Kyndryl Holdings, Inc.

Good day, and thank you for standing by. Welcome to the Kendrell Fiscal Third Quarter 2026 Earning 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, please press star 11 on your telephone. You will then hear an automated message advising that 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 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 third fiscal quarter ended December 31, 2025. Before we begin, I'd like to remind you that our remarks today include forward-looking statements. These statements do not guarantee future performance and speak only as of today. and the company assumes no obligation to update its forward-looking statements except as required by law. Actual outcomes or results may differ materially from those suggested by forward-looking statements as a result of risks and uncertainties. For more information on some of these risks and uncertainties, please see the Risk Factors section of our annual report on Form 10-K for the year ended March 31, 2025, as such factors may be updated from time to time in the company's subsequent filings with the SEC. Also, in today's remarks, we refer to certain non-GAAP financial metrics. Definitions and additional information about our calculation of non-GAAP financial metrics, as well as 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. Following our prepared remarks, we will hold a Q&A session. I'd now like to turn the call over to Kindrel's Chairman and Chief Executive Officer, Martin Schroeder. Martin?

Thank you, Laurie, and thanks to each of you for joining us. Today we announced a few leadership changes, and important for this call, Harsh Chug has been appointed Interim Chief Financial Officer. He's joining us on today's call, and we'll walk through the quarter in more detail. Harsh is a seasoned leader with extensive experience in our business, finance, and the technology industry. We are fortunate to have his leadership to guide our finance organization as we continue to execute our priorities. With that, let's turn to the third quarter. We delivered margin expansion, higher earnings, and positive free cash flow. Our 3% top line growth was unchanged in constant currency. We've been investing to support future growth opportunities, and the base we're building is strengthening our profitability as our mix of post-spend signings convert over time. With $3.9 billion of signings in the quarter, including 11 signed contracts exceeding $50 million each and $15.4 billion over the last year, our trailing 12-month revenue book-to-bill ratio remains above 1.0, and we're pleased that disciplined execution has ensured that signed contracts come with solid projected margins. While we made progress in the third quarter, I want to share some thoughts on what is different from the start of our fiscal year that drove our second half outlook to be below what we were targeting. For some context, we're in a services business operating mission-critical systems that require multi-year customer commitments. With the accelerating pace of new AI capabilities being introduced and regulatory uncertainty, specifically on data sovereignty, long-term agreements have become more complex and therefore, sales cycles are taking longer. Additionally, the timelines for large enterprise ERP transitions to cloud solutions have extended, which has also contributed to longer sales cycles. These dynamics were particularly noticeable in Kindle Consult's third quarter performance, which remained strong and delivered double-digit revenue growth, but came in below our expectations. Second, the way we collaborate with IBM, one of our key alliance partners, is continuing to evolve. I'll speak more about that in a minute. Before I do, I want to discuss our earnings variance in the quarter. We've made investments to support our growth in consults. These investments have taken longer than expected to contribute to the top line due to the lengthening in the sales cycles that I just described. Coupled with an unanticipated decline in overall employee attrition, our labor costs are higher in the near term given the levels of turnover we've assumed. As we've demonstrated over the last four years, we'll address our labor efficiencies. Importantly, we've had positive momentum in key aspects of our business, including consult and alliances. And we have a strong foothold in the areas where market disruption is occurring, which gives us a running start as more customers are ready to scale AI and implement sovereign solutions. Therefore, we're driving towards our key fiscal 28 targets, and we remain confident in our growth strategy. As I mentioned a moment ago, it's important to put a bit more context to the evolution of our partnership with IBM. At the time of the spinoff, as we've covered many times, the commercial agreement that we inherited essentially put 40% of our revenue in a low to no margin position. we called this our Focus Accounts Initiative. Over the last four years, we've addressed most of these focus accounts, and you can see that reflected in our revenue performance and our significant profitability improvements. As we enter this fiscal year, we believe that by and large, our customers who consumed IBM's innovation through our services contracts would continue to do so in a similar manner. What we are seeing is that our customers' consumption models for IBM's innovation are changing. While it doesn't change the scope of our services, or our ability to grow our services content, it does have an impact on the size of our signings, and therefore the revenue we receive over time. And as we said, this has a limited impact on our earnings. So this chart shows our revenue performance in constant currency, and you can clearly see the revenue declines through our Focus Accounts initiative. And these declines have continued as the evolving IBM content had a three-and-a-half point adverse effect on revenue growth. To give you a sense of the magnitude of this, when we were spun off, the annualized run rate of our spend with IBM was nearly $4 billion, and now it is approximately $2 billion, so it's essentially cut in half. This matters because our customers will decide how to best consume our high-value services and IBM's own innovation. We continue to evolve the joint Kindle and IBM value proposition as the pace of modernization in mission-critical environments accelerates. The goal of the work we do together is to create greater value for our customers, and we believe it is important to understand both views of revenue growth. Now let's shift to our primary growth factors and the actions underway to execute against a clear set of priorities. Let me start with our hyperscaler alliances. At the start of the fiscal year, we expected we would deliver $1.8 billion in hyperscaler-related revenue, and after strong execution in the first half, we expected to exceed our initial targets. and we are now on track to realize nearly $2 billion in revenue by the end of fiscal 26. To step back for a second, the transformation that this business has undergone, starting with nearly $4 billion in IBM spend, which is now approximately $2 billion, while at the same time going from essentially zero in hyperscaler-related revenue to nearly $2 billion and growing, is profound. And it demonstrates how we've transformed Kindrel's underlying capabilities and positioned us to grow profitably and be part of our customers' future with all of our partners. We've also invested heavily in Kindrel Consult and will continue to do so as it is a key growth driver for us. As I said before, while Consult has performed extremely well, Consult's performance in the third quarter was below our expectations. Additionally, to address the factors that have impacted our revenue and our earnings, We're leveraging our Kindle Bridge operating platform and building even more agentic AI into how we deliver services to our customers to drive quality enhancements and enterprise efficiency. We're consistently expanding our capabilities with a focus on AI, and our agentic AI framework is resonating powerfully with our customers. We'll continue investing in AI innovation labs and in related capabilities and skills to deliver emerging technologies to customers at increasing scale. We're further expanding our presence in private cloud where we're seeing renewed demand driven by AI, data sovereignty, and security requirements. And we'll work with our alliance partners to align with those opportunities. And at the same time, we will get our cost base back in line. We're operating with a clear strategic mindset, providing innovative and world-class services that are fully aligned with our longer-term goals. We are confident in our strategic direction We're in a business with trusted customer relationships and long-term contracts that evolve all the time to meet changing market dynamics. The operational adjustments we're making position as well as we move ahead. And as we head into a new fiscal year and drive our business toward our multi-year objectives with the strategy and actions we've just outlined, it's important to recognize the progress we're aiming to deliver and focus on delivering our fiscal 2028 targets. In fiscal 2025 and with our outlook for fiscal 2026 over this two-year period, we estimate that we will deliver approximately $1.1 billion in adjusted PTI. And less expected cash taxes of $300 million over the same period, our target is to generate $800 million in fiscal 2025 and 2026 combined free cash flow. So today, we have a strong conversion of earnings to free cash flow at the rate we've been targeting. As we continue to recognize more and more revenue from our higher margin post-spin signings, we're confident in our ability to drive toward more than $1.2 billion in adjusted pre-tax income in fiscal 2028. And we believe we're well-positioned to convert that level of earnings into more than a billion in adjusted free cash flow. And we still see mid-single-digit growth as we exit fiscal 2028. With that, I'd like to pass the call over to Harsh. Harsh?