Unisys(UIS) - 2023 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION Presents the unaudited consolidated financial statements, management's discussion, market risk, and controls for the quarter Item 1. Consolidated Financial Statements (Unaudited) Presents Q1 2023 and 2022 unaudited consolidated financial statements, detailing income, balance sheets, cash flows, and notes, with revenue growth and a significant pension settlement charge Consolidated Statements of Income (Loss) Unisys reported a 15.6% revenue increase and operating income turnaround in Q1 2023, but a larger net loss due to a substantial increase in other expenses Consolidated Statements of Income (Loss) (Millions, except per share data) | Metric | Q1 2023 | Q1 2022 | Change (YoY) | | :--- | :--- | :--- | :--- | | Total Revenue | $516.4 | $446.7 | +15.6% | | Services Revenue | $403.9 | $392.1 | +3.0% | | Technology Revenue | $112.5 | $54.6 | +106.0% | | Operating Income (Loss) | $49.9 | ($23.5) | N/A | | Other (expense), net | ($196.9) | ($21.0) | +837.6% | | Consolidated Net Loss | ($174.5) | ($57.0) | +206.1% | | Diluted Loss Per Share | ($2.58) | ($0.85) | +203.5% | Consolidated Balance Sheets Total assets remained stable at $2,066.4 million as of March 31, 2023, with a shift to positive stockholders' equity driven by comprehensive loss adjustments Consolidated Balance Sheet Highlights (Millions) | Metric | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $391.9 | $391.8 | | Total current assets | $977.7 | $930.4 | | Total Assets | $2,066.4 | $2,065.6 | | Total current liabilities | $652.8 | $650.5 | | Long-term debt | $490.1 | $495.7 | | Long-term postretirement liabilities | $697.3 | $714.6 | | Total Liabilities | $2,012.4 | $2,043.8 | | Total Equity | $54.0 | $21.8 | Consolidated Statements of Cash Flows Q1 2023 saw positive cash from operating activities at $12.8 million, a significant improvement from the prior year, with stable cash balances Cash Flow Summary (Millions) | Cash Flow Activity | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Net cash provided by (used for) operating activities | $12.8 | ($33.0) | | Net cash used for investing activities | ($11.5) | ($21.7) | | Net cash used for financing activities | ($7.6) | ($11.2) | | Decrease in cash, cash equivalents and restricted cash | ($2.2) | ($59.7) | Notes to Consolidated Financial Statements Detailed notes disclose a $183.2 million pension settlement loss, strong ECS segment growth, and ongoing litigation matters in Brazil - In March 2023, the company purchased a group annuity contract for approximately $265 million to transfer pension obligations, resulting in a pre-tax settlement loss of $183.2 million[30] - The company is involved in various litigation matters in Brazil concerning indirect taxes and labor disputes, with unreserved tax-related matters estimated up to approximately $111 million[81] - A securities class action complaint was filed against the company in November 2022, alleging false or misleading statements regarding business prospects and internal controls[82] Segment Revenue and Gross Profit (Millions) | Segment | Q1 2023 Revenue | Q1 2022 Revenue | Q1 2023 Gross Profit | Q1 2022 Gross Profit | | :--- | :--- | :--- | :--- | :--- | | DWS | $131.0 | $124.8 | $15.6 | $16.0 | | CA&I | $126.0 | $129.1 | $16.4 | $7.0 | | ECS | $188.2 | $120.6 | $125.5 | $62.8 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2023 financial results, highlighting revenue growth driven by ECS, a widened net loss due to pension settlement, and stable liquidity Results of Operations Total revenue grew 15.6% year-over-year, primarily from ECS software license renewals, improving gross profit margin, but a net loss due to a pension settlement - Overall revenue increased 15.6% YoY, primarily due to higher software license renewals within the Enterprise Computing Solutions (ECS) segment[95] - ECS segment revenue increased 56.1% YoY, and its gross profit margin expanded to 66.7% from 52.1%[112] - DWS segment revenue increased 5.0% due to recent contract signings, while CA&I revenue declined 2.4%[110][111] - A pre-tax settlement loss of $183.2 million related to a U.S. defined benefit pension plan was a major contributor to the net loss in Q1 2023[93][102] Financial Condition Liquidity is supported by cash on hand and an ABL credit facility, with positive cash from operations and continued pension de-risking efforts - Principal sources of liquidity are cash on hand ($391.9 million), cash from operations, and a revolving credit facility[113][114] - Cash provided by operations was $12.8 million, compared to a usage of $33.0 million in the prior-year period, driven by higher Technology collections[116] - As of March 31, 2023, the company had no borrowings under its ABL credit facility, with $6.6 million of letters of credit outstanding and $64.0 million of availability[123] - The company expects to make cash contributions of approximately $40 million to its international pension plans in 2023 and does not expect mandatory contributions to its U.S. plans until 2025[120][121] Item 3. Quantitative and Qualitative Disclosures About Market Risk No material change in market risk assessment since the 2022 Annual Report on Form 10-K - There has been no material change in the company's assessment of its sensitivity to market risk since its 2022 Form 10-K filing[130] Item 4. Controls and Procedures Disclosure controls and procedures were deemed ineffective as of March 31, 2023, due to material weaknesses in information communication policies - The CEO and CFO concluded that the company's disclosure controls and procedures were not effective as of March 31, 2023, due to material weaknesses[131] - The material weaknesses relate to ineffective policies and procedures for ensuring timely communication from the IT, legal, and compliance functions to the accounting function regarding financial reporting[133] - Remediation steps were implemented in Q4 2022, including enhancing policies and the disclosure committee, but management cannot yet conclude on their operating effectiveness as of March 31, 2023[136][137] PART II - OTHER INFORMATION Covers legal proceedings, risk factors, and the exhibit index for the reporting period Item 1. Legal Proceedings Legal proceedings information is incorporated by reference from Note 13 of the Consolidated Financial Statements - Information regarding legal proceedings is detailed in Note 13 of the Notes to Consolidated Financial Statements[139] Item 1A. Risk Factors No significant changes to the risk factors disclosed in the 2022 Annual Report on Form 10-K - There have been no significant changes to the company's risk factors since its 2022 Annual Report on Form 10-K[140] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including corporate governance documents and CEO/CFO certifications - The Exhibit Index lists all documents filed with the report, including certifications from the CEO (Peter A. Altabef) and CFO (Debra McCann) as required by the Sarbanes-Oxley Act[148]