Unisys Corporation
Q4 2014 Earnings Call Transcript

Published: 30 Jan 2015

[Operator:]

Good day and welcome to the Unisys Fourth Quarter and Year End 2014 Results Conference Call. At this time I would like to turn the call over to Mr. Niels Christensen, 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 fourth quarter and full year 2014 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 want 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. 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 have provided reconciliations within the presentation. And finally, I’d like to remind you that all forward-looking statements made during this conference call are subject to various risks and uncertainties that could cause 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 Peter.

[Peter A. Altabef:]

Thank you, Niels. And hello, everyone. I'm delighted to be with you on this, my 29th, day as CEO of Unisys. I would like to accomplish several things this afternoon before I hand the call off to Janet, who will review our financial performance for the fourth quarter and full fiscal year. After that, we will take any questions you may have. I will first briefly introduce myself to those of you I have not yet had the opportunity to meet, but I look forward to doing so in person in the near future. I will also give you some preliminary observations based on my first several weeks at the company. And finally I'm going to set out several agenda items, so that you could understand my priorities and can start to measure us against them. As many of you know, I've spent most of my career with large technology organizations. Most recently, I was CEO of MICROS Systems, a leading provider of point of sales solutions to hotels, restaurants, and retail. After more than 30 years as a public company, MICROS was acquired by Oracle in September of last year for approximately $5.3 billion. Prior to joining MICROS in 2013, I spent 16 years at Perot Systems ultimately serving as CEO from 2004 until 2009. Perot Systems was acquired by Dell in 2009, after which I served as President of Dell Services. I am proud to have led those organizations as I am to be leading this one. Unisys is a long established IT solutions leader with a proud heritage of innovation in both services and technology. Our clients include some of the largest, most sophisticated and demanding companies and government agencies in the world. For many of our clients the solutions we provide are an integral component of how they serve their own customers and constituencies and how they differentiate themselves in the marketplace. In the short time I've been here, I have been able to meet just a fraction of my more than 20,000 new colleagues around the world. I have not been surprised to find however, that we have an extraordinarily capable team of people, energized and focused on our mission. I believe strongly that Unisys will play an important role in the rapidly evolving tech landscape. The pace of change and IT solutions has never been greater. This creates a wonderful opportunity for a nimble, responsive, focused company to grow market share. We already have some of the elements we need to thrive in this market, including best-in-class support, innovative solutions, and engineering excellence. To achieve our vision, however, we will need to continue to evolve as a company. This brings me to the final piece of my discussion this afternoon. While it is too early for me to report to you any substantive decisions, I do want to set out for you some of my key areas of focus. We will have more to say on these topics in the coming quarters. But I want to at least give you some insight into my priorities. First, is our go-to-market strategy. We have already started to make some important changes to our approach to the marketplace. This includes the composition and organization of our client facing teams. Over time, we also expect to expand and deepen our industry specific domain expertise. Second is our suite of solutions. A core strength of Unisys is our engineering and developmental talent. That talent drives our technology solutions, but can also be used to develop software and integrated solutions that will be an important differentiator for our services business. Third, consistent with the items I just mentioned, we are rethinking how we organize our sales internally and how we communicate with you and other constituencies about our business. This includes the amount and type of information we provide to our investors. As Janet will discuss, beginning today we will provide additional information about our results on the Investor Relations section of our website. Please give our Investor Relations team any thoughts or feedback you may have on this topic. Fourth, in order to be the company we want and need to be, we must ensure that we are operating from a position of strength. We are taking a hard look at every element of our cost base. We will seek to drive operational [Technical Difficulty] efficiency and return of capital – of cash across those categories. Decisions we make about capital allocation will undoubtedly evolve over time as the company evolves. Let me stop there, and just say again that it is a privilege to be a member of the Unisys team. At this point, I'll turn the call over to Janet to take you through the numbers. Janet?

[Janet Haugen:]

Thanks. Peter. Hello, everyone. Thank you for joining us on the call. In my comments today, I will be providing comparisons on a GAAP and non-GAAP basis. Unless otherwise mentioned, the comparisons are on a GAAP basis and the non-GAAP results exclude pension expense. Let me start with our fourth quarter and full year 2014 financial results. Please turn to slide 3. At the top line, we reported revenue of $906 million in the quarter, which was down 9% year-over-year. That includes a 3 percentage point negative impact from currency on the year-over-year comparisons. For the full year, revenue of $3.4 billion was down 3% with currency having a 1 percentage point negative impact on the year-over-year comparison. We reported an operating profit of $82 million for the fourth quarter of 2014 and our gross profit margin declined 470 basis points to 27%. Operating expenses rose 2% in the fourth quarter of 2014 compared to the year ago quarter, driven by higher investments in growth programs. For the full year 2014, on lower revenue our operating margin decreased 180 basis points to 4.6% from 6.4% on lower gross profit margins. The decline in profitability is primarily attributable to lower services margins during 2014 as we were challenged by lower revenue and some problem projects. Our fourth quarter 2014 pension expense decreased to $18 million from $24 million in the fourth quarter of 2013. Consistent with our prior estimates, we reported $74 million in pension expense for the full year 2014, compared with pension expense of $94 million in 2013. For the fourth quarter of 2014, pretax income was $89 million compared to $152 million reported in the fourth quarter of 2013. Pretax income for the full year 2014 was $146 million compared to $219 million in 2013, due to lower revenue and [Technical Difficulty] reported in the fourth quarter of 2013. Pretax income for the full year 2014 was $146 million compared to $219 million in 2013, due to lower revenue and gross margins. At the tax line, we had a $24 million tax provision in the quarter compared with a $28 million tax provision in the year ago quarter. For the full year 2014, we had an $86 million tax provision versus a $99 million tax provision in 2013. Our tax provision continues to be highly variable from quarter-to-quarter and year-to-year depending on the geographic distribution of our income. Our fourth quarter 2014 diluted earnings per common share was $1.24 per share compared to $2.37 in the year ago quarter. Our fourth quarter 2014 non-GAAP diluted EPS decreased to $1.60 per share compared to $2.82 in the fourth quarter of 2013. For 2014, diluted earnings per common share declined to $0.89 per share from $2.08 per share a year ago. Our 2014 non-GAAP diluted earnings per share was $2.36 per share compared to $3.87 in 2013. Moving to our fourth quarter segment revenue, please turn to slide 4. Services revenue which represented 80% of our revenue in the fourth quarter of 2014, declined 11% year-over-year with declines of 10% in IT outsourcing and 11% in systems integration. Currency had a 3 percentage point negative impact in the quarter. On our last earnings call, we provided the amount of opening services backlog for the fourth quarter. We also provided the range that that opening backlog has represented of a given quarter's services revenue over the previous 11 quarters. The fourth quarter services revenue of $721 million was in the middle of the range implied by the amount of revenue in opening backlog at the start of the quarter. Sell and bill revenue generated during the fourth quarter of 2014 was significantly lower than in the fourth quarter of 2013. Some of the opportunities we had anticipated during the fourth quarter will be realized over the next few years as others were deferred. Fourth quarter technology revenue accounted for 20% of our total revenue and rose 1% year-over-year, 3% on a constant currency basis. Moving to fourth quarter segment margins, starting with the services business. Fourth quarter 2014 services gross profit margin decreased 440 basis points year-over-year to 17.5%, due to lower revenue, a lower proportion of Unisys intellectual property in our revenue, and delivery challenges we faced on a few projects. Our services operating margin declined by 590 basis points year-over-year to 3.9% reflecting the decline in gross profit and higher operating expenses. Moving on to technology margins, we reported a technology gross margin of 60.4% in the fourth quarter, down 100 basis points from the prior year. While enterprise class software and server revenue rose year-over-year led by a 13% increase in ClearPath revenue, there was a lower percentage of this revenue from the higher margin software content. Operating expenses increased as a result of higher investments in our new offerings. As a result of the decrease in gross margin and higher operating expenses, our technology operating margin declined to 36.3% from 40.6% in the fourth quarter of 2013. Full year segment results on slide 5, 2014 started off with a challenging first half, but ended with a better second half, particularly in our technology business. On slide 5, our full year segment results are shown. Services revenue declined 4% for the full year in 2014, 3% on a constant currency basis. For the full year of 2014, IT outsourcing revenue was down 2% and system integration revenue was down 1%. On a constant currency basis, IT outsourcing was roughly flat, while systems integration declined 2%. Our infrastructure services revenue declined 19% to $347 million for the full year. As we have noted previously, this business provides warranty and support services for our clients IT infrastructure and has not been a strategic growth area. The revenue decline in this business during 2014 reflected lower volumes on some existing contracts and the conclusion of other contracts that we did not renew. Technology revenue was up 2% for the full year 2014, 3% on a constant currency basis. This growth was driven by a 5% increase in ClearPath revenue for the year. Revenue from our new Stealth and Forward! products remained immaterial. With respect to services margins for the full year 2014, on a 4% decline in revenue, we reported services gross margin of 17.5%, down 220 basis points from 2013. Our operating margin of 4.2% was down 200 basis points compared to 2013. For the full year, our technology gross margins increased to 56.3%, driven by higher revenue. We increased investments in new offerings in this segment in 2014 as discussed in our earlier earnings call. Higher operating expenses impacted operating margins which declined 200 basis points to 19.1%. Slide 6 shows our fourth quarter and full year revenue by geography and client industry. Revenue in the US and Canada rose 6% in the fourth quarter, due principally to a strong performance from our US federal business which I will discuss in a moment. This strong fourth quarter performance drove a modest increase in full year revenue from the US and Canada. This region represented 42% of our total revenue for the full year. In the fourth quarter, international revenue declined 18%, 14% on a constant currency basis. For the full year, international revenue was down 5%, down 4% on a constant currency basis. Revenue in our EMEA region was down 28% for the fourth quarter on an as reported basis, and 24% in constant currency. For the full year, EMEA revenue represented 32% of our total revenue, was down 7%, 9% on a constant currency basis. The fourth quarter revenue from our Asia Pacific regions declined 34% as reported and 32% on a constant currency basis, principally reflecting lower IT outsourcing revenue. 2014 revenue in the region was down 13% as reported and 10% on a constant currency basis. Fourth quarter revenue rose 49% in our Latin America region on a reported basis and 56% on a constant currency basis, as both systems integration and technology were up year-over-year. For the full year, revenue was up 8%, 16% on a constant currency basis. Based on today's rates, we anticipate currency to have about a 6 percentage point negative impact on revenue in the first quarter of 2015 compared to the first quarter of 2014. From a client industry perspective, our US federal business accounted for 16% of our 2014 revenue. Revenue from the US federal government increased 18% in the fourth quarter of 2014 and up 3% for the full year. I will discuss this in more detail in a moment. Public sector, defined as all government clients other than US federal, accounted for 26% of 2014 revenue. Public sector revenue decreased 21% year-over-year in the fourth quarter and 5% for the full year. Revenue from commercial industry clients which represented 35% of our 2014 revenue declined 12% in the quarter and was down 6% for the full year. Revenue from financial industry clients which accounted for 23% of our 2014 revenue declined 9% in the quarter and was flat for the full year. Slide 7 provides more detail on our US federal government revenue over the past eight quarters. As noted earlier, compared to the year ago quarter our US federal revenue rose $27 million or approximately 18% to $178 million, reflecting growth from both technology and services. In the fourth quarter of 2014, revenue from civilian agencies represented about 37% of our revenue base within the US federal government, while defense and intelligence agencies accounted for 42%, and Homeland Security agencies represented 21%. For the full year civilian agencies provided about 42% of our US federal government revenue. Defense and intelligence agencies represented 32%, and Homeland Security agencies accounted for the remaining 26%. In a follow-up to our prior comments on the protested award to Unisys of the $460 million five year border enforcement management system contract from customs and border protection, we are pleased to report that the protest was resolved in our favor late in the fourth quarter. We are now working to transition this project and expect to begin generating revenue in 2015. We ended the fourth quarter of 2014 with about $352 million of US federal services backlog which was up 1% versus the fourth quarter of 2013. We were encouraged by the slight growth we saw in US federal services business during 2014 and we'll continue to pursue new revenue opportunities in 2015 with a focus on growing this business. In addition to the information we've just covered in the related slides, we have posted condensed comparative financial statements and a more detailed view of our revenue by segment, geography and industry on the Investor Relations section of our website. For some comments on services orders, please turn to slide 8. In the fourth quarter, our services orders increased substantially year-over-year and sequentially. From a geographic perspective, we saw year-over-year services orders growth in our Latin America, EMEA, and US and Canada regions during the fourth quarter of 2014. Orders in the Asia Pacific region declined in comparison to the fourth quarter of 2013. We ended the fourth quarter with $4.8 billion in services backlog, which was flat with the prior year end and up sequentially. Currency had about a 5 percentage point negative impact on the year-over-year comparison. Of our $4.8 billion in services backlog, we expect approximately $2 billion or 41% will convert into 2015 services revenue. Approximately $635 million of the December 31st, 2014, services backlog is anticipated to convert into first quarter 2015 services revenue. During the past 12 quarters the amount of revenue and backlog at the start of the quarter has typically ranged between 85% and 90% of our quarterly services revenue for the quarter, and the sell and bill revenue has accounted for the remainder. Moving to cash, please turn to slide 9 for an overview of our cash flow performance in the quarter and for the year. We generated $106 million of cash from operations in the fourth quarter of 2014, compared to $141 million in the year-ago quarter. The company generated $121 million in cash from operations during 2014 versus $187 million in 2013. The decline in year-over-year cash generated from operations during 2014 is largely attributable to lower profitability and higher pension contributions. We contributed $22 million in cash to our defined benefit pension plans in the fourth quarter of 2014 versus $45 million in the fourth quarter of 2013. During 2014, we contributed $183 million compared to $147 million in 2013. Capital expenditures were $69 million in the fourth quarter of 2014 versus $48 million in the fourth quarter of 2013. Capital expenditures for the full year were $213 million. Year-over-year growth in capital expenditures in the fourth quarter of 2014 and for the full year was led by higher investments in outsourcing assets within our IT outsourcing business as we won a number of new contracts and marketable software to support ClearPath, Stealth, and Forward! We anticipate full year capital expenditures during 2015 to be in the range of $175 million to $200 million. We generated free cash flow of $37 million in the fourth quarter of 2014 versus $93 million for the same period last year. Our free cash flow before pension cash contributions was $59 million for the fourth quarter of 2014 versus $138 million in the fourth quarter of 2013. During 2014, we had free cash usage of $91 million versus free cash flow generation of $36 million in 2013. Free cash flow before pension cash contributions was $92 million during 2014 versus $183 million in 2013. Excluding the impact of pension expense, Unisys generated adjusted EBITDA of $150 million for the fourth quarter of 2014 versus $215 million in the fourth quarter of 2013, and $385 million for the full year of 2014 versus $471 million in adjusted EBITDA in 2013. Depreciation and amortization was $43 million in the quarter compared to $39 million in the fourth quarter of 2013. Full year depreciation and amortization was $169 million in 2014 versus $160 million in 2013. During 2015, we expect full year depreciation and amortization to be approximately $170 million. Our debt balance was $224 million at December 31st, 2014 and is comprised primarily of our $210 million 6.25% senior notes due in 2017 which were issued in the third quarter of 2013. Our cash balance was $494 million at December 31st, 2014, compared to $640 million at December 31st, 2013. Our cash balance at the end of 2014 was more than two times our debt level. As we announced in the fourth quarter of 2012, our Board of Directors authorized the purchase of up to $50 million of the company's common or preferred stock through December 2014. During 2014, $36 million in purchases were made under this authorization. Over the past year – past two years, more than $47 million was returned to shareholders under this program. Beginning on slide 10, we provided significant information on our worldwide pension plan, funded position and expected cash funding levels. Let me just point out a few key takeaways. The actual returns on assets in the US plan during 2014 were 8.32% versus the expected long-term rate of 7.72%. Our actual returns on assets within our international plans were also better than the expected rate of return of 6.45%. Notwithstanding these solid returns, as well as $183 million in contributions, the net deficit in our defined benefit plans at December 31st, 2014, increased by $744 million from December 31st, 2013, as a result of lower year-over-year discount rates and the impact of changes in mortality assumptions. We ended 2014 in an under funded position in our US plan of $1.6 billion, an increase of approximately $500 million from the level at year end 2013. We expect to contribute approximately $53 million in 2015 into the US plan, and another $76 million in our other plan during 2015 for total contributions of approximately $129 million, approximately $54 million less than what was contributed in 2014. The under funded position of the international plans at December 31st, 2014, rose by approximately $259 million from the year end – prior year end to $636 million. A change of 25 basis points in the US discount rate causes an approximate $150 million change in the pension obligation. For international plans, a change of 25 basis points in the discount rate causes an approximate $146 million change in the pension obligation. With that, let me thank you for your time, and now I'd like to turn the call back over to Peter.

[Peter A. Altabef:]

Thank you, Janet very much. At this point, we will open the call to questions or discussion points.

[Operator:]

Thank you. [Operator Instructions] And we'll take the first question from Bill Smith with William Smith & Company.

[Bill Smith:]

All right. Peter, glad you're with Unisys and look forward to meeting you. Can you comment a little bit about Forward! and Stealth, and what you think of the growth opportunities there. We haven't, as Janet mentioned, haven't seen much yet in terms of top line growth there. But how do you think about those new products and the contributions they could make to the company going forward?

[Peter A. Altabef:]

Yes, Bill, thanks very much. I appreciate you being on the call, and thanks also for the question. We have a lot of initiatives at the company, both Forward! and Stealth are two of them. They have been singled out from time to time and they are interesting and exciting, but they are just two initiatives. And I think we need to keep in mind that we're looking at everything the company is doing and really figuring out, you know, what initiatives will drive substantive growth and profits in the future. I have no doubt that Forward will, as well as Stealth will continue to be, you know, going forward important initiatives for us. To put Forward! in context, it is already being used as an integral part of our new systems as we ship ClearPath. So Forward! and ClearPath effectively are integrating together for many of our new clients and existing clients, rather. Stealth is an important element in our security solutions offerings, but again it is only an element in the different offerings we provide around security solutions. And so I think while they're important, we're going to be looking at the bigger picture and looking at all of Unisys up and down to really figure out how we drive growth in the future.

[Bill Smith:]

And in the last call it was mentioned that you have 30 new, I think it was 30 Stealth customers. Is there any update to that number?

[Peter A. Altabef:]

There isn't, Bill. And I've got to tell you, that's not something – we will look and as I said – as I mentioned in my comments, you know, we're going to – we hopefully we'll provide more meaningful information and data to you guys as you track us. We want to make it easier for you to follow us, not harder. We have already put information on our website that you have never seen before from this company, and we intend to continue to do that. But that's going to be information about the company operations as a whole, about our large segments. Its not going to be how many specific, you know, proof of concepts do we have on a specific product. I would not expect that we would continue. I think we only provided that once. I wouldn’t expect we would provide that kind of detail for you guys. I just don't think that’s – that at the end of the day is going to be overall meaningful in understanding in how we move our business.

[Bill Smith:]

Okay. Thank you.

[Peter A. Altabef:]

Welcome.

[Operator:]

[Operator Instructions] We'll take the next question from James Friedman of SIG.

[James Friedman:]

Hi. Thanks for taking my question. So I wanted to ask for your initial thoughts on the services operating margins, Peter. I covered you had a couple of jobs ago, couple of jobs ago for you, same job for me. And at that time, you know, you had high single digit operating margins in the service. I realize no two companies are exactly alike. It was maybe a slightly different time. But what can you do to get operating margins at Unisys services more sustainably competitive relative to the industry?

[Peter A. Altabef:]

Yes. I might save in and by the way, thank you for – is it possible I came to Unisys because you covered Unisys, we should think about that. But, thank you. So, I have to tell you, you've asked a really a key question. Depending on – the technology revenue we have at this company is admittedly lumpy, it’s lumpy from quarter-to-quarter, it’s lumpy from year-to-year. And it is historically been more profitable on a margin basis than our services business, and that’s a good thing. But depending on the quarter, 80% to 85% of our revenue is coming out of services. As, again, going back to Bill's question about information, we're looking really hard at that services bucket, making sure we understand exactly what's in it and how going on a go-forward basis, we're going to be able to report services revenues to you. We may tweak that a little bit over time. We really want to make sure we have an apples-to-apples view of exactly what services and which services, as opposed to technology and why is that important? It’s important because I want to get to the answer to your question. Its 80% to 85% of our revenue, we need to evolve the company in my opinion so that it operates as a world class services company, and gets to the kinds of services margins that we would expect from a services company of our size, and to me that is a baseline way we need to measure ourselves. The technology products revenue and margin is kind of something you put on top of that. It's important, it's helpful, it actually gives us something that many service companies don't have. But it is additive to what ought to be a very well run, you know, services company with the kinds of revenue projects and margin projections that good service companies of our size should have. So I – that may be long-winded for you Bill but, Jamie, I'm sorry, but at least it kind of sets out the framework that we're starting from, and that is affecting the way we organize as well.

[James Friedman:]

Do you think you can expand services margins even if the revenues decline?

[Peter A. Altabef:]

I don't want to have to face that choice. So, I think one of the things we will look at is, and it will take time, it will not happen overnight. But one of the things we have to look at is how do we get into a position, which we have not had historically, of revenue growth in the services business. And as I kind of outlined, I think that's going to be moving our work to some more industry-focused solutions, making sure we have value-add solutions, both on an industry basis and what I would consider, you know, an enhanced, value-add solutions, such as security solutions. Stealth a is a good example of that, but its just a piece of a much bigger pie of what we can offer in a security market, like some of which we're doing now, not necessarily in the way we need to do it in the future. So, if push comes to shove, can we get higher margins from lower revenue, maybe, but that is what we're planning on, we're planning on what changes do we need to make in the organization to get higher revenue.

[James Friedman:]

Okay. Maybe a quick question for Janet. Services orders exceeded the revenue, Janet, could you and –I'm sorry, if I missed this on the call, but did you comment about this sell and bill production intra quarter?

[Janet Haugen:]

Yes, with it the services orders as you mentioned in the quarter did exceed the revenue as consistent with what we normally provide in that orders number. That is the total contract value for all customer signings, including some where we're already providing those services in the renewal or extensions of those given contracts. The – in the current quarter, the fourth quarter, we were right at the midpoint, Jamie, in the amount of sell and bill that we did within a given quarter.

[James Friedman:]

Okay. Maybe last question and I'll go into the queue. So, very good technology prints, good quarter, good year, we're in the position where we need to model this going forward. Should we still be contemplating that, you know, somewhere around flat would be objective for 2015?

[Janet Haugen:]

Jamie, one of the things I would point out is that we are facing a currency headwind as I mentioned in my comment. We've got a 6 percentage point negative impact on currency in the quarter. When we go into any given year, we have a certain amount of that ClearPath customer base that we can see coming up for renewal for extension of existing license. 2015 will be a year that we have less starting the year, as we – then we would have had previously. So we've got two headwinds in that technology revenues, one is the currency impact on year-over-year basis and second a lower renewal opportunity than we would have had previously.

[James Friedman:]

Got it. Thank you. That's helpful.

[Operator:]

[Operator Instructions] And our next question will come from Ned Davis of William Smith & Company.

[Ned Davis:]

Yes. Thank you. And also my congratulations for appearing first time on the call. I just wanted to kind of dig a little bit deeper on this margin question. I think Janet mentioned that a high proportion of increased CapEx this year is basically CapEx related to outsourcing contracts. And I know you can't characterize or explain that specifically. But I'm wondering are the rates of return on the spending in terms of margins really justifying and supporting this type of spending? And I'd also like to know how much of that is related to this – to activity, specifically with the federal government, but in the government sector in general, is that forcing you to do a lot of CapEx to support outsourcing?

[Peter A. Altabef:]

Yes, Ned, thanks again, and it's a pleasure to meet you at least by phone initially. Let me try to take that at a conceptual level and then Janet can fill in some of the details. So, as Jamie will attest to, one of the models that in several of my prior companies we really focused on was kind of a capital light model, where you…

[Ned Davis:]

I am sure of that…

[Peter A. Altabef:]

Yes. Right. So, you really worked hard not to get too bogged down in investments because of the cost of capital and the effect on returns. So when you look at some of the business that we are signing and some of it is in the public space, that you're seeing actually what is interesting to me is kind of a more capital heavy model, and that is in part because of really two things that's going on. So one thing that's going on, is a move to an as a service provision of services. And so in an as of service that’s actually other things being equal, unless you rely heavily on cloud providers, you become effectively a mini cloud provider, and so that can be a more capital-intensive business. The answer to whether we will do more of that or less of that in the future depends entirely on whether it's good business. And so we're going to be very focused in the analytics, we're going to be very focused in the returns. I can't speak to the business we signed because I wasn't here when we signed it. I can tell you we'll be focused on it. We won't run away from it if we believe that it’s good business. More than that, what you will see us beginning to shift to and we're already actually in some sectors doing what I consider a surprisingly good job, is to pivot to cloud providers for some of that back end infrastructure. That depends on clients and client willingness to do it, but clients as we all no will and are willing to do it. And so, as we begin to pivot more to having some of the infrastructure heavy lifting done by cloud providers and we are working hard to enhance those relationships, then I think you'll see this ebb and flow back to more of a capital light begin to take hold for us. I don't know if that helps you in terms of a general view, but I'll hand it over to Janet for more specifics.

[Janet Haugen:]

Let me follow up by first commenting that increase in capital expenditures is not being driven by increases in the federal marketplace. That’s outsourcing clients globally, in particular in the public sector space. I would also like to point out in 2013 we did about $151 million of CapEx and coming into 2014 we did based on a couple of large outsourcing clients that we were going to increase our capital expenditures that came in this year at $213 million. In my comments I mentioned that we expect that to go back down to a more historically normal level, in the $175 million to $200 million range. So we're not – I think what we have in 2014 is a combination of the increased for the outsourcing assets, causing the CapEx to be higher, as well as some additional investments in the capital software area for Stealth and Forward!.

[Peter A. Altabef:]

And this is Peter again. I know those of you who have been following the company for a while, have paid attention, you know, as we rethink the company, as we look at more verticals, as we look at more industries, we'll do some re-categorizations, one of them actually occurred on this call. So those of you who have followed us know that in the past when we refer to the word public, that actually was often a combination of both US federal, as well as US state and local and foreign government work. And we've change the word now and tried to make that clear, but just to put a finer point on it, when you hear the term public from us now, that is – that is government work for government agencies other than US federal government agencies. So it includes state and local, it includes foreign governments, but not US federal. And that’s just as we're beginning to really kind of start slicing and dicing how the different markets operate. We think US federal operates in a different way than most of those other markets.

[Ned Davis:]

That is very helpful. I have kind of a philosophic question. In the last few years I've been covering the company, there has been reluctance to give very specific guidance, except ironically with regard to the lumpiest part which is the technology component. And I realize it’s a two-edged sword giving guidance, it doesn't necessarily help the company in the long run. But I'm wondering what your philosophy is about this. We understand the company is got a lot of moving parts, you're changing it, you're going to be changing it, as you, you know, get to know things better. But do you anticipate at some point that as difficult as it may be you will try to provide specific guidance on, you know, the major components that most other companies like Unisys provide?

[Peter A. Altabef:]

Well, it’s a great question. I actually opened the door for that, for you to ask that question, in my remarks, right? I mean…

[Ned Davis:]

I know you did.

[Peter A. Altabef:]

I did. Although I did say please give your comments to the Investor Relations team. And I did that purposefully because I really…

[Ned Davis:]

Niels, has heard them from me before. So…

[Peter A. Altabef:]

Well, I know, but he might be listening in a different way now.

[Ned Davis:]

Okay.

[Peter A. Altabef:]

And the reason for that is, I do believe that we need to revisit that topic. We will revisit that topic. I will tell you, I want to revisit that topic, in conjunction with me getting a better handle on really understanding the drivers of the business, right. Really understanding services, what's exactly in services, what's exactly in technology products, understanding our pivot, if you will, to really looking at this company through industry verticals, as well as solutions, as well as geographies. We're going to cut these numbers up and down in all three ways and get a sense as to where we believe we can drive the business. Once I get a little more confidence on that, then I think we can think more confidently about going to you guys and start, you know, to give you more helpful forward-looking information than you've had in the past. If I did it today, I don't – first of all, I'm not up to speed enough to do it, and I'm not sure it would be terribly helpful. I think we really need to get a foundation of exactly what are we driving and how and then I think we need to be sharing that in a more transparent way with you. So, that’s going to be work to come. And, you know, like the earlier discussion, from on, you know, on growth and on these other initiatives, none of this is happening in the short term. I mean, you guys have followed the company for a while, and I need you to continue to be patient with us. But we are looking at this up and down and in and out, and we intend long-term to get back to a growth footing. But that is not necessarily something that you're going to see right away. But it's just going to take a while for me to figure it out and for us as a team to figure it out.

[Ned Davis:]

Thank you very much. It seems very fair.

[Operator:]

And that is all the time that we have for questions. At this time, I'll turn the conference back over to Mr. Peter Altabef for any closing or additional comments.

[Peter A. Altabef:]

Thank you, Shannon. Once again, I really do want to thank everyone who has joined the call, both the people who asked comments and the people who have listened both on the call itself and over the Internet. As we move forward, many of you on this call, especially those of you who have followed this, know a lot about this company from a lot of different perspectives, other than the folks here that work for Unisys or even our clients. I welcome a personal dialog with you. Niels and Janet and I are happy to sit down and meet with you as schedules permit, so I can get those perspectives, and we can do it on the telephone. This is I hope going to be a very interactive process and frankly I think I can learn from you and I hope the company will be better for it. So I do look forward to this call this time next quarter. In the meantime, please communicate with Niels, and we'll have an ongoing dialog. With that, on behalf of Niels and Janet, I want to thank you very much. And we'll look forward to the next call.

[Operator:]

And that does conclude today's teleconference. Thank you all for your participation.