Unisys Corporation (UIS) is a global IT solutions provider that has been at the forefront of technological advancements for over a century. Founded in 1886 as the Sperry Gyroscope Company, the company has evolved through numerous mergers and acquisitions to become the diversified technology powerhouse it is today.

Business Overview and History

Origins and Early Development

Unisys' origins can be traced back to the late 19th century when it was established as the Sperry Gyroscope Company, initially focusing on manufacturing navigational equipment and gyroscopes. In 1955, the company merged with Remington Rand to form Sperry Rand Corporation, marking a significant expansion of its capabilities. Over the following decades, Sperry Rand ventured into the emerging computer industry, developing mainframe computers and other enterprise IT solutions.

Restructuring and Rebranding

The 1986 restructuring effort led to the adoption of the Unisys name, signaling a major shift towards information technology services and solutions. This period was marked by significant challenges, including intense competition, rapid technological changes, and financial difficulties that resulted in large restructuring charges and workforce reductions. In the late 1990s and early 2000s, Unisys strategically pivoted towards IT outsourcing, systems integration, and other higher-margin services, which helped stabilize its financial performance but also introduced new challenges in adapting to evolving client demands and technological shifts.

Recent Challenges and Adaptations

In recent years, Unisys has faced additional headwinds, including the impact of the COVID-19 pandemic on its client base and operations. The company has responded with further cost-reduction measures, portfolio streamlining, and investments in high-growth areas such as cloud computing, digital workplace solutions, and AI-enabled services. Despite these efforts, Unisys has reported net losses in some recent years due to various one-time charges and restructuring costs.

Current Business Segments

Today, Unisys operates through three main business segments: Digital Workplace Solutions (DWS), which provides modern and traditional workplace solutions; Cloud, Applications and Infrastructure Solutions (CA&I), which offers digital platform, applications, and infrastructure solutions; and Enterprise Computing Solutions (ECS), which provides solutions that harness secure, continuous high-intensity computing and enable digital services through software-defined operating environments.

Financials and Liquidity

In the most recent fiscal year (2023), Unisys reported total revenue of $2.02 billion, with a gross profit margin of 27.3% and a net loss of $430.7 million. The company's operating cash flow (OCF) for 2023 was $74.2 million, with free cash flow (FCF) of $6.9 million.

For the third quarter of 2024, Unisys reported revenue of $497 million, representing a 7% year-over-year growth (8.2% in constant currency). However, the company recorded a net loss of $61.9 million for the quarter, which included a $39.1 million goodwill impairment charge and a $29 million tax accrual related to certain foreign subsidiaries. The company's OCF for Q3 2024 was $32 million, with FCF of $14.2 million.

Unisys' current ratio stands at 1.62, and its quick ratio is 1.58, indicating a healthy liquidity position. The company's debt-to-equity ratio of -2.45 suggests a relatively leveraged capital structure. As of September 30, 2024, Unisys had cash and cash equivalents of $373.7 million and an available credit line of $99 million (net of $7 million in letters of credit) from its $145 million secured revolving credit facility.

In terms of geographic revenue distribution, Unisys generates approximately 44% of its revenue in the United States, with the remaining 56% coming from international markets. The international revenue is further broken down as 28% from EMEA (Europe, Middle East, and Africa), 16% from Asia Pacific, and 12% from Latin America. This diversified geographic footprint allows Unisys to capitalize on growth opportunities across various regions.

Operational and Strategic Initiatives

To drive growth and enhance profitability, Unisys has been implementing a series of strategic initiatives across its business segments. In the Digital Workplace Solutions (DWS) segment, the company is focusing on modernizing its offerings and improving delivery efficiency through workforce optimization and increased automation. For the three months ended September 30, 2024, DWS revenue was $130.9 million, a decrease of 7.1% compared to the prior year period, driven by lower discretionary volume with clients. However, the segment's gross profit percentage improved to 16.3% from 14.8% in the prior year quarter, due to delivery modernization and efficiency initiatives.

In the Cloud, Applications and Infrastructure Solutions (CA&I) segment, Unisys is leveraging its expertise in areas such as application development and security managed services to drive growth, particularly in the public sector. For Q3 2024, CA&I revenue was $131.5 million, a slight decrease of 1.5% compared to the prior year quarter. The segment's gross profit percentage improved to 16.3% from 15.3%, driven by labor cost savings initiatives.

The Enterprise Computing Solutions (ECS) segment, which includes the company's legacy ClearPath Forward platform, has seen increased revenue and profitability. For Q3 2024, ECS revenue was $157.9 million, a significant increase of 29.2% compared to the prior year quarter, driven by the timing of software license renewals. The segment's gross profit percentage also improved substantially to 60.0% from 50.2% in the prior year quarter.

Unisys has also been actively pursuing new business opportunities, with a strong emphasis on winning new logos and expanding its footprint with existing clients. In the third quarter of 2024, the company reported a 50% year-over-year increase in new business total contract value (TCV), driven by a more than doubling of new logo signings. The company's backlog increased by 18% year-over-year to $2.8 billion, with a trailing 12-month book-to-bill ratio of 1.2x for the total company and Ex-L&S Solutions.

Technological Advancements and Innovations

Unisys has been at the forefront of technological innovation, leveraging cutting-edge technologies such as artificial intelligence (AI) and quantum computing to enhance its solutions and drive client value. The company has more than 120 active AI projects across its business segments, with a focus on developing Generative AI-powered assistants and solutions to improve productivity, automate processes, and enhance client experiences.

In the ECS segment, Unisys has been innovating its travel and transportation solution portfolio, including the Unisys Logistics Optimization solution, which leverages AI and quantum annealing to optimize cargo capacity, warehousing, and routing. The company has also been expanding its offerings in areas such as multimodal routing and revenue management, positioning it as a disruptive player in the industry.

Unisys' commitment to innovation is further evidenced by its recognition from industry analysts and research firms, such as Avasant, Everest, ISG, and NelsonHall, which have designated the company as a leader in various categories, including Global Digital Workplace Services, Digital Workplace Services for Mid-market Enterprises, and End-to-end Cloud and Infrastructure Management Services.

Governance and Leadership

Unisys is led by an experienced management team, headed by Peter Altabef, who has served as the company's Chairman and Chief Executive Officer since 2015. Under Altabef's leadership, Unisys has undergone a strategic transformation, refocusing the business on high-growth, high-margin service offerings and leveraging its technology expertise to drive innovation and client success.

The company's board of directors comprises seasoned professionals with diverse backgrounds and expertise, providing strategic guidance and oversight to ensure Unisys' continued evolution and success in the dynamic IT services market.

Risks and Challenges

Like any technology company, Unisys faces a variety of risks and challenges that could impact its future performance. These include the highly competitive nature of the IT services industry, the need to continuously adapt to rapidly changing technological landscapes, and the potential for cybersecurity threats and data breaches that could disrupt operations and damage client trust.

Additionally, Unisys' reliance on a limited number of large customers and its exposure to macroeconomic and geopolitical factors, such as fluctuations in foreign exchange rates and the potential for global trade tensions, could create headwinds for the company.

Unisys has also been impacted by the COVID-19 pandemic, which has resulted in some delays in client projects and a temporary slowdown in discretionary IT spending. However, the company has demonstrated resilience and agility in navigating these challenges, leveraging its diversified service offerings and technological expertise to support its clients' evolving needs.

It's worth noting that Unisys has received voluntary information requests from the Securities and Exchange Commission (SEC) related to its cybersecurity risk disclosures and internal controls, including material weaknesses previously disclosed. The company is currently in discussions with the SEC to potentially resolve the matter.

Outlook and Guidance

For the full year 2024, Unisys has updated its guidance. The company now expects total revenue growth of negative 1% to positive 2%, based on recent foreign exchange rates, a slight improvement from its previous guidance of negative 1.5% to positive 1.5% in constant currency.

Unisys has also raised its non-GAAP operating profit margin guidance to between 6.5% and 8.5%, up from the previous range of 5.5% to 7.5%. This increase reflects the company's efforts to reposition its business and focus on higher-margin service offerings, particularly driven by increased profitability in its Enterprise Computing Solutions (ECS) segment.

In terms of free cash flow, Unisys now expects to generate approximately $30 million for the full year 2024, a significant increase from its previous guidance of $10 million. This improvement reflects enhanced profitability and lower legal, environmental, restructuring, and other payments.

Looking further ahead, Unisys has provided an updated outlook for its License and Support (L&S) revenue, slightly increasing its average annual projection for 2025 and 2026 to $370 million. This highlights the resilience and long-term potential of this core component of its business.

Conclusion

Unisys Corporation (UIS) is a technology pioneer with a rich history of innovation and a strong focus on delivering cutting-edge IT solutions to its clients. Despite facing various challenges in recent years, the company has demonstrated its resilience and adaptability, implementing strategic initiatives to drive growth, enhance profitability, and position itself as a leader in the evolving IT services landscape.

With its diversified business segments, commitment to technological advancement, and experienced leadership team, Unisys is well-positioned to capitalize on the growing demand for digital transformation, cloud-based services, and innovative solutions that address the complex needs of its global client base. As the company continues to execute on its strategic priorities, investors will be closely monitoring its progress and ability to deliver sustained financial performance and shareholder value.