UIS earnings call analysis

NYSE:UIS Q4 2025 Earnings Call Transcript Generated on 6/6/2026 Operator: Good morning and welcome to the Unisys Corporation fourth quarter and full year 2025 financial results conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touch-tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Michaela Paworski, Vice President of Investor Relations. Please go ahead. Michaela Paworski | Vice President of Investor Relations: Thank you, Operator. Good morning, everyone. Thank you for joining us. Yesterday afternoon, Unisys released its fourth quarter and full year 2025 financial results. Joining me to discuss those results are Mike Thompson, our CEO and President, and Deb McCann, our CFO. As a reminder, today's call contains estimates and other forward-looking statements within the meaning of the securities laws. We caution listeners that these statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed on this call. These items can be found in the forward-looking statement section of yesterday's earnings release furnished on Form 8K, and in our most recent Form 10-K and 10-Q filed with the SEC. We do not assume any obligation to review or revise any forward-looking statements in light of future events. We will also refer to certain non-GAAP financial measures, such as non-GAAP operating profit, that exclude certain unusual or non-recurring items, such as post-retirement expense, cost reduction activities, and other expenses that the company believes are not indicative of its ongoing operations. While we believe these measures provide a more complete understanding of our financial performance, they are not intended to be a substitute for GAAP. Reconciliation for non-GAAP measures are provided in the slides for today's call, which are available on our investor website. With that, I'd like to turn the call over to Mike. Mike Thompson | CEO and President: Thank you, Michaela. Good morning, and thank you for joining us to discuss the company's fourth quarter and full year 2025 financial results. I want to start off with three clear messages that we hope you take away today. First, we continue to execute against a consistent operating strategy, which is yielding improved profitability and free cash flow as we continue to advance our pension removal strategy. Second, the market perception of Unisys and our solution continues to advance among our clients, prospects, partners, and industry analysts. And third, which relates to a subject I know that's top of mind for everyone, we believe artificial intelligence is poised to become a powerful driver of long-term demand in the solutions that are core to Unisys as a designer, orchestrator, and enabler of modern IT ecosystems. Before discussing AI, I want to discuss my first message of how consistent execution of our strategy is translating into financial results. Fourth quarter revenue grew 5% year over year, resulting in a slight improvement in our full year revenue projections coming in above our revised midpoint. Our non-GAAP operating margin was 18% in the quarter and 9.1% for the year, exceeding the top end of our upwardly revised projections and representing 30 basis points of annual improvement. We had a high degree of confidence in achieving the fourth quarter weighting of our license and support revenue, and we met those expectations. Full-year L&S revenue exceeded our original expectations by nearly $40 million, making this the third consecutive year of substantial upside in our highest margin profit center. Our actions to streamline corporate cost reduced SG&A as a percent of revenue by nearly 300 basis points over the past three years. We generated $128 million of full-year pre-pension free cash flow in 2025, up 55% from the prior year and above the $110 million we expected. We have strong liquidity with over $400 million of cash on the balance sheet at year-end, up almost $40 million year-over-year. We increased our year-end cash balance while net leverage, including pension, has improved to 2.8 times compared to 3.0 times at the end of 2024. Our liquidity also improved despite using $50 million of cash as part of a discretionary contribution to our U.S. pensions. Our total contributions have reduced our global pension deficit by $300 million to $450 million at year-end, and lowered future expected contributions by more than the interest on the incremental debt we raised, improving near-term cash flows. We also executed another annuity purchase, which removed approximately $320 million of gross U.S.-defined benefit pension liabilities in 2025. This, coupled with our liability duration matching strategy, which has successfully removed substantially all market volatility from the total future contributions keeps us on a fixed path for full removal of the U.S. defined benefit pension plan. I want to shift to my second message, which is that awareness and perception of Unisys and our solutions continues to advance. We're seeing this evidence by our wins and our pipeline. 2025 was an especially large renewal year, and our team successfully signed $1.7 billion of renewal TCB, securing a large portion of our recurring revenue base. Over a billion dollars of renewal TCB was signed in the fourth quarter alone, which included closing a three-year extension and improved economics with our largest DWS client, who has been with us for nearly three decades. This field services renewal spans US, Canada, and Latin America, and secures the necessary scale for us to provide affordable field services across our client base. Multi-year renewals can be a catalyst for expansion within client account by integrating new solutions that support enhanced client centricity and improved overall margin profile. We capitalized on these opportunities in the fourth quarter, which was our largest quarter of new scope signings in recent years. Almost all of our largest renewals during the quarter included new scope, evidencing improved perception within our existing client base. For example, during the quarter, we signed a five-year renewal with one of the largest public university systems in the United States for cloud transformation, migration, and modernization services and expanded scope to include centralized application management across campuses, and a center of excellence that will leverage AI agents to standardize and modernize application management, streamlining processes for both students and staff. As we discussed last quarter, we've seen some competitors price aggressively to prioritize revenue over profitability and delivery quality. While that contributed to a few significant renewal losses and presents several hundred basis points of growth headwinds for 2026, We're confident our investments in our core areas of our portfolio will continue to drive market and wallet share gains and will both reduce client costs and extend the scope of our delivery for our clients. In our wins and pipeline, we're seeing more instances of clients placing increased value on delivery quality and viewing it as a real differentiator. For example, in the fourth quarter, we won back a public sector client in Australia with a large scope for DWS solutions after they experienced a decline in delivery quality with one of our competitors. This win sets a powerful new foundation for our business in the region and provides a global playbook for showcasing delivery differentiation. We also added several new logo opportunities to our DWS and CA&I pipeline from chief information officers who moved to new organization and engaged us immediately to participate in their transformations because they know we're a true partner with all the necessary skills to modernize and reliably manage complex IT ecosystems post-transformation. We're also achieving new heights in recognition and awareness among industry analysts that influence client decisions when selecting IT solution providers. During 2025, we build upon several years of advancing awareness and recognition within the analyst community, Again, increasing our total report placements by over 20%, including two new leader recognitions. In the fourth quarter, we received a very significant recognition from Gartner, which elevates Unisys to a global leader position in their outsourced digital workplace services Magic Quadrant for the first time. Magic Quadrant reports are the culmination of rigorous fact-based research evaluating completeness of vision, an ability to execute and provide a wide-range view of the relative position of providers. In addition, in its companion critical capabilities for outsourced digital workplace services report, Gartner ranked Unisys as the number one overall provider for the North American market and the number one global provider for both service desk and device management capabilities. This acknowledgement is already helping us access more opportunities, giving us an edge, especially relative to the three of our largest competitors that fell out of the leader quadrant. Unisys was also named the Forbes list of America's best midsize employers in 2026, which comes on the heels of being named Time Magazine's world's best companies in 2025. Our culture is reflected in our below-average voluntary attrition, which was 11.4% for the year. As we look to the future, I want to discuss why we view AI as a powerful long-term driver of demand for our solutions and how we've invested in solution development and delivery skills to capitalize on it. As I said earlier, Unisys ultimately develops, enables, and orchestrates the IT ecosystem. In all three of our segments, we provide solutions that enable emerging technology throughout the enterprise and are agnostic to the placement of AI, software, or hardware that make up our clients' environment. As the industry heads into a major multi-year AI infrastructure build-out to supply the technology needed for broad AI adoption, there's a growing shortage of skilled technicians and that will provide the design and service layer for modernization and postmodernization support. Importantly, demand for services will grow regardless of whether clients develop custom AI agents on private infrastructure, leverage standard capabilities from software providers and hyperscalers within private or public clouds, or a combination of both within hybrid environments. For us, the scale and reach of AI goes beyond the software and extends to physical AI, The scale and skills of our field service organizations present a unique market opportunity for us. We're already beginning to support private AI builds for OEM partners, requiring liquid cooling skills, complementing the work we already do in maintaining critical hybrid infrastructure, such as servers and storage and data centers, or IoT devices in everything from conference rooms to restaurants. We will also continue expanding services our existing use of agentic AI and expect AI agents to continue to be layered throughout our managed service offerings, orchestrating increasingly complex and automated workflows. Clearly, AI is adding complexity to managing the IT estate. Tokenization costs are high, business cases are challenging, and measuring returns on investments is difficult. We expect all these factors to increase client reliance on external providers. Unisys can reduce the cost of AI adoption for clients by developing solutions that can be leveraged across a large base of clients with standardized architectures for faster deployment. In 2025, we launched Service Experience Accelerator, an agentic AI framework for delivering next-generation service desk. SEA is now in production with some of our largest clients, and we are enhancing our solution to improve its ability to handle input ambiguity. We plan to roll this out to about a third of our existing client base during 2026, which establishes a growing base of leverageable technology to support long-term expansion, continued delivery optimization, and enhanced quality. In CA&I, we're advancing our intelligent operations architecture, with an integrated framework for rapidly developing, deploying, and orchestrating AI agents to streamline IT operations and aid in financial operation decision-making, especially as it pertains to design and compute. Our alliance partners offer a significant and relatively untapped opportunity to scale distribution and continue raising awareness in the market. Hyper scalers are eager to promote solutions that use their cloud platforms, tools, and models to drive AI adoption and development of their AI-enabled cloud ecosystem. For example, in CA&I, we're standardizing our SOC managed service delivery with Microsoft's Sentinel and Defender threat detection as its main components. We are powering the service layer with AI agents, which helped us engage with Microsoft on development and discussions about joint promotions. Many of our key enterprise software partners are also seeking to accelerate uptake of their AI capabilities. As another example, we are a high volume user of AgentForce internally, which we adopted to optimize our field service dispatch, and we're engaging with Salesforce to explore how we can jointly offer our internal framework as a service to some of their other clients and prospects. These examples illustrate the repeatable playbooks we developed across our portfolio that we think will help us capitalize on AI-related demand, strengthen our partnerships, and ultimately accelerate our growth in XLNS solutions. In the ECS segment, we continue to be highly confident in the enduring value of our ClearPass Forward ecosystem, despite hypothetical threats posted by AI development. AI coding capabilities do not replicate decades of development required to integrate processes code, equipment, and environments with unmatched latency, availability, redundancy, and security. Our core platform offer an unmatched combination of speed, resilience, and most importantly, security, which is of critical importance to the financial services, government agencies, healthcare, and travel transportation companies we serve. Replicating these benefits would require parsing our unified platform into numerous functions and a wholesale reorganization of business processes for minimal benefit, bringing with it significant business risk. At the same time, we continue investing in our core platforms, which are already cloud compatible, enhancing our value-added products, such as data exchange and ePortal, which unlock valuable data and allow it to move across environments and applications powering AI and analytics. These solutions represent increased extensibility and ecosystem expansion that establish ClearPath Forward as a pillar of a modern AI-enabled enterprise solution advancing digital transformation. At the same time, we are leveraging AI to help us quickly assess workforce skills, identify gaps and vulnerabilities, as well as assist in cross-training and upskilling talent for the future. We are beginning to leverage our internal engineering expertise into advisory engagements with ECS clients. And while quantum computing may not be imminent in the short term, we are beginning to see tangible client engagement for quantum advisory services we introduced early in 2025. With that, now I'll turn the call over to Deb to go through our financial results in more detail. Deb McCann | CFO: Thank you, Mike, and good morning, everyone. As a reminder, my discussion today will reference slides from the supplemental presentation posted on our website. I will discuss total revenue growth, both as reported and in constant currency, and segment growth in constant currency only. I will also provide information excluding license and support for XLNS to allow investors to assess the progress we are making outside the portion of ECS where revenue and profit recognition is tied to license renewal timing, which can be uneven between quarters. To echo Mike's comments, our results reflect consistent execution of our business strategy and effective de-risking of our future pension contributions, making our financial performance and liquidity stronger and more predictable for investors. We have seen an ongoing positive shift in how we engage with partners, clients, and industry experts, and we think much of that is related to our agility in adopting artificial intelligence within delivery and solution frameworks. And we expect AI to be a strong, long-term driver of demand for our largest solutions. Looking at our results in more detail, you can see on slide six, fourth quarter revenue was $575 million, up 5.3% year-over-year, as reported, and 2.7% in constant currency, driven by the timing of L&S renewal. For the full year, revenue was $1.95 billion, down 2.9% as reported and 3.3% in constant currency, slightly above the midpoint of our revised guidance range. Excluding license and support solutions, revenue was $388 million in the fourth quarter and $1.52 billion for the full year, both of which were down 3.9% in constant currency. I will now discuss segment revenue performance in constant currency terms shown on slide 8. Fourth quarter digital workplace solutions revenue of $126 million was flat sequentially to third quarter and down 3.7% year over year. For the full year, DWS revenue was $508 million down 3.1%. Both fourth quarter and full year segment revenue were impacted by PC related revenue declines, including lower third party hardware and PC field services volumes. As we mentioned last quarter, Microsoft's extension of Windows 10 support has led to some clients delaying upgrade projects or pushing out purchases of new PCs required for compatibility with Windows 11, and recently, higher PC prices due to memory chip shortages have compounded delays. However, we expect PC price increases to benefit us over time as they increase the significance of device costs within client budgets, potentially leading to incremental interest in our device subscription service. which provides intelligent forecasting and planning and a more flexible and predictable cost model. PC-related declines were partially offset by growth in higher-value infrastructure field services in areas such as enterprise storage and network infrastructure, which typically have lower volumes but higher margin and profit associated with them. And as we mentioned before, we believe the PC volume declines have stabilized. Fourth quarter cloud applications and infrastructure solutions revenue was $191 million, a decline of 4.1% year over year. For the full year, CA&I revenue was down 4.8% to $733 million. Similar to what we saw in earlier quarters of 2025, the fourth quarter was impacted by a lower volume of short-term project work at U.S. public sector clients due to federal funding disruptions that have created budget uncertainty in the public sector. This remained a prominent factor in the fourth quarter, the first half of which experienced a federal government shutdown. We were pleased to still be able to secure multi-year renewals in both CA&I and DWS Solutions with several of our largest U.S. public sector clients, some including New Scope. Enterprise computing solutions revenue was $237 million in fourth quarter, up 14% year-over-year. Full-year segment revenue was $629 million, relatively flat to 2024. Within the segment, L&S solutions revenue was $186 million in the fourth quarter, up 19.8%, bringing full-year L&S revenue to $428 million in line with our increased expectations. Fourth quarter revenue for specialized services and next-generation compute solutions, the ex-L&S solutions within ECS, was flat sequentially and down 3.7% year-over-year against a stronger prior-year comparison. Full-year S&C revenue grew 4.9% year-over-year due to increased project work and business process solutions volumes at financial services clients in Europe, Latin America, and Asia Pacific. Total company TCV was $2.2 billion for the full year, driven by strong growth in XLNS renewal signings and new scope bookings with existing clients. Full year new business TCV totaled $491 million, down 38% year over year, primarily driven by elongated sales cycles with prospective clients and hesitancy in the public sector. Full-year new business TCV includes an approximate $200 million adjustment to reflect a mutually agreed termination of a first quarter 2025 new logo signing in DWS where contractual terms were not aligned. We were pleased with this outcome as it averts risk of future profit dilution while preserving a positive relationship with a large prospective client that we anticipate will invite Unisys to bid should they seek new proposals for any portion of this work or for other Unisys solutions. Trailing 12-month book-to-bill was 1.1 times for the total company and 1.2 times for our XLNS solutions. We ended the year with a backlog of $3.2 billion, up 12% sequentially and 11% from prior year. Moving to slide 9, fourth quarter gross profit was $195 million and gross margin was 33.9%. up 180 basis points from the prior year due to L&S revenue growth over a relatively stable cost base. XL&S gross profit was $51 million in the fourth quarter, a 13.2% margin. While this was 540 basis points lower than 18.6% in the third quarter, the majority of the margin compression was due to the aggregate impact of incremental cost reduction charges and timing of variable compensation. Full year gross profit was $549 million, a 28.2% gross margin compared to 29.2% in the prior year period, driven by an increased proportion of lower margin L&S hardware relative to the prior year, which we expect to be more normalized in 2026. Full year SL&S gross profit was $255 million, a 16.8% gross margin compared to 17.6% in the prior year period, which includes approximately 40 basis points of incremental cost reduction expenses. Overall, we were pleased with XLNS profitability considering some of the revenue headwinds we faced this year, and we expect lower cost reduction charges and greater efficiency gains in 2026, supported by workforce and technology investments made in 2025. I will now discuss segment growth profit as shown on slide 10. EWS segment growth margin was 10.5% in the fourth quarter compared to 15.9% in the prior year period. Nearly 400 basis points of the year-over-year margin decline was driven by one-time items, including transition costs. Full-year DWS gross margin was 14.5% compared to 15.7% in the prior year. Over time, we expect a continued long-term shift towards these higher value infrastructure field services, which typically are at a higher margin. CA&I segment growth margin was 20.7% in the fourth quarter, up 210 basis points year over year due to workforce and labor market optimization and increased automation and AI use in solution development and delivery, as well as an 80 basis point one-time benefit. Full year CA&I growth margin was 20.2%, relatively flat to the prior year. At a high level, strong delivery gains have been able to offset the slower pace of investment and project work at U.S. public sector clients. Looking ahead, we are pushing the pace of solution development and standardization in the CA&I segment and sustaining a focus on workforce optimization and rapid adoption of the latest AI models and tools to support additional efficiency gains. ECS segment gross margin was 65.9% in the fourth quarter, up 270 basis points year over year, and full year gross margin was 55.5%. a 250 basis point decline related to increased hardware revenue mix, which should normalize in 2026. Moving to slide 11, fourth quarter non-GAAP operating profit margin was 18%, driven by the higher concentration of L&S revenue in the fourth quarter. For the full year, non-GAAP operating profit margin was 9.1%, above the top end of our upwardly revised guidance range. The sustained strength of the trends in our L&S solutions again contributed more profit than we anticipated. Over the past two years, we have also diligently executed on a detailed plan to streamline our corporate, real estate, and central IT costs. We've been able to reduce SG&A by 13% for nearly $60 million. We expect to again lower SG&A in 2026 in absolute dollar terms by at least $10 to $20 million as we receive a full-year benefit from savings while most of the costs to achieve them are behind us. Fourth quarter net income was $19 million and $63 million on a non-GAAP basis, translating to diluted earnings per share of 25 cents and non-GAAP earnings per share of 86 cents. For the full year, GAAP net loss was $340 million or a diluted loss of $4.79 per share. This included an approximate $228 million one-time non-cash expense related to a pension annuity purchase occurring in the third quarter. Full year non-GAAP net income was $68 million and non-GAAP earnings per share was 93 cents. Turning to slide 13, capital expenditures totaled approximately $20 million in the fourth quarter and $78 million for the full year, relatively flat to 2024. As a reminder, a significant portion of capital expenditure relates to our L&S software and there is no change to our overall capital light strategy. Pre-pension free cash flow, which is free cash flow prior to pension and post-retirement contributions, was $113 million in the fourth quarter and $128 million for the full year, which exceeded our expectation for $110 million. This is the result of a stronger profit performance and more favorable working capital relative to our assumptions. Full year free cash flow was negative $218 million, which includes a $250 million discretionary pension contribution. and $95 million of required U.S. and non-U.S. post-retirement contributions. Moving to slide 14, our cash balance was $414 million at year end, compared to $377 million at the end of 2024. Our cash balance increased by $37 million year over year, which is primarily due to our strong pre-pension free cash flow, as well as some positive impacts from foreign exchange and cash balances and hedge settlements. As a reminder, our changing cash balance includes a $250 million discretionary pension contribution, which was funded by approximately $200 million of incremental borrowing, as well as $50 million of cash from the balance sheet. Our liquidity position is strong with no major debt maturity until 2031, and our recently renewed $125 million asset-backed revolver remains undrawn. Our net leverage ratio is 2.8 times inclusive of global pension deficit down from three times a year ago. I will now provide an update on our global pension plans beginning with slide 15. As of December 31st, 2025, the gap deficit in our U.S. qualified defined benefit plans was $239 million and our global gap pension deficit inclusive of all U.S. and international plans was approximately $450 million. This compared to approximately $750 million at the end of 2024, or a $300 million improvement. $250 million in improvement in our global pension deficit was driven by our discretionary contribution with the remaining approximately $50 million resulting from $95 million of planned contributions to our global plans. On slide 16, you can see a detailed projection of our expected cash contributions. We are forecasting approximately $350 million of remaining cash contributions to our global pension plans in aggregate through 2029, reflecting stability from the actions we took to remove volatility in our U.S. qualified defined benefit plans. Moving to slide 17, we have provided an updated projection of how expected future contributions and the benefits we disbursed to pensioners are expected to impact our U.S. qualified defined benefit plans deficit both with and without annuity purchase assumptions, and the implied cost of full removal at the end of 2029. At the bottom, we've also included our expected deficit reduction in all other plans. However, it is important to remember that while international contributions are negotiated every few years and very stable, the international deficit is impacted by asset returns and has more volatility. These projections are meant to provide a directional indication only of the relative conversion of contributions to leverage reduction in a given year, which will also change if contributions shift between years. Turning to slide 18, I'll now discuss our financial guidance for the full year and the additional assumptions we provide. We expect total company revenue to decline between 6.5% and 4.5% in constant currency, which based on February 1st foreign exchange rates equates to a reported revenue decline of negative 3.8% to negative 1.8%. Guidance assumes XLNS revenue decline of 7% to 4.5% in constant currency. We also expect full year LNS revenue of $415 million at a gross margin of approximately 70%. We also continue to expect 2027 and 2028 LNS revenue to average $400 million per year and continue to see artificial intelligence as a driver of consumption and adoption of value-added products within the ecosystem. and have detected no change in client commitment to our platform. As a reminder, the timing and exact amount of L&S revenue can be difficult to forecast with precision, and it depends on the renewal timing, term, and client consumption levels, among other factors. We expect non-GAAP operating profit margin to be between 9% and 11% for the full year, which reflects a higher margin percentage in L&S, 100 to 200 basis points of improvement in ex-L&S growth margin, and another modest reduction in operating expense in absolute dollar terms. Looking specifically at the first quarter, we expect approximately $415 million of total company revenue on a reported basis, which assumes approximately $60 million of license and support revenue. Based on renewal timing during the year, the first quarter is expected to be the lowest L&S revenue quarter, and we expect an approximate weighting of 30% of L&S revenue in the first half of the year and 70% in the second half. with the third quarter likely the largest quarter of LNS revenue. Based on these assumptions, we expect first quarter non-GAAP operating margin to be slightly positive. We expect a number of non-cash expenses impacting GAAP net income and earnings per share in 2026, including pension annuity purchases and streamlining certain legal entities expected in the second half, which we will guide on a quarterly basis. Also, as a reminder, In 2025, we've removed hedges on our intercompany balances, which could create non-cash FX gains as the U.S. dollar strengthens or losses if the U.S. dollar weakens. These are difficult to guide due to constantly changing rates, but will impact quarterly gap net income. Full-year free cash flow is expected to be approximately negative $25 million, which translates to positive $67 million of pre-pension free cash flow. This assumes approximate payments of $85 million in capital expenditures $70 million of cash taxes, $70 million of net interest payments, $30 million in other payments, primarily restructuring, and $92 million of post-retirement contributions, consisting of $87 million of pension contributions and $5 million of other post-retirement contributions. Approximately $17 million of the pension and post-retirement contributions is expected in the first quarter. We are confident that we have the liquidity we need to comfortably support our pension contributions. We are focused on continuing to increase our efficiency and profitability during this period and maximize our underlying cash generation levels for investment and capital return. Before we open the line for questions, Mike has a few additional remarks. Mike Thompson | CEO and President: Thank you, Deb. I wanted to take a moment to address our 2026 guidance. We're proud of what we've achieved in 2025, but disappointed that we didn't overcome all of the industry headwinds impacting our XLNS revenue. For 2026, our expectations for mid-single-digit decline in XLNS solutions reflects an intentional deeper push into the adoption of emerging technology within our existing base of clients, and the macro headwinds impacting discretionary spend in 2025 that we expect to linger through the first half of 2026, as we mentioned last quarter. Relative to 2024 year-end, we have more expansive book-to-bill ratio, more expected full-year revenue already contracted and in backlog, and there is less embedded risk from assumptions for timing of revenue ramp on contracted new business. Similarly, for profitability, the majority of the required Efficiency gains have already been actioned or identified. Achieving our 2026 guidance ranges keeps us on a path to potential full removal of the U.S. defined benefit pension obligations by 2029, after which U.S. pension contributions would cease, and we expect a host of new possibilities for investments in capital return. Based on our interactions with existing and prospective clients, and the sequential growth in pipeline activity so far this year, we believe we'll achieve positive XLNS revenue growth in 2027. With that, operator, you can open up the line for questions. Operator: We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question today comes from Rod Bourgeois with Deep Dive Equity Research. Please go ahead. Rod Bourgeois | Analyst, Deep Dive Equity Research: Okay, thank you. I'll start with an AI question. So I want to ask, how are AI and automated code modernization tools influencing the roadmap that you have and the demand for ClearPass Forward? We've clearly seen some recent concerns that COBOL refactoring may affect IBM's mainframe business. So I want to ask how you're assessing the implications of that trend for the ClearPass Forward platform. Thanks. Mike Thompson | CEO and President: Great. Hey, Rod, thanks for the question. Certainly very timely with the communications that we've all seen. Look, the code factoring component of the dialogue that's, I guess, the issue du jour is not really new. Maybe the tools that we're using are new, but we've been talking about code factoring for a long, long time. years, in fact, and, you know, you referenced IBM here, and I think they have a piece out as well, kind of reacting to that. It's really only a part of the story, and it really is talking about, in my opinion, the enhancement of the platform. I mean, the code modernization is kind of the easy part. That doesn't change the engineering challenge of running the mission-critical workloads at scale and doing it securely. I mean, really, it's about Kind of the architecture redesign, the runtime replacement, you know, transaction processing integrity, the hardware tuning and years of performance tuning that's embedded in the platform. Code factoring does none of that, right? It really is just about the kind of modernization of what I would consider to be above the enterprise level of the corp. So from a strategic perspective, you know, internally we talk about clear path forward 2050. I mean, that's kind of the timeframe that we're looking out for that ecosystem. And we think net-net is going to be a positive to kind of drive more demand to the platform. And think of it as kind of the automation above the enterprise level and giving our clients more and more flexibility to that. And I guess secondarily, I would say that, you know, the other area that it's really important for is the continual kind of documentation of the code base, et cetera, testing, and really reverse testing, right, kind of doing scripts in in current languages and maybe refactoring them back to COBOL into kind of a legacy mindset. So the reality is we don't view that as any change from the strategy that we're currently on. And I think if you look at what we've encountered, I mentioned in my prepared remarks, three straight years of roughly $40 million of improvement against our expectations in that business. That's a byproduct of longer contracts being signed, additional consumption being signed, and the tooling that we've done over the course of the last, say, five years in that ecosystem has really positioned it to be AI-enabled. So I don't think it's really changed our strategy at all, and we see it as a continuation of the ability to kind of automate around the enterprise platform layer. Rod Bourgeois | Analyst, Deep Dive Equity Research: So, Mike, I just want to take an extra second on that. I mean, what you're saying is that the co-factoring threat, I think what you said was automation above the enterprise level actually adds to the usage of your platform. Can you just add more color on that point? Mike Thompson | CEO and President: Yeah, look, I think in general what we've been targeting and what we've been seeing is to put tools above the enterprise platform that allows for analysis and data extract, data movement across platforms, et cetera. And so using kind of AI agents and I'll say refactoring of code above that enterprise level really just continues to enable the use of the data. And remember the data set that we're talking about are standardized data sets and decades worth of data embedded in there, right? So if you're really trying to enhance a large language model, the key is really access of that data, not necessarily what code it's written in to get there. So the easier we can make that, the more customized or localized we can make that interface through the use of these particular agents, I think will be beneficial and cause more use of data, not less. Rod Bourgeois | Analyst, Deep Dive Equity Research: Got it. Okay. Thank you. And then just a question about the outlook for bookings in 2026. Last year had a big load of renewal activity, but at the same time, over the last couple of years, you've invested to win new logos. So I want to get a perspective on your latest pipeline and sales efforts and what the outlook is for your bookings activity and your bookings mix. I mean, will the mix shift towards existing client scope expansion, where I think you had some positive commentary. What's the outlook for the bookings next for 2026? Thanks. Mike Thompson | CEO and President: Yeah, thank you, Rod. Great question, and I appreciate the opportunity to expand on that a little bit. So you're right. I mean, we signed $1.7 billion of renewals in 2025. That clearly took a lot of the team and the client's focus away to kind of get that behind us, which was great. We've got a really strong backlog and, frankly, a higher backlog position going into 26 than we had going into 25 in relation to that. But the corollary or knock-on to that is when you're doing that renegotiation on renewals, typically clients are not talking about new scope opportunities, right, because you're really focused on what that renewal looks like. So on the heels of that, and we mentioned in our prepared remarks that when we've done those renewals, we've actually embedded into that some new scope opportunities. So as you know, we think of new business as new scope and new logo. So I would say two things. One, our focus on new logo expansion in 26 is enhanced. because we've got a lot more, I'll say, bandwidth to really get after that because the renewal cycle is a little smaller this year, probably about a third of what it was last year. So we'll have some more focus there. And then secondarily, and more importantly, I think, is the new scope expansion opportunities in the existing base will allow us to grow that new business as well. So I think you're right in looking at kind of that new business, and I bucket it that way intentionally because it's not just about new logo. It's really about the proliferation of new scope opportunities, whether that's in our existing base or whether that's with new logo clients. We talk about having roughly a $31 billion TAM in our existing base for new scope opportunities, so that's a really important element to our growth trajectory of the future. Rod Bourgeois | Analyst, Deep Dive Equity Research: All right, thank you. Mike Thompson | CEO and President: Thank you. Operator: The next question comes from Mayang Tandon with Needham. Please go ahead. Mayang Tandon | Analyst, Needham & Company: Thank you. Good morning. Mike, you mentioned the longer sales cycles and some of the competitive pricing dynamics. So maybe if you could just provide a little bit more details around how you counter some of that competitive pricing. And of course, you can't control the overall market. Discussionary spending slowdown. But how do you maybe counter that with your go-to-market strategy, some of your sales investments to maybe help, maybe offset some of that pressure points in the market? Mike Thompson | CEO and President: Yeah, thank you, Amin, for the question. Super important, right? Look, when we think about the sales cycles in general, I would say 25 was a really tough year just because of all of the macros and kind of the adoption of new technology, people a little uncertain around how much to adopt, where to adopt it, uncertainties around, you know, whether it was tariff-related or, again, other macro-related issues, geopolitical, et cetera. I think that weighed on the longevity of the contracting cycle a little bit more than the mechanics of, you know, what we typically see. And I would say some of that is already starting to ease. We've got a pretty good jump-off point for Q1 as far as our pipeline is concerned, our discussions with clients in regards to that. In fact, just anecdotally, I had some correspondence with hopefully a future client that's talking about setting kind of record pace in their contract renewal cycle, really trying to expedite the use of that. So I think those were a little bit more macro-oriented than they are, you know, process-oriented from our perspective. But clearly we've done a lot from the embedding of tools and technologies and process changes, qualifications of the pipeline, and also, you know, kind of how we're approaching opportunities. to enhance and streamline the first touch point to contract closure. So, you know, very focused on trying to do everything we can to shorten that cycle and be very prescriptive about how we approach clients and who we approach for what. So definitely are some elements embedded in that. As far as pricing is concerned, look, it's always been very competitive pricing environment. I think what has made it a little bit more competitive is you've got this pause, I guess, or the hesitancy to grow some of the industry, right? We've seen our traditional industry CAGRs from say four and a half or some percent CAGR growth down to flat, which means you've got a lot of folks chasing a smaller pie, right? And so from our perspective, We rarely want to have a discussion or even start a discussion that talks about commodity pricing and base to the bottom, right? All of our go-to-market approach is around enhanced experience and value and quality, right? And so, and we mentioned a couple of the renewals that we didn't win, and I mentioned those in Q2 and in Q3. that we need to maintain pricing discipline. We know what the value and the market-based pricing is for what we deliver. And we think we're delivering value in advance of that market pricing. So we should be able to get at least market-based pricing. And so not trying to, you know, just compete on price. If the client doesn't see the value we offer, obviously that's going to be a longer term problem anyway, right? So our point is really to get in front of that early, make sure we can illustrate the value that we bring to our clients, and we have plenty of quals to support that. So that's kind of how we're addressing the market on both of those fronts. Mayang Tandon | Analyst, Needham & Company: That's very helpful. And just a very quick follow-up for Deb, maybe. Deb, given the guidance range, I'm just curious, as you entered this year, have you built in a little bit more buffer in your expectations given some of the uncertainty and macro headwinds, or would you say you've basically aligned your guidance with your historical strategy? And in that context, you know, what dictates whether you come in at the low end of the range or the high end? Like, what are some of the factors we should be considering? Deb McCann | CFO: Right. Yes, I think, you know, we definitely, as Mike talked about, some of the revenue, you know, pressure, some of the industry headwinds is what we considered, you know, as we did the guidance. So I think You know, the things to look for are, you know, as some of those macro factors, you know, alleviate is what we assumed that later in the year some of those factors alleviate. You know, we had some, you know, as Mike talked about, the mix of new logo is planned for, you know, to have a lot more new logo this year as far as renewals. So as we're doing that, we think the Gartner logo Magic Quadrant will help, and so if we sell new logo kind of faster, that'll be another, an element to look for that would increase, you know, what we put out there as our guidance. But we've kind of built in all these headwinds, you know, through MOSA 26. Mike Thompson | CEO and President: Yeah, look, I would say too, like, we absolutely took a different approach to our guidance this year. It's not last year's same exact strategy. You know, we saw, you know, obviously the PC refresh cycle. We were expecting that, you know, never came to fruition. And so we've kind of backed that off and looked at the trajectory a little bit when we talk about that cycle. You know, clearly we've got the hardware cost components, and we think that that's going to have some opportunities for DSS. But I would say, in general, there was a little bit more of a conservative approach to the way we set guidance. But I want to just be really clear. related to top line. I think from a bottom line perspective, we have been very consistent in our ability to execute bottom line improvement. We're also calling for another, say, 150-ish basis points of bottom line improvement. Good line of sight to that. But we definitely took into consideration the kind of market hesitancy that we have seen. We've kind of carried that through the first half of the guidance And, and I think, you know, we want it, as you know, we're, we're, we kind of pride ourselves on the level of transparency, uh, that, that we, that we put out on a regular basis as it pertains specifically, uh, to our guidance. And, and we really kind of went through element by element to say, Hey, is this an area, what we feel really good about it and, and, and kind of how to get there. So a little bit of a different approach on top line, I would say in general, you know, just taking out some of the things that we thought were going to happen that didn't happen in 25 and expect it as they pick up throughout the year, kind of a mid-year convention on that. Mayang Tandon | Analyst, Needham & Company: Great. Thank you so much, Mike and Deb. Sure. Thank you. Operator: Appreciate it. You're welcome. Thanks. The next question comes from Maggie Nolan with William Blair. Please go ahead. Hi. Thank you. Maggie Nolan | Analyst, William Blair: I wanted to look ahead a little bit. You talked about several things that you're working on in the script that would help accelerate XLNS revenue growth. And I'm just wondering what leading indicators we can watch to assess this progress. And then what is kind of a realistic timeline, especially given, you know, some of the first half pressures you just outlined? What is the realistic timeline for, you know, seeing some level of growth accelerations? Mike Thompson | CEO and President: Great. Thanks, Maggie, for the question, and really good one and intuitive here, too. I would say to you, you know, clearly our new business kind of conversion rate is the, I'll say, earliest indicator on top line. So I look at that question in two ways. One is really about the top line expansion and the growth. And the other is about the deployment of our embedded technology, right, when we talk about enhancing the capabilities of our bottom line, right? So pushing that technology out to our existing client base we think will add some ability for us to grow top line through the use of, you know, as I mentioned earlier, new scope opportunities within those accounts. Just know that that also comes with a little bit of a headwind, right? So leaning into the adoption, and one of the examples I gave was the service experience accelerator adoption that we're looking to push out to a third of our existing install base. Well, when we push that out, there's going to be some pricing pressure on that top line because clearly it is – The agentic service desk that we're using is a lower cost of delivery, and some of that we have to share with our client base. So you're pushing out this technology, which is going to put a little bit of a headwind pressure on, but we think we're going to overcome that headwind with the expansion of the opportunity embedded in that client and the addition of new logos to that base as well. So those are the things that we think are really going to support that XLNS growth rate. That's a DWS example. On the flip side, when I think about CA&I and the example there, we talked about the intelligent operations platform and really adding those agentic agents to expand our scope within the construct of the hybrid infrastructures that we support and manage. Frankly, when we think about the current drivers I'll probably misquote this, so we may need to change it, but I think there was a recent McKinsey report out where we talked about a $300 billion to $400 billion TAM in what I would consider to be the above enterprise layer automation of AI agents, right? And we saw a lot of noise in the market around software and service implementers for software. That's not what we do, right? Like, we're more in orchestration. on that, but when we think about the application of AI agents above the SAS level enterprise software, that is what we do. That automation component, both to help with transition and to actually orchestrate and manage post-orchestration of the IT ecosystem, that actually allows us to participate a little more fully in what used to be just solution implementers of ERPs or CRMs or HCMs, where they're taking that customization layer or that integration layer and moving it above the enterprise stack, that's an area we do play in that we historically haven't, right? So I think it gives us a lot more opportunity to participate in that legacy TAM and in this future TAM on both CA&I and DWS. Maggie Nolan | Analyst, William Blair: That's very helpful. Thank you. For my second question, just on margins, could you maybe distill for us the main puts and takes on margins in the next year, just kind of excluding the SG&A efficiencies you've gained, assuming that there's not incremental efficiency to drive there in the near term beyond what you've already outlined, the efficiencies that we'll be annualizing? Mike Thompson | CEO and President: Yeah, look, I mean, I think it's been fairly consistent from our perspective where we think those are coming from. Primarily, it is the application of emerging technology, right? The embedding of AI into our delivery platform allows us to deliver in a much more efficient manner. So clearly, there's going to be margin benefit from doing that. And, you know, as I mentioned, some of that margin benefit comes in the form of a revenue share, if you will, right, giving some of that back to the clients. But, you know, clearly a portion of that stays embedded in our delivery platforms. And as we then add to that platform through the use of top line growth, there's going to be obviously additional margin pull through from that point of view. So I would say it's primarily in the application of emerging technology. There are still opportunities for us to be more efficient. There are still opportunities for us to continue to look at, I'll say, upskilling or rightskilling or rightshoring components of what we do, and we continue to look at those opportunities as far as the delivery workforce is concerned. But again, the adoption of a digital workforce, working alongside our human workforce, we're kind of working both sides of that equation. And then I would say lastly, when you think about the mix shift, as we continue to push more and more into some of these newer elements of our solution, and I'll just pick on field services as a very practical example. as we continue to shift the mix of what we're actually supporting with those field service technicians, whether that's liquid cooling, whether that's hybrid infrastructure, whether that's high-end storage, those are just higher margin elements of work for, you know, the same technician moving away from some of the more traditional PC break fix. So I think those three elements would be what I would point to as the real drivers of where we should expect to see margin improvements. which is, again, why I think we're really confident in the ability to execute it because a lot of the technology is obviously already embedded and we're already moving it into production. And, again, I think we've put a track record out there, you know, almost 600 basis points improvement, you know, over the last three years in XLNS gross margin, right? So we're looking for another, you know, 150 basis points there in 26th. Maggie Nolan | Analyst, William Blair: Thank you. Mike Thompson | CEO and President: Thank you. Operator: The next question comes from Anna Goschko with Bank of America. Please go ahead. Anna Goschko | Analyst, Bank of America: Hi. Thanks very much. So first question is on the L&S revenue outlook, I do sense your kind of historical pattern of being conservative and then you know, beating and raising. So, you know, back in October when, I think it was October when you had the Clear Paths kind of webinar for us, you had talked about a $400 million CAGR for the next three years, and it looks like you're already kind of beating that with the $415 expected for this year. But then I think you did comment that you still expect about $427.28. So just wanted to understand, I understand there's license renewals in there, but it seems that the driver is AI in terms of consumption. So wanted to understand what you're thinking or expecting with regard to the impact of AI being a continued driver of consumption. Mike Thompson | CEO and President: Great. Thank you, Anna, for that call and that call out. I'm going to reiterate a comment I made in an earlier point. We did revisit kind of the way we were putting our guidance together, and this is another good example of that. And so you saw that we actually put out here $415 million of L&S revenue, even though a little while ago we were talking about an average of $400 over that three-year period, and we carried that average I think we started that maybe in the 360 to 370 range, moved it to 390, moved it to 400, and are still saying 400 in those out years. And you're exactly right also that the driver of that has been consumption and use. much more so than just the license renewal schedule. And we do think that that's the AI comment that I made earlier in regards to Rod's question, right? The more tools and techniques and processes that we can build and put on the front end of that ecosystem or that platform, the more consumption of that data and obviously the more value that orients to the platform and, frankly, to our clients and to us. So we do expect that trend to continue, which is why we increased that CAGR average for those out years. And I would just note too that, you know, the 40 million beat over the last three years, which you kindly pointed out as well, you see the 415 kind of take some of that now into our guidance to go okay, you know, this has been a pattern here of continued consumption, so we wanted to bake some of that in so that we're not, you know, sometimes it's just bad to continually overperform than it would be to underperform. So we're trying to do a better job at making sure that some of that overperformance that we've seen and expect to continue to see is baked into the numbers. Anna Goschko | Analyst, Bank of America: Okay. But for 27, 28, you just haven't really adjusted that yet for any of us that are following the AI space or the AI impacts. I mean, consumption levels should continue to increase. Is that fair? Mike Thompson | CEO and President: Yeah, look, I would say it's too far out for us to adjust. you know, multiple year out consumption estimates. But I would say if history is indicative of the future, then yes, we would expect as we go further down the road that we'll revisit that estimate. But for now, we felt pretty comfortable with it's already a $10 to $15 million step up from what we were chatting about before. So you can assume there is some consumption baked in there. Anna Goschko | Analyst, Bank of America: Okay, great. And then, Deb, so just on some of the kind of balance sheet stuff, so I just want to make sure I'm understanding on the free cash flow guide, which is a use of 25, so that is largely your expected all-in use of cash, right? So if I just do this simple arithmetic on your current cash balance, you're going to be approximately $25 million lower at the end of 26. Deb McCann | CFO: That's correct. And that translates to pre-pension of $67 million, you know, compared to the $128 million this year. Right. Anna Goschko | Analyst, Bank of America: And then the slides on the pension outlook are great. Thank you very much. It's really clarifying. So then if I look at the slide on the potential annuity purchases, you've really, you know, give us the estimates of what the deficit's going to be. So at the end of the day, you know, whether you purchase an annuity or not, like your pension deficit's going to be down roughly in the $50 million range, right? So net, net, like your net debt is going to be lower at the end of the year because your cash is only going down by like 25, but your pension deficit's going down by, at least 50. Is that the right way to put it? Deb McCann | CFO: It's down by that, yes. So it's down by about that much, but in the next few years, 229, 180, 137, it's all on that chart 17. Mike Thompson | CEO and President: Yeah, I mean, every contribution is going to drive down that deficit value. It's not dollar for dollar, but you will see you know, continual improvement in the deficit and in net leverage. Anna Goschko | Analyst, Bank of America: Okay. And then the annuity purchases are non-cash. Deb McCann | CFO: Right. We use the plan assets to reduce the plan liabilities. Correct. Okay. Anna Goschko | Analyst, Bank of America: Okay. And then, so, you know, I know you worked really hard last year to do the bond issuance and, you know, it came at a rate that was, a little higher than you probably preferred, and your plan at some point is to refinance those lower. Obviously, like the market overall is pretty messy right now. So those bonds are trading below par. Have you thought about using some of your cash to buy back some of that debt at this point? Because it's a pretty attractive rate. Deb McCann | CFO: Yeah, I mean, we always look at everything. But, I mean, at this point, You know, we're always looking to conserve cash, right, given the pension obligations, given everything. But we're always looking at everything. But it's not, you know, something at this exact moment we're planning to do. But we're always looking at it. Anna Goschko | Analyst, Bank of America: Okay, so the preference is just to keep, like, a solid cash balance, it sounds like. Yes. Okay, great. Okay, well, thank you very much. Operator: You're welcome. The next question comes from Anya Soderstrom with Sidoti. Please go ahead. Anya Soderstrom | Analyst, Sidoti: Thank you for taking my question. Most of them have been addressed already, but I'm just curious. You mentioned that the public sector has been a headwind in 2025. What are you seeing there as we have entered 2026? Mike Thompson | CEO and President: Hey, Anya, it's Mike. Thank you for the question. Look, I think I would say that we've seen an improvement in public sector in general across the board. So we're optimistic that we'll get back to some level of normalcy. I mean, you can only kick the can so far down the road. These things, and you know the work that we do is not discretionary work, right? So at some point we have to get on with business. And so I think in general, so far, the tail end of 25, we've started to see a little bit of easing of that pressure. I think that has continued into 26. And we're hopeful by kind of mid-year that we'll get back to kind of our normalcy as it pertains to kind of public sector work that we're doing. In fact, we signed a big deal Recently in Australia public sector that was in one case we had a win back from a competitor and another we expanded a relationship there that was pretty significant in the region. So we're optimistic. Anya Soderstrom | Analyst, Sidoti: Okay, thank you. That was all for me. Mike Thompson | CEO and President: Thank you, Anya. Operator: This concludes our question and answer session and concludes our conference call today. Thank you for attending today's presentation. You may now disconnect. jsPDF 3.0.3 D:20260606090522-00'00'

NYSE:UIS Q3 2025 Earnings Call Transcript Generated on 6/6/2026 Operator | Conference Operator: Good day and welcome to the Unisys Corporation Third Quarter 2025 Financial Results Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Michaela Paworski, Vice President of Investor Relations. Please go ahead. Michaela Paworski | Vice President of Investor Relations: Thank you, Operator. Good morning, everyone. Thank you for joining us. Yesterday afternoon, Unisys released its third quarter 2025 financial results. Joining me to discuss those results are Mike Thompson, our CEO and President, and Deb McCann, our CFO. As a reminder, today's call contains estimates and other forward-looking statements within the meaning of the securities laws. We caution listeners that current expectations, assumptions, and beliefs forming the basis of these statements include factors beyond our ability to control or precisely estimate. This could cause results to differ materially from expectations. These items can be found in the forward-looking statement section of yesterday's earnings release furnished on Form 8K and in our most recent Forms 10K and 10Q filed with the SEC. We do not assume any obligation to review or revise any forward-looking statements in light of future events. We will also refer to certain non-GAAP financial measures, such as non-GAAP operating profit or adjusted EBITDA, that exclude certain items, such as post-retirement expense, cost reduction activities, and other expenses the company believes are not indicative of its ongoing operations, as they may be unusual or non-recurring. We believe these measures provide a more complete understanding of our financial performance. However, they are not intended to be a substitute for GAAP. Reconciliations for non-GAAP measures are provided within the presentation. Slides for today's call are available on our investor website. And with that, I'd like to turn the call over to Mike. Mike Thompson | CEO and President: Thank you, Michaela. And good morning, and thank you for joining us to discuss the company's third quarter 2025 financial results. We continue to demonstrate our steady focus on improving delivery and operational efficiency which is helping us successfully navigate the macroeconomic uncertainty in the market and other headwinds impacting revenue. We remain on track to meet or exceed the midpoint of the improved non-GAAP operating profit margin guidance of 8% to 9% provided last quarter, as we expect to generate $110 million of free pension, free cash flow for the full year. We're on track to meet our increased L&S expectations of $430 million for the current year, $40 million above our original expectations, supported by strong retention and consumption trends in our high-value software ecosystem. These trends have now helped generate upside in each of the past three years, and we're increasing our projection for out years to approximately $400 million of average annual L&S revenue for the three years of 2026 through 2028. The quarter also reflects our commitment to executing the pension strategy we laid out and the realization of the benefits we said we would achieve. We said we would remove substantially all market volatility from our aggregate U.S. pension contributions, and those have remained stable. Our pension debt has come down with our quarterly contributions, And we executed an annuity purchase in September to remove more than $300 million of U.S. pension liabilities, over half of our stated $600 million target by the end of 2026. While revenue was light relative to the color provided last quarter, much of this was related to timing, including a shift of a large license and support renewal, which closed early in the fourth quarter. Timing on XLNS hardware pass-through also contributed to the quarterly miss on top line. Additionally, market dynamics affecting the PC cycle and IT budgets continue to cause clients to pause or delay project initiation, slow the pace of transition for some new business, and limit market penetration of newly introduced solutions. Some of the early signs of improvement we've seen at the U.S. state and local clients lost some steam as concerns about federal funding returned leading up to the ongoing U.S. government shutdown. Our revised full-year outlook reflects some additional revenue timing elements, including a shift in expected fourth-quarter revenue recognition from upfront to overtime, which will generate future revenue. We could see some of the headwinds that challenged XLNS growth this year persists for a few quarters, so we're acting quickly to adjust our approach to mitigate those impacts. At the same time, feedback from clients, partners, and industry analysts have only increased our confidence in the positioning of our solutions and our ability to establish baseline XLNS growth over time. Meanwhile, we're still delivering on profit dollars and free cash flow priorities. The most important elements required to achieve that success are the continued execution of our L&S solution, which we continue to outperform, and the efficiency gains in XL&S delivery, where we're stepping up our efforts. We have already made significant improvement in our XL&S gross margin and have identified incremental opportunities within workforce optimization and the application of AI-driven productivity solutions. Looking at all these factors, we believe we're on a path to improving our growth profile over time, continuing to enhance profit, chip away at the pension deficit and liabilities, and ultimately fully remove our U.S. pension liabilities. Looking at client signings, third quarter total contract value increased 15% year over year, driven by a strong quarter in XL&S renewals. New business TCV of 124 million was in line with the solid levels of new business in the second quarter. Year-to-date, our new business signings are slightly positive relative to 2024, which was a strong year for new business signings, some of which are still building up their full revenue run rates and are showing expansion opportunities. The pricing environment remains competitive, which is not unusual. Clients want to share in the AI cost savings, and in some cases their expectations may be unrealistic. We've also seen some competitors undercutting on price based on aggressive assumptions for the size and pace of future AI-related efficiencies, and we think that they're taking on a high degree of risk in those cases. We are seeing these dynamics on a handful of renewals, and in certain cases have been willing to accept certain attrition, especially at clients prioritizing cost over value, and offering limited potential for us to expand in higher-value solutions. We continue to take a disciplined approach aligned to our priorities of profit dollars and cash flow, and we believe clients are beginning to adjust their expectations as they're gaining knowledge on how the use of the emerging technology applies to their ecosystems, which allows us to build competitive advantages in our portfolios. We have large new business opportunities within our extensive existing client base, and many of our third quarter wins highlight our ability to expand those relationships. In many cases, our wins reflect a close alignment between solution development and our clients' efficiency priorities. For example, in digital workplace solutions, we signed a renewal with a global industrial manufacturing client that included significant new scope to transform and streamline IT support. As part of this engagement, we will transition existing service desk to our next-generation service experience accelerator, and we'll also deploy virtual tech cafes and migrate IT service management capabilities to a new platform to streamline IT support without sacrificing quality. This engagement also includes new scope in CA&I solutions, such as automating network operations monitoring to both improve process and reduce costs. In cloud application and infrastructure solutions, we've signed an expansion deal expected to drive significant cost savings for a public sector client in Australia. Leveraging our deep multi-cloud expertise, we proactively identified an opportunity to optimize their hybrid infrastructure by eliminating a high-cost platform, resulting in migration project work and ongoing managed services revenue for us and millions of dollars of annual cost savings for our clients. During the quarter, we renewed one of our largest public sector infrastructure managed services contracts, a seven-year extension to manage data center environments for a large U.S. state government. We also introduced a new cyber vault solution to protect critical infrastructure used by all of the state's cabinet-level agencies spanning revenue, public health, transportation, and more. The enterprise computing solutions, we signed a new scope contract with a large European financial services clients to consolidate some core systems onto one of our platforms. We will provide transformation services through our proven migration factory to accomplish this project and help our client execute their simplification and rationalization program. Our deep expertise in financial services sector has been a key driver of new business in ECS segments. And in the third quarter, that also included a noteworthy new logo win for our modern core banking industry solution with a financial institution in Latin America. Branch banking remains an important channel in the region, and we've developed a differentiated offering that integrates branch and digital banking with central core banking technology, incorporating capabilities from our recent partnership with Thought Machine. Our innovative end-to-end offering will consolidate legacy systems for customer management, deposits, loans, accounting, treasury, and compliance into a single, secure, scalable solution that will become the backbone of our clients' financial operations. I now want to discuss our solution portfolio, including some trends we're seeing in client demand and where we're focusing our investment, innovation, and partnership efforts. We allocate a significant portion of our capital expenditures to our ClearPass Forward solution in the ECS segment, which we discussed in more detail in an investor education session earlier this quarter, a recording of which is available on our investor website. A core element of our ClearPath Forward 2050 strategy is the continued evolution of our operating systems and surrounding ecosystem of products, industry solutions, and modernization services. We are continually expanding several dimensions of ClearPath Forward, including speed, security, and resilience, to maintain strong value proposition that has allowed us to retain clients for decades and support increasing consumption. In the third quarter, we released updates to one of our ClearPath Forward operating systems, expanding cloud compatibility, and made significant post-quantum cryptography security algorithm enhancements. Looking at our industry solutions portfolio, in travel and transportation, we completed the integration of our in-transit system to our cargo portal, which means our platform now allows detailed tracking across the cargo journey in accordance with international air transport association standards. In banking and financial services, we're seeing client interest in quantum enhanced fraud detection for financial transactions, a topic on which members of our ECS team recently published research accepted by the International Conference on Quantum Artificial Intelligence following a rigorous peer review. In DWS and CA&I, we continue to invest in our AI-driven portfolio that's based on technology-led delivery models. This is beginning to allow us to show up in the market with higher value offerings at better price points, making us more competitive in the markets. This puts pressure on the top-line growth but allows for reduced cost of delivery and better margin profile. In digital workplace solutions, we're already seeing this in the uptake of our service experience accelerator. During the quarter, we rolled out this solution to additional clients and continue to see roughly 40% deflections away from human support to automated support handled by our agentic AI agents. Data from early client adopters also indicates an improvement in the end user experience. In a service where marginal change has meaning, we're seeing a substantial 28% increase in user engagement and a 24% decrease in abandonment on average. Our knowledge management capabilities are identifying gaps in approximately 10% of support tickets and addressing them with automated content generation, to improve accuracy of the training data and the effectiveness of our agentic AI agents. In field services, we've invested in Salesforce's AgentForce technology, which leverages agentic AI to automate scheduling, rescheduling, and pre and post work summaries, while continuously learning and making autonomous decisions to improve and optimize dispatch efficiency over time. During the quarter, Unisys became an authorized Apple product reseller, adding MacBooks and iPads to our existing device subscription service, which provides comprehensive lifecycle management with intelligent device refresh and a flexible, predictable cost model. This partnership enables client decision-making based on the user's needs rather than supplier limitations. In cloud applications and infrastructure solutions, our application factory has taken shape and yielding a growing pipeline of new opportunities. Application development is a bright spot within public sector, with clients remaining interested in modernizing inefficient platforms, including for criminal justice information, identity access management, and licensing and permitting. We also continue to cross-sell and up-sell new opportunities for our CA&I solutions at existing enterprise computing solution clients. primarily related to ClearPath Forward clients seeking to modernize their application layer and expand digital capabilities. We're also making a push to cross-sell CA&I solutions into our base of ECS clients in the financial services and public sectors that use our business process solutions, where we believe our workflow and process knowledge combined with industry expertise is a unique combination. In both DWS and CNI, we continue to view the market of mid-sized enterprises, those with $1 billion to $5 billion of annual revenue, as a relatively untapped market opportunity where we have all the ingredients to effectively compete and source significant new revenue. These clients typically value personalized service, which they're not receiving from larger providers and have less organizational complexity allowing them to establish their relationship with us at a higher level and more quickly. Given our digital workplace solutions are market-leading, even for the largest enterprises, we see the mid-market commercial sector as a larger opportunity to build leadership and differentiation, particularly within our CA&I solutions. A top priority heading into year-end is defining more clearly a set of CA&I solutions tailored for this segment of the market, and with a streamlined and repeatable sales motion. This involves solidifying preferred partners and building more standard architectural solutions and delivery frameworks, just as we've done in IT service management with Freshworks and EasyVista and in licensing and permitting with Clarity. We are already enhancing our cybersecurity portfolio in this manner, an area where our pipeline is growing and where we're seeing strong secular growth tailwinds in market demand. We're leaning in with partners like Dell and Microsoft to develop end-to-end security managed service playbooks, integrating security tooling, standardized solution frameworks, and repeatable sales motions. We've also begun designing a standard architecture for Unisys intelligent operation specific to mid-size enterprises that can also incorporate private AI clouds. Running AI workloads exclusively in public cloud environments is very expensive and cost prohibitive for mid-market clients. We're exploring potential technology partners with OEM, data centers, and GPU as a service providers so we can offer our clients alternate private AI frameworks with Unisys service wrappers to bring down those costs. Before turning the call over to Deb, I want to provide an update on the industry recognition, including the growing acknowledgement in higher growth areas of the market. In the third quarter, we received a new leader ranking in cloud services for mid-market enterprises. We were also recognized for the first time or appear in new reports in cybersecurity, agentic AI services, and AI-driven application development. This was in addition to maintain leader positions in a number of updated reports put out in multi-cloud, digital workplace, and generative AI services. These recognitions come from highly respected firms such as Avasant, Everest, IDC, and ISG, and give credence to our strategic focus on application development, AI services, and penetration of the mid-market. The majority of the clients and prospects rely on industry experts in some manner when choosing IT service providers. So our steady rise in many quarters should open up new business opportunities in areas of the market we want to penetrate to support XLNS growth and our new solutions. Finally, I want to mention that Unisys was named to Time Magazine's 2025 list of world best companies for the first time, recognizing us amongst global organizations that exemplify excellence in today's corporate landscape. Our investments in upscaling and development opportunities for our employees is an important component of that excellence. and supports a stable workforce maintaining our low voluntary attrition, which was 11.7% on a trailing 12-month basis. With that, I'll turn the call over to Deb to go through our financials in more detail. Deb McCann | Chief Financial Officer: Thank you, Mike, and good morning, everyone. As a reminder, my discussion today will reference slides from the supplemental presentation posted on our website. I will discuss total revenue growth, both as reported and in constant currency, and segment growth in constant currency only. I will also provide information excluding license and support or XLNS to allow investors to assess the progress we are making outside the portion of ECS where revenue and profit recognition is tied to license renewal timing, which can be uneven between quarters. To echo Mike's comments, we remain in a good position to achieve our increased profitability and free cash flow outlooks to maintain our strong liquidity position. And we took another step forward on the journey to removing our U.S. pensions with the annuity purchase we executed in September. While we have faced some XLNS revenue headwinds, our license and support cash engine is being powered by our base of high-quality clients who continue to commit to and increase consumption on our platforms. At the same time, we are fine-tuning our strategy to ensure we capitalize on the advantages offered by technology like agentic and generative AI and quantum encryption to expand the scope of our efficiency initiatives and deliver innovation that advances our clients' efficiency goals. Looking at our results in more detail, you can see on slide four that third quarter revenue was $469 million, a decline of 7.4% year over year, or 9% in constant currency. We had an approximate $12 million impact from the shift in timing on a license and support renewal that closed just outside the quarter, which will benefit L&S fourth quarter revenue. Excluding license and support, Third quarter revenue was $377 million, down 3.9% or 5.8% in constant currency. This was below our expectation of $390 million we shared with you last quarter due to foreign exchange movement and dynamics I will cover now as I discuss constant currency segment revenue. Digital workplace solutions revenue was $125 million in the quarter, down 5.8% year over year. Year-to-date, DWS revenue is down 2.9%. The third quarter decline was driven in part by the shift of low-margin hardware revenue, some into the fourth quarter and some into 2026. Volumes in some of our traditional PC field services were also lighter than we expected, and a pickup and PC refresh activity was dampened by Microsoft's extension of security support for the significant number of devices still running on Windows 10. Third quarter cloud applications and infrastructure solutions revenue was $180 million, a 6.8% decline compared to the prior year period. This segment has our highest public sector exposure, where activity levels have already been suppressed, and the uncertainty around federal funding heading into the government shutdown caused incremental slowing. That impact continues to be primarily concentrated at U.S. state and local governments, though we were pleased to secure meaningful renewal TCV with some of these clients at an improved margin. Year-to-date, CA&I revenue is down 5% due to volumes in the public sector. Enterprise Computing Solutions revenue was $133 million in the third quarter, a 13.9% year-over-year decline due to the cadence of L&S renewal signings, which have a higher fourth quarter concentration than last year. Within the segment, L&S revenue was $83 million compared to $105 million in the prior year quarter. Specialized services and next-generation compute solutions revenue grew 1.7%, benefiting from new business and application services we are delivering for clients in both travel and transportation and financial services. Trailing 12-month signings of approximately $2 billion translate to a book-to-bill, of 1.1 times for both the total company and our XLMS solutions. And we exited the quarter with a backlog of $2.8 billion flat year over year. As Mike touched on, the complexity and pace of negotiations have continued to elongate cycles on some renewals in DWS and CA&I. Moving to slide six, third quarter growth profit was $117 million, a 25.5% growth margin down from 29.2% a year ago. as a result of the cadence of L&S renewals. Ex-L&S gross profit was $70 million, and ex-L&S gross margin was 18.6%, up 70 basis points year over year, largely due to lower cost reduction charges in the quarter. Excluding that benefit, we continued to make incremental gains in delivery efficiency to maintain profitability despite revenue decline. Our investments in workforce optimization are helping us hone in on incremental opportunities to improve delivery, and we plan to act quickly to capitalize on those. I will now touch briefly on segment gross profit. DWS gross margin was 16.2% in the third quarter, essentially flat year over year. As Mike discussed, we are leaning heavily into technology to automate delivery. DA&I gross margin was 19.6% in the third quarter, relatively flat year on year. We were pleased to maintain profitability especially given the higher margin profile of CA&I solutions being impacted by public sector uncertainty. Segment margins continue to benefit from automation and optimizing workforce and labor markets, as well as synergies we are achieving from centralizing application capabilities. ECS growth margin was 46.2% in the third quarter, down from 58.2% a year ago, which was due to the timing of L&S renewals and NICs from integrated system sales. As a reminder, our L&S solutions have a fairly fixed cost base, and the very high concentration of license renewals is expected to drive a significant sequential increase in fourth quarter ECS growth margin. Moving to slide seven, third quarter gap operating loss is $34 million, which included a $55 million non-cash goodwill impairment in the DWS segment related to the near-term industry dynamics challenging volumes, and the pace of client signings. Non-GAAP operating profit was $25 million, a 5.4% non-GAAP operating margin, which is in line with our expectations for mid-single digits. SG&A in the third quarter declined slightly year over year and is down 8% year to date, driven by our initiatives to streamline corporate functions, real estate, and technology. We are pushing to accelerate the remaining cost takeouts and increase our overall rationalization programs to maximize savings in 2026. We had a third quarter net loss of $309 million, which included an approximate $228 million one-time non-cash pension expense related to the annuity purchase transaction in the quarter. As we previously discussed, this is an important element of our pension removal strategy. The quarter also included a $4 million foreign exchange loss. As we mentioned last quarter, we ended our hedging program on intercompany loans which removed the cash impact of the hedge settlements, but increases P&L FX volatility, impacting GAAP net income. Adjusted net income was negative $6 million, or a loss of 8 cents per share. Turning to slide 8, capital expenditures totaled approximately $18 million in the third quarter and $59 million year-to-date, relatively flat year-over-year. A significant portion of capital expenditures relates to relatively steady levels, of solution development for our L&S platforms while we maintain a capital-light strategy in our ex-L&S solutions. Pre-pension, pre-cash flow, which is free cash flow prior to pension and post-retirement contributions, was $51 million in the third quarter and $15 million year-to-date. We generated $20 million of free cash flow in the third quarter and improvement from $14 million in the prior year period. During the quarter, we made $30 million of contributions to our global pension plans and received a $25 million one-time payment related to a favorable legal settlement in the fourth quarter of 2024. Moving to slide nine, cash balances were $322 million as of September 30th, compared to $377 million at year end, reflecting our use of $50 million cash on hand as part of our $250 million discretionary pension contribution. Our liquidity position is strong, with no major debt maturity until 2031, and our recently renewed $125 million asset-backed revolver remains undrawn. Our net leverage ratio is 1.8 times and 3.7 times, including pension deficit. We expect lower net leverage at year-end, given the strong profit contribution we expect from L&S renewals and expect leverage to gradually come down over time as we contribute to our pensions, though not in a straight line. I will now provide an update on our global pension plans. Each year end, we provide detailed estimated projections for expected global cash pension contributions and gap deficit relative to our quarterly updates. These projections change based on factors including funding regulations and actuarial assumptions. The deficit is also impacted by our planned contributions some of which go directly towards deficit reduction. After the upside senior notes issuance in June and one-time $250 million contribution, the pro forma 2024 year-end U.S. pension deficit was approximately $500 million. As of September 30th, we estimate the deficit to be approximately $470 million. We are forecasting approximately $360 million of remaining cash contributions our global pension plans in aggregate through 2029, which includes approximately $24 million of pension contributions in the fourth quarter, including both U.S. and international. Of the $360 million of contributions we are forecasting through 2029, approximately $230 million are associated with our U.S.-qualified defined benefit plans, relatively unchanged from last quarter. As we discussed on last quarter's call and during our dedicated pension investor education event, the historical pension contribution volatility that was primarily in our U.S.-qualified defined benefit plans was substantially removed by increasing fixed income allocations of plan assets to match duration of plan liabilities. As a result, our contributions through 2029 are not expected to fluctuate more than 3% in aggregate per annum, providing a high degree of certainty as to our future funding requirements. During the quarter, we completed an annuity purchase that removed approximately $320 million of pension liabilities, more than half of the $600 million we aim to remove before the end of next year. This involves transferring $320 million of liabilities and a similar amount of plan assets to a third-party insurer. Annuity purchases reduce ongoing maintenance costs and allow us to remove liabilities at lower premiums than would be paid on a full takeout. I will now discuss our full year financial guidance and additional color provided on slide 10. For the full year, we now expect constant currency growth of negative 4% to negative 3%, which equates to a reported revenue decline of 3.6% to 2.6%, which continues to assume full year license and support revenue of approximately $430 million. This implies fourth quarter revenue of approximately $570 million, which assumes $185 million to $190 million of L&S revenue. We expect to come in at or above the midpoint of our upwardly revised non-GAAP operating margin guidance range of 8% to 9%, implying fourth quarter non-GAAP operating margin in the mid-teens due to the concentration of L&S revenue we expect. We are pleased that this translates to non-GAAP operating profit that is slightly above our original full-year guidance. This stems from the strength and stability in our ClearPass Forward software ecosystem, as well as diligent execution to enhance delivery and operational efficiency and foreign exchange favorability. We will continue to act with agility to remove additional costs where needed to align with revenue levels in certain areas of the business. We continue to expect to generate approximately $110 million of pre-pension free cash flow. This reflects full-year assumptions listed on slide 10. As a reminder, pre-pension free cash flow is difficult to predict with precision, as the exact timing of some larger L&S collections and how those fall around year end could shift collections between fourth quarter and first quarter of 2026. Operator, please open the line for questions. Operator | Conference Operator: We will now begin the question and answer session. To ask a question, you may press star, then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble a roster. And our first question will come from Rod Borges of Deep Dive Equity Research. Please go ahead. Rod Borges | Analyst, Deep Dive Equity Research: Okay, great. Thank you. I could ask a long-winded question on AI, but I'll make it short-winded. How are you seeing AI's impact overall on your P&L? Mike Thompson | CEO and President: Hey, Rod, it's Mike. Thanks so much for joining in the question. Really appreciate it. Although short-winded question may be a long-winded answer, that's As you would expect, lots of impacts in regard to the application of AI. In general, what I would say to you is that the impact of our transformation of our delivery model, which allows us to continue to deliver our solutions in a more, I'll say, cost-friendly way or reducing our delivery costs, certainly helps our margin profile, and we've seen a lot of green shoots in that regard. As I mentioned in some of my prepared remarks, and Deb did as well, there's a knock-on impact, a top line for that, right? So, typically, the AI component of a lower delivery cost means that, you know, our clients are seeing some of the benefit of that, and we share some of that savings with our clients, but it makes us, you know, obviously a lot more profitable and allows us to be a lot more competitive from a pricing perspective. So, you know, we think that's the right way to approach that in regards to the new solution uptake. And then, you know, obviously as we continue to grow and add new logos to the mix, the application of those new logos certainly have an uplift that is much more top line and bottom line accretive because we've already baked that into our models. We're seeing, as you know, within our L&S business, increases in our consumption rate. We think that's pretty much driven by the application of AI across the board, right? So this whole data abstraction layer and AI compute layer, we're seeing some nice improvements in our HPC business. So, you know, clearly that clear path forward consumption, we've increased that guidance, as you know, and we're actually talking about the increase of the out years, 26 through 28. I think we started that dialogue a couple years back thinking that would be about 360 million per annum, and now we're talking about 400 million on average per annum for that three years. So significant uptick in L&S related to consumption that we think is AI related. Certainly AI in our delivery efficiency and hitting those real strategic objectives of increasing our profitability and our delivery. And, you know, in some of those cases too, Rod, by the way, it's not only about just margin improvement in those accounts. You know, we're looking at expansion and new scope and kind of growing those accounts in a bigger way through the application of this kind of technology-led delivery. And, you know, so the scale is one part of it, but certainly the volume is the other part. So, So, you know, we're obviously, you know, huge believers. We've talked for a while that we think this is, you know, exponentially helping us to continue to compete in greater and greater scale with some of our competitors. And, you know, we've got it essentially sprinkled in throughout our delivery, whether that's in intelligent operations embedded in just AI management and orchestration of compute, within CA&I, whether it's embedded in ECS from a ClearPath Forward delivery and navigation, and whether it's in field services and or service desk inside of DWS. All of our solutions essentially have that baked in and continue to grow in that manner. Rod Borges | Analyst, Deep Dive Equity Research: Okay. And then I guess as an extension of that and applying it to the results for the quarter, despite the revenue shortfall, you seem on track to meet your margin and free cash flow targets. So I'd like to ask, what's enabling the margin performance to come through, even though revenues are coming in less than planned? Mike Thompson | CEO and President: Yeah, great question, Rod. Thanks for that. Well, look, the first and most obvious is the increase in L&S, right? So that's obviously a higher profit component, and we're seeing a step up in that which is giving us margin pull through. The second and probably less obvious is there are plenty of green shoots embedded in XLNS for our new solutions, right? We've had quite a bit of renewal activity this year. It's probably an unusually high renewal activity coming through in the year. And being able to sign those accounts with our new solutions at a better margin profile And in a lot of cases, being able to expand either expansion of the work that we're doing or add new scope to those renewals are also benefiting us from a margin profile. So I think what you're really seeing here on the top line is you're seeing some reduction or accretion in top line related to either contracts that have attrited off or the slowness of some of the PC cycle or some hardware shifting But all three of those are lower margin accreted off. And what we're adding is higher margin, you know, addition. So right now the top line is suffering a little bit from the accretion being a little higher than the addition. But, you know, we feel like that's the right path from our perspective. And, you know, we've tried our best here to fully deliver, you know, what the risk is for the remainder of the year for the, you know, the impacts that we've been seeing over time. whether that's the PC refresh cycle, whether that's, you know, slow down in the adoption of Microsoft 10 to 11, or whether that's just the uptake in project work in public sector due to, you know, the prevailing issues there in the U.S. with the government shutdown and others. So a little bit of a balance, but in general, you know, it's allowed us and I think proves our margin continued improvement in our new solution delivery. I mean, just as a reminder, over the course of the last three years, we've improved that gross margin in XLNS by almost 600 basis points, and we continue to see opportunity to continue to see that expansion, regardless, really, on what's going on in the top line. Deb McCann | Chief Financial Officer: And also, Rod, this is Deb, just to add, we have also increased some of the SG&A savings we talked about. At Investor Day, we're accelerating some of those. Some of those were through 2026. We've accelerated some of those. into 25, and we're, you know, ramping up our efforts overall on rationalizing our cost base. Mike Thompson | CEO and President: Yeah, look, I think Deb mentioned, too, in her prepared remarks around, you know, kind of the variability of that workforce. So clearly we're going to take, you know, some level of action to make sure that we continue the margin improvement that we've been seeing over the last couple years. Rod Borges | Analyst, Deep Dive Equity Research: All right, and just a final quick one here as inputs to the model link. Can you give your view on the pace of your delivery improvement going forward and how that would impact Q4 cost reduction charges specifically? Thanks. Mike Thompson | CEO and President: Yeah, thanks, Rod. So, look, I mean, we've always been and continue to refine our delivery costs, and so there's some level of kind of BAU cost reduction that you normally see. I would expect that you'll see some of that increment in Q4 costs, and the cadence probably be a little higher in Q4 just to kind of mirror the variability in the workforce. I don't think it's going to be like a crazy significant increase in that, but there certainly will be actions taken to mitigate the exposure that we've seen on top line or some of the, you know, de-risking efforts that we're going to do to maintain the margin profile. Rod Borges | Analyst, Deep Dive Equity Research: Got it. Thank you. Mike Thompson | CEO and President: Thanks, Rob. Operator | Conference Operator: The next question comes from Mayank Tandon of Needleman Company. Please go ahead. on behalf of Mayank Tandon\ This is Brandon on for Mayank. Thanks for taking my question. I guess I just was wondering, what are you guys seeing on the demand front in cloud spending, particularly on the AI front? I know you guys mentioned, like, increased competition, but I guess what are you guys doing to navigate those increased competition dynamics that you guys are seeing? Mike Thompson | CEO and President: Hey, Brad, and thanks for the question and thanks for participation in the call. Look, the demand is certainly there. I will tell you, I was just on the road, frankly, in Europe and met with a whole host of clients and just had what we call a CIO and CTO forum and had a big discussion with, you know, 20-some-odd potential clients and existing clients in that forum. So, you know, clearly the demand is there for the application I think what we're bumping up against is the application of that technology into an ecosystem that is very sensitive, right? There are many attributes that need to be addressed, security being one of the primaries involved with that. So there's money there certainly to be spent. The demand is there. We continue to get validation from clients. and industry analysts that our solutions are there and what they want. And, you know, as I mentioned, the competition continues to be, you know, fairly aggressive in that. So, you know, we've got to really make sure, you know, from a defensive posture that education is key and really having those dialogues around what that output looks like and why, you know, our client centricity model and being, I'll think, a little bit pragmatic in how it gets adopted, where it gets adopted, and the time of adoption is really important. So there's an equal amount of hype as there is an equal amount of, you know, practicality in the adoption of these AI models, right? And I think from our perspective, we're taking a tack to really try to be very conscious around setting the right expectations with our clients, not promising things we can't deliver, And in some cases where those expectations aren't met, then, you know, then we have to attrip that potential, you know, client opportunity because, you know, we're not looking for a race to the bottom here. We're really talking about adding value and experience to our clients. And, you know, one of the stats I like to use when having discussions with our clients and potential clients is, you know, for our top 50, On average, we've serviced those clients for, you know, roughly 20 years. You don't have that level of experience with a client base because you're looking at a short-term adoption of a technology. We really like to think our technology is state-of-the-art, and we want to talk about the future and how we get our clients to the future. So the demand is certainly there. Our solutions certainly meet that demand. And, you know, the key is really about client education. and setting an adoption roadmap. on behalf of Mayank Tandon\ Okay, thank you. That's super helpful. And then I know you guys, last quarter, you guys touched on the public sector, I think specifically for the cloud business. So I was wondering if you guys, you guys mentioned the call a little bit, but any update on that with the government shutdown in terms of client conversations and client demand with the shutdown? Thank you. Mike Thompson | CEO and President: Yeah, great question. Thanks, Brennan. So Yeah, we did talk about that last quarter. In fact, last quarter, we mentioned that we started to see a little bit of green shoots in public sector and, you know, thought that sector was coming around a bit from a project orientation. That has reverted, right? That I'll say influx of project work is basically really quiet. Now, Deb mentioned in her remarks, and I think it's important, You know, we've got a lot of renewals and have had a lot of renewals this year in public sector and are doing well to renew, you know, those particular accounts. But we're not seeing the uptick in the project work that we had started to see. So, you know, there are a couple areas where we're leaning in. You know, we talked about that a little bit on the call, but You know, we talk about the justice system. You know, we talk about access management and things like that. There are what I would consider nondiscretionary areas in public sector where the demand is fairly constant, and there's some project work in that space. But clearly, there is, continues to be a pause in project work in public sector, specifically related to U.S. public sector. I wouldn't say that holds true across the board. You know, we mentioned on the call about an Australian client that we had some good success with and expansion in other regions. But U.S. public sector is also where a good chunk of our CA&I business is allocated. So there's definitely been kind of a pause in project work there. And so the green shoots that we started to see in Q2 have really subsided and You know, I think there's a little bit of a wait-and-see approach here, and we expect that that's going to continue for a couple quarters. So, you know, we're kind of sitting tight. We're having good conversations with folks, but there's a lot of uncertainty there. on behalf of Mayank Tandon\ Thanks. That's super helpful. Thanks, guys. Mike Thompson | CEO and President: Thank you. Operator | Conference Operator: The next question comes from Anya Sorenstrom of Sedoti. Please go ahead. Anya Sorenstrom | Analyst, Sedoti & Company: And thank you for taking my questions. A lot of them have been covered already. But can you just, I think you mentioned you're starting to see pricing pressure. Is that something you only started to see now in the third quarter? Or can you talk a little bit more about that? Mike Thompson | CEO and President: Hey, Anya. Good to talk to you again. Yeah, no, we did mention that. I wouldn't say it's something we're just seeing in the third quarter. As you know, this is a highly competitive space that we're in. I would say in the third quarter and especially as we go through renewal cycles with clients, there's more and more players in that renewal cycle. And, you know, frankly, in a couple instances, we've seen competitors really just undercut pricing to, in my mind, levels that we're just not willing to go to, right? You know, we've made a commitment as a management team that we're going to stay disciplined and the contracts that we're signing. We know we've got value. We know that we can bring that value to our clients. But, you know, we're not just going to sign contracts to maintain a top line if it's not helping our bottom line. You know, our objectives were very clear, and we continue to follow them. We're trying to grow profit dollars. We want that margin percentage to increase. We're increasing cash flow or, you know, obviously, moving positively in the cash flow arena. And we think that's the better way to drive shareholder value. And so, you know, that pricing pressure I think is, you know, certainly relevant and continues to be relevant in our discussions. But, you know, please don't take that comment to think that we're not competitive in pricing. We are. You know, we're right there in every deal that we're talking about. But there's a limit to how far we're willing to go And from our perspective, if the client doesn't have the capability for us to grow or the capability or want to move to our next-gen solutions, we're really not interested in just re-signing a contract at lower values for the old delivery model. Anya Sorenstrom | Analyst, Sedoti & Company: Okay, thank you. And then I'll take you and just maybe go over some puts and takes for the free cash flow for 2026. Mike Thompson | CEO and President: Sure, Deb, we don't take that? Deb McCann | Chief Financial Officer: Yeah, so as far as, you know, for 2026, we're not, you know, giving guidance at this point for 2026, and we'll discuss that when we report fourth quarter. But there are, to your point, you know, a lot of moving pieces. So obviously, you know, with the capital market transformation we did, right, we lowered our pension contributions, but the interest expense will move higher. And, you know, so there are moving parts that as we're formulating our plan for 2026, you know, we'll lay out to you when we report that next quarter. But I think a key thing is, you know, the biggest driver, you know, L&S is clearly a big driver at 70% margin. So, you know, as we finalize what that number we've set on average, 400 million, and those are 70% margins. So those, you know, are a big impact. But I think what's most important is we feel we have a really strong liquidity position. So as we go into 2026, you know, right now our cash balance is 320 million. And if you look at the cash color we've given, you know, to hit about 110 million, pre-pension, that puts us about $390 million of cash by the end of the year. So we feel like, you know, we'll be entering 2026 in a good place from a liquidity perspective. And we also have that $125 million ABL we just renewed that's also undrawn. So we feel good from a liquidity position. And, you know, as we shape the algorithm, what that's going to look like in 2026, you know, we feel confident in that. Anya Sorenstrom | Analyst, Sedoti & Company: Okay, thank you. And then also, if I understand right, the lower LNS this quarter was due to some being pushed into the fourth quarter and into 2026. Can you just elaborate on that a little bit and what you're seeing there? Mike Thompson | CEO and President: Yeah, so just to be clear, the push in the quarter got signed in the early days of Q4 for LNS. So that's not anything into 26. That is really just a shift of something we thought was going to sign by September 30th, signed in October. All of it was signed. All of it is in-house. So no real issue from an L&S cash perspective, just a quarterly timing. Deb, anything? Deb McCann | Chief Financial Officer: Yep. Nope. No, that's just all within this year. Okay. Great. Thank you. That was all for me. Mike Thompson | CEO and President: Great. Thanks, Anya. Operator | Conference Operator: Once again, if you would like to ask a question, please press star, then 1. And our next question will come from Arun Sisadri of Forza. Please go ahead. Arun Sisadri | Analyst, Forza: Everyone, thanks for taking my questions. Just a couple from me. It sounds like the book to bill is still pretty strong. So does that reflect confidence in the, you know, I guess, you know, what the timing impacts in LNS as well? And sort of what are you seeing in terms of that renewal activity and You talked a little bit about renewal activity being, you know, enhanced this year. Is that, I guess, those two are potentially related. But any color there. And then secondly, if you could, is there any way you could size that renewal in LNS that moved over to Q4 that would be helpful? Thanks. Mike Thompson | CEO and President: Yeah, so I'll start that. And, Deb, I'll ask you to kind of chime in here with some color as well. So you're right, the book-to-bill, I think we are at 1.1 is what we're talking about on book-to-bill. And, you know, clearly that's a solid book-to-bill and happy with that and aligned to kind of our, you know, contracting models and our normal modeling for our forecasting. So, you know, the renewal cycle that I talked about, I mean, and I was actually talking more about XLNS, L&S, we've talked about the renewal cycle quite a bit, and, you know, as we've indicated, that renewal cycle is actually increasing our L&S expectations over the next three years. So I'm going to discount that for a second, Arun, and based on your question, and really speak about XL&S. So for this year, just to give you a sample, the XL&S renewal cycle for this year is about three times what it will be for next year, right? So it gives you a sense of the baseline that we're actually renewing this year. And if you think about that, the resources it takes to go after all of that renewals is also, you know, obviously puts some pressure on the work that we're able to do in new logo acquisitions. So there's a pretty high renewal cycle this year. We've been very successful in that renewal cycle. Now, I'm not saying we've renewed every single contract that was out there, and a couple of them, as I've mentioned, you know, we didn't because the, you know, the investment that the client was looking for us to make was not conducive to the pricing that we expected to get. So a couple of those contracts we did not renew, but the lion's share we did, and for many of those we've actually renewed them at better margin profiles and have increased some scope and or expansion in those accounts. So we've been pleased so far with the the ability to renew those and to renew that work under our new delivery model, right? That's really key, that we're converting these clients upon renewal to the delivery model that's technology-based, and that's an important element of that cycle because that brings in the enhanced margin profile. So, you know, get happy with, you know, the current book-to-bill, happy with the progress we're making on renewals, We have quite a bit of renewals coming up in Q4. Progress on those have been very good. So, again, kind of pleased with where we're at there. Would I like to win every single one and get them at higher margins? Sure. Is that a realistic assumption? Probably not. Deb, anything you want to add to this? Deb McCann | Chief Financial Officer: Yeah, just that, as you can see, I mean, the TCV year to date, right, XLNS renewals is 572 million versus last year, 321. So it's 78%. increase over last year, just to demonstrate kind of how big our, you know, the renewal cycle's been this year. And then related to your one on the L&S renewal that shifted out, that was just a few days after the quarter. That was about $12 million we had mentioned of revenue that shifted out one quarter. But it won't impact, it will not impact the full year. Arun Sisadri | Analyst, Forza: Got it. And then, but also, you also have a fairly significant expectation, I think, for the for Q4 that's factored into the numbers? And it sounds like your confidence is pretty high in terms of that XLNS renewals in Q4. Mike Thompson | CEO and President: Yeah, I think as common on the renewals was the LNS component. And of course, we're super confident in the LNS component. And we're also confident in the XLNS component of renewals. You know, so look, everything that we're not confident about has been baked into kind of our you know, updated guidance. So we feel pretty good about what's out there to close. And, you know, obviously at this point in the year have pretty good insight to, you know, how the next couple months are going to close out. Deb McCann | Chief Financial Officer: But to your point around the LNS renewals, right, one, a few day slip, right, can shift. And so we mentioned that throughout the script, right, that we do have high expectation for for Q4, which we feel confident in, but, you know, there is always that slip of an element. Mike Thompson | CEO and President: Yeah, wonderful point, Deb, and really, if you think about it, Arun, you know, our talk on that has always been around not if, but when, right? So we're really confident that it's going to renew, and, you know, and we're very confident that it's going to renew in the timing that we expect it to, but, you know, as we've just seen in this quarter, a shift of a couple days makes a difference. Thanks, Arun. Operator | Conference Operator: The next question comes from Matthew Galenko of Maxim Group. Please go ahead. Matthew Galenko | Analyst, Maxim Group: Hey, thanks for taking my quick question. If we see the other side of the government shut down in the relatively near future, do you expect like a quick return on forward momentum on project work that's been gummed up? Or, you know, how quickly do you see the market responding to things opening up? Mike Thompson | CEO and President: Hey, Matt, thanks for the question. Good talk to you again. Look, I don't think our expectations are that it's going to be a light switch effect where the government opens back up and all of a sudden all this project work starts to open up immediately. As we indicated last quarter, we just started seeing some green shoots on that work and then it shut back down. So we think that's going to linger, frankly, for, you know, a couple quarters. So do I think it's going to be like a Q1 recovery if the government opens up before then? No, I do not, right? We've got to kind of reengage. They've got to reassess what the outputs of that government work is. The focus is going to be on non-discretionary work first and then project work second. So, you know, we're kind of baking into our expectation that that's going to be several quarters prolonged. Matthew Galenko | Analyst, Maxim Group: Great. Thank you. Thanks, Matt. Operator | Conference Operator: This concludes our question and answer session. I would like to turn the conference back over to Mike Thompson for any closing remarks. Mike Thompson | CEO and President: Thank you, operator. Before we wrap up, I just want to reiterate a few key points we hope you take away from today's call. First, the trends remain strong in our most powerful profit and cash driver, which is L&S Support Solutions. We plan to meet our increased expectation of $430 million for this year, and have increased our expectations for the average annual LNS revenue in out years from 26 through 28 to $400 million per year. Second, while the market dynamics posted headwinds in our ex-LNS business that we don't expect to dissipate overnight, we're adjusting our approach to mitigate those impacts, and importantly, we're continuing to deliver on our profit and cash flow objectives, And then lastly, you know, we're building momentum in our AI-led solutions with technology-first delivery models. This is making us more competitive, supporting our margins, enabling us to scale our most differentiated innovation more quickly, and we're seeing more and more clients and industry analysts support the belief in that momentum. So, you know, I'd like to just make sure we take away those three points from today's call. And, Operator, thank you for your time, and you can close the call. Operator | Conference Operator: The conference has now concluded. Thank you for attending today's presentation and you may now disconnect. jsPDF 3.0.3 D:20260606090523-00'00'

NYSE:UIS Q2 2025 Earnings Call Transcript Generated on 6/6/2026 Operator: Good day and welcome to the Unisys Corporation second quarter 2025 earnings conference call. All participants will be in listen only mode. Should you need assistance please signal a conference specialist by pressing the star key followed by zero. After today's presentation there will be an opportunity to ask questions. To ask a question you may press star then one on a touch phone phone. To withdraw your question please press star and then two. Please note this event is being recorded. I would now like to turn the conference over to Michaela Pruosky. Please go ahead. Michaela Pruosky | VP, Investor Relations: Thank you operator. Good morning everyone. Thank you for joining us. Yesterday afternoon Unisys released its second quarter 2025 financial results. Joining me to discuss those results are Mike Thompson our CEO and president and Deb McCann our CFO. As a reminder today's call contains estimates and other forward-looking statements within the meaning of the securities laws. We caution listeners that current expectations assumptions and beliefs forming the basis of these statements include factors beyond our ability to control or precisely estimate. This could cause results to differ materially from expectations. These items can be found in the forward-looking statement section of yesterday's earnings release furnished on form 8k and in our most recent forms 10k and 10q filed with the SEC. We do not assume any obligation to review or revise any forward-looking statements in light of future events. We will also refer to certain non-GAAP financial measures such as non-GAAP operating profit or adjusted EBITDA that excludes certain items such as post-retirement expense, cost reduction activities and other expenses the company believes are not indicative of its ongoing operations as they may be unusual or non-recurring. We believe these measures provide a more complete understanding of our financial performance however they are not intended to be a substitute for GAAP. Reconciliation for non-GAAP measures are provided within the presentation. Slides for today's call are available on our investor website and with that I'd like to turn call over to Mike. Mike Thompson | CEO and President: Thank you Michaela and good morning everyone. Thank you for joining us to discuss the company's second quarter 2025 financial results. Before I discuss the quarter I want to briefly touch on the meaningful steps we've taken to accelerate our path to removing our U.S. qualified defined benefit pension plans. In June we issued 700 million dollars of senior secured notes, refinanced our existing debt and used 200 million dollars of proceeds and 50 million dollars of existing cash to make a 250 million dollar discretionary pension contribution which reduced our U.S. deficit dollar for dollar. We then shifted our asset allocation within the plans to primarily fixed income securities that match asset and liability movement essentially removing market and interest rate volatility in our U.S. contributions. We believe removing significant pension volatility simplifies our story and improves our ability to attract new investors. The actions we've taken are accretive to cash flows over the next five years and the reduction in our five-year contribution exceeds the interest expense on incremental borrowings. Our discretionary contribution will also allow us to continue to remove liabilities through additional annuity purchases both lowering the cost of future premiums and full plan removal as well as accelerating the timeline for full removal. These steps reflect our commitment to enhancing long-term shareholder value while protecting financial flexibility and allowing for continued investment supporting innovation and growth. We discussed the financial stability of our investments and we focused all of these actions in more detail and provided updated projections for our contributions and deficit during a July 24th webcast that's available on our investor website. Turning now to our results, second quarter reported revenue increased 12% on a sequential basis and 10% in our XL&S solutions in part due to some acceleration of revenue expected in the third quarter. Total company revenue was also up 1% year over year as reported and in constant currency. This exceeds the expectations we shared last quarter. We again benefited from our strong 2024 new business signings and saw a sequential improvement in project work, business process solution volumes and revenue related to the PC cycle. Second quarter L&S revenue was also stronger than anticipated driven by both increased consumption and some accelerated integrated system purchases. We were pleased with the growth in the digital workplace segment which had faced some headwinds in recent quarters from volume declines in lower margin field services. Those declines have stabilized and we continue to see increases in higher value infrastructure field services such as enterprise storage and network services. We expect increases in those volumes in the second half to drive year over year growth as we lap PC service volumes declines especially in the fourth quarter. While some of the items we benefited from in the second quarter are expected to moderate in the third quarter, we have a clear line of sight to achieving the full year XL&S targets implied in our revised revenue guidance and we are raising our outlook for full year profitability. We're pleased with the results this quarter especially in light of continued headwinds in the industry stemming from the ongoing macroeconomic and geopolitical uncertainty. As we look to the second half, our updated guidance does embed some incremental impact from elongated decision making and slower ramp up of implementations or transitions. While this is shifting some XL&S revenue out of the current year, we're not seeing any impact to the total expected revenue generation over the life of these contracts or any contraction in our ability to expand these relationships in the future. We are encouraged by the recent progress on trade negotiations and why we're not building improved client sentiment into our outlook these trade resolutions should reduce uncertainty and help expedite client investment decisions. Looking at client signings, we saw a slight increase in sequential total contract value or TCB based on higher renewal levels offsetting a decline in new business signings which is coming off a strong first quarter. Importantly, our first half new business TCB was up 15% compared to the made up a larger portion of our new business signings during the quarter. As a reminder, this work is generally shorter duration with lower absolute contract value but moves to revenue recognition more quickly. Improved project levels are not attributable to a single factor. Some clients are shifting budget towards Windows 11 upgrades and refreshes. Others are moving forward on overdue work they de-prioritized for AI pilots and some are simply resumed project flows that had been paused during renewal negotiations on their larger long-term services contracts. We're also converting follow-up opportunities on new logos we added in 2024 and we continue to have a good pipeline behind those. As we've said before, the precise timing of renewals and new business signings can be uneven and we did see some signings shift out of the second quarter due to typical complexities in negotiating large long-term contracts. We expect contract signings on most of these by the end of the quarter which would lead to improved new business TCB in the back half of the year. I want to share a few client wins from the second quarter that help illustrate how we're expanding within the key clients across our segments. In digital workplace solutions, we're expanding IT support to three hospitals recently acquired by a U.S. -for-profit hospital system. Under our existing scope, we provide IT support for around 200,000 end users including frontline healthcare providers and support integration of several acquisitions each year. In cloud application and infrastructure solutions, we're expanding data center management services with a global financial institution adding two additional data centers in Asia Pacific to support increasing transaction volumes in their card services business. We also extended our existing agreement for data center management and the network services we provide in 58 countries globally. In enterprise computing solutions, we'll be leading a project to upgrade core banking systems to the next generation of ClearPath forward systems. This is a large-scale transformation including new data center, adopting networking standards, and building a new architecture designed for reuse and scalability all crucial to maintaining service and 24-hour support for roughly 50 million customers checking and savings accounts. Shifting the discussion to our solution portfolio, we continue to invest in innovation and operationalizing AI to scale our delivery. We see an outsized benefit from AI as it begins to shift our delivery from a labor augmented by technology model to one that is led by technology and augmented by labor. AI gives us the ability to scale delivery and shrink the size advantage historically held by larger competitors which makes it easier to penetrate the market with differentiated solutions. In digital workplace solutions, our device subscription service or DSS provides an early example of how we can combine AI with unique data sets, domain expertise, and specialized services to attract some of the largest organizations to Unisys. Similar momentum is building within our service experience accelerator or SEA, the technology framework powering our next generation service desk. SEA harnesses generative and agentic AI, service data analytics, and intelligent workflow automation to provide highly automated omni-channel service desk within a client's trusted network. SEA is resonating with clients and prospects in part because of its differentiated knowledge management capabilities which enhances the accuracy and efficiency of issue resolution. One of the biggest impediments to AI adoption is the cost and challenge of building and maintaining quality training data for AI models which is leading to hallucinations and pressuring business cases for deployment. SEA uses our custom developed machine learning models along with LLMs to automate the cleansing of low quality or outdated information, identifying knowledge gaps and self-generating content in response to new issues, increasing the efficiency and effectiveness of virtual agents. SEA is in production for several clients and while it's early days we're seeing -to-end automation resolution increase from an average of 15 to 40 percent, translating to a better client experience while lowering the cost of high quality delivery. We're currently pursuing multiple patents for the IP related to these differentiated capabilities. In field services, we are continuing to scale our specialized capabilities in high value infrastructure services including high-end storage, networking and liquid cooling. We have a robust pipeline in these higher margin opportunities and expect demand for these services to grow alongside the underlying demand for data center and private cloud capacity. In cloud applications and infrastructure solutions, we're leveraging our centralized application capabilities and hybrid multi-cloud capabilities to execute transformations at scale for some of the largest global enterprises and governmental agencies. We recently shared two client stories that highlight the transformations we've led for two of our premier clients Omnicom and Benjamin Moore. I encourage you to take a look at the videos and marketing materials on our website to hear more about our impact directly from the CIOs of those organizations. We have a robust pipeline in cloud services and are continuing to enhance our cloud managed services and our data center managed services which we collectively refer to as intelligent operations. This unified foundation is our framework for delivering seamlessly integrated AI ops to manage hybrid infrastructure environments and leverages -in-class partner technology coupled with Unisys accelerators. The result is a highly automated intelligence driven delivery model that enhances performance and resilience while driving efficiency and cost optimization at scale. Cyber security continues to be an area of focus and urgency for our clients and we continue to evolve our offerings for SOC transformation, cyber recovery, continuous threat exposure management, digital identity and management, managed detection and response and secure network access services. In ECS we're advancing our clear path forward 2050 strategy to expand our proprietary ecosystem to enable the modernization of hybrid infrastructure and applications and unlock valuable data residing on our platforms as well as increasing the speed of deploying security encryption algorithms to respond to dynamic threats. We recently migrated several clients to the newest version of our ePortal which connects the structured data on our platforms to front-end applications to power insights throughout the enterprise. Our clear path forward strategy enables us to maximize value by integrating our platform evolution while delivering features and capabilities specifically requested by clients and provides cross-selling opportunities. Alongside solution development we continue to advance our alliance partner strategy. One element is going deeper into a smaller set of alliance partners to forge a more impactful and mutually beneficial relationship. Some of our larger alliance partners are starting to view solutions such as DSS and specialized field services as additive capabilities our partners can provide to their clients and they're bringing us into some of their pipeline opportunities. Last month we received three prestigious awards at Dell Tech World signaling our growth influence with one of our largest alliance partners. This included being named Dell's 2025 global alliance growth partner of the year. We are also expanding our access to addressable markets by adding partners that increase the range of solutions we can offer to better help clients leverage their existing technology or provide them lower cost alternatives. ITSM partnerships with EasyVista and FreshWorks are one example that we discussed last quarter and in the second quarter we expanded our DSS offering into Apple devices and are exploring expansion into peripheral devices beyond PCs. We're continuing to see increased awareness and recognition with both industry analysts and advisors. In Q2 we appeared in seven major industry reports and received new and improved rankings in state and local and higher education digital services. We were named a leader in new report on attack surface management, retained our designation as a leader in data center security and innovator in application services and improved our position in applied AI services. In digital workplace we received best service improvement initiatives award from the help desk institute and finally I'm especially proud that Newsweek recently named us one of the to fostering a dynamic empowered workforce which is apparent in our very low trailing 12-month attrition rate of 11.7%. With that I'll turn the call over to Deb to discuss our results in more detail. Deb McCann | CFO: Thank you Mike and good morning everyone. As a reminder my discussion today will reference slides from the supplemental presentation posted on our website. I will discuss total revenue growth both as reported and in constant currency and segment growth in constant currency only. I will also provide information excluding license and support revenue for XL&S to allow investors to assess the progress we are making outside the portion of ECS where revenue and profit recognition is tied to license renewal timing, which can be uneven between quarters. We are pleased with the sequential improvement we were able to achieve on both the top and bottom lines allowing us to raise our non-GAAP operating margin guidance and pre-pension pre-cash flow expectations. For top line, we tempered our growth outlook to reflect macroeconomic related uncertainty impacting the broader industry as well as some shift in timing of backlog conversion. At the same time, many of our most innovative solutions support the type of efficiency goals being broadly prioritized and are resonating with clients. Looking at our results in more detail, you can see on slide 4 that second quarter revenue was $483 million, an increase of .1% year over year or .0% in constant currency. Excluding license and support, second quarter revenue was $396 million, essentially flat year over year and in constant currency. We exceeded the sequential growth we expected starting the quarter with revenue up .5% in constant currency and .5% in XL&S solutions. We continue to expect a stronger back half with a higher weighting of license and support renewals and improvement in our XL&S solutions. We have visibility into more upfront revenue and project work associated with certain signings primarily in the fourth quarter, though some of this is subject to final deal terms that could impact revenue recognition. Our updated revenue guidance range accounts for some of this revenue to be recognized over time. I will now discuss our segment revenue which you can find on slide 4 in constant currency terms. Digital workplace solutions revenue was $138 million, a .6% increase compared to the prior year period. Year to date, revenue was down .4% year over year due to the higher volumes of PC-related services in the prior year period, but we are pleased with the segment's 13% sequential growth in the second quarter. Growth was driven by 2024 new business and ramping volumes in high-end storage field services while PC-related services have stabilized and project work related to Windows 11 upgrades has begun to materialize. The quarter also benefited from some accelerated PC hardware revenue which we expect to result in a slight sequential decline in third quarter segment revenue. Cloud applications and infrastructure solutions revenue was $185 million in the second quarter, a .9% decline compared to the prior year period. This segment has our highest public sector exposure where client sentiment remains somewhat muted due to funding and geopolitical concerns. We saw some lower volumes at clients where projects ended and new investments are being approached cautiously. However, the segment revenue grew 2% sequentially and we expect year over year growth to inflect positively in the fourth quarter. We are encouraged by the strength of CA&I pipeline growth with many of our new opportunities coming from public sector clients including in higher education which could be a sign of easing pressures. These opportunities span projects and multi-year contracts in cloud transformation, data center management, application services and security. Enterprise computing solutions revenue was $140 million in the second quarter, an increase of .2% compared to the prior year period. Within the segment, L&S revenue was $88 million up .7% year over year in constant currency. This exceeded the $70 million we had expected for the quarter largely due to some acceleration of revenue we expected in third quarter which included integrated system sales. Increased client consumption provided additional benefit extending the favorable trend from recent quarters. Specialized services and next generation compute solutions revenue grew .3% on some higher volumes and project work in business process solutions some of which we expect to moderate in the back half. Prelling 12-month book to bill is 1.0 times for both the total company and our XL&S solutions which is relatively flat sequentially. We exited the quarter with a backlog of $2.9 billion up 5% year over year. As we mentioned previously, 2025 is a higher renewal year with much of that TCB concentrated in the fourth quarter. So we expect this to be a low point of the year for both backlog and book to bill. Moving to slide 6, second quarter gross profit was $130 million, a .9% gross margin compared to .2% last year. XL&S gross profit was $70 million and XL&S gross margin was .6% down 110 basis points on a year over year basis. We discussed gross margins on a gap basis and higher restructuring items in the second quarter were fully responsible for compression in XL&S gross margin in the quarter. Excluding the restructuring charges XL&S gross margin would be relatively flat compared to the prior year. I will now touch briefly on segment gross profit. DWS gross margin was .9% in the quarter, up 70 basis points year over year and up 270 basis points from the first quarter. This was driven by delivery improvements, especially in field services where we have made significant investments to modernize our platform and are benefiting from the ramp up of higher margin infrastructure volumes. The ANI gross margin was .8% in the second quarter of 10 basis points year over year. We continue to focus on workforce optimization initiatives, achieving synergies within our recently centralized application capabilities and are increasing our use of automation and AI. These initiatives have helped us maintain profitability despite some of the revenue headwinds in the segment. ECS gross margin was .5% in the second quarter, up slightly from .3% in the prior year. Moving to slide 7, second quarter non-GAAP operating profit margin was 7.6%, up from .1% in the prior period, driven by higher L&S revenue as well as improved operational efficiency. Operating expenses in the second quarter declined .2% year over year and are down 10% in the first half, driven by savings of the ongoing execution of our SG&A reduction initiatives, which are nearing the later stages and should give us close to a full year benefit in 2026. Second quarter adjusted EBITDA was $61 million and adjusted EBITDA margin was 12.7%, representing a 50 basis point margin expansion year over year. Second quarter net income was negative $20 million, translating to diluted loss of $0.28 per share. Adjusted net income was $14 million for the quarter or diluted earnings per share of $0.19. Going forward, we expect increased volatility in GAAP net income and earnings per share due to foreign exchange gains and losses. This is due to actions we have taken to unwind currency hedges on intercompany loans. This will not impact adjusted net income. These hedges have historically offset currency impact in our income statement, but cause volatility in our cash balances. This change in hedging strategy reflects our priority to reduce cash volatility to support the execution of our pension strategy. Turning to slide 8, capital expenditures totaled approximately $20 million in the second quarter and $40 million year to date relatively flat year over year. As a reminder, a significant portion of capital expenditure relates to relatively steady levels of solution development for our L&S platforms while we maintain a capital light strategy in our XL&S solutions. Free pension, free cash flow in the second quarter, which is free cash flow prior to pension and post retirement contributions, was negative $58 million driven by some fluctuations in working capital that we expect to reverse in the third quarter. Free cash flow was negative $337 million in the second quarter compared to negative $19 million in the prior year period. This reflects the $250 million discretionary contribution that we made to our U.S. qualified defined benefit plans in June, as well as approximately $28 million of our previously communicated 2025 contributions. Moving to slide 9, cash balances were $301 million as of June 30th compared to $377 million at year end, reflecting our use of $50 million cash on hand as part of our $250 million discretionary pension contribution. $200 million of that contribution was proceeds from our upsized senior notes issuance of $700 million, which was also used to extinguish our existing $485 million of senior secured notes. This transaction has shored up our solid liquidity position by extending our largest maturity to 2031 and renewing our $125 million asset backed revolver, which remains undrawn. These actions are net leverage neutral and including all pension obligations, our net leverage ratio is 3.4 times, relatively stable on a year over year basis. The $301 million cash balance and our free cash flow does not include the $25 million legal settlement proceeds received on July 1st. I will now provide an update on our detailed estimated projections for expected global cash pension contributions and gap deficit relative to our quarterly updates. These projections change based on factors including funding regulations and actuarial assumptions. We estimate that as of June 30th, our global pension deficit is approximately $500 million down from $750 million at year end. We expect to make $55 million of additional planned contributions to our global pensions in 2025, which includes both U.S. and international. As Mike discussed, we shifted the investment strategy within our U.S. plans to remove substantially all contribution volatility. Going forward, we expect the aggregate of our planned contributions through 2029 to move less than 3%, although there could be some movement between years. You can find updated annual forecasts to the expected contributions to our global pensions for the next five years on slide 16. Turning to slide 10, I will now discuss our financial guidance for the full year. We are updating our total company revenue growth guidance range to negative 1% to positive 1% in constant currency. Based on foreign exchange rates as of the end of the second quarter, this equates to reported revenue growth of negative .5% to positive 1.5%, an increase compared to our expectation last quarter. As Mike mentioned, we have a resilient base of diverse and recurring revenue, though there are some modest headwinds that have continued to impact XL&S constant currency growth. Our guidance now assumes XL&S constant currency to be relatively flat on a -over-year basis, though still positive on a reported basis at quarter-end currency exchange rates. We are increasing our assumption for L&S revenue by $20 million to approximately $430 million for the full year. This reflects continued strength in client consumption as well as higher levels of hardware. We continue to expect approximately $400 million of L&S revenue in 2026. As a reminder, the timing and exact amount of L&S revenue can be difficult to forecast with precision for a given quarter, as it depends on the renewal timing and size, which can change based on client budgeting decisions, consumption levels, and duration preferences, among other factors. We are pleased to be raising our full year non-GAP operating profit margin guidance range to 8% to 9% from a prior range of .5% to 8.5%, reflecting the higher L&S mix and improved operational efficiency. We also expect to execute one or more annuity purchase transactions this year to remove up to $400 million of U.S. pension liabilities subject to market conditions. This would result in a settlement loss of up to $290 million impacting GapNet income and earnings per share. This is a non-cash expense of accumulated other losses associated with the pensioners being transferred to a third party, which requires accelerating that portion of amortizing pension expense. For 2025, we now expect approximately $110 million of pre-pension, pre-cash flow. Our cash outlook assumes most of the incremental L&S revenue will be collected in the first quarter of 2026. We also now expect net interest payments totaling $3 million, reflecting a shift of our .5-inch payment into January as a result of our recent refinancing. Additionally, we continue to expect capital expenditures of approximately $95 million, cash taxes of approximately $70 million, and a net positive $10 million inflow from environmental, legal, restructuring, and other payments. This is inclusive of the $25 million one-time payment we received in July related to our favorable legal settlement negotiated in the fourth quarter of last year. We will also make approximately $55 million of additional pension contributions in the second half, or $27 million per quarter. Looking specifically at the third quarter, we expect approximately $390 million of -L&S revenue, coming off a stronger than expected sequential comparison. Based on renewal timing, third quarter L&S revenue is expected to be $95 million. For total company, we expect a -over-year reported revenue decline in the low single digits and non-GAAP operating margin to be in the mid-single digits. While our guidance implies a strong inflection in the fourth quarter growth, we have a high level of visibility into a very strong increase in L&S revenue and profit. And in -L&S, the vast majority of 2025 revenue is already in backlog. New business is continuing to ramp, and we expect increased services volumes and upfront components on our back-off signings. All of these factors will contribute to what we expect to be a strong positive inflection in fourth quarter revenue growth. Operator, you may now open the line for questions. Operator: Thank you. We will now begin the question and answer session. To ask a question, you may press star and then one on your touch phone. If you are using a speaker phone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star and then two to remove yourself from the question queue. The first question we have is from Rod Bourgeois of Deep Dive Equity Research. Please go ahead. Rod Bourgeois | Analyst, Deep Dive Equity Research: Rod Bourgeois Okay, guys, and thank you for the detailed update on top of the call that you did recently on the pension front, which was also very helpful. I want to start just by asking if you can break down the components of the change in your new revenue guidance for 2025. If you can just break down the specifics here, that would be helpful. Mike Thompson | CEO and President: Mike Hey, Rod. It's Mike. Thanks for the question. I appreciate it and appreciate you joining the previous call as well. Very helpful to have your questions embedded into our dialogue here. So appreciate that. Look, I think in general, the tempering of that guidance was largely related to the macros, right? Just budget uncertainty. As you know, we're pretty heavily weighted in CA and I in public sector and pushing in public sector and higher ed and that's the area where we're seeing some of that, I'll say, muting of contract decisions. Deb mentioned in her prepared remarks, which I think is important to note, that we're continuing to see increased pipeline. So we hope that that pressure is easing and that we'll see some of the relief from this kind of buildup that we've seen over the last, I don't know, 18 to 24 months in general. I think we all feel from an industry perspective that there's a little bit of a backlog there. Certainly some of the discussions recently on the trade elements, et cetera, getting certainty back into the market, we think will really ease that. But that's the primary issue from a macro point of view. Tied to that, I would say there's a component piece related to backlog conversion, right? So we sign a contract and there's a transition period and that transition period can also be a little muted, right, from converting that backlog. How many countries we bring on, what services we bring on first, et cetera. So I think some of that, I'll say, hesitancy in the market, we're also seeing in a little bit of our backlog conversion. But importantly, I'll note that that has no bearing on the overall contract value that we're going to see or the term on that contract. So we expect it all to come in in the same manner that we signed it. It's really just how quickly it ramps. And then lastly, as we looked at things in the queue, there's a revenue recognition component of contracts that we're currently negotiating, which again, we feel like they're kind of an in-call perspective from our point of view. Those contracts have elements to them that could be upfront or overtime from a revenue recognition perspective. So we thought it important to at least have our guidance reflect the overtime view of those particular contracts as opposed to an upfront view. And so those are really the three primary reasons why we tempered that guidance. But the flip side of that is increasing our profitability and increasing our pre-pension free cash flow value. We feel really good about the continued strength we're seeing in L&S and the pull through there. And again, those other elements in our view are timing elements, not realization elements. Rod Bourgeois | Analyst, Deep Dive Equity Research: Okay, great. And it sounds like there's some green shoots happening in the DWS segment. There had been some struggles in that business in recent quarters on volumes. And it sounds like there's some turn there. Can you elaborate also on the DWS volumes and also your progress in ramping the high-performance compute business as well? Thanks. Mike Thompson | CEO and President: Yeah, thanks again, Rob, for the questions. You're exactly right. I mean, we've had several quarters of kind of pressure on the traditional field service or PC work in that business. We've seen those volumes from a PC service perspective kind of level off. And we're encouraged that we're seeing some of this PC refresh continue to come in. The conversion to Windows 11, I think, is helping that. So that's one byproduct of the, I'll say, the traditional component of that. And we continue to see increases on the field service's high-end storage and network services. So that volume we're seeing continually ramped. Again, we think that that's aligned to not only what we've got in the pipeline for contracts we've signed, but aligned to what we're seeing from an industry perspective as we continue to build out these data centers from supporting of AI and the like. So there's a lot more high-end type field services work. And we're really well positioned to take advantage of that, largely because of a lot of work we've done over the last 18 to 24 months getting our field service technicians trained up to handle a lot of that high-end storage. And then lastly, the back part of your question in relation to high-end compute, our L&S business obviously continues to outperform. We've outperformed in 2023, 2024, again here in 2025. And we're not really calling down anything from the future year. So is still being projected at 400 million. So we're seeing advanced consumption in that business. We continue to have good pricing power in that business. We continue to modernize our CPF infrastructure or clear path forward infrastructure, really to support that enhanced data analytics and use of the data on our platform. So that continues to be really strong from our perspective. You should expect, Rod, that we're going to do similar to the investor education session that we did in Q2 in relation to pension and capital structure. We're going to do one for clear path forward to just try to help educate the investor community more on really the strength of business. Because L&S margins are 70 percent and again, continues to outperform. Rod Bourgeois | Analyst, Deep Dive Equity Research: Very helpful. Thank you. Mike Thompson | CEO and President: Thanks, Rod. Operator: The next question we have is from Anya Soderstrom of the DOTI. Please go ahead. Anya Soderstrom | Analyst, DOTI: Hi, and thank you for taking my questions. So you actually answered one that I had about the L&S and the growth for next year and the implications for the margins and cash flow. It seems like you still expect that to be around 400. Mike Thompson | CEO and President: Yes, Anya, that's correct. We're still calling for that to be 400. But again, if history is indicative of the future, we hope that that will continue, right? Outperform 23, 24, and 25. And again, the consumption is the story there. Anya Soderstrom | Analyst, DOTI: Okay, so most of the upsides you've seen this year has come from then increased consumption and not really pull-ins from next year. Mike Thompson | CEO and President: Yeah, that's correct. And again, I think that's been a very consistent trend. And again, I think it's consistent in the sense that there's this data layer, right? When we talk about the application of AI and utilization of this data set. Well, we have this tremendous, long-standing data set embedded in our platforms that we're seeing this continued use or additional use from the ClearPath Forward ecosystem. And don't forget too that those ecosystems as they get refreshed are more than just a production environment, right? Typically, there is a test environment, a development environment. We talked about a little bit of a pull forward in relation to an integrated system that was shipped in Q2 that we thought would have been shipped in Q3. That is a hardware, software component, integrated package. So there's a little bit of improvement in Q2 that came from Q3. But again, we've taken those elements up. I think, Deb, keep me honest here, but I think we originally started the year at 390 and now we're calling 430. Correct. So the increase in that is really all consumption-based, even though there is a little shift quarter to quarter. Deb McCann | CFO: Yeah. And also at Investor Day, we were saying more around that 360 average per year. And we've clearly outperformed, as you've said. Anya Soderstrom | Analyst, DOTI: Okay. Thank you. And also, what's your ability to add new logos in this kind of environment? Mike Thompson | CEO and President: Look, we're pretty happy with the pipeline that we're seeing from a new logo perspective. We've talked a little bit about the muted aspect of people actually getting to the point of signing the contract. But we're really happy with the pipeline. I mean, remember, our new business is up 15% this year versus first half last year. So we feel really good about what's in that pipeline and really good about the new logo. Our DWS offerings, we talk about DSS, we talk about intelligent operations or service experience accelerator, all resonating in the market, all real value propositions from a client perspective. These are complex, long-term contracts, three to five years in general. And they're multi-BU from our perspective, usually have a component of CA&I and DWS in them. And they just take a good amount of time to work through the logistics. But we're seeing, again, a strong pipeline in the areas where we think we're differentiated. And we're still bullish on our growth and new logo for the year. Anya Soderstrom | Analyst, DOTI: Okay. Thank you, Alex. Back in the queue. Mike Thompson | CEO and President: Thanks, Operator: Anya. Ladies and gentlemen, just a final reminder, if you wish to ask a question, you may press star and then one. We will pause in a moment to see if we have any further questions. At this time, we have no further questions. And that concludes the Q&A session. I would like to turn the conference back over to Mark Thompson for any closing remarks. Mike Thompson | CEO and President: Thank you, operator. Before we wrap up, I want to emphasize three key points we hope you took away from today's call. First, we're increasing our profitability outlook as a result of continued upsides in our L&S solutions and successful implementation of operational efficiency initiatives, including AI adoption. Second, while we're not immune to some of the macro uncertainty weighing on the industry growth, the impacts are primarily timing and we've got a clear line of sight to achieving our full year objectives. And finally, the steps we've taken to transform our capital structure have removed substantially all volatility in our U.S. pension contributions. And they provide a more defined path for reducing leverage and ultimately removing our U.S. qualified pension obligations in the next three to five years. So thank you for spending time with us today and the great questions. And we look forward to speaking with you again next quarter. With that, operator, you can close out the call. Operator: Thank you. Ladies and gentlemen, that concludes this conference. Thank you for joining us. 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