Uncertainties and Limitations of the FCDP measurements during ATTREX 2011
Second-Quarter 2011 Financial Results · 2011-07-25 · that could cause actual results to differ...
Transcript of Second-Quarter 2011 Financial Results · 2011-07-25 · that could cause actual results to differ...
Webcast available on www.unisys.com/investor
Janet HaugenChief Financial Officer
Ed ColemanChairman & CEO
Second-Quarter 2011 Financial Results
July 25, 2011
© 2011 Unisys Corporation. All rights reserved.
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 Net Cash (Debt), EBITDA, Adjusted EBITDA, Non-GAAP Earnings per Diluted Share and Free Cash Flow. Definitions of these non-GAAP financial measures and reconciliations to GAAP measures are included in this presentation.
• These presentation materials can be accessed through a link on the Unisys Investor Web site at www.unisys.com/investor. Information in this presentation is as of July 25, 2011 and Unisys undertakes no duty to update this information.
Ed ColemanChairman & CEO
Slide 12Q11 Overview
• Made progress toward goals despite lower Federal and Technology revenue
– Outside the U.S. Federal business, services revenue essentially flat y/y
• Profitable before debt reduction charge in quarter– Net loss of $11.6M or 27 cents per share includes previously announced
$45.7M debt reduction charge– Non-GAAP EPS of 93 cents– Generated adjusted EBITDA of $106M
• Improved services operating profit margin to 7.1%– Improved y/y and sequentially
• Continued progress on balance sheet– Reduced debt by $179M in quarter– Cash net of debt increased by $518M from a year ago
-$750
-$500
-$250
$0
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$500
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$1,000
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4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11
Long-Term Debt (LTD) AR Securitization\Revolver Cash Net Cash*$M
Slide 2Strengthening the Balance Sheet
* Net Cash = Cash less LTD and utilization under AR securitization\revolver facility.
See Schedule A: GAAP to non-GAAP Reconciliation.
Slide 3Revenue Focus
• Overall revenue impacted by declines in Federal and Technology
• Continued growth in IT Outsourcing outside U.S. Federal business– Grew IT Outsourcing revenue 7% – Sixth consecutive quarter of y/y growth
• Actions to drive growth in Systems Integration– Investing in industry solutions/SaaS models– Assisting clients with disruptive technology trends – i.e., cloud,
mobility, cyber security
• Actions to improve sales execution and productivity– Aggressive hiring effort– Consultative selling focus
Slide 4Summary
• Made progress against objectives despite Federal and Technology impact
• Encouraged by services margin improvement, balance sheet progress, ITO growth
• See growth opportunities in market for long-term and project-based services
• Retooling Federal business in line with changes in market
• Focused on execution in 2H
Janet HaugenChief Financial Officer
Slide 5 2Q11 Financial Results
$M (excluding EPS) 2Q11 2Q10 Y/Y Ch
Revenue $937 $1,037 (10%)
Gross Profit $214 $288 (26%)
Gross Profit Margin 22.8% 27.8% (5.0 pts)
Operating Expenses (SG&A plus R&D) $166 $182 (9%)
Operating Profit $48 $107 (55%)
Operating Profit Margin 5.1% 10.3% (5.2 pts)
Other Income (Expense)* ($49) ($7) ($42)
Pre-tax Income (Loss) from Continuing Ops ($15) $74
Tax Expense (Benefit) ($9) $13
Net Income (Loss) from Continuing Ops ($12) $59
EBITDA ** $46.3 $160.3
Adjusted EBITDA ** $105.5 $160.3
Net Income (Loss) ($12) $120
Diluted EPS from Continuing Ops ($0.27) $1.36
Non-GAAP Earnings per Diluted Share ** $0.93 $1.36
*2Q11 results included a $46M charge related to debt reductions.
** See Schedules B and C: GAAP to non-GAAP Reconciliation.
$M 2Q11 Y/Y Ch
Services Revenue $843 (6%)
Gross Margin 20.1% +80 bp
Operating Margin 7.1% +100 bp
Revenue by Portfolio
Systems Integration $286 (15%)
Information Technology Outsourcing $307 (3%)
Infrastructure Services $130 13%
Core Maintenance $57 (3%)
Business Process Outsourcing $63 (5%)
Slide 62Q11 Services
38% 34%
35% 37%
13% 15%
7% 7%7% 7%
0%
25%
50%
75%
100%
2Q10 2Q11
BPO
Core
ISS
ITO
SI
Services Revenue
Slide 72Q11 Technology
Technology Revenue $M 2Q11 Y/Y Ch
TechnologyCustomer Revenue $95 (35%)
Gross Margin 49.0% -1220 bp
Operating Margin 2.4% -2440 bp
Revenue by Portfolio
Enterprise Servers $80 (39%)
Other Technology $15 11%
91% 84%
9% 16%
0%
25%
50%
75%
100%
2Q10 2Q11
OtherTechnology
EnterpriseServers
Homeland Security
22%
Civilian50%
Department of Defense
28%
2Q11 Business Mix
Slide 82Q11 U.S. Federal Government Business
Revenue Y/Y
2Q11 (29%)
2Q11 Excluding TSA (17%) $30 $31 $33 $22
$176 $182 $191 $177
$0
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1Q10 2Q10 3Q10 4Q10 1Q11 2Q11
Federal RevenueTSA Rev. Revenue
$M
$199$213$206
$224
$157 $152
Industry
Geography
North America
40%
Europe Africa33%
Asia Pacific
14%
Latin America
13%
Public Sector
44%
Commercial34%
Financial22%
Slide 92Q11 Unisys Revenue Profile
Y/Y Ch
North America (19%)
Europe/Africa (2%)
Asia Pacific (8%)
Latin America 4%
Y/Y Ch
Public Sector (9%)
Commercial (16%)
Financial Flat
U.S. Federal
16%
U.S. Federal
16%
Slide 10Revenue Performance (Prior years exclude divested businesses)
395339 351 327 341
295335
292 302 285 286
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10992
150187
125
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105
185
111 95
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2Q11
SI ITO TSA Tech$M
90 79 82 85 84 68 66 64 72 67 63
151135 137 127 138
124 115 116 115 110 130
7164 65 68 64
57 59 55 56 53 57
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1Q09
2Q09
3Q09
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1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
BPO ISS Core$M
324320
290322
315317
301328
326
285 307
Slide 11Cash Flow Comparison
$M 2Q11 2Q10
Cash Flow From Operations $36 $52
Capital Expenditures $29 $48
Free Cash Flow* $7 $4
Depreciation & Amortization $50 $63
Cash Balance $625 $497
* Free cash flow = Cash flow from operations less capital expenditures
See Schedule D: GAAP to non-GAAP Reconciliation.
Slide 12 Balance Sheet & Capital Structure
• Successfully concluded our previously announced cash tender offer
– Closed April 11, 2011– Retired $179M of high coupon long-term debt– 2Q11 charge of $46M
• Together with redemption of long-term debt in 1Q11, total debt reduced by $390M YTD
• Annualized interest savings of $53M
• Net cash* is $178M at June 30, 2011 vs. Net debt* of $340M at June 30, 2010
• Credit rating upgrades from S&P and Fitch
*See Schedule A: GAAP to non-GAAP Reconciliation.
Questions & Answers
Janet HaugenChief Financial Officer
Ed ColemanChairman & CEO
In an effort to provide investors with additional perspective 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.
Net Cash (Debt) – 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 (Debt) is calculated by subtracting Long-Term Debt and utilization under the company’s Accounts Receivable securitization/revolver 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 redemptions of $211.0 million in principal during the first quarter of 2011 and $178.9 million in principal during the second quarter of 2011. As a result of the debt reductions, Unisys recorded charges of $31.8 million and $45.7 million, respectively, during the first and second quarters of 2011. In addition, during the second quarter of 2011 the company recorded a pre-tax charge of $13.5 million related to the loss of an old non-income tax case concerning the company’s former Brazilian manufacturing operations. In order to provide investors with an understanding of the company’s operating results, these unusual charges are excluded from the Adjusted EBITDA calculation.
Non-GAAP Financial Measures
Non-GAAP Earnings per Diluted Share - Unisys completed debt redemptions of $211.0 million in principal during the first quarter of 2011 and $178.9 million in principal during the second quarter of 2011. As a result of the debt reductions, Unisys recorded charges of $31.8 million and $45.7 million, respectively, during the first and second quarters of 2011. In addition, during the second quarter of 2011 the company recorded an after-tax charge of $8.9 million related to the loss of an old non-income tax case concerning the company’s former Brazilian manufacturing operations. In an effort to provide investors with a perspective on the company’s earnings without these unusual charges, they are excluded from the non-GAAP earnings per diluted share calculation.
Free Cash Flow – To better understand the trends in our business, we believe that it is helpful to adjust cash flows from operations to deduct amounts for capital expenditures, including investment in marketable software, capital additions of properties and capital additions of outsourcing assets. Management believes this measure gives investors an additional perspective on cash flow from operating activities in excess of amounts required for reinvestment.
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
Schedule A: GAAP to Non-GAAP ReconciliationNet Cash (Debt)
$M 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11
Long-Term Debt (Including Current Maturities)
1,060.6 1,060.3 1,061.2 911.0 911.7 847.4 836.4 837.5 824.0 619.3 447.4
AR SecuritizationUsage
141.0 120.0 130.0 118.0 100.0 - - - - - -
Subtotal 1,201.6 1,180.3 1,191.2 1,029.0 1,011.7 847.4 836.4 837.5 824.0 619.3 447.4
Cash 544.0 468.7 475.0 473.6 647.6 468.5 496.5 688.7 828.3 833.1 625.0
Net Cash (Debt) (657.6) (711.6) (716.2) (555.4) (364.1) (378.9) (339.9) (148.8) 4.3 213.8 177.6
Schedule B: GAAP to Non-GAAP Reconciliation
EBITDA and Adjusted EBITDA
$M 2Q11 2Q10
Net Income (Loss) from Continuing Operations available to Common Shareholders ($11.6) $59.2
Less Preferred Stock Dividends 4.0 --
Net Income (Loss) from Continuing Operations attributable to Unisys (7.6) 59.2
Interest Expense 13.3 25.3
Income Taxes Provision (Benefit) (9.2) 13.3
Depreciation & Amortization 49.8 62.5
EBITDA $46.3 $160.3
Debt reduction charge 45.7 --
Brazil tax matter 13.5 --
Adjusted EBITDA $105.5 $160.3
Earnings before Interest, Taxes, Depreciation and Amortization
Schedule C: GAAP to Non-GAAP Reconciliation
Non-GAAP Earnings per Diluted Share
$M except share and per share data 2Q11 2Q10
GAAP net income (loss) attributable to Unisys Corporation common shareholders ($11.6) $59.2
Debt reduction charge 45.7 --
Brazil non-income tax case, net of tax 8.9 --
Non-GAAP net income attributable to Unisys Corporation common shareholders 43.0 59.2
Add preferred stock dividends 4.0 --
Non-GAAP net income attributable to Unisys Corporation for diluted earnings per share $47.0 $59.2
Weighted average shares (thousands) 43,106 42,590Plus incremental shares from assumed conversion of employee stock plans and preferred stock 7,484 739
Adjusted weighted average shares 50,590 43,329Earnings per ShareGAAP basis
GAAP net income (loss) attributable to Unisys Corporation common shareholders ($11.6) $59.2
Divided by weighted average shares 43,106 42,590
GAAP net income (loss) per share (0.27) 1.39
Non-GAAP basis
Non-GAAP net income attributable to Unisys Corporation for diluted earnings per share 47.0 59.2
Divided by adjusted weighted average shares 50,590 43,329
Non-GAAP earnings per diluted share $0.93 $1.36
Schedule D: GAAP to Non-GAAP Reconciliation Free Cash Flow
$M 2Q11 2Q10
Cash provided by operations $35.5 $51.6
Less Capital Expenditures 28.9 47.7
Free Cash Flow $6.6 $3.9