Unisys Says COVID-19 Had Strong Impact On Sales, But Improvements Ahead

An uptick in sales of some of its key products and service, along with the introduction of a new digital sales platform, should provide enough lift in the second half of the year to meet earlier expectations, Unisys Chairman and CEO Peter Altabef told analysts.

Unisys on Tuesday the COVID-19 pandemic had a significant effect on its business during its second fiscal quarter 2020, but the global solution provider expects a strong second half of the fiscal year that will help meet previous revenue expectations for the year.

Unisys Chairman and CEO Peter Altabef, speaking during the company‘s second fiscal quarter 2020 financial analyst conference call, said full-year revenue expectations remain unchanged for a number of reasons.

About half the revenue decline in the second quarter stemmed from COVID-19-related impacts to Blue Bell, Pa.-based Unisys‘ services business, Altabef said.

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

The other half, he said, was driven by intra-year shifts in the company‘s ClearPath Forward enterprise system and software renewals in addition to currency changes and expected declines in Intelligent Processing Solutions Ltd (iPSL), a U.K.-based business process outsourcing, check processing, and fraud prevention joint venture the company formed along with Barclays, HSBC, and Lloyds Banking Group.

“We anticipate improvements in the most significant COVID-19 drivers in the second half of the year,” he said. ”For instance, and as we expected, field services, BPO, and travel and transportation were the areas of the business that were most significantly disrupted by COVID-19. And leading indicators within each of these have started to improve.”

A large part of Unisys‘ services revenue comes from the global workspace business, Altabef said. For the second fiscal quarter, it accounted for about 30 percent of Unisys’ total revenue, he said.

“That is untypically high for companies in our space,” he said. ”And within that, we have a higher percentage than, I believe, many of our peers in what we call field services. If we look at just field services revenue alone, and we look at the reduction as a percentage of constant currency services revenue, once we take out iPSL, which is our non-profit joint venture, field services alone represents about 85 percent of the reduction in our constant currency services revenue. ... So 85 percent is in the area where we are simply unlike the rest of the business.”

However, Altabef said, field services revenue is currently on the rebound. For instance, he said, monthly tickets moved from about 50 percent of their pre-COVID levels in April to about 70 percent in late June.

On the BPO (business process outsourcing) side, the largest part of that business is from iPSL, Altabef said. And as Unisys‘ BPO teams went back to the office in many geographies, BPO volumes began to increase, he said.

Unisys‘ travel and transportation business volumes are still depressed compared to pre-COVID levels, but by late June they had significantly improved compared to two months earlier, Altabef said. And, he said, Unisys’ services renewals schedule is about twice as high in the second half of 2020 compared to the first half, with a renewals rate that remains in the high 90-plus-percent range.

On the company‘s ClearPath Forward side, Unisys expects to see big uptick in renewals in the second half of the year as two ClearPath Forward contracts were delayed in the second quarter and are now expected to be signed in the third quarter, Altabef said.

“So although ClearPath Forward revenue in the quarter was down significantly year-to-year, we view this as a timing issue inside the year only,” he said. ”We expect second-half technology revenue to improve compared to the first half as a result.”

As a result, Altabef said, Unisys is maintaining its previous guidance of a 10-percent drop in full fiscal year revenue.

Demand drivers continue to align with Unisys‘ products and platforms, Altabef said. The company is seeing strong demand for digital transformation, cloud enablement, and cybersecurity, he said.

“We‘re meeting this demand with InteliServe, our digital workplace solution; CloudForte, our integrated multi-cloud and application-optimization platform; and Stealth, our cybersecurity solution. ... Digital workplace services is a key strategic focus for the company, and our InteliServe platform helps differentiate our efforts,” he said. ”During the quarter, we launched general availability of our IntelliApp [mobile device management platform] and artificial intelligence and machine learning functionality which aimed to improve the customer experience and overall efficiency of customer interactions through our clients.”

When asked by an analyst whether COVID-19 can bring benefits via a to demand, particularly to lagging demand, Altabef responded that Unisys‘ non-global workspace cloud and infrastructure business increased during the second fiscal quarter. For instance, he said, taking iPSL out of the calculation, 85 percent of the decrease in services revenue on a constant currency basis came from just field services.

“And that‘s clearly COVID-19 related,” he said. ”So I think, yes, there are upsides in cloud that you see already. We don’t see an upside in field services. We are reconfiguring our business to have a lower level of field services. But the rest of global workspace, which includes service desk [and] end-user services, we expect all of that to be a growth driver coming out of COVID-19.”

Altabef, responding to another analyst‘s question, said to expect Unisys to launch a new digital sales platform sometime in September or October.

“It‘s a very big deal,” he said. ”We think it’s going to be an industry-leading sales platform. We think it’s going to dramatically increase our ability to use automation in the sales process to allow our sales executives and our business development people to be more effective and to increase margins as well as to ultimately drive up not only the win rate but our pipeline as we’ll be able to address more deals.”
For its second fiscal quarter 2020, which ended June 30, Unisys reported revenue of $438.8 million, down 22.9 percent from the $569.4 million the company reported for the second fiscal quarter of 2019.

That includes services revenue of $396.0 million, down from last year‘s $481.0 million, and technology revenue of $42.8 million, down over half from last year’s $88.4 million.

The company also reported a net loss from continuing operations for the quarter of $76.5 million, or $1.25 per share, on a GAAP basis, down significantly from the net income of $700,000, or 51 cents per share, the company reported for the same quarter of last year. On a non-GAAP basis, Unisys reported a loss of $9.7 million, or 15 cents per share, down from last year‘s income of $38.6 million, or 52 cents per share.

Revenue was lower than analysts‘ expectations, according to Seeking Alpha, which also said Unisys’ earnings per share missed expectations by 3 cents.