Company Presentation. June 2017

Transcription

1 Company Presentation June 2017

2 Disclaimer This presentation includes certain financial measures not presented in accordance with U.S. generally accepted accounting principles ( GAAP ), including, but not limited to, EBITDA, Adjusted EBITDA, Free Cash Flow, Adjusted Free Cash Flow, and constant currency, and certain ratios and other metrics derived therefrom. These non-gaap financial measures are not measures of financial performance in accordance with GAAP and may exclude items that are significant in understanding and assessing the Company s financial results. Therefore, these measures should not be considered in isolation or as an alternative to cash flows from operations or other measures of profitability, liquidity or performance under GAAP. You should be aware that the Company s presentation of these measures may not be comparable to similarly-titled measures used by other companies. Reconciliations of all non-gaap financial measures are available in this presentation Unisys Corporation. All rights reserved. 2

3 Presenters Inder Singh SVP and Chief Financial Officer Courtney Holben VP, Investor Relations 2017 Unisys Corporation. All rights reserved. 3

4 Agenda I. Business Overview 5 II. Financial Overview Unisys Corporation. All rights reserved. 4

5 I. Business Overview 2017 Unisys Corporation. All rights reserved.

6 Our Value Proposition Enhancing peoples lives through digital security Security in everything we do Software and Domain expertise-leveraged solutions Vertical industry integrated solutions Best-in-class capabilities with a global footprint 2017 Unisys Corporation. All rights reserved. 6

7 Unisys Today More than 100 of the Fortune Global 500 companies >100 million air cargo transactions per month >300 government agencies worldwide 7 out of the top 10 Life Science firms Over half of the top 50 global banks and 9 of the world s top insurance companies 18 of the top 25 global airlines Revenue Profile 1 Services 88% Technology 12% Cloud & Infrastructure Services 51% Application Services 30% BPO 7% Technology 12% U.S. & Canada 51% International 49% U.S. & Canada 51% EMEA 27% Asia Pacific 12% Latin America 10% Enterprise Solutions 78% U.S. Federal 22% Commercial 30% Financial 23% Public Sector 25% Recurring Services 68% Non-Recurring Services 20% U.S. Federal 22% Technology 12% Segment Segment Detail Geography Regional Detail Sector Sector Detail Revenue Type 1 As of 1Q Unisys Corporation All rights reserved. 7

8 Unisys Who We Are Services (88% of total revenue) Cloud & Infrastructure Services (CIS) Application Services (AS) Business Process Outsourcing (BPO) 51% of total revenue End user and workspace services (33% of total revenue) - Provides help desk and workplace support services Data center & infrastructure management (18% of total revenue) - Provides cloud migration and related advisory services 30% of total revenue Software application development and integration services - Provides full lifecycle of application services, including advisory, implementation and management services 7% of total revenue Industry-specific business process outsourcing services - Check processing for a group of large U.K. banks - Mortgage origination in Australia Server systems and operating system software Main driver of historical Technology revenue New software-only architecture Note: Based on 1Q 2017 revenue Technology (12% of total revenue) Innovative software-based security solution Conceals and protects endpoints from unauthorized parties Protects sensitive data from potential compromise via microsegmentation and data encryption Application Software Proprietary, vertical-specific applications Air Core Digistics Digital Investigator LineSight ActiveInsights MedDevice and PharmaTrack Elevate 2017 Unisys Corporation. All rights reserved. 8

9 Leveraged Solutions Industry Solutions Areas of Focus Industry-Specific, and Leveraged Solutions Government Commercial Financial Services Justice, Law Enforcement & Border Security Travel & Transportation Retail Banking Life Sciences & Healthcare Commercial Banking Social Services Solutions Manufacturing Retail Mortgage/Lending Digital Government Solutions Communications Insurance Energy & Utilities Digital Investigator LineSight FamilyNow ENFORCE AirCore Digistics ActiveInsights MedDevice and PharmaTrack Elevate Core Banking Solutions: (CSF, URBIS, and SFB) Mortgage Processing - UFSS Appointment Manager Cloud and Infrastructure Infrastructure Transformation Hybrid Cloud Enablement Empowering the Digital Worker Next Generation Service Support Service Integration & Management Infrastructure Managed Services VantagePoint InfoImage Application Services Application Digital Modernization Agile & DevOps Transformation Services Application Managed Services Security Security Consulting Services Managed Security Services Stealth Security Solutions Business Process Outsourcing Unisys Mortgage Origination Solutions Payment Solutions Imaging Workflow & Archiving Solutions Analytics Analytics Consulting Machine Learning as a Service 2017 Unisys Corporation All rights reserved. 9

10 Progress with Key Focus Industries CAGR Client Needs Key Unisys Solutions Overall IT $3.56T 1 $3.752T 2% Digital Transformation Security First Smarter Analytics Stealth by Unisys ClearPath Forward Systems InfoImage Travel & Transportation $130B 1 $151B 3.7% Passenger Cargo Airports AirCore Digistics Airport Operations Commercial & Retail Banking Justice, Law Enforcement and Border Security Life Sciences & Healthcare $50B 2 $68B 6.4% $24B 2 $49B 5.6% $15B 2 $24B 10.7% Multichannel Banking Security & Risk Mitigation Core Banking in Cloud Border Protection Law Enforcement Immigration Personalized Medicine Integrated, Secure Patient Info Decentralized Clinical Locations Elevate USFF Core Banking Digital Investigator LineSight Jail Management Systems ActiveInsights MedDevice and PharmaTrack Revenue from Unisys focus industries comprised 43% of 1Q17 revenue. 1 Gartner Group 2 Everest Group 2017 Unisys Corporation. All rights reserved. 10

11 Security In Everything We Do Differentiation in Security Begins with Stealth TM Unisys Stealth won approval from NSA s commercial solutions for classified program Stealth is available on Microsoft Azure cloud and Amazon Web Services, the two market leaders in the space Cloud Infrastructure Cloud Management Platform with On Premise and Public (off premise) Security Stealth to protect existing servers Hosted Workspace Services with End User Security Business Processes DMZ and Intrusion Detection PKI enabled QR OS and anti-virus patching/updates End User Services Host Intrusion Prevention System (HIPS) Secure Persona Services Data Loss Prevention (DLP) Anti-Virus & Personal Firewall Hard Drive Encryption BYOD Security Strategy Identity Solutions Stealth(identity) Unisys Se Family Net (USFN) Law Enforcement Agency Framework (U-LEAF TM ) Stealth for Government Secure Airport Operations AirCore and Passenger Solutions Core ClearPath Forward TM Analytics Stealth-Protected Software-Defined Data Center Secure Image Management (SIMS) Cloud Mobile Identity Logistics Management Solutions Stealth for Omnichannel threats MSS (holistic security) USP Digital Banking Platform (embedded security) Omnichannel Banking Solution (application level security) Fraud/Risk Analytics Secure Mobile Management Secure Mobile Services ( , Asset Tracking, Wipe, Encryption) Secure Browser Management Application Security Embedded security (Stealth(identity), MFA, Crypto) Architecture layer security Hybrid mobile apps with native security Stealth for platform invisibility Data obfuscation Identify Provider (IdP) integration Multi-factor authentication Security assessment and testing Firewall and proxy revert 2017 Unisys Corporation. All rights reserved. 11

12 II. Financial Overview 2017 Unisys Corporation. All rights reserved.

13 Summary Financial Performance ($ in millions) Revenue Non-GAAP Operating Profit and Margins* ($ in millions) Non-GAAP Operating Profit % Margin $3,015 $2,821 $176 $ % 5.8% Growth in CC: (2%) (4%) Adjusted EBITDA and Margins** ($ in millions) Adj. EBITDA % Adj. EBITDA Margin ($ in millions) $ Adjusted FCF*** $278 $ % 13.5% ($6) See Schedule *A, **B and ***C: GAAP to non-gaap Reconciliation Unisys Corporation. All rights reserved. 13

14 Debt Capitalization Table As of 3/31/17 Pro Forma For Sr. Secured Notes Offering x 1Q 17 LTM Adj. 1Q 17 PF (1) EBITDA Senior Secured Revolving Credit Facility (ABL) $ x 10.75% Senior Secured Notes due 2022 $ x Capital Leases $9.5 Other Debt $ % Senior Unsecured Convertible Notes due 2021 $213.5 (2) 1.7 x Total Debt $ x PF Cash $635.0 Net Debt $ x 1Q 17 LTM Adj. EBITDA $405.4 (1) Pro forma for Sr. Secured Notes offering that closed in April 2017 (2) Convertible is in the money as of 6/15/ Unisys Corporation. All rights reserved. 14

15 Services Trends and Profitability Cloud & Infrastructure Services Revenue ($ in millions) Growth in CC: ($ in millions) Growth in CC: $1,513 $1, (4%) (9%) Application Services Revenue $869 $ % 2% Business Process Outsourcing Revenue ($ in millions) ($ in millions) $224 $194 Key Highlights / Commentary Cloud & Infrastructure Services Declines due to select large scale contracts Continue to rationalize the business, expand margin and capitalize on verticalized approach Application Services Continued momentum in win rates from our verticalized approach - key differentiator vs Indian based firms Lever the success of US Federal across our other businesses Business Process Outsourcing Recent declines associated with our check processing business for Financial Services Increasing digital opportunities should help stabilize the business Diversifying the business beyond check processing and Financial Services; recent example includes the Philippines Statistics Authority Services Gross Margin Key restructuring initiatives in 15 and 16 led to solid gains in 16 margin % which are anticipated to continue Services Gross Profit and Margins $412 Gross Profit % Margin $ % 16.2% Growth in CC: (6%) (5%) Source: Company information Unisys Corporation. All rights reserved. 15

16 Technology Trends and Profitability ($ in millions) Technology Revenue 1 $410 $414 Technology Revenue Key Highlights / Commentary Disciplined approach away from lower margin 3rd party products Large lumpy contracts can skew trend line Technology Gross Margin Increasing stabilization of ClearPath Forward Reduction in lower margin products and increasing higher margin software contribution from Stealth Growth in CC: (22%) 2% Technology Gross Profit and Margins 2016 Segment Contribution ($ in millions) Gross Profit % Margin Revenue Gross Profit $262 15% 39% $ % 85% 61% 55.3% Source: Company information Services Technology 1 Technology revenue excludes intercompany sales 2017 Unisys Corporation. All rights reserved. 16

17 1Q17 Financial Results Revenue ($M) GAAP Operating Profit Margin (%) GAAP and Non-GAAP* Diluted Earnings per Share GAAP and Non-GAAP*** Net Loss Attributable to Unisys ($M) (GAAP)/ Adjusted EBITDA ($M) (Non-GAAP**) Adjusted EBITDA Margin (%) Non-GAAP ** Non-GAAP $ % $667 $665 Non-GAAP 6.3% Non-GAAP $60 9.0% Non-GAAP 2.9% Non-GAAP $0.11 Non-GAAP $0.30 1Q16 1Q17 1Q16 (4.1)% GAAP 1Q17 (0.4)% GAAP 1Q16 $(0.80) GAAP 1Q17 $(0.65) GAAP 1Q16 $(40) GAAP 1Q17 $(33) GAAP 1Q16 1Q17 See Schedule *A, **B and ***D: GAAP to non-gaap Reconciliation Non-GAAP adjusted weighted average shares were 72,511 in 1Q17 versus 50,138 in 1Q16 due to issuance of convertible notes and associated accounting treatment 1Q17 saw increased margins and relatively flat revenue, marking progress against the company s strategy 2017 Unisys Corporation. All rights reserved. 17

18 Defined Benefit Pension Plans Funded Status ($B) $6.26 December 31, 2015 December 31, 2016 $8.22 $8.05 $5.88 Assets PBO Deficit ($1.96) ($2.17) In accordance with U.S. GAAP, discount rates are set annually at December Unisys Corporation. All rights reserved. 18

19 Estimated Future Pension Cash Contributions $M U.S. Defined Benefit Plan All Other Plans $224 $313 $64 $266 $54 $295 $54 $280 $54 $235 $54 $183 $65 $148 $150 $163 $132 $128 $34 $104 $64 $249 $241 $212 $226 $89 $80 $74 $181 $159 $129 $80 $86 $59 $52 $54 $20 $ The funding estimates for our U.S. qualified defined benefit pension plan are based on current estimated asset returns and the funding discount rates used for the U.S. qualified defined benefit plan which have been updated to reflect the year end 2016 discount rates. The future funding requirements are likely to change based on, among other items, market conditions and changes in discount rates. Our UK pension obligations are negotiated every three years. Current estimates for future contributions to international plans are based on local funding regulations and agreements and are likely to change in 2018 and beyond based on a number of factors including market conditions, changes in funding agreements, changes in discount rates and changes in currency rates. Assumes adoption of updated mortality table for funding purposes on January 1, Unisys Corporation. All rights reserved. 19

20 Potential Economic Benefit of Unisys Tax Assets $M as of Dec. 31, 2016 NOLs and Tax Credits Pension and Other Foreign Tax Attributes U.S. Description Unisys Net Deferred Tax Assets (1) Future Available Reductions in Taxable Income Net Operating Loss Federal & State $656 $1,302 Tax Credits 408 1,166 Pension 631 1,657 Other Deferred Tax Assets Total available U.S. $1,847 $4,525 Non-U.S. Net Operating Loss Non-U.S. $234 $924 Pension and other Non-U.S Total available non-u.s. $377 $1,574 Total available $2,224 $6,099 Valuation Allowance (1) (2,084) Total Net Deferred Tax Asset (1) $140 (1) The elements listed above are for informational purposes only and are based on expectations and assumptions defined in the Form 10-K filed for December 31, See Critical Accounting Policies Income Taxes for the assessment of the realization of company s deferred tax assets and liabilities and Footnote 7 in 2016 Form 10-K. Net Deferred Tax Assets represent the tax effected difference between the book and tax basis of assets and liabilities. Deferred tax assets represent future deductions against taxable income or a credit against a future income tax liability. Deferred tax liabilities represent taxable amounts in future years when the related asset or liability is recovered. Valuation Allowance - US GAAP requires net deferred tax assets be reduced by a valuation allowance if it is more likely than not that some portion or the entire deferred tax asset will not be realized. The factors used to assess the likelihood of realization are the company s historical profitability, forecast of future taxable income and available tax-planning strategies that could be implemented to realize the net deferred tax assets. The company considers tax-planning strategies to realize or renew net deferred tax assets to avoid the potential loss of future tax benefits Unisys Corporation. All rights reserved. 20

21 Appendix 2017 Unisys Corporation. All rights reserved.

22 Competitive Landscape Services (88% of total revenue) Cloud & Infrastructure Services (CIS) Application Services (AS) Business Process Outsourcing (BPO) 51% of total revenue End user and workspace services (33% of total revenue) - Key competitors: Atos, Cognizant, Compucom, Dell/EMC, HCL, HPE, CSC, IBM, Pomeroy, Stefanini, TCS, Wipro Data center & infrastructure management (18% of total revenue) - Key competitors: Atos, Booz Allen, CACI, Capgemini, Cognizant, CSC, CSRA, Dell, HCL, IBM, Infosys, Leidos, TCS, Wipro 30% of total revenue Key competitors: Accenture, Atos, CapGemini, CGI, Cognizant, CSC, CSRA, Deloitte, E&Y, IBM, Infosys, Janeiro Digital, KPMG, Leidos, Mindtree, TCS, Wipro 7% of total revenue Key competitors: Cognizant, FIS, Infosys, Sutherland Global, Syntel, TCS, Tech Mahindra, Wipro, WNS Server systems and operating system software Key competitors: IBM, Oracle, SAP Technology (12% of total revenue) Innovative software-based security solution Key competitors: Cisco, Illumio, varmor Vidder, VMWare Application Software Proprietary, vertical-specific applications Key competitors: Various depending on solution Note: Based on 1Q 2017 revenue 2017 Unisys Corporation. All rights reserved. 22

23 Cost-Reduction Plan Update Unisys previously announced a plan to create a more competitive cost structure and rebalance the global skill set The original announced plan was to achieve $200M of annualized cost savings exiting YE2016 Possible additional $30M of annualized cost savings exiting 2017 As of the end of 2016, the company has realized $205M in annualized cost savings The company is still targeting $230M in annualized cost savings exiting 2017 The anticipated charges to achieve these savings as announced in our original plan is still expected to be $300M $201M have been incurred as of 12/31/16, inception to date Majority of remaining additional charge expected in 2017 The cost reduction plan was originally estimated to require $280M cash usage Through 12/31/2016, we have used $133M We anticipate $80-90M of cash to be used in 2017 We anticipate $30-35M to be used in 2018 and $15-20M to be used in Unisys Corporation. All rights reserved. 23

24 Update on Defined Benefit Pension Plans Worldwide P&L Impact ($M) E Total Pension Expense* $82.7 $98.0 U.S. Qualified Defined Benefit Pension Plan Expected Return on Assets 6.80% 6.80% Actual Return 7.32% U.S. GAAP Discount Rate at 12/31/ % International Qualified Defined Benefit Pension Plans at 12/31/ % Expected Return on Assets 5.99% 5.30% Weighted Average GAAP Discount Rate at 12/31/ % at 12/31/ % *All estimates are based on expected asset returns and discount rate assumptions as calculated at December 31, Unisys Corporation. All rights reserved. 24

25 Non-GAAP and Other Information Although appropriate under generally accepted accounting principles (GAAP), the company s results reflect charges that the company believes are not indicative of its ongoing operations and that can make its profitability and liquidity results difficult to compare to prior periods, anticipated future periods, or to its competitors results. These items consist of pension and cost-reduction and other expense. Management believes each of these items can distort the visibility of trends associated with the company s ongoing performance. Management also believes that the evaluation of the company s financial performance can be enhanced by use of supplemental presentation of its results that exclude the impact of these items in order to enhance consistency and comparativeness with prior or future period results. The following measures are often provided and utilized by the company s management, analysts, and investors to enhance comparability of year-over-year results, as well as to compare results to other companies in our industry. Total Contract Value TCV is the estimated total contractual revenue related to signed contracts including option years and without regard for cancellation. Constant currency The company refers to growth rates in constant currency or on a constant currency basis so that the business results can be viewed without the impact of fluctuations in foreign currency exchange rates to facilitate comparisons of the company s business performance from one period to another. Constant currency is calculated by retranslating current and prior period results at a consistent rate. Non-GAAP operating profit The company recorded pretax pension expense and pretax charges in connection with cost-reduction activities and other expenses. For the company, non-gaap operating profit excluded these items. The company believes that this profitability measure is more indicative of the company s operating results and aligns those results to the company s external guidance which is used by the company s management to allocate resources and may be used by analysts and investors to gauge the company s ongoing performance. Non-GAAP diluted earnings per share The company has recorded pension expense and charges in connection with cost-reduction activities and other expenses. Management believes that investors may have a better understanding of the company s performance and return to shareholders by excluding these charges from the GAAP diluted earnings/loss per share calculations. The tax amounts presented for these items for the calculation of non-gaap diluted earnings per share include the current and deferred tax expense and benefits recognized under GAAP for these amounts. Free cash flow The company defines free cash flow as cash flow from operations less capital expenditures. Management believes this liquidity measure gives investors an additional perspective on cash flow from on-going operating activities in excess of amounts required for reinvestment. Adjusted free cash flow Because inclusion of the company s pension contributions and cost-reduction payments in free cash flow may distort the visibility of the company s ability to generate cash flow from its operations without the impact of these non-operational costs, management believes that investors may be interested in adjusted free cash flow, which provides free cash flow before these payments and is more indicative of its on-going operations. This liquidity measure was provided to analysts and investors in the form of external guidance and is used by management to measure operating liquidity. EBITDA & adjusted EBITDA For the company, earnings before interest, taxes, depreciation and amortization (EBITDA) is calculated by starting with net income (loss) attributable to Unisys Corporation common shareholders and adding or subtracting the following items: net income attributable to noncontrolling interests, interest expense (net of interest income), provision for income taxes, depreciation and amortization. Adjusted EBITDA further excludes pension expense, cost-reduction and other expenses, non-cash share-based expense, and adjusted other (income) expense. In order to provide investors with additional understanding of the company's operating results, these charges are excluded from the adjusted EBITDA calculation. The company has also provided external guidance to investors and analysts that it thinks will aid any interested party in understanding and measuring the company s ongoing operations and profitability Unisys Corporation. All rights reserved. 25

26 Schedule A: GAAP to Non-GAAP Reconciliation Operating Profit $M Q16 1Q17 Operating profit (loss) $154.9 $(55.1) $47.6 $(27.6) $(2.7) Cost-reduction charges and other expense Pension expense Non-GAAP operating profit (loss) $228.7 $176.1 $216.7 $19.6 $41.9 Customer revenue $3,356.4 $3,015.1 $2,820.7 $666.8 $664.5 GAAP operating profit (loss) % 4.6% (1.8)% 1.7% (4.1)% (0.4)% Non-GAAP operating profit (loss) % 6.8% 5.8% 7.7% 2.9% 6.3% 2017 Unisys Corporation. All rights reserved. 26

27 Schedule B: GAAP to Non-GAAP Reconciliation EBITDA and Adjusted EBITDA Earnings Before Interest, Taxes, Depreciation and Amortization $M Q16 1Q17 Net income (loss) attributable to Unisys $44.0 $(109.9) $(47.7) $(39.9) $(32.7) Net income (loss) attributable to noncontrolling interests Interest expense, net of interest income of $13.6, $11.2, $9.2, $2.4, $2.5, respectively* (4.4) Income tax provision Depreciation (1) Amortization EBITDA $307.0 $124.0 $192.3 $5.8 $25.2 Pension expense Cost-reduction and other expense** (1) Non-cash share-based expense Preferred stock dividend Other (income) expense adjustment*** (1) Adjusted EBITDA (1) $407.7 $345.7 $380.6 $59.9 $84.3 Customer Revenue $3,356.4 $3,015.1 $2,820.7 $666.8 $664.5 Adjusted EBITDA Margin % 12.1% 11.5% 13.5% 9.0% 12.7% * Included in Other (income) expense, net on the Consolidated Statements of Income ** Adjusted to exclude duplication of D&A *** Other (income) expense, net as reported on the Consolidated Statements of Income less interest income (1) During the quarter ended March 31, 2017, the company recognized cost reduction and other expense of $25.4 million of pretax charges which includes $5.3 million of foreign currency translation losses related to exiting a foreign country impacted by the cost reduction plan that reduces the Other (income) expense adjustment. In connection with our previously announced cost reduction and other expense, we recognized $122.5 million of pretax charges (which includes $19.9 million of asset write-offs which are reflected in Depreciation & Amortization) impacting Adjusted EBITDA by $102.6 million for the year ended December 31, The 2016 cost reduction and other expense is $90.4 million of pretax charges (which includes $1.2 million of asset writeoffs which are reflected in Depreciation & Amortization and includes loss on debt extinguishment of $4.0M reducing the Other (income) expense adjustment) impacting Adjusted EBITDA by $89.2 million for the year ended December 31, There were no cost reduction and other expense impact for the year ended December 31, Unisys Corporation. All rights reserved. 27

28 Schedule C: GAAP to Non-GAAP Reconciliation Free Cash Flow $M Cash provided by (used for) operations $121.4 $1.2 $218.2 Capital expenditures (212.8) (213.7) (147.1) Free cash flow $(91.4) $(212.5) $71.1 Pension funding Cost-reduction funding Adjusted free cash flow $92.0 $(5.7) $ Unisys Corporation. All rights reserved. 28

29 Schedule D: GAAP to Non-GAAP Reconciliation Earnings per Diluted Share $M except share and per share data 1Q16 1Q17 Net income (loss) attributable to Unisys Corporation common shareholders $(39.9) $(32.7) Cost-reduction and other expense: Pretax tax provision (benefit) (2.2) (0.5) net of tax Pension expense: pretax tax provision (benefit) net of tax Non-GAAP net income (loss) attributable to Unisys Corporation common shareholders $5.4 $16.9 Add interest expense on convertible notes Non-GAAP net income (loss) attributable to Unisys Corporation for diluted earnings per share $5.4 $21.6 Weighted average shares (thousands) 50,004 50,256 Plus incremental shares from assumed conversion of employee stock plans & convertible notes ,256 GAAP adjusted weighted average shares 50,138 72,511 Diluted earnings (loss) per share GAAP basis GAAP net income (loss) attributable to Unisys Corporation for diluted earnings per share $(39.9) $(32.7) Divided by adjusted weighted average shares 50,004 50,256 GAAP earnings (loss) per diluted share $(0.80) $(0.65) Non-GAAP basis Non-GAAP net income (loss) attributable to Unisys Corporation for diluted earnings per share $5.4 $21.6 Divided by non-gaap adjusted weighted average shares 50,138 72,511 Non-GAAP earnings (loss) per diluted share $0.11 $ Unisys Corporation. All rights reserved. 29