third-quarter 2013 financial results - unisys · 2013-10-22 · earnings release. • this...

Ed Coleman, Chairman & CEO

Janet Haugen, Chief Financial Officer

October 22, 2013

www.unisys.com/investor

Third-Quarter 2013 Financial Results

© 2013 Unisys Corporation. All rights reserved. 2

Disclaimer

• Statements made by Unisys during today's presentation that are not historical facts, including those regarding future performance, are forward-looking statements under the Private Securities Litigation Reform Act of 1995. These statements are based on current expectations and assumptions and involve risks and uncertainties that could cause actual results to differ from expectations. These risks and uncertainties are discussed in the company's reports filed with the SEC and in today's earnings release.

• This presentation also includes non-GAAP financial measures including non-GAAP Earnings per Diluted Share, Constant Currency, Free Cash Flow, EBITDA, Adjusted EBITDA, and Net Cash. Definitions of these non-GAAP financial measures and reconciliations to GAAP measures are included in this presentation.

• These presentation materials can be accessed on the Unisys Investor Web site at www.unisys.com/investor. Information in this presentation is as of October 22, 2013 and Unisys undertakes no duty to update this information.

http://www.unisys.com/investor

Ed Coleman

Chairman & CEO


3Q13 Overview

• Services operating margin improved on a more profitable revenue mix and cost reduction efforts

• Challenging quarter due to lower Technology revenue

• Remain focused on achieving stable Technology revenue in 2013

• Services revenue decreased largely due to Public Sector weakness in Asia Pacific region


Growth Investment Areas

Technology Growth Opportunities

Launch our new technology offerings into the market to expand our opportunity and add incremental growth to our stable ClearPath revenue base.

Services Growth Opportunities

Leverage disruptive technology trends to increase our services profitability and take advantage of higher growth market segments.

ClearPath

ClearPath Forward!

Forward!

Stealth

End User (ITO)

Application Managed Services

ITSMaas

IP-Based / SaaS Solutions (SI)

Base

Expansion

New Market

New Market

Expansion

Expansion

New Market

Expansion

Expanded Reseller Channel


What do you get when you mix Xeon servers,

InfiniBand switching, and virtualization and

workload management software from a venerable

mainframe maker? You get the new Forward systems from none other than

Unisys. The Forward systems, which go into beta testing this week, are the

culmination of years of work to bring mainframe-class security, virtualization,

and workload management from ClearPath mainframes to X86 systems running

Windows or Linux.

Unisys has made a

major play for the

enterprise mobile

security market with

the release of Stealth. Unisys Stealth for mobile is the latest

member of a growing family of Stealth cybersecurity products

which uses advanced data cloaking and encryption techniques

to help organisations mitigate cybersecurity attacks by making

devices, data and end users virtually invisible on the network.

(Stealth for Mobile allows) enterprises to capitalise on the

productivity gains and customer service improvement

associated with mobility and consumerisation of IT, while

increasing assurance that their critical data remains safe.

“You can’t hack what you can’t see.”

The phrase has lately become a mantra

at Unisys Corp., which is hoping government

customers will embrace the logic of a software-

based approach to network security that makes network assets

and workgroups “invisible” to hackers. The application, called

Stealth, helps control who sees what on a network, by letting

managers authorize a group of people for access to certain

information, applications or parts of a network that those

operating outside of a designated workgroup are unable to see.

There is no doubt that Unisys has come up

with something important. It amounts to a

new architecture, using servers based on

Intel Xeon processors, wrapping them in mainframe standard security and

availability, and enabling them to run virtualised Windows and Linux.

With Forward, Unisys is taking a leap into the white-hot

virtualisation and cloud markets and bringing something

tangible to the table. Partitioning on the processor

combined with Unisys’ other technologies, such as Stealth,

deliver new levels of security to cloud environments. Given Unisys' core

customer base in financial services, Government (including large security

agencies) and airlines among others, such considerations are very much top of

mind. Forward could be the migration nudge they’ve been waiting for.

(October 10, 2013)

(October 9, 2013)

(October 10, 2013)

(October 14, 2013) (September 27, 2013)

Market Response to Stealth & Forward!


Summary

• Challenging Technology quarter

• Services operating margin improvement

• Continued progress in developing new, innovative products and solutions

• Focused on a strong close for 2013

• Investing in growth programs to position Unisys for 2014 and beyond

Janet Haugen

SVP & CFO


$M (excluding EPS) 3Q13 3Q12 Y/Y Ch

Revenue $792 $877 (10%)

Gross Profit $172 $219 (22%)

Gross Profit Margin 21.7% 24.9% (3.2 pts)

Operating Expenses (SG&A plus R&D) $148 $157 (6%)

Operating Profit $24 $61 (61%)

Operating Profit Margin 3.0% 7.0% (4.0 pts)

Interest Expense $2 $8

Other Income (Expense) $2 ($26)

Pretax Income $24 $28 (15%)

Tax Provision $27 $33

Net Loss ($12) ($12)

Diluted Earnings Per Share ($0.26) ($0.28)

Non-GAAP Earnings Per Diluted Share* $0.25 $0.85

3Q13 Financial Results

*See Schedule A : GAAP to non-GAAP Reconciliation


3Q13 Segment Revenue

3Q12 Revenue = $877M 3Q13 Revenue = $792M

• Services revenue down 4% Y/Y

– Services revenue down 2% in constant currency

• Technology revenue down 44% Y/Y

– Currency had no material impact

Technology 15%

Services 85%

Technology 9%

Services 91%


3Q13 Services Revenue by Portfolio

$M 3Q13 Y/Y Change

Services Revenue $720 (4%)

Gross Margin 21.1% 120 bp

Operating Margin 7.7% 170 bp

Revenue by Portfolio 3Q13 Y/Y Change

Information Technology

Outsourcing $277 (7%)

Systems Integration $228 (1%)

Infrastructure Services $105 (2%)

Business Process

Outsourcing $62 (3%)

Core Maintenance $48 3%

38% 40%

32% 31%

14% 14%

9% 9%

7% 6%

0%

25%

50%

75%

100%

3Q13 3Q12

Core

BPO

ISS

SI

ITO

Services Revenue

Services portfolio revenue as a %

of Unisys services revenue


3Q13 Technology Revenue by Portfolio

Technology Revenue $M 3Q13 Y/Y Change

Technology Revenue $72 (44%)

Gross Margin 35.3% (2,460 bps)

Operating Margin (11.0%) (4,010 bps)

Revenue by Portfolio 3Q13 Y/Y Change

Enterprise Class

Software & Servers $55 (56%)

Other Technology $17 197%

76%

95%

24%

5%

0%

25%

50%

75%

100%

3Q13 3Q12

OtherTechnology

EnterpriseClassSoftware &Servers

Technology portfolio revenue as a %

of Unisys technology revenue


U.S.

Federal

16%

U.S.

Federal

16%

U.K.

12%

Geography

3Q13 Unisys Revenue Profile

Industry

3Q13 Y/Y Change

North America (2%)

Europe (2%)

Asia Pacific (34%)

Latin America (19%)

3Q13 Y/Y Change

Public Sector (11%)

Commercial (10%)

Financial (7%)

Europe 32%

North America

44%

Latin America

11% Asia Pacific

13%

Public Sector

40%

Commercial 37%

Financial 23%

Geographic & Industry revenue as a % of Unisys revenue


U.S. Federal Government Business

3Q13 Business Mix

Revenue Y/Y Change

3Q13 (1%)

$125 $121

$129

$148

$114 $119

$128

$0

$50

$100

$150

$200

$250

1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13

Federal Revenue $M

Civilian 45%

Homeland Security

31%

Defense & Intelligence

24%


3Q13 Services Order Highlights

• Services orders up slightly Y/Y; up double-digits Q/Q

• Services orders by portfolio:

– Orders grew in ITO and Systems Integration

– Orders declined in BPO, Core Maintenance, and Infrastructure Services

• Services orders by geography:

– Orders grew in Europe and U.S. Federal

– Orders declined in North America, Asia Pacific, and Latin America

• Closed 3Q13 with $4.8B in services backlog vs. $5.1B at 3Q12; $4.8B at 2Q13

– $630M of services backlog expected to turn into 4Q13 revenue


Cash Flow Comparison

$M 3Q13 3Q12

Cash Flow From Operations $16 $17

Capital Expenditures ($39) ($32)

Free Cash Flow* ($23) ($15)

Pension Funding $40 $56

Free Cash Flow Before Pension Funding* $17 $42

Depreciation & Amortization $41 $40

EBITDA** $63 $72

Adjusted EBITDA** $86 $125

Cash Balance $556 $542

Debt Balance at September 30 $210 $211

Net Cash at September 30 $346 $331

See Schedule *B and **C: GAAP to non-GAAP Reconciliation

Questions & Answers


Non-GAAP Financial Measures

In an effort to provide investors with additional information regarding the company's results as determined by generally accepted accounting principles (GAAP), the company also discusses, in its earnings press release and/or earnings presentation materials, the following non-GAAP information which management believes provides useful information to investors.

Non-GAAP Earnings Per Diluted Share – As a result of debt reductions, Unisys recorded charges, net of tax, of $23.1

million during the third quarter of 2012. The company also recorded pension expense, net of tax, of $22.6 million and $28.9

million, respectively, during the third quarters of 2013 and 2012. 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 per share calculations.

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 or adjusting for currency will be higher or lower than growth reported at actual exchange rates.

.


Non-GAAP Financial Measures

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 in 2013 and 2012, free cash flow before pension funding is

also provided.

Net Cash – In an effort to help investors better understand the debt held by the company, this measure takes into account

not only the total debt obligations of the company, but the significance of debt compared to its cash balances. Net Cash is

calculated by subtracting Long-Term Debt and utilization under the company's revolving credit facility from the company's

cash balance.

EBITDA – Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) is an approximate measure of a company's operating cash flow based on data from the company's income statement. EBITDA is calculated as earnings before the deduction of interest expenses, taxes, depreciation, and amortization. Management believes this measure may be relevant to investors due to the level of fixed assets and related depreciation charges. This measure is also of interest to the company's creditors, since it provides a perspective on earnings available for interest payments.

Adjusted EBITDA – Unisys completed debt reductions in 3Q12. As a result of these reductions, Unisys recorded a pretax

charge of $23.1 million during the third quarter of 2012. The company also recorded pretax pension expense of $23.4

million and $29.9 million, respectively, during the third quarters of 2013 and 2012. In order to provide investors with

additional understanding of the company's operating results, these charges are excluded from the Adjusted EBITDA

calculation.


Schedule A: GAAP to Non-GAAP Reconciliation

Non-GAAP Earnings per Diluted Share

$M except share and per share data 3Q13 3Q12

GAAP net loss attributable to Unisys Corporation common shareholders ($11.6) ($12.4)

Debt reduction charges, net of tax 0.0 23.1

Pension expense, net of tax 22.6 28.9

Non-GAAP net income attributable to Unisys Corporation common shareholders $11.0 $39.6

Add preferred stock dividends 4.0 4.0

Non-GAAP net income attributable to Unisys Corporation for diluted earnings per share $15.0 $43.6

Weighted average shares (thousands) 43,811 43,966

Plus incremental shares from assumed conversion of employee stock plans and preferred stock 436 7,371

Adjusted weighted average shares 44,247 51,337

Earnings per Share

GAAP basis

GAAP net loss attributable to Unisys Corporation common shareholders ($11.6) ($12.4)

Divided by weighted average shares 43,811 43,966

GAAP net loss per share ($0.26) ($0.28)

Non-GAAP basis

Non-GAAP net income attributable to Unisys Corporation for diluted earnings per share $11.0 $43.6

Divided by adjusted weighted average shares 44,247 51,337

Non-GAAP earnings per diluted share $0.25 $0.85


Schedule B: GAAP to Non-GAAP Reconciliation

Free Cash Flow

$M 3Q13 3Q12

Cash Provided by Operations $16.0 $16.9

Capital Expenditures (38.9) (31.5)

Free Cash Flow ($22.9) ($14.6)

Pension Funding 40.3 56.3

Free Cash Flow Before Pension Funding $17.4 $41.7


Schedule C: GAAP to Non-GAAP Reconciliation

EBITDA and Adjusted EBITDA

$M 3Q13 3Q12

Net Income (Loss) Attributable to Unisys ($7.6) ($8.4)

Interest Expense 2.4 7.8

Income Tax Provision 27.0 32.7

Depreciation & Amortization 40.7 40.1

EBITDA $62.5 $72.2

Debt reduction charges 0.0 23.1

Pension Expense 23.4 29.9

Adjusted EBITDA $85.9 $125.2

Earnings before Interest, Taxes, Depreciation and Amortization

www.unisys.com/investor

third-quarter 2013 financial results - unisys · 2013-10-22 · earnings release. • this...

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