Kyndryl Holdings, Inc.

Good day, and thank you for standing by. Welcome to the Kindle Fourth Quarter 2025 earnings conference call. At this time, all participants are in 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, Global Head of Investor Relations. Please go ahead.

Good morning, everyone, and welcome to Kindle's earnings call for the fourth quarter and fiscal year ended March 31, 2025. Before we begin, I'd like to remind you that our remarks today 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 factors section of our annual report on form 10K for the year ended March 31, 2024. Also, in today's remarks, we 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 .kindle.com. With me for today's call are Kindle's chairman and chief executive officer, Martin Schroeder, and Kindle's chief financial officer, David Weichner. Following our prepared remarks, we will 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. Kindle's been an independent company for over three years now, and I am so proud of what our global team continues to accomplish. We've solidified our market leadership position in mission-critical technology services, and we've been executing a powerful and highly effective strategy centered around building our capabilities, skills, partnerships, and innovation to drive sustainable growth. With relentless focus and dedication to our customers, our people have propelled their success and will continue to do so. So on today's call, we'll focus on how we'll accelerate our momentum going forward. But first, I want to share the highlights from fiscal 2025. Simply put, we had another great year. Signings were up 48% in constant currency to more than $18 billion. Earnings increased $317 million to $482 million in adjusted pre-tax income. We generated $446 million in adjusted free cash flow, a 53% increase from last year. And in the fourth quarter, we achieved a significant milestone by returning our top line to positive constant currency growth. Kindle Consult continued to deliver above market growth, with revenue increasing more than 25% this year, and Kindle Bridge continues to enhance the value we deliver to our customers through actionable insights. Our 3A initiatives have transformed our company, and we once again surpassed our full year targets for each of them. Among our alliances, hyperscaler related revenue more than doubled this year to $1.2 billion. We reached $775 million in annual savings from advanced delivery and another $900 million from our accounts initiative. As we enter a new fiscal year for Kindle, our 3As have shifted from being initiatives that drove our turnaround to pillars of our profitable growth strategy. In fact, our fiscal 2025 results not only exceeded the earnings cash flow in 3A's projections we laid out at the beginning of the year, they also proved the investment thesis for Kindle's evolution that we laid out three years ago. We are leaders in our space. We are important to our customers. We can execute on our strategy that is unique to us. We can grow, we are profitable, and we generate cash. In fiscal 2026, we're expecting another year of substantial earnings and cashflow growth, as well as positive constant currency revenue growth. And as I'll discuss in a few minutes, our outlook for this year is consistent with the financial objectives for fiscal 2028 that we laid out at our investor day last November. As many of you heard me say before, we are uniquely positioned to address the secular IT trends like cloud migration, increasingly hybrid IT environments, cybersecurity risks, and the adoption of AI. Our approach to designing, optimizing, running, and transforming mission-critical hybrid IT estates is driving increased demand for our services. This is reflected in the strong signings growth we delivered in fiscal 2025, which brought our full year revenue book to bill to 1.2 and included consult signings growth that was right in line with our aggregate signings growth. We've previously highlighted how our freedom of action as an independent company has unlocked long-term growth opportunities that were unique to Kindle, and our signings growth in fiscal 2025 is a powerful evidence of that. Moreover, having our revenue book to bill ratio above one foreshadows future revenue growth from committed contracts since our signings typically convert into revenue over a three to five year period. In fact, our signings growth has been significant and broad based across a range of geographies, vertical markets, and our practices. We secured 55 contracts valued at over $50 million in fiscal 2025, an increase from 40 such contracts in the prior year. These larger deals accounted for nearly 10 billion of total signings and span 22 countries, reflecting the important work we're doing for our blue chip customers all around the world. Nearly half of these contracts were over $100 million. In the fourth quarter alone, we signed a large deal that will generate a billion dollars of revenue for us over the next six years with a financial services firm that we've been serving for a long time. Going forward, we'll be modernizing and transforming the firm's IT estate and implementing AI technology at scale with Kindle Bridge. And at the same time, we'll continue supporting their core technology, providing security and resiliency and driving compliance with regulatory requirements. We also displaced an incumbent to win a new logo contract with the European FinTech to build a new hybrid IT infrastructure platform and provide cloud migration, cybersecurity, resiliency, and regulatory compliance services. And with one of our large online retail customers, we signed Newscope and extended our contract for the next five years. We're now providing application management services and software engineering development to deliver innovation that complements the modernization work we were already doing supported by Kindle Bridge. What's key here is the pattern of leveraging our expanded capabilities, partnerships, strong customer relationships, and great reputation to win more scope and higher value opportunities. In fact, under each of these three new contracts, we're providing hyperscaler-related services. This pattern highlights Kindle's position as a trusted advisor for IT services, embrace for how we can help customers operate in the present and for how we can help organizations modernize for the future. Our expanding scope not only strengthens our customers' technology operations, it also drives revenue and earnings growth for us. This share of wallet opportunity is so strategically important to us that I wanna drill down for a moment into one more example. Another significant signing this quarter was in the healthcare sector. We've been partnering with this US healthcare provider for years, and they were ready to invest in more innovation. So together with one of our hyperscaler partners and leveraging insights from Kindle Bridge, we're co-developing a comprehensive solution designed to transform and optimize their IT environment. This entails cloud migration, system consolidation, data rationalization, and application modernization, all of which will enhance patient experience and practitioner efficacy. As we design, implement, and manage this new hybrid IT estate, we'll focus on optimization, agility, and ongoing innovation. And as a result of the increased scale and scope of services, our annual revenue with this customer will grow by 33% over the next five years. The takeaway here is that Kindle, as a deeply trusted scaled services provider with differentiated capabilities across hybrid IT landscapes can help large enterprises modernize in the cloud. And we can do this in ways that present significant growth opportunities for us. Kindle Consult has also been a key driver of our signing strength and our return to revenue growth. In fiscal 2025, consult signings grew 50% in constant currency and accounted for 22% of our total signings. This is our third consecutive year of above market Kindle Consult signings growth. And as I mentioned, we saw that convert into 29% constant currency revenue growth this year. Many of our customer engagements are focused on putting the right workload on the right platform, cloud migration, optimization, addressing tech debt, and more recently, application management services. With our expanded capabilities and heritage and mission critical systems and data management, we're very well positioned to build robust data foundations for the AI enabled future through project-based consult engagements. We're also seeing demand in security and resiliency, leveraging our capabilities and data discovery data integrity, AI assessment and governance programs. These trends are driving double digit signings growth across all six of our practices. And they will continue to be meaningful growth opportunities, especially since 95% of our companies are adopting AI, but nearly two thirds haven't yet implemented an AI governance framework. So because of our strong fiscal 2025 results and expanding capabilities, we're entering our new fiscal year with a lot of momentum. And we're laser focused on driving profitable growth and delivering value to our customers. The strategy we outlined three years ago continues to resonate and our competitive advantages are powering multiple avenues for our growth, increasing scope with existing customers and winning new logos, providing industry leading managed services and growing our Kindle Consult Advisory revenues and expanding our capabilities through our practices with our strategic alliances and with Kindle Bridge. Our position as a vital partner to our customers in both running and transforming their mission critical technology estates is very powerful. And through our six global practices in Kindle Consult we'll continue to build new capabilities and skills that our customers need to advance their business objectives. Our alliances with hyperscalers and leading technology providers are extensive and continually expanding. And our AI powered Kindle Bridge operating platform distinguishes us from our peers, power service excellence and drives efficiency. This combination of leading expertise, strategic alliances and technological innovation opens new doors with existing customers and attracts new customers, creating incremental growth opportunities for us and ensuring that we remain a critical part of our customer's IT evolution. And this combination is what will fuel our top line growth in fiscal 2026 and beyond. I wanna reiterate the targets we set for fiscal 2028 at our investor day in November. We expect to deliver more than a billion in adjusted free cashflow. We expect to deliver more than a billion two in adjusted pre-tax income. And to achieve these earnings in cashflow targets, we only need to reach mid single digit revenue growth that will progress toward by fiscal 2028. With strong conversion of earnings to free cashflow we'll balance our approach to capital allocation by investing in organic growth opportunities and occasional tuck in acquisitions. And at the same time, returning capital to shareholders through our share repurchase program. It should be clear that the fiscal 2026 outlook we published yesterday is consistent with the path we previously laid out for our growth from fiscal 2025 to fiscal 2028. And as David will discuss in fiscal 2026, we expect to generate approximately 550 million in adjusted free cashflow. We'll grow our pre-tax earnings by more than 240 million to at least 725 million. And we'll generate positive constant currency revenue growth. This fiscal year, two thirds of our P&L will be derived from our higher margin post-spend signings. And while we understand that it's a challenging environment in which to provide guidance given the heightened macro uncertainty since our last earnings call, let's remember though, there are always reasons for companies to delay investment decisions. But the nature of our business, providing mission critical services under multi-year contracts, means that we are significantly insulated from, although not immune to macro factors. And enterprise tech debt isn't going away because of potential tariffs or other geo-economic factors. Our Q4 and fiscal 2025 signings growth is a testament to the unique Kindle specific opportunities available to us. Our technology services are essential and non-discretionary and we provide efficiency, resiliency and innovation to our customers. As a result, while we'll continue to monitor economic and geopolitical developments carefully, our significant insulation from macro factors gives us confidence in the outlook we provided and in our longer term trajectory. With that, I'd like to pass the call over to David.

Thanks, Martin. And hello everyone. Today, I'd like to discuss our fourth quarter results, our continued progress on our three A's initiatives, the solid margins at which we're signing customer contracts and our outlook for fiscal year 2026, which began on April 1. We're proud of finishing strong in fiscal 2025 and we're enthusiastic about how our market leadership, strategy and capabilities have positioned Kindle for profitable growth in fiscal 2026 and beyond. Our fourth quarter results reflect strong operational execution and continued progress on our key initiatives. In the quarter, revenue totaled $3.8 billion, a .3% year over year increase in constant currency. Returning a positive constant currency revenue growth is an important milestone for us. Key drivers of our growth were Kindle Consult, where our revenues grew 45% in the quarter and a hyperscaler related work where our revenues more than doubled. Our $5.5 billion of signings made Q4 our sixth consecutive quarter of signings growth and brings our full year signings growth to 46%. Our strength continues to be broad based across our practices and geographic segments with Kindle Consult signings growing at the same rate as our aggregate signings growth. Our fourth quarter adjusted EBITDA was $698 million and our adjusted EBITDA margin was .4% up 370 basis points year over year. Adjusted pre-tax income was $185 million, six times what it was a year earlier. And our adjusted pre-tax margin increased 410 basis points year over year. Included in our $185 million of adjusted pre-tax income was $23 million in workforce rebalancing charges and the contractually committed $50 million year over year increase in IBM software costs that we've discussed on prior calls. As a result, our underlying operational momentum is even stronger than the $150 million plus increase in adjusted pre-tax income we reported in Q4. Through our alliances, we generated $378 million in hyperscaler related revenue in the fourth quarter. Our $1.2 billion full year total was more than double the prior year level and significantly exceeded our target of nearly a billion dollars of hyperscaler related revenue. Through our advanced delivery initiative powered by Kindle Bridge, we continue to drive automation throughout our delivery operations, incorporate more technology into our offerings, reduce our costs and increase our already strong service levels. To date, we've been able to free out more than 13,000 delivery professionals to address new revenue opportunities and backfill attrition. This is now worth a cumulative $775 million a year to us, surpassing our fiscal 2025 target. Our accounts initiative continues to remediate elements of contracts we inherited with substandard margins. In the fourth quarter, we increased the cumulative annualized profit from our focus accounts by $75 million to $900 million. This also topped our target for the year. The concepts underlying the 3As continue to be an important source of margin expansion and value creation for us, and are now integral parts of our operational and -to-market approach. We're more confident than ever that the benefits from our 3As initiatives will meet and ultimately exceed the targets we laid out in early 2022 and raised in early 2024. For fiscal year 25 as a whole, we generated $15.1 billion of revenue. Our adjusted EBITDA was $2.5 billion, and our adjusted pre-tax income was $482 million, representing a $317 million, or 192% increase from the prior year. We expanded our adjusted EBITDA margin by 200 basis points, and our adjusted pre-tax margin by 220 basis points year over year, increases that represent continued progress on our path to high single-digit adjusted pre-tax margins. Our financial progress reflects our strategic achievements, leveraging technology alliances, stepping away from empty calorie revenues, fixing focus accounts, growing the consult portion of our business, driving efficiency throughout our operations, and positioning Kindle to meet our customers' future IT needs. Our performance in fiscal 2025 gives us strong momentum as we move forward. In fact, we continue to position Kindle for future revenue, margin, and profit growth, not only by growing signings this past quarter and year, but also by commanding attractive margins on our signings. Throughout fiscal 2025, just like fiscal 2023 and 2024, we signed contracts with projected gross margins in the mid-20s and projected pre-tax margins in the very high single digits. Therefore, as our business mix increasingly shifts toward more post-spin contracts, you'll see significant margin expansion in our reported results. We've again included a gross profit -to-bill chart that accentuates how we've been creating and capturing value in our business. With an average projected gross margin of 26% on our $18.2 billion of signings over the last year, we've added over $4.5 billion of projected gross profit to our backlog. Over the same period of time, we've reported gross profit of $3.1 billion. This means we've been adding significantly more gross profit to our backlog than our contracted book of business has been producing in our P&L. Having a gross profit -to-bill ratio above one at 1.5 over the latest 12 months is a key measure of how we're growing what matters most, the expected future profit from committed contracts. And with our gross profit -to-bill ratio having been consistently above one, that means that we've been consistently growing our gross profit backlog over the last three years. Turning to our cash flow and balance sheet, our adjusted free cash flow was $446 million for the year, and our net capital expenditures were $522 million. We provided a bridge from our adjusted pre-tax income to our free cash flow, as well as a bridge from our adjusted EBITDA to our free cash flow in the appendix. Under the share repurchase authorization we announced in late November, we bought back 1.8 million shares of our common stock in the quarter at a cost of $64 million. As of March 31, we have $206 million of repurchase capacity remaining under our share repurchase authorization. Our financial position remains strong. Our cash balance was $1.8 billion. Our cash combined with available debt capacity under committed borrowing facilities gave us nearly $5 billion of liquidity at quarter end. Our debt maturities are well-laddered from late 2026 to 2041. We had no borrowings outstanding under our revolving credit facility, and our net debt at quarter end was only $1.4 billion. Our target has been to keep net leverage below one times adjusted EBITDA, and we ended the quarter well within our target range at 0.6 times. We are rated investment grade by Moody's, Fitch, and S&P. We continue to monitor economic and geopolitical developments. Our direct exposure to US federal government spending is extremely limited with less than half of 1% of our revenue coming from US government contracts. Our operations in China represent only about 1% of our revenue and our costs, and our direct exposure to various tariffs that have been proposed is quite limited. On capital allocation, our top priorities are to maintain strong liquidity, remain investment grade, reinvest in our business, and regularly return capital to shareholders. As we look ahead to fiscal 2026, our core financial goals are to continue to grow our revenues, expand our margins, increase our earnings, and generate free cash flow. Our outlook assumes that revenue will grow 1% in constant currency. Within that, we expect hyperscaler related revenue to reach $1.8 billion or more, a 50% year over year increase. We expect Kindro Consult revenue to again grow double digits, and we expect constant currency revenue growth each quarter to be about the full year rate. We estimate that our adjusted EBITDA margin in fiscal 2026 will be approximately 18%, an increase of roughly 130 basis points versus fiscal 25. And our outlook for adjusted pre-tax income is at least $725 million. This means growing our adjusted pre-tax income by at least $243 million and increasing our adjusted pre-tax margin by at least 150 basis points year over year. That means we're calling for a third straight year of the strong roughly two point margin expansion we delivered in fiscal 2024 and fiscal 2025. And it keeps us right on track to generate high single digit adjusted pre-tax margins in fiscal 2027 and fiscal 2028. Exchange rates are currently expected to have a minimal impact on adjusted EBITDA and adjusted pre-tax income in fiscal 26 compared to fiscal 25. Also, this should be the last year in which we're talking about IBM software cost increases. Our fiscal 2026 outlook includes the $150 million Kindle specific IBM software cost increase that we've previously discussed. And going forward, we don't expect any outsized cost moves related to our former parent for two reasons. First, beginning in January, it will be the annual inflationary increases that IBM poses on the entire market that determine our pricing. And second, we increasingly have provisions in our customer contracts that protect us. We're excited to be putting this behind us. We continue to see opportunities to drive efficiencies in our operations, both through advanced delivery and in SG&A functions. Looking at the first quarter in particular, we're expecting our adjusted pre-tax income to be 30 to 50% higher than the $92 million we reported in last year's first quarter. On the topic of cash flow, for the year as a whole, we project roughly $675 million of net capital expenditures in fiscal 2026 and about $675 million of depreciation expense. We expect to pay roughly $175 million in cash taxes. And we're forecasting roughly 100% conversion of adjusted pre-tax income less cash taxes into free cash flow, implying adjusted free cash flow of approximately $550 million. From a timing perspective, and similar to last year, Q1 will be a significant user of cash due to annual software and incentive payments. And subsequent quarters will be more favorable. The difference between our adjusted free cash flow and gap cash from operating activities less net cap ex is only $25 million in the last six months of fiscal 2025. And we expect the adjustments included in our calculation of cash flow to remain modest. Over the medium term, we remain committed to delivering significant margin expansion and generating free cash flow growth. We have a solid game plan to drive our strategic progress. And this game plan starts with the steps we've already taken to expand our technology alliances, manage our costs and earn a return on all of our revenues. So in fiscal 2025, we said what we were going to do and we delivered that and more. This gives us financial momentum as we move into our fiscal 2026. Even more important though, is the momentum we have as a leading provider of mission critical technology services, driving thought leadership in our space, growing our Kindle consult presence rapidly, delivering modern hybrid IT solutions to our customers and operating at the heart of secular trends that will fuel customer demand for our services for the foreseeable future. And over the medium term, we remain committed to delivering significant margin expansion and generating free cash flow growth. So let me end by again thanking the tens of thousands of Kindle's around the world who are powering our progress. With that, Martin and I would be pleased to take your questions.

Thank you. At this time, we'll conduct the question and answer session. As a reminder, to ask a question, you need to press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Martin, are you ready for your first question?

Yes, sir, thank you, operator.

All right. One moment for our first question comes from Jamie Friedman from Susquehanna, please go ahead.

Hi, good morning and congratulations on a year well done. So Martin, my first question is for you. I was wondering how you think of the accomplishments in 25 and your preliminary view of the positioning of the company Mindshare and technology in 26. How does that set you up for the midterm cadence that you shared at the analyst's day?

Yeah, good, well, thank you, Jamie. Thanks for joining and thanks for the nice comments on the year we just finished. You know, if I think back to three and a half years ago when we laid out, I think a very clear strategy that was unique to us with very clear signposts on how to follow our progress, I think last year was a reflection of another great step, another great example of execution on a strategy that will continue to carry us into the medium term. Look, the medium term goals that we laid out, I think are what we're all focused on. And this year, this fiscal year that we just guided towards is another good step toward that. But over the long term, what we've all been working on and what we've been talking about for three and a half years, and I think again, it's really becoming evident now is one, the power of this business model, given the role we play in our customers' environments, the visibility we have to the future is starting to become evident. Two, three and a half years ago, obviously the world has changed, and three and a half years the world will be different again, but we have been executing and delivering in pretty much exactly what we said we would get done. I think the read through is that we do kind of control our own destiny here, not that we're not affected by the outside world, but as long as we continue to invest in innovation, as long as we continue to invest in capabilities, then our ability to not only see the future, but to deliver that future to our investors is should be quite evident as well over the last few years. And then I point to this team's strong execution. So we're in a great space with a great business model. We have control, we'll continue to invest. This is another big year of investment for us, which means we control our own destiny through the midterm again, and this team has demonstrated an ability to execute. So I think we're very well positioned to deliver everything that we've talked about back in November and the last year and the last quarter were evidence of how we've continued to do that.

And then for my follow up, I'd be interested in your perspective on where you are with the journey with the focus accounts. Are you closer to the middle or the end at this point? And what have you learned from the kind of restructuring or the conversations at least from those accounts that got you here since the separation three and a half years ago?

Yeah, yeah, thanks, Jamie. So look, the view we had when we started this was that the work we do is really important, that we're really good at it, and if we could engage with our customer base, we could reimagine these relationships at quite frankly an accelerated pace than what we were faced with if we just looked at what the backlog had. And I think that's what we've proven now because of the quality of what we bring, the role we play in our customers' environments. They have been, our customers have been really willing, provided we showed up with some innovation, with some new ideas, with some ways to address their challenges of the future that they would be keen to and willing to reimagine how these relationships worked. And I think that's what my observation over the last three and a half years is that the teams have done an amazing job of doing that and says a lot about the quality of the talent and the skills we have. It says a lot about our ability to discern the future for our customers and bring them on this journey with us. And it says a lot about us as an organization and our focus on the bottom line and capturing the value we're creating. So when we started this three and a half years ago, we said it would be worth 800 million over the medium term. We've obviously exceeded that. But we are getting toward the end of this now from a focus account perspective. We're not through 100% of them. There is a long tail to this, but in terms of driving to getting us here, there is, we are well through the, I call it the substantial majority. Maybe David has a more specific way to identify substantial majority, but we're probably three quarters of the way through this from a revenue perspective. But again, I would go back to what does it prove? It proves that the work we do is valuable, the investments we've made are paying off, that our customers love what we do, and we are very much now part of their future and not just part of their past.

Yep, and we are about, I'd say, 75% of the way through, three quarters of the way through on revenue, but we've already achieved 90% of our targeted savings. So we're, with $900 million of annualized benefits on the focus accounts, our, the target that started out at 800 million is now a billion, and I think we're well positioned to exceed that as we work through the remainder of the accounts and drive not only margin improvement there, but also growth in the top line.

Great, thanks. Operator, can we move to the next question, please?

Thank you. Our next question comes from Tin Singh Hawang from JP Morgan, please go ahead.

Hi, thanks, congrats on the positive revenue growth milestone, good to see that. I also liked Martin's big discussions or going through some of the larger deals you guys won, which brings me to my question around book to bill. Do you think book to bill, given some of the wins that you've had and the pipeline that you can still maintain this book to bill above one for the better part of fiscal 26? And I'm curious, given some of the larger deals, maybe what the duration of the backlog looks like, is that changing just to think about ACV maybe improving underneath it? Thank you.

Yeah, thanks, Tinjian, and thanks for the nice, also thanks for the nice comments on the quarter. Look, a couple of things, and you were one of the people, and you know this business well, so you were on this early and three and a half years ago, we were talking about how does Kindle get back to growth? You need a book to build north of one, et cetera, et cetera, you know this because you were at the heart of the questions and doing the work, and as you said, well, if we're going to continue growth, which is what we see now and what we certainly put on the table back in November over the medium term, then we do have to continue to have a book to build north of one, and that's what we see over the medium term, right, in order to drive that continued growth. Now, one year of book to bill doesn't get us everything we need, and so we have to execute again, but the capabilities we've built, the innovation we've built is showing up really well, and it's driving the kind of performance that we saw, for instance, in our consult business, where 50% signings growth in the year is driving 29% revenue growth, where, for instance, from a standing start, from essentially nothing, we built last year services around our alliance activity, around our hyperscaler alliance activity that turned into more than a billion dollars of business per year, and those will keep growing. And so, yes, the short answer is yes, we recognize and expect that we will continue to deliver a book to build north of one. We would, as we've always said, encourage everybody to look at this over a 12-month trailing basis, because in any given quarter, it could be phenomenal, it could be for whatever reason, it's just too short a period, but we feel good about the momentum we're seeing, the vectors of growth that we've been pointing to, and our ability to continue to drive a book to build north of one.

Perfect, and just my follow-up to, within that was the ACV question, because I think you got it to consult growing in the double digit, I know it's running very hot in 25, so I think that'll give you some short-term lift in conversion, but then you have a lot of longer duration deals as well. Can you just talk about ACV and how the year will play out with consult presumably growing a little bit slower and back-all conversion making up for it to get to that positive rep and growth for the year?

Sure, we do expect consult to continue to grow top-line double digits in fiscal 26, so it'll continue to be a significant contributor to our growth. When we look at signings last year, a couple points worth mentioning, first, overall signings grow about 46%, consult grew 47%, and that means managed services growth was right there as well with very strong growth, and so we're seeing a good balance in our growth between the two. Consult signings will tend to turn into revenue a little bit faster, managed services contracts tend to be longer, and we really like what they do for our backlog, because it's really committed revenue, and committed profitability that we're adding to our unrecorded balance sheet. And in terms of ACV, what we saw was the average signing was probably a few months longer last year, so about 75 to 80% of our growth was due to just additional activity, and then 20 to 25% of our 46% growth was driven by having a longer duration on average. And we really, it's the example that you mentioned highlights, we're very focused on growing ACV and individual accounts growing our revenue there, and the opportunities that we have to expand scope in our relationships really end up being a big driver of that ACV growth.

Operator, next question please.

Thank you. Our next question comes from Ian Zephino from Oppenheimer, please go ahead.

Hi, great, thank you very much, very good quarter. Wanted to ask on the guide and the revenue growth that you're expecting for the year, I would have expected with signings growth 46% or so, that might seem very conservative, so maybe kind of walk us through how you're kind of getting there. And I know that there are some legacy signings that are starting to fall off, and maybe the better question is how do we think about revenues maybe not just this current year, but subsequent years as some of those legacy signings fall off and I would imagine revenues would then accelerate, but I hope we understand that a little bit, thanks.

Yeah, sure, thank you, and thanks for the nice comments on the year and the quarter we just finished. I think there's a few things worth pointing out. One is, as I talked about earlier, three and a half years ago, we were trying to prove to everybody that we could grow, and what is really nice about your question, what's really nice about the position we're in now is now we're talking about why can't you be growing faster, which is quite frankly, it's fabulous. Teams done a nice job of repositioning this business and executing a plan that got us to this point, so we're delighted. As you said, well, look, we have a really good book to bill from last year, but the two prior years with our work on focus accounts and our intent to improve profitability first, that's all in the backlog as well, so what we wanted to make sure that everybody understood is that in this very strong profit improvement year again, this very strong cashflow growth again, all consistent with what we laid out over the medium term back in November, that we're not relying on substantial revenue growth to get there, even though last year when we were still working on focus accounts, we had a two point year to year improvement in revenue growth, right from down six to down four, and now we're saying we're only really relying on one, that's a big step up obviously in the improvement, but with now more and more of our P&L determined by what we've put in the backlog, what we've been able to shape and what is coming out into our P&L this year, it says that the things we relied on to deliver growth in the fourth, we are as David said, well, he talked a little bit about consult earlier, those vectors of growth will continue, so yes, we said it in a specific way, yes, that we control more of our own P&L from what we've put in, but this year, this fiscal year and the guide is what we're relying on to deliver, and we only, I keep coming back to only, we told everybody that in fiscal 28, we'd get to kind of a mid single digit level and we're still well on track and this is consistent with that, but again, with this year's P&L being more than now half, two thirds of our P&L being determined by what we've put in, that's certainly, it's accurate, it's factual, but our year is also determined not just by fiscal 25 signings, it's determined by fiscal 24 signings when we were still going through the account focus work and in great earnest, it's determined by fiscal 23 signings, which again, still going through account focus in great earnest and obviously, even though two thirds or so is determined by our stuff, that means a third is what we inherited, so there's a lot of dynamics here that I think we wanted to make sure that our investors understood that another great year for profit improvement, even as we invest, another great year for cashflow generation, but we're not relying on a big swing back to revenue growth in order to deliver that.

Okay, understood and then as a followup, it seems like you have an incredible amount of visibility just in the business and the way the state of the contracts work and like I said earlier, you're coming off this massive acceleration in the business, so how are you then thinking about, I guess capital allocation and maybe your tolerance or your appetite to get a little bit more aggressive on that side,

thanks. Yeah, thanks, so it's once again, relative to where we started, it's great to be talking about how we're gonna be allocating capital and I think we've continued to do two things, we've continued to look for opportunities to invest in our own business, we've done one acquisition which is working out really, really well and I would say that we continue to look for, tuck in acquisitions that can accelerate our position in the marketplace that can maybe expand capabilities within things we're already doing, so first and foremost, we'll look to invest in the business because we see so much opportunity and the other thing, I'm really pleased that probably a little bit ahead of what everyone expected last November, the board approved the initiation of a share repurchase program which we've been doing and we see great value in the stock here, so we'll obviously continue to allocate capital to our shareholders as well to return them their money, so we see opportunities in both, continue to invest, this is a business model that has great visibility to the future, so we have an ability to not only invest but we have an ability to return capital and I think we'll continue to do both of those things, I think we have an opportunity to do both, anything you would add Dave? Nope. Okay, there you go.

All right, great, thanks for the call.

Thank you.

Great, operator, next question please.

Thank you. Our next question comes from Davia Goya from Scotiabank, please go ahead.

Good morning everyone, thanks a lot for all the color you provided. I actually wanted to go back and circle back on the accounts discussion that we had and maybe just get a little bit more clarity on the impact of macro on some of your strategic global accounts and trying to understand what are their key priorities and could they be impacted given all the global uncertainties out there and I'm also in line trying to understand what is the percentage of revenue that could be potentially exposed to macro uncertainties if at all?

Thank you. Yeah, thanks Davia. So a couple things, uncertainty seems to be the sort of the most commonly used word in the business press these days. I would say that for us, the good news is we're in the productivity business. We help drive productivity, create opportunities, optimize, consolidate, deconsolidate if that's what our customers are trying to do and so this environment tends to be a tailwind for us because our customers need help in preparing their infrastructure for whatever macro environment they're envisioning and that's true not only of macro which as you know well, are we in this period of uncertainty for two months, three months or a year? We don't know but we know that they're always gonna be preparing for the future they see. It's also true with regard to technology and over the last 20 plus years, I think the world has observed that no matter what the business problem is, technology is part of that answer. So if you're trying to find new customers, if you're trying to create a better employee experience, if you're trying to get yourself ready for a new regulatory environment or if you're trying to prepare for a new view of your own macro environment, technology is a part of that and that's why it tends to be a tailwind for us because they need an infrastructure to execute that strategy, whatever it is, that is secure and resilient and fit for purpose. So for us, I would say uncertainty tends to translate but in all its forms, tends to translate to a bit of a tailwind. And then your second question, look how much of our business is subject to it? We enter a year as is typical, we enter a year with 70, 75% of our year under contract. So the revenue that we already have for the year that was represented in the guide is somewhere between 70 and 75% booked. And so yes, we have to continue to execute on signing deals and converting those to revenue throughout the whole year and in order to deliver the year, but we're very comfortable, we're very confident with the trends we're seeing, the role we play in our customers environments and the capabilities and innovation we're bringing that will continue to be able to execute that. And again, I'd go to the momentum we see in consult as a good data point, the momentum we see in our hyperscaler alliance activity as a good data point with other things now picking up, the work that we're doing with SAP and RISE is an important addition this year. So most of the substantial majority of our year this year is under backlog and we see really good demand trends given what we do and the role we play and the capabilities we have to deliver the year.

That's great. Just as a follow up for doing this discussion, here, Martin, I wanted to get a little bit more color quickly on Kindle Bridge. Is it fair to assume that Kindle Bridge can provide some additional leverage in such uncertain macro conditions when global clients potentially pull back on new implementations or enhancements and could Kindle Bridge actually help the company uncover new opportunities here? Thank you. Yeah,

thanks, Divya. The short answer is yes. So among the many capabilities that Bridge has around observability and keeping your systems optimized and resilient, et cetera, et cetera, one of the things it can do is help uncover unused resources and you can imagine in a big sprawling corporation how many, for instance, unused public cloud instances are out there because they were used for something and then they need it anymore, but somebody needs to find that and identify it and then get it turned off. So among the many capabilities that Bridge brings to customers is, as a very direct example, is an ability to uncover unused resources, but there's also a whole host of what we call actionable insights that we're delivering to our customers every month to help them optimize, to help them get ahead of problems, each of which is tied to one of their business outcomes. So yes, Bridge becomes not only, it's not only the way we do our work, it's also providing some, it's also providing a lot of actionable insights to our customers to help them optimize, to help them find savings in this case, to help them get ahead of challenges that they may have so that they can save money. A, not only, but the A real cost in anybody's infrastructure is both the planned downtime and quite frankly, the unplanned downtime and we've been very public that we believe we saved customers across our portfolio billions of dollars just from the use of Bridge in managing better planned downtime and also avoiding unplanned downtime. So there's real benefits here.

Yeah, and I just wanted to add on on the macro uncertainty point that in the fourth quarter, our consult signings grew 37% and that was obviously a period of time where there's a little bit more uncertainty and I think the growth we delivered in consult signings sort of highlights as a proof point how we're insulated to the macro environment and really executing on a series of opportunities that are unique and specific to us, allowing us to perform really quite differently than the, call it the overall market with growth in the 37% range last quarter.

Great, thank you. Operator, I think we have one more question in the queue.

Thank you. Our next question comes from Tyler DuPont from Bank of America, please go ahead.

Good morning, Martin and David, thanks for taking the question. I want to start just by echoing the congratulations on the quarter, it's nice to be a return-sponsor of Conferencing Growth, definitely moving in the right direction there. But I wanted to first to ask about growth trends in the consult business. First, maybe just discuss the go-to market in consult and if that's changed at all in recent quarters, given the solid growth that we've seen and the fact that this component keeps increasing as a percent of total, I think it's now around 25% as a four-queue, how should we anticipate the growth there and any margin dynamics among those contracts compared to the company average worth mentioning?

Yeah, thanks, Tyler, thanks for the nice comment. So two things, first on the revenue trajectory and let me start with the mix because while it is certainly, what you said is right, 25% of our revenue now, remember that while the numerator has been growing very well and we've been executing well, numerator being the consult, the total we've been engineering a decline in because of the focus account activity, so that product is obviously growing faster and now that we're back to growth in total, I would expect that while the numerator will continue to grow quite well, it won't be making the progress that we've seen when we started three and a half years ago with it under 10% of our overall mix, now improving dramatically, two and a half X to 25, but that progress will slow, notwithstanding that we continue to see great momentum in our consult signings and obviously that will convert to revenue as David said well earlier, tends to be a bit faster than our managed service business and then on margin profile, what we see is that the margins in consult tend to be a little bit higher, not dramatically, but they're accretive to the overall margin profile and that's part of why with faster growth plus accretive to margins, part of why we're investing so heavily this year in our consult business and that's all part of what we guided to profit. So while again, we have another big step up in profit year to year, which we're delighted and excited about, that includes an acceleration if you will, of our investments in our consult business, it includes a continuation of our investments in Kindle Bridge, it includes continuation of our investments in our partnerships, et cetera, et cetera, et cetera, but an acceleration in consult. So yes, it's growing faster, it will continue to grow faster than the overall, the mix won't move up as much because the total is now growing and it is accretive at the bottom line. Understood that that's helpful,

Martin. And then just on margins, particularly from a bookings lens, nice to see signings maintain that 9-ish percent suggested PTI margin profile, but given the strength in bookings that you've seen over the past several quarters, have you given any thoughts to maybe flexing that pricing muscle a bit harder?

Have we given any thought? Look, we wanna get paid for the great work we do and teams have done a really nice job of creating and quite frankly, capturing the value that we're helping our customers create. So I think it's a testament and the data shows the value of what we do, our customers desire for us to continue to be a big part and invest in their own business. Our accounts and this is a good spot for us to land. This is a number that we've been talking about for three and a half years. We always said that within the capabilities we have and the investments we're making that we can capture high single digit PTI margins and this is the right place for us to be. So I feel great about the margin profile of what we're putting in. I feel great about what it says about how our customers think about us. And as long as we continue to invest and I laid out, gave you a bit more color on investment as long as we continue to invest to bring new capabilities and to innovate, I think this is a good reflection of how we can get paid for what we're doing. David, you wanna? All right. Operator, I think that's the end of the question. So let me just wrap up quickly first. Thanks everybody for joining and thanks for the questions. When I think about the year ahead, as you could hear from our commentary, from the data, it's all about profitable growth for us. Our first three and a half years, we had to fix the business and we had to do that while we continue to support our existing customers with the best services in the world and that's exactly what this team has done. We've invested in innovation, we invested in their capabilities, we invested in our partnerships, all of which we'll continue to do, in fact, accelerate and as a result, we're able now to engage differently with our customers, not just focused on meeting them where they are and what we can do for them today, but helping them achieve their business outcomes, capturing new opportunities and obviously supporting their objectives so that we're part of their future as well and all of that happens because of the tens of thousands of Kindrals around the world working together every day as a flat and fast and focused teams and they've really earned the right to win and they've earned the right to keep winning and that's what you'll see from us. So thanks again, everybody, for joining the call.

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