Unisys Corp: Form 10-Q for the period ended Mar 31, 2025

This management’s discussion and analysis of financial condition and results of operations should be read in conjunction with the consolidated financial statements and the related notes included elsewhere in this quarterly report.

Overview

For the three months ended March 31, 2025, the company reported net loss attributable to Unisys Corporation of $29.5 million, or $0.42 per diluted share, compared with a loss of $149.5 million, or $2.18 per diluted share, for the three months ended March 31, 2024. The net loss for the three months ended March 31, 2024 included $132.3 million of a U.S. pension plan settlement loss.

Results of operations

Company results

Three months ended March 31, 2025 compared with the three months ended March 31, 2024

Revenue for the three months ended March 31, 2025 was $432.1 million compared with $487.8 million for the three months ended March 31, 2024, a decrease of 11.4% from the prior-year period. The decrease was primarily due to the timing of software license renewals and lower volume with clients. Foreign currency fluctuations had a 3 percentage-point negative impact on revenue in the current period compared with the prior-year period.

License and Support (L&S) represents software license and related support services, primarily ClearPath Forward®, within the company's Enterprise Computing Solutions (ECS) segment. For the three months ended March 31, 2025, L&S revenue was $71.1 million compared to $93.2 million for the three months ended March 31, 2024, a decrease of 23.7%. The decrease was primarily driven by the timing of software license renewals.

Excluding License and Support (Ex-L&S) measures exclude revenue, gross profit and gross profit margin in connection with software license and related support services within the ECS segment. Ex-L&S revenue for the three months ended March 31, 2025 was $361.0 million compared with $394.6 million for the three months ended March 31, 2024, a decrease of 8.5%. The decrease was primarily driven by lower volume with clients.

Revenue from international operations for the three months ended March 31, 2025 was $246.2 million compared with $275.5 million for the three months ended March 31, 2024, a decrease of 10.6%. Foreign currency had a 5 percentage-point negative impact on international revenue in the current period compared with the prior-year period. Revenue from U.S. operations for the three months ended March 31, 2025 was $185.9 million compared with $212.3 million for the three months ended March 31, 2024, a decrease of 12.4%.

During the three months ended March 31, 2025, the company recognized a net cost-reduction credit of $1.2 million. The net credit related to workforce reductions was $0.3 million and was comprised of: (i) a credit of $1.4 million for changes in estimates and (ii) a charge of $1.1 million for severance costs. The company recorded a net credit of $0.9 million comprised of a credit of $1.1 million for net foreign currency gains related to exiting foreign countries and a charge of $0.2 million for other expenses related to cost reduction efforts.

During the three months ended March 31, 2024, the company recognized net cost-reduction charges and other costs of $6.3 million. The net charges related to workforce reductions were $6.6 million, principally related to severance costs, and were comprised of: (i) a charge of $9.4 million and (ii) a credit of $2.8 million for changes in estimates. The company recorded a net credit of $0.3 million comprised of a net credit of $0.8 million for changes in estimates related to other cost-reduction efforts and a charge of $0.5 million for net foreign currency losses related to exiting foreign countries.

The charges (credits) were recorded in the following statement of income (loss) classifications:

(In millions)

22

Gross profit and gross profit margin were $107.5 million and 24.9% in the three months ended March 31, 2025, respectively, compared with $136.0 million and 27.9% for the three months ended March 31, 2024, respectively. The decrease was primarily driven by the timing of software license renewals.

Ex-L&S gross profit and gross profit margin for the three months ended March 31, 2025 were $64.2 million and 17.8%, respectively, compared with $71.2 million and 18.0% for the three months ended March 31, 2024, respectively.

Selling, general and administrative expense in the three months ended March 31, 2025 was $96.8 million (22.4% of revenue) compared with $112.2 million (23.0% of revenue) for the three months ended March 31, 2024. The decrease was primarily driven by lower professional services and lower cost reduction and other expenses.

Research and development expense for the three months ended March 31, 2025 and 2024 was $5.6 million and $6.1 million, respectively.

For the three months ended March 31, 2025, the company reported an operating profit of $5.1 million compared with an operating profit of $17.7 million in the three months ended March 31, 2024. The decrease was primarily driven by the timing of software license renewals as discussed above.

Interest expense for the three months ended March 31, 2025 and 2024 was $8.2 million and $7.9 million, respectively.

Other (expense), net was expense of $16.9 million for the three months ended March 31, 2025 compared with expense of $142.1 million for the three months ended March 31, 2024. Other (expense), net for the three months ended March 31, 2024 included a U.S. pension plan settlement loss of $132.3 million. See Note 5 of the Notes to Consolidated Financial Statements for details of other (expense), net.

The loss before income taxes for the three months ended March 31, 2025 was $20.0 million compared with loss of $132.3 million for the three months ended March 31, 2024. The loss for the three months ended March 31, 2024 included a U.S. pension settlement loss of $132.3 million.

The provision for income taxes was $10.6 million for the three months ended March 31, 2025 compared with a provision of $17.0 million for the three months ended March 31, 2024. The change in the tax provision was primarily driven by the geographic distribution of income. The effective tax rate for the three months ended March 31, 2025 and 2024 was (53.0)% and (12.8)%, respectively, primarily driven by U.S. operating losses with no tax benefit as the deferred tax assets are subject to a full valuation allowance, non-creditable withholding taxes in the U.S. and jurisdictions with no valuation allowance that are subject to tax.

The company evaluates quarterly the realizability of its deferred tax assets by assessing its valuation allowance and by adjusting such amount, if necessary. The company records a tax provision or benefit for those international subsidiaries that do not have a full valuation allowance against their deferred tax assets. Any profit or loss recorded for the company’s U.S. operations will have no provision or benefit associated with it due to the company’s valuation allowance, except with respect to refundable tax credits and withholding taxes not creditable against future taxable income. As a result, the company’s provision or benefit for taxes may vary significantly period to period depending on the geographic distribution of income.

The realization of the company’s net deferred tax assets is primarily dependent on the ability to generate sustained taxable income in various jurisdictions. Judgment is required to estimate forecasted future taxable income, which may be impacted by future business developments, actual results, strategic operational and tax initiatives, legislative, and other economic factors and developments.

It is at least reasonably possible that the company’s judgment about the need for, and level of, existing valuation allowances could change in the near term based on changes in objective evidence such as further sustained income or loss in certain jurisdictions, as well as the other factors discussed above, primarily in certain jurisdictions outside of the United States. As such, the company will continue to monitor income levels and mix among jurisdictions, potential changes to the company’s operating and tax model, and other legislative or global developments in its determination. It is reasonably possible that such changes could result in a material impact to the company’s valuation allowance within the next 12 months. Any increase or decrease in the valuation allowance would result in additional or lower income tax expense in that period and could have a significant impact on that period’s earnings.

The net loss attributable to Unisys Corporation for the three months ended March 31, 2025 was $29.5 million, or $0.42 per diluted share, compared with a loss of $149.5 million, or $2.18 per diluted share, for the three months ended March 31, 2024. The net loss for the three months ended March 31, 2024 included $132.3 million of a U.S. pension plan settlement loss, net of tax.

The following table represents Ex-L&S and L&S financial measures:

(In millions, except for numbers presented as percentages)

Segment results

The company’s reportable segments are as follows:

• Digital Workplace Solutions (DWS), which provides workplace solutions featuring intelligent workplace services, proactive experience management and collaboration tools to support business growth;
• Cloud, Applications & Infrastructure Solutions (CA&I), which provides digital transformation in the areas of cloud migration and management, applications and infrastructure transformation and modernization solutions; and
• Enterprise Computing Solutions (ECS), which provides solutions that harness secure, high-intensity enterprise computing and enable digital services through software-defined operating environments.

The company evaluates the performance of the segments based on segment revenue and segment gross profit. Segment revenue and segment gross profit are exclusive of certain activities and expenses that are not allocated to specific segments including the business activities related to the company’s United Kingdom business process outsourcing consolidated joint venture and certain expenses such as cost reduction charges, amortization of purchased intangibles and unusual and nonrecurring items that are not allocated to specific segments. These amounts are combined within other revenue and other gross profit (loss) to arrive at consolidated revenue and consolidated gross profit (loss). See Note 15 of the Notes to Consolidated Financial Statements for the reconciliations of segment revenue to total consolidated revenue and segment gross profit to total consolidated loss before income taxes.

Three months ended March 31, 2025 compared with the three months ended March 31, 2024

A summary of the company’s operations by segment is presented below:

(In millions, except for numbers presented as percentages)

DWS revenue was $118.6 million for the three months ended March 31, 2025 and $132.3 million for the three months ended March 31, 2024, a decrease of 10.4%. The decrease in revenue was primarily driven by lower volume with clients. Foreign currency fluctuations had a 3 percentage-point negative impact on DWS revenue in the current period compared with the prior-year period. Gross profit percent was 14.2% in the current period compared with 14.4% in the prior-year period.

CA&I revenue was $176.6 million for the three months ended March 31, 2025 and $188.4 million for the three months ended March 31, 2024, a decrease of 6.3%. The decrease in revenue was primarily driven by lower volume with existing clients due to the timing of project work. Foreign currency fluctuations had a 3 percentage-point negative impact on CA&I revenue in the current period compared with the prior-year period. Gross profit percent was 19.5% in the current period compared with 19.4% in the prior-year period.

ECS revenue was $118.7 million for the three months ended March 31, 2025 and $139.3 million for the three months ended March 31, 2024, a decrease of 14.8%. Foreign currency fluctuations had a 4 percentage-point negative impact on ECS revenue in the current period compared with the prior-year period. Gross profit percent was 47.7% in the current period compared with 54.6% in the prior-year period. The decrease in revenue and gross profit was primarily driven by the timing of software license renewals.

Total Contract Value and Backlog

Total Contract Value (TCV) represents the initial estimated revenue related to contracts signed in the period without regard for early termination or revenue recognition rules. Changes to contracts and scope are treated as TCV only to the extent of the incremental new value. New Business TCV represents TCV attributable to expansion and new scope for existing clients and new logo contracts. L&S TCV is driven by software license renewals, and as such, changes in timing or terms of renewals can lead to fluctuations from period to period. Measuring TCV involves the use of estimates and judgments and the extent and timing of conversion of TCV to revenue may be impacted by, among other factors, the types of services and solutions sold, contract duration, the pace of client spending, actual volumes of services delivered as compared to the volumes anticipated at the time of contract signing, and contract modifications, including terminations, over the lifetime of a contract.

Backlog represents the estimated amount of future revenue to be recognized under contracted work, which has not yet been delivered or performed. The timing of conversion of backlog to revenue may be impacted by, among other factors, the timing of execution, the extension or early termination of existing contracts with or without penalty, adjustments to estimates in pricing or volumes for previously included contracts, seasonality and foreign currency exchange rates.

The following table summarizes the company’s TCV metrics.

(In millions, except numbers presented as percentages)

Total TCV was $434 million for the three months ended March 31, 2025 and $370 million for the three months ended March 31, 2024, an increase of 17% primarily driven by new logo signings.

Backlog was $2.89 billion as of March 31, 2025 compared to $2.78 billion as of March 31, 2024, an increase of 4%. The increase in backlog was primarily driven by new logo contracts within DWS.

The company believes that actual revenue reflects the most relevant measure necessary to understand the company’s results of operations, but TCV can be a useful leading indicator of the company’s ability to generate future revenue over time and backlog can be a useful metric and indicator of the company’s estimate of contracted revenue to be realized in the future, in each case subject to certain inherent limitations as explained above. TCV and backlog should not be relied upon as substitutes for, or considered in isolation from, measures in accordance with generally accepted accounting principles in the United States of America.

Financial condition

The company’s principal sources of liquidity are cash on hand, cash from operations and its revolving credit facility, discussed below. The company and certain international subsidiaries have access to uncommitted lines of credit from various banks. The company believes that it will have adequate sources of liquidity to meet its expected cash requirements for at least the next twelve months.

Cash and cash equivalents at March 31, 2025 were $393.1 million compared to $376.5 million at December 31, 2024.

As of March 31, 2025, $271.2 million of cash and cash equivalents were held by the company’s foreign subsidiaries and branches operating outside of the U.S. The company may not be able to readily transfer approximately one-fifth of these funds out of the country in which they are located as a result of local restrictions, contractual or other legal arrangements or commercial considerations. Additionally, any transfers of these funds to the U.S. in the future may require the company to accrue or pay withholding or other taxes on a portion of the amount transferred. At March 31, 2025, the company maintained cash balances in various operating accounts in excess of federally insured limits. The company monitors this risk by evaluating the creditworthiness of the financial institutions.

During the three months ended March 31, 2025, cash provided by operations was $33.3 million compared to cash provided of $23.8 million during the three months ended March 31, 2024, primarily driven by working capital improvement.

Cash used for investing activities during the three months ended March 31, 2025 was $20.3 million compared to cash usage of $18.8 million during the three months ended March 31, 2024. Net purchases of foreign exchange forward contracts were $0.1 million for the three months ended March 31, 2025 compared with net proceeds of $1.2 million in the prior-year period. Proceeds from foreign exchange forward contracts and purchases of foreign exchange forward contracts represent derivative financial instruments used to reduce the company’s currency exposure to market risks from changes in foreign currency exchange rates. In the current period, the investment in marketable software was $11.2 million compared with $13.2 million in the prior-year period, capital additions of properties and other assets were $8.9 million compared with $6.7 million in the prior-year period.

Cash used for financing activities during the three months ended March 31, 2025 was $4.0 million compared to cash used of $7.7 million during the three months ended March 31, 2024.

At the end of each year, the company estimates its future cash contributions to its global defined benefit pension plans based on year-end pension data, assumptions and agreements. In 2024, the company made cash contributions of $21.9 million primarily to its international defined benefit pension plans. Based on current legislation, global regulations, recent interest rates and expected returns, the company estimates future total cash contributions to its U.S. and non-U.S. defined benefit pension plans of approximately $91 million in 2025 and approximately $122 million in 2026. For the three months ended March 31, 2025 and 2024, the company made cash contributions of $9.2 million and $6.4 million, respectively.

If the company is not able to generate sufficient cash flows from operations, it may need to obtain additional funding in order to make these contributions. Any material deterioration in the value of the company’s global defined benefit pension plan assets, as well as changes in pension legislation, volatility in the capital markets, discount rate changes, asset return changes, or changes in economic or demographic trends, could require the company to make cash contributions in different amounts and on a different schedule than previously estimated.

The company will continue to evaluate opportunities for additional reduction of its global defined benefit pension obligations in future periods depending on overall market conditions. Due to the company’s significant pension and postretirement plans accumulated other comprehensive losses, future group annuity contract purchases, if executed, could result in material non-cash settlement losses.

At March 31, 2025, total debt was $494.8 million compared to $493.2 million at December 31, 2024.

The company has a secured revolving credit facility (the Amended and Restated ABL Credit Facility), which matures on October 29, 2027 and provides for revolving loans and letters of credit up to an aggregate amount of $125.0 million (with a limit on letters of credit of $40.0 million), with an accordion feature provision allowing for the aggregate amount available under the credit facility to be increased up to $155.0 million upon the satisfaction of certain specified conditions. Availability under the credit facility is subject to a borrowing base calculated by reference to the company’s receivables. At March 31, 2025, the company had no borrowings and $7.4 million of letters of credit outstanding. Availability under the credit facility was $82.5 million, net of letters of credit issued. Any borrowings under the facility will be subject to variable interest rates.

The Amended and Restated ABL Credit Facility is subject to a springing maturity, under which the Amended and Restated ABL Credit Facility will immediately mature 91 days prior to the maturity date of the company’s 6.875% Senior Secured Notes due 2027 (the 2027 Notes) or any date on which contributions to pension funds in the United States in an amount in excess of $100.0 million are required to be paid unless the company is able to meet certain conditions, including that the company has the liquidity (as defined in the Amended and Restated ABL Credit Facility) to cash settle the remaining outstanding balance of the 2027 Notes or the amount of such pension payments, as applicable, no default or event of default has occurred under the Amended and Restated ABL Credit Facility, the company’s liquidity is above $130.0 million and the company is in compliance with the then applicable fixed charge coverage ratio on a pro forma basis.

The Amended and Restated ABL Credit Facility is guaranteed by Unisys Holding Corporation, Unisys NPL, Inc. and Unisys AP Investment Company I, each of which is a U.S. corporation that is directly or indirectly owned by the company (the subsidiary guarantors). The facility is secured by the assets of the company and the subsidiary guarantors, other than certain excluded assets, under a security agreement entered into by the company and the subsidiary guarantors in favor of Bank of America, N.A., as agent for the lenders under the credit facility.

The company is required to maintain a minimum fixed charge coverage ratio if the availability under the Amended and Restated ABL Credit Facility falls below the greater of 10% of the lenders’ commitments under the facility and $12.5 million.

The Amended and Restated ABL Credit Facility contains customary representations and warranties, including, but not limited to, that there has been no material adverse change in the company’s business, properties, operations or financial condition. The Amended and Restated ABL Credit Facility includes restrictions on the ability of the company and its subsidiaries to, among other things, incur other debt or liens, dispose of assets and make acquisitions, loans and investments, repurchase its equity, and prepay other debt. These restrictions are subject to several important limitations and exceptions. Events of default include non-payment, failure to comply with covenants, materially incorrect representations and warranties, change of control and default under other debt aggregating at least $50.0 million, subject to relevant cure periods, as applicable.

At March 31, 2025, the company has met all covenants and conditions under its various lending and funding agreements. For at least the next 12 months, the company expects to continue to meet these covenants and conditions.

From time to time, the company may explore a variety of additional debt and equity sources to fund its liquidity and capital needs.

The company may, from time to time, redeem, tender for, or repurchase its securities in the open market or in privately negotiated transactions depending upon availability, market conditions and other factors.

The company does not have any off-balance sheet arrangements that are material or reasonably likely to become material to its financial condition or results of operations.

Critical accounting policies and estimates

There have been no significant changes to the company’s critical accounting policies and estimates as reported in its Annual Report on Form 10-K for the year ended December 31, 2024.

There has been no material change in the company’s assessment of its sensitivity to market risk since its disclosure in its Annual Report on Form 10-K for the year ended December 31, 2024.

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Quarterly Report, management performed, with the participation of the Chief Executive Officer (CEO) and the Chief Financial Officer (CFO), an evaluation of the effectiveness of the company’s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the Exchange Act). In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Based upon that evaluation, the CEO and the CFO concluded that, as of March 31, 2025, the company’s disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified by the U.S. Securities and Exchange Commission (SEC), and that such information is accumulated and communicated to management, including the CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting during the quarter ended March 31, 2025, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

There have been no material changes to the “Risk Factors” in Part I, Item 1A of the company’s Annual Report on Form 10-K for the year ended December 31, 2024.