Good day, and welcome to the Unisys First Quarter 2013 Results Conference Call. At this time, I'd like to turn the conference over to Mr. Niels Christensen, Vice President, Investor Relations at Unisys Corporation. Please go ahead, sir.

Thank you, operator. Good afternoon, everyone, and thank you for joining us. Earlier today, Unisys released its first quarter 2013 financial results. With us this afternoon to discuss our results are Ed Coleman, our CEO; and Janet Haugen, our CFO. Before we begin, I would like to cover a few housekeeping details. First, if anyone who is listening cannot see the slides, please close your interface and relaunch. We were advised there were some technical issues, so hopefully that will settle them. Today's conference call and the Q&A session are being webcast via the Unisys investor website. You can find the earnings press release and the presentation materials 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. 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 their related GAAP measures, and we have 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. Now I'd like to turn the call over to Ed.

Thanks, Niels. Good afternoon, everyone, and thank you for joining us today to discuss our first quarter 2013 financial results. Please turn to Slide 4 of the presentation to begin our discussion. This was a challenging quarter for Unisys as lower revenue in both our services and technology businesses impacted our profitability and resulted in a net loss in the quarter. We saw lower technology revenue in the quarter, following the strong performance in the fourth quarter of 2012 when we benefited from some earlier-than-expected ClearPath sales. As we've said, given the variability of our technology sales from quarter-to-quarter, we measure this business on an annual basis. We continued to target flat technology revenue overall in 2013 from 2012 levels. In services, while we are pleased to see growth in IT outsourcing revenue in the quarter, we saw revenue declines from project-based systems integration services, where the market for discretionary projects remains soft and where we need to improve our execution. The lower revenue pressured our services margins in the quarter, which declined from year-ago levels and resulted in an operating margin that was below our targeted 8% to 10% range. These were disappointing results, especially given the progress we've made in recent years in enhancing our profitability, and they underscore the need to improve our execution around driving profitable revenue growth, while also maintaining a competitive cost structure. As a reminder, our stated revenue goals are to grow at market rates in our systems integration and IT outsourcing businesses, while maintaining flat revenue in technology. As I outlined in our last call, to drive revenue in these businesses, we're making investment to enhance our current solution offering to take advantage of disruptive industry trends, such as cloud computing, mobility, cybersecurity, big data and smart computing, social computing and IT…

Thanks, Ed, and hello, everyone. Let me start with our overall first quarter 2013 financial results. Please turn to Slide 9. At the top line, we reported revenue of $810 million in the quarter, which was down 13% year-over-year. It was a softer technology quarter compared to the year-ago period. And as we have mentioned, our technology business benefited in the fourth quarter of 2012 from some earlier-than-expected ClearPath revenue. While we saw a 5% growth in our IT outsourcing business during the first quarter of 2013, revenue in our other services portfolios declined and aggregate services revenue fell by 12%. Most significantly, our systems integration business declined by 31% due to lower demands for project-based services and solutions, particularly public sector in-quarter sell-and-bill. On our last earnings call, we provided the amount of opening services backlog for this quarter. We also provided the range that the opening backlog has represented of a given quarter's services revenue over the previous 8 quarters. The first quarter services revenue of $723 million was at the low end of the range implied by the amount of revenue in opening backlog at the start of this quarter and our typical volume of sell-and-bill revenue in the quarter. Currency had a 1 percentage point negative impact on our revenue in the quarter. And based on today's rate, we anticipate currency to have a minimal impact on revenue in the second quarter of 2013 compared to the second quarter of 2012. As a result of the lower year-over-year volume in our services and technology segments, as well as the mix of our technology revenue, our gross profit margin declined from 24.3% in the first quarter of 2012 to 19.9% in the first quarter of 2013. Operating expenses fell by approximately 1% year-over-year in the first quarter…

Thank you, Janet, very much. Operator, we'd like to open the call up to questions, if we may.

[Operator Instructions] We'll go first to Eric Boyer with Wells Fargo.

When you talk about your system integration margin, your profitability remaining soft while you take actions to implement those initiatives, where do you expect those margins to be throughout this year? I mean, is it safe to assume that they should be probably lower than the 6% to 8%?

So we were running towards the -- in the second half of the year at about 6%. We've hit 8% periodically in some of the quarters. But building off of the 3% in the first quarter in services operating profit. To get there longer term, we have got to have revenue growth from the strategic areas. We said before that, that -- when we were running at 6%, that was about 1 point of getting us to the 8% to 10% range. Another point or so would come from the actions to improve the cost-effectiveness of the delivery through automation and lower cost reductions and the remainder coming from greater leverage from the operating expenses. Given the softness in the systems integration business that we've discussed, we would expect that to continue to carry forward through the rest of the quarters, particularly the next 2.

Okay. And then just anything that gives you concern about reaching your target for flat year-over-year server sales 2013?

It's a goal that we've had in place now for 3 years, Eric, and we've hit it or exceeded it the last 3 years. And there've been other quarters where we've had softer than expected quarters, others where we've had stronger-than-expected quarters. But again, for us, the key thing is looking at that on an annual basis. And we are aiming at keeping that flat for the year.

We'll go next to Ned Davis with Wm Smith & Co. Ned Davis - Wm Smith & Co.: A couple of questions. First of all, the systems integration where you indicated that you've got a lot of specialized spending, I guess, targeted at certain verticals, but you suggested that there is a significant lag. Can you give us any perspective on how much time is involved to start harvesting the benefits of the spending?

Yes. So Ned, I think the point I was trying to make is that our systems integration business is really tied, in large respects, to industry-specific applications and capabilities that we sell to our clients, particularly in public sector, financial services, transportation and communication. And what we believe we need to do is, one, specialize more in driving greater success in those industry verticals. But also, build a stronger application outsourcing business that's more horizontal in nature that will allow us to compete more effectively for the project-based work that's being done in those non -- in those more horizontal segments of the marketplace. So we need to do both of those. Now our goal has been, as you know, is to grow that business at industry rates. And we've been carrying in our head that the industry is growing in the 4% to 5% range. That's where we want to be with this business. Industry, maybe, softening some, from what we're seeing, but the first step is to stop the decline in the systems integration business. So we're focused on how do we stop that decline and then how do we turn that into a growth story consistent with the industry. Ned Davis - Wm Smith & Co.: Okay. We had another kind of highly publicized -- highly exposed, breach of security today with the AP. And I know each one of these things is different. And I know that the correlation between your server business from a failure -- secure failure is not necessarily correlative with your overall services activity. But I'm wondering, I know you've had a lot of emphasis on marketing these secure systems and were connected with them. And I'm wondering whether you're seeing the potential for a big buildup of demand and if you can put any kind of parameters on that over the next few years, or things relating to these breaches of security and data that seem to becoming commonplace now.

Yes. Well, I think you're right, Ned. They are becoming more commonplace. And what you'll find is that a large portion of our solutions across all of our businesses are tied to security. As you know, ClearPath is, we think, the most secure platform in the industry. And that's one of the reasons why customers have continued to rely upon ClearPath for their mission-critical computing. But we also see the market for our Stealth Solution Suite as being a robust market opportunity, in large part because cybersecurity is going up, higher and higher on the priorities of CIOs around the world, not just CIOs, but certainly, CEOs and CFOs as well. A number of our services are tied around security offerings as well. So we think that it's a great marketplace to be addressing, as you say. And we think that the potential there continues to grow. And our job is to execute effectively to get our fair share of it. Ned Davis - Wm Smith & Co.: Okay. One last thing on the share buyback. The lack of actual purchase of shares, is this reflective of any specific financial considerations? Or is it, I mean, what would bear on your actual activity on share repurchase with that existing authorization going forward?

Well, I'll take the first part of your answer, no it isn't. It's not tied to any financials, specific financial issue.

We'll take our next question from David Phipps with Citi.

So I'm looking at your business, and you've got great backlog and lots of visibility. And so I'm just trying to reconcile what a new baseline level and kind of -- and the big drop on the consulting and systems integration, did you get sequester or I mean, because the government contracts looks like it was mainly declined 9%, it doesn't seem like that would explain all of that. I'm just trying to get where the reset really was in that business and is it reset or did we just hit a vacuum of orders that are going to be postponed to a later point in time? Everything else kind of seems like I can manage.

David, in the systems integration business, as we said in the comments, it's a public sector business and you're right in observing that the impact in the Federal business was a minimal impact. It is -- was more across the public sector business that we do, we can sell and deliver within a given quarter. We think that the constraints on spending, in the public sector area, has affected those types of discretionary projects. And as you look at our backlog going into the second quarter of 2013, as I said in my comments, we're at $650 million of backlog that is down from roughly $700 million a year ago. And I think that reflects kind of the new -- what we're seeing from a demand standpoint at this point in time.

And so the consulting projects that they, say, stopped coming in during the middle of the quarter or I mean, did you roll in with this kind of backlog on this business or was this a bit of a -- I mean, it's a $66 million sequential decline in that business, and that's what I'm trying to -- how do you -- how did that come about? Did they not ship products? Did they cancel the contracts? Did you lose a big contract? I mean, something.

Sure. So when we look at the amount of sell-and-bill work done within a quarter, this was the lowest quarter that we've seen in the systems integration business for a number of quarters. A year ago, we were at probably one of our highest percentages of sell-and-bill business in the quarter. As Ed mentioned in his comments, the systems integration business does include industry solutions. And in there, there are some software sales that can be point in time within a given quarter sold and purchased by customers. So we have 2 things going on, less discretionary spending, particularly in the public sector, and a lower execution in the current quarter compared to a year ago with the amount of systems integration business that we could sell and deliver on within a given quarter.

So should we think about the software that's being sold delayed? Is that like a license delayed as we've seen in some other of your peers?

Yes. Could be license delay, could be a license tagged with a systems integration project delay as well.

We'll go next to Paul Wainer with DLS Capital Management.

This is actually Dave Steinberg with DLS. My question is, you were kind of trying to be polite about the sales and so forth. Is there any part of this falloff in the -- when you just talked to this gentleman the larger, obviously, drop off that is related to actually the product you're selling? Is it less competitive than your competitors or price related? Or anything? Or you're just going to basically lay this off essentially on the fact that you got a lot of sequester or municipal drop off in spending? I want to know if it's a product issue that you've got here that we're dealing with.

No, David. I don't think it's a product issue. I think it's sort of -- there's some macroeconomic stuff going on. There's some industry vertical public sector stuff going on, but I think we're also not ducking the issue that we could execute better than we executed in Q1. I don't believe it's a product limitation.

Right. So when you mean -- we're shareholders. So we're on your side here. I'm not trying to beat you up. So if it's execution, so can you elaborate a little bit so can I get my arms around this? I don't want to be the guy who's selling this thing in the morning. I'd rather be the guy buying it. So I'd really like you to help me understand that, just if you could, with another couple of quick comments.

I'll go back to a couple of points I made in my comments. A lot of what we do from a systems integration standpoint in these application-based solutions are really tied to industry verticals. And to be effective in selling those, you need to have good industry vertical expertise. And that's why I was calling out the success that we've had in the airline industry, both on the passenger side and the cargo side because we've invested in industry-specific skills and capabilities to be able to sell those solutions effectively. And as we look at what we do going forward, we think that we need to invest more in those kinds of skills and capabilities across the other solution sets in the industry verticals that we serve. So we think that's an area where, perhaps, we're too generalist and not industry specific enough in our selling approach and selling activities. Does that help?

Yes, it does. So how many quarters, in your mind, you think it's going to take for either a repair or an improvement or stabilization from where we're at, given now you've got all this information on what's caused the shortfall and so forth?

It's a work in progress. And to say, we're not exactly going into wind at our back on this as well. But we're addressing it aggressively and we understand -- we believe we understand what the issues are, and we're going after it. Because through that venue, which I just mentioned, I also talked about how we believe that a stronger application-managed services and outsourcing business can also serve as a stronger foundation for winning more project work and implementation work as well.

Okay. I appreciate it. I'm not trying to beat you up too hard. I'm trying to make sure I have the right information because we're all trying to -- make sure we all have our oars in the water and in the right direction.

Yes, and I think Janet made the comment, the next couple of quarters there's basically a lot of work to be done.

And we'll take our final question from Joey Yang with SFG.

This is Joey Yang for Jamie Friedman. So are we still expecting the $2.1 billion of backlog from the beginning of this year to come right through the services revenue for the full year 2013?

Right. We started the year with $2.1 billion of services revenue and that backlog is expected to turn into revenue in 2013.

So are we still expect that will be still in the historical range, which is about 60% to 70% of the total services revenue?

Yes. In 2012, the opening backlog represented 70% of the services revenue in 2012.

So okay. So in '13, the previous guidance, we still remain the previous guidance, which is 60% to 70% range of the total services revenue?

Correct. That 60% to 70% in the prior, is that if you go back historically, and you look at our performance, the opening backlog has represented between 60% and 70% of the business. Obviously, with the quarter that we've talked about with less in-quarter revenue, this first quarter, that would skew us more to the 70% than it would be to the 60%. And 70% is a performance that we had in 2012, but that opening backlog represented of the 2012 revenue.

Got you. A follow-up, so what is the average duration of your systems integration project in general?

The average duration of the systems integration projects can vary from shorter-term projects in the 3- to 6-month range to a multiyear project. The multiyear projects are more likely to happen in the public services -- in the public sector business than in the rest of the commercial or financial business. So we do have a range from 3- to 6-month projects to a handful of multiyear projects, predominantly in public sector.

But for the multiple-year projects, do you need to renew or recompete each year or it's...

No, generally not, Joey. One that comes to mind as a good example is State of Michigan where we're responsible for developing their new child welfare system in Michigan. I think that's been a 2-year project that's underway.

Got you. Last one from me. So is the system integration declining this quarter partially related to the decline in your ClearPath sales also?

So Jamie -- Joey, if I understood you correctly, the question that you asked was, is the decline in systems integration tied to the decline in the ClearPath revenue?

Correct.

No, it is not. The primary decline in this business is the in-quarter project-based sell-and-bill revenue.

This does conclude today's question-and-answer session. At this time, I'd like to turn the conference back to Ed Coleman for any additional or closing remarks.

Yes, great operator, thank you very much. Let me just thank everyone for participating in today's call and let me just close by saying that we are focused on improving these results and look forward to talking to you again at the next call. Thank you very much.

This concludes today's conference. We thank you for your participation.