Good day everyone, and welcome to the Unisys Corporation Third Quarter 2017 Earnings Conference Call. All participants will be in listen-only-mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] I would now like to turn the conference over to Courtney Holben, Vice President of Investor Relations. 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 third 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 third 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’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 expense. 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 profit, non-GAAP diluted earnings per share, free cash flow and adjusted free cash flow, EBITDA and adjusted EBITDA and constant currency. From time-to-time, Unisys may provide specific items 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 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 third quarter financial results. We’re pleased with our strong quarter and believe that our results marked progress on both improving our go-to-market efforts and on profitability. Looking at slide 4, you can see that revenue for the quarter was down approximately 2.5% year-over-year, which is a 510-basis-point improvement versus the rate of decline in the prior year period. We saw another strong quarter for signings with new business and total company ACV, up significantly year-over-year, which I’ll discuss shortly. We saw a strong technology quarter led by higher ClearPath Forward revenue. Regarding Security, we continue to build Stealth into our broader set of solutions to differentiate our offerings versus our competitors. We also saw Stealth continue to gain traction with new signings on a standalone basis, seeing the most new Stealth wins in a quarter-to-date. As you know, Stealth is just one component of our security focus and we saw a significant growth in our pipeline for security overall. We saw progress in the profitability of our Services segment, both on a sequential and year-to-year basis. While we still have work to do to achieve our longer term margin goals for Services, we have taken a number of important steps that are yielding results and which should have a more meaningful impact in the coming quarters. To illustrate, our go-to-market in progress, let me turn to slide 5. Total TCV of $624 million for the quarter was down year-over-year, largely due to a tough compare against the prior year period in which we signed a large 12-year contract. As we have discussed, total TCV can be lumpy from period to period due to renewal cycles, which is why we think new business TCV which includes new…

Thanks Peter. Hello, everyone, and thank you 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. As Peter discussed, we had a number of positive achievements in the third quarter, and we’re pleased with the progress we made. I will first summarize some of these on slide 7, and then provide more detail on our results in the following slides. As slide 7 shows, we saw progress on the top line for the business overall as well as in each of the Services and Technology segments individually. Total revenue for the third quarter was $666 million, which is flat sequentially. While it is down 2.5% year-over-year, this is 510 basis points better than what we saw a year ago. Services revenue was down 4.2%, which again represents a 420-basis-point improvement versus what we saw a year ago. We also had a strong Technology quarter, with better revenue than we expected for the segment. Technology revenue for the quarter was up 10% year-over-year and we’re pleased to see these results. We’re also pleased to have made progress this quarter with our Services margins as a result of improvements to the cost structure of the business. We saw operating margins in Services improved by 480 basis points sequentially and improved by 60 basis points year-over-year. We are still planning to drive continued margin expansion in this business over time. This progress in Services margins also contributed to the improvement of margins for the overall company. We saw non-GAAP operating profit margin of 7.3%, which is 300 basis points higher sequentially and 60 basis points better year-over-year. We also continued our execution on the project that I described last…

Thank you, Inder. Operator, we will now open the line for questions.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And the first questioner today will be Joseph Vafi with Loop Capital. Please go ahead.

Hey, everyone. Good afternoon. Nice to see a solid P&L and new signing results. I was wondering if we could maybe just jump into some of this ACV, TCV strength. What kinds of deals are these new business deals that you’re signing? And if you could give us a sense of the margin structure on some of this new business you’re bringing in? Then, I’ll have a follow-up. Thanks.

Yeah. Joe thanks. That’s a good question. So I’ll start on the ACV, and then Inder can follow up on margin structure. So this is – I’m going to think that this is probably the first year we’ve actually given ACV numbers. Historically, the company did not metric on ACV the way it is now. We think it is, in many ways, more telling as a leading indicator than TCV in the sense that TCV tends to get clouded with renewals. And renewals, as you know, can be very lumpy from year to year. There is a TC metric that isn’t around renewals and that’s the new business TCV metric, right? That takes renewals and extensions out of that. So you’re seeing me focus a little more on ACV, and then, to the extent we focus on TCV on the new business side of that. I would say the strength is really kind of across the board. One of the interesting areas that I think you will see a lot of strength for us in the fourth quarter as well as going into next year is the public business. If you look at our numbers from a revenue standpoint, that public business has been, as I mentioned, challenged, particularly in the quarter, still having run-offs from deals that were lost a long time ago. I get tired of talking about LA LEADER, because that deal was lost in the end of 2014, but it’s still hitting us this quarter significantly as headwinds. But I think our signings in the public sector are very strong. And I think they will continue to be strong. And that is in part due to some of these focused solutions that I’ve mentioned. So we’ve kind of outlined seven focused solutions. And those seven – there was an eighth called LineSight that doesn’t get a public launching until early next year. Those eight now represent a pipeline for us of about $800 million. And we are encouraged by that pipeline. It’s still early days to see exactly how much of that comes to fruition, but we’re encouraged by it. So I’d say with respect to the third quarter signings, very strong on new business, whether you count TCV or ACV. On ACV, very strong throughout. And the TCV really hurt largely because of that one-time headwind of a large 12-year contract that was renewed last year.

I would just add that, Joe, on your question on margin. I mean we focus on margin as a company on the portfolio. As Peter outlined, a number of the elements of TCV and ACV are renewals of contracts and as well as new logo. And we try to maintain the discipline across margin across the company and as we’re trying to drive margins for Services. Our renewals in Federal and our extensions and scope increases in Federal are high margin business for us. So we’re trying to maintain the discipline around signing, I’ll call it, not empty calorie business, but good calorie business, as we look at the ACV and TCV.

Great.

Joe, did you have a follow-up question?

Yeah. Just maybe if we could, maybe just talk about Stealth. And it sounds like there were some standalone deals signed in the quarter, and then, I’ve got a little interest in this Navy deal that you talked about that was with a partner. So I mean I get that Stealth could be part of a greater software install that you’re putting in. But maybe how are these standalone sales occurring? Is this a new channel you’re building? And where do these partners fit in on kind of some of these standalone Stealth sales? Thanks.

Yeah. So from a go-to-market, we really have three avenues now for Stealth. And we’ve added one really in the last quarter or at least five months. So the three avenues are we sell through our existing Enterprise Solutions channel through that sales team. We sell through our Federal channel through that sales team. And then, we have created kind of a tiger team of what we call whales, but that tiger team is really focused on extending the distribution for Stealth through other companies that have wider distribution channels than we have. So let me tease that out for you a little bit. VicRoads is a good example of the first. So VicRoads is a deal in Australia. It’s a – at the heart of VicRoads was a digital workplace expansion, right? It’s – have 3,500 people who work for that particular agency in Australia. We put in our workplace services there, we also put in managed services and we put in Stealth. And I can tell you, that Stealth was a differentiator in that sale. And the fact that we are integrating that kind of a differentiated solution into our overall sales efforts, there’s no doubt in my mind, it was a leading reason why we won that deal, right? So that’s an example of an Enterprise Solution Stealth sale. An example of a Federal Stealth sale would be the partner example that was referred to. So we partnered with a company that I would categorize as a pure-play Fed company and they were the prime on that particular deal. But we were a very strong sub. And again, the way they helped distinguish themselves was by our use of Stealth. And so, that was a very important part of that particular deal. Now, we prime a good…

Thanks very much, that’s helpful, Peter.

I hope that helped you.

Yeah, that was great. Thank you.

Great. Thanks for your comments.

And the next questioner will be Frank Atkins with SunTrust. Please go ahead.

Thanks for taking my questions. Wanted to ask first some strong demand coming out of Latin America and Asia, can you talk a little bit about the business development teams there and how sustainable that is, and what type of opportunity there is there going forward?

Yeah. We think there’s good opportunity in both geographies. And it used to be kind of a given that Latin America and Asia Pacific ought to grow faster than the others, but over the last couple of years, I think not just us, but the whole market has kind of turned a little topsy-turvy. Again, we have a really strong leadership team in Asia Pacific that is I think being much more assertive than we had in the past in terms of finding new deals. Our name recognition in Asia Pacific and in Latin America is very strong, by the way, we’ve got a new leadership team in Latin America. And so, we’re really focusing now, I would say, on a combination of those really assertive leadership teams which I’m very proud of and very specific solutions. So we’re taking these new solutions and using them as kind of leading lights into a client base that historically has been there for us. We just didn’t have the new solutions to sell into that client base. And so, we’re really kind of, if you will, giving a rebirth to that existing client base that is – that knows us and like us, and then, interestingly, as we’re doing that, we’re finding new clients tagging along. And so, it’s pretty cool. We’re bullish about both geographies. We think in – you didn’t ask, but we think in EMEA, we are kind of getting to the nut of our issues. We’re continuing to work on cost redistribution there, but we are beginning to see some really nice wins in EMEA on new business. Not anything I can discuss on this call, but you will hear about it on the fourth quarter call, and it’s good stuff. So we’re beginning to see a turn I think in our EMEA business that too has been instigated by a very strong leadership team that we’ve brought in there. U.S., Canada is in some ways the hardest, because as I mentioned to Joe’s question, we still have some headwinds there around things like LA LEADER and such. So the numbers can be difficult because of the headwinds. But I do believe that the strategy of our focused offerings is going to bear fruit in U.S., Canada as well. So although you see a pretty significant decline year-to-year in the quarter numbers, we don’t anticipate that kind of a decline going forward, although I’m not speaking about next quarter in particular.

Okay. Great. That’s helpful. And I wanted to shift a little bit to kind of the pension sort of things, the transition of the Treasurer, Scott Battersby, and bringing on the new gentleman. I don’t know if he’s on the call or not, but any change in the philosophy in terms of how you expect to deal with the pension under the new treasurer and strategies you might employ or maybe you could highlight some of his experience on that pension side would be helpful?

Yeah. So this is Inder, Frank. Thanks for your question. I’ll start it, and then, I’ll ask Shalabh to join in and add to it. So what we’re looking at over the next 5 to 10 years is really managing our pension obligations, and as I noted on the call, we’re already starting to make progress on that front. I think that as we look at the next few years, our goal is to focus on de-risking the liabilities and making sure that the return on assets that we’re seeing are optimized. So, I’m going to actually ask Shalabh to join in here, who’s on the call with us today, and provide additional color in terms of how he’s thinking about it from a strategy standpoint. It’s a little early for us to talk to you about specifics, but let’s frame for you the way we’re thinking about it.

Hello, everyone. As you know, I just joined Unisys a couple of months ago. So I’m still in the process of understanding the risk and trying to develop a strategy going forward. Essentially, what my prior experience has been is implementing LDI strategies. And looking at Unisys risk, obviously, that would be a key component of it, but additionally, looking at asset efficiency, I think that’s clearly important here in the Unisys perspective. So we’re looking at that as well as implementing LDI strategies going forward. So again, as I said, it’s still early. It’s been a couple of months, still in the process of analyzing and developing strategies at this point.

And Frank, I think, he’s being a little bit modest in terms of the volume of things that he started to look at already. Again, nothing that we can announce today necessarily, but as we look at the progress being made on the focus that’s been put on this, we’re very, very pleased with just a few – for few months. And as we look out for the next 5 to 10 years and you know this Frank, our focus is to drive cash flow. It’s also with Shalabh joining now to make sure that we are looking at the pension obligations as well as the assets that we have deployed against those liabilities over time and making sure that we have our assets working for us as well as the cash flow we’re driving through operations.

Yeah. This is Peter. I just second Inder’s endorsement of Shalabh. He has hit the ground running and is working on a number of opportunities. In addition to the pension side, Shalabh has taken over responsibility for taxes for Unisys. And while that might not seem as near a drop as pension opportunities, there are also opportunities for us on the taxes side. It will take a little longer to fully develop those, but those are on the radar as well.

Okay. Great. Thank you very much.

Thank you, Frank.

And our next questioner will be Joan Tong with Sidoti & Company. Please go ahead.

Good afternoon. It’s Joan Tong with Sidoti & Company. And so, I would like to ask you guys about the new service offerings that you have been rolling out in the past couple of quarters. I just want to get a sense in terms of the progress of those new offerings in stimulating demand for Unisys, can you just give us a little bit more detail?

Yeah, Joan. Thanks very much and thank you for being kind about – around the name. We do know you as Joan. Let me explore that a little bit and then have Inder jump in any way he would like. So in terms of what we’re doing with services and the new services offerings, you have heard me now talk a little bit for the last quarter or two about the work we’re doing in terms of bringing automation and AI into our, what we used to call, end user and which now we’re calling Digital Workplace. There has been a huge amount of work on that. And as part of that and one of the things that kind of was always a part of that plan was really to drive efficiency in the cost base of our Digital Workplace offerings. And we’ve always talked about that as an opportunity for margin experience over time. So automation and AI are ongoing, but the re-engineering of that business is apace. And so you saw sequentially, for us, from the second quarter to the third quarter, about 800 individuals no longer with us, quality individuals by the way. But in order for us to hit kind of the productivity targets that we need to hit and in order to work on the new framework, it’s just not as people intensive a business. And we think that’s important. We think if we’re ever going to break out and get to away from a linear model on revenues in things like Digital Workplace, we’re going to have to get out of that and not just be an extra body for extra revenue. So that’s what’s going on in that marketplace. We’re being successful in new wins there. We like our new model. And we…

Okay.

The third – okay.

Yeah.

Do you want me to do the third?

Yeah. Please go ahead.

All right. The third are services that will accompany the new and refreshed industry products that we referred to in the call. So I referred to about $800 million of pipeline on these industry products and services. So the $800 million refers to both software or as a service licensing, but also services associated with that. So these are not kind of shrink-wrapped software products, right? These are services intensive IP-led software. And so what that means is you expect Services revenue to come along with the software or IP revenue. We’ll see over time what the percentage is. We expect more Services revenue than license revenue, substantially more. So again, that $800 million pipeline has a lot of Services revenue in it. And again, because it’s Services revenue like ClearPath Forward Services that is related to our IP, we would expect that revenue to be higher margin than more generic application development work or managed services work. So, Joan, I’m going to let Inder add anything he wishes, and then I hope that helps you a bit.

I think that was a great summary. I would just add that as we look at these new services, software-led services, Joan, that we’ve launched, it’s the next natural evolution of our focus industry strategy. So what we’re doing is, as you know, a year ago, really sharpened our focus, got the subject matter experts, got the industry domain experts, in the areas that we’re focusing. And then, we’re building through last year into this year – and you’ll hear more about this, by the way, at our Financial and Investor Analyst Day on Wednesday – but built several new offers that Peter mentioned. These are already showing very healthy signs of interest from clients. If Ann Ruckstuhl, our Chief Marketing Officer, was here, she would rattle off for you many, many statistics associated with each one of them. Doesn’t mean it turns into revenue right away. But when we look at these offers, they fall very neatly into our focus industry. So step one, establish the focus industries. Step two, launch new offers into those industries. And as Peter noted, these are software-based, software-led, so we do expect them to be higher margin over time.

Yeah. ,And Joan, I would just add a fourth item, which is security. So the security, obviously, has again a technology element to it, in the sense of licensing for Stealth. But there is a services element to it, both services around Stealth, which would be akin to the services around the eight industry products, but also managed security work. You may have seen a press release that we issued only, I guess, two weeks ago where we appointed Jonathan Goldberger as our new Head of Security Services for us. He’s outstanding and I could tell you that the team we have built underneath him is also outstanding. So we really do expect growth in that area as well.

That’s very helpful. And then, my follow-up is, Peter, you mentioned about Europe getting close to inflecting and, obviously, that has been a pain point for you or area for you guys. So as you are concluding your restructuring, the current restructuring plan as Inder mentioned earlier in the prepared remarks, is there another area like going forward that you think that you need to restructure on or this is it, we are pretty much done with all the heavy lifting? Thank you.

Yeah. It is the tail. And I do expect we’ll continue to have some restructuring in Europe next year. I think we’ve been very clear about that. At this point, we do not expect to increase the overall size of that restructuring budget. If we do a little bit, we will let you know, but it is still in the order of magnitude. But there is still some work to be done in Europe, but I will tell you we are much more focused about it and we feel much better about where we are.

I would just add to that. I think that the modest increase that Peter is talking about is, in our case, probably associated with the iPSL joint venture that I talked about, which is going through a upgrade of its system from manual to automated. So on the other side of that upgrade, hopefully, a better business overall. And on our side, the 300 could go to 310, somewhere in that range, I would not be surprised. The good news is, we’ve been very efficient with our restructuring charge, Joan. So in the past, we’ve told you that we expect to exit this year with $230 million of annualized savings. I’m happy to say that that number is now more likely to be $250 million of annualized savings, as we exit 2017.

Okay. Thank you.

Joan, thanks for your comment.

And there looks to be no further questions. So this will conclude the question-and-answer session. I would like to turn the conference back over to Peter Altabef, for any closing remarks.

Thank you, Will, for handling the call for us. I’d like to again note that we’re pleased with the results this quarter and the progress we’ve made particularly sequentially from last quarter. We remain keenly focused on the work we need to continue to do for the rest of this year to close out strongly and to position us well heading into next year. We look forward to that opportunity and to speaking with you again next quarter.

And the conference has now concluded. Thank you, all, for attending today’s presentation. You may now disconnect.