Unisys, Turning A Q2 Profit, Expects Brexit to Bolster Its Border Security Practice

Unisys believes Great Britain's departure from the European Union will generate business for its border security practice while strength around financial services drove higher profit margins in the company's second quarter.

"The redefining of borders creates additional need to secure those borders in different ways from what is currently required," said Unisys President and CEO Peter Altabef during Tuesday's earnings call for the company's fiscal 2016 second quarter (ended June 30).

The Blue Bell, Pa.-based company, No. 19 on the CRN Solution Provider 500, returned to profitability in the quarter, delivering earnings of $21.6 million, or 36 cents per diluted share, as compared with a loss of $58.2 million in the same quarter last year.

[RELATED: Unisys CEO: Security Sales Set To Soar As Cybsecurity Software Is Taken Global]

Revenue for the second quarter was $748.9 million, down 2 percent from $764.8 million one year earlier. But the results exceeded Wall Street expectations, crushing Seeking Alpha estimates of $688.4 million.

On a non-GAAP basis, Unisys's earnings improved from $16.3 million in last year's second quarter to $58.2 million this year, or 81 cents per share. That eviscerated Seeking Alpha expectations of a loss of 51 cents per share.

Wall Street responded very favorably to the numbers, as Unisys' stock climbed 7.7 percent in after-hours trading Tuesday, to $8.56 per share. Earnings were released after the market closed.

Unisys is currently in discussions with Frontex, the European Union agency that promotes, coordinates and develops European border management policies; and eu-LISA, the European agency that manages the IT systems for border management and migration, around helping secure borders across Europe, Altabef said.

Specifically, Unisys is speaking with the European Union about leveraging the company's capabilities around analytics and predictive analysis to better identify terrorist threats, Inder Singh, Unisys's chief marketing and strategy officer, said during the earnings call. As the EU realigns its borders, Singh said, Unisys also sees an opportunity to bring its passenger and cargo tracking systems to Europe.

"We're looking at new borders coming up where borders haven't existed for a couple of years," Singh said.

Those systems are currently deployed in other parts of the world, Singh said, and are involved in screening virtually all land-based traffic entering or leaving the United States.

Unisys' services revenue fell 7 percent to $614 million in the second quarter, driven by continued weakness in the vendor's cloud and infrastructure services segments. Although Unisys has improved its gross margins around services by 110 basis points, Altabef said margins are still not where the company would like.

"It's frankly a little harder slogging than we had hoped," Altabef said. "It's taken more cycles, and it's taken longer."

Unisys is investing heavily in consulting and advisory services around its services business, specifically as it relates to sales and technical talent around security, application development and DevOps capabilities. Altabef said the company is also looking to further leverage existing partnerships with Dell, EMC, AWS and Microsoft in the services arena.

"A fair amount of investment is being put in place," Altabef said.

On a more positive note, Unisys' technology segments recorded monster 31 percent growth to $135 million, thanks to strong sales of the vendor's ClearPath Forward enterprise computing platform.

Unisys' financial services sector delivered 8 percent annual growth, thanks to the convergence of digital and mobile banking. Altabef said the industry's move to omni-channel banking will only increase the need for security and cyber-crime prevention solutions from companies like Unisys.

Unisys recently partnered with two payment card technology providers, Altabef said, and is actively talking about its platform to a number of financial services organizations in the Asia-Pacific region.

"PCI [payment card industry] compliance is in the eye of the beholder," Altabef said. "It's really a user requirement rather than a provider requirement."

From a geographic standpoint, Unisys' U.S. and Canadian sales fell 9 percent due to cloud and infrastructure segment weakness, while Latin American sales remained flat.

Sales, meanwhile, in the Europe, Middle East and Africa (EMEA) region climbed 6 percent, thanks to strength in the technology segment, while Asia-Pacific sales climbed by 10 percent due to the increased digitization of government operations in Australia and New Zealand.

Unisys also staked a claim in the security space this week, expanding its managed security offerings by adding security analytics platform LogRhythm as the company’s new preferred Security Information and Event Management (SIEM) product.

The SIEM technology will be integrated into Unisys’ global security operations centers, as well as in its Unisys Stealth suite of security technology.

The LogRhythm software will improve Unisys’ current offerings by simplifying the number of products needed to manage a client’s security infrastructure and intuitively lowering the number of false positives that are flagged for attention, Ed Liebig, Unisys vice president of Global Security Delivery, told CRN. This will allow Unisys’ security team to save time they would otherwise be spending on checking those alerts.

’The hardest thing in security is the overwhelming amount of information, and the tuning of these products [to eliminate false positives] is very critical," Liebig said. "Now, we don’t have to do it on our own; we can rely on the intelligence that LogRhythm has built in.’