Financial Data and Key Metrics Changes - In Q1 2026, revenue totaled $3.7 billion, reflecting a slight increase from the prior year but a 2.6% decline in constant currency, primarily due to the focus accounts initiative [21][22] - Adjusted pre-tax income grew 39% to $128 million, with an adjusted pre-tax margin increasing by 100 basis points year over year [22][31] - Adjusted EBITDA was $647 million, with an adjusted EBITDA margin of 17.3%, up 240 basis points year over year [22][31] Business Line Data and Key Metrics Changes - Kindrel Consult revenues grew 30% year over year, indicating strong growth in higher-margin advisory services [21][31] - Hyperscaler-related revenue nearly doubled to $400 million in Q1, progressing towards a fiscal 2026 target of $1.8 billion [9][23] - Aggregate signings increased by 43% year over year to $18.3 billion, with a book-to-bill ratio above 1 [22][30] Market Data and Key Metrics Changes - The company reported a 44% increase in signings in constant currency over the last twelve months, with strong performance in the US market [9][22] - The focus accounts initiative has increased cumulative annualized profit from these accounts by $25 million to $925 million [24][46] Company Strategy and Development Direction - The company is focused on expanding its capabilities in AI, cloud migration, and cybersecurity, positioning itself as a key partner in IT modernization [10][12] - Strategic initiatives include leveraging technology alliances, advanced delivery, and enhancing the Kindrel Consult and Kindrel Bridge offerings [10][19] - The company aims to achieve over $1 billion in adjusted free cash flow and $1.2 billion in adjusted pre-tax income by fiscal 2028, requiring mid-single-digit revenue growth [19][31] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving fiscal 2026 targets, expecting revenue growth to accelerate from Q1 to Q2 and further in the second half of the year [20][32] - The company anticipates generating approximately $550 million in free cash flow for the fiscal year, with a strong conversion of earnings to cash flow [32][33] - Management highlighted the importance of innovation and customer relationships in driving future growth [10][80] Other Important Information - The company repurchased 1.8 million shares at a cost of $65 million during the quarter, with $141 million remaining under the share repurchase authorization [26][51] - The cash balance at June 30 was $1.5 billion, with a net leverage ratio of 0.6 times adjusted EBITDA [26][27] Q&A Session Summary Question: How did Q1 revenue come in versus planned, and what is the growth cadence for the rest of the year? - Management indicated good momentum in growth vectors, with Kindrel Consult showing strong growth and a solid pipeline for the year [35][39] Question: What trends have been noticed among focus accounts, and what is the confidence level for signings this quarter? - Management noted that while some deals were pushed out, progress continues, and they expect to close some transactions in Q2 [44][50] Question: What are the catalysts for margin expansion beyond account renegotiation? - Management highlighted the increasing contribution of their own margins to the P&L and improved efficiency in SG&A as key factors for margin expansion [55][59] Question: How does the company articulate the opportunity of AI-related technology transitions? - Management emphasized that AI presents both cost-saving and revenue opportunities, with Kindrel Bridge leveraging AI to enhance service delivery [66][70] Question: What is the visibility on the triple, double, single strategy? - Management expressed strong visibility on achieving the triple, double, single goals, supported by a solid cash flow forecast and growth in key business areas [72][76]
Kyndryl (KD) - 2026 Q1 - Earnings Call Transcript