Unisys Q3 Earnings Call Highlights

Key Points

• Unisys raised its full-year revenue outlook after Q3 revenue of $472 million and adjusted operating profit exceeded expectations. It now expects constant-currency revenue to decline 1.5% to 3%, versus its prior forecast of a 3.5% to 5% decline.
• New work with existing customers helped offset client attrition: quarterly contract value rose 43% to $594 million, and backlog increased 3% year over year to $2.92 billion. Management said the timing of sustained growth partly depends on closing new deals in Q4.
• Adjusted operating margin improved to 7.2% from 5.4% a year earlier, but Digital Workplace gross margin fell to 9.5% from 16.2%. Unisys maintained its full-year margin and free-cash-flow forecasts; Q3 free cash flow was negative $58 million.

Unisys NYSE: UIS raised its full-year revenue outlook after third-quarter sales and adjusted operating profit exceeded its expectations, as new work with existing customers helped offset the impact of earlier client losses.

The technology services company reported third-quarter revenue of $472 million, up 2.5% from a year earlier, or 0.6% in constant currency. Revenue was more than $20 million above the outlook management provided in July, Chief Financial Officer Deb McCann said on the earnings call.

Unisys now expects full-year revenue to decline 1.5% to 3% in constant currency, compared with its prior forecast for a decline of 3.5% to 5%. The company maintained its forecast for a non-GAAP operating profit margin of 9% to 11% and free cash flow of approximately negative $25 million.

New Business Offsets Client Attrition

Technology Solutions and Services, or TS&S, revenue rose 2.6% to $387 million, or 0.9% in constant currency. The result exceeded the company’s approximately $370 million expectation, with new business from existing clients partially offset by lower volumes tied to previously identified client attrition.

Total contract value signed in the quarter was $594 million, up 43% year over year. New business accounted for $221 million, an increase of 78%, while TS&S renewal contract value rose 20% to $275 million. Backlog ended the quarter at $2.92 billion, up 3% from a year earlier.

CEO and President Mike Thomson said the company has largely worked through a renewal cycle in which artificial intelligence-related efficiencies put pressure on pricing for the same scope of work. In many cases, customers added services or geographic coverage, helping offset that pressure, he said.

Thomson said the effects of past client losses are expected to begin lapping in the second half of 2027. He also said the timing of sustained TS&S growth will depend partly on closing new deals in the fourth quarter.

Among recent customer agreements, Thomson highlighted a global service desk contract with Heineken and renewals with a U.S. state agency, a U.S. defense contractor and a global bank in Mexico. He also said the qualified new business pipeline grew sequentially for a third consecutive quarter.

Profit Improves, but Workplace Margins Remain Under Pressure

Third-quarter non-GAAP operating profit was $34 million, representing a 7.2% margin, up from 5.4% a year earlier and above the approximately 4% margin Unisys had forecast. McCann attributed the outperformance in part to higher ClearPath margins.

On a GAAP basis, operating profit was $24 million, compared with a $34 million loss a year earlier that included a $55 million non-cash goodwill impairment charge. The company reported a net loss of $201 million, or $2.76 per diluted share, including a $151 million after-tax non-cash pension settlement expense. Adjusted net loss was $8.5 million, or 12 cents per share.

Digital Workplace Solutions revenue rose 1.7% in constant currency to $130 million, but its gross margin fell to 9.5% from 16.2%. McCann cited client attrition, a greater hardware contribution and costs associated with transitioning a large new client.

Thomson said he could not quantify the separate effects of those factors, but characterized hardware mix and intentional investment as the larger portion of the margin pressure. He said new workplace business signed in the quarter was expected to be margin accretive.

ClearPath Renewals and Cash Flow

ClearPath revenue was $84 million in the third quarter, above the approximately $80 million management had expected. Unisys reaffirmed its forecast for approximately $425 million in ClearPath revenue for 2026 and an average of approximately $400 million annually in 2027 and 2028.

The revised outlook implies fourth-quarter company revenue of approximately $570 million, including about $205 million from ClearPath. Thomson said he had a high degree of confidence in the expected renewals, many of which are tied to calendar year-end.

Cash collection timing remains a consideration. McCann said the full-year free cash flow forecast assumes most cash from those signings arrives in the fourth quarter, although late renewals could shift collections into early 2027. Third-quarter free cash flow was negative $58 million, compared with positive $20 million a year earlier, when the company received a one-time $25 million legal settlement.

Unisys ended September with $264 million in cash, down from $414 million at year-end. Its $125 million asset-based revolver remained undrawn, and the company has no meaningful debt maturities before 2031, McCann said.

Pension Reduction Efforts Continue

During the quarter, Unisys purchased an annuity that transferred approximately $200 million of projected U.S. defined-benefit pension liabilities and a similar amount of plan assets to an insurer. McCann said the transaction did not materially affect the pension deficit or use company cash, but reduced gross liabilities and ongoing maintenance costs.

The company has reduced approximately $520 million of U.S. qualified plan liabilities since July 2025 toward a roughly $600 million target, McCann said. Unisys expects another transaction in the first half of 2027 to substantially achieve that objective and said it could be positioned to fully remove its U.S. defined-benefit plans in the next three to four years, subject to continued operational and financial execution.

About Unisys (NYSE:UIS)

Unisys Corporation NYSE: UIS is a global information technology services and solutions company that helps organizations modernize and manage their technology environments. Its offerings include cloud services, infrastructure modernization, cybersecurity, digital workplace solutions, application services and business process services.

The company serves commercial businesses, governments and other public-sector organizations across North America, Europe, the Asia-Pacific region and Latin America.

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