Kyndryl Holdings, Inc.

Good morning and welcome to the Kendrell first quarter 2023 earnings conference call. Currently all callers have been placed in a listen only mode and following management's prepared remarks, the call will be opened for your questions. If you would like to ask a question at that time, please press star one on your telephone keypad. If you need to remove yourself from the queue, press the pound key. At any time, if you should need operator assistance, press star zero. Please be advised that today's call is being recorded. I will now turn the call over to Lori Chapman, Global Head of Investor Relations at Kindrel. You may begin.

Good morning, everyone, and welcome to Kindrel's earnings call for the quarter ended June 30th, 2022, the first quarter of our new fiscal year. Before we begin, I'd like to remind everyone that our remarks today will include forward-looking statements. These statements are subject to risk factors that may cause our actual results to differ materially from those expressed or implied, and these statements speak only to our expectations as of today. For more details on some of these risks, please see the risk factor section of our annual report on Form 10-K for the year ended December 31st, 2021. Kindle does not update forward-looking statements and disclaims any obligation to do so. In today's remarks, we will also refer to certain non-GAAP financial measures. Corresponding GAAP measures and a reconciliation of non-GAAP measures to GAAP measures for historical periods are provided in the presentation materials for today's events, which are available on our website at investors.kindrel.com. With me here today are Kindrel's Chairman and Chief Executive Officer, Martin Schroeder, and Kindrel's Chief Financial Officer, David Weichner. Following our prepared remarks, we will hold a Q&A session. I'd now like to turn it over to our chairman and CEO, Martin Schroeder. Martin?

Thank you, Lori, and thanks to each of you for joining us today. I am enthusiastic about our momentum and proud of what the team has accomplished over the last three months. On today's call, we'll share Kindrel's quarterly results and update you on our progress. I'll discuss our strategy and how we're executing on our three A's initiatives, alliances, advanced delivery and accounts which are driving us toward profitable growth then david will provide more detail on our first quarter financial results reaffirm our fiscal 2023 outlook and link our recent progress to our financial goals it's been nine months since kindrel became an independent publicly traded company and i am just as excited today about the opportunity ahead as i was on day one as you can imagine there's never a dull moment post spin There's plenty of work to do to transition internal processes, build a new culture, and seize market opportunities. For those of you who are new to the Kindrel story, prior to our spinoff last November, we operated largely as a captive services provider, focused on supporting the products and technologies that IBM offered to its customers. Today, we are the world's largest IT infrastructure services company, designing, managing, and modernizing complex mission-critical systems at scale for some of the world's largest organizations. I'm proud of how quickly we're charting a new course to better serve our customers through our new alliances with a range of top-tier technology providers and enhancements of our services delivery driven by upskilling and automation fueled by data, IP, and best practices. Our new freedom of action has given us the opportunity to be part of a much larger and growing ecosystem that really matters to our customers, expanding our addressable market from about 240 billion to 415 billion and growing. By 2024, this IT services market is expected to grow to about $510 billion. Our expanded collaborations with leading technology providers are making us more relevant to our customers and allowing us, as their longstanding trusted IT partner, to support and accelerate our customers' digital journeys in cloud, security, data, and intelligent automation with a multi-vendor strategy. Equally important, with our independence, we can now invest in our business to create new capabilities, deliver them at scale by gaining certifications and credentials for our already skilled technologists, and thereby grow our share of wallet with our existing customers. Through our six practices, we can now meet needs that our customers have been asking us to meet for years in areas that we were previously prevented from serving. We're solidifying our position as a leading global provider of IT infrastructure services. We continue to generate twice as much infrastructure services revenue as anyone else and are uniquely focused on this sector of the market. Our customers trust us to manage their most critical systems And we do it with the highest level of quality. I'm really proud of our delivery teams. They continue to produce top tier net promoter scores generally north of plus 50. We continue to meet more than 99.7% of our service level agreement thresholds, with the June quarter being another quarter of above target performance. We're pleased to have been named a leader in Gartner's magic quadrant for managed mobility services and to be recognized as one of only four industry engineering specialists and integrators in Gartner's recent report on 4G and 5G networking. Our NPS and SLA metrics, along with a growing list of external accolades, highlight the world-class nature of our offerings. There are significant opportunities in front of us, and we understand that the macroeconomic environment is on many people's minds right now. At Kindrel, we run mission-critical IT systems, the hearts and lungs of our customers' operations, including global banking organizations, airline reservation systems, mobile networks, and industrial supply chains. The essential nature of our business provides us some natural insulation to macro factors. In addition, our three A's initiatives gives us a substantial opportunity that are specific to us and independent of the broader economy. Executing on these initiatives will deliver the benefits we need to strengthen our overall business performance and unlock substantial value for our customers, our employees, and our stockholders alike. A key enabler of our strategy has been the rapid build-out of our technology alliances and capabilities. Between November and March, we signed new collaborations with all three cloud hyperscalers, Amazon Web Services, Google Cloud, and Microsoft Azure, as well as many other leading technology companies. Since year end, we've increased our cloud-related certifications by 36%, bringing our total to nearly 22,000 and giving us more capabilities to deliver cloud services. This quarter, we've expanded or established new partnerships with Cisco, Five9, NetApp, Oracle, Red Hat, SAP, and Veritas, continuing the theme of kindle aligning with other top-tier technology providers now that we're independent. Customers are seeing how quickly we're leveraging these relationships. And they're now asking us to help them migrate a portion of their workloads to the cloud, manage their explosive growth in data, integrate legacy and new technologies from multiple partners, and address their urgent need for cybersecurity and resiliency. It is remarkable to see how fast our relationships are expanding. One example of this is a global bank where we have a nearly 20-year business relationship. We run mission-critical systems and the infrastructure behind their systems of record. Our relationship began in the early 2000s with traditional data center outsourcing for one of their divisions, including mainframe services work. The scope of our work has expanded over time across geographies and divisions. Most recently, though, we not only extended our contract tied to legacy systems, we also added hyperscaler cloud work, and beyond that, the integration required to make sure the bank is running the right workload on the right platform. We're now supporting our customer across their architecture, data, and application security, resiliency, and systems innovation. We're adding value as a trusted strategic partner that has the technology expertise to meet their complex, evolving, multifaceted needs. And at the same time, we're driving profitable revenue growth for our business as we increase our services revenue from this customer. This example is just one of the many that have been either executed already or are in the works. across a range of industries, geographies, and customer needs. Back in February, we committed to sharing our progress on our three A's initiatives. As a reminder, we provided targets of at least $1 billion in signings tied to hyperscaler alliances this fiscal year, $200 million in annualized cost savings from advanced delivery by year-end, and $200 million of annualized pre-tax benefit from our accounts initiatives. I am pleased with the progress we've made in such a short period of time on our 3As, and we're on track to deliver on our fiscal 2023 milestones for each of these initiatives. In our Alliance initiative, we generated $235 million of hyperscale-related signings in the quarter, putting us on track to achieve our billion-dollar annual target. We're increasingly going to market with hyperscalers to seamlessly meet customers' needs. As a Microsoft Azure expert, managed service provider, and premier partner with both AWS and Google, we have immediate credibility, as well as unique knowledge of our customers' existing infrastructure and workloads. And the pace at which we've built our team's certifications, credentials, and capabilities puts us in a position to provide the top-tier levels of service that customers have come to expect from Kindrel. This is demonstrated by another strong quarter of signings growth in advisory and implementation services which were up 27% in constant currency compared to last year. We are using our new technology partners to grow our share of wallet with existing customers. In our advanced delivery initiative, we're investing in heightened intelligent automation and new ways of working, which frees up our people to be reskilled and redeployed to in-demand opportunities. This quarter, we expanded our proprietary delivery automation tooling to run more than 24 million automation events a month, more than double where we were a year ago. This significantly increases the level of service and resiliency we provide to our customers. In the process, we freed up more than 1,900 of our people to serve new revenue streams and backfill attrition. When we free up people, we're increasing our productivity and the associated cost savings are running at an annualized rate of $100 million as of quarter end, equal to half our fiscal 2023 year end objective. And at the same time, we're creating new opportunities for our people and reducing the extent to which we need to hire external talent. In our accounts initiative, we're directly engaging with our customers where we're not generating an adequate return on the efforts and capital we're expending. The response from customers has been positive, and a number of them have already expanded our scope of delivery services, capitalizing on our broader ecosystem and new capabilities. In some cases, we're optimizing our cost basis through automation and greater standardization, while in other cases where we are near contract expiration, we have the opportunity to discuss pricing or agree that Kindrel will exit elements of work that are unprofitable for us. Our engagement efforts so far have resulted in a meaningful increase in the projected margins associated with these accounts, reflecting our focus on signing profitable business. In the June quarter, we're already realizing pre-tax benefits at a rate of roughly $52 million a year, putting us on track to achieve our $200 million year-end run rate goal. The momentum we're demonstrating in our three A's initiatives is driving us toward the strategic objectives we laid out last year. transforming Kindrel to operate across a broader technology ecosystem, evolving our business mix, returning to revenue growth, and expanding our margins. We're operating differently with a new mission and value proposition. As we execute on our 3As initiatives, we move forcefully to strengthen the margin profile of our business and progress toward our goal to return to profitable revenue growth in calendar year 2025. We will unlock substantial value. We'll continue building a culture that is flat, fast, and focused on customer success, and we'll continue positioning Kindrel to be the employer of choice and the partner of choice for customers and technology partners alike. Now, with that, I'll hand over to David to take you through our results and our outlook.