Unisys Corp (UIS) 2011 Q3 法說會逐字稿

Good day and welcome to the Unisys third-quarter 2011 results conference call.

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

Niels Christensen, Vice President of Investor Relations.

Please go ahead, sir.

Thank you, operator.

Good afternoon, everyone, and thank you for joining us.

Earlier today Unisys released its third-quarter 2011 financial results.

With us this afternoon to discuss our results are Ed Coleman, our CEO, and Janet Haugen, our CFO.

Before we begin, I want to cover a few housekeeping details.

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

Second, you can find the earnings press release and the presentation slides that we will be using this afternoon to guide our discussion on our investor website.

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

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

These have been provided in an effort to give investors additional information.

The non-GAAP measures have been reconciled to their related GAAP measures and we have provided reconciliation charts at the end of the presentation.

Finally, I would 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 would like to turn the call over to Ed.

Thanks, Niels.

Hello, everyone.

Thank you for joining us today to discuss our third quarter 2011 financial results.

This was a strong quarter for Unisys.

We grew our revenue and tripled EPS from continuing operations, as we benefit from the foundational work we've been doing to strengthen our competitive and financial profile.

Page 4 of the slides summarizes our results in the quarter.

Our revenue grew 6% despite lower revenue in our US federal business where we continued to be impacted by the ending of the TSA contract last November and budget uncertainties in that market.

Excluding the US federal business, our overall revenue grew 14%.

Services revenue grew 2%, 12% excluding US federal business.

Within Services, we grew revenue in both of our strategic growth areas of IT Outsourcing and Systems Integration.

Excluding US federal, IT Outsourcing revenue grew 12%, marking the seventh consecutive quarter of growth in this business.

And excluding US federal, Systems Integration revenue grew 21%, reflecting higher sales of industry solutions.

In Technology, we grew revenue 36% driven by significantly higher ClearPath sales.

As I mentioned in our last call, our ClearPath sales can vary significantly from quarter to quarter.

Which is why we believe the best way to measure this business is on a full-year basis.

With a strong third quarter, year-to-date ClearPath revenue is approximately flat and we continue to focus on our goal of maintaining 2011 ClearPath revenue roughly flat with 2010 levels.

Along with continued focus on cost discipline, we are able to leverage the revenue growth in the quarter into higher margins and profitability.

We reported an operating profit of $113 million, up 48%, and achieved an overall operating margin up 11.1%.

In our Services business we achieved an operating profit margin of 8.7%.

Which was within our targeted 8% to 10% range.

At the bottom line, we delivered net income from continuing operations of $79 million and diluted EPS of $1.63, up from $0.50 a year ago.

We are pleased with these results, which speak to the progress we've made in enhancing our portfolio, creating a more competitive cost structure and strengthening our selling efforts.

At the same time, we recognize we have more work to do to drive continued profitable revenue growth and achieve our goal of consistent, predictable financial results.

Global economic conditions are challenging and we must continue to sharpen our differentiation in an extremely competitive marketplace.

To do that, we will build on the foundation we put in place over the past 3 years.

Page 5 shows the basis of our differentiation at Unisys.

We're focused on 4 areas of strength.

Security, data center transformation and outsourcing, including our ClearPath software and server offerings, end-user outsourcing and support services, and application modernization and outsourcing.

Within those areas, we differentiate ourselves through our expertise in providing mission-critical IT solutions and services through the quality of those solutions and services by placing the customer at the center of everything we do, by maintaining a narrow focus in our portfolio and served markets, by continuously improving our operational efficiencies, and by building a high-performing sales culture.

This set the capabilities and solutions positioned Unisys to help clients address disruptive IT trends, such as cloud computing, cyber security and consumerization and mobility that are changing the way organizations do business today and creating growth opportunities.

Turning to the next page, in the IT Outsourcing market, we're focused on opportunities that build on our strength in end-user outsourcing and support services.

Unisys has a growing reputation in this market for providing consistently high levels of service and support that leverage our global IDOL-based service delivery model.

For example, Gartner places Unisys in the leadership quadrant of its help desk outsourcing Magic Quadrant report.

Organizations today are looking for efficient ways to support increasingly mobile end-users who need anytime, anywhere IT support for a wide range of devices.

Our Services portfolio makes use of advanced automation and smart analytics to enable our clients to provide this support reliably, consistently, and cost effectively.

You can see on the page a sampling of our end-user outsourcing clients which include Marriott, Anderson, Piper Jaffray, AARP, De Beers, the Australian government, the Commonwealth of Pennsylvania, and other organizations around the globe.

As we expand our roster of clients, our IT Outsourcing revenue has been growing outside of our US federal business.

As you can see, ITO revenue excluding US federal business has grown now for 7 consecutive quarters and we go forward with a strong pipeline of business.

Turning to Page 7.

In the Systems Integration market, we see emerging growth opportunities for project work to help our clients deal with sophisticated cyber security threats and modernize their mission-critical applications to take advantage of cloud computing, social computing, and other disruptive trends.

We show on this page some of the innovative Systems Integration projects we are doing for our clients.

These projects include creating a cloud-based e-mail and collaboration system based on Google apps for government, for the Department of Energy's Idaho National Lab building on the success of our recent project with the GSA, rolling out the Mexican National ID project, building a new child welfare system for the state of Michigan, helping Brazil improve the cost efficiency and security of its maritime ports, integrating airport and air traffic control systems and China's Chengdu Airport, and creating an online benefits applications website for Los Angeles County, that won a Best Fit Integrator Award from the Center for Digital Government.

Turning to Page 8, in Technology, we continue to enhance our ClearPath software and server family.

Which we believe is the most secure and reliable open enterprise server on the market today.

Over the past few years, we've made significant investments in the ClearPath environment.

Refreshing the product line and introducing innovative new features such as secure partitioning, specialty engines, and support for mobile computing, while transitioning from proprietary to industry-standard hardware.

We've done this while strengthening the 6 key attributes that make ClearPath special.

Its superior reliability and resiliency, its recognize security, its advanced automation, its support for mobile computing, its agility and flexibility, and its scalability.

These are the attributes that make our ClearPath client base so loyal.

They are also attributes that we believe would be of interest to any organization looking for high-volume, transaction intensive, secure computing.

We continue to explore opportunities to extend the market for ClearPath software and servers such as offering ClearPath's capabilities via a new delivery models such as the cloud.

As we are doing with our ClearPath-based air cargo management business.

Turning to Page 9, as we look at growth trends in the market, the single most disruptive trend we see happening is the continued shift to cloud.

Cloud computing is transforming the way organizations acquire, develop, and deploy IT services.

Still, concerns remained particularly around the security and reliability of cloud environments.

Clients are looking for the same attributes in cloud environments that they have come to expect from their mission-critical systems.

Which is why we feel that Unisys, with our core expertise and mission-critical computing, is well-suited to help clients move to the cloud.

Our offerings in this market include cloud managed services, cloud professional services, cloud infrastructure software, and applications delivered via software as a service model.

We're providing these services to a growing list of clients including the GSA, Air Canada, Travelsky, [Lacasha], JMC Steel, and the University of Salford in the UK.

So overall, while the economy is challenging, we like how our portfolio is positioned relative to the trends that are playing out in the market.

We're focused on continuing to sharpen our differentiation and making continued progress on our 3-year financial goals.

Page 10 summarizes how we are doing against those goals.

At the top-line, we grew in all 3 of our revenue focused areas in the third quarter.

We also continue to strengthen our selling efforts where we refreshed about 20% of our sales force so far in 2011, with the goal to expand that to 25% to 30% by year-end.

In terms of driving improved operational efficiencies, we achieved the Services operating profit margin in our targeted 8% to 10% range, and continue to focus on increasing our use of lower cost labor pools which today represent 30% of our overall workforce.

We also significantly increased our pretax profit in the quarter and in terms of the balance sheet, we've taken another step toward our debt reduction goal by calling our remaining $66 million of 2012 senior notes.

Which Janet will discuss in more detail in her remarks.

When this redemption is complete we will have reduced our debt by about $458 million from September 2010 and will have achieved 73% of our 3-year debt reduction goal.

Please turn to Page 11.

In summary, this was a strong quarter for Unisys.

In a challenging economy, we delivered revenue growth and significantly higher earnings.

While we have much work to do, we're pleased with the progress we've made.

As we look at the market, we continue to see growth opportunities created by disruptive IT trends, and we believe Unisys is positioned to benefit with our enhanced portfolio, our streamlined cost structure and our strengthened balance sheet.

In the fourth quarter, we're focused on executing on our priorities and making continued progress toward our financial goals.

Thanks again for joining us today, now here is Janet to take you through our results in more detail and then we'll be happy to take your questions.

Thanks, Ed, and hello everyone.

Please turn to Page 13 for some more details on our third-quarter results.

At the top-line, we reported revenue of $1 billion in the quarter which was up 6% year-over-year.

Currency had a favorable impact on our revenue of almost 6 percentage points in the quarter, so we were up slightly on a constant currency basis.

Based on today's rates, we anticipate currency to have a minimal impact on the year-over-year revenue comparisons in the fourth quarter of 2011.

On higher gross margins, we reported increased operating profits and margins.

We reported third-quarter 2011 operating profit of $113 million, compared to the year ago quarter's operating profit of $76.1 million.

Our operating profit margin increased to 11.1%, up from 7.9% a year ago.

Operating expenses rose about 6.5% year-over-year, but were flat on a constant currency basis including $3 million of higher pension expense.

Interest expense decreased 50% from third quarter 2010, on lower debt levels.

From $25 million in the third quarter of 2010, to $12.5 million in the third quarter of 2011.

The other income expense line for the third quarter of 2011 was a net $16.6 million of income, primarily reflecting the favorable impact of foreign exchange gains in the quarter.

In the third quarter 2010, this line netted to $0.

For the third quarter of 2011, our pension expense increased to $9.3 million compared to the third quarter of 2010.

We continue to expect approximately $34 million in pension expense in 2011, compared with pension income of about $3 million in 2010.

At the tax line we had a $33.4 million tax provision in the quarter, compared with a $28.2 million tax provision in the year ago quarter.

As I said previously, our tax provision continues to be highly variable from quarter to quarter depending upon the geographic distribution of our income.

We reported net income of $78.6 million in the quarter, up from net income of $28.3 million in the year ago quarter.

Unisys generated EBITDA of $175 million for the quarter compared to $135.6 million in the third quarter of 2010.

The third-quarter 2011 diluted earnings per common share from continuing operations was $1.63 versus $0.50 in the third quarter of 2010.

The diluted EPS calculation reflected a share count of 50.6 million shares for the third quarter of 2011, versus 43.3 million shares for the third quarter of 2010.

The increase primarily reflecting the issuance of the mandatory, convertible preferred stock earlier this year.

Please turn to Page 14 for a breakdown of our revenue and margins by segment.

Services revenue, which accounted for 86% of our total revenue in the third quarter rose 2%, year-over-year, to $876 million.

Excluding our US federal business, Services revenue grew by 12%, and currency had a 6 percentage point favorable impact on Services revenue in the quarter.

Services gross profit margin increased 100 basis points, year-over-year, to 21.6%, from 20.6% in the third quarter of 2010.

Our richer mix of services and solutions drove higher gross profit in both aggregate dollars and as a percentage of revenue.

Reflecting the higher gross margin, our Services operating margin improved by 70 basis points, year-over-year, to 8.7% and was up sequentially from 7.1% in the second quarter of 2011.

Technology revenue, which accounted for 14% of our third-quarter revenue rose 36% on higher ClearPath sales.

We reported Technology gross margin of 57.4%, up from the prior year, principally on higher ClearPath volume.

Our Technology operating margin rose to 25.8%, compared to 7.4% in the third quarter of 2010.

Moving to our third-quarter revenue and margin by portfolio on Page 15, Systems Integration and Consulting grew 5% year-over-year.

Excluding our US federal government business, Systems Integration revenue rose 21% with particular strength in the transportation industry.

IT Outsourcing revenue grew by 1% versus the third quarter of 2010.

ITO revenue from the US federal government was down for the quarter, due principally to the loss of revenue from the TSA contract which ended November 30 of 2010.

The TSA contract represented 10% of the ITO revenue in the third quarter of 2010.

Excluding our business with the US federal government, ITO revenue grew 12% year-over-year.

Approximately $730 million of the September 30, 2011 Services backlog is anticipated to convert into fourth-quarter 2011 Services revenue.

Over the past 11 quarters we have typically had between 86% to 93% of our quarterly Services revenue in our opening backlog.

The balance of our Services revenue comes from sell and bill business during the quarter.

Therefore, we have typically had between 7% to 14% of our Services revenue sold and billed within the quarter.

In the third quarter of 2011, we had a high volume of sale and billed business putting us at the high-end of that range up in-quarter Services revenue sold and billed.

And we anticipate the same happening in the fourth quarter of 2011.

Moving onto Technology on Page 16.

Our enterprise class software and service business rose 60% to $124 million, due to higher sales of ClearPath software and hardware.

As we have said previously, because ClearPath sales can vary greatly from quarter to quarter, we believe the best way to measure this business continues to be on an annual basis.

We remain focused on achieving our goal of maintaining essentially flat, ClearPath revenue compared to 2010 levels, and are essentially flat for the year-to-date compared with the first month -- first 9 months of 2010.

Other Technology revenue declined by 28% from the third quarter of 2010, and approximately half of that decline was in our federal business.

Page 17 provides more detail on the performance of our US federal government business over the past 7 quarters.

As a reminder, our federal systems business serves 3, primary sectors of the US federal government.

Civilian, homeland, and defense and intelligence.

Civilian agencies represent our single largest revenue base within the US federal government, accounting for about 44% of our overall US federal government revenue in the third quarter.

Revenue from the US Department of Defense and various intelligence agencies represents about 30% of our overall US federal government revenue.

With the end of the TSA contract late last year, revenue from Homeland Security agencies has declined significantly as a percentage of our total, federal revenue.

In the third quarter of 2011, revenue from Homeland Security agencies represented about 26% of our overall US federal government revenue.

As you can see on this page, our overall US federal revenue declined $43 million or approximately 19% in the third quarter of 2011, to $181 million.

With over 75% of the decline related to the end of the TSA contract.

We were also impacted by continued weakness in US federal government spending, but we did see some sequential improvement over the second quarter as the US federal government concluded its fiscal year.

We ended the third quarter of 2011 with about $360 million of US federal services backlog, which was down an 18% compared to the third quarter of 2010, but up 20% sequentially from the second quarter of 2011.

Excluding the impact of the TSA contract, federal services backlog declined about 12%, year-over-year.

Going into our fourth quarter, which is the US federal government's first quarter, we continue to believe we will face a challenging, demand environment.

Page 18 shows our third-quarter revenue by geography and industry.

Our North America revenue represented 46% of our revenue in the quarter, and rose 3%.

Our revenue from the US federal government represented 18% of total Unisys revenue in the third quarter.

And as we noted earlier, declined 19% year-over-year.

Excluding the US federal government business, our North America revenue grew by 25%.

International revenue rose 8% in the quarter, due to higher revenue in all regions except Latin America, outside of Brazil.

On a constant currency basis, international revenue was down 2%.

From an industry perspective, public sector remained our largest, single industry revenue source.

The 4% decline in public sector revenue, year-over-year, was driven by the decline in our US federal government revenue.

The balance of our public sector business grew by 10% compared to the revenue in the third quarter of 2010.

Revenue from commercial industry customers was up 14% versus the prior year, and represented 34% of our third-quarter revenue.

The financial sector, which had an 18% increase in revenue, year-over-year, represented 23% of revenue.

Please turn to Page 19, as we ended the third quarter with $5.3 billion in Services backlog, which was down 8%, year-over-year.

Currency and backlog declines in our US federal business and business process outsourcing drove most of this decline.

Third-quarter Services orders declined by low double digits versus the third quarter of 2010.

This decrease, was attributable to lower year-over-year orders in our US federal business and in outsourcing.

These declines more than offset orders growth in Systems Integration, infrastructure services and core maintenance.

Services orders rose mid-single-digits sequentially from the second quarter of 2011.

In terms of geographic trends in the third quarter, we saw year-over-year Services orders growth in the US outside of our US federal government business, in the UK, and in our Latin America region.

Orders in our US federal business and other regions were down versus the third quarter of 2010.

Now, please turn to Page 20 for an overview of our cash flow performance in the quarter and year-to-date.

We generated $94 million of cash from operations in the third quarter of 2011, compared to $127 million in the year ago quarter.

As part of our ongoing focus to reduce the cash requirements of our Business model, capital expenditures were $29 million in the third quarter of 2011, down $17 million from $46 million in the third quarter of 2010.

Our free cash flow was $65 million in the third quarter of 2011, versus $81 million for the same period last year.

Depreciation and amortization was $47 million in the quarter, down from $61 million in the third quarter of 2010.

And EBITDA for the third quarter of 2011 was $176 million, versus $136 million in the year ago quarter.

Year-to-date, we generated $158 million of cash from operations in 2011, compared to $150 million in the prior year.

Capital expenditures were $101 million for the year to date 2011, down $61 million from $162 million in the first 9 months of 2010.

For the full-year at 2011, we expect capital expenditures of approximately $150 million.

Our free cash flow was $57 million for the first 3 quarters of 2011, versus free cash usage of $12 million for the same period last year.

Depreciation and amortization was $150 million, year-to-date, down from $190 million for the first 9 months of 2010.

For the full-year of 2011, we expect depreciation and amortization of around $200 million.

EBITDA, for the first 9 months of 2011, was $290 million, versus $383 million for the same period during 2010.

Our cash balance was $667 million at September 30, 2011.

And please turn to Page 21 for an update on our balance sheet, capital structure and liquidity.

We ended September 2011 with $445 million in debt, $392 million less debt than at September 30, 2010.

We remain focused on our 3-year goal of reducing debt by approximately 75% or approximately $625 million from the September 30, 2010 level.

Please turn to Page 22.

Building on the continued progress we have been making to strengthen our balance sheet, we are calling for redemption, all of our remaining 2012 senior notes.

This will reduce our debt by approximately $66 million, and eliminate all debt maturities until October 2014.

A debt redemption charge of approximately $4.5 million will be recorded in the fourth quarter of 2011, and annual interest expense will decline by approximately $5 million.

After this transaction is complete, long-term debt will be reduced to about $379 million.

At that point, our long-term debt will be about 45% of what it was at September 30, 2010.

And we will have achieved roughly 73% of our 3-year debt reduction goal.

Please turn to Page 23 for an update on our pension funding expectations.

As we've noted before, there is no cash funding requirement for the US Qualified Defined Benefit Pension Plan in 2011.

We contributed $64 million in cash, principally to our international pension plan during the first 9 months of 2011.

For the full-year, we continue to anticipate contributing approximately $115 million of cash to these pension plans.

In the US, our 2012 cash funding requirement will be determined at year-end and are dependent on asset returns and the interest rate environment at that time.

In prior quarters, we estimated the 2012 cash funding for the US Qualified Defined Benefit Plan of $100 million.

Based on movements in the capital markets, particularly the interest rate decline, our current estimate for the US Qualified Defined Benefit Pension Plan cash funding in 2012 is between $100 million and $140 million.

These estimates are subject to change and depend on our asset returns in the fourth quarter of 2011 and the year-end interest rate.

As usual, we will provide an estimate of our 2012 GAAP pension expense and cash funding requirement during our 2011 year-end earnings call.

In closing, this was a good quarter with continued progress against our revenue, profitability and cash flow targets.

We remain focused on making quarter-by-quarter progress towards achieving our 3-year financial goals.

Thank you for your time, and now I'd like to turn the call back over to Ed.

Thank you, Janet.

Operator, if we may, we'd like to open the call up to questions.

(Operator Instructions) Frank Jarman, Goldman Sachs.

Congrats on the quarter.

I really just had 1 question with regards to the balance sheet and your debt reduction target.

As you noted in your prepared comments, you're getting closer to achieving your goal of the 75% debt reduction.

Given the strength of your free cash flow that we've seen so far, and still a relatively strong cash position, would you guys consider going beyond that 75% target?

I think pretty much all of your debt can be taken out at some point next year either through call provisions.

Would you consider running the Business on a debt-free basis at some point down the road?

Our goal remains the 75% debt reduction from the September 30 2010 level.

That is our goal.

We still have a bit more to go and we'll accomplish that by the end of 2013.

And that is our stated goal and our stated plan.

Okay, great.

Once we had that, we will evaluate whether we want to do more.

Okay.

Thank you.

Ned Davis, Wm Smith and Company.

Great quarter.

I just wanted to ask 2 things.

First of all, a more general question about the operating margins on the Services side, I know you've haven't given specific guidance except for range, out in the future.

And, I'm wondering, maybe you could give us a little bit of color on what kind of the gates are to further margin improvement?

You had a pretty strong revenue quarter, you picked up I think 70 basis points, but what does it take to get up close to the double-digit, top-end of that range?

And my other question, I will come back to on the balance sheet.

Thanks, Ned.

As you know, our goal has been to get in the 8% to 10% Services operating margin range and do that consistently and predictably.

So, we've hit it a few times, we hit it this quarter, we continue to have work to do to make sure that we can do that both consistently and predictably.

The key to continuing to improve it is certainly cost consciousness but we need to keep revenue growth in the Services lines coming.

How much was the FedEx impact on -- if you just look at the non-government services business on its own?

You may have disclosed it but I was a little bit confused about the numbers.

How much was the FedEx -- the currency impact on the revenue growth in, year-over-year?

The current -- the foreign exchange impact on revenue was almost 6%.

So, we had overall Company revenue growth of 6%, we had foreign currency benefit of slightly under 6%.

So, on a constant currency basis, we were slightly up.

Okay.

And then, finally, with regard to -- I'm trying to reconcile the free cash flow figure against the very strong EBITDA performance.

And, I'm sure when I have a chance to study this in more detail, I can figure it out.

But, how much was the pension funding impact on free cash flow as opposed to EBITDA?

Right.

So the pension funding payment in the quarter, I have given the number for the full-year, the pensions, which I referred to as the $63.6 million, we funded approximately $21 million in the third quarter of this year.

Okay.

Was there any -- go ahead.

That compares with a pension expense of $8.5 million in the quarter.

Roughly $9 million.

Okay.

So, if one tries to reconcile the free cash flow as opposed to the EBITDA, what's the net impact comparatively of the pension funding?

On the differentiation between free cash flow in EBITDA?

So, it's roughly -- the defined contributions were $21 million, the DB pension expense was $9 million, so an $11 million delta.

Okay.

All right.

Thank you very much.

James Freidman, FIG.

My first question was with regard to the Services margin.

Maybe best directed towards Ed.

Could you give us a sense of what the pricing environment might be and how improved utilization may be up accelerating the Services margin toward the middle to high-end of the guidance?

I think, it continues to be, Jamie, an awfully competitive marketplace out there.

So, the margin improvement that we saw was somewhat driven by revenue.

But also driven by the fact, as we noted, we did better in our industry solutions portion of our Services business this particular quarter.

And when we include Unisys IP in our Services engagements, it tends to drive more profitable engagements.

That was helpful this quarter as well.

Okay.

And then, just so, for housekeeping question, my recollection is you have a little bit of TSA left.

If that's incorrect, I apologize.

But, Janet, maybe if you could update us.

Isn't there a month left in the year-over-year comparison?

Yes, there is and it's about $2 million in the fourth quarter.

I'm sorry, $22 million in the fourth quarter.

The contract expired November 30 of 2010.

And we showed that on -- if you look on the chart that's in the presentation material, the Company presentation materials you can see the fourth quarter amount.

Okay and then the last thing, Janet, just so I understand, again, I apologize for this, but are you redeeming the 2012 callable debt as well?

Or is it just that the other traunch that remain?

No, we are redeeming -- the only maturity that we have in 2012, the 8% senior note.

We are calling the entire remaining balance of those up for redemption.

Okay.

And that's where you get -- was it a couple $4 million early redemption expense?

Right.

It is -- the call premium is consistent with the debt indentures.

The may-call premium is based of the 1-year treasury rate and has a plus 50 bits on top of that.

We will provide notice to the bondholders tomorrow through DTC and we expect that it would close on Friday, November 25.

That would cause us to have a $4.5 million charge in the quarter for that early redemption and obviously, we save more than that on the interest savings, the combination of the remainder of the month of December essentially, and all of 2012 to the maturity.

Okay.

All right.

Thanks for explaining that.

Good job.

Thank you.

Chris McDonald, Kennedy Capital.

On ClearPath, just with the framework of being flat year-over-year, I'm doing the math correctly, that looks like it implies a fairly significant sequential increase in revenue for ClearPath in Q4.

Am I thinking about that currently?

And is that just kind of the typical seasonality you would expect?

Right, Chris.

We do have the typical seasonality in the fourth quarter.

We -- looking at that business to keep it flat we're essentially flat through the third quarter and that would imply a similar type of quarter as the fourth quarter of last year.

Okay.

And then, would there be any reason to think that the typical leverage on higher revenue that the Company normally delivers in that business, I think the segment margins were above 30% in Technology in Q4 of 2010.

Is there any -- without being specific as to the margin is there anything that would cause the typical leverage to be stronger, weaker, anything in the current environment?

No, Chris, the cost in that business have a fair amount of fixed costs that are spread across the year.

And as we've talked about from before we believe this is a business that's best measured on an annual basis and looking at those margins on an annual basis, that would imply that with higher revenue in the fourth quarter, the margins will come down at a higher rate given the amount of fixed costs in that business.

Great.

And just 1 last 1.

Relative to debt, just refresh my memory on -- to my recollection that some of the higher cost debt is indeed callable in 2012.

I think there was a portion that was earlier in the year and some that was potentially callable later in the year, am I thinking about that right, Janet?

That's right.

All of our debt provisions, all of our remaining debt is eligible to be called in 2012.

Obviously, at different dates.

The senior secured debt -- the 12.75% and 14.25% senior secured debt have different call provisions around September 15 of 2012 and October 15 of 2012.

And then the 2016, which will be the last piece that's remaining, have an early call date of January 15, 2012.

A provision to be eligible to be called on January 15, 2012.

Okay and those are the 12.5% that can be called as early as January?

That's correct.

Okay, great

The 2016 maturity.

Okay.

Very good.

Thanks for answering my questions and nice results.

It appears there are no further questions at this time.

Mr.

Coleman, I'd like to turn the conference back to you for any additional or closing remarks.

Great, thank you, operator.

And thank you all for attending the call this afternoon.

As I said, it was a good quarter, the third quarter, but we recognize that we have more work to do, to continue to advance.

And that's what we aim to do.

So we look forward to speaking with you again at the end of the next quarter.

Thank you very much.

That concludes today's conference, thank you for your participation.