Kyndryl (US:KD)2025-11-05 14:30Financial Data and Key Metrics Changes - Revenue for the second quarter totaled $3.7 billion, down 1% from the prior year quarter on a reported basis and 3.7% in constant currency [22] - Adjusted EBITDA increased 15% year over year to $641 million, with an Adjusted EBITDA margin of 17.2%, up 250 basis points year over year [23] - Adjusted Pre-Tax Income grew 171% to $123 million, with an Adjusted Pre-Tax margin increasing by 210 basis points year over year [23] - Free cash flow generated in the second quarter was $22 million, with a cash balance of $1.3 billion at the end of the quarter [26][31] Business Line Data and Key Metrics Changes - Kyndryl Consult revenues grew 32% in constant currency over the last 12 months, now running at an annual pace of $3.4 billion [10] - Hyperscaler-related revenues doubled since last year, tracking above the initial $1.8 billion fiscal 2026 target [10] - The last 12 months signings total was $15.6 billion, giving a book to bill ratio above 1 [22] Market Data and Key Metrics Changes - Strongest geographies for growth included Canada, Spain, India, and Latin America [10] - Fastest growing practices were in applications, data and AI, and digital workplace [22] Company Strategy and Development Direction - The company is focused on margin expansion and has removed low-margin hardware and software content from customer relationships, which is expected to lead to positive constant currency revenue growth [5][9] - The strategy includes expanding Kyndryl Consult capabilities and alliances, driving scope expansion with existing customers, and adding new logos [8][13] - The company aims to achieve fiscal year 2028 objectives, including over $1 billion in adjusted free cash flow and more than $1.2 billion in adjusted pre-tax income [19] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving revenue growth in the second half of the year, supported by a record pipeline and committed backlog [6][34] - The demand for IT modernization, AI, and cybersecurity is driving customer demand for Kyndryl's services [13][33] - Management noted that customer decision cycles remain normal, with a cautious approach due to the mission-critical nature of services [58] Other Important Information - The company announced a $400 million increase in its share repurchase program, reflecting confidence in its earnings trajectory and cash flow growth [26] - The company is pursuing tuck-in acquisitions, with a recent agreement to acquire a midsize cloud services provider in Europe [20][54] Q&A Session Summary Question: Capital allocation opportunities for the company - Management highlighted the balance between investing in the business, accelerating capabilities, and returning capital to shareholders through share repurchases [40][41] Question: AI's impact on competitive position - About 25% of signings have AI-related content, with a focus on data architecture and migration services to support customer AI models [42][46] Question: Insights on customer decision cycles - Management noted that decision-making remains cautious but normal, especially when adding new scope or customers [58] Question: Revenue expectations and risks - Management indicated that the second half has a stronger contracted backlog and investments in consult resources will drive acceleration [66] Question: Strong verticals and examples of expanded scope - Strongest verticals include retail, travel, and technology, with examples of expanding services into new geographies and additional cybersecurity content [70][72]