Summary of Kindrel's Conference Call Company Overview - **Company**: Kindrel - **Industry**: Technology Services, specifically focused on mission-critical infrastructure services - **Key Services**: Designing, modernizing, and managing complex IT environments [3][4] Core Strategies and Changes - **Three A's Strategy**: - **Alliances**: Strengthening partnerships with major tech providers like Microsoft, Google, AWS, Dell, SAP, and Cisco to broaden service offerings [3][4] - **Advanced Delivery**: Enhancing service efficiency and quality while achieving cost savings [4] - **Accounts Initiative**: Improving profitability from previously unprofitable revenue streams [4] - **Cultural Transformation**: Emphasizing a flat and fast organizational structure to drive progress [4] - **Return to Growth**: Achieved positive constant currency revenue growth in the most recent quarter [4][5] Financial Performance and Outlook - **Revenue Growth**: - Achieved 26% revenue growth and 46-47% growth in signings for consulting services [8][8] - Positive revenue growth outlook for fiscal year 2026, with 75-80% of revenue coming from existing contracts [16][17] - **Fiscal Year 2026 Guidance**: - Projected adjusted pretax income of $725 million, an increase of $240 million from the previous year [17] - Expected adjusted free cash flow of approximately $550 million [17] - **Medium-Term Targets**: - Aiming for over $1 billion in annual cash flow and adjusted pretax income exceeding $1.2 billion by fiscal year 2028 [18][19] Market Position and Competitive Advantage - **Insulation from Macro Environment**: Kindrel's services are mission-critical and non-discretionary, providing significant insulation from macroeconomic volatility [6][11] - **Growth Drivers**: - Key themes include cloud migration, modernization, cybersecurity, AI-related services, and ERP work, particularly with SAP [9][10] - Strong demand for end-to-end solutions, enhancing customer relationships [10] Client Engagement and Market Trends - **Diverse Client Base**: Engagements vary by end market, with consistent demand for technology to drive business outcomes [12][13] - **Regulatory Impact**: Financial services are particularly affected by regulatory changes, increasing demand for security and resiliency [14][15] Consulting Services Growth - **Consulting Contribution**: - Consulting has grown from 10% to 20% of total revenue, with expectations to exceed 25% [29][34] - Projected to continue double-digit growth, contributing significantly to overall revenue growth [35] - **Tech Debt Management**: Kindrel's ability to identify and address tech debt presents ongoing opportunities for consulting services [31][32] IBM Relationship - **Vendor Relationship**: Kindrel procures approximately $2 billion in software from IBM annually, with costs previously increasing by $200 million per year [44][45] - **Cost Management**: Anticipated end of significant cost increases related to IBM, with future price increases being more manageable [45][46] Conclusion - Kindrel is positioned for sustained growth through strategic partnerships, a focus on mission-critical services, and a robust consulting practice, while effectively managing costs and navigating macroeconomic challenges.

Financial Performance & Growth - Kyndryl's FY25 signings increased by 48% year-over-year in constant currency, reaching $182 billion[12, 15] - Adjusted pretax income for FY25 was $482 million, up $317 million year-over-year[12] - Adjusted free cash flow for FY25 was $446 million[12] - Kyndryl Consult revenue grew by 29% in constant currency, reaching $30 billion[25] - The company projects at least $725 million in adjusted pretax income for fiscal year 2026, an increase of at least $243 million year-over-year[51] Strategic Initiatives & Market Position - Kyndryl is positioned at the nexus of key secular trends including artificial intelligence, cloud migration, and cybersecurity risks[14] - The company is seeing demand across a range of geographies, verticals, and practices, with 55 large contract signings totaling $10 billion in fiscal year 2025[18] - Alliances generated $12 billion in hyperscaler revenue, more than double the prior year[12] - Advanced Delivery achieved $775 million in annualized savings in Q4, exceeding the FY25 target[12] - Accounts generated $900 million in annualized profit in Q4, exceeding the FY25 target[12]

Financial Data and Key Metrics Changes - In Q1 2025, revenue was $177.1 million, up 12.9% year over year, with subscription revenue growing 14.4% and cloud revenue increasing 29.6% [6][22] - Adjusted EBITDA was $37.2 million, representing an EBITDA margin of 21.3%, exceeding the high end of guidance [6][28] - Annual recurring revenue (ARR) grew 17.9% to $618.5 million, with net recurring revenue (NRR) remaining strong at 109% [6][22] Business Line Data and Key Metrics Changes - Subscription revenue increased to $150.8 million, while services revenue grew 5.4% to $26.3 million [23] - Cloud revenue was $80.2 million, up 29.6% from the previous year, with Ecosio contributing approximately 3.5 points to this growth [23][22] - Average annual revenue per customer for Vertex standalone increased 16% year over year to $141,000 [7][25] Market Data and Key Metrics Changes - Gross recurring revenue (GRR) was 95%, within the targeted range of 94% to 96% [8][24] - The company noted a growing pipeline for its e-invoicing solution, particularly with upcoming mandates in France and Germany [9] Company Strategy and Development Direction - The company announced an equity investment in Kintsugi, a startup focused on AI technology for indirect tax compliance in the small business sector, indicating a strategic move towards enhancing AI capabilities [5][16] - The management emphasized the importance of providing a single solution that combines VAT compliance and e-invoicing, which is expected to be a game changer for companies facing e-invoicing mandates [9][20] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the market for indirect tax technology, noting no signs of a slowdown in buyer behavior or changes in indirect tax momentum [31][21] - The company highlighted the ongoing cloud migration cycle and business changes from mergers and acquisitions as persistent tailwinds for growth [20][21] Other Important Information - The company ended Q1 with over $270.4 million in unrestricted cash and cash equivalents, along with $300 million of unused availability under its line of credit [29] - For Q2 2025, the company expects total revenue in the range of $182 million to $187 million, representing 14.5% year-over-year growth at the midpoint [29][30] Q&A Session Summary Question: What is driving larger customers to migrate to packaged software solutions? - Management noted that the increasing complexity of e-invoicing and audit pressures are prompting organizations to seek more sustainable solutions [35][36] Question: Why did direct customers decline sequentially? - The decline was attributed to lower-end customers migrating away, while the focus remains on scaled customers, which grew by about 15% [37][38] Question: What is the impact of macro volatility on the business? - Management indicated that tax is becoming a higher priority in strategic discussions, and they have not seen any negative impact on deal flow or pipeline [44][45] Question: How applicable is Kintsugi's technology to the Vertex tax business? - Management sees potential for Kintsugi's technology to enhance offerings for small and mid-sized businesses and to integrate AI into their workflows [46][48] Question: What is the company's position on tariff-related products? - Management clarified that they focus on indirect tax solutions and do not have dedicated tariff products, but they are seeing increased discussions around compliance due to supply chain changes [51][54] Question: How has the Ecosio product performed since its general availability? - The integration of Ecosio's e-invoicing with Vertex's VAT compliance has created a seamless process, leading to positive early results [57][58] Question: How is the competitive environment in e-invoicing compared to indirect tax? - Management highlighted that most competitors focus solely on e-invoicing without VAT compliance, which differentiates Vertex's comprehensive offering [70][72] Question: What is the outlook for new logo growth? - Management reported solid growth across key ecosystems, with a focus on enterprise customers, while also seeing some success in the mid-market [80][82]

Financial Data and Key Metrics Changes - Revenue for Q1 2025 was $762 million, representing a 25% year-over-year increase and exceeding the high end of guidance [7][28] - Free cash flow was $244 million, with a free cash flow margin of 32% [9][37] - Gross profit was $612 million, with a gross margin of 80.3%, down from 81.7% in the previous quarter and 83.3% year-over-year [33][34] - Operating income was $167 million, resulting in a 22% operating margin, compared to 24% last quarter and 27% in the year-ago quarter [36] Business Line Data and Key Metrics Changes - 80% of customers were using two or more products, up from 82% a year ago, and 51% were using four or more products, up from 47% [9] - FlexLogs exceeded $50 million in ARR, achieving this milestone in six quarters, the fastest ramp seen [10] - Database monitoring product is approaching $50 million in ARR, growing 60% year-over-year [11] Market Data and Key Metrics Changes - The number of AI native customers represented about 8.5% of Q1 ARR, up from 6% last quarter and 3.5% a year ago [28] - Dollar bookings for new logos increased over 70% year-over-year, with 11 deals signed with a TCV of $10 million or more, up from one in the year-ago quarter [12][13] Company Strategy and Development Direction - The company continues to focus on digital transformation and cloud migration as long-term growth drivers [27] - Investments are being made in AI observability and analysis, with over 4,000 customers using Datadog AI integrations, doubling year-over-year [13][14] - Recent acquisitions include EPO and MetaPlan, aimed at enhancing product offerings in feature management and data observability [18][19] Management's Comments on Operating Environment and Future Outlook - Management acknowledges various economic challenges but maintains a positive outlook on long-term market opportunities [27] - The company is well-positioned to assist clients with cloud migration and digital transformation [42] - Management expects revenue for Q2 2025 to be in the range of $787 million to $791 million, representing 22% to 23% year-over-year growth [38] Other Important Information - The company ended the quarter with $4.4 billion in cash, cash equivalents, and marketable securities [37] - The trailing twelve-month net revenue retention percentage was in the high 110s, with gross retention stable in the mid to high 90s [30] Q&A Session Summary Question: Comment on the opportunity with AI-generated code - Management sees a shift in value from writing code to observing and understanding it in production environments, emphasizing the importance of validation and performance [45][48] Question: What attributed to the strong booking stats? - Strong pipeline and increased investments in go-to-market strategies contributed to the booking strength, with no significant impact from economic uncertainties observed [49][52] Question: Trend lines on cloud migration - Cloud migration remains steady, with consistent customer desire to move to the cloud as a prerequisite for adopting AI [58][59] Question: Expansion opportunities in data observability - The company views data observability as a significant opportunity, especially with the integration of MetaPlan to enhance data quality and pipeline management [60][64] Question: Guidance and gross margin changes - The guidance reflects recent trends, with a focus on maintaining conservatism while acknowledging higher cloud costs and the need for optimization [68][73]

Financial Data and Key Metrics Changes - The company reported an ARR of $918 million, reflecting a net new ARR addition of $45 million, consistent with the previous year's Q4 performance [16][17] - Total revenue reached $289 million, up 20% year-over-year, exceeding the high end of the outlook [17] - Subscription and support revenue was $178 million, showing a 35% year-over-year growth [17] - Operating profit for Q2 was $54 million, surpassing expectations due to higher gross profit and lower operating expenses [19] Business Line Data and Key Metrics Changes - The company closed 12 cloud deals, including four full InsuranceSuite deals and one InsuranceNow deal, indicating strong cloud adoption [10] - Six cloud migrations were completed in the quarter, with two involving expansions into new business lines or core modules [11] - Services revenue was $48 million, aligning with expectations, while services gross margin improved to 6% from negative 11% a year ago [18] Market Data and Key Metrics Changes - North America and Europe led the geographical distribution of deals, with about a third of the deals occurring in Europe [11] - The company welcomed five new customers in Q2, including one in Brazil and one in Belgium, highlighting international expansion [10] Company Strategy and Development Direction - The company aims to transition 100% of its on-premise customer base to its cloud platform, emphasizing the importance of cloud capabilities [11] - The management highlighted the critical role of a well-functioning property and casualty (P&C) insurance market in providing financial support during catastrophic events [8] - The company is focusing on enhancing its cloud ecosystem and increasing the number of cloud applications available through its marketplace [13] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the resilience of the P&C insurance industry, stating it is designed to absorb catastrophes like the recent California wildfires [12] - The company raised its ARR outlook for fiscal year 2025 to between $1 billion and $1.01 billion, reflecting a growth of 16% to 17% year-over-year [21] - Management noted that the visibility into the second half of the year is strong, driven by ramping deals and a healthy pipeline [22] Other Important Information - The company retired an additional $100 million of its 2025 convertible notes, reducing potential share dilution [20] - The cash flow from operations for the quarter was $86 million, ahead of expectations due to strong collections [19] Q&A Session Summary Question: How does adaptability and interoperability come into play for carriers? - Management noted that modern platforms provide agility, enabling insurers to manage indemnity and expense ratios more effectively [28] Question: How do you balance margin outperformance with reinvestment opportunities? - Management emphasized a focus on growth while maintaining margin expansion, with plans for increased hiring in R&D [36] Question: Is the return of large insurers to California a tailwind for Guidewire? - Management indicated that the repricing of insurance policies in California could be beneficial, as it highlights the importance of effective risk management [40] Question: How is the company leveraging data for customer value? - Management expressed optimism about the potential of generative AI to enhance productivity and efficiency in various insurance processes [46][49] Question: What is the outlook for services gross margins? - Management expects gradual improvement in services gross margins, with a focus on ensuring successful software implementations [62] Question: How is the cloud migration conversation evolving geographically? - Management reported strong momentum in cloud deals across various regions, indicating a shift from a North America-centric approach to a more global presence [75] Question: What is the status of non-core insurance suite opportunities? - Management confirmed that the non-core business remains healthy, with analytics products performing well [80]