Unisys (UIS)

Q3 2011 Earnings Call

October 24, 2011 5:30 pm ET

Executives

Janet Brutschea Haugen - Chief Financial Officer and Senior Vice President

Niels Christensen -

J. Edward Coleman - Chairman of the Board, Chief Executive Officer and Member of Finance Committee

Analysts

Franklin Jarman - Goldman Sachs Group Inc., Research Division

James E. Friedman - Susquehanna Financial Group, LLLP, Research Division

Ned Davis - Wm Smith & Co.

Chris McDonald - Kennedy Capital Management, Inc.

Presentation

Operator

Good day, and welcome to the Unisys Third Quarter 2011 Results Conference Call. At this time, I would like to turn the conference over to Mr. Niels Christensen, Vice President of Investor Relations. Please go ahead, sir.

Niels Christensen

Thank you, operator. Good afternoon, everyone, and thank you for joining us. Earlier today, Unisys released its third quarter 2011 financial results. With us this afternoon to discuss our results are Ed Coleman, our CEO; and Janet Haugen, our CFO.

Before we begin, I want to cover a few housekeeping details. First, today's conference call and the Q&A session are being webcast via the Unisys investor website. Second, you can find the earnings press release and the presentation slides that we will be using this afternoon to guide our discussion on our investor website. These materials are available for viewing, as well as downloading and printing. Third, today's presentation, which is complementary to the earnings press release, includes non-GAAP financial measures. These have been provided in an effort to give investors additional information. The non-GAAP measures have been reconciled to the related GAAP measures, and we have provided reconciliation charts at the end of the presentation. Finally, I'd like to remind you that all forward looking statements made during this conference call are subject to various risks and uncertainties that could cause actual results to differ materially from expectations. These factors are discussed more fully in the earnings release and in the company's SEC filings. Copies of these SEC reports are available from the SEC and from the Unisys investor website. Now I'd like to turn the call over to Ed.

J. Edward Coleman

Thanks, Niels. Hello, everyone. Thank you for joining us today to discuss our third quarter 2011 financial results. This was a strong quarter for Unisys. We grew our revenue and tripled EPS from continuing operations as we benefited from the foundational work we've been doing to strengthening our competitive and financial profile. Page 4 of the slides summarizes our results in the quarter. Our revenue grew 6% despite lower revenue in our U.S. Federal business, where we continue to be impacted by the ending of the TSA contract last November and budget uncertainties in that market. Excluding the U.S. Federal business, our overall revenue grew 14%. Services revenue grew 2%, 12% excluding U.S. Federal business. Within services, we grew revenue in both of our strategic growth areas of IT outsourcing and systems integration. Excluding U.S. Federal, IT outsourcing revenue grew 12%, marking the seventh consecutive quarter of growth in this business. And excluding U.S. Federal, systems integration revenue grew 21%, reflecting higher sales of industry solutions.

In technology, we grew revenue 36%, driven by significantly higher ClearPath sales. As I mentioned in our last call, our ClearPath sales can vary significantly from quarter-to-quarter, which is why we believe the best way to measure this business is on a full year basis. With a strong third quarter, year-to-date ClearPath revenue is approximately flat, and we continue to focus on our goal of maintaining 2011 ClearPath revenue roughly flat with 2010 levels. Along with continued focus on cost discipline, we were able to leverage the revenue growth in the quarter into higher margins and profitability. We reported an operating profit of $113 million, up 48%, and achieved an overall operating margin of 11.1%. In our services business, we achieved an operating profit margin of 8.7%, which was within our targeted 8% to 10% range. At the bottom line, we delivered net income from continuing operations of $79 million and diluted EPS of $1.63, up from $0.50 a year ago. We're pleased with these results, which speak to the progress we've made in enhancing our portfolio, creating a more competitive cost structure and strengthening our selling efforts. At the same time, we recognize we have more work to do to drive continued profitable revenue growth and achieve our goal of consistent, predictable financial results. Global economic conditions are challenging, and we must continue to sharpen our differentiation in an extremely competitive marketplace. To do that, we'll build on the foundation we put in place over the past 3 years.

Page 5 shows the basis of our differentiation at Unisys. We're focused on 4 areas of strength: Security; Data Center Transformation and Outsourcing, including our ClearPath software and server offerings; End User Outsourcing and Support Services; and Application Modernization and Outsourcing. Within those areas, we differentiate ourselves through our expertise in providing mission-critical IT solutions and services to the quality of those solutions and services by placing the customer at the center of everything we do, by maintaining a narrow focus on our portfolio and served markets, by continuously improving our operational efficiencies and by building a high-performing sales culture. This set of capabilities and solutions positioned Unisys to help clients address disruptive IT trends, such as cloud computing, cybersecurity and consumerization and mobility. They are changing the way organizations do business today in creating growth opportunities.

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