Q3 2025 Kyndryl Holdings Inc Earnings Call
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Speaker Change: Good day and thank you for standing by. Welcome to the Kindrel 3rd Quarter 2025 Earnings Conference Call. At this time, all participants are in a 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 11 on your telephone. You will then hear an automated message advising you your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded.
Speaker Change: I would now like to hand the conference over to your speaker today, Lori Chaitman, Head of Investor Relations. Ma'am, please go ahead.
Lori Chaitman: Good morning, everyone. And welcome to Kindrel's earnings call for the third quarter ended December 31st, 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.
Speaker Change: These forward-looking statements speak only to our expectations as of today. 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.
Following our prepared remarks, we'll hold a Q&A session.
Speaker Change: I'd now like to turn the call over to Martin. Martin?
Martin: Thank you, Lori, and thanks to each of you for joining us.
Martin: On today's call, I'll discuss our recent progress and execution, the momentum that our capabilities are generating for us in the marketplace, and the growth strategy we outlined at our Investor Day in November.
Martin: David will then share more detail on our recent financial results and our increased fiscal 2025 earnings outlook.
Martin: We delivered another strong quarter for signings, margins, and earnings growth.
Martin: Signings grew year over year for the fifth consecutive quarter and are up 31% to $16.3 billion over the last 12 months.
Martin: Adjusted pre-tax margins increased substantially compared to last year and we generated more than $170 million of adjusted free cash flow in the quarter.
Martin: Once again, our performance was led by double-digit revenue growth in Kindle Consult and demand for modernization, cloud security, and AI services.
Martin: Hyperscaler related revenue surpassed 300 million dollars in the quarter tracking ahead of our nearly 1 billion dollar full-year target.
Martin: Our three A's initiatives, alliances, accounts, and advanced delivery continue to generate incremental signings, revenue, and earnings.
Martin: As David will discuss, the projected pre-tax margins on our assignments continue to be in the high single digits, which is a leading indicator of our future earnings and cash flow trajectory.
Martin: In short, it was another great quarter of strong execution by our team, driving substantial progress toward our near-term and longer-term goals.
Martin: In addition, we begin to buy back stock in the quarter under the share repurchase authorization we announced in November.
Martin: As an independent company, we've leveraged our global scale and our expertise in mission-critical work, and our global scale to be a vital and trusted partner for our customers' current and future technology needs.
We've done this by investing in several key areas.
Martin: capturing data about how complex IT systems and networks operate and using that data to drive learning.
Martin: concentrating this world-class intellectual property in Kindrell Bridge, which is our innovation-rich, AI-enabled operating platform,
Martin: As a result, we're able to seize opportunities that emerge from a variety of reasons, whether they relate to modernization, complex cloud migration, cybersecurity incidents, regulatory changes, disruption to peer companies, or the integration of new technologies like Gen AI.
Martin: Existing and new customers continue to partner with Kindrel for our capabilities and for innovation, efficiency through automation, and actionable insights from Kindrel Bridge.
Martin: For example, through our SkyTap acquisition and our alliance with Microsoft Azure, we're seeing additional opportunities to deliver cloud migration services.
Martin: We're able to bring our mainframe modernization and application services skills and hyperscaler alliances together to migrate, manage, optimize, and secure our customers' IT environments across multiple cloud platforms, including AWS and Google, in addition to Azure.
Martin: Separately, we continue to collaborate with our enterprise software partners, including widely used platforms like Dynatrace, Oracle, Palo Alto Networks, Rubrik, and SAP to support our customers' IT needs.
Martin: As a testament to the Kindle Way, we continue to achieve top-tier customer satisfaction scores. We've had annual customer retention in the upper 90s over the last three years, and we've added more than 300 new customers over that period.
Martin: In fact, as many of you heard me say, we're uniquely positioned to address secular IT trends like cloud migration, increasingly hybrid IT environments, technology skill shortages, cybersecurity risks, and the adoption of artificial intelligence.
Martin: and these trends are creating new opportunities for us. Over the last 12 months, Kindrel Consult revenues are up 18% and Kindrel Consult signings are up 45%.
Martin: Consult is now a three billion dollar revenue stream for us with above average margins and a runway for future growth.
Martin: Many of you asked what role we play for our customers in AI. As the world's largest managed infrastructure services provider with 30 plus years managing complex mission-critical systems, we operate at the center of our customers AI investments with a distinctive perspective.
Martin: Customers know that their AI is only going to be as good as their data, so we use our data expertise to support them in establishing a reliable digital foundation to enable AI at scale and capitalize on its benefits.
Martin: We're collaborating with our customers and our alliance partners to address barriers to AI adoption such as data privacy, security, governance, and skills, and we're facilitating successful deployment of AI at scale, including the development of secure and responsible AI governance models.
Martin: We're also working with customers in multiple sectors on projects across the AI spectrum, including traditional AI, generative AI, and agentic AI, both in the cloud and on legacy platforms.
Martin: As an example, in November we announced the launch of a dedicated AI private cloud in Japan, leveraging the Dell AI Factory with NVIDIA to provide a controlled, secure, and sovereign environment where enterprises can develop, test, and plan the implementation of AI-powered applications and solutions.
Martin: And we're moving quickly to work with customers in other countries that want their own country-specific AI environments.
Martin: Across virtually all industries, the modernization of IT systems is not a discretionary item, but front and center for CEOs and their boards in an increasingly digital world.
Martin: In financial services, we're working with banks, insurance companies, and others to modernize IT estates, reduce operational risk, manage technical debt, enable the use of AI, and ensure compliance with regulatory changes, such as DORA.
Martin: In Latin America, for example, we recently announced a five-year, $500 million-plus contract with a leading bank where we're partnering with Microsoft to modernize the bank's IT systems and help consumers gain greater access to digital banking services.
Martin: And in Japan, we've not only extended our mission critical services contract with Taiju Life, a major life insurer, until December 2029, we'll now also support the operation of its next generation systems and promote IT modernization to strengthen the company's operations.
Martin: In retail and travel, we're seeing increased demand to enable the use of AI and enhance customers' digital experiences, security, and data privacy.
Martin: We're working with one of the largest vehicle rental companies in the world to modernize its digital platforms, enhance its booking and fleet management systems, and ensure a secure and resilient online payment experience for their consumers.
Martin: In tech, media, and telecom, we're working with organizations to modernize their IT estates, enhance security and resiliency, and deploy new applications and services to consumers.
Martin: In Spain, for example, a leading telecommunications firm announced that it signed a six-year agreement with Kindle to modernize its core IT environment. This will enable mass Orange employees, collaborators, and customers to develop a new generation of applications and services on a flexible, secure platform.
Martin: And in the UK, we're partnering with WPP to create a modern digital workplace that enhances creativity and connectivity across WPP's global network using hybrid cloud and AI technologies.
Martin: We're also expanding our scope with industrial companies, particularly manufacturing, logistics, and energy firms.
Martin: For example, we recently expanded our scope of work and significantly increased our annual revenue with a large aerospace and defense company.
Martin: We've been managing their mission-critical operations for more than a decade. Our delivery capabilities, service excellence, and strong partnerships were instrumental in allowing us to extend our existing relationship in several areas and displace an incumbent provider in several others.
Martin: Under our now expanded contract, our Kindle Consult team will develop and implement a new architecture designed to modernize resiliency and backup solutions, and provide new cloud, data security, network, and other services.
Martin: With the integration of Kindrel Bridge, we're enabling automation and analytics and driving efficiencies in our customers' operations.
Martin: An important benefit of our leadership and scale is our ability to bring new Kindrel perspectives and insights to our customers in the broader IT market.
Martin: Insights from Kendra Bridge are helping customers prioritize their IT investments every day.
Martin: In addition, we recently published our inaugural Kindle Readiness Report, which explored how businesses' IT and talent can help, or hinder, their progress, and how ready businesses are for future risks and opportunities.
Martin: In December, we published a Japan-specific report with data and insights relevant to that market.
Martin: And just this past quarter, we launched the Kindle Institute, which provides a platform for Kindle's thought leaders and external experts from industry, academia, and startups to offer new perspectives and research on major IT challenges.
Martin: We're looking to amplify independent voices and convene diverse perspectives to drive an impactful dialogue on topics at the intersection of technology and business.
Martin: And in December, we published our first articles on the theme of readiness as it relates to digital trade and AI. These are examples of how we compare kindled perspectives with what we're seeing in the market to offer valuable insights.
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 top-line growth.
Martin: We have confidence in our ability to continue to set ambitious goals and achieve them, and with that in mind, in November we introduced our medium-term outlook with a triple-double-single mnemonic.
Martin: We're projecting to triple our adjusted free cash flow in fiscal 2028 compared to fiscal 2025 to roughly a billion dollars.
Martin: We're projected to more than double our adjusted pre-tax income to at least $1.2 billion over that same time period, and we project that we only need revenue reached mid-single-digit annual growth in fiscal 2028 and beyond to deliver those goals.
Martin: With strong conversion of our earnings to free cash flow, we'll balance our approach to capital allocation by investing in organic growth opportunities and occasional tuck-in acquisitions, and at the same time, return capital to shareholders through our share repurchase program.
Martin: Because of our recognized industry leadership, expertise, scale, and financial strength, customers trust us to manage their most mission-critical systems. And in the last three years, we've become an integral part of the broad IT ecosystem that is relevant to our customers.
Martin: Our focus on IT infrastructure, our ability to leverage technologies from multiple sources, and the operational insights from Kindrel Bridge are what give us the credibility and access to move into more consulting engagements and expand our presence through customers' tech stacks.
Martin: And this framework gives us the flexibility to return capital to shareholders through our buyback program while maintaining the investment grade ratings that are important to our customers.
Martin: We're enthusiastic about returning to revenue growth this quarter and closing out our fiscal year strong. At the same time, our focus is on taking the work we've done and the progress we've delivered to the next level, account-by-account, team-by-team, across delivery, Kindle Consult, and our practices, to deliver sustainable, profitable growth over time.
Martin: We will continue to execute, delivering innovative services for our customers, growing our share of wallet with existing accounts, and of course, winning new business as well. Now with that, David will take you through our results and our outlook.
David: Thanks Martin and hello everyone. Today I'd like to discuss our third quarter results, our continued progress on our three aids initiatives, the solid margins at which we're signing customer contracts, and our outlook for fiscal year 2025.
David: The key message is that we delivered dramatically higher record margins and earnings this quarter. And that's a result of strong execution on our powerful strategy.
David: In the third quarter, revenue totaled $3.7 billion, only a 3% decline in constant currency. We've now lapped our most aggressive actions to step away from negative, no, and low margin revenue streams, and we're adding new customers and expanding the scope of services we provide to existing customers.
David: As a result, our constant currency revenue growth was sequentially four points stronger than the year-over-year decline we reported last quarter, consistent with our plans to inflect back toward growth in the second half of our fiscal year.
David: As Martin highlighted, our $4.1 billion of signings made Q3 our fifth consecutive quarter of signings growth and brings our trailing 12-month signings growth to 31%.
David: Our strength is broad-based, both across our practices and among our segments.
David: We also continue to gain momentum in higher margin advisory services.
David: In the quarter, Kindral Consult revenues grew 26% year-over-year, which underscores how we're growing our share in this higher-value-add space.
Kindred consult signings grew even faster, up 35%.
David: and importantly we're also delivering growth in managed services. Our managed services signings have increased 27% in the last 12 months.
David: Our third quarter adjusted EBITDA was 704 million dollars and our adjusted EBITDA margin was a record 18.8% of 320 basis points year over year.
David: Adjusted pre-tax income was up 154% to a record 160 million dollars and our adjusted pre-tax margin increased 270 basis points year-over-year.
Our financial progress continues to reflect our strategic execution.
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: Included in our $160 million of adjusted pre-tax income was $17 million in workforce rebalancing charges and the contractually committed $50 million year-over-year increase in IBM software costs that we've discussed on prior calls.
David: As a result, our underlying operational momentum is even stronger than the $90 million increase in adjusted pre-tax income we reported.
David: Through our alliances we generated 300 million dollars in hyperscaler related revenue in the third quarter.
David: Our $800 million year-to-date total puts us on track to exceed a billion dollars of hyperscaler-related revenue this year, more than double our fiscal 2024 total.
David: Through our advanced delivery initiative, powered by Kindrel Bridge, we continue to drive automation throughout our delivery operations, incorporate more technology into our offerings, reduce our costs, and increase our already strong service levels. It's a win-win for Kindrel and our customers.
David: To date, we've been able to free up more than 12,300 delivery professionals to address new revenue opportunities and backfill attrition.
David: This is worth a cumulative $725 million a year to us.
David: Our accounts initiative continues to remediate elements of contracts we inherited with substandard margins. In the third quarter, we increased the cumulative annualized profit from our focus accounts by $50 million to $825 million.
David: Clearly, the three A's remain an important source of margin expansion and value creation for us.
David: Consistent with what I've shared in prior quarters, I'm particularly enthusiastic about how we continue to position Kindle for future revenue, margin, and profit growth.
David: As we grew signings this past quarter, we continued to command attractive margins on our signings.
David: Throughout fiscal 2024 and now through the first three quarters 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: Therefore, as our business mix increasingly shifts toward more post-spin contracts, you'll see significant margin expansion in our reported results.
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: With an average projected gross margin of 25% on our $16.3 billion of signings over the last 12 months, we've added over $4 billion of projected gross profit to our backlog.
David: Over that same period of time, we've reported gross profit of $3 billion. 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: Having a gross profit book-to-bill ratio above 1 at 1.4 over the last 12 months is a key measure of how we're growing what matters most, the expected future profit from committed contracts.
David: And with our gross profit book-to-bill ratio having been consistently above one, that means we've been consistently growing our gross profit backlog over the last three years.
David: Turning to our cash flow and balance sheet, our adjusted free cash flow was $171 million in the quarter. Our gross capital expenditures were $109 million, and we received $16 million of proceeds from asset dispositions.
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: Under the brand new share repurchase authorization we announced in late November, we bought back 859,000 shares of our common stock in the quarter at a cost of $30 million.
David: Our financial position remains strong. Our cash balance at December 31 was $1.5 billion. Our cash, combined with available debt capacity under committed borrowing facilities, gave us more than $4.5 billion of liquidity at quarter end.
David: Our debt maturities are well-laddered from late 2026 to 2041. We had no borrowings outstanding under a revolving credit facility, and our net debt at quarter end was $1.7 billion.
David: Our target has been to keep net leverage below one time suggested EBITDA and we ended the quarter well within our target range at 0.7 times. We were rated investment grade by Moody's, Fitch, and S&P.
David: On capital allocation, our top priorities are to maintain strong liquidity, remain investment-grade, reinvest in our business, and regularly return capital to shareholders.
David: As we've said before, 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: We're raising our earnings outlook for our fiscal 2025 adjusted EBITDA margin and adjusted pre-tax income, primarily to reflect the execution against our plan we delivered in Q3.
David: Our outlook for full year adjusted EBITDA margin is now at least 16.7% and our outlook for adjusted pre-tax income is at least $475 million.
David: Looking at the fourth quarter in particular, our full year guidance implies that our adjusted pre-tax income will be a multiple of the $30 million we reported in last year's fourth quarter.
David: On revenue, we expect to deliver year-over-year constant currency revenue growth of approximately 2% in the fourth quarter.
David: Reported revenue will depend on exchange rates during the quarter, including the significant strengthening of the U.S. dollar relative to most major currencies over the last three months.
David: This translates to roughly $350 million in adjusted free cash flow in fiscal 2025, a $50 million increase from our previous outlook.
David: As we have in the past, we plan to provide our outlook for next year's revenue, earnings, and cash flow when we report results in May.
David: And as I hope you heard during our Investor Day event in November.
David: Over the medium term, we remain committed to delivering significant margin expansion and growing free cash flow.
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.
Thank you.
David: In closing, I want to highlight a couple of the reasons we're achieving the earnings growth we've reported this year and are positioned to deliver going forward.
David: First, we're the world leader in providing mission-critical technology infrastructure services and related consulting services to enterprise customers around the globe. This is because of the strong and expanding capabilities embedded in Kindle Bridge and our people.
David: and second we've been executing on a powerful strategy to transform our business as an independent company poised to provide solutions that incorporate a broad range of technologies to drive business outcomes.
Speaker Change: So let me end by thanking the tens of thousands of Kindrills around the world who are powering our progress. With that, Martin and I would be pleased to take your questions.
Speaker Change: Thank you. As a reminder to ask a question please 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. We ask that you please limit yourself to one question one follow-up. One moment while we compile our Q&A roster.
Martin: Martin, are you ready for our first question? Yes, operator. Thank you very much. All right.
Operator: Our first question is going to come from the line of Tenjin Hung with JP Morgan. Your line is open. Please go ahead.
Tenjin Hung: Hey thanks a lot really great great signings here so I just wanted to ask about your pipeline from here I know we've crossed the calendar year any change in tone on the ground from what you've seen on the on the pipeline standpoint and in confidence in converting the backlog in a timely way that kind of thing
Speaker Change: Sure, thanks, Tingen. Look, we see a very strong pipeline in fourth quarter, you know, our fiscal fourth quarter.
Speaker Change: and it continues to be driven by the capabilities that we've built. It continues to be led by CONSULT. You saw that we had another great CONSULT signing and revenue quarter.
Speaker Change: When we entered the year, as we talked about and gave guidance initially, we said the two vectors of growth for us that will get us back to growth in the fourth fiscal quarter.
Speaker Change: our kindled consult and our alliance activity. And as you've seen, we're gonna be well ahead of the rate of growth that we achieved last year in both signings and revenue and consultant.
Speaker Change: were actually on pace to beat the Alliance activity as well. So, demand remains strong, driven by our capabilities, and the pace of complexity is...
Speaker Change: A real tailwind for us as you as you saw for from our readiness survey while
90% of
Speaker Change: the C-suite thinks their IT infrastructure is best in class, fewer than 40% feel like they're ready to take advantage of.
Speaker Change: the opportunities that are present in order to manage those risks. And so the things we do, sometimes super exciting, like helping them with their AI projects.
Great. No thanks for that. Just my follow-up is...
You know, he delivered on the prophets and...
The outlook here looks strong, I know FX is...
Speaker Change: Obviously a drag and there's a lot of debate around the outlook of the dollar Just just curious here on your on the hedging and the efficiency and and contract profitability given potential volatility in the dollar I know there's a good history here for you. But is it worth going through that? Maybe David just to make sure that we're good on the on hedge efficiency
Speaker Change: Yeah, we feel good about our hedge efficiency this year and how that's working out. Obviously, revenues move around based on where exchange rates are, but when we look at our expectations for the impacts that currency would have on us,
Speaker Change: Year over year, there is a significant impact. At the beginning of the year, we expected it to be a
Speaker Change: in the exchange rates because of our hedging program, the impact on the bottom line that we've seen has been very limited compared to what we expected at the beginning of the year.
Speaker Change: keeping that very consistent with what we expected at the beginning of the year with the movements being initially a favorable 5 and then an unfavorable 10, so net only $5 million away from what we were anticipating at the beginning of the year.
Speaker Change: That's very clear. Thank you so much as always. Thank you. Operator, next question please. One moment.
Speaker Change: Our next question is going to come from the line of Tyler DuPont with Bank of America. Your line is open. Please go ahead.
Tyler Dupont: Hey, good morning, Martin and David. Thanks for taking the questions. It was nice to see another quarter of bookings growth.
Speaker Change: You know, in a quarterly book to bill above one is always good to see. So I just want to ask where you can pinpoint this growth is coming from.
Speaker Change: whether it's across specific practices or industries. And if you could sort of provide an update on the ramp of the recent large deals that you signed. It sounds like there were around 20 deals fiscal year-to-date, over $100 million. How is that ramp compared to expectations and any call-outs there?
Speaker Change: Sure, as I mentioned during the prepared remarks, we're seeing strength that's that's really very broad-based and it's running
Speaker Change: across our geographic segments in terms of the signings growth that we're seeing.
It's running across our practices as well.
Speaker Change: with five of our six practices seeing signings growth north of 20 percent.
So, a very broad base from that perspective.
Speaker Change: And really throughout the industries that we serve, you know, financial services obviously being a key part of that, but strength there in retail and travel, good industrial uptake, public sector and healthcare activity.
continues to be robust as as well.
Speaker Change: So we feel, you know, we feel that they, you know, for us they, you know, call it the macro elements, the macro picture has felt
fairly consistent from sector to sector.
Speaker Change: Among practices, I think we expect to continue to see strong growth in security and resiliency.
Speaker Change: Cloud and AppState and AI and and certainly AppState and AI has been a particular growth area for for us
Speaker Change: So that's an important part of what we're driving. And then on the large deals, you're right, the more than $100 million signings that we've had,
this year. We've had 20 year to date.
Speaker Change: compared to 10 in the first nine months last year. So real ramp up in that activity and certainly that's an important contributor to the signings growth that we've had.
Speaker Change: But we've also had a lot of signings growth on the consult side, and those typically tend to be smaller or less than $100 million transactions there. So again, when we look both at consult and at large managed services signings, we're seeing strength on both sides.
Speaker Change: And they represent, sorry Dave, just to add, they also represent, Tyler, both renewals and growth within our existing customer base and new customers as well. That's right. One of the $100 million signings this quarter was actually a new logo for us.
Great, that's very helpful.
Speaker Change: David and Martin, appreciate that. And just speaking of macro, I wanted to...
Speaker Change: also ask about tariffs and recent client conversations you're having with respect to potential tariff implications. As yesterday kind of proved, you can definitely get whiplash keeping up with back and forth, but many of your clients are impacted by potential tariffs. And given where we are in the calendar year with enterprise...
Speaker Change: sort of elongated timelines, just anything there worth calling out? Sure. Let me make a few comments. First, from what we've seen, everything we've seen, there's no direct impact to Kindrel. And bear in mind that
Speaker Change: You know what we do is not discretionary as we've said before
Speaker Change: From a customer perspective, I think it's also important to note that, and you said this well, it changed dramatically in 24 hours, and I think from our customers' perspective, what they're dealing with is that volatility. They're trying to...
Speaker Change: They're trying to figure out where this is going, where it might land, and then how they might respond. But it's really no different from any other business challenge that our customers face, whether it's a
Speaker Change: a challenge in reaching new customers and how to provide better employee experiences. Yes, those are maybe less volatile, but the regulatory environment changes all the time. And in each of those cases,
Each of those cases
has a technology component to help.
Speaker Change: It's not always the entire answer, but it's always part of the answer. So for us, it's a tailwind to demand.
Speaker Change: as, again, customers, our customer base is trying to navigate, you know, increased uncertainty in any instance.
Speaker Change: all of those things are good tailwinds to our business. And I think that's part of why we have seen consistent double digit signings growth in Kindle Consult because we help them with the basics so they can be prepared for any environment.
Speaker Change: Great. That's very helpful, Martin. Appreciate the insight. Thanks, Tyler. Thanks, Tyler. Operator, next question, please. One moment.
Speaker Change: Our next question comes from the line at Divya Goyal with Scotiabank. Your line is open. Please go ahead.
Good morning, everyone.
Speaker Change: So, Martin, on this macro theme, I wanted to actually try to get
Kindred's Take, or Kindred's Positioning,
Speaker Change: prefer models coming to the market in the near future, if I may say.
Sure, thanks Divya, and thanks for joining the call.
Speaker Change: different opportunities. And then when they're ready to go, and I'm gonna come back to that ready to go point a second, when they're ready to go, we help them put it into production, doing all the things that have to be done if you're going to embed AI into a process. You have to understand.
Speaker Change: where your assets are, you have to understand how to transform that application landscape. You have to understand the configuration management. So going from a POC to a run environment is very complex.
That's why customers rely on us.
Speaker Change: because we know most about their systems and our run-and-transform approach allows them.
to scale these things now.
The deep-seek innovation, if you will,
Speaker Change: They need to understand the data privacy and security constraints that sit around what they might be trying. And there's a regulatory element to that as well. They need to figure out how to integrate this stuff. And then there is, you know, then ultimately there's a business case. And to the extent that
Speaker Change: All of this points to, as I said earlier, all this points to an increased
Speaker Change: rate of innovation, which is an increased rate of complexity, which means customers need to deal with the vulnerabilities of their infrastructure and invest with us, as you see in our signings growth, invest with us to be ready for the future.
Speaker Change: So we'll see what happens with DeepSeq. We'll see, you know, what the world learns about it.
Speaker Change: Everyone I think is trying, our customer base is trying. We've helped their customer base with machine learning, embedding machine learning into their processes, embedding gen AI into their process, embedding agentic AI into their processes.
Speaker Change: That's helpful. Maybe in the same vein, I'll just ask a follow-up. So across your US business, and we've not talked about this in the past, so I'm trying to get your perspective here.
Speaker Change: Could the DOGE, or the efficiencies that are getting created with DOGE and the federal U.S. government, could that have any impact whatsoever, again, positively or negatively, on Kinroll? And that's all for me.
Speaker Change: Yeah, okay. Look, I think, you know, any attempt to make
Speaker Change: a business or government, state, federal, anywhere, to more efficient is an opportunity for us because
Speaker Change: At the heart of what we do, yes, we get our customers ready for the future and we help them prepare.
So our ability to
helped them.
Speaker Change: unleash resources, our ability to help them embed new technologies which make them more productive, our ability, quite frankly, to help them find unused
Speaker Change: resources, and Kindral Bridge, as an example, does this for our customer base. We can find
Speaker Change: all of the public cloud instances that somebody spun up that are no longer being used. We can find unused software licenses in their environment. So any focus on productivity...
Speaker Change: is a good tailwind for us. Now, the Doge is part of the U.S. federal government. We don't have a big U.S. federal business currently. So I don't see a specific.
Speaker Change: element there, but again any focus on productivity is something we can help with, so I think it's a tailwind for us, Divya.
That's great, thank you.
Thanks, Divya. Operator, next question please. One moment.
Speaker Change: And our next question is going to come from the line of Ian Zavino with Oppenheimer. Your line is open. Please go ahead.
Ian Zavino: Hi, great. Thank you very much. Not to really beat a dead horse here on the AI side, but...
Ian Zavino: Is there anything on, you know, to your benefit in how you run your business that like something like a Deep Seek could bring? You know, if it's bridge or anywhere else And kind of how are you thinking about that?
Thanks.
Ian Zavino: So, a couple of things. Obviously, we're pretty substantial investors in and users of our AI, our machine learning. It does sit at the heart of Bridge, and critically, we are giving our customers insights that are coming out of Bridge so they can understand how to optimize.
Ian Zavino: You know within DeepSeek, at least on our early work and looking at it, there is some innovation here around
Ian Zavino: how to split up, if you will, a problem and distribute that problem to be solved across an estate. So you're using resources that already exist and are underutilized. So I do think there are some innovations, and that's just one specifically, but there are some innovations in what DeepSeek has accomplished.
Ian Zavino: that are worth investigating, understanding, and figuring out how can we use resources more effectively.
Speaker Change: But again, Kindred Bridge and the machine learning in Kindred Bridge is what
Speaker Change: today drives the way we deliver. It's today what drives our ability to
Speaker Change: our ability to automate, it's today what drives our ability to give insights to our customers and create kind of this self-healing architecture that we've talked about. So yeah, I think there might be something in here. We'll have to, we're spending some time to understand it.
Speaker Change: You know, how are you thinking about that growth, you know, as far as, you know,
Speaker Change: the pace has been growing at, the ability to continue that. And then when you look at the growth, where is that per se coming from? Is that share gains? Is that winning new business? Is it expanding with additional accounts or existing accounts?
Speaker Change: Maybe kind of give us an understanding of, you know, the sources of growth there. Thanks.
Speaker Change: Sure, and certainly the growth is something we're really excited about. You know, Consult has grown from being, you know, 10% of our business at spin.
probably 14% a couple of years ago.
Speaker Change: and 21% of revenues this past quarter. It's the first time we crossed over the 20% threshold.
Speaker Change: It's running around 25% of our signings, so we've got a
Speaker Change: what we think is a clear path to moving up to consulting about a quarter of our revenue in the not-too-distant future.
Speaker Change: and then, you know, ultimately, you know, maybe even a little bit more than than that. So it's an increasingly important part of our revenue and our earnings and how we go to market and how we meet customer needs.
Speaker Change: And I think what we're seeing is that the growth there is coming from a number of different areas. By definition, that kind of growth is a share gain.
And I do think there's work that...
Speaker Change: that other firms were providing before we were an independent company with the alliances we currently have.
Speaker Change: that we're now able to provide. And that gives us an opportunity to, you know, take business that others were doing as well as to do some things that our customers, for whom we were providing, you know, managed services.
Speaker Change: sort of had to do on their own and do internally. So part of what we're doing is actually growing the pie.
Speaker Change: in terms of work that we can provide that folks needed to do internally.
Speaker Change: So I really see the growth as being a combination of, you know, share from others and some work that was previously in previously in source moving to moving to us.
Speaker Change: is something that's really distinguishing us and creating opportunities that are clearly so unique to us in the marketplace so that we're able to achieve, you know, growth levels that, you know, that are significantly above where other folks have been.
Ian Zavino: Great. All right, perfect. Thanks for all the color. Thanks. Thanks, Ian. Great. I think we have one more question in the queue, please.
One moment.
Speaker Change: And our last question is going to come from the line of Jamie Friedman with Susquehanna. Your line is open, please go ahead.
Hi. Thank you.
Jamie Friedman: Good results here. So Martin, I want to ask you also about CONSULT. I thought that was an excellent prior question, but to step back
Speaker Change: How would you describe the mindshare of consult? Like, what is consult known for? If you ask the industry what, you know.
Jamie Friedman: Infosys is known for extreme offshoring, Accenture is known for best practices, I'm giving you the one-liners. What's the mindshare that Kindral Console is, or what is it that you anticipate it will be?
for a consult.
Jamie Friedman: Thanks, Jamie. Look, it's a great question. I think it's two things. It's mission critical and it's run and transform. The ability to run and transform is not something that...
Jamie Friedman: our customers have organically and they need and they need help but at the same time because we're doing mission-critical
Jamie Friedman: We obviously need to keep those systems running while transforming them for the future. And as I noted earlier, the ability and the insights that we get from Kindred Bridge
allow our Kindle Consult team to go in and make
Jamie Friedman: very, very fast recommendations that can be implemented quickly to, again, prepare.
Jamie Friedman: prepare our customer systems for the opportunities or, quite frankly, the changes they need to keep up with the changing regulatory environment. So, mission critical and our run and transform approach will continue to drive our Kindrall Consult Group.
Speaker Change: Thank you. And then, David, in terms of where we are in the evolution of the IBM relationship, could you just...
remind us
Speaker Change: about that transition to the P times Q, when that happened, if it already has happened or if it will happen, and how to think about the...
You know, what's that about and how to quantify it?
Thank you.
Speaker Change: Sure, we continue to be a fairly large customer, a large customer of IBM's, one of their largest in the world, particularly of software and mainframe related software, given the size of the mainframe estate we manage for our customers.
Speaker Change: In terms of the IBM relationship, we've exited all the transition services agreements and I'd say our relationship is primarily a vendor-customer relationship at this point in time. And with respect to software, there are two things going on. The first is that we were entitled to a declining rebate.
Speaker Change: over time and you know that's what's been giving rise to the 200 million dollar annual increase in cost.
Speaker Change: So we, you know, our rebate went down in fiscal 23 and fiscal 24, sorry, calendar 23, calendar 24, and again in calendar 25. And so this is the...
Speaker Change: that's created a $200 million headwind each year. And this year beginning in January of 2025 is the last time we see that increase.
Speaker Change: affecting us. So that's the first thing going on. And then the second is that also at the beginning of 2025
Speaker Change: We've moved from having a fixed price that we pay to having our costs based on price times quantity.
Speaker Change: And I think that's a positive move for us because it creates the opportunity for us to really manage our costs by managing the amount of licenses that we need for our customers.
Speaker Change: and that's a you know that's an opportunity we've been we've been preparing for and will continue to you know look to utilize to make sure we we optimize and manage the costs here.
Got it. Thank you both
Thanks, Jamie.
Speaker Change: Martin, you want to close out our call? Sure. Thanks everybody for joining us today as we look ahead and we continue to build on our solid and proven foundation of the 3 A's, Kindred Consultant, Kindred Bridge.
Speaker Change: We'll continue to leverage our capabilities to expand our share of wallet with our existing customers and, as we've said a number of times, continue to win new customers as well.
Speaker Change: We'll continue to operate at an aggressive pace, both in terms of tackling our immediate execution priorities and the longer-term milestones that we set out back in November in Investor Day.
Speaker Change: So we see opportunities available for us to continue to learn, to innovate, to grow, to assert our market leadership, to demonstrate our expertise.
Speaker Change: and to deliver the exceptional value that our customers expect and have gotten. So, we look forward to capitalizing on all those opportunities. So, with that, operator, we will conclude our call. Thank you.
Speaker Change: This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone have a great day.
[music]
Speaker Change: Good day, and thank you for standing by. Welcome to the Kindrel third quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. 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 you your hand is raised. To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded.
Speaker Change: I would now like to hand the conference over to your speaker today, Lori Chaitman, Head of Investor Relations. Ma'am, please go ahead.
Speaker Change: Good morning, everyone, and welcome to Kindrel's Earnings Call for the third quarter ended December 31st, 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.
Martin Schroeter: With me here are Kindle's Chairman and Chief Executive Officer, Martin Schroeter, and Kindle's Chief Financial Officer, David Wyshner.
Following our prepared remarks, we'll hold a Q&A session.
Martin Schroeter: 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 Schroeter: On today's call, I'll discuss our recent progress and execution, the momentum that our capabilities are generating for us in the marketplace, and the growth strategy we outlined at our Investor Day in November. David will then share more detail on our recent financial results and our increased fiscal 2025 earnings outlook.
Martin Schroeter: We delivered another strong quarter for signings, margins, and earnings growth.
David: Adjusted pre-tax margins increased substantially compared to last year, and we generated more than $170 million of adjusted free cash flow in the quarter.
David: Once again, our performance was led by double-digit revenue growth in Kindle Consult and demand for modernization, cloud, security, and AI services.
David: Our three A's initiatives, alliances, accounts, and advanced delivery continue to generate incremental signings, revenue, and earnings.
David: As David will discuss, the projected pre-tax margins on our assignments continue to be in the high single digits, which is a leading indicator of our future earnings and cash flow trajectory.
David: In addition, we begin to buy back stock in the quarter under the share of purchase authorization we announced in November.
David: As an independent company, we've leveraged our global scale and our expertise in mission-critical work and our global scale to be a vital and trusted partner for our customers' current and future technology needs.
We've done this by investing in several key areas.
David: capturing data about how complex IT systems and networks operate and using that data to drive learning.
David: concentrating this world-class intellectual property in Kindral Bridge, which is our innovation-rich AI-enabled operating platform to drive insights, automation, optimization, and efficiency, and building alliances with leading technology providers that allows us to offer hybrid, multi-vendor solutions to our customers.
David: As a result, we're able to seize opportunities that emerge from a variety of reasons, whether they relate to modernization, complex cloud migration, cybersecurity incidents, regulatory changes, disruption to peer companies, or the integration of new technologies like Gen AI.
David: Existing and new customers continue to partner with Kindrel for our capabilities and for innovation, efficiency through automation, and actionable insights from Kindrel Bridge.
David: For example, through our SkyTap acquisition and our alliance with Microsoft Azure, we're seeing additional opportunities to deliver cloud migration services.
David: We're able to bring our mainframe modernization and application services skills and hyperscaler alliances together to migrate, manage, optimize, and secure our customers' IT environments across multiple cloud platforms, including AWS and Google, in addition to Azure.
David: Separately, we continue to collaborate with our enterprise software partners, including widely used platforms like Dynatrace, Oracle, Palo Alto Networks, Rubrik, and SAP to support our customers' IT needs.
David: As a testament to the kindred way, we continue to achieve top-tier customer satisfaction scores. We've had annual customer retention in the upper 90s over the last three years, and we've added more than 300 new customers over that period.
David: In fact, as many of you heard me say, we're uniquely positioned to address secular IT trends like cloud migration, increasingly hybrid IT environments, technology skills shortages, cybersecurity risks, and the adoption of artificial intelligence.
David: and these trends are creating new opportunities for us. Over the last 12 months, Kindrel Consult revenues are up 18% and Kindrel Consult signings are up 45%.
David: Many of you asked what role we play for our customers in AI. As the world's largest managed infrastructure services provider with 30 plus years managing complex mission-critical systems, we operate at the center of our customers AI investments with a distinctive perspective.
David: We're collaborating with our customers and our alliance partners to address barriers to AI adoption, such as data privacy, security, governance, and skills. And we're facilitating successful deployment of AI at scale, including the development of secure and responsible AI governance models.
David: We're also working with customers in multiple sectors on projects across the AI spectrum, including traditional AI, generative AI, and agentic AI, both in the cloud and on legacy platforms.
David: As an example, in November we announced the launch of a dedicated AI private cloud in Japan, leveraging the Dell AI Factory with NVIDIA to provide a controlled, secure, and sovereign environment where enterprises can develop, test, and plan the implementation of AI-powered applications and solutions.
David: Across virtually all industries, the modernization of IT systems is not a discretionary item, but front and center for CEOs and their boards in an increasingly digital world.
David: In financial services, we're working with banks, insurance companies, and others to modernize IT estates, reduce operational risk, manage technical debt, enable the use of AI, and ensure compliance with regulatory changes, such as DORA.
David: In Latin America, for example, we recently announced a five-year, $500 million-plus contract with a leading bank where we're partnering with Microsoft to modernize the bank's IT systems and help consumers gain greater access to digital banking services.
David: And in Japan, we've not only extended our mission critical services contract with Taiju Life, a major life insurer, until December, 2029. We'll now also support the operation of its next generation systems and promote IT modernization to strengthen the company's operations.
David: In retail and travel, we're seeing increased demand to enable the use of AI and enhance customers' digital experiences, security, and data privacy.
David: We're working with one of the largest vehicle rental companies in the world to modernize its digital platforms, enhance its booking and fleet management systems, and ensure a secure and resilient online payment experience for their consumers.
David: In tech, media, and telecom, we're working with organizations to modernize their IT estates, enhance security and resiliency, and deploy new applications and services to consumers.
David: In Spain, for example, a leading telecommunications firm announced that it signed a six-year agreement with Kindrel to modernize its core IT environment. This will enable mass Orange employees, collaborators, and customers to develop a new generation of applications and services on a flexible, secure platform.
David: And in the UK, we're partnering with WPP to create a modern digital workplace that enhances creativity and connectivity across WPP's global network using hybrid cloud and AI technologies.
David: We're also expanding our scope with industrial companies, particularly manufacturing, logistics, and energy firms.
David: For example, we recently expanded our scope of work and significantly increased our annual revenue with a large aerospace and defense company.
David: We've been managing their mission-critical operations for more than a decade. Our delivery capabilities, service excellence, and strong partnerships were instrumental in allowing us to extend our existing relationship in several areas and displace an incumbent provider in several others.
David: Under our now expanded contract, our Kindle Consult team will develop and implement a new architecture designed to modernize resiliency and backup solutions, and provide new cloud, data security, network, and other services.
David: With the integration of Kindral Bridge, we're enabling automation and analytics and driving efficiencies in our customers' operations.
David: An important benefit of our leadership and scale is our ability to bring new Kindrel perspectives and insights to our customers in the broader IT market.
David: Insights from Kendra Bridge are helping customers prioritize their IT investments every day.
David: In addition, we recently published our inaugural Kindle Readiness Report, which explored how businesses' IT and talent can help, or hinder, their progress, and how ready businesses are for future risks and opportunities.
David: In December, we published a Japan-specific report with data and insights relevant to that market.
David: In just this past quarter, we launched the Kendrell Institute, which provides a platform for Kendrell's thought leaders and external experts from industry, academia, and startups to offer new perspectives and research on major IT challenges.
David: We're looking to amplify independent voices and convene diverse perspectives to drive an impactful dialogue on topics at the intersection of technology and business.
David: And in December, we published our first articles on the theme of readiness as it relates to digital trade and AI. These are examples of how we compare kindled perspectives with what we're seeing in the market to offer valuable insights.
David: 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.
David: We have confidence in our ability to continue to set ambitious goals and achieve them, and with that in mind, in November we introduced our medium-term outlook with a triple-double-single mnemonic.
David: We're projecting to triple our adjusted free cash flow in fiscal 2028 compared to fiscal 2025 to roughly a billion dollars.
David: With strong conversion of our earnings to free cash flow, we'll balance our approach to capital allocation by investing in organic growth opportunities and occasional tuck-in acquisitions, and at the same time return capital to shareholders through our share repurchase program.
David: Because of our recognized industry leadership, expertise, scale, and financial strength, customers trust us to manage their most mission-critical systems. And in the last three years, we've become an integral part of the broad IT ecosystem that is relevant to our customers.
David: The mission-critical infrastructure services we provide are our foundation for sustained, profitable growth. Our focus on IT infrastructure, our ability to leverage technologies from multiple sources, and the operational insights from Kindrel Bridge are what give us the credibility and access to move into more consulting engagements and expand our presence through customers' tech stacks.
David: With our higher value service offerings, automation, and AI, we're significantly expanding our margin profile with the goal of reaching high single-digit adjusted pre-tax margins and converting those earnings into cash flow.
David: And this framework gives us the flexibility to return capital to shareholders through our buyback program while maintaining the investment grade ratings that are important to our customers.
David: We're enthusiastic about returning to revenue growth this quarter and closing out our fiscal year strong. At the same time, our focus is on taking the work we've done and the progress we've delivered to the next level, account-by-account, team-by-team, across delivery, Kindle Consult, and our practices, to deliver sustainable, profitable growth over time.
David: We will continue to execute, delivering innovative services for our customers, growing our share of wallet with existing accounts, and of course, winning new business as well. Now, with that, David will take you through our results and our outlook.
David: Thanks Martin and hello everyone. Today I'd like to discuss our third quarter results, our continued progress on our three A's initiatives, the solid margins at which we're signing customer contracts, and our outlook for fiscal year 2025.
David: The key message is that we delivered dramatically higher record margins and earnings this quarter and that's a result of strong execution on our powerful strategy.
David: We've now lapped our most aggressive actions to step away from negative, no, and low-margin revenue streams, and we're adding new customers and expanding the scope of services we provide to existing customers.
David: As a result, our constant currency revenue growth was sequentially four points stronger than the year-over-year decline we reported last quarter, consistent with our plans to inflect back toward growth in the second half of our fiscal year.
David: Our reported revenues were affected by currency movements, creating a two-point gap between our reported revenue change and our constant currency revenue change, unlike the second quarter when both numbers were the same.
Speaker Change: As Martin highlighted, our $4.1 billion of signings made Q3 our fifth consecutive quarter of signings growth and brings our trailing 12-month signings growth to 31%.
Speaker Change: Our strength is broad-based, both across our practices and among our segments.
Speaker Change: In the quarter, Kindral Consult revenues grew 26% year-over-year, which underscores how we're growing our share in this higher-value-add space.
Kindred consult signings grew even faster, up 35%.
Speaker Change: and importantly we're also delivering growth in managed services. Our managed services signings have increased 27% in the last 12 months.
Speaker Change: Our third quarter adjusted EBITDA was $704 million, and our adjusted EBITDA margin was a record 18.8%, up 320 basis points year over year.
Speaker Change: Adjusted pre-tax income was up 154% to a record 160 million dollars and our adjusted pre-tax margin increased 270 basis points year-over-year.
Our financial progress continues to reflect our strategic execution.
Speaker Change: 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.
Speaker Change: included in our 160 million dollars of adjusted pre-tax income with 17 million dollars in workforce rebalancing charges and the contractually committed 50 million dollar year-over-year increase in IBM software costs that we've discussed on prior calls.
Speaker Change: As a result, our underlying operational momentum is even stronger than the $90 million increase in adjusted pre-tax income we reported.
Speaker Change: Through our alliances, we generated $300 million in hyperscaler-related revenue in the third quarter. Our $800 million year-to-date total puts us on track to exceed $1 billion of hyperscaler-related revenue this year, more than double our fiscal 2024 total.
Speaker Change: Through our advanced delivery initiative, powered by Kindrel Bridge, we continue to drive automation throughout our delivery operations, incorporate more technology into our offerings, reduce our costs, and increase our already strong service levels. It's a win-win for Kindrel and our customers.
Speaker Change: To date, we've been able to free up more than 12,300 delivery professionals to address new revenue opportunities and backfill attrition.
Speaker Change: This is worth a cumulative $725 million a year to us.
Speaker Change: Our accounts initiative continues to remediate elements of contracts we inherited with substandard margins.
Speaker Change: In the third quarter, we increased the cumulative annualized profit from our FOCUS accounts by $50 million to $825 million.
Speaker Change: Clearly, the three A's remain an important source of margin expansion and value creation for us.
Speaker Change: Consistent with what I've shared in prior quarters, I'm particularly enthusiastic about how we continue to position Kindrel for future revenue, margin, and profit growth.
Speaker Change: As we grew signings this past quarter, we continued to command attractive margins on our signings.
Speaker Change: Throughout fiscal 2024, and now through the first three quarters 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.
Speaker Change: Therefore, as our business mix increasingly shifts toward more post-spin contracts, you'll see significant margin expansion in our reported results.
Speaker Change: We've again included a gross profit book to build chart that accentuates how we've been creating and capturing value in our business.
Speaker Change: With an average projected gross margin of 25% on our $16.3 billion of signings over the last 12 months, we've added over $4 billion of projected gross profit to our backlog.
Speaker Change: Over that same period of time we've reported gross profit of three billion dollars. 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.
Speaker Change: Having a gross profit book-to-bill ratio above 1, at 1.4 over the last 12 months, is a key measure of how we're growing what matters most, the expected future profit from committed contracts.
Speaker Change: And with our gross profit book-to-bill ratio having been consistently above one, that means we've been consistently growing our gross profit backlog over the last three years.
Speaker Change: Turning to our cash flow and balance sheet, our adjusted free cash flow was $171 million in the quarter. Our gross capital expenditures were $109 million and we received $16 million of proceeds from asset dispositions.
Speaker Change: 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.
Speaker Change: Under the brand-new share repurchase authorization we announced in late November, we bought back 859,000 shares of our common stock in the quarter at a cost of 30 million dollars.
Speaker Change: Our financial position remains strong. Our cash balance at December 31 was $1.5 billion. Our cash, combined with available debt capacity under committed borrowing facilities, gave us more than $4.5 billion of liquidity at quarter end.
Speaker Change: Our debt maturities are well-laddered from late 2026 to 2041. We had no borrowings outstanding under a revolving credit facility, and our net debt at quarter end was $1.7 billion.
Speaker Change: Our target has been to keep net leverage below one time suggested EBITDA, and we ended the quarter well within our target range at 0.7 times. We are rated investment grade by Moody's, Fitch, and S&P.
Speaker Change: On capital allocation, our top priorities are to maintain strong liquidity, remain investment-grade, reinvest in our business, and regularly return capital to shareholders.
Speaker Change: As we've said before, 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.
Speaker Change: We're raising our earnings outlook for fiscal 2025 adjusted EBITDA margin and adjusted pre-tax income, primarily to reflect the execution against our plan we delivered in Q3.
Speaker Change: Our outlook for full year adjusted EBITDA margin is now at least 16.7%, and our outlook for adjusted pre-tax income is at least $475 million.
Speaker Change: Looking at the fourth quarter in particular, our full-year guidance implies that our adjusted pre-tax income will be a multiple of the thirty million dollars we reported in last year's fourth quarter.
Speaker Change: On revenue, we expect to deliver year-over-year constant currency revenue growth of approximately 2% in the fourth quarter.
Speaker Change: Reported revenue will depend on exchange rates during the quarter, including the significant strengthening of the U.S. dollar relative to most major currencies over the last three months.
Speaker Change: This translates to roughly $350 million in adjusted free cash flow in fiscal 2025, a $50 million increase from our previous outlook.
Speaker Change: As we have in the past, we plan to provide our outlook for next year's revenue, earnings, and cash flow when we report results in May.
Speaker Change: And as I hope you heard during our Investor Day event in November.
Speaker Change: Over the medium term, we remain committed to delivering significant margin expansion and growing free cash flow.
Speaker Change: We have a solid game plan to drive our strategic progress, and this game plan starts with the steps we've already taken to expand our technology alliances, manage our costs, and earn a return on all of our revenues.
Speaker Change: In closing, I want to highlight a couple of the reasons we're achieving the earnings growth we've reported this year and our position to deliver going forward.
Speaker Change: First, we're the world leader in providing mission-critical technology infrastructure services and related consulting services to enterprise customers around the globe. This is because of the strong and expanding capabilities embedded in Kindle Bridge and our people.