Unisys Corporation (UIS) Earnings

Management highlights

- Overall Business & New Business Momentum - Q2 2026 results came in ahead of prior expectations, building on a strong start to the year. New business total contract value (TCV) increased 57% year-over-year and 22% sequentially, with year-to-date new business TCV up 52% compared to H1 2025. Win rates for new business with existing clients are up meaningfully in H1 2026 on both TCV and deal count, with improved conversion for large and mid-sized opportunities. Total trailing 12-month book-to-bill is 1.2x for the whole company, ending the quarter with a $2.8 billion backlog. - The new business pipeline grew double-digit sequentially, with stronger partner-linked opportunities now making up a larger share of the pipeline than one year prior, driven by deeper co-development collaboration with key technology partners for industry-specific use cases. - AI-Focused Product & Solution Development - The company is investing heavily in AI-infused solutions across all segments, evolving core platforms to support AI capabilities and enable ClearPath data to power enterprise AI workloads. Key product advances include a major ClearPath core operating system release that eases AI integration and adds post-quantum cryptography security upgrades, plus an AI Developer Toolkit. - Unisys moved a quantum AI-powered fraud detection solution into production at UK-based payment platform Paysafe, developed in partnership with the UK's National Quantum Computing Center with partial government funding. The agentic service desk solution, which maintains client data sovereignty by deploying on client environments, is in deployment with a second client cohort, with new integrations in progress to leverage existing client technology investments and add conversational AI voice capabilities. The first non-IT use case for the broader Service Experience Accelerator platform (for human resources) moved into production after a successful pilot. - A new partnership with Antenna was established to improve AI operations governance, observability, and token cost optimization for clients' AI agent workflows. The company is positioned as a platform-agnostic AI orchestration partner to help clients determine optimal deployment locations (cloud, edge, on-prem) for AI workloads based on their cost, security, latency, and data sovereignty requirements. - Market Position & Client Wins - Unisys maintained leader rankings in ISG and Nelson Hall market reports for data center services, cybersecurity, and AI-enabled cloud infrastructure management. It was also recognized as Dell's 2026 American Data Center Partner of the Year, and named #32 on the Economist 2026 Top 100 Most Loved Workplaces (up 42 spots) and one of Time Magazine's 2026 America's Best Companies, with a 12-month trailing attrition rate of 11.2%. - Notable recent client wins include an expanded relationship with a UK construction firm for DSS across 10,000 devices plus Microsoft Azure cloud governance, a multi-year infrastructure services contract with a community college system, a dedicated field services engagement for a large OEM's AI data center buildout, and a six-year regional contract with a global travel systems integrator for airport system maintenance. - Workforce & Operational Investment - The company is expanding company-wide AI fluency and proficiency training with structured learning pathways, role-based standards for major AI tools, and an AI-driven skills-based talent architecture to match talent to opportunities. It is on track to achieve $10-$20 million in full-year 2026 cost savings from technology-driven productivity gains and corporate function streamlining.

Guidance

- Full-year 2026 revenue guidance is reaffirmed at a year-over-year decline of 5% to 3.5% in constant currency, or a 2.6% to 1.1% decline at June 30, 2026 foreign exchange rates. Full-year ClearPath revenue guidance was previously upwardly revised to $425 million (from $415 million) in June 2026, and that revision is maintained. - Full-year non-GAAP operating profit margin guidance of 9% to 11% is reaffirmed, which expects 100 to 200 basis points of gross margin improvement for Technology Solutions and Services (TSNS), a slight year-over-year increase in ClearPath gross margin, and a $10 to $20 million reduction in operating expenses. - Full-year 2026 base case free cash flow guidance is unchanged at approximately negative $25 million, equal to ~$75 million pre-pension and post-retirement contribution free cash flow. Management expects average annual ClearPath revenue of ~$400 million for 2027 and 2028, and remains on track to fully eliminate U.S. pension obligations by 2030. - Q3 2026 guidance calls for ~$450 million in total reported revenue, with ~$370 million in TSNS revenue and ~$80 million in ClearPath revenue, implying ClearPath revenue will exceed $200 million in Q4 2026 to hit the full-year target. Q3 non-GAAP operating margin is expected to be approximately 4%. - Management expects $40 million in global pension contributions in H2 2026, and is planning a potential Q3 2026 annuity purchase that will remove ~$200 million of U.S. pension liabilities, with an estimated $200 million non-cash pension expense associated with the transaction.

Segment performance

Unisys reported total Q2 2026 revenue of $474 million, a 2% year-over-year decline. Three core operating segments contributed the following revenue: 1. Digital Workplace Solutions (DWS): $142 million in revenue, a 1.1% year-over-year decline. DWS accounted for ~30% of total Q2 revenue. Gross margin for the segment was 10.8%, down 610 basis points year-over-year, driven by a higher mix of lower-margin hardware for device subscription services (DSS), elevated upfront transition costs for a large new client deployment, and lower overall service volumes. A non-cash goodwill impairment charge of $47.2 million (the remaining DWS segment goodwill balance) was recorded this quarter, reflecting slower-than-expected profitability improvement from near-term investments and competitive pressures. 2. Cloud Applications and Infrastructure Solutions (CA&I): $184 million in revenue, a 3.2% year-over-year decline. CA&I accounted for ~39% of total Q2 revenue. Gross margin for the segment was 25%, up 420 basis points year-over-year, supported by delivery efficiencies and labor cost savings. Higher-margin security and application services saw strong growth during the quarter, partially offset by headwinds from project completions and prior year attrition. 3. Enterprise Computing Solutions (ECS): $126 million in revenue, a 13.2% year-over-year decline. ECS accounted for ~27% of total Q2 revenue. Gross margin for the segment was 44.8%, down 870 basis points year-over-year. The full segment decline was driven by uneven timing of ClearPath software license renewals: ClearPath generated $70 million in revenue (down 22.9% YoY), with a 56.7% gross margin for the quarter. The remaining portion of ECS (specialized services and next-generation compute solutions) grew 3% year-over-year, led by higher managed services and business process solutions volumes. There was also $3 million of non-segment revenue with 100% profit flow-through in the quarter.

Risks & headwinds

- The DWS segment is facing ongoing competitive pressures and pricing dynamics that have slowed profitability improvement, leading to a full goodwill impairment of the segment's remaining balance in Q2 2026. - Industry-wide client spending shifts toward AI infrastructure (driven by memory component shortages and price increases) have led to temporary deferrals of discretionary project work, a dynamic that extended into the first half of 2026 and may continue slightly longer. - ClearPath license revenue recognition is tied to renewal timing, leading to uneven quarter-over-quarter revenue and profit performance, even as full-year visibility is strong. - Global pension deficit levels and required contributions are subject to changes from market conditions, funding regulations, and actuarial assumptions that can impact cash flow and leverage. - All forward-looking results are subject to inherent risks and uncertainties that could cause actual outcomes to differ materially from management projections, as disclosed in Unisys' SEC filings.

Analyst Q&A

• Q: Analyst Rod Bourgeois asked if Unisys is seeing the dynamic where client spending on AI infrastructure is crowding out other larger deals (as IBM recently reported), and if this effect is continuing or subsiding. /

  A: CEO Mike Thompson confirmed that this spending shift (toward AI infrastructure, with temporary deferral of some discretionary spend) is a consistent industry trend Unisys also observed, and it was already fully baked into management's guidance. Thompson noted IBM also indicated this trend is temporary, and Unisys sees it as a net advantage: rising hardware costs have sharply increased demand for Unisys' DSS offering, which helps clients manage device costs via flexible lifecycle models. New business TCV growth remains strong, and the market for discretionary spend is starting to loosen.

• Q: Bourgeois asked what adoption patterns Unisys is seeing between private open weight AI models and public frontier large models, and how this dynamic is playing out for the business. /

  A: Thompson explained Unisys is platform-agnostic, and client choice depends on their specific priorities: highly regulated clients focused on data sovereignty and IP protection typically prefer private open weight models run on-prem, while clients solving complex problems that require more capability often select frontier models. Regardless of client choice, Unisys' role as a hybrid infrastructure advisor and orchestrator positions the company to capture demand, as it helps clients evaluate tradeoffs aligned to their business needs.

• Q: Bourgeois followed up to ask if this open weight/frontier AI advisory activity is already showing up in new wins or is only in the pipeline. /

  A: Thompson confirmed that this activity is already contributing to new business wins, particularly in the CA&I segment for application modernization and cybersecurity projects where AI deployment location is a core decision point. He added that the pipeline for these AI-related opportunities is also very strong.