Q2 2025 Kyndryl Holdings Inc Earnings Call
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Speaker Change: To withdraw your question. Please press star one again, please be advised that today's conference is being recorded I would now like to hand, the conference over to your first speaker today Laurie shape. Many head of Investor Relations. Please go ahead.
Laurie Shape: Good morning, everyone and welcome to kill the earnings call.
Second quarter, ending September 30th 'twenty 'twenty four.
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.
Laurie Shape: Forward looking statements speak only to our expectations as of today.
Speaker Change: 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 in March 31, 2024.
In today's remarks will also refer to certain non-GAAP financial metrics.
Responding GAAP metrics and a reconciliation of non-GAAP metrics to GAAP metrics for historical periods are provided in the presentation materials for today's events, which are available on our website at investors that Kendall dotcom.
With me here are Kendall's, 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 I'd now like to turn the call over to Martin Martin.
Martin Schroeter: Thank you Laurie and thanks to each of you for joining us.
Martin Martin: On today's call I'll update you on our continued progress and execution to meet our customers large and complex complex technology needs and to drive our growth strategy.
Speaker Change: David will then review our recent financial results and our fiscal 2025 earnings outlook.
David Weisner: We delivered another strong quarter for signings margins and cash flow generation. It was a record post spin quarter for signings, which have grown 33% over the last 12 months to $16 billion.
David Weisner: We signed 10 deals of more than $100 million in the quarter, including our largest deal as an independent company a scope expansion that will generate more than $2 billion of revenue over the next five years clearly are signing strength will power our return to sustained revenue growth.
David Weisner: And as David will discuss what's even more encouraging is that the projected pre tax margins on our signings continue to be in the high single digits.
David Weisner: In the quarter adjusted pre tax earnings were up substantially year over year, and we remain on track to deliver significant cash flow this year.
David Weisner: Our performance was once again led by double digit growth in control consult and strong momentum in hyperscale or related revenue as well as our ability to continue to drive efficiency and deliver innovation through automation and Ginger will bridge, our AI enabled open integration platform.
David Weisner: In addition, our <unk> initiatives alliances accounts and advanced delivery continued to generate significant incremental benefits in the quarter.
Martin Martin: There have been multiple disruptions across the competitive landscape and we are leveraging the investments we've made and our differentiated mission critical capabilities to take advantage of select opportunities to win new customers and additional scope.
Martin Martin: Having invested when others have pulled back we're in a great position to continue to capitalize on these opportunities.
Martin Martin: As we head into the second half of this year, we'll continue to focus on driving substantial financial progress and are returning to topline growth in the fourth quarter.
Martin Martin: There's a reason why we are delivering our fourth consecutive quarter of signings signings growth.
Martin Martin: It's our expertise in both running and transforming it states that differentiates us in the markets, we serve enabling us to increase our share of wallet and grow our customer base.
Martin Martin: As you've heard me say before <unk> is uniquely positioned to address secular it trends cloud migration and management increasingly hybrid it environments technology skills shortages cyber security risks and the adoption of artificial intelligence.
Martin Martin: Tangible consult is strategically positioned at the Nexus of these secular trends.
Martin Martin: Our consult revenue has been consistently growing in the double digits in this quarter, our consult signings and revenue were up 81% and 23% respectively.
Martin Martin: Consult is now a $2 5 billion plus revenue stream for us with significant runway for continued growth.
Martin Martin: This revenue stream is valuable and central to our strategy not only because of the margins directly associated with it but also because of the ongoing managed services work that accompanies so many it modernization assignments.
and why we're delivering our fourth consecutive quarter of signing signings growth. It's our expertise in both running and transforming IT estates that differentiates us in the markets we serve, enabling us to increase our share of wallet and grow our customer base.
Martin Martin: Over the last year, we've delivered significant signings growth in both consulting and managed services.
As you've heard me say before, Kindle is uniquely positioned to address secular IT trends, cloud migration and management, increasingly hybrid IT environments, technology skills shortages, cybersecurity risks, and the adoption of artificial intelligence.
Martin Martin: Our clinical consult teams have decades of experience with deep domain knowledge on our customers' mission critical systems.
Martin Martin: This experience paired with the IP and data and Kinzel bridge enables us to turn technical value into business value.
Kindle Consult is strategically positioned at the nexus of these secular trends. Our consult revenue has been consistently growing in the double digits. In this quarter, our consult signings and revenue were up 81% and 23% respectively.
Martin Martin: And we're engaging more and more with CIO and CTO on modernization data architecture, AI readiness efficiency security resiliency and governance.
Martin Martin: The seven figure assignments that we need to help customers with their data foundations and AI readiness are examples of that.
CONSULT is now a two and a half billion dollar plus revenue stream for us with significant runway for continued growth.
Martin Martin: Another key driver of our success and confidence in our future growth trajectory is our deep relationships with the three major hyperscale and other top tier technology leaders.
This revenue stream is valuable and central to our strategy, not only because of the margins directly associated with it, but also because of the ongoing managed services work that accompanies so many IT modernization assignments.
Martin Martin: Over the last year, we've more than doubled our revenue from services. We provide that are related to the hyperscale and we expect to reach $1 billion in hyperscale or related revenue this fiscal year.
Over the last year, we've delivered significant signage growth in both consult and managed services.
Martin Martin: With our mainframe modernization skills, and hyperscale or alliances, we're migrating managing optimizing and securing our customers environments across multiple cloud platforms and helping them ensure that the right workload is on the right platform.
Our Kindle Consult teams have decades of experience with deep domain knowledge on our customers' mission-critical systems.
This experience, paired with the IP and data in Kindle Bridge, enables us to turn technical value into business value.
Martin Martin: Our growth was fueled by providing customers with higher value solutions that leverage both our extensive knowhow and our alliance partners partners' capabilities.
and we're engaging more and more with CIOs and CTOs on modernization, data architecture, AI readiness, efficiency, security, resiliency, and governance.
Martin Martin: Together, we are focused on joint enablement activities co marketing and incremental training all of which bring solutions to the market that address our customers' most pressing needs.
The seven-figure assignments that were winning to help customers with their data foundations and AI readiness are examples of that.
Another key driver of our success and confidence in our future growth trajectory is our deep relationships with the three major hyperscalers and other top-tier technology leaders.
Martin Martin: Because of our alliances the skills, we can bring to bear and the freedom of action, we have as an independent company. We're frequently expanding the scope of services, we provide to existing customers to now include mainframe modernization and cloud migration services.
Over the last year, we've more than doubled our revenue from services we provide that are related to the hyperscalers, and we expect to reach $1 billion in hyperscaler-related revenue this fiscal year.
Martin Martin: At the same time, we're also beginning to add more new logos, where kinzel bridges at the core of our service delivery across multiple platforms involving one or more hyperscale.
With our mainframe modernization skills and hyperscaler alliances, we're migrating, managing, optimizing, and securing our customers' IT environments across multiple cloud platforms and helping them ensure that the right workload is on the right platform.
Martin Martin: Separately last month, we published the inaugural Kimbro readiness report this.
Martin Martin: This report analyses with business and it leaders see as the big picture challenges and opportunities in today's global business landscape. How there it helps us prepare for those risks and capitalize on opportunities and what specific factors enable or hinder progress.
Our growth is fueled by providing customers with higher value solutions that leverage both our extensive know-how and our alliance partners' capabilities.
Together, we're focused on joint enablement activities, co-marketing, and incremental training, all of which bring solutions to the market that address our customers' most pressing needs.
Martin Martin: I am really excited about the report because it combines are proprietary Ginger bridge operational data with survey data from over 3000 senior leaders in 18 markets by.
Martin Martin: By combining operational data with survey data the report assesses and compares to perception of readiness versus the reality of readiness with the goal of helping companies uncover new value from past current and future technology investments.
Because of our alliances, the skills we can bring to bear, and the freedom of action we have as an independent company, we're frequently expanding the scope of services we provide to existing customers to now include mainframe modernization and cloud migration services.
At the same time, we're also beginning to add more new logos where Kindrel Bridge is at the core of our service delivery across multiple platforms involving one or more hyperscalers.
Martin Martin: Among our key findings more than 90% of the leader survey believe their infrastructures world class get fewer than 40% believe theyre ready for potential risks coming their way.
Separately, last month we published the inaugural Kindle Readiness Report.
Martin Martin: Cyber security is the number one concern regarding risk readiness closely followed by policy and regulatory requirements and emerging technologies, including AI.
This report analyzes what business and IT leaders see as the big picture challenges and opportunities in today's global business landscape, how their IT helps them prepare for those risks and capitalize on opportunities, and what specific factors enable or hinder progress.
Martin Martin: Two thirds of Ceos are concerned that there it is outdated carrying vulnerabilities skills gaps and has challenges for modernization.
Martin Martin: And 40% of mission critical components, such as servers storage networks and operating systems are approaching or at their end of life.
I am really excited about the report because it combines our proprietary Kindrel Bridge operational data with survey data from over 3,000 senior leaders in 18 markets.
Martin Martin: These factors are why tech modernization is a top priority for business and it leaders however, more than 70% of participants indicated they are still in the early stages of modernization.
By combining operational data with survey data, the report assesses and compares the perception of IT readiness versus the reality of readiness, with the goal of helping companies uncover new value from past, current, and future technology investments.
Martin Martin: For enterprises to progress on their modernization journey and make their organizations more ready for the future leaders need to overcome their prioritization paralysis.
Among our key findings, more than 90% of the leaders surveyed believe their infrastructure is world class, yet fewer than 40% believe they're ready for potential risks coming their way.
Martin Martin: And that is precisely the role that <unk> plays as a trusted partner, providing a differentiated pragmatic approach to modernization.
Cybersecurity is the number one concern regarding risk readiness, closely followed by policy and regulatory requirements and emerging technologies, including AI.
Martin Martin: We offer unmatched expertise in designing building and managing mission critical workloads, we provide unprecedented observe ability and valuable insights from <unk> bridge, and we collaborate with Hyperscale and other top tier technology providers to accelerate the pace of our customers it transformations.
Two-thirds of CEOs are concerned that their IT is outdated, carrying vulnerabilities, skills gaps, and has challenges for modernization.
Martin Martin: As we've highlighted before our evolving business mix, where we're focusing on higher value services for our customers is driving increased profitability and fueling future topline growth.
And 40% of mission critical components, such as servers, storage, networks, and operating systems are approaching or at their end of life.
These factors are why tech modernization is a top priority for business and IT leaders. However, more than 70% of participants indicated they are still in the early stages of modernization.
Martin Martin: This fiscal year half of our revenue is coming from post spin signings that have higher margins in our backlog data spin and in fiscal 2026, it will be roughly two thirds.
Martin Martin: This inflection point when our P&L is largely determined by our post spin signings will dramatically strengthen our earnings and growth profile.
For enterprises to progress on their modernization journey and make their organizations more ready for the future, leaders need to overcome their prioritization paralysis. And that is precisely the role that Kendra plays as a trusted partner, providing a differentiated, pragmatic approach to modernization.
Martin Martin: Our forecast for fiscal 2025 is for adjusted pre tax income of at least $460 million, reflecting a year over year increase of at least $295 million as David will explain in more detail the margins at which we are signing contracts and the other actions, we're taking to grow our profitability keep us well on track to deliver high.
We offer unmatched expertise in designing, building, and managing mission-critical workloads. We provide unprecedented observability and valuable insights from Kindle Bridge. And we collaborate with hyperscalers and other top-tier technology providers to accelerate the pace of our customers' IT transformations.
Martin Martin: <unk> digit adjusted pre 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 strong conversion of our earnings into cash flow.
As we've highlighted before, our evolving business mix, where we're focusing on higher value services for our customers, is driving increased profitability and fueling future top-line growth. This fiscal year, half of our revenue is coming from post-spin signings that have higher margins than our backlog did at spin, and in fiscal 2026, it'll be roughly two-thirds.
Martin Martin: Our confidence stems from <unk> unique set of attributes that position us well for sustainable growth.
Martin Martin: Our customers want to work with us for a number of reasons, including we have mission critical expertise and domain knowledge throughout our six global practices to manage increasingly complex hybrid it states and address tech debt.
This inflection point, when our P&L is largely determined by our post-spend signings, will dramatically strengthen our earnings and growth profile.
Martin Martin: Because we've established and expanded relationships with Hyperscale and other top tier technology providers to accelerate the pace of mainframe modernization and cloud migration.
Our forecast for fiscal 2025 is for adjusted pre-tax income of at least $460 million, reflecting a year-over-year increase of at least $295 million.
Martin Martin: Because we've invested in our advisory talent or Kindle consult teams have the know how to make our customers. It states optimized secure resilient and regulatory compliant.
Speaker Change: 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 keep us
well on track 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 of adjusted pre-tax income with strong conversion of our earnings into cash flow.
Martin Martin: And they know how to architect data for our customers. So they can be responsibly and securely adopt and leverage AI.
Martin Martin: And finally, because we're making ongoing investments in control bridge, that's enabling unprecedented observe ability actionable business insights and valuable outcomes that align with our customers' business strategies and goals in short we are delivering sophisticated optimized multi vendor solutions to customers that allow them to address critical.
Speaker Change: Our confidence stems from Kindrel's unique set of attributes that position us well for sustainable growth.
Martin Martin: Needs and major opportunities.
Martin Martin: Through digital bridge automation and AI, we're delivering managed services more efficiently than ever and as a result, and as we've said, we're showing up differently and powerfully in the it services market.
because we've established and expanded relationships with hyperscalers and other top-tier technology providers to accelerate the pace of mainframe modernization and cloud migration.
Martin Martin: Lastly, I want to remind you all that we'll be hosting our first post spin Investor day in New York on November 21.
Speaker Change: because we've invested in our advisory talent. Our Kindrel consult teams have the know-how to make our customers' IT estates optimized, secure, resilient, and regulatory compliant. And they know how to architect data for our customers so they can be responsibly and securely adopt and leverage AI.
Martin Martin: This will be an in person and live webcast event available on our Investor Relations website, where we will delve deeper into our strategy and key priorities that will drive our next chapter of growth and margin expansion.
Martin Martin: I also want to highlight that we recently published our second corporate citizenship report. It describes our notable progress as a multinational organization a role as a provider of essential services, our focus on managing our environmental impacts our <unk> culture, and our principled approach to corporate governance.
And finally, because we're making ongoing investments in Kendral Bridge.
Speaker Change: that's enabling unprecedented observability, actionable business insights, and valuable outcomes that align with our customers' business strategies and goals.
In short, we are delivering sophisticated, optimized, multi-vendor solutions to customers that allow them to address critical needs and major opportunities.
Martin Martin: I'm very proud of the <unk> team and the progress we've made and I encourage you to review it on our website.
Through Kindle Bridge, automation, and AI, we're delivering managed services more efficiently than ever. And as a result, and as we've said, we're showing up differently and powerfully in the IT services market.
David Weisner: Now with that David will take you through our results and our outlook.
David Weisner: Thanks, Martin and Hello, everyone today, I'd like to discuss our second quarter results. Our continued progress on our three initiatives the solid margins at which we are signing customer contracts and our outlook for fiscal year 2025.
Lastly, I want to remind you all that we'll be hosting our first Post-Spin Investor Day in New York on November 21st. This will be an in-person and live webcast event available on our Investor Relations website, where we will delve deeper into our strategy and key priorities that will drive our next chapter of growth and margin expansion.
David Weisner: The theme that Youll pickup is strong execution on our powerful strategy.
David Weisner: In the second quarter revenue totaled $3 8 billion or.
David Weisner: A 7% decline in constant currency.
David Weisner: Year over year trend was anticipated and primarily driven by our intentional exit primarily in prior quarters from negative no and low margin revenue streams within ongoing customer relationships not by macro factors.
I also want to highlight that we recently published our second Corporate Citizenship Report.
David Weisner: It's also sequentially one stronger than the year over year decline, we reported last quarter.
Speaker Change: I'm very proud of the Kendrell team and the progress we've made, and I encourage you to review it on our website. Now with that, David will take you through our results and our outlook.
David Weisner: We also reported the strongest quarter of signings in our history as an independent company total signings grew 132% year over year.
David: Thanks Martin, and hello everyone. Today I'd like to discuss our second quarter results, our continued progress on our 3A initiatives, the solid margins at which we're signing customer contracts, and our outlook for fiscal year 2025. The theme that you'll pick up is strong execution on our powerful strategy.
David Weisner: Our five $6 billion of signings made Q2, our fourth consecutive quarter of signings growth and brings our trailing 12 month signings growth to 33%.
David Weisner: We saw strength across all six of our practices each of which reported signings growth of 30% or more in the quarter.
David: In the second quarter, revenue totaled $3.8 billion, a 7% decline in constant currency.
David Weisner: We delivered growth across our four geographic segments, each of which reported signings growth in the quarter.
David: The year-over-year trend was anticipated and primarily driven by our intentional exit, primarily in prior quarters, from negative, no, and low-margin revenue streams within ongoing customer relationships, not by macro factors.
David Weisner: As Martin highlighted we continued to gain momentum in our higher margin advisory services Kimbro consult revenues grew 23% year over year, which underscores how we are growing our share in this higher value added space kindred.
David: It's also sequentially one point stronger than the year-over-year decline we reported last quarter.
David Weisner: Kindred consult signings grew even faster up 81%.
David Weisner: Over the last 12 months, we've seen strong growth and Kimberly consult with signings up 41% year over year.
David: We also reported the strongest quarter of signings in our history as an independent company. Total signings grew 132% year over year.
David Weisner: And importantly, we're also delivering growth in managed services or managed services signings have increased 32% in the last 12 months.
David: Our $5.6 billion of signings made Q2 our 4th consecutive quarter of signings growth and brings our trailing 12-month signings growth to 33%.
David Weisner: Our second quarter, adjusted EBITDA was $557 million and our adjusted.
David: We saw strength across all six of our practices, each of which reported signings growth of 30 percent or more in the quarter, and we delivered growth across our four geographic segments, each of which reported signings growth in the quarter.
David Weisner: <unk> EBITDA margin was 14, 8%.
David Weisner: Adjusted pre tax income grew 80% to $45 million.
David Weisner: Our financial progress continues to reflect our strategic execution.
Speaker Change: As Martin highlighted, we continue to gain momentum in higher margin advisory services.
David Weisner: 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 positioning <unk> to meet our customers' future needs.
Speaker Change: Kindral Consult Revenues grew 23% year-over-year, which underscores how we're growing our share in this higher value-add space.
Kindred consult signings grew even faster, up 81%.
David: Over the last 12 months we've seen strong growth in Kindle Consult with signings up 41% year-over-year and importantly we're also delivering growth in managed services. Our managed services signings have increased 32% in the last 12 months.
David Weisner: Included in our $45 million of adjusted pre tax income was $39 million and workforce rebalancing charges.
David Weisner: Contractually committed $50 million increase in IBM software costs, and a $40 million impact from currency movements that all operated as headwinds mid.
David: Our second quarter adjusted EBITDA was $557 million, and our adjusted EBITDA margin was 14.8%.
David Weisner: Mitigating. This we also added $20 million net benefit from depreciation changes.
David Weisner: Excluding these items, we delivered a year over year increase of $129 million in adjusted pre tax income, which reflects our execution and progress on our <unk> initiatives.
Adjusted pre-tax income grew 80% to 45 million dollars.
Our financial progress continues to reflect our strategic execution.
David Weisner: Through our alliances we generated $260 million in the Hyperscale related revenue in the second quarter.
David: 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 positioning Kindrel to meet our customers future IT needs.
David Weisner: This puts us on track to deliver $1 billion of hyper scaler related revenue this year double our fiscal 2024 total.
David Weisner: Through our advanced delivery initiative powered by Kimbro 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.
David: Included in our $45 million of adjusted pre-tax income was $39 million in workforce rebalancing charges.
David: the contractually committed $50 million increase in IBM software costs and a $40 million impact from currency movements that all operated as headwinds.
David Weisner: Win win for Kindred and our customers.
David Weisner: To date, we've been able to free up more than 11500 delivery professionals to address new revenue opportunities and backfill attrition.
David: Mitigating this, we also had a $20 million net benefit from depreciation changes.
David: Excluding these items, we delivered a year-over-year increase of $129 million in adjusted pre-tax income, which reflects our execution and progress on our 3A's initiatives.
David Weisner: This is worth accumulative $700 million, a year to us representing a $50 million increase in our annual run rate this past quarter.
David Weisner: Our accounts initiative continues to remediate elements of contracts, we inherited with sub standard margins.
David: Through our alliances, we generated $260 million in hyperscaler-related revenue in the second quarter.
David Weisner: In the second quarter, we increased the cumulative annualized profit from our focus accounts by $50 million to.
David: This puts us on track to deliver a billion dollars of hyperscaler-related revenue this year, double our fiscal 2024 total.
David Weisner: $775 million.
David: 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.
David Weisner: Clearly the <unk> remain an important source of margin expansion and value creation for us.
David Weisner: Consistent with what I've shared in prior quarters, I'm, particularly enthusiastic about how we continue to position <unk> for future revenue margin and profit growth.
It's a win-win for Kindrel and our customers.
David: To date, we've been able to free up more than 11,500 delivery professionals to address new revenue opportunities and backfill attrition.
David Weisner: As we grew signings substantially this past quarter, we continued to command attractive margins on our signings.
David Weisner: Throughout fiscal 2024, and now through the first half of fiscal 2025, we signed contracts with projected gross margins in the mid twenties and projected pre tax margins in the very high single digits.
David: This is worth a cumulative $700 million a year to us, representing a $50 million increase in our annual run rate this past quarter.
David: Our accounts initiative continues to remediate elements of contracts we inherited with substandard margins.
David Weisner: Therefore, as our business mix increasingly shifts towards more postpaid contracts you will see significant margin expansion in our reported results.
David: In the second quarter, we increased the cumulative annualized profit from our FOCUS accounts by $50 million to $775 million.
David Weisner: We've again included a gross profit book to Bill chart that accentuates, how we've been creating and capturing value in our business.
David: Clearly, the 3 A's remain an important source of margin expansion and value creation for us.
David Weisner: With an average projected gross margin of 26% on our $16 billion of signings over the last 12 months, we've added over $4 billion of projected gross profit to our backlog.
David: Consistent with what I shared in prior quarters, I'm particularly enthusiastic about how we continue to position Kinroll for future revenue, margin, and profit growth.
David Weisner: Over the same period of time, we've reported gross profit of $3 billion.
David: As we grew signings substantially this past quarter, we continued to command attractive margins on our signings.
David Weisner: This means we've been adding significantly more gross profit to our backlog and our contracted book of business has been producing in our P&L.
David: Throughout fiscal 2024 and now through the first half of fiscal 2025, we've signed contracts with projected gross margins in the mid-20s and projected pre-tax margins in the very high single digits.
David Weisner: Having a gross profit book to bill ratio above one at one four over the latest 12 months is a key measure of how we're growing what matters. Most the expected future profit from committed contracts.
David: Therefore, as our business mix increasingly shifts toward more post-spin contracts, you'll see significant margin expansion in our reported results.
David Weisner: And with our gross profit book to Bill ratio, having been consistently above one.
David: We've again included a gross profit book to bill chart that accentuates how we've been creating and capturing value in our business.
David Weisner: That means that we've been consistently growing our gross profit backlog over the last two plus years.
David Weisner: Turning to our cash flow and balance sheet, our adjusted free cash flow was $56 million in the quarter.
David: With an average projected gross margin of 26% on our $16 billion of signings over the last 12 months, we've added over $4 billion of projected gross profit to our backlog.
David Weisner: Our gross capital expenditures were $134 million and we received $30 million of proceeds from asset dispositions.
David: Over the same period of time, we've reported gross profit of $3 billion.
David Weisner: We've provided a bridge from our adjusted pretax income to our free cash flow.
David: This means we've been adding significantly more gross profit to our backlog than our contracted book of business has been producing in our P&L.
David Weisner: As well as a bridge from our adjusted EBITDA to our free cash flow in the appendix.
David Weisner: Our financial position remains strong our cash balance at September 30 was $1 3 billion.
David: Having a gross profit book-to-bill ratio above one at 1.4 over the latest 12 months is a key measure of how we're growing what matters most, the expected future profit from committed contracts.
David Weisner: Our cash combined with available debt capacity under committed borrowing facilities gave us $4 5 billion of liquidity at quarter end.
David: And with our gross profit book-to-bill ratio having been consistently above one, that means that we've been consistently growing our gross profit backlog over the last two-plus years.
David Weisner: Our debt maturities are well ladder from late 2026 to 2041, we had no borrowings under our revolving credit facility and our net debt at quarter end was $1 9 billion.
David Weisner: Our target has been to keep net leverage below one times adjusted EBITDA and we ended the quarter well within our target range at 0.84 times.
David: Turning to our cash flow and balance sheet, our adjusted free cash flow was $56 million in the quarter. Our gross capital expenditures were $134 million, and we received $30 million in proceeds from asset dispositions.
David Weisner: We are rated investment grade by Moody's Fitch and S&P.
David: We've 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 Weisner: On capital allocation, our top priorities continue to be to maintain strong liquidity remain investment grade and reinvest in our business.
David Weisner: As our earnings increase above drive meaningful free cash flow growth.
David: Our financial position remains strong. Our cash balance at September 30 was $1.3 billion. Our cash, combined with available debt capacity under committed borrowing facilities, gave us $4.5 billion of liquidity at quarter end.
David Weisner: As a result over time, we will be in a position to consider regularly returning capital to shareholders all while remaining investment grade.
David Weisner: As we've said previously our core financial goals are to continue to inflect, our revenues back to growth as the year progresses expand our margins grow our earnings and generate free cash flow.
David: Our debt maturities are well-laddered from late 2026 to 2041. We had no borrowings under our revolving credit facility, and our net debt at quarter end was $1.9 billion.
David Weisner: Our outlook for fiscal 2025 continues to be for revenue to decline, 2% to 4% in constant currency.
David: Our target has been to keep net leverage below 1x adjusted EBITDA, and we ended the quarter well within our target range at 0.84x.
David Weisner: This implies revenues of 15, 2% to $15 5 billion.
David Weisner: Based on recent exchange rates.
We are rated investment grade by Moody's, Fitch, and S&P.
David Weisner: We continue to expect to return to year over year revenue growth in the fourth quarter.
David: On capital allocation, our top priorities continue to be to maintain strong liquidity, remain investment grade, and reinvest in our business.
David Weisner: We're reaffirming our outlook for adjusted EBITDA margin and adjusted pre tax income to reflect the execution against our plan we delivered in Q2.
David: As our earnings increase, they'll drive meaningful free cash flow growth.
David Weisner: Our outlook for full year adjusted EBITDA margin is at least 16, 3% and our outlook for adjusted pre tax income is at least $460 million.
David: As a result, over time, we'll be in a position to consider regularly returning capital to shareholders, all while remaining investment grade.
David Weisner: Looking at the third quarter in particular, our year over year constant currency revenue decline will be meaningfully smaller than our Q2 decline in our adjusted pre tax income should be more than double the $63 million, we reported in last year's third quarter.
David: As we've said previously, our core financial goals are to continue to inflect our revenues back to growth as the year progresses, expand our margins, grow our earnings, and generate free cash flow.
David: Our outlook for fiscal 2025 continues to be for revenue to decline 2-4% in cost and currency.
David Weisner: In total we expect to deliver more than 60% of our full year adjusted <unk> in the first three quarters of the year.
David: This implies revenues of $15.2 to $15.5 billion based on recent exchange rates.
David Weisner: Included in our guidance for the third quarter is approximately $20 million of workforce rebalancing charges.
David: We continue to expect to return to year-over-year revenue growth in the fourth quarter.
David: We're reaffirming our outlook for adjusted EBITDA margin and adjusted pre-tax income to reflect the execution against our plan we delivered in Q2.
David Weisner: The timing of these charges had been weighted towards the earlier part of the year, while our revenues are slightly tilted towards the latter half.
David Weisner: On the topic of cash flow for the year as a whole we project $675 million and net capital expenditures and a similar amount of depreciation expense as well as $150 million in cash taxes.
David: Our outlook for full-year adjusted EBITDA margin is at least 16.3%, and our outlook for adjusted pre-tax income is at least $460 million.
David: Looking at the third quarter in particular, our year-over-year constant currency revenue decline will be meaningfully smaller than our Q2 decline, and our adjusted pre-tax income should be more than double the $63 million we reported in last year's third quarter.
David Weisner: This translates to roughly $300 million in adjusted free cash flow in fiscal 2025, consistent with our prior outlook.
David Weisner: Over the medium term, we remain committed to delivering significant margin expansion and generating free cash flow growth.
David: In total, we expect to deliver more than 60% of our full-year adjusted PTI in the first three quarters of the year.
David Weisner: 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.
David: Included in our guidance for the third quarter is approximately $20 million of workforce rebalancing charges.
David Weisner: Manage our costs and earn a return on all of our revenues.
David Weisner: Stepping back from the financials.
David: The timing of these charges has been weighted toward the earlier part of the year, while our revenues are slightly tilted toward the latter half.
David Weisner: We provide mission critical services to large important organizations kindred powers economic progress around the world.
David Weisner: What we do matters.
David Weisner: And our leading market position in it infrastructure services, our strong service levels and the mission critical nature of what we do distinguish us from other providers of Tech services.
David: This translates to roughly $300 million in adjusted free cash flow in fiscal 2025, consistent with our prior outlook.
David Weisner: These attributes that differentiate us give us opportunities for profitable growth that are specific to Kimberly and we're moving aggressively to seize them.
David: Over the medium term, we remain committed to delivering significant margin expansion in generating free cash flow growth.
David Weisner: You can see our progress in the margin expansion, we've been delivering in our Q2 and LTM signings growth and in our plan to return to revenue growth in the fourth quarter.
David: 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.
David Weisner: And we plan to talk more about this during our Investor day on November 21.
David Weisner: With that Martin and I would be pleased to take your questions.
Stepping back from the financials.
David: Because we provide mission-critical services to large, important organizations, Kindrel powers economic progress around the world. What we do matters.
Speaker Change: Thank you at this time, we will conduct a question and answer session. As a reminder to ask a question you need to press star one on one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.
David: and our leading market position in IT infrastructure services, our strong service levels, and the mission-critical nature of what we do distinguish us from other providers of tech services.
Speaker Change: Martin are you ready for your first question, yes, Sir Thank you very much.
Speaker Change: Please standby, while we compile the Q&A roster.
David: These attributes that differentiate us give us opportunities for profitable growth that are specific to Kindrel, and we're moving aggressively to seize them.
Speaker Change: Our first question comes from <unk> from Scotia Bank. Please go ahead.
Speaker Change: Hello, everyone. Good morning.
David: You can see our progress in the margin expansion we've been delivering in our Q2 and LTM signings growth and in our planned return to revenue growth in the fourth quarter.
Speaker Change: Great quarter here.
Speaker Change: Martin could you provide us a little bit more color in terms of the macro impact on the signing.
David: And we plan to talk more about this during our Investor Day on November 21st.
Speaker Change: Do you potentially see the signings momentum to pick up more significantly as the macro improves and the rates to continue to come down.
Speaker Change: With that, Martin and I would be pleased to take your questions.
Thank you.
Speaker Change: Thank you. At this time, we'll conduct a question and answer session. As a reminder, to ask a question, you need to press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again.
Speaker Change: Yes, good morning dividend. Thank you for the nice thank you for the nice comments.
Speaker Change: What I'd start with is is what we've been talking about and what we shared a few weeks ago in the form of the first control readiness report and in that which is a combination of our data and we obviously have more data on the state of the world's technology infrastructure than anybody else.
Speaker Change: Martin, are you ready for your first question? Yes, sir. Thank you very much.
Speaker Change: All right, please stand by while I compile the Q&A roster.
Speaker Change: Along with what the leaders of of companies are faced with and how they feel about their readiness for the future and so when we think about the challenges they have when they think about the opportunities that theyre looking at.
Speaker Change: Our first question comes from Davia Gwal from Scotiabank. Please go ahead.
Hello, everyone. Good morning. Craig Corder here.
Speaker Change: Martin could you provide us a little bit more color in terms of the macro impact on these signings?
Speaker Change: And we think about our capabilities and the innovation, we bring and the skills. We bring I think we do in our part of the long term secular trends that are driving the markets. We serve two to continue to grow.
Speaker Change: Do you potentially see the signing momentum to pick up more significantly as the macro improves and the rates start to continue to come down?
Speaker Change: Over the long term, so I feel really good about how we invest.
Martin: Yeah, good morning, Divya, and thank you for the nice, thank you for the nice comments.
Speaker Change: <unk> invested to build new capabilities about how we've invested to bring innovation in a very unique way in a space that is extraordinarily important to either again manage the risks that the leaders of companies see a coming or to take advantage of the opportunity. So the alignment of Kindle with the with the <unk>.
Martin: You know, I think what I'd start with is what we've been talking about and what we shared a few weeks ago in the form of the first Kindrall Readiness Report.
Martin: which is a combination of our data, and we obviously have more data on the state of the world's technology infrastructure than anybody else, along with what the leaders of companies are faced with.
Speaker Change: <unk> trends will continue to provide long term signings and therefore, our long term revenue growth for us.
Speaker Change: That's helpful. Just a real quick follow up and I'll pass the line right. After is considering where things are broadly.
Martin: and how they feel about their readiness for the future. And so when we think about.
Martin: the challenges they have when they think about the opportunities that they're looking at, and we think about our capabilities and the innovation we bring and the skills we bring, I think we do and are part of the long-term secular trends.
Speaker Change: Election and everything.
Speaker Change: Where do you see that global enterprises play like we talked about core modernization generally AI is the big theme that continues to evolve how do you see global enterprises and the global <unk>.
Martin: that are driving the markets we serve to continue to grow.
Speaker Change: Sweet executive position from an investment standpoint, when it comes to the core modernization the AI readiness related investment given the role such an important role Kinder players in the infrastructure side of things, yes, It's a great. It's a great question and look I think the way our customer base and the respondents for.
Martin: over the long term. So I feel really good about how we've invested to build new capabilities, about how we've invested to bring innovation in a very unique way in a space that is
Martin: extraordinarily important to either, again, manage the risks that the leaders of companies see coming, or to take advantage of the opportunity. So the alignment of Kindrel with the secular trends will continue to provide long-term signings and therefore long-term revenue growth for us.
Speaker Change: Instance.
Speaker Change: Two our readiness survey I think the way they feel as is.
Speaker Change: At the beginning of a journey that they know they have to go down so the digitization of the economy is going to keep.
Speaker Change: That's helpful. Just as a quick follow-up, and I'll pass the line right after, is considering where things are broadly, you know, with the election and everything,
Speaker Change: Is going to keep happening they know they need to be a part of it they know they need to invest in for instance, AI and the work we do to help them get ready for that as part of what we're already seeing in our consult results as part of what part of what we're already seeing in our in our managed results and at the same time, while they are trying to invest for the future to take advantage of opportunities.
Speaker Change: Where do you see the global enterprises place? Like, you know, we talked about co-modernization generally. AI is a big theme that continues to evolve.
Martin: How do you see global enterprises and the global C-suite executives position from an investment standpoint when it comes to the goal modernization, the AI readiness related investment, given the role, such an important role Kindle plays in the infrastructure side of things?
Speaker Change: They are also trying to keep the bad guys at Bay Cyber security and resilience, that's very high on their list of things they need to invest in and they are also trying to.
Speaker Change: Adjust to whatever the whatever the regulatory regime happens.
Speaker Change: Yeah, it's a great it's a great question and look I think the way our customer base and the respondents for instance to our Readiness survey. I think the way they feel is
Speaker Change: Happens to be and where we're headed toward obviously different regulatory regimes, but probably not that different when it comes to cyber security of resiliency you still need to have resilient systems, you still need to be safe from from the bad guys. So so I expect that from our customers' perspective that they have all they each except that.
is sort of...
Speaker Change: at the beginning of a journey that they know they have to go down. So the digitization of the economy is going to keep
Speaker Change: Digitization of the economy is coming that there are opportunities for them to continue to invest in to take advantage of that and at the same time.
Martin: is going to keep happening. They know they need to be a part of it. They know they need to invest in, for instance, AI. And the work we do to help them get ready for that is part of what we're already seeing in our consult results, is part of what we're already seeing in our managed results.
Speaker Change: At the same time, they're going to have to both respond to the regulatory regime and keep the bad guys at Bay and that again, that's the that's the role we play in helping them.
Martin: And at the same time, while they're trying to invest for the future, to take advantage of opportunities, they're also trying to keep the bad guys at bay, you know, cybersecurity and resilience sits very high on their list of things they need to invest in. And they're also trying to adjust to whatever the, whatever the regulatory regime
Speaker Change: Being them do all those things so I see continued investment in it there are very few companies, who don't believe that IP is either a very big part or a.
Speaker Change: A substantial part of our solutions to almost every problem that they have so that's the world we live in today and I expect that to continue.
Martin: happens to be, and we're headed toward, you know, obviously different regulatory regimes.
Speaker Change: Thanks, Danielle operated equivalent to the next question.
Speaker Change: Thank you one moment for our next question.
Martin: but probably not that different when it comes to cybersecurity or resiliency. You still need to have resilient systems. You still need to be safe from the bad guys.
Speaker Change: Our next question comes from Jamie Friedman from Susquehanna. Please go ahead.
Martin: So, I expect that, from our customers' perspective, that they've all, they each accept that
Jamie Friedman: Hi, Good morning, and let me echo the congratulations.
Speaker Change: Martin I was.
Speaker Change: Wondering about that.
Speaker Change: 10, large deals of 100 million plus.
Speaker Change: Is there any.
Martin: At the same time, they're going to have to both respond to the regulatory regime and keep the bad guys at bay. And that, again, that's the role we play in helping them do all those things. So I see continued investment in IT. There are very few companies.
Speaker Change: That's a big number a big number for anyone a big number for you.
Speaker Change: It's a lot more than what we had seen in the past.
Speaker Change: Is there any common pattern that you're seeing.
Speaker Change: In terms of.
Speaker Change: What those customers are looking for and why they're renewing now.
Martin: who don't believe that IT is either a very big part or a substantial part of solutions to almost every problem that they have. So that's the world we live in today and I expect that to continue.
Speaker Change: So yes, a few things.
Speaker Change: I think that are fairly consistent one.
Speaker Change: In in each of these I wouldn't think of them just necessarily as a renewal now it's rather.
Thanks, Daria. Operator, could we move to the next question?
Thank you. One moment for our next question.
Speaker Change: Think of them and what we're seeing is at a very consistent.
Speaker Change: Our next question comes from Jamie Friedman from Sisquohana. Please go ahead.
Speaker Change: Acceptance of the capabilities that we've invested in and the desire to modernize with the with the company that's investing in the infrastructure space, which has us. So so theyre looking obviously for deep engineering skills and deep capabilities and at the same time, they're looking for innovation.
Hi, good morning and let me echo the congratulations.
Martin, I was...
Martin: Wondering about the ten large deals of a hundred million plus, is there any... that's a big number, a big number for anyone, a big number for you. I think it's a lot more than what we had seen in the past.
Speaker Change: That.
Speaker Change: The Kindle bridge provides to give them observe ability and help them to manage their ever sprawling.
Speaker Change: Theyre ever sprawling infrastructure. So so think of these think of each of these as reflecting continued investment in their digitization think of each of these as additional scope for us so not just renewing.
Speaker Change: Is there any common pattern that you're seeing in terms of what those customers are looking for and why they're renewing now?
Speaker Change: So, yeah, a few things I think that are fairly consistent.
Speaker Change: Not just renewing what we've done in the past and think of each of these as generally.
Speaker Change: In each of these, I wouldn't think of them just necessarily as a renewal now. It's rather, I think of them, and what we're seeing is that a very consistent
Speaker Change: Reflecting each of our practices. So I think every one of them every one of them has each of the practices represented and importantly think of them as both a consulting elements and you see that in the consult growth and as well as a managed element that David noted in his in his in his prepared comments.
Speaker Change: acceptance of the capabilities that we've invested in, and a desire to modernize with the company that's investing in the infrastructure space, which is us.
Speaker Change: It's the.
Speaker Change: Very high double digit growth, we're getting from the managed business. So so these are.
Speaker Change: So, they're looking, obviously, for deep engineering skills and deep capabilities, and at the same time they're looking for innovation that the Kindrel Bridge provides to give them observability and help them to manage their ever-sprawling technology.
Speaker Change: The pattern is scope expansion for us as we invest as we bring the best skills to help them with their biggest challenges or take advantage of their opportunities. It's pretty broad based it has it has each of our practices. It has consult and it has managed so it's a pretty whole of firm if you will.
Speaker Change: their ever-sprawling IT infrastructure. So think of each of these as reflecting continued investment in their digitization. Think of each of these as additional scope for us, so not just renewing what we've done in the past.
Speaker Change: The approach that our customers are taking up from from what they see from <unk>.
Speaker Change: and think of each of these as generally reflecting each of our practices. So I think every one of them has each of the practices represented.
Speaker Change: Got it and then.
Speaker Change: Could I just ask is key.
Speaker Change: Is there any other pattern that youre noticing in those for example.
Speaker Change: And importantly, think of them as both a consulting element, and you see that in the consult growth, and as well as a managed element. And David noted in his.
Speaker Change: Are they consistent with.
Speaker Change: The vertical callouts on page 17.
Speaker Change: In his prepared comments, the very high double-digit growth we're getting from the managed business.
Speaker Change: Of the Powerpoint or from a service line perspective.
Speaker Change: We're a regional perspective or any of them in any particular region or a vertical.
Speaker Change: So these are, the pattern is scope expansion for us as we invest, as we bring the best skills.
Jamie Friedman: Yes sure Thanks, Jamie.
Speaker Change: Sure. Thanks for the nice comments at that at the beginning as well look in any given quarter. The signings mix will obviously reflect the the the customer base.
Speaker Change: to help them with their biggest challenges or take advantage of their opportunities.
Speaker Change: It's pretty broad-based, it has each of our practices, it has consult, and it has manage. So it's a pretty whole-of-firm, if you will, approach that our customers are taking up from what they see from Kindrel.
Jamie Friedman: More or less in any given quarter over time that that industry mixes, where we've been is where were mixed and I would expect that will shift slowly oh.
Got it. And then.
Jamie Friedman: Over time from a regional perspective.
Jamie Friedman: Each of the regions each of our segments grew signings in the quarter. Some some obviously faster than others and when you double obviously there are some big growth numbers in there.
Speaker Change: Is there any other pattern that you're noticing in those, for example?
Are they consistent with
The vertical call-outs on page 17.
Jamie Friedman: But each of the each of those segments grew as well and and I would say that again, the our ability to.
of the PowerPoint or from a service line perspective.
or a regional perspective.
Jamie Friedman: To deliver on a global basis with a single global delivery platform, which means our capabilities can reach.
or any of them in any particular region or vertical.
Speaker Change: Thank you. Yeah, yeah, sure. Thanks, Damien, and thanks for the nice comments at the beginning as well. Look, in any given quarter, the signings mix will obviously reflect the customer base.
Jamie Friedman: Each of our customers across all of our practices I think that to me is the is this the end to end kind of.
Jamie Friedman: Go to market that we've been building so that each of our customers in each of our in each of the industries. We serve can take advantage of innovation can take advantage of skills and experience.
You know
Speaker Change: more or less than any given quarter. Over time, that industry mix is where we've been, is where we're mixed, and I would expect that will shift slowly over time. From a regional perspective,
Jamie Friedman: Wherever they happen to be so I think it's again, it's broad based.
Speaker Change: Each of the regions, each of our segments, grew signings in the quarter, some obviously faster than others, and when you double, obviously, there's some big growth numbers in there.
Jamie Friedman: The large deals that we signed this quarter, obviously, a reflection of the confidence and the trust that our customers and our new logo customers by the way theyre not all existing customers.
Jamie Friedman: Customers now, but some of them are new logo customers as well.
Speaker Change: but each of the segments grew as well. And I would say that again, the, our ability to deliver on a global basis with a single global delivery platform, which means our capabilities can reach
Jamie Friedman: They see coming from kindred in the form of innovation and an experience and depth of skills.
David Weisner: And Jamie one of the things. This is David one of the things I think it's really important is that we are achieving the signings growth while continuing to be really disciplined about the margins at which we are signing business and really successful and effective in making sure.
Speaker Change: each of our customers across all of our practices. I think that that to me is the is the is the end-to-end kind of
Jamie Friedman: We get reasonable margins on this business and continuing to sign.
go-to-market that we've been building.
Jamie Friedman: New contracts with an expected high single digit.
Speaker Change: so that each of our customers in each of the industries we serve can take advantage of innovation, can take advantage of skills and experience.
Jamie Friedman: Pretax margin I think thats.
Jamie Friedman: As we have highlighted in the deck that we shared our gross profit book to Bill is.
Speaker Change: wherever they happen to be. So I think it's, again, it's broad-based.
Jamie Friedman: Remarkably high and we're adding a lot of embedded value to our backlog.
Speaker Change: The large deals that we signed this quarter are obviously a reflection of the confidence and the trust that our customers, and our new logo customers, by the way, they're not all existing customers, well, they're customers now, but some of them are new logo customers as well.
Speaker Change: Got it thank you both.
Speaker Change: Thanks, Jami operator next question please.
Speaker Change: Thank you for our next question.
Speaker Change: Our next question comes from Tien Tsin Huang from JP Morgan. Please go ahead.
Speaker Change: that they see coming from Kindrel in the form of innovation and experience and depth of skills.
Speaker Change: And Jamie, one of the things, this is David, one of the things I think is really important is that we're achieving this signings growth while continuing to be really disciplined about the margins at which we're signing business, and really successful and effective in making sure
Speaker Change: Sir you May now, yes, we can hear you Tien tsin, Thanks, Hey, Martin sorry about that just switching phones here.
Speaker Change: Also wanted to ask about the really strong signings.
Jamie Friedman: Always.
Jamie Friedman: See that always might go to us asking about replenishing the pipeline. So just just curious from here. If you feel this kind of signings momentum is.
Speaker Change: We get reasonable margins on this business and continuing to sign.
new contracts with an expected high single digit.
pre-tax margin.
Speaker Change: It's sustainable I know it is.
Speaker Change: I think that's, you know, as we highlighted in the deck that we shared, our gross profit book-to-bill is remarkably high and we're adding a lot of embedded value to our backlog.
Jamie Friedman: Very broad based which is encouraging but how does the replenishment opportunity look like.
Speaker Change: Good morning, Thanks for the question.
Speaker Change: We absolutely think it's sustainable and it has been sustainable so we actually tried to look at <unk>.
Speaker Change: Got it. Thank you both. Thanks, Jamie. Operator, next question, please.
Jamie Friedman: <unk> signings over an LTM latest 12 months basis.
Thank you. One moment for our next question.
Jamie Friedman: We're seeing north of 30% growth over that period of time, our book to Bill ratio is now at one and we see an opportunity for that to move up as well.
Thank you for watching. Bye.
Speaker Change: And as Martin was saying the role we're playing with customers. The the range of capabilities, we're able to bring to bear our ability to offer end to end solutions.
Speaker Change: When we see that always my go-to is asking about replenishing the pipeline So just just curious from here if you feel you know, this kind of signings momentum is
Speaker Change: And in the know how that we have combined with the technology alliances. We have is absolutely put us in a position where they.
Speaker Change: Growth trajectory that we're on.
Speaker Change: is sustainable. I know it's very broad-based, which is encouraging, but how does the replenish opportunity look like?
Jamie Friedman: Is it sustainable and I think going to be really valuable for us and frankly, it's one of the areas that we plan to talk more about at our at our Investor day on the 21st because we think it's really important part of our of our story and the way we've developed as as an organization.
Speaker Change: Good morning, thanks for the question. We absolutely think it's sustainable and it has been sustainable, so we actually try to look and prefer to look at signings over an LTM, a latest 12 month basis.
Jamie Friedman: <unk> over the last three years positioning the business for sustainable long term growth.
Speaker Change: and we're seeing north of 30% growth over that period of time. Our book-to-bill ratio is now at 1, and we see an opportunity for that to move up as well.
Speaker Change: One thing I'd add Tien tsin, and I think David.
Jamie Friedman: Described it really well, but one thing I'd add is keep in mind that kindred bridges. Also is also a way for us to provide actionable insights to our customers. So that fuels, our kingsville consult growth over the long term is as well. So so we have an ability to deliver value through <unk>.
Speaker Change: And as Martin was saying, the role we're playing with customers, the range of capabilities we're able to bring to bear, our ability to offer end-to-end solutions.
Speaker Change: and the know-how that we have combined with the technology alliances we have has absolutely put us in a position where the growth trajectory that we're on...
Jamie Friedman: Through clinical consult obviously, we've really delivered great value through bridge, which our customers appreciate the observe ability. They appreciate the.
Speaker Change: is sustainable and I think going to be really valuable for us.
Jamie Friedman: The visibility they get to their systems, but it also gives them insights that nobody else can nobody else has that they can also take advantage of.
Speaker Change: And, frankly, it's one of the areas that we plan to talk more about at our Investor Day on the 21st because we think it's a really important part of our story and the way we've developed as an organization over the last three years.
Speaker Change: Yes, no it sounds like you got.
Speaker Change: A lot of good things going on there. So that's great to hear just my follow up and I'll have to ask it here.
Speaker Change: Just the decision to not.
Speaker Change: Raise your outlook.
positioning the business for sustainable long-term growth.
Speaker Change: Little bit of a change in pattern results.
One thing I'd add to Injun, and I think David.
Speaker Change: We have been quite good so.
Speaker Change: described it really well. But one thing I'd add is keep in mind that Kindral Bridge is also a.
Speaker Change: Update us there.
Speaker Change: Yes, sure look I'll start off David might have something look we had a great quarter and we feel great about how we finished the first half of the year gives us a lot of momentum going into the second half.
Speaker Change: is also a way for us to provide actionable insights to our customers. So that fuels our Kindle Consult growth over the long term as well.
Speaker Change: We're really obviously, we're really pleased with the continued signings momentum, which positions us well and the signings momentum is really is coming from the growth vectors that we have been talking about now for just over three years right.
Speaker Change: So, we have an ability to deliver value through Kindle Consult, obviously, we have the ability to deliver great value through Bridge, which our customers appreciate the observability, they appreciate the functionality.
Speaker Change: On our third birthday, a couple of days ago. So so with with the consult momentum with alliances momentum really hitting and with the with the at the at least guidance. We have out there we feel like we're really well positioned to.
Speaker Change: the visibility they get to their systems, but it also gives them insights that nobody else can, nobody else has, that they can also take advantage of.
Speaker Change: Yeah, no, sounds like you got a lot of good things going on there. So that's great to hear. Just my follow-up, and now I have to ask it here, if it's okay, just the decision to not
Speaker Change: To deliver another great year, which remember that the year has pretty substantial profit improvement already and it also has the return to revenue growth so with the momentum with another great quarter. So really really good first half relative to.
Speaker Change: raise your outlook. A little bit of a change in pattern. Results have clearly been quite good. So update us there.
Speaker Change: Yeah, sure. Look, I'll start them. David might have something. Look, we had a great quarter and we feel great about how we finished the first half of the year. It gives us a lot of momentum going into the second half.
Speaker Change: To where we guided I think we feel good about the second half and our second half represents a big big improvement in.
Speaker Change: In.
Speaker Change: Profitability and keep in mind, and you know the stringent because because you've been around the business quite a bit this year.
Speaker Change: We're really obviously really pleased with the continued signings momentum, which positions us well. And the signings momentum is, you know, really is coming from the growth factors that we have been talking about now for just over three years, right? We were just on our third birthday a couple of days ago.
Speaker Change: Only half even after three years this year only half of our revenue comes from what we've added to the backlog. The other half still represents what we've inherited and as we get further and further away from that the spin date, obviously the role in our P&L of the inherited backlog continues to diminish so we've got a lot of <unk>.
Speaker Change: And with the at least guidance we have out there, we feel like we're really well positioned to deliver another great year, which remember the year has pretty substantial profit improvement already.
Speaker Change: A lot of growth and a lot of acceleration ahead of us here as we move further from the spending.
Speaker Change: Yes, no I agree.
Speaker Change: With all that happy through your birth and see you in a couple ways.
Speaker Change: and it also has the return to revenue growth. So with the momentum, with another great quarter, so really, really good first half relative to.
Speaker Change: Thanks, Jen operator next question please.
Speaker Change: Thank you Juan Pablo.
Speaker Change: Next question.
Speaker Change: Our next question comes from Isaac So housing.
Speaker Change: to where we guided, I think we feel good about the second half. And the second half represents a big improvement in profitability.
Speaker Change: Oppenheimer. Please go ahead.
Speaker Change: Hey, Good morning, this is zach on for Ian.
Speaker Change: Question is on consult revenue and signings.
Speaker Change: And keep in mind, and you know this, Tingen, because you've been around the business quite a bit, this year only half, even after three years, this year only half of our revenue comes from what we've added to the backlog. The other half still represents what we've inherited.
Speaker Change: If you would be able to provide some higher level commentary, where you are seeing for growth between new logos and existing customers.
Speaker Change: Then secondly, maybe how those margins on those consult <unk> compare to managed services and some of the other work. Thanks.
Speaker Change: As we get further and further away from the spin date, obviously, the role in our P&L of the inherited backlog continues to diminish. So we've got a lot of growth and a lot of acceleration ahead of us here as we move further from the spin date.
Speaker Change: Sure Good morning, I would say.
Speaker Change: And so we're seeing strength in a number of different areas our revenues are up.
Speaker Change: North of 20% at year over year and that compares to 14% in the prior quarter in constant currency. So we're seeing not only growth, but an acceleration of that growth in the most recent quarter consults now up to 19% of our total revenue in the most recent quarter, so, it's becoming a more and more and more important.
Speaker Change: Yeah, agree with all that. Happy three-year birthday, and see you in a couple weeks. Thank you. Thank you. Operator, next question, please. Thank you. One moment for our next question.
Speaker Change: Our next question comes from Isaac Sahausen from Oppenheimer. Please go ahead.
Speaker Change: Part a larger part of what we do we're really excited about that.
Isaac Sahausen: Hey, good morning. This is Isaac on for ENCNO. My question is on consult revenue and signings.
Speaker Change: Bolt is really spanning the range of our practices in the range of our offerings. So we are using consult in a number of areas, where we're providing advisory services in a number of different areas related to the.
Isaac Sahausen: Maybe if you'd be able to provide some higher-level commentary, what you're seeing for growth between new logos and existing customers, and then secondly, maybe how those margins on those consult signings compare to managed services and some of the other work. Thanks.
Speaker Change: The capabilities that we bring to bear we think thats really helpful to our.
Speaker Change: <unk> from a margin perspective consult tends to be.
Sure. Good morning, Isaac.
Speaker Change: In consult, we're seeing strength in a number of different areas, our revenues are up.
Speaker Change: A few points higher than managed services in general.
Speaker Change: That's often the way we price it on.
Speaker Change: north of 20% year over year, and that compares to 14% in the prior quarter in constant currency.
Speaker Change: On occasion, we will with a new logo opportunity.
Speaker Change: We will use consult assignments as the starting point for building that relationship and so we consider can hope to be a big value add in existing relationships, but it's also where we typically are often will start new logo relationships until we think our presence in this space is extremely.
Speaker Change: So we're seeing not only growth, but an acceleration of that growth in the most recent quarter. That consults now up to 19% of our total revenue in the most recent quarter. So it's becoming a more and more important part, a larger part of what we do. We're really excited about that.
Speaker Change: Consult is really spanning the range of our practices and the range of our offerings so we're
Speaker Change: Important and valuable from that perspective, as well and I would say lastly.
Speaker Change: using CONSULT in a number of areas or we're providing advisory services in a number of different areas related to the
Speaker Change: This is more and more are something that we're becoming known for.
Speaker Change: Our history, obviously is on the managed services side, but the growth in consulting and our ability to bring together.
Speaker Change: the capabilities that we bring to bear. We think that's really helpful.
Speaker Change: to our customers. From a margin perspective, consult tends to be a few points higher than our managed services in general.
Speaker Change: A wide range of technologies of capabilities that we have the insights from Kindle bridge.
Speaker Change: Other technologies that we have.
Speaker Change: Is really putting us in a position where we can deliver a lot of value to customers through these consulting assignments and I think that's what's driving our growth and it's driving a lot of repeat business.
Speaker Change: And that's often the way we price it. On occasion, we'll, you know, with a new logo opportunity...
Speaker Change: will use consult assignments as the starting point for building that relationship. And so we consider consult to be a big value add in existing relationships, but it's also where we typically or often will start new logo relationships.
Speaker Change: From our customers in this area as well yeah. Thank you David I'd, just would supplement that I think thats well said so it's implemented.
Speaker Change: I guess the way I think about this in our experiences that kind of all roads lead to infrastructure and all roads lead to <unk>. So if you if you pick up a newspaper and read about the new for instance, regulatory requirements for resiliency across the European financial sector called Dora the acronym for it.
Speaker Change: And so we think our presence in this space is extremely important and valuable from that perspective.
as well.
And I would say, lastly, that...
Speaker Change: This is more and more something that we're becoming known for.
Speaker Change: You should assume and you would be correct in assuming that we are doing a lot of consult work for our customer base on getting them ready for Dora if you pick up a newspaper and read about Gen AI or a new large language model or that's Houston.
Our history, obviously, is on the managed services side.
Speaker Change: but the growth in consult and our ability to bring together a wide range of technologies, the capabilities that we have, the insights from Kindle Bridge,
Speaker Change: In a test case again, it's going to start with that that customer's data architecture data security and resiliency features that theyre going to need and again that leads back to control in our practices.
Speaker Change: All the technologists that we have is really putting us in a position where we can deliver a lot of value to customers through these consult assignments. And I think that's what's driving our growth and it's driving a lot of repeat business.
Speaker Change: And I could go on and on and on and when you read about.
Speaker Change: from our customers in this area as well. Yeah, thank you, David. I just would supplement that. I think it's well said. I just supplement it.
Speaker Change: Healthcare industry needing to take advantage of innovation on our cloud while at the same same time protecting his data and getting ready for the future again, that's where we are with our health care customers. So so over and over and over again and the reason where we see this long term.
Speaker Change: I mean, I guess the way I think about this in our experience is that kind of all roads lead to infrastructure and all roads lead to control. So if you pick up a newspaper and read about the new, for instance, regulatory requirements for resiliency across the European financial sector called DORA, the acronym for it,
Speaker Change: Trend is because we sit at the heart of what customers are facing our customers are facing with regard to how do I take advantage of the opportunities I see or how do I manage the risk or get ready for the regulatory regime IC. So.
Speaker Change: You should assume, and you would be correct in assuming, that we're doing a lot of consult work for our customer base on getting them ready for DORA. If you pick up a newspaper and read about Gen AI or a new large language model or its use in a test case,
Speaker Change: As David said, well, it's widespread it's across our practices.
Speaker Change: And customers need help getting ready for getting ready for their digitized future.
Speaker Change: Again, it's going to start with that customer's data architecture, data security, and resiliency features that they're going to need. And again, that leads back to Kindle and our practices.
Speaker Change: Okay. That's very helpful. Thank you and then I just had a quick follow up on the cloud business in Hyperscale at partnerships.
Speaker Change: It's obviously great to see the strong.
Speaker Change: And, you know, I could go on and on and on when you read about the healthcare industry needing to take advantage of innovation on a cloud while at the same time protecting its data and getting ready for the future.
Speaker Change: Our strong growth there I'm, just curious what youre seeing as far as trends with clients either stand on premise.
Speaker Change: Helping to move fully to the cloud or remain in hybrid.
Speaker Change: And if you've seen any notable shifts over the past 12 months or so thank you.
Again, that's where we are with our health care customers.
Speaker Change: So, over and over and over again, and the reason we see this long-term growth trend is because
Speaker Change: See the continuation of the.
Speaker Change: The.
Speaker Change: The idea of that innovation is showing up on clouds, our customers who are not the born on the cloud crowd, obviously, our customers live and work in a hybrid environment and.
Speaker Change: We sit at the heart of what customers are facing. Our customers are facing with regard to, how do I take advantage of the opportunities I see? Or how do I manage the risk or get ready for the regulatory regime I see? So it's, as David said, well, it's widespread. It's across our practices.
Speaker Change: So in order for them to get to the innovation that they see in order for them to move if you will the where the workload runs to where the data is collected and quite frankly in order to get the right workload on the right platform.
and customers need help getting ready for their digitized future.
Speaker Change: Okay, that's very helpful. Thank you. And I just had a quick follow-up on the cloud business and hyperscaler partnerships.
Speaker Change: Think that trend continues we don't see it slowing down we see we see new opportunities we see new.
Speaker Change: So it's great to see the strong growth there. I'm just curious what you're seeing as far as trends with clients either staying on-premise, you know helping to move fully to the cloud or remaining hybrid, and if you've seen any notable shifts over the past 12 months or so. Thank you.
Speaker Change: Complexity being introduced into systems, because not all innovation is available everywhere. So our customer base is now thinking how do I make sure I can get the innovation I need, but I haven't seen in the last 12 months, which is the timeframe unit I have not seen a dramatic any kind of change in customers' desire to or.
Speaker Change: you. Yeah, I see a continuation of, you know, the idea that innovation is showing up on clouds.
Speaker Change: Use of.
Speaker Change: Moving to creating a more hybrid environment by moving things to where they should run and again over over and over that tends to be a cloud or a mix of what they're doing today plus supplemented by public cloud et cetera, et cetera, as David said earlier, one of the one of the things, we're noticing and consultants.
Speaker Change: Our customers, who are not the born on the cloud crowd obviously, our customers live and work in a hybrid environment.
And so, in order for them to get...
Speaker Change: <unk>.
Speaker Change: A lot of the repeat business, we get is growing that consult around cloud migration, but again I don't see that as a change in trajectory, it's just us winning more and more and more of that business as our as our as our customer base.
Speaker Change: Our prospect base.
Speaker Change: Continuing to take advantage of our investments and capabilities and our investments in innovation.
Speaker Change: Our customer base is now thinking, how do I make sure I can get the innovation I need? But I haven't seen in the last 12 months, which is the time from unit, I've not seen a dramatic, any kind of change in.
Speaker Change: Great. Thank you. Thanks, operator, I think there's one more question in the queue.
Speaker Change: Thank you.
Speaker Change: One one <unk> question.
Speaker Change: Our next question comes from Vivien <unk> from Scotia Bank. Please go ahead.
of moving
Speaker Change: creating a more hybrid environment by moving things to where they should run. And again, over and over that tends to be a cloud or a mix of what they're doing today plus supplemented by public cloud, et cetera, et cetera. As David said earlier, one of the things we're noticing in consult is that
Speaker Change: Sorry, guys I think there is a confusion that did not raise my hand again.
Speaker Change: Alright, thanks, guys. Thank.
Speaker Change: Thank you thanks, David I am showing no further questions I will now turn it back over to Martin for closing remarks. Thank you. Thank you very much and thanks to everybody for for joining US today as you can tell we we continue to execute on all of the opportunities that we see ahead of us the strategies, we've laid out now three years ago.
Speaker Change: A lot of the repeat business we get is growing that.
Speaker Change: consult around cloud migration. But again, I don't see that as a change in trajectory. It's just us winning more and more and more of that business as our customer base and our prospect base.
Speaker Change: Have are clearly driving the kind of financial progress that that we've described in fact I would say we're ahead of the progress that we've described so so we have a very exciting second half, but more importantly, we have a very exciting future ahead of us as we move further and further from.
Speaker Change: continue to take advantage of our investments and capabilities and our investments in innovation.
Speaker Change: Great, thank you. Thanks Isaac. Operator, I think there's one more question in the queue.
Speaker Change: From the spin date ever unique running transform approach is resonating with and delivering a ton of value to our customers because each of them is trying to figure out how do they continuously innovate while maintaining the operational excellence they need for the kinds of systems, We run mission mission.
Thank you. One moment for our next question.
Thank you.
Thank you.
Speaker Change: Our next question comes from Divya Goyal from Scotiabank. Please go ahead.
Speaker Change: Sorry guys, I think there's a confusion. I did not raise my hand again. All right. Thanks. All right. Thank you. Thanks, Tibia.
Speaker Change: I am showing no further questions. I will now turn it back over to Martin for closing remarks. Oh, thank you. Thank you very much. And thanks to everybody for joining us today. As you can tell,
Speaker Change: Critical systems and so so for us at Kindred will continue to capitalize on those opportunities.
Speaker Change: To drive profitable growth will continue to meet our customers both current and future <unk>.
Martin: We continue to execute on all of the opportunities that we see ahead of us, the strategies we've laid out now three years ago.
Speaker Change: <unk> as we continue to invest in new capabilities, new innovation and bring all of that to our customers. It is pretty clear I think that.
Speaker Change: are clearly driving the kind of financial progress that we've described. In fact, I'd say we're ahead of the progress that we've described.
Speaker Change: We are we continue to move toward our potential here and we're very excited by it. So one more plug for our Investor day, David and Laurie and I and a few other a few others of the leadership team will will will be there in November 'twenty one.
Speaker Change: So we have a very exciting second half, but more importantly, we have a very exciting future ahead of us as we move further and further from
Speaker Change: from the Spindate. Our unique run and transform approach is resonating with and delivering a ton of value to our customers because each of them is trying to figure out how do they continuously innovate.
Speaker Change: And we're looking forward to having you join that as well so thanks everybody for joining.
Speaker Change: Thank you for your participation in today's conference. This does conclude the program you may now disconnect.
Speaker Change: while maintaining the operational excellence they need for the kinds of systems we run, mission critical systems. And so for us at Kindrel, you know, we'll continue to capitalize on those opportunities.
Speaker Change: to drive profitable growth. We'll continue to meet our customers' both current and future IT needs as we continue to invest in new capabilities, new innovation, and bring all of that to our customers. It is pretty clear, I think, that
Speaker Change: that we continue to move toward our potential here and we're very excited by it. So one more plug for our Investor Day, David and Lori and I and a few others of the leadership team will be there November 21st.
Speaker Change: and we're looking forward to having you join that as well. So thanks everybody for joining.
Speaker Change: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
The End.
Music
Speaker Change: Good day, and thank you for standing by. Welcome to the Kendrell second quarter 2024 earnings conference call. At this time, our participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session.
Speaker Change: To ask a question during this session, you will need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised.
Speaker Change: To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Laurie Chaitman, Head of Investor Relations. Please go ahead.
Laurie Chaitman: Good morning, everyone, and welcome to Kindle's earnings call. The second quarter ended September 30th, 2024.
Speaker Change: Before we begin, I'd like to remind you that our remarks today will include forward-looking statements.
Speaker Change: These statements are subject to risk factors that may cause our actual results to differ materially from those expressed or implied. These forward-looking statements speak only to our expectations as of today.
Speaker Change: 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, 2024.
Speaker Change: In today's remarks, we'll also refer to certain non-GAAP financial metrics.
Speaker Change: With me here are Kindle's Chairman and Chief Executive Officer, Martin Schroeter, and Kindle's Chief Financial Officer, David Wyshner.
Speaker Change: Following our prepared remarks we will hold a Q&A session. I'd now like to turn the call over to Martin. Martin?
Martin Schroeter: Thank you, Lori, and thanks to each of you for joining us.
Martin: On today's call, I'll update you on our continued progress and execution to meet our customers' large and complex technology needs and to drive our growth strategy.
Martin: David will then review our recent financial results and our fiscal 2025 earnings outlook. We delivered another strong quarter for signings, margins, and cash flow generation. It was a record post-spin quarter for signings, which have grown 33% over the last 12 months to $16 billion.
Martin: We signed 10 deals of more than $100 million in the quarter, including our largest deal as an independent company, a scope expansion that will generate more than $2 billion of revenue over the next five years.
Martin: Clearly, our signing strength will power our return to sustained revenue growth. And as David will discuss, what's even more encouraging is that the projected pre-tax margins on our signings continue to be in the high single digits.
Martin: In the quarter, adjusted pre-tax earnings were up substantially year-over-year, and we remain on track to deliver significant cash flow this year.
Martin: Our performance was once again led by double-digit growth in Kindrel Consult and strong momentum in hyperscaler related revenue, as well as our ability to continue to drive efficiency and deliver innovation through automation and Kindrel Bridge, our AI-enabled open integration platform.
Martin: In addition, our three A's initiatives, alliances, accounts, and advanced delivery continue to generate significant incremental benefits in the quarter.
Martin: There have been multiple disruptions across the competitive landscape, and we are leveraging the investments we've made and our differentiated mission-critical capabilities to take advantage of select opportunities to win new customers and additional scope.
Martin: Having invested when others have pulled back, we're in a great position to continue to capitalize on these opportunities.
Martin: As we head into the second half of this year, we'll continue to focus on driving substantial financial progress and on returning to top-line growth in the fourth quarter.
Martin: There's a reason why we're delivering our fourth consecutive quarter of signings growth. It's our expertise in both running and transforming IT estates that differentiates us in the markets we serve, enabling us to increase our share of wallet and grow our customer base.
Martin: As you've heard me say before, Kindle is uniquely positioned to address secular IT trends, cloud migration and management, increasingly hybrid IT environments, technology skills shortages, cybersecurity risks, and the adoption of artificial intelligence.
Martin: Kindrel Consult is strategically positioned at the nexus of these secular trends.
Martin: Our consult revenue has been consistently growing in the double digits. In this quarter, our consult signings and revenue were up 81% and 23% respectively.
Martin: CONSULT is now a two and a half billion dollar plus revenue stream for us with significant runway for continued growth.
Martin: This revenue stream is valuable and central to our strategy, not only because of the margins directly associated with it, but also because of the ongoing managed services work that accompanies so many IT modernization assignments.
Martin: Over the last year, we've delivered significant signage growth in both consult and managed services.
Martin: Our Kindle Consult teams have decades of experience with deep domain knowledge on our customers' mission-critical systems.
Martin: This experience, paired with the IP and data in Kindle Bridge, enables us to turn technical value into business value. And we're engaging more and more with CIOs and CTOs on modernization, data architecture, AI readiness, efficiency, security, resiliency, and governance.
Martin: The seven-figure assignments that were winning to help customers with their data foundations and AI readiness are examples of that.
Martin: Another key driver of our success and confidence in our future growth trajectory is our deep relationships with the three major hyperscalers and other top tier technology leaders.
Martin: With our mainframe modernization skills and hyperscaler alliances, we're migrating, managing, optimizing, and securing our customers' IT environments across multiple cloud platforms and helping them ensure that the right workload is on the right platform.
Martin: Our growth is fueled by providing customers with higher value solutions that leverage both our extensive know-how and our alliance partners' capabilities.
Martin: Together, we're focused on joint enablement activities, co-marketing, and incremental training, all of which bring solutions to the market that address our customers' most pressing needs.
Martin: Because of our alliances, the skills we can bring to bear, and the freedom of action we have as an independent company, we are frequently expanding the scope of services we provide to existing customers to now include mainframe modernization and cloud migration services.
Martin: At the same time, we're also beginning to add more new logos where Kindle Bridge is at the core of our service delivery across multiple platforms involving one or more hyperscalers.
Martin: Separately, last month we published the inaugural Kindle Readiness Report. This report analyzes what business and IT leaders see as the big picture challenges and opportunities in today's global business landscape, how their IT helps them prepare for those risks and capitalize on opportunities, and what specific factors enable or hinder progress.
Martin: I am really excited about the report because it combines our proprietary Kindrell Bridge operational data with survey data from over 3,000 senior leaders in 18 markets.
Martin: By combining operational data with survey data, the report assesses and compares the perception of IT readiness versus the reality of readiness, with the goal of helping companies uncover new value from past, current, and future technology investments.
Martin: Among our key findings, more than 90% of the leaders surveyed believe their infrastructure is world-class, yet fewer than 40% believe they are ready for potential risks coming their way.
Martin: Cybersecurity is the number one concern regarding risk readiness, closely followed by policy and regulatory requirements and emerging technologies, including AI.
Martin: Two-thirds of CEOs are concerned that their IT is outdated, carrying vulnerabilities, skills gaps, and has challenges for modernization.
Martin: and 40% of mission-critical components such as servers, storage, networks, and operating systems are approaching or at their end of life.
Martin: These factors are why tech modernization is a top priority for business and IT leaders. However, more than 70% of participants indicated they are still in the early stages of modernization.
Martin: For enterprises to progress on their modernization journey and make their organizations more ready for the future, leaders need to overcome their prioritization paralysis.
Martin: And that is precisely the role that Kindrell plays as a trusted partner, providing a differentiated, pragmatic approach to modernization.
Martin: We offer unmatched expertise in designing, building, and managing mission-critical workloads. We provide unprecedented observability and valuable insights from Kindle Bridge. And we collaborate with hyperscalers and other top-tier technology providers to accelerate the pace of our customers' IT transformation.
and David Wyshner.
Speaker Change: As we've highlighted before, our evolving business mix, where we're focusing on higher value services for our customers, is driving increased profitability and fueling future top-line growth.
Speaker Change: This fiscal year, half of our revenue is coming from post-spin signings that have higher margins than our backlog did at spin. And in fiscal 2026, it will be roughly two-thirds.
Martin: This inflection point, when our P&L is largely determined by our post-spend signings, will dramatically strengthen our earnings and growth profile.
Martin: Our forecast for fiscal 2025 is for adjusted pre-tax income of at least $460 million, reflecting a year-over-year increase of at least $295 million.
Speaker Change: 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 keep us
Speaker Change: well on track 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 of adjusted pre-tax income with strong conversion of our earnings into cash flow.
Speaker Change: because we've established and expanded relationships with hyperscalers and other top-tier technology providers to accelerate the pace of mainframe modernization and cloud migration.
Speaker Change: Because we've invested in our advisory talent, our Kindrel consult teams have the know-how to make our customers' IT estates optimized, secure, resilient, and regulatory compliant.
Speaker Change: and they know how to architect data for our customers so they can be responsibly and securely adopt and leverage AI.
And finally, because we're making ongoing investments in Kendral Bridge.
Speaker Change: that's enabling unprecedented observability, actionable business insights, and valuable outcomes that align with our customers' business strategies and goals.
Speaker Change: In short, we are delivering sophisticated, optimized, multi-vendor solutions to customers that allow them to address critical needs and major opportunities.
Speaker Change: Through Kindle Bridge, automation, and AI, we're delivering managed services more efficiently than ever. And as a result, and as we've said, we're showing up differently and powerfully in the IT services market.
Speaker Change: Lastly, I want to remind you all that we'll be hosting our first Post-Spin Investor Day in New York on November 21st.
Speaker Change: This will be an in-person and live webcast event available on our Vestor Relations website, where we will delve deeper into our strategy and key priorities that will drive our next chapter of growth and margin expansion.
Speaker Change: I'm very proud of the Kendrell team and the progress we've made and I encourage you to review it on our website.
Speaker Change: Now with that, David will take you through our results and our outlook.
David Wyshner: Thanks, Martin, and hello, everyone. Today I'd like to discuss our second quarter results, our continued progress on our 3A initiatives, the solid margins at which we're signing customer contracts, and our outlook for fiscal year 2025. The theme that you'll pick up is strong execution on our powerful strategy.
Speaker Change: In the second quarter, revenue totaled $3.8 billion, a 7% decline in constant currency.
Speaker Change: The year-over-year trend was anticipated and primarily driven by our intentional exit, primarily in prior quarters, from negative, no, and low-margin revenue streams within ongoing customer relationships, not by macro factors.
Speaker Change: It's also sequentially one point stronger than the year-over-year decline we reported last quarter.