With shares of Unisys (UIS) down 46% through the first ten months of the year, 2023 was shaping up to be an awful year for this global provider of IT solutions. But its fortunes appeared to have recently changed with the stock surging more than 60% so far in November.
This reversal comes on the back of a much better-than expected Q3 report with total revenue increasing 0.7% from the prior year to $464.6 million and beating the consensus estimate by $24.9 million as the anticipated drop in software license renewals resulting from the decision by many of its ClearPath Forward Solutions customers to renew earlier in the year was offset by strong growth of 6.2% driven by the expansion and new scope of business from existing customers in its Cloud Applications & Infrastructure Solutions and Digital Workplace Solutions segments.
Along with margin performance that was also much stronger than expected thanks to the absence of additional expenses associated with a specific contract in the prior-year period and delivery improvements, UIS was able to eke out a small operating profit and limit its adjusted net loss to just $22.3 million or 33 cents per share. That was 19 cents less than the much wider loss of 52 cents analysts were projecting. UIS’s cash flow performance was similarly encouraging with the company using up just $25.7 million in free cash and actually producing $1.4 million when adjusted to exclude postretirement funding and expenses associated with the company’s cost-reduction activities.
What’s more, based on the strength of the Q3 results and expectation that the biggest drivers for this performance—such as the successful ability to upsell higher value solutions like its Next-Gen offerings to its existing clients (which led to a 22% sequential increase in new logo total contract value) and a robust pipeline that’s up 18% from a year ago and includes substantial opportunities for these more lucrative solutions—will persist, UIS raised its full-year constant currency revenue growth and adjusted operating margin forecast to a gain of 0-1.5% and to 5.0-6.0% from a prior view for a decline of 3.0-7.0% and just 2.0-4.0%, respectively.
Even at the low end of these new ranges, this indicates Q4 revenue of approximately $520 million—which is far higher than the $475.1 million consensus view—and adjusted operating profit of about $22 million. The latter suggests UIS may even be able to realize a net profit on an adjusted basis versus the loss of 29 cents per share analysts were expecting.
Yet despite the huge boost this has given to UIS’s stock, it remains down from where it was trading right after the company’s Q2 report in early August. That makes no sense given the fact that UIS’s prospects for the year are much better now than they were back then and that it won’t even see the full benefits of the cost-reduction efforts that will be captured in the second half of 2023 until next year. This has me believing that the company’s operating results over the remainder of the year will continue to trend well enough to further add to the rebound UIS’s stock had already enjoyed month-to-date.
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