third-quarter 2010 financial results - unisys › ... ›...
TRANSCRIPT
Webcast available on www.unisys.com/investor
Janet HaugenChief Financial Officer
Ed ColemanChairman & CEO
Third-Quarter 2010 Financial ResultsOctober 26, 2010
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 EBITDA, Adjusted Net Debt 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 October 26, 2010 and Unisys undertakes no duty to update this information.
Ed ColemanChairman & CEO
Slide 1Third-Quarter 2010 Overview
• Another profitable quarter for Unisys
• Achieved services operating margin of 8.0%
• Net income from continuing operations of $22M, down 58%
• Technology revenue declined 31%, up 2.4% YTD
• Continued progress in strengthening balance sheet• Free cash flow of $81M up from $46M a year ago
• Net debt declined to $138M, down from $555M a year ago
ACTIONS 4Q08-3Q10 PriorityGoing
Forward
Focus resourceson fewer markets
& portfolio offerings
• Improved services mix (ITO & SI up as % of revenue)• Divestitures completed (UISL, HIM, check reader & sorter
equipment business)• Geographic rationalization
Sustain Focus
Offer clear, differentiatedvalue propositions in chosen markets
• Leveraged Areas of Strength> Security> Data Center Transformation & Outsourcing including our server business> End User Outsourcing> Application Modernization
• Portfolio enhancements
Stabilize & Grow
Enhance cost-efficiencyof labor model to drive
gross margin expansion
• $250M+ cost reduction• Low cost (offshore/onshore) labor increased from 15% of
Unisys labor to 27% • Greater automation (Knowledge Management & IT Tools)• ISO, ITIL and CMMI certifications
Sustain Focus
Simplify organizationand reduce expenses
• $250+ SG&A cost reductions• Simplified business model• Focused R&D (more effort/lower cost)
Sustain Focus
Slide 2Business Priorities
Slide 3Comparative Portfolio
Full Year 2008 Revenue(as reported)
YTD 2010 Revenue(excluding divested businesses)
% of Rev SI ITO Tech ISS BPO CoreFY 2008 28.6% 25.0% 12.0% 14.0% 13.3% 7.1%
YTD 2010 31.0% 31.8% 12.7% 12.0% 6.7% 5.8%
Information Technology Outsourcing
CoreMaint.
Systems Integration
Infrastructure Services
Business Process
Outsourcing
TechnologyInformation Technology Outsourcing
CoreMaint.
Systems Integration
Infrastructure Services
Business Process
Outsourcing
Technology
Slide 4Operating Income Trend
-2.551.8
140.2
330.0373.3
410.7375.2
-$100
$0
$100
$200
$300
$400
$500
1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10
$M Trailing Twelve Months Operating Profit
Slide 5Focus for Fourth-Quarter 2010 & Beyond
• Focused on executing against priorities
• Continue to:– Reshape business model toward profitable growth
– Reduce expenses, enhance cost efficiency
– Drive improved profitability and cash flow
• Our goals over the next three years:– Grow in our areas of strength
– Consistently deliver 8-10% services operating profit
– Continue strengthening the balance sheet
o Reduce debt by 75% by the end of 2013
– Increase annual pre-tax profit to $350 million in 2013, assuming no change in pension income or expense
Janet HaugenChief Financial Officer
Slide 6 Third-Quarter 2010 Order Highlights
• Closed 3Q10 with $5.8 billion in services backlog• Services orders declined y/y; grew by 3% sequentially• By portfolio:
• Double-digit ITO order growth y/y and sequentially• SI/consulting orders down y/y; up 38% sequentially
• By geography:• Order growth in U.S. including Federal• International orders decline; substantially all of the decline in UK
which had a significant 3Q09 BPO order
Slide 7 Third-Quarter 2010 Financial Results
$M 3Q10 3Q09 Y/Y % Ch
Revenue $961 $1,106 -13%
Gross Profit $237 $298 -20%
Gross Profit Margin 24.7% 26.9% -2.2 pts
Operating Expenses (SG&A plus R&D) $161 $186 -13%
Operating Profit 76 $112 -32%
Operating Profit Margin 7.9% 10.1% -2.2 pts
Other Income (Expense) ($0.2) ($3.4)
Tax Expense $28.2 $28.4
Net Income from Continuing Operations $21.8 $52.4 -58%
Net Income $28.3 $61.1
Diluted EPS $0.65 $1.48
Slide 83Q10 Total Company Key Performance Metrics
283 293 283
228 213
262298
340
235288
237
23% 23% 23%19% 20%
24%27%
29%
24%28%
25%
0%
10%
20%
30%
40%
$0
$100
$200
$300
$400
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
Gross Margin % of Rev$M
263 278259
284
198 193 186206
177 18216121% 22% 21%
23%19% 18% 17% 18% 18% 18% 17%
0%
10%
20%
30%
40%
$0
$100
$200
$300
$400
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
Operating Expense % of Rev$M
20 15 23
-56
15
69112
134
59
10776
2% 1% 2%
-5%
1%
6%10%
12%
6%10%
8%
-15%
-5%
5%
15%
25%
-$150
-$50
$50
$150
$250
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
Operating Income % of Rev$M
115103
117
59
90
160188
225
87
160136
9% 8% 9%
5%
9%
15%
17% 19%
9%
15%14%
0%
5%
10%
15%
20%
25%
$0
$100
$200
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
EBITDA % of Rev$M
(SG&A + R&D)
See Schedule A: GAAP to non-GAAP Reconciliations.
Slide 9Services
$M 3Q10 Y/Y Ch Y/Y Ch*
Services Revenue $855.2 -10% -8%
Gross Margin 20.6% +70 bp
Operating Margin 8.0% +50 bp
Revenue by Portfolio 3Q10 Y/Y Ch Y/Y Ch*
Systems Integration $291.5 -11% -11%
Information Technology Outsourcing
$328.1 +1% +1%
Infrastructure Services $116.4 -13% -8%
Core Maintenance $54.9 -32% -20%
Business Process Outsourcing
$64.3 -25% -25%
35% 34%
35% 38%
14% 14%7% 6%9% 8%
0%
25%
50%
75%
100%
3Q09 3Q10
BPO
Core*
ISS*
ITO
SI
Services Revenue
*Excluding divested businesses
Slide 10Technology
Technology Revenue $M 3Q10 Y/Y Ch Y/Y Ch*
TechnologyCustomer Revenue
$105.4 -31% -30%
Gross Margin 47.6% -760 bp
Operating Margin 7.9% -1330 bp
Revenue by Portfolio 3Q10 Y/Y Ch Y/Y Ch*
Enterprise Servers $77.0 -45% -44%
Other Technology $28.4 92% +125%
*Excluding divested businesses
92%
73%
8%
27%
0%
25%
50%
75%
100%
3Q09 3Q10
OtherTechnology*
EnterpriseServers*
*U.S. Federal
23%
Industry
Geography
Slide 113Q10 Unisys Revenue Profile
Y/Y Ch
North America -14%
Europe/Africa -20%
Pacific Asia -8%
Latin America 4%
Y/Y Ch
Public Sector -9%
Commercial -15%
Financial -20%
North America
47%
Europe Africa28%
Pacific Asia12%
Latin America
13%
*U.S. Federal
23%
Public Sector
47%Commercial32%
Financial21%
*U.S. Federal increased 1% Y/Y
Slide 12Revenue Trend Performance (excluding divested businesses)
344389
361395
339 351 327 341295
335292
315
338335 320
290324 326 322
301317
328
155133 153 154
10992
150187
125
145
105
$0
$200
$400
$600
$800
$1,000
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
SI ITO Tech$M
108 112 110 90 79 82 85 84 68 66 64
191 181 173151
135 137 127 138124 115 116
79 79 7871
64 65 68 6457 59 55
$0
$200
$400
$600
$800
$1,000
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
Core ISS BPO$M
Slide 13Strengthening the Balance Sheet
$0
$250
$500
$750
$1,000
$1,250
4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10
AR Securitization
Long-Term Debt (LTD)
Restricted Cash (HIM)
Cash
Adjusted Net Debt*
$M
* Adjusted Net Debt = LTD + utilization under AR securitization facility less cash and remaining HIM net proceeds.
See Schedule B: GAAP to non-GAAP Reconciliations.
Questions & Answers
Janet HaugenChief Financial Officer
Ed ColemanChairman & CEO
In an effort to provide investors with additional information 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.
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.
Free Cash Flow – To better understand the trends in our business, we believe that it is helpful to adjust cash flows from operations to exclude 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.
Non-GAAP Financial Measures
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 which 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 Net 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. Adjusted Net Debt is calculated by adding Long-Term Debt and utilization under the Accounts Receivable securitization facility and subtracting the company’s cash balance and remaining proceeds from the divestiture of the company’s Health Information Management business held as restricted cash in prepaid expenses and other current assets on the company’s balance sheet.
Non-GAAP Financial Measures
Schedule A: GAAP to Non-GAAP Reconciliation
EBITDA
$M 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10
Net Incomefrom ContinuingOperations
(27.6) (18.0) (43.3) (62.0) (28.5) 34.6 52.4 113.7 (17.3) 59.2 21.8
InterestExpense 21.6 21.2 21.5 20.8 21.8 21.2 25.4 26.8 26.5 25.3 25.0
Income TaxesProvision(benefit)
21.2 1.0 40.6 (21.9) 12.9 13.6 28.4 (12.6) 11.2 13.3 28.2
Depreciation & amortization 99.6 98.9 97.9 121.6 83.7 90.1 82.1 96.6 66.9 62.5 60.6
EBITDA $114.8 $103.1 $116.7 $58.5 $89.9 $159.5 $188.3 $224.5 $87.3 $160.3 $135.6
% of Rev. 9.3% 8.1% 9.4% 4.8% 8.6% 14.8% 17.0% 19.4% 8.9% 15.5% 14.1%
Earnings before Interest, Taxes, Depreciation and Amortization
Schedule B: GAAP to Non-GAAP ReconciliationAdjusted Net Debt$M 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10
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
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
Cash 544.0 468.7 475.0 473.6 647.6 468.5 496.5 688.7
Net Debt $657.6 $711.6 $716.2 $555.4 $364.1 $378.9 $339.9 $148.8
Remaining HIM Proceeds - - - - - - 101.3 10.9
Adjusted Net Debt $657.6 $711.6 $716.2 $555.4 $364.1 $378.9 $238.6 $137.9
Schedule C: GAAP to Non-GAAP Reconciliation Free Cash Flow
$M 3Q09 3Q10
Cash provided by operations $94.1 $126.8
Capital Expenditures (48.4) (45.6)
Free Cash Flow $45.7 $81.2