Unisys (UIS): Leveraging High-Margin L&S Revenue and Pension Progress to Drive Long-Term Value

In the intricate dance of corporate strategy, few moves are as consequential as the management of pension liabilities and the allocation of capital. Unisys (UIS), a technology services firm, has embarked on a dual campaign to address these challenges, combining aggressive risk mitigation with a focus on high-margin revenue streams. By transferring $320 million in U.S. pension obligations to F&G Annuities & Life, Inc. and raising its License and Subscription (L&S) revenue forecasts, the company is positioning itself to unlock long-term value while stabilizing its financial foundations.

Pension Risk Mitigation: A Strategic Unburdening

Unisys's decision to offload a significant portion of its pension liabilities represents a calculated step toward reducing financial volatility. By purchasing group annuity contracts for approximately 3,150 retirees, the company has effectively transferred the responsibility of benefit payments to F&G, ensuring continuity for beneficiaries without altering the terms of their payouts. This move, while resulting in a one-time, non-cash, pre-tax settlement charge of $228 million in Q3 2025, is a strategic trade-off. The transaction is funded entirely by the pension trust, leaving Unisys's cash position unaffected.

This action aligns with a broader pension strategy to eliminate roughly $600 million in U.S. qualified defined benefit liabilities by the end of 2026. Complementing this effort is a $250 million discretionary pension contribution made in July 2025, which accelerates the reduction of the pension deficit and reduces future volatility. These steps are not merely defensive; they are transformative. By insulating its balance sheet from pension-related uncertainties, Unisys is creating a more predictable financial environment, a critical enabler for long-term planning and growth.

High-Margin L&S Revenue: A Growth Engine

While pension risk mitigation provides stability, Unisys's L&S segment offers the engine for growth. The company has raised its 2025 L&S revenue forecast to $430 million, with expectations of $400 million annually from 2026 to 2028. This segment, characterized by recurring revenue and high margins, is central to Unisys's value proposition. Strong retention and consumption trends within its software ecosystem underscore the durability of these cash flows.

The significance of L&S cannot be overstated. In Q3 2025, despite a 7.4% year-over-year decline in total revenue, Unisys maintained a 5.4% Non-GAAP operating margin. This resilience highlights the segment's ability to buffer broader market headwinds, particularly in the public sector, which has seen softness in recent quarters. By prioritizing L&S, Unisys is not only securing a steady revenue stream but also investing in innovation-such as cloud and digital workplace solutions-that align with evolving client needs.

Capital Allocation: Balancing Reinvestment and Returns

With pension liabilities receding as a drag on capital, Unisys is now better positioned to allocate resources toward value-creating initiatives. The company's 2025 investor presentation outlines a clear capital structure strategy: reducing debt, reinvesting in high-growth areas and enhancing shareholder returns. By the end of 2025, Unisys projects cash reserves of $380–$390 million, a testament to its disciplined approach.

The redirection of cash flows toward shareholders is already evident. In Q3 2025, the company generated $110 million in pre-pension free cash flow, a figure that is expected to grow as pension-related expenses diminish. This financial flexibility allows Unisys to consider dividends or buybacks, though management has not yet committed to specific programs. The focus remains on reinvestment, particularly in its ClearPath Forward platform, which is designed to modernize legacy systems and drive digital transformation for clients.

Conclusion: A Path to Sustainable Value

Unisys's dual strategy of pension risk mitigation and L&S growth is a masterclass in capital allocation. By offloading liabilities and stabilizing its balance sheet, the company has removed a significant drag on long-term value. Simultaneously, its focus on high-margin, recurring revenue streams ensures a durable foundation for growth. The result is a business that is not only more resilient but also more agile in pursuing opportunities in a rapidly evolving technology landscape.

For investors, the message is clear: Unisys is transforming from a company burdened by legacy obligations into one poised to capitalize on its strengths. As it executes on its capital allocation priorities, the path to sustainable value creation becomes increasingly defined.