Unisys Reports Lower Revenue, Predicts Slow Turnaround

Mired in a sales slump that company officials had warned would hamper it through the year, Unisys on Wednesday reported a double-digit percentage drop in revenue for the third quarter and a net loss of nearly $10 million.

The Blue Bell, Pa.-based solution provider – No. 19 on the CRN Solution Provider 500 - reported a 16 percent decline in year-over-year revenue, from $882 million to $739 million. Its net loss, $9.6 million, marked a drastic reversal from a net profit of $47.8 million. But it followed a $58.2 million loss in the second quarter of 2015.

Unisys released its third-quarter numbers after Wednesday’s stock market close.

[RELATED: Unisys' report for the second quarter of 2015]

Unisys attributed half of its decline for the quarter to currency fluctuations; the other half to a drop in technology revenue. It anticipated the decline in its technology business - 51 percent compared with the third quarter of 2014 because of fewer renewal opportunities.

"There was nothing radically new," said Wm Smith & Co. analyst Ned Davis about the report, which preceded a late-afternoon conference call with analysts. "The company seems to be clearly on track, and that is encouraging."

The company's stock price had plunged 37 percent since July, just before it announced its second-quarter numbers, according to Yahoo Finance. On Wednesday, Unisys stock, which trades on the New York Stock Exchange, fell more than 4 percent to close at $12.59. But on Thursday, the day after it released its third-quarter numbers, the stock had risen more than 15 percent midway through the trading day, reaching a high it had not seen since August.

In the third quarter, Unisys had a cloud over its head, Davis said, as the company continued to restructure. He added that Unisys drew negative attention when it retracted a $350 million debt offering in September.

During Wednesday's call with analysts, Unisys was able to convey a sense of encouragement, Davis said, by showing it understands the financial aspects of its business plan and turned down the offer it received on the September debt offering, showing it was not in dire need of the money.

"Unisys was able to show they are under no great pressure to get that money," he said. "The most important thing is in what they didn’t say: Unisys is not in a crisis."

The company reported growth in its services business for the third consecutive quarter, recording a 1-percent jump.

The quarter marked the second straight in which Unisys has been paying for its $300 million restructuring plan, announced in April. For the third quarter, Unisys reported that it spent $17 million on the plan, after spending $21 million in the second quarter.

The company also said it paid $27 million in pension expenses in the third quarter as part of its plan to reduce operating costs by laying off 8 percent of its employees. CEO Peter Altabef said the cost-reduction plan would save the company $200 million a year by the end of 2016.

"We are on track with our cost-reduction plan," Chief Financial Officer Janet Haugen told analysts. Haugen said that over the last quarter, the company saved $21 million thanks to the restructuring. She added that Unisys is nearing its goal of $25 million in quarterly savings that the company established for the year.

Altabef also said Unisys is transitioning into a new operating model that aims at maximizing gross margins on its contracts. "If I look at the gross margins the company was accepting for deals, they were lower than I am comfortable with," the CEO said.

"This is going to put negative pressure on our sales pipeline," he said, "and I think it will have a short-term negative effect on our pipeline."

However, he said that in the long run, he expects the implications of being more selective with its deals will be positive, leading to higher margins. "I feel good that we are putting more discipline into the margins of the deals that we want to do going forward," Altabef said.

Altabef said he believes there’s a greater interest in the company's technology offerings than he has seen in the last two quarters, but he also believes it will take time before that interest translates into revenue.

"There is a take-up time on this," he said, referring to the company's push to win new business. "There is a sales effort and a delivery effort as we scale our capabilities … it is going to be some time before it converts to orders and converts to revenue."

"This is a transitional year," Altabef said.

PUBLISHED OCT. 21, 2015