Unisys Corporation — Q3 2021 Form 10-Q
Business context and reporting period. This unaudited filing covers the quarter and nine months ended September 30, 2021. Unisys reports Digital Workplace Solutions (DWS), Cloud & Infrastructure Solutions (C&I), and Enterprise Computing Solutions (ECS). Amounts below are in millions of dollars, except per-share data.
Financial results and liquidity
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $488.0 | $495.2 | $1,515.1 | $1,449.4 |
| Gross margin | 26.0% | 24.2% | 26.9% | 21.2% |
| Operating income | $25.1 | $27.7 | $109.5 | $39.3 |
| Net loss attributable to Unisys | $(18.7) | $(12.9) | $(317.3) | Net income of $923.8 |
| Diluted loss per share | $(0.28) | $(0.20) | $(4.79) | Income of $14.69 per share |
- Q3 revenue declined 1.5%; foreign exchange contributed a positive two percentage points. Services revenue was $417.9 million versus $426.0 million, while Technology revenue was $70.1 million versus $69.2 million.
- Nine-month revenue increased 4.5%, including a positive three-percentage-point foreign-exchange impact. Gross margin gains reflected enterprise software sales, efficiencies, and cost-reduction initiatives.
- Q3 SG&A rose to $95.1 million from $85.5 million, principally due to compensation, including direct sales support. Nine-month SG&A was $279.7 million versus $252.5 million; R&D was $19.1 million versus $16.1 million.
- Nine-month other expense was $434.6 million, including $368.7 million of pension settlement losses. The 2020 comparison included $1,066.8 million of discontinued-operations income, largely from the sale of the U.S. Federal business; therefore, total net income comparisons are not like-for-like.
- Cash from operations was $64.5 million for the first nine months, versus $325.8 million used in the prior-year period. Management attributed the improvement principally to lower pension contributions.
- Cash and cash equivalents were $615.4 million at September 30, down from $898.5 million at year-end 2020. Total debt was $532.9 million, versus $629.9 million; stockholders’ deficit was $294.3 million.
- The revolving ABL facility had no borrowings, $5.7 million of letters of credit, and $75.1 million of availability. The company reported compliance with lending covenants and expected to remain compliant for at least the next 12 months.
Material changes and segment trends
- Q3 segment revenue and gross profit margin: DWS $141.3 million and 11.9% (down from 14.6%); C&I $118.9 million and 7.8% (up from 3.7%); ECS $149.2 million and 65.0% (up from 51.4%). ECS improvement was principally attributed to enterprise software sales. DWS faced contract exits and supply-chain shortages; C&I cited higher-margin offerings and efficiency gains.
- Unisys acquired Unify Square on June 3 for $150.4 million cash. The acquisition added $134.3 million of goodwill; its results were included from the acquisition date, and the company said the impact was not material to consolidated results.
- The remaining $84.2 million principal of convertible notes due 2021 was converted in March for cash and shares. Net common shares outstanding increased by 3,285,663 from the conversion and capped-call settlement.
- Cash used in investing was $236.0 million, including the acquisition; financing activities used $100.8 million. The prior-year investing cash inflow included $1,162.9 million of net proceeds from the U.S. Federal business sale.
Outlook, risks, and unusual items
- No specific revenue or earnings guidance is provided in the supplied filing text. Management said it expected adequate liquidity for at least 12 months and approximately $48.3 million of 2021 pension contributions, primarily for international plans. Based on year-end 2020 data and assumptions, it projected no required U.S. qualified-plan contributions for the period covered by its projections and cancelled a previously contemplated $200 million voluntary contribution. Future funding needs remain sensitive to plan assets, legislation, discount rates, returns, and demographic or economic changes.
- On October 14, 2021, after quarter-end, Unisys purchased a $235 million group annuity contract for approximately 6,900 U.S. retirees. It expected a fourth-quarter non-cash, pre-tax settlement loss of approximately $130 million.
- COVID-19-related estimates had no material impact on the reported financial position as of September 30, according to management, but future effects could be material. Other stated risks include competition, customer and contract retention, talent, execution of growth strategy, cybersecurity, international operations, pension obligations, financing access, and tax-attribute limitations.
- Brazilian operations had unreserved tax-related matters, including interest, estimated at up to approximately $76 million. The filing says possible losses beyond accruals for specific proceedings generally were not reasonably estimable or were not expected to be material; adverse outcomes could nevertheless affect results or cash flow.
- The company recognized $14.4 million of cost-reduction charges and other costs in the first nine months, compared with $48.6 million in 2020. Management reported effective disclosure controls and no significant changes to the risk factors beyond the previously updated pension-related risk.
Most important facts for investors to verify
- Whether revenue and margin trends persist, especially DWS recovery from contract exits and supply-chain constraints, and continued ECS software demand.
- The cash and earnings consequences of pension settlements, including the expected fourth-quarter $130 million non-cash loss and potential future funding requirements.
- Cash generation, accessible foreign cash, and ABL availability relative to debt service, covenant requirements, and the facility’s pension-related springing maturity provisions.
- Realization of acquisition benefits from Unify Square and the assumptions supporting its goodwill valuation.
- Developments in Brazilian tax and other litigation contingencies, and the impact of tax-attribute limits or changes in deferred-tax-asset valuation.