Kyndryl Holdings, Inc.

Good day, and thank you for standing by. Welcome to the Kendrell Fiscal Third Quarter 2024 Earnings Conference Call. At this time, all participants are on the listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker. Lori Chapman, Global Head of Investor Relations. Please go ahead.

Good morning, everyone, and welcome to Kindrel's earnings call for the third fiscal quarter ended December 31st, 2023. 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. These forward-looking statements speak only to our expectations as of today, and we are under no obligation to update them. 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 March 31, 2023. In today's remarks, we'll also refer to certain non-GAAP financial metrics, corresponding GAAP metrics, and a reconciliation of non-GAAP metrics to gap metrics 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 Kindrel's Chairman and Chief Executive Officer, Martin Schroeder, and Kindrel's Chief Financial Officer, David Weichner. Following our prepared remarks, we'll hold a Q&A session. I'd now like to turn the call over to Martin.

Thank you, Lori, and thanks to each of you for joining us. Kindrel continues to make great progress in delivering value to customers and to shareholders. Today, we'll provide an update on our strong execution and our accelerated progress as the leader in mission-critical IT infrastructure services. Our strategy, centered around our alliances, advanced delivery, and accounts initiatives, Kindrel Consult and Kindrel Bridge, is paving the way for profitable growth. We're again raising our full-year earnings outlook, which reflects our progress and our prospects. To fully appreciate how we reached this point so quickly and to understand Kindrel's growth potential, it's important to recognize the critical role we play for our customers and the leadership position we hold in our industry. We're a vital and trusted partner for our customers' current and future technology needs. We have a strong heritage in running complex applications that are highly dependent upon mission-critical infrastructure, such as the mainframe. And as an independent company, our freedom of action has allowed us to quickly capitalize on opportunities that are unique to Kindrel. As a result, we're building a strong track record of successful execution that is clearly visible in our results. Benefits from our three A's have driven and will continue to drive tangible financial progress. We formed alliances with key technology leaders, which has significantly increased our addressable market, and we continue to grow these relationships. In November, we expanded our relationship with AWS on two fronts. First, to jointly develop and deliver generative AI, and the second to collaborate on mainframe modernization. We've announced similar alliances with Microsoft and will soon be announcing an expanded collaboration with Google Cloud on GenAI. We've expanded our service delivery capabilities through Kindle Bridge. We're now performing over 1 billion automations each year, addressing risks before they become incidents and building resiliency. Our advanced delivery efforts are generating savings of 500 million a year for us. In our accounts initiative, we've engaged collaboratively with our customers and have already addressed roughly half of these accounts. And as a result, we've grown our aggregate margins on focus accounts by seven points. Our progress extends beyond the three A's as we leverage Kindle Bridge our deep insights and the trust our customers have in us to drive growth in Kindrel Consult. Consult revenues are up 16% year-to-date, and we already have roughly 750 customers using Kindrel Bridge, our AI-powered open integration platform. These areas are foundational to growing our business and fueling our long-term growth. Importantly, our strategic progress is driving stronger financial results. We're now three quarters through our fiscal year, and it's clear that fiscal 2024 is a proof point for us. We grew signings in the first 10 months of the year with higher value services. Earnings are expected to be up meaningfully this year compared to last, and we've generated positive adjusted free cash flow in the first nine months of the year. We are enthusiastic about how our strategies and our approach to the market are driving performance. Our customers value the technical expertise and services we provide as they advance their own digital transformations. Our powerful business dynamics are creating significant value and will continue to be bold and ambitious about how we come together with our partners to deliver value for our customers. They already see us behaving as a flatter, faster, and more focused organization, which is aligned to our new services culture, what we call the Kindle way. We operate at the heart of large organizations' technology estates, so it's natural for us to be at the center of the secular IT trends. Our customers look to us for capabilities and scale to address these trends from risks like cybersecurity and skill shortages to opportunities like cloud and AI. Our success is fueled by providing customers with solutions that leverage both our own know-how and our alliance partners' capabilities. Our expanded hyperscaler relationships, combined with our extensive knowledge of complex hybrid IT estates, are why customers are partnering with Kindrel to achieve their IT and business objectives as they address the larger forces shaping the evolution of IT, namely the adoption of artificial intelligence, which we know is top of mind for enterprise CIOs, technology skill shortages, the modernization needs to address aging infrastructure challenges, and cloud migration. Let me share a few examples. In the healthcare industry, where digital applications are scaling at a remarkable pace and privacy regulations present unique challenges, modernizing IT environments and moving workloads to the cloud are particularly complicated. We've been advising two large healthcare companies throughout the migration of their complex platform-based IT systems onto the cloud, including their patient record systems. This migration work is strengthening the user experience for patients and caregivers while generating meaningful operating efficiencies for our customers. For a global auto manufacturer, we're using AI-enabled Kindrel Bridge to deliver real-time insights and automate processes in order to enhance day-to-day IT performance. This work is not just about IT, it's also producing efficiencies across the customer's manufacturing facilities. And we're working with a large multinational communications provider to define and implement their strategy to modernize their IT estate and migrate applications to the cloud with the goal of reducing energy consumption by about 70%. There are two key themes among these examples. Other new scope we're adding and other new customers we're bringing on. First, our capabilities and our technology alliances position us to do important work for important companies, many of which are household names. Second, the nature of the services we provide is evolving. Our independence is fueling mission-critical work that is more consultative, more multi-vendor, more hybrid, and more value-added, as we help customers address the trends shaping IT. And if you want proof, this quarter Kindrel Consult delivered its largest signings quarter yet, with double-digit constant currency growth in both signings and revenue. And through our alliances, we've generated more than $300 million of hyperscaler-related revenue so far this year, and increasing our current target for this activity to 400 million. Let me also emphasize that Kindrel is an AI beneficiary and AI enabler. As the largest infrastructure services provider in the world, we generate large amounts of data about IT systems. We're using artificial intelligence with this data in our Kindrel Bridge platform to identify application performance patterns, produce actionable insights, reduce required maintenance, and prevent incidents from occurring. And beyond our own use of AI, our customers know that their AI is only going to be as good as their data. So they're looking for Kindrel's expertise in how to architect their data to set the foundation for the investments they're making in AI and Gen AI. More generally, because we serve as an operator, an integrator, and advisor to our customers in their digital business transformations, we naturally find ourselves at the nexus of broader market trends. The unique combination of our advisory and engineering talent intellectual property, and vast amounts of operational data positions Kindrel as an essential business and technology services partner. We're accessing incremental market opportunities, growing our share of wallet with existing customers, winning new customers, and transforming Kindrel. As our business evolves and we move further away from our spin, our revenue mix will continue to shift to higher margin post-spin signings. This fiscal year, only one-third of our revenue is coming from post-spin signings. Next year, we'll move to half of our revenue from coming from post-spend signings, and in fiscal 2026, it will be roughly two-thirds. This inflection point, when our P&L is largely determined by our higher margin post-spend signings, will dramatically change our earnings profile. As I highlighted earlier, our forecast for fiscal 2024 now implies more than $360 million of adjusted pre-tax income improvement this year compared to last. And while our efforts to shed low to no margin revenue will continue to impact top-line growth this calendar year, we expect to deliver margin expansion and higher earnings each year with revenue growth returning in calendar 2025. As David will explain in more detail, the margins at which we're signing contracts and the other actions we're taking to increase our profitability have us on a path to deliver high single-digit adjusted pre-tax margins by fiscal 2027, and yes, The math associated with that is ultimately a billion dollars or more of adjusted pre-tax income with a high conversion of our net earnings into cash. We're making substantial progress, earning the trust and respect of our customers and partners through exceptional and reliable delivery. We're providing innovative solutions that drive real business outcomes and earning stronger margins in our ROI from our work. We're driving powerful business dynamics for value creation and we'll continue to be bold and ambitious about how we come together to deliver value with our partners for our customers. And with that, I'll hand over to David to take you through our results and our outlook.