Unisys Corporation Stock

Good day, and welcome to the Unisys Corporation Third Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Daniel Ferry, Vice President of Corporate Development and Investor Relations. Please go ahead.

Thank you, operator. Good morning, everyone. Thank you for joining us. Yesterday afternoon, Unisys released its third quarter 2026 financial results. Joining me to discuss those results are Mike Thomson, our CEO and President; and Deb McCann, our Chief Financial Officer.

As a reminder, today's call contains estimates and other forward-looking statements within the meaning of securities laws. We caution listeners that these statements are subject to risks and uncertainties that could cause actual results to differ materially. These items can be found in the forward-looking statements section of yesterday's earnings release furnished on Form 8-K and 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 and adjusted EBITDA. These measures exclude certain unusual and non-recurring items such as post-retirement expense, cost reduction activities and other expenses that the company believes are not indicative of ongoing operations.

We believe these measures provide a more complete understanding of our financial performance, but they are not intended to be a substitute for GAAP. Reconciliations for non-GAAP measures are provided in the slides for today's call and are available on our investor website.

With that, I'd like to turn the call over to Mike.

Thank you, Dan. Good morning, everyone, and thank you for joining us to discuss the company's third quarter 2026 results. The year continues to move in the right direction with the third quarter building on a solid first half. Revenue and non-GAAP profit both finished above the expectations we shared in July, driven by both Technology Solutions and Services, or TS&S and ClearPath.

Given our results to date and our fourth quarter expectations, we're once again raising our full year total company revenue guidance to negative 3% to negative 1.5% in constant currency, an improvement from negative 5% to negative 3.5%. This marks the second increase of our revenue guidance this year.

ClearPath remains on track to achieve the higher $425 million annual revenue expectation we provided in July, and our efficiency initiatives continue to deliver positive results, keeping us on track for the full year profit and free cash flow expectations we provided at the beginning of the year.

New business signings remained strong, up 78% year-over-year and 15% sequentially, building on a positive second quarter. We continue delivering our AI-infused solutions to clients, building on AI skills across our workforce and broadening our platforms with a growing repository of AI-based automations that help clients adopt quickly and shorten the time to value.

That includes our ClearPath ecosystem, where we're advancing our tooling to make it easier for our clients to connect ClearPath data to their enterprise AI workloads. These investments turn current demand into lasting higher-value client relationships.

As we've discussed for several quarters, AI is changing how IT services are delivered and priced. Clients' continued adoption of AI affects our business in a few ways. From a revenue perspective, we experienced pricing headwinds on same scope renewal work, but at the same time, AI has opened up new markets and opportunities for us to pursue. Opportunities like field services for data centers, data readiness and governance and the orchestration of Agentic AI, including autonomous workflow execution, model routing and hosting and data and tool integration as well as token economics.

On the delivery side of the equation and across nearly every part of our portfolio, AI is transforming the way we deliver. In addition to strong new business signings, this was also our largest renewal quarter so far this year, and clients did more than extend existing solutions. Many added scope, new service areas and in some cases, new geographies, which are testaments to the quality of our service delivery and the breadth of our portfolio.

We signed roughly $1.4 billion of TS&S renewals in 2025 and expect about half of that in 2026. This will put us at approximately $2 billion across the two years, at which point we'll have been through the majority of our contracted base. In many of those renewals, we offset AI-related deflation with added scope, which helped protect the economics of the relationship.

With most of that behind us, the pricing reset that came with AI-driven efficiency is largely complete and new business is now building on a refreshed base. We have better visibility into our run rate and a clearer path back to growth. The headwinds tied to the historical client losses begin to lap in the back half of next year and absent those, we'd be growing above market this year.

Turning to the details of the third quarter. Revenue grew 2.5% year-over-year or 0.6% in constant currency, ahead of the expectations we gave last quarter, with TS&S also up 2.6% or 0.9% in constant currency. Growth in new business with existing clients more than offset lower volumes from previously identified client attrition. We again saw higher hardware volume, including components tied to our Device Life Cycle Management, or DLM, and an uptick in project work in our non-ClearPath ECS business. Clients continue to move forward with project-related AI initiatives even as budgets remain carefully managed.

Non-GAAP operating profit improved by 180 basis points year-over-year, reflecting the results of ongoing investments in technology, our workforce and higher-value solutions. Total contract value signed in the quarter was $594 million, up 43% year-over-year and 41% sequentially. New business TCV was $221 million, up 78% year-over-year, 15% sequentially and 61% year-to-date. In DWS and CA&I, new business signings grew by double digits, both sequentially and year-over-year and were margin accretive.

New business is a measure that will ultimately return those segments to revenue growth and stronger profitability. ES&S renewal TCV was $275 million, up 40% sequentially and up 20% year-over-year against a difficult comparison since 2025 was our largest renewal year. Win rates on follow-on work with existing clients also remains above our historical levels, consistent with what we have seen throughout the year.

Several of these quarter wins illustrate improved win rates and new business. Heineken, a global beverage company we already support in the Americas, selected us through a competitive global sourcing process to run its end-user service desk worldwide. We will deliver a single standardized service desk across its operating companies, more than doubling the number we serve today under one governance and delivery model.

The win spans both of our core businesses since we also extended our existing cloud and infrastructure agreement with them. Heineken chose us for our service management maturity, our AI-enabled and conversational AI capabilities and our willingness to work within its preferred technology ecosystem rather than requiring proprietary tools.

A U.S. state agency that we've served for more than eight years renewed ahead of expiration. We run its data centers and public cloud environments, manage identity and access and support its modernization work, so the renewal reflects the breadth of what we do for this client, not just a single service. The client's decision was based on our service delivery excellence and client satisfaction.

We saw a similar pattern with our major U.S. defense contractor, which renewed a broad IT outsourcing engagement spanning our DWS and CA&I segments. We won the competitive bid by positioning ourselves as a trusted adviser through executing measurable operational improvements and consistent delivery execution. The renewal also expands our role. We are extending operating hours and business continuity services.

In Mexico, a leading global bank we've supported for more than 17 years, signed a 3-year managed services renewal covering field services across its nationwide network of 600 branches and 4,000 ATMs. We provide remote support, dedicated on-site teams in major cities, dispatch-based support, asset control and smart locker services, and we do it using the client's own tools and processes rather than requiring our own.

We maintained overall pricing with standard cost of living adjustments, adjusted scope as the client's branch footprint changed and added reporting and analytics that give the client better visibility today and lay the groundwork for automation and AI. The renewal reflects our ability to adapt as our clients' operating model and regulatory requirements evolve.

In Asia Pacific, a global travel technology provider added two additional airports to the on-site engineering work we began earlier this year. That work grew out of our long-standing support for one of the clients' technologies businesses, and it now includes dedicated engineers who keep passenger processing equipment running in the airports we serve. It's a clear example of our land-and-expand strategy, second expansion in consecutive quarters built on our airport technology expertise and regional presence.

Our qualified new business pipeline has now grown sequentially for three consecutive quarters, fueled by new opportunities within our existing client base. Sequential pipeline growth is across all segments, led by public sector, financial services and travel and transportation. The pattern fits the broader environment as demand is the strongest where the work is mission-critical or regulated and slower where spending is tied to discretionary projects.

Client demand in the quarter was broadly consistent with what we described last quarter. Budgets remain carefully managed and discretionary programs without a near-term payback are still being scrutinized. But within our client base, project work and AI-related initiatives continue to progress.

As we noted last quarter, memory-driven hardware costs are still weighing on the clients' budgets and continue to steer IT leaders toward our Device Life Cycle Management services. The hardware itself carries lower margins, but DLM is how we earn the life cycle, manage services and service desk the work that follows. We believe our model is also structurally less exposed than many of our peers to the discretionary project layer that is most affected when budgets tighten.

Most of what we do is contracted managed services on operating budgets for systems that must run every day and approximately half of our revenue is generated outside the U.S. For example, our clients cannot defer spend associated with passenger boarding or state revenue processing systems because they want to buy GPUs or memory this quarter. As the capital flow into AI infrastructure, that infrastructure still must be installed, cooled, maintained and very few providers have the global footprint to do that at scale.

On AI, we continue to move from capability to client outcomes and the common thread in our platforms for delivery, leveraging the library of reusable assets and repeatable methods that carry from one client to the next. Our agentic service desk delivered through our Service Experience Accelerator platform continued to expand its live client base in the quarter with launches at a U.K. construction and infrastructure client, a global industrial holding group and a manufacturing client.

The platform is also moving beyond IT. At a global commercial real estate services client, we replaced a legacy tool with ServiceNow HR service delivery and built AI-enabled onboarding workflows.

At a global quick service restaurant client, coordinated agents diagnose root cause and orchestrate resolution across support towers often before the restaurant staff reports the issue. Because the platform adopts each user's existing permissions and enforces them before the AI reasons, autonomous resolution can expand across functions without running into data governance limits, which matters to our regulated industry clients.

As AI absorbs routine Level 1 issues, we're also upskilling our service desk teams towards knowledge-based roles where the output is judgment, decisions and system improvement. AI is embedded across our solutions, so most of its contribution today is indirect through delivery efficiency and the value of the solutions themselves alongside a small number of direct AI-driven offerings.

Our approach is consultative. We use AI and the client's own data to solve specific problems as an orchestrator and a future state service provider. We remain model agnostic by design. Clients concerned about sovereignty, data leakage or IP protection are steered towards open weight models and private environments, while more complex problems go to frontier models, and our role is to help clients achieve the desired outcome by orchestrating the right combination of model and infrastructure based on our depth in operating hybrid infrastructure.

Our go-to-market is also increasingly partner influenced and relationship-led. We're engaging with clients earlier in our rapid value assessments that we discussed last quarter, which provides valuable insight into our skills and early return on their AI investment and opens the door for new business. Opportunities that originate with our alliance partners also continue to take increasing share of the pipeline.

In data center field services, a growing focus for us, we announced a partnership in August with Refroid Technologies. It combines their direct-to-chip and immersion cooling, cooling distribution and load band technologies with our global field services for deployment, commissioning, validation, workforce enablement and life cycle support.

In AI infrastructure, the constraint is increasingly the skilled expertise to deploy and maintain it, and this partnership builds on the momentum we described last quarter. We're also adding skills and capacity such as liquid cooling to our field service teams to support data center build-out and break fix. The work extends beyond cooling to rack and stack installation, cabling, network and storage equipment and ongoing maintenance following the build-out.

In security, we integrated Microsoft Security Copilot into our managed detection and response solutions, delivering through our global security operations center alongside Defender and Sentinel. AI agents now automate phishing triage, threat intelligence analysis and incident investigation with a full audit trail. As Agentic AI widens the attack surface, we treat zero trust, identity and post-quantum readiness as foundational to our other offerings.

ClearPath revenue was $84 million for the quarter, up 2% year-over-year and down 1% in constant currency, ahead of the approximately $80 million we expected. We are reaffirming our expectations for full year ClearPath revenue of $425 million, and we continue to expect average annual ClearPath revenue of approximately $400 million in 2027 and 2028.

We hosted our ClearPath Client Conference in London in September, where we demonstrated the next generation of development and AI capabilities and the response was overwhelmingly positive. Building on the core operating systems release and AI developer toolkit we introduced earlier this year, which ease the integration of ClearPath data with third-party AI applications, we're positioning ClearPath as a data backbone for AI.

We're enabling AI at the AB Suite layer, which we believe will lead to growth in MIPS and workloads and ePortal 13 reaches general availability later in November. We continue to see increased usage of the ClearPath ecosystem and AI continues to act as a tailwind to consumption and rising interest in our digital sovereignty reinforces the value of the platform's control and resiliency characteristics.

Third-party recognition continues to broaden. Nelson Hall again named us a leader in its 2026 NEAT evaluation for AI-enabled cloud infrastructure managed services, citing our intelligent operation and Agentic AI innovation as our Unisys Intelligence accelerator platform. In digital workplace, powered by our Service Experience Accelerator Platform, ISG named us a leader across five regions in its 2026 Future of Work study, Everest Group named us a leader and a star performer in its 2026 Digital Workplace Services Peak Matrix for North America, and Avasant named us a leader for the fifth consecutive year with its highest rating for future proofing.

As we kick off the fourth quarter, we continue to receive recognition from ISG for our agentic and generative AI services and the XLA Institute awarded us a Level 4 performance, which is the highest level awarded in its inaugural experience management maturity assessment.

None of this happens without our people. We continue to invest in enhancing AI skills across the company and aligning those skills with demand. Recently, we were named to Business Insider's 2027 list of America's most Innovative businesses. We were also named to TIME's 2026 list of India's Best Employers and for the first time ever, the Wall Street Journal 2026 America's Top 100 Most Loved Workplaces, which reflects the strength of our global workforce and the focus on innovation. That strength is also evident in our trailing 12-month attrition rate of 11.9%, reflecting the positive culture at Unisys.

With that, I'll turn the call over to Deb to discuss our financial performance in more detail.

Thank you, Mike, and good morning, everyone. As a reminder, my discussion today will reference the supplemental slides on our website. I will discuss the total revenue growth, both as reported and in constant currency and segment growth in constant currency only. I will also provide information on Technology Solutions and Services or TS&S, to allow investors to assess the progress we are making outside of ClearPath where software license revenue and profit recognition are tied to renewal timing and can be uneven between quarters.

As a reminder, ClearPath revenue constitutes about 2/3 of the Enterprise Computing segment. As Mike discussed, the third quarter came in ahead of the outlook we provided last quarter, and it was accompanied by another quarter of strong new business signings. Revenue exceeded our expectations, led by TS&S and non-GAAP operating profit margin of 7.2% was above the approximate 4% we guided.

We took another meaningful step toward removing our U.S. pension with the annuity purchase we completed in the quarter. Together with the visibility we have into the fourth quarter, these results support the increase to our full year revenue guidance and our reaffirmed profit guidance.

Looking at our results in more detail, you can see on Slide 7 that third quarter revenue was $472 million, an increase of 2.5% year-over-year as reported and 0.6% in constant currency. This was more than $20 million above the outlook we provided last quarter, driven primarily by TS&S, which generated $387 million of revenue, an increase of 2.6% compared to the prior year or 0.9% in constant currency. The increase was primarily driven by new business with existing clients, partially offset by lower volume from known client attrition. That compares to the $370 million we expected.

ClearPath revenue for the quarter was $84 million, slightly ahead of the $80 million expectation we outlined last quarter. On a year-to-date basis, total revenue for the company was up 0.5% as reported or down 3.1% in constant currency. And TS&S revenue was up 2.6% as reported or down 1.1% in constant currency.

Staying on Slide 7, I will now discuss third quarter revenue by segment in constant currency terms. Digital Workplace Solutions revenue of $130 million increased 1.7%, primarily driven by new business and higher hardware revenue, partially offset by the client attrition we have discussed in prior quarters. Hardware, including components associated with our Device Life Cycle Management offering, or DLM, can carry lower margins when Unisys procures the devices but DLM increases the stickiness of client relationships and provides an entry point for expanding into higher-value services.

Cloud Applications and Infrastructure Solutions revenue was $180 million, a year-over-year decline of 1.2%. The rate of decline has improved by more than 5.5 points compared to the third quarter of last year. The decline reflects client attrition partially offset by new business and higher volumes with existing clients.

Enterprise computing solutions revenue was $141 million, up 2.7% year-over-year. ClearPath revenue of $84 million was slightly above our expectations. Specialized Services and Next-Generation Compute Solutions or SS&C, which make up the remainder of the segment, generated $56 million of revenue and was up 8.6% year-over-year. The increase was primarily driven by higher specialized project work in Business Process Solutions.

Year-to-date, we have signed $1.3 billion of TCV, up 22%, including $571 million of new business TCV, an increase of 61% compared to the first 9 months of last year. Trailing 12-month book-to-bill is 1.2x for the total company and 1.3x for TS&S. We exited the quarter with backlog of $2.92 billion, up 3% year-over-year, primarily driven by CA&I, whose backlog was up double digits.

Moving to Slide 9. Third quarter gross profit was $126 million, and gross margin was 26.7%, up 120 basis points from 25.5% last year. The improvement was primarily driven by the mix embedded in the ClearPath license renewals, partially offset by higher cost reduction charges.

TS&S gross profit was $64 million and gross margin was 16.6%, down 200 basis points year-over-year, primarily driven by higher cost reduction charges. During the third quarter, gross profit margin and TS&S gross profit margin benefited by approximately 50 and 70 basis points, respectively, from a first quarter transaction within the company's U.K. business process outsourcing consolidated joint venture.

As we disclosed earlier, we will see the same size dollar benefit in the fourth quarter as this transaction is expected to generate gross profit benefit of approximately $3 million quarterly and $12 million for the full year 2026. On a year-to-date basis, gross margin for the total company is 25.7%, relatively flat year-over-year and TS&S gross margin is 18.5%, up 50 basis points from 18% last year.

Turning to segment gross profit. DWS gross margin was 9.5% compared to 16.2% in the prior year. The decline reflects known client attrition, hardware mix and continued implementation and delivery costs on the transition of a large new client we signed in the first quarter, which I discussed last quarter. We view these investments as foundational to future expansion and to demonstrating agentic service desk at scale.

CA&I gross margin was 20.6%, up 100 basis points year-over-year, primarily driven by delivery improvements. ECS gross margin was 55.5%, up more than 900 basis points from 46.2% last year, primarily driven by the mix embedded in the ClearPath license renewals. Within the segment, ClearPath gross margin was 73.1% compared to 56.6% last year as we had a higher mix of software licenses versus hardware this year compared to the prior year.

Moving to Slide 10. Third quarter GAAP operating profit was $24 million compared to a GAAP operating loss of $34 million in the prior year period, which included a $55 million noncash goodwill impairment charge. Non-GAAP operating profit was $34 million, a margin of 7.2%, up 180 basis points from 5.4% in the prior year and well above the approximate 4% outlook we provided last quarter, driven by higher ClearPath margins.

Year-to-date, non-GAAP operating profit margin is 5.7% compared to 5.3% last year. Third quarter net loss was $201 million, translating to a diluted loss of $2.76 per share. On an adjusted basis, net loss was $8.5 million or a diluted loss per share of $0.12. The third quarter included a noncash pension settlement expense of $151 million, net of tax related to the annuity purchase. As we have previously discussed, this is an important element of our pension removal strategy.

Turning to Slide 11. Adjusted EBITDA was $60 million in the quarter, a margin of 12.7%, up 220 basis points from 10.5% last year. Year-to-date, adjusted EBITDA is $160 million or 11.5% of revenue compared to 10.9% in the prior year period. Capital expenditures totaled approximately $22 million in the quarter and $66 million year-to-date. As a reminder, about half of our annual capital expenditures are relatively fixed levels of solution development for our ClearPath ecosystem.

Cash used for operations was $36 million and free cash flow was negative $58 million compared to positive $20 million in the prior year period, which included the receipt of a onetime $25 million legal settlement. The decline also reflects the semiannual interest payment of $37 million on our 2031 senior secured notes, which, as a reminder, now falls in the first and third quarters and the timing of ClearPath's renewals and the associated collections.

In the third quarter, we made cash contributions of $30 million to our global pension plans and $0.6 million to post-retirement benefit plans. Pre-pension and post-retirement free cash flow was negative $27 million compared to positive $51 million last year, and adjusted free cash flow was negative $19 million compared to positive $30 million.

Moving to Slide 12. Our cash balance was $264 million as of September 30 compared to $414 million at year-end. Our cash balances are impacted by the timing of interest and pension and post-retirement payments as well as cash collections related to ClearPath. Also, as we have said before, with the fourth quarter being our largest ClearPath quarter, the timing of renewals late in the quarter could move cash between the fourth quarter and first quarter of 2027.

Our liquidity remains solid. Our $125 million asset-based revolver remains undrawn, and we have no meaningful debt maturities before 2031. At year-end, our global pension deficit was approximately $450 million. Based on market conditions and our year-to-date pension contributions, we estimate that as of September 30, our global pension deficit has improved by approximately $30 million to $40 million from year-end. Our net leverage ratio, including the year-end pension deficit is approximately 3.2x compared to 3.7x a year ago.

I will now provide an update on our global pension plans. During the quarter, we completed an annuity purchase that transferred approximately $200 million of projected U.S. defined benefit pension liabilities and a similar amount of plan assets to a third-party insurer. This transaction resulted in the noncash settlement expense I mentioned, which reflects accelerating accumulated actuarial losses associated with the participants transfer and is excluded from our non-GAAP results.

Although annuity purchases do not materially impact the deficit, they reduce our gross pension liabilities and ongoing maintenance costs and allow us to remove those liabilities at a lower cost than at full plan termination. Because the annuity purchases are funded with plan assets, they do not impact company cash. Including this transaction, we have reduced approximately $520 million of U.S. qualified defined benefit plan liabilities since July 2025 toward our approximate $600 million target, and we expect to complete an additional pension transaction in the first half of 2027 to substantially achieve this objective.

Each year-end, we provide more detailed estimated projections for our pension deficit and expected global cash pension contributions relative to our quarterly updates. These projections change based on factors, including funding regulations and actuarial assumptions. We expect approximately $9 million of global pension contributions in the fourth quarter, resulting in total 2026 contributions of approximately $97 million. We estimate that our aggregated expected cash contributions in 2027 through 2029 remain essentially unchanged from our year-end projections.

As we have discussed, the actions we took in 2025 to increase fixed income allocations in our U.S. plans substantially removed the volatility from our expected U.S. contributions. And because plan assets now move in step with plan liabilities, changes in interest rates have a minimal impact on our U.S. contributions and deficit. With continued operational and financial execution, we expect to be positioned for the potential full removal of our U.S. defined benefit pension plans in the next 3 to 4 years, after which U.S. pension contributions would cease.

Turning to Slide 14. I will now discuss our full year financial guidance and additional color. We are increasing our full year revenue guidance to a decline of 3% to 1.5% in constant currency from the decline of 5% to 3.5% we reaffirmed last quarter. Based on September 30 foreign exchange rates, this equates to reported revenue decline of negative 0.4% to positive 1.1%. Guidance assumes TS&S revenue constant currency decline of 3% to 1% and a full year ClearPath revenue of approximately $425 million, unchanged from last quarter.

We also continue to expect average annual ClearPath revenue of approximately $400 million in 2027 and 2028. Our 2026 revised guidance implies fourth quarter total company revenue of approximately $570 million, which assumes approximately $205 million of ClearPath revenue. We are reiterating our full year non-GAAP operating profit margin guidance of 9% to 11%, implying fourth quarter non-GAAP operating margin in the mid- to high teens due to the concentration of ClearPath revenue we expect.

Our expectation for full year free cash flow is unchanged at approximately negative $25 million, which translates to approximately $75 million of pre-pension and post-retirement free cash flow. This assumes approximate payments of $85 million in capital expenditures, $70 million in cash taxes, $70 million of net interest payments, $45 million in aggregate legal, environmental and restructuring payments and approximately $100 million of pension and post-retirement contributions.

We are focused on continuing to increase our operational efficiency and profitability to maximize our underlying cash generation for investment and capital return.

I will now pass it back to Mike for a few additional remarks.

Thanks, Deb. To reiterate, we're pleased with our results this quarter, which reflects steady execution of our strategy. As we look ahead, our priorities are consistent with what we've outlined in prior quarters, working through the TS&S renewal cycle, which is largely behind us, expanding within our client base and investing where we think demand is heading in agentic services, AI infrastructure and the ClearPath ecosystem.

Thank you for participating in today's call. Operator, you may now open up the line for questions.

[Operator Instructions] The first question today comes from Rod Bourgeois with DeepDive Equity Research.

Yes. So I want to start with the growth in TS&S. It's nice to see that, that growth got back to slightly positive year-over-year. The question I have is, at what point should we expect TS&S to really be able to sustain that steadily positive growth? And can you speak to the main enablers of that growth and also the challenges that you still see there?

Rod, thanks for the question. Much appreciated. Yes, we were really pleased with the quarter and the growth that we saw in the quarter. I think consistent with what we have been saying historically, there's a couple of factors really at play for, I'll say, ongoing kind of growth inflection point in that business.

In general, obviously, we got to see since we're talking growth rates, how we close out the year. We will certainly give an update on that when we get into Q4 and give guidance for next year. So part of that is really about closing the deals in the fourth quarter and how that's going to inflect on growth.

The two, I would say, prevailing things that we've talked about historically is really lapping the attrition from client losses from exiting at the end of '25 or early in '26, right? We had mentioned that those ultimately lap in the back half of next year. So that's kind of a point of contention there as far as lapping those existing ones.

And then ultimately, we're talking about the refresh base, right? And I think that's probably the better underlying contribution to how that reset comes into play. And when I think about that reset base, we had a very high significant reset, and we're basically through that, right? So we had a huge reset over last year as far as renewals are concerned, we did about $1.4 billion in TS&S. We have roughly another $600 million anticipated this year.

So that base behind us. We've basically come through that cycle and the lapping of those clients are kind of the barriers to that growth. As I mentioned in my prepared remarks and as you've seen this quarter, if not for that, we'd be growing right now at above market. So we like what we're seeing in the backlog. We like what we're seeing from a TCV perspective in that business, and we like the conversations that we're having with clients. We've talked about the increased book-to-bill already. and we've talked about the backlog growth consecutively.

So feel good about the trajectory, got a couple of things that we have to overcome, which will roll off in the back half of next year. And then we've got to execute Q4 closing of new deal. So those are the primary reasons.

Okay. Great. And I'd like as a follow-up to dive deeper into the DWS margin decline. So what I want to ask about is how much of the DWS margin challenge is due to intentional investments like in the next-generation data center work and the agentic help desk and so on? How much of the margin challenge is due to those intentional investments versus headwinds from things like client attrition and the hardware mix and so on? Can you help us demarcate between what's intentional and what's a margin challenge that you have to sort through?

Yes. I don't know that I could give the actual percentage mix of those elements, Rob. But what I will say is, obviously, the client attrition we've talked about and that runoff continues to kind of decline in its impact.

I would say the larger portion would be the combination of mix and intentional investment. We've talked about the investment in the deployment of our Agentic service desk, right? And the fact that we will be about 40% through our client base by the end of this year in delivery. So it gives you a sense of how that's being rolled out and the investment there.

There's investment in staffing and training that's aligned to our AI-first strategy. So that's certainly intentional, and we've gotten really pretty deep in the associate base with that training. So we feel really good about where we are. And I would say the lion's share of that is behind us as well.

And then, of course, as we deploy these Agentic service desks at scale, we continue through transition of large new logos. And so there's always learnings from that, that we continue to invest in because we think it's really foundational to that expansion. Look, the thing I would say to you that's the most encouraging in my mind is that forward-looking indicator on the DWS new business. TCV is up -- 183% year-over-year in the quarter, and that's margin accretive. So that's really what's going to rebuild that segment's revenue and profitability.

And again, feel really good about that. And so as we have a mix here, especially in DWS, where our Device Life Cycle Management is kind of the flagship that's carrying our services to these clients, depending on the proportional hardware or third-party components of that, that's dilutive to our margin percent, but accretive to margin dollars. And so -- and we see that as the gateway to our other services.

So again, feel really good about the direction of where we're going. The timing is really predicated on kind of the roll-off of those attrited clients and then the deployment of that service desk to our entire base.

That's helpful detail. Can you tell us the new business in DWS being margin accretive? Why is it margin accretive? Is it that it's a low hardware mix? Or are there other factors?

No. Look, I think the hardware mix that we're looking at is going to be fairly consistent between the current year and what we're expecting in next year. It's our services portion of that hardware mix that is becoming more accretive.

The next question comes from Matt Dezort with William Blair.

This is Matt on for Maggie Nolan. Congrats on the quarter. New TCV signings obviously remain impressive. I think they accelerated in the quarter. Just how should investors think about the composition of that new work that you're signing and the cadence that you expect that to convert to revenue over the next 12 months? Or how we should think about that timing? And then the margin composition of that TCV as well would be helpful.

Great. Thanks, Matt, for the question. I appreciate the time. So look, we're very pleased with the TCV signings. As you noted, our new business TCV up almost over 78% for the year, 15% quarter-over-quarter. So really strong.

I think it's probably indicative too of what we're seeing in the market. We continue now to start to see -- I think it's really a byproduct of educated consumers. The value that the AI is now bringing is being much more focused in areas of business improvement as opposed to, hey, we're going to try to replace our entire stack with an agentic AI component. So I really think it is ongoing and indicative of how we should continue to see the market recovery from a services perspective, and we fully expect to win our share of that.

I think when you think about the conversion of that TCV to revenue for the second part of your question, there's typically kind of an integration period or an installation period for this. Figure that's like a three to six month transition to get us into revenue recognition, which is again why we think about the back half of next year as being that catalyst for that inflection point.

And then ultimately, the margin anticipated on that new business, as I mentioned on the tail end of Rod's question, the services that we're performing are higher-margin services, if you will. So we expect that, again, as we get to normal run rate. So there's a difference between the time it takes for revenue accretion and then run rate margin, right? So typically, you've got a shorter time to get to revenue, that three to six month period and starting to get to run rate.

And then over the course of that deal, most of our work, as you know, is managed services in, say, three year contracts when we're talking about TS&S. Normally, you're in the 12 to 18 months by the time you're at run rate margin profile on those accounts. So there's a little staggering of those two. But net-net, for the contracts we're signing, we expect margin accretion based on the type of work that we're doing.

Got it. That's helpful. And then can I ask about the fourth quarter ClearPath Forward expectations? I guess, how much of the $205 million, if any, is already signed? And I guess, what's your level of confidence in these renewals versus 90 days ago? And then what's assumed in that $205 million across pricing, consumption and then just split across software and services?

Okay. I'll give you some of that, some of which is kind of difficult to get to, I think. Well, first off, it's not software and services. It's all software when we talk about that component piece of the $205 million. That's the licensing component traditionally is what we're talking about. There are some services elements to that, but that comes in over time, not upfront as far as the revenue recognition is concerned.

The confidence level we have in the ClearPath signings and the visibility is extremely high. This is very consistent with what we do every year, as Deb mentioned in her prepared remarks. So clear visibility into it. Most of these deals actually are tied to calendar year-end. So when we think about this, it's not unusual that they come in, in -- frankly, in December. We do try when we're negotiating these to change that trajectory for future renewals because it's always difficult to have something backloaded at the back end of the year, especially when we talk about the cash collection. Most of the cash collection is within 90 days of the signing of the contract, sometimes shorter than that. So we like to sign those earlier in the quarter so that we get the cash in year as well.

Very little concern about if they're signing, it's really when they sign, right? These are mission-critical systems that go dark upon nonrenewal, right? So a very high degree of confidence as it pertains to the P&L component of that. And then the only mix would be whether or not it slides later into the quarter and then that cash pushes into Q1 as opposed to being recognized in Q4. So I think I've picked off all of those questions. But if I miss one, please feel free to reiterate.

[Operator Instructions] The next question comes from Anja Soderstrom with Sidoti.

I'm just curious with the cash flow target for 2026. How dependent -- what does that assume in terms of the ClearPath renewals? You're saying some of that might happen late in the quarter and the cash collection might not happen until next year. So how should we think about that in terms of cash flow?

Deb, do you want to take that one?

Yes. So thank you, Anja. Yes, I mean our assumption is that we do get the majority of the cash from those signings in Q4. And so as Mike mentioned, that's the revenue we're very -- have a high degree of confidence, sometimes the cash depending on when it signs, but we are assuming that --that cash comes in, in Q4 because it typically does, right? And so -- but there is that risk. But we would -- but that's to still get it. So we are saying we're still on track to that negative $25 million.

Okay. And then how should we think about the cash flow for 2027?

Yes, we're not right now going to give 2027 guidance on that. But the -- yes, so really not much to say on 2027 at this point.

Yes. We'll do that, obviously, when we do Q4 and we close out, we'll give guidance for the year, and Deb will do her normal walk of all the expectations of cash going into '27.

Right. Okay. And then have you seen any sort of changes in sort of the sentiment of demand picture given the high interest rates? Or does that not really affect your demand picture?

Yes. Look, I mean, obviously, interest rates have been bouncing around. Expectation is that they're going to increase. And clearly, that could have an impact on client demand, right, from availability for CapEx. But just as a reminder, the work that we do for our clients is nondiscretionary work for the most part, right?

And so we don't see that as having a tremendous impact on the primary work we do for our clients. You think about our makeup, it's about 80% of our backlog or our revenue is coming from our backlog, which is on longer-term managed services contracts. So the impact that, that has is largely on project work and the funding for discretionary project work, which is limited to our application to our clients right now.

So it's not a huge factor from our perspective in our concepts. And if you think about the knock-on impact that it would have had historically to pensions, we mitigated that over a year ago when we aligned our pension investment strategy to rates, right? So the rate component of that movement has been mitigated from a contribution point of view. So not tremendously influential in kind of how we're dealing with the demand from our clients.

[Operator Instructions] The next question comes from Matthew Galinko with Maxim.

I was hoping you could maybe expand a little bit on the pipeline you're seeing for data center field services. How has that kind of evolved to this point in the year? And maybe as a follow-up, if you could give any maybe early indication of how midterm elections and maybe change of control in some states might impact how you see that pipeline converting?

Matt, thanks for the question and joining the call. And they're great questions. Look, I think, obviously, we've talked a lot about this. We think this is a real opportunity for us in a multitude of ways. I discussed in my prepared remarks, our partnership with Refroid Technologies, which is really about a different avenue for us getting into the build side of these data centers, right, to kind of follow where some of those dollars are going. We also have some white label relationships where we're the installation arm in relation to that.

So we're looking at a whole different set of point of entry into that business, right, from an infrastructure management point of view. Clearly, working through some of our alliance partners, specifically the hyperscalers, which are highly engaged in this. So I would say I like how the discussions are developing, and it's kind of a new motion for us to get after different entry points into the build side of this. We're usually coming in on the run side or the break/fix side. And it's a whole different construct of how we go to market and who we go to market with. So the orchestration there has been a little new motion for us.

But again, I like where it's developing, and you're seeing us now have conversations with, again, kind of the hypervisor side, the building communities, some of the manufacturing components and then our traditional kind of OEM touch points. So going pretty well.

As far as the election is concerned, look, I mean, we're agnostic really to the elements of who's kind of in office per se. But the market likes stability. And I think our clients would like stability and the fact that there's a lot more balance per se in the legislative component of the makeup of the Congress probably sets us on a pretty defined path.

Clearly, data center builds was a component piece of that election. But our view is that is going to shift, right? So if state A decides that they have a negative perception of that build and state B decides they want to invoke on that. We think the build is going to continue. It's just a matter of kind of what state it resides in and/or whether or not it's in the U.S. or remote. But as you know, we've got a global footprint, and we're prepared to support this type of work effort regardless of where it ultimately gets built. So from our point of view, the investment continues to happen, and it might just be a geography switch.

This concludes our question-and-answer session and concludes our conference call today. Thank you for attending today's presentation. You may now disconnect.

Good morning, and welcome to the Unisys Corporation Second Quarter 2026 Financial Results Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Michaela Pewarski, Vice President of Investor Relations. Please go ahead.

Thank you, operator. Good morning, everyone. Thank you for joining us. Yesterday afternoon, Unisys released its second quarter 2026 financial results. Joining me to discuss these results are Mike Thomson, our CEO and President; and Deb McCann, our Chief Financial Officer.

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. These items can be found in our forward-looking statements section of yesterday's earnings release furnished on Form 8-K 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 and adjusted EBITDA. These measures exclude certain unusual or nonrecurring items such as postretirement expense, cost reduction activities and other expenses the company believes are not indicative of ongoing operations. We believe these measures provide a more complete understanding of our financial performance, but they are not intended to be a substitute for GAAP. Reconciliations for non-GAAP measures are provided in the slides for today's call available on our investor website.

With that, I'd like to turn the call over to Mike.

Thank you, Michaela. Good morning, everyone, and thank you for joining us to discuss the company's second quarter 2026 results. The year is progressing well with the second quarter building on a good start to the year. As announced at our June Investor Day, we have increased our full year revenue guidance and second quarter came in ahead of the expectations we shared on our last earnings call. New business signings are again a bright spot, up more than 50% year-over-year in the second quarter and improved sequentially over the first quarter, which had been our strongest since 2024.

Steady execution of our efficiency initiatives keeps us firmly on track for full year profit and cash flow. We continue investing to deploy our AI-infused solutions to our existing client base, enhancing AI fluency and proficiency and extending our platforms by building out our portfolio of Agentic assets to accelerate AI adoption in complex IT environments. That includes within our ClearPath ecosystem, where we are evolving both our core platforms to support AI capabilities and increasing the flexibility in using ClearPath data for connecting and powering enterprise AI workloads.

Our investments are focused on converting today's demand into durable, high-value relationships that strengthen our conviction in our long-term value. We believe that value will become increasingly evident over time, especially as pension contributions translate to lower pension deficit, which will continue to improve our leverage position.

Looking more closely at the second quarter performance, our revenue year-over-year decline of 2% was better than we anticipated last quarter due to a 2% growth in Technology Solutions and Services, or TS&S. As a reminder, TS&S represents the entire company, excluding ClearPath, and it reflects the renaming of [ L&S ] to more accurately represent the businesses included within that grouping. Upside in our Digital Workplace Solutions and Cloud Applications and Infrastructure segments span field services volumes, shorter cycle project work and increased hardware.

We again saw some sequential improvement in clients undertaking project work and moving forward on their enterprise AI road map. Revenue was up across key solutions and applications, cybersecurity and data center field services, both sequentially and year-over-year. Demand accelerated for devices and services as clients contend with rising hardware costs stemming from memory shortages. We believe this supports the continued growth of our device subscription services or DSS offering as it is geared towards better asset management and reporting as well as better financial outcomes for our clients over time. We expanded Technology Solutions and Services gross margin by 170 basis points year-over-year, reflecting the results of ongoing investments in our technology, workforce and higher-value solutions.

Looking at client signings during the quarter, new business TCV increased 57% year-over-year and 22% sequentially. Our sustained new business strength primarily reflects the generation of project work with our existing clients. Our win rates on new business with existing clients are up meaningfully for the first half of the year on both a TCV and a deal count basis. We have improved conversion on large and midsized opportunities, which we believe reflects our strengthening competitive position and acknowledgment of our portfolio and delivery capabilities.

Follow-on opportunities are coming in shorter succession than in the past, and many of our notable wins were with newer clients where our relationships are expanding more quickly. For example, we recently expanded our relationship with a leading U.K.-based construction company with 2 wins in the second quarter. The client relationship is currently in its second year and will now provide our DSS offering, including intelligent refresh and life cycle services for their 10,000 devices and take on an Azure service and cloud governance as their Microsoft cloud solution provider.

As another example, a community college system that became a Unisys client just last quarter signed a multiyear infrastructure services new scope based on the initial success of our Agentic modernization work. These cloud and infrastructure services solidify a recurring relationship with a top higher education institution, offering us significant white space opportunities. We continue to expand our presence in the rapidly growing need for AI infrastructure data center field services, which requires unique expertise in servers, liquid cooling and other equipment.

In the quarter, a large OEM engaged us to provide full-time dedicated resident technicians to support an AI data center build-out and ongoing maintenance. Importantly, the client is funding advanced on-site training for the dedicated team as well as Unisys technicians rotating ahead of future anticipated volumes. This engagement is meaningful for our profile in the space where we were also recently recognized by Dell as their 2026 American Data Center Partner of the Year.

We also signed a small expansion in high-value field services with a leading global telecommunications company to provide end-to-end deployment and support for Starlink antennas. Our field engineers will conduct site surveys, installation planning, cable routing assessments, testing and life cycle management beginning in Germany with plans to expand within Europe and beyond.

Building on recent momentum in Australia, we signed a 6-year new scope contract with a global travel systems integrator to provide dedicated on-site engineers to maintain check-in kiosks, bags, tag, printers and passenger boarding systems in airports across the region. While 2026 has fewer large contract renewals scheduled, our AI-first approach is resonating and many clients are considering new scope opportunities into their renewals, which helps us maintain the relationship economics for us and allows our clients to share in a more efficient delivery profile.

Looking at pipeline and demand trends, we saw double-digit sequential growth in new business pipeline with both existing and prospective clients. In digital workplace, we saw a broad-based influx in demand for our device subscription services as IT executives focus more urgently on offsetting the cost pressures that device price increases are putting on their budgets. Our DSS solution is purpose-built for this objective and transitioned clients from traditional capital purchases to flexible life cycle models.

Using persona mapping, device telemetry and predictive analytics, we optimize across planning, procurement, warehousing, deployment and support. In cloud applications and infrastructure, we saw a pickup in application services requiring our central engineering capabilities and expertise in developing, modernizing and managing applications. The majority of this work now involves the creation and orchestration of AI agents where we have allocated highly skilled specialists.

Several of our new application opportunities, including some large-scale transformations, come from our ongoing initiative to cross-sell modernization services into our ECS base of ClearPath clients. In ECS, we went live with our first endurance advisory engagement at a large financial institution and added several opportunities to the pipeline at other ClearPath clients. Endurance consulting projects involve developing initiatives for AI knowledge management, upskilling and skill sustainability that we use to enrich our own internal experience and where we see several key benefits.

These engagements support retention and longevity by reinforcing skills at clients that manage ClearPath systems in-house while giving us a better understanding of their needs to inform our own product road map. We believe these initiatives will generate ancillary services revenues by identifying modernization opportunities within the ClearPath estate. The momentum in our pipeline is a function not only of demand trends and loosening budgets, but also a balance of consistency and agility in our go-to-market.

Last quarter, I discussed how we adapted to the disruption AI was having on client decisions by rolling out rapid value assessments to create repeatable frameworks for understanding time to value and return on investment for key solutions. These frameworks are engaging more new logos and reaching out to them earlier in their AI journey, and we continue expanding our catalog. A consistent focus on existing initiatives like our alliance partnerships is also yielding results. And our partner-linked opportunities are generating a larger portion of the pipeline than they did a year ago.

We're collaborating more closely with key partners on solution development where we can deliver outcomes for specific industry use cases relevant to both Unisys and our partners' clients. A vivid example is our deepening relationship with a key hyperscaler in higher education, working alongside our client, one of the largest university systems in the United States, we designated a bespoke application built with our partners' AI stack to assist overextended guidance counselors and improve student retention.

Our partner is now training its own presales architects on the solution and making new introductions that open doors to apply a repeatable framework for co-developing and commercializing solutions and use cases with one of the largest global technology companies. In addition to client wins, our solutions are continuing to garner industry recognition. This quarter, we maintained our leader rankings in the market reports for data center services, cybersecurity and AI-enabled cloud infrastructure management published by analysts from ISG and Nelson Hall.

I want to shift to discuss how we're investing in the foundations of future growth and as a diversified play on enterprises and mid-market AI orchestration. This encompasses developing solutions, delivery frameworks, partnerships and workforce skills to offer a standardized point of view while remaining platform-agnostic, optimizing for use cases or leveraging clients' existing technology investments. In the enterprise computing segment, we're continuing to deliver incremental modernization without disruption for clients that depend on ClearPath for mission-critical workloads.

During the second quarter, we had a major release of a core operating system, which eases integration of data with third-party AI applications and new capabilities such as our AI developer toolkit. As with all major platform upgrades, we strengthened security, including the latest advancement in post-quantum cryptography. Quantum computing more broadly is an area where we've established expertise and a growing track record. In the second quarter, we moved into production a quantum fraud detection solution at Paysafe, an online payment platform based in the U.K.

This solution pushes the bounds with its use of AI and machine learning and was developed through an ongoing partnership with the National Quantum Computing Center, or NQCC, and was partially funded by the U.K. government. We're seeking third-party validation from NQCC, which would establish Unisys as having one of a very few validated quantum production instances and lends its credibility in a highly regulated market. In digital workplace, our Agentic service desk is our solution for orchestrating an elevated and more automated IT support experience.

We're currently in the deployment phase with a second group of clients, and these capabilities remain a key differentiator in client conversations. Agentic Service Desk embeds Agentic Workflows and intelligent automation directly into delivery and is deployed directly to the client's environment to maintain data sovereignty. This solution is a powerful example of our ability to operationalize AI at enterprise scale, providing more value at a lower cost.

Our teams are working on new integrations for NexSync and TeamViewer platforms, so our AI agents can directly access telemetry and analytic data to lead to better outcomes by leveraging our clients' existing technology. We're also working on new voice capabilities using conversational AI, further enhancing the end user experience. Longer-term, service experience accelerator is designed to address a broader market beyond IT, orchestrating unified knowledge management for global capability centers, delivering centralized HR, finance and facility services.

While early, we're now moving into production with a client on our first non-IT use case for human resources following a successful pilot during the quarter. On the field services side, as we invest in training and talent for high-value hybrid infrastructure and IoT devices, we're exploring partnerships with certain system integrators to scale faster. The system integrators we're working with design and manage data center build-outs for clients directly, but also use an array of subcontractors for execution. Our global footprint offers them the ability to consolidate field service capabilities with a single provider, making us a particularly attractive partner.

In CA&I, we continue to enhance delivery of our intelligent operations platform and have established a new partnership with Antenna to improve AI operations governance and observability across AI agents and workflows and help optimize token use for clients. We are experiencing a broader architectural shift as clients weigh the question, where should I run my AI workloads, determining which AI workload belongs in the cloud, at the edge or on-prem, and whether you're solving for cost, latency, security or data sovereignty reasons are all part of the equation that we help clients solve.

Our combined expertise across devices, applications and hybrid infrastructure makes us a natural orchestration partner for adopting AI in increasingly complex IT estates, especially as intelligent edge compute proliferates. Converting portfolio investments into client outcomes ultimately relies on the quality of our people and making the deliberate investments required for true AI workforce transformation. We continue to enrich our company-wide AI fluency and proficiency training programs with structured learning pathways, certification cohorts and role-based standards for major AI tools.

This is being complemented by skills-first AI-driven talent architecture, a closed-loop system to capture skills and credentials, curated learning journeys and matching the right talent to the right work using AI at every step and continually learning from the outcomes. Our commitment to development is fundamental to our culture, and we are proud to share that Unisys has again been named one of Time Magazine's American's Best Companies for 2026 and moved up 42 rankings to #32 on the Economist 2026 Top 100 Most Loved Workplaces. This recognition, coupled with our low trailing 12-month attrition rate of 11.2% reflects our continued commitment to fostering a highly engaged and empowered workforce.

With that, I'll turn the call over to Deb to discuss our financial performance in more detail.

Thank you, Mike, and good morning, everyone. My discussion today will reference slides from the supplemental slides 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 on Technology Solutions and Services, or TS&S, to allow investors to assess the progress we are making outside of ClearPath, where software license revenue and profit recognition are tied to renewal timing and can be uneven between quarters.

As a reminder, ClearPath revenue constitutes about 2/3 of the Enterprise Computing segment. As Mike discussed, second quarter revenue exceeded our expectations and was accompanied by a strong new business total contract value and pipeline momentum that supports the increase we made to our full year growth outlook in June. AI continues to be an important enabler across the business, strengthening our solution portfolio while also improving delivery efficiency, sales productivity and process automation. Investments in workforce, technology and high-value solution development have yielded stronger quarterly gross margin in Technology Solutions and Services, keeping us on pace for our 2026 profitability and free cash flow expectations.

Our liquidity remains solid, and our pension contributions are translating to improvement in our global pension deficit, reducing debt and moving us toward our goal of fully removing our U.S. pensions. Looking at our results in more detail, you can see on Slide 7, the second quarter revenue was $474 million, a decrease of 2% year-over-year or negative 5.2% in constant currency, primarily due to the timing of ClearPath software license renewals. This was about $20 million above the outlook we provided last quarter, fully attributable to our Technology Solutions and Services, which generated $404 million of revenue, an increase of 2% compared to the prior year or a 1.3% decline in constant currency.

Staying on Slide 7, I will now discuss second quarter revenue by segment and in constant currency terms. Digital Workplace Solutions revenue of $142 million declined 1.1% compared to the prior year, but better than expected. Revenue generated from recent new business signings and high-end storage field services was partially offset by declines from known attrition and lower PC field services volumes, which were anticipated. Incremental revenue had a higher mix of hardware, including components associated with device subscription services or DSS.

DSS services have attractive margins, increased stickiness of client relationships and provide an attractive entry point for landing with new logos, though may have large components of lower-margin hardware revenue if Unisys procures the devices. Second quarter revenue in the Cloud Applications and Infrastructure Solutions segment was $184 million, a year-on-year decline of 3.2%, slightly better than we had anticipated last quarter. While project completions and prior year attrition were headwinds, delays on some ramp-downs provided incremental revenue upside.

We are also seeing good growth in higher-value security and application services. Enterprise Computing Solutions revenue was $126 million in the second quarter, down 13.2% from the prior year period. ClearPath revenue of $70 million was in line with our expectations, down 22.9% year-over-year due to license renewal timing, fully accounting for the overall decline in the segment. As I mentioned earlier, ClearPath license revenue is recognized based on renewal timing, which can be uneven between quarters.

In June, we increased our full year outlook for ClearPath revenue from $415 million to $425 million and have a high level of visibility into a strong second half of ClearPath revenue and profit. Specialized services and next-generation compute solutions, which make up the remainder of the ECS segment, grew 3%, led by increased volumes in managed services and business process solutions. Second quarter total contract value was $422 million, including $192 million of new business TCV, which is up 57% year-over-year.

Year-to-date, we have signed $696 million of TCV, including $350 million of new business TCV, an increase of 52% compared to the first half of 2025. Trailing 12-month book-to-bill is 1.2x for both total company and TS&S, relatively flat sequentially. We exited the quarter with a backlog of $2.8 billion and a greater portion of in-year revenue assumed in our guidance is contracted and in backlog relative to this time last year.

Moving to Slide 9. Second quarter gross profit was $117 million, a 24.8% gross margin compared to 26.9% last year, driven by timing of ClearPath renewals. TS&S gross profit was $78 million and gross margin was 19.3%, up 170 basis points on a year-over-year basis. The quarter included $3 million of nonsegment revenue with 100% profit flow-through, which benefited total company and TS&S gross margin by 50 and 60 basis points, respectively. As we disclosed last quarter, we will see the same size benefit in the third and fourth quarters, resulting from a first quarter transaction within our U.K. Business Process Solutions joint venture.

Staying on Slide 9, I will now touch briefly on segment gross profit. DWS gross margin was 10.8% in the second quarter compared to 16.9% in the prior year. The decline reflects several factors, including the hardware mix and reduced volumes that I covered in my revenue discussion. But the larger impact was elevated near-term transition costs and upfront workforce investment on the highly complex transition of a first quarter win. This transition requires maintaining continuity of existing services while also deploying Agentic service desk and transforming delivery across thousands of restaurant locations without causing disruption.

We view these investments as foundational to both the future margin expansion of the account and the successful execution of a flagship commercial deployment that can further differentiate Unisys in the market and illustrate our ability to deliver Agentic service desk at scale. CA&I gross margin was 25% in the second quarter, up 420 basis points year-over-year. Margin expanded due to delivery efficiencies and labor cost savings, but is expected to be lower in the second half, in part due to the timing of compensation and client transitions.

ECS gross margin was 44.8% in the second quarter, down from 53.5% in the prior year, primarily due to the timing of ClearPath license renewals. Within the segment, ClearPath's gross margin was 56.7%, and we continue to expect an approximate 70% gross margin for the full year as increased license revenue in the second half will have high profit flow-through over a relatively fixed cost base.

Moving to Slide 10. Second quarter GAAP operating loss of $33 million included a noncash goodwill impairment charge of $47.2 million. This is the remainder of the goodwill balance allocated to the DWS segment and reflects a slower pace of profitability improvement due to competitive pressures, pricing dynamics and near-term investments in delivery. This does not change our view of the margin potential in this segment.

Non-GAAP operating profit margin was 5.3%, in line with the outlook we provided last quarter. On a year-to-date basis, SG&A of $187 million is down $3 million from prior year, and we are on track to achieve full year cost savings of $10 million to $20 million through technology-driven productivity gains and streamlining of our corporate functions. Second quarter net income was negative $95 million, translating to diluted loss of $1.31 per share. And on an adjusted basis, net income was negative $6 million or diluted loss per share of $0.08.

Turning to Slide 11. Adjusted EBITDA was $54 million in the second quarter, an 11.3% margin. Cash from operations was negative $26 million and capital expenditures in the second quarter totaled $23 million, bringing year-to-date CapEx to $44 million. As a reminder, about half of our annual capital expenditures are relatively fixed levels of solution development for our ClearPath ecosystem.

Free cash flow was negative $49 million in the second quarter compared to negative $337 million in the prior year period, which had included a $250 million discretionary contribution to our U.S. qualified defined benefit pension plans. In the second quarter, we made $29.2 million of a cash pension and $0.5 million of postretirement contributions.

Moving to Slide 12. Our cash balance is $324 million as of June 30 compared to $414 million at year-end. We continue to maintain a strong liquidity position, underpinned by substantial cash on hand, an undrawn $125 million ABL facility and no meaningful debt maturities before 2031. At year-end, our global pension deficit was approximately $450 million. Based on market conditions and our year-to-date pension contributions, we estimate that as of June 30, our global pension deficit has improved by approximately $30 million from year-end. Net leverage, including year-end pension deficit is approximately 3.1x.

Each year-end, we provide more detailed estimated projections for our deficit and expected global cash pension contributions relative to our quarterly updates. These projections change based on factors, including funding regulations and actuarial assumptions. We expect $40 million of global pension contributions in the second half of 2026 and estimate that our aggregate expected cash contributions in 2027 through 2029 remain essentially unchanged from our year-end projections.

As a reminder, in 2025, we reallocated planned assets to remove substantially all volatility from our U.S. pension contributions, which increased certainty of future cash needs. With continued operational and financial execution, we expect cash contributions to translate into leverage reduction that will position us to fully remove our U.S. pensions by 2030.

Turning to Slide 14. I will now discuss full year financial guidance and additional full year color. We are reaffirming the full year guidance range for revenue that we increased at our June Investor Day, which is a decline of 5% to 3.5%. Based on June 30, foreign exchange rates, this equates to a reported revenue decline of negative 2.6% to negative 1.1%. Guidance assumes TS&S revenue constant currency decline between 6% and 4% and full year ClearPath revenue of $425 million, which is consistent with the upward revisions made in June.

We also continue to expect average annual ClearPath revenue of approximately $400 million for 2027 and 2028. We are reaffirming guidance for full year non-GAAP operating profit margin of 9% to 11%, which assumes a slight year-over-year increase in ClearPath gross margin, targeted TS&S gross margin improvement of 100 to 200 basis points and a $10 million to $20 million reduction in operating expense.

Looking specifically at the third quarter, we expect approximately $450 million of total company revenue on a reported basis at FX rates as of June 30. This assumes approximately $370 million of Technology Solutions and services revenue and approximately $80 million of ClearPath revenue. This implies ClearPath revenue will exceed $200 million in the fourth quarter to achieve full year revenue of $425 million, and we expect with a high degree of confidence key large deals will close by year-end.

We anticipate third quarter non-GAAP operating margin will be approximately 4%. We expect third quarter nonoperating items impacting GAAP net income of approximately $200 million, which primarily includes an estimate for the incremental noncash pension expense associated with a likely third quarter annuity purchase. We are contemplating a transaction that would remove approximately $200 million of pension liabilities from our U.S. qualified defined benefit plans, which would be funded by planned assets of a similar amount to the liabilities being removed.

The noncash pension expense associated with the annuity would depend on the final size and structure of the transaction. Annuity purchases are part of our ongoing pension management strategy and are an avenue for transferring liabilities to third-party insurance companies at a lower cost relative to a full transfer. Our base case expectation for full year free cash flow is unchanged at approximately negative $25 million, which translates to approximately $75 million of pre-pension and post-retirement 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 aggregate environmental, legal and restructuring payments and $100 million of pension and postretirement contributions, approximately $25 million of which is expected in the third quarter.

Before we open the line for questions, Mike has a few additional remarks.

Thank you, Deb. We've covered a lot today, but I hope the 3 messages came through pretty clearly. First, performance of the business, including continual favorable trends in our ClearPath ecosystem are advancing us towards our key financial objectives, higher profit and free cash flow for investing in the business and funding ongoing pension contributions that will translate to leverage reduction and position us for future removal of our U.S. pensions by 2030.

Second, we have a strong momentum in our go-to-market. Our solutions are aligned with key AI-driven demand trends, receiving more and more recognitions with clients and industry analysts, and we're winning work that moves us into higher-value areas of the market. And third, we're making the right investments today in people, technology and innovation to inflect, sustain and accelerate growth in the future.

Operator, you may open up the line for questions.

[Operator Instructions] The first question comes from Rod Bourgeois with DeepDive Equity Research.

I want to start by asking about the client spending environment with all of the shifting priorities that have occurred. Clearly, IBM encountered some client spending issues in its recent quarter with heightened client costs on AI infrastructure crowding out some of their larger deals. So the question here is, to what extent are you seeing that dynamic across your businesses? And do you -- if that has been a dynamic, is it subsiding at this point or a continuing effect?

Rod, it's Mike. Thanks for the question and great question. Obviously, very topical with the recent news from IBM. Look, I think we had mentioned even in some of my prepared remarks that we are seeing that dynamic. There clearly is a focus in the industry in regards to infrastructure, specifically RAM and the cost of RAM. And I think at least from my read of what we saw from IBM and clearly what happened in their earnings post that they see that same shift. And I think they were pretty bullish on, hey, a bunch of those things were timing and they ultimately cleared themselves up shortly thereafter.

They also specifically noted, and again, something we're seeing, which was the positive consumption in their base, right? So I think they kind of reiterated that. You've seen that with our ClearPath as well, continued consumption increase. You saw, again, in the Investor Day, we bumped up our range from a guidance perspective due to that. So I think positive from that point of view. Certainly, from a market-facing perspective, that shift into infrastructure spend and maybe deferring some of the discretionary spend, I think, is a consistent trend we saw in the macros at the tail end of last year.

And we mentioned at that time, we expected that trend to continue through at least the first half of this year, which we've seen and maybe extend a little more than that. But that's kind of baked into our thought process already. And then lastly, I would say, for us, at least, we see that as a little bit of an advantage. We talked and Deb mentioned the DSS pipeline and the growth in that DSS pipeline. Well, we think a lot of that is because we've got essentially IT executives that are prioritizing that spend, trying to lock in pricing before they see these continual price increases.

And our DSS offering is really geared towards how we can have some economic value come back to those clients and give them kind of more life cycle view that's really geared on what their needs are, persona mapping, data telemetry, et cetera. So although the shift is to hardware spend and clearly, that's having some impact on the macros as it pertains to AI and/or project work, it is shifting to something where we think we've got a really strong offering to present to the market. So it's kind of a double-edged sword, but I would say that those are more temporary in nature as far as the deferral is concerned. And you saw by our strong new business postings that we're getting our share for sure of that work, and it is starting to loosen a bit.

Okay. Great. And another timely topic in the AI world is the private AI with open weight models versus the adoption of frontier models. What adoption and client behavior patterns are you seeing and expecting on that front between open weight versus frontiers?

Yes. Great question, Rod. Certainly, again, very timely. Look, I'll start with -- we almost don't care what side of the coin wins that battle. The fact of the matter is we're agnostic to the platform, and it's very specific to kind of client needs, right? If you're concerned around sovereignty and transparency of the model or data leakage or kind of IP protection or protecting your alpha, you're likely going to lean towards open source, open weight and do it in a private manner, right, so you can essentially [indiscernible] and be able to run that and keep control of it.

If you've got really complex problems, that you need the larger frontier models for, well, then clearly, you're going to do that in a different manner. So look, I think in general, it is us helping our clients find the right model and the right infrastructure at the right time to fill a specific need. And consistent with how we treat and how we've treated whether it's hyperscalers or OEM providers, we're kind of agnostic to who they use in that stack and much more attuned to management of that hybrid infrastructure, understanding what it is they're trying to accomplish and understanding what's most important to them to help kind of shift their focus to the pros and cons of those various models.

And again, it's really -- if you're really in a highly regulated, highly secure, you're going to want kind of that on-prem calculation mostly to protect your IP and maintain AI and data sovereignty. So it's really an interesting dynamic as it plays out in the market. But I do think regardless of kind of which option you select, there are a lot of things to be wary of, and I think it really helps our kind of go-to-market, I'll say, advisory and consultancy because we have deep understanding both industry vertical as well as client understanding of the hybrid infrastructure that exists. So we're better to really know how to steer that conversation.

And is that activity showing up in your new business wins? Or is it mostly in the pipeline right now?

Yes. Great follow-up. I would say, yes, in the new business wins, where we're seeing the most of the new business wins in CA&I, an example, is kind of the apps modernization and cybersecurity components of that, which are really based on this development and where that compute is going to happen. But the pipeline is strong as well in that space. So my comment around a little bit of the loosening of that discretionary kind of comes in those areas in particular.

And so we're seeing a nice balance of that and clearly tying that into the training that we're doing with our associates and our go-to-market strategy with the rapid value assessments to really have that discussion kind of pull that out from normal day-to-day. And if nothing else becomes a point of spear to get in and have that dialogue with clients, show our innovation and then move on to the larger discussions on managed services on a more, I'll say, macro view.

The next question comes from Mayank Tandon with Needham.

Mike, could you talk about pricing trends across your solution set, just given the flux in the market and some of the comments from some of the larger IT services companies, would love to get your thoughts on overall pricing trends and if the contracts are being structured in a different way than in the past, given some of the AI focus. So more like just a broad question around the overall pricing trends that you're seeing across your solution set.

Yes. Great. Thanks, Mayank. Good to talk to you again. Yes, look, it's clearly been an issue over the course of the last year where we've had discussions on pricing. The terminology used is this AI deflation and kind of what it means. Clearly, for some of our solutions, there is price pressure on the top line. The nice thing, at least about us personally is last year, we did roughly $1.7 billion of renewals. So we got through a big chunk of that pricing pressure. By the time we exit this year, we'll be probably about 3/4 of the way through all our renewal cycles. So that's kind of behind us as far as the pricing pressure is concerned.

We have actually been pleasantly surprised that we've been able to bring some new scope opportunities into the economics of those deals. So although the -- I'll say, the traditional pricing has been pressured and down, we've been able to augment that with kind of new scope opportunities to maintain the economics of that relationship and gives us an opportunity to illustrate our skills in other areas. So the pricing pressure is real. I think we've kind of baked it into our BAU at this point. It's clearly baked into kind of our modeling and our numbers.

And again, we have been pretty good, I would say, 85%-ish good in being able to increase some scope to augment that price pressure and actually give us another entry point for growing the client relationship. So yes, it's real. We're about through it on our side, and we're seeing it as opportunity to expand our relationship with clients.

And then just a quick one for Deb on the guide. Deb, for 3Q, given the downtick in revenue relative to 2Q and also the non-GAAP operating margin, is that just a seasonal impact? Or are there more drivers behind that? That does mean that fourth quarter would obviously see a big step-up to get to the full year guide? So just curious on some of the nuances around the quarterly guidance.

Yes. So you're right. It is really just seasonal. And so Q3 will be a lighter quarter, particularly in ClearPath, right? So for ClearPath, with Q4 -- Q3 only being about $80 million, that means that Q4 would be close to $200 million to hit that $425 million. So this will have impact on the revenue in Q3. And also from a cash perspective, you'll see an impact because we do -- a fair amount of cash would come in from that Q4 ClearPath revenue. So you'll see kind of a big dip in free cash flow as well, but it will come in, in Q4.

I would say, Mayank, on that, very consistent to last year. We had a pretty strong back half last year, really good visibility into that. That's not unusual for us in general, so that we have a really strong quarter throughout the year. So I do think, again, really good line of sight to that. I know there was some consternation last year in regards to the same thing, like things were back half weighted. And all of that came in, and we expect all of this to come in as well. So again, it's primarily ClearPath related. And of all the areas where we're bullish, that's the place where we're most bullish.

The next question comes from Matt Dezort with William Blair.

This is Matt on for Maggie Nolan. Congrats on the quarter. Mike, can I ask you about the data center opportunity? I know you were really excited about that at the Investor Day. You talked about a win in your prepared remarks. I'm just wondering if you can give us any more color on your opportunity there? What percent of your field services footprint is already up to speed on those skill sets and how the pipeline is building for the data center opportunity?

Yes. Thanks, Matt, for the question. Yes, I am excited about the data center opportunity for our company in general. I think there are essentially kind of 3 elements to that, that are pretty interesting to us. I'll address them. You talked specifically about field services, so I'll hit that one first. Clearly, we have done a lot of work to ensure that our field services technicians are prepared for the influx of work, specifically as we talk about things build-out of AI data centers, liquid cooling, networking equipment, et cetera.

So we feel pretty good that we've got a good bulk of our technical associates ready to go and geared up and trained. A lot of those folks, I mentioned the award we got from Dell as data center partner for the year of '26. So there's a big influx of work we get from that line of business. We do have some very interesting pipeline opportunities there. I talked a little bit about some of the Starlink opportunities. So I feel like between -- one of our core tenets of our strategy has been to continue to uplift the field services skills that we have.

Historically, if I go back 5 years, it was predominantly PC break fix type work. Now we're well into data centers. We're moving into fast service restaurants. We're moving into other areas of the build, again, mentioning the Starlink opportunity here and moving up stack in the airports and things like that. So really like the way that's progressing and some really nice opportunities pipeline oriented to position us for growth in that space. And every one of those ends up being stronger margin and better utilization. So I am still bullish on that and do think that's on a path to really helping DWS become much more profit-oriented than they have been historically.

The other 2 areas of data center opportunities is clearly data center service management, right, and the ability to orchestrate AI. Rod asked a question about private AI. That's really about a little bit about repatriation into the data center and managing kind of hybrid data center opportunities, and we're positioned well for that as well and especially, when you just think about most of our clients are hybrid infrastructure oriented. So that brings in kind of the application layer and the alignment to the data at the data center level. So lots of really interesting opportunities that are data center oriented.

And as you know, there are billions of dollars being spent in that space, not only for the new build, but retrofitting other areas. So we feel like we're really well positioned that way. And very few field service-oriented data service center providers are global in nature, right? So we've already got people in essentially every country that's going to be seeing this growth. So we feel like if there's -- you're looking for a global partner instead of hundreds of local partners, there's very few phones you can pick up and call on, and we're one of those few.

That makes sense. And then can I ask about DSS and hardware? I guess, are you able to quantify how much of the upside in the quarter was driven by hardware device support services versus obviously, CA&I outperformed too? And then how do you expect those 2 pieces to perform through the balance of the year?

Yes. Thanks, Matt. Look, we haven't quantified the hardware component of that. But I would say we mentioned it because when you see pressure on the margin, a lot of times, it's because we're doing DSS deals that may have a larger hardware component in that deal, which has pressure or puts pressure on the margin percentage. But just -- if you keep in mind, part of our view here is margin dollars or profit dollars. They are coming with incremental profit dollars, but detrimental margin percentage. And it's really deal specific.

And Deb mentioned in her prepared remarks that it's really determined on whether or not the client wants us to procure the devices for them. So many of the DSS deals we have in the pipeline is just our services component on it, and we're getting good margin on the DSS services piece of the business. So it's very much, I'll say, contract specific and very much geared towards whether or not we're playing the procurement role in the DSS offering, which is really geared to a client.

So what we'll do is if there is any anomaly in any given quarter for a certain contract, we'll certainly call that out and make sure you guys are aware of it. But it's not like that's our target business plan that we want to go out and be the procurement partner there. In fact, we would prefer clients buy it themselves and that we just handle the services component of it. So right now, it's relatively small and probably has an outweighted portion of the margin movement than it does actual dollars.

Deb, anything you want to add there?

No, I think you covered it.

[Operator Instructions] The next question comes from Anja Soderstrom with Sidoti.

I'm just curious with the license renewals, have you seen any changes there in the duration of those?

No, we haven't actually. The duration has been very steady. Again, I think the trend, if anything, that we have seen in the past would be extension. I assume you're talking ClearPath when you -- as to that question. And if anything, what we're seeing is extension. But in this particular case, this is -- it's not extension oriented. It's primarily increased volumes, right, or consumption.

Okay. And have you also seen any sort of changes to the competitive environment given the changes in the directions?

Are you talking specific to ClearPath or just in the business in general?

The business in general and AI...

Yes. Look, I think there are plenty of new entrants into the space based on the -- whether it's [indiscernible] orientation or it's kind of AI boutiques coming into the space. I think that's bringing a lot of, I'll call it, noise or confusion. I think the bottom line, however, is for those folks to be successful, they actually have to know how to run the hybrid infrastructure because they're really talking about kind of bespoke technology for point solutions that have to sit in a full ecosystem.

So if I said in any place we'd see them, it's probably in the apps modernization at the top end of the stack, but they have no managed services full stack capabilities. So for the bulk of our work, which is really managed service contracts, not too big an impact to us other than the confusion it causes on the front end. And then where we would see increased competition would be in kind of bespoke application modernization or bespoke solutions that might replace a piece of SaaS software or a [ COTS ] software, something in that vein. And there are literally hundreds of players in that space.

Thank you. This concludes our question-and-answer session and the Unisys Corporation Second Quarter 2026 Financial Results Conference Call. Thank you for attending today's presentation. You may now disconnect.

Welcome, and thank you for joining Unisys for our 2026 Investor Day. We're broadcasting live today from our headquarters in Blue Bell, Pennsylvania, where our leadership team is gathered together and is excited to give you a look at our solution portfolio, our innovation, delivery and go to market. Let me walk you through the agenda for today.

We'll start with our Chief Executive Officer, Mike Thompson, we'll share some of the trends he's seeing in the market today and talk about our strategic direction overall.

Then we'll hear from Chris, our Chief Operating Officer. He'll talk about the delivery transformation here at Unisys. He'll also speak to you about our approach to artificial intelligence. After Chris, will hear from some of the leaders of our segments, starting with Sean, who leads our Enterprise Computing Solutions segment, which includes our ClearPath Forward ecosystem. After Sean, will hear from Manju, who leads cloud application and infrastructure solutions. Then we'll take a quick break before we're joined by Patrycja to talk about digital workplace solutions and some of the exciting market opportunities there. After Patrycja will hear from Joel, our Chief Commercial Officer; and Teresa, our Chief Marketing Officer. -- who'll speak about our partnership strategy and go-to-market. We'll wrap up presentations with our Chief Financial Officer, Deb McCann, so I'll go through our financial strategy and some of the medium-term targets we hope to achieve over the next few years.

After Deb will have a live Q&A session hosted by Mike, Chris and Deb and we'll be answering questions that you submit to the function on the side of the webcast portal throughout today's event. And we encourage you to do that throughout the event as questions come to you. Anything we don't have time to get to will follow up on, and you'll hear from someone on our Investor Relations team.

In between sessions, we'll also be sharing compelling stories from our clients, and we're really excited for you to hear about some of the breakthroughs we're driving for them every day.

Before we get started, I want to direct you to the disclaimer slide in the presentation for today's event posted on our investor website. As a reminder, today's event contains estimates and forward-looking statements within the meaning of the securities laws. Current expectations, assumptions and beliefs underlying these statements include factors that may be beyond our ability to control or precisely forecast.

Future results could differ materially from our expectations, and we do not assume any obligation to update these statements in the future. For more on these items and a discussion of risk factors, please see our recent SEC filings.

We may also reference certain non-GAAP financial metrics today, which we provide to give you a more complete understanding of our financial performance, but they are not meant to be a substitute for GAAP.

With that, I'll turn it over to Unisys Chief Executive Officer and President, Mike Thompson.

Hello. Welcome, and thank you for your interest in Unisys and participation in this event. Many of you we've been engaged with Unisys for quite a while, and we talk to you on a regular basis. Several of you are new to our story and are trying to understand better who we are and what we do. Good news is we have something for everyone embedded in our discussion today.

Client-focused and future ready is more than a rallying cry for our team. It's the essence of the strategic objectives that we established in 2021 and and the basis for the strategic decisions we've made around our people, process and solutions. The majority of the conversations that I have with clients from Fortune 500 CIOs to government CTOs come back to 4 basic things. They want AI embedded into service delivery from day 1, not bolted on afterwards.

They want results that tie to measurable business outcomes, not just activity metrics, they want a partner they can trust to navigate complexity over the long term, and they need the ability to move faster than their competition. These are not aspirational ideas. They're commercial imperatives and they're reshaping IT services right now and exactly what we've spent the last 3 years positioning ourselves to deliver.

Today, you'll hear from our leadership team how these imperatives are reflected in our portfolio, and our go-to-market approach and in our delivery. I hope you'll consider these imperatives as you listen to today's content. Just taking a look here at my agenda for today, as I've mentioned, we have some new folks joining us today, and we want to orient them and provide a refresher for everyone else as we're talking about who we are as a company.

As far as progress is concerned, I think we're in about the middle innings of the full implementation of our strategy. So we'll share what we've accomplished and what's left to do. We'll illustrate the alignment of our strategic objectives and how they've evolved. We'll also illustrate the importance of technology implementers and orchestrators as we believe that's the missing ingredient for full realization of agentic-AI.

Lastly, we'll give you a few takeaways to evidence the opportunities that are in front of us. So before we get started here, maybe just a little look into who we are. Our roots trace back over 150 years, which means we have a long track record of navigating change and creating and applying innovation.

The current construct of Unisys was formed in 1986 through a combination of boroughs and sperry, 2 of the most influential names in computing history. We're approximately 15,000 associates strong, operating in over 100 countries. We're not a start-up making promises, we're a global enterprise with a long track record of delivering securely at scale in the most demanding environments in the world.

The recognition we've earned reflects the work our people do every day. It comes from many sources, including industry analysts, clients and business publications. So why does this heritage matter for today's AI conversation? because clients aren't looking for just experimentation partners. They're looking for partners with proven experience. They're looking for a trusted institution that they can bet their careers and business. And that's who we are.

We have deep engineering routes and experienced hands in everything from hardware procurement, installation and brake fix, skills and solutions for asset management and service desk, proven experience in infrastructure digitization and application design and creation, a strong security reputation with the basis for that what we build into our solutions and services. We're a provider of high-power compute environments for some of the most demanding governments, industries and clients around the world, and we provide managed services that cross the continuum from mainframe to a genetic computation.

Coming out of our last Investor Day, we established a foundation in 2023, and we've committed to a multiyear transformation. Today, we'll illustrate that, that foundation has been set and that we're in execution mode. Furthermore, our strategy is applicable today as it was 3 years ago, even though the markets changed considerably.

First, we believe we reset how the market sees Unisys. We're now positioned as a company with AI-enabled solution and as an outcome-based partner. That reset is validated externally by our climb up the analyst rankings into leader or challenger positions in our priority solutions, and you'll see evidence of that in Chris' presentation. We believe this is a significant first step to growth as the analyst rankings are often the basis for getting invited to client RFPs.

Second, we've launched a new generation of AI-enabled solutions and stood up our agentic application factory that creates production-grade agentic apps and agents in weeks rather than quarters. We've upskilled at scale and continue to invest in educating our associates on the latest and greatest set of AI tools. Application of that tooling continues to augment and amplify our associates' capabilities. It avails them of a digital workforce to streamline operations and create capacity for scale.

Our capital structure continues to improve based on strengthened profitability obtained through transitioning clients to higher-value work, the application of our automation first strategy and a disciplined approach to allocation of capital.

Lastly, we have a defined path for free cash flow, which inflects positive as pension headwinds are reduced and stabilized. The strategy that we've evolved from 23 to 26 really takes us from defense to offense, and we believe it positions us for growth. We're now evolving that framework to operate an AI-first mentality.

As I mentioned, we think the missing ingredient for the full realization of a genic AI is the application of implementation expertise. From an industry perspective, we have the compute power and the tooling we need to create a new operating model. But from an adoption perspective, companies don't know how, where and when to use the tools how to embed them into their existing hybrid ecosystem securely and effectively or what the total cost of adoption means, and that's where we come in.

Our addressable market has evolved into new adjacencies. And implementation of a digital workforce via the use of agentic solutions and AI-enabled workflows are opening new doors and new opportunities. Our solutions have evolved into AI-enabled and not bolted on. AI is now considered a default operating layer across the hybrid technology stack. And our focus around the ClearPath Forward ecosystem has expanded beyond services and industry solutions.

We've witnessed firsthand from our clients that the ClearPath Forward ecosystem is a pillar of enterprise compute and an AI-first data backbone for mission-critical workloads across highly regulated industries. Our land and expand strategy is evolving into precision targeting, and we're expanding the use of our partnership engine using focus named account selling and doing it alongside our alliance partners, OEMs, hyperscalers and frontier model layers of the technology stack.

Margin expansion opportunities continue to evolve due to the Agentic-First workforce transformation. A mix of digital and human labor ultimately delivers higher quality and enhanced experience without proportional headcount supports to continue that margin growth. Operational excellence evolves into unlock free cash flow and provides a pathway to deeper investments into the business. This, of course, would be on the heels of our expected structural payoff of the U.S. pension a potential debt refinancing, which we believe we could do more effectively with improved EBITDA and leverage ratios and a continued disciplined use of working capital.

Net-net, the strategy we outlined in 2023 built the foundation for what we're discussing today, which we believe will help us realize a return to growth. The continuation or sharpening of our strategy based on what we've learned and the changes in market conditions are powered by an AI-first delivery model that's already in motion and accelerating.

Client focus and future ready, again, more than a tagline. It's the basis of our strategic decisions regarding people, processes, solutions and how we deliver value to our clients. AI is reshaping what clients expect from their IT service partners, not just faster delivery, but better and smarter outcomes. We believe companies that embed AI into their engagements and measure success by results will set the standard for service delivery of the future.

What's required are solutions with embedded AI and an AI-first delivery service team. Embedded AI means accelerating delivery, reducing defects and freeing talent for higher-value advisory work and not just in the delivery of IT services. That's what makes Agentic-AI different. It's the democratization of technology beyond IT and it extends the application of technology into client delivery and to other functional disciplines.

Outcome-based results baked into dynamic SLAs are becoming increasingly mainstream and rewarding partners who tie pricing to results, not ours, trusted strategic partnerships with deep roots and a long history of operating and executing BAU run is required to augment operational execution with agentic features.

We've got a deep engineering moat to leverage that AI with an operating stack that needs to work securely and in unison with the existing technology. Our approach also seeks to include a road map for continual improvement. Simply put, firms that demonstrate continual improvement and measurable ROI win renewals and expansions.

So why now? I want to be direct about what we believe is happening in our industry. Agentic AI is not the next iteration of AI. It's a fundamental step change, the most significant market expansion event in the history of IT services. We believe that, and we think the market data backs that up. As you can see on this slide, analysts are calling for $450 billion of economic value to be created by agentic AI by 2028.

One in 3 enterprises, software applications will contain some form of Agentic-AI. Usage of Agentic AI is expected to increase tenfold -- and the Agentic-AI market is expected to grow at a 44% CAGR over the next decade. Enterprise clients need a trusted partner to help build, deploy and orchestrate intelligent agents at scale. We believe companies that position themselves as architects of the Agentic enterprise will define the next generation of IT services.

The question for the room and the question I'm asking every day is who earns that role? We believe Unisys is one of the very few companies positioned to win it, and you'll hear that evidence throughout what we go through today's presentation. The timing of this event matters. We're not here to tell you about a plan. We're here to show you a business that's already executing this strategy with paying clients, measurable outcomes, a commercial model that's evolving to capture newly created value.

The debate is over. Three years ago, clients were asking whether or not to invest in AI. Today, the question is how to do it, how to do it fast, safely and at scale. That shift has fundamentally changed the sales conversations. We've organized our entire approach to AI around a 3-stage framework, develop, transform and orchestrate. This is not marketing language. This is how our teams think about client engagements and how we measure progress.

Develop is where we help clients build the foundation data readiness, AI governance frameworks, security architecture and the infrastructure required to run AI workloads reliably. You can't run before you walk and a lot of our clients are discovering that their data environment and governance structures need to work before AI can deliver at scale.

Transform is where the business value starts to become visible. Additional influxes of agentic workflows, intelligent service delivery and AI augmented workflows are all examples of that. This is where in resolution goes from hours with multiple engineers to minutes with a single engineer. This is where our clients start to see the ROI of AI. From an orchestrate perspective, the destination is running at scale. Enterprise-level companies securely and responsibly with an eye towards continuous optimization is the right end state.

Adopting AI as an ongoing process, not an event. In a perfect world, this is self-funding, and the advantages continue to compound, which allows clients to operate faster and cheaper than their non-AI competitors.

Today, you'll see examples of how each of our business units map directly to this framework and how it plays out with real clients and real outcomes.

Lastly, I want to call out a few items that hopefully you can help to listen for today's content, and we'll tie in some objectives that we're trying to obtain. These points should stitch together one Unisys, and you'll see the continuity of our strategic objectives.

First, we're in the midst of a multiyear transformation, reinventing ourselves as a leader in the future state mission-critical IT solutions built for an agentic world. Trust, scale, security and depth of enterprise knowledge is a combination most AI native competitors simply don't have. Trust takes decades to build, and we've earned that. The market opportunity is real and now the Agentic AI is not a 2030 story. It's a today story.

Second, our AI go-to-market model, develop, transform and orchestrate gives us access to a larger addressable TAM. Every client engagement has the opportunity for new scope and expansion, which is how we expand wallet share without expanding headcount proportionately. You'll see specific proof points of this from each of the business units.

Third, our people are the engine for our AI-first delivery mindset. We continue evolving our workforce through an AI-first capabilities and delivery mindset. AI trained associates, future-ready solutions and the digital plus human delivery mix are how we scale repeatable outcomes without proportionately scaling costs.

And fourth, we're at a financial inflection point. We believe the pension liability that's hindered our capital structure is on a defined path to resolution. Margins are expanding. New business TCV is growing, and we believe our strengthened balance sheet can now be used to fuel growth.

With that, you'll hear from Chris Arrasmith on future-ready solutions and how we're building an AI-first delivery organization that scales without proportional headcount growth. Sean Tinney is going to explain how our ClearPath Forward ecosystem with Five9's availability and AI at its core is modernizing without disrupting $56 trillion in transaction flows.

Manju Naglapur is going to show you how cloud applications and infrastructure is becoming the delivery engine for the future of a genetic enterprise. Patrycja Sobera will speak to how digital workplace is giving employees back time and making infrastructure and physical AI a real competitive advantage. And our commercial team with Joel Raper and Teresa Poggenpohl, will show you how we're rewiring our commercial engine to close faster and go broader.

The through line here is simple. Unisys is not transforming for transformation's sake. We're evolving our transformation to better serve our clients, grow our business and create sustainable value for our stakeholders. I'm confident you'll see evidence of this throughout today's presentations.

I'd now like to hand it over to Chris Arrasmith, our Chief Operating Officer.

Thanks, Mike, and thanks for those of you with us today for investing some of your day with us. Really happy to be with you, and we've got some ground to cover. So let me briefly review the agenda with you.

First, we're going to talk about our AI transformation journey at Unisys and the building blocks of the operational transformation that Mike was just alluding to. We're going to talk about our capabilities and solutions our AI-powered workforce, the convergence of human and digital labor, our growing ecosystem of strategy around partnerships and alliances; and finally, some elements that we believe make up what we call the Unisys Edge.

When we think about the pillars by which we define our AI transformation, we've been on this journey for some time. And you wouldn't be surprised to hear that some of the elements of that are really baked into the foundation, not as an add-on, but core to the mission of the company and interwoven throughout all of our solutions and services.

We start by thinking about moving in an agentic workflow orientation from operating systems of record, in some cases that have been around for decades in other cases, more recently developed but moving from those systems of record to creating systems of action, taking advantage of the data sitting inside of those systems. And we're creating that future with our workforce.

I mentioned the convergence of human and digital labor, really operating in a mode whereby we enable our associates at Unisys to have the skills that are required to operate new tools in a new paradigm, driven by AI such that they can work together with digital workers, the digital labor footprint of the future that will bring our solutions to life.

Our partner-led ecosystem has been growing over time and we anticipate that it will continue to grow as time passes. We'll talk in a couple of places today about tools of today and tools of tomorrow.

And lastly, all of what we are doing is really built for scale. We've talked already about the length and breadth and depth of our expertise in industry, and we are operating in a phase of repeating and continuously scaling our capabilities over time to bring value to clients and not just in pilots.

When we think about all of the solutions that we bring to the market, the portfolio has an array of AI-infused capabilities. And in fact, we also understand the way that clients rely on us to bring forward additional capabilities as well. So we are answering for today's problems and helping clients to anticipate what we believe are their next series of problems to solve.

In some cases, that relates to the fundamentals of the foundation by which they establish their AI strategy. how they think about the data that's nested in systems and the ways that they need to bring that data set forward to take action against it. In fact, there are likely workflow transformations and processes that have to be reimagined, redefined and reengineered. We need to consider the way that we give agency and create new agentic capabilities for the operation of those transformed workflows.

We need to ensure that we've got an operating model that includes the infrastructure requirements in what is expected to only be an ever-expanding hybrid mode of operating and that we do so responsibly and securely over time. And so again, while we infuse those things into our defined solutions of today, we offer clients alternating and differing journeys based on where they find themselves in their own transformations.

When we talk about the pillars of our go-to-market strategy for AI, you've already heard about develop, transform and orchestrate. We want to give a couple of examples about what we mean inside of each of those capabilities. When we think about data and the development of data environment readiness, we are applying that in one instance to a large university data system, unlocking the power of that data to make that long-standing knowledge base available to all of the constituents that, that university system is serving.

And in addition to that, for a multinational banking client, we're taking advantage of the similar view of long resident data and systems to create pathways to the future unlocking the potential of those systems for customer experiences and the propagation of skills across that client. In transformation, we are looking at a genic workflow deployments in a growing number, we believe that the future of Agentic is only going to expand.

And today, we look at that from a proactive issue detection and resolution to ways that customers are operating and interoperating with those systems on an ongoing and daily basis. And in some instances, what our previously thought to be well-worn workflows as it relates to complex infrastructures are achieving new heights of efficiency and reliability and security, thanks to Agentic operating models. And in orchestration, when we think about continuous optimization you wouldn't be surprised to hear that we expect to be better tomorrow than we are today at operating complex systems and infrastructures and ecosystems. And importantly, as I mentioned previously, the tools of today are not necessarily the tools of even tomorrow.

And we believe that a strong and growing ecosystem enables us to create optimization opportunity on an ongoing basis, driving value for our clients. When we think about the workforce of the future and again, the convergence of human and digital labor, we consider that past roles such as analysts, customer success leaders, systems architects and engineers, testers, subject matter experts, they are all necessarily part of a new reality, and they need to be recontextualized in the face of that new reality.

When we think about the way that those roles I just mentioned become the future AI strategists, the outcome-based leaders, the architects of new transformed workflows the validators of AI-based systems development and testing. And lastly, the translators of expertise and depth in domains and you couple that with real-time data insights that are available through the use of today's AI tools, we are talking about a workforce that is prepared for making real the promise of the solutions that we have been developing over these last several years.

And it's that convergence of the solution readiness it's applicability to the market and the ways that our associates drive value through those AI tool sets and create new roles for themselves that we believe expands value for our clients well into the future. And I want to be clear that we are upskilling across our entire global team of associates. We expect every Unisys associate to be learning and improving upon their AI skills over the course of time.

I mentioned earlier as well, the necessary expansion of a partner ecosystem. And our approach says that we don't have to build everything ourselves at Unisys, we can bring the best of what's available forward to help solve client problems in their own context. Our strategic partnerships continue to extend our reach and capability, and our alliances across hyperscalers, across infrastructure, software providers, model providers, the list goes on, is only going to expand. And it enables us to have a reach and a depth that only augments some of the reach and depth you've already heard about today for Mike, and you'll hear about as we go forward.

But just know that we anticipate fully that our partner ecosystem is not static and will be growing over the course of time. When we think about the Unisys Edge, we've got several key points that I want to visit on with you.

First, when we think about end-to-end AI, we mentioned here the idea that AI at the edge is just as important as it is in the hybrid cloud and data center future and the propagation of public and private AI models is a great example of that. We are positioned at scale globally to provide service and solutions that touch all of those elements of a vastly expanding ecosystem.

In addition to that, security and governance have long been parts of Unisys proud history, and we carry that into the future. We believe that security and governance will be and need to be built into every layer of the operating model, the solutions, the services, platforms and products that are brought forward. We have a proven enterprise delivery model at scale.

We've been doing that for a long time. Our depth of industry and process knowledge that are a result of that proven scale are unmatched and we believe are a significant differentiator for our future. And lastly, that Agilent practical AI says that we meet clients wherever they might be on their journey, solutions that are well fit for specific problems they may have today and road maps and paths that enable them to envision their next horizon and the 1 after that, so that they and we can help them to drive real-world enterprise outcomes.

As a brand, we promised to power breakthroughs. And you heard before some of the industry validation that we have been garnering over these last several years, -- and so we wanted to take a moment to show you some of that recognition from global rankings to our presence on a growing number of global reports across a variety of providers. And as well, we wanted to make sure to tell you that we're also focused on ensuring Unisys continues to be a compelling place for associates to work and build a career.

And so you'll see that we have also been garnering a variety of recognitions for the depth and quality of the experience that we provide to our associates over time. Thank you for the opportunity to share more depth around our strategy and how we're making it real.

Before I go, I would like to give you a look into our largest global delivery center in Bangalore, India. Like I tell our team every time I visit -- there is no other place at Unisys quite like it, and I'd like for you to see some of it now. Enjoy.

[Presentation]

Hello. I'm Sean Tinney, Senior Vice President and General Manager of Enterprise Computing Solutions at Unisys. And I'm here to give you an overview of our ECS business and discuss the impact of AI on our ClearPath ecosystem. Now what you're going to see over the next 20 minutes is a business that's not only durable, but one we believe is accelerating and how AI is not migrating workloads away, but rather driving more workloads onto it.

By the end of this section, I want you to leave with 3 convictions. First, this revenue stream is sticky. Second, that it's growing in relevance. And third, that it has the opportunity to become more profitable as AI reshapes how our clients consume it. So let's take a look at how we're going to spend our time today. I'm going to walk you through our solution portfolio and the market opportunity behind it. How we're driving AI at the core, a demo of our digital system administrator to show AI operations in action, and we'll close with some client values and outcomes. So first, let's start with what we actually sell.

Our ClearPath ecosystem is not a single product. It's a 3-legged stool of recurring revenue. At the core of this 68% of that revenue is our ClearPath license and support business. These are our core operating systems, our products that drive our clients' mission-critical systems and operate under long-term recurring revenue contracts. 21% of this revenue is our ClearPath Managed Services. These are the standardized services we deliver around this product ecosystem, managing and operating these systems on behalf of our clients. This also helps expand our wallet share with this client base. 1% of our portfolio revenue is our business process outsourcing services that allows us to move up the value chain with our clients and into the business processes themselves.

So 3 things I want you to internalize here. First, the majority of this revenue stream is contracted under long-term recurring contracts. Second, the risk of migration is extraordinary, both in terms of dollars and risk; and third, our standardized services layer drives operating leverage.

So now let's take a look at what's going on in this ecosystem and around this ecosystem. The premise of this slide is simple. -- mainframe workloads have doubled over the last 15 years, and they're poised to double again. with AI as the accelerator. If we look on the left-hand side, what the research and analyst community is telling us, the mainframe market is expected to grow at roughly 6% a year over the next 5 years through 2033 with AI as the accelerator. 90% of IT leaders are planning on deploying AI directly on to the mainframe. MIPS growth, MIPS being a unit of workload consumption are predicted to grow 2x over the next 2 years at midsized enterprises.

And with all this transaction volume growth, 70% of that workload running through these ecosystems. That's the profile of a growth industry. And there are several structural reasons why this is happening. Data gravity favors the core. Enterprises want their AI inferencing happening near their system of record, not away from it. So that is driving this AI inference on to the platform. co-located with the transactional data.

These new agentic and AI and code assistants are spinning up in the ecosystem, driving that workload growth. And the added requirements for data sovereignty and post-quantum security are driving more workloads not less into these ecosystems. So how are we poised to capture it? We have AI integrated around the core, hybrid consumption models. greater than Five9's availability, all on a globally secured platform. Quite simply, this market is running towards us.

So to put it plainly, the structural tailwind here is real, it's externally substantiated and accelerating. And we believe our portfolio is positioned to benefit from it. If the previous slide talked about the structural forces around this market. This slide talks about the buyer behavior.

Now for over a decade, the CIO narrative was cloud first, modernization by migration. But that error is over. The market has decisively moved to cloud Smart, modernization without disruption. And look at where it matters. -- high-volume data sensitive industries like retail and banking. These are industries that can't afford the cost of disruption, the latency, the risk.

Highly regulated sectors like financial services, health care and government. Where these distributed cloud-based architectures can't meet the audit requirements and complex manufacturing environments or workloads quite simply run more economically on the ClearPath ecosystem.

And there are forces that are driving this. New technology creates the threat of new bad actors, creates more regulatory and audibility pressure drives more need for cyber security and cyber resilience. The cost of these distributed ecosystems continue to rise surprising many CIOs. You're also seeing performance in consistency on workloads that are running that. These noncritical workloads. So business cases are up ending.

And as Mike pointed out earlier, ecosystem flexibility they need to maximize your investment and modernize without disruption is becoming the need of the day. So why do we win? All of these factors play right into what has been at our core for years, mission-critical workloads in a secure and resilient environment and perhaps most critically, we're built to modernize and integrate with these cloud AI and digital channels. and not compete with them.

So how do we capture this? It's really 3 mechanisms, develop. This is our client growth engine. AI at the core modernizing on the edge, continuing to provide workload and performance balancing. This is how we extend the runway of our ClearPath Forward ecosystem with our clients. transform, tying our technology and products to the business outcomes and the industries that our clients operate in, allowing them to drive faster application creation using ClearPath is the data hub and not the transaction engine -- this is how we allow our clients to do more with ClearPath and not with less.

And then orchestrating the future of work, ensuring we have the right skills at the right level of experience, supported with the right technology to help shape the future of work for our clients. And that's how we drive accretive services revenue. Underpinning all these are 5 key advantages that are core to our business unit. Consistent and low TCO. Consistent and incremental modernization, the access to emerging technologies like artificial intelligence and modern languages as a function of the estate and a secure and reliable ecosystem. This is why our clients renew. This is why they expand.

Now if we take a look at the road map that's driving all of this, it's anchored by 3 core tenets: security, performance and interoperability. Security. When the phases now of crypto discovery, getting ready for post-quantum readiness and into predictive security policies. Now why this matters commercially, is we're staying ahead of the post-quantum transition that's going to hit every one of these regulated financial and government institutions in the coming years. And this justifies our premium pricing in regulated industries.

On performance, creating a framework for hybrid computing, native language support and continuous dynamic workloads. The system is always on. It's always performative. This is what drives workload growth and this is what drives workloads expansion. Interoperability, ensuring we can work with the AI applications of today setting the foundation to work for tomorrow and solving the problems of the future with Quantum and classical integration. This is what allows us to layer accretive services revenue around this.

All of this underpinned by emerging technologies, enabling our clients to modernize one quarter at a time. So we're going to talk about something that we believe fundamentally changes the economics of this business, and that's artificial intelligence. AI is not a feature we bolted on to the ClearPath.

It operates in 4 reinforcing loops around the core. Number one, AI-driven integration, ensuring our ClearPath ecosystem can work with these emerging AI models, but doing so in a way that does not expose security and data flows at the core. This extends the runway and the life cycle of our ClearPath ecosystem.

Number two, AI value realization, ensuring when they're running these models that they're validated against structured data taking the validated business rules that is in this system. This increases speed to value, reduces hallucinations and justifies our pricing power, AI data sovereignty. We're our clients' digital backbone of today and setting it up to be the digital and AI backbone of the future.

This justifies our premium pricing and ushering into AI-enabled operations. Orchestrating with structured data sets, the operations of tomorrow, driving AI into the operational mechanism, supporting them with the skills they need. More integrations drive more in our operability, which drives more platform value and more revenue per client. This is the flywheel. So we're going to take a look now at a demo of our ClearPath digital system administrator.

And 3 years ago, Chris Arrasmith as the General Manager of this business stood here and talked to you about our Endurance program. how we were training the next generation of ClearPath engineers on skill sets and coding languages that they didn't receive at university. How are we bringing them up to handle this ecosystem? -- and the evolution of that Endurance program has evolved into AI-based knowledge management into AI-enabled operations and our ClearPath digital system administrator.

We're going to look at this through the hypothetical scenario of incident resolution. Now this isn't the same incident resolution that you and I have when we submitted a ticket about our computer not working. These are mission-critical incidents. My website is down. I can't reconcile my transaction. Now traditionally, these incidents come in, and it's all hands on deck. You have a team of engineers each with a different discipline, level of experience, skill set, all trying to understand the root cause of this problem. What is the application layer like what is the infrastructure layer? What is it the database? What is our partner ecosystem, test the solution, retest the solution, retest the solution and then finally moving something into production.

The whole time cost to serve is going up, resolution time is going up, satisfaction is going down and the potential for revenue leakage is compounding. In an AI-enabled scenario, a single cross and upskilled engineer, working with a team of digital engineers behind them, proactively managing this situation. Same scenario. -- vastly different cost to serve. Now let's take a look at our digital system engineer or DSA.

[Presentation]

Okay. So let me close the loop with some numbers that really matter because these define our moat. Greater than Five9 availability. This is what our clients expect, and this is what ClearPath delivers consistently. 700 million airline passengers processed in 2025, 150 million payments reconciled per year. $6 trillion in Interbank U.S. payments processed. $450 billion mortgages managed at over 1 million transactions a minute. These are not nominal transactions. These are the transactions that power global economies.

And on the right, perhaps the most important number on this page, 0, 0 incidence of compromised ClearPath user data. That amplifies every number you see on the left-hand side of the screen. And what this also tells -- is the cost of switching off ClearPath is not measured in dollars, our emerging technology. It's measured in systematic risk to global operations. Now I'm going to bring Manju Naglapur up onto the stage. And he's going to tell you about our cloud application and infrastructure business. But before I do that, I want to leave you with 3 takeaways in 1 client story.

First, this revenue stream is durable. 68% of our portfolio is recurring licenses on clients who run some of the most mission-critical workloads on earth. Switching costs are extraordinary, both in terms of dollars and risks, -- and we've had 0 incidents of compromised user data at Five9 availability. These are not commodity workloads, they're sovereign scale. Second, this market is growing. The mainframe market is growing at 6% a year through 2023, driven by the power of artificial intelligence.

The market has shifted from cloud first to Cloud Smart. -- and IT leaders are deploying AI directly into the mainframe. This is a tailwind. And thirdly, this revenue stream has the potential to be margin expanding. AI-enabled operations compresses our cost to serve, effectively translating into operating profit. ClearPath is client-focused, future-ready and scalable for clients to build our futures on.

Now I'm going to let you hear from one of our clients building their future on ClearPath. Our relationship with Carnival Cruise Line goes by nearly 50 years, starting with 1 ship at 1 port and evolving into their entire operations. It's a story of partnership, story of modernization. It's a story of growth. Please listen to Carnival Crops line.

[Presentation]

Hello, everyone. Good day. I'm Manju Naglapur. I'm the SVP and Global General Manager for CAI cloud applications and infrastructure business unit. CA and I listen the core of the enterprise. We work at the intersection of hybrid cloud, applications, security, data and AI, not just to modernize technology but to build organizations that are resilient, intelligent and ready for the future.

The market has moved past AI experimentation. You heard from Mike and also from Chris in the opening sessions, the pilots are done invested with. The real challenge now is secure, scalable execution in real environments. Most enterprises lack the foundational elements to operationalize at scale. AI is won or lost on foundations.

And the gap between ambition and readiness is our next big opportunity. We're aiming to close that gap through our solutions by orchestrating transformation, end-to-end, connecting strategy to measurable outcomes.

At the end of the session, I want to leave you with 3 takeaways: one, we operate the foundation. The work we do sits in the core of enterprise is trusted and mission-critical. The market now exactly needs what we operate; two, we orchestrate the enterprise landscape. Taking advantage of these foundations, we are expecting to drive autonomous agent-driven actions at the enterprise. Three, we help enterprises reimagine for the new world of AI. We closed that gap as an AI-first services organization, combining our AI framework and delivery model to embed intelligence into operations and delivery.

Today, we'll show you how that drives outcomes across our solutions. In this session, we'll start with the market opportunity, then walk through the strategy and delivery approach. From there, we'll dive into our solutions portfolio and our AI framework. And finally, we'll transition to AI orchestration action and client outcomes.

Let's start with the market opportunity and growth. The traditional TAM for C&I was growing a little over 5% in a $1 trillion-plus market, let's say, mid-level CAGR. Now AI just reroute the math, the AI market is $2.6 trillion over the 3-year time frame from 2026 to 2029, growing at around a 30% CAGR. This is an opportunity at a much bigger scale. Out of this, we can focus our efforts on $1.6 trillion AI growth opportunity across infrastructure, cloud, applications, orchestration and security with a projected CAGR of 26%.

By aligning our capabilities to these segments, we are aiming to capture this projected market growth by delivering differentiated value. We are not chasing all of it. We're targeting 4 segments where our moat is the deepest -- as you can see at the left of the screen, AI-driven infrastructure demand, enterprise AI orchestration, AI-enabled application transformation and security and governance for AI.

Now what gives us the right to play in this $1.6 trillion pool. First, our engineering moat, Unisys spent years building, transforming and operating some of the world's most complex enterprises. Second, agentic execution. Unisys is aligning our organization around an agent operating and execution model. three, enterprise and domain context intelligence. This is a core differentiator and our more defensible asset.

Beyond foundational models, Unisys brings deep accumulated understanding of client environments and industries that gives real execution advantage for trusted governance as a not star. Clients don't just want AI that works. They want an AI that can stand behind. We understand that governance isn't an afterthought. It's foundational to how our solutions are designed and delivered.

We are aiming to become a resilient AI-first partner, combining enterprise context, governance by design, deep engineering and agent execution to consistently deliver outcomes in a complex real-world environment. We have now going to be talking about the alignment to the market evolution. We have been through multiple evolutions in the past 16 years. cloud and accelerated digital transformation until 2024.

We are in a new phase of this market that many are calling the intelligent super cycle, and that's driving a much more significant transformation in how we operate. The market expectations have significantly changed technology investments to business outcome expectation is getting close to real time due to AI. And we are aligning our business to this new reality.

As you can see on the right side of the screen, demand is now market pull with clients seeking faster time to value, which we are addressing through our paid rapid value assessments that identify and prioritize impact fast. -- or we call them as RWAs. As an example, when we go into a prospect or a client, we are not spending months in terms of due diligence on workloads or application terrain or even security.

We are able to provide assessments within 2 to 3 days. I think this is a game changer today, which is also helping our commercial division in terms of getting to a better prospecting. And now if you think about value measurement, which is shifting from unit-based milestones to our outcome-based models, we are bringing -- beginning to align delivery to business outcomes, not just SLAs and KPIs.

At the core, we are moving towards a repeatable operating model that blends human expertise with an agentic digital workforce. The things tie this together, what you see along the bottom. Context-driven intelligence. Every decision informed by client-specific environment, nonlinear speed, outcomes that don't scale with headcount and measurable value.

Every engagement tied to a number, the client cares about -- that's the evolution. It's not an incremental upgrade, but a fundamental shift in how the business creates value. So what is our transformation strategy with all these changes happening around the world? AI is becoming a part of nearly everything we deliver, not a side project bolted on later. The difference shows where it matters, faster delivery in projects, leveraging our AI framework with a clear ambition to lead the market.

As a result, we industrialize delivery, driving compounding value well beyond initial implementation. We have simplified our commercial models and link them to client outcomes. -- nobody cares how many tickets we close, but they want to know what measurable outcomes we delivered and last, and this is the one I care about the most. We have been building a fluency in our own teams. This is where artificial intelligence meets human intelligence. We have been upskilling our associate so they can operate and scale with digital labor and not just talk about them. So how do we reimagine our portfolio for the future.

Our portfolio focuses on hybrid cloud applications and security core domains for enterprise transformation. This reimagined portfolio is built on our experience with Unisys as Clint Zero, combined with hard 1 client credibility and moves it decisively up the value chain towards higher growth and margin opportunities in the new AI economy. It's how we help our clients develop, transform and orchestrate. The things should matter to you.

First, aiming for higher mix shift, our AI-first AI-infused portfolio, intelligent operations powering hybrid cloud, data foundations that activate enterprises and the agency applications that move the needle. This carries structurally higher margins than traditional services. As that mix shift, these new services grow as a share of revenue and the branded margin rises with them.

Second, the moat. It's the Unisys Intelligence Accelerator or what we call as UIA, -- the AI framework that powers the entire portfolio, it works 2 ways at once. It makes us sharper and more efficient across our installed base and it lets us compete aggressively for greenfield wins in the markets we did not play before.

Third, delivery. We have reimagined how the work gets done, human plus agent teams forward deployed engineering and AI-native talent. This decouples revenue growth from headcount growth and allows us to scale. We believe we have the right-sized engineering team and deep industry expertise for the new AI world. So the takeaway is simple, a trusted foundation a portfolio moving up the value chain and the delivery model through a framework built to expand margins as we grow.

So I've talked about our AI framework, UIA, but I really want to dig deep into this for at least a few minutes. If you think from a delivery standpoint, we expect IA to execute 2 things at once. -- a margin engine and an excellent into new business. It captures the blueprint agent and the industry client context, making it reusable. So each engagement in an industry is cheaper to deliver than the last -- we're converting a linear cost services business into 1 with software like operating leverage. And why can't the competitor copy it? The technology anyone can will -- what they can build is what UIA accumulates and delivers as a compounding value. The proprietary context on mission-critical enterprises to run for decades.

The Frontier model is rentable by anyone tomorrow. Our understanding of these environments is not. That's the moat, and it continues to evolve. We treat models as interchangeable and focus our differentiation on intelligent routing and enterprise context. This brings fin off discipline to AI consumption, selecting the right model on the right compute for each use case. That approach lowers token cost, strengthens margins and gives us the confidence to make more aggressive AI-led investment bets in new pursuits.

One thing to live with transforms a services business into a compounding 1 where reuse drives margin proprietary context defensibility and model commoditization works in our favor. To show the power of this UIA framework, I want to share a demo that illustrates the agentic model actively driving decisions and workflows with human in the loop, governance ensuring control. Lets watch the demo.

[Presentation]

I hope you enjoyed this demo. The true measure of this approach is client outcomes. We are delivering measurable outcomes at enterprise scale across industries. Clients see faster modernization, greater resilience and reduce operational complexity. Let me highlight a few examples.

First, let's explore a client story for our national instruments. National Instruments now are part of Emerson is a leader in automated test and measurement systems. The initial challenge we faced 1.5 years ago when we were working with this client was it had a large portfolio of legacy applications, which is slowing down modernization. And it was increasing operational complexity with mounting legacy debt.

So when we think about the leaning in terms of Gen AI, we were able to embed AI into development life cycle automating core conversion, automating testing, reverse engineering code and also documentation and also providing an outcome where the client was modernized in months, not years. This typically -- this kind of a project would have typically taken years with the same size team and we were able to modernize upwards of 90-plus critical applications, improving speed, quality and overall delivery efficiency.

This demonstrates how AI accelerates modernization and reduces tech debt at enterprise scale. Now let's transition to a client story about Cushman and Wakefield. They are a global commercial real estate service leader.

The challenge that Cushman and Wakefield had was the rapid growth, which led to fragmented systems and inconsistent operations across 400 locations, driving inconsistency and operational inefficiency. The approach we took was to create a unified cloud platform with AI ops and AI-enabled automation and ServiceNow based orchestration across operations.

The outcome we generated here was we helped them save $35 million, about $35 million in savings over a 5-year period. There were a lot fewer incidents. Faster resolution and improved availability and operational resilience. This illustrates AI-driven operations delivering cost savings, stability and improved enterprise performance.

Now I'd love to tell you about Caixa, a bank and a financial services company, representing a vast majority of market share in Brazil's market sector. The challenge here was it was a highly complex regulated environment requiring integration across systems and always on reliability. They were on a modernization path and existed in 2 words, legacy and new. They wanted highly complex integrations to happen across the enterprise.

The approach we took here was to integrate these 90-plus critical systems and also 280-plus application program APIs, or application program interfaces, embedding Devsecops automation and security controls that was needed for this highly regulated environment. The outcome here was we are today supporting 120,000 transactions per minute. -- and 27 million monthly contracts at enterprise scale. This shows how automation and orchestration enable mission-critical operations in regulated environments.

So now let me talk about how we lead with partners and recognize -- how we are recognized by the analysts. We don't build AI in isolation, and we don't ask you to take our word for our capabilities.

On the partner side, we deliver with 30-plus of the leading names in AI, the hyperscalers, the foundation model providers and the platform players. In fact, we just won Dell's data center Partner of the Year, highlighting our ability to deliver across complex environments. This matters. We're not locked into one stack, so we architect what's right for your business.

And on the analyst side, if you look at to the right, 23 independent reports have evaluated our capabilities, and we have earned 10 leader rankings with 32 additional leader rankings in subcategories. What makes it so impactful is that it's external validation, confirming we deliver at scale.

In closing, I want to share a very special client story, CSU, California State University. They have been a client and a partner for over 2 decades -- let's hear from their Chief Information Security Officer, George Mansour, as it tells his story about our journey together. Thank you for your time today.

[Presentation]

Welcome back. My name is Patrycja Sobera, and I run Digital Workplace Solutions business unit here at Unisys. Well, before I start, a quick reminder of the Q&A, we would love to hear from you. So please use the chat on the side of the webcast portal. While we've already heard about our enterprise strategy and our AI framework and how my peers Sean and Manju are bringing them to life. Now let's shift to focus on our Digital Workwear Solutions business unit and how we're evolving this space, not just from a digital standpoint, but also physical and human aspect. So agenda Western, who leads our solution management, will start with market opportunities, key trends in digital workplace will then bring it to life with a demo.

We'll also walk you through our solution portfolio and its evolution as well as examples of actual outcomes we're delivering to our clients every day. And finally, we'll close with where we're taking DWS next in terms of growth. So let's start with market trends.

Well, over the past 12 months, 4 market trends have really accelerated -- number one, every CEO out there is asking for ROI on AI investments, not just use cases, but how do I get employees skilled up in AI? How do I drive adoption of the -- how do I avoid the problems like hallucinations or data leakage.

Secondly, the endpoint economics are under tremendous pressure. The cost of memory is driving volatility in PC pricing -- and the CIOs feel stack between investing in AI ready devices versus deferring that cost to later.

Thirdly, most enterprises are actually investing in employee experience, and they understand how it links to customer experience and ultimately to business performance, but they're still struggling to connect it though, especially with telemetry in a metric-driven way. And lastly, the geopolitical situation in the world has introduced complexity and additional regulation demanding much stricter data governance.

So these 4 trends alone show us the workplace is becoming more complex, more critical and really important to running any business operation successfully. And according to forecast from Gartner and Everest, we see a steady growth trajectory in this market. backed up by demand to invest in modernization of Digital Workplace, which we believe gives us a great opportunity to grow.

Weston, what's our strategy to capitalize on this?

Well, maybe I could start with that first trend that you mentioned that ROI, getting an ROI with I loved how earlier Manju talked about AI for the enterprise and bringing AI security to the enterprise as well. I think for us, Patricia, the focus is on the human side of -- and so there's a couple of strategies that we bring about.

First of all, we know you can't just deploy tech and expect it to just magically work. I mean that's especially true with AI. So we are providing professional services that help our customers' employees figure out where to use AI, when, how and even sometimes why they need to be using AI. The second aspect of our strategy is we all know that data is key to be able to make your AI working properly. I mean we know these LLM seem to have sucked in every bit of the Internet -- but do they have your corporate knowledge? Do they have your key business processes baked into it. In most cases, they don't. Hopefully, they haven't, right?

So what we are doing is to provide integration between the corporate data and these LLM that you've purchased. And then going beyond that to find the missing data that needle in the haystack. And potentially, the second trend that you mentioned was the high cost of PCs. I mean that's a killer, right? We have a three-pronged strategy for that. First of all, can we keep PCs longer? We have a beautiful intelligent PC refresh program that looks at the reliability and the performance of every PC in the estate, and we determine how long the piece can be kept before it starts becoming a problem, often keeping it longer than the warranty -- the second aspect is extending the life of the devices, physically doing something to them. I mean that could be something simple like sending a technician around to blow out the fans, so your CPUs running a little bit cooler or even remotely wiping and reloading the operating system, so it's running fresh again.

And the third prong of our approach there is to ask this question, does everybody even need a PC I mean through our persona-based workshops, we're finding that some individuals mining a PC, some might need an AI PC and others might get away just perfectly fine with virtual desktops and others, maybe just an enterprise browser. Now Patrycja, what about proactive experience, that third trend? What is our strategy there?

Absolutely. Look, some really close to my heart. Since the inception of our experience management office 5 years ago, we haven't looked back. experience really underpins all of our services. We haven't stopped transforming from reactive to proactive, predictive and preemptive telemetry driven, insight-driven environment for our clients. Our priority is really to remove all the digital friction before it translates to a support call to a service desk. We are also a founding member of the XL Institute, and we've created a framework of XLA, experienced several agreements 2 of which are actually in production environment today, looking at device, looking at application, looking at persona and now even physical workplace like meeting room XLi.

And all of this experience ethos really supports our services technicians and field services technicians as well with deep telemetry with one-click automation, we're really always customer 0 when it comes to our own innovation. And then lastly, the geopolitical situation and all that instability in the world has created an increased demand for data solvency and governance.

And this is really why we designed our service experience accelerator to run in tenant with security in mind and to be third-party independent. Our clients' data is housed 100% within their domain, so we can actually still provide the full set of services but without compromising any of our clients' data. And it's super important to every client out there, especially on my side of the pump. So look, we made some really big claims huge amount of buzzwords. Let's see how it works in reality. So it's time for a demo. And you'll see here how we're bridging the digital and physical workplace to really deliver value to our clients.

[Presentation]

Great. Well, let's unpack what we just sell that. With deep AI-enabled telemetry we predicted issue before it impacted a live production environment. So in this case, we're able to maintain operations at 80% capacity by reducing the load of that failing voltage regulator whilst we're orchestrating a panini fix, which was actually using Agentic AI to help us dispose the right technician with the right skill with the right certification in the right location, truck just like you would track and Uber. So what's also important here is that clients who combine our offerings like services operations like field service will really benefit from that continuous knowledge loop and really will get the maximum value from our solutions. Weston, what's the full scope of our digital workplace services. How are you evolving these?

Well, maybe we can take a look at the left side of this slide here because these are the 5 priority solutions that our clients are telling us -- this is what's essential to have a modern digital workplace. We've talked a lot about experience. So we have an experience as a service offering. So what is that exactly? What we do is we proactively monitor every device in the client environment and proactively detect and fix the issues, especially for people that are suffering in silence, and we fix those before they even call the service desk.

Now of course, there are going to be issues that come into a service desk. And when you need more help, we deliver in a genetic service desk. And we saw, for example, in the demo there, that last part of that video, that knowledge graph, where we're collecting all that information, that's being supported by our knowledge curation tool that finds the, I don't know, the needle in the haystack, that one last bit of data that's hidden away somewhere that's absolutely essential to fix a key problem in your environment.

And thirdly, when in-person support is needed, we've invested heavily in that space. Our field services and engineers. I think we -- I'd like to say we give them superpowers with the AI that we are feeding them to help them solve their problems. We talked about the high cost of PCs, Patrycja, and our device subscription service is key to helping our customers reduce the cost and the complexity of managing their PC environment.

And fifth, Unified Endpoint Management, and I just want to be clear here. This is not unifying the management of just endpoints. It's unifying the management of everything in the digital workplace. And so what does that include? I mean, here we are in a smart conference room. There are smart buildings, more and more sensors are showing up, smart factories, smart restaurants. We're looking to manage all of that environment in the digital workplace.

Let's now move to the right side of the graph here. These are the 5 growth services that we put forth. All of them are using AI in one form or another. So the first one, IoT and connected devices, there are sensors showing up everywhere. We just talked about smart building, smart factory, smart office, smart restaurants. All of these devices need to be installed, managed, configured, supported, and that is a big growth area that we see.

Remember in the demo that knowledge map that we saw at the very end, absolutely needed for an IT service desk, finding that needle in the haystack. But I'd like you to just imagine going to a single holistic help desk in your organization and asking any question about your company, not just IT, but maybe HR, travel, finance, maybe even some of your key business processes. All of that is backed up by this knowledge management.

Thirdly, we've talked at length about data centers exploding everywhere. There's 3 being built in my state alone. They all need liquid cooling and high-end storage services and we've been ramping up our services and training for our field engineers to take on this growing area.

The fourth area, ESM, enterprise service management. That's like ServiceNow, those sort of platforms. Now you may say, hold on a second, ESM, that's not new. What are you talking about there? True. But you remember, Mike talked about how these platforms are all embedding AI in them. And that's true with the ESM platforms. Our customers are saying to us, hey, these bots are showing up everywhere. What do I do with them? Can I standardize can I reduce my cost? And so we see this as another great opportunity that we're already delivering for our customers.

Lastly, sustainability. I mean Europe has been on the sustainability and with bandwagon for quite some time, but this energy crisis is now causing our U.S. clients to ask us, how can I reduce the cost of my energy consumption. And to be clear, this isn't just a single offering. This is something, Patrycja we're baking in across all of our offerings to be able to tap into that telemetry and make it possible.

So hopefully, if we take a step back, the strategy should be clear. We're building on our strengths, key strengths we've highlighted here. We're now tapping into some key growth adjacency markets. Maybe now I could take a look at some case studies. And to be clear, we're not just going to talk about what we're doing in our -- for our clients. But I think more importantly is what's the measurable business outcome for the clients.

And we see that especially in this very first client that we're going to look at a European construction client. I mean they had an admirable goal, they're wanting to get an ROI out of their AI. They got 10,000 employees. They want to get them all up to speed. And so of course, we're going to provide training and data-driven OCM to figure out who's using AI, who's not using it, why are they not using it and how to get them up to speed. But I really love how this client said, "You know what, let's start with the executives. Let's get all the executives in the room. " And so we did. We had this Pompton workshop where they learn how to use AI properly. They saw the power of it themselves. The outcome, they came out and they said that was an awesome workshop. -- we can now walk the talk and when we tell our employees to get on board, we can mean it.

Now Patrycja what's an example of a client where experience management come into play?

Yes, absolutely. I love this example. Well, look, this is a global manufacturing firm to whom we gave back 49,000 productive hours over a period of 1 year. How did we do it? Well, by driving proactive, predictive, again, data-driven insights leading to the removal of PC or application issues before they occur, which if you think in the context of this organization, the most important persona is the R&D engineers -- so time back in productivity means that they are able to focus on product development and not calling the service is about R&D application performance issues. -- which then contributed to an increase in the number of products they launched in Q4 by 4 times.

So essentially, we removed 50,000 hours of digital friction to enable this organization to focus on what they do best, which is create products. So look, we just covered some great examples of value we deliver to our clients, whether it's AI enablement, whether it's knowledge curation, experience management. We want to shift gears a little bit and focus on field services. This is actually the largest part of DWS business and the largest expansion area for us. So let's play a video and see how we're infusing airfield service with AI as their frontline companion.

[Presentation]

Well, what you just saw is how we are enabling our frontline worker with a genetic AI, making every technician faster, smarter, more effective in real time. And that's exactly what's allowing us to move up the value chain. This is how we're actually expanding field services into higher-value opportunities. So at the lower end of the market, traditional OEM repair and workplace support are actually becoming a little bit more commoditized, price pressure is high here. But as you move up the stack, the dynamics change.

So in areas like multisite environment or higher infrastructure, the cost of failure is actually significant. So here, clients are willing to pay a premium for expertise for consistency for global execution we're known for. So overall, this AI infrastructure space with data center growth on the back of AI is huge. I think it gives us great opportunity. This is actually where the demand is.

So whether it's liquid cooling, whether it's high-end storage as an example, this is exactly where we focused on in terms of growth. So if our global footprint, our AI-enabled workforce, our execution, we can win these high-value segments.

So look, I'll wrap up. I hope that you can see our passion and how excited we are about DWS growth with our experience-led delivery, reducing friction and driving value to our clients every day. with our investment in AI across services and client environments. It's not just a momentum for us. It's the momentum supported by analysts, advisers, the industry and also the communities we're part of.

Our funding membership are increasing, excellent Institute as an example, where I also have a pleasure of serving as a member of their advisory board as well as service council. So with everything aligned, the market, the technology, the community, we strongly believe that we are positioned here for growth and continued success.

And with that, all the remains to say, thank you for being part of this journey with us.

Hi. I'm Joel Raper, Chief Commercial Officer here at Unisys.

And I'm Teresa Pogenpul, Chief Marketing Officer at Unisys.

Today, we're going to share a few highlights about our go-to-market strategy. First, I'd like to discuss our sales strategy and how AI solutions that you've heard about today from all the great presenters will be key enablers for growth. And then next, I'm going to talk about how we have infused AI into our sales process.

And then last, Teresa is going to discuss how our marketing strategy is driving awareness and consideration for Unisys at our clients and prospects. So let me start first by saying how exciting of a time this is Teresa. As a technologist nerd, we're living in a magical world and it's really exciting to be part of where we are with AI that you've heard about all day today. So hopefully, you've heard that AI is not an initiative at Unisys. It's about an operating at the core of Unisys.

The winners in this market won't just be companies that talk about AI. It will be the ones that fundamentally change how work gets done. -- for all the first time -- or for the first time in modern times, at least by modern times, large enterprises are slower to implement AI at their core. They're struggling with things like governance and security and process changes and non-native AI employees that must adapt and learn about the new world that we're in. That's exactly what we're addressing here at Unisys.

We're not layering on AI into existing processes, but kind of rewiring them through the strategic ecosystem of our partners, including Dell, AWS and Microsoft and many more that you can see here on the screen today. These partnerships accelerate how fast we can take the capability to market. And while Unisys differentiates on integration, execution and outcomes. AI through us is an important part of that. Simply put, automate before you add effort into our delivery models.

With the sales force agent force that you just heard about from Patrycja we're already running 1 of the largest AI-driven field services operations globally, pretty exciting. -- autonomously routing over 1 million tickets annually, auto scheduling the appointments and delivering industry-leading first-time fixed rates across more than 100 countries.

With Azure open AI, we're transforming service delivery into an genic model, the biggest struggle that enterprises face today, automating triage, resolution, knowledge creation while self-enabling self-healing operations. AI with us is how we work alongside with us. This is how we help clients move from experimentation to real outcomes. Again, a big struggle in the enterprise. Because AI first model effort is no longer the proxy for value, the outcomes of what it delivers is. We're starting with focused industry-specific use cases tied directly to real enterprise challenges, whether that's application modernization, service operations or engineering productivity. We have started to do this alongside with Microsoft, where we're developing a more bespoke AI applications to solve very specific industry challenges. -- in higher ed, in health care, manufacturing and financial services, embedding agents built to solve very specific outcomes, and you heard a couple of examples today on that.

That model, combined with partner platforms and models with our understanding of the uniqueness of enterprise environments, we can quickly deploy improve value early and solve real operational constraints from day 1. That's about creating fast, credible entry points that scale into long-term engagements with our clients. AI for us, this is something very dear to my heart as I have kind of gone on this trajectory within the sales organization is we're running Unisys as client , again, something you've heard in every 1 of our business units today. whether it's a bedding Microsoft Copal into the corporate functions or using GitHub copilot with Claude into how we build and modernize our applications.

We're using continuous structure upskilling programs to build AI fluency across our entire organization. I'll talk more about this shortly, but let me close one really important point. This is very deliberate. It's a model that position us to win consistently. Unisys partners with global enterprises managing complex, distributed environments, mission-critical industries, where resilience is no longer negotiable, as you heard from Manju, a mid-market organizations seeking enterprise-grade outcomes efficiently.

These environments face fragmented systems, high cost to serve, limited visibility into the value. And that's exactly where we believe our model is designed to win. Using AI-driven automation, intelligent operations and outcome-based delivery to deliver these measurable results is the answer. That's what makes this repeatable targeted growth strategy for Unisys.

Now let me show you how we're translating the AI first operating model into a modern, scalable sales engine. So the sales engine 2.0 is how we build leading sales organizations and AI first market, 1 that is repeatable, instrumented and improved productivity quarter after quarter. This market has already validated the shift, AI-driven enabled our enablement is expected to significantly accelerate sales velocity. And with the key point is simple. This is not about tools. It's about how you operate, how you go about it, what's the mentality of the people that are using this data. It requires a shift in their mindset completely, from selling as an individual effort into running a system where intelligence is embedded and scaled right in front of you.

Let me show you a little bit about that. So first, guided selling with embedded intelligence. We're embedding AI directly into the cadence of selling. That could be meeting preparation, call plans, executive ready, messaging, risk identification and more importantly, next best actions. What is the anticipation of what's coming. At the same time, we're simplifying. We're going to just deconstruct our sales process, evaluate our tech stack. So sellers spend less time on administrative work.

We've taken actions to reduce processes and tools but we're still filling each 1 of our sellers with more data information to make us create the sales engine 2.0. We spend more time where it matters with clients building pipeline and driving velocity. AI-enabled white space discovery is something that's big for us. You've heard Mike talk about the growth that we have within our existing clients and understanding what is it that they have needs for? What are their interesting? What are the things that make the opportunities for our solutions to be valuable within those companies. This is creating a pipeline that has more predictability to it. And we're using data and AI to systematically identify unmet needs with those expansion opportunities.

So we're no longer reliant solely on the individual insight, but are augmenting with it and a more complete data-driven view of each one of our accounts. And last, the rapid value assessments, which you heard a little bit from Manju, most of our enterprise clients know that they need to act now. Many of them are struggling with a way. And so we're creating these rapid value assessments to help them with the stall decisions that they have, shared understanding of where the value that these rapid value assessments can create.

Our RVA addressed that directly. The sales motion is done by identifying the ideal client to go after based on specific signals that they have in the market. And it's quickly structured for engagement that identifies where that value is trapped and quantifying the impact of that value and translating that into a clear prioritization for a road map for each one of those clients.

And fourth, outcome-based pricing. You heard about that, I think, from most of the earlier presenters. We historically have been in a world where I think customers always wanted an outcome base, but never could pull the trigger because of the complexity of setting that up. But now AI is changing that completely. And Mike touched on this.

Historically, our model, much like the rest of the industry has been tied to effort. We're paid by the amount of people and things that we bring to the table. Well, we would price early and then spend weeks valid in the solution before we ever got to delivery.

Now AI has fundamentally changed that dynamic. As AI removes the manual effort and reduces incidence, the question becomes, does the price go down or is the value increase. Well, our view is very clear on this, the value increases. So we're involved. We have evolved our model towards value-based and outcome aligned pricing, including elements like gain share and revenue share. As we remove cost, the complexity from the clients' environment, their costs go down and our margins can improve. That creates a much stronger alignment, focus on outcomes, not activity. And this is a key part of how we differentiate in the AI first market.

So net sales engine 2.0 is not about tools. It's AI fluency within our people. It's value creation within our offerings. And it's a durable commercial model that implements continued the improvements continue to compound. So let me pass this on to Teresa, who's going to talk a little bit about the marketing efforts and how we're targeting our customers.

I really love hearing Joel's story about how our commercial team leverages AI and tech tools. It's really, really powerful as you heard. And in marketing, we, too, leverage AI and leading-edge tools to find and nurture relevant clients and prospects at their key decision points. Digital channels are the backbone of our marketing strategy and enable us to be very, very targeted but also to be very efficient with our dollars.

And I'm going to share 4 examples of how we're using tech for smarter marketing. First, intent signals. We harvest intent signals from activity across the Internet and our website, and it helps us identify people who are exhibiting strong interest in a particular topic. So for example, we might be able to see that 10 people from a specific company are all searching on various terms related to application modernization. These intent signals strongly suggest that they are in market to purchase services in this area.

Second, precision targeting. We need to find these people without waste. We AI really does a great job of enabling us to target our audiences in the right place at the right time with the right message. So if you stay with the example of the 10 people that were researching various AI or app modernization terms, we can target them directly on the websites that they frequent and serve our ads on the topic to them.

So in real time as a researching, we're sending them our thought leadership, client stories, et cetera, on that topic. That enables us to position Unisys as a real leader in app modernization as they're doing their research and making their decisions.

Third, personalized journeys. When these people get to our website, we show them tailored content that's based on their intent data. So pop-ups would show the next piece of content based on what we know they viewed before. And again, it's just storytelling and adding and evolving the story based on what they do.

Fourth, predictive analytics, we use AI to optimize all of our campaigns to prioritize target accounts and to focus on the prospects with the highest intent to buy. And all of this and everything in marketing that we do is powered by AI, which we really call a force multiplier. An example, we do content creation. It helps us with writing.

We develop ads with AI. We do research with AI, and we also optimize our campaigns using AI. What I'm showing here is a range of campaigns that we have in the market. ranges from thought leadership campaigns, lead generation campaigns, account-based marketing campaigns, and they're all really focused on a few goals.

One is to drive awareness for Unisys and our key solutions. The second one is to generate leads and really help Joel and his organization have something to work with when they go to market. And then finally, help influence our target audience to help the commercial organization win when they're selling. These ads are driving real momentum for us in the market.

And we want our clients -- we want to get our clients and our prospects to our website, to consume our content, to learn more about us, and these ads do just that. For example, if you find one of these ads might be on LinkedIn, they might be on the Wall Street Journal or Forbes as our target audience is consuming information. We want to get their attention and have them click in to learn more. And we're really, really proud that these ads are driving a click-through rate that is 3x higher than the industry average.

Again, you got to hook them, have them click and then go and learn more. Our web visitors are up 54% year-on-year. Asset downloads. That means that you find a piece of thought leadership and they download it, up 52% year-on-year. And we're seeing really strong engagement with an AI chatbot that we have on our website.

We launched it a couple of years ago, and we weren't sure really how it would perform. But what the chatbot does, it's AI-enabled, but it enables our visitors to ask specific questions and get an answer to be directed to specific content or even book a meeting with a subject matter expert. And we've seen continued year-on-year growth in meetings booked and the chatbot itself has become a key channel for lead generation.

Again, we're trying to make it as easy as possible for our target audience to engage with us. And there's nothing like hearing from our clients about how we deliver breakthroughs for them. You've heard a few stories as we've shared them with you today, but we leverage these client stories in our advertising.

We have a wide variety of client stories that we promote externally. And that we're really proud of, including what you see here, Benjamin Moore, we have Cushman & Wakefield Carnival USA, California State University, and I encourage you to go to our website, check them out and learn more. These ads really do drive tangible impact for us. The ad that you see on the right is a digital ad.

Again, something that you might see on Wall Street Journal LinkedIn. And again, the ideas took them so they click in and really want to learn more about what we did for Benjamin Moore. We have different formats for these ads. We have longer form Benjamin or ads that feature the CIO, and you can hear directly from the CIO about the powerful work we did to help their business.

And just if you focus just on this Benjamin Moore ad, the stats are really powerful, 18x the click-through rate from the ad to our website versus other content that we deliver. The campaign itself, just for Benjamin Moore to date, has driven more than 73,000 visitors to our website to learn more. And once they're on our site, they stay 4x as long, which is exactly what you want them to do. And then I'd just share a fun story.

After this ad launch, I think it was only in market for a couple of weeks. Another company in the industry actually reached out to us after seeing the ads because they, too, wanted to learn more about what we could do to help them. It's exactly what you want to have happen.

Account-based marketing is also a key pillar of our marketing strategy. The goal of account-based marketing is to influence key stakeholders with curated content that aligns with what we're trying to sell. Ultimately, we want to expand our share of wallet and we want to win deals, and we can use our content delivered at the right time to help influence those buyers during their decision-making journey. And AI itself has enabled us to significantly scale our account-based marketing over the past 2 years by creating content, helping us optimize and do all the things I talked about earlier.

On this slide, I'm showing an example from a biotech company that has been a client since 2016. And we ran a personalized campaign for this client that included digital ads like the 1 that you see on the right side of the slide, which they might find when they're visiting LinkedIn or consuming media like Wall Street Journal as I explained. And that drives them to a custom landing page that has been created just for them. And that landing page would share things like our specific credentials in certain areas. It would share and remind them who their account team is, who are other Unisys people that support them that they might not know. It would have case studies that are relevant. -- but all dynamically updated.

And when you look at this specific example on the bottom half of the slide, what we're really trying to do is drive consistent, high-value engagement with the senior leaders at that client, again, getting all that content in front of them as they're considering who they're going to hire as a services provider. And what we know in this particular case that we touched 25 IT and senior leaders with their engagement on this site. And they were consuming information, learning more about us, again, influencing them through their decision journey.

In this case, we know that the CIO and the VP of IT downloaded key content, and we know that in real time. We also know that we use physical touch points to help engage with them as well. Their CIO attended a Unisys sponsored roundtable on a content relevant to what we were trying to sell them. But again, all those engagements are really, really high quality. And the results are clear. when we run an account-based marketing program, we see significant higher wins.

In closing, our intent data and tech tools enable our marketers to deliver the right messages at the right time to the right people influencing them to help our commercial team be more successful.

And I think for us, this is the magic of AI. These insights and the account intelligence that we get now, they're critical for use, as I presented with the sales engine. It enables us throughout our sales process to give a leg up and ultimately win in the market.

Hi. My name is Deb McCann, I'm the Chief Financial Officer of Unisys. When I looked at the list of those of you attending, I saw lots of familiar names. And I really want to thank you for your ongoing interest and support in Unisys. I also saw lots of new names.

So for those new investors, welcome, and thank you for your interest. -- and always feel free to reach out to our VP of Investor Relations, Michaela Pewarski, if you want to set up some time to meet with us, we're always happy to do so. So first, I'm going to quickly walk through the agenda of the items I'm going to cover. So first, before we move to our future targets, our Investor Day targets, we're going to look at what we told you in 2023 that we had achieved and how we did against those.

Then I'm going to move into the elements of our 2026 Investor Day targets, and run through those. Then I'm going to talk through our capital allocation priorities. And then we're going to wrap up talking about our investment thesis and the milestones that we believe we are heading towards to unlock value for stakeholders.

Before I dive in, I just want to orient you with our reporting segments and the terminology change that we're making. So our reporting segments are unchanged, and those are digital workplace solutions, cloud applications infrastructure and enterprise compute solutions. Within enterprise compute solutions, we have on the far right, on the bottom, ClearPath, and that consists of our operating system and the support that goes along with it. That makes up about 2/3 of ECS. In the past, this was called L&S for license and support.

Going forward, we're going to call that just clear path. And this consists of from a total company revenue perspective, about 20%. Everything else to the left, we're going to now refer to it used to be x L&S, -- now we'll be referring to it as technology solutions and services. There's no change to the solution classification within these categories and no change to segments. We just thought these new names simplify our terminology to be more intuitive for our stakeholders.

Next, we're going to talk about the goals we laid out in 2023 at that Investor Day and how we did against them. For ClearPath on the top here, you can see, we exceeded the -- we had said the 3-year average revenue would be about $360 a year, and we ended up averaging about $425 million per year. And the margin we thought would be about 65% and it ended up being 70%. This was due to higher consumption, longer-term deals and additional integrated system purchases than we had planned on. This was strategy and execution, not just luck.

As Sean went through, our ClearPath platform has unmatched security, speed and resilience. And the holistic ecosystem of ClearPath, we've made significant investments and we're benefiting from an increased use of data and AI by our clients.

Next is our technology solutions and services revenue. When we set our targets, the market was growing mid- to high single digits. And the industry as a whole since then has underperformed that expectation and was growing low single digits. So overall, while we did not achieve our revenue targets due to some of the things we've talked about on our earnings calls, such as pressure on public sector, lower PC field service volumes. And again, just that slower market environment, we were still pleased we grew within -- basically with in line with the industry. but disappointed we didn't hit our targets we set out.

And then so in light of that muted revenue growth, though, the good news is we focused on profitability given some of those market factors that we couldn't control as much. And so from a technology solutions and services margin perspective, we had targeted about 100 to 150 basis point improvement of margin per year, and we ended at the top of that range at 150 basis points.

Regarding SG&A, we had targeted over the 3-year period to reduce about $50 million in SG&A, and we ended up producing $70 million SG&A. This was through streamlining corporate costs, looking at our real estate portfolio and rationalizing that and centralizing IT.

So from that perspective, we beat what we had set out to do. Our operating profit margin the algorithm may have been a little different, but we were still able to be in the range that we had laid out when we talked to you in 2023. Regarding pension, we had talked a lot about reducing liabilities, reducing volatility, and we did just that.

We reduced liabilities 28% and in the 3-year period, and we were able to substantially remove all volatility in our pension contributions, which makes it easier to model and understand the cash flows we have going forward.

From a pre-pension free cash flow perspective, we -- the range we had given was about $150 million to $175 million. And although we achieved $72 million, it was a little bit not apples-to-apples in that since then, we had made the decision to refinance and borrow an incremental amount to help reduce our pension contributions and so the additional interest on that, plus the higher interest rate on our existing debt was increased interest about $50 millionn.

And then there was a $30 million environmental receipt from some previous payments we had made that we expect some recovery from. We thought those would come in but will likely come in closer to either 2028 or 2029. So we -- although we didn't beat the number, we came in at the low end of that $150 million operationally if you adjust for those items.

Next, before I get into the medium-term targets, I wanted to just set the baseline. So for 2026, we're pleased to update our guidance on a constant currency revenue the guidance for the constant currency revenue growth, narrowing the range and bringing that midpoint from negative 5.5% to negative 4.25%.

This is really based on 2 things: one, increasing our ClearPath revenue, we had set that at $415 million. We're increasing it to $425 million. And then within Tech Solutions and Services, we've seen a modest improvement in client volumes and timing and levels of short cycle work. This is relative to our original assumptions. So we're pleased that we were able to update that revenue growth.

Turning to our 2026 Investor Day targets, I'm going to start with revenue and specifically focus on technology solutions and services revenue and the growth opportunity there. You've heard a lot from the previous speakers how we've reset Unisys' market perception. We've climbed in the analyst rankings and all of the exciting opportunities in the market and our sales and marketing strategy to capture those opportunities.

Also the alleviation of some of those macro headwinds, all of this translates into top line growth. The growth is concentrated as you see on the right, in solutions where demand is the strongest. These are riding on real agentic AI tailwinds while displacing more traditional work in our mix.

This excludes just a note, and it's footnoted at the bottom. These numbers exclude the potential impact of our U.K. joint venture wind down. This has about a 200 basis point impact on growth. This revenue is typically at a 0% margin, therefore, not a driver of our cash and profit goals.

Next, I'm going to turn to gross margin, and I'm going to focus on technology solutions and services. Over the past 3 years, we've improved that gross margin by 560 basis points, a very significant improvement. The improvement, although we see a lot of opportunity, that rate decelerates over the next few years, mostly because we've done a lot of the heavy lifting already. And although we see a lot of opportunity, it's just -- it's not at the same pace as these past few years.

But we still do see an opportunity for 200 basis points of improvement in gross margin over the next 3 years or about 70 basis points per year. It won't always happen in a straight line from year-to-year, but that's our overall improvement. Is that 200 basis points. The key drivers of that are on the right hand of the slide -- as you can see, mix shift. So higher -- the higher margin field services at our data centers as opposed to traditional field services, AI adoption and automation. AI augmented delivery and improving operating leverage as we scale.

Also, our outcome and consumption-based contracts as we sign those to support price, they really reflect the enhanced client value and if we improve our productivity, that drops to the margin. And lastly, the future skilling on the existing base to support our associates to be future ready.

Okay. On the next slide, we're talking about SG&A. So we already talked about over the past 3 years, we've reduced $70 million by rationalizing real estate, IT and our corporate functions.

Going forward, we're really focused more on improving our SG&A productivity. So because a lot of the heavy lifting has been done, we still are looking at transforming, deploying AI, lots of efficiencies we see and also shifting our resources to ensure their focus on the highest impact areas that we're focused on, which is growth and profit.

And so we're targeting 150 basis point improvement in SG&A as a percent of revenue over this 3-year period, which translates to about $10 million to $20 million reduction in SG&A on a dollar basis.

Next, kind of bringing it all together. So all of these numbers that we're setting out for our 2026 Investor Day targets, here's a summary of all of them. So if you look on the lower left, we already talked about the technology solutions and services 3-year CAGR of about 3% to 5%. And then assuming ClearPath similar to what we've said in the past, about $400 million per year on average, all of that translates to total company of about 2% to 4%. And that's a 3-year CAGR from the 2026 guidance midpoint.

From a gross margin perspective, we expect total company 100 basis points of expansion. This assumes that 200 basis point improvement in Technology Solutions and services we talked about and maintaining the ClearPath gross margin at around 70%.

And then with the additional improvement in our SG&A productivity, this translates to a non-GAAP operating margin of 12% to 14%. This translates to an adjusted EBITDA margin of about 17% to 19%, which would be approximately $365 million of EBITDA in 2029. And an increase of about $75 million compared to what we're expecting in 2026.

All of this translate, if you look at the far right, to our free cash flow target for 2029 of about $50 million or $110 million pre-pension. This assumes a similar level of items such as tax payments, CapEx, as we've assumed in 2026.

Next, I'm going to move to our capital allocation priorities. As we generate more cash, our near-term capital allocation priorities will remain balanced between leverage reduction and growth in investments. We're successfully bringing down leverage, which should improve our credit rating and position us to continue reducing and ultimately removing our U.S. pension plans.

With lower leverage and pension contributions, we can invest more in growth and in the longer-term road map, we will consider a capital return program after we've delevered and funded growth. The timing will depend on reaching sustainable positive free cash flow with a liquidity cushion of cash on the balance sheet.

Let's talk a little bit more about delevering since it's such an important focus of our capital allocation over the next few years. So driven by a combination of increasing adjusted EBITDA by approximately $75 million and significantly reducing our pension deficit.

On the right, you can see an estimated trajectory of total debt. And so the dark green lines on the bottom are our debt or actual secured notes. And then the 2 -- the light green and lighter green are the pension deficit for the U.S. and the non-U.S. plans. A portion of cash contributions as we make our pension contributions each year go toward that deficit reduction. They're not dollar for dollar. But as you can see, by the end of -- by 2029, we expect our pension contributions to translate to $240 million of deficit reduction from where we were in 2025.

And so net leverage, as you can see on the bottom right, going from 2.9x to slightly under 2.0x of leverage by the end of 2029. And about 2/3 of that is from the deficit reduction and the remainder is from the profit improvement. Achieving this target gives us the improved credit profile and capacity to finance the removal of the U.S. pension plans if we decide to do so.

Next, continuing with our pension strategy. I'm going to talk about a little bit the benefits of last year's debt raise to refinance and to contribute $250 million to our U.S. plans. So by doing that, as you look on the upper right, by partially funding our plans that allowed us to provide more certainty to our investors our investor forecast by shifting asset allocation to remove substantially all of our contribution volatility. It also enabled us to resume annuity purchases that cost effectively remove portions of the overall liability.

Also, it was cash flow accretive. And so we reduced contributions by more than the interest on the incremental debt we borrowed to make that $250 million in contribution. Some additional steps we're taking are -- on the bottom right, you can see we're executing another annuity purchases or expectation in the second half of this year to remove additional liabilities later in the year. And this lowers the premium cost for full removal, which is based on the deficit plus a premium on the remaining liabilities.

We're also undertaking a rigorous process to cleanse pensioner roles to bring down premium costs as a percentage of liabilities towards the lower end of that 10% to 15% range we estimate. And we're also evaluating the potential removal of one of our U.K. plans over the next few years.

Before we move to Q&A, let's quickly talk about why we believe Unisys is a compelling investment. Today, we are being perceived in the market in a whole new way. So if you look on the left hand of the slide, these are things we really find ourselves today as a transformed Unisys. We're a recognized leader. We have a diversified client base with a $60 billion TAM. We've enhanced our profitability, and we've stabilized our pension.

In the near term, we foresee growth inflection. We're working on scaling our digital workforce, and we see many AI tailwinds and TAM expansion, and that will happen this year and into next. In the medium term, through 2029, we see a sustained growth step-up. We see that 200 basis points of technology solutions and services margin, and we're seeing deleveraging by about and also the potential of the pension removal. Plus that $30 million environmental recovery receipt that we should be getting in that time frame.

So where does this all add up? If you look on the far right, this is where we believe we'll be unlocking shareholder value. So you can see that $200 million of targeted net debt reduction and that $75 million targeted increase in adjusted EBITDA before any multiple expansion, we see as providing value of about an additional $3 per share for the debt reduction and about $4 for the EBITDA.

And really, at the end, this is before any expansion in our valuation. So what we really believe is that Unisys at this point, we're a stronger Unisys, we're a highly competitive player with solidly positive growth in cash generation and enhanced flexibility.

So with that, I'm going to turn to Q&A. Thank you.

Welcome to our Q&A session. Look, I'd like to open it first thanking Deb and the entire leadership team for -- what I hope you found to be a very informative set of presentations and enjoyed it as much as we enjoyed giving it to you. Deb and I have the pleasure of speaking with all of you on a regular basis. But for us, it was a pleasure to have you really introduce to the entire leadership team. And I hope that the passion that this team has for not only winning, but delivering for our clients came through in the presentations.

I really thought it did, and the continuity was there. So happy to open this up now for some Q&A. We had a handful of questions already put into the queue.

And Michaela I'm going to turn it over to you to tee up our first question, please.

Thanks, Mike. The first question is frontier models are launching deploy codes? Are they a competitive threat to Unisys?

Yes. It's a great question. I would like to say they would think they're a competitive threat to Unisys. I'm not sure that, that fact exists. When I think about their push for deploy Co, I believe that, that is really a push to drive more traffic to their LLM, right, essentially and utilization of their tool. I think you've heard throughout the day today, the component pieces that are really required for that level of deploy code, I'll say, continuity into our client base.

We've talked a lot today around the trusted environment that we've built with our clients in many cases, over decades of support understanding of that technical environment is critical to actually application of AI into that environment. Clearly, there is a deep expertise from our teams, for the clients we support industry expertise. We've been running these ecosystems for decades. So this is not a matter of just applying technology and turning it on and to use Joel's term, it magically works, right? This is really about an understanding of that ecosystem and having the trust that our clients put in us to apply the technology to that ecosystem and orchestrate it.

So I agree wholeheartedly that is what's missing in the environment for the full adoption of is the implementation and orchestration. And you've seen that come through really in each 1 of our business segments discussions as well as our commercial and go-to-market discussion of how we think about that. And so really driving that orchestration and implementation requires deep-rooted knowledge of the ecosystem because they're extremely complex and no one is live coding a new CRM system. Could you do it? Sure. Should you do it? Probably not in the construct of an enterprise environment. But Chris, I don't know if there's any color you'd like to add to that?

Yes, happy to. Thanks. I guess just to reinforce a couple of points you were talking about. You alluded to reliability and scale and performance and security characteristics that don't just show up and in fact, require the depth of expertise that you've just been describing as it relates to the engineering, the tooling and the orchestration of the tooling and the process and workflow expertise that we really have in significant depth across a number of industries from our experiences.

And in addition to that, as we talked about earlier today, the tools of today are no longer the same tools as tomorrow or next week or next month or next year. And so when we think about positioning for expansion of tool set usage and the dedication of those tools in concert orchestrated and fit for purpose for a specific client's challenge that's where our capabilities really come forward in shine. And so it's that combination of scale, performance characteristics, expertise in depth. And then orchestration potential over time.

Yes. And you just don't get that with AI native, right? So I think -- so we agree that, that's the hole in the market, and we think we're well positioned to fill that hole.

Thanks. The next question is there are reports that companies are not getting a worthwhile return on AI investments. Are you seeing cases of clients abandoning projects or seeing issues with AI performance? And how is this impacting the pace of adoption?

Yes. Look, another great question. Clearly, there has been, I'd say, probably for the last year, maybe with the exception of the last 3 months or so, everyone has been in kind of experimentation phase when it comes to AI, and it's changing so fast.

I think that the enterprise clients significantly misunderstood the complexities of their ecosystem. And so I really feel like there is a little bit of a pause on everyone wanting to be first to apply AI, but not necessarily knowing where, how, when and really what the cost is. And really, the complexity and the understanding of the complexity of the ecosystem, making sure the right guardrails are there, making security a component piece of the application of AI.

I think we've matured pretty quickly in that evolution. And I think folks are realizing that this is not an event. This is a process. And just like every other process that you're adding to your software development life cycle or your ecosystem, whether that's adding hardware, whether that's software applications, a genetic workflow regardless of what the application is, you have to do it really thoughtfully. And I go back to our previous question, the understanding of that ecosystem is critical to the application of that.

So I think what's happened in the last maybe 3 to 6 months, is a bit of a pause, a slowdown, which I think was warranted, and really an understanding of how and when to apply AI and really looking at it through that incremental gain point of view as opposed to completely replacing the ecosystem. And so I think that's probably the stage we're in. We are in really early innings here as far as I'm concerned in the deployment of AI in an enterprise scale environment.

We have a long, long way to go. You saw many of the TAMs we're talking about $450 billion of economic value over the course of the next decade, for x market growth there. high 30% CAGR growth. There's a lot to be done. But again, it has to be very pragmatic in the approach -- and I think people are realizing that at this stage. And so I think really question 1 and 2 tied together nicely in that regard. But again, Chris, I don't know if you want to add any additional color.

Yes, sure. I think the considerations you're talking about are really important in that they are a result of nobody to nobody's surprise, a few early stumbles with regard to deploying AI at scale. What are the ramifications for the enterprise? What about all these costs, the token costs, et cetera. And what's really great for us is the opportunity that we see with some of our existing solutions to show returns from results with clients we're already deploying against, and we gave a couple of examples of that throughout today. and to help clients who aren't maybe yet that advanced in their journey with the other capabilities we talked about.

And then when we couple that with the expertise that we've illustrated over time with the depth around the platforms that are executing so many high-volume transactions over years and years. What comes with that is really some special insight that's going to help bridge that gap between expectation and reality as we go forward. So for us, the positioning and the timing is just right.

Yes. Look, and just maybe one last point on that. Clearly, there's been value in the application of this. We gave you 2 great stories here with CSU and Cushman Wakefield, tens of millions of dollars saved. Patrycja talked about thousands, tens of thousands of hours saved. So it's there. The technology is real. And we just have to be pragmatic about how we apply it, when we apply it.

And I'm a firm believer that we're going to look back 3 years from now and see all of these small incremental changes that we've made to the infrastructure show tremendous value to our clients.

Next question. At a recent conference, Mike mentioned Unisys has the skills to support quantum computing. -- kindly double-click on this and what skills Unisys has that overlap in quantum? And are any of them being used now?

Yes. Great. So I would love to answer that question, but I happen to be sitting next to the gentleman who not only ran that business, but is 1 of our experts in quantum. So Chris, maybe I'll just have you feel that one.

Yes, happy to. Thanks for the question. I'll answer that in a couple of ways. So firstly, as it relates to expectations around post-quantum cryptography futures, that's one of the key early areas where we deployed engineering depth and talent in order to protect and defend our ClearPath estate and all of the clients who have been using it for a long time.

And so what that created was the motion for us that we've continued to increment against to develop and expand the capabilities of security around those ClearPath environments and then extending those in the form of advisory and capability assessments as services to additional clients who may not be using ClearPath -- so in that way, we're protecting what's important for us from a proprietary platform usage across all those great deployments we've talked about with you and extending the value out to other clients in a post-quantum crypto world.

So they can iterate and improve as that horizon comes ever closer to us. So that's number one.

Secondly, as it relates to the practical application of quantum computing, we have a growing number of quantum engineers at the company who are expanding on use cases with a variety of prospects and clients in early-stage capability assessments, use case studies as well as early proof of concept in a few targeted areas, that are going to prove out the hypothesis that a quantum-based solution can, in fact, solve problems better than in a practical computing application. And so it's early days there, but we think that's a really important part of the enterprise computing story at Unisys.

We've been doing that for a long time. And so we just consider that a next chapter. And so coupled with the engineering depth that I've just talked about, we're developing and have in fact, already developed several key assets and tools and accelerators that will help clients along that journey. And so whether it's from advisory services, or the actual creation of solutions on the ground and all of the algorithms that are expected to be a part of that. And in fact, the patents that we've already secured in that space -- we think there is a significant opportunity as we head into the future in both of those dimensions.

And that was a heck of a lot better answer than I would have given on the quantum computing. So thanks, Chris.

Yes, you bet.

Next question. Your revenue growth targets have a footnote, excluding the impact of a U.K. joint venture. Can you provide more detail about that?

Sure. I'll start and then maybe, Deb, I'll ask you to give a little color here. So we've been involved for probably close to a decade or 2 decades with a venture called iPSL. It's a joint venture with 3 of our large banks in the U.K. It's a BPO for check processing essentially. It's something, as we all know, check processing has been winding down year-on-year.

And really, over the last decade, this business has more declined by more than half, right? So it actually creates a pretty strong headwind for us as far as revenue growth is concerned. It's a 0-margin business. Frankly, we're in the business a lot more because of the client partners that we have in that business. They also happen to be clients of other aspects of our business.

One in particular is a ClearPath Forward client. So the engagement there has really been in support of those clients in a much broader relationship. But yes, this is something that over the course of, again, the last decade has been declining. And we're at a position now where there's a benefit here to winding this venture up -- and we've gotten to a point really where the pension scheme that was aligned to that environment is also in a point where we can fully fund that pension and ultimately diffuse that as well. So it's a good time for us to actually exit that, but it does create a headwind.

And maybe, Deb, you can just give us some of the financial aspects of the headwind it creates for us.

Yes. So in 2026, that number was about $90 million of revenue. That included -- as we talked about on Q1 earnings, there was also a portion we got from iPSL to help fund that iPSL pension. So it's a little higher in 2026. But that has been steadily declining over the past few years. And that will start to really wind down starting at the end primarily that wind down will be in 2027.

So that's why when we give those 3-year CAGRs for both the technology solutions and services, which the other segment is within that. where this is. And then also total company, those CAGRs include that it's about a 200 basis point impact in that 3-year CAGR. And so that's why it's important. We wanted to lay that out, and we'll continue to give that differentiation so that as we're reporting our numbers, you can see how we're performing against it.

Next question. Given you expect a 30% CAGR in AI market growth, do you expect your growth forecast might be modest?

Well, look, I would start that with the 30% number was really an industry number, not specific to Unisys. So -- and we fully expect to participate in that market CAGR growth. There's also the aspect of mix when you think about the application of that growth, the size of those deals. We are, as most of you know, a large recurring base and have long-standing contracts, so when you look at application of this new technology, that becomes incremental and it takes some time for that to actually outpace the legacy base.

So probably early days yet for us to be thinking about whether our forecast or guidance is conservative or not, but we feel really good about the opportunities that the TAM represents. We feel really good about what that new business signings look like. We think we've got the right offerings to participate fully in that TAM. And I think you've seen and heard a lot of that today. So I would say, again, early days, but certainly more of a tailwind than a headwind as far as we're concerned when we talk about forecast or profitability. I don't know, Deb, if you want to add any additional color there.

Yes. No, I think you covered it.

Great. Next question. Several speakers referenced outcomes-based pricing. Are you seeing success in moving clients to these contract structures?

Well, absolutely, we're seeing success in doing that. I think for those of you listening to our investor calls on a quarterly basis, last year, we had 1 of our biggest renewal years -- we signed roughly $1.7 billion worth of renewals in our technology solutions and services portion of our business.

So when you're signing that kind of work on a renewal basis, you don't get a real opportunity to do a lot of project work. It's really solidifying that base. But we have had some good success as it pertains to outcome-based pricing. I would say we're not having any conversations with clients that are not starting with outcome-based pricing.

One of the biggest barriers, frankly, to doing it is not our willingness to do it, it's the clients' willingness to do it. Many of the procurement organizations at our clients are still trying to apply kind of legacy methodologies to what they're doing.

But if I look at what you saw today in Service Experience Accelerator as an example, if we're successful in deploying that technology to our existing client base, I mean, clearly, that's going to have significant savings for us. We're talking about revenue share with clients on that. It's a little bit of a short-term headwind when you talk about the application of that technology, but it's margin accretive from our perspective.

But that's a great example of the deployment of that technology is really about deflections and it's about preventive maintenance. And those are the types of outcomes that we think our clients want, and we think that adds value to them, right? When you talk about the number of hours saved is as again, Patrycja mentioned in her prepared remarks. So there's a lot of good news there. I think the conversations we're having at every client really start with this outcome-based pricing. We've had good success with it, and we think it's going to continue to expand.

Next question. How do you expect advancements in AI and AI code generation to impact ClearPath? Is it a risk or an opportunity?

Well, I'll do a quick start on that, and then I'll punt that over to you, Chris. Clearly, we think it's an opportunity. There was some great dialogue here today. Sean gave you some wonderful statistics around how we're embedding AI into our ClearPath platform. We've seen 3 years now of consumption increases in that ecosystem, roughly $40 million a year. We just raised guidance again on the top line. A portion of that was related to an increase in that ecosystem.

So clearly, ClearPath from a consumption perspective is benefiting from AI. But Chris, maybe you can give a little more depth there.

Yes happy to. You're talking about the continuing use of the data in these platforms for the creation of yet untapped value. And that really speaks to the consumption patterns that you were just referring to, Mike. And we anticipate and believe that, that's going to continue as we head into the future. And that's been our experience.

And in addition to that, we also consider that the continuing evolution of the platforms and the ecosystem surrounding ClearPath are also beneficiaries over time of the implementation and embedding or infusing of AI inside the platforms themselves.

So consider the execution of AI native workloads inside the platforms. Those are parts of of anticipated new capabilities in the platforms as we go forward. So those are parts of continuing to stay current and ahead of where our clients want the platforms to be. And we see continuing demand for that.

And then lastly, just as it relates to the other things that you would expect in terms of development efficiency, testing efficiency, comprehensiveness, et cetera, those are infused inside the engineering function as well. And so there's a multifaceted benefit chain here that we are, in some cases, in early days of already experiencing and in other cases, are embedding in our road maps for the future.

And so there really is confidence from our perspective about future paths here that are continuing some of the trends we've been seeing.

Yes. Look, I think Sean touched on as well, the part of the question was around cogeneration. The entire project endurance that Chris started and Sean picked up the mantle on, really solidifies that engineering base that ability to use code, convert code. We've been refactoring Cove for probably a decade in that environment. So we feel strongly that we've got a digital answer to that question.

And again, I think the engineering moat that's embedded in our ClearPath ecosystem speaks for itself.

Mike, I guess, I just would add to that, too. I'm so happy you mentioned that endurance capability. Really, one of the core questions about long-term serviceability -- and part of our ClearPath 2050 initiative over these last several years now has been about ensuring that effective engineering depth and support is available and so it's not just in the creation of the platform code or the updating of those -- of that code for new capabilities.

It's as much about the long-term lasting necessity for that engineering depth and expertise that's also benefiting from the infusion of AI technologies, like you just said.

Next question. there is significant capital being allocated to the data center build-out. Can you expand upon the data center services you provide across your portfolio and size those opportunities?

Well, the sizing piece of that is going to be extremely difficult to do as we all know and see every day in the news, billions upon billions of dollars are being invested into building out that data center. I don't want to limit our exposure there from a TAM perspective to be just a build-out of an AI data center.

I think the opportunity there is large -- and we continue to, I'll say, shift our marketing focus to aligning to the builders of those data centers both as the users as well as the physical folks that are constructing those centers because we do think there's opportunity for us to play in that space, whether it's part of a consortium or as a sole proprietor kind of in their racking and stacking and taking care of that. But our data center opportunity goes much, much deeper than that.

We've already seen and have accomplished a transition of a lot of our front line engineers. You heard Weston and Patrycja talking about the opportunities for those engineers inside of the data center, right? So that goes to things like high-end storage and networking capabilities, training our front-end engineers into a multitude of skills right, takes them out of some of the lower-cost commoditized work that they're doing and pushes them up stack.

You heard Weston talk in detail around IoT devices, sensors and devices conference rooms. If you looked in the Journal today, you saw some NVIDIA discussion around AI chips in PCs. Dell had a very similar announcement earlier in the week regarding their chipset. So it's not just data center anymore. AI is and will be more and more at the edge at the desktop level in servers, on-prem in the cloud.

So I go back to that long-standing legacy of having hybrid infrastructure management, both from a field services perspective as well as embedded in our CA&I business unit, where the orchestration of that and the application of how workloads get moved, done, executed. That's all in my mind, data center support both from a services execution perspective as well as an install break fix and ultimately, a managed services.

Again, I don't know if you...

Yes, sure. Well, look, you've talked about Edge. You've talked about data center. You've talked about hybrid infrastructure and the private and public kind of handshake that's going on there. that's only going to continue to grow. And part of our mission is to ensure that the scaled global field services population that some of you would be familiar with, have the right skills at the right time, delivered in an experience that they can absorb usually via a mobile device to go to the site, have the part, meet them there and replace it successfully on the first trial because the impact of missing out on that is pretty tough when you're talking about data center workloads, for example.

And those are the exact investments that we told you about today. And so we're really well positioned to take advantage of those investments and extend them across that entire ecosystem. That entire chain from the end user with their own device, to the data center where they're sourcing the query or the response to their query in the data center.

And I think we just -- on the web page, just put a whole new section on how we're targeting this market.

Yes. Great point. Thanks, Deb, for bringing that in. I think there's a multitude of data out there for the site and what it means to us. So if you're interested check out our website or it's a new page for data center in particular.

Next question. Thank you for the disclosure around your deleveraging path, pension detail and EBITDA expansion. Would it be fair to think that pension-oriented deleveraging could be pulled forward should capital markets provide you the opportunity?

Sure. Yes, we -- I can't commit to anything right now. But clearly, based on the execution, our profitability and the way we see capital markets in the next year or 2, that could be a potential. But I think -- we'll have to see. And also in about 2.5 years, the non-call period ends on the notes.

And so we would assess, right? It does it make more sense to pay some of that down. Does it make more sense to borrow, make a pension contribution? Or does it make sense at a certain point down the road to pay down the whole U.S. qualified pension that $225 million to $275 million we've said it would cost. And so as we look at our execution on profitability and cash flow and we look at the capital markets, we'll make that determination.

I think at the end of the day, we look at that through a lens of cash, right? What is the most advantaged cash position we can put the company in to continue to reinvest and do other things with that capital.

Exactly.

Next question, do you have any workforce reduction plans given the emerging AI technology?

Yes. Certainly, a question that's pertinent in the market, and we've seen many, many of our competitors having significant layoffs, unfortunately, in the market. I would say our position is and has been that we have really thinking about upskilling our workforce to have that workforce ready for scale. Chris has a program in our organization really aimed at delivery excellence. And we feel like it is a better investment from our perspective to lean into that, to upskill as many associates as we can.

And our thoughts are really about making those associates much more productive, right? When you think about the productivity index you hear everything from 6 to 10x from a productivity perspective with the application of this technology. And our goal here is not just to meet our clients' expectations. It's to exceed and delight our clients, right?

And I think from our point of view, and that doesn't mean we're not going to have normal trimming of the workforce where maybe there's a client attrition or something that we can absorb. But our goal and what we've really instituted over the last 18 to 24 months, was really a concerted effort to upskill really every associate in the company and Chris is spearheading some of this. So maybe you can give a little color there as well.

Yes, happy to. Our view around this productivity index that Mike is talking about is really core to a couple of important factors here. One is that for us to be AI first, as a company, we need to ensure that our associates who have been and continue to be the lifeblood of how we do things for clients have the skills. And so that's really where our attention is focused now. And then similarly, as Mike was talking about, there are places where we decide to make adjustments and changes as any business does.

And so our expectations around delighting clients with the use of the newest technologies, with the implementation of our newest solutions that have been widely recognized in industry is leading by this time is really where we're focused and where we're asking for our associates to focus.

Next question. You laid out a number of seemingly significant growth opportunities, which 1 or 2 are you most excited about?

Well, you probably all have different 2 that were -- for me, the 2 that stand out the most are the opportunities within kind of that data center ecosystem, if you will. I think we've got deep, deep experience there. the competition, I think one of the stats we put out today, 7,300 field services agents that we've got. We've got a very deep and broad skill set that I think differentiates us in that space.

And so I think there's some real opportunity for us to lean in there and expand that data center beyond field services and into management. The other area that's like just jumps off the page from my perspective is agenetic orchestration embedded in CA&I. When you think about the application of a digital workforce, into this environment. It's something that we're seeing. And frankly, it's amazing. I mean things that we've delivered to clients already in days that would have taken months, if not quarters, to do with half the talent or 1/3 of the talent to actually deliver it.

The technology is really incredible there. Those are typically going to be smaller deals with quicker pass-through time. So that will get us likely some more in-year revenue, quicker recognition on those types of things. and really establishing a little better cadence in project work. Deb and I have talked for years that we'd like to see that mix shift between that 80-20 of recurring revenue and project work shift a little bit because the project work is typically a little better margin profile.

So I think that aligns really nicely to to those 2 opportunities that I would pull off, but again, either if you have anything you're thinking of?

I was just I think service experience accelerator. So within DWS, I think, is an exciting opportunity, where we're already have a lot of clients on it, plan shifting a lot of our other clients onto it. I think it's the one that jumps out for me.

I know you're going to go clear path I mean I suppose out around us out. But I do think there's kind of -- you talked about the kind of this idea that we are touching compute capability and the necessity for that for participating in that evolving ecosystem, again, from end user device, IoT device at the edge, into the data center, all the workloads happening in a hybrid way between private, public cloud and in those data center environments, we are really positioned to touch all those.

So if I could have 1 big one, that's 1 for sure. And really where that comes to life is with our team. our associates, and we talked earlier today about the changes in roles, kind of past and future, future roles enable our folks to actually take the experience that they have and think about and answer questions differently with the tools we're putting in their hands. What happened yesterday? What happened last hour such that we can make changes in our decisions for what to do in the next hour. That compression of time and enablement of decision-making is just a massive step change for our people.

And so in that context of how we touch and fix and create new value across that compute ecosystem, that's a really big deal for me. And it involves our people, which I'm really passionate about.

And then yes, the last thing is clearly the ever enduring value and yet to be untapped value that exists inside that ClearPath client base. And that the ClearPath team and the clients are ever more involved in partnering to find new ways to unlock that. So that's really exciting to me, too.

And we have time for 1 final question. Any comment on the stock price increasing from $1.97 to $4.60 in about 2 months.

Yes. Keep it going. That would be my comment for the stock. Now look, I really feel like -- and I'll tie it back into the very first question that we've got. There, in my opinion, was an a market knee-jerk reaction when certain of these models came out.

And this -- if you think about what happened to deploy cos, when the models came out SaaS providers got hit pretty hard. Solution implementers got hit pretty hard. We -- in that industry in general, I think, got hit pretty hard from a valuation I like to think that this is really just a return to norm. And it's interesting that the same the same positioning that caused the market deflection now coming out with deploy Co is actually causing the inflection to return to the norm.

So again, do I think that this is the valuation that our company should be at? No. I I still think there's room. Deb gave you some great examples of what that short-term investment could look like without even changing our valuation. But we're happy to see a little bit of a return to the norm. And hopefully, it's a realization from a market perspective that Unisys is here to stay.

I'd like to just maybe close with a couple of things that I started with and maybe close with, there are a couple of things that I'd like you to take away from this.

First, the strategy that we put in place, again, middle innings as far as I'm concerned, but the foundation is set and I think you've seen throughout the day how that strategy continues to evolve, right? We didn't look into the position that we're in right now. And I think we're really set for success and building from a strong foundation.

Second, if I look at the opportunity in the market, TAM has opened up for us in a couple of areas. And we just mentioned maybe 3 or 4 or 5 between us that I think we've yet to see the benefit of that TAM. And so hopefully, we'll continue to win in the marketplace, and we'll continue to grow the business from that front.

Three and the thing I'm probably most proud of and I think most important to us is a comment that Chris made. It is embedding into our workforce this AI-first strategy. I mean we've spent the last several years embedding the AI into our technology and solutions but those solutions really only have value if we can deploy those solutions in a meaningful way to our clients.

So really, the fact that, that workforce is up to speed with the latest and greatest tool sets -- and I think that's really going to help our clients achieve their value as well.

And then lastly, that the work we've done over the last 7 to 10 years around continuing to strengthen our balance sheet, continuing to strengthen the profitability of the company kind of puts us in a solid position, we have a good cash balance. We've got working capital improvements, et cetera. So looking forward to what we can achieve together and frankly, doing that probably for the first time in a long time with some tailwinds.

So seeing the market kind of reflect a little bit of positivity in this space. is really helpful to us. And if nothing else, you should take away from today that Unisys is an AI future-ready company. Client-focused future-ready is not a tagline to us. It's really important, and we're positioned to take advantage of that in the market.

So thank you all for your time. Thank you for your participation. I hope you took as much away from this as we did. Frankly, we really enjoyed bringing it to you and look forward to talking to you probably at the next quarter.

Good morning, and welcome to the Unisys Corporation First Quarter 2026 Earnings Call. [Operator Instructions]

Please note, this event is being recorded. I would now like to turn the conference over to Michaela Pewarski, Vice President, Investor Relations. Please go ahead.

Thank you, operator. Good morning, everyone. Thank you for joining us.

Yesterday afternoon, Unisys released its first quarter 2026 financial results. Joining me to discuss those results are Mike Thomson, our CEO and President; and Deb McCann, our Chief Financial Officer.

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 statements section of yesterday's earnings release furnished on Form 8-K 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 excludes certain unusual or nonrecurring items such as postretirement 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. Reconciliations 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.

Thank you, Michaela. Good morning, everyone, and thank you for joining us to discuss the company's first quarter 2026 results. We're off to a good start in 2026. Both growth and profitability were modestly ahead of the expectations we provided, keeping us on track to achieve our full year guidance ranges.

Strong new business signings improved our trailing 12-month book-to-bill ratios and will contribute to in-year revenue. While geopolitical events have introduced new uncertainties in the market, client budget seems to be loosening a bit and especially in the commercial sector and in Europe.

Project volumes are beginning to materialize on the back of last year's renewal with solid pipeline in place for the remainder of the year.

First quarter profit improvement keeps us on track to achieve our full year free cash flow expectations and reflects our focus on adopting AI and continued workforce optimization.

As expected, our pension deficit and estimates for future cash contributions remain stable due to the actions we took last year to remove the majority of the pension contribution volatility, allowing us to focus on strategic growth and efficiency initiatives.

Looking more closely at the first quarter, revenue was up 1% year-over-year and 3% in our Ex-L&S solutions. Volumes with existing clients were better than anticipated, including a modest pickup in the PC refresh cycle.

This helped offset some of the top line effects from client attrition and modest price pressures created through sharing AI cost savings with clients, which we discussed last quarter. While AI efficiency gains reset market pricing last year, they're benefiting gross margins, which improved 80 basis points in the first quarter, including 170 basis points of Ex-L&S gross margin expansion.

Turning to client signings, our first quarter wins increased confidence in achieving our 2026 performance goals and we continue to have a higher portion of guided revenue contracted and in backlog compared to a year ago.

The first quarter new business TCV was $158 million, up 16% sequentially and 45% year-over-year. This was our strongest quarter of new business signings since the fourth quarter of 2024, with growth from both new logos and the existing base. Several multiyear contract wins illustrate our ability to gain market share when leading with innovation.

For example, we had several notable signings for our agentic service desk powered by our service experience accelerator capabilities. During the quarter, we won a large new scope contract to provide our agentic service desk with one of the world's premier quick service restaurants, expanding our existing support to the entirety of their nearly 14,000 restaurants in the United States, with additional growth opportunities around the world.

We also signed a new logo in Australia, which will be our first deployment of our agentic service desk in the Asia-Pacific region, where we landed several recent wins.

As a part of this engagement, we will provide elevated IT support to approximately 11,000 employees in Australia's Department of Health, Disability and Aging, where we now support numerous regulatory functions. This is a multiyear contract, which has options extending to 10 years and is structured on delivering against automation and service experience outcomes rather than ticket volumes.

The value behind our service experience accelerator is proving to be a compelling point of the spear solution for new business, delivering measurable results and quickly orienting us as an experienced AI partner in moving enterprise AI from concept to reality.

Our Device Subscription Service, or DSS, continues to resonate with another first quarter win at a large financial client in the United States. Clients are grappling with evaluating OEMs and hardware costs, understanding device AI capabilities and forecasting headcount fluctuations, all of which makes our clients more open to our intelligent refresh offering, which simplifies the process and helps offset cost pressures.

We have recently expanded our intelligent offering to encompass certain IoT devices through a deeper partnership with Dell. Several key engagements for application development and management also contributed to strong first quarter new business TCV.

For example, we expanded our existing services relationships with ENAIRE, Spain's air traffic controller, a client of 30 years. Renewal included a sizable new scope, which involves managing more than 100 of our clients' existing applications across numerous functions, with additional funds budgeted for future projects to design, test and deploy new applications.

Our application capabilities also opened the door at the largest community college system in the United States with Unisys signing a new logo agreement to modernize and manage an important student-facing applications that provides their approximately 2 million students with resources and tailored education pathways for more efficient incoming transfers, graduations and entry into the workforce.

This engagement established a solid foundation, which is already leading to additional work expected beginning in the second quarter.

We also made progress on our initiatives to cross-sell CA&I application services into our ECS client base. In the first quarter, we signed a renewal with a large Colombian retailer for existing ClearPath Forward and managed services that integrated new scope application development work supporting the client's core commercial and inventory applications.

Across our segments, TCV renewal rates were strong and above 95% for the total company. We are also seeing some unexpected extensions from attrited clients stemming from the lack of readiness from the new service provider.

At one such client, we were awarded a large new scope in the first quarter for infrastructure and modernization services. We believe this win demonstrates the desire of some of these clients to remain engaged with us, which we attribute to the deep relationships we've established, our delivery track record and the broadening awareness of our capabilities.

Looking at our go-to-market and pipeline, we've seen a modest pick-up in client demand over the past few months and a stronger pick-up with new logos where qualified pipeline increased sequentially in Ex-L&S solutions.

A number of these opportunities originated from a new initiative within our direct sales organization, which is the development of rapid value assessments for our key AI-enabled solutions. These repeatable assessments help quantify time to value, inclusive of estimated timelines and outcome-based pricing scenarios, easing friction associated with returns on AI investments, especially in the mid-market.

We're currently utilizing rapid value assessments for our agentic service desk, intelligent operations and security operations with assessments for agentic application transformation and management and intelligent device refresh in the works.

We're also generating more leads by collaborating with alliance partners on development and marketing around a narrower set of solutions, which identified overlapping priorities and strong value propositions.

These efforts have led some partners to place Unisys more prominently on their road maps and using us as their primary and preferred implementation and managed service partner for their technology and are directly handing off leads in areas such as enterprise service management, unified endpoint management and field services to implement technology for smart reading rooms, kiosks and digital signage.

I want to shift the focus to discuss our investments in the business, much of which is concentrated on leveraging artificial intelligence to move into higher-valued services and penetrate emerging market opportunities stemming from AI.

Our approach towards enterprise AI has been to avoid simply rebranding existing solutions as AI-enabled, but instead to use AI to fundamentally transform the outcomes we deliver to our clients and that positions us well for future-proofing our client relationships.

In our Ex-L&S IT services, this involves thoughtfully choosing partnerships to strengthen, enhancing the skills of our workforce, expanding our operational accelerators and constructing agentic workflows and governance frameworks to deliver secure, reliable results.

We have also been proactive about rolling out delivery innovation in our existing base to create measurable results, increasing our relevance and thought leadership with clients, prospects and industry analysts.

We're working to maximize that momentum by investing more deeply in our talent. We're expanding our forward-deployed engineering capabilities to increase capability in areas such as agentic application services.

We view Agentic AI as a major opportunity for organizations to close the modernization gap, especially in public sector and higher education. Expanding our forward-deployed engineering capabilities positions us to take a more prominent role in designing and managing agentic workflows, whether they enhance software applications or replace elements of their functionality.

In some cases, we're seeing client interest in expanding these services beyond central IT to reshape business as usual and functions such as HR and finance. As we think about upskilling for AI more broadly, the skills and demand are rapidly evolving almost on a daily basis, with the one constant being the pace of change coming from frontier models, hyperscalers, software and OEM providers.

We're committed to maintaining a platform and model-agnostic approach that best addresses a given used case within a specific industry for a specific client.

At the same time, significant existing technical debt within IT estates will require subject matter expertise to meet clients where they are today and help them transform and transition their technical debt over time.

To do that successfully, we're aligning certain technical resources around key models and platforms to provide specialized consulting to both our external and internal delivery teams. Physical AI infrastructure is another emerging growth vector for Unisys, stemming from demand for AI compute and the rapid build-out of data center capability that's occurring.

Data center builds are expanding the need for field technicians knowledgeable in the installation and maintenance of complex AI-focused IT infrastructure. Our large globally scaled field services organization with cutting-edge training and delivery experience connects humans, data and AI agents on one trusted platform.

In the first quarter, we signed a new business engagement with a leading global OEM to support the build-out of a large U.S.-based data center. While the initial scope is small, it lends credibility to our specialized capabilities for the installation and support of AI infrastructure.

AI infrastructure is just one element of our overarching strategy to expand our field service revenue streams. We're continuing to grow hybrid infrastructure volumes and focus on generating opportunities in network equipment and enterprise storage. We're also broadening field service capability in a variety of hardware, most notably within offices, restaurants, retail and manufacturing facilities.

In L&S Solutions, we're approaching AI from both ends, infusing AI functionality directly into the ClearPath Forward ecosystem, while also making it easier to extend ClearPath Forward data and applications to fuel AI in other parts of the enterprise.

During the quarter, we put out a new release of AB Suite, which is our low-code development environment for building applications on top of ClearPath. The update suite development enhance data encryptions and simplify integration of data with external environments without disruption of mission-critical operations.

The release also adds capabilities for generating AI-based synthetic test data, allowing developers to rapidly test new functionality, while reducing the risk of exposing sensitive data, strengthening security and compliance.

In addition to AB Suite release, we launched a new AI developer toolkit with practical guidance for building AI data models within the ClearPath Forward ecosystem. This is the first in a series of targeted client AI-enabled initiatives aimed at reinforcing ClearPath's value proposition and role as a long-term AI-ready platform that clients can rely on for decades.

Taking a step back across all our segments, we're seeing AI disrupt the status of the industry and push clients to rethink their solutions and IT providers. This has given us an opportunity to show our agility and step into a more prominent role with clients and partners and accelerate the shift in our brand perception.

We also hear it in our conversations with and recognition from the industry analysts and advisers that influence client decision-making. In the first quarter, Unisys was again named a leader in reports on end-user computing services and mid-market digital workplace solutions by Avasant and Everest.

We are also newly included in the HFS report on next-generation IT infrastructure services, which includes providers able to help enterprise reimagine infrastructure specifically for AI-native operations and distributed digital environments. These acknowledgments follow Gartner's elevating Unisys to a global leader in digital workplace services.

With that, I'll turn the call over to Deb to discuss our results in more detail.

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 Ex-L&S to allow investors to assess our performance outside the portion of ECS, where revenue and profit recognition can be uneven between periods due to license renewal timing.

Looking at our results in more detail, as Mike mentioned, the year is off to a good start. As you can see on Slide 6, first quarter revenue was $438 million, up 1.3% year-over-year, which included an approximate 600 basis point benefit from foreign exchange relative to the prior year period.

In constant currency, revenue declined 4.5% with the largest declines in L&S Solutions due to renewal timing and anticipated volume declines in our Ex-L&S solutions. Excluding license and support, first quarter revenue was $372 million, up 3.1% year-over-year and down 2.9% in constant currency.

I will now discuss segment revenue performance in constant currency terms shown on Slide 6. First quarter Digital Workplace Solutions revenue of $118 million was down 6.5% year-over-year.

This decline was better than we had anticipated and reflected the factors we have discussed in previous quarters, such as client attrition, pricing dynamics in the industry and lower base levels of PC field services volumes that are stabilized, but down year-over-year. At the same time, growth in areas such as higher-value field services and better-than-expected volumes helped mitigate some of those effects.

For example, our volumes and revenue from high-end enterprise storage have nearly doubled on a year-over-year basis. And as Mike mentioned, we continue to see significant market opportunities across a more diverse set of higher-margin field services, including AI infrastructure and IoT devices. We are also pleased with our DWS pipeline, which is up sequentially.

First quarter Cloud, Applications and Infrastructure Solutions revenue was $182 million, representing a 2.4% year-over-year decline. The decrease primarily reflected lower volumes, especially at certain U.S. public sector clients and client attrition.

As you may recall, we began seeing public sector clients pull back in the first quarter of 2025 due to uncertainties related to federal funding levels and those year-over-year headwinds should lessen as we lap declines in subsequent quarters.

Within the Enterprise Computing Solutions segment or ECS, our License and Support Solutions revenue was $66 million, down 12.4% year-over-year due to the timing of the renewal schedule. There is no change to our expected weighting of 30% of full year L&S revenue in the first half and approximately 70% in the second half and we continue to expect $400 million of average annual L&S revenue in 2027 and 2028.

Artificial intelligence has been and continues to be a driver of L&S consumption and in churn revenue and we are evolving our ecosystem with innovations that facilitate enterprise AI, both on our platforms and external AI-enabled client environments that can utilize valuable data generated by our systems.

We continue to detect no change in client commitment to the ClearPath Forward ecosystem resulting from AI and code refactoring. On the contrary, there are some signs that our ecosystem evolution is leading to certain clients with migration plans reevaluating specific workloads to retain and outsource management to Unisys, which we attribute to consistent investments in platform modernization and sustainability of our skilled workforce.

In our specialized services and next-generation compute solutions, the Ex-L&S portion of the ECS segment, first quarter revenue was $50 million, down 2.5% year-over-year. This was ahead of our expectations due to improved volumes and additional scope in some of our business process solutions, which partially offset declines from the phasing of project work.

Total company TCV was $274 million for the quarter, up 33% year-over-year. New business TCV totaled $158 million, up 16% sequentially and 45% year-over-year. This is the highest level of new business TCV we have had in 4 quarters.

Trailing 12-month book-to-bill was 1.2x for both total company and Ex-L&S Solutions. We ended the year with backlog of $2.96 billion, up 2.4% from the prior year-end.

Moving to Slide 8, first quarter gross profit was $113 million and gross margin was 25.7%, up 80 basis points from the prior year. Ex-L&S gross profit was $73 million and Ex-L&S gross margin was 19.5% in the first quarter, up 170 basis points year-over-year.

Improvement was primarily driven by expanded use of intelligent automation and ongoing workforce optimization. During the first quarter of 2026, a transaction within the company's U.K. business process outsourcing consolidated joint venture generated $3 million of non-segment revenue and gross margin benefit with no net cash impact.

Total company and Ex-L&S gross margin benefited by 50 and 70 basis points, respectively. The transaction is expected to generate $12 million of gross margin benefit for 2026 evenly among the 4 quarters.

We remain on track to deliver our targeted 150 basis points of annual Ex-L&S gross margin improvement amid a challenging growth backdrop, although our path may not be a straight line.

I will now touch briefly on segment gross profit shown on Slide 8. DWS segment gross margin was 13.5% in the first quarter compared to 14.2% in the prior year period. Contraction primarily reflects impact from exited clients and growth in lower-margin device subscription service revenue in the quarter, which can have larger components of hardware, but offer a strong entry point for expansion into higher-value offerings.

DWS margins are expected to improve as we move through the year and benefit from the implementation of delivery initiatives.

CA&I segment gross margin was 21.8% in the first quarter, up 230 basis points year-over-year. The improvement was driven by continued workforce and labor market optimization, along with higher productivity supported by greater use of intelligent automation, especially within our central application capabilities.

The segment also benefited from increased project volumes in higher-margin solutions relative to exited contracts as we see continued traction in high-value application services and multi-cloud management, which leverage more of the latest AI models and tools for delivery.

ECS segment gross margin was 46.9% in the first quarter, down 80 basis points year-over-year. This was driven by lower L&S gross margin due to the timing of license renewals, partially offset by nearly 70 basis points of improvement in SS&C Solutions, which was helped by improved utilization in business process solutions.

Across our segments, we are providing our associates career pathways and upskilling in emerging technologies, which is supporting our workforce optimization and internal staffing and our low trailing 12-month voluntary attrition of 11.1%.

Turning to Slide 9, first quarter non-GAAP operating profit margin was 4.5%, up 170 basis points year-over-year. This was modestly better than the slightly positive margin outlook we provided last quarter, primarily due to execution against our operational efficiency objectives and increased L&S volume.

SG&A was $92 million, down $5 million or 5% year-over-year, keeping us on track to reduce SG&A by $10 million to $20 million in 2026. As a reminder, these savings are concentrated in streamlining corporate functions outside of sales and marketing and most of the restructuring costs to achieve have already been recognized.

Adjusted EBITDA was $46 million in the quarter, representing a 10.6% margin, up 130 basis points year-over-year. GAAP net loss was $36 million or a diluted loss of $0.50 per share, while non-GAAP net loss was $10 million or a loss of $0.14 per share.

Turning to Slide 10, capital expenditures totaled approximately $21 million in the first quarter, relatively flat on a year-over-year basis and consistent with our capital-light strategy. As a reminder, a significant portion of capital expenditure relates to development for our ClearPath Forward ecosystem, comprising our L&S solutions.

Free cash flow was negative $26 million compared to positive $13 million in the prior year period. The decline was driven by the timing of interest payments on our 2031 senior secured notes with payments now occurring in the first and third quarters.

In addition, the first quarter interest payment included interest related to an 18-day stub period. Pre-pension free cash flow was $2.9 million in the first quarter, net of $28.2 million of pension and $0.2 million of postretirement contributions.

The quarter included approximately $12 million of contributions to our U.K. pension scheme that are incremental to our previous full year forecast. Our joint venture partners funded these contributions, resulting in no cash impact to Unisys. For the remainder of 2026, we expect cash contributions to all global pension plans of approximately $69 million.

Our cash balance was $380 million as of March 31st compared to $414 million at the end of 2025. Our liquidity position remains strong, supported by significant cash balances and undrawn $125 million ABL facility with an accordion feature up to $155 million and no significant debt maturities until 2031. Our net leverage ratio, inclusive of pension is 2.9x, down from 3.2x a year ago.

Turning to our global pension plans, based on market conditions, we estimate that as of March 31st, both GAAP deficit and aggregate expected contributions through 2029 are essentially unchanged from year-end. As a reminder, we provide more detailed projections for estimated cash pension contributions and GAAP deficit at year-end.

Quarterly updates reflect estimated impacts of asset returns, market conditions and assumed deficit reduction from contributions. Following our capital structure transformation in mid-2025, which included a $250 million discretionary contribution to our U.S. qualified defined benefit plans, we took actions that removed substantially all volatility from our expected U.S. contributions.

This increased stability, along with the existing stability in international contributions set through trustee negotiation has significantly increased certainty for investors as to our future cash needs and trajectory of deficit reduction.

Turning to Slide 12, I will now discuss our financial guidance for the full year and the additional color we provide. We are reaffirming our full year guidance range and expect total company revenue to decline between 6.5% and 4.5% in constant currency, which based on April 30th foreign exchange rates equates to a reported revenue decline of negative 3.5% to negative 1.5%.

Guidance assumes Ex-L&S revenue constant currency decline of 7% to 4.5% and full year L&S revenue of $415 million.

As a reminder, the timing and exact amount of L&S revenue can be difficult to forecast with precision, as it depends on renewal timing, term and client consumption levels among other factors.

We are reaffirming guidance for full year non-GAAP operating profit margin of 9% to 11%, which assumes a slight year-over-year increase in L&S gross margin, targeted Ex-L&S gross margin improvement of 100 to 200 basis points and $10 million to $20 million reduction in operating expenses.

Looking specifically at the second quarter, we expect approximately $450 million of total company revenue on a reported basis, which assumes approximately $70 million of license and support revenue. Based on these assumptions, we expect second quarter non-GAAP operating margin of approximately 5%.

We expect second quarter items impacting GAAP net income of approximately $30 million, primarily related to pension expense. We expect a number of elevated noncash expenses impacting GAAP net income and earnings per share later in 2026 related to pension annuity purchases and streamlining certain legal entities, which we will guide on a quarterly basis.

Also, as a reminder, in 2025, we removed hedges on our intercompany balances, which could create noncash FX gains as the U.S. dollar strengthens or losses as the U.S. dollar weakens. These are difficult to guide due to constantly changing rates, but will impact quarterly GAAP net income.

There is no change to our expectation for full year free cash flow of approximately negative $25 million, which translates to positive $72 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 aggregate environmental, legal and restructuring payments and $102 million of postretirement contributions with approximately $29 million of which is expected in the second quarter.

We are focused on continuing to increase our efficiency and profitability during this period to maximize our underlying cash generation levels for investment and capital return.

Before we open the line for questions, Mike has a few additional remarks.

Thank you, Deb. I want to reinforce 3 key points we hope came through in our commentary today. First, our confidence in the guidance ranges we've reaffirmed today is reinforced by our first quarter financial performance as well as the strength of our client signings, book-to-bill and backlog position.

Second, our L&S solutions are durable and we are continuing to make investments to modernize our ClearPath Forward ecosystem and solidify our platforms as a key enabler of enterprise AI. Third, artificial intelligence is not only allowing us to provide more cost-effective solutions for our clients, but creates opportunities for us to help enhance our clients' business processes and end user experience, which creates a variety of new outlets for Unisys.

We hope you'll join us on June 2nd to discuss these opportunities and more at our upcoming Investor Day, which you can RSVP for on our investor website.

Operator, you may now open up the line for questions.

[Operator Instructions] The first question that we have comes from Rod Bourgeois of DeepDive Equity Research.

So it was helpful to hear some of your AI initiatives across your different segments and the accelerator work and the service experience work and so on. I wondered if you could just take us through quickly each of your segments and how AI is -- what are the headwinds and the tailwinds from AI? And maybe the net effect when you look across how AI is affecting you across your key segments?

Great. Yes. Look, I think as we've stated in previous calls, we see AI in general as a significant tailwind for -- not only for us, but I think for the industry in general, but specifically embedded in our segments. And I apologize, I'm fighting a little cold here. So when we think about the impact in DWS, so we've already talked a little bit around some of the headwinds, which is really just the renewal cycle and the reestablishment and cost sharing of applying AI to that renewal.

But moreover, I think we've been able to mitigate a lot of that headwind. Clearly, we've embedded AI into our solutions. We've seen the industry analyst reports on how that's set.

So we think there's some real opportunity there, not only to have that in our solutions, but in our skill sets that we're bringing to market. So we mentioned in our prepared remarks, many opportunities inside of DWS, whether that's infrastructure, AI and the build-out from a field services perspective, all of the work that we're doing with agent force embedded in Salesforce opportunity and application of AI with our team in there and most prominently in DWS would be embedded in our solution experience accelerator and our agentic service desk.

So we're seeing that really resonate, seeing some nice uplifts in pipeline, et cetera, in that particular business segment. So really happy there. And clearly, we think it's net-net, a positive long-term statement for the industry and for Unisys.

From CA&I, you've heard in the prepared remarks in general across the board, the benefit there is clearly around AI application as it applies to modernization, the adoption of AIOps in our intelligent operations framework and the work we're doing around the agentic build of what we consider to be the action layer or the application or even above the application layer, that's been really growing across the board for us.

And we think it's something that will continue to grow and actually probably opens up TAM for us for areas where we can really penetrate with that agentic layer that historically we may not have played in. So really pretty bullish on the application transformation layer embedded in CA&I.

And then in ECS, I mean, it's been a powerful story for the last several years. We've talked roughly around $40 million of increase per year over the prior 3 years of consumption. The work that we've done to continue to embed technology enablement from an AI point of view into the ClearPath Forward ecosystem, we mentioned, in particular, the developer toolkit for AI that really allows for testing and utilization, and I'll say, bimodal data transfer has been really important.

And we continue to develop the AB Suite to again allow for innovation and flexible deployment. So we see the technology continue to enhance the utilization of various aspects of AI in ClearPath.

And again, we've seen that result over the course of the last several years from enhanced consumption and we see that trend continuing. So really happy with how it's shaping up, starting to see a little bit of relief, I think, from the macros, which has again given us confidence in our guidance as we said it.

And just a follow-up on AI in your ClearPath Forward business. You've rolled out these new AI releases. Can you talk a little bit about the impetus to develop those AI releases and what the early client reaction is?

And even to the extent that you're partnering with the AI models on that, just a little more color on the development of those releases and the reaction in the ecosystem?

Sure. Great question. So look, this is not something that we've picked up in the last 3 months in reaction to what's going on in the market. These AB Suite releases have happened over the course of the last couple of years.

This is just the latest release that's going out there. Clearly, there is an ask and road map discussions that we're having with clients. And it's really about access to data, portability of data, continued consumption of data and our ability to continue to build out above the, I'll say, the ecosystem layer or what you would consider the hypervisor layer or core layer of data and usage.

The -- I'll say the issue du jour there is really about maintaining the support and steady run of the base and utilizing the emerging technology, you talk about frontier models as an example, being able to extract this valuable data that's embedded in ecosystem and marry that to frontier models to really help our clients continue to take advantage of that data set and do that in a manner so that they're not putting at risk anything in the ecosystem.

They run the resiliency, the security, et cetera. So we see this as just a continuation of our ClearPath 2050 strategy and it happens to be the emerging technology that's there today. But we do a little bit and continue to work with kind of joint road mapping on some of these providers.

And it extends beyond frontier, right? It's also OEM providers as well as some SaaS applications that sit on top of that ecosystem. So this, again, has been multiyears in the making. And I think from a client perspective, aligned to the expectations that we've set with our clients over the course of managing their road maps.

The next question we have comes from Mayank Tandon of Needham & Co.

This is Brandon on for Mayank. And I'm just wondering, like given the strong quarter, can you talk a little bit more about the reaffirmed guidance? Is that taking into account some macro uncertainty at buffer? And what are the levers that get you to the high or low end of the guide?

Yes. Look, I think, obviously, we've reaffirmed guidance. We talked about Q1 being a little stronger than expectations. Kind of early in the year to be thinking about the impact of that.

Obviously, our guide to constant currency, Deb mentioned in her prepared remarks some of the movement in FX embedded in that. So we'll have more color in Investor Day around how that relates to whether we're maybe moving towards the higher end of that or where we sit from a guidance perspective.

I guess the message that I would want to leave you with is we feel good about Q1. It's a little better than we expected. We assumed in our guidance, as we talked about when we said it, that no real changes in the macroeconomic environment, although it's maybe moving a little more favorably from a macros perspective, I wouldn't consider one quarter to be indicative of the full year.

So when we get a little bit more visibility through Q2, clearly at Investor Day and then obviously, if not Investor Day at our Q2 earnings, we'll talk about what -- kind of how we feel about that guidance range.

Yes. And to answer as far as some of the levers, I mean, it will really -- the signing momentum, if that continues and kind of the conversion timing of that revenue and then field services volumes, those are probably drivers we'd be looking for.

Yes. And just to tie into that, I mean, as we've continued to enhance and improve our gross margin, that we have a lot more control over, obviously, and continue to work our programs and execute against those programs.

And then to Deb's point, as these things become revenue recognition in year and we get to run rate on things that we've already sold and have started to implement, we're expecting some pull-through on margin there as well.

Great. And then you guys also mentioned some cross-sell momentum in the quarter. I'm just wondering how big of an opportunity that is for you guys and the dynamics of the cross-sells? Especially with current clients upgrading IT and infrastructure for these AI initiatives?

Yes. Look, I think -- look, in general, and I mentioned in my prepared remarks one specific client where they had 100 applications sitting kind of on top of our ClearPath Forward ecosystem and we're helping modernize those applications.

And there's a great example of kind of that agentic action layer to modernize that. So we see that biggest cross-sell opportunity embedded in application modernization, and specifically, agentic -- I'll say, agentic AI applied to that action layer, the more of that we see, the more of that we're able to accomplish.

And I think the market's knee-jerk reaction a little bit on SaaS providers, et cetera, we're not a SaaS provider per se, but we certainly play in the area of supporting SaaS application as solution implementers on the SaaS side.

And the ability to use that agentic layer, I think, opens up TAM for us to lean in more heavily in that arena. And the ClearPath Forward ecosystem application construct is really a great proof point of that. We've seen a couple of instances of that recently, and we expect that, that will continue.

The next question we have comes from Matt Dezort of William Blair.

This is Matt on for Maggie Nolan. Congrats on the good results. Can I ask about the strong new business TCV? I think it was up 45% year-over-year, strong backlog too.

I guess, Deb, you touched on it a little bit, but how should we think about conversion timing and ramp periods as well as margin profile of these new wins and your ability to continue to win work at these improved margin levels going forward?

Great. So yes, super happy with the year-on-year uptick there. We mentioned in our prepared remarks about these rapid value assessments. Part of our strategy that we implemented at the tail end of last year and have carried through to Q1 this year is really looking at these point-of-spear opportunities and how emerging technology really avails itself not only in the AI embedded in our solutions, but the skills that we've got around that AI implementation and the conversion of technical debt.

So happy with that uplift. We're seeing some real success in the top end of the funnel as well. Clearly, these solutions are resonating with clients.

Now these RVAs or rapid value assessments are typically more point-of-the-spear things and are typically a little smaller engagements as a means to open the door. So we expect that the transition time will be faster.

We also expect that much of that work is really more kind of time and material or outcome-based pricing. So we don't have the typical 18-month transition on some of those.

And then it's really about the expansion post that RVA adoption is kind of what our focus is on top of that. So we think it will be more volume, perhaps a little smaller value, right, of the actual deal, because it's point-of-spear oriented, but gives us a real jump-off point to expand to other aspects of the business.

So again, strong year-over-year TCV growth in that, as well as top of the funnel pretty happy and aligned to what our expectations were when we made those changes at the tail end of last year.

Yes, I think on -- yes, you also asked about margin. And I just think it's mix depending on kind of the solutions that we're signing. I think we mentioned there are some DSS have lower margins, right, but still are really good entry way into the client.

Yes, that's a great point, Deb. Thanks for chiming in there. Mix is exactly right. And if the TCV is coming from the RVAs, then they're probably already at our accelerated margin profile.

But as Deb mentioned, a good chunk of that pipeline aligns as we talked about, our DSS solution, which have a hardware mix in the solution itself, which kind of impacts the total margin of the contract, but not the services piece of our margin.

Really, it's more the pass-through component of the hardware. But all in all, good line of sight, good progress and feel like the strategy is taking hold.

Got it. As a follow-up, can I ask about pricing and just consumption pricing? I think IBM discussed the evolution they're seeing in the mainframe platforms to account for MIPS and AI and additional consumption parameters.

Are you doing something similar with your pricing in CPF? And how are you maintaining your deserted premium here while adapting to these changing market dynamics?

Sure. So great question. Look, the pricing discussions that we've had over the last probably 4 quarters were really pricing discussions as it pertains to Ex-L&S. Your question, obviously, is L&S pricing.

We have not really had pricing pressure on the L&S side. It is a premium service, our clients view it as a premium service. We continue to get increased consumption out of that business. And most of that consumption increase is really based on the comments that I made earlier around enabling the data sharing and testing and the like embedded in what's going on in L&S.

Typically, from an L&S renewal, as you know, Matt, the revenue recognition and that costing or pricing happens at deal signing and it's usually for the entire duration of that deal and it's upfront from a perspective of usage or consumption.

So -- and we've been able to, over the course of the last 5 years and don't expect this to change, get price increases on those licenses as well as the support of that environment. So it's not really been pricing pressure at all on the L&S side of the business and we're quite confident that, that's going to continue.

The next question we have comes from Anja Soderstrom of Sidoti.

So AI seems to be a strong driver for you. But what kind of margin impact do you expect that to have?

Look, I think we've been pretty consistent that the AI that we've embedded into enabling our solutions continues to have margin expansion and improvement. I think we were probably, what, Deb, almost 600 basis points over the last 3 years in Ex-L&S.

Yes. Yes.

That is a byproduct of embedding that into our solutions. Clearly, when we have a new logo and they're utilizing the new solution, immediately, we get that impact immediately through -- and we've talked about last quarter, as an example, pushing our agentic service desk into the entire legacy base of clients.

We should be above 40% of that base using our agentic service desk by the end of the year. So we still have some improvements that we expect on margin beyond this year for the existing base and we expect that we'll continue to offer this solution at an enhanced margin profile.

So if I look at kind of where we are in the adoption of AI into our solutions, we're probably about halfway there in the existing base. And so again, we're talking about from our guidance, another 100, 200 basis points of potential improvement on the Ex-L&S side. And there should still be more in '27 as we continue to deploy our agentic offerings into our existing base.

Okay. And then can we just double-click on the opportunities you see with the field services?

Yes. So that's one we've been continually bullish on, as you know, and it really comes in 3 flavors. The embedding AI in the way we actually deliver our services from a field service point of view, i.e., location of the technicians, sending data to the technicians on the site with next best case cause of issues, looking and using data to understand how to do preventive things while on site, et cetera. So that's kind of a base used case of traditional elements and how AI is enhancing that.

The second and third, I think, are actually more exciting, right? So one is around the different types of field service deployments. We talked about the work we've been doing on infrastructure and high-end storage and kind of moving up stack from a field service technician perspective.

We talked in the prepared remarks around the data center work for installation and maintenance of things like liquid cooling for GPU chip configuration in a data center in general. And we also talked about the expansion of field services to other areas.

In general, if you think about conference rooms, kiosks, office environments, et cetera, and the data telemetry around IoT devices and how that ultimately aligns to having a field service orientation.

As you know, we're one of the few companies with the kind of global scale and reach from a field services point of view. And we think that, that's a differentiator from our perspective.

And the alignment of that to our agentic service desk, knowledge management, et cetera, and the skills that we've got globally in field service, we've been investing in that area for several years when I think you've seen a lot of the market kind of curtail some of their investment in that space. We're pretty excited about the opportunity it brings to us.

The next question we have comes from Matthew Galinko of Maxim.

I was just hoping you could expand a little bit more on the pipeline for field services around data centers and AI data centers?

I mentioned on my prepared remarks that we had won an engagement there. We've been in the hunt for a couple of others as well. There's billions of dollars being spent in that space. And our goal is to really have our associate base totally prepared to handle significant volume as it pertains to data center construct, installation of racking in there and obviously, the component pieces around immersion cooling, liquid cooling, et cetera. So the pipeline has been, I would say, fairly strong.

Our discussions with clients or prospective clients in that pipeline is going, I think, incredibly well. And we're happy about the fact that we are in the hunt for a whole host of opportunities there with some pretty significant players.

So clearly, the market awareness of our abilities and skills in that space is out there. And again, these deals take a little bit of time to materialize. But I guess what I would say to you is that we're certainly getting significant invites and that we've got really good opportunities in the pipeline to expand that opportunity for the company.

The next question we have comes from Ana Goshko of Bank of America.

I have a pension question. So Deb, you mentioned the -- some charges to come later this year related to pension annuity purchases. And I know those purchases helped to reduce the overall liability and then in the medium to long term also help to reduce the amount it's going to take to reduce the pension deficit.

But it wasn't clear to me that you had already agreed to do the annuity purchases this year. I know those are cashless. So is that kind of a done deal? Or is it still something that you're considering?

Yes. No, it's not a done deal. It's still in our plans. As we laid out last year, we were going to do some annuity purchases. We did some last year at the end of the year and our plan was to do more this year, but it's not locked in.

And that's why we don't know the exact amount of the charge, it will depend on the timing. And so that's why as the year goes on and we get closer to locking that in, we'll give a sense of what that noncash charge would be.

Yes. Ana, it's Mike. So when we talked about -- even when we did the debt, we talked about roughly $600 million worth of pensions annuities. I think we did, Deb, like $375 million, something like that.

And so this would kind of be the other half of that. You're right that is cashless to us. As you know, we've done about 6 of these already. And so when we do them, you make an offer and then you get bids. And there are -- and there has been high interest in those bids.

Normally, we get maybe 4 to 7 folks bidding on that. And then it's really a matter of does the bid come through at a rate that we think is worth it from our perspective. So you're right, it is still a little bit market-oriented, but our availability to do another one starts in Q3.

And so we fully expect to put that offer out in Q3 and we fully expect that we'll get the same level of demand that we've gotten historically and it really comes down to the economics of the rate.

Okay. Okay. Great. Understood. And then secondly, I think I asked the same question last quarter. But the debt market has been just very messy for software-related companies and IT-related companies generally.

So that's kind of created an opportunity potentially for you to buy back bonds at an attractive rate. I know you've got uses for your liquidity, but you do have a strong liquidity position. So I think you bought back just a tiny bit of bonds in the quarter and about $2 million. And just wondering if that's something that has continued after quarter end or just kind of your view is on basically tapping that opportunity?

Yes. So we have windows where we can purchase. And you're right, we did in Q1, purchase an immaterial amount and at an opportunistic value, we feel. And so we'll continue to look at our liquidity, our cash and assess that as time goes on and as the windows open that allow us to do that.

So we'll continue to keep an eye on that and see when the price is opportunistic, look at the overall liquidity picture and make that determination.

The final question we have is a follow-up from Rod Bourgeois.

Yes. I thought I would just ask, in the public services, you had some delays with the government shutdown and some other decision challenges there. The question is, is that starting to turn? And then similarly, on PC refresh, is that also at a point where you should see some upside there as well? Or is it still a little bit of a wait and watch going on? Just those updates would be helpful.

Sure. Look, I would say, in general, public sector has been more favorable than it has in previous quarters. So -- and I would throw higher end in that same viewpoint.

I think some of the noise has started to settle down and some of that project work is starting to return. So again, I wouldn't say 1 quarter or 1.5 quarter is indicative of the future. But I'm encouraged by what we're seeing as far as the loosening of the belt a little bit here and getting back to a little bit more normalcy in that space.

I think they also recognize that in many cases, there are significant laggards from a technology perspective and the utilization of the emerging technologies, specifically this influx of these agentic AI models can help leapfrog them and get them not only up to date from a technical debt perspective, but catch them up for perhaps multiyear lag effect. So that's been, I think, pretty positive in the market.

And then as far as your comment on PC refresh, yes, we saw a little better than expected in Q1. Again, I'm hesitant to say that, that is a byproduct or that's going to just continue throughout the remainder of the year, but there are certainly some elements that would suggest that it should, specifically as we talk about the Microsoft licensing component, et cetera.

So we -- and again, we're coming up against comps of a pretty low year. But I would remind you that, at least for us, the reliance on that refresh cycle is less and we continue to train and educate the workforce on the infrastructure component of the field services arm that is impacted by those PC refreshes.

We've extended that IoT devices to go beyond PC refresh. So it's an important factor. But when we set our guidance, we expected it to be pretty flat and maybe even still a little declining. So -- and it's actually performed a little better than our expectations.

The final question we have comes from Sean Perkins of Deutsche Bank.

I'd like to dig into a little bit more about the data center opportunity that you highlighted to some of the work you have there. Perhaps if you can discuss maybe some of the clients that you're seeing engage with you in those arenas and then how you're -- what the go-to-market strategy for your business is there to as far as given the market -- and to think about the market opportunity size?

Well, thanks, Sean, for the question. I'm not really at liberty to share actual client names, but I would say to you that, obviously, we're engaged with the OEMs in regards to that and they're an entry way into some of these clients.

And I would say, at least for a couple in the pipeline, it's kind of the who's who in that space. So we feel really, again, privileged that those types of clients are engaging with us to talk about the installation and maintenance of such a high-profile investment for them.

And again, there are billions of dollars, as you know, being spent in this space. We think there's a really big TAM. And we've been using this, I'll say, period of the last 12 months to really make sure our workforce is trained up on the utilization of this new technology, not only on how to deploy it, but clearly, the implementation of racking and cabling and immersion cooling is a pretty technical aspect.

And so the recognition of our capabilities to do that puts us in really good stead. And again, I would just say that we're talking about some major OEMs and major players in data center build.

Thank you. Ladies and gentlemen, that then concludes today's conference. Thank you for joining us. You may now disconnect your lines.

Good morning, and welcome to the Unisys Corporation Fourth Quarter and Full Year 2025 Financial Results Conference Call. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Michaela Pewarski, Vice President of Investor Relations. Please go ahead.

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 Thomson, 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 statements section of yesterday's earnings release furnished on Form 8-K 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 nonrecurring items such as postretirement 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. Reconciliations 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.

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 costs reduced SG&A as a percent of revenue by nearly 300 basis points over the past 3 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 2.8x compared to 3.0x at the end of 2024.

Our liquidity also improved despite using $50 million of cash as part of the 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 and 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 evidenced by our wins and our pipeline. 2025 was an especially large renewal year, and our team successfully signed $1.7 billion of renewal TCV, securing a large portion of our recurring revenue base. Over $1 billion of renewal TCV was signed in the fourth quarter alone, which included closing a 3-year extension and improved economics with our largest DWS client, who has been with us for nearly three decades. This field services renewal spans U.S., Canada and Latin America and secures the necessary scale for us to provide affordable field services across our client base. Multiyear 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 5-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 built 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 and 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 #1 overall provider for the North American market and the #1 global provider for both service desk and device management capabilities. This acknowledgment 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 to 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 multiyear AI infrastructure build-out to supply the technology needed for broad AI adoption, there's a growing shortage of skilled technicians that will provide the design and service layer for modernization and post-modernization 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 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, and 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. Hyperscalers 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 promotion. 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 are 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 L&S solutions.

In the ECS segment, we continue to be highly confident in the enduring value of our ClearPath 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, health care 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.

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 L&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.

To echo Mike's comments, our results reflect consistent execution of our business strategy and effective derisking 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 6, 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 renewals. 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 multiyear 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 L&S solutions within ECS was flat sequentially and down 3.7% year-over-year against a stronger prior year comparison. Full year Ex-L&S 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 Ex-L&S 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 1.1x for the total company and 1.2x for our L&S 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. Ex-L&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 Ex-L&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 Ex-L&S 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 gross profit as shown on Slide 10. DWS segment gross 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 onetime 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 gross 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 onetime benefit. Full year CA&I gross 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 2 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% or nearly $60 million. We expect to again lower SG&A in 2026 in absolute dollar terms by at least $10 million 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 $0.25 and non-GAAP earnings per share of $0.86. 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 onetime noncash 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 $0.93.

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 postretirement 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. postretirement 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 on cash balances and hedge settlements. As a reminder, our change in 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 was 2.8x, inclusive of global pension deficit, down from 3x a year ago.

I will now provide an update on our global pension plans, beginning with Slide 15. As of December 31, 2025, the GAAP deficit in our U.S. qualified defined benefit plans was $239 million, and our global GAAP 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 of 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 dispersed 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 Ex-L&S revenue decline of 7% to 4.5% in constant currency. We also expect full year L&S revenue of $415 million at a gross margin of approximately 70%. We also continue to expect 2027 and 2028 L&S 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 gross 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 L&S revenue.

Based on these assumptions, we expect first quarter non-GAAP operating margin to be slightly positive. We expect a number of noncash 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 removed hedges on our intercompany balances, which could create noncash 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 GAAP 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 postretirement contributions, consisting of $87 million of pension contributions and $5 million of other postretirement contributions. Approximately $17 million of the pension and postretirement 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 to maximize our underlying cash generation levels for investment and capital return.

Before we open the line for questions, Mike has a few additional remarks.

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 Ex-L&S revenue. For 2026, our expectations for mid-single-digit decline in Ex-L&S 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 '25 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's 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 and 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 Ex-L&S revenue growth in 2027.

With that, operator, you can open up the line for questions.

[Operator Instructions] The first question today comes from Rod Bourgeois with DeepDive Equity Research.

I'll start with an AI question. So I want to ask, how are AI and automated code modernization tools influencing the road map that you have and the demand for ClearPath 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 ClearPath Forward platform?

Great. Hi, 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 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, the 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 core. So from a strategic perspective, internally, we talk about ClearPath Forward 2050. I mean that's kind of the time frame that we're looking out for that ecosystem. And we think net-net, it's going to be a positive to kind of drive more demand to the platform. And think of it about -- 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 -- the other area that'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 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, 5 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.

So Mike, I just want to take an extra second on that. I mean what you're saying is that the code 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?

Yes. 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 is 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.

Got it. Okay. And then just a question about the outlook on -- 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'm just -- 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 mix for 2026?

Yes. 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 clients' focus 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 of the renewal cycle is a little smaller this year, probably about 1/3 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.

The next question comes from Mayank Tandon with Needham.

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 discretionary 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?

Yes. Thank you, Mayank, 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 whether it was tariff related or, again, other macro-related issues, geopolitical, et cetera. I think that weighed on our -- on the longevity of the contracting cycle a little bit more than the mechanics of 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 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 kind of how we're approaching opportunities to enhance and streamline the first touch point to contract closure. So we are 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, 4.5% 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 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.

That's very helpful. And then 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 basically aligned your guidance with your historical strategy? And in that context, 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?

Right. Yes. I think we definitely -- as Mike talked about some of the revenue pressure, some of the industry headwinds is what we considered as we did the guidance. So I think the things to look for are as some of those macro factors alleviate is what we assumed that later in the year some of those factors alleviate. We had some -- as Mike talked about, the mix of new logo is planned for -- to have a lot more new logo this year as far as renewals. So as we're doing that, we think the Gartner Magic Quadrant will help. And so if we sell new logo kind of faster, that will be another -- an element to look for that would increase what we put out there in our guidance. But we've kind of built in all these headwinds through most of '26.

Yes. 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. We saw, obviously, the PC refresh cycle. We were expecting that 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. 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 I think we want to -- as you know, we're -- we kind of pride ourselves on the level of transparency that we put out on a regular basis as it pertains specifically to our guidance. And we really kind of went through element by element to say, hey, is this an area what we feel really good about and kind of how to get there. So a little bit of a different approach on top line. I would say, in general, just taking out some of the things that we thought were going to happen that didn't happen in '25 and expected as they pick up throughout the year, kind of a midyear [ contention ] on that.

The next question comes from Maggie Nolan with 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 Ex-L&S 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 some of the first half pressures you just outlined, what is the realistic timeline for seeing some level of growth acceleration?

Great. Thanks, Maggie, for the question and really good one and intuitive here, too, right? I would say to you, clearly, our new business kind of conversion rate is the, I'll say, earliest indicator on top line. So I look at that really -- 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, 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 we -- one of the examples I gave was the Service Experience Accelerator adoption that we're looking to push out to 1/3 of our existing installed 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 Ex-L&S growth rate. That's a DWS' example. On the flip side, when I think about CA&I and the example there, we talk 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 I 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 an orchestration on that. But when we think about the application of AI agents above the SaaS 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. And that we historically have it, 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.

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.

Yes. 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 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 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 right-skilling or right-shoring 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 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 improvement, 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, almost 600 basis points improvement over the last three years in Ex-L&S gross margin, right? So we're looking for another 150 basis points there in '26.

The next question comes from Ana Goshko with Bank of America.

So first question is on the L&S revenue outlook. I do sense your kind of historical pattern of being conservative and then beating and raising. So back in October when -- I think it was October when you had the ClearPath 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 million expected for this year. But then I think you did comment that you still expect about $400 million in '27, '28. So I 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 I wanted to understand what you're thinking or expecting with regard to the impact of AI being a continued driver of consumption.

Great. Thank you, Ana, 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 million over that three-year period, and we carried that average up, right? I think we started that in maybe in the $360 million to $370 million range, moved it to $390 million, moved it to $400 million and are still saying $400 million in those out years. So -- 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 the $40 million beat over the last three years, which you kindly pointed out as well, you see the $415 million kind of takes some of that now into our guidance to go, okay, this has been a pattern here of continued consumption. So we wanted to bake some of that in, so that we're not -- sometimes it's as 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.

Okay. But for '27, '28, you just haven't really adjusted that yet for what -- I mean, any of us that are following the AI space or the AI impacts, I mean, consumption levels should continue to increase. Is that fair?

Yes. Look, I would say it's too far out for us to adjust 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 million to $15 million step-up from what we were chatting about before. So you can assume there is some consumption baked in there.

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 million. So that is largely your expected all-in use of cash, right? So if I just do the simple on your current cash balance, you're going to be approximately $25 million lower at the end of '26.

That's correct. And that translates to pre-pension of $67 million compared to the $128 million we did this year.

And then the slides on the pension outlook are great, really clarifying. So then if I look at the slide on the potential annuity purchases, you really had given us the estimates of what the deficit is going to be. So at the end of the day, whether you purchase an annuity or not, like your pension deficit is 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 million, but your pension deficit is going down by at least $50 million. Is that the...

Down by that, yes. So it's down by about that much. But yes, in the next few years, $229 million, $180 million, $137 million, it's all on that Chart 17.

Yes. I mean every contribution.

Ongoing net debt reduction. Correct, that's.

Every contribution is going to drive down that deficit value. It's not dollar for dollar, but you will see continual improvement in the deficit and in net leverage.

Okay. And then the annuity purchases would -- are noncash?

Right. We use the plan assets to reduce the plan liabilities, correct.

Okay, okay. And then -- so I know you worked really hard last year to do the bond issuance, and 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.

Yes. I mean we always look at everything. But I mean, at this point, we're always looking to conserve cash, given the pension obligations, given everything. But we're always looking at everything, but it's not something at this exact moment we're planning to do. But we're always looking at it.

Okay. So the preference is just to keep like a solid cash balance, it sounds like.

Yes.

The next question comes from Anja Soderstrom with Sidoti.

Most of them have been addressed already. Just curious, you mentioned that the public sector has been a headwind in 2025. What are you seeing there as we have entered 2026?

Hi, Anja, 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 midyear 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.

This concludes our question-and-answer session and concludes our conference call today. Thank you for attending today's presentation. You may now disconnect.

Welcome, everyone. And I'm Ana Goshko, and I'm Bank of America's credit analyst for technology and telecom. And this is our 2025 Leveraged Finance Conference. And we're thrilled to have Unisys with us today, and we have Deb McCann, the company's Chief Financial Officer. And also in the audience with us, we have Michaela Pewarski, who's the company's Vice President of Investor Relations. So Deb and Michaela, thank you so much for making the track down here to speak with us and meet with investors.

Great. No, thank you for having us. It was great. We had a great day of meetings today, some familiar faces I see in this room. So it was a great day of meetings. So thank you.

Okay. Great. Okay. So just in case there's anyone new to the story, can you provide a minute or 2 on a brief summary of Unisys and its history, and then we'll dive in deeper.

Okay. Great. So Unisys' history is a good term because we're a 150-year-old company. So we have a long history and an amazing history of transforming itself again and again, and we continue to do so all the time. So just to give a background of what we do, we provide IT solutions to corporations. We kind of have 2. We have what we call a license and support business, so primarily our ClearPath Forward license business, which is really a profit and cash generator of license business. And then we have what we call ex-L&S, which is the ex -- everything excluding license and support, which is primarily 2 areas. It's our digital workplace solutions and then our cloud application infrastructure business. And those are areas that we're trying to grow, have them become more profitable as we're sitting alongside that license business that's a very profitable part of our business.

Okay. Great. So ClearPath Forward, which is your L&S as you lovingly call it, right? About 20% of revenue, give or take, annually right now. Could you just give us an example of the customer base and some of the use cases?

Okay. So L&S, which is ClearPath Forward, is an operating system that many large clients use to run a lot of their mission-critical operations. So examples are airlines that use it for their reservation systems. It's cruise companies that also use it for reservations and multiple other things, banks that use it for mortgage processing. So very -- a lot of financial services, a lot of travel transportation that use that software to run a lot of their mission-critical operations.

Okay. And then in that -- in the revenue, what is the mix of actual software contracts? How much of it is usage-based? And then what's the typical mix of hardware revenue?

Okay. So the licenses are the biggest portion of that license and support revenue, and that is pretty much all usage-based. So it's a contract they sign up for. It's based on a number of MIPS they use for how much they're using that operating system. And it's kind of that set amount. If they go over that amount, they pay more. So it's generally -- when I say usage-based, it's fixed. It's that amount. If they use more, they pay more. If they use less, they still pay that fixed amount. So within that, there is some sporadic hardware that occurs.

If a company is refreshing or moving a data center, they need additional hardware. That's periodic. It's kind of episode-based when someone needs to upgrade or move and that is at a slightly lower margin, but it's not -- it's really not a big portion of the revenue. And then there's the support. So of that operating system, we provide support services, and that's also not that big of a piece. The biggest piece is really the license, which is based on the amount of usage that they're using, but at a minimum amount. So it's a floor amount.

Okay. And then how long are the contracts? And I know the renewals can be lumpy year-to-year and Unisys had a really strong quarter. Just talk about that dynamic.

Okay. No, thank you for asking because that's important. So for the licenses, which are the biggest portion, those are recognized right when the contract is signed. So if it's a -- the average contract time is typically about 4.5 to 5 years for that contract. And when they sign up for that license, all the revenue is recognized for the license portion. The support revenue is recognized over time, but the license revenue is recognized all upfront for the full amount of years that, that is. And so that creates some lumpiness because basically the revenue that we get in every year is based on the renewal schedule.

So when you look year-to-year at our license and support revenue and 1 year, it might be up, 1 year, it might be down. That's not because the business is necessarily growing or shrinking. It's just how many renewals were set to happen in that year. So it's a critical element to understand, and that's why we started breaking out L&S and ex-L&S because when people want to understand the growth of the business, it's important for them to look at the ex-L&S to see how we're doing in our digital workplace and cloud solutions and then the license, which is really just based on the renewal timing.

Okay. So this year, 2025, you've guided to $430 million of L&S revenue. But I think you raised the guidance this year. So what was behind that guidance raise?

Yes.

And it's the third consecutive year at $430 million. So it's been very stable.

Right, it's been stable. So we raised that because it was a few things, but a big portion was hardware. So a client did say that they needed to refresh a data center, some of their hardware. And so that's a portion of it. And that allowed us to -- hardware is at a lower margin. And so that's why this year, you might see the margin -- we say for the L&S business, gross margin is around 70%, which is very strong. This year, it will come in slightly lower because there's that hardware element. So a portion of it was hardware. There's some that was some consumption that was -- had increased a little bit. Sometimes it's timing. There's a few different elements, but a large portion of it was the hardware element. And so that's where we came at the $430 million. But initially, I think it's at $390 million.

Okay. And then for the fourth quarter of this year, it's a very back-end loaded guide. So I think the implied guidance for L&S revenue is $185 million to $190 million out of the $430 million. So that's going to be up a lot, like over 100% year-over-year, also up a lot like 24 -- I'm sorry, 24% year-over-year and over 100% sequentially. So I guess why is it so back-end loaded in the year? Is that -- how typical is that? And how confident are you at this point in the guidance for the quarter?

Yes. Yes. So typically -- and it's just a case of how the contracts were originally set up that many of them end up being in Q4. It's not necessarily a seasonality like any kind of seasonal reason. It's just that's how a lot of the contracts ended up being set up. So we are typically a heavy Q4. This Q4 is even heavier partly because just the way the renewals are falling, but also we had a Q3 contract we had planned on signing that slipped a few days into Q4. So it's made Q4 even larger. That contract that slipped was signed within days of the quarter ending. So that is signed. And we have a lot of visibility into these contracts. We talk to these clients months before the renewal occurs, talking to them about kind of their future path of using the operating system, things we can do to improve their use of the operating system.

So we've been engaged with these clients. They're set to renew this quarter. We typically -- it's so sticky. There's not typically a case where they show up with that renewal and say, I'm not renewing because they're running their mission-critical systems on this operating system. So it's very steady. If anything, sometimes it's not a -- if it's a when, right? Sometimes it can slip a few days like the one did in Q3. And so we are confident as we look at these contracts and the expectation that these will be signed. And so we're pretty confident in it.

Okay. And then for '26 to '28, so for the next 3 years, you've said you expect annual L&S revenue of $400 million. So it is a step down from the $430 million. I mean is that -- are you currently expecting sort of stable across those 3 years? Or is there kind of a linear trend there?

Yes. So it's difficult to say kind of until we finish '25, right, and we'll set the guidance out. I mean it is an average because there can be some differences between years. We don't expect any extreme shifts, but we -- it's hard to say until we kind of get into each year to give the exact year, but that's on average. And again, going from $430 million to $400 million doesn't mean the business is in decline. It just means there's fewer renewals in next year, for instance, than this year. So it's really just a matter of the timing of those renewals and not an expectation of the business.

And then what's the assumption for usage underlying that outlook? Like stable or growing usage or declining?

It's -- we have started to build in because we've seen an increase in consumption in some of the renewals, which is one reason that we've increased. This year was mostly hardware, some consumption. I think last year, a lot of the reason was consumption. So we've seen over the years, consumption driving that overage. So we've gotten a lot more detailed in our forecasting, in talking to the clients sooner and getting an estimate of if they expect to increase consumption. So we feel as if we've built that in more than we had in the past. So I think it's a pretty safe assumption what we have right now. And that is built in as far as that consumption use.

Okay. And then with regard to AI, how is that impacting, if at all, the ClearPath business and usage?

Yes. So it's a great question. So we definitely believe a portion of potentially not all, I think of the increase in the consumption that the clients are using. We definitely think some of it's just basic, more things being digital, more -- if you go to make a -- it used to be that you would just make your reservation maybe online for an airline, let's say. But now they're pushing more online. Right now, you can also order what snack you want, right? So you're just getting more. So some of it's just increased things being pushed more out to use on this operating system. But we do think in talking to clients, there is a portion that they're getting data ready and organizing and using more AI and that also is driving some of that consumption. So we definitely see upside in that license business for -- because it's based on -- the contracts are based on consumption, some increase and some upside for us there.

Okay. So more data, more client interaction, customer interaction among your customer base leads to more.

More consumption, more usage and then more -- when they sign the contracts, including more usage in their base contract.

Okay. And then I had a margin question here, but I think you already touched on it. So the gross profit margin, like what is the natural gross profit or kind of average gross profit margin?

Within license and support?

Yes.

Yes. So gross profit is about 70% of the L&S business.

It can be lower this year, but if we look at...

A little bit lower this year, but expect the 70% for next year.

Okay. Great. Okay. So then the other part of the business, which is actually 80% of revenue. I think it's broadly -- I characterize it as IT services. I hope that's accurate.

That's right.

And you have the digital workplace and then the cloud application infrastructure, so the 2 different segments. So maybe, again, could you just -- I think you do a lot of things for a lot of different kinds of customers, but maybe just give an example of a use case or an assignment in digital workplace and one on the cloud infrastructure side.

Yes. So a digital workplace, if you think of just a company looking to manage all of the devices that their associates use looking at the help desk. So if you -- some companies do that internally, they have help desk, they have IT folks that manage all that and some outsource it to a company like us, where if an employee has an issue with their laptop, they call a help desk. If they need someone to come out and fix it, they have someone come out and fix it. We help clients do Device as a Service, so we can have the devices and we help manage the timing of when people turn those in. So all of those just managing the overall IT device side of the business. So that's one thing we do.

That's some examples of the digital workplace solutions. On the cloud application and infrastructure, it's helping clients manage their cloud environments, their hybrid cloud environments, the applications, how they operate in those cloud environments, security that goes along with that. So those are the types of things we do in our cloud applications and infrastructure business. We also -- there's a part of the ECS business that's also -- which is SS&C that is kind of the managed services that support the license business. That's also -- it's a smaller portion, but that's also in there as well in our ex L&S.

Okay. And then what's like the average sort of either assignment or contract or customer length in...?

Yes. So it really varies because in -- for the full if they're outsourcing to us, their help desk, their field services, clearly, that's a longer project, right, because there's a transition period. There's a lot that goes into that. So typically, those are 3 to 5 years. But then there's also some project work. So in cloud, the cloud business, we have a lot of state and local business and there could just be project work that we do as far as helping build an application, managing, shifting an application into their environment. So there's project work as well. So that -- those are short things. But the longer outsourcing contracts are 3 to 5 years.

Okay. And then so recently, the company has cited some headwinds from, I think, unfavorable market dynamics and constraints on some IT budgets, which you said caused clients to either pause or delay some projects. So you lowered the 2025 revenue guide based upon the non-L&S segment or ex-L&S segment. So I guess my quick math is, I think L&S -- ex-L&S now is guided to be down about 4% year-over-year. So what specifically on the part of customers led to the softness? And has any of this changed, especially since the end of the government shutdown, which was a factor?

Yes. So I think of the guidance reduction we needed to do on the revenue side, the good news is we were able to hold to our profit guidance, which we had increased last quarter and also our cash color that we gave. We did bring revenue down, and it was probably kind of about half and half. About half of it was just simply timing. So things that we believe one contract we had, we weren't sure if the accounting treatment, it was in the cloud business would be treated all upfront or over time, and now that's going to be over time. Another timing thing with some hardware that we thought would sell this year that some of that's going to be -- some shifted Q3 to Q4, but some into next year. So some of them were timing elements. But you're right, some of the things were in our cloud business, some state and local business that we have, even though the federal -- the government shutdowns at the federal level, so a lot of that funding from the state and local business comes from the federal government.

And so that impacted and kind of caused some pause in some of the project work we do at the state and local level. We -- even though the government shutdown, I think, is really -- I think the government somewhat kicked the can down the road. It's not completely resolved. It still could continue. I think it got us through January, but then there could be -- I don't know if everyone is completely certain what's going to happen. So we don't see that alleviating into -- right away. So we still see that, that will have some impact into next year. We're also seeing some hesitancy as far as -- with all the AI, I think people are trying to determine what they should be looking at, what solutions they should be signing up for. So as some people are looking at signing long-term contracts, they maybe are pausing on some of that. And so some of those headwinds, the government pressures as well as some of the AI pausing to think through things, I think we're saying will probably last a few quarters for the next few quarters.

Is there any either evidence yet or just like a narrative that AI could turn into a tailwind for the segment that it ultimately will increase assignments?

Yes. So I think we definitely see a lot of benefits that we'll be gaining from AI. So we have -- within our Digital Workplace Solutions business, we have, for instance, help desk. AI is helping with a lot as far as -- we're infusing that into our solution. We have a service accelerator solution that is really enabling us to reduce the cost and the amount of labor that's involved with the help desks. And so that helps us improve our margins, but it also allows us to stay competitive with our competitors and allow good pricing and to hopefully win on pricing as well. So that AI benefit, we think of it as sharing it with our clients where we get some improved margin from it, but then also are able to be price efficient for them as well. So that's just one example. In the cloud business where we do application development, AI is helping improve the speed and efficiency of coding and programming so there's -- throughout the business, we see lots of benefits to supporting our clients, providing them better service, but also reducing the cost that it costs to provide the service.

Okay. So you already touched on even though you reduced the guidance for the year, you reiterated the margin guide for the year. And part of that, I think, is the SG&A reduction. So how much have you been able to reduce like year-to-date? And then really, as you look into 2026, like what's the potential for additional cost takeout in the business?

Yes. Yes. So definitely, SG&A has been a big focus. We -- when we had an Investor Day a few years ago, we laid out a pretty aggressive over a few years reduction in SG&A. We accelerated that where it was supposed to be finished in '26. We did a bunch and try to get everything actioned by '25, so we'll get the full year benefit of that in '26. And then we also -- given some of these revenue pressures, have looked at -- looking at SG&A even closer to continue to reduce that. So we haven't given out exact numbers, but it's something that we're serious about, and it's something that -- even given some of the pressures this year that, as we've said, will bleed into some of the few quarters of next year and are able to still improve our profitability because of looking at reductions so.

Okay. So then pivoting to kind of the free cash flow performance of the company and also the kind of the pension. So you also reiterated the free cash flow guidance for the year despite the decline in the revenue outlook. So pre-pension free cash flow for this year, it's $110 million. I just want to talk about like what allowed you to affirm that guidance? And then I've got some follow-ups after that.

Yes. So the color we gave is that pre-pension free cash flow at $110 million. And we were able to affirm it because a lot of the -- a lot of our profit comes from, as I talked about, the license and support business. So even though there were some pressure on some of this ex L&S business, it was lower margin, lower impact to the total overall profitability, offset with additional things on the SG&A side and cost side that we're able to manage. So I mean, that's the good thing on the ex L&S side of the business. The cost structure is very variable. So we're able to easily pivot if revenue is not coming in or if we -- on the COGS side as well as SG&A. Did that answer?

Yes.

That allowed us to be able to come in with our color.

Right. So I think fourth quarter is going to be a strong free cash flow quarter based on the guidance. So I think if my math is correct, you're going to end the year with about $390 million of cash if you make the guidance. So how can we expect that cash to be used?

Yes. Yes. So like you said, if we get the $110 million of pre-pension free cash flow, we'd end with $390 million. And for now, we're likely because of some of the headwinds we're seeing that we anticipate will go into '26. And we're saying a few more quarters, but the things could move hopefully more to the positive, right, and that we're hopefully being too conservative and going to have some upside. But if certain things go longer, we'd like to kind of keep that cash for now till we get a better sense of when some of these headwinds will end. So we're being somewhat conservative, but if we do see some upside or things move quickly, then we can look at different alternatives. I mean it's a priority for us to reduce pension and also just to deleverage in general. So as much as we can do that, we'll look at that.

Okay. And then -- so on the pension, so the GAAP pension deficit has been reduced this year from a bunch of things that the company did, including raising some debt and just paying down. So right now, it's $470 million. So what's the outlook for further reductions in that deficit?

Yes. Yes. So over -- and there's -- if you haven't seen it, right after we did the issuance of the senior notes we did, I think it was in July, and you can look on our Events section of our Investor Relations website. And we laid out, and there's a chart in there that somewhat that projects kind of the U.S. deficit. And then taking that because the deficit does decrease just naturally as we're making the annual contributions. It's not one for one because there's lots of actuarial and fees and things in there. But if you take that and then also the international pension deficit decreases as we make payments. So I would say from now till the end of 2029, which is what we lay out, probably about $150 million to $200 million of deleveraging just from making those pension contributions. And then as EBITDA increases, then our goal is to really improve that debt leverage ratio over time.

And further discretionary. And then you're also making annuity purchases to help just overall reduce the pension obligations. What's the outlook for that?

Yes. So we had said when we had raised the incremental debt and did a presentation on what our plans were, we had said about $600 million of annuity purchases, which is transferring a portion of the pension to a third party, an insurance company. And we had said we would do about $600 million in the next 2 years. So in September, we did $320 million. And what's important to note is when you are shifting the liabilities to the insurance company, you're also shifting the assets and sometimes a bit more assets and paying a premium. We actually got really good pricing and the assets we moved were similar to the amount of liabilities. So shifted $320 million. So we plan on doing about $280 million next year. And it doesn't decrease the deficit, but it definitely reduces the overall burden of liabilities on our books.

Okay. And it's cashless?

Cashless, right? So it's the assets that are part of the plan.

Right. Okay. And then in terms of leverage, what is the company's leverage target? So you've got the secured debt and then you've got the deficit, which is the $470 million. So how do you think about leverage and where is the target?

Yes. So the target is over the next few years, we should be able to get -- the goal is to get down to closer to like 2.5x is kind of what we're kind of the near term. And we'll, of course, continue to want to reduce. But over the next few years, about 2.5x. And that includes the pension debt, yes.

Okay. And then -- so now that we've gone through the business, how would you direct investors to think about the sum of the parts valuation for Unisys? What do you think the market is potentially missing?

Yes. No, it's a great question. I think definitely, we talk a lot about the ex L&S portion just because it's the part that we're trying to go out and get new logos. We're growing it. There's lots of focus on it. Gartner just put us in the leader quadrant for digital workplace solutions. So we're really focused on it and focused on growing it and improving the margin. So sometimes we end up talking about that, but I think the license and support business is really our profit and cash generation, the core of the business. And so that's a critical piece.

And so I think sometimes people might miss that how profitable that is and how important that is to the overall valuation of the company. But it's something that we've talked about -- we had an event where we had the leader of that business do a presentation. It's on our website. If anyone wants to take a look, on ClearPath Forward. So we're making sure people understand, even though we like to talk about the other stuff that this is also a critical part of the business. And so some people we're trying to fix that by really making sure we're talking about it more and that that's a very profitable business. It's very stable, very sticky. And I think it's important for investors to understand that.

Okay. And then anything to do or to think about on the M&A side, including -- is there anything that you would be willing to divest or...

Yes. I mean our current strategy is, as we've laid out, we see there's some synergies between DWS and CA&I when a lot of times when we go and sell digital workplace, it's nice for some clients to be able to also get the cloud from us. The license and support business is a little bit separate, not as much overlap as far as revenue. So we -- our current strategy as laid out is our focus. But as any public company, we're -- if people come and there's different ideas on how to better unlock value, then we're always open for that. But right now, our prime strategy is as laid out with all 3 of those business units.

Okay. Great. So I would like to leave a minute just to allow you maybe to hit on anything that we haven't touched upon that you'd like to leave the audience with and just really kind of wrap up with what you're most excited about.

Okay. Great. No, we're very excited about kind of the 2 sides of the business. So the ex L&S, making a lot of progress really showing the value of our solutions. I mean we talk about getting the leader designation in Gartner, but that just doesn't happen, right? That's Gartner spending years with us on looking at our solutions, seeing how competitive they are with our other competitors. And so I think we're proving ourselves in the marketplace and in a position to really win out there. So I think that's what we're excited about. We're also excited about the strength of the license and support business.

Given that it is so profitable, it really allows us to have the ability to invest in that business, and we continue to invest in that and ensure we're keeping that very stable while also investing in some of these growth areas that we're excited about. So I think it's important to -- we're excited about that work. I think from a liquidity perspective, having that cash, right, and having that flexibility of what to do there, I think we're -- we have an undrawn ABL. And so we have a -- we're in a good position from a liquidity perspective, no big notes coming due for at least the next few years. So I feel very good from a liquidity position and just excited for what's to come.

Okay. Great, Deb. Thank you so much for being with us.

Thank you. Thanks so much.

Good day, and welcome to the Unisys Corporation Third Quarter 2025 Financial Results Conference Call.

[Operator Instructions]

Please note this event is being recorded. I would now like to turn the conference over to Michaela Pawerski, Vice President of Investor Relations. Please go ahead.

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 Thomson, 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 statements section of yesterday's earnings release furnished on Form 8-K and in our most recent Forms 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 or adjusted EBITDA, that exclude certain items such as postretirement expense, cost reduction activities, and other expenses the company believes are not indicative of its ongoing operations, as they may be unusual or nonrecurring.

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.

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 pre-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 3 years, and we're increasing our projection for out years to approximately $400 million of average annual L&S revenue for the 3 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 Ex-L&S 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 over time, which will generate future revenue.

We could see some of the headwinds that challenged Ex-L&S growth this year persist 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 has only increased our confidence in the positioning of our solutions and our ability to establish baseline Ex-L&S 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 Ex-L&S delivery, where we're stepping up our efforts.

We have already made significant improvements in our Ex-L&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, the third quarter total contract value increased 15% year-over-year, driven by a strong quarter in Ex-L&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 into 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 portfolio.

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 the 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 a new scope in CA&I solutions, such as automating network operations monitoring to both improve processes and reduce costs.

In cloud application and infrastructure solutions, we 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 7-year extension to managed 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 client 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 clients execute their simplification and rationalization program.

Our deep expertise in the financial services sector has been a key driver of new business in the ECS segment. 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 ClearPath 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 the 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 a 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 making 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 market.

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 the accuracy of the training data and the effectiveness of our Agentic AI agents.

In field services, we've invested in Salesforce's agent force 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 life cycle management with intelligent device refresh and a flexible, predictable cost model.

This partnership enables client decision-making based on the users' needs rather than supplier limitations. In Cloud, Applications & Infrastructure Solutions, our application factory is taking shape and yielding a growing pipeline of new opportunities.

Application development is a bright spot within the 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 upsell 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 CA&I, we continue to view the market of midsized 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 that 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 and 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 operations specific to midsized 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 OEMs, data centers, and GPU as a service providers, so we can offer our clients alternative 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 acknowledgment 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 appeared in new reports in cybersecurity, Agentic AI services, and AI-driven application development.

This was in addition to maintaining 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 Ex-L&S growth in our new solutions.

Finally, I want to mention that Unisys was named to Time Magazine's 2025 list of World's Best Companies for the first time, recognizing us amongst global organizations that exemplify excellence in today's corporate landscape.

Our investments in upskilling and development opportunities for our employees are an important component of that excellence and support 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.

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 Ex-L&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.

To echo Mike's comments, we remain in a good position to achieve our increased profitability and free cash flow outlook 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 Ex-L&S 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 4 that third quarter revenue was $460 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'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 the 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 in 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 in 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 1.1x for both the total company and our ex-L&S 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 6. Third quarter gross profit was $117 million, a 25.5% gross 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 hold on 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's 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. CA&I's 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's gross 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 mix 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 gross margin.

Moving to Slide 7. Third quarter GAAP operating loss was $34 million, which included a $55 million noncash 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 program to maximize savings in 2026.

We had a third-quarter net loss of $309 million, which included an approximate $228 million one-time noncash 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 increased P&L FX volatility, impacting GAAP net income.

Adjusted net income was negative $6 million or a loss of $0.08 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 free cash flow, which is free cash flow prior to pension and postretirement 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, an 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 9. Cash balances were $322 million as of September 30 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 ratios are 1.8x and 3.7x, 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 GAAP 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 upsized senior notes issuance in June and a one-time $250 million contribution, the pro forma 2024 year-end U.S. pension deficit was approximately $500 million.

As of September 30, we estimate the deficit to be approximately $470 million. We are forecasting approximately $360 million of remaining cash contributions to 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 is 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 the 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 planned 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 a 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 ClearPath 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 the fourth quarter and first quarter of 2026.

Operator, please open the line for questions.

[Operator instructions]

Our first question will come from Rod Bourgeois of DeepDive Equity Research.

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?

Rod, it's Mike. Thanks so much for joining and for the question. Really appreciate it. Although a short-winded question, it may be a long-winded answer.

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 cost, 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 to the top line for that. Typically, the AI component of a lower delivery cost means that our clients are seeing some of the benefit of that, and we share some of that savings with our clients, but it makes us obviously a lot more profitable and allows us to be a lot more competitive from a pricing perspective.

We think that's the right way to approach that in regards to the new solution uptake. Then, obviously, as we continue to grow and add new logos to the mix, the application of those new logos certainly has an uplift that is much more top-line and bottom-line accretive because we've already baked that into our model.

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. This whole data abstraction layer, we are seeing some nice improvements in our HPC business.

So clearly, with ClearPath 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 of years back, thinking that would be about $360 million per annum. And now we're talking about $400 million on average per annum for those 3 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 in some of those cases, too, Rod, by the way, it's not only about just margin improvement in those accounts.

We're looking at expansion and new scope, and growing those accounts in a bigger way through the application of this technology-led delivery. So the scale is one part of it, but certainly the volume is the other part.

So we're obviously huge believers. We've talked for a while about how we think this is exponentially helping us to continue to compete on a greater and greater scale with some of our competitors.

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.

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?

Yes. Great question, Rod. Thanks for that. Well, look, the first and most obvious is the increase in L&S. 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 that there are plenty of green shoots embedded in Ex-L&S for our new solutions. 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 is 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 accreted off or the slowness of some of the PC cycle or some hardware shifting.

But all 3 of those are lower margin accreted off. And what we're adding is a higher margin addition.

So right now, the top line is suffering a little bit from the accretion being a little higher than the addition, but we feel like that's the right path from our perspective, and we've tried our best here to fully delever what the risk is for the remainder of the year for the impacts that we've been seeing over time, whether that's the PC refresh cycle, whether that's a slowdown in the adoption of Microsoft 10 to 11 or whether that's just the uptake in project work in public sector due to the prevailing issues there in the U.S. with the government shutdown and others.

So a little bit of a balance. But in general, it's allowed us, and I think it proves our margin continues to improve in our new solution delivery. I mean, just as a reminder, over the course of the last 3 years, we've improved that gross margin in Ex-L&S by almost 600 basis points, and we continue to see an opportunity to continue to see that expansion, regardless really on what's going on, on the top line.

And also, Rod, this is Deb. Just to add, we 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 ramping up our efforts overall on rationalizing our cost base.

Yes. Look, I think Deb mentioned too in her prepared remarks around the variability of that workforce.

So clearly, we're going to take some level of action to make sure that we continue the margin improvement that we've been seeing over the last couple of years.

And then just a final quick one here as inputs to the modeling. Can you give your view on the pace of your delivery improvement going forward, and how that would impact Q4 cost reduction charges specifically?

Yes. Thanks, Rod. So look, I mean, we've always been and continue to refine our delivery costs. And so there is some level of BAU cost reduction that you normally see.

I would expect that you'll see some of that increment in Q4, and the cadence will probably be a little higher in Q4, just to 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 derisking efforts that we're going to do to maintain the margin profile.

The next question comes from Mayank Tandon of Needham & Company.

This is Brandon on for Mayank. I guess I was just 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?

Brandon, thanks for the question, and thanks for your 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 20-some-odd potential clients and existing clients in that forum.

So clearly, the demand is there for the application of AI. I think what we're bumping up against is the application of that technology into an ecosystem that is very sensitive.

There are many attributes that need to be addressed, security being one of the primary ones 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 as I mentioned, the competition continues to be fairly aggressive in that.

So we've got to really make sure from a defensive posture that education is key and really having those dialogues around what that output looks like and why our client-centricity model and being, I 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 practicality in the adoption of these AI models. 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 we have to attrit that potential client opportunity because we're not looking for a race to the bottom here.

We're really talking about adding value and experience to our clients. And one of the stats I like to use when having discussions with our clients and potential clients is that for our top 50, on average, we've serviced those clients for roughly 20 years.

You don't have that level of experience with the 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 the key is really about client education and setting an adoption road map. 

Then I know you guys last quarter, you guys touched on the public sector, I think specifically for the cloud business.

I was wondering if 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? 

Yes. Great question. Thanks, Brandon. So yes, 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 the public sector and thought that sector was coming around a bit from a project orientation. That has reverted.

That I'll say, the influx of project work is basically really quiet. Now, Deb mentioned in her remarks, and I think it's important, we've got a lot of renewals and have had a lot of renewals this year in the public sector, and are doing well to renew those particular accounts.

But we're not seeing the uptick in the project work that we had started to see. 

So there are a couple of areas where we're leaning in. We talked about that a little bit on the call, but we talked about the justice system. We talk about access management and things like that.

There are what I would consider nondiscretionary areas in the public sector where the demand is fairly constant, and there's some project work in that space. But clearly, there continues to be a pause in project work in the public sector, specifically related to the U.S. public sector. 

I wouldn't say that holds true across the board. We mentioned on the call about an Australian client that we had some good success with an expansion in other regions.

But the U.S. public sector is also where a good chunk of our CA&I business is allocated. So there's definitely been a pause in project work there. And so the green shoots that we started to see in Q2 have really subsided.

And 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 of quarters. So we're sitting tight. We're having good conversations with folks, but there's a lot of uncertainty there. 

The next question comes from Anja  Soderstrom of Sidoti. 

A lot of them have been covered already. But 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? 

Yes. Now, 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 are more and more players in that renewal cycle.

And frankly, in a couple of instances, we've seen competitors really just undercut pricing to, in my mind, levels that we're just not willing to go to. 

We've made a commitment as a management team that we're going to stay disciplined in the contracts that we're signing. We know we've got value. We know that we can bring that value to our clients.

But we're not just going to sign contracts to maintain a top line if it's not helping our bottom line. 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 obviously moving positively in the cash flow arena. And we think that's the better way to drive shareholder value.

And so that pricing pressure, I think, is certainly relevant and continues to be relevant in our discussions. But please don't take that comment to think that we're not competitive in pricing. We are.

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 resigning a contract at lower values for the old delivery model. 

And then also, just maybe go over some puts and takes for the free cash flow for 2026. 

Sure. Deb, do you want to take that? 

Yes. So, as far as 2026, we're not giving guidance at this point for 2026, and we'll discuss that when we report the fourth quarter. But there are, to your point, a lot of moving pieces.

So obviously, with the capital market transformation we did, right, we lowered our pension contributions, but the interest expense will move higher. And so there are moving parts that, as we're formulating our plan for '26, we'll lay out to you when we report that next quarter.

But I think the key thing is the biggest driver, L&S, is clearly a big driver at a 70% margin. So as we finalize that number, we said on average $400 million, and those are 70% margins. So those have 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, right now, our cash balance is $320 million.

If you look at the cash color we've given 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 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, which is also undrawn.

So we feel good from a liquidity position. And as we shape the algorithm, what that's going to look like in '26, we feel confident in that. 

And then also, if I understand correctly, the lower L&S 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? 

Yes. So just to be clear, the push in the quarter got signed in the early days of Q4 for L&S. So that's not anything into '26.

That is really just a shift of something we thought was going to sign by September 30, 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 the quarterly timing.

Deb, anything?

Yes. No, no, that's just all within this year. 

[Operator Instructions].

And our next question will come from Arun Seshadri of Forza. 

Just a couple from me. It sounds like the book-to-bill is still pretty strong. So does that reflect confidence, I guess, were there timing impacts in Ex-L&S as well? And sort of what are you seeing in terms of that renewal activity?

You talked a little bit about renewal activity being enhanced this year. I guess those 2 are potentially related. But any color there? 

And then secondly, is there any way you could size that renewal in L&S that moved over to Q4, that would be helpful? 

Yes. 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 were at 1.1, is what we're talking about on book-to-bill. And clearly, that's a solid book-to-bill and happy with that, and aligned to our contracting models and our normal modeling for our forecasting.

So, the renewal cycle that I talked about, and I was actually talking more about Ex-L&S. L&S, we've talked about the renewal cycle quite a bit. 

And as we've indicated, that renewal cycle is actually increasing our L&S expectations over the next 3 years. So I'm going to discount that for a second, Arun, and based on your question, and really speak about Ex-L&S.

So, for this year, just to give you a sample, the Ex-L&S renewal cycle for this year is about 3x what it will be for next year. 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 those renewals are also obviously putting 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, we didn't because 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. 

We've been pleased so far with the ability to renew those and to renew that work under our new delivery model. 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 again, happy with 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 has been very good. So again, pleased with where we're at there. Would I have liked 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 that? 

Yes. Just as you can see, I mean, the TCV year-to-date, right, Ex-L&S renewals, is $572 million versus last year, $321 million. So, a 78% increase over last year, just to demonstrate how big the renewal cycle has been this year.

And then, related to your point 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 in 1 quarter. But it will not impact the full year. 

And you also have a fairly significant expectation, I think, for Q4 that's factored into the numbers, and it sounds like your confidence is pretty high in terms of those Ex-L&S renewals in Q4. 

Yes. I think Deb's comment on the renewals was the L&S component. And of course, we're super confident in the L&S component. And we're also confident in the Ex-L&S component of renewals.

So look, everything that we're not confident about has been baked into our updated guidance. So we feel pretty good about what's out there to close. And obviously, at this point in the year, we have pretty good insight into how the next couple of months are going to close out. 

Yes. But to your point, Arun, the L&S renewals, a few days slip, can shift. And so we mentioned that throughout the script, right, that we do have high expectations for Q4, which we feel confident in, but there is always that slip of an element. 

Yes. Wonderful point, Deb. And really, if you think about it, Arun, our talk on that has always been around not if, but when.

So we're really confident that it's going to renew, and we're very confident that it's going to renew in the timing that we expect it to. But as we've just seen in this quarter, a shift of a couple of days makes a difference. 

The next question comes from Matthew Galinko of Maxim Group. 

If we see the other side of the government shutdown in the relatively near future, do you expect a quick return on forward momentum on project work that's been gummed up? Or how quickly do you see the market responding to things opening up? 

Matt, thanks for the question. Good to 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 a couple of 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. We've got to reengage. They've got to reassess what the outputs of that government work are.

The focus is going to be on nondiscretionary work first and then project work second. So we're baking into our expectation that, that's going to be several quarters prolonged. 

This concludes our question-and-answer session. I would like to turn the conference back over to Michael Thomson for any closing remarks. 

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 L&S revenue in our years from '26 through '28 to $400 million per year. 

Second, while the market dynamics posted headwinds in our Ex-L&S 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. 

Then lastly, we're building momentum in our AI-led solutions with technology-first delivery models. This is making us more competitive, supporting our margins, and 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 I'd like to just make sure we take away those 3 points from today's call. And operator, thank you for your time, and you can close the call. 

The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.