Good day, and welcome to the Unisys Third Quarter 2016 Results Conference Call. At this time, I'd like to turn the conference over to Courtney Holben, Vice President of Investor Relations at Unisys Corporation. Please go ahead.

Thank you, operator. Good afternoon, everyone. This is Courtney Holben, Vice President of Investor Relations, speaking. Thank you for joining us. Earlier today, Unisys released the third quarter 2016 financial results. I'm joined this afternoon to discuss those results by Peter Altabef, our President and CEO; Janet Haugen, our CFO, who as we previously announced, will be retiring at the end of this month; and Inder Singh, our Chief Marketing and Strategy Officer, who will step into the role of CFO on November 1 after Janet's departure. Before we begin, I'd like to cover a few 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. Third, today's presentation, which is complementary to the earnings press release, includes some non-GAAP financial measures. The non-GAAP measures have been reconciled to the related GAAP measures, and we've provided reconciliations within the presentation. Although appropriate under Generally Accepted Accounting Principles, the company's results reflect charges that the company believes are not indicative of its ongoing operations and that can make its profitability and liquidity results difficult to compare to prior periods, anticipated future periods, or to its competitors' results. These items consist of pension and cost reduction and other expenses. Management believes each of these items can distort the visibility of trends associated with the company's ongoing performance. Management also believes that the evaluation of the company's financial performance can be enhanced by use of supplemental presentation of its results that exclude the impact of these items in order to enhance consistency and comparativeness with prior or future period results. The following measures are often provided and utilized by the company's management, analysts, and investors, to enhance comparability of year-over-year results, as well as to compare results to other companies in our industry, non-GAAP operating expenses, non-GAAP operating profit, non-GAAP diluted earnings per share, free cash flow and adjusted free cash flow, EBITDA and adjusted EBITDA in constant currency. From time to time, Unisys may provide specific guidance regarding its expected future financial performance. Such guidance is effective only on the date given. Unisys generally will not update, reaffirm, or otherwise comment on any prior guidance, except as Unisys deems necessary, and then only in a manner that complies with Regulation FD. And finally, I'd like to remind you that all forward-looking statements made during this conference call are subject to various risks and uncertainties that could cause the actual results to differ materially from our expectations. These factors are discussed more fully in the earnings release and in the company's SEC filings. Copies of those SEC reports are available from the SEC and from the Unisys Investor website. And now, I'd like to turn the call over to Peter.

Thank you, Courtney. And thank you, all, for joining us today to discuss our third quarter financial performance, and the progress we are making to enhance the company's competitive positioning and financial performance. Over the course of the third quarter, we saw a number of positive trends for the business. And there were also a few areas where we still need to make progress. Slide 4 in the presentation highlights some of the major takeaways from the quarter. Q3 was a strong quarter in terms of sales activity. We ended the third quarter with our services backlog at $4.1 billion, up 7% sequentially, driven by some key contract wins. We also continue to execute on our vertical go-to-market approach, which I will discuss shortly. The progress we have made on the cost cutting front, along with our ongoing shift to a more asset-light business model has reduced our capital expenditure needs and led to significant improvement in our cash flow. This resulted in an $87 million increase in operating cash flow in the third quarter, $106 million increase in free cash flow and $105 million increase in adjusted free cash flow, all on a year-over-year basis. This was our second consecutive quarter of positive free cash flow and our fourth consecutive quarter of positive operating cash flow and adjusted free cash flow. Improving the performance of our Services business has been a top priority, and we are making ongoing efforts to improve the margins of that business. This quarter, Services gross margin was down 60 basis points year-over-year, with nearly two-thirds of this attributable to some favorable contracts in 2015 within the Federal business. Excluding the impact of these contracts and ongoing investments in additional solutions capabilities, gross margin for the remaining Services business would have been up this quarter…

Thanks, Peter. Hello, everyone, and thanks for joining us today. In my comments today, I will provide comparisons on a GAAP and non-GAAP basis. The non-GAAP results exclude pension and cost reduction charges. Please turn to slide seven for a discussion of our third quarter 2016 financial results, which was a good cash flow quarter for us. Revenue tracked in line with expectations based on our full-year guidance. We reported revenue of $683 million in the quarter, which was down 7.6% on a reported basis year-over-year or down 6% on a constant currency basis. Third quarter 2016 non-GAAP operating profit margin was 6.7%, down 50 basis points year-over-year. As Peter mentioned, the decline is coming from the Services business where operating margin percent was down year-over-year but up sequentially. Technology margins increased year-over-year. Diluted loss per share was $0.56 versus a diluted loss per share of $0.19 in the prior year period. Non-GAAP diluted earnings per share was $0.41 relative to $0.67 a year ago. Shares used to calculate third quarter and year-to-date GAAP and non-GAAP diluted earnings per share are shown in Schedule B in the appendix to the presentation accompanying our comments today. Moving to cash flow. The third quarter was highlighted by continued improvement in cash flow generated by the company. In the third quarter of 2016, we generated $43 million of operating cash flow in the quarter compared to an operating cash usage of $44 million in the same period last year. And operating cash flow also improved sequentially. Adjusted free cash flow, which is the free cash flow generated from the business excluding the impact of cash payments for our cost reduction program and for pension funding increased $105 million to $69 million in 3Q 2016 compared to a usage of $36 million in 3Q…

Thank you, Janet. I also want to thank you for your extraordinary service to Unisys in the past 20 years. I'd like to remind everyone that Inder Singh, who will take over as CFO upon Janet's retirement at the end of this month, is also on call. And so, Inder, Janet and I will all handle the Q&A. Operator, please open the line.

Certainly. Thank you. At this time, we'll move to James Friedman with Susquehanna.

Hi. Janet, let me echo those congratulations. You've been a great leader for this company.

Oh, thanks, Jamie.

Jamie, thanks for being on the call.

My pleasure. So, Janet, you're not off the hook yet though, I wanted to ask you a couple of things. First, about the Technology revenue that was contemplated. So, Technology did seem to kind of over index in the first nine months. My math suggest you did $207 million in the first half, you did $289 million year-to-date, your original guide was $345 million to $365 million, I realized that was a while ago. But that would imply that you did like between 56% and 60% between the low-end and high-end year-to-date, and you're saying it will be more. It sounded like it would be slightly front-end loaded like first-half loaded. Anyway, I'm trying to figure out is there potential upward revision to that original $345 million to $365 million, so we can figure out where to land Q4?

Sure, Jamie. And you are right to recognize the fact that the Technology business has had a good third quarter and a good year-to-date result. We did anticipate different seasonality in 2016 than we've seen previously. And as we look at this year-end, we did $206 million in the first half of 2016. And we expect the second half to be slightly lower than that, kind of maybe 51-49 split roughly. And when you look at that number, that is another increase in our expectations for the Technology business than what we've talked about at the end of the second quarter on our earnings call. So, it's been a good performance by the Technology business. Same client base, same license renewal, but we think this is reflective of client receptivity to the enhancements in the ClearPath Forward product line that Peter mentioned.

Got it. And then I just want to ask the same about Services. So, I think you had said, if I wrote this down right, $538 million of the Services backlog would be recognized in the fourth quarter. But this quarter, if I got my numbers right, it was $537 million in the Q2 for the Q3, which implied like it was a little bit more than 11% sell-and-bill. So anyway, I'm trying to basically get the same comment on the Q4 relative to where we should be landing Services.

Sure. So, when you look at the full year for Services revenue, and we've guided on what we're still in the middle – we still reaffirmed our guidance on total revenue. As you look at that, Services backlog that's been converted in the – the opening backlog that's converted in the third quarter, and then the opening backlog that's converted – that we'll expect to convert into the fourth quarter. You are right that in the third quarter, we saw a little bit more of sell-and-bill in the quarter. We think that that's the trend that has the potential to continue into the fourth quarter as well.

Okay. Got it. I don't want to monopolize the call, but maybe if I could sneak in one more. So, you were free cash flow positive, not adjusted free cash flow. But if I'm calculating this right, you were actually free cash flow on adjusted positive $6 million in the Q3?

Absolutely.

Yeah. Okay. All right. So, in addition, you made some comments and you were going kind of fast there, Janet, about like the out-year cash considerations. I'm sorry, can I ask you to repeat that $80 million and then the $30 million to $35 million?

Sure. So, you're referring to the cost reduction charges, Jamie. So, previously when we talked about the cost reduction program, we had said that the cash usage would kind of end about mid-year 2017. Based upon us looking at the remaining actions, which are as we've talked about before, predominantly in EMEA but there are actions elsewhere, we've extended that time period where that $280 million of cash would be used. So, through September 30, we've used $121 million. We anticipate another $20 million in the fourth quarter of 2016, bringing up the number that would make it $141 million of cash usage through the end of 2016. 2017 is $80 million to $90 million, 2018 $30 to $35 million, and then the remaining portion of $15 million to $20 million would be in 2019. So, previously, it was much more weighted to 2017. We think we have a plan. Beginning of the plan, we took a charge for it this quarter that would extend those payments out across multiple years as opposed to be weighted in 2017.

Got it. And if I could just sneak in one more, Peter, I was wondering in terms of – first of all, the slide nine is very helpful Federal, Financial, Public Sector, Commercial. Yeah, in terms of what your expectations are going forward? Is there anything to call out in Financial in terms of like the year-over-year comp or do you expect that to be stabilized as we move forward?

Yeah. So, the Financial Services where really – the year-on-year decline you saw was really the result of a large technology sale in the quarter a year ago. So, it was really a one-time bad or difficult comparable. So, not indicative of our confidence in Financial Services as a sector at all. And in fact, you saw me talk about one of the AM product that we've now put on Microsoft Azure, we are rolling out an omni-channel product to the banks. We do work with about 450 banks and financials institutions around the world. And many of those use our underlying technology ClearPath Forward and applications built on that, and they're looking to move into omni-channel capabilities. So, we're the best people to give them a real next generation digital omni-channel solution. That solution, we are actually working on finishing and we will roll it out toward the end of the fourth quarter of this year. So, that's not anything we've done before. We've not gone to those 450 clients, and said, we can get you right up to the customer-facing front with a next generation omni-channel solution that integrates fully into your back end core banking system. So, we're actually quite energetic about Financial Services and the ability to really attract new kind of revenues from those clients as well as new clients.

Got it. All right. Good job. Appreciate the color.

Thanks, Jamie.

We have another question in queue. This will be from Joan Tong with Sidoti & Company. Joan K. Tong - Sidoti & Co. LLC: Good evening. Just a couple of questions here. Obviously, the total contract values increased as well as the sequential backlog increased. Very encouraging, especially talking about like reversing the trend that we have seen in the past couple of quarters. Peter, I'm just wondering, is it like too early to sort of like take into consideration with all the things that you are doing, think about how 2017 is going to be like on revenue as well as service margin?

Well, yeah, I think it is a little too early, Joan. Inder, who is changing hats and moving over to the CFO role in November, has been really busy in his Chief Strategy Officer hat that he has had now in getting us ready for looking in next year. We are not ready to do that yet. We have not yet taken that to our board for review, but we're getting close. And so, we'll get back to you on that on the next call obviously. And we do expect, as we started this year to give you guys guidance on cash flow, on revenue, and on profitability. So, that will be coming in the next call. With respect to how does revenue play out and what's the relationship between revenue and TCV, it's not an exact science or an exact relationship. So, just to talk about TCV for a minute. The reason we gave you the 22% year-to-date increase over last year was because it's pretty lumpy and sales have always been lumpy. You may recall in the first quarter that we had a down quarter against the last year. And my expectation then was that in the last nine months of the year, we would outsell TCV for the last nine months. So, I didn't actually say we were going to exceed last year's. I just said we would have – I thought we could have a better performing last nine months. And I wasn't 100% sure we would be able to fill the gap. Well, we are on track to fill the gap. And so for the first nine months, we're now ahead of where we were for the first nine months of last year. So, I think that's very strong in terms of how we look…

I think we talk a lot about – we talk about where we need to go as a company. We talk a lot about the Services numbers and getting the Services' margins up. And it takes a lot of our focus on these calls, Joan, and it should. Because, ultimately, if we're going to get to where we want to be from a financial standpoint, we need to continue to increase those Services numbers and both the gross and the operating margin. But sometimes we forget to talk about the Technology business and where that fits. Technology business is very important for this company and has historically been kind of the cash generator for the company and the margin generator for the company. And one of the things I think we have done a good job of and Tarek El-Sadany, who came in last June to lead that team and the whole technology team has really done a good job of looking at that business and creating a really exciting road map for the ClearPath Forward line of products. We have gone, in that line of products, from not only to an x86 Intel system, but to a software-only system. And we released our very first version of software-only products earlier this year and we're continuing to release more. So, we're really bringing that into a cloud environment. What software-only means is that system can operate on top of a private cloud environment. And frankly, we have tested it on bare-metal. So, we're really moving that into the next generation of cloud data center environment. And as we continue to bring the rest of the product set there, we expect to really extend the utility of that system much longer than perhaps we did before. In fact, when you think…

Yeah. Well, the answer is that, I think there is. It's probably not anything that I have thought out, Joan, to be able to give you, or even Inder or Janet, on this call. I mean, what I mentioned on the last call with respect to some of those initiatives and investments, it's ramping up on an advisory and consultative skills, which are the point of the spear for our new sales. It's ramping up on our subject matter experts in the specific identified verticals. Its new offerings, such as the omni-channel offering in financial services; such as the offerings we're bringing online in life sciences around the regulatory requirements for those companies with respect to shipping of pharmaceuticals. So, there is a whole series of very specific offerings that we're bringing online in addition to the people skills of the advisory and consultative world. Now, you might say, gee, it sounds like a lot of stuff. It's actually a lot less stuff. So, actually as we've gone through the inventory of services we offer and the inventory of technology products we offer, we're actually cutting them down and making tough choices to say, what we're going to do, we're going to be best at. So, we're actually doing less, but doing it hopefully better. One of the areas we don't always talk about, but is really important to the company is our end user and the workspace area. That represents a little over 30% of our revenue as a company, and we're making significant investments going forward in modernizing that offering, and we're excited about those. So, how do we get all of that into measuring ROI for you? We'll work on that. Joan K. Tong - Sidoti & Co. LLC: Okay. All right. Thank you for the color. And then, Janet, related to that, the charges – the cash charges that you talk about over the next couple of years, I just want to understand like the thought process behind that like incurring more charges. It does seems to me that the cost saving – additional cost saving is like an extra $30 million, but then you are looking to bulk maybe spend extra $80 million to $100 million in cash charges. And so, I just want to understand the thought process behind. Is it because you guys are doing a little bit better on cash flow, you guys actually can afford to do that and might as well just get it all done and set yourself up for the next couple of years?

Hi, Joan. Let me just confirm that the amount of the overall charge of $300 million over the program is the exact same amount that we had outlined at the beginning of the program, when we launched it in April. Additionally, the $280 million in cash usage is exactly the same amount of cash usage that we had estimated at the announcement of the program back in 2015. The $30 million of these additional savings that we've talked about on prior calls that represent $80 million of the charge, and almost a similar amount of cash related to our – predominantly to our EMEA area, where we said that we're going to continue work to trying to find most cost-effective ways to do that. But we believe, based upon where we're performing and where we're performing against cash, that we can – and we did, we started – we began two steps with regards to that additional $30 million of savings. One is a smaller element to it is the divestiture of our Italian SAP practice that has some of the employees and about $8.5 million of annual revenue. But the second one, as Peter covered, was that, to start the discussions in France with regard to getting our cost base down in France, and improving the overall EMEA profitability from doing that. We believe for what we've acted on, which is a portion of this $30 million of savings and a portion of that $80 million in cost that the return is there. It's right for us from a momentum standpoint, and important to take at this time. Joan K. Tong - Sidoti & Co. LLC: Okay. Thank you.

Joan, thanks very much.

We'll take our final question today from Frank Atkins with SunTrust.

Thanks for taking my questions. And congratulations to Janet as well. I wanted to ask first about capital structure. What gives you kind of confidence that you have flexibility as you look forward in the next year to meet obligations for debt and pension, and kind of – can you give us anymore kind of granularity in terms of what changes you're making to effect the capital intensity of the model?

Yeah. Frank, let me – thanks for the question. I'll start and then hand over to Janet for that one. One of the things we did earlier this year was do our convertible offering. And the reason for that was that we didn't want to put ourselves in a position where we had the 2017's coming due without making sure that we had adequate provision for liquidity on that. So that was a very important thing that we did, and that does give our confidence around the 2017. As I've said on other calls and Janet has said on other calls, going out, long-term, on a multi-year basis, we are continuing to look at what is the right capital structure for us, what should be the right mix, and what should be the components we have. And we're going to continue to do that. And continue to look at making sure we do that at the right terms and in the right time for the company. So, with that, I'll hand it over to Janet.

I would say, in addition to what Peter mentioned with regard to having raised the proceeds to help and to provide the funding for us to adjust the majorities in 2017, we do have $443 million of cash. We expect to improve that balance over the next couple of quarters, before that maturity comes due. And I would say, secondarily, the IMF we mentioned around the delay in the adoption of the mortality table by the IRS has moved the pension – has reduced the near-term pension requirement. So, we've considered all of that and looking at the capital structures, Peter mentioned there are a longer-term capital needs for the company that needs to be addressed, but in the near-term, we have the positive benefit of the reduced pension contributions, we have the positive benefits that we demonstrated this quarter in reducing the amount of CapEx intensity of the business. We were originally guiding to $200 million. We brought that number down, and we think that that's the number could potentially stay down for the future. And having raised the funds and have the cash balance of $443 million, we think that puts us in a good position going forward in the near term.

Okay. Great. That's helpful. And then, I wanted to try and drill down into some of the components of the Services side, can you give us any color? I know there is a couple different buckets in the cloud and infrastructure group. Any different dynamics you're seeing there would be helpful.

Sure. In the cloud and infrastructure area, as we've talked about before, the largest component of that is in the end user area. The next area is data center, which, as we talked about, is predominantly in the government and public sector. In the comments we made today, we said that the two sectors that we've seen a decline in client cloud and infrastructure within the financial services and then secondarily in public sector. In financial services area, those are due to client renewals at lower rates than what we have had before. In the public sector, we think that that's just renewal timing that we need to continue to build a pipeline to get the return to growth in those areas. But fundamentally, it is in the end user area in the financial services, and in the datacenter area in the public sector space.

Okay . Great. That's helpful. And then, quickly on the BPO side, what are you seeing on that? Is that driven by a specific region or exposure there?

Well, so Frank, BPO for us, it's about 7% of revenue, and it has been for a while in that range. As we have – the current set of BPO offerings is good business for us. We like those businesses geographically. They're in the UK. They're in the Netherlands. They're in Malaysia. They're in the Philippines. They are in Taiwan, and they are largely either in financial services or in the government branches. The largest of those actually is the Philippines deal that we renewed this year or this quarter. But as we evolved and as we go to more of this vertical industry-led offering mix, those BPO offerings really begins a slot into our core offering mix, and what you're going to see from us going forward, is really a focus on BPO that is strategic. So, it's really going to be strategic to our financial services go-to-market. It's going to be strategic to our life sciences, and it's going to be strategic to the law, justice and border protection initiatives. So, you will see the BPO business evolve over time, but it's sitting at about 7%, and I would not expect it to be dramatically different over time. The one area that is going to change, we think, over time will be our 51% interest in our UK BPO subsidiary called iPSL, only because that subsidiary, the majority of its work is check processing. And although it has moved into optical or digital check processing, paper check processing is still a much more labor-intensive, higher revenue generating business. And that venture, by the way, has about 70% market share in the UK. We have wonderful partners, some of the largest banks in the world. But at the end of the day, even us and our largest bank partners can't make check processing grow. And we think ultimately over time that will decline. So, that's part of the BPO business we expect to be reduced over time.

Okay. Great. And last one from me, can you talk a little bit about the people side of the business, in terms of what you're doing to make sure you're tracking and keeping the right people, as well as getting the skill sets you need for some of the work that you're doing in some of these growth areas?

Yeah, absolutely. And just to perhaps to get the numbers first, our low cost head count as a percentage for the company actually tracked up this quarter to about 38%. But it was at 37% the quarter before. So, not demonstrably different. It is lower for us than you will see in some of our competitors. And that is because of the higher proportion of government work that we do, both for the U.S. Federal Government at 20% of revenues, and for other governments around the world, which represent another 27% of our business. So, that's one of the reasons why you see a slightly lower number there in terms of the onshore/offshore mix. In terms of what we're doing to both attract and retain great people, we have launched a number of programs around training and our career development year. That, frankly, I think are leading edge. Our leadership program, which we are continuing to expand is something that there's just a line out the door for people to attend. And so, I get an opportunity to speak to pretty much every one of those classes, and it's terrific to see the enthusiasm we're seeing around training and development. In addition to that, we're just beginning to do more fun stuff. We've got a competition in India now, where our Australian team has been doing a 10K run, and they've been doing it in Australia with the Australian team. And they have now invited the Indian team to send their best to that competition next year in Australia, and we're going to go head to head between the Aussies and the Indian nationals in that. And that's just great. And as you're seeing, the team work on a leverage basis and really an integrated basis around the world, you…

Okay. Great. Thanks so much.

You're welcome. With that, I want to thank everyone for their questions. We iterate that this has been a very busy quarter. And in fact, it's been a very busy nine months to-date. We look forward to having all of you on our next quarterly call. We will find and we continue to post more and more information on our Investor Relations site. We hope that is of more interest to you. We hope you liked our new site, in general. The entire website has been refreshed in the past quarter. So, we hope you spend a little more time there. And Courtney and our Investor Relations function is also very happy to go in some more detail with you on any of the subjects we talked about today. So, with that, thank you. And look forward to speaking with you on our next call.

Again, that does conclude today's conference call. Thank you, all, for your participation.