Unisys Corporation
Q1 2015 Earnings Call Transcript

Published: 26 Apr 2015

[Operator:]

Good day and welcome to the Unisys First Quarter 2015 Results Conference Call. At this time I would like to turn the conference over to Mr. Niels Christensen, Vice President of Investor Relationships at Unisys Corporation. Please go ahead, sir.

[Niels Christensen:]

Thank you, operator. Good afternoon everyone and thank you for joining us. Earlier today Unisys released its first quarter 2015 financial results. With us this afternoon to discuss our results are Peter Altabef, our President and CEO and Janet Haugen, 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 on our Investor website. And 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 their related GAAP measures and we provided reconciliations within 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 Web site. Now I'd like to turn the call over to Peter.

[Peter Altabef:]

Thank you, Niels and thank you all for joining us today. When I spoke with you in January, shortly after joining Unisys, I shared with you my initial impressions of the company and our priorities for the business going forward. Since that time I've been working with our leadership team and associates, meeting with clients and developing an actionable program to drive improved performance and deliver greater shareholder value. I'm confident of Unisys capabilities and potentials but we must move aggressively to accomplish our goals of achieving competitive margins, enhanced cash flow and revenue growth. Our actions include an organizational redesign to better address our client needs. Optimization of our cost structure and implementation of a go-to-market approach with greater focus on vertical markets and integrated solutions. In the first quarter our overall revenue grew slightly on a constant currency basis, driven by growth in our U.S. federal business and an increased in technology sales. Our services revenue declined to 6% but was flat in constant currency. The company's overall gross profit margin declined from 17.5% to 16.2%. Profitability in our technology business improved with increases in revenue. However our services profitability decreased. Services gross margins declined from 15.8% in the first quarter of 2014 to 14.1% this year. This decline was principally the result of startup cost on new multiyear engagement and at lower project work. We're taking actions to improve our profitability and competitive positioning and I'll discuss those in detail shortly. First, let me highlight the steps we have already taken. We have realigned Unisys over the past several months. We have moved to an organization with two core client relationship focused teams, enterprise solutions and U.S. federal and two cores globally integrated delivery teams, services and technology. All supported by our sales and corporate support teams. This will shorten roles and increased accountability. Leadership decisions for the two client relationship focused organizations we're made in the first quarter. Ronald Frankenfield, who previously led our enterprise services organization, leads enterprise solutions and Venkatapathi Puwada, who previously served as interim leader of our U.S. federal business assumed the position on a permanent basis. We have been actively recruiting leaders for both core delivery organizations and as we've announced earlier this month, Neil Gissler formally of Accenture has joined the company to lead our global services team. Neil has an outstanding record of driving growth and cost efficiencies with deep experience in solution architecting, client I.T. strategy, enterprise architecture, infrastructure, applications and consulting services. Neil's organization will also manage Unisys's worldwide network of client service centers, software development centers and data centers as well as our work with third party partners, including large [cloud] providers. Unisys has tremendous strengths to build up. Our solutions portfolio, our global capabilities, our deep capabilities in mission critical I.T. and is well position to serve a consumerized business and government mindset. But to succeed we must bring innovative, differentiated solutions to our clients’ most praising business and technology problems. The first step of this journey was the reorganization, we completed early in the second quarter to align ourselves more closely with our clients and better meet there needs. We are also taking actions to simplify and streamline our sales processes to pursue opportunities more quickly and efficiently. In addition, we are strengthening our client executive function with better tools, training and more accountability. The next steps include changes in our cost base, our global delivery processes, our go-to-market approach and our solution offerings. As I communicated in January, we’ve taken a hard look at every element in our prospects with a view to improving our cost structure and ensuring that we deploy our capital in a targeted manner in order to successfully fund our future. We have begun an initiative to remove management layers in order to make us more nimble, while driving cost efficiencies across all our operations. This effort is critical for us to achieve market levels of profitability and to allow us fund future initiatives. We are committed to driving these cost reductions while we deliver best-in-class services and technology to our clients. We are reducing the cost of labor and SG&A expenses throughout the company. In addition to headcount rationalization, cost reduction opportunities include an improved labor model both onshore and offshore, aggressive cost management, improvements in how we execute through greater accountability and reduced redundancy. In connection with these initiatives, Unisys expects to recognize a pre-tax restructuring charge, currently estimated at approximately 300 million over the next several quarters. The company expects to reduce worldwide headcount by approximately 8%. As a result of these actions, the company expects to generate annualized savings of approximately $200 million exiting 2016. A more competitive cost structure is a critical element for our growth initiatives, plus we must also develop integrated solutions for vertical industry market segments. We will leverage Unisys’ intellectual property and talent to deliver more innovative differentiated solutions for our clients. We will increasingly focus on vertical markets and integrated offering solutions that build in our strengths, offer attractive growth and margin potential and are a good fit for our capabilities as offerings. As we look to our verticals, it is worth noting some of the successes in the last quarter across a range of industries. Within the public sector, which includes work for local and national governments around the world other than the U.S. Federal government. Our team expanded the scope of an existing contract with a U.S. state for cloud and infrastructures support services with the inclusion of special purpose cloud platforms. Unisys also renewed a clouded infrastructure services engagement with a large European state authority that is responsible for that states court and law enforcement processes. In our U.S. Federal business, the civilian agency group was elected to compete for task orders to provide a range of information technology products and services under the new solutions for enterprise wide procurement five contracts. This sub five contract has a sealing value of 20 billion over the next 10 years and this will be a key contract vehicle through which Unisys can offer civilian agencies solutions such as such as stealth, clear path forward and edge. Within Homeland Security, our Land Border Integration program for customs and border protection is expanding license plate reader deployments for outbound crossings at 16 new locations across the border between the U.S. and Mexico. Also in our U.S. Federal business the defense and intelligent group want a pilot to integrate stealth with other technologies to provide critical infrastructure with a robust flexible and extendible integration solution. This pilot is an important step toward obtaining the government certifications required to sell stealth to other defense clients. Turning to our other industry groups, in financial services, Unisys extended our service desk, data center outsourcing and technology support services with a large Latin American Bank. We also had a number of wins in our commercial group. A leading global consumer package goods provider expanded our existing agreement to provide cloud and infrastructure services across multiple new countries. A global pharmaceutical company expanded the scope of its cloud and infrastructure services with Unisys and a large U.S. based hi-tech company awarded Unisys a contract renewal for global cloud and infrastructure services and expanded the scope to include supports for that customer’s application environment. As I mentioned earlier, we're also focused on bringing our clients integrated solutions. For example, as we announced in February, we added industry veteran Tom Patterson to lead our integrated Security Solutions business. We are combining our security services expertise with our engineering capability to offer integrated security solutions including stealth to clients worldwide. Our operating model to be a more nimble focused and responsive company is well positioned to serve our business and government clients. Growing our profits and then revenue, will come from successful execution of our strategy. Thank you again for joining us. I look forward to sharing our progress with you throughout the year and will now turnover the call to Janet to discuss our first quarter results and the financial implications of our cost reduction inactivates. We will then open the call to questions.

[Janet Haugen:]

Hello everyone, and thank you for joining us this afternoon. Before discussing the first quarter results I want to cover some reporting changes we made this quarter. These changes are consistent with changes we've made and how we managed the business. Within our services segment we have new sub segments that aligned more closely with our current business focus and are consistent with our new organizational structure. The new categories are, Cloud and Infrastructure Services, which is revenue from work we do in the data center and cloud area, technology consulting and technology based systems integration projects as well as global desk and our global field services. The second is Application Services, which is revenue from application managed services and application development, maintenance and support work. And then third, Business Process Outsourcing which is revenue from the management of client specific business processes. We have also made a change in certain revenue classifications between services and technology. Historical information has been reclassified to these new categories and is included in the appendix to the presentation accompanying this call. Additionally, these schedules will be available through the Investor Relations section of our website. All of my comments today are based on the new reporting classification. Please turn to Slide 3 for discussion of our first quarter 2015 financial results. We have reported revenue of $721 million in the quarter which was down 5% year-over-year, but up 1% on a constant currency basis. I will discuss revenue trends by segment geography and industry later in my comments. The major currency fluctuations impacting the year-over-year comparisons are the euro, sterling, Brazilian real and the Australian dollar. Based on today's rates we anticipate currency will have a 10 percentage points to 11 percentage points unfavorable impact on revenue comparisons for the second quarter of 2015 compared to the second quarter of 2014 and an unfavorable impact of 7 percentage points to 8 percentage points for the full year. Our overall gross profit margin decline from 17.5% in the first quarter of 2014 to 16.2% in the first quarter of 2015. Of the 130 basis points reduction increased pension expense was responsible for a 110 basis points while the remaining 20 basis points reduction reflected lower service growth margins partially offset by higher technology gross margins. Operating expenses declined by approximately 4% year-over-year in the first quarter of 2015. Included in the results was an increase of pension expense from $19 million in the first quarter of 2014 to $27 in the first quarter of 2015 as a result of lower discount rates and changed mortality table as we discussed in our year-end earnings call. Excluding the impact of pension expense in both years we've reported breakeven non-GAAP pretax results for the first quarter 2015 compared to a non-GAAP pretax loss of 12 million in the prior year period. We've reported a net loss of 43 million in the quarter versus a net loss of $54 million in the year-ago quarter. Our first quarter 2015 diluted loss per common share was $0.87 compared to a $1.15 in the year-ago quarter. On a non-GAAP basis first quarter 2015 diluted loss per common share was $0.32 compared to $0.74 in the year-ago quarter. Slide 4, shows our first quarter 2015 revenues by segment, geography and industry. From a segment view, services represented 89% of our first quarter 2015 revenue. Services declined 6% year-over-year but was flat on a constant currency basis. Technology represented 11% of our first quarter 2015 revenue and was up 3% year-over-year. However as we mentioned on prior call quarterly seasonality can vary from year-over-year, the technology revenue is best measured on an annual basis and as I said last quarter we have some strong headwinds on the technology business in 2015. Negative currency pressures continue and we have lower licenses up for renewal than in a typical year. Looking at the services segment in more detail. Cloud and Infrastructure is our largest services sub-segment and represented 53% of our overall first quarter 2015 revenue. Currency was the most significant driver behind the 10% year-over-year decline. Our next largest sub-segment is application services, which was 28% of or overall first quarter 2015 revenue. Our new work at the U.S. Federal Customs and Border Patrol under the [BENZ] contract was the major contributor to the 3% growth in application services. Business Process Outsourcing was 8% of our overall first quarter 2015 revenue. BPO revenue decline 12% year-over-year. All of the operations are outside of the U.S. and Canada and currency movement cause most of the decline. Moving to geography. U.S. and Canada represented 49% of our overall revenue and grew 9% on the strength of our U.S. federal services revenue. Revenue at outside U.S. and Canada represented 51% of our overall first quarter 2015 revenue. All of these reduced decline, [indiscernible] reported and constant currency basis. On a constant currency basis the largest decline was in line to America, particularly in Brazil, which had significant revenue last year for the work we performed and support of the World Cup. From an industry perspective, we break out our revenue into four groups, commercial, financial services and two industry groups within government, U.S. federal and public sector which includes work for local and national governments around the world other than the U.S. federal government. Based on first quarter 2015 revenue, commercial is our largest industry group representing 35% of our overall revenue. Revenue from our commercial industry customers declined 7% but was up slightly on a constant currency basis. Financial services represented 21% of our overall revenue. Revenue from financial services industry customer declined 10%, down 2% in constant currency. Public sector represented 26% of our overall first quarter 2015 revenue and decline 10% down 3% in constant currency. And U.S. federal was 18% of our first quarter 2015 revenue and grew by 13% year-over-year. Moving to discuss our first quarter segment result in more detail. Please turn to Slide 5. Services gross profit margin decreased year-over-year to 14.1% from 15.8% in the first quarter of 2014. The services operating margin declined 280 basis points to negative 1.3% in the first quarter of 2015. Our first quarter of 2015 services margin were impacted by startup cost on new multiyear engagements as well as the lower project work in our existing services account. Technology revenue was accounted for 11% of our total revenue rose 3% year-over-year, 13% on a constant currency basis. Principally, reflecting higher sales of our proprietary software and service. Technology gross and operating margins improved year-over-year due to higher sales of our proprietary software and servers. The two comments on services orders. Please turn to Slide 6. In the first quarter of 2015, our services orders growth year-over-year driven by cloud and infrastructure orders particularly in the U.S. and Canada. We ended the first quarter with 4.5 billion in services backlog. This level of backlog was slight year-over-year as reported but represented an 11% increased on a constant currency basis. Of the services backlog at March 31, 2015 approximately $590 million is expected to convert into second quarter 2015 services revenue. The amount of the revenue in backlog at the start of the quarter is estimated to be between 90% and 95% of our quarterly services revenue for the full quarter. Moving to cash flow, please turn to Slide 7 for an overview of our cash flow performance in the quarter. We used $43 million of cash from operations in the first quarter of 2015 compared to $20 million generated in the year ago quarter. The decline in cash from operations is largely due to lower accounts receivable at the start of the quarter and lower revenue in the quarter. Higher net inventory and higher cash tax payments. Capital expenditures were $58 million in the first quarter of 2015 versus $45 million in the first quarter of 2014. The increase in capital expenditures reflected higher investments in outsourcing assets. For the full year, we anticipate CapEx of $175 million to $200 million, which will be down versus last year's CapEx of $213 million. Excluding the impact of pension Unisys generated adjusted EBITDA of $41 million in the first quarter of 2015 versus $27 million in the prior year period. We have free cash usage of $101 million in the first quarter of 2015 versus free cash usage of $25 million for the same period last year. The increased usage reflected the combined impact of lower operating cash flow and higher capital expenditures. Our free cash flow before pension cash contribution was $62 million for the first quarter of 2015 versus free cash flow of $31 million in the first quarter of 2014. On our last earnings call, Peter discuss the need to look at all elements of our cost sales to create a more competitive cost structure and rebalance the company’s global skill set to take advantage of growth opportunity. We have done stuff and as we announced in our earnings release earlier today, we expect to take a pre-tax charge of approximately $300 million over the next several quarters. We currently expect a reduction in our worldwide headcount of approximately 8% and we will also be reducing our facilities footprint. These actions are expected to generate annualize savings of approximately $200 million exiting 2016. The cash outlay for these items is expected to occur over the rest of 2015 and 2016. So we do not have an immediate need to fund the full amount of the charge. In addition, some of the costs are self-funding within a quarter or a relatively short period of time. To the extent, we find that the charges we must fund require it, we will avail our self to financing available to us in the capital markets. Thank you for your time and now I’d like to turn the call back over to Peter.

[Peter Altabef:]

Janet, thank you very much. Niel, I think we should now open up the call.

[Operator:]

Our first question comes from James Friedman with Susquehanna.

[James Friedman:]

So let me start out with -- on the cash balance as we move across the restructuring what would you anticipate would be the forecasted low of the cash balance say at the end of 2015 for starters?

[Janet Haugen:]

Jamie, we have identified the actions and we are in the process of working the timing of those actions. We have some places where we have freedom of movements and control, and when we do that in other places, we need to have discussions with local works groups and follow certain regulations. So at this point in time, we expect the expenditures to be in -- cash expenditures under the program to be more weighted until late into 2015 and into 2016. But beyond that this stage it's too early to tell.

[James Friedman:]

Again when you say you would access the capital markets over the years we've seen you, your officers have a number of different creative strategies for that, convertibles, straight debt. Shall we be thinking those this time or is it more likely weighted towards equity?

[Janet Haugen:]

At this point in time we are looking -- if we do need to access the capital market, we will look at market availability at that time and as we would expect we will look at every available option at the time and make a decision then. So we do not have that decision at this point in time.

[James Friedman:]

Okay and then, Peter, when -- do you think that it's appropriate to start measuring the company at least in the restructuring phase more on the progress of your cost actions and your profitability as opposed to the cadence of the revenue?

[Peter Altabef:]

Jamie, first of all I think you and the other analyst who follow us are -- will measure us anyway you wish. So I don’t necessary think it's for me to say. I will say and you saw this in my remarks that right now we are really focused on taking these costs out and on making sure from a go forward standpoint we’ve got the right solutions, and the right focus in the right markets. So I do believe that the cost will come out before the revenue will pick up which is why you heard me a couple of times refer to increased profitability and then increase revenue. It's not that we’re not going to focus on the revenue side, we’re focusing on the revenue side every day and kind of the purpose of me beginning to add for you guys flavor about the types of deals we’re winning was to tell you where in the market and we’re focused on winning business. At the same time, I think for us to do long-term what we need from a revenue growth standpoint, we still had some building to do. And that building is going to come over the next -- I really expect the building to come over the next 12 months as we really align our solutions going forward.

[James Friedman:]

Okay that makes sense and then I just had one housekeeping so, Janet, you had commented about the year-over-year foreign exchange impact and I wasn't sure if I heard you right whether that number was positive or negative but if you could repeat what you said apropos of the second quarter I mean?

[Janet Haugen:]

So Jamie, my comments were that in the second quarter based upon rates today, we expected to have 10 to 11 percentage points unfavorable impact on the revenue comparison and then I could 7% to 8% unfavorable for the full year.

[Operator:]

[Operator Instructions] We’ll take our next question from Ned Davis with William Smith and Company.

[Ned Davis:]

I wanted to drill down a little bit more on some of your restructuring. First of all can you characterize in a little more detail is it sort of across the Board or is it to move head count form the U.S. to lower wage cost markets around the world. Can you give a little bit more flavor to it, because what you are saying is that this is something that has existed in Unisys for quite a while and you are not looking to have an immediate revenue impact from it, but it's something that is necessary to be competitive? So I am little bit in the fog about exactly what this involves?

[Peter Altabef:]

This is Peter thanks very much for the question. I hope I will lift the fog but if I don't give me a follow-up question please or at least lift it as much as I can. So one of the things I mentioned on our last call which was my first call back in January was that we were really going to do a deep dive look at our cost basis and cost structure. I wanted to make sure we did from the bottom-up and not from the top-down. So we were launching that effort about the time of our analyst call in later January, and so over the past three months what you are seeing on this call is the result of those actions. So we really did combination of top-down and bottoms-up, obviously, Janet and I gave out targets to each of the organizations in the company. All of the SG&A units, all of the operating units. What we were targeting from an SG&A standpoint for this organization right now on our life cycle, the bottom of the top quartile of performance. If you look at the various [Hackett] surveys and all of those. So that’s where we were. So if you pick a 100 random companies in our market and our size we locked in at about 25, so the 25 best. That’s really the target we set especially for all of the SG&A unit. That’s a substantial move from where we are today. Where our SG&A as you know has historically been higher than that. So you have seen pretty significant cuts with this in the SG&A really across the Board in all our SG&A units. When it comes to the operating units and our delivery units the cuts are small. They are there, they are there all across the Board but they are there to the extent that we wanted to impact our ability to deliver services. So that’s just a general view of how we have approached this. And let me give you some more detail. So with particularity around the numbers and you mentioned labor, the 8% number that we are talking about is a net number. So 8% are the net reduction of headcount so that is not just simply a question of moving heads from one location to the other that’s a net reduction. So this is a [subcentive] of set of actions. So I guess that’s my first comment. My second comment is it is global so it does affect all of our regions, but it does affect some regions more than others. And I think you can see the time that we’re giving ourselves to complete this action and the time we’re giving ourselves to get those cost savings on an annualized basis by the end of 2016 that’s because a significant amount of the activity here involves countries where there -- where we’re not entirely free to take action unilateral. And that goes against Jaime's question about cash flow effect of the 300 million, which is exactly when these actions will all take place will obviously effect cash flow at any particular time including calendar end 2015. So back to your question about, while this must have been in existence for a while so why you are doing it now? I tend not to want to be a historian about how the company performed in the past. I will tell you this is not easy stuff in the sense that this does these types of charges you can see from the cost of the charge 300 million to take out a net 200 million, that’s not an insignificant cost. And I think unless the company has determined it was ready to take this charges it's a very difficult thing to do quarter-by-quarter cut-by-cut. And so I think with my arrival we've really decided it is really time to make the structural changes and bite the structural bullet to really make us much more cost competitive from the margin standpoint than we've been before. I do believe that as we do that we’ll be more cost competitive from a growth standpoint because once we get our cost in line it would be a lot easier to bid and win new sales work. So your last comment that was about growth, I do believe this will position us to grow on a profitable basis more quickly going forwards, but I do believe that's going to take a while because it's going to take a while to check this cost

[Ned Davis:]

Thank you, very comprehensive answer it’s very helpful. Switching over to this important recent to hire of Mr. Gissler, it sounds like how Accenture has operated over the years. What's your expectation for what he can accomplish in your services marketing initiative? I mean what's going to change? You've mentioned, you want the shorten sales cycle, I think that certainly would be desirable but what other things, do you think our potentials out there for him and the team that he’s going to be running

[Peter Altabef:]

Thanks for that question too. Let me back up with second and before I talk about deal particular, let me kind of deal with our approach to personal. So, it is really a blended approach. We've got some terrific leaders at Unisys, we have some terrific leaders who have been at Unisys and as you could see from my comments we're very much using those leaders in our go forward model. At the same time, we are really taking some outstanding people from the marketplace and bringing them in for really a couple of reasons. One is as we evolve we're going to need some talent that we don't necessarily have today, that's particularly true as we really focused on our go-to-market verticals. So, you're going to see us as we go forward bringing in some people that really have -- perhaps some more vertical focus and we necessarily had in the last two years. But it's also true about some of our capabilities that we have today. So in addition to Neil, we issued a press release about Tom Patterson who has a very significant background most recently at CSC in security, we issued a press release in last week about Kasey Coleman who has comment in our U.S. federal group and she is going to lead our civilian practice and has an outstanding background. And I think you see a lot of press about her. Even more recently we just brought in gentleman name Eric Hutto, I had worked with previously at Dell and at [Pro] Systems, who will working at enterprise solutions team in the U.S. and Canada. So it's not just Neil, it's a number of really qualified people from really all over the industry, we in particular about Neil. And you mentioned Accenture; he had a sterling career of 28 years that Accenture. What we have really done, over the past four months is we've consolidated our services delivery function that can as services delivery function in the past had actually been in multiple different organization reporting to multiple direct reports to the CEO. And over the last several months we have been getting ready for Neil. We've been putting him together, we've been consolidating it and we do not actually launch that team as complete independent services delivery unit, until two weeks ago will Neil arrived. So this is a new approach for Unisys. We expect frankly a lot from this new team. Some of it because a Neil, some of it because of the when I worked with us. We are organized now with the global delivery model to leverage our talent across the board, we expect one set of unified operating systems for each of our global delivery units. We have also revised and streamlined even how we approach delivery in services. So we've created a new clouded infrastructure team, we have created a new application services team and we have a BPO group, those team did not exist in their current format more than a month ago. Now getting back to Neil in particular, I expect that he will create replicable global processes beyond what we currently have, I expect to that will increase our quality, increase our ability to report our quality to our client, which will give our clients more confidence in us and the ability to grow existing business. I think growing same store sales is a really important part of what Unisys has to do. In my experience, growing same store sales comments from better reporting to clients and showing client you doing a really good job and I think we have a fair amount of way to go in this company on that. I also believe over time he is going to be able to decrease costs. And I think that will be -- that it is included in our go-to-market -- in this action we're including some of those cost savings. Frankly, I think we're going to get more. And I think we're going to get more on the delivery side than we have in the current one time approach that we assure to you, we'll do that on a current basis. Finally, Neil has been involved in Accenture at a strategic level as well as at a cost delivery level that includes growing clients and includes growing -- looking strategically across there -- that company on vertical integration, on developing integrated solutions. So I expect Neil to really be a full partner with our other senior executives in really formulating our vertical go-to-market strategy in the future. Obviously he is only going to be a part of that team, but I think he will be an important part of that team.

[Operator:]

Our next question comes from Brian Gesuale with Raymond James.

[Brian Gesuale:]

Peter, it's clear you took a really deep look at the company. Can you maybe talk to us from a strategic standpoint what your thoughts are on potential divestitures in the overall portfolio of the company, as well as how you'll interact with the potential liability going forward?

[Peter Altabef:]

Let me try to cover both of those and also cover a little more of the strategy as you referenced. The company has had a pretty active history of divestitures for a long time. I won’t say that it has divested everything that it can divest, but at this point I think it's, while we’re going to be -- let me put it this way, I think we’re going to be less likely to go and sell specific units because frankly most of the units we have in this company are really integral to growing it going forward. We do have a couple of joint ventures; I don’t necessarily think we will sell those joint ventures, but there somewhat separate from the operations of the company and somewhat divorced from them. And I think we’ll talk more Brian going forward about exactly how that those joint ventures fit into the overall future of the company, what you can expect from those in terms of revenue and how they will play out. So let's just put that aside as a, as to come back to you on future calls. With that as the exception, I think what you’ll see from us rather than divestiture is looking very hard at our business from a profit, margin and cash flow standpoint. As we make decisions on how to reformulate and really focus on certain verticals, we’re not doing it based only on mass. We’re not doing it based on what business we have today. We're really doing it based off where are we truly distinctive, where can we truly drive value for our clients and I measure value in part by profit margin. What our clients will need to pay and why is that more than our cost? I would tell you that, that’s an important element that we are driving at the company today. And that will affect how we go forward and it will affect I think overtime our mix of new business, which I think will change pretty significantly more than just what will we divest. One of the assets of Unisys and I won’t say has been underutilized before, but I will say that we intent to maximize its utilization is the intellectual property we have here. You read about a couple of other services companies talking about a software driven services model going forward and in fact we already have the tools to do that. So if I just look at some of Unisys, let's take government for example. So if we look at our government framework, government makes up a pretty sizeable amount of our company. So based of this quarter numbers government is about 44% of our revenue, that includes 18% of U.S. Federal and 26% of what we call public. Just to give you an example of some of the software that we already have that backs up some of our government business. So, in what I would consider a sub-segment of government called Justice and Public Safety, going to the UK our software drives crime investigation technology in 43 different police forces across the UK including the metropolitan police force in London. We have our TASPO software which stands for Targeting and Analysis Systems Program Office, which is part of a bigger group of software framework we have called [LIDA] that is targeting at customs border security, facial recognition and other biometric recognition software and services. In fact, our systems are now involved in 98% of the U.S. inbound vehicle traffic at border crossing in the United States. Within social and citizen services, again as part of government, we’ve got some very significant software that we use for health and human services particularly at the state level and we’re processing over a 100 million state cases annually in health and human services. In financial services, you see software that we software that we have for mortgage processing and core banking that we do on a global basis around the world. In transportation Brian and I don’t know how much people know this 25% of the world’s air cargo is processed on Unisys LMS software and 15 of the top 25 global airlines and more than 200 airlines are using our AirCore reservation system software. And that's before we get to things like the stealth security which we are in a very focused operation of now and really targeting stealth user applications for financial services, for government, for healthcare and life sciences and for energy and transportation. So that’s just a couple of items, but as we drive higher margins in our services business, you can expect software to play a significant role and we have a head start in that, but I wouldn’t say that as a company we’ve necessarily led with that and that’s going to be a change for us.

[Brian Gesuale:]

Great, Peter. Thank you for that detail. That's very helpful. One just quick follow-up, I don't think it's been a surprise to many on the difficult macro and some of the currency headwinds but maybe on your Federal business, is that a business that's turning here with maybe a more positive budget cycle and maybe some of the positioning in hires that you've brought in? Is that a business that we should be fairly optimistic on over the short and intermediate term?

[Peter Altabef:]

The short answer is yes, when I arrived in January that team -- I have to tell you by the time I arrive and sat down with the team I was impressed by it. The interim leader of the time Venkatapathi Puvvada, he really struck me somebody who is driving that team in a very focused way. You may know that he is otherwise known as PV in the commercial market wise, very well known. He is a three-time winner of the Fed 100 award and this year won the Eagle award, which is kind of the lifetime achievement award for Fed 100, it's a very big deal. I’ve had an opportunity to meet many of our federal clients and we’ll be meeting more and that team is very well respected. That said he is not standing still. KCs arrival as head of our civilian group is a big deal as well. So the federal marketplace is one where if you look at the peer group last year it was a tough-tough environment and I want to be careful that I don’t paint too picture -- too rosy a picture because stuff just happens. I mean you get sequestration, you get a ton of issues with respect to re-compete, you get issues with respect to government requirements for small, medium businesses. I will tell you we lost the ability on a not in-substantial government contract this year because it went small, medium business and we’re just not able to re-compete on it other than as a relatively modest sub. So I can’t tell you that all will always be rosy there, but I can tell you we expect to be fully competitive in the federal marketplace, we expect to win our share deals and we expect that share to go up. But it is the federal marketplace and it's kind of cyclical and lumpy.

[Operator:]

That concludes today’s question-and-answer session. At this time I'll turn the conference back to our speakers for any additional or closing remarks.

[Peter Altabef:]

Thank you, operator very much. I do want to thank everyone for joining the call. As always Niels, Janet and I are available to continue the dialogue and I will say again in addition to the sides that Janet provided, you will find on our Investor Web site a tradition we started last quarter which is an Investor Relations snapshot which provides even more information and we are continuing to develop that and we’ll have more information there as quarters go by. Other than that I look forward to speaking with you next quarter. Thanks very much.