It has been about a month since the last earnings report for Unisys . Shares have lost about 11.4% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Unisys due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Unisys’ Q1 Earnings Miss, Revenues Beat Estimates
Unisys Corporation reported first-quarter 2019 results wherein the top line surpassed the Zacks Consensus Estimate, but the bottom line missed the same.
Non-GAAP earnings per share were 15 cents, which missed the Zacks Consensus Estimate of 28 cents, and lagged the prior-year figure of 19 cents.
The company’s revenues came in at $695.8 million, beating the consensus estimate of $644 million. The figure was up 2.3% year over year in constant currency.
However, an additional $53 million of Technology revenues accounted in the prior-year quarter revenues due to the adoption of ASC 606 made the year-over-year comparison on a reported basis difficult, leading to a decline of 1.8%.
Non-GAAP adjusted revenues, however, increased 5.9% to $693.8 million.
Quarter in Detail
The Services segment generated revenues of $612.1 million, up 7.7% from the prior-year quarter. On a constant currency basis it grew 11.7%, constituting 88% of the total quarterly revenues. Services non-GAAP adjusted revenues increased 7.3% to $610.1 million. Services backlog increased 13% to $4.8 billion.
Unisys’ continued focus on increasing the efficiency of its Services delivery engine through increased automation and AI was a positive.
Strong growth in Services revenues resulted in 1.7% year-over-year growth in the public sector and 5.2% growth in the commercial sector.
Technology segment’s revenues were $83.7 million, down 40.2% from the year-earlier quarter on a reported basis and 36.9% in constant currency, due to the effect of the change in the accounting standard as mentioned earlier.
Non-GAAP adjusted Technology revenues for the first quarter were down 3.7% year over year due to the ClearPath Forward renewal cycle.
Total contract value (TCV) and annual contract value (ACV) declined 30% and 25%. This was mainly due to exceptionally large contract signed in the first quarter of 2018.
The company witnessed continued momentum in new deal wins. New business TCV and ACV grew 3% and 20% year over year, respectively, during the quarter. Moreover, new business pipeline was up 5%.
The company continued to benefit from the expanding Stealth portfolio, and launched the Stealth 4.0 in the first quarter. The Stealth 4.0 has been integrated with the LogRhythm security incident and event management system, as well as Palo Alto Networks' Panorama network security management console. Additionally, Stealth has also been integrated with Dell EMC Cyber Recovery software (available from June 2019) to enhance clients' cyber recovery operations protection.
Revenues from Stealth showed strong growth of a whopping 300% year over year. During the quarter, a leading U.S. based international retailer signed up to use Stealth security software.
Unisys also included Stealth security software to its existing contract with a leading global agriculture and specialty products provider.
Notably, Unisys’ non-GAAP adjusted revenues in financial services grew 18.5% year over year. During the quarter, Unisys expanded its contract with a Brazilian bank for the client to transition to a new ClearPath Forward solution, enabling faster loan processing and better customer experience.
Non-GAAP operating profit margin of 6.4% was down 80 basis points, due to new business in the Services segment.
Adjusted EBITDA fell 11.3% to $82.4 million. Adjusted EBITDA margin fell 230 bps year over year to 11.9%.
Balance Sheet and Cash Flow
As of Mar 31, 2019, Unisys had $504.6 million in cash and cash equivalents compared with $605 million in the previous quarter.
Long-term debt was $667.1 million compared with $642.8 million witnessed at the end of fourth quarter.
During the first quarter, the company used $70.4 million of cash for operational activities compared with $73.9 million a quarter ago. Adjusted free cash outflow was $95.9 million.
Encouraged by the strong momentum in new businesses, the company raised its 2019 outlook for non-GAAP revenues from growth of 1-4% to 2-5% .
Non-GAAP operating margin is estimated in the range of 8.25-9.25%. Adjusted EBITDA margin is projected at 14.4-16%.
Notably, $584 million of total first quarter backlog is expected to convert into Services revenues in the second quarter.
Non-GAAP adjusted Technology revenues are estimated to be stable year over year.
New businesses are likely to remain an overhang on margins for the full year.
Licensing revenues for Stealth is expected to increase and that of ClearPath is likely to decline year over year in 2019.
How Have Estimates Been Moving Since Then?
Analysts were quiet during the last two month period as none of them issued any earnings estimate revisions.
Currently, Unisys has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Unisys has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.