Unisys Corp (UIS) 2008 Q2 法說會逐字稿

Good day and welcome to the Unisys second quarter 2008 conference call.

At this time I would like to turn the conference over to Mr.

Jack McHale, Vice President of Investor Relations at Unisys Corporation.

Please go ahead, sir.

Well, thank you, operator.

Hello, everyone, and thank you for joining us this morning.

Earlier this morning Unisys released its second quarter 2008 financial results.

And with us this morning to discuss our results are Unisys' President and CEO Joe McGrath; and our Chief Financial Officer, Janet Haugen.

Before we begin I want to cover just a few things with you.

First, today's conference call and the Q&A session are being webcast via the Unisys investor website.

This webcast, including the question-and-answer session, is being recorded and will be available as a replay on our website shortly after the conclusion of the live event.

Second, you can find on our investor website the earnings release and the associated spreadsheets as well as presentation slides that we will be using this morning to guide the discussion.

These materials are available for viewing as well as downloading and printing.

Third, today's presentation, which is complementary to the earnings press release, includes some non-GAAP financial measures.

Certain financial comparisons made in this call will be with and without the impact of retirement expense and restructuring charges.

In the presentation we have provided a reconciliation of our reported results on a U.S.

GAAP basis, compared with our results excluding the impact of restructuring and retirement expense.

Finally, I would like to remind you that all forward-looking statements made in 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 periodic reports as filed with the SEC.

Copies of these SEC reports are available from the SEC and from Unisys investor websites.

Now let me turn the call over to Joe.

Thanks, Jack.

Hello, everyone.

Welcome to today's call to discuss our second quarter 2008 financial results.

Please turn the slide one to begin our discussion.

This was a mixed quarter for Unisys.

We made encouraging progress in a number of important areas, while also seeing the effect of softer IT spending by our financial services clients.

Our orders, revenue, and non-GAAP operating profit all grew sequentially from the first quarter of 2008.

Another clear positive was cash flow.

Our cash flow from operations more than doubled over the year-ago quarter, as we continue to place a strong emphasis on enhancing our cash flow.

In fact, if you take out a one-time tax refund a year ago, our cash from operations increased by nearly $90 million in the quarter.

In our services business, we saw good growth in our systems integration and consulting business, building on the improvement we've been seeing in this business.

Our outsourcing business also continued to grow.

Our other strategic growth programs, including security, open source, and real-time infrastructure services grew double digits in the quarter as we continue to expand our business and reputation in these growing markets.

In our technology business, we saw stronger ClearPath sales, and we are seeing positive initial results and returns from the new software and services-based solutions that we've been rolling out this year.

Our U.S.

federal revenue grew in the second quarter after a tough first quarter.

We also saw growth in our public sector business in the quarter.

We were disappointed, however, at that time bottom line.

Over the past two-plus years we've been making steady quarter by quarter progress in our profitability through our repositioning actions.

That year-over-year profit progress slowed in the second quarter due to three primary factors.

First, we saw an impact on our revenue and margins as some clients cut back on IT expenditures in an uncertain economic environment.

We saw this impact primarily in our financial services business, both in the U.S.

and internationally.

Financial services is our second largest industry segment at Unisys, representing about 30% of our overall revenue.

The majority of this revenue is in services, including our business process outsourcing business.

So the weaker spending by our financial services clients impacted our services results in the quarter.

A second issue that impacted our technology results was the ending, as expected, of about $19 million of quarterly royalty revenues from a 2005 intellectual property agreement with Nihon Unisys Ltd.

that ended on March 31.

We were able to offset some of this lost royalty revenue and margin by taking out costs and driving sales in new areas.

But the weaker economic environment in the quarter made it more difficult for us to fill this gap.

Third, we saw higher SG&A expense in the quarter, related to investments in pre sales activities around a large number of federal and public sector engagements.

As a result of these factors, our operating profit in the second quarter came in lower than we were hoping.

This morning I would like to walk you through the strategy we will be implementing over the remainder of 2008 to navigate through a weaker business environment and get our profit progress back on track.

Slide two provides an overview of our results for the quarter.

Our revenue came in at $1.34 billion, down 3% year-over-year.

Services revenue was down 1%, while technology revenue declined 14%.

Services represented 90% of our revenue in the quarter.

Within services, systems integration and consulting revenue grew 5%, which building on the flat revenue we saw last quarter was encouraging to us that this business appears to be stabilizing after declines in 2007.

Outsourcing revenue grew 3%, which was down somewhat from recent quarters, reflecting declines in financial services related to BPO.

Growth in these two services business was offset by double-digit declines in infrastructure services and core maintenance.

Within infrastructure services, we continued to deliberately shift out of some lower margin project work in this area, but we also saw an impact from clients slowing down on IT infrastructure improvement programs in an uncertain business environment.

The decline in core maintenance was higher this quarter than we've seen recently.

This was mainly due to lower maintenance on high volume, high-margin check sorting equipment.

The declines in infrastructure services and core maintenance were disappointing to us given the revenue softness we're seeing there we need to reduce our cost base and our break-even point in this business.

I will discuss our planned actions in a few moments.

Our technology results in the quarter reflect the ending of the royalty revenue from NUL.

If you exclude that quarterly revenue from our technology results a year ago, our technology revenue was down about 3% in the quarter.

ClearPath revenue actually grew on an organic basis when you strip out the NUL royalty revenue in the year-ago quarter.

At the bottom line, our operating profit on a GAAP basis increased significantly in the quarter, but on a non-GAAP basis, excluding retirement-related expenses and cost reduction charges, our operating profits declined year-over-year.

Cash flow from operations in the quarter more than doubled to $52 million, and excluding one-time tax benefit a year ago, our cash flow increased nearly $90 million year-over-year.

Janet will provide more details on our financial results in her comments.

Slide three breaks down our profit by segment in the second quarter compared to a year ago.

To give you an apples to apples comparison of our progress we've shown our margins both reported as well as on a non-GAAP basis excluding retirement related expenses.

As you can see, our services gross profit margin, excluding retirement expense, showed nice improvement year-over-year, continuing the progress we've been making in recent years.

At the operating line, excluding retirement related expense, our services operating profit came in at 3.7% in the second quarter.

This was sequentially up from 2% in the first quarter of 2008 but down from the year-ago period.

We were impacted by the higher presales expense in the quarter as well as lower revenue volume and infrastructure services in core maintenance against a fixed cost base.

In our technology business, due to the ending of the NUL royalty stream, both our gross margin and operating margin declined year-over-year.

Before I move into actions to reduce our cost structure please turn to slide four for an overview of the demand trends we're seeing in the business environment.

Overall, our services order grew low single-digits in the quarter.

We saw order gains in outsourcing orders partially offset by order declines in project based services.

Organizations are reacting defensively in the current economic environment.

They are undertaking IT projects only where there is a clear payback in terms of cost savings such as outsourcing, open source software, and server virtualization and consolidation, or in critical strategic areas such as IT security services.

In terms of industries I mentioned the weaknesses we're seeing in financial services.

Orders and revenue both declined in our financial services practice in the quarter.

Our transportation business was also soft as our airline and cargo customers contend with higher fuel prices.

On the other hand, our public sector business is holding up well.

We saw double-digit order gains in the public sector, both in the U.S.

and internationally.

This included the second consecutive quarter of order gains in our federal business.

Within this overall mix picture we continue to see the strongest demand trends for our strategic programs that we launched at the start of our repositioning effort.

Just as a reminder, the programs we are focused on for future growth are enterprise security, outsourcing, open source services, Microsoft services, and real time infrastructure and virtualization solutions.

In slide five you can see how far we've come with these strategic programs since starting the repositioning effort at the end of 2005.

In 2006 revenue from these strategic programs accounted for about 50% of our overall revenue, revenue grew about 10% in 2007, and by the end of the year these programs accounted for approximately 55% of our overall revenue.

Through six months in 2008 revenue from our strategic programs has grown about 8%, and these businesses now account for almost 60% of our total revenue.

Excluding outsourcing, which is a much larger, more mature market than the others, and growing more slowly, our strategic program revenue year to date has grown 14%.

To give you a sense of the opportunity that exists in these newer markets, we are pursuing a pipeline of deals worth over $16 billion in our strategic programs.

Within that pipeline, we're going after more than 35 deals each worth over $100 million in contract value.

As just a few examples of the kinds of strategic deals we are winning in enterprise security during the second quarter we closed a significant contract to help the an Angola Ministry of Justice implement a new Citizen ID card program.

We're part of DGM Systemis.

I mentioned this project earlier in the year, and we are able to close our subcontract with the prime contractor during the quarter.

The program will involve issuing some 20 million ID cards to citizens to reduce fraud and modernize the country's criminal registry.

In the UK we won an approximately $63 million contract to create and manage a public information network and security service for Kent County Council, one of the largest county councils in that country.

We are pursuing similar contracts with other county councils in the UK as well.

We are also seeing strong growth in our Open Source program, particularly in cost sensitive markets such as the one we're seeing today.

Open Source technology offers organizations great potential in terms of cost savings around software development and modernization.

In addition to the U.S.

and federal market where demand for Open Source that traditionally been high, we're seeing growing interest in our open source solutions in the United Kingdom, Europe, Latin America, and emerging countries such as China in the second quarter we won quite a number of new engagements in these regions involving Open Source services.

We're also already weighing key deals around the new technology based real-time infrastructure portfolio that we started rolling out earlier this year.

In the second quarter, for example, we won a contract to help Nationwide Building Society in the UK with a major storage and solution optimization project to reduce costs and space requirements.

We're excited by these wins because they show that our strategy is working.

And that we are delivering the kind of fresh, relevant services and solutions that organizations are looking for today.

So turning to slide six, despite the challenging market we continue to make progress in repositioning Unisys in the marketplace and transitioning to a new, more profitable business model.

Our cash flow has improved significantly.

Orders continue to grow.

Services gross margins are improving.

We're winning major deals, and we're seeing continued growth in our strategic programs, in outsourcing, security, RTI, and Open Source.

And we're encouraged by the improvement we're seeing in our systems integration and consulting business.

Progress in these areas is being offset by declines in other traditional businesses as we knew it would.

Unfortunately, right now this fundamental transition in the business is being impacted by weakness in some of our key marks.

Looking forward, we continue to target financial goal for the business of an 8 to 10% operating profit margin excluding retirement expense.

The business environment is making this goal more challenging over the near term, longer term we are confident we can get there.

And we are driving the business to achieve the low end of the 8 to 10% range for the second half of 2008.

Given what we are seeing in the market, it's clear to that us that we need to take additional steps to further focus our business and continue our progress toward this margin goal.

As you can see in slide seven, we will be pursuing a three-fold plan over the second half of 2008.

First, we're taking actions to adjust our services portfolio around providing solutions that offer clients more of an immediate short-term value proposition in terms of cost payback.

In our financial services practice, for instance, we've recently brought on a new leader with 30 years experience in banking and in consulting firms to rebuild our portfolio in our financial services and other industry practices.

Under his leadership we will be launching a refreshed set of solutions for financial services in the next 30 days.

Second, we're taking additional actions to address the weaknesses in our infrastructure services and core maintenance business.

Our infrastructure service and core maintenance business are closely tied.

The services are delivered by generally the same workforce.

The majority of our revenue softness in these areas is in three regions.

The US, the UK, and Germany.

In each region we recently hired highly experienced leaders from the likes of IBM, CSC, and EDS to lead these businesses and drive profitable growth.

As part of this reengineering we will be reducing our resources.

A combination of contractors and Unisys employees by about 800 full-time equivalents in the second half of the year.

We will do this through productivity gains, attrition management and reduced use of third-party contractors.

We are not taking a special restructuring charge to complete the actions.

Third, on a strategic level we recognize that to succeed in today's market we need to either be very big and highly diversified, or else smaller and highly focused.

We believe the best path forward is the latter one to build on the work we've done and further focus and refine our business model.

In recent months we've been working with our Board of Directors on evaluating portfolio rationalization options to unlock value in our business and drive growth and success in the marketplace.

We are in the final stages of this evaluation process.

While the going is getting a bit more difficult right now, step by step, we're positioning Unisys in the center of some of the most dynamic growing markets in the IT services industry.

We believe the work we are doing will have significant benefits for our investors, our clients, and our employees.

So thank you again for joining us this morning.

Now I will turn the call over to Janet for a more in-depth review of our financials.

Janet.

Thank you, Joe, and hello, everyone.

This morning I will provide more details on our second quarter 2008 financial results including cash flow.

To begin, please turn to slide eight for an overview of our second quarter 2008 results.

At the top line, we reported revenue of $1.34 billion in the quarter, down 3% year-over-year.

Currency had a 4 percentage point positive impact on our revenue in the quarter.

We anticipate a similar 4 percentage point positive impact on revenue in the third quarter.

Our second quarter 2008 results include $8 million of net cost reduction related charges compared with $24 million pretax cost reduction charge in the year-ago quarter.

Pretax retirement related expense was $5.8 million in the quarter compared to $24.5 million a year ago.

We still expect full-year pretax retirement related expense to be around 0 for the full year.

Including these items, we reported second quarter 2008 operating income of $22.6 million, compared with the second quarter 2007 operating income of $2.5 million.

Interest expense increased by $2.5 million year-over-year primarily reflecting higher interest rates and debt levels.

On a pretax basis, we reported a pretax loss of $10.4 million in the quarter compared with a pretax loss of $24.9 million a year ago.

Tax expense was $3 .6 million in the quarter, compared with $40.6 million of tax expense in the year-ago period.

At the bottom line, after taxes, we reported a second quarter 2008 net loss of $14 million, or $0.04 per share.

By comparison, in the year-ago quarter, including the restructuring charge, we reported a net loss of $65.5 million, or $0.19 per share.

As we have done in previous quarters, at the end of these presentation slides, we have provided supplemental slides showing details on the cost reduction charges and retirement related expense.

Please turn to slide nine for an overview of our second quarter revenue by geography.

Our US revenue declined 3% in the quarter driven primarily by softness in financial services.

The US represented 43% of our revenue in the second quarter.

International revenue accounted for 57% of our overall revenue in the second quarter and declined 2%.

On a constant currency basis, international revenue declined 10% in the quarter.

The decline was primarily driven by weakness in financial services and the ending of the $19 million of NUL royalty revenue in the quarter.

Services orders showed single-digit growth in the quarter.

At June 30, 2008, we had had $7.17 billion in services backlog, which was up 6% versus June 30, 2007, and up 3% from services backlog at March 31, 2008.

Slide 10 shows our second quarter revenue by business segment.

Services revenue declined 1% in the quarter and represented 89% of our second quarter revenue.

Technology revenue declined 14% and represented 11% of our revenue in the quarter.

For more detail on our services revenue please turn to slide 11.

Our systems integration and consulting revenue grew 5% in the quarter and represented 33% of our revenue.

Outsourcing grew 3% and represented 43% of our services revenue in the quarter.

Within outsourcing, IPO has been growing at a consistent rate in 2007 and the first half of 2008.

BPO revenue has declined, particularly from our financial services BPO, as expected, resulting from the decreased check processing volumes.

Infrastructure services revenue declined 14% in the quarter as Joe discussed earlier.

Core maintenance revenue declined 12% in the quarter, which was higher than the 8 to 10% secular trends we've been seeing in this business attributable to declines in the maintenance of high end check sorters as Joe mentioned in his comments.

Slide 12 provides more detail on our technology revenue in the quarter.

Technology revenue declined 14% in the quarter, primarily reflecting the ending of the $19 million in quarterly revenue from our licensing agreement with Nihon Unisys Ltd.

which ended March 31.

Excluding the NUL royalty revenue from the year-ago period, our technology revenue declined 3.5% in the quarter.

The NUL royalty revenue and margin flow through both enterprise servers and specialized equipment.

Enterprise server revenue declined 10% in the quarter.

Excluding NUL revenue our ClearPath server revenue was up in the quarter.

Specialized equipment revenue declined 28% in the quarter, primarily reflecting the impact of the ending of the NUL royalty revenue.

Moving to operating expenses on slide 13, our operating expenses, while down on a GAAP basis, increased on a non-GAAP basis driven by increased presales investments, particularly in our federal business, as well as some currency impact.

Now please turn to slide 14 for an overview of our cash flow in the second quarter 2008.

The Company generated $52 million of cash from operations in the quarter compared with operational cash flow of $23 million in the second quarter of 2007.

The year-ago quarter included a $58 million cash tax refund.

Excluding that one-time refund, our cash from operations increased by $87 million from the second quarter of 2007.

The improvement in cash flow was primarily driven by lower cash restructuring payments and improved working capital management.

We used approximately $22 million of cash in the quarter for restructuring compared with $37 million for restructuring payments in the second quarter of 2007.

Total capital expenditures were $71 million for the second quarter compared to $84 million in the year-ago period.

After deducting capital expenditures, we used $19 million of free cash in the second quarter 2008 compared to a free cash usage of $61 million in the year-ago quarter.

Depreciation and amortization was $99 million in the second quarter of 2008.

Looking ahead for the full year of 2008 we continue to anticipate capital expenditures of around $300 million and depreciation and amortization to be in the 360 million to $380 million range.

We closed the quarter with $471 million of cash on hand.

That concludes my comments this morning.

Now I would like to turn the call over to Jack for questions.

Well, thank you Janet and thank you Joe.

Operator, could you please open the lines.

(OPERATOR INSTRUCTIONS) We'll take our first question from Jason Kupferberg with UBS.

Hi, good morning, guys.

Good morning.

Wanted to start with a question on the strategic review and the portfolio rationalization.

Joe, I think you mentioned, you used the phrase final stages there in terms of discussions you guys have been having with the Board.

Can you give us a little more sense of when you think we'll hear something on that, exactly how soon, and is this more likely to be kind of a modest pruning of the portfolio around the edges, or could we see something a bit more significant than that at the end of the day?

Let me deal with second part first.

Unfortunately, Jason, we're not going to be able to give you the specifics on that for obvious reasons.

And let me just give you some color on that.

Because of what these decisions may do in terms of impacting clients, employees, and so on, we've always been somewhat guarded in all of these areas in how broad we're willing to community indicate it.

On the first part of the question, though, the reason we've been cautious there, too, and clearly the answer is in -- we target it at a minimum this year and we hope to be more aggressive than that.

Again, the impact on the business in the short term, until we can give absolute laser clarity on precisely what we are going to do on each of these, but rest assured the Board is very personally and actively involved.

Ric Duques, our Chairman, is personally very actively involved.

In fact, Ric and I probably have weekly discussions on many of the topics in this area.

So very hands-on, all Board members not a side exercise but a mainstream exercise.

From what I know about it, and what I know some of the issues you have raised, I think you will find that the Board is really being aggressive there.

Okay.

On the TSA contract which you guys issued a statement on and didn't make the down select there, what's the time frame for your protest to be decided upon?

That seems like a key milestone we should be watching for?

Well, it's impossible for me to give you the actual dates on this.

Just a little bit more color on it.

We were debriefed Friday July 11.

We found quite a number of issues that we took issue with in our debriefing that were the foundation of this protest.

It's always impossible to determine probability of success for the government, but you watch the government very carefully yourself and you've seen that they've been much more receptive, and you've seen it in both ID IQ contracts that you've seen changed as well as individual contracts like this.

So I'm even anxious in saying cautiously optimistic but in the debriefing we found quite a number of issues that we have used as the foundation of this protest, and we're just going to have to go through the normal government process in resolving these.

Right, but you must have some general sense of when you think you will hear something.

Are we talking weeks, months?

Anything that you can point to there?

Yes, I'm reluctant to give you any more detail on it, just to kind of honor our commitment to the government in terms of the things that we've discussed with them.

Let me try one on the margins.

I know you're still targeting the low end of the exemption target to achieve that for the second half of this year.

You were at 2.7% in the second quarter.

Where are we going to get 500 basis points from?

Well, first of all, in the second quarter we shared with you that part -- that the gross margin increased but the operating margin declined as a result of investments in presales in a number of large federal and public sector engagements.

And you saw that in reflection of our increase in pipeline around the world, some of the statistics we gave you, an increase in the number of $100 million plus deals.

But to deal with some of the specifics, we're seeing continued improvement across nearly all our lines of business there, in terms of margins and systems integration and consulting.

You will see -- and we continue to see improvement in our outsourcing business.

You will see improvement in our infrastructure services business as a result of both stabilizing that business with the new leadership we've put in place.

You heard me say a few minutes ago we've got new leaders from -- in place now in North America and the U.K., and within Continental Europe that we've recruited from IDN, CSC, and EDS.

We think that's going to have a very positive impact.

We also called out some of the details of reducing costs, 80 full-time equivalents, a combination of contractors and employees that we're not replacing as a result of productivity improvement, and attrition management in some of these areas.

And so we will continue to drive, in all of these, further and further work offshore, more and more work into what we call low-cost subsidiaries.

Those are virtual subsidiaries where we have lower salary rates, higher variable comp for higher productivity and lower benefit programs, and it's really a combination of those that will drive higher margins.

Okay.

Thanks.

And our next question comes from Pat Burton with Citigroup.

Good morning, this is [Nathan Rozoff] for Pat Burton.

First off, congratulations on the continued progress in the services backlog.

Our question related to that is, are you seeing any changes in transition or contract ramps related to new deal signings that may impact the flow of new revenues from those contracts?

No, not really.

What you have really seen, we put in, starting in the end of last year, a series of mega deal teams around the world.

We started in Europe, we rolled them into North America, an aggressive ramp, maybe in about the first quarter this year, then rest of the world.

That's what's resulted in this increased pipeline, which we quoted earlier as $16 billion.

That's all in our strategic growth areas.

We're excited that we have 35 deals worth more than 100 million in contract value.

But, when you increase deal size you find that you have longer sales cycles.

So it's been taking us longer for that to pay off, just based on us shooting higher.

You've seen some of that pay off in terms of some of the statistics I gave you in strategic program revenue growth which was 8% in the first six months of the year and 14 if we exclude outsourcing, the largest business.

But you won't see, as you ask, I don't think you will see, and we haven't seen, a gap with certain rare exceptions between contract signing and revenue ramp, and generally that's around contract structuring as opposed to anything else, meaning how we originally contracted for those to ramp.

So I don't know, Janet, if you want to add anything else?

I guess the only other comment I would make, particularly in the area of transition, operationally, we're expanding the use of our internal blueprinting methodology to help to try to accelerate the transition time line in deploying that both in the federal and in our longer term outsourcing contracts.

So Nathan, thank you for recognizing the growth in our backlog, which was up very nicely from the quarter, previous quarter, and then with regard to the transition, if there is any softness happening in the market and delays in transitioning, we're anticipating being able to offset it by further expanding the use of our blueprinting and enhanced methodology on the transition side.

Okay, great.

Secondly, if the TSA protest doesn't go your way, can you comment on Unisys' plans to absorb the associated personnel back into the business?

Yes.

First of all, the bridge contract that we're on still runs through December 31, of this year.

And in terms of some of the other contracts that we've written, and some contracts that are in our pipeline that we feel good about, we believe we can roll a lot of these resources on to these contracts.

We've done a real nice job in our federal business in the security business there's a high number of secured people in that business.

I think it amounts to about 2,000 people total.

And those type of people are in very high demand there, and because we continue to have a very aggressive push on security in terms of both outsourcing or managed services type engagements as well as systems integration.

I believe we can roll those highly valuable -- high security people on to those engagements.

Thanks.

Lastly any update on your progress in terms of increasing your offshore workforce?

Thank you.

Yes, as you know we've targeted 20% by the end of this year, which is about 6,000 people total between India, China, and Hungary.

We continue to bid jobs with the right profile between putting call center people in the low-cost countries and often remote management in our outsourcing contracts.

We're attempting to be even more aggressive than we have been in our systems integration business, and the last piece that's going to help us get there by the end of the year is when we have voluntary attrition we're working very hard to replace all of those people in the low-cost countries.

And so we believe, although it's a stretch, we should be able to reach our 20% target by year end.

Thank you.

And we'll take our final question from Julio Quinteros with Goldman Sachs.

Janet, real quickly the pretax cost reduction charges how are those allocated across the SG&A and cost of goods line?

We have included a chart in the supplemental information on the presentation package for you.

It is Schedule E, and the 8 million spreads -- it's predominantly in SG&A, $7.4 million in SG&A, and then 3.3 in each cost of revenue and in R&D.

Okay, got it.

Great.

And then just in terms of the linearity of the quarter itself as far as revenue growth, can you just walk us through how things might have sort of transpired here in the quarter, especially, I think coming out of the March quarter a lot of the companies that we have spoken to so far felt obviously a lot better about the environment, new budgets, et cetera, but it seemed like as the June quarter sort of transpired, there was some softness probably towards tail end of the June quarter.

Can you just talk a little bit about your own experiences as far as how the quarter transpired and what the linearity might have been there in terms of revenue contribution or revenue growth?

Sure, Julio.

If you look across our business, I think we saw a different it pattern in the services business from the technology business.

The technology business continues to be skewed towards that third month, that last half of the quarter.

This quarter was not that much different from other quarters we've seen in the technology area with regard to deals closing.

In the services side, I would say that we saw kind of a slower beginning to the quarter, you didn't see that normal -- more normal consistent April, May, June that you would like to see.

It did slow in April and May, and we really did need to push to close out June.

I don't know -- from an overall perspective, that pattern was more pronounced in the financial services side as we've implied in our comments.

Public sector was not as impacted by that pattern.

Okay.

And then just, can you remind us in terms of your financial services clients, are we talking about the propensity of those clients in securities, or is it more commercial banking type clients?

No, we're not on the securities side.

We're more in the back office payment processing side.

So more retail banking than -- and very limited, if anything, in the investment banking side or the securities side.

Okay, great.

Thanks, guys.

Thanks, Julio.

Great.

Well, thank you very much, everyone.

As I opened with, we believe it was a mixed quarter.

We're encouraged by sequential growth in orders revenue and non-GAAP operating profit, encouraged in cash flow, growth in systems integration, outsourcing and our strategic programs, clearly disappointed in our services gross margin but we believe the actions that we're taking in terms of the addition of strong new leaders, the portfolio additions that we are making within the next 30 days, and the cost reductions that we're making give us increased confidence in our second half.

So thank you very much for joining us.

And that does conclude today's presentation.

Have a great day.