Unisys Announces 4Q and FY22 Results

BLUE BELL, PA —  Unisys Corporation (NYSE: UIS) recently reported fourth-quarter and full-year 2022 financial results.

“We had a solid finish to the year, delivering 7% year-over-year constant currency revenue growth in the fourth quarter.  Our higher growth and higher margin Next-Gen Solutions are building momentum in the marketplace, growing total contract value⁽⁵⁾ more than 80% versus the prior year quarter and more than doubling annual contract value⁽⁴⁾  versus the prior year quarter.  As we start 2023, we believe the new Unisys brand is resonating with our clients, prospects, third party advisors, and industry analysts,” said Unisys Chair and CEO Peter A. Altabef. “Our pipeline is stronger than it was a year ago, and our trailing twelve month book-to-bill expanded year-over-year to 1.1x. Although the light license and support renewal schedule for 2023 is expected to drive an overall decline in revenue and profit for the year, we expect revenue and margin improvement in the remainder of the business.”

Summary of Full-Year 2022 Results

Please refer to the accompanying financial tables 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 $1.980B vs. $2.054B in 2021, down 3.6% YoY; up 0.1% in constant currency
• Gross Profit:
  • Gross profit of $529.6M vs. $572.0M in 2021, down 7.4% YoY
  • Gross margin of 26.7% vs. 27.8% in 2021, down 110 bps YoY
• Operating Profit:
  • Operating profit of $52.2M vs. $154.0M in 2021, down 66.1% YoY primarily driven by charges related to cost-reduction activities and other non-recurring expenses
    • Operating profit margin of 2.6% vs. 7.5% in 2021
  • Non-GAAP operating profit of $159.0M vs. $192.8M in 2021, down 17.5% YoY driven by an increase in marketing expense related to the launch of the new Unisys brand, the exit of certain non-strategic contracts and additional expense associated with certain contracts
    • Non-GAAP operating profit margin of 8.0% vs. 9.4% in 2021
• Net Income:
  • Net loss of $106.0M driven by increased charges related to cost-reduction activities and other non-recurring expenses vs. net loss of $448.5M in 2021, which included $447.9 million of after-tax settlement losses related to the company’s defined benefit pension plans
  • Non-GAAP net income⁽¹⁰⁾ of $74.8M vs. $117.5M in 2021, down 36.3% YoY
• Adjusted EBITDA:
  • Adjusted EBITDA⁽⁹⁾ of $325.8M vs. $369.9M in 2021, down 11.9% YoY
  • Adjusted EBITDA margin of 16.5% vs. 18.0% in 2021, down 150 bps YoY
• Earnings/Loss Per Share:
  • Loss per diluted share of $1.57 vs. loss per diluted share of $6.75 in 2021, driven by the same factors noted above with respect to GAAP net loss
  • Non-GAAP diluted earnings per share of $1.10 vs. $1.75 in 2021
• Cash Flow:
  • Cash from operations of $12.7M vs. $132.5M in 2021
  • Free cash flow⁽¹¹⁾ of $(73.2)M vs. $32.3M in 2021, primarily due to lower profitability and lower technology collections in 2022 vs. 2021
  • Adjusted free cash flow⁽¹²⁾ of $27.0M vs. $172.2M in 2021
• Pipeline, ACV, TCV, Book-to-Bill:
  • Solid year-over-year growth in pipeline, ACV, and TCV driven by expansion across the Company’s Next-Gen Solutions of Modern Workplace, Digital Platforms and Applications (DP&A), Specialized Services and Next-Gen Compute (SS&C) and Micro-Market Solutions
  • Pipeline: increased 15% YoY
  • ACV: increased 36% YoY
  • TCV: increased 28% YoY
  • Trailing-twelve-month book-to-bill: 1.1x up from 0.8x in 2021
• Balance Sheet:
  • As of December 31, 2022, total cash and cash equivalents was $391.8M
  • Year-end global GAAP pension deficit improvement of approximately $210M to $543.1M

Full-Year 2022 Financial Highlights by Segment:

Digital Workplace Solutions (DWS): The company continues the transformation of its DWS business as clients shift into higher growth and margin Modern Workplace solutions

• Revenue:
  • DWS revenue of $509.9M vs. $574.5M in 2021, a decline of 11.2% YoY or a decline of 7.3% in constant currency, primarily due to an $82.5M impact from non-strategic contracts exited in 2021
  • Excluding these contracts, DWS revenue grew 3.7% YoY, or 8.4% in constant currency, driven by demand for Modern Workplace solutions
• Gross Margin:
  • DWS gross profit margin of 14.0% vs. 13.8% in 2021

Cloud, Applications & Infrastructure Solutions (CA&I): Continued expansion of DP&A solutions within CA&I. The company continues to evolve its portfolio in this direction.

• Revenue:
  • CA&I revenue of $520.3M vs. $485.6M in 2021, up 7.1% YoY, or 9.4% in constant currency primarily driven by expansion of DP&A solutions and the Company’s acquired application development solutions
• Gross Margin:
  • CA&I gross profit margin of 9.1% vs. 9.7% in 2021, down 60 bps YoY driven by additional expense associated with certain contract exits and higher labor costs

Enterprise Computing Solutions (ECS): The company is delivering innovation in industry solutions and next-gen compute capabilities to reinvigorate new logo growth in ECS

• Revenue:
  • ECS revenue of $669.7M vs. $685.7M in 2021, down 2.3% YoY, or up 0.1% YoY in constant currency
• Gross Margin:
  • ECS gross profit margin of 64.5% vs. 63.4% in 2021

Summary of Fourth Quarter 2022 Results

• Revenue:
  • Revenue of $557.0M vs. $539.3M in 4Q21, up 3.3% YoY, or 7.0% in constant currency
  • Growth was driven by strength in CA&I and a strong quarter of license renewals within ECS, particularly with clients in the travel and financial services sectors
• Gross Profit:
  • Gross profit of $189.8M vs. $163.7M in 4Q21, up 15.9% YoY
  • Gross profit margin of 34.1% vs 30.4% in 4Q21
  • 370 bps YoY improvement driven by higher ECS revenue and improvements to delivery efficiency in DWS and CA&I
• Operating Profit:
  • GAAP operating profit of $50.0M vs. $44.5M in 4Q21, up 12.4% YoY
  • GAAP operating profit margin of 9.0% vs 8.3% in 4Q21
  • Non-GAAP operating profit of $112.4M vs. $63.3M in 4Q21, up 77.6% YoY
  • Non-GAAP operating profit margin of 20.2% vs. 11.7% in 4Q21
• Net Income:
  • GAAP net income of $8.5M vs. a net loss of $131.2M in 4Q21
  • Non-GAAP net income of $82.8M vs. $34.8M in 4Q21, up 137.9% YoY
• Adjusted EBITDA
  • Adjusted EBITDA of $148.7M vs. $107.0M in 4Q21, up 39.0% YoY
  • Adjusted EBITDA margin of 26.7% vs. 19.8% in 4Q21
• Earnings/Loss Per Share:
  • Diluted earnings per share of $0.12 vs. diluted loss per share of $1.95 in 4Q21
  • Non-GAAP diluted earnings per share of $1.22 vs. $0.51 in 4Q21
• Cash Flow:
  • Cash from operations was $34.9M vs. $68.0M in 4Q21
  • Free cash flow was $13.8M vs. $44.3M in 4Q21
  • Adjusted free cash flow was $39.3M vs. $72.2M in 4Q21
  • Year-over-year decline in free cash flow primarily due to lower technology collections in 2022 vs. 2021
• ACV, TCV & Backlog:
  • 4Q ACV: increased 58% YoY
  • 4Q TCV: increased 55% YoY
    • Driven by strength across Next-Gen Solutions and higher renewal levels in DWS
  • Backlog^(2): $2.92B from $2.69B in 3Q22, a $230M expansion quarter-over-quarter

Fourth Quarter 2022 Financial Highlights by Segment:

Strong 4Q constant currency growth and margin expansion in CA&I and ECS

DWS:

• Revenue:
  • DWS revenue of $127.8M vs. $140.0M in 4Q21, down 8.7% YoY, or down 3.0% in constant currency due to a $12M impact from the exit of several non-strategic accounts in 2021
• Gross Profit Margin:
  • DWS gross profit margin of 15.1% vs. 14.0% in 4Q21, up 110 bps YoY driven by increased delivery efficiency

CA&I:

• Revenue:
  • CA&I revenue of $138.8M vs. $127.3M in 4Q21, up 9.0% YoY, or 11.6% in constant currency
• Gross Profit Margin:
  • CA&I gross profit margin of 19.0% vs. 13.4% in 4Q21, up 560 bps YoY primarily due to expansion of DP&A solutions and the Company’s acquired application development solutions

ECS:

• Revenue:
  • ECS revenue of $225.6M vs. $193.6M in 4Q21, up 16.5% YoY, or 16.8% in constant currency
• Gross Profit Margin:
  • ECS gross profit margin of 73.3% vs. 65.3% in 4Q21, up 800 bps YoY due to flow through from higher license renewal levels during the quarter

2023 Financial Guidance

The company has issued full-year 2023 revenue and profitability guidance. Constant currency revenue growth is expected to be in the range of (3.0%) to (7.0%) YoY. The company anticipates that non-GAAP operating profit margin will be in the range of 2.0% to 4.0% and adjusted EBITDA margin in the range of 9.5% to 11.5%.

⁽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 recorded 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.

⁽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.

Non-GAAP Information

Certain financial information is presented in this release under both a U.S. generally accepted accounting basis (GAAP) and a non-GAAP basis. Non-GAAP financial measures exclude certain items such as post-retirement expenses and cost-reduction activities and other expenses that the company believes are not indicative of its ongoing operations, as they may be unusual or non-recurring. The inclusion of such items in financial measures can make the company’s profitability and liquidity results difficult to compare to prior periods or anticipated future periods and can distort the visibility of trends associated with the company’s ongoing performance. Management also believes that non-GAAP measures are useful to investors because they provide supplemental information about the company’s financial performance and liquidity, as well as greater transparency into management’s view and assessment of the company’s ongoing operating performance. The following measures are often provided and utilized by the company’s management, analysts, and investors to enhance comparability of year-over-year results. These measures should not be relied upon as substitutes for, or considered in isolation from, measures calculated in accordance with U.S. GAAP.

⁽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 expenses 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.

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