Kyndryl Holdings, Inc.

Good morning and welcome to the Kindrel Fiscal Third 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 open for your questions. If you would like to ask a question at that time, please press star 1 on your telephone keypad. If you need to remove yourself from the queue, press star 2. At any time you should need operator assistance, press star 0. Please be advised that today's call is being recorded. I would now like to turn the call over to Lori Chapman, Global Head of Investor Relations at Kindrel. Thank you. You may begin.

Good morning, everyone, and welcome to Kindrel's earnings call for the quarter-ended December 31, 2022, the third quarter of our fiscal year. Before we begin, I'd like to remind you 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 31, 2021. Kindrel does not update forward-looking statements and disclaims any obligation to do so. In today's remarks, we'll 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 event, which are available on our website at investors.kindrel.com. With me here today are Kindle's Chairman and Chief Executive Officer, Martin Schroeder, and Kindle's Chief Financial Officer, David Weichner. Following our prepared remarks, we'll hold a Q&A session. I'd like to now turn the call over to Martin. Martin?

Thank you, Laurie, and thanks to each of you for joining us today. Kindle is continuing to drive progress both as the world's leading provider of IT infrastructure services and as an independent public company. On today's call, I'll update you on our strategy and the meaningful progress we've made on our three A's initiatives, alliances, advanced delivery, and accounts. David will then provide you with a more detailed review of our financial results and discuss our full year 2023 outlook. Our transformation is well underway, and I'm proud of what our teams have accomplished. The essential non-discretionary nature of our business provides our revenue streams with some natural insulation to macro factors. As a result, demand for our services remains stable across the markets we serve. Equally important and independent of the broader economy, our continued execution on our three A's is delivering the benefits we need to strengthen our overall business performance and drive us to profitable growth. Our continued progress, combined with the nature of our business, should ultimately allow us to regularly return capital to shareholders. I'll circle back to this topic in a few minutes. It's been about 15 months since we became an independent company and the world's largest pure play IT infrastructure services provider. We employ nearly 90,000 people. We operate in over 60 countries and we serve thousands of customers. We address a large and growing market through our array of practices and services offerings. With 30 years of mission critical experience, we have unmatched technical expertise in managing complex hybrid IT environments for large organizations. And in our business, scale matters. It gives us the ability to invest in leading technology, advanced delivery and automation, enabling us to expand our competitive advantage, as well as our comparative advantage over insourced infrastructure management. In this environment, we've been successfully executing our 3A initiatives to drive business performance, and we're on track to deliver on our fiscal 2023 milestones. As a reminder, we provide a target of $1 billion in signings tied to hyperscaler alliances this fiscal year, $200 million in annualized cost savings from advanced delivery by fiscal year end, and $200 million of annualized pre-tax benefit from our accounts initiative. And our transformation work will not be done after this fiscal year. Over the next few years, we expect these initiatives to generate $1.6 billion in annual benefits. In the first nine months of this fiscal year, we generated $750 million of hyperscaler signings, putting us right on track to achieve our billion-dollar year one target for our alliances initiative. The number of customer contracts that now include a hyperscaler-related component has tripled since the start of our fiscal year. We've also continued to increase our hyperscaler certifications on top of our existing IBM Cloud certifications to nearly 32,000, a 98% increase from a year ago. Our advanced delivery initiative has freed up over 4,500 delivery professionals this year to backfill attrition or address new revenue opportunities. At the same time, it's generating annualized savings of more than $225 million, surpassing already our $200 million fiscal 2023 year-end objective. And in our accounts initiative, we're addressing elements of our business with substandard margins. In many cases, we're driving margin growth by expanding the scope of work and optimizing our cost base through automation and greater standardization. We're now realizing pre-tax benefits of more than $130 million a year and progressing toward our $200 million a year year-end run rate goal. Similar to last quarter, I'm going to share some customer success stories that demonstrate our team's execution on our 3As. The underlying theme among these examples is that the combination of our broader ecosystem and expanded capabilities is resonating with our customers and providing Kindrel with new revenue streams and higher margin opportunities. Through our alliances initiative, we want a new relationship valued at $170 million to provide Kindrel consult services and migrate workloads to a modern hybrid cloud infrastructure for a company in the services industry. Additionally, with an insurance company who's been a long-term customer of ours, we've expanded our scope of work to include cloud migration and hyperscaler services in order to accelerate their digital transformation and drive efficiencies. And for an industrial manufacturer, we're integrating our customers' IT operations into a hyperscaler ecosystem. In advanced delivery, we've increased resiliency by more than 75% for a global consumer products company, enhancing system stability and availability. For an industrial company, we've created an opportunity to generate approximately 15 million incremental annual revenue by expanding the scope of work to include network and edge automation. And for a global energy company, we reduced our staffing by 24% and increased system stability through automation and new ways of working. In accounts, for a large transportation company, we're increasing our gross margin by 50 percentage points by re-scoping our contract to those areas that make economic sense for us. This new contract will add $14 million in gross profit over the next five years. With a leading manufacturer, we extended our contract with a 25 percentage point increase in gross margin through delivery efficiencies, automation, and changes in scope. And for a major technology company, we renegotiated specific elements of our contract prior to expiration to bring more flexibility to both our customer and Kindrel. In the process, we're realizing an increase in gross profit of more than $25 million over the life of the previous contract. Many of us at Kindle regularly engage with CEOs and CIOs of large organizations, which gives us insight into the technology challenges they face and the opportunities they see. This helps shape our view of the market and how we can evolve to meet our customers' needs and objectives. Here's what we're hearing. From financial institutions to manufacturers to transportation providers, virtually all firms operating at scale also need to be technology-driven companies, relying on IT infrastructure to operate and go to market. Hybrid IT environments will continue to be the norm for most large organizations, and putting the right workload on the right platform will provide ongoing opportunities for cloud migration and optimization. While enterprises are continuing to modernize their IT estates, many have already tackled the simplest transitions as it relates to cloud migration. As a result, their progress increasingly relies on complex optimization work in order to advance enterprise innovation. Cyber threats are proliferating, and cyber hygiene and resiliency are as important as ever to companies and their boards. 5G, AI, and data optimization are evolving in ways that will likely drive technological development and investment for the remainder of this decade. This includes both the machine learning associated with managed infrastructure services and companies operational and go-to-market use of AI. Organizations are looking to better tailor their employees' tech experiences in order to drive productivity and engagement. And lastly, companies are optimizing, automating, and engaging with service providers to save money in today's more restrained economic environment. Each of these trends plays to our strengths. They present Kindle with opportunities in both managed services and advisory work and position us for sustainable, profitable growth. We are working with our customers around the world to address these macro trends through our practices, through our scale and established presence in lower cost markets, through innovation driven by Kindrel Bridge, Kindrel Vital, and Kindrel Consult, and through our global alliances with leading technology companies. We are very excited about how technology is evolving and the role Kindrel is playing in that evolution. As I mentioned, our alliances are an important element of our business transformation. With our freedom of action as an independent company, we've built an ecosystem that is more relevant to our customers and allows us to provide higher value services that we weren't able to provide before. Our long-standing relationship with IBM continues to be important, but so are our significantly expanded top-tier alliances with Microsoft, AWS, Google, Cisco, Dell, Oracle, Red Hat, SAP, VMware, and many others. We're building on these relationships and seizing new growth opportunities, often with our existing customers. Over the last year, we've co-created and launched new capabilities with our alliance partners and doubled our hyperscaler-related deal pipeline. In November, we hosted our first-ever Alliance Leadership Summit, where our senior leaders and our alliance partners engaged in collaborative discussions to accelerate joint go-to-market strategies and joint business outcomes. Our customer base and our credibility with our customers make us a highly sought after partner, and we've chosen our technology alliances intentionally. This past quarter, we expanded our relationship with AWS to support their new security solution tailored for industry and company specific needs. To accelerate cloud transformation projects, we're helping our customers leverage our relationship with Microsoft and Dell to implement and manage integrated hybrid cloud solutions. And we've been collaborating with Intel to design and implement private 5G networks for joint customers. In recent months, we've also given our customers and our alliance partners more clarity on how we'll collaborate and surface innovation. We branded these efforts Kindrel Bridge, Kindrel Vital, and Kindrel Consult. Kindrel Bridge, our open integration platform, is at the core of our technology strategy and transforming the way that we deliver our services. It enables us to scale modern systems management capabilities, integrating operational data, our intellectual property, our solution and partner offerings, and insights through integrated AI operations. As a result, Kindrel Bridge is how we help our customers manage modernization across their complex global IT estates. Since our launch in late September, we've already onboarded nearly 500 customer accounts to integrated AIOps that are at the core of Kindrel Bridge. Kindrel Vital redefines how we engage with customers and co-create innovative solutions through a design-led approach. Our ability to be an objective expert across an array of technologies allows us to advise and collaborate with customers in ways we could not when we were an IBM captive. And our Vital methodology provides the foundation for a personalized, result-oriented environment to solve and create solutions in an easy-to-consume way. And Kindrel Consult ties it all together, using Bridge and Vital to highlight our capabilities and our differentiation as we provide our customers with ways to handle their most vexing technology challenges and make it easier for them to do business with us. Year to date, Kindrel consult signings have increased 32% in constant currency compared to the prior year period, and they now account for approximately 12% of our revenue. With Bridge, Vital, and Consult, customers are telling us that Kindrel is showing up differently for them. This is creating opportunities for us to capture some of the larger addressable market now available to us and to grow our share of wallet with our customers. When I look back on Kindrel's transformation to date, 2022 was a period of transition and building as we began to rewire our new firm. With that strong foundation, our progress continues. We're building a purpose-driven company and committed to being a strong corporate citizen. In December, we announced our long-term target to reduce our overall carbon emissions to net zero by 2040 and committed to at least a 50% reduction by 2030, following science-based frameworks. Our decarbonization plan aligns with our business strategies because we see opportunities to consolidate our legacy real estate and data center footprint as well as our supply chain to more sustainable infrastructures. 2023 will be a year of acceleration. We will continue to execute our strategy to drive profitable growth. We expect to make significant progress on our 3As initiatives as this is our fastest path to growing our business and delivering more value to our customers employees, and shareholders. We will lean into the opportunities associated with a tougher macro climate and companies' enhanced focus on managing costs, which aligns with what we do. And we'll continue to operate with our new mission, serving our customers in what we call the Kindrel way, being restless, empathetic, and devoted in our pursuit of operational, strategic, and financial progress. Looking beyond 2023, when most, if not all, of our separation-related expenses and costs are behind us, we'll be driving our business towards sustainable revenue growth, significant margin expansion, and meaningful cash flow growth. We are committed to maintaining a strong investment-grade balance sheet, and will seek opportunities to further strengthen our credit profile. Given the nature of our business, and once we've made clear progress in strengthening our margins, we'd expect to be in a position to ask our board to evaluate returning capital to shareholders. We have the right strategy in place to do this, and I'm confident we have the right leadership, talent, know-how, and partnerships to execute and transform our business. Now, with that, I'll hand over to David to take you through our results and our outlook.