Kyndryl Holdings, Inc.

Good day and thank you for standing by. Welcome to the Kindrel Fiscal First Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Lori Chapman. Please go ahead.

Good morning, everyone, and welcome to Kindle's earnings call for the first fiscal quarter ended June 30th, 2024. 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. For more details on some of these risks, please see the Risk Factor section of our annual report on Form 10-K and for the year ended March 31, 2024. 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 GAAP 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 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. Martin?

Thank you, Lori, and thanks to each of you for joining us. On today's call, I'll update you on our continued progress and execution to drive our growth strategy. David will then review our recent financial results and our increased fiscal 2025 earnings outlook. We delivered another strong quarter and are off to a fast start to fiscal 2025. Signings are up 14% in the quarter in constant currency, and they're up 7% over the last 12 months, and the projected pre-tax margin on these signings is in the high single digits. In the first quarter, pre-tax earnings were up significantly year over year, and we remain on track to deliver significant cash flow this year. Our performance was once again powered by strong growth in Kindrel Consult and hyperscaler-related revenue, as well as our ability to drive efficiency through automation and deliver innovation through Kindrel Bridge, our AI-powered open integration platform. As we progress through the fiscal year, we'll continue to execute our growth strategy, drive substantial financial progress, focus on returning to top-line growth in the fourth quarter there's a reason we're winning why we're succeeding at such a rapid pace our expertise in both running and transforming IT estates is differentiating us in the markets we serve and uniquely positions us at the center of the secular trends that are shaping the evolution of IT these trends the adoption of artificial intelligence cloud migration and management Increasingly, hybrid environments, technology skill shortages, and cybersecurity are driving demand for our services, fueling our growth, and further cementing our trusted relationships with our customers. For example, we're working with travel, transportation, and other customers to apply new AI and generative AI technologies to drive business outcomes through our data architecture capabilities. With Kindrel Bridge, we're helping healthcare, manufacturing, and other customers intelligently prioritize infrastructure needs and address previously hidden risks. Through our hyperscaler alliances and mainframe modernization skills, we're helping financial services, communications, and other customers migrate, manage, and optimize their hybrid IT estates across multiple cloud platforms, ensuring the right workload is on the right platform. And through our global network of security operations hubs and end-to-end security services, We're helping customers in the media, public, and other sectors protect, detect, and address cyber threats. As a result, we're seeing growing demand for Kindrel Consult services, all powered by our unique and impactful combination of run and transform capabilities. In fact, I want to highlight the importance of Kindrel Consult. Our advisory services have been consistently growing in the double digits and accounted for 17% of our revenue in the quarter. We recognize that the strength we're delivering in Kindrel Consult stands out in the current environment, and we believe the reasons for our exceptionalism are enduring. Our global team of consultants, data architects, and engineers have deep domain knowledge on the mission-critical systems underpinning our customers' operations. This expertise is built on decades of experience with some of the world's most complex technology environments. Pairing our Kindrel Consult skills and expertise with the IP and data in Kindrel Bridge Our consult teams engage with customers to share actionable insights that can produce meaningful business outcomes. We're helping customers understand how to optimize their hybrid IT systems, how to measure and address their tech debt, how to structure their data so they can embrace AI and Gen AI, how to enhance security and resiliency, how to manage regulatory change, and how to modernize business processes and related application infrastructures to streamline operations and drive productivity gains. So as our customer strategies and IT evolve, we're in the IT trenches with them, delivering capabilities they need based on our end-to-end understanding of their technology estate, and now doing so with the objectivity and broad alliances that come as a market-leading independent company. Customers want to engage with our technology consultants because of the role Kindrel plays in their environments. The mission-critical nature of what we do and the deep technology expertise and industry knowledge Kindrel Consult can bring to bear. We're also seeing increased demand for our services as a result of greater cyber regulation, especially in the EU. For all these reasons, Kindrel Consult is a $2.5 billion revenue stream for us with a significant runway for growth. The revenue stream is valuable both because of the margins directly associated with it and because of the ongoing managed services work that accompanies so many IT modernization assignments. Kindrel Consult will continue to grow as we further expand our relationships with our alliance partners like Microsoft and Google and AWS, and most recently, SAP. Last week, we announced that we're now a Rise with SAP delivery partner, which will unlock new consult opportunities across our practices. And more generally, Kindrel Consult, like our hyperscaler alliances, underscores that where we focus on growth, we deliver. Another key driver of our success is Kindle Bridge, the industry-leading operating platform we introduced in 2022, built on our IP and experience managing complex, large-scale, hybrid, mission-critical technology estates. Customers are faced with complexity everywhere, technical, organizational, and operational, and they must work in new ways to gain observability and data insights across their entire IT environment. With Kindrel Bridge, we give our customers unprecedented observability across their full IT estate, regardless of how complex it might be. This is a powerful value proposition that allows us not only to fortify how we run our customers' IT environments, but also to proactively identify ways in which we can transform their infrastructure to deliver the digital business outcomes they need. Since we launched Kindrel Bridge, we've expanded our capabilities to include services such as delivering AI-infused operational insights, security operations as a platform, application modernization, and regulatory compliance. With Bridge, we're delivering more than 110 million automations per month, ranging from security patches to version upgrades to configuration changes to best practice implementations. This drives speed, reliability, and productivity of IT operations and powers business outcomes for our customers. To date, by avoiding major incidents and reducing planned maintenance costs, we've provided customers with productivity benefits totaling nearly $3 billion a year with more to come. For example, by using Kindle Bridge, a leading automotive manufacturer in Japan is seeing a reduced number of incidents, faster recovery time, and lower labor costs as it shifts its way of working to more proactive data-driven operations. Separately, by implementing Kindrel Bridge for a global advertising firm, we significantly increased our customers' productivity and enhanced their creative team's IT experience. Through automated remediation, we also reduced their disruptions by more than 30% and have cut the occurrence of more severe incidents in half. And 13 days ago, when one vendor's cybersecurity update shut down servers around the world, Kindrel Bridge allowed us to deliver accelerated recovery to hundreds of impacted customers. We rapidly engaged thousands of Kindrel technical experts around the world to manage the recovery end-to-end for our customers. And with our real-time observability into which applications and servers were affected worldwide, our experts were able to act immediately and recover systems according to our customers' priorities. And with Kindrel Bridge and our knowledge of our customers' tech infrastructures, we were able to address most of the 45,000 enterprise servers that were impacted in every mission-critical application within 24 hours of the outage. On a more routine level, Kindle Bridge is a natural source of Kindle Consult opportunities for us. Bridge differentiates us by providing data-driven insights into customers' IT environments. For example, Bridge and Consult come together in our discussions with CIOs and CTOs on AI readiness, data architecture, security, and resiliency. And with Bridge as a single source of truth, we are uniquely positioned to discuss how to architect data so they can be responsibly exposed to AI platforms how to maintain resiliency features, and how to ensure data remains secure. Kindle Bridge is therefore the foundation for our recently announced partnership with NVIDIA. Our customers want us to have NVIDIA's tools accessible through Kindle Bridge to help them accelerate their adoption of AI and meet growing regulatory requirements. So we're excited about the opportunities ahead as we combine our expertise with Kindle Bridge insights and Kindle Consult outcomes. The investments we've made in capabilities and innovation directly align with our customers' top IT priorities and make us an ever more essential services provider to them. And they're driving growth with apps, data, and AI, hyperscaler and security and resiliency signings, all of which have grown double digits over the past year. As we've highlighted before, this fiscal year, half of our revenue is coming from post-spin signings that have higher margins. And in fiscal 2026, it'll be roughly two-thirds. This inflection point when our P&L is largely determined by our post-spend signings will dramatically strengthen our earnings and growth profile. Our updated forecast for fiscal 2025 is for adjusted pre-tax income of at least $460 million, reflecting a year-over-year increase of at least $295 million. As David will explain in more detail, the margins at which we're signing contracts and the other actions we're taking to grow 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 strong conversion of our earnings into cash flow. And importantly, fiscal 2025 is the year that we're pivoting to growth. As we approach the second half of this fiscal year, our purposeful efforts to shed low to no margin components of revenue will be largely behind us. As I mentioned, we expect to deliver strong growth and consult. We're also on track to generate nearly a billion dollars in hyperscale-related revenue, and we're seeing more and more opportunities through Kindrel Bridge to increase our share of wallet with existing customers. There is a growing demand for cloud migration, cloud management and optimization, security and resiliency, and data and AI services. And ultimately, we expect to gain overall market share as more enterprises look to Kindrel for their mission-critical IT needs. We're not only helping organizations run their infrastructure in their business, we're also helping our customers transform, building capabilities on new platforms, allowing them to leverage existing and new technology to drive business outcomes, and differentiating Kindrel in the process. With Kindrel Bridge, Consult, and our practices, we have executed powerfully throughout our business. We're delivering sophisticated, optimized, multi-vendor solutions to customers to help them address critical needs and major opportunities. We're delivering managed services more efficiently than ever. As a result, as we said, we're showing up differently for our customers and seizing opportunities that are unique to Kindrel. In light of all these opportunities, we're planning to host our first Post-Spin Investor Day in New York on November 21st. This will be an in-person and live webcast event, so please save the date and stay tuned for more details. Now with that, I'll hand over to David to take you through our results and our outlook.