Good afternoon, ladies and gentlemen, and welcome to the Unisys Corporation Fourth Quarter and Full-Year 2018 Earnings Conference Call. All participants will be in listen only mode. [Operator Instructions] Please note this event is being recorded. 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 full-year and fourth quarter 2018 financial results. I'm joined this afternoon to discuss those results by Peter Altabef, our Chairman, 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 full-year and fourth 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. These 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…

Thank you, Courtney, and thank you all for joining us to review our fourth quarter and full year financial results. Over the last few years, our go-to-market strategy has been to target industries where we have deep expertise and leverage-able IP and related solutions, while also using security to differentiate our offering. We are excited that this strategy has resulted in the first full year of revenue growth for the Company, since 2003, and for services, since 2006. We achieved or exceeded guidance on all of the metrics for the third consecutive year, since we reinstituted the process of providing it. Full-year non-GAAP adjusted revenue grew 80 basis points year-over-year. Non-GAAP operating profit margin grew 20 basis points year-over-year to 8.9% and adjusted EBITDA margin grew 50 basis points year-over-year to 15.3%. These results reflect progress against another key element of our strategy, which has been to improve profitability. 2018 total contract value, or TCV and new business TCV grew 27% and 51% respectively. This growth was supported by our public sector, with a number of large to managed services contracts signed during the year with U.S. state governments. As you may recall, we saw significant growth in ACV metrics in 2017 that we indicated is not necessarily representative of future expectations. With ACV growing 22% in 2017, a new business ACV growing 93% in 2017. Even with those difficult compares 2018, ACV was roughly flat year-over-year and new business ACV was down only 7%. I would remind you that in the fourth quarter of 2018, we signed a large contract that drove significant year-over-year growth in TCV that we do not expect to repeat in the first quarter of 2019. Our goal for the year ahead is to capitalize on our momentum by continuing to execute against our strategy.…

Thank you, Peter. Good afternoon everyone and thank you for joining us today. We are excited about our results for 2018, which I'll discuss in detail. In my comments I'll discuss both GAAP and non-GAAP results and provide color for our key business drivers. As previously discussed in 2018, we adopted ASC 606 and 2018 revenue for us benefited from this adoption as well as from the reimbursement of restructuring expenses associated with our check processing JV as we had discussed previously in the third quarter. These two benefits are excluded from our non-GAAP results that I'll discuss today. Please turn to Slide 7, which shows some of the key financial takeaways and I'll provide additional details throughout the rest of the discussion. We achieved or exceeded guidance on all three metrics that we had guided for in 2018, marking the third year in a row that we have either met or exceeded the annual guidance that we provide. Our 2018 total company revenue grew by 3% on a year-over-year basis to $2.83 billion. 2018 non-GAAP adjusted revenue was up by 80 basis points year-over-year, above the midpoint of our revenue guidance range of negative 2% to positive 3% growth. I'm especially pleased to note that this marks the first full year of growth for Unisys in 15 years. Our 2018 results had minimal impact from currency. Our 2018 operating margin reached 10.1%, up 660 basis points year-over-year. Non-GAAP operating profit margin for the full year of 2018 was 8.9%, which exceeded the high-end of our guidance range of 7.75% to 8.75%. Likewise 2018 adjusted EBITDA margin of 15.3% exceeded our guidance range of 13.7% to 14.9%. Our 2018 services revenue grew 2.5% year-over-year. Non-GAAP adjusted services revenue grew 2.1% for the full year 2018, driven by growth in our…

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

Thank you, sir. We will begin the question-and-answer session. [Operator Instructions] And your first question will be from Frank Atkins of SunTrust. Please go ahead.

I wanted to ask first on the margin side in terms of guidance. Can you talk a little bit about the impact of some of these ramps on the margin side? And as you think about the guided number on margins, how much of that is coming from SG&A? How much of that is coming from normalization of the technology margins and services margins?

This is Peter. I'll take first view of your question and let Inder provide some more detail. With respect to the new contracts that are coming online, first of all as you see from our TCV and ACV numbers, we signed a lot of new business in 2018, and a fair percentage of that was in the public sector, and a fair percentage of that was in U.S. state and local contracts. So, there are a couple of implications to that, the first implication is while we really practice a capital light approach to the business. The one area that is lease to capital light is in U.S. state and local public markets and those markets still demand a large expenditure of capital for deals. These are good deals were proud of them, but as you seeing in some of our reported numbers cash flow in particular, they require a significantly enhanced CapEx framework for really about two years. So, you see a higher CapEx in 2018, you see it somewhat elevated CapEx in 2019. With those deals to get back to your specific margin question really come kind of three things. The first is while you're in an implementation stage you commonly have expenses outrunning revenue that just happened. Inder will talk a little bit about that, he said it in his comments. The second is even once you get beyond the implementation stage to way you typically model these deals is that, as you get more effective and efficient overtime, your margin goes up overtime, and clients typically want more savings faster. So, the way we typically model these deals is to ramp margins overtime. And then the third element about these deals is especially in those four new states that we sold in 2018. We very much have a land and expand philosophy, so these are new states for us. We got substantive big contracts but we expect to do more overtime, and we expect to increase revenue and increase margins overtime that of course hasn't been booked yet. So there is a lot of things going on with those contracts in particular that affect margins both last year and will affect margins to somewhat lesser extent that also affect margins this year. Finally, just as a comment Frank, given the TCV sales and given the fact that we got substantive sales last year. I would expect a somewhat more modest, TCV and ACV year for us in 2019, especially as we focus less on some of those large contracts and more on smaller contracts that will have higher margins faster.

So I'm just going to piggy back on what Peter said Frank and thank you for the question. As I noted in the comments and Peter did it well, and we also noted in prior quarters, the new deals that we have signed particularly in the public sector. And let me say that a lot of our backlog, perhaps the majority of the backlog has come from two sectors. One is public and one is commercial. The commercial sector for us every time we get a win there and we're delighted to see the momentum that we're getting in our business is not capital-intensive. In fact, sometimes it is headcount intensive and sometimes it requires different kinds of investment, but it doesn't require the kind of heavy-duty upfront CapEx that the public sector can require. So as the management team our focus remains on ensuring that were able to drive the margins higher quickly on the public sector deals for which we have put cash in terms of CapEx upfront. Now, that in total, this basket of new business for us in 2018 weighs on margins as we noted about 130 basis points, I expect that impact in 2019 to moderate as I have said in the comments. It's difficult to say how quickly volumes ramp et cetera to give you a precise number but we expect that to improve. We are working in fact to improve it. The commercial wins that we saw. We are delighted that the volumes are starting to pick up because really that’s the principal driver of the fixed cost base associated with some of those deals that we think to deal with. So that combination of momentum in the commercial deals one in particular comes to mind, which we signed relatively early in the…

And it seems like you're getting some good traction and Stealth, I think you said it some bookings numbers up 94% year-over-year. Can you talk about the win rate impact there? And where exactly are you differentiated in that Stealth project? And how do you separate that from the other security options out there for clients?

It has been an evolution. When stealth first came on the scene for us, it was really a solution that was baked in the micro-segmentation space which is a very important space. We were new to -- that was a new space for the industry. It is still a new space so it's in the advanced part of the Gartner hype curve if you will. The micro-segmentation is while it takes critical element it’s a difficult solution to sell as a one-off. So, it's very important that we have learned that it would be part of a larger ecosystem of solutions. And so, we have really approached these three ways. The first thing we did was we look at Stealth itself as a solution, and it continues to be one of only a hand filled like a number of digits on one hand, our robust solutions in that space. However, we have expanded that space from an initial focus on servers to now covering laptops, desktops, mobile devices, the network and so it has a much broader applicability than it did when first imagined. Secondly, we've gone beyond looking at it as only an infrastructure play and expanded to Stealth identity, which is a whole suite of biometrics. So that is what I would categorize as our first evolution of Stealth. The second evolution of Stealth was really to say, yes, we can sell it as a one-off licensing opportunity and we do, but it is also as you can see that revenue for us process basically doubled year-on-year, but we can also sell it as part of a larger offering and we can leverage Stealth in our managed services accounts. And literally hundreds and hundreds of millions of dollars of deals far in excess of Stealth revenue itself has…

And last one from me to be a quick numbers question. Can you give us the year-over-year growth in annual contract value and new business ACV?

Yes, in annual contract value in new business ACV. Yes, I can -- maybe one second. Courtney, what's the number? Hold on Frank?

So for the quarter Frank, total ACV and keep in mind that these were against pretty tough comparisons from last year, down 36%, new business ACV around 40%, fairly flat for the year though, but basically flat on total ACV and 7% down on new business ACV. But again if you keep in mind the comparisons that we had last year for that and we talked about that at this time that we didn’t necessarily expect to be able to replicate those levels, so being flat for the year it was a positive thing based on those difficult comparisons.

And Frank, our numbers are very lumpy quarter to quarter, which is why the annual ACV TC numbers are better.

As you know, Frank, we have been winning some very, very large deals in the quarter in which you win them you get these very large numbers of SKU in the quarter. I would point you to the metric that I consider even more important perhaps which is backlog, and backlog is what turns in for future revenue for us. TCV helps build backlog [Technical Difficulty] but as you know part of that backlog also had to support any attrition that you have. So, the backlog sort of missed out the new business new sign on any attrition in the business. That move is 30% for us for the year. All of these metrics face very tough comps as you know. At the end of '17 we had backlog grow 11% approximately and then in the first and second quarter of this year continue to grow in fact the peak the 26% growth and then 33% growth. So, we are delighted to see the 13% overall growth for the year. And that’s what gives us confidence for the growth continuing for us in revenue in 2019. And we are looking for a greater proportion of revenue now being able to come from backlog that we have built over the course of the last four or five quarters. So, yes, TCV and ACV are always very important metrics to me backlog and I guess to you as well. It should be one that you should really focus on.

And Frank, the last piece of information I'll give you just how to compare at your fingertips. In 2017, ACV grew 22% in new business TCV grew 93% so just for the terms of comparison.

And Frank similar to the TCV story given where we have been the last couple of years and the mix that we intend to evolve to this year in '19, we expect ACV and TCV numbers to be down slightly from last year.

And the next question will be from Joe Vafi of Loop Capital. Please go ahead.

First on the guide on the revenue line, is there some more color you might provide on what that maybe constant currency? I know you have got a lot of international revenue or at least what you think the FX headwind is built into the guide? And then I have a couple more.

Joe, FX prediction is also a very difficult art as you know. However, in 2018, as I noted we didn't see any material impact from foreign exchange. And you saw currency sort of waiver all over the place over the course of the year, but when you netted it out for the year for us, it was de minimis. In prior years, if it's had an impact it's been a point or two in recent years in either direction, helping or hurting. 2018 was relatively neutral. From planning purposes, we are assuming no impact from foreign exchange for our 1% to 4% growth guidance. If currency is going in our favor of course it could be lifted, but we are guiding in for a neutral environment at this point in time.

And then I know you mentioned that you did a little bit more restructuring here in Q4 and that you expect to see that start to kind of show some material cost benefits. Is that cost benefit getting applied back in the growth? Or do you think that we may see that trickle down to the bottom line or a combination I guess?

Yes, it's reflected in our numbers for '19 right so. As I think about that gifts that keeps on giving that really what that is. I mean so, yes, it's in our guidance number already for '19 potentially was up 20 and beyond as well. I mean we are not doing this to say running for the short-term. When you're putting in things like automation when you're putting in the event and taking the advantage of creating hubs and which we’ve done a couple of years ago and now shifting resources into those even more, those are recurring savings that pay off over a multiple years. And you know this Joe from following the industry, it's pretty normal for our industry to go and do fine-tuning here and there. I would look at this almost in that realm, but I think the good news for us is. There are other ideas that we could also implement. And as the numbers that I shared would tell you, we're being very smart about looking for those types of savings opportunities where the payback is quite quick. And that's the way -- this was film was designed by Katie Ebrahimi who runs our HR organization, Eric Hutto who runs our Enterprise Solutions Business. The two of them really and Harvey and others on their team, they looked at where the opportunities were. They sort of did a Pareto analysis of which ones to go after, first, second, and third. And this has for us the highest return for the least amount of upfront commitments. So, we're pleased by getting a plan from them that we can go execute.

And Joe, this is Peter. Thanks again for the question. We do expect as I said as Inder went through, there is real focus on this to make it very specific and very long-lasting. We will not --Inder gave the full benefit numbers in his talk, we want to see those full benefits in the year, but those who will be the run rate and we expect to get those quickly.

So would it fair to say that exiting, we get to kind of cash neutral on the cash restructuring versus the benefits our year end to this endeavor? Would that be about the right time we kind of get to breakeven on the cash?

Yes, I mean we're talking about somewhere between one the two year sort of breakeven payback period, but whether it's a year or year and a half, I mean I'm pleased to see those types of restructurings that delivered to the bottom line quickly. It also depends on when you execute it whether it's in the beginning of the year or at the end of the year. So a number of factors have been plan to it. For purposes of what I said on the comments and what Peter said as well, these are exit run rate savings that we expect to achieve as we exit our year. The cash contributions will be predominantly in '18 and '19 probably more in the first year than the second year, but that's the way I would sort of model it out. I think it really depends on those velocity of execution.

And then, if we could move over back to that Slide 14 on the pension just a couple of questions here. Maybe Inder, could you remind us on the projected obligation that is down about 800 million from the end of '17 to the end of '18? Could you remind us how much of that was a result of discount rate change versus some of the actions that you took during the year more proactively, if I know there was some to bring that obligation down?

Look, we have been working on managing the pension obligation for a couple of years and probably even before that. But in the last couple of years, we've done a number of things that have been quite proactive. In '16, we began with a lump sum buyout as you know some of the participants were willing to accept the lump sums. In '17, we began to restructure some of the U.S. pension obligations, which allowed us to limit some of administrative cost. In a material way, bring down some of the premiums that we were paying just for ensuring some of those policies. And as we went into '18, we continued the efforts that we could. And in '19, we talked about the fact that some of our international pension obligations we were able to negotiate as well in a favorable way. Now that said, there are things you can control with your actions you take and things that you can do to restructure and so on. And there are things you can't control, things like what happened with the stock market in the fourth quarter of last year. So I just wanted to make sure that you all kept that in mind, because when we do these calculations yearend on 12/31 whatever the markets are doing at that point in time or the few months and the run-ups with that are going to influence that calculation as well. And that's all we saw. So yes, even with that, we did see the deficit come down overall principally because of discount rates beginning to move up. But we probably had some of the savings, we could have had offset by poor performance of equity markets. So you have to live with that and specifically you as walking in your shoes and the shoes of our shareholders that I think that they understand that, the market performance is a key driver, not only of our pension, but frankly a return on assets for all investors.

So, it sounds like if I hear that correctly and most to the benefit obligation reduction was discount related as it looks like we have moved the discount rate about -- on the U.S. plan, is that right about 70 basis points or 60 basis points something like that?

Yes, as you saw the 10 year treasury start to rise, as you saw the fed begin to act, that is highly correlated with the basket of corporate bonds of use to determine our discount rates. So, yes, those began to help us, if markets that kept performing then those would have helped us all.

And that was the next question. If I look at the basket of assets that you have that's invested in pension assets, how is that -- I mean because obviously that was kind of a down trough in the market as we exited 2018. Is it fair to say that your asset baskets recovered meaningfully at this point? And if it did I know you are not providing it now, but kind of on a real-time basis it sounds like the deficit would be materially lower than where it was exiting '18, is that a fair statement?

It's fair to say that both return on assets and interest rates drive that deficit and also the cash contribution as we've been saying in the past as well. I would say that what hurt us is the return on assets and remember were playing the long ball here right, we are talking about a 10 year obligation investing for that 10 year obligation, and we disclosed it in our K every year. And frankly, it's in earnings materials as well and to put a note our average rate of refund assumes for a four asset performance is 6.8% over that 10 year period. So there will be years that will be stronger. Hopefully and years when it could be weaker, but we're playing for the long ball on this and making that we're able to retire those obligations overtime.

And then it sounded like you're a little you said kind of over the peak cash outflows on your large state contracts. Could you just give that final updates then on the iPSL joint venture and cash obligations there? Is that normalizing out this year now to and that's kind of how were landing towards getting to your long-term cash flow guidance performance in 2019?

Yes, look I think that -- so two things. One, I just want to sort of like put a bow around the comments I just made on the pension. I think you asked me about the markets are recovered in January and if we had to value that those same obligations in January, but we're in a better position and I know I didn't directly answer that, so let me address. Stock markets have returned, have recovered off their across. I haven't gone out and ask our outside advisors to go to a formal valuation, so I can't tell you exactly what that would be. But on the yields of stronger market performance in January, let's hope it continues into February and beyond, we would have a smaller deficit and we would have lower cash contribution obligation. So just to be very direct about it because we had to calculated on 1231, it was like almost the worse state tax have to calculate it, and we have seen markets recovered helpfully. So that's one, so I'm pleased with that. On the iPSL sales joint venture, yes, this is the year we're going to be pursuing a couple of things. One, obviously, operationalizing and taking advantage of the IT infrastructure that’s now in place. What does that means? That means that lowering frankly the operating cost of that joint venture. And therefore, the cash require to run that joint venture be more efficient in running and hopefully we will reap the rewards of that but somewhere our banking partners, the three banks that are 49% shareholders which are HSBC, Lloyds and Barclays. So, yes, the good news is, we're doing this for them. They've reimbursed for it. We're hoping that the cost and therefore the cash need and the CapEx need and all of those things are largely deployed, and now it's time to start seeing, I think you call that a normal year but something of more of an earlier this year continuing into to next year.

And ladies and gentlemen, this will conclude our question-and-answer session. I would like to hand the conference back over to Peter Altabef for any closing remarks.

Operator, thank you very much. I know we did run a little longer than expected on the call, but really seriously thank you for some very good questions. We are very excited about what we did in 2018 and we are looking forward to continuing to execute in 2019 for what you can see base of our guidance numbers. So, the team is enthusiastic and we enthusiastically welcome the opportunity to meet with you on calls and in road shows throughout the year. So Courtney and Dan and team are really at your service as we continue to do Investor Relations throughout the year. With that, thank you very much.

Thank you, sir. Ladies and gentlemen, the conference has concluded. Thank you for attending today's presentation. At this time, you may disconnect your lines.