Good day, and thank you for standing by. Welcome to the Kyndryl's Second Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers presentation there will be a question and answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Lori Chaitman, Head of Investor Relations. Please go ahead.

Good morning, everyone, and welcome to Kyndryl's earnings call for the second quarter ended September 30, 24. 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. 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. In today's remarks, we'll also refer to certain non-GAAP financial metrics. Corresponding 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 investor.kyndryl.com. With me here are Kyndryl's Chairman and Chief Executive Officer, Martin Schroeter; and Kyndryl's Chief Financial Officer, David Wyshner. Following our prepared remarks, we will hold a Q&A session. I'd now like to turn the call over to Martin. Martin?

Thank you, Lori, and thanks to each of you for joining us. 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. 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. 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 5 years. 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 pretax margins on our signings continue to be in the high single digits. In the quarter, adjusted pretax earnings were up substantially year-over-year and we remain on track to deliver significant cash flow this year. Our performance was once again led by double-digit growth in Control consult and strong momentum in hyperscaler related revenue as well as our ability to continue to drive efficiency and deliver innovation through automation and Kyndryl Bridge, our AI-enabled open integration platform. In addition, our 3As initiatives, alliances, accounts and advanced delivery continued to generate significant incremental benefits in the quarter. 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. Having invested when others have pulled back, we're in a great position to continue to capitalize on these opportunities. As we head…

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. In the second quarter, revenue totaled $3.8 billion, a 7% decline in constant currency. 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. It's also sequentially one point stronger than the year-over-year decline we reported last quarter. We also reported the strongest quarter of signings in our history as an independent company. Total signings grew 132% year-over-year. Our $5.6 billion of signings made Q2 our fourth consecutive quarter of signings growth, and brings our trailing 12-month signings growth to 33%. We saw strength across all 6 of our practices, each of which reported signings growth of 30% or more in the quarter and we delivered growth across our 4 geographic segments, each of which reported signings growth in the quarter. As Martin highlighted, we continue to gain momentum in higher-margin advisory services. Kyndryl Consult revenues grew 23% year-over-year, which underscores how we're growing our share in this higher value-add space. Kyndryl Consult signings grew even faster, up 81%. Over the last 12 months, we've seen strong growth in Kyndryl 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. Our second quarter adjusted EBITDA was $557 million and our adjusted EBITDA margin was 14.8%. Adjusted pretax income grew 80% to $45 million. Our financial progress continues to reflect our strategic…

[Operator Instructions] Martin, are you ready for your first question.

Yes, Sir.

Our first question comes from Divya Goyal from Scotia Bank.

Martin, could you provide us a little bit more color in terms of the macro impact on the signing. Do you potentially see the signings momentum to pick up more significantly as the macro improves and the rates start to continue to come down?

Divya, thank you for the nice comments. 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 Kyndryl 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, along with what the leaders 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 they're looking at 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 to continue to grow 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 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 Kyndryl with the secular trends will continue to provide long-term signings and therefore, long-term revenue growth for us.

Just as a quick follow-up, and I'll pass the line right after, is considering where things are broadly with the election and everything, where do you see the global enterprises place? Like you talked about core modernization generally, AI is a big theme that continues to evolve. How do you see global enterprises and the global C-suite executives position from an investment standpoint when it comes to the core modernization, the AI readiness related investments, given the role -- certain important role can replace in the infrastructure side of things?

Yes, 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 sort of at the beginning of a journey that they know they have to go down. So the digitization of the economy 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. It's part of what we're already seeing in our managed results 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. Cybersecurity and resilience is very high on their list of things they need to invest in. And they're also trying to adjust to whatever the regulatory regime happens to be, and we're headed towards, obviously, different regulatory regimes, 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. So I expect that from our customers' perspective that they've all -- they each accept that 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, 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 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.

Our next question comes from Jamie Friedman from Susquehanna.

Let me echo the congratulations. Martin, I was wondering about the 10 large deals of $100 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. Is there any common pattern that you're seeing in terms of what those customers are looking for and why they're renewing now?

So yes, a few things, I think, that are fairly consistent. One, 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 acceptance of the capabilities that we've invested in and the desire to modernize with the company that's investing in the infrastructure space, which is us. So they're looking obviously for deep engineering skills and deep capabilities and at the same time, they're looking for innovation that the Kyndryl Bridge provides to give them observability and help them to manage their ever sprawling their ever-spiraling 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 rent just renewing what we've done in the past. 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 and importantly, think of them as both a consulting element, and you see that in the consultant growth and as well as a managed element. And David noted in his prepared comments, very high double-digit growth we're getting from the managed business. So these are -- the pattern is a 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 each of our practices. It has consult and it has managed. So it's a pretty whole of firm, if you will, approach that our customers are taking up from what they see from Kyndryl.

And then could I just ask, is the -- is there any other pattern that you're noticing in those, for example, are they consistent with the vertical call outs on Page 17 of the PowerPoint or from a service line perspective or a regional perspective, are any of it in any particular region or a vertical?

Yes, yes, sure. Thanks, Jamie, 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 more or less in 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, 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. But each of the each of the segments grew as well. And I would say that, again, our ability to deliver on a global basis, with a single global delivery platform, which means our capabilities can reach each of our customers across all of our practices. I think that to me is the end-to-end kind of 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 wherever they happen to be. So I think it's -- again, it's broad-based 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 -- their customers now, but some of them are new logo customers as well that they see coming from Kyndryl in the form of innovation and experience and depth of skills.

And Jamie, one of the things -- this is David. One of the things I think is really important is that we're achieving the 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 we get reasonable margins on this business and continuing to sign new contracts with an expected high single-digit pretax margin. I think that's -- 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.

Our next question comes from Tien-Tsin Huang from JPMorgan.

Sorry, can you hear me now, Martin? Sorry about that, just switch your phones here. Just I also want to ask about the really strong signings. I always we -- see that always might go to is asking about replenishing the pipeline. So just curious from here if you feel this kind of signings momentum is sustainable? I know it's very broad-based, which is encouraging, but how does the replenish opportunity look like?

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. And 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. 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 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 is 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 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 3 years. positioning the business for sustainable long-term growth.

One thing I'd add, Tien-Tsin, and I think David described it really well. But one thing I'd add is keep in mind that Kyndryl Bridge is also a way for us to provide actionable insights to our customers. So that fuels our Kyndryl Consult growth over the long term as well. So we have an ability to deliver value through Kyndryl Consult. Obviously, we have really delivered great value through Bridge, which our customers appreciate the observability, they appreciate 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.

Yes. No, it 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 raise your outlook. A little bit of a change in pattern results -- it's clearly been quite good. So update us there?

Yes, sure. Look, I'll start then from David might have something. Look, we had a great quarter, and we feel great about how we finished the first of the year gives us a lot of momentum going into the second half. We're really, obviously, really pleased with the continued signings momentum, which positions us well and the signings momentum is -- really is coming from the growth factors that we have been talking about now for just over 3 years, right? We were just on our third birthday a couple of days ago. So with the consultant momentum, with alliances momentum really hitting 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 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 where we guided. I think we feel good about the second half. And the second half represents a big improvement in profitability. And keep in mind, and you know this, Tien-Tsin because you've been around the business quite a bit. This year, only half, even after 3 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 growth and a lot of acceleration ahead of us here as we move further from the spin date.

Now agree with all of that. Happy to hear [Indiscernible] and see you a couple of weeks.

Our next question comes from Isaac Sellhausen from Oppenheimer.

This is Isaac on for [indiscernible] my question is on consult revenue and signings. 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 compared to managed services and some of the other work.

Sure. In consult, we're seeing strength in a number of different areas. Our revenues are up north of 20% 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 important part, a larger part of what we do. We're really excited about that. Consult is really spanning the range of our practices and the range of our offerings. So we're using consult in a number of areas where we're providing advisory services in a number of different areas related to the capabilities that we bring to bear. We think that's really helpful to our customers. From a margin perspective, consult tends to be a few points higher than our managed services in general and that's often the way we price it. On occasion, we'll -- with a new logo opportunity 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. 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 this is more and more something that we're becoming known for. Our history, obviously, is on the managed services side, but the growth in consult and our ability to bring together a wide range of technologies, the capabilities that we have, the insights from Kyndryl Bridge, all the technologies 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 from our customers in this area as well.

Yes. Thank you, David. I just would supplement that. I think it's well said. I'd just supplement it. I mean, I guess the way I think about this and our experience is that kind of all roads lead to infrastructure and all roads lead to central. 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. 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 think of a newspaper and read about Gen AI or a new large language model or it's used in a test case, 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 Kyndryl and our practices. And I can go on and on and on, when you read about health care industry needing to take advantage of innovation on the cloud while at the same time protecting its data and getting ready for the future. Again, that's where we are with our health care customers. So over and over and over again and the reason where we see this long-term growth 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 it's as David said, well, it's widespread. It's across our practices and customers need help getting ready for their digitized future.

And then I just had a quick follow-up on the cloud business and hyperscaler partnerships. It's also 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 helping to move fully to the cloud or remain in hybrid? And if you've seen any notable shifts over the past 12 months or so?

Yes, I see a continuation of the idea 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 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 or is collected. And quite frankly, in order to get the right workload on the right platform, I think that trend continues. We don't see it slowing down. We see new opportunities. We see new 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 time frame unit, I've not seen a dramatic any kind of change in customers' desire to or use of moving to 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 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 customer base and our prospect base. continue to take advantage of our investments and capabilities and our investments in innovation.

Great. Operator, I think there's one more question in the queue.

Our next question comes from Divya Goyal from Scotia Bank.

Sorry, guys, I think there's a confusion I did not raise my hand again.

All right. Thank you.

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 joining us today. As you can tell, we continue to execute on all of the opportunities that we see ahead of us, the strategies we've laid out now 3 years ago have -- 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. 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 the spin date. 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 while maintaining the operational excellence they need for the kinds of systems we run mission-critical systems. And so for us, at Kyndryl, we'll continue to capitalize on those opportunities 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 and new innovation and bring all of that to our customers. It is pretty clear, I think, that 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 Lori and I and a few others of the leadership team will be there November 21, and we're looking forward to having you join that as well. So thanks, everybody, for joining.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.