Executive Summary / Key Takeaways

• Unisys Corporation is executing a strategic transformation, leveraging its foundational ClearPath Forward platform and new AI-driven solutions to drive profitable growth and enhance free cash flow, while systematically de-risking its significant U.S. pension liabilities.
• The company's core technological differentiators, including its highly secure ClearPath Forward operating system and AI-powered Service Experience Accelerator, provide tangible operational benefits and competitive advantages, underpinning its strategy to deliver higher-value offerings.
• Despite macroeconomic headwinds causing client delays and a goodwill impairment in Q3 2025, Unisys is on track to meet or exceed its improved non-GAAP operating profit margin guidance of 8% to 9% for 2025, projecting approximately $110 million in pre-pension free cash flow.
• A significant financial de-risking of U.S. pension obligations, including a $250 million discretionary contribution and a $320 million annuity purchase in 2025, has substantially reduced contribution volatility and provides a clearer path to full liability removal.
• Unisys is strategically expanding its market presence, particularly in the mid-sized enterprise segment, by focusing on personalized service and technology-led delivery models that challenge the scale advantage of larger competitors.

A Legacy Reimagined: Unisys's Strategic Evolution and Core Strengths

Unisys Corporation, founded in 1873 and headquartered in Blue Bell, Pennsylvania, has a long history of adapting its offerings to evolving market demands. The company is currently undergoing a significant strategic transformation, moving beyond a traditional IT services model to focus on higher-value, technology-led solutions. This evolution is designed to drive profitable growth, enhance cash flow, and systematically address its pension obligations. Unisys operates across three core segments: Digital Workplace Solutions (DWS), Cloud, Applications & Infrastructure Solutions (CA&I), and Enterprise Computing Solutions (ECS).

The company's overarching strategy centers on optimizing delivery through technological innovation, improving cash conversion efficiency, and expanding its solution portfolio within its client base and to prospective clients. A key organizational realignment in January 2025 centralized application development and modernization capabilities within CA&I, creating a unified "application factory" aimed at enhancing cross-selling, standardizing development, and fostering innovation. This move positions Unisys to pursue larger engagements in the fast-growing application arena.

Technological Edge: Powering Performance and Security

At the heart of Unisys's differentiation lies its proprietary technology, particularly the ClearPath Forward (L&S) platform and its burgeoning suite of AI-driven solutions. The ClearPath Forward operating system is a cornerstone, offering a secure and scalable environment for high-intensity enterprise computing. Management asserts it is the "most secure operating system on the planet" according to NIST, providing a critical advantage in an era of heightened cybersecurity threats. This platform consistently generates high-margin revenue, with L&S gross margins typically around 70%. The ClearPath Forward 2050 strategy focuses on evolving this ecosystem, enhancing speed, security, and resilience, and crucially, unlocking valuable data residing on these platforms for modern analytics. Recent updates in Q3 2025 expanded cloud compatibility and introduced significant post-quantum cryptography (PQC) security algorithm enhancements. Unisys also launched its first PQC solution in Q1 2025, a cryptographic posture assessment, to help organizations prepare for future quantum threats.

Unisys is heavily investing in AI-driven productivity solutions and technology-led delivery models, which allow it to offer higher-value services at competitive price points while reducing delivery costs. The Service Experience Accelerator (SEA), a technology framework for its next-generation service desk, harnesses generative and agentic AI, service data, analytics, and intelligent workflow automation. Early client adopters of SEA have seen approximately 40% deflections from human support to automated support, a 28% increase in user engagement, and a 24% decrease in abandonment on average. Furthermore, SEA's knowledge management capabilities identify gaps in about 10% of support tickets, addressing them with automated content generation. In field services, Unisys is leveraging Salesforce's (CRM) agent force technology, which uses Agentic AI to automate scheduling and optimize dispatch efficiency. These AI applications are designed to scale delivery and mitigate the size advantage historically held by larger competitors.

Competitive Landscape and Strategic Positioning

Unisys operates in a highly competitive IT services market, contending with industry giants such as IBM (IBM), Accenture (ACN), Hewlett Packard Enterprise (HPE) (HPE), and Dell Technologies (DELL). While these larger players offer broad portfolios and extensive global reach, Unisys carves out a specialized niche, particularly in secure, industry-focused solutions.

Unisys's proprietary technologies, like Unisys Stealth for micro-segmented access and its ClearPath Forward platform, provide distinct competitive advantages, fostering customer loyalty and enabling strong pricing power in secure environments. This technological differentiation allows Unisys to deliver notably better performance in targeted security and high-intensity computing, exploiting potential weaknesses of broader competitors in niche implementations. For instance, Unisys's focus on secure application migration with solutions like CloudForte offers greater efficiency in user experiences compared to HPE's hardware-centric approach.

However, Unisys's smaller scale compared to its larger rivals can lead to higher operating costs and weaker brand recognition, potentially impacting its overall financial performance and market share. The company is strategically addressing this by targeting the mid-sized enterprise market (companies with $1 billion to $5 billion in annual revenue), which it views as a relatively untapped opportunity for its DWS and CA&I solutions. These clients often value personalized service, which larger providers may not offer, and have less organizational complexity, allowing for quicker relationship establishment. Unisys's AI-driven delivery models are crucial in shrinking the size advantage of larger competitors, making it easier to penetrate this market with differentiated solutions.

Recent partnerships, such as becoming an authorized Apple (AAPL) product reseller and achieving Titanium Partner status with Dell, further enhance Unisys's market access and solution breadth. The company is also actively exploring technology partners for private AI clouds, aiming to offer cost-effective alternatives to expensive public cloud AI workloads for mid-market clients.

Financial Performance and Liquidity: A Path to Stability

Unisys's recent financial performance reflects both the ongoing strategic transformation and the impact of a challenging macroeconomic environment. For the three months ended September 30, 2025, the company reported a net loss attributable to Unisys Corporation of $308.90 million, or $4.33 per diluted share, significantly wider than the $61.90 million loss, or $0.89 per diluted share, in the prior-year period. This loss was primarily driven by a substantial U.S. pension plan settlement loss of $227.70 million and a goodwill impairment charge of $55 million related to the DWS segment.

Revenue for Q3 2025 declined by 7.4% year-over-year to $460.20 million, or 9% in constant currency. This decrease was largely attributed to the timing of software license renewals in the L&S segment, which saw a 20.6% decline to $83 million. Ex-L&S revenue also decreased by 3.9% to $377.20 million, primarily due to lower client volumes in DWS and CA&I. Despite the revenue decline, the Ex-L&S gross profit margin improved to 18.6% in Q3 2025, up 70 basis points year-over-year, reflecting lower cost reduction charges and incremental gains in delivery efficiency. Selling, general and administrative (SG&A) expenses saw a slight year-over-year decline to $90.90 million, demonstrating ongoing efforts to streamline corporate functions.

Liquidity remains a key focus. As of September 30, 2025, cash and cash equivalents stood at $321.90 million. However, cash used for operations during the nine months ended September 30, 2025, was $244.90 million, a significant shift from the $58.50 million provided by operations in the prior-year period. This was primarily due to substantial cash contributions to the company's defined benefit pension plans. In June 2025, Unisys issued $700 million in 10.62% Senior Secured Notes due 2031, using the proceeds to refinance existing debt and make a $250 million discretionary contribution to its U.S. pension plans. This was followed by an annuity purchase in September 2025, transferring approximately $320 million of U.S. pension liabilities to a third-party insurer, a strategic move to reduce market volatility from contributions and accelerate full pension removal. Total debt increased to $734.90 million as of September 30, 2025, from $493.20 million at year-end 2024. The company's net leverage ratio, including all pension obligations, was 3.7x, and 1.8x excluding pension deficit.

Outlook and Strategic Initiatives

Unisys has provided a clear outlook for the remainder of 2025 and beyond, emphasizing continued operational improvements and strategic growth. For the full year 2025, the company expects constant currency revenue growth to be in the range of negative 4% to negative 3%, translating to a reported revenue decline of 3.6% to 2.6%. This revised outlook reflects some timing shifts in revenue recognition and persistent macroeconomic headwinds. However, Unisys reiterates its non-GAAP operating profit margin guidance of 8% to 9%, expecting to achieve at or above the midpoint, and projects approximately $110 million in pre-pension free cash flow for the full year. This profitability is driven by the strength of its L&S business and ongoing efficiency gains in Ex-L&S delivery.

The company anticipates strong performance in its L&S segment, with expectations of approximately $430 million in L&S revenue for 2025, and an average annual L&S revenue of approximately $400 million for the years 2026 through 2028. This consistent performance is attributed to strong client retention and increased consumption of its high-value software ecosystem. For the fourth quarter of 2025, Unisys projects approximately $570 million in revenue, with L&S revenue contributing $185 million to $190 million, leading to a mid-teens non-GAAP operating margin.

Unisys's strategic initiatives are focused on enhancing its AI-driven portfolio, expanding its application factory, and deepening its industry expertise. The company is actively pursuing new business opportunities, particularly in the mid-market, where its differentiated solutions and personalized service resonate with clients. Recent wins include a DWS renewal with a global industrial manufacturing client, an CA&I expansion deal with a public sector client in Australia, and a new logo win for its modern core banking solution in Latin America.

Key Risks and Challenges

Despite the strategic progress, Unisys faces several risks. The goodwill impairment of $55 million in the DWS segment in Q3 2025 highlights the impact of slower client signings and industry dynamics. Further impairments could negatively affect future results. Macroeconomic and geopolitical uncertainty continues to cause clients to delay project initiation and slow the pace of new business transitions, impacting revenue growth. The U.S. government shutdown has specifically led to a pause in project work within the public sector, particularly affecting the CA&I segment.

Competitive pricing pressure remains a challenge, with some competitors undercutting prices based on aggressive assumptions for AI-related efficiencies. Unisys maintains a disciplined approach, prioritizing profit dollars and cash flow over revenue at any cost. While significant steps have been taken to de-risk pension liabilities, future pension volatility could still arise from material deterioration in plan assets or changes in legislation, potentially leading to non-cash settlement losses from future annuity purchases. Lastly, the cessation of foreign currency forward contracts in Q3 2025 may increase P&L FX volatility, impacting GAAP net income.

Conclusion

Unisys Corporation is in a pivotal phase of its transformation, strategically leveraging its deep expertise in secure enterprise computing and rapidly expanding its AI-driven solutions. The company's commitment to operational efficiency, coupled with the consistent strength of its high-margin ClearPath Forward business, is enabling it to deliver on profitability and cash flow objectives despite a challenging external environment. The proactive de-risking of its U.S. pension liabilities further strengthens its financial foundation, providing greater certainty for future capital allocation.

While macroeconomic headwinds and competitive pressures present ongoing challenges, Unisys's focused investment in technological differentiation, particularly in AI and cybersecurity, and its strategic pursuit of the mid-market segment, position it for improved growth and sustained profitability. Investors should monitor the company's ability to convert its robust pipeline into revenue, the continued adoption of its AI-led solutions, and its disciplined approach to managing costs and competitive dynamics, as these factors will be critical to realizing the full potential of its strategic transformation.