Unisys Announces 1Q23 Results

unisys corporation

BLUE BELL, PA — Unisys Corporation (NYSE: UIS) recently reported financial results for the first quarter ended March 31, 2023.

Unisys announced year-over-year revenue growth and margin expansion as strategic initiatives continue to yield results. In order to best evaluate the progress of its growth initiatives, it isolated its results excluding the L&S portion of Enterprise Computing Solutions (ECS), which can be lumpy based on the timing of license renewals. Ex-L&S revenue grew 1.7%, or 4.6% on a constant currency basis and gross margin expanded 310 bps.

“We are pleased with the strong start to 2023. The first quarter demonstrates our continued focus on achieving operational efficiencies while continuing to invest in the future growth of our Next-Gen Solutions in Modern Workplace, Digital Platforms & Applications, Specialized Services & Next-Gen Compute, and Micro-Market Solutions. We achieved year-over-year growth in TCV signings led by expanding scope with existing clients, as well as 15% sequential growth in our qualified pipeline,” said Unisys Chair and CEO Peter A. Altabef.

Summary of First Quarter 2023 Results

Refer to the Company’s original disclosure for a reconciliation of the GAAP to non-GAAP measures presented except for financial guidance since such a reconciliation is not practicable without unreasonable effort.

  • Revenue:
    • Revenue of $516.4M vs. $446.7M in 1Q22, up 15.6% YoY, or up 18.9% in constant currency, primarily due to higher software license renewals within ECS
  • Gross Profit:
    • Gross profit of $159.0M vs. $87.4M in 1Q22, an increase of 81.9% YoY
    • Gross profit margin was 30.8% vs. 19.6% in 1Q22, up 1120 bps
    • YoY improvement was primarily due to higher software license renewals within ECS
  • Operating Profit:
    • GAAP operating profit of $49.9M vs. $23.5M operating loss in 1Q22
    • GAAP operating profit margin of 9.7% vs. 5.3% operating loss margin in 1Q22
    • Non-GAAP operating profit of $60.1M vs. $14.1M operating loss in 1Q22
    • Non-GAAP operating profit margin of 11.6% vs. 3.2% operating loss margin in 1Q22
  • Net Income/Loss:
    • GAAP net loss of <$175.4M includes a one-time, non-cash pension settlement loss of $183.2M related to the purchase of an annuity contract that reduced pension liabilities vs. a net loss of $57.3M in 1Q22
    • Non-GAAP net income of $34.7M vs. a net loss of $27.3M in 1Q22
  • Adjusted EBITDA:
    • Adjusted EBITDA(9) of $98.2M vs. $34.2M in 1Q22, up 187.1%
    • Adjusted EBITDA margin of 19.0% vs. 7.7% in 1Q22
  • Earnings/Loss Per Share:
    • Diluted loss per share of $2.58, which included a one-time, non-cash pension settlement loss noted above of $2.70 per diluted share vs. diluted loss per share of $0.85 in 1Q22
    • Non-GAAP diluted earnings per share of $0.51 vs. diluted loss per share of $0.41 in 1Q22
  • Cash Flow:
    • Cash from operations was $12.8M vs. cash used of $33.0M in 1Q22
    • Free cash flow(11) was $(7.5)M vs. $(51.7)M in 1Q22
    • Adjusted free cash flow(12) was $20.1M vs. $(27.0)M in 1Q22
    • YoY improvement in free cash flow primarily due to higher technology collections in 2023 vs. 2022
  • Pipeline, ACV, TCV and Backlog:
    • Total company pipeline increased 6% YoY
    • ACV(4) decreased 18% YoY
      • Primarily driven by the mix of L&S contracts signings; excluding L&S, ACV decreased 5%
    • TCV(5) increased 2% YoY; excluding L&S, TCV increased 9%
    • Backlog(2) was $2.79B vs. $2.92B in 4Q22
      • Primarily driven by ECS
  • Balance Sheet:
    • As of March 31, 2023, total cash and cash equivalents was $391.9M
    • The company continued its pension liability-reduction initiatives during the quarter with the purchase of an annuity contract valued at approximately $265 million relating to one of its U.S. pension plans. This action resulted in a one-time, non-cash pension settlement loss of $183.2 million.
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1Q23 Financial Highlights by Segment:

1Q revenue growth in DWS and ECS with YoY margin expansion in CA&I

Digital Workplace Solutions (DWS):

  • Revenue:
    • DWS revenue of $131.0M vs. $124.8M in 1Q22, an increase of 5.0% YoY, or 7.7% in constant currency, primarily due to the timing of the revenue ramp from recent contract signings
  • Gross Margin:
    • DWS gross profit margin of 11.9% vs. 12.8% in 1Q22, a decrease of 90 bps due primarily to incremental labor costs in support of recent contract signings

Cloud, Applications & Infrastructure Solutions (CA&I):

  • Revenue:
    • CA&I revenue $126.0M vs. $129.1M in 1Q22, a decline of 2.4% YoY, or 1.4% YoY in constant currency, due to YoY decline in traditional infrastructure revenue
  • Gross Margin:
    • CA&I gross profit margin of 13.0% vs. 5.4% in 1Q22, an increase of 760 bps primarily driven by additional expenses associated with certain contracts included in 1Q22 as well as delivery improvements

Enterprise Computing Solutions (ECS):

  • Revenue:
    • ECS revenue of $188.2M vs. $120.6M in 1Q22, an increase of 56.1% YoY, or 60.1% in constant currency, due to higher software license renewals and growth in Specialized Services and Next-Gen Compute
  • Gross Margin:
    • ECS gross profit margin was 66.7% vs. 52.1% in 1Q22, an increase of 1460 bps, primarily due to higher software license renewals

2023 Financial Guidance

The company reiterates full-year 2023 revenue and profitability guidance. Constant currency revenue growth is expected to be in the range of (3%) to (7%) YoY, which assumes Ex-L&S revenue in the range of (1%) to +4% YoY. The company anticipates that non-GAAP operating profit margin will be in the range of 2% to 4% and adjusted EBITDA margin in the range of 9.5% to 11.5%.

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“It was a solid start to the year, positioning us to meet our full-year guidance despite the YoY declines we expect in License and Support revenue over the next three quarters. We continue to expect YoY improvement in our underlying Ex-L&S solutions, demonstrating progress with our growth and margin initiatives,” said Chief Financial Officer Deb McCann.

(1) Constant currency – A significant amount of the company’s revenue is derived from international operations. As a result, the company’s revenue has been and will continue to be affected by changes in the U.S. dollar against major international currencies. The company refers to revenue 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 revenue at a consistent exchange rate rather than the actual exchange rates in effect during the respective periods.

(2) Backlog – Represents future revenue associated with contracted work which has not yet been delivered or performed. Although the company believes this revenue will be recognized, it may, for commercial reasons, allow the orders to be cancelled, with or without penalty.

(3) Pipeline – Represents qualified prospective sale opportunities for which bids have been submitted or vetted prospective sales opportunities which are being actively pursued. There is no assurance that pipeline will translate into revenue.

(4) Annual Contract Value (ACV) – Represents the revenue expected to be recognized during the first 12 months following the signing of a contract.

(5) Total Contract Value (TCV) – Represents the estimated 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.

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(6) Book-to-bill – Represents total contract value booked divided by revenue in a given period.

(7) Next-Gen Solutions – Includes the Company’s Modern Workplace solutions within DWS, Digital Platforms and Applications (DP&A) solutions within CA&I, Specialized Services and Next-Gen Compute (SS&C) solutions within ECS, as well as Micro-Market solutions.

(8) Non-GAAP operating profit – This measure excludes pretax postretirement expense and pretax charges in connection with cost-reduction activities and other expenses.

(9) 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 (loss) attributable to noncontrolling interests, interest expense (net of interest income), provision for (benefit from) income taxes, depreciation and amortization.  Adjusted EBITDA further excludes postretirement expense and cost-reduction activities and other expenses, non-cash share-based expense, and other (income) expense adjustments.

(10) Non-GAAP net income and non-GAAP diluted earnings per share – These measures excluded postretirement expense and charges in connection with cost-reduction activities and other expenses.  The tax amounts related to 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 items.

(11) Free cash flow – Represents cash flow from operations less capital expenditures.

(12) Adjusted free cash flow – Represents free cash flow less cash used for postretirement funding and cost-reduction activities and other payments.

(13) Excluding License and Support (Ex-L&S) – These measures exclude revenue and gross profit in connection with software license and support revenue within the company’s ECS segment. The company provides these measures to allow investors to isolate the impact of software license renewals, which tend to be lumpy, and related support services in order to evaluate the company’s business outside of these areas.

To learn more, visit unisys.com.

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