Core Insights - Kyndryl reported revenues of $3.9 billion for the third quarter of fiscal year 2026, reflecting a 3% year-over-year increase on a reported basis, while remaining unchanged in constant currency [3][6] - The company experienced a decline in pretax income to $91 million from $258 million in the prior-year period, primarily due to a significant transaction-related benefit recorded last year [3][4] - Kyndryl's net income was $57 million, or $0.25 per diluted share, compared to $215 million, or $0.89 per diluted share, in the same quarter last year [3][4] Financial Performance - Adjusted pretax income increased to $168 million, up $8 million from $160 million in the prior-year period, driven by contributions from Kyndryl's three-A initiatives [4][10] - Adjusted net income was $122 million, or $0.52 per diluted share, compared to $124 million, or $0.51 per diluted share, in the prior-year period [4][10] - Cash flow from operations was $427 million, significantly higher than $260 million in the prior-year period [3][21] Business Segments and Growth - Kyndryl Consult achieved double-digit revenue growth of 24% year-over-year in the third quarter, with total revenues of $3.6 billion over the last twelve months [7][10] - The company signed eleven customer contracts exceeding $50 million each during the third quarter, contributing to total signings of $15.4 billion for the trailing twelve months [4][10] - Revenue from hyperscaler alliances reached $500 million, marking a 58% year-over-year increase, and is expected to exceed the initial target of $1.8 billion for fiscal 2026 [7][10] Strategic Initiatives - Kyndryl continues to expand its AI-related capabilities, with a quarter of its signings now including AI-related content [10] - The company announced the acquisition of Solvinity Group, B.V., a provider of secure managed cloud platforms and services, expected to close in the first half of calendar year 2026 [10] - Leadership changes were made, with Harsh Chugh appointed as Interim Chief Financial Officer and other key positions filled [7][10] Fiscal Year 2026 Outlook - Kyndryl provided an outlook for fiscal year 2026, projecting adjusted pretax income of $575 to $600 million and free cash flow of $325 to $375 million [10][10] - The company anticipates a constant-currency revenue decline of 2% to 3% for the fiscal year [10]

Financial Data and Key Metrics Changes - In fiscal year 2025, the company achieved a revenue growth of 7%, adding $5 billion in revenue, with over $80 billion in bookings [5][22] - Adjusted earnings per share (EPS) for Q4 was $3.03, reflecting a 9% growth compared to the previous year [15][21] - Free cash flow for Q4 was $3.8 billion, and for the full year, it was $10.9 billion, up 26% year over year [15][23] Business Line Data and Key Metrics Changes - Consulting revenues for Q4 were $8.8 billion, up 6% in U.S. dollars and 3% in local currency [17] - Managed services revenues for Q4 were also $8.8 billion, reflecting an 8% increase in U.S. dollars and 6% in local currency [18][23] - The capital projects business grew 49% year on year, reaching $1.2 billion [9] Market Data and Key Metrics Changes - In the Americas, revenue grew 5% in local currency, with significant contributions from banking and capital markets [18] - EMEA delivered 3% growth in local currency, driven by insurance and life sciences [18] - Asia Pacific revenues grew 6% in local currency, led by banking and capital markets [19] Company Strategy and Development Direction - The company aims to be the number one partner for the tech ecosystem, with 60% of revenue coming from partnerships with top technology companies [7] - A significant investment of $3 billion in Gen AI is expected to drive future growth, with revenue from advanced AI reaching $2.7 billion in FY25 [8][9] - The company is focusing on a three-pronged talent strategy to upskill its workforce and enhance operational efficiency [12][13] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's positioning for FY26, citing strong bookings and a solid pipeline for large transformation deals [46] - The overall market conditions have not shown significant changes, and the company remains focused on delivering results [25][26] - The management highlighted the importance of AI in driving growth and productivity, emphasizing that AI is seen as expansionary rather than deflationary [48][49] Other Important Information - The company initiated a business optimization program with an expected total cost of approximately $865 million, aimed at talent rotation and divestiture of non-aligned acquisitions [16] - The company plans to return at least $9.3 billion to shareholders through dividends and share repurchases in FY26, reflecting a 12% increase from FY25 [43] Q&A Session Summary Question: Visibility on revenue growth and discretionary spending - Management indicated strong demand for large transformation deals and a solid backlog, with guidance for FY26 reflecting a range of 2% to 5% growth [46] Question: Thoughts on AI-driven productivity and potential deflationary effects - Management does not see AI as deflationary but rather as expansionary, with savings being reinvested into new priorities [48][49] Question: Balance between Gen AI and managed services - Both consulting and managed services are expected to grow in the low to mid-single-digit range, with managed services becoming increasingly strategic [54][56] Question: Details on CapEx investments - The company expects about $1 billion in CapEx for FY26, primarily for expanding real estate and leasehold improvements [63] Question: Client behavior in using Gen AI - Many clients initially attempted to implement Gen AI independently but later sought assistance for scaling, highlighting the need for change management and process reinvention [78] Question: Expected savings from the business optimization program - The company anticipates savings of over $1 billion from the optimization program, which will be reinvested in the business and workforce [81]