Good day, and thank you for standing by. Welcome to the Kyndryl Fiscal First Quarter 2026 Earnings Conference Call. [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, Global Head of Investor Relations. Please go ahead.

Good morning, everyone, and welcome to Kyndryl's earnings call for the first fiscal quarter ended June 30, 2025. Before we begin, I'd like to remind you that our remarks today 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, 2025. Also, in today's remarks, we 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 event, which are available on our website at investors.kyndryl.com. With me for today's call 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. In the first quarter, we made significant progress on our strategic initiatives, continued to drive margin expansion and delivered a substantial increase in earnings. We're reaffirming our outlook for fiscal '26 and advancing well toward our fiscal 2028 objectives. On today's call, I'll update you on how we're executing our differentiated growth strategy. I'll also highlight how our leadership position and investments in innovation are driving demand for our services and powering sustainable, profitable growth. David will provide more detail on our recent financial results and our outlook. I'm very enthusiastic about our progress and our outlook because of the 39% year-over-year increase in our adjusted pretax income in Q1 because of the continued growth in Kyndryl Consult revenue, our ongoing collaboration with cloud hyperscalers and other leading technology partners and the expanded capabilities we're bringing to the market related to cloud, cybersecurity, AI and Kyndryl Bridge, resulting in record high customer satisfaction scores. Q1 revenue declined in constant currency as we continue to drive progress on our accounts initiative. In fact, all of the Q1 revenue change was attributed to our actions to address 8 focus accounts where we reduced our revenue by half and significantly increased our gross margin over the last year. We also saw some deals we had targeted for Q1 move out of the quarter. Throughout our global operations, we're leveraging our leadership in essential mission-critical services and benefiting from the investments we've made in our skills, innovation and alliances. By focusing on delivery excellence, automation and insights through Kyndryl Bridge and expanded technology partnerships, we've continued to achieve above-market growth in Kyndryl Consult, win new logos and add new scope to our customer relationships. Our progress is driving strong earnings growth and…

Thanks, Martin, and hello, everyone. Today, I'd like to discuss our first quarter results, the solid margins at which we're signing customer contracts and our outlook for fiscal year 2026. In the quarter, revenue totaled $3.7 billion, up slightly from the prior year quarter on a reported basis and a 2.6% decline in constant currency, primarily reflecting our focus accounts initiative. We continue to gain momentum in higher-margin advisory services. Kyndryl Consult revenues grew 30% year-over-year, which underscores how we're growing our share in this higher value-add space. Aggregate signings were up 2% year-over-year and a fraction of a point in constant currency in Q1. Our latest 12-month signings totaled $18.3 billion, a 43% increase from the year earlier period and are 1.2x our last 12 months revenue. We saw a particularly strong Q1 signings growth in our applications, data and AI and cloud practices, reflecting strong demand for services in these domains. Our first quarter adjusted EBITDA was $647 million, and our adjusted EBITDA margin was 17.3%, up 240 basis points year-over- year. Adjusted pretax income grew 39% to $128 million, and our adjusted pretax margin increased 100 basis points year-over-year. Our financial progress continues to reflect our strategic achievements, leveraging technology alliances, stepping away from empty- calorie revenues, fixing focus accounts, growing the consult portion of our business, driving efficiency throughout our operations and positioning Kyndryl to meet our customers' future IT needs. Our three-A initiatives continue to be an important source of margin expansion and value creation for us and remain integral parts of our operational and go-to-market approach. Through our alliances, we generated $400 million in hyperscaler-related revenue in the first quarter. This puts us on track to deliver $1.8 billion of hyperscaler-related revenue this year, a 50% increase from our fiscal 2025 total. Through our…

[Operator Instructions] Our first question comes from the line of Tien-Tsin Huang of JPMorgan.

I just want to ask on the top line, if you don't mind. Just on the first quarter revenue, how did that come in versus planned? And can you give us a little bit more detail on the growth cadence for the rest of the year? I'm particularly interested in the -- where the exit rate might be for fiscal '25 for the year to the extent that you have visibility?

Yes, sure. Thanks, Tien-Tsin, and thanks for joining this morning. Look, we have good momentum in the 2 growth vectors that we're -- we've been talking about and we continue to talk about to drive growth for us. Consult, as you saw, grew well in the quarter. It's got a good 12-month trailing book-to-bill ratio. So we see continued growth there. And our alliance activity which was $400 million in the quarter positions us well to deliver on the [ $1.8 billion ], which we thought we could get done. We still feel very strongly we can, and that's a 50% increase from last year. Remember, that business was basically 0 when we came out of spin. So we were able to build a good solid $1 billion business in a pretty short period of time. Overall, the book-to-bill on a trailing 12-month basis supports growth as well. So as we -- and I should say, importantly, our pipeline this year, as we sit here today versus where we were at this time last year, our pipeline is both well ahead of last year's and a bit less concentrated. You may remember that we had some pretty substantial deals signed last year. So we have an overall pipeline that is larger, but not because of any 1 or 2 deals. And so when I think about your question around what does the year look like, we'll accelerate from 2 -- into 2 from where we finished 1. And then we have a fairly easy compare in 3. And then again, we'll finish overall at where we guided, which was 1%. So I feel like we're pretty well positioned here. I'm not at all worried about what we're -- what we see in the pipeline. Some of the deals that we thought would have closed [indiscernible] closing now and will continue to close. So I feel like we're pretty well positioned.

Our next question comes from the line of Ian Zaffino of Oppenheimer.

I have been a little bit late, but I'm sorry if this was discussed. But on some of the focus accounts, have you noticed any trend among those focus accounts that kind of have been pushed out? And in your discussions, what is your confidence level of those signings actually being executed in this quarter? Or is this something where things are going to get pushed out more than a quarter or 2? So basically, was this kind of a timing issue or it's a couple of weeks? Or is this really a matter of months and quarters? And then also the follow-up would just be on buybacks. How are you thinking about buybacks? You have a lot of free cash flow coming your way in kind of the near to medium term. So would you defend your stock? And how do you feel about that?

Yes. So let me start -- thank you, Ian. Let me start on focused accounts first. Remember, when we started talking about this, we said it was very much a profit-focused part of our strategy, and we thought we could, in the medium term, deliver $800 million of benefit. We have since raised that a number of times. And what we see today on focused accounts is that we will deliver $925 million of cumulative benefit. Now having said all that, as you would imagine, the discussions happen because we are bringing innovation. We've repositioned this business. We've invested in our capabilities. We show up with the ecosystem that really matters and our alliance partners, and we've built a platform that brings real innovation in the form of Kyndryl Bridge. And all of that, I go through because there is a complexity to repositioning and reimagining these relationships. We made a ton of progress in the first 3.5 years, and we will continue to make progress in our focused accounts, but you have to land it in a deal, in a relationship that is value creating for customers, that's value creating for us. And sometimes there's a third party involved as well. So bringing all of that together does make it a little bit sort of tricky to try to predict when these might close. But having said all that, as an example, one of the focused account transactions that we were working on in the first quarter, I think, closed like 23 minutes after the quarter ended. So I would put it into the fast start for 2Q. So that's not all of them. We didn't finish all in 23 minutes, but that's just sort of the nature of what happens with focused accounts. As long as we continue to bring innovation, we continue to deliver great service, which we do, and that's part of why our customers love what we do for them. We know the most about their infrastructure and their apps and how it all fits together. So we deliver great service, we bring innovation. We continuously invest in new capabilities to allow them to reposition themselves for the future and modernize their infrastructure. We'll continue to make progress on focused accounts. But again, picking any one or -- picking when any one deal may close is a little bit harder. Do you want to add anything, David?

Just on the buyback question, we repurchased $65 million of stock in the quarter. And since we've launched the program in November, we've repurchased almost 2% of our shares outstanding. As we go into this quarter, we'll look at our cash flow. We'll look at the share price. We'll look at market conditions, we'll look at other factors and make a decision about how much stock to buy back. But we have over $140 million of available capacity under the existing authorization. And you're absolutely right, we're moving into the cash flow generating portion of the year for us. So we will have additional cash flow to deploy.

Our next question comes from the line of Divya Goyal of Scotiabank.

I wanted to get a little bit more color on the margins. So there has been a notable margin expansion as you detailed during your prepared remarks, but I wanted to understand if you could -- or if you could elaborate on beyond the account renegotiation, which is driving up the margins or renewals, annual consulting engagements, what could be some of the other catalysts that we could potentially see for margin expansion as the company continues to mature?

Yes. Yes. Thanks, Divya. So I'll point to a few things. First, as you said well, Kyndryl Consult is accretive to our margins. And obviously, our account focus activity has been helpful for our margins as well. But what I'd add to that is the data we share every quarter on the gross profit book-to-bill that's going in. And what's important here is that we continue to capture the value that we're creating with our customers. And it's, I think, evidenced by both the high single-digit margins that we share and also the growing and greater than 1 gross profit book-to-bill. But there are a few other things to keep in mind. One is that over time, because of the nature of this business, over time, more and more of our P&L is determined by what we've put in, by the margins I just described and obviously, less and less from what we inherited pre-spin. Now it takes a while, right? As we shared last year, last fiscal year, last fiscal year was our third fiscal year of being independent and only half of our P&L at the time was determined by what we put in and half was still from pre-spin activity. This year, that improves again to 67%. And every quarter, it gets a bit better. So by the time we get to the time frames that we talked about in our Investor Day when we laid out our triple-double-single and the double was obviously our profitability, Part of that is driven by the fact that 90-plus percent of our P&L will be driven by our own margins that, again, we've shared on what we've put into the backlog. So there is a timing element of this that because of the nature of this business is very powerful…

Our next question comes from the line of Jamie Friedman of Susquehanna.

Martin, David, good connecting here and good start. So a couple of questions. At a high level, Martin, how are you articulating the opportunity of AI-related technology transitions, both for the company and for your clients? That's the first one. And then the second one is, if you could just share how you feel about your visibility on the triple-double-single, especially relative to the trends in pretax margin on post-spin signings as demonstrated in Slide 15 in the deck. So first one on AI and second one on visibility.

Sure, sure. Thanks. So let's start with AI. So AI represents opportunities for us in a number of areas. Obviously, Kyndryl Bridge runs on AI, and it is our data and our IP that is allowing us to provide insights to our customers. It's allowing us to automate things and allow us to become much more efficient and drive a higher quality in our delivery platform for our customer base. So there is very much both a cost element to AI for us, cost savings element for AI, and there's a revenue opportunity that Kyndryl Consult takes advantage of in the insights that Bridge develops. So 2 ways that we benefit. Secondly, because of our deep knowledge that our engineers have of our customers' systems and because of the role we play in their environments, our customers are looking to us for both consult and run help with all the things that AI means to them. So as an example, in the start of the AI journey, you spent a lot of time on data, you spend a lot of time on data architecture. And our practices in data applications and AI is creating capabilities to help them. Similarly, when you implement AI in the kinds of workloads that we run, mission-critical kind of hearts and lungs, you have to be obviously very aware, very cognizant and prepared for the cybersecurity risks that come with that and importantly, the resiliency characteristics that are needed in order to -- in order to maintain resiliency as you implement new things. So we are the deepest in our customers' environments. We know more about how their systems run. And so while Bridge is helping us reduce cost and deliver more efficiently, and it's helping identify some opportunities for our consulting, we also have…

And Jamie, I'd just add, it really makes a lot of sense to point to the slide you did in terms of the margins that we're generating on our signings because that really is what produces a lot of the visibility into the margin growth that we project that we're confident we're going to have in the next few years. And in particular, when we look at how we're performing on contracts, our bid versus bid analysis, we continue to operate very close to the pricing that was projected on our signings. And in fact, the trend over the last year or 2 has been to move even closer to realizing all of the profit that was built into our signed margins. Originally, we were running 0.5 point to 1 point short. And on the deals over the last year or 2, we've been right in line and in some cases, slightly ahead of the margins we anticipated. So that's really helpful to our visibility.

Thanks, David. Operator, I believe that was our last question. So I'm going to pass the call to Martin to close it out.

Thank you, Lori. Thanks again, everybody, for joining us today. I am very proud of the global Kyndryl team. Together with our customers and our partners, we're innovating and we're creating new growth opportunities. Our steady progress this quarter continues across all the key growth areas of our business, and our unique run and transform approach is resonating with customers and delivering value and operational excellence to them. We have a solid game plan. We are relentless on execution, and I remain very confident in our ability to achieve our financial and operational goals, grow our revenues, expand our margins and increase earnings and generate free cash flow. So thanks again for joining us this morning.

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