Security A Major Driver In Unisys' Strong Second Quarter

‘Security for Unisys does not just mean our stand-alone solutions such as Stealth or TrustCheck. Rather, security is an inherent part of much of the work we do across the company,’ says Peter Altabef, Unisys chairman, president and CEO.

Security played a large part in Unisys' revenue and profit growth for its second fiscal 2019 quarter, highlighted by the fact the company broke out its security numbers for the first time in its financial report.

The Blue Bell, Pa.-based global solution provider Tuesday also reported strong overall growth for its entire business, including its services and technology businesses, with double-digit growth in its U.S. federal and financial services businesses.

The second fiscal quarter, which ended June 30, represents one of Unisys' strongest recent fiscal quarters, said Peter Altabef, chairman, president and CEO.

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

"Many of our key metrics improved year over year," Altabef said during his prepared remarks. "We were ahead of internal expectations, and we beat the consensus where estimates were available."

Unisys' focus on security has resulted in the signing of numerous large contracts in the past few years, including notable wins in the U.S. federal sector, Altabef said.

"These new contracts continue to drive revenue growth for us, and our focus on cost management helped drive improved profitability and cash flow," he said. "More specifically, revenue grew at the highest quarterly rate in over 20 years. … We expect this sector to continue to contribute to the success of the company in the coming quarters."

Security continues to be a critical part of Unisys' strategy, Altabef said. "Security for Unisys does not just mean our stand-alone solutions such as Stealth or TrustCheck," he said. "Rather, security is an inherent part of much of the work we do across the company."

Security is more and more a part of deals Unisys signs with clients, and the company's Stealth product in some cases accounts for 5 percent or 10 percent of a deal, Altabef said, in response to an analyst question.

"When we insert Stealth specifically into deals, it is largely to distinguish ourselves in the deals," he said. "We do get higher margins for the Stealth component, but it doesn't necessarily increase our margins for the entire deal other than the Stealth component. [But] it makes it more likely for us to win those deals."

Altabef noted that security accounts for about 20 percent of the company's overall revenue.

"When we look at services in general, and we look at that security number we give you, this is the first time that we've actually given a percentage of our business related to security," he said. "It's a work in progress. … At 20 percent of the revenue of the company, that's a pretty significant for us. And certainly it's the first time that we've given that number. And there's a reason for that. We want everybody to understand how much of the company is now security-focused."

The quarter was also the fifth consecutive quarter of revenue growth in the services sector, Altabef said during his prepared remarks.

Unisys' services growth was driven in large part by its security business, Altabef said, including its new services offerings such as InteliServe and CloudForte, he said.

The company's "land and expand" strategy also helps enhance margins, Altabef said. "We saw a number of examples this quarter of newer clients enter into contracts with us for additional or expanded application services or project-based work," he said.

Unisys also saw higher-than-expected revenue as it signed a number of renewals for its ClearPath Forward systems, Altabef said, which are a driver of services revenue.

In terms of sectors, the U.S. federal segment continues to be a key business driver for Unisys, with revenue in the quarter up 33.1 percent year over year, Altabef said. The growth for our U.S. federal sector was all organic," he said.

Unisys' revenue for the sector should see growth in the high teens for full-year 2019, he said.

For Unisys' public sector business, non-GAAP revenue increased 5.8 percent year over year, Altabef said. Non-GAAP commercial revenue was stable with last year, while non-GAAP financial services revenue grew 16 percent, he said.

"In conclusion, we're excited about our revenue momentum, that it continues and that our profitability has strengthened in the quarter," Altabef said. "Driving efficiency and maintaining taut discipline remain top priorities for us, especially in light of the impact on cash flow, which is a critical area of focus for us."

For its second fiscal 2019 quarter, Unisys reported revenue of $753.8 million, up 12.9 percent over the $667.4 million the company reported for its second fiscal 2018 quarter. That included $653.4 million in services revenue, up from last year's $586.7 million, and $100.4 million in technology revenue, up from last year's $80.7 million.

Net income for the quarter on a GAAP basis was $26.2 million, or 42 cents per share, up significantly from the $3.8 million, or 7 cents per share, the company reported last year. On a non-GAAP basis, net income was 87 cents per share, up from last year's 39 cents per share.

Unisys' second fiscal quarter 2019 revenue beat analysts' expectations by $65.25 million, and expectations of 21 cents per share on a non-GAAP basis, according to Seeking Alpha.

Unisys' share prices rose by 0.1 percent to $10.53 per share by the close of the trading day. The company reported its fiscal results after the close of trading. In after-hours trading, Unisys shares rose by nearly 16 percent to reach $12.20 per share a couple of hours later.