Unisys Announces First-Quarter 2010 Financial Results
Operating profit of $59 million nearly quadruples over year-ago period; company reports net loss driven by foreign exchange losses
BLUE BELL, Pa. - Unisys Corporation (NYSE: UIS) today reported a first-quarter 2010 net loss of $11.6 million, or a loss of 27 cents per diluted share. The results included approximately $35 million of pre-tax foreign exchange losses in Other Income/Expense, including $20 million relating to the January 2010 currency devaluation in Venezuela. In the first quarter of 2009, the company reported a net loss of $24.4 million, or 66 cents per diluted share, which included approximately $7 million of foreign exchange losses in Other Income/Expense.
The company’s operating profit nearly quadrupled to $58.9 million in the first quarter of 2010 compared with operating profit of $15.0 million in the first quarter of 2009.
Revenue in the first quarter of 2010 declined 7 percent to $998 million compared with $1.07 billion in the year-ago quarter. Approximately two percentage points of the decline was due to divested businesses. Foreign exchange rates had an approximately 5 percentage-point positive impact on revenue in the quarter.
“We made continued progress in the quarter in enhancing the profitability of the business,” said Unisys Chairman and CEO Ed Coleman. “Operating margins improved significantly year-over-year in both our services and technology segments as we continue to streamline and simplify our operations, reduce costs, and focus on profitable businesses that build on our core areas of strength. We also made further progress in reducing debt and de-leveraging our balance sheet.
“While we continue efforts to enhance our margins and profitability, we recognize the importance of stabilizing our revenue and were encouraged by double-digit growth in services orders in the quarter as well as a second straight quarter of year-over-year ClearPath sales growth,” Coleman said. “These are positive signs that clients see value in the portfolio of services and technology that we have rolled out over the past year.”
Overall First-Quarter Highlights
Results of the company’s health information management business, which the company has agreed to sell, are being reported as a discontinued operation.
Revenue in the United States declined 16 percent to $430 million, with about half of the decline coming in the company’s federal business. Revenue in international markets grew 1 percent to $568 million. Foreign currency fluctuations had an approximately 10 percentage-point positive impact on international revenue in the quarter.
Unisys reported a first-quarter gross profit margin of 23.7 percent, up from 20.0 percent a year ago, reflecting higher ClearPath sales and improved cost efficiencies in services delivery. Reflecting these factors as well as reductions in operating expenses, the company’s first-quarter operating profit margin increased to 5.9 percent compared with an operating profit margin of 1.4 percent a year ago.
First-Quarter Business Segment Results
Customer revenue in the company’s services segment declined 9 percent compared with the year-ago quarter. Foreign currency fluctuations had an approximately 5 percentage-point positive impact on services revenue in the quarter. Gross profit margin in the services business improved to 18.2 percent compared with 15.8 percent a year ago, while services operating margin improved to 4.6 percent compared with 2.0 percent a year ago.
Services orders showed double-digit growth from year-ago levels, primarily driven by order gains for outsourcing and systems integration and consulting. Services order backlog at March 31, 2010 was $5.9 billion, up from $5.3 billion at March 31, 2009 and down from $6.1 billion of services backlog at year-end 2009.
Customer revenue in the company’s technology segment increased 9 percent from the first quarter of 2009, driven by double-digit growth in ClearPath mainframe revenue. Foreign currency fluctuations had an approximately 7 percentage-point positive impact on technology revenue in the quarter.Driven by the higher ClearPath sales, the company reported a technology gross profit margin of 52.2 percent and an operating profit margin of 13.7 percent in the quarter. These compared with a gross profit margin of 33.3 percent and operating margin of (11.6) percent in the year-ago quarter.
Cash Flow and Balance Sheet Highlights
During the quarter Unisys repaid the remaining $64.9 million principal amount of senior notes due March 2010. Over the past year the company has reduced its long-term debt by approximately $200 million.
Additionally, during the first quarter Unisys did not draw against its available $150 million U.S. accounts receivable securitization facility. The company had utilized $100 million of this facility as of December 31, 2009.
Unisys used $28 million of cash from operations in the first quarter of 2010, including the $100 million reduction in receivables sold through its securitization facility. This compared with cash flow generated of $39 million in the first quarter of 2009.
Capital expenditures in the first quarter of 2010 increased to $69 million compared with $47 million in the year-ago quarter, primarily reflecting increased investments in assets related to new outsourcing contracts. After capital expenditures, the company used $97 million of free cash flow in the first quarter of 2010 compared with free cash usage of $8 million in the first quarter of 2009.
At March 31, 2010, the company reported $469 million of cash on hand, down from $648 million of cash on hand at December 31, 2009. The change in cash levels from year-end 2009 primarily reflected the reduced utilization of the U.S. accounts receivables facility and the debt repayment in the quarter.
Unisys will hold a conference call today at 8:15 a.m. Eastern Time to discuss its results. The listen-only Webcast, as well as the accompanying presentation materials, can be accessed via a link on the Unisys Investor Web site 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.
Any statements contained in this release that are not historical facts are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, but are not limited to, any projections of earnings, revenues, or other financial items; any statements of the company’s plans, strategies or objectives for future operations; statements regarding future economic conditions or performance; and any statements of belief or expectation. All forward-looking statements rely on assumptions and are subject to various risks and uncertainties that could cause actual results to differ materially from expectations. Risks and uncertainties that could affect the company’s future results include the economic and business environment; the company’s ability to access external credit markets; the company’s significant pension obligations; the success of the company’s turnaround program; aggressive competition in the information services and technology marketplace; volatility and rapid technological change in the company’s industry; the company’s ability to retain significant clients; the company’s ability to grow outsourcing; the company’s ability to drive profitable growth in consulting and systems integration; market demand for the company’s high-end enterprise servers and maintenance on those servers; the risk that the company’s contracts may not be as profitable as expected or provide the expected level of revenues and that contracts with U.S. governmental agencies may be subject to audits, criminal penalties, sanctions and other expenses and fines; the risk that the company may face damage to its reputation or legal liability if its clients are not satisfied with its services or products; the performance and capabilities of third parties with whom the company has commercial relationships; the risks of doing business internationally; the business and financial risk in implementing future dispositions or acquisitions; the potential for infringement claims to be asserted against the company or its clients;the possibility that pending litigation could affect the company’s results of operations or cash flow; and the company’s consideration of all available information following the end of the quarter and before the filing of the Form 10-Q and the possible impact of this subsequent event information on its financial statements for the reporting period. Additional discussion of factors that could affect the company’s future results is contained in its periodic filings with the Securities and Exchange Commission. Unisys assumes no obligation to update any forward-looking statements.
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