Good day, and welcome to the Unisys First Quarter 2012 Results Conference Call. At this time, I would like to turn the conference over to Mr. Niels Christensen, Vice President of Investor Relations at Unisys Corporation. Go ahead, sir.

Thank you, operator. Good afternoon, everyone, and thank you for joining us. Earlier today, Unisys released its first quarter 2012 financial results. With us this afternoon to discuss our results are Ed Coleman, our CEO; and Janet Haugen, our CFO. Before we begin, I want to cover a few housekeeping 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. These materials are available for viewing as well as downloading and printing. Third, today's presentation, which is complementary to the earnings press release, includes some non-GAAP financial measures. These have been provided in an effort to give investors additional information. The non-GAAP measures have been reconciled to the related GAAP measures, and we've provided reconciliation charts at the end of the presentation. 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 actual results to differ materially from expectations. These factors are discussed more fully in the earnings release and in the company's SEC filings. Copies of these SEC reports are available from the SEC and from the Unisys investor website. And now I'd like to turn the call over to Ed.

Thanks, Niels. Hello, everyone, and thank you for joining us today to discuss our first quarter 2012 financial results. We reported increased profits on higher revenue for the first quarter, and Janet will go through the numbers in detail, but please see Page 4 of the presentation for highlights. We reported diluted earnings per share of $0.30 compared to a diluted net loss of $0.95 in the first quarter of 2011. Excluding debt reduction charges and pension expense in both years, our non-GAAP earnings per share increased to $0.97 from a non-GAAP loss of $0.04 a year ago. Revenue grew 2% year-over-year overall and 3% in our services business. This was the second quarter in the past 3 that we've grown our top line. We've done this despite continued weakness in our U.S. Federal business where conditions remained challenging. Margins improved in our services business, although we still have work to do to get to our goal of a consistent 8% to 10% operating profit margin. Our technology business delivered strong margins in the quarter on 5% lower revenue as we benefited from a richer mix of enterprise software. We also continued to make progress in reducing debt during the quarter, retiring an additional $66 million of high-coupon notes. Since September 2010, we've cut our outstanding debt by more than $540 million or nearly 2/3 and we are now 87% of the way toward our year-end 2013 debt reduction goal. These actions have reduced our annualized interest expense by $69 million. Moving to Page 5. From a demand perspective, we're encouraged by the interest we saw from customers for our enhanced services and solutions portfolio. Services orders grew double digits for the second straight quarter, driven by major signings by both new and existing clients. We saw a particular order…

Thanks, Ed, and hello, everyone. Turn to Page 7 for highlights of our financial results in the first quarter. At the top line, we reported total revenue of $928.4 million in the quarter, which was up 2% year-over-year. Currency had no appreciable impact on our revenue in the quarter. Based on today's rates, we anticipate currency to have about a 3- to 4-percentage-point negative impact on revenue comparisons in the second quarter of 2012. We reported an operating profit of $64.4 million in the quarter, which was $22.5 million or 54% higher than the year ago's operating profit of $41.9 million. A year-over-year increase of 150 basis points in our gross margin and lower operating expenses resulted in an operating profit margin of 6.9%, up from 4.6% a year ago. The significant debt reductions we made last year were evident in the $16.6 million decrease in interest expense. From $25.9 million in the first quarter of 2011 to $9.3 million in the first quarter of 2012. Other expense for the first quarter of 2012 were $13.2 million, which included a $7.2 million charge related to the March debt reduction and $7 million of negative foreign currency impact. In the first quarter of 2011, other expense was $23.8 million, which included a $31.8 million charge related to debt reduction and a $7.6 million favorable foreign currency impact. For the first quarter of 2012, our U.S. GAAP pension expense increased $16.7 million to $25.7 million versus $9 million in the first quarter of 2011. Within the income statement, pension expense is allocated to the cost of revenue, SG&A and R&D on the same basis of the salaries of active employees. Pension expense is not included in the services or technology segment results. We expect approximately $103 million of pension expense in 2012…

Okay, thanks, Janet, very much. Operator, we'd like to open the call for questions now.

[Operator Instructions] And our first question comes from Geoff Dancey with Cutler Capital Management.

First, I want to say thanks for putting the slide in with the defined benefit plan funding estimate. That's very helpful, and thank you. So I may have a better idea of what your cash needs are going to be, going forward. So I had a couple of questions for you just in terms of getting a better handle on what your growth rate could be. When you were record-setting the system integration and the ITO, you've said, and maybe you've said this before, that you expect those segments to grow at market growth rates. Is there any way you could give me a better idea of what that means?

Yes. The way we've been thinking about systems integration and ITO is industry growth rates in the mid-single digits.

Okay. Now I just -- I was looking at a couple of surveys recently of chief investment officer spending expectations, and some of those looks a little lower than what I had thought they may be, actually with decline in spending. Does that relate to this type of market growth expectation?

Yes, I'm not sure if you're speaking to a broader industry-wide IT industry growth rates across the board or whether that's specific to systems integration and IT outsourcing. As we put our plans and targets together, we've thought about SI -- Systems Integration, ITO objectives to grow that in mid-single digits while we keep our technology business flat and primarily as it relates to our ClearPath software and server business.

Okay. And any further color you can give me on the infrastructure services, the core maintenance and the BPO in terms of future expected growth ranges?

All right. The infrastructure services, the BPO and the core maintenance, those are all businesses that we've said that are not -- they're important to our business but not areas where we are investing, nor do we expect to see growth in those businesses over time. Just as a reminder, the core maintenance component of that is the maintenance services that we provide on our own equipment and software, and that has been declining. And that is something that we would expect to see declines in that over time. The business process outsourcing, we have not been making new investments in that area. We have a core group of contracts that are performing that we'd expect to continue, but that's not an area where we're looking for growth. And infrastructure services is where we're providing warranty and other types of support for companies like Dell, EMC, Lenovo, et cetera. And that is an area where we are not investing for future growth. So they're a smaller portion of the overall business. We've segregated those out as areas that we are going to try to maintain as best as we can, but in some cases, like core maintenance, we know, will decline over time.

And our next question comes from James Friedman with SIG. [Operator Instructions] [Technical Difficulty]

While we're waiting for Jamie to come on the line, let me just make sure that -- I want to clarify comments that I made with regard to our services opening backlog: That has historically represented between 86% to 93% of our next quarter's revenue. Jamie is that you there?

Yes, I apologize. I have -- it's a long story. I have this problem with my mute button sticking. I wanted to get a perspective. First off, I respect that you don't give much guidance and you don't give a quarterly guidance, but we're all human, and I'm wondering, in terms of the patterns of demand that you would anticipate seasonally this year, what are your thoughts about the revenue build now that you're off to a good start across the remaining quarters of 2012?

I think, on the services side, again, we would rely on Janet's comments about the opening backlog at services and the percent of revenue in a given quarter that comes from that opening backlog. And then I think, on addition to that, you have the technology business, which as you know, it can be a difficult one to assess quarter by quarter. That's why we continue to say that, that business is best looked at on an annual basis. And we're pleased that our objective was to keep the ClearPath business flat, and we've kept it flat 2009, 2010. 2011, actually, just a little bit of growth, and that continues to be our objective for 2012.

I think, in a number of public forums, you had said -- now it sounds like, in addition to the backlog, you also monitor business activity, which can waterfall into backlog, which can waterfall into revenue. So what observations are you seeing on the business activity front? Is that accelerating or decelerating?

I think it still continues to be a difficult demand environment. It's not one where we're so big that we're really subject to and controlled by macroeconomic trends while they certainly have some impact on us. But I think we'll probably see the same thing that everyone else sees. We're -- it looks like economic activity is ramping up, and then it'll hit a speed bump and tends to slow back down again. But you can look at our business and our performance in Q1, in Europe is an example, or in the United States and North America, maybe doing a little bit better than people would have expected based on economic growth patterns, and perhaps worse in Asia Pacific and Latin America than people would have expected. So we're not necessarily controlled by those macro trends.

Can I ask you about a little bit about the linearity across quarter you just reported? Did you notice -- did March accelerate from January? Or if you had, had to have these results early in the quarter, would this pretty much what have been what you expected?

Yes, I think services, the services part of the business kind of chugged along throughout the quarter. And the technology part of the business, again, it really depended on when those transactions hit is really what drives whether that's a first, second or third month of the quarter kind of activity.

Yes, so that's what I'm asking. Did they hit in the first, second or third month of the quarter?

I don't think we'd go into the details of where specific transactions fall. I don't think there's any particularly unusual about the quarter from a linearity standpoint.

Okay. And then Janet, I -- so you had this South African disposition, just -- you exited up in South Africa. We used to see these more frequently with Unisys. Is there -- are there more facets that you're looking to exit? Or have you pretty much exhausted that part of the opportunity?

Jamie, a couple of years ago, we said that we were going to look at the geographic footprint. And you're right, earlier you did see us make some -- a little bit more in numbers. This is the first one in a while. We'll look -- as I said in my comments, we've evaluated the opportunities to rationalize it. This is one that came to conclusion in this quarter, but it's not something that we're going to comment on in the future. But I think we're comfortable with the footprint that we have now, and we'll always look for ways to see if we can optimize it to make us more productive, hit our goal and reduce any cash flow drain there.

If I could just add to it. Again, I think it's worth noting that this is really a shift in business model, more so than exiting a marketplace. So what we're doing is just positioning ourselves now to access that market through a distributor, whereas before we did it directly for -- through the joint venture.

And our next question comes from Bill Smith with William Smith and Company Investment.

A couple of things. One, Janet, I know you've mentioned this in the past about the pension obligation for every 25 basis points. I think it's $127 million in reduction in the pension obligation. Is that still -- if I'm looking at your chart, do I -- is it still okay to think about it in that way as well if rates change by 25 basis points, to think about that obligation be reduced by that amount?

Great. So Bill, the 25-basis-point change in the discount rate will change the U.S. obligation by $127 million. And then in the international plans, it would change it by another $95 million. So if you look at our global plan in its entirety, the 25-basis-point change in the discount rate will change it by $222 million. And just as from an overview perspective: At year end, that discount rate was 4.96 for the U.S. plans and 4.65 for the international plan.

So the 25 basis points, if we have that kind of movement between now and the end of the year, would almost fund the $240 million that you've outlined here for this year?

It doesn't exactly correlate directly that quickly. The December 31, 2011, underfunding in the U.S. was $1.6 billion and about $400 million internationally, for $2 billion in total. And so if we have the change in discount rates, the 25 basis points change would change that number by $222 million. It would -- if we had a change in the discount rate, that absolutely would, and it was an increase in that rate, it would decrease the amount of pension expense -- pension cash funding into the U.S. plans, all the other assumptions being the same based upon the way the calculations work. But it doesn't translate that quickly, Bill, into a reduction in the pension funding. It's kind of smoothed out that over time.

Okay. And you made a sale recently to Google for some of your patents. Could you comment at all on that 36 patents? And any other comments you can make about that sale and including the amount that you received for that?

Yes, Bill, on occasion, we've sold a license, some of our intellectual property. And as you might imagine, these transactions typically are subject to strict confidentiality provisions. We don't comment on them unless we believe they're material.

Yes. And is this -- I mean, with your patent portfolio -- and we have no idea what that value might be, but could this be an indication that there may be more of these types of opportunities for you in the future?

Yes, Bill, that's not something that we'd comment on.

And from Kennedy Capital, we'll go next to Chris McDonald.

I have a couple of questions. One is -- the pension reform that's been discussed and proposed in the Senate, I don't know if you have a sense for what that or how that might impact the company's position both from an obligation perspective and from a cash funding perspective.

The pension reform -- it sounds like you know there's 2 different versions of it, one in the House and one in the Senate. Clearly, any reform that goes in should have a positive impact in reducing the amount of funding we have, going forward. But I don't want to comment on that until we see what the actual legislation, from a committee standpoint, actually gets implemented, if it does, before the elections, Chris. But we are obviously carefully monitoring that situation.

Okay, yes, I understand. Second, relative to debt reduction. So the company will be in a position this fall to basically call all the debt, as I understand it. Can you talk about just the various options you have there? If balance sheet's in such great shape, I'm curious to know, just in general, how the company might approach dealing with taking out some of that higher-cost debt.

Sure. We have 2 tranches of public debt left and we have our October 2014 maturities of approximately $186 million, the 12 3/4% senior secured debt, that is callable at 106.375 in October of this year. We also have the January 15, 2016, unsecured senior notes, about $111 million of that left at 12.5%, and that's currently callable at 106.25. In the first quarter, we took actions to take out the 2015's, which were senior secured debt, and we called about $40 million of the 2016 unsecured senior notes. As we go forward, we'll continue to make progress to reduce our debt and hit our year-end debt reduction goal. I don't want to comment on what our future actions would be, but as you mentioned, all of our remaining debt is callable and we'll continue to look at ways to reduce the debt, to hit our goal as well as reduce our interest expense on the remaining debt. So we do have a number of options available to us. We continue to look at the options and look at the market to both hit our goal and reduce the interest expense on any remaining debt.

And then my last question is related to ClearPath. And the company has done a very good job of stabilizing the revenue base there. I was hoping to get a little more insight into what you see as targeted growth opportunities around that part of the business and how you think about the company's position in that market over the long term.

I think we continue to -- to think of ClearPath today and into the future as being a mission-critical platform. But the roadmap that we envision calls for us to continue to make that platform more and more open to running what would be considered non-traditional ClearPath workloads in terms of other operating environments, be it a Windows environment, Linux environment, UNIX environment, so that you can bring the mission-critical attributes that ClearPath provides in its operating environment to those other systems. And we think, in doing that, we will be able to look for new opportunities to grow ClearPath in those environments that are running applications and graphs that are considered less mission-critical environments but require the reliability and security that the ClearPath system can provide. They'll bring additional workloads requiring those kind of attributes to ClearPath. We're excited about the opportunities that, that provides for us.

And is that something that would evolve in a more gradual manner? Or would there be capabilities that the company could add and expand upon that would have a quicker impact in maybe opening up what the addressable market might look like in a more concentrated period?

I think we're doing that today and we'll continue to do it and accelerate that in the future. But for instance, today you can run -- bring Java workloads into the ClearPath environment today and pick up some of those attributes that ClearPath provides. We want to create an environment where it picks up all of those ClearPath attributes in reliability and security. You can run a lot of application modernization projects and bring new application development technologies to applications running on ClearPath today. We just want to continue to accelerate that and bring it to a broader and broader side of the marketplace. But I don't think it's ever -- we don't envision ClearPath ever becoming "a general-purpose system for everybody." It's really going to be about those applications where the client demands the highest levels of security and reliability and runs those attributes of ClearPath provides for those particular applications regardless of what they're written in.

Our next question comes from Vlad Shteynberg with Realm Partners.

I have a few questions. First of all, I just wanted to clarify. Last quarter, I believe, Janet, you said that $680 million would come from the backlog. And I -- if I put that in your ranges of 86% to 93% for Q1, I would get the services revenue range of $730 million to $791 million versus the actual of $823 million. And so the actual, the $680 million, represents only 83% of that -- of the total services revenue. And so there was some outperformance. However, I wanted to clarify where that came from and your color on that.

Sure. You're right, then. In the first quarter of 2012, we started that quarter with opening backlog of $685 million, and that was 83% of our services revenue in the quarter. I did say in my comments that the range of 86% to 93% is still typical. We saw that additional revenue just come from some sell-and-bill opportunities across the business in the quarter.

Okay. And the second question is just on revenue growth. Is that based on your kind of backlog and the order rates that you see? And do you think that's sustainable for the year or for the next few quarters? Oh and the related question: North America was very strong at 23% year-over-year growth on sales. So maybe some color there?

Sure. While we do not comment on our revenue growth expectations for future quarters, we do provide an estimate of what the -- we do provide the opening backlog going into the next quarter for the services business. But at this time, we do not provide guidance for revenue growth. We have outlined what our goals are for the business, as Ed covered earlier on the call. In North America, as you mentioned, we were up 23% year-over-year. And we -- that revenue growth came from public sector and ITO contracts. And we're happy to see that because our North America business had struggled a bit, given the economic situation in prior years and prior quarters, so we're happy to see that 23% year-over-year improvement.

And so that's just kind of the general environment that -- so there isn't any one-off contract that shifted into this quarter or that quarter?

No.

It's more of a -- the general environment improvement.

That's correct.

Okay, great. Can you talk about the path to the 8% services margins from here in terms of buckets? Where are the savings going to come from?

Okay, so the steps to get to the 8% services operating profit come from a couple of areas. One is hitting the revenue growth rate that Ed mentioned that are our strategic goals for both the systems integration and the ITO business, and including in that is some stability and some improvement in our federal business. The second is in the area of our operating efficiency; the percentage of our workforce that we have offshore; continuing to improve our portfolio offering to make sure that they are competitive, that we increase the use of automation. The third is making sure that our operating cost expenses are appropriate against our services revenue volumes. And while we have made major shifts and major savings in those costs in the past, we always continue and will continue to look for areas to be more efficient and effective in the general administrative areas while allowing us some room to invest in solutions development, marketing and improving our sales activity. So really, 3 areas: revenue growth at those -- for the strategy portfolios and some improvement in Federal; second, continuing to make sure that the way we deliver our offerings are cost effective from both the use of automation as well as using offshore resources and then lastly, continuing to look at opportunities for us to improve our SG&A as a percent of revenue.

Okay, great. On the technology margins, so, great margins with significantly lower sales levels. Are they sustainable at these sales levels of around $100 million?

We are -- on the technology business, the margins can vary from quarter to quarter based upon the total technology revenue and the mix of deals within the quarter. We look for that business on an -- as an annual basis. It has a fair amount of fixed costs in that business that are spread across the quarter, and it is very hard to call what one quarter will look like versus another. And so I think it's best measured on an annualized basis.

Right. But I noticed that the -- this quarter, I wasn't expecting great margins, which I commend you on, with sales of around $100 million, so I'm wondering if there's been any step change in the margins of [indiscernible].

I wouldn't view it as a step change in the margin. I would view it more the mix of deals that were in the quarter.

Okay. And last question before I get in the queue. So I have you making over $2 in free cash flows despite making $5.50 of pension contributions this year, so -- and your net cash position now, you will continue to reduce debt. But the next question, of course, is what's going to be the cash usage even starting later this year when you get into more cash-generative quarters from a working capital perspective?

In the near term, our goal, or as what we've stated, that by the end of the yearend, 2013, we want to reduce our debt by 75% from the September 2010 levels. We still have $85 million more to go and that's the first priority with regard to the use of cash. I -- and we have pension contributions, as we've outlined in the materials, for the quarter. And beyond that, I think it's too early for us to comment on additional cash usages until we complete those goals.

And ladies and gentlemen, it appears that's all the time we do have for questions today. I'll turn the call back to Mr. Coleman for any additional or closing remarks.

Well, great. Thank you, operator, and thanks to all of you for participating in today's call. We certainly appreciate that, and we look forward to speaking with you again on our next earnings call. Thank you very much.

And ladies and gentlemen, that does conclude today's presentation. We thank you for your participation.