Unisys Corporation — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; comparisons are with Q1 2023 unless noted. Amounts are in millions of dollars, except per-share data.
Business context and results
Unisys provides digital workplace, cloud/applications/infrastructure, and enterprise computing solutions. Revenue was $487.8, down 5.5% year over year. Management attributed the decline primarily to the timing of software license renewals in Enterprise Computing Solutions (ECS); foreign exchange added 2 percentage points to reported revenue growth.
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Services revenue | $416.8 | $403.9 |
| Technology revenue | $71.0 | $112.5 |
| Gross profit / margin | $136.0 / 27.9% | $159.0 / 30.8% |
| Operating income | $17.7 | $49.9 |
| Net loss attributable to Unisys | $(149.5) | $(175.4) |
| Diluted loss per share | $(2.18) | $(2.58) |
| Cash from operating activities | $23.8 | $12.8 |
Financial performance and material changes
- Gross profit and margin fell, mainly due to renewal timing, partly offset by a benefit from resolving a contractual dispute with a former client. SG&A increased to $112.2 from $102.9, reflecting higher cost-reduction charges and stock compensation; operating income consequently declined.
- Other expense was $142.1, including a $132.3 pretax U.S. pension settlement loss. The comparable 2023 period included a $183.2 settlement loss. The current quarter also included an approximately $14.9 gain from a favorable judgment in a Brazilian services-tax matter. These unusual items materially affected reported losses.
- Segment revenue and gross margin: Digital Workplace Solutions (DWS) $132.3 and 14.4% (prior year $131.0 and 11.9%); Cloud, Applications & Infrastructure Solutions (CA&I) $129.0 and 16.6% (prior year $126.0 and 13.0%); ECS $147.0 and 57.8% (prior year $188.2 and 66.7%). DWS and CA&I margins improved with delivery/labor efficiency initiatives; ECS declined with renewal timing.
- Operating cash flow improved by $11.0 year over year, primarily because pension contributions were lower. Investing cash use was $18.8 and financing cash use was $7.7. Cash, cash equivalents and restricted cash declined $6.2 during the quarter to $390.5.
Liquidity, debt and balance sheet
- Cash and cash equivalents were $382.8 at March 31, versus $387.7 at year-end. $256.3 was held by foreign subsidiaries and branches; the company said approximately one-quarter of those funds may not be readily transferable and transfers could incur taxes.
- Total debt was $498.4, down from $504.2 at December 31, 2023. The principal borrowing is $485.0 face value of 6.875% secured notes due November 2027. The ABL facility had no borrowings, $7.0 of letters of credit and $43.4 of availability; it matures October 2025.
- Total deficit was $144.8. Long-term postretirement liabilities were $777.4. The company reported that it met lending and funding covenants and expected to continue doing so for at least the next 12 months.
Outlook, risks and contingencies
- No specific revenue or earnings guidance is provided in the filing. Management expects adequate liquidity for at least 12 months.
- Management estimates approximately $20 of pension contributions in 2024, primarily for international plans, and approximately $110 in 2025 for U.S. and non-U.S. plans. The company warns that pension asset performance, rates, regulation and demographic changes could alter contribution amounts or timing. It may need additional funding if operating cash flow is insufficient.
- Remaining performance obligations were approximately $0.8 billion; about 26% was expected to be recognized by year-end 2024. This excludes certain short-duration and right-to-invoice contracts.
- The company is discussing a potential non-scienter-based settlement with SEC staff concerning an investigation of cybersecurity disclosures and related internal controls; no assurance is given that a resolution on acceptable terms will be reached. A securities class action was dismissed with prejudice after no further amended complaint was filed.
- Unreserved Brazilian tax-related matters, including interest and excluding matters assessed as remote, were estimated at approximately $118. An environmental liability of approximately $26 was recorded for a former site; approximately $32 of expected reimbursement was recorded as an asset. Further environmental costs could arise. Management says provisions are adequate, but adverse legal outcomes could materially affect a reporting period.
- Key stated risks include cybersecurity, revenue and margin execution, competition, economic and geopolitical conditions, technology change, government contracting, financing access, pension obligations, talent retention, legal/regulatory matters, tax attributes and potential asset impairment. The company reported disclosure controls effective at quarter-end and no material changes in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether ECS software-license renewal timing reverses and whether revenue and gross margins recover, especially in ECS.
- Cash generation and the availability of foreign-held cash, including the $43.4 ABL availability and its borrowing-base and covenant conditions.
- Ability to fund projected pension contributions, particularly the approximately $110 expected in 2025, and any effect on liquidity or the ABL springing-maturity terms.
- Developments and potential financial exposure from the SEC cybersecurity investigation, Brazilian tax matters and environmental remediation.
- Whether the $14.9 Brazilian judgment gain and pension settlement accounting obscure underlying operating trends; distinguish these items from recurring performance.