Unisys Corporation (NYSE: UIS) today reported first-quarter 2021 financial results. “During the first quarter, we made progress on our key strategic and financial goals that we laid out at the beginning of the year,” said Unisys Chair and CEO Peter A. Altabef. “Profitability and cash flow improved year over year, we expected relatively flat revenue year over year, we implemented our new organizational structure, further improved our balance sheet, made important leadership hires and took key steps toward enhancing and expanding our solution portfolio to address changing client needs.”
In January 2021, the company changed its organizational structure to more effectively address evolving client needs. With these changes, the company recast its reportable segments, but this did not impact the consolidated financial statements as of December 31, 2020. The company’s reportable segments are Digital Workplace Services (DWS), Cloud & Infrastructure Solutions (C&I), and ClearPath Forward® (CPF).
Summary of First-Quarter 2021 Results
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Revenue: |
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Revenue of $509.8M vs. $515.4M in 1Q20 (1.1% YoY decline; 2.9% YoY decline in constant currency(1)) |
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The company had expected profitability to be the key driver of improvement in the first quarter, as the YoY revenue decline was anticipated and was driven by a decline of approximately $16 million in Field Services, Travel and Transportation and BPO processing activities. |
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C&I revenue increased 18.6% YoY, supported by 24.2% YoY growth in C&I revenue in the U.S. & Canada. |
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Operating Profit: |
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Operating profit of $43.6M vs. $20.1M in 1Q20 (116.9% YoY increase) |
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Non-GAAP operating profit(4) of $51.4M vs. $29.4M in 1Q20 (74.8% YoY increase) |
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Operating profit margin of 8.6% vs. 3.9% in 1Q20 (470 bps improvement) |
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Non-GAAP operating profit margin of 10.1% vs. 5.7% in 1Q20 (440 bps improvement) |
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YoY operating profit margin increases driven by year-over-year increases in gross margin for DWS, C&I and CPF, and other improvements to efficiency and related cost-reduction initiatives. |
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Adjusted EBITDA and Net Income: |
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Adjusted EBITDA(5) of $93.9M vs. $72.3M in 1Q20 (29.9% YoY increase) |
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Adjusted EBITDA margin of 18.4% vs. 14.0% in 1Q20 (440 bps improvement) |
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Net loss from continuing operations of $157.8M vs. $53.2M in 1Q20 |
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Net income margin of (31.0)% vs. (10.3)% in 1Q20 (2070 bps decline) |
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The company made additional progress toward its goal of $1.2B in gross pension liability reductions in the quarter, and a required $158.0M settlement charge related to these pension liability reduction initiatives drove the entirety of the YoY net loss. |
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Non-GAAP net income from continuing operations(6) of $29.8M vs. $1.2M in 1Q20 |
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Non-GAAP net income margin of 5.8% vs. 0.2% in 1Q20 (560 bps improvement) |
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Earnings Per Share from Continuing Operations: |
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Loss per share from continuing operations of $2.45 vs. $0.85 in 1Q20 |
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The company made additional progress toward its goal of $1.2B in gross pension liability reductions, and a required $158.0M settlement charge ($2.45 per share) related to these pension liability reduction initiatives drove the entirety of the net loss per share. |
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Non-GAAP diluted earnings per share from continuing operations(6) was $0.46 vs. $0.02 in 1Q20 |
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Cash Flow: |
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Cash used in operations of $42.9M vs. $377.9M in 1Q20, an improvement of $335.0M, helped by $306.1M lower postretirement contributions in 1Q21 |
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Free cash flow(7) of $(70.4)M vs. $(405.6)M in 1Q20, an improvement of $335.2M, helped by $306.1M lower postretirement contributions in 1Q21 |
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Adjusted free cash flow(8) of $(24.4)M vs. $(76.2)M in 1Q20, an improvement of $51.8M |
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No future-required cash contributions to U.S. qualified defined benefit pension plans projected based on year-end data and assumptions and the American Rescue Plan Act |
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Backlog: |
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Total company backlog (which includes license backlog due to new segment structure) of $3.4B vs. $3.6B as of 4Q20 |
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The company’s legacy BPO business and the ClearPath Forward renewal schedule were the largest contributors to the sequential decline in backlog. |
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Financial Highlights by Segment:
DWS:
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DWS revenue of $141.1M vs. $160.2M in 1Q20 (11.9% YoY decline; 13.5% YoY decline in constant currency) |
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YoY revenue decline was expected and was largely driven by lower revenues in Field Services, one of the company’s legacy solutions that has been impacted by COVID-19. |
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DWS gross profit of $18.5M vs. $7.2M in 1Q20 (156.9% YoY improvement) |
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DWS gross margin of 13.1% vs. 4.5% in 1Q20 (860 bps YoY improvement) |
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During 1Q21, the company signed a contract with a global publishing company in EMEA for service desk support, field services and asset management to automate and streamline global user support to help improve the user experience for the client’s associates. |
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C&I:
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C&I revenue of $123.3M vs. $104.0M in 1Q20 (18.6% YoY growth; 15.1% YoY growth in constant currency) |
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o Supported by 24.2% YoY growth in C&I revenue in the U.S. & Canada |
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C&I gross profit of $12.0M vs. $(2.8)M in 1Q20 |
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o C&I gross margin of 9.7% vs. (2.7)% in 1Q20 (1240 bps YoY improvement) |
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During 1Q21 the company signed a new-scope contract with existing client, California State University (CSU), the nation’s largest higher-education system. As part of the new contract, Unisys will provide Financial Operations, Security Operations and Cloud Operations services that will offer the client greater agility to execute digital cloud strategies that better serve the campuses and improve the student experience for nearly 500,000 students. |
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CPF:
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CPF revenue of $167.6M vs. $171.7M in 1Q20 (2.4% YoY decline; 1.7% YoY decline in constant currency) |
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o The YoY constant-currency decline was driven in part by loss of low-margin third-party contracts |
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CPF gross profit of $103.1M vs. $100.1M in 1Q20 (3.0% YoY increase) |
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o CPF gross margin of 61.2% vs. 58.3% in 1Q20 (290 bps YoY increase) |
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During 1Q21, the Company began work on a new-scope contract with a European national government agency that manages processing and payment of public pension for 2 million people. Under the contract, Unisys will provide the client with ClearPath Forward consulting services to make their ClearPath Forward system more scalable and more interoperable with other systems. |
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Conference Call
Unisys will hold a conference call today at 5:00 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) 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.
(2) Pipeline – Pipeline represents prospective sale opportunities being pursued or for which bids have been submitted. There is no assurance that pipeline will translate into recorded revenue.
(3) Total Contract Value – TCV is the estimated total contractual revenue related to contracts signed in the period without regard for cancellation terms. New business TCV represents TCV attributable to new scope for existing clients and new logo contracts.
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 certain portions of post-retirement, debt exchange and extinguishment and cost-reduction and other expenses. 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.
(4) Non-GAAP operating profit – The company recorded pretax post-retirement expense and pretax charges in connection with cost-reduction activities, debt exchange/extinguishment 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) from continuing operations 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 post-retirement, debt exchange/extinguishment, and cost-reduction and other expenses, 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) Non-GAAP net income and non-GAAP diluted earnings per share – The company has recorded post-retirement expense and charges in connection with debt exchange/extinguishment and 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.
(7) 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.
(8) Adjusted free cash flow – Because inclusion of the company’s post-retirement contributions, discontinued operations and cost-reduction charges/reimbursements 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.
About Unisys
Unisys is a global IT services company that delivers successful outcomes for the most demanding businesses and governments. Unisys offerings include digital workplace services, cloud and infrastructure services and software operating environments for high-intensity enterprise computing. Unisys integrates security into all of its solutions. For more information on how Unisys delivers for its clients across the government, financial services and commercial markets, visit www.unisys.com.
