (0.1)Net cash (used for) provided by operating activities     (43.3)     20.1Cash flows from investing activitiesProceeds from investments                                1,153.4    1,431.6Purchases of investments                                 (1,126.7)  (1,429.0)Investment in marketable software                        (16.7)     (20.7)Capital additions of properties                          (13.9)     (15.2)Capital additions of outsourcing assets                  (26.7)     (8.7)Other                                                    1.5        0.9Net cash used for investing activities                   (29.1)     (41.1)Cash flows from financing activitiesPurchases of common stock                                -          (0.9)Payments of long-term debt                               (0.3)      -Dividends paid on preferred shares                       -          (4.0)Proceeds from exercise of stock options                  3.5        2.6Net cash provided by (used for) financing activities     3.2        (2.3)Effect of exchange rate changes on cash and cash         (23.1)     (2.7)equivalentsDecrease in cash and cash equivalents                    (92.3)     (26.0)Cash and cash equivalents, beginning of period           494.3      639.8Cash and cash equivalents, end of period                 $402.0     $613.8                                   ( 1 )                            UNISYS CORPORATION     RECONCILIATION OF SELECTED GAAP MEASURES TO NON-GAAP MEASURES                                (Unaudited)                      (Millions, except per share data)                                                      Three Months                                                     Ended March 31                                                      2015     2014GAAP net lossattributable to Unisys Corporationcommon shareholders                                   ($43.2)  ($53.5)Pension expense, net of tax                           27.4     19.3Non-GAAP net lossattributable to Unisys Corporationcommon shareholders                                   (15.8)   (34.2)Add preferred stock dividend                          0.0      0.0Non-GAAP net lossattributable to Unisys Corporationfor diluted earnings per share                        ($15.8)  ($34.2)Weighted average shares (thousands)                   49,821   46,343Plus incremental shares from assumed conversion:    Employee stock plans                              0        0    Preferred stock                                   0        0GAAP adjusted weighted average shares                 49,821   46,343Diluted earnings per shareGAAP basisGAAP net lossattributable to Unisys Corporationfor diluted earnings per share                        ($43.2)  ($53.5)Divided by adjusted weighted average shares           49,821   46,343GAAP loss per diluted share                           ($ .87)  ($ 1.15)Non-GAAP basisNon-GAAP net lossattributable to Unisys Corporationfor diluted earnings per share                        ($15.8)  ($34.2)Divided by Non-GAAP adjusted weighted average shares  49,821   46,343Non-GAAP loss per diluted share                       ($ .32)  ($ .74)                         ( 2 )                   UNISYS CORPORATION            RECONCILIATION OF GAAP TO NON-GAAP                      (Unaudited)                      (Millions)FREE CASH FLOW                                           Three Months                                          Ended March 31                                          2015     2014Cash (used for) provided by operations   ($43.3)  $20.1Additions to marketable software         (16.7)   (20.7)Additions to properties                  (13.9)   (15.2)Additions to outsourcing assets          (26.7)   (8.7)Free cash flow                           (100.6)  (24.5)Pension funding                          38.7     55.5Free cash flow before pension funding    ($61.9)  $31.0                             ( 3 )                        UNISYS CORPORATION     RECONCILIATION OF SELECTED GAAP MEASURES TO NON-GAAP MEASURES                           (Unaudited)                  (Millions, except per share data)                          Three Months                         Ended March 31                          2015     2014GAAP lossbefore income taxes      ($27.7)  ($31.7)FAS87 pension charges    27.9     19.5Non-GAAP income (loss)before income taxes      $0.2     ($12.2)SOURCE  Unisys CorporationCONTACT: Investor, Niels Christensen, 215-986-6651,[\[email protected\]](/cdn-cgi/l/email-protection), Media, Jim Kerr, 215-986-5795,[\[email protected\]](/cdn-cgi/l/email-protection)