Unisys Reports Growth in Q3, Upgrades 2024 Outlook

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Unisys Reports Growth in Q3, Upgrades 2024 Outlook

Unisys Corporation (NYSE: UIS) reported a 7% increase in third-quarter revenue to $497 million for the earnings call on October 30, 2024. The growth is primarily attributed to a 57% year-over-year increase in Licensing and Support (L&S) revenue. The company raised its full-year non-GAAP operating margin guidance by demonstrating strong performance in new contract signings and advancements in artificial intelligence project initiatives, improving its free cash flow outlook.

Key Points:

  • Third-quarter revenue increased by 7% year-over-year to $497 million.
  • Licensing and Support (L&S) revenue was a significant growth factor, reaching $105 million with a 57% increase.
  • Total Contract Value (TCV) for new business grew by 50% due to contributions from new customers and strong signings in key sectors.
  • Full-year non-GAAP operating margin guidance was raised, and free cash flow outlook improved.
  • The company reported a 9% increase in the sequential project pipeline and initiated over 120 active artificial intelligence projects.
  • New contracts included partnerships with a major U.S. city and a large U.S. hospital system.
  • The voluntary attrition rate was 11.8%, and the company received recognition across multiple sectors.
  • Full-year L&S revenue forecast was raised to approximately $415 million.
  • Adjusted EBITDA was $77 million, with a margin of 15.5%, and backlog increased by 18% to $2.8 billion.
  • Despite a GAAP net loss, the company anticipates full-year Ex-L&S revenue growth to be in the range of 1.5% to 5%.

Company Outlook: Unisys maintains its 2024 financial guidance, expecting total revenue growth in the range of -1.5% to 1.5% at constant currency. Non-GAAP operating margin is projected to rise between 6.5% and 8.5%. The company forecasts approximately $20 million in restructuring expenses in Q4. The full-year free cash flow estimate was raised from $10 million to around $30 million.

Negative Highlights:

  • When excluding L&S, revenue declined by 1.3% year-over-year to $393 million.
  • Volumes in Digital Workplace Solutions (DWS) business weakened.

Positive Highlights:

  • Strong new business signings increased by 32% year-to-date.
  • High renewal rates for contracts surpassed 95%.
  • The ClearPath Forward 2050 strategy focuses on long-term investments, including post-quantum encryption.
  • Strong consumption patterns among customers lead to early contract signings and extensions.

Shortcomings:

  • The company reported a GAAP net loss of $62 million.
  • L&S excluding revenue growth is at the lower end of the guidance range.

Q&A Highlights: Executives discussed strategies to improve profit margins, including enhanced delivery efficiencies and reductions in SG&A expenses. The company is confident in its growth trajectory supported by strong backlog and improving margins. Geographic diversification allows the company to focus on regions with higher growth potential.

Unisys Corporation has demonstrated resilience and growth in a challenging economic climate, with the L&S segment driving the company forward. Its strategic focus on artificial intelligence projects, customer diversification, and strong contract signings positions Unisys positively for the coming year. While some areas like DWS may face headwinds, the overall outlook for Unisys remains positive as the company takes proactive steps to ensure continual growth and profitability.

InvestingPro Forecasts: Unisys Corporation's recent financial performance and strategic initiatives are reflected in various key metrics and forecasts from InvestingPro. The company's stock has shown remarkable strength with a 33.33% return over the past week and a 158.99% return over the past year. This aligns with the reported revenue growth and improved outlook.

InvestingPro tips highlight that Unisys trades at a low revenue valuation multiple, making it potentially attractive for value investors in light of the company's recent revenue growth and improved guidance. Analysts also forecast that Unisys will be profitable this year, which is encouraging given the company's current focus on increasing profit margins and reducing costs.

However, it is important to note that Unisys has not been profitable over the last twelve months, with a negative P/E ratio of -1.36, consistent with the $62 million GAAP net loss reported in the latest earnings call. The company's efforts to improve its financial situation are clearly visible in the revised non-GAAP operating margin guidance and increasing free cash flow expectations.

Unisys has a market capitalization of $373.02 million, reflecting its status as a smaller player in the technology sector. With $2.02 billion in revenue over the past twelve months and a gross margin of 29.58%, the company shows growth potential, especially focusing on artificial intelligence initiatives and strong new business signings.

For investors seeking a more comprehensive analysis, InvestingPro offers additional tips and forecasts. Currently, there are 10 extra InvestingPro Tips available for Unisys that can provide valuable context to understand the company's financial health and market position.