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Unisys Corporation (UIS)
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UIS + ALPP manuf 11 companies in 1 + AABB Gold-backed crypto stock.
What a roller coaster ride this company has been; investor and employee. It is actually somewhat bizarre that investors, other than pure speculators, pay attention to it. Unisys exists in a world of "could have been." They hold on to customer relationships with organizations that are risk-adverse to changing. Unisys does a good job for them! Every once in a while, they cherry-pick a new customer. It seems that, based upon some comments, they tried to ramp up sales. Unfortunately, it didn't work. So they shut it down. The bane of business development. One requirement is free cash flow to fund new contracts and roll the dice. I was hopeful that, when the divested Fed and focused on commercial, they would be able to achieve something from their focus. That hasn't taken hold yet. It has to if they are going to survive.
UIS has lost all gains for this year and more. Nothing they do makes this pig fly. A real old computer company which can't compete anymore but hanging on to their legacy customers. I admit they have cloud services offerings but the competition will eat their share of market there too. Why is that no one buys them now that they don't have federal sector?
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This was a quarter with pluses and minuses. The minuses were revenue down YOY and earnings projected at the low end. The Pluses were profit margin growth and turning away from low-margin contracts. This was a "rubber meets the road" quarter with the old and new visions in conflict. I also wonder if the proposed management changes were a contributor? It appears the company's helmsman will be a finance type, not an IT person. Either way, price drop may have been overdone. Only time will tell.
Listened to the recorded investor call. Lots to parse. Remarkably, again called out CP as the largest cash flow contributor. Aluded to further pension moves to remove "variability." Possible lump-sum buyouts as mention in PR? Queston about spreading overhead elicted a comment implying layoffs. No surprise. Would not answer question about how much free cash flow Fed generated. Supposedly, enterprise solutions is generating the most increase in cash flow, but that is a bit murky. With the reduction in pension liability and debt, UIS becomes more "nromal" according to Altebef. Bettre access to capital at better rates. More able to go after mid-sized deals and invest in IP.
We will see.
I am a bit surprised at the negative reaction to yesterday's earnings. They are making great progress on the pension front, freeing up $200 million of cash flow. They are growing the most profitable sectors. They also have $3.5 billion of deferred tax assets to shield future profits. We were told revenue would be flat so that was no surprise. They were even talking about selective acquisitions. Granted non-GAAP is hard to understand but things looked positive.
So have you noticed that UIS converted debt into another 30,000,000 shares? Massive dilution.
Management hopes that shareholders won't notice but there is really no difference between debt
and equity in that both forms of capital have to earn a return. In the case of debt it's paying the
interest charges and in the case of equity the business has to earn and equivalent EPS coverage.
With the crashing interest rate UIS pension payments will skyrocket in 2020.
UIS is going much much higher.Consider the following reasoning; Uis iHas 58,245,000 fully dliuted shares outstanding. At ists current price of $16.16 the market cap is $941 million. Yet they will be recieving $1.025 billion for Federal. At the current price one is buying the remainder of the business for nothing.
This appear to be a reasonably good quarter. While the interest on the notes is high, UIS is fixing the pension mess. The company can't move forward until that happens. Some analysts believe Altabef's end game is selling the company, as he did with Perot. I suspect that won't happen without pension repair. The company's tax loss carryforwards might make UIS an interesting acquisition in the IT space. How they grow revenue is a good question but they will have a better foundation moving forward.
Some interesting facts from the latest 10-Q:
1) Unisys had to offer the new CFO an incentive to stay with Unisys thru 2020 of $225,000. Finding a qualified CFO must
be much harder these days.
2) Shareholders equity is negative (pro forma worthless) due to accumulated deficit
3) From 2020 thru 2024 the pension contributions are estimated at well over $1.0B. Unisys declared that it will have to
seek additional financing (means they don't expect to have enough cash flow to pay during this period). Yet they continue
to tell you every quarter to ignore these payments in cash (their fiction using non-GAAP information)
4) The stock price on Mr. Altabef's first day 1/1/2015 was $29/share ($2.90 pre split of 10:1). Now it's $7 (equivalent to $0.70 pre split).
5) Long term debt has increased.
Yet the Board continues to increase Mr. Altabef's total compensation even though he has failed to produce increased shareholder value.
The market judgment of the executive management team arrives every day on Wall. St. I think the smart money has
seen through management's attempts to talk the stock up by publishing non-GAAP results every quarter..
In my opinion UIS is a very poor investment
Clearly no investment. I got in at 7.30 and will be out shortly. I was there 30 yrs in sales. Pension expense is about to be huge problem. New mgmt does same stuff as all the rest since Unruh.
So this company has been around since 1882 and doesn't pay a dividend? Pfffttt....
After today ,only 1 more day until new short interest is released and 5 more days until 2nd. quarter earnings. last report at the end of June saw 27% of float short for a total of 13,374,200.shares.Based on the average trading volume of 383,600it would take nearly 35 days to cover., a near perfect setup for a short squeeze, either before or after earnings.
The legacy issues pre-dated Altabef. Does UIS become a niche player for state and local government? That is one possibility. As I posted months ago, Altabef's experience at Perot suggests a takeover. That may be the only long-term exit strategy. A larger player may like their tax-loss carryforwards. Nothing take hold without a pension fix. History casts a long shadow. The private sector said goodbye to DB plans decades go. Now, even state and local governments are moving from them. Agreed that flat-line revenue does little good long-term. That said, Mr. Market sees value here, despite negative book value.
More management failures evident: UIS is going to ask IRS to defer 2020 pension plan payments over the next 5 years.
Successful profitable companies don't need to do this.
Good News. Trading at $14.16 up $1.55 in after hours. Even better news is that AH volume was only 65,182 shares meaning that the short squeeze of the 12,030,500
So all of you who are anxious to put money into UIS should read the latest 10-K from cover to cover
In Unisys promotions at the top come as a result of underperformance.
Witness the last 3 years of GAAP results (the ones that matter not the fake news metrics that management puts out) that cover the tenure of Mr. Altabef who has now been elevated by the weak Board to CEO and Chairman elect. Hopefully some large shareholders will balk and set the Board straight on rewards for performance.
2015 Loss of $109.9M
2016 Loss of $ 47.7M
2017 Loss of $ 65.3M
Total Loss $222.9M
Here is the bomb in the 10-k at from the auditors (which should result in the firing of the CFO)
KPMG LLP, an independent registered public accounting firm, has audited the company’s financial statements in this Annual Report on Form 10-K and, as part of its audit, has issued an adverse opinion on the effectiveness of the company’s internal control over financial reporting as of December 31, 2017 , which is included in this Annual Report on Form 10-K on page 36 .
And if you think the pension payments should be ignored as suggested by management, UIS will pay in CASH approximately $150M in pension contributions in 2018
And by the way the debt in 2015 $233.7M
debt in 2017 $633.9M
If you believe in the mythology being put out by this team then by all means back up the truck.
Wow. 6.7/8% interest is a super high rate on the new borrowing. Shows the poor credit quality of UIS. This kind of costly borrowing is going to be a high hurdle for management to overcome and make money on the remaining business after the sale of the very profitable Federal Business. Services is a very low margin business and UIS has never made shareholder profits in this segment. UIS is competing is a very small marginal participant in the IT market selling against giants who have more resources and scale. Global businesses have to have scale to compete and UIS is mostly invisible. That said they still have legacy business which produce profits (ClearPath) and the Stealth offering could be a winning business. But Stealth has large ongoing investment requirements and there's not a lot of money. UIS will have to be very selective in the business it goes after. This borrowing won't go very far if invested in big deals.
Only in the inverted world of Unisys executives does a lower loss result in an apparent positive headline.
Alas, for the poor shareholders the actual results are still very negative. In the continuing perverse
disinvestment of the ClearPath business over the last 20 years it still produces the best profits. The management has spent 3 decades investing in services which only lose money. Yet they persist….
Did you notice that shareholders equity is negative? And yet pay and benefits are ever increasing???
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