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Unisys Outlook: Sale Of Fed Business To SAIC Will, Coronavirus Might, Impact 2020

The $1.2-billion sale of Unisys' federal business to SAIC will free up resources Unisys can use to cancel debt and pension shortfalls and improve growth prospects for 2020. But the coronavirus outbreak has the potential to temper expectations.

Global solutions provider Unisys on Tuesday said the previously announced sale of its U.S. federal business unit to government IT services provider SAIC will help the company in 2020 build on the solid financial performance it enjoyed in 2019.

However, the Blue Bell, Pa.-based company also acknowledged uncertainty around the current coronavirus crisis, saying that it expects little to no impact from the outbreak but that it was still too early to clearly say what might happen.

Unisys Chairman and CEO Peter Altabef on Tuesday discussed the federal business sale, coronavirus, and other issues during his company's fourth fiscal quarter 2019 financial analyst call.

[Related: Unisys CEO Peter Altabef On Security, Cloud, IoT]

He also said Unisys used the current RSA conference in San Francisco to introduce a new channel program aimed at helping other solution providers do business with Unisys' security technology.

For Unisys, 2019 was an opportunity to make significant progress on several company priorities including revenue growth and expansion of its services profitability, Altabef said.

"Our focus on security and differentiated IP [intellectual property] continues to resonate and help us win contracts," he said.

Unisys earlier this month said it is selling its U.S. federal business to Reston, Va.-based Science Applications International Corp., or SAIC, in a deal valued at $1.2 billion.

After the close of that transaction, Unisys will have significantly enhanced capital structure flexibility that should give the company's proforma business a more dedicated focus on driving growth, improved profitability and strengthened free cash flow, as well as an increased ability to invest both organically and inorganically to help achieve those goals, Altabef said.

When asked by an analyst about customer reaction to Unisys' pending sale of its federal business to SAIC, Altabef said the client response has been uniformly positive. While Unisys in 2019 showed its first revenue growth since 2003 and had strong growth in operating profits, it was unable to make a dent in its debt or its underfunded pension system before this year.

All of the $1.2 billion Unisys will get from the sale will go towards reducing debt and pension liability, he said.

"[This moves] us from a company that had some challenges on a capital structure to a company that is frankly now advantaged on a capital structure," he said. "It puts us back into kind of the normal pack in our industry, and actually better than normal in terms of our ability to put money into investments, in terms of our ability to do select M&A, and in terms of our ability to increase R&D, where we think we need to do that."

When another analyst asked about how the sale of the Unisys federal business is impacting employees, Altabef said that while employees are sad to see some of their colleagues leave, they understand the financial flexibility it gives the rest of the company.

"[This is] around the ability to invest more, or on the ability to put more into our deals, or on being invited to more deals, about doing more R&D, about doing select acquisitions," he said. "This company has not done any acquisitions for 15 years, which is not to say that we're gonna go whole-hog on acquisitions, but there is a place for those in accelerating growth."

Mike Thomson, Unisys' senior vice president and chief financial officer, said Unisys is currently not expecting any negative material impact from the coronavirus outbreak in its fiscal 2020 expectations.

Unisys has about 430 employees in China, Thomson said. "And at this time we have no reported infections among Unisys employees. We have implemented our business continuity planning procedures to address limitations on associates' abilities to get into Unisys offices."

Unisys in 2019 earned less than 5 percent of its revenue from a combination of its business in China and its global transportation industry, and expects a similar amount in 2020, Thomson said.

"The work we do for these clients is not typically passenger volume-related, and we have not seen any material impact to revenue to date," he said. "However, it is a rapidly evolving situation that may, over time, have implications that are not currently anticipated."

When asked by an analyst for more information on the impact of the coronavirus, Altabef said the outbreak has the possibility of driving lower revenue because Unisys' China business and its global transportation business combined represent about 5 percent of total revenue.

"I think we still are living in a world of uncertainty as to the health of that industry on a global basis, as well as what will happen internally for our clients in China. I think that's probably the most significant potential downside that I would see right now."

Unisys used the RSA security conference to unveil several new products, in addition to a new program to help other solution providers take advantage of them, Altabef said.

Unisys at RSA formally launched the Unisys Security global channel partner program, he said.

"This program is expected to broaden the market reach and client base for our security solutions," he said. "Registered partners in the program will have access to discounts, demos, collateral, co-branded materials, and customizable marketing campaigns relating to Stealth and other Unisys security offerings, and will offer the opportunities for webinars, partner road shows, and regional events."

Two of Unisys' top cybersecurity solutions, Stealth 5.0 and the new Unisys TrustCheck Software-as-a-Service platform, were winning applause at this week's global RSA conference, Altabef said.

"Security for Unisys does not just mean its stand-alone offerings,” he said. "It also means incorporating leading security more broadly into all of our service offerings. This has differentiated our go-to-market efforts and has helped drive growth in recent periods."

Unisys Monday at RSA unveiled its new Unisys TrustCheck Software-as-a-Service platform, which Altabef said helps users quickly and easily assess the potential financial impact of cyber risks.

"This new version of TrustCheck provides continuous access to a web-based portal with risk profile and loss forecasts that are updated automatically as threats, industry risks, and trends change throughout the year."

Also new at RSA was the release of Stealth 5.0, which Altabef said provides protection for data in containers and Kubernetes environments.

"Stealth provides always-on security and resilience to stop sophisticated cyberattacks," he said. "Stealth's dynamic isolation capabilities can effectively wall off a bad actor within 10 seconds of detection, thus allowing the business to continue operations, even if under attack."

Altabef said Unisys has the right team in place to continue to drive the business forward and provide the flexibility around both organic and inorganic growth, including potential mergers or acquisitions.

"We expect internal investments to include increased focus on automation and AI within InteliServe, containers and Kubernetes capabilities within CloudForte, enhancements to dynamic isolation and biometrics functionality within Stealth, and increased cloud capabilities and micro services for ClearPath Forward," he said.

Outside of specific solutions, Unisys also plans to invest in its sales team, cloud architects, and channel partner network to enhance its go-to-market capabilities, Altabef said.

"The type of M&A opportunities we expect to consider would provide scale in areas of our current focus or point-of-spear solutions that could enhance our overall go-to-market effort," he said.

For its fourth fiscal quarter 2019, which ended December 31, Unisys reported revenue of $741.5 million, down about 2.5 percent from the $760.9 million the company reported for its fourth fiscal quarter 2018.

This included services revenue of $633.1 million, up from last year's $625.5 million, and technology revenue of $108.4 million, down from last year's $135.4 million.

The company reported a GAAP net loss of $10.8 million, or 17 cents per share, compared to the net income of $25.0 million, or 49 cents per share, it reported for the same period last year. On a non-GAAP basis, the company reported net income of $42.7 million, or 60 cents per share, compared to last year's $71.5 million, or 97 cents per share.

For all of fiscal 2019, Unisys reported revenue of $2.95 billion, up 4.4 percent over the $2.83 billion it reported for fiscal 2018.

Services revenue for all of fiscal 2018 was $2.55 billion, up from last year's $2.39 billion, while technology revenue was $396.0 million, down from last year's $438.7 million.

Unisys reported a GAAP net loss for the year of $17.2 million, or 31 cents per share, compared to a net income in fiscal 2018 of $75.5 million, or $1.30 per share. On a non-GAAP basis, net income in fiscal 2019 was $155.0 million, or $2.12 per share, up from last year's $143.4 million, or $1.95 per share.

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