Kyndryl Holdings, Inc.

Good day, and thank you for standing by. Welcome to the Kindrel Second Quarter 2026 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 the 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.

Good morning, everyone, and welcome to Kindrel's earnings call for the second fiscal quarter ended September 30th, 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 10-K for the year ended March 31, 2025. 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 events. which are available on our website at investors.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. In the second quarter and first half of the year, we delivered margin expansion a substantial increase in earnings, and strong growth in both Kindrel Consult and hyperscaler-related revenue streams. Our trailing 12 months revenue book-to-bill remains above one, illustrating the quality of our recent signings supporting our future revenue growth. We're reaffirming our outlook for fiscal year 2026, and we're pleased that our internal cash generation and balance sheet strength position us to increase our share repurchase program by $400 million, reflecting our confidence in achieving our fiscal 2028 objectives. Focusing on revenue, even though we successfully signed most of the deals that had flipped out of Q1, our revenue for the quarter again came in about $100 million below what we were targeting. We expected a strong September to drive a sequential uptick in our year-over-year revenue comp that didn't fully materialize. The underlying dynamics are that our growth drivers, like Kindrel Consult and hyperscaler-related revenue, are working well and resonating with customers. We're increasingly working to expand scope in our contract renewals, which has led to longer sales cycles since these large, complex deals often involve replacing incumbents or transitioning in-sourced work to Kindrel. We still expect these expanded scope deals to close before our fiscal year end. And third, our focus on margin expansion is a revenue headwind for us because we've taken low margin hardware and software content out of our customer relationships. We estimate that this was roughly a four-point drag on revenue growth in Q2, without which our constant currency revenue growth would have been positive. You can see the benefit of this strategy in our earnings. We enter the third quarter with a record pipeline that supports second half signings growth and a full year book to bill ratio above one. As a result, we're confident we'll deliver revenue growth in the back half of this year as we're redoubling our efforts to expand our services footprint throughout our customer base. David will walk you through more details on these points, but I want you to keep in mind the following. We're entering the second half of the year with a larger revenue contribution from our committed backlog, including less of a headwind from having removed hardware and software content. We have incremental growth opportunities from Kindle Consult and the hyperscalers, and customer demand is driven by IT modernization, AI, and cybersecurity. We're also operating with a clear long-term mindset, all fully aligned with our triple-double-single fiscal year 28 objectives, and we remain on track to achieve them. In fact, they represent the culmination of the strategy we've been executing powerfully over the last four years. With our accounts initiative, we focused on removing unprofitable content and fixing unprofitable relationships. During this process, we kept adding more gross profit to our backlog, even as we were shrinking our revenues. We also began investing in Kindle Consult capabilities and their alliances, driving scope expansion with existing customers and our ability to add new logos. You've seen the growth in Kindle Consult and in hyperscaler-related revenue streams as a result of these investments, and that momentum is continuing. We then turned our attention to signings growth, which drove our last 12 months revenue book-to-bill ratio above one, a level we've maintained for five consecutive quarters now. And this has brought us to a spot where, over the last 12 months, we're generating constant currency revenue growth, aside from the estimated effects of removing hardware and software content. And the next step is for the content removal headwind to dissipate and the consultant hyperscaler growth to continue so that we're routinely delivering total constant currency revenue growth. It's in this context that we believe the strategy we deployed is working despite the near-term revenue pressures we faced in the first half. And we're well positioned to deliver growth in the second half on our way to our triple double single fiscal year 28 objectives. On today's call, I'll provide a deeper dive into the multiple growth drivers available to us, including infrastructure modernization. I'll also discuss how agentic AI will both be an operational and a go-to-market tailwind for Kindrel. Before diving into the near-term opportunities, let me first highlight areas where we're already seeing profitable revenue growth. Among signings, our fastest-growing practices have been apps, data, and AI, and digital workplace. Our strongest geographies have been Canada, Spain, India, and Latin America, and the projected pre-tax margin on our total signings continues to be in the high single digits. Kindle Consult revenue has increased 32% in constant currency over the last 12 months and is now running at an annual pace of $3.4 billion. And our hyperscaler-related revenues have doubled since last year, and we're tracking above our initial $1.8 billion fiscal 2026 target. Our excellence in service delivery is foundational to our growth strategy. Our innovative and outcome-based approach to managing, modernizing, and optimizing complex technology estates drives significant value for our customers and fuels share of wallet growth opportunities. Simply put, customers entrust us with more work because they appreciate the quality of what we already do for them. We deliver our mission-critical services through Kindle Bridge, our AI-powered operating platform. With Kindle Bridge, our delivery teams and our customers run on a single open platform for monitoring, managing, and securing their IT estate end-to-end with an unprecedented level of real-time observability. Kindle Bridge now performs more than 186 million automations and generates 15 million actionable insights each month, making Kindle an ever more indispensable enabler of mission-critical services. And we have more than 100 partners integrated on the platform, including Cisco, NVIDIA, Oracle, SAP, and ServiceNow, providing real-time observability that spans applications, databases, networks, mainframes, and clouds across multiple technology vendors. As a result, Kindle Bridge, combined with our knowledge of our customers' infrastructure, dramatically reduces risk. It enhances security. It sets guardrails and accelerates problem-solving. It has solidified our reputation as the gold standard for infrastructure services. It's a key driver of our top tier customer satisfaction and of how we're able to regularly win new scope during contract renewals. It's also a key driver of the $875 million of annual savings that our advanced delivery initiative is generating. Our capabilities position Kindrel the hardest secular trends like AI, cybersecurity risks, cloud migration, modernizing complex hybrid IT environments, and industry-wide skill gaps. Our alignment with these trends is allowing us to drive future growth in multiple ways, through expanded partnerships with our alliance partners, through scope expansions and new customer wins through mission-critical infrastructure expertise, through incremental Kindle Consult engagements that leverage our technology-first mindset by uncovering new opportunities with insights from Kindle Bridge and our recently launched Agentic AI Framework and by capitalizing on the widespread enterprise need for infrastructure modernization that spans all six of our global practices. I want to double-click on one of our growth factors, infrastructure modernization. Our expertise in modernizing mission-critical systems and our deep-rooted customer relationships are key drivers behind the double-digit growth we're achieving in Kindrel Consult and the additional managed services scope we regularly take on. As AI adoption accelerates, large enterprises are under increasing pressure to address tech debt and modernize their mission-critical systems. We hear this from our customers every day. And modernization now extends far beyond just updating front-end applications. Organizations need to transform IT environments to meet the rigorous demand of AI-driven operations, addressing evolving cyber threats, maintaining regulatory compliance, and leveraging new technologies. Our experience and innovative solutions uniquely position us to help customers manage tech debt and deploy AI at scale. We know that nearly half of IT systems are at or near end of life, and all this tech debt represents a substantial opportunity for us, especially since most organizations use third-party providers for modernization. In fact, our annual mainframe modernization survey showed that enterprises that have modernized their mainframe applications or migrated selected workloads to other platforms are realizing a two- to three-fold return on their investment. This underscores the tangible value of IT modernization in driving operational efficiency and business growth. Kindrel is a trusted services partner that not only runs but also transforms and sustains our customers' most vital IT assets. Relatedly, we're both using AI in our own operations and enabling customers to deploy AI in their businesses. For starters, our service delivery through Kindrel Bridge features advanced AI. Leveraging machine learning, Kijal Bridge proactively identifies risks before they impact operations. AI-driven recommendations empower our teams to resolve issues in real time, while our intelligent AI agents streamline knowledge discovery and accelerate incident response, building greater efficiency and resilience across the IT environments we manage. Our customers also need help with their own efforts to build and deploy AI agents using open source tools. By combining our infrastructure-first mindset with our deep systems expertise, we've created a dynamic, agentic AI framework for our customers. Our framework incorporates a distinctive design process, specialized tools, and an innovative engagement methodology that blends agents within complex IT environments to drive business process innovation and productivity. The Kindrel Ingestion Agents uses company documents, procedures, and data and goals to develop a comprehensive organizational process map. And with this as context, the framework's agent builder capabilities allow the organization to design, test, and launch AI agents to streamline workflows in accordance with relevant security and compliance standards. In other words, we help enterprises turn AI ambition into scalable transformation. And the demand runway is clear. Roughly 25% of our signings already contain AI-related content. We're working with insurance companies, banks, manufacturers, healthcare providers, and government agencies to deploy AI agents to streamline processes, deliver real-time analysis, and expedite decision-making. Our agentic framework will help accelerate our customers' AI adoption and drive incremental opportunities for us going forward. To look at one example of how we're driving growth, with a long-standing customer in the APAC region, we identified an opportunity to leverage our strong relationship to expand the scope of our work to the customers' operations in the Americas. Building on the trust we've earned through consistent delivery excellence over many years, we successfully displaced an incumbent service provider in the US and won the assignment to manage the customer's mission-critical IT estate globally. Under our new contract, we'll be modernizing our customer's environment to enable global synergies and AI enablement while enhancing security and reliability. This modernization will migrate virtualized workloads to the AWS cloud, and the entire tech stack will be supported by automation and observability from our Kindle Bridge platform. And importantly, this expansion will drive an increase in our revenues from this account of more than 25%. Expanding and winning new scope in our accounts is a key factor behind our positive financial trajectory in fiscal 2026 and beyond. As a reminder, by fiscal 2028, which for us begins less than 17 months from now, We expect to deliver more than $1 billion in adjusted free cash flow. We expect to deliver more than $1.2 billion in adjusted pre-tax income, and achieving these earnings and cash flow targets only requires us to reach the mid-single-digit revenue growth that we'll progress toward by 2028. With strong conversion of our earnings to free cash flow, we're optimizing our capital allocation by investing in organic growth opportunities, deploying more capital to shareholders through our increased share repurchase program, and occasionally pursuing tuck-in acquisitions. In fact, we just announced that we've agreed to acquire a mid-sized cloud services provider in Europe. Importantly, our fiscal 2026 outlook is consistent with our expected growth trajectory from fiscal 2025 to fiscal 2028. As David will discuss, we'll continue to expect to generate approximately $550 million in free cash flow this year to grow our adjusted pre-tax earnings by more than 50% and to deliver 1% full-year constant currency revenue growth. Keep in mind, two-thirds of our P&L this year will come from our higher margin post-spin signings, the first time that a significant majority of our revenue is coming from contracts that we signed as independent Kindrel. As we've discussed before, the investments we've made in our expanded capabilities and partnerships are opening new doors for us in terms of increased share of wallet and our ability to win new logos. We've won 450 new logos over the last four years, and there's more opportunity in the market today, and we have a robust pipeline of deals in the works. As a result, I'm enthusiastic about our ability to pivot to a second half that we expect will be demonstrably stronger than our first. And with that, I'd like to pass the call over to David. David.