Unisys(UIS) - 2021 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Non-GAAP operating profit increased 75% year-over-year to $51 million, with non-GAAP operating profit margin rising 440 basis points to 10% [34] - Adjusted EBITDA increased 30% year-over-year to $94 million, with adjusted EBITDA margin up 440 basis points to 18% [37] - Non-GAAP EPS rose significantly to $0.46 from $0.02 in the prior year period [37] - Cash used in operations improved $335 million year-over-year to $43 million, and adjusted free cash flow improved $52 million to a negative $24 million [38] Business Line Data and Key Metrics Changes - Digital Workplace Services (DWS) gross profit increased 157% year-over-year to $19 million, with gross margins up 860 basis points to 13% [34] - Cloud and Infrastructure (C&I) gross profit improved from a negative $3 million to a positive $12 million, with gross margin up 1,240 basis points to 10% [35] - ClearPath Forward gross profit was up 3% year-over-year to $103 million, with gross margins up 290 basis points to 61% [35] - DWS revenue declined 12% year-over-year, attributed to a large base of legacy solutions [43] Market Data and Key Metrics Changes - C&I revenue increased 19% year-over-year to $123 million, with cloud revenue within this segment growing 31% year-over-year [42] - ClearPath Forward revenue was down 2% year-over-year, primarily due to currency effects and divestiture of low-margin contracts [42] - Total company backlog was $3.4 billion at the end of Q1 2021, with expectations for $380 million to convert to revenue in Q2 [47] Company Strategy and Development Direction - The company is focusing on growing margin, cash flow, and revenue through DWS transformation and expansion of cloud offerings [16] - A new segment structure was implemented, targeting DWS, C&I, and ClearPath Forward, to enhance operational efficiency and reporting [13] - The company plans to pursue acquisitions to enhance its experience-based strategy, particularly in DWS [27][80] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the infrastructure bill potentially benefiting the public sector, particularly in cybersecurity and broadband access [64] - The company expects continued improvements in cash flow and profitability driven by efficiency gains and reduced pension contributions [40][52] - Management anticipates that the DWS transformation and growth in cloud services will drive further profitability and revenue growth in 2022 and 2023 [18] Other Important Information - The company has made significant progress on pension obligations, with no additional contributions required due to the American Rescue Plan Act [52] - The weighted average length of contracts signed in Q1 2021 was shorter than in 2020, indicating quicker revenue conversion from backlog [48] Q&A Session Summary Question: Will backlog grow sequentially or just over the year? - Management expects growth in backlog both in the second quarter and for the full year [59] Question: How sustainable is the operating margin in services? - Management believes services margins are solid and sustainable, with consistent improvement expected [61] Question: Will the infrastructure bill benefit the company? - Management sees opportunities in cybersecurity and new platforms for state and local governments if the infrastructure bill passes [64] Question: Are supply chain issues affecting hardware delivery? - Management indicated that supply chain issues are not significantly impacting hardware availability for clients [66] Question: How is the ROI on sales and marketing expenses across segments? - Management expects revenue growth from DWS, C&I, and ClearPath Forward, with a focus on existing client relationships [72][73] Question: How will the freed-up cash from pension contributions be deployed? - Management does not feel urgency to spend the freed-up cash and will focus on strategic acquisitions in DWS and cloud [78][80] Question: Is there an uptick in add-on work at existing accounts? - Management confirmed an increase in add-on work, particularly in the public sector and cloud services [119]