Unisys Corporation reported fourth-quarter and full-year 2018 financial results. "We are pleased to have grown revenue for the full year 2018 for the first time since 2003. Our results were driven by our strategy of a focused industry go-to-market approach and using security to differentiate our offerings," said Unisys Chairman, President and CEO Peter A. Altabef. "Our expertise in cloud migration and infrastructure modernization and managed digital workplace services which contributed to our growth in 2018, is aligned with ongoing market demand for these services."

Summary of Full-Year 2018 Business Results

Company:

Revenue grew 3.0 percent year over year as reported and on a constant-currency⁽³⁾ basis to $2.83 billion, marking the first full year of revenue growth since 2003. Non-GAAP adjusted revenue was up 80 basis points year over year to $2.76 billion.

Operating profit margin expanded 660 basis points year over year to 10.1 percent. Non-GAAP operating profit⁽⁶⁾ margin expanded 20 basis points year over year to 8.9 percent, even with lower Technology revenue year over year, as expected due to a lighter ClearPath Forward^® renewal schedule.

Net income for 2018 was $75.5 million, versus a net loss of $65.3 million in 2017. Diluted earnings per share was $1.30, versus a diluted loss per share of $1.30 in 2017. Non-GAAP diluted earnings per share was $1.95 versus $2.49 in the prior year. 2017 included tax benefits of $50.4 million, or $0.69 per diluted share, driven by unusually high tax credits, principally related to the enactment of the Tax Cut and Jobs Act.

Adjusted EBITDA for 2018 increased 4.3 percent to $422.5 million, and Adjusted EBITDA margin expanded to 15.3 percent, up 50 basis points year over year.

2018 operating cash flow was $73.9 million versus $166.4 million in 2017. 2018 adjusted free cash flow⁽¹⁴⁾ was $62.0 million, versus $210.8 million in 2017. Adjusted free cash flow was expected to decline year over year due in part to outperformance on this metric in 2017. However, the year-over-year decline was larger than expected, largely driven by increased capital expenditures related to new public sector deals and timing of cash collection due to the U.S. Federal Government shutdown, and was impacted by working capital at the company's UK-based check-processing joint venture.

2018 Total Contract Value⁽¹⁾ (or "TCV") grew 27 percent year over year, and new business TCV grew 51 percent.

Services:

2018 Services revenue grew 2.5 percent year over year (or 2.4 percent in constant-currency) to $2.39 billion, marking the first full year of revenue growth for the segment since 2006. Services non-GAAP adjusted revenue grew 2.1 percent year over year to $2.38 billion. Services backlog grew 13 percent year over year to end 2018 at $4.8 billion, representing the second-consecutive year of growth in year-end backlog. New Services contracts in implementation stage can impact margins, as costs are incurred ahead of revenue being recognized, and this was the case during 2018. As a result, Services gross profit margin was 16.0 percent, down 80 basis points year over year, and Services operating profit margin was 2.8 percent, flat year over year. Non-GAAP adjusted Services gross profit⁽⁷⁾ margin was 15.6 percent, down 120 basis points year over year, and non-GAAP adjusted Services operating profit⁽⁸⁾ margin was 2.4 percent, down 40 basis points year over year.

Technology:

2018 Technology revenue was $438.7 million, up 6.1 percent year over year (or 6.5 percent in constant currency). Non-GAAP adjusted Technology revenue for 2018 was $385.7 million, down 6.7 percent year over year, as expected due to the ClearPath Forward renewal schedule. Technology gross profit margin for 2018 expanded 1000 basis points year over year to 69.4 percent. Technology operating profit margin was up 1250 basis points year over year to 51.3 percent. Non-GAAP adjusted Technology gross profit⁽⁹⁾ margin for 2018 expanded 600 basis points year over year to 65.4 percent. Non-GAAP adjusted Technology operating profit⁽¹⁰⁾ margin was up 620 basis points year over year to 45.0 percent. Due to this margin expansion (which was largely driven by a revenue mix that was more software than hardware), non-GAAP adjusted Technology operating profit grew year over year, despite lower non-GAAP adjusted Technology revenue.

Summary of Fourth-Quarter 2018 Business Results

Company:

Revenue grew 2.2 percent year over year to $760.9 million (up 4.8 percent in constant-currency). Non-GAAP adjusted revenue was up 1.3 percent year over year to $754.6 million.

Operating profit margin was 9.5 percent, down 150 basis points year over year. Non-GAAP operating profit margin was 11.9 percent, down 400 basis points year over year. These margin declines were largely due to a lighter Technology renewal schedule and were also impacted by new business in implementation stage in Services.

Net income for the fourth quarter was $25.0 million, versus $50.5 million in the fourth quarter of 2017. Diluted earnings per share was $0.41, versus $0.76 in the fourth quarter of 2017. Non-GAAP diluted earnings per share was $0.97 versus $1.75 in the prior-year period. The fourth quarter of 2017 included tax benefits of $29.3 million, or $0.41 per diluted share, driven by unusually high tax credits, principally related to the enactment of the Tax Cut and Jobs Act.

Adjusted EBITDA for the fourth quarter was $134.5 million, and Adjusted EBITDA margin was 17.8 percent, both down year over year due to the same issues that impacted non-GAAP operating profit margin.

Fourth quarter operating cash flow was $151.3 million versus $202.7 million in the fourth quarter 2017. Fourth quarter adjusted free cash flow was $123.8 million, versus $207.4 million in the fourth quarter of 2017, largely driven by timing of cash collection due to the U.S. Federal Government shutdown and working capital at the company's check-processing joint venture, as noted above. At December 31, 2018, the company had $605 million in cash and cash equivalents.

TCV was down 49 percent year over year in the fourth quarter, and new business TCV was down 51 percent, due to uncharacteristically high growth of these metrics in the fourth quarter of 2017.

Services:

Services revenue grew 5.6 percent year over year (or 8.3 percent in constant-currency) to $625.5 million, marking the third-consecutive quarter of revenue growth for the segment. Services non-GAAP adjusted revenue grew 4.5 percent year over year to $619.2 million. As was the case for the full year 2018, new Services contracts in implementation stage also impacted the fourth quarter of 2018. Services gross profit margin was 15.0 percent, down 310 basis points year over year, and Services operating profit margin was 2.1 percent, down 270 basis points year over year. Non-GAAP adjusted Services gross profit margin was 14.1 percent, down 400 basis points year over year, and non-GAAP adjusted Services operating profit margin was 1.1 percent, down 370 basis points year over year. These margins were also impacted by increased costs associated with certain existing contracts.

Technology:

Technology revenue in the fourth quarter was $135.4 million, down 11.0 percent year over year (or 9.1 percent in constant currency) driven by the ClearPath Forward renewal schedule, which was expected to be lighter than in the prior-year period. Technology gross profit margin for the fourth quarter expanded 560 basis points year over year to 75.5 percent. Technology operating profit margin was up 120 basis points year over year to 58.6 percent. The improvements to Technology margins were driven in part by a higher mix of software revenue in the quarter.

Key Fourth-Quarter Contract Signings:

In the fourth quarter, the company entered into several key contracts in each of its sectors including the following:

U.S. Federal: Unisys was selected by the Office of the Comptroller of the Currency (OCC), an independent bureau of the U.S. Department of the Treasury, to provide secure cloud services for the agency's employees under a blanket purchasing agreement worth up to $69 million. Under the agreement, Unisys will implement and validate identity and access management and cloud access broker services so the OCC can securely operate critical applications in the cloud.

Public: A U.S. state government awarded Unisys a contract for Stealth™ software and comprehensive security services. Following the consolidation of 50 of the state's data centers, Unisys is helping the state to implement uniform security across its newly integrated data center and is using microsegmentation to segregate agency servers and applications co-located on a single physical network.

Commercial: MASkargo, the cargo division of Malaysia Airlines, will further enhance the digital transformation of its business using two secure cloud-based Unisys Digistics™ digital logistics solutions to make the airline's cargo services available to a wider global freight market and provide customers with industry-leading visibility across the shipment lifecycle.

Financial Services: Unisys renewed its agreement with a major Brazilian bank to provide application services support for the bank's contract management services, which support 70 percent of the total mortgage market in Brazil.

Representative 2018 and 2019 Awards and Accolades:

Gartner: Unisys is a Leader in the Magic Quadrant for Managed Workplace Services, North America (ranked highest of all firms profiled for "ability to execute")

ISG: Unisys is a Leader in Managed Digital Workplace Services (Global, USA, and UK evaluations)

NelsonHall Research: Unisys is a Leader in Cloud Advisory, Assessment and Migration Services

HfS Research: Unisys is a Leader in the Blueprint for ServiceNow Services

HfS Research: Unisys is a Top 10 provider of Infrastructure and Enterprise Cloud Services

Awarded "Best Supply Chain Architecture" for one of the modules within Digistics cargo logistics solution and "Best Software Architecture in IT Products" for AirCore^®, the company's advanced passenger services solution, at the ICMG Global Enterprise Architecture Excellence Awards