Unisys CEO Discusses Q4 2010 Earnings Call Transcript

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Unisys (UIS)

Q4 2010 Earnings Call

February 01, 2011 5:30 pm ET

Executives

J. Coleman - Chairman of the Board and Chief Executive Officer

Niels Christensen -

Janet Haugen - Chief Financial Officer and Senior Vice President

Analysts

Timothy Hasara - Kennedy Capital

John Moore - Robert W. Baird

Eric Boyer - Wells Fargo Securities, LLC

Joseph Vafi - Jefferies & Company, Inc.

William Fellows - The 451 Group

Presentation

Operator

Good day, and welcome, to the Unisys Fourth Quarter and Full Year 2010 Results Conference. At this time, I'd like to turn the conference over to Mr. Niels Christensen, Vice President of Investor Relations at Unisys Corporation. Please go ahead.

Niels Christensen

Thank you, operator. Good afternoon, everyone and thank you for joining us. Earlier today, Unisys released its fourth quarter and full-year 2010 financial results. With us this afternoon to discuss our results are Ed Coleman, our CEO and Janet Haugen, our CFO.

Before we begin, I want to cover a few housekeeping details. First, today's conference call and the Q&A session are being webcast via the Unisys investor website. Second, you can find the earnings press release and the presentation slides that we will be using this afternoon to guide our discussion on our investor website. These materials are available for viewing, as well as downloading and printing. Third, today's presentation, which is complementary to the earnings press release, includes some non-GAAP financial measures. These have been provided in an effort to give investors additional information. The non-GAAP measures have been reconciled to the related GAAP measures and we've provided reconciliation charts at the end of the presentation. Finally, I'd like to remind you all that forward-looking statements made during this conference call are subject to various risks and uncertainties that could cause actual results to differ materially from expectations. These factors are discussed more fully in the earnings release and in the company's SEC filings. Copies of these SEC reports are available from the SEC and from the Unisys investor website. Now, I'd like to turn the call over to Ed.

J. Coleman

Thanks, Niels. Hello, everyone. We appreciate you joining us today. Please turn to Slide 1, which summarizes a number of the highlights for 2010 that I'll be referencing in my comments. Before Janet takes us through the numbers for the fourth quarter and full year, I'd like to make some observations about where we are, who we are and where we're going. It's an exciting time to be at Unisys. We made continued progress against our priorities in 2010 and entered 2011 in what we believe is a strong competitive position. First, having divested a number of non-core businesses, we have a sharpened focus, with outstanding solutions for our clients in the areas of Security, Data Center Transformation and Outsourcing, End-user Outsourcing and Application Modernization. These solutions are enabling us to win exciting new engagements that help our clients deal with the disruptive trends associated with cloud computing, cybersecurity, global computing, social computing, smart computing and IT appliance offerings. For instance, in cloud computing, we have a prime contractor partnering with Google to build a new cloud-based e-mail and collaboration system for the General Services Administration, a first of its kind cloud implementation in the U.S. federal government. We've also recently announced contracts to build advanced cloud-based solutions for the City of Minneapolis, Colt Communications [Colt Technology Services] and the University of Salford, in the U.K.. Second, we have invested in building world-class IT outsourcing systems integration and technology, skills, infrastructure and products to enhance our services and solutions that are delivered around the globe.

Slide 2 highlights our global service delivery network, which includes more than 30 centers, and over 17,000 service and delivery professionals. Our delivery model is based on idle [ph] service standards and we believe we're the first global player to achieve ISO 2000 certification in all of its operational centers. As a result, we can provide consistent levels of service and support to our clients regardless of where they're located around the world. This commitment has resulted in improved client satisfaction, new customers and a growing reputation for service excellence. In our technology business, we've significantly enhanced our flagship ClearPath platform to expand the market for what we believe is the most reliable and secure Open Enterprise Server on the market. Recent innovations include secure partitioning for the Intel Xeon platform and integrated support for Apple iPhones. Third, at the same time we've made these investments, we grew our 2010 operating profit by 14% and improved our operating margin to 9.3%, and for the second consecutive quarter, we achieved a services operating margin within our targeted 8% to 10% range. We also increased pretax income from continuing operations to $223 million for the full year on lower revenue.

We've also continued to strengthen our balance sheet. Slide 3 shows the improvements we've made over the past two years. As you can see, we've reduced debt while steadily increasing our cash position to $828 million at year end 2010. In the past 12 months, we've reduced our net debt by $368 million and we achieved a milestone by ending 2010 with more cash than debt. All of this adds up to a company that we believe is establishing leadership position in many important and growing areas of the IT industry, as we strive to meet the strategic financial objectives that I outlined last quarter.

Those objectives, which you can see on Slide 4, over the next three years, are to increase our annual pretax profit to $350 million in 2013, assuming no change in pension income or expense from 2010. Second, to reduce our remaining debt by 75% by the end of 2013; and third, consistently achieve an 8% to 10% services operating margin. To do that, we're focused on growing our IT Outsourcing and Systems Integration services at market rates, adjusted for the fact that we no longer have the TSA revenue in 2011, while maintaining flat technology revenue over the three-year period. I'm pleased that we made headway against these revenue growth targets in 2010. We grew our non-U.S. Federal IT Outsourcing business by 6% and our technology revenue was flat as we grew sales of our ClearPath servers by 5%. But we have a great deal more work to do. We recognize that we must not only sustain the progress we've made in IT Outsourcing and Technology, but also grow our Systems Integration business. In 2011, we'll be focused on extending the success we've seen in IT Outsourcing and Technology into our Systems Integration business. Driving that, we see key growth opportunities for Unisys in the years ahead, based on the six disruptive trends I referred to earlier, and the capabilities and portfolio that we bring to market. As we drive toward our stated three-year goals, we will also continue to closely manage expenses and work to further improve the cost efficiency of our delivery model. To that end, in 2010, we increased our use of lower cost labor resources to 29% of our employee base at year end, up from 20% at the beginning of the year. As we look at the market, we believe we have the right skills, infrastructure and a strengthened portfolio to meet growing market requirements for today's disruptive technologies. We have a strong client base and are known for service excellence and quality, and because of the work we've done, we have an improved cost structure and balance sheet that enables us to compete more effectively.

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