Good day, and welcome to the Unisys First Quarter 2017 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. Thank you for joining us. Earlier today, Unisys released its first quarter 2017 financial results. I'm joined this afternoon to discuss those results by Peter Altabef, our President and CEO; and Inder Singh, our CFO. 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 as well as other information relating to our first quarter performance on our Investor website, which we encourage you to visit. 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 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 operation 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 metrics 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 will generally 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 along with other materials I mentioned earlier, on 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 first quarter 2017 financial performance. I'll begin on slide four of the presentation with an overview of the key highlights for the quarter. We believe our first quarter results demonstrate continued progress against our strategic goals. We saw significant expansion of margins, including Services' gross margins and Services' operating margins, reflecting progress towards our goal of improving profitability within Services and the company overall, and helped by a particularly profitable transaction in the quarter. As we've discussed, we are executing a strategy to present integrated solutions to specific industries with deep domain expertise, software or IP and leveragable solutions, which are customized for the specific industry. We've put special emphasis in several of these industries where we believe we have deep expertise. In the first quarter, our revenue from these focused industries grew 5.9% year-over-year and accounted for 43% of total revenue. In the quarter, we also continue to see positive trends in some of our key leading revenue indicators. Total contract value, or TCV, for the business overall was up 26% year-over-year. New business TCV, which includes new logo and new scope business, was up 62% year-over-year. Overall win rates measured by deal value were up year-over-year as were new business win rates. Win rates within our focus industries were up year-over-year and were higher than those for the business overall. While the overall pipeline was essentially flat year-over-year due to an ongoing focus on improving the quality of deals in the pipeline, the current year pipeline for our key focus industries was up approximately 24% year-over-year. Also consistent with our vertical strategy and focus on improving revenue trends, we launched a number of new vertically oriented software solutions that I'll discuss more later. We're…

Thanks, Peter. Hello, everyone. Thanks for joining us this afternoon. In my comments today, I'll provide comparisons on a GAAP and non-GAAP basis. Just to remind you, the non-GAAP results exclude pension expense, cost reduction and other charges. Turning to slide 6, we're pleased with our results for the first quarter of 2017, which we believe demonstrate continued progress against a number of goals that are key to our overall business strategy. We saw expansion of both GAAP and non-GAAP operating margins for the company overall as well as adjusted EBITDA margin, and revenue was roughly flat on a year-over-year basis. We are reaffirming guidance for the full year for revenue, non-GAAP operating profit margin and adjusted free cash flow. And I will discuss these in more detail later. We're continuing our focus on improving profitability within our Services segment, and are pleased to see gross margins and operating margins for this segment expand by 400 basis points each year-over-year this quarter. With respect to Technology, while we still expect full year revenue for this segment to be down slightly year-over-year, we are pleased to report revenue growth of 10% in our first quarter. Lastly, on this slide, as part of our long-term strategic plan and consistent with our goal of actively managing our balance sheet and pension obligation, we completed a $440 million senior secured notes offering earlier this month, which I'll speak more about shortly. We also have worked to improve our other operating balance sheet metrics such as DSOs, which improved by 2 days year-over-year in the quarter. Turning now to slide 7, some more detail on our first quarter results. Our revenue for the quarter came in at $665 million, roughly flat year-over-year as reported and on a constant currency basis. Additionally, GAAP operating profit margin…

Thank you, Inder. We'd now like to give everyone the opportunity to ask any questions that they may have. Operator, may we please open the line?

Thank you. And we'll take our first question from Joan Tong with Sidoti & Company. Please go ahead. Joan K. Tong - Sidoti & Co. LLC: Good afternoon. I do have a couple of questions here. First off, I want to ask about the Service gross margin, as well as operating margin, obviously it's very strong compared to the last year. It does seem to me that your restructuring effort is paying off. But outside that, are we talking about like some one-time things here, you mentioned like transactions being particularly profitable. Can you just give us some color that what's really causing such a strong performance on Service margin?

Yeah, Joan. That's a great question. This is Peter. I'll take the first part of that question and then give it over to Inder. I think both of us reflected in our comments the fact that there was a transaction in the first quarter that we felt was particularly profitable for us. Because of that, it had the effect of incrementally increasing margins. Those services margins would have been increased over last year without that contract, but that contract did help. To put that in context, we had expected that contract to be signed sometime during the year. So, it's really just a question of when, and it happened during the first quarter. So, yes, we were benefited by it, and we thought that it was important enough for us to single it out in our remarks, but the gross margins would have increased without it.

And just to add to what Peter was saying, this is a contract that, frankly, we've had for a period of time. And what we benefit from in the quarter was some software that was part of it as well. As you know, Joan, it's been a focus of ours to improve on contracts that either have low margins or to renegotiate some of these contracts. So, it wasn't a surprise to us that we were able to be successful in demonstrating the improvement of the profitability of this contract. So, we hope that the direction is going to be higher, but of course, we benefited in this quarter, and you saw the results reflected in the very strong gross margin and the operating margin.

Joan, you said you had a second question, and please go ahead. Joan K. Tong - Sidoti & Co. LLC: Sure, sure. The second question is really like, first of all, just thank you so much for the chart number 4, giving us a lot more color in terms of how to think about your business, the focus industry, like what is the trajectory in terms of like TCV growth as well as like the pipeline growth. But if I were to ask you just overall the business is concerned, are you still looking for bookings kind of like – bookings grew a little bit but the backlog is still like kind of flat. So, for the non-focus business, are we going to see sort of like things starting to stabilize like going forward, just looking at the pipeline, and just some color there would be helpful. Thanks.

So, Joan, let me start again and then hand it over to Inder for his view as well. And let me start with some color on the pipeline. So, I made some references in the call that the overall pipeline was essentially flat, but our win rates had increased. So, let me just explore that a little more. Obviously, the TCV signings in the quarter were up 26%, which we think is very strong. If we look out for the entire year, well, if we look out now for the entire pipeline, the entire overall pipeline is down about 1% from where it was last year. And if we look at the pipeline of deals even in the year, it's down about 3%. So, I said it was essentially flat, you can pick your 1% or 3%, but that's really looking at the overall pipeline. If you look underneath that, there are a couple of ways to view it. With respect to the focus industries, the focus industry pipeline is up about 24%, and we think that's important because we think our win rates – our win rates are higher in our focus industries than in the non-focus. Secondly, when we really dig into what makes up the pipeline, even though, let's say, the overall pipeline is between 1% and 3% depending on how do you look at it a year ago, the makeup has changed pretty dramatically. So this is a year of less renewals. So, renewals happen for most companies – most clients every three to four to five years. This happens to be a low renewal year. Now, we are doing very well with clients in getting them to renew. Last year, our renewal rate was 95% in terms of getting existing clients to renew. So, there…

Yeah, it's an existing client in the cloud and infrastructure space. Joan K. Tong - Sidoti & Co. LLC: Okay.

Although various applications were attached to it. Joan K. Tong - Sidoti & Co. LLC: Got it. Thank you.

Okay. Thank you, Joan.

And we'll take our next question from Frank Atkins with SunTrust.

Thanks for taking my questions. There seem to be a little bit of confusion around the $440 million issuance, if we look at kind of what's going on with the stock price in the last few weeks. Can you walk us through kind of the logic why now, why go for liquidity given the rate? And how that fits into your plan for kind of strategic management of the balance sheet relative to cash flow?

Sure, Frank. So, this is Inder. So, as we talked about on prior calls, we've always had a strategy of enhancing our liquidity and being opportunistic about capital raises, to address not just sort of near-term needs but really long-term needs, right? If you look at the way we ended last quarter, we had a very strong liquidity position, frankly, sufficient to redeem the bonds that are doing the rest of this year. And so this was more of an opportunistic way for us to set ourselves up for the next few years. If you think about increasing pension contributions over the next 5 to 10 years, it's part of our strategy to ensure that we're able to generate the operating cash flow, to invest that in growth of the business and then also, to work towards retiring the pension obligation. So, in a rising rate environment, it was not lost on us that it might make sense to do a capital raise now versus some time from now. And as you can tell from the guidance we provided you at the beginning of this year back in January, we had assumed that at some point that could happen. And we were pleased to see that that actually took place, we were able to raise the $440 million. It's not that we need that tomorrow for anything. However, it does allow us, as I said, to invest in the business and also to address future pension obligation.

Okay. That's helpful. And also, as we think about the convertible, in my view, there is some short interest around that. One, do you think that's accurate and does it bother you? And do you expect to address that in any fashion going forward?

Well, as you know, when that convertible was announced early last year, Frank, that convertible came along with a capped call transaction. The results of the capped call transaction was that those, in some cases, that went long the convert also took a short position to do a fair trade and basically risk arbitrage. So, I don't see that short interest necessarily as a negative indicator. It is simply those investors hedging their bet, if you will. And as you saw through the end of last year, that convertible actually performed quite well and the holders of the convertible saw sort of the bonds trade well above par value. Over the longer term, if you think about it, the dilutive effect of the convert on the equity is essentially factored in. and as we reported non-GAAP results, you saw that we had 73 million shares we reported this quarter versus 50 million this quarter a year ago. And even then, we were able to grow earnings per share. So, in essence, that debt is pseudo equity at this point in time. I hope that helps.

Yeah. That's very helpful. Thank you so much. And then last one for me. Can you talk a little bit about the Financial Services sector? We've seen mixed results in that sector from some of the peers. Where are the areas that strengthen and/or any weaknesses that you're seeing within Financial Services?

Yeah. Frank, thanks. That's a very good question. We had a good quarter in Financial Services. We grew both Services and Technology revenue. Going out in the future, I have to tell you, we are enthusiastic about all of the solutions that we are just launching. The reception to the Elevate solution, which is our Financial Services new solution, has been beyond any of our thoughts going into it. As I mentioned, we launched it in Asia Pacific and EMEA. We have not yet launched it in the Western Hemisphere, and we've already got people from Latin America, in particular, already asking, hey, how quickly will it be here. And we're actually already beginning to work with some Latin American customers on the Elevate solution even before we launch it. So, I think Elevate is going to be a big deal for us in terms of the future of our Financial Services outlook. We spent a significant amount of time and energy developing it. And what it really does, and again, it's a comment I made in my remarks, it's an example of taking lateral thinking into Financial Services. We kind of have a view and look, we've been representing financial services companies for decades and decades. And they all kind of follow many of them, look at best practices in the industry and try to tick and tie and get to best practice across the board, and that's great. But if everybody is trying to get to the same best practices, it means over time, everybody kind of hits the middle of the road. And our view is to look across to other industries that might be a little bit more innovative and then to apply those solutions to Financial Services, and when you do, you really apply heavy iron because Financial Services spends more money on IT than anybody else. So, in this particular case, our solution is an omni-channel solution. So, it borrows from the omni-channel idea in retail, which is you might start a transaction in retail on an iPad or an iPhone or a browser, but you might wind up solving that or completing that transaction either in the store or on a different iPad or a different browser app. And the data and your, if you will, your outbox stays. That's what we're doing here with Elevate. So, you might start a mortgage application in one channel and complete it in another channel, which is very unusual in today's financial services where these channels tend to be very rigorous and really quite siloed. So, we're excited about it. We think it's a very innovative approach. In terms of Financial Services, in general, banks did pretty well the first quarter. And as you're seeing their earnings coming out, the earnings, in general, are pretty strong. And we think that ought to encourage IT spending by the banks. We'll see if that thesis holds true, but that's what we would see.

Okay, great. Thanks so much and congratulations on the call.

Thank you.

And our next question comes from James Friedman with Susquehanna Financial Group. Please go ahead.

Hi, guys, it's Jonathan on for Jamie. Congrats on the quarter.

Thanks, Jon.

One question on U.S. Federal. You guys had mentioned a strong technology quarter in that sector. Can you go into a little more detail on that?

Yeah. I mean, in general, we did actually well across the board in U.S. Federal. Revenues up 6%. I wouldn't say it was a strong Technology quarter, but I wouldn't say it was anything crazy out of the ordinary. It was good numbers from a relatively weak quarter the year before. For us, I think the bigger tailwinds, if you take in Federal, would be our strength in Homeland Security. And we do continue to see that as an area of focus for the government and we are fortunate, we think, we have the right solutions at the right time there. So, we continue to be pretty bullish about our Federal business in practice. I wouldn't make too much out of the Technology year-to-year numbers.

Got it. That's helpful. Thank you.

If I could just follow up here. It's Jamie. I apologize for my voice; it's allergy season. But I just want to ask a housekeeping question maybe for Inder. So, this was the first quarter that we saw kind of a benign replacement neutral currency, and that was a little different than we had calculated but that's more art than science. I'm just wondering what was – if you could just put through a couple of the moving parts, Inder. Is it Australia or Japan or Venezuela, how did that work?

Yeah. I mean, the four currencies, Jamie, that we are the most exposed to are the UK pound, the Brazilian real, the Aussie dollar and the euro. Of those four currencies, the ones – the two frankly that played the most role for us were continued weakness in the UK pound, consistent with what you've been seeing post-Brexit, and then interestingly, a strengthening of the Brazilian real. So, those two things are what caused the currency impact to be relatively benign. It doesn't mean that's a trend, it's just what we saw in the quarter.

Interesting. Okay. And then if I could follow-up with one more. Peter, a while back you had announced that Border Enforcement BEMS contract. I know it was more like a scope opportunity, but in general, could you update us as to how you see the company positioned and where you are in that journey in the Border Enforcement opportunity?

Yeah, Jamie. So, there's two elements to that for us. There's the U.S. side and the global side. On the global side, we are bullish about border opportunities. As I think I had mentioned on the call before, we do have some work underway with EU on that. We have some work underway in Asia Pacific, and we are in conversations in the UK. We expect to have a new solution that is specifically targeted to outside the U.S. market on border security called LineSight, which we intend to launch by the end of this year. In terms of the U.S. border security market, again, that is pretty much Homeland Security. And as I mentioned earlier, we're very active in moving on work there, and we think we are doing a good job, frankly.

Okay. I appreciate the color. Thank you.

Did I miss a specific question, Jamie? I want to make sure I'm responsive.

No, we had followed the BEMS vehicle a couple years ago; it was one of those IDIQ, Indefinite Delivery/Indefinite Quantity. I mean, fancy language but I was trying to figure out where – but you may have encompassed that in your answer.

Well, let's just put it this way, given all of the things going on in border security, I would not expect a huge new contract this year. I would expect a lot of project work, because I think that the agency is just involved in a lot of different projects. So, I think there isn't going to be one big bang, I don't think there's going to be one big bang renewal. I think you're going to see a lot of projects. And that actually might take away from a TCV number, but from an ACV number and from an ongoing revenue generation, we think that's actually a better answer.

Yeah. Okay. Thanks for the update.

And we'll take our last question from Joseph Vafi with Loop Capital.

Hey, guys. Good afternoon. Sorry, if there's a little background noise. Just I had a high level question around the business moving forward and business that you're going after in the focus areas, the non-focus areas, and just wondering how you strategically look at, say, potentially a large infrastructure maintenance piece of business that is going out for RFP now? It could be pretty big, you have a good chance of winning it, but it may have some upfront capital requirement and it may not be the direction that the company is going. How do you look at that opportunity now given what you have ahead of you in terms of repositioning the business and looking out to pension obligations and the like?

Yeah, Joe. That's a great question. I guess the first way to answer that is, never say never, right? And every deal is going to be looked at on its merits. I would say that as Inder referenced in his comments, we are really focused on a more capital-light approach. We are really focused on moving a lot of work into the public cloud environments, using CMP, which is our new hybrid cloud platform. We think, frankly, in many cases, that's the right answer for the client. So, we think the right answer for the client lines up with a capital asset-light approach. I will tell you, we also have very strong relationships with partners. And some of those partners are in more hardware-intensive industries than we are. And so, we're not so much shying away from a contract like that as making sure if we were going to investigate a contract like that, we'd really be doing it hand-in-hand with some partners whose job it really is to handle some of the more capital-intensive businesses.

Yeah, I will just add to that. I would say that I agree with everything that Peter said about the asset-light model. It remains our focus. We just reaffirmed guidance for the full year for adjusted free cash flow. That assumes CapEx to be essentially flat year-over-year, Joe. And I would also say that I would not draw any inferences between the $440 million capital raise and the need for any more capital this year, if that's kind of what you are thinking. We certainly will be opportunistic in looking at deals, as Peter said, and never say never to a large attractive deal, but it is not our intent to drive up CapEx in any way. Moreover, as Peter pointed out, we've moved and started to move more and more clients off of our own data center infrastructure on to the Microsoft Azure cloud exactly to drive down CapEx. So, the capital raise is not because we're facing any sort of opportunities that we can see here in the near future that would require additional capital. I just wanted to make sure I clarify that.

Right. No, that's clear. I was just wondering how you're philosophically looking at business opportunities. And would you say that you're managing the business – I mean it's great to see margins go higher, but if you looked at the business overall, are you managing – would you say the number one way you're managing the business, for margin or for cash flow?

Well, if we look at this as kind of a multiyear effort, Joe. I would say in the first couple of years – I've been at the company now a little over two years. We just didn't have a cost structure that we felt we were comfortable with. And so, a lot of the cost take-out has been to get a more robust cost structure in place. I think where we are now, certainly where we expect to be by the end of the year, is really to have a more robust cost structure. So, I think we have more insight into our true costs now than we had before. I think we have more insight into the roadmap of the technologies we're applying now this year around automation and around AI, around analytics and what that does to our cost. So I think you're seeing a shift for us where, clearly, margins are still important and cash flow is still important. But while I would say we were less focused on revenue growth and on new sales while we had to get the foundation of our offerings aligned, that foundation is coming on board. You're seeing a significant number of new solutions for us. We launched three of them this quarter. That's a very big number for us. And we didn't do that not to get revenue out of them. So, I would tell you we are very much open for business and looking to grow revenue over time.

Right. And then just one final one. I think probably you have the high yield offering being and if I seriously contemplate it when you announced your Q4 and provided guidance for 2017 and obviously you didn't change your cash flow guidance even though you're going to have higher interest costs this year. I was wondering if you could provide some commentary on the cushion that might have been able to gain in that guidance to not have to change guidance now, and if you could relate that to your cost reduction efforts. Just I guess in that initial guidance, we didn't really see a lot of the benefits the cost takeout in this year's cash flow guidance. So, I don't know if that's clear enough, but if you connect the dots between the conservative guidance, the increase interest costs this year, but then benefits from the cost takeout that's been ongoing. And that's all I got.

Yeah. So, just on the cash flow guidance first off, right? I mean, when we provided the cash flow guidance at the beginning of the year and we looked at the midpoint of what we guided this year versus the midpoint of what we had guided a year ago, that was directionally higher. We realized and it's not lost on us that we had a very strong cash flow year last year. We continue to have a laser focus on cash flow, as Peter noted. I mean, margins and revenue are very important, cash flow is also very important. Assumed in our guidance was the possibility that we could do a debt raise at some point in time, not clear to us exactly when that would have happened. But the reason we didn't have to change the guidance, frankly, was because we already assumed that. The structure of the cash flow guidance that we gave, therefore, hasn't changed. It isn't as if we are benefiting on one side and using the benefit on the cash flow to do something else in cost restructuring. We're on track. By virtually every metric when we look at the guidance that we've provided, whether it's cash flow, cash from operations, working capital, you can see the results we had in the first quarter, and so reaffirming guidance basically to us is comfort from the fact that we're executing the way we thought we would. The timing of the financing, of course, is never certain. But we felt comfortable at the beginning of the year that if the opportunity presented itself when we saw the Fed begin to raise rates, it wasn't lost on us that it might be a good idea to try to raise capital earlier in that interest rate cycle rather than later in that interest cycle. That's the only thing that drove that timing.

All right. Thanks so much.

Sure.

Joe, thank you. And I appreciate it. I think this is the first call where you've asked questions, and we greatly appreciate that.

Thank you very much for the opportunity, Peter.

Actually, any other questions in the queue? If not, we've actually only got three minutes. So, I guess, unless you've got another question in the queue actually, I will close it down.

We have no further questions at this time.

All right. Well, listen, thank you. I'd like to thank everyone for joining the call. As Inder and I both discussed, we're pleased with the progress the business made during the first quarter, and that includes, obviously, the focus verticals and also the new solutions that we announced over the quarter. We appreciate your time. We are available after this call and for one on ones, and we have continued to put more and more data on to our website. So, if there're any other follow-ups besides those that have already been scheduled, please contact Courtney, and we'd be happy to have those discussions with you. With that, we look forward to this call next time this quarter.

And once again, it does conclude today's presentation. We thank you all for your participation. And you may now disconnect.