Q4 2024 Kyndryl Holdings Inc Earnings Call

May 8, 2024

Abby: Good morning, ladies and gentlemen, and thank you for standing by. My name is Abby, and I will be your conference operator today. At this time, I would like to welcome everyone to the Kyndryl fiscal fourth quarter 2024 earnings conference call. All lines have been placed on mute to prevent any background noise.

Good morning, ladies and gentlemen, and thank you for standing by.

Robbie: My name is Robbie and I will be your conference operator today.

Robbie: At this time I would like to welcome everyone to the <unk> fiscal fourth quarter 2024 earnings Conference call.

Robbie: All lines have been placed on mute to prevent any background noise and after the Speakers' remarks, there will be a question and answer session.

Robbie: If you would like to ask a question during that time simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question Press Star one a second time.

Abby: And after the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press the star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one a second time. Thank you. And I would now like to turn the conference over to Lori Chaitman, Global Head of Investor Relations. You may begin. Good morning, everyone, and welcome to Kyndryl's earnings call for the fourth quarter and fiscal year ended March 31, 2024. Before we begin, I'd like to remind you that our remarks today will include forward-looking statements. These statements are subject to risk factors that may cause our actual results to differ materially from those expressed or implied.

Robbie: Thank you and I would now like to turn the conference over to Lori Chapman Global head of Investor Relations you may begin.

Lori C. Chaitman: Good morning, everyone and welcome to tangible earnings call for the fourth quarter.

Lori C. Chaitman: Fiscal year ended March 31, 2024.

Lori C. Chaitman: These forward-looking statements speak only to our expectations as of today, and we are under no obligation to update them. For more details on some of these risks, please see the risk factor section of our annual report on Form 10-K for the year ended March 31, 2023. In today's remarks, we'll also refer to certain non-GAAP financial metrics. Corresponding Gap Metrics and a Reconciliation of Non-GAAP Metrics to GAAP Metrics for Historical Periods are provided in the presentation materials for today's event, which are available on our website at investors.kyndryl.com.

Lori C. Chaitman: Before we begin I'd like to remind you that our remarks today will include forward looking statements.

Lori C. Chaitman: These statements are subject to risk factors that may cause our actual results to differ materially from those expressed or implied.

Lori C. Chaitman: These forward looking statements speak only to our expectations as of today and we are under no obligation to update them.

Lori C. Chaitman: For more details on some of these risks please see the risk factors section of our annual report on Form 10-K for the year ended March 31 2023.

Lori C. Chaitman: In today's remarks, we will also refer to certain non-GAAP financial metrics.

Lori C. Chaitman: Corresponding GAAP metrics and a reconciliation of non-GAAP metrics to GAAP metric for historical periods are provided in the presentation materials for today's event, which are available on our website at investors Dr. Kendall Dotcom.

Lori C. Chaitman: With me here are Kyndryl's Chairman and Chief Executive Officer, Martin Schroeter, and Kyndryl's Chief Financial Officer, David Wyshner. Following our prepared remarks, we will hold a Q&A session. I'd now like to turn the call over to Martin.

Lori C. Chaitman: With me here are tangibles, Chairman and Chief Executive Officer, Martin Schroeter, and Kendall Chief Financial Officer, David Weisner.

Speaker Change: Following our prepared remarks, we will hold a Q&A session.

Martin J. Schroeter: I'd now like to turn the call over to Martin Martin.

Martin J. Schroeter: Thank you, Lori, and thanks to each of you for joining us. I am excited about all that we at Kyndryl have accomplished in our second fiscal year as an independent company, and I cannot be more proud of our teams around the world. We delivered solid fourth-quarter results, exceeded our full-year targets on all of our 3A initiatives, alliances, advanced delivery, and accounts, and exceeded our guidance for fiscal 2024. We also delivered strong growth across Kyndryl Consult. We expanded our hyperscaler relationships and accelerated adoption of Kyndryl Bridge.

Martin J. Schroeter: Thank you Laurie and thanks to each of you for joining us I'm excited about all that we had 10 drove accomplished in our second fiscal year as an independent company and I cannot be more proud of our teams around the world. We delivered solid fourth quarter results exceeded our full year targets on all of our three eight initiatives alliances advanced delivery and accounts.

Martin J. Schroeter: We exceeded our guidance for fiscal 2024, we also delivered strong growth across control consult we expanded our hyperscale and relationships and accelerated adoption of clinical bridge and we're providing our fiscal 2025 outlook that includes substantial earnings growth and free cash flow and importantly, we are pulling forward the timing of.

Martin J. Schroeter: And we're providing our fiscal 2025 outlook that includes substantial earnings growth and free cash flow. And importantly, we're pulling forward the timing of returning to revenue growth and now expect to deliver positive revenue growth in the fourth quarter of this fiscal year. With our consistently strong execution in fiscal 2024, we've proven that we can deliver on ambitious goals to strengthen our business and that we can grow in high-value areas that we target for growth.

Martin J. Schroeter: Returning to revenue growth and now expect to deliver positive revenue growth in the fourth quarter of this fiscal year.

Martin J. Schroeter: With our consistently strong execution in fiscal 2024, we've proven that we can deliver on our ambitious goals to strengthen our business and that we can grow in high value areas that we targeted for growth.

Martin J. Schroeter: You may recall that this time last year, I said that our fiscal 2024 was a year of acceleration for us. And as you can see from our performance, we've accelerated both our business transformation and our innovation, which have further solidified our leadership position and mission-critical IT services. We'll approach our third fiscal year with the same intensity and determination.

Martin J. Schroeter: You May recall this time last year, I said that our fiscal 2024 was a year of acceleration for chemical.

Martin J. Schroeter: And as you can see from our performance we've accelerated both our business transformation and our innovation, which have further solidified our leadership position in mission critical it services.

Martin J. Schroeter: We will approach our third fiscal year with the same intensity and determination.

Martin J. Schroeter: This fiscal year, we will pivot from transformation to growth. It will be the year in which our top line inflects, and half of our revenue is generated from higher margin post spin signing. It will be another year in which we deliver double-digit revenue growth from Kyndryl Consult. It will be the year in which our hyperscaler-related revenue nears a billion dollars.

Martin J. Schroeter: This fiscal year, we will pivot from transformation to growth at <unk>.

Martin J. Schroeter: Will be the year in which our topline and flex and half of our revenue is generated from higher margin post spin signings. It will be another year in which we delivered double digit revenue growth from Tinder will consult it will be the year in which our hyperscale or related revenue nearly $1 billion.

Martin J. Schroeter: This will be the first year that we will have the majority of our managed services customers operating on Kyndryl Bridge, allowing us to drive new levels of automation and innovation. And it will be another year in which we expect to deliver substantial earnings growth. So on today's call, I'll share more detail on these pivotal shifts in our business, and I'll describe how major secular trends in IT are driving customer demand, fueling our return to growth, and putting Kyndryl at the center of our customers' digital transformation. David will then review our financial results and discuss our outlook for fiscal 2025.

Martin J. Schroeter: It will be the first year that we will have the majority of our managed services customers operating on casual bridge, allowing us to drive new levels of automation and innovation and it will be another year in which we expect to deliver substantial earnings growth.

Speaker Change: On today's call I'll share more detail on these pivotal shifts in our business and I'll describe how major secular trends in.

Speaker Change: Our driving customer demand fueling our return to growth and putting control at the center of our customers' digital transformations.

Speaker Change: David will then review our financial results and discuss our outlook for fiscal 2025.

Martin J. Schroeter: I want to start by highlighting the recent accomplishments that have set the stage for our growth trajectory. In fiscal 2024, we grew our adjusted pre-tax earnings by more than $380 million. We delivered double-digit growth in our more than $2 billion of consulting revenue, and we drove triple-digit growth in hyperscaler-related revenue, validating our ability to return to growth. We grew our total signings, and even more importantly, the projected pre-tax margins on those signings were consistently in the high single digits aligned with our medium-term target.

Speaker Change: I want to start by highlighting our recent accomplishments that have set the stage for our growth trajectory.

Speaker Change: In fiscal 2024, we grew our adjusted pre tax earnings by more than $380 million.

Speaker Change: We delivered double digit growth in our more than $2 billion of consult revenue and we drove triple digit growth in hyperscale or related revenue validating our ability to return to growth.

Speaker Change: We grew our total signings and even more importantly, the projected pre tax margins on those signings were consistently in the high single digits aligned with our medium term target.

Martin J. Schroeter: And we generated positive adjusted free cash flow, demonstrating our focus on cash generation that will support our long-term strategy and goals. Our advisory talent and consultants, together with our design-led Kyndryl Vital methodology and our Kyndryl Bridge delivery services platform, allow us to co-create and innovate with our customers and our partners. We now have over 1,200 of our largest customers operating on the Kyndryl Bridge platform, which is allowing us to deliver more value to customers, drive savings for Kyndryl through automation, and derive insights from AI learnings powered by the operational data associated with our scale.

Speaker Change: And we generated positive adjusted free cash flow demonstrating our focus on cash generation that will support our long term strategy and goals.

Speaker Change: Our advisory talent and consult together with our design led kingsville vital methodology and our casual bridge delivery services platform allows us to co create and innovate with our customers and our partners.

Speaker Change: We now have over 200 of our largest customers operating on the <unk> platform, which is allowing us to deliver more value to customers drive savings for kindred through automation and derive insights from AI learnings powered by the operational data associated with our scale.

Speaker Change: Even beyond Kinkel bridge consult and vital we have executed powerfully throughout our business, we're delivering sophisticated optimized multi vendor solutions to customers to help them address critical needs in major opportunities.

Speaker Change: We're delivering managed services more efficiently than ever and as a result, and as we said we would we're showing up differently for our customers and seizing opportunities that are unique to <unk>.

Martin J. Schroeter: And as we said we would, we're showing up differently for our customers and seizing opportunities that are unique to Kyndryl. We've proven that Kyndryl is a vital and trusted partner to our customers as we help them to run and transform their mission-critical, complex hybrid IT estate. Our engineering and advisory talents, our unique operational data, IP, and embedded AI, our heritage and scale enable us to meet our customers' evolving IT needs and uncover new value from past, current, and future technology investments.

Speaker Change: We've proven the singles are vital and trusted partner to our customers as we help them to run and transform their mission critical complex hybrid it as states, our engineering and advisory talent, our unique operational data IP and embedded AI, our heritage and scale enable us to.

Speaker Change: Our customers evolving needs and uncover new value from past current and future technology investments.

Martin J. Schroeter: In fact, our expertise in both running and transforming IT estates differentiates us in the markets we serve and uniquely positions Kyndryl at the heart of secular trends that are shaping the evolution of IT, namely the adoption of artificial intelligence, technology skill shortages, organizations' needs to modernize, cloud migration, and cyber security. We see these trends as continuing for the foreseeable future, and they're driving demand for our services. For example, through our data architecture capabilities, we're enabling enterprises to apply new AI and Gen AI technologies to drive business out. Furthermore, through our global delivery centers, our scale, and our training programs, we develop and make available the broad range of skills our customers need.

Speaker Change: In fact, our expertise in both running and transforming it states differentiates us in the markets, we serve and uniquely positions <unk> at the heart of secular trends that are shaping the evolution of.

Speaker Change: Namely the adoption of artificial intelligence technology skills shortages organization needs to modernize cloud migration and cyber security.

Speaker Change: We see these trends continuing for the foreseeable future and they are driving demand for our services for example through our data architecture capabilities, we are enabling enterprises to apply new AI engine AI technologies to drive business outcomes.

Speaker Change: Through our global delivery centers, our scale and our training programs, we develop and make available the broad range of skills our customers need.

Martin J. Schroeter: Through Kyndryl Bridge, we're helping customers intelligently prioritize infrastructure needs, address technical debt, drive innovation, and uncover previously hidden risks. Additionally, through our hyperscaler alliances and mainframe modernization skills, we're helping customers migrate, manage, and optimize their hybrid IT estates across multiple cloud platforms, ensuring the right workload is on the right platform. And through our global network of security operations hubs and our end-to-end cybersecurity services, we're helping customers protect, detect, and recover from cyber threats.

Speaker Change: <unk> bridge, we're helping customers intelligently prioritize infrastructure needs address technical that drives innovation and uncover previously hidden risks.

Speaker Change: Through our hyperscale or alliances in mainframe modernization skills, we're helping customers migrate manage and optimize their hybrid Ikea states across multiple cloud platforms, ensuring the right workload is on the right platform.

Speaker Change: And through our global network of security operations hubs and our end to end cyber security services, we're helping customers protect detect and recover from cyber threats.

Martin J. Schroeter: What's more, the mission critical nature of our work is increasingly consultative and tied to customer achievement of business outcomes. And because of how important AI is to us and our customers, I wanna spend a few minutes on the role Kyndryl plays in AI adoption and how we're applying our capabilities to unlock incremental growth opportunities. As we've mentioned, Kyndryl is an AI beneficiary and an AI enabler.

Speaker Change: What's more the mission critical nature of our work is increasingly consultative and tied to customer achievement of business outcomes.

Speaker Change: And because how important AI is to us and our customers I want to spend a few minutes on the role <unk> plays in AI adoption and how we're applying our capabilities to unlock incremental growth opportunities.

Speaker Change: As we've mentioned <unk> and AI beneficiary and an enabler.

Martin J. Schroeter: As the largest IT infrastructure services provider in the world, we have more tech stack operating data than anyone, and we're using machine learning with this data to give our customers and Kyndryl a data-driven advantage in designing and managing systems. We use AI and Kyndryl Bridge to identify application performance patterns, produce actionable insights, reduce required maintenance, and prevent incidents from occurring. Bridge can operate as a self-healing architecture and is now producing three million actionable insights a month and is helping customers achieve nearly two billion dollars of annual savings by avoiding maintenance and incident costs.

Speaker Change: As the largest it infrastructure services provider in the World, we have more tech stack operating data than anyone and we're using machine learning with this data to give our customers and Kindle a data driven advantage in designing and managing systems.

Speaker Change: We are using AI intangible bridge to identify application performance patterns produce actionable insights reduce required maintenance and prevent incidents from occurring.

Speaker Change: Rich can operate as a self healing architecture and is now producing 3 million actionable insights a month and is helping customers achieve nearly $2 billion of annual savings by avoiding maintenance and incident cost.

Martin J. Schroeter: In short, AI is powering Kyndryl Bridge and accelerating our advanced delivery initiative. At the same time, we're seeing revenue growth opportunities associated with both AI and GenAI. Our customers know that their AI is only going to be as good as their data, and this is creating demand for our expertise in data architecture, which becomes the foundation for AI and GenAI applications, and with our alliance partners for optimizing infrastructures to facilitate AI deployment in these complex IT environments.

Speaker Change: In short AI powering digital bridge and accelerating our advanced delivery initiative at.

Speaker Change: At the same time, we're seeing revenue growth opportunities associated with both AI engine AI, our customers know that their AI is only going to be as good as their data and this is creating demand for our expertise in data architecture that becomes the foundation for AI engine AI applications.

Speaker Change: And with our alliance partners were optimizing infrastructure to facilitate AI deployment in these complex it environments.

Martin J. Schroeter: Based on our own positive experience with Kyndryl Bridge, we believe machine learning and Gen AI can have a substantial impact on many industries and enterprises, and we see AI readiness as a go-to-market opportunity for us and a natural extension of many of the services we already offer. In fact, revenue in our applications, data, and AI practice grew double digits this past fiscal year. As our business evolves and we move further away from our spin, our revenue mix will continue to shift to higher-margin post-spin signs.

Speaker Change: And based on our own positive experience with clinical bridge, we believe machine learning and Jen AI can have a substantial impact on many industries and enterprises and we see AI readiness as a go to market opportunity for us and a natural extension of many of the services. We already offer in fact revenue in our applications data and AI practice grew double digits.

Speaker Change: This past fiscal year.

Speaker Change: As our business evolves and we move further away from our spin our revenue mix will continue to shift to higher margin post spin signings.

Martin J. Schroeter: This fiscal year, half of our revenue is coming from post-spend signings, and in fiscal 2026, it'll be roughly two-thirds. This inflection point, when our P&L is largely determined by our higher-margin post-spend signings, will dramatically strengthen our earnings and growth profile. Our forecast for fiscal 2025 is for adjusted pre-tax income of at least $435 million, reflecting a year-over-year increase of more than $270 million.

Speaker Change: This fiscal year half of our revenues coming from postpone signing and in fiscal 2026, it will be roughly two thirds. This inflection point when our P&L is largely determined by our higher margin post spin signings will dramatically strengthen our earnings and growth profile.

Speaker Change: Our forecast for fiscal $2025 for adjusted pre tax income of at least $435 million, reflecting a year over year increase of more than $270 million and as David will explain in more detail the margins at which we're signing contracts and the other actions, we're taking to grow our profitability have us on a path to deliver high single digit adjusted pre.

Martin J. Schroeter: And as David will explain in more detail, the margins at which we're signing contracts and the other actions we're taking to grow our profitability have us on a path to deliver high single-digit adjusted pre-tax margins by fiscal 2027. And yes, the math associated with that is ultimately a billion dollars or more. But I'm tremendously enthusiastic about how our strategic progress and our market leadership are driving solid operating performance and stronger financial results, including our forecast to grow revenue in our fiscal fourth quarter, which begins less than eight months from now. As we approach the second half of this fiscal year, our purposeful efforts to shed low to no margin components of revenue will be largely behind us.

David B. Wyshner: Tax margins by fiscal 2027, and yes, the math associated with that is ultimately a $1 billion or more of adjusted pre tax income with very strong conversion of our earnings into cash flow.

Speaker Change: I am tremendously enthusiastic about our strategic progress and our market leadership are driving solid operating performance and stronger financial results, including our forecast to grow revenue in our fiscal fourth quarter, which begins less than eight months from now.

Speaker Change: As we approach the second half of this fiscal year, our purposeful efforts to shed low to no margin components of revenue will be largely behind us.

Martin J. Schroeter: At the same time, our top line will be driven by our ability to capitalize on our ecosystem of technology alliances and expand our share of wallet with existing customers. We will increasingly benefit from growing demand for cloud security data and AI services. And ultimately, we expect to gain overall market share as more enterprises look to Kyndryl for their mission-critical IT needs. We are creating significant value for our customers and will continue to be bold and ambitious to drive growth. We were born with great engineering talent.

Speaker Change: And at the same time, our topline will be driven by our ability to capitalize on our ecosystem of technology alliances and expand our share of wallet with existing customers.

Speaker Change: We will increasingly benefit from growing demand for cloud security data and AI services and ultimately we expect to gain overall market share as more enterprises looked at <unk> for their mission critical it needs, we are creating significant value for our customers and we will continue to be bold and ambitious to drive growth.

Speaker Change: We were born with Great engineering talent and as an independent company, we have been capitalizing on our expertise in providing mission critical it services by building, our IP and expanding our core capabilities capabilities that align with the secular trends driving information technology in the ecosystem that matters to our customers and in.

Martin J. Schroeter: And as an independent company, we've been capitalizing on our expertise and providing mission-critical IT services by building our IP and expanding our core capability, capabilities that align with the secular trends driving information technology in the ecosystem that matters to our customers and in the six practices that allow us to build and implement leading technology solutions. And having invested in our people and our technology to ensure we have the right skills and tools to meet our customers' needs, we're now hitting a pivotal shift in our business.

Speaker Change: Six practices that allow us to build and implement leading technology solutions.

Speaker Change: And having invested in our people and our technology to ensure we have the right skills and tools to meet our customers' needs. We're now hitting a pivotal shift in our business.

Martin J. Schroeter: We're not only helping organizations run their infrastructure and their business; we're now also helping them transform, building capabilities on new platforms, allowing them to leverage existing and new technology to drive business outcomes and differentiate Kyndryl in the process. We will continue to execute our strategy with discipline and agility, and we will build a culture of operational excellence and collaboration. We are confident that we have the right vision, the right strategy, and the right capabilities to capture future growth. And with that, I'll hand it over to David to take you through our results and our outlook. Thanks, Martin. And hello, everyone.

Speaker Change: We're not only helping organizations run their infrastructure and their business. We're now also helping them transform building capabilities on new platforms, allowing them to leverage existing and new technology to drive business outcomes and differentiating tangible in the process.

Speaker Change: We will continue to execute our strategy with discipline and agility and will build a culture of operational excellence and collaboration we are confident that we have the right vision, the right strategy and the right capabilities to capture future growth.

Speaker Change: And with that I'll hand, it over to David to take you through our results and our outlook.

David B. Wyshner: Today, I'd like to discuss our quarterly and full year results, our continued progress on our three A's initiatives, the solid margins at which we're signing customer contracts, and our outlook for fiscal year 2025, which began on April 1. We're enthusiastic about each of these topics, and particularly our outlook. Our fourth quarter results reflect strong operational execution and continued progress on our key initiatives. In the quarter, revenue totaled $3.8 billion, a 9% decline in constant currency.

David B. Wyshner: Thanks, Martin and Hello, everyone today, I'd like to discuss our quarterly and full year results. Our continued progress on our <unk> initiatives the solid margins at which we are signing customer contracts and our outlook for fiscal year 2025, which began on April one we are enthusiastic about each of these topics.

Speaker Change: And particularly our outlook.

Speaker Change: Our fourth quarter results reflect strong operational execution and continued progress on our key initiatives.

Speaker Change: In the quarter revenue totaled $3 8 billion a.

Speaker Change: A 9% decline in constant currency.

David B. Wyshner: The year-over-year decline was anticipated and primarily driven by our intentional exit from negative, no, and low-margin revenue streams within ongoing customer relationships, not by macro facts. As Martin highlighted, we continue to gain momentum in a higher-margin advisory service. Kyndryl Consult revenues grew 15% year over year in constant currency, which underscores how we're growing our share in this higher margin, higher value add space. Consult signings grew even faster at 30% in constant currency. Total signings grew 3% year-over-year in constant currency in Q4, our second consecutive quarter of signings growth, and we're up 3% in the year as a whole.

Speaker Change: The year over year decline was anticipated and primarily driven by our intentional exit from negative no and low margin revenue streams within ongoing customer relationships.

Speaker Change: Macro factors.

Speaker Change: As Martin highlighted we continued to gain momentum in our higher margin advisory services.

Speaker Change: Kindred consult revenues grew 15% year over year in constant currency, which underscores how we are growing our share in this higher margin higher value add space.

Speaker Change: <unk> signings grew even faster at 30% in constant currency.

Speaker Change: Total signings grew 3% year over year in constant currency in Q4, our second consecutive quarter of signings growth and were up 3% in the year as a whole.

David B. Wyshner: Our signings growth for the year was strongest in our security and resiliency, core enterprise, and apps data and AI practices. And with our momentum driving a strong April, our trailing 12 months signings through April 30 are up 7% year over year. Our fourth quarter adjusted EBITDA grew 19% to $566 million, and our adjusted EBITDA margin increased by 350 basis points year over year to 14.7%. Adjusted pre-tax income was $30 million, a $91 million improvement in profit year over year.

Speaker Change: Our signings growth for the year was strongest in our security and resiliency core enterprise and apps data and AI practices.

Speaker Change: And with our momentum driving a strong April our trailing 12 month signings through April 30 are up 7% year over year.

Speaker Change: Our fourth quarter, adjusted EBITDA grew 19% to $566 million and our adjusted EBITDA margin increased by 350 basis points year over year to 14, 7%.

Speaker Change: Adjusted pretax income was $30 million.

Speaker Change: $91 million improvement in profit year over year.

David B. Wyshner: Consistent with the trends driving our performance all year, our three A's were the key driver of our earnings growth again in Q4. For fiscal year 2024 as a whole, we generated $16.1 billion of revenue. Our adjusted EBITDA grew 20% to $2.4 billion, and our adjusted pre-tax income was $165 million, representing a $382 million increase from the prior year. We expanded our adjusted EBITDA margin by 310 basis points and our adjusted pre-tax margin by 230 basis points, which were above our targets and represent a momentous leap forward on our path to high single-digit adjusted pre-tax margin.

Speaker Change: Consistent with the trends driving our performance all year or three eight were the key driver of our earnings growth again in Q4.

Speaker Change: For fiscal year 2024, as a whole we generated $16 1 billion of revenue our adjusted EBITDA grew 20% to $2 4 billion.

Speaker Change: And our adjusted pre tax income was $165 million.

Speaker Change: Representing a $382 million increase from the prior year.

Speaker Change: We expanded our adjusted EBITDA margin by 310 basis points and our adjusted pre tax margin by 230 basis points year over year, which were above our targets and represent a momentous leap forward on our path to high single digit adjusted pre tax margins.

David B. Wyshner: Our financial progress reflects our strategic achievements. Leveraging Technology Alliance, stepping away from empty calories revenues, fixing focus accounts, growing the consult portion of our business, driving efficiency throughout our operations, and, as an independent company, skating to where the puck is going in terms of our customers' future IT needs. Our performance in fiscal 2024 gives us strong momentum as we go forward. So, as encouraged as I am by the earnings growth we've delivered, I'm even more enthusiastic about how, throughout the year, we also positioned Kyndryl for future revenue, margin, and profit growth. The March quarter was a continuation of us signing business with Healthy Margin.

Speaker Change: Our financial progress reflects our strategic achievements leveraging technology alliances stepping away from empty calorie revenues fixing focus accounts growing the consult portion of our business driving efficiency throughout our operations and as an independent company skating to where the.

Speaker Change: <unk> is going in terms of our customers future it.

Speaker Change: Need.

Speaker Change: Our performance in fiscal 2024 gives us strong momentum as we go forward.

Speaker Change: So as encouraged as I am by the earnings growth, we've delivered im even more enthusiastic about how throughout the year. We also positioned kindred for future revenue margin and profit growth.

Speaker Change: The March quarter was a continuation of us signing business with healthy margins.

David B. Wyshner: Throughout fiscal 2024, we signed contracts with projected gross margins in the mid-20s and projected pre-tax margins in the very high single digits. Therefore, as our business mix increasingly shifts toward more post-spin contracts, you'll see significant margin expansion in our reported results. In the middle graph on slide 13, we've included a gross profit book to bill chart that accentuates how we've been creating and capturing value in our business, with an average projected gross margin of 26% on our $12.5 billion of signings this past year. We've added over $3 billion of projected gross profit to our backlog. Over the same period of time, we've reported a gross profit of $2.9 billion.

Speaker Change: Throughout fiscal 2024, we signed contracts with projected gross margins in the mid twenties and projected pre tax margins in the very high single digits.

Speaker Change: Therefore, as our business mix increasingly shifts towards more postpaid contracts you will see significant margin expansion in our reported results.

Speaker Change: In the middle graph on Slide 13, we've included a gross profit book to Bill chart that accentuates, how we've been creating and capturing value in our business.

Speaker Change: With an average projected gross margin of 26% on our $12 $5 billion of signings. This past year, we've added over $3 billion of projected gross profit to our backlog.

Speaker Change: Over the same period of time, we've reported gross profit of $2 9 billion.

David B. Wyshner: This means we've been adding more gross profit to our backlog than our contracted book of business has been producing in our P&L. Having a gross profit book-to-bill ratio above 1 at 1.1 is a measure of how we're growing what matters most. The Expected Future Profit from Committed Contracts, and we've been doing this consistently over the last two years. Turning our cash flow and balance sheet, we generated an adjusted free cash flow of $291 million in fiscal year 2024. Our gross capital expenditures were $651 million, and we received a larger-than-typical $138 million of proceeds from asset disposition. Taxes being taxes were the use of cash.

Speaker Change: This means we've been adding more gross profit to our backlog than our contracted book of business has been producing in our P&L.

Speaker Change: Having a gross profit book to Bill ratio above one at one one is a measure of how we're growing what matters. Most the expected future profit from committed contracts and we've been doing this consistently over the last two years.

Speaker Change: Turning to our cash flow and balance sheet, we generated adjusted free cash flow of $291 million in fiscal year 2024 are.

Speaker Change: Our gross capital expenditures were $651 million and we received a larger than typical $138 million of proceeds from asset dispositions tax.

Speaker Change: Taxes being taxes were use of cash we provided a bridge from our adjusted pretax income to our free cash flow as well as a bridge from our adjusted EBITDA to our free cash flow in the appendix.

David B. Wyshner: We provided a bridge from our adjusted pre-tax income to our free cash flow in the appendix. Consequently, our financial position remains strong. Our cash balance at March 31 was $1.6 billion. Our cash, combined with available debt capacity under committed borrowing facilities, gave us $4.7 billion of liquidity at fiscal year end. We refinanced our $500 million term loan in Q4. As a result, our death maturities are now well laddered from late 2026 to 2041. We had no borrowings outstanding under a revolving credit facility, and our net debt at quarter end was $1.7 billion.

Speaker Change: Our financial position remains strong our cash balance at March 31 was $1 6 billion.

Speaker Change: Our cash combined with available debt capacity under committed borrowing facilities gave us $4 $7 billion of liquidity at fiscal year end.

Speaker Change: We refinanced our $500 million of term loan in Q4 as.

Speaker Change: As a result, our debt maturities are now well lathered from late 2026 to 2041.

Speaker Change: We had no borrowings outstanding under our revolving credit facility and our net debt at quarter end was $1 7 billion.

David B. Wyshner: As a result, our net leverage sits well within our target range. We are rated investment grade by Moody's, Fitch, and S&P. On capital allocation, our top priorities continue to be to maintain strong liquidity, remain investment grade, and reinvest in our business. As our earnings increase, they'll drive meaningful free cash flow growth. As a result, over time, we'll be in a position to consider regularly returning capital to shareholders, all while remaining investment grade. Our 3A strategy has been a Grand Slam home run.

Speaker Change: As a result, our net leverage sits well within our target range.

Speaker Change: We are rated investment grade by Moody's Fitch and S&P.

Speaker Change: On capital allocation, our top priorities continue to be to maintain strong liquidity remain investment grade and reinvest in our business.

Speaker Change: As our earnings increase will drive meaningful free cash flow growth.

Speaker Change: As a result over time, we will be in a position to consider regularly returning capital to shareholders all while remaining investment grade.

Speaker Change: Our <unk> strategy has been a grand Slam home run it has helped us strategically transform our business. It's galvanized our people around initiatives that are game changers for us and for our customers and it's delivered huge financial benefits.

David B. Wyshner: It's helped us strategically transform our business, it's galvanized our people around initiatives that are game changers for us and for our customers, and it's delivered huge financial benefits. As a reminder, at the start of the year, we provided fiscal 2024 targets of $300 million in revenue tied to hyperscaler alliances, $450 million in cumulative annualized cost savings from advanced delivery by fiscal year-end, and $400 million of cumulative annualized pre-tax benefit from our accounts initiative. During the year, we raised each of these targets by $100 million, and we exceeded each of the raised targets.

Speaker Change: As a reminder, at the start of the year, we provided fiscal 2024 targets of $300 million in revenue tied to hyperscale or alliances $450 million in cumulative annualized cost savings from advanced delivery by fiscal year end and $400 million of cumulative annualized pre tax benefit from our <unk>.

Speaker Change: <unk> initiative.

Speaker Change: During the year, we raised each of these targets by $100 million.

Speaker Change: And we exceeded each of the raised targets.

David B. Wyshner: Through our alliances, we recognized more than $150 million in hyperscaler-related revenue in the fourth quarter. As Martin mentioned, this brought our year-to-date hyperscaler revenue to $500 million, triple our prior year total. Through the Advanced Delivery Initiative, powered by Kyndryl Bridge, we continue to drive automation throughout our delivery operations, incorporate more technology into our offerings, reduce our costs, and increase our already strong service levels. It's a win-win for Kyndryl and our customers. To date, we've been able to free up more than 9,500 delivery professionals to address new revenue opportunities in backfill attrition.

Speaker Change: Through our alliances, we recognized more than $150 million and hyper scaler related revenue in the fourth quarter.

Speaker Change: As Martin mentioned this brought our year to date hyper scaler revenue to $500 million trip.

Speaker Change: Triple our prior year total.

Speaker Change: Through our advanced delivery initiative powered by Kindred Bridge, we continue to drive automation throughout our delivery operations incorporate more technology into our offerings reduce our costs and increase our already strong service levels.

Speaker Change: Win win for Kindred and our customers to.

Speaker Change: To date, we've been able to free up more than 9500 delivery professionals to address new revenue opportunities and backfill attrition.

David B. Wyshner: This is worth roughly $575 million a year to us, representing a $75 million increase in our annual run rate this past quarter. Our accounts initiative continues to remediate elements of contracts we inherited with substandard margins. In the fourth quarter, we increased the cumulative annualized profit from our FOCUS accounts by $125 million to $600 million.

Speaker Change: This is worth roughly $575 million, a year or two us representing a $75 million increase in our annual run rate this past quarter.

Speaker Change: Our accounts initiative continues to remediate elements of contracts, we inherited with sub standard margins.

Speaker Change: In the fourth quarter, we increased the cumulative annualized profit from our focus accounts by $125 million to 600.

Speaker Change: <unk> million dollars.

David B. Wyshner: You know, two years ago, we laid out bold ambitions that, over the medium term, advanced delivery will drive cost savings equating to roughly $600 million in annual pre-tax income, and accounts will drive annual pre-tax income of $800 million or more. Due to our progress to date, we're raising the ultimate benefits that we expect from these initiatives by $200 million each to $800 million and a billion dollars, respectively. In fiscal 2025, we'll generate incremental benefits from each of our three aides.

Speaker Change: Two years ago, we laid out bold ambitions that over the medium term advanced delivery will drive cost savings equating to roughly $600 million in annual pre tax income and accounts will drive annual pre tax income of $800 million or more.

Speaker Change: Due to our progress to date, we are raising the ultimate benefits that we expect from these initiatives by $200 million, each to $800 million and $1 billion respectively.

Speaker Change: In fiscal 2025 will generate incremental benefits from each of our three A's.

David B. Wyshner: For alliances, we expect hyperscaler-related revenue to approach a billion dollars, roughly double our 2024 level. We expect our advanced delivery initiative to reach $750 million in annualized savings and to deliver $200 million of incremental benefits year over year. And in FOCUS accounts, we expect to reach $850 million of annualized savings by year end and to deliver $300 million of incremental profit this year compared to last. Roughly half of the benefits from advanced delivery and accounts are the full year benefit of the actions we took in fiscal 2024, and half is the part-year benefit of additional actions we'll take in fiscal 2025. In baseball, you can't have back-to-back Grand Slams, but in our business and through the 3A's, we can.

Speaker Change: For alliances, we expect hyper scaler related revenue to approach $1 billion.

Speaker Change: Roughly double our 2024 level.

Speaker Change: We expect our advanced delivery initiative to reach $750 million in annualized savings and to deliver $200 million of incremental benefit year over year.

Speaker Change: And in focused accounts, we expect to reach $850 million of annualized savings by year end and to deliver $300 million of incremental profit this year compared to last.

Speaker Change: Roughly half of the benefits from advanced delivery and accounts is the full year benefit of the actions we took in fiscal 2024.

Speaker Change: Half is the part year benefits of additional actions, we'll take in fiscal 2025.

Speaker Change: In baseball you can't have back to back Grand slams, but in our business and through the three as we can in fact, the <unk> are becoming a regular part of our operating model rather than distinct initiatives.

David B. Wyshner: In fact, the three A's are becoming a regular part of our operating model, rather than a distinct initiative. As we look ahead to fiscal 2025, our core financial goals are to continue to expand our margins, grow our earnings, inflect our revenues back to growth as the year progresses, and generate free cash flow. Our outlook is for revenue to be in the range of $15.2 to $15.5 billion, a decline of 2% to 4% in constant currency.

Speaker Change: As we look ahead to fiscal 2025, our core financial goals are to continue to expand our margins grow our earnings inflect, our revenues back to growth as the year progresses and generate free cash flow.

Speaker Change: Our outlook is for revenue to be in the range of 15, two to $15 5 billion.

Speaker Change: A decline of 2% to 4% in constant currency.

David B. Wyshner: We still have two quarters to go until our anniversary when most of our significant actions to step away from low to no margin revenues take effect. So we expect our year-over-year revenue declines will decrease as the year progresses, and we will return to year-over-year revenue growth in the fourth quarter. Based on recent exchange rates, currency movements are having a $230 million negative impact on reported revenue.

Speaker Change: We still have two quarters to go until we anniversary when most of our significant actions to step away from low to no margin revenues took effect.

Speaker Change: So we expect our year over year revenue declines will decrease as the year progresses, and we returned to year over year revenue growth in the fourth quarter.

Speaker Change: Based on recent exchange rates currency movements, or having a $230 million negative impact on our reported revenue, but where that lands will depend on how exchange rates move over the next 11 months.

David B. Wyshner: But where that lands will depend on how exchange rates move over the next 11 months. In aggregate, then, we estimate that our adjusted EBITDA margin in fiscal 2025 will be at least 16.2%, an increase of at least 150 basis points versus fiscal 2024. And our outlook for adjusted pre-tax income is at least $435 million. This means growing our adjusted pre-tax income by at least $270 million and increasing our adjusted pre-tax margin by nearly 200 basis points year over year.

Speaker Change: In aggregate than we estimate that our adjusted EBITDA margin in fiscal 2025 will be at least 16, 2% an increase of at least 150 basis points versus fiscal 2024.

Speaker Change: And our outlook for adjusted pre tax income is at least $435 million.

Speaker Change: This means growing our adjusted pre tax income by at least $270 million and increasing our adjusted pre tax margin by nearly 200 basis points year over year.

David B. Wyshner: This means we're doubling down on the strong earnings and margin growth we delivered in fiscal 2024 and keeps us right on track to be generating high single-digit adjusted pre-tax margins in fiscal 2027. There are two more items to note regarding our outlook. We continue to see opportunities to drive efficiency in our operations, both through advanced delivery and in SG&A functions. While we manage labor costs primarily through hiring and attrition, we expect to incur workforce rebalancing charges of roughly $100 million in fiscal 2025.

Speaker Change: This means we are doubling down on the strong earnings and margin growth, we delivered in fiscal 2024 and keeps us right on track to be generating high single digit adjusted pre tax margins in fiscal 2027.

Speaker Change: Two more items to note regarding our outlook.

Speaker Change: We continue to see opportunities to drive efficiency in our operations, both through advanced delivery and in SG&A functions.

Speaker Change: We manage labor cost primarily through hiring and attrition, we expect to incur workforce rebalancing charges of roughly $100 million in fiscal 2025.

David B. Wyshner: It's important to note that the anticipated charges associated with this program are included in our fiscal 2025 outlook for adjusted EBITDA, adjusted pre-tax income, and adjusted free cash flow, whereas our adjusted results in fiscal 2024 excluded such charges. Also, as part of managing our costs in CapEx, our teams have been working to make our compute and storage hardware last longer. As a result, we are now able to extend the depreciable lives of these assets from five years to six.

Speaker Change: It's important to note that the anticipated charges associated with this program are included in our fiscal 2025 outlook for adjusted EBITDA adjusted pre tax income and adjusted free cash flow, whereas our adjusted results in fiscal 2024, excluding such charges.

Speaker Change: Also as part of managing our costs and Capex. Our teams have been working to make our compute and storage hardware last longer as a result, we are now able to extend the depreciable lives of these assets from five years to six.

David B. Wyshner: This benefit will be largely offset by the end of the benefit we've had from certain assets having been transferred to us from our former parent company prior to the spin-off at cost. The combined impact of these two non-cash changes will be a roughly $50 million year over year reduction in our depreciation.

Speaker Change: This benefit will be largely offset by the end of the benefit we've had from certain assets, having been transferred to us from our former parent pre spin at cost.

Speaker Change: The combined impact of these two noncash changes will be a roughly $50 million year over year reduction in our depreciation expense.

David B. Wyshner: Looking at the first quarter in particular, our year-over-year constant currency revenue decline will be similar to Q4, and our adjusted pre-tax income should be modestly higher than the $47 million we reported in last year's first quarter. On the topic of cash flow, for the year as a whole, we project roughly $700 million in net capital expenditures in fiscal 2025 and about $725 million in depreciation expense. We expect to pay roughly $150 million in cash tax. Unlike fiscal 2024, we won't have any below-the-line systems migration outlays.

Speaker Change: Looking at the first quarter in particular, our year over year constant currency revenue decline will be similar to Q4, and our adjusted pretax income should be modestly higher than the $47 million, we reported in last year's first quarter.

Speaker Change: On the topic of cash flow for the year as a whole we project roughly $700 million and net capital expenditures in fiscal 2025, and about $725 million of depreciation expense.

Speaker Change: We expect to pay roughly $150 million in cash taxes.

Speaker Change: Unlike fiscal 2024, we won't have any below the line systems migration outlays.

David B. Wyshner: As a result, we're forecasting roughly 100% conversion of adjusted pre-tax income, less cash taxes, into free cash flow. From a timing perspective, Q1 will be a significant user of cash due to annual software and incentive payments, and subsequent quarters will be more favorable. Over the medium term, we remain committed to delivering significant margin expansion and generating free cash flow growth. We have a solid game plan to drive our strategic progress. And this game plan starts with the steps we've already taken to expand our technology alliances, manage our costs, and earn a return on all of our revenues.

Speaker Change: As a result, we are forecasting roughly 100% conversion of adjusted pre tax income less cash taxes into free cash flow.

Speaker Change: From a timing perspective, Q1 will be a significant user of cash due to annual software and incentive payments and subsequent quarters will be more favorable.

Speaker Change: Over the medium term, we remain committed to delivering significant margin expansion and generating free cash flow growth.

Speaker Change: We have a solid game plan to drive our strategic progress and this game plan starts with the steps we've already taken to expand our technology alliances manage our costs and earn a return on all of our revenues.

Speaker Change: To wrap up.

David B. Wyshner: Our business model centers around providing mission-critical services to large, complex organizations that rely on our technology experts and insights to operate and advance their business. Our leading market position in IT infrastructure services and the mission-critical nature of what we do distinguish us from other providers of IT services.

Speaker Change: Our business model centers around providing mission critical services to large complex organizations that rely on our technology expertise and insights to operate and advance their businesses.

Speaker Change: Our leading market position in it infrastructure services and the mission critical nature of what we do distinguish us from other providers of it services.

David B. Wyshner: Our service levels and customer satisfaction scores make it clear that we serve our customers extremely well, and the growth we're delivering through our alliances with multiple technology providers further differentiates us. Our fiscal 2024 results demonstrate that we're successfully realizing the substantial opportunities we have. And we're fortunate to have a long, strong runway of additional growth opportunities in front of us. With that, Martin and I would be pleased to take your questions. And thank you.

Speaker Change: Our service levels and customer satisfaction scores make it clear that we serve our customers extremely well in.

Speaker Change: And the growth we are delivering through our alliances with multiple technology providers further differentiates us.

Speaker Change: Our fiscal 2024 results demonstrate that we are successfully realizing the substantial opportunities we have and we're fortunate to have a long strong runway of additional growth opportunities in front of us with that Martin and I would be pleased to take your questions.

Speaker Change: Okay.

David B. Wyshner: We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one a second time. If you are called upon to ask your question and are listening via speakerphone on your device, please pick up your handset and ensure that your phone is not on mute when asking your question.

Speaker Change: Thank you we will now begin the question and answer session.

Speaker Change: If you have dialed in and we would like to ask a question. Please press star one on your telephone keypad to raise your hand and join the queue.

Speaker Change: If you would like to withdraw your question simply press Star one a second time.

Speaker Change: If you are called upon to ask your question and our listening via speaker phone on your device. Please pickup your handset and ensure that your phone is not on mute when asking your question.

Speaker Change: We ask that you please limit yourself to one question and one follow up.

Operator: We ask that you please limit yourself to one question and one follow-up. And again, it is star number one to join the queue. And your first question comes from Divya Goyal with Scotiabank. Your line is open. Good morning, everyone.

Speaker Change: And again it is star one to join the queue.

Speaker Change: And your first question comes from <unk> <unk> with Scotiabank. Your line is open.

Divya S. Goyal: Great quarter. So, David, you mentioned towards the end of your script about the macro resilience of Kyndryl. Between Martin and yourself, could you guys elaborate, in the interest of investors, what makes Kyndryl so macro resilient despite a weakness being continuously noted across the technology services ecosystem? And how would this resiliency help you if the interest rates were to truly not go down as anticipated at the beginning of the year? Yeah, thanks, Divya. And thanks for the compliment.

Scotiabank: Good morning, everyone great quarter.

Speaker Change: <unk>.

Scotiabank: David you mentioned towards the end, Australia script about the macro of resilience of Kindle.

Speaker Change: Between Martin on yourself.

Scotiabank: Elaborate in the interest of investors, what makes kindred soul macro resilient, despite a weakness being continuously noted across the technology services ecosystem.

Scotiabank: And what.

Scotiabank: How would this resiliency help you if the interest rates were to truly not go down as anticipated beginning of the year.

Martin J. Schroeter: Thanks for the nice comment about the quarter. We feel really good about the year we just finished. And as I noted in my prepared remarks, and you've heard it in David's as well, we're very excited about the year. You know, I think what we're seeing, and I think what we've been focusing our investors on is the investments we've made in our people, the investments we've made to expand their skills, the investments we've made to build new capabilities, combined with the investments we've made in our IP and And again, we're mission critical.

Speaker Change: Yeah. Thanks, Thanks, Vivien thanks for the nice thanks for the nice comment about the quarter, we feel we feel really good about the year. We just finished in and as I noted in my prepared remarks, and you've heard it in David's as well we are very excited about about the year.

Speaker Change: I think what we're seeing and I think what what what.

Speaker Change: What we've been.

Speaker Change: What we've been focusing our investors on is the investments we've made in our people the investments we've made to expand their skills. The investments we've made to build new capabilities combined with the investments we've made in our IP and our ability to turn.

Speaker Change: Our data into insights for our customers.

Speaker Change: Given the role we play in their environments and again, we're mission critical so you combine great skills and engineering talent new.

Martin J. Schroeter: So you combine great skills and engineering talent, new capabilities and innovation in the form of Kyndryl Bridge and Actionable Insights, and you put all of that into the context of business outcomes for customers in mission critical. And I think you see why we're why we see the momentum in our business and why it can continue. But recognize that we have only gotten Kyndryl Bridge into about just over half the customer base.

Speaker Change: <unk>, new capabilities and innovation in the form of Central Bridge, and actionable insights and you put all of that into the context of business outcomes for our customers in mission critical.

Speaker Change: I think you see why we are.

Speaker Change: Why we see the momentum in our business and why it can continue recognize that.

Speaker Change: We have only gotten kintzel bridging to about just over half the customer base. So we have a lot more to do and even with that.

Martin J. Schroeter: So we have a lot more to do. And even with that, even with that deployment where we're generating about three million actionable insights for our customers per month, we have a lot more, a lot more to get done. So look, we'll continue to invest in our skills. We'll continue to work with the ecosystem that matters to our customers. We'll continue to build new capabilities, and we'll continue to develop and deploy Kyndryl Bridge more broadly.

Speaker Change: Even with that deployment, where we're generating about $3 million actionable insights for our customers per month, we have a lot more a lot more to a lot more to get done. So so look we'll continue to invest in our skills will continue to work with the ecosystem that matters to our customers will continue to build new capabilities and we'll continue to develop and deploy.

Speaker Change: Tinder bridge more more broadly and so.

Martin J. Schroeter: And so as we move into a more consultative form of selling, which makes it very clear to our customers how our work is tied to business outcomes, I think we feel quite confident, quite good about our ability to keep momentum going in our consults. Would you add anything, David? No.

Speaker Change: So as we move into a more consultative form of selling which makes it very clear to our customers. How our work is tied to business outcomes. I think we feel quite confident quite good about our ability to keep momentum going in our in our console business.

Speaker Change: Ed anything daily.

Ed: Okay. Thanks, Thank you Vivian.

Martin J. Schroeter: Good. Okay. And just as a follow-up on this very comment that you made, Kyndryl consult, so obviously, it had impressive growth this quarter itself. Considering how the consult business broadly, again, broadly, thinking about it, the consulting businesses have been a little bit constrained with respect to the dollars being allocated, but your consult business has been growing impressively. So could you elaborate on what it is that's truly driving the significant growth and a reasonable run rate?

Speaker Change: And just as a follow up on this very comment that you made kindred consult so the Cid had an impressive growth this quarter itself.

Ed: Considering how the consol business broadly again broadly thinking about it the consulting businesses have been.

Ed: A little bit constrained with respect to the dollars being allocated but youll consult business has been growing impressively. So could you elaborate on what is it that is truly driving the significant growth and a reasonable run rate I know, David mentioned double digit, but what in our mind could be.

Martin J. Schroeter: I know David mentioned double digits, but what in our minds could be a reasonable run rate for the consult business on a go forward basis? Unknown Speaker: Yeah, so a couple of things.

Ed: For ourselves could be a reasonable run rate for the consol business on a go forward basis.

Martin J. Schroeter: And then obviously, I'll ask David if he wants to supplement. The nature of the consultation opportunities and the focus we have around infrastructure is one that is not discretionary, is one that really needs to be addressed, no matter what the economic environment is. And when Kyndryl engages with a customer and provides insights into how their systems are running, those insights can be geared toward helping them optimize their systems. In a macro environment, by the way, everyone is looking to drive productivity.

Speaker Change: Yes, so a couple of things and then obviously ask David if he wants to supplement.

Ed: The the nature of the consult opportunities and the focus we have around infrastructure is one that is.

Ed: Is not discretionary is one that really needs to be addressed no matter, what the economic environment is when when control when digital engages with the customer.

Ed: And.

David B. Wyshner: And provides.

David B. Wyshner: Insights into how their systems are running those insights can be geared toward helping them optimize their systems in a macro environment by the way everyone is looking to drive productivity. So helping them optimize systems is something that our consult business does quite well, helping them for instance achieve.

Martin J. Schroeter: So helping them optimize systems is something that our consulting business does quite well. Helping them, for instance, achieve their carbon reduction plans, which Kyndryl Bridge, again, can help them understand how they're creating carbon across their footprint, helping them keep up with global best practices from the myriad of technologies, helping them understand and monitor, and getting ahead of problems.

David B. Wyshner: Their carbon reduction plans, which control bridge again can help them understand how how they're how they're creating carbon across our footprint, helping them keep up with helping them keep up with.

David B. Wyshner: With global best practices from the myriad of technologies, helping them understand and.

David B. Wyshner: Monitoring getting ahead of problems all of these things again related to infrastructure all of these things in the mission critical world.

Martin J. Schroeter: All of these things, again, related to infrastructure, all of these things in the mission critical world, will continue to drive our consulting business. From a run rate perspective, and again, I'll ask David to comment as well, you know, when we started talking about Kyndryl Consult about two and a half years ago, we identified then that we had a bit of catching up to do, if you will, that we were very light on the advisory side, and that we thought the growth path, a very solid double-digit growth path, we would have in front of us for quite And I think that's what we're still experiencing.

David B. Wyshner: We will continue to drive our consult business from a run rate perspective, and again I'll ask David to comment as well.

David B. Wyshner: When we started talking about Kinder consult about two five years ago. We identified already then that we had a bit of catching up to do if you will that we where we.

David B. Wyshner: Mixed very light in the advisory side and and.

David Weisner: That we thought the growth path.

Speaker Change: Solid double digit growth path.

Speaker Change: We would have in front of us for quite a while and I think that's what we're still experiencing we are growing the mix of control consult within the overall <unk> revenue mix.

Speaker Change: We are continuing to hire consultants, so we're putting more feet on the ground to help and we are deploying kinzel bridge more broadly across our customer base.

Martin J. Schroeter: And in markets, by the way, that probably have a kind of high single-digit growth rate to them, so we're gaining share across the consulting space in the markets we serve. So, again, I'll ask David to comment, but I think we've got a really good long-term growth trajectory ahead of us at Kyndryl Consult, and it is part of why we see ourselves getting back to overall revenue growth in the fourth quarter of this year. David?

Speaker Change: And in markets by the way that it probably have a kind of a high single digit growth rate to them. So we are gaining share across the consult space in the markets we serve so.

Speaker Change: I'll again, I'll ask David to comment, but I think we've got a really good long term growth trajectory ahead of us and Kendra consult and it is part of why we see ourselves getting back to overall revenue growth in the fourth quarter of this year, David that's right and just to put a few numbers around that in <unk>.

David B. Wyshner: That's right. And just to put a few numbers around that, in fiscal 2024, we saw our consult revenue increase 16% in constant currency. It's become about 15% of our business overall, and we see it getting to 20-ish percent of our business in the next few years. And given the composition of our revenue mix that we have, it means our consult business is already quite sizable, north of $2 billion a year. And as a result, the double-digit growth we're seeing has a really significant positive impact on us.

David B. Wyshner: Fiscal 2024, we saw our consult revenue up 16% in constant currency, it's become about 15% of our business overall.

David B. Wyshner: It getting over the next few years to 20 ish percent of our business and.

David B. Wyshner: Given that.

David B. Wyshner: The composition of our revenue mix that we have it means our console business is already quite sizable north of $2 billion, a year and as a result.

David B. Wyshner: Double digit growth, we're seeing has a really significant positive impact on us.

David B. Wyshner: From a strategic perspective and an operational perspective, the growth we're seeing in consult really gives us confidence in our ability to drive growth in areas like consulting and hyperscalers that we focus on for growth. And we're confident that that bodes really well for our return to growth later this year. And then the last thing I'd mention about consult that's really important is that, ideally, we're doing advisory work and implementation work in consult that then gives rise to a managed services tail.

David B. Wyshner: From a strategic perspective, and an operational perspective the growth we're seeing in consult really gives us confidence in our ability to drive growth in areas like consult and hyper scaler.

David B. Wyshner: That we focus on for growth and that we are confident that that bodes really well for a return to growth. Later later this year and then the last thing I'd mentioned about consult that's really important is that ideally we're doing advisory work and implementation work in consult that then gives rise to a managed services.

David B. Wyshner: Tail. So it actually is a positive feeder not only in its own right as a source of revenue growth that tends to have attractive margins associated with it also drives managed services revenues overtime in many cases as well.

David B. Wyshner: So it actually is a positive feeder, not only in its own right as a source of revenue growth that tends to have attractive margins associated with it, but it also drives managed services revenues over time in many cases as well. That's incredible.

Speaker Change: That's incredible thanks, a lot for the color.

Divya S. Goyal: Thanks a lot for the call. Thanks, Divya. Operator, next question, please. Your next question comes from the line of Tin Jin Huang with J.P. Morgan. Your line is open.

Speaker Change: Thanks, Davina operator next question Paul.

Speaker Change: Your next question comes from the line of Tien Tsin Huang with Jpmorgan. Your line is open.

Tin Jin Huang: Hey, thanks. Good morning. Really good results here. I want to ask about signings. I know you mentioned the inflection and you've been marching towards that for a bit, but, New Logo vs. Renewals. Any comments on pricing? I know that, in general, you're doing some transition with respect to pricing, the back book, but we're still hearing a lot of commentary around, you know, difficulty in getting projects started and difficulty in pricing and whatnot. So I'm just curious around about all of that.

Speaker Change: Thanks, Good morning, really good results here I wanted to ask on signings I know you'd mentioned, the inflection and you've been marching towards that for a bit but.

Speaker Change: New logo versus renewals any comments on <unk>.

Speaker Change: Pricing I know that in <unk>.

Speaker Change: General.

Speaker Change: Youre doing some transition with respect to pricing the back book, but we're still hearing a lot of commentary around the difficulty in getting projects started in.

Speaker Change: And difficulty in pricing and whatnot. So I'm just curious around on around all of that.

Martin J. Schroeter: Yeah, Tingen, thank you. And thank you again for the nice comment. Thank you also for the nice comment. So a few things on signings, as you know, as we've described very consistently, as we focused on, as we focused on moving the business away from low, no, and negative margin business, that has had an impact on the overall signings, but that's part of why we've driven so much progress and profit. So, while that focus continues to diminish over time, we made a lot of progress last year, and we drove a lot of profit progress while doing that.

Speaker Change: Yes.

Speaker Change: Tien tsin. Thank you and thank you again for the nice. Thank you also for the nice.

Speaker Change: Comment so a few things on signings as you know as we've described very consistently as we focused on as we focused on moving the business away from low no and negative margin business that has had an impact on the overall signings, but that's part of why we've driven so much progress in profit.

Martin J. Schroeter: And even, even with the focus on profit, we managed to get a little bit of growth, right, low single-digit growth out of the overall signing numbers last year. And we would expect that we will continue to build on that.

Speaker Change: So so that focus continues to diminish over time, we've made a lot of progress last year, and we drove a lot of profit progress, while doing that and even even with the focus on profit we managed to get a little bit of growth rate low single digit growth out of the overall signings number last year.

Speaker Change: And we would expect that we will continue to build on that on that base within that.

Martin J. Schroeter: Within that, you know, as we've talked about, we focused on our customer base; we focused on expanding our relationships and wallet share within our customer base. So we are getting a fair bit of new scope within the existing customer base. And I know you made a distinction around the new logo. Yes, we're winning some new customers, some entirely new customers. It just hasn't been a focus for us.

Speaker Change: As we've talked about we've focused on our customer base, we focused on.

Speaker Change: Expanding our relationships and wallet share within our customer base. So we are getting a fair bit of new scope within the existing customer base and I know you've made a distinction of brand new logo, yes, we're winning some new some new customers some entirely new customers. It just hasnt been a focus for us.

Speaker Change: However, having having seen what our teams can execute within our customer base around new scope, having seen the the positive response to the capabilities, we've built and having seen the positive response to the innovation, we're bringing once we turn our sights toward new customers in earnest and at scale.

Martin J. Schroeter: However, having seen what our teams can do within our customer base around new scope, having seen the positive response to the capabilities we've built, and having seen the positive response to the innovation we're bringing, once we turn our sights toward new customers, in earnest, and at scale, I'm confident that not only will we grow the scope within our customer base that we'll bring on, but we'll bring on new logos as well in order to drive Just then, my quick follow-up just on gross margins.

Speaker Change: I am confident that not only will we not only will we grow the scope within our customer base. It but we will bring on we'll bring on new logo as well in order to drive our continued revenue growth paths over the long term.

Speaker Change: Okay very good just my quick follow up just on gross margins.

Martin J. Schroeter: We're very healthy ahead of what we had. Do you feel like you're in a good place from a delivery standpoint? You know, I know different pockets of the world are seeing different issues with respect to tech labor. Do you feel like you're in a good place?

Speaker Change: We're very healthy ahead of what we had.

Speaker Change: Do you feel like you're in a good place from a delivery standpoint.

Speaker Change: Different pockets of the world are seeing different.

Speaker Change: Issues with respect to take labor do you feel like you're in a good place I know some of the workforce rebalancing is coming down here as well, but any updated thoughts there. Thank you.

Tin Jin Huang: I know some of the workforce rebalancing is calming down here as well, but any updated thoughts there? Thank you. Yeah, I mean, again, I'll ask David for his comments as well.

Martin J. Schroeter: Look, our delivery remains world class. Our delivery is the reason our customers are willing to take the journey with us into new spaces. It's the reason they're willing to engage with us and our alliance partners in new ways. And our team has done a phenomenal job for the last two and a half years delivering every day.

Speaker Change: Yes, I mean again I'll ask David for his comments as well look our delivery remains world class. Our delivery is the reason our customers are willing to take that journey with us into.

Speaker Change: <unk>.

Speaker Change: New spaces. It's the reason they are willing to.

Speaker Change: Engage with us and our alliance partners in in new scope and the team. Our team has done a phenomenal job for the last two and a half years and delivering everyday and our focus around advanced delivery and our focus around control bridge has always been part of helping that it was always been focused on delivering even.

Martin J. Schroeter: And our focus around advanced delivery and our focus around Kyndryl Bridge has always been part of helping that. It has always been focused on delivering even higher quality, and automating more so that our customers have a better experience. So I feel, you know, touch wood, I feel like the role we play, which our teams take very seriously, the role we play in our customers' mission-critical environments is the one that motivates them every day to get up and deliver great service. And I think we're doing that. And I think that's right.

Speaker Change: Higher quality automating more so that.

Speaker Change: That our customers have a better experience, so I feel and touch.

Speaker Change: Touch wood I feel like the role we play which our teams take very seriously the role we play in our and our customers' mission critical environments is the one that motivates them everyday to get up and deliver great service and I think we're I think we're doing that.

David B. Wyshner: The gross margin improvement that we delivered last year is in the 300 basis point range, so we're making a tremendous amount of progress there. And I feel really good about where we are from a delivery perspective for two reasons. Number one, through our advanced delivery initiative, we've driven a substantial amount of progress, reaching $575 million of annualized savings already shows the progress that we've made. And we continue to have the opportunity to drive incremental efficiencies from where we are.

Speaker Change: I think that's right the gross margin improvement that we delivered last year is in the 300 basis point range. So we're making a tremendous amount of progress there and I feel really good about where we are from a delivery perspective for two reasons number one.

David B. Wyshner: And intention, that's one of the reasons we've increased the ultimate goal for advanced delivery from the $600 million we had initially targeted to $800 million now. So it's a sign that we've got more runway and more benefits still to be gained in this area. That's good stuff. Thank you.

Speaker Change: Through our advanced delivery initiatives, we've driven a substantial amount of progress reaching $575 million of annualized savings.

Speaker Change: Already.

Speaker Change: It shows the progress that we've made and we continue to have opportunity to drive incremental efficiencies from where we are and contingent thats. One of the reasons. We've increase the ultimate goal for for advanced delivery from the $600 million. We had initially targeted to 800 million.

Speaker Change: Now so it's a sign that we've got more runway and more benefits still to be still be still to be gained in this area.

Speaker Change: Yes.

Speaker Change: Thank you thanks.

Tin Jin Huang: Thanks, Kyndryl. Operator, next question, please. Your next question comes from the line of Jamie Friedman with Susquehanna. Your line is open.

Speaker Change: Thanks, Tien Tsin operator next question please.

Speaker Change: Your next question comes from the line of Jamie Friedman with Susquehanna. Your line is open.

James Eric Friedman: Hi. Thank you for taking my question. I'll echo the congratulations.

Speaker Change: Hi.

James Eric Friedman: A lot of hard work here this year. I wanted to ask you, particularly about the account, in the three A's on page 15. I was wondering, Martin and David, if I could get your perspective as to why, because this is a key part of the investment thesis, why it seems to be performing better and faster, with the $300 million of year-over-year earnings benefit. You know, why, why, why is that exceeding your expectations? Yeah, so a few things. Thank you again.

James Eric Friedman: Thank you for taking my question I'll Echo the congratulations Nevada hard work here this year.

James Eric Friedman: I wanted to ask a particularly about the accounts.

James Eric Friedman: In the <unk> on page 15, I am just wondering Martin and David if I could get.

James Eric Friedman: With respect to y.

James Eric Friedman: Why is that because this is a key part of the investment thesis why that seems to be.

James Eric Friedman: Performing better and faster.

James Eric Friedman: With the 300 million of year.

James Eric Friedman: Year over year earnings benefit.

James Eric Friedman: Why why why is that exceeding your expectations.

Martin J. Schroeter: Thank you also for the nice comments. Look, when we began and laid out the strategy, the 3A strategy, and particularly account focus, we felt very confident that our customers would engage and come with us on this journey because of the role we play in their environments, because of the trust that we've built up over years and years and years. And the fact is we're really good at what we do, so they love the engineering talent.

Speaker Change: Yeah. So a few things. Thank you again. Thank you also for the nice for the nice comments.

Speaker Change: Look when we win when.

Speaker Change: When we began and.

Speaker Change: And laid out the strategy the <unk> strategy and particularly on account focus we felt.

Martin J. Schroeter: They love the services we provide, so we were very confident in that. Now, having said that, we also made a bunch of assumptions around the timing for these and what the ultimate landing spot would be, as in how much content will come out, how much new scope we will get, what's the quarter in which or the year in which some of these customers will all align to get to a new relationship and sort of reenergize these relationships.

Speaker Change: We felt very confident that our customers would engage and.

Speaker Change: And that come with us on this journey because of the role we play in their environments because of the trust that we've built up over years and years and years and the fact is we're really good at what we do so they love the engineering talent. They loved the services. We provide so we were very confident now having said that we also made of <unk>.

Speaker Change: <unk> of assumptions around the timing for these and what the ultimate what the ultimate landing spot would be as in how much content will come out how much new scope will we get whats the whats the quarter in which are the year in which some of these customers will will all aligned to get to to get.

Speaker Change: Two are new to get to a new relationship and sort of.

Martin J. Schroeter: And so we made a bunch of assumptions. And the fact is that while we were confident going in with the basis for the strategy, we didn't know how long it would take, we didn't know what they would look like on the other side. And we didn't know, we didn't know what the ultimate ins and outs, the puts and takes, would be in these relationships.

Speaker Change: Re energize these relationships and so we made a bunch of assumptions and the fact is that while we were confident going in with the basis for the strategy. We didn't know how long it would take we didn't know what they would look like on the other side and we didn't know we didn't know what ultimately the ins and outs that puts and takes.

Speaker Change: Would be in these relationships and whats turned out is that they are as enthusiastic our customer bases is enthusiastic to work their way through these as we expected and we're just getting them done a bit faster and I think that's because.

Martin J. Schroeter: And what's turned out is that they are as enthusiastic, our customer base is as enthusiastic to work their way through them as we expected. And we're just getting them done a bit faster. And I think that's because we have invested heavily in new capabilities, so we show up with new ideas. We've invested heavily in innovation, so we show up with new tools, and a new platform to help them get more insights.

Speaker Change: I think that's because we.

Speaker Change: We have invested heavily in new capabilities. So we show up with.

Speaker Change: New ideas, we've invested heavily in innovation. So we showed up show up with new tools, new platform to help them get more insights.

Martin J. Schroeter: And we put all of that into the context of a business outcome for them, so it makes it easy to understand and easy to see why this will be better for us and, obviously, be better for them as well. And remember, all of this was in the context of how do we accelerate it from just its natural renewal periods, which extend well out into the next six, seven, eight years. So we made a lot of assumptions.

Speaker Change: And we put all of that into a context of a business outcome for them. So it makes it easy to understand and easy to see why this will be better for us.

Speaker Change: And obviously be better for them as well and remember all of this was in the context of how do we accelerate it from just its natural.

Speaker Change: Renewal periods, which extend well out into next 678 years. So we made a lot of assumptions that the investments we've made in our people in the ecosystem and in our IP and data are paying off and customers see the benefit to.

Martin J. Schroeter: The investments we've made in our people, in the ecosystem, and in our IP and data are paying off, and customers see the benefit to sort of resetting, if you will, these relationships. Okay, thanks for that. And then for my follow-up, David, you were going kind of quick there, and there was something you said that I don't actually see on the slides, but I'm sure it's me, not you. But...

Speaker Change: Two sort.

Speaker Change: Sort of resetting if you will these relationships and they're better often obviously, we're better off.

Speaker Change: Okay. Thanks for that and then for my follow up.

Speaker Change: David you were going kind of quick there and there was something you said.

Speaker Change: We've seen the slides, but I'm sure it's mean.

Speaker Change: But.

James Eric Friedman: When you were talking about the 575, I may have misheard, I apologize, but I thought that you annualized the savings, I thought related to reskilling, but it doesn't seem to be in the transcript. How are you annualizing the 575? Yeah, so the $575 million is the benefit that we're getting from advanced delivery compared to where we started. So in fiscal 23, at the end of fiscal 23, we're at a $275 million run rate from advanced delivery. And by the end of fiscal 24, we had increased that by $300 million to a $575 million annual run rate.

David B. Wyshner: When you were talking about the $5 75.

David B. Wyshner: I may have misheard, I apologize, but I thought that you annualize the savings I thought related to reskilling, but it doesn't seem to be in the transcript.

David B. Wyshner: How are we how are you annualized that $5 75.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Yes, so the $575 million.

Speaker Change: Benefit that we're getting from advanced delivery compared to where we are compared to where we started.

Speaker Change: In.

Speaker Change: In fiscal 'twenty three at the end of fiscal 'twenty three we're at $275 million run rate from advanced delivery and by the end of fiscal 'twenty. Four we had increase that by $300 million two of $575 million annual run rate and we expect that to continue to grow.

David B. Wyshner: And we expect that to continue to grow from there. So that's really the key numbers, you know, the key measure of our progress there that we point to.

Speaker Change: From from there.

Speaker Change: It's really the key number is the key measure of our progress there that we point to.

Speaker Change: Got it okay. Thank you very much.

James Eric Friedman: Okay. Thank you very much. Thanks, Jamie. Operator, next question, please. Your next question comes from the line of David Togut with Evercore ISI. Your line is open.

Speaker Change: Thanks, Jami operator next question please.

Speaker Change: Your next question comes from the line of David <unk> with Evercore ISI. Your line is open.

David Mark Togut: Thank you. Good morning. And thanks for taking my question. I apologize if this has been asked before, as there were several calls this morning. But the strength and demand for Kyndryl Consult was notable, particularly against the consulting industry environment, you know, which has been under pressure. Of course, Kyndryl Consult is non-discretionary, and the weaknesses elsewhere are really more in discretionary-related demand. But could you go a level deeper on demand drivers for Kyndryl Consult? You know, in particular, how durable those demand drivers are, you know, if we look to FY25 and beyond? Sure, sure, David.

David B. Wyshner: Thank you good morning, and thanks for taking my question I apologize. If this has been asked to serve several calls this morning, but the <unk>.

David B. Wyshner: And demand for Kendra consult was notable particularly against the consulting industry environment, which.

David B. Wyshner: <unk> has been under pressure of course, Kimbriel consult is non discretionary and the weaknesses elsewhere really more on discretionary related demand, but could you go a level deeper on demand drivers for Kendra consult.

David B. Wyshner: In particular, how durable those demand drivers are.

David B. Wyshner: Look to FY 'twenty five and beyond.

Martin J. Schroeter: Thank you. And thank you for the nice comments. And thank you for joining us. Kyndryl Consult has come up, and we do recognize that the performance that we're delivering and our view is not what you're seeing in many other places. And I think the reasons for that, which I'm going to talk about, the reasons for that are enduring and, in fact, can continue for a period of time. So at our heart, as we've been talking about, we've been investing quite heavily in our team skills, we've been investing heavily in building new capabilities, and we've been investing quite heavily in building out our IP and the use of our data around Kyndryl Bridge.

Speaker Change: Sure sure David Thank you and thank you for the nice comments and thank you for for.

Speaker Change: Joining kindred consult has come up and we do recognize that the performance that we're delivering and our view is not what youre seeing in many other places.

David B. Wyshner: I think the.

Speaker Change: The reasons for that which I'm going to talk about the reasons for that are enduring and in fact.

Speaker Change: Can continue I think for a period of time. So so at our heart is as we've been talking about we've been investing quite heavily in in our our team skills. We've been investing heavily in building new capabilities and we've been investing quite heavily in building out our IP and the use of our data and.

Martin J. Schroeter: And so as our teams engage... with new capabilities, innovation, and relevant business outcome-oriented ideas for our customers to pursue in this environment, in any environment, which can be around, for instance, how to optimize their systems; everyone's interested in productivity in a macro environment like this, around resiliency, around how to get ready, for instance, for generation AI, etc. Because of the role we play in their environments and the mission critical nature of what we do, those investments are paying off.

Speaker Change: Around Kingsville bridge, and so as our areas our teams engage.

Speaker Change: With new capabilities with innovation and with.

Speaker Change: Relevant business outcome oriented oriented ideas for our customers to pursue in this environment in any environment, which can be around for instance, how to optimize their systems everyone's interested in productivity in a macro environment like this around resiliency around how to get ready for instance.

Speaker Change: For Gen AI et cetera.

Speaker Change: The role we play in there in their environments and the mission critical nature of what we do those investments are paying off.

Martin J. Schroeter: And, and we expect them to continue. And, in fact, keep in mind that Kindrel Bridge is only in about half of our customer base as we sit here today. So as we continue to build new capabilities with our alliance partners, as we continue to invest in Kindrel Bridge and bring new functionality, and make more use of our data across a broader element of a broader piece of our customer base, I see the enduring nature of why we're outperforming. Why we're performing differently than what you see from others. I think that will continue. Yeah,

Speaker Change: And we expect them to continue and in fact keep in mind that <unk> is only in about half of our customer base as we sit here today. So as we continue to build new capabilities with our alliance partners as we continue to invest and Kinzel bridge and bring new functionality and make more use of our data across a broader element.

Speaker Change: A broader piece of our customer base.

Speaker Change: I see the enduring nature of why we're outperforming why we're performing differently than what you see from others I think that continues and when do you think about some of the initiatives we've been pursuing really see consult.

David B. Wyshner: And when you think about some of the initiatives we've been pursuing, you can really see consulting at the nexus of them. It's an area of focus in and of itself, but Kyndryl Bridge gives rise to additional consulting opportunities and consultative selling opportunities. The alliances we have are very helpful from a consulting perspective.

Speaker Change: The Nexus of them, it's an area of focus in and of itself. The Kindred bridge gives rise to additional consult opportunities and consultative selling opportunities.

Speaker Change: The alliances we have.

Speaker Change: Very helpful from a consult perspective, our practices are driving progress there, particularly in areas like cloud migration and mainframe modernization and security and resiliency, and obviously apps data and AI and even regulatory changes like the like door. The digital operational resilience Act in the EU is.

Speaker Change: Giving rise to additional needs for for consult work on our behalf. So we really see we see consult benefiting from a number of different initiatives and actions, we've taken and even some elements of the macro environment.

David B. Wyshner: Our practices are driving progress there, particularly in areas like cloud migration and mainframe modernization and security and resiliency, and obviously, apps data and AI, and even regulatory changes like DORA, the Digital Operational Resilience Act in the EU, are giving rise to additional needs for consulting work on our behalf. So we really see consulting benefiting from a number of different initiatives and actions we've taken, and even some elements of the macro environment.

David B. Wyshner: And then, just as a quick follow-up, your guide to return to revenue growth, or to achieve revenue growth in the 4Q of FY 25, seems a little early relative to the initial Spin presentation you gave. Is that a correct conclusion?

Speaker Change: Understood and then just as a quick follow up your guide to return to revenue growth or to achieve revenue growth in <unk> of FY 'twenty five seems a little early relative to the initial.

David Mark Togut: And if so, what gives you the incremental confidence that you can get to revenue growth in 4QFY25? Yeah, so thanks, David. So we've, you know, for two and a half years since we laid out the investment thesis, two and a half years ago, we said calendar, excuse me, calendar 25 is the year in which we would get back to revenue growth. And really, what we're saying now is that, and obviously, calendar 25 starts in our fourth fiscal quarter.

Speaker Change: Kind of spin presentation, you gave.

Speaker Change: Is that a correct.

Speaker Change: Conclusion, and if so what gives you the incremental confidence that you can get to revenue growth in <unk> FY 'twenty five.

David Mark Togut: So really, what we're saying is that because of the progress we've made in the two growth vectors, which we've always been counting on to drive us back to growth, Kyndryl Consult and the alliances, as an example, and the fact that we've done the hard work, the deepest part of the work last year around focus accounts and, and, and cleaning out the backlog. And we've eliminated or neutralized, if you will, the other areas that we've been trying to take out of our business, like low margin, no margin OEM, that we are, we are confident now in that calendar 25, which we're still confident calendar 25 can translate to the fourth quarter of this year, which is, which is the beginning. So, for those who interpreted calendar 25, as maybe the second half versus the first half, so we're, we're probably a bit more accelerated than they would have thought.

Speaker Change: Yeah. So thanks, David so.

Speaker Change: For two and a half years since we laid out the investment thesis.

Speaker Change: Two and half years ago, we said it could be calendar 'twenty five is the year in which we would get back to revenue growth.

Speaker Change: And really what we're saying now is that and obviously calendar 'twenty five starts in our fourth fiscal quarter. So really what we're saying is that because of the progress. We've made in the two growth vectors, which we've always been counting on to drive us back to growth control consult in the alliances as an example, and the fact that.

Speaker Change: We've done the hard work the deepest part of the work.

Speaker Change: Last year around focus accounts, and and and cleaning out the backlog and we've eliminated or neutralized. If you will the other areas that we've been trying to take out of our business like low margin no margin OEM that we are we are confident now.

Speaker Change: And the calendar 'twenty, five which we're still confident in calendar 'twenty five actually can translate to fourth quarter of this year, which is the which is the beginning so so.

Martin J. Schroeter: But look, we've got all the all the momentum, we've gotten a lot of, we chopped a lot of wood last year around what the inhibitors to growth were, and we have great momentum in the growth drivers. So we feel, we feel good. Thank you very much. Thanks, David.

Speaker Change: For those who interpreted calendar 'twenty five as maybe second half versus first half. So we're probably a bit more accelerated than what they would have thought but look we've got we've got all the all the momentum.

Speaker Change: Got a lot of <unk>.

Speaker Change: <unk> a lot of wood last year around what the inhibitors to growth, we're in where you've got great momentum in the growth drivers. So we feel we feel good about it.

Speaker Change: Understood. Thank you very much.

Speaker Change: Thanks, David Operator, I believe that was our last question in the queue.

Speaker Change: Yes, so that will conclude our question and answer session for today and I will now turn the conference back over to Mr. Martin Schroeter for closing remarks. Thank you operator, thanks, and thanks for everybody for joining US look you I hope you can hear how.

Martin J. Schroeter: Proud we are and how energized we are by the progress we've made in the last fiscal year and have kind of excuse me how our <unk>.

Martin J. Schroeter: Very unique run and transform approach is resonating with and adding a lot of value to our customers because it allows them to continuously innovate while while maintaining their operational excellence, which in the spaces, where we operate mission critical is absolutely vital so we're in a.

Martin J. Schroeter: We're in a fantastic position as we start this fiscal year, we've got many many opportunities to win and we're going to capitalize on those opportunities in order to drive profitable growth.

Martin J. Schroeter: And look ahead to our third year as an independent company I remain as excited as ever about the growth potential in front of us and our foundational progress to date allows us to continue serving our customers' mission critical needs with more capabilities and more innovation than ever before so thanks again for joining us.

Martin J. Schroeter: Okay.

Speaker Change: Ladies and gentlemen, this concludes today's call and we thank you for your participation you may now disconnect.

Martin J. Schroeter: Okay.

Speaker Change: Okay.

Speaker Change: Sure.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Good morning, ladies and gentlemen, and thank you for standing by.

Operator: Operator, I believe that was our last question in the queue. Yes, so that will conclude our question and answer session for today, and I will now turn the conference back over to Mr. Martin Schroeter for closing remarks. Thank you, operator.

Abby: My name is Abby and I will be your conference operator today.

Abby: At this time I would like to welcome everyone to the Kindjal fiscal fourth quarter 2024 earnings Conference call.

Abby: All lines have been placed on mute to prevent any background noise and after the Speakers' remarks, there will be a question and answer session.

Abby: If you would like to ask a question during that time simply press star followed by the number one on your telephone keypad if.

Abby: If you would like to withdraw your question Press Star one a second time.

Martin J. Schroeter: And thanks to everybody for joining us. Look, you. I hope you can hear how proud we are and how energized we are by the progress we've made in the last fiscal year. And how, excuse me, how our unique run and transform approach is resonating with and adding a lot of value to our customers because it allows them to continuously innovate while maintaining their operational excellence, which in the spaces where we operate mission critical is absolutely vital.

Abby: Thank you and I would now like to turn the conference over to Lori Chapman Global head of Investor Relations you may begin.

Martin J. Schroeter: So we're in a fantastic position as we start this fiscal year. We've got many, many opportunities to win, and we're going to capitalize on those opportunities in order to drive profitable growth. You know, as we look ahead to our third year as an independent company, I remain as excited as ever about the growth potential in front of us, and our foundational progress to date allows us to continue serving our customers' mission-critical needs with more capabilities and more innovation than ever before. So thanks again for joining us. Ladies and gentlemen, this concludes today's call, and we thank you for your participation. You may now disconnect.

Lori C. Chaitman: Good morning, everyone and welcome to <unk> earnings call for the fourth quarter and fiscal year ended March 31 2024.

Lori C. Chaitman: Before we begin I'd like to remind you that our remarks today will include forward looking statements.

Lori C. Chaitman: These statements are subject to risk factors that may cause our actual results to differ materially from those expressed or implied.

Lori C. Chaitman: These forward looking statements speak only to our expectations as of today and we are under no obligation to update them.

Lori C. Chaitman: For more details on some of these risks please see the risk factors section of our annual report on Form 10-K for the year ended March 31 2023.

Lori C. Chaitman: In today's remarks, we will also refer to certain non-GAAP financial metrics.

Lori C. Chaitman: With me here are tangible chairman and Chief Executive Officer Martin Schroeter.

Lori C. Chaitman: Kendall Chief Financial Officer, David Weisner.

Speaker Change: Following our prepared remarks, we will hold a Q&A session.

Abby: ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? My name is Abby and I will be your conference operator today. At this time, I would like to welcome everyone to the Kyndryl fiscal fourth quarter 2024 earnings conference call. All lines have been placed on mute to prevent any background noise.

Martin J. Schroeter: I'd now like to turn the call over to Martin Martin.

Lori C. Chaitman: And after the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press the star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one a second time. Thank you. And I would now like to turn the conference over to Lori Chaitman, Global Head of Investor Relations. You may begin. Good morning, everyone, and welcome to Kyndryl's earnings call for the fourth quarter and fiscal year ended March 31, 2024. Before we begin, I'd like to remind you that our remarks today will include forward-looking statements. These statements are subject to risk factors that may cause our actual results to differ materially from those expressed or implied.

Martin J. Schroeter: Thank you Laurie and thanks to each of you for joining us I am excited about all that we had 10 drove accomplished in our second fiscal year as an independent company and I could not be more proud of our teams around the world. We delivered solid fourth quarter results exceeded our full year targets on all of our <unk> initiatives alliances advanced delivery and accounts.

Martin J. Schroeter: And exceeded our guidance for fiscal 2024, we also delivered strong growth across <unk> consult we expanded our hyperscale relationships and accelerated adoption of chemical bridge and we're providing our fiscal 2025 outlook that includes substantial earnings growth and free cash flow and importantly, we're pulling forward the timing.

Martin J. Schroeter: Returning to revenue growth and now expect to deliver positive revenue growth in the fourth quarter of this fiscal year.

Martin J. Schroeter: With our consistently strong execution in fiscal 2024, we've proven that we can deliver on the ambitious goals to strengthen our business and that we can grow in high value areas that we targeted for growth.

Martin J. Schroeter: You May recall this time last year, I said that our fiscal 2024 was a year of acceleration for Kendall.

Martin J. Schroeter: We will approach our third fiscal year with the same intensity and determination.

Martin J. Schroeter: This fiscal year, we will pivot from transformation to growth at.

Martin J. Schroeter: This will be the first year that we will have the majority of our managed services customers operating on Kyndryl Bridge, allowing us to drive new levels of automation and innovation. And it will be another year in which we expect to deliver substantial earnings growth. So, on today's call, I'll share more detail on these pivotal shifts in our business, and I'll describe how major secular trends in IT are driving customer demand, fueling our return to growth, and putting Kyndryl at the center of our customers' digital transformation. David will then review our financial results and discuss our outlook for fiscal 2025.

Speaker Change: On today's call I'll share more detail on these pivotal shifts in our business and I will describe how major secular trends in our.

Speaker Change: Our driving customer demand fueling our return to growth and putting tangible at the center of our customers' digital transformation.

Speaker Change: David will then review our financial results and discuss our outlook for fiscal 2025.

Martin J. Schroeter: I want to start by highlighting the recent accomplishments that have set the stage for our growth trajectory. In fiscal 2024, we grew our adjusted pre-tax earnings by more than $380 million. We delivered double-digit growth in our more than $2 billion of consulting revenue, and we drove triple-digit growth in hyperscale or related revenue, validating our ability to return to growth. We grew our total signings, and even more importantly, the projected pre-tax margins on those signings were consistently in the high single digits aligned with our medium-term target.

David B. Wyshner: I want to start by highlighting our recent accomplishments that have set the stage for our growth trajectory and.

David B. Wyshner: In fiscal 2024, we grew our adjusted pre tax earnings by more than $380 million, we delivered double digit growth in our more than $2 billion of consult revenue and we drove triple digit growth in hyperscale or related revenue validating our ability to return to growth.

Martin J. Schroeter: We grew our total signings and even more importantly, the projected pre tax margins on those signings were consistently in the high single digits aligned with our medium term target.

Martin J. Schroeter: And we generated positive adjusted free cash flow, demonstrating our focus on cash generation that will support our long-term strategy and goals. Our advisory talent and consultants, together with our design-led Kyndryl Vital Methodology and our Kyndryl Bridge Delivery Services Platform, allow us to co-create and innovate with our customers and our partners. We now have over 1200 of our largest customers operating on the Kyndryl Bridge platform, which is allowing us to deliver more value to customers, drive savings for Kyndryl through automation, and derive insights from AI learnings powered by the operational data associated with our scale.

Martin J. Schroeter: And we generated positive adjusted free cash flow demonstrating our focus on cash generation that will support our long term strategy and goals.

Martin J. Schroeter: Our advisory talent and consult together with our design led kingsville vital methodology and our casual bridge delivery services platform allows us to co create and innovate with our customers and our partners. We now have over 200 of our largest customers operating on the <unk> platform, which is allowing us to deliver more.

Martin J. Schroeter: More value to customers drive savings for kindred through automation and derive insights from AI learnings powered by the operational data associated with our scale.

Martin J. Schroeter: Even beyond Kyndryl Bridge Consult and Vital, we have executed powerfully throughout our business. We're delivering sophisticated, optimized multi-vendor solutions to customers to help them address critical needs and major opportunities. We're delivering managed services more efficiently than ever. And as a result, and as we said we would, we're showing up differently for our customers and seizing opportunities that are unique to Kyndryl. We've proven that Kyndryl is a vital and trusted partner to our customers as we help them to run and transform their mission-critical, complex hybrid IT estate.

Martin J. Schroeter: Even beyond Kimco bridge consult and vital we have executed powerfully throughout our business, we're delivering sophisticated optimized multi vendor solutions to customers to help them address critical needs in major opportunities.

Martin J. Schroeter: We're delivering managed services more efficiently than ever and as a result, and as we said we would we're showing up differently for our customers and seizing opportunities that are unique to <unk>.

Martin J. Schroeter: We've proven the controls are vital and trusted partner to our customers as we help them to run and transform their mission critical complex hybrid it as states.

Martin J. Schroeter: Our engineering and advisory talents, our unique operational data, IP, and embedded AI, our heritage and scale enable us to meet our customers' evolving IT needs and uncover new value from past, current, and future technology investments. In fact, our expertise in both running and transforming IT estates differentiates us in the markets we serve and uniquely positions Kyndryl at the heart of secular trends that are shaping the evolution of IT, namely the adoption of artificial intelligence, technology skills shortages, organizations' needs to modernize, cloud migration, and cyber security.

Martin J. Schroeter: Our engineering and advisory talent, our unique operational data IP and embedded AI, our heritage and scale enable us to meet our customers' evolving needs and uncover new value from past current and future technology investments.

Martin J. Schroeter: In fact, our expertise in both running and transforming it states differentiates us in the markets, we serve and uniquely positions <unk> at the heart of secular trends that are shaping the evolution of it.

Martin J. Schroeter: Namely the adoption of artificial intelligence technology skills shortages organizations needs to modernize cloud migration and cyber security.

Martin J. Schroeter: We see these strengths as continuing for the foreseeable future, and they're driving demand for our services. For example, through our data architecture capabilities, we're enabling enterprises to apply new AI and Gen AI technologies to drive business out. Through our global delivery centers, our scale, and our training programs, we develop and make available the broad range of skills our customers need. Through Kyndryl Bridge, we're helping customers intelligently prioritize infrastructure needs, address technical debt, drive innovation, and uncover previously hidden risks.

Martin J. Schroeter: We see these trends continuing for the foreseeable future and they are driving demand for our services for example through our data architecture capabilities, we're enabling enterprises to apply new AI and Jen AI technologies to drive business outcomes.

Martin J. Schroeter: Through our global delivery centers, our scale and our training programs, we develop and make available the broad range of skills our customers need.

Martin J. Schroeter: <unk> bridge, we're helping customers intelligently prioritize infrastructure needs address technical that drives innovation and uncover previously hidden risks.

Martin J. Schroeter: Through our hyperscaler alliances and mainframe modernization skills, we're helping customers migrate, manage, and optimize their hybrid IT estates across multiple cloud platforms, ensuring the right workload is on the right platform. And through our global network of security operations hubs and our end-to-end cybersecurity services, we're helping customers protect, detect, and recover from cyber threats.

Martin J. Schroeter: Through our hyperscale or alliances in mainframe modernization skills, we're helping customers migrate manage and optimize their hybrid it states across multiple cloud platforms, ensuring the right workload is on the right platform.

Martin J. Schroeter: And through our global network of security operations hubs and our end to end cyber security services.

Martin J. Schroeter: <unk> customers protect detect and recover from cyber threats.

Martin J. Schroeter: What's more the mission critical nature of our work is increasingly consultative and tied to customer achievement of business outcomes.

Martin J. Schroeter: And because of how important AI is to us and our customers I want to spend a few minutes on the role <unk> plays in AI adoption and how we're applying our capabilities to unlock incremental growth opportunities.

Martin J. Schroeter: As we've mentioned controls and AI beneficiary and AI enabler as.

Martin J. Schroeter: As the largest IT infrastructure services provider in the world, we have more tech stack operating data than anyone, and we're using machine learning with this data to give our customers and Kyndryl a data-driven advantage in designing and managing systems. We're using AI and Kyndryl Bridge to identify application performance patterns, produce actionable insights, reduce required maintenance, and prevent incidents from occurring. Bridge can operate as a self-healing architecture and is now producing 3 million actionable insights a month and is helping customers achieve nearly $2 billion of annual savings by avoiding maintenance and incident costs.

Martin J. Schroeter: As the largest it infrastructure services provider in the World, we have more tech stack operating data than anyone and we're using machine learning with this data to give our customers and Kindle a data driven advantage in designing and managing systems.

Martin J. Schroeter: We are using AI intangible bridge to identify application performance patterns produce actionable insights reduce required maintenance and prevent incidents from occurring rich.

Martin J. Schroeter: <unk> can operate as a self healing architecture and is now producing 3 million actionable insights a month and is helping customers achieve nearly $2 billion of annual savings by avoiding maintenance and incident cost.

Martin J. Schroeter: In short, AI is powering Kyndryl Bridge and accelerating our advanced delivery. At the same time, we're seeing revenue growth opportunities associated with both AI and GenAI. Our customers know that their AI is only going to be as good as their data.

Martin J. Schroeter: In short AI powered digital bridge and accelerating our advanced delivery initiative.

Martin J. Schroeter: At the same time, we're seeing revenue growth opportunities associated with both AI and <unk> AI, our customers know that their AI is only going to be as good as their data and this is creating demand for our expertise in data architecture that becomes the foundation for AI and <unk> AI applications and.

Martin J. Schroeter: And this is creating demand for our expertise in data architecture that becomes the foundation for AI and GenAI applications, and with our alliance partners for optimizing infrastructures to facilitate AI deployment in these complex IT environments. And based on our own positive experience with Kyndryl Bridge, we believe machine learning and Gen AI can have a substantial impact on many industries and enterprises. And we see AI readiness as a go-to-market opportunity for us and a natural extension of many of the services we already offer.

Martin J. Schroeter: And with our alliance partners were optimizing infrastructure to facilitate AI deployment in these complex it environments.

Martin J. Schroeter: And based on our own positive experience with control bridge, we believe machine learning and Gen. II can have a substantial impact on many industries and enterprises and we see AI readiness as a go to market opportunity for us and a natural extension of many of the services. We already offer in fact revenue in our applications data and AI practice grew double digits. This.

Martin J. Schroeter: In fact, revenue in our applications, data, and AI practice grew double digits this past fiscal year. As our business evolves and we move further away from our spin, our revenue mix will continue to shift to higher-margin post-spin signings. This fiscal year, half of our revenue is coming from post-spin signings. And in fiscal 2026, it'll be roughly two-thirds.

Martin J. Schroeter: Past fiscal year.

Martin J. Schroeter: As our business evolves and we move further away from our spin our revenue mix will continue to shift to higher margin post spin signings.

Martin J. Schroeter: This inflection point, when our P&L is largely determined by our higher-margin post spin signings, will dramatically strengthen our earnings and growth profile. Our forecast for fiscal 2025 is for adjusted pre-tax income of at least $435 million, reflecting a year-over-year increase of more than $270 million. And as David will explain in more detail, the margins at which we're signing contracts and the other actions we're taking to grow our profitability have us on a path to deliver high single-digit adjusted pre-tax margins by fiscal 2027.

Martin J. Schroeter: This fiscal year half of our revenues coming from post spin signings and in fiscal 2026, it will be roughly two thirds. This inflection point when our P&L is largely determined by our higher margin post spin signings will dramatically strengthen our earnings and growth profile.

Martin J. Schroeter: Our forecast for fiscal $2025 for adjusted pre tax income of at least $435 million, reflecting a year over year increase of more than $270 million and as David will explain in more detail the margins at which we're signing contracts and the other actions, we're taking to grow our profitability have us on a path to deliver high single digit adjusted pre.

Martin J. Schroeter: And yes, the math associated with that is ultimately a billion dollars or more of adjusted pre-tax income with a very strong conversion of our earnings into cash. I'm tremendously enthusiastic about how our strategic progress and our market leadership are driving solid operating performance and stronger financial results, including our forecast to grow revenue in our fiscal fourth quarter, which begins less than eight months from now. As we approach the second half of this fiscal year, our purposeful efforts to shed low to no margin components of revenue will be largely behind. At the same time, our top line will be driven by our ability to capitalize on our ecosystem of technology alliances and expand our share of wallet with existing customers. We'll increasingly benefit from growing demand for cloud security data and AI services.

Martin J. Schroeter: I'm tremendously enthusiastic about our strategic progress and our market leadership are driving solid operating performance and stronger financial results, including are forecast to grow revenue in our fiscal fourth quarter, which begins less than eight months from now.

Martin J. Schroeter: As we approach the second half of this fiscal year, our purposeful efforts to shed low to no margin components of revenue will be largely behind us now.

Martin J. Schroeter: At the same time, our topline will be driven by our ability to capitalize on our ecosystem of technology alliances and expand our share of wallet with existing customers.

Martin J. Schroeter: We will increasingly benefit from growing demand for cloud security data and AI services and ultimately we expect to gain overall market share as more enterprises look to Kindle for their mission critical it needs, we are creating significant value for our customers and will continue to be bold and ambitious to drive growth.

Martin J. Schroeter: And ultimately, we expect to gain overall market share as more enterprises look to Kyndryl for their mission-critical IT needs. We are creating significant value for our customers and will continue to be bold and ambitious to drive growth. We were born with great engineering talent, and as an independent company, we've been capitalizing on our expertise in providing mission-critical IT services by building our IP and expanding our core capabilities, capabilities that align with the secular trends driving information technology in the ecosystem that matters to our customers and in the six practices that allow us to build and implement leading technology solutions.

Martin J. Schroeter: We were born with Great engineering talent and as an independent company, we have been capitalizing on our expertise in providing mission critical it services by building, our IP and expanding our core capabilities capabilities that align with the secular trends driving information technology in the ecosystem that matters to our customers and in.

Martin J. Schroeter: <unk> practices that allow us to build and implement leading technology solutions.

Martin J. Schroeter: And having invested in our people and our technology to ensure we have the right skills and tools to meet our customers' needs, we're now hitting a pivotal shift in our business. We're not only helping organizations run their infrastructure and their business, but we're now also helping them transform, building capabilities on new platforms, allowing them to leverage existing and new technology to drive business outcomes and differentiating Kyndryl in the process.

Martin J. Schroeter: And having invested in our people and our technology to ensure we have the right skills and tools to meet our customers' needs. We're now hitting a pivotal shift in our business.

Martin J. Schroeter: We're not only helping organizations run their infrastructure and their business. We're now also helping them transform building capabilities on new platforms, allowing them to leverage existing and new technology to drive business outcomes and differentiate a tangible in the process.

David B. Wyshner: We'll continue to execute our strategy with discipline and agility, and we'll build a culture of operational excellence and collaboration. We are confident that we have the right vision, the right strategy, and the right capabilities to capture future growth. And with that, I'll hand it over to David to take you through our results and our outlook. Thanks, Martin. And hello, everyone.

Martin J. Schroeter: We will continue to execute our strategy with discipline and agility and will build a culture of operational excellence and collaboration we are confident that we have the right vision, the right strategy and the right capabilities to capture future growth.

Martin J. Schroeter: And with that I'll hand, it over to David to take you through our results and our outlook.

David B. Wyshner: Thanks, Martin and Hello, everyone today, I'd like to discuss our quarterly and full year results. Our continued progress on our <unk> initiatives. This solid margins at which we are signing customer contracts and our outlook for fiscal year 2025, which began on April one we are enthusiastic about each of these topics.

Martin J. Schroeter: And particularly our outlook.

Martin J. Schroeter: Our fourth quarter results reflect strong operational execution and continued progress on our key initiatives.

Martin J. Schroeter: In the quarter revenue totaled $3 8 billion.

Martin J. Schroeter: A 9% decline in constant currency.

David B. Wyshner: The year over year decline was anticipated and primarily driven by our intentional exit from negative no and low margin revenue streams within ongoing customer relationships, not by macro fact. As Martin highlighted, we continue to gain momentum in a higher margin advisory service. Kyndryl Consult revenues grew 15% year-over-year in constant currency, which underscores how we're growing our share in this higher-margin, higher-value-add space. Consult signings grew faster at 30% in constant current, Total signings grew 3% year-over-year in constant currency in Q4, our second consecutive quarter of signings growth, and we're up 3% in the year as a whole.

Martin J. Schroeter: The year over year decline was anticipated and primarily driven by our intentional exit from negative no and low margin revenue streams within ongoing customer relationships not by macro factors.

Martin J. Schroeter: As Martin highlighted we continued to gain momentum in our higher margin advisory services.

Martin J. Schroeter: Kindred consult revenues grew 15% year over year in constant currency, which underscores how we are growing our share in this higher margin higher value add space.

Martin J. Schroeter: Signings grew even faster at 30% in constant currency.

Martin J. Schroeter: Total signings grew 3% year over year in constant currency in Q4, our second consecutive quarter of signings growth and were up 3% in the year as a whole.

David B. Wyshner: Our signing growth through the year was strongest in our security and resiliency, core enterprise, and AppState and AI practices. And with our momentum driving a strong April, our trailing 12 month signings through April 30 are up 7% year over year. Our fourth quarter adjusted EBITDA increased by 19% to $566 million, and our adjusted EBITDA margin increased by 350 basis points year over year to 14.7%. Adjusted pre-tax income was $30 million, a $91 million improvement in profit year over year.

Martin J. Schroeter: Our signings growth for the year was strongest in our security and resiliency core enterprise and apps did in AI practices.

Martin J. Schroeter: And with our momentum driving a strong April our trailing 12 month signings through April 30, our seven.

Martin J. Schroeter: <unk>, 7% year over year.

Martin J. Schroeter: Our fourth quarter, adjusted EBITDA grew 19% to $566 million and our adjusted EBITDA margin increased by 350 basis points year over year to 14, 7%.

Martin J. Schroeter: Adjusted pretax income was $30 million of $91 million improvement in profit year over year.

Martin J. Schroeter: Consistent with the trends driving our performance all year or three eight were the key driver of our earnings growth again in Q4.

Martin J. Schroeter: For fiscal year 2024, as a whole we generated $16 1 billion of revenue our adjusted EBITDA grew 20% to $2 4 billion.

Martin J. Schroeter: And our adjusted pre tax income was $165 million.

Martin J. Schroeter: Representing a $382 million increase from the prior year.

Martin J. Schroeter: We expanded our adjusted EBITDA margin by 310 basis points and our adjusted pretax margin by 230 basis points year over year, which were above our targets and represent a momentous leap forward on our path to high single digit adjusted pretax margins.

David B. Wyshner: Our financial progress reflects our strategic achievements: Leveraging Technology Alliances, Stepping Away from Empty Calorie Revenues, Fixing Focus Accounts, Growing the Consult Portion of Our Business, Driving Efficiency Throughout Our Operations, and, as an Independent Company, Skating to Where the Puck is Going in Terms of Our Customers' Future IT Needs. Our performance in fiscal 2024 gives us strong momentum as we go forward. So, as encouraged as I am by the earnings growth we've delivered, I'm even more enthusiastic about how, throughout the year, we also positioned Kyndryl for future revenue, margin, and profit growth. The March quarter was a continuation of us signing business with a healthy margin.

Martin J. Schroeter: Our financial progress reflects our strategic achievements.

Martin J. Schroeter: Leveraging technology alliances stepping away from empty calorie revenues fixing focus accounts growing the consult portion of our business driving efficiency throughout our operations and as an independent company skating to where the puck is going in terms of our customers' future needs.

Martin J. Schroeter: Our performance in fiscal 2024 gives us strong momentum as we go forward.

Martin J. Schroeter: So as encouraged as I am by the earnings growth, we've delivered im even more enthusiastic about how throughout the year. We also positioned kindred for future revenue margin and profit growth.

Martin J. Schroeter: The March quarter was a continuation of us signing business with healthy margins.

David B. Wyshner: Throughout fiscal 2024, we signed contracts with projected gross margins in the mid-20s and projected pre-tax margins in the very high single digits. Therefore, as our business mix increasingly shifts toward more post-spin contracts, you'll see significant margin expansion in our reported results. In the middle graph on slide 13, we've included a gross profit book-to-bill chart that accentuates how we've been creating and capturing value in our business, with an average projected gross margin of 26% on our $12.5 billion of signings this past year. We've added over $3 billion of projected gross profit to our backlog. Over the same period of time, we've reported a gross profit of $2.9 billion.

Martin J. Schroeter: Fiscal 2024, we signed contracts with projected gross margins in the mid twenties and projected pre tax margins in the very high single digits.

Martin J. Schroeter: Therefore, as our business mix increasingly shifts towards more postpaid contracts you will see significant margin expansion in our reported results.

Martin J. Schroeter: In the middle graph on Slide 13, we've included a gross profit book to Bill chart that accentuates, how we've been creating and capturing value in our business with an average projected gross margin of 26% on our $12 $5 billion of signings. This past year, we've added over 3 billion.

Martin J. Schroeter: A projected gross profit to our backlog.

Martin J. Schroeter: Over the same period of time, we've reported gross profit of $2 9 billion.

Martin J. Schroeter: This means we've been adding more gross profit to our backlog than our contracted book of business has been producing in our P&L.

Martin J. Schroeter: Having a gross profit book to Bill ratio above one at one one is a measure of how we're growing what matters. Most the expected future profit from committed contracts and we've been doing this consistently over the last two years.

David B. Wyshner: Turning to our cash flow and balance sheet, we generated adjusted free cash flow of $291 million in fiscal year 2024. Our growth capital expenditures were $651 million, and we received a larger-than-typical $138 million of proceeds from asset disposition. Taxes being taxes, they were a use of cash. We provided a bridge from our adjusted pre-tax income to our free cash flow, as well as a bridge from our adjusted EBITDA to our free cash flow in the appendix.

Martin J. Schroeter: Turning to our cash flow and balance sheet, we generated adjusted free cash flow of $291 million in fiscal year 2020 for.

Martin J. Schroeter: Our gross capital expenditures were $651 million and we received a larger than typical $138 million of proceeds from asset dispositions tax.

Martin J. Schroeter: Taxes being taxes were use of cash we provided a bridge from our adjusted pre tax income to our free cash flow as well as a bridge from our adjusted EBITDA to our free cash flow in the appendix.

David B. Wyshner: Our financial position remains strong. Our cash balance at March 31 was $1.6 billion. Our cash, combined with available debt capacity under committed borrowing facilities, gave us $4.7 billion of liquidity at fiscal year end. We refinanced our $500 million term loan in Q4. As a result, our debt maturities are now well laddered from late 2026 to 2041. We had no borrowings outstanding under a revolving credit facility, and our net debt at quarter end was $1.7 billion.

Martin J. Schroeter: Our financial position remains strong our cash balance at March 31 was $1 6 billion.

Martin J. Schroeter: Our cash combined with available debt capacity under committed borrowing facilities gave us $4 $7 billion of liquidity at fiscal year end.

Martin J. Schroeter: We refinanced our $500 million of term loan in Q4 as.

Martin J. Schroeter: As a result, our debt maturities are now well lathered from late 2026 to 2041.

Martin J. Schroeter: We had no borrowings outstanding under our revolving credit facility and our net debt at quarter end was $1 7 billion.

Martin J. Schroeter: As a result, our net leverage sits well within our target range.

Martin J. Schroeter: We are rated investment grade by Moody's Fitch and S&P.

Martin J. Schroeter: On capital allocation, our top priorities continue to be to maintain strong liquidity remain investment grade and reinvest in our business.

Martin J. Schroeter: As our earnings increase they'll drive meaningful free cash flow growth.

Martin J. Schroeter: As a result over time, we will be in a position to consider regularly returning capital to shareholders all while remaining investment grade.

Martin J. Schroeter: Our <unk> strategy has been a grand Slam home run it.

Martin J. Schroeter: It has helped us strategically transform our business. It's galvanize our people around initiatives that are game changers for us and for our customers and it's delivered huge financial benefits.

Martin J. Schroeter: As a reminder, at the start of the year, we provided fiscal 2024 targets of $300 million in revenue tied to hyperscale or alliances $450 million in cumulative annualized cost savings from advanced delivery by fiscal year end and $400 million of cumulative annualized pre tax benefit.

Martin J. Schroeter: Our accounts initiative.

Martin J. Schroeter: During the year, we raised each of these targets by $100 million.

Martin J. Schroeter: And we exceeded each of the raised targets.

Martin J. Schroeter: Through our alliances, we recognized more than $150 million and hyper scaler related revenue in the fourth quarter as.

Martin J. Schroeter: As Martin mentioned this brought our year to date hyper scaler revenue to $500 million.

Martin J. Schroeter: Triple our prior year total.

Martin J. Schroeter: Through our advanced delivery initiatives powered by Kindred Bridge, we continue to drive automation throughout our delivery operations incorporate more technology into our offerings reduce our costs and increase our already strong service levels.

Martin J. Schroeter: Win win for Kindle and our customers to.

Martin J. Schroeter: To date, we've been able to free up more than 9500 delivery professionals to address new revenue opportunities and backfill attrition.

Martin J. Schroeter: This is worth roughly $575 million a year to us representing a $75 million increase in our annual run rate this past quarter.

Martin J. Schroeter: Our accounts initiative continues to remediate elements of contracts, we inherited with sub standard margins in the fourth quarter, we increased the cumulative annualized profit from our focus accounts by $125 million to $600 million.

Martin J. Schroeter: Two years ago, we laid out bold ambitions that over the medium term advanced delivery will drive cost savings equating to roughly $600 million in annual pre tax income and accounts will drive annual pre tax income of $800 million or more.

Martin J. Schroeter: Due to our progress to date, we are raising the ultimate benefits that we expect from these initiatives by $200 million, each to $800 million and $1 billion respectively.

Martin J. Schroeter: In fiscal 2025 will generate incremental benefits from each of our three A's.

David B. Wyshner: For alliances, we expect hyperscaler-related revenue to approach a billion dollars, roughly double our 2024 level. We expect our advanced delivery initiative to reach $750 million in annualized savings and to deliver $200 million of incremental benefits year over year. And in FOCUS accounts, we expect to reach $850 million of annualized savings by year end and to deliver $300 million of incremental profit this year compared to last. Roughly half of the benefits from advanced delivery and accounts are the full year benefit of the actions we took in fiscal 2024, and half is the part-year benefit of additional actions we'll take in fiscal 2025. In baseball, you can't have back-to-back grand slams, but in our business and through the 3A's, we can.

Martin J. Schroeter: The alliances we expect hyper scaler related revenue to approach $1 billion roughly double our 2024 level.

Martin J. Schroeter: We expect our advanced delivery initiative to reach $750 million in annualized savings and to deliver $200 million of incremental benefit year over year.

Martin J. Schroeter: And in focused accounts, we expect to reach $850 million of annualized savings by year end and to deliver $300 million of incremental profit this year compared to last.

Martin J. Schroeter: Roughly half of the benefit from advanced delivery and accounts is the full year benefit of the actions we took in fiscal 2024.

Martin J. Schroeter: And half is the part year benefit of additional actions, we'll take in fiscal 2025.

Martin J. Schroeter: In baseball you can't have back to back Grand slams, but in our business and through the three as we can in fact that <unk> are becoming a regular part of our operating model rather than distinct initiatives.

Martin J. Schroeter: As we look ahead to fiscal 2025, our core financial goals are to continue to expand our margins grow our earnings inflect, our revenues back to growth as the year progresses and generate free cash flow.

Martin J. Schroeter: Our outlook is for revenue to be in the range of 15, two to $15 5 billion.

Martin J. Schroeter: A decline of 2% to 4% in constant currency.

Martin J. Schroeter: We still have two quarters to go until we anniversary when most of our significant actions to step away from low to no margin revenues took effect.

Martin J. Schroeter: We expect our year over year revenue declines will decrease as the year progresses, and we returned to year over year revenue growth in the fourth quarter.

Martin J. Schroeter: Based on recent exchange rates currency movements, or having a $230 million negative impact on our reported revenue, but where that lands will depend on how exchange rates move over the next 11 months.

Martin J. Schroeter: In aggregate.

Martin J. Schroeter: Again, then we estimate that our adjusted EBITDA margin in fiscal 2025 will be at least 16, 2% an increase of at least 150 basis points versus fiscal 2024.

Martin J. Schroeter: And our outlook for adjusted pre tax income is at least $435 million.

Martin J. Schroeter: This means growing our adjusted pre tax income by at least $270 million and increasing our adjusted pre tax margin by nearly 200 basis points year over year.

David B. Wyshner: This means we're doubling down on the strong earnings and margin growth we delivered in fiscal 2024 and keeps us right on track to be generating high single-digit adjusted pre-tax margins in fiscal 2027. There are two more items to note regarding our outlook. We continue to see opportunities to drive efficiency in our operations, both for advanced delivery and in SG&A. While we manage labor costs primarily through hiring and attrition, we expect to incur workforce rebalancing charges of roughly $100 million in fiscal 2025.

Martin J. Schroeter: This means we are doubling down on the strong earnings and margin growth, we delivered in fiscal 2024 and keeps us right on track to be generating high single digit adjusted pre tax margins in fiscal 2027.

Martin J. Schroeter: Two more items to note regarding our outlook.

Martin J. Schroeter: We continue to see opportunities to drive efficiency in our operations, both through advanced delivery and in SG&A functions.

Martin J. Schroeter: While we manage labor cost primarily through hiring and attrition, we expect to incur workforce rebalancing charges of roughly $100 million in fiscal 2025.

Martin J. Schroeter: It is important to note that the anticipated charges associated with this program are included in our fiscal 2025 outlook for adjusted EBITDA adjusted pre tax income and adjusted free cash flow, whereas our adjusted results in fiscal 2024, excluding such charges.

Martin J. Schroeter: Also as part of managing our costs and Capex. Our teams have been working to make our compute and storage hardware last longer as a result, we are now able to extend the depreciable lives of these assets from five years to six <unk>.

David B. Wyshner: This benefit will be largely offset by the benefit we've had from certain assets having been transferred to us from our former parent company before the spin-off at cost. The combined impact of these two non-cash changes will be a roughly $50 million year-over-year reduction in our depreciation. Looking at the first quarter in particular, our year-over-year constant currency revenue decline will be similar to Q4, and our adjusted pre-tax income should be modestly higher than the $47 million we reported in last year's first quarter.

Martin J. Schroeter: This benefit will be largely offset by the end of the benefit we've had from certain assets, having been transferred to us from our former parent pre spin at cost.

Martin J. Schroeter: The combined impact of these two noncash changes will be a roughly $50 million year over year reduction in our depreciation expense.

Martin J. Schroeter: Looking at the first quarter in particular, our year over year constant currency revenue decline will be similar to Q4, and our adjusted pretax income should be modestly higher than the $47 million, we reported in last year's first quarter.

David B. Wyshner: On the topic of cash flow, for the year as a whole, we project roughly $700 million in net capital expenditures in fiscal 2025 and about $725 million in depreciation expense. We expect to pay roughly $150 million in cash taxes. Unlike fiscal 2024, we won't have any below-the-line systems migration outlays.

Martin J. Schroeter: On the topic of cash flow for the year as a whole we project roughly $700 million and net capital expenditures in fiscal 2025, and about $725 million of depreciation expense.

Martin J. Schroeter: We expect to pay roughly $150 million in cash taxes.

Martin J. Schroeter: Unlike fiscal 2024, we won't have any below the line systems migration outlays.

Martin J. Schroeter: As a result, we are forecasting roughly 100% conversion of adjusted pre tax income less cash taxes into free cash flow.

Martin J. Schroeter: From a timing perspective, Q1 will be a significant user of cash due to annual software and incentive payments and subsequent quarters will be more favorable.

Martin J. Schroeter: Over the medium term, we remain committed to delivering significant margin expansion and generating free cash flow growth.

Martin J. Schroeter: We have a solid game plan to drive our strategic progress and this game plan starts with the steps we've already taken to expand our technology alliances manage our costs and earn a return on all of our revenues.

Speaker Change: To wrap up.

Speaker Change: Our leading market position in it infrastructure services and the mission critical nature of what we do distinguish us from other providers of it services.

David B. Wyshner: Our service levels and customer satisfaction scores make it clear that we serve our customers extremely well. The growth we're delivering through our alliances with multiple technology providers further differentiates us. Our fiscal 2024 results demonstrate that we're successfully realizing the substantial opportunities we have, and we're fortunate to have a long, strong runway of additional growth opportunities in front of us. With that, Martin and I would be pleased to take your questions. And thank you.

Speaker Change: Our service levels and customer satisfaction scores make it clear that we serve our customers extremely well.

Speaker Change: And the growth we are delivering through our alliances with multiple technology providers further differentiates us.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Thank you we will now begin the question and answer session.

Speaker Change: If you have dialed in and we would like to ask a question. Please press star one on your telephone keypad to raise your hand and join the queue.

Speaker Change: If you would like to withdraw your question simply press Star one a second time.

Speaker Change: We ask that you please limit yourself to one question and one follow up.

Speaker Change: And again it is star one to join the queue.

Speaker Change: And your first question comes from <unk> <unk> with Scotiabank. Your line is open.

Divya S. Goyal: Great quarter. So, David, you mentioned towards the end of your script about the macro resilience of Kyndryl. Could you, Martin and yourself, please elaborate, in the interest of investors, what makes Kyndryl so macro resilient, despite a weakness being continuously noted across the technology services ecosystem? And how would this resiliency help you if the interest rates were to truly not go down as anticipated at the beginning of the year?

Scotiabank: Good morning, everyone great quarter.

Scotiabank: No.

Scotiabank: David you mentioned towards the end <unk> script about the macro of resilience of Kendra, good between Martin and yourself.

Scotiabank: Scott elaborate in the interest of investors, what makes kindred soul macro resilient, despite a weakness being continuously noted across the technology services ecosystem.

Scotiabank: What.

Scotiabank: How would this resiliency help you if the interest rates were to truly not go down as anticipated beginning of the year.

Divya S. Goyal: Yeah, thanks, Divya. And thanks for the compliment. Thanks for the nice comment about the quarter. We feel really good about the year we just finished. And as I noted in my prepared remarks, and you've heard it in David's as well, we're very excited about the year. You know, I think what we're seeing, and I think what we've been focusing our investors on is the investments we've made in our people, the investments we've made to expand their skills, the investments we've made to build new capabilities, combined with the investments we've made in our IP and And again, we're mission critical.

Scott: Yes, Thanks, Vivien thanks for the nice thanks for the nice comment about the quarter, we feel we feel really good about the year. We just finished in and as I noted in my prepared remarks, and you've heard it and David.

Speaker Change: David's as well we are very excited about about the year.

Speaker Change: I think what we're seeing and I think what what.

Scotiabank: What we've been.

Scotiabank: What we've been focusing our investors on is the investments we've made in our people the investments we've made to expand their skills. The investments we've made to build new capabilities combined with the investments we've made in our IP and our ability to turn.

Scotiabank: Our data into insights for our customers.

Scotiabank: Given the role we play in their environments and again, we're mission critical so you combine great skills and engineering talent new.

Scotiabank: New capabilities and innovation in the form of control bridge and actionable insights and you put all of that into the context of business outcomes for our customers in mission critical and I think you see why we are.

Scotiabank: While we see the momentum in our business and why it can continue to recognize that.

Scotiabank: We have only gotten kindred bridging to about just over half the customer base. So we have a lot more to do and even with that.

Scotiabank: Even with that deployment.

Scotiabank: Where we're generating about $3 million actionable insights for our customers per month, we have a lot more a lot more to a lot more to get done. So so look we'll continue to invest in our skills will continue to work with the ecosystem that matters to our customers will continue to build new capabilities and we'll continue to develop and deploy kindred bridge more more broadly.

Scotiabank: And so as we move into a more consultative form of selling which makes it very clear to our customers. How our work is tied to business outcomes. I think we feel quite confident and quite good about our ability to keep momentum going in our in our console business.

Scotiabank: Anything daily.

Speaker Change: Okay. Thanks, Thank you Vivian.

Martin J. Schroeter: No. Good. Okay. And just as a follow-up on this very comment that you made, Kyndryl consults, so obviously, it had impressive growth this quarter itself, considering how the consult business broadly, again, broadly, thinking about it, the consulting businesses have been a little bit constrained with respect to the dollars being allocated, but your consult business has been growing impressively. So could you elaborate on what it is that's truly driving the significant growth and a reasonable run rate?

Speaker Change: And just as a follow up on this very comment that you made kindred consult so obviously it had an impressive growth this quarter itself.

Speaker Change: Considering how the consol business broadly again broadly thinking about it the consulting businesses have been.

Speaker Change: Little bit constrained with respect to the dollars being allocated but youll consult business has been growing impressively. So could you elaborate on what is it that is truly driving the significant growth and a reasonable run rate I know, David mentioned double digit, but what in our mind could be.

Martin J. Schroeter: I know David mentioned double digits, but what, in our minds, could be a reasonable run rate for the consulting business on a go forward basis? Yeah, so a couple of things. And then, obviously, I'll ask David if he wants to supplement.

Speaker Change: And for ourselves could be a reasonable run rate for the consol business on a go forward basis.

Martin J. Schroeter: The nature of the consulting opportunities and the focus we have around infrastructure is one that is not discretionary, is one that really needs to be addressed, no matter what the economic environment is. And when Kyndryl engages with a customer and provides insights into how their systems are running, those insights can be geared toward helping them optimize their systems. In a macro environment, by the way, everyone's looking to drive productivity, so helping them optimize systems is something that our consulting business does quite well.

Speaker Change: Yes, so a couple of things and then obviously ask David if he wants to supplement.

Speaker Change: The the nature of the consult opportunities and the focus we have around infrastructure is one that.

Speaker Change: Is not discretionary is one that really needs to be addressed no matter, what the economic environment is.

Speaker Change: When control when tangible engages with the customer.

Speaker Change: And.

Speaker Change: <unk> provides.

Speaker Change: Insights into how their systems are running those insights can be geared toward helping them optimize their systems in a macro environment by the way everyone is looking to drive productivity. So helping them optimize systems is something that our consult business does quite well, helping them for instance achieve.

Martin J. Schroeter: Helping them, for instance, achieve their carbon reduction plans, which Kyndryl Bridge, again, can help them understand how they're creating carbon across their footprint, helping them keep up with global best practices from the myriad of technologies, helping them understand and monitor, and getting ahead of problems.

Speaker Change: Their carbon reduction plans, which control bridge again can help them understand how how they're how they're creating carbon across our footprint, helping them keep up with helping them keep up with.

Speaker Change: With global best practices from the myriad of technologies, helping them understand and.

Speaker Change: Monitoring getting ahead of problems all of these things again related to infrastructure all of these things in the mission critical world.

Martin J. Schroeter: All of these things, again, related to infrastructure, all of these things in the mission critical world, will continue to drive our consulting business. From a run rate perspective, and again, I'll ask David to comment as well, when we started talking about Kyndryl Consult about two and a half years ago, we identified then that we had a bit of catching up to do, if you will, that we were mixing very light on the advisory side, and that we thought the growth path, a very solid double-digit growth path, we would have in front of us for quite a And I think that's what we're still experiencing.

Speaker Change: We will continue to drive our consult business from a run rate perspective, and again I'll ask David to comment as well.

David B. Wyshner: When we started talking about Kinderhook consult about two five years ago. We identified already then that we had a bit of catching up to do if you will that we where we mixed very light in the advisory side and and.

Speaker Change: That we thought the growth path a.

Speaker Change: Very solid double digit growth path.

Speaker Change: We would have in front of us for quite a while and I think that's what we're still experiencing we are growing the mix of control consult within the overall <unk> revenue mix.

Martin J. Schroeter: We are growing the mix of Kyndryl Consult within the overall Kyndryl revenue mix. We are continuing to hire consultants, so we're putting more feet on the ground to help. And we are deploying Kyndryl Bridge more broadly across the customer base, and in markets, by the way, that probably have a kind of high single-digit growth rate in them, so we're gaining share across the consultative space in the markets we serve. So I'll, again, I'll ask David to comment, but I think we've got a really good long-term growth trajectory ahead of us in Kyndryl Consult, and it is part of why we see ourselves getting back to overall revenue growth in the fourth quarter of this year.

Speaker Change: We are continuing to hire consultants, so we're putting more feet on the ground to help and we are deploying digital bridge more broadly across the customer base.

Speaker Change: In markets by the way that it probably have a kind of a high single digit growth rate to them. So we're gaining share across the consult space in the markets we serve so.

Speaker Change: Again, I'll, let David comment, but I think we've got a really good long term growth trajectory ahead of us and Kendra will consult and it is part of why we see ourselves getting back to overall revenue growth in the fourth quarter of this year, David that's right and just to put a few numbers around that in.

David B. Wyshner: That's right. And just to put a few numbers around that, in fiscal 2024, we saw our consult revenue up 16 percent in constant currency. It's become about 15 percent of our business overall. We see it getting to 20-ish percent of our business over the next few years. And given the composition of our revenue mix that we have, it means our consult business is already quite sizable, north of $2 billion a year.

David B. Wyshner: Fiscal 2024, we saw our consult revenue up 16% in constant currency, it's become about 15% of our business overall.

David B. Wyshner: We see it getting over the next few years to 20 ish percent of our business.

David B. Wyshner: Given that that composition of our revenue mix that we have it means our console business is already quite sizable north of $2 billion, a year and as a result the.

David B. Wyshner: And as a result, the double-digit growth we're seeing has a really significant positive impact on us. From a strategic perspective and an operational perspective, the growth we're seeing in consult really gives us confidence in our ability to drive growth in areas like consulting and hyperscalers that we focus on for growth. And we're confident that that bodes really well for our return to growth later this year. And then the last thing I'd mention about consult that's really important is that, ideally, we're doing advisory work and implementation work in consult that then gives rise to a managed services tail.

David B. Wyshner: Double digit growth, we're seeing has a really significant positive impact on us.

David B. Wyshner: We focus on for growth and that we are confident that that bodes really well for a return to growth. Later later this year and then the last thing I'd mentioned about consultant is really important is that ideally we're doing advisory work and implementation work in consult that then gives rise to a managed services.

David B. Wyshner: So it actually is a positive feeder not only in its own right as a source of revenue growth that tends to have attractive margins associated with it. It also drives managed services revenues over time in many cases as well.

Operator: Thanks a lot for the call. Thanks, Divya. Operator, next question, please. Your next question comes from the line of Tin Jin Huang with J.P. Morgan. Your line is open. Hey, thanks. Good morning. Really good results here. I want to ask about signings.

Speaker Change: That's incredible thanks, a lot for the color.

Speaker Change: Thanks, Steve Operator next question.

Speaker Change: Your next question comes from the line of Tien Tsin Huang with Jpmorgan. Your line is open.

Tin Jin Huang: I know you mentioned the inflection and you've been marching towards that for a bit, but, New Logo vs. Renewals. Any comments on pricing? I know that, in general, you're doing some transition with respect to pricing, the back book, but we're still hearing a lot of commentary around, you know, difficulty in getting projects started and difficulty in pricing and whatnot. So I'm just curious around about all of that.

Speaker Change: Thanks. Good morning, good results here I wanted to ask on signings I know you mentioned the inflection in <unk> been marching towards that.

Speaker Change: Bit but.

Speaker Change: New logo versus renewals any comments on.

Speaker Change: Pricing I know that in general.

Speaker Change: Youre doing some transition with respect to pricing the back book, but we're still hearing a lot of commentary around the difficulty in getting projects started in.

Speaker Change: And difficulty in pricing and whatnot. So I'm just curious around all of that.

Tin Jin Huang: Yeah, Tingen, thank you. And thank you again for the nice comment. Thank you also for the nice comments. So a few things on signings, as you know, as we've described very consistently, as we focused on, as we focused on moving the business away from low, no, and negative margin business, that has had an impact on overall signings. But that's part of why we've driven so much progress and profit. So, as that focus continues to diminish over time, we made a lot of progress last year, and we drove a lot of profit while doing that. And even, even with the focus on profit, we managed to get a little bit of growth, right, low single-digit growth out of the overall signing numbers last year.

Speaker Change: Yes.

Speaker Change: Tien tsin. Thank you and thank you again for the nice. Thank you also for the nice.

Speaker Change: Comment so a few things on Chinese as you know as we've described very consistently as we focused on as we focused on moving the business away from low and negative margin business that has had an impact on the overall signings, but that's part of why we've driven so much progress in profit.

Martin J. Schroeter: And we would expect that we will continue to build on that, on that basis. Within that, you know, as we've talked about, we focused on our customer base; we focused on expanding our relationships and wallet share within our customer base. So we are getting a fair bit of new scope within the existing customer base, and I know you made a distinction with the brand new logo. Yes, we're winning some new customers, some entirely new customers. It just hasn't been a focus for us.

Speaker Change: And we would expect that we will continue to build on that on that base within that.

Speaker Change: As we've talked about we've focused on our customer base, we've focused on.

Martin J. Schroeter: However, having seen what our teams can do within our customer base around new scope, having seen the positive response to the capabilities we've built, and having seen the positive response to the innovation we're bringing, once we turn our sights toward new customers, in earnest, and at scale, I'm confident that not only will we grow the scope within our customer base, but we'll bring on new logos as well in order to drive a continued revenue growth path Just then, my quick follow-up just on gross margins.

Speaker Change: Wherever having having seen what our teams can execute within our customer base around new scope, having seen the the positive response to the capabilities, we've built and having seen the positive response to the innovation, we're bringing once we turn our sights toward new customers in earnest and at scale.

Speaker Change: I am confident that not only will we not only will we grow the scope within our customer base. It but we'll bring on we'll bring on new logo as well in order to drive our continued revenue growth paths over the long term.

Speaker Change: Okay very good just my quick follow up just on gross margins.

Speaker Change: We're very healthy ahead of what we had.

Speaker Change: Do you feel like you're in a good place from a delivery standpoint.

Speaker Change: I know different pockets of the world are seeing different.

Tin Jin Huang: I know some of the workforce rebalancing is calming down here as well, but any updated thoughts there? Thank you. Yeah, I mean, again, I'll ask David for his comments as well.

Martin J. Schroeter: Look, our delivery remains world class. It is the reason our customers are willing to take the journey with us into new spaces. It's the reason they're willing to engage with us and our alliance partners in new ways, and our team has done a phenomenal job for the last two and a half years in delivering every day. And our focus around advanced delivery and our focus on Kyndryl Bridge has always been part of helping that.

Speaker Change: Into.

Speaker Change: New spaces. It's the reason they are willing to.

Speaker Change: Engage with us and our alliance partners in in new scope and the team. Our team has done a phenomenal job for the last two and half years and delivering everyday and our focus around advanced delivery and our focus around control bridge has always been part of helping that it was always been focused on delivering even.

Martin J. Schroeter: It has always been focused on delivering even higher quality, automating more so that our customers have a better experience. So I feel, you know, touch wood, I feel like the role we play, which our teams take very seriously, the role we play in our customers' mission-critical environments is the one that motivates them every day to get up and deliver great service. And I think we're doing that, and I think that's right. The gross margin improvement that we delivered last year is in the 300 basis point range.

Speaker Change: Higher quality automating more so that.

Speaker Change: So that our customers have a better experience so I feel touch.

David B. Wyshner: So we're making a tremendous amount of progress there, and I feel really good about where we are from a delivery perspective for two reasons. Number one, through our advanced delivery initiative, we've driven a substantial amount of progress, reaching $575 million of annualized savings already shows the progress that we've made. And we continue to have the opportunity to drive incremental efficiencies from where we are. And intention, that's one of the reasons we've increased the ultimate goal for advanced delivery from the $600 million we had initially targeted to $800 million now. So it's a sign that we've got more runway and more benefits still to be gained in this area. That's good stuff.

Speaker Change: Through our advanced delivery initiatives, we've driven a substantial amount of progress reaching $575 million of annualized savings.

Speaker Change: Already.

Speaker Change: It shows the progress that we've made and we continue to have opportunity to drive incremental efficiencies from where we are and contingent and that's one of the reasons. We've increased the ultimate goal for for advanced delivery from the $600 million. We had initially targeted to 800 million.

Speaker Change: Now so it's a sign that we've got more runway and more benefits still to be still be still to be gained in this area.

Speaker Change: Okay.

Speaker Change: Thank you.

Operator: Thank you. Thanks, Tenjin. Operator, next question, please. Your next question comes from the line of Jamie Friedman with Susquehanna. Your line is open.

Speaker Change: Thanks, Tien Tsin operator next question please.

Speaker Change: Your next question comes from the line of Jamie Friedman with Susquehanna. Your line is open.

Speaker Change: Hi.

James Eric Friedman: Hi. Thank you for taking my question. I'll echo the congratulations. There was a lot of hard work here this year. I wanted to ask particularly about the account in the three A's on page 15. I was wondering, Martin and David, if I could get your perspective as to why, why that, because this is a key part of the investment thesis, why it seems to be performing better and faster, with the $300 million of year-over-year earnings benefit. You know, why, why, why is that exceeding your expectations?

James Eric Friedman: Thank you for taking my question I'll Echo the congratulations Lauder hard work here this year.

James Eric Friedman: I wanted to ask a particularly about the accounts.

James Eric Friedman: In the <unk> on page 15, I am just wondering Martin and David.

James Eric Friedman: With respect to y.

James Eric Friedman: Why is that because this is a key part of the investment thesis why that seems to be.

James Eric Friedman: Performing better and faster.

James Eric Friedman: With the 300 million of.

James Eric Friedman: Year over year earnings benefit.

James Eric Friedman: Why why why is that exceeding your expectations.

Martin J. Schroeter: Yeah. So just a few things. Thank you again.

Speaker Change: Yeah. So a few things. Thank you again. Thank you also for the nice for the nice comments.

Speaker Change: Look when we win when.

Martin J. Schroeter: Thank you also for the nice comments. Look, when we began and laid out the strategy, the 3A strategy, and particularly account focus, we felt very confident that our customers would engage and come with us on this journey because of the role we play in their environments, because of the trust that we've built up over years and years and years. And the fact is, we're really good at what we do, so they love the engineering talent.

James Eric Friedman: When we began and.

Speaker Change: And laid out the strategy the <unk> strategy and particularly on account focus we felt we.

James Eric Friedman: We felt very confident that our customers would engage and.

James Eric Friedman: And that come with us on this journey because of the role we play in their environments because of the trust that we've built up over years and years and years and the fact is we're really good at what we do so they love the engineering talent. They loved the services. We provide so we were very confident now having said that we also made fun.

Martin J. Schroeter: They love the services we provide. So we were very confident in that. Now, having said that, we also made a bunch of assumptions around the timing for these and what the ultimate landing spot would be, as in how much content will come out, how much new scope we would get, what's the quarter in which or the year in which some of these customers will all align to get to a new relationship, and sort of, [inaudible] And what's turned out is that they are as enthusiastic – our customer base is And I think that's because we have invested heavily in new capabilities. So we come up with new ideas.

James Eric Friedman: A bunch of assumptions around the timing for these and what the ultimate what the ultimate landing spot would be as in how much content will come out how much new scope will we get whats the whats the quarter in which are the year in which some of these customers.

James Eric Friedman: We will all aligned to get to to get to a new to get to a new relationship and sort of re energize. These relationships and so we made a bunch of assumptions and the fact is that while we were confident going in with the basis for the strategy. We didn't know how long it would take we didn't know what they would look like on that.

James Eric Friedman: The other side and we didn't know we didn't know what ultimately the.

James Eric Friedman: The ins and outs the puts and takes would be in these relationships and whats turned out is that they are as enthusiastic our customer bases is enthusiastic to work their way through these as we expected and we're just getting them done a bit faster and I think that's because.

Martin J. Schroeter: We've invested heavily in innovation. So we come up with new tools and a new platform to help them get more insights. And we put all of that into the context of a business outcome for them, so it makes it easy to understand and easy to see why this will be better for us and, obviously, better for them as well. And remember, all of this was in the context of how do we accelerate it from just its natural renewal periods, which extend well out into the next six, seven, eight years. So we made a lot of assumptions.

James Eric Friedman: I think that's because.

James Eric Friedman: We have invested heavily in new capabilities. So we show up with.

James Eric Friedman: New ideas, we've invested heavily in innovation. So we showed up show up with new tools, new platform to help them get more insights.

James Eric Friedman: And we put all of that into a context of a business outcome for them. So it makes it easy to understand and easy to see why this will be better for us.

James Eric Friedman: And obviously be better for them as well and remember all of this was in the context of how do we accelerate it from just its natural.

James Eric Friedman: Renewal periods, which extend well out into next 678 years. So we made a lot of assumptions that the investments we've made in our people in the ecosystem and in our IP and data are paying off and customers see the benefit to.

Martin J. Schroeter: The investments we've made in our people, in the ecosystem, and in our IP and data are paying off, and customers see the benefit of sort of resetting, if you will, these relationships. And they're better off, and obviously, we're better off. Okay, thanks for that.

James Eric Friedman: Two sort.

James Eric Friedman: Sort of resetting if you will these relationships and they're better often obviously, we're better off.

James Eric Friedman: And then for my follow-up, David, you were going kind of quick there, and there was something you said that I don't actually see on the slides, but I'm sure it's me, not you, but... When you were talking about the 575, I may have misheard, I apologize, but I thought that you annualized the savings, I think related to reskilling, but it doesn't seem to be in the transcript How are you annualizing the 575?

Speaker Change: Okay. Thanks for that and then for my follow up.

Speaker Change: David you were going kind of quick there and there was something you said.

Speaker Change: We've seen the slides, but I'm sure it's mean new.

Speaker Change: But.

David B. Wyshner: When you were talking about the $5 75.

David B. Wyshner: I may have misheard, I apologize, but I thought that you annualized savings I thought related to re skilling, but it doesn't seem to be in the transcript.

David B. Wyshner: You annualize that $5 75.

David B. Wyshner: Yes.

David B. Wyshner: Yeah, so the 575 million is the benefit that we're getting from advanced delivery compared to where we were when we started. So in fiscal 23, at the end of fiscal 23, we were at a $275 million run rate from advanced delivery. And by the end of fiscal 24, we had increased that by $300 million to a $575 million annual run rate.

David B. Wyshner: Okay.

David B. Wyshner: Yes.

David B. Wyshner: $575 million is the benefit that we're getting from advanced delivery compared to where we are compared to where we started.

David B. Wyshner: In.

David B. Wyshner: And we expect that to continue to grow from there. So that's really the, you know, key numbers, you know, the key measure of our progress there that we point to. Got it.

Speaker Change: Annual run rate and we expect that to continue to grow from from there.

Speaker Change: That's really the key.

Speaker Change: Key number that's been one of the key measure of our progress there that we point to.

Speaker Change: Got it okay. Thank you very much.

James Eric Friedman: Okay. Thank you very much. Thanks, Jamie. Operator, next question, please. Your next question comes from the line of David Togut with Evercore ISI. Your line is open.

Speaker Change: Thanks, Jami operator next question please.

Speaker Change: Your next question comes from the line of David <unk> with Evercore ISI. Your line is open.

David Mark Togut: Thank you. Good morning. And thanks for taking my question. I apologize if this has been asked before, as there are several calls this morning. But the strength and demand for Kyndryl Consult were notable, particularly against the consulting industry environment, you know, which has been under pressure. Of course, Kyndryl Consult is non-discretionary, and the weaknesses elsewhere are really more in discretionary-related demand.

David B. Wyshner: Thank you good morning, and thanks for taking my question I apologize. If this has been asked to serve several calls this morning, but.

David B. Wyshner: And demand for Kendra consult was notable particularly against the consulting industry environment.

David B. Wyshner: Which has been under pressure of course kimbrell consult is non discretionary and the weaknesses elsewhere really more on discretionary related demand.

Martin J. Schroeter: But could you go a level deeper on demand drivers for Kyndryl Consult? You know, in particular, how durable those demand drivers are, you know, if we look to FY25 and beyond? Sure, sure, David.

Speaker Change: Could you go a level deeper on demand drivers for Kendra consult.

David B. Wyshner: In particular, how durable those demand drivers are if we look to FY 'twenty five and beyond.

Martin J. Schroeter: Kyndryl Consult has come up, and we do recognize that the performance that we're delivering and our view is not what you're seeing in many other places. And I think the reasons for that, which I'm going to talk about, the reasons for that are enduring, and, in fact, can continue, I think, for a period of time.

Speaker Change: Sure sure David Thank you and thank you for the nice comments and thank you for for <unk>.

David B. Wyshner: Joining.

Speaker Change: Kinderhook consult has come up and we do recognize that the performance that we're delivering and our view is not what youre seeing in many other places.

David B. Wyshner: I think the.

Speaker Change: The reasons for that which I'm going to talk about the reasons for that are enduring and in fact can.

Martin J. Schroeter: So at our heart, as we've been talking about, we've been investing quite heavily in our team skills, we've been investing heavily in building new capabilities, and we've been investing quite heavily in building out our IP and the use of our data around Kyndryl Bridge. And so as our teams engage... with new capabilities, with innovation, and with relevant business outcome-oriented ideas for our customers to pursue in this environment, in any environment, which can be around, for instance, how to optimize their systems. Everyone's interested in productivity in a macro environment like this, around resiliency, around how to get ready, for instance, for Gen AI, etc.

David B. Wyshner: Can continue I think for a period of time so so.

David B. Wyshner: At our heart is.

David B. Wyshner: As we've been talking about we've been investing quite heavily in in our our team skills. We've been investing heavily in building new capabilities and we've been investing quite heavily in building out our IP and the use of our data and around Kingsville bridge and so as our areas our teams engage.

David B. Wyshner: With new capabilities with innovation and with.

David B. Wyshner: Relevant business outcome oriented oriented ideas for our customers to pursue in this environment in any environment, which can be around for instance, how to optimize their systems everyone's interested in productivity in a macro environment like this around resiliency around how to get ready for instance.

David B. Wyshner: For Gen AI et cetera.

Martin J. Schroeter: Because of the role we play in their environments and the mission critical nature of what we do, those investments are paying off, and we expect them to continue. And in fact, keep in mind that Kyndryl Bridge is only in about half of our customer base as we sit here today. So as we continue to build new capabilities with our alliance partners, as we continue to invest in Kyndryl Bridge and bring new functionality, and make more use of our data across a broader element of a broader piece of our customer base, I see the enduring nature of why we're outperforming and why we're performing differently than I think that will continue.

David B. Wyshner: The role we play in there in their environments and the mission critical nature of what we do those investments are paying off.

David B. Wyshner: And we expect them to continue and in fact keep in mind that bridge is only in about half of our customer base as we sit here today. So as we continue to build new capabilities with our alliance partners as we continue to invest in Kingsville bridge and bring new functionality and make more use of our data across a broader element.

David B. Wyshner: A broader piece of our customer base.

David B. Wyshner: I see the enduring nature of why we're outperforming why we're performing differently than what you see from others I think that continues and when you think about some of the initiatives we've been pursuing really see consult at the Nexus of them. It's an area of focus in and of itself. The Kindred bridge gives rise to.

David B. Wyshner: Yeah, and when you think about some of the initiatives we've been pursuing, you can really see consulting at the nexus of them. It's an area of focus in and of itself, but Kyndryl Bridge gives rise to additional consulting opportunities and consultative selling opportunities. The alliances we have are very helpful from a consulting perspective. Our practices are driving progress there, particularly in areas like cloud migration and mainframe modernization and security and resiliency, and obviously, apps data and AI, and even regulatory changes like DORA, the Digital Operational Resilience Act in the EU, are giving rise to additional needs for consulting work on our behalf.

David B. Wyshner: Additional consult opportunities and consultative selling opportunities.

David B. Wyshner: The alliances we have.

David B. Wyshner: Very helpful from a consult perspective, our practices are driving progress there, particularly in areas like cloud migration and mainframe modernization and security and resiliency, and obviously apps data and AI and even regulatory changes like the like door. The digital operational resilience Act in the EU is.

David B. Wyshner: Giving rise to additional needs for for consult work on our behalf.

David B. Wyshner: So we really see consulting benefiting from a number of different initiatives and actions we've taken, and even some elements of the macro environment. Understandable. And then, just as a quick follow-up, your guide to return to revenue growth or to achieve revenue growth in 4Q of FY 25 seems a little early relative to the initial, spin presentation you gave. Is that a correct conclusion?

David B. Wyshner: So we really see we see consult benefiting from a number of different initiatives and actions, we've taken and even some elements of the macro environment.

Speaker Change: Kind of spin presentation, you gave is that a correct.

Speaker Change: Conclusion, and if so what gives you the incremental confidence that you can get to revenue growth in <unk> FY 'twenty five.

Speaker Change: Yeah. So thanks, David so.

Speaker Change: For two and a half years since we laid out the investment thesis two.

David Mark Togut: So really, what we're saying is that because of the progress we've made in the two growth factors, which we've always been counting on to drive us back to growth, Kyndryl Consult and the alliances, as an example, and the fact that we've done the hard work, the deepest part of the work last year around focus accounts and, and, and cleaning out the backlog. And we've eliminated or neutralized, if you will, the other areas that we've been trying to take out of our business, like low margin, no margin OEM, that we are, we are confident now in that calendar 25, which we're still confident calendar 25 can translate to the fourth quarter of this year, which is, which is the beginning.

Speaker Change: Two and half years ago, we said it could be calendar 'twenty five is the year in which we would get back to revenue growth.

Speaker Change: And really what we're saying now is that and obviously calendar 'twenty five starts in our fourth fiscal quarter. So really what we're saying is that because of the <unk>.

Speaker Change: Progress we've made in the two growth vectors, which we've always been counting on to drive us back to growth control consult in the alliances as an example, and the fact that we've we've done the hard work the.

Speaker Change: Deepest part of the work.

Speaker Change: Last year around focus accounts, and and and cleaning out the backlog and we've eliminated or neutralized. If you will the other areas that we've been trying to.

Speaker Change: To take out of our business like low margin no margin OEM that we are we are confident now in the calendar 'twenty five which we're still confident in calendar 'twenty five actually can translate to fourth quarter of this year, which is the which is the beginning so so.

David Mark Togut: So, for those who interpreted calendar 25, as maybe the second half versus the first half, so we're, we're probably a bit more accelerated than they would have thought. But look, we've got all the all the momentum, we've gotten a lot of, we chopped a lot of wood last year around what the inhibitors to growth were, and we have great momentum in the growth drivers. So we feel we are well understood.

Speaker Change: Are those who interpreted calendar 'twenty five as maybe second half versus first half. So we're probably a bit more accelerated than what they would have thought but look we've got we've got all the all the momentum we've gotten a lot of.

Speaker Change: Chopped a lot of wood last year around what the inhibitors to growth were and where you got great momentum in the growth drivers. So.

Speaker Change: We feel we feel good about it.

Speaker Change: Understood. Thank you very much.

David Mark Togut: Thank you very much. Thanks, David. Operator, I believe that was our last question in the queue. Yes, so that will conclude our question and answer session for today, and I will now turn the conference back over to Mr. Martin Schroeter for closing remarks. Thank you, operator.

Speaker Change: Thanks, David Operator, I believe that was our last question in the queue.

Martin J. Schroeter: And thanks to everybody for joining us. Look, you. I hope you can hear how proud we are and how energized we are by the progress we've made in the last fiscal year. And how, excuse me, how our very unique run and transform approach is responding to and adding a lot of value to our customers because it allows them to continuously innovate while maintaining their operational excellence, which in the spaces where we operate mission critical is absolutely vital.

Martin J. Schroeter: Proud we are and how energized we are by the progress we've made in the last fiscal year and have kind of excuse me how our.

Speaker Change: We're in a fantastic position as we start this fiscal year, we've got many many opportunities to win and we're going to capitalize on those opportunities in order to drive profitable growth.

Speaker Change: We look ahead to our third year as an independent company I remain as excited as ever about the growth potential in front of us and our foundational progress to date allows us to continue serving our customers' mission critical needs with more capabilities and more innovation than ever before so thanks again for joining us.

Speaker Change: Yes.

Speaker Change: Ladies and gentlemen, this concludes today's call. We thank you for your participation you may now disconnect.

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