Unisys Stock Plunges After Debt Offering

Shares of Unisys plunged nearly 28 percent Wednesday, a day after the solution provider announced it would seek $150 million in debt financing to help cover cost-reduction and savings initiatives, whittle its current debt load and invest in new services and technologies.

The Blue Bell, Pa.-based company -- No. 19 on CRN’s 2015 Solution Provider 500 list -- struggled in 2015 as sales plunged more than 10 percent, to just over $3 billion. And a year after posting net income of $47 million, Unisys lost $110 million in 2015, the company said in late January.

Meanwhile, the company's balance sheet took a hit last year, as its cash and cash equivalents plunged more than 26 percent, to $365.2 million, while it took on more debt. Its debt load as of the end of the year stood at about $312 million.

[Related: Unisys CEO: Challenges Have Been Somewhat ’Self-Inflicted’]

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During Unisys’s quarterly earnings call in late January, CEO Peter Altabef blamed a bloated cost structure and lack of vertical integration for causing his company to struggle more than the competition. He said a "good amount" of the company's challenges have been "to some extent, self-inflicted, or at least inward-focused."

In its Tuesday announcement regarding the $150 million debt solicitation, Unisys said it expects to award the initial purchaser of debt an option to buy up to an additional $22.5 million. Unisys said it also expects to grant to the initial purchaser an option to purchase up to an additional $22.5 million option for overallotments.

Despite the announcement, Unisys stock dropped 28 percent from Tuesday's close of $11.04, to $7.97 Wednesday. That dragged down its market cap from $551 million to $398 million, according to the financial website YCharts.

Despite the company’s financial performance last year, Unisys foresees a turnaround in 2016 with expectations of a jump in gross margin from 5.8 percent to somewhere between 7 percent and 8 percent. In the January earnings call, Altabef said that will enable the company to potentially improve sales in 2017 without having to sacrifice profitability.

"Until we have the cost structure in place, until we've got the right go-to-market and we can sell the right offerings, more empty calories aren't going to help us," he said.

During the final three months of 2015, Unisys' service revenue grew for the fourth consecutive quarter, rising 2 percent on a constant currency basis to $649.1 million. Application services revenue grew 17 percent on a constant currency basis, thanks to additional customs and government security work, while cloud and infrastructure services fell 4 percent on a constant currency basis because of challenges in the United States and Canada.

But meanwhile, technology revenue plummeted 30 percent on a constant currency basis to $140.8 million because of reduced software license renewals and lower third-party product sales.

For 2016, Unisys expects sales to decline between 2.9 percent and 6.3 percent on a constant currency basis to between $2.78 billion and $2.88 billion. Services revenue is expected to come in at between $2.43 billion and $2.51 billion, with technology revenue expected to land between $345 million and $365 million.