Unisys Management Discusses Q2 2012 Results - Earnings Call Transcript

Unisys (UIS)

Q2 2012 Earnings Call

July 24, 2012 5:30 pm ET

Executives

Niels Christensen

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

Janet Brutschea Haugen - Chief Financial Officer and Senior Vice President

Analysts

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

Ned Davis - Wm Smith & Co.

Karl Blunden - Goldman Sachs Group Inc., Research Division

Presentation

Operator

Good day, ladies and gentlemen. Welcome to Unisys' Second Quarter 2012 Results Conference Call. At this time, I would like to turn the conference over to Mr. Niels Christensen of Unisys Corporation. Please go ahead, sir.

Niels Christensen

Thank you, operator. Good afternoon, everyone, and thank you for joining us. Earlier today, Unisys released its second quarter 2012 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. Secondly, 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 some non-GAAP financial measures. These have been provided in an effort to give investors additional information. The non-GAAP measures have been reconciled to their related GAAP measures, and we've 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.

And 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 second quarter 2012 financial results. This is a solid quarter for Unisys. We reported significantly higher profits, grew revenue on a constant currency basis and continued to make progress on our 3-year financial objectives. Please see Page 4 of the presentation materials for highlights of our results.

We reported net income of $46.6 million compared with an $11.6 million net loss a year ago. The year-ago net loss included a $45.7 million debt reduction charge. Excluding debt reduction charges and pension expense in both years, as well as the impact of a Brazilian tax matter in the year-ago quarter, our non-GAAP earnings per share rose to $1.41 from $1.07 in the year-ago quarter.

Revenue declined 2% but grew 3% in constant currency despite a 20% revenue decline in our U.S. Federal business where market conditions continue to be challenging. This was the third quarter out of the past 4 that we've grown our overall revenue on a constant currency basis.

Our technology business had a particularly strong quarter, growing revenue 12% on strong ClearPath sales. Year-to-date, our technology revenue was up 3%. We continue to believe the best way to measure this business is on an annual basis, and our goal is to maintain stable technology revenue for the full year, most importantly in our flagship ClearPath platform.

Revenue in our services business declined 3% but was up 1% in constant currency. Within services, we grew our IT outsourcing revenue 8%. We saw good margin improvement year-over-year in both our services and technology businesses. In services, we were pleased to reach our targeted 8% to 10% operating profit margin range. Cash flow also improved in the quarter, and we are announcing today a further debt reduction action of $84.5 million that will enable us to achieve over a year early our debt reduction goal for year end 2013.

Turning to Page 5. As you recall at the end of 2010, we set financial objectives that we wanted to achieve by the end of 2013. Those objectives are: to increase our pretax profit to $350 million, assuming no change in pension income or expense in 2010 levels; to consistently achieve an 8% to 10% operating profit margin in our services business; to grow our IT outsourcing and systems integration revenue at market rates while maintaining stable revenue in our technology business, particularly within the ClearPath business; and to reduce our debt by 75% from September 2010 levels.

As we are now at the midway point of this 3-year plan, I'd like to step back and review how we're doing against those objectives. In terms of our pretax profit goal, our first half 2012 pretax profit, excluding pension expense and debt reduction charges, is $171 million. From a margin perspective, our services operating profit margin was 8% in the second quarter, and through the first half of 2012 has improved 90 basis points year-over-year to 6.5%. While we still have work to do to get to our target 8% to 10% range on a consistent basis, we're pleased with the progress we've made in improving the profitability of our services business.

As you know, a portion of that improvement has been driven by the increase in our use of lower-cost labor pools, which now represent 31% of our employee base. We're also encouraged with progress toward our revenue growth goals. In IT outsourcing, as I mentioned, we grew revenue by 8% in the second quarter. And year-to-date in 2012, our IT outsourcing revenue was up 4%. We continue to strengthen our portfolio of IT outsourcing offerings with new solutions such as the new cloud-based IT service management service aimed at helping our clients simplify the delivery of IT support services to their end users. These services take advantage of our global service delivery network which is based on idle compliant processes.

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