Third Quarter 2026 Earnings - UNISYS CORP

Explicit Guidance:

• Full-Year 2026 Revenue: Raised to a decline of 3% to 1.5% in constant currency (previously negative 5% to positive 3.5%); implies a reported decline of negative 0.4% to positive 1.1% based on September 30 FX rates.
• TSNS Revenue (Full-Year 2026): Guided to a decline of 3% to 1% in constant currency.
• ClearPath Revenue (Full-Year 2026): Reaffirmed at approximately $425 million.
• ClearPath Revenue (2027–2028): Expected average annual revenue of approximately $400 million.
• Full-Year 2026 Non-GAAP Operating Margin: Reiterated at 9% to 11% (implying Q4 margins in the mid-to-high teens due to ClearPath concentration).
• Full-Year 2026 Free Cash Flow: Maintained at approximately negative $25 million.
• 2026 Q4 Revenue Implied: Approximately $570 million (including ~$205 million ClearPath revenue).
• 2026 Capital Expenditures: Estimated at approximately $85 million.
• 2026 Cash Taxes: Estimated at approximately $70 million.
• 2026 Net Interest Payments: Estimated at approximately $70 million.
• 2026 Pension Contributions: Estimated total of $97 million ($9 million in Q4).
• 2027–2029 Pension Contributions: Aggregated cash contributions estimated to remain essentially unchanged from year-end projections.
• 2026 Profit/FCC Flow Drivers: Includes ~$45 million in aggregate legal, environmental, and restructuring payments.

Business-Segment Outlook:

• TSNS Renewals: Expect ~$600 million in renewals in 2026 (following ~$1.4 billion in 2025), totaling ~$2 billion across 2025–2026, completing the majority of the current contracted base.
• TSNS Growth Inflection: Anticipated in the back half of 2027 as historical client attrition "laps" and the business operates on a refreshed renewal base; growth expected to be "above market" absent these headwinds.
• DWS (Digital Workplace Solutions): New business TCV surged 183% year-over-year in Q3; margin profile expected to improve as low-margin hardware mix is offset by higher-margin service components and run-rate maturity (12–18 months post-contract start).
• CA&I (Cloud Applications & Infrastructure): Margin improvement expected to continue; backlog up double digits.
• ClearPath: Renewal visibility described as "extremely high" with near 100% confidence; majority of deals sign in Q4, often with cash collection in Q1 2027 if signed late in December.
• Backlog: Total backlog of $2.92 billion (up 3% YoY); TSNS book-to-bill at 1.3x; Total company book-to-bill at 1.2x.
• New Business Pipeline: Sequentially growing for three consecutive quarters; strongest in Public Sector, Financial Services, and Travel/Transportation.

Market and Competitive Outlook:

• Demand Dynamics: Demand strongest in mission-critical/regulatory sectors (data center field services, identity, state revenue systems) where spend cannot be deferred; discretionary project work remains scrutinized.
• AI Impact on Pricing: Historical pricing headwinds from AI-driven deflation on same-scope renewals largely resolved; new business building on a "refreshed base" with better visibility.
• Hardware Mix: Client budgets continue to steer toward Device Lifecycle Management (DLM) due to memory/hardware costs; DLM serves as an entry point to higher-value managed services.
• Competition: Win rates on follow-on work with existing clients remain above historical levels; positioning as "trusted advisor" driving competitive wins in defense and banking.
• Data Center Field Services: Growing focus area; opportunity driven by infrastructure build-out requiring skilled expertise for installation, cooling, and maintenance.

Macro / Industry Outlook:

• Interest Rates: Elevated rates primarily impact client CapEx for discretionary projects; core managed services revenue (non-discretionary) largely insulated.
• Pension Sensitivity: U.S. pension contributions volatility reduced significantly via fixed income allocation; interest rate changes have minimal impact on contribution forecasts.
• FX Rates: Q4 2026 reported revenue guidance assumes September 30 FX rates; timing of ClearPath renewals in late Q4 could shift cash collections into Q1 2027.
• Regulatory/Political Environment: Viewed as agnostic to election outcomes; data center build shifts geographically based on state-level perception, but global footprint allows flexibility.
• Supply Chain: Focus on "digital sovereignty" and resiliency reinforcing demand for ClearPath ecosystem.

Strategic Initiatives:

• AI Integration: Expanding "agentic AI" capabilities (autonomous workflow, model routing) and "Genetic" service desk; moving from capability to client outcomes with reusable assets.
• ClearPath Ecosystem: Positioning as a "data backbone for AI" at the AB Suite layer; ePortal 13 reaches general availability in November 2026; expecting growth in MIPS and workloads.
• Partnerships: August 2026 partnership with Refroid Technologies for data center cooling (direct-to-chip, immersion) and lifecycle support; integration of Microsoft Security Copilot for managed detection and response.
• Pension Removal: Completed annuity purchase transferring ~$200 million in liabilities; ~$520 million reduced from target $600 million; additional transaction expected in H1 2027 to substantially achieve objective.
• Workforce Strategy: Upskilling service desk teams from Level 1 to knowledge-based roles; trailing 12-month attrition at 11.9%.
• Go-to-Market: Shifting to "rapid value assessments" and partner-influenced pipeline; focusing on clients' preferred technology ecosystems to avoid proprietary tool constraints.

Risks and Headwinds to Outlook:

• Client Attrition: Historical client losses creating a drag on revenue growth until they "lap" in the back half of 2027.
• Cash Flow Timing: Risk of ClearPath renewal signing occurring late in Q4, pushing cash collections into Q1 2027, potentially impacting Q4 liquidity metrics.
• Discretionary Spend: Potential tightening of client budgets on non-essential CapEx projects due to interest rates.
• Margin Pressure (Short-term): DWS margins temporarily depressed by hardware mix, client attrition runoff, and intentional investments in transitioning new logos and AI deployment.
• Pension Volatility: Changes in funding regulations or actuarial assumptions could alter 2027–2029 contribution estimates (though currently mitigated).

Management Tone on the Future:

• Confidence Level: "Pleased" with results; confident in the trajectory of backlog and new business TCV.
• Strategic Clarity: "Clear path back to growth" as the renewal cycle completes and the "reset" from AI is finished.
• Hedges: Management notes that Q4 closing and the timing of specific deal signings will determine final FY26 inflection points; explicitly states "if not for that [attrition], we'd be growing above market this year."
• Forward Outlook: Optimistic on the "Land and Expand" strategy and the structural shift in IT services delivery driven by AI.

Miscellaneous:

• Liquidity: Cash balance $264M as of September 30; $125M asset-based revolver undrawn; no meaningful debt maturities before 2031.
• Pension Deficit: Improved by ~$30–40 million from year-end 2025 to ~$450 million as of September 30; net leverage ratio 3.2x.
• AI Capabilities: "Model agnostic" approach; steering clients toward open-weight models for IP protection and frontier models for complex problems.
• Recognition: Named leader in Nelson Hall (AI-enabled cloud), ISG (Future of Work), Everest Group (Digital Workplace), and Avasant (Future Proofing).