Kyndryl (KD) 2025 Conference Summary Company Overview - **Company**: Kyndryl - **Date**: September 03, 2025 - **Speakers**: Martin Schroeder (CEO), David Weiser (CFO) Key Points Company Strategy and Transformation - Kyndryl has undergone a significant cultural transformation since its spin-off from IBM, focusing on becoming a services-oriented business rather than a product-centric one [2][7] - The company emphasizes two main advantages post-spin: the ability to invest in new capabilities and the freedom to form partnerships with major technology players like Microsoft, Google, Amazon, Oracle, and SAP [5][6] - Kyndryl's strategy is encapsulated in the "three A's": advanced delivery, alliances, and focus accounts, which have contributed to improved profitability and growth [8][9] Financial Performance and Growth - Kyndryl's consulting activities have grown from approximately 10% to over 20% of its business, with a target of reaching 25% [11] - The company has invested heavily in skills development, particularly in hyperscaler-related capabilities, with around 35,000 to 40,000 employees now holding hyperscaler credentials [14] - Kyndryl's profitability has improved significantly, with a projected increase from a -3% PTI margin at the time of the spin-off to a +5% margin [16] Focus Accounts Initiative - The focus accounts initiative has been a major contributor to profitability, with annualized benefits reaching $925 million, with a target of $1 billion [19][27] - Kyndryl inherited a challenging revenue profile from IBM, with a backlog of $20 billion and annual revenue of $8 billion, necessitating a reimagining of customer relationships [20][21] - The company has engineered a decline in revenue to improve profitability, removing over $1 billion in revenue while adding over $6.6 billion in profit dollars [22][23] Revenue Growth and Market Dynamics - Kyndryl aims for mid-single-digit revenue growth by fiscal year 2028, supported by strong book-to-bill ratios and growth in alliances and consulting [30][34] - The company has faced challenges in the first quarter, with revenue falling short of expectations, but anticipates improvement in subsequent quarters [28][40] - The inherited backlog and the transition to a more profitable business model are expected to drive future growth [35][38] AI and Infrastructure Services - Kyndryl is leveraging AI to enhance operational efficiency, automate processes, and improve service delivery, with significant monthly automation activities [60][62] - The company views AI as a tailwind for profit growth, as it allows for reduced labor costs while maintaining service quality [63][67] - AI presents both opportunities and challenges in the infrastructure services sector, with Kyndryl positioned to capitalize on its unique capabilities [66][70] Capital Allocation Strategy - Kyndryl plans to utilize its free cash flow for acquisitions and share repurchase programs, with a focus on small tuck-in acquisitions to enhance its service offerings [72][73] - The company has initiated a share repurchase program and is considering further authorizations to return capital to shareholders [74] Additional Insights - Kyndryl's ability to adapt to market demands and invest in new technologies positions it well for future growth [10][18] - The company is focused on maintaining strong customer relationships and delivering mission-critical services, which are essential for its long-term success [24][25]

Core Insights - Kyndryl's Chairman and CEO Martin Schroeter and CFO David Wyshner will present at the Citi Global TMT Conference on September 3, 2025, discussing the company's business and financial performance [1] Company Overview - Kyndryl is a leading provider of mission-critical enterprise technology services, offering advisory, implementation, and managed service capabilities to thousands of customers in over 60 countries [3] - The company is recognized as the world's largest IT infrastructure services provider, focusing on designing, building, managing, and modernizing complex information systems [3]

Core Viewpoint - Kyndryl is committing $2.25 billion over the next three years to enhance its presence in India, focusing on modernizing technology infrastructure and advancing AI initiatives while developing future-ready talent [1][4]. Group 1: Investment and Growth Plans - Kyndryl's investment aims to modernize essential technology infrastructure for leading organizations in India [1]. - The company plans to establish an AI Innovation Lab in Bengaluru to enhance its AI-powered consulting services [6]. - Kyndryl's commitment includes deepening engagement with the Government of India on AI initiatives and supporting digital training for approximately 200,000 citizens [5][10]. Group 2: Collaboration with Government - Kyndryl's CEO met with Indian Prime Minister Narendra Modi to discuss expansion plans and AI initiatives [2][3]. - The company is signing a Memorandum of Understanding with the Ministry of Commerce & Industry to support the Ease of Doing Business initiative through its AI platform, Kyndryl Bridge [9]. Group 3: Talent Development and Skilling - Kyndryl is focused on addressing the rising demand for advanced digital skills, committing to upskill its workforce in AI, cybersecurity, and other technologies [10]. - The company plans to establish offices in Tier 2 and Tier 3 cities to tap into high-potential talent and strengthen regional innovation ecosystems [10]. - Kyndryl aims to provide resources to train 200,000 beneficiaries in India through its social impact initiatives and the Kyndryl Skilling program [12]. Group 4: AI and Digital Infrastructure - Kyndryl's AI Innovation Lab will focus on hiring and training professionals skilled in AI, data, cloud, and platform engineering [6]. - The company is contributing enterprise-grade AI capabilities to support India's digital public infrastructure and governance transformation [7]. - Recent research indicates that India leads in AI workforce readiness, with 37% of business leaders confident in their teams' preparedness to adopt AI, surpassing the global average of 29% [11].

Core Points - Kyndryl has signed the White House's Pledge to America's Youth, committing to invest in AI education for young people in the U.S. [1][2] - The initiative is part of a coalition of over 60 organizations aimed at enhancing AI education accessibility for K-12 students [3] - Kyndryl's CEO emphasizes the importance of preparing the future workforce with necessary skills for the AI era [2] Company Overview - Kyndryl is a leading provider of mission-critical enterprise technology services, operating in over 60 countries [4] - The company specializes in advisory, implementation, and managed services, focusing on IT infrastructure [4] - Kyndryl is recognized as the world's largest IT infrastructure services provider [4]

Group 1: AI Market Overview - The focus on familiar AI stocks like Nvidia and hyperscalers may overlook less popular companies that could offer market-beating returns [1][2] - Data centers are critical for AI development, with Nvidia reporting data center revenue of $39.1 billion, a 73% year-over-year increase [3] Group 2: Kyndryl's Position in the Market - Kyndryl is positioned as the world's largest IT infrastructure services provider, benefiting from the growth of hyperscalers [5] - The company reported $1.4 billion in hyperscaler-related revenue for the 12-month period ending June 2025, a 119% increase from the previous year [7] - Kyndryl's total revenue declined from $16.1 billion in 2024 to $15.1 billion in 2025, indicating a strategic pivot towards hyperscaler opportunities [8] Group 3: Kyndryl's Partnerships and Expertise - Kyndryl has established partnerships with leading AI companies, including a collaboration with Nvidia to enhance generative AI solutions [10] - The company is also working with Amazon to modernize mainframe applications for AWS and partners with cybersecurity firms to protect against cyber threats [11] Group 4: Investment Potential - Kyndryl's stock may provide a market-beating performance due to its exposure to hyperscalers and other AI-related businesses [12] - Currently trading at 13.7 times forward earnings, Kyndryl stock may be an attractive option for patient investors [13]

Group 1 - The article maintains a bullish outlook on the company (NYSE: KD) due to its partnership with HPE aimed at accelerating the adoption of private cloud solutions [1] - The analyst emphasizes a unique investment approach called "First Principles," which focuses on breaking down complex financial and technological problems to identify overlooked investment opportunities [1] - The analyst has a strong background in investment, private equity, and venture capital, with a proven track record of delivering strong returns [1] Group 2 - The articles published on Seeking Alpha concentrate on emerging technologies, sustainable investing, and the intersection of innovation and finance [1] - The analyst expresses a commitment to sharing insights with a broader audience and learning from fellow investors to drive positive change [1]

Core Insights - Kyndryl has expanded its global strategic alliance with HPE to enhance customer adoption of HPE Private Cloud AI, a co-developed solution with NVIDIA [1][3] - The collaboration aims to provide seamless AI private cloud services and accelerators, facilitating the development, implementation, and scaling of AI solutions [2][3] Company Collaboration - Kyndryl Consult will leverage HPE's observability, automation, and unified control plane solutions to improve the deployment and management of AI workloads [2][3] - The partnership is designed to empower customers to maximize their AI strategies in a secure and scalable manner [3] Industry Applications - The collaboration will support various AI private cloud use cases across industries, including healthcare and financial services [4][6] - In healthcare, Kyndryl's AI services will enhance the handling of sensitive patient data and improve diagnostics and operational efficiency [6] - In financial services, the combined offerings will help organizations meet data security requirements and automate processes within compliance-rich environments [6]

Core Insights - Kyndryl reported a significant earnings and revenue miss for Q1 FY26, with non-GAAP EPS at $0.37, missing the estimate of $0.83, and GAAP revenue flat at $3.74 billion, missing expectations of $3.92 billion by 4.6% [1][5] - Despite the shortfall, the company achieved a 16% year-over-year increase in adjusted EBITDA and improved profitability, with management reaffirming full-year guidance [1][13] Financial Performance - Non-GAAP EPS was $0.37, missing the estimate of $0.83, and showing a 184.6% increase from $0.13 in Q1 FY25 [2] - GAAP revenue was $3.74 billion, unchanged from the prior year, but below the consensus estimate of $3.92 billion [2] - Adjusted EBITDA reached $647 million, a 16.4% increase from $556 million in Q1 FY25, with adjusted EBITDA margin rising to 17.3% from 14.9% [2][6] - Free cash flow was negative $222 million, reflecting typical seasonal outflows, and higher than the prior year's outflow [2][9] Business Focus and Strategy - Kyndryl specializes in designing, managing, and modernizing IT systems for enterprise clients, focusing on cloud, data management, security, AI, and networking [3] - The company is expanding higher-value services, particularly in consulting and cloud partnerships, and developing AI tools for enterprise clients [4] - Kyndryl Consult saw a revenue increase of 30% year-over-year, with signings for consulting services up 36% [7] Market Trends and Product Development - The hyperscaler alliances, which integrate clients with major cloud providers, generated significant revenue, with cloud-related revenue soaring 86% to $400 million [7][11] - The launch of the Agentic AI Framework aims to help businesses adopt advanced AI solutions, enhancing Kyndryl's position in automation and AI-enabled IT operations [8][11] Future Outlook - Management reaffirmed guidance for FY2026, projecting at least $725 million in adjusted pre-tax income, an adjusted EBITDA margin of approximately 18%, and free cash flow of approximately $550 million [13] - The company emphasizes the importance of converting contract signings into recognized revenue, particularly in consulting and cloud alliance segments [14]

[Part I - Financial Information](index=4&type=section&id=Part%20I%20-%20Financial%20Information) [Item 1. Consolidated Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Consolidated%20Financial%20Statements%20(Unaudited)) Kyndryl's unaudited consolidated financial statements for Q1 FY2026 show a significant increase in net income and detailed financial notes [Consolidated Financial Statements](index=4&type=section&id=Consolidated%20Financial%20Statements) Kyndryl's Q1 FY2026 financial results show stable revenue, a substantial increase in net income, and growth in total assets Consolidated Income Statement Highlights | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :--- | :--- | :--- | | **Revenues** | $3,743 million | $3,739 million | | **Income before income taxes** | $92 million | $64 million | | **Net income** | $56 million | $11 million | | **Diluted earnings per share** | $0.23 | $0.05 | Consolidated Balance Sheet Summary | Metric | June 30, 2025 | March 31, 2025 | | :--- | :--- | :--- | | **Total current assets** | $4,468 million | $4,589 million | | **Total assets** | $11,495 million | $10,452 million | | **Total current liabilities** | $4,242 million | $4,300 million | | **Total liabilities** | $10,151 million | $9,121 million | | **Total equity** | $1,343 million | $1,331 million | Consolidated Statement of Cash Flows Summary | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :--- | :--- | :--- | | **Net cash provided by (used in) operating activities** | ($124) million | ($48) million | | **Net cash used in investing activities** | ($74) million | ($166) million | | **Net cash used in financing activities** | ($170) million | ($51) million | | **Net change in cash, cash equivalents and restricted cash** | ($323) million | ($281) million | [Notes to Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Detailed notes on accounting policies, segment performance, and strategic initiatives, including workforce rebalancing and share repurchases, are provided - At June 30, 2025, the aggregate amount of remaining performance obligations (RPO) related to customer contracts was **$34.8 billion**. Approximately **57%** is expected to be recognized as revenue in the next two years[34](index=34&type=chunk) Segment Adjusted EBITDA | Segment | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :--- | :--- | :--- | | United States | $196 million | $133 million | | Japan | $115 million | $83 million | | Principal Markets | $197 million | $241 million | | Strategic Markets | $163 million | $120 million | | **Total Segments** | **$672 million** | **$577 million** | - The company initiated a new workforce rebalancing program (Fiscal 2026 Program) during the quarter, expecting to incur approximately **$80 million** in charges to reduce its cost structure[102](index=102&type=chunk) - During the quarter, the company repurchased **1.8 million shares** of its common stock for an aggregate cost of **$65 million** under its Share Repurchase Program[98](index=98&type=chunk) - The effective tax rate for the quarter was **39.1%**, a significant decrease from **82.7%** in the prior-year period, primarily due to taxes on foreign operations and valuation allowances[51](index=51&type=chunk)[52](index=52&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=33&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Kyndryl's financial performance, highlighting stable revenue, increased net income, segment results, and strategic cost-saving initiatives [Financial Performance Summary](index=33&type=section&id=Financial%20Performance%20Summary) Kyndryl's Q1 FY2026 revenue remained flat, while net income significantly increased due to lower taxes and reduced charges Q1 FY2026 Financial Highlights | Metric | Q1 FY2026 (ended June 30, 2025) | Q1 FY2025 (ended June 30, 2024) | | :--- | :--- | :--- | | **Revenue** | $3,743 million | $3,739 million | | **Revenue Growth (GAAP)** | 0% | (11)% | | **Revenue Growth (Constant Currency)** | (3)% | (8)% | | **Net Income** | $56 million | $11 million | | **Adjusted EBITDA** | $647 million | $556 million | - The **$45 million** increase in net income was primarily due to a lower provision for income taxes, reduced workforce rebalancing charges, and no transaction-related costs in the current period[114](index=114&type=chunk) [Segment Results](index=34&type=section&id=Segment%20Results) Segment analysis reveals varied performance, with total adjusted EBITDA increasing by **16%** despite revenue declines in some markets, driven by efficiency gains and specific market dynamics Segment Performance (YoY Change) | Segment | Revenue Change | Adjusted EBITDA Change | | :--- | :--- | :--- | | United States | (8)% | +48% | | Japan | +2% | +39% | | Principal Markets | +3% | (18)% | | Strategic Markets | +3% | +36% | | **Total** | **0%** | **+16%** | - The decline in U.S. revenue was driven by efforts to reduce low-margin revenues and the expiration of certain pre-spin-off contracts[123](index=123&type=chunk) - The decrease in Principal Markets' adjusted EBITDA was primarily due to a vendor credit received in the prior-year period[125](index=125&type=chunk) [Workforce Rebalancing and Site-Rationalization Charges](index=37&type=section&id=Workforce%20Rebalancing%20and%20Site-Rationalization%20Charges) The company initiated a new workforce rebalancing program, incurring **$25 million** in charges this quarter, aiming for significant annual payroll savings alongside ongoing benefits from a prior program - A new "Fiscal 2026 Program" was initiated, with **$25 million** in charges taken in the quarter. Total expected charges are **~$80 million**, with expected annual savings of over **$100 million**[131](index=131&type=chunk)[132](index=132&type=chunk) - The prior "Fiscal 2025 Program" is expected to reduce payroll, rent, and depreciation costs by more than **$200 million** in fiscal year 2026[135](index=135&type=chunk) [Financial Position and Cash Flow](index=39&type=section&id=Financial%20Position%20and%20Cash%20Flow) Total assets increased by **$1.0 billion** due to deferred costs, while net cash used in operating and financing activities significantly increased due to share repurchases and tax withholdings - Total assets increased by **$1.0 billion**, primarily driven by a **$1.1 billion** increase in deferred costs related to an extended multi-year, third-party software agreement[139](index=139&type=chunk) Cash Flow Summary | Cash Flow Activity | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :--- | :--- | :--- | | **Operating Activities** | ($124) million | ($48) million | | **Investing Activities** | ($74) million | ($166) million | | **Financing Activities** | ($170) million | ($51) million | - The increase in cash used for financing activities was mainly due to **$65 million** in share repurchases and **$67 million** of shares repurchased to settle tax withholdings[145](index=145&type=chunk) [Liquidity and Capital Resources](index=41&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains sufficient liquidity through existing cash and an undrawn **$3.15 billion** revolving credit facility, while actively managing capital through trade receivable sales and share repurchases - The company's **$3.15 billion** multi-currency revolving credit agreement was amended to extend its maturity to March 2030. It remained undrawn as of June 30, 2025[154](index=154&type=chunk) - Gross proceeds from the sale of trade receivables to third parties were **$0.6 billion** for the quarter[157](index=157&type=chunk) - During the quarter, **1.8 million shares** were repurchased for **$65 million**. As of June 30, 2025, **$141 million** remained available under the **$300 million** share repurchase authorization[160](index=160&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=47&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) No material changes to the company's market risk disclosures have occurred since the prior fiscal year's Form 10-K filing - There have been no material changes to the Company's disclosure about market risk since the Form 10-K for the fiscal year ended March 31, 2025[166](index=166&type=chunk) [Item 4. Controls and Procedures](index=47&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective, with no material changes to internal control over financial reporting during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of the end of the period covered by this report[167](index=167&type=chunk) - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal controls[168](index=168&type=chunk) [Part II - Other Information](index=48&type=section&id=Part%20II%20-%20Other%20Information) [Item 1. Legal Proceedings & Item 1A. Risk Factors](index=48&type=section&id=Item%201.%20Legal%20Proceedings%20%26%20Item%201A.%20Risk%20Factors) Information on legal proceedings is referenced in Note 10, with no material changes to previously disclosed risk factors - Information regarding legal proceedings is available in Note 10 – Commitments and Contingencies[170](index=170&type=chunk) - There have been no material changes to the risk factors previously disclosed in the Form 10-K[171](index=171&type=chunk) [Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities](index=48&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%2C%20Use%20of%20Proceeds%2C%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company repurchased **1,779,698 shares** of common stock for **$65 million** under its **$300 million** Share Repurchase Program, with **$141 million** remaining available Common Stock Repurchases (Q1 FY2026) | Period | Total Shares Repurchased | Average Price Paid Per Share | Approximate Dollar Value Remaining (in millions) | | :--- | :--- | :--- | :--- | | April 2025 | 595,693 | $30.23 | $188 | | May 2025 | 339,241 | $36.97 | $175 | | June 2025 | 844,764 | $40.78 | $141 | | **Total** | **1,779,698** | **N/A** | **$141** | [Other Items (Items 3, 4, 5, 6)](index=48&type=section&id=Other%20Items%20(Items%203%2C%204%2C%205%2C%206)) The company reported no defaults on senior securities, confirmed no Rule 10b5-1 trading arrangement changes by officers, and included a list of filed exhibits - The company reported no defaults upon senior securities[174](index=174&type=chunk) - During the quarter, no directors or executive officers adopted, terminated, or modified a Rule 10b5-1 trading arrangement[176](index=176&type=chunk)

Core Insights - Kyndryl has announced a strategic collaboration with Nova Intelligence to enhance its SAP Services by integrating AI-driven solutions for faster customer migration to SAP Cloud ERP and achieving cost savings [1][2][4] Partnership Details - The partnership aims to combine Kyndryl's SAP modernization and data transformation services with Nova Intelligence's AI solutions to facilitate quicker and more cost-effective transformations for enterprise customers [2][4] - Kyndryl will utilize Nova Intelligence's AI capabilities to modernize legacy custom code into compliant applications, thereby supporting customers on their SAP Clean Core journey [3][4] Technology and Benefits - Nova Intelligence's AI agents will accelerate the documentation, simplification, generation, and unit testing of custom code, which, when combined with Kyndryl's services, will help customers achieve Clean Core compliance and reduce risks [4] - Kyndryl has already applied Nova Intelligence AI agents to modernize its own legacy SAP applications, resulting in significant reductions in manual development work and transformation costs [5] Company Background - Kyndryl is a leading provider of mission-critical enterprise technology services, offering advisory, implementation, and managed service capabilities globally [7] - Nova Intelligence is recognized as the first provider of a multi-agent platform for SAP transformations, led by a team with extensive experience in SAP projects [8]