Release Date: May 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Kyndryl Holdings Inc (KD, Financial) exceeded full-year targets for fiscal 2024, particularly in their 3A initiatives: alliances, advanced delivery, and accounts.
- The company reported strong growth in Kyndryl Consult, with double-digit revenue growth and triple-digit growth in hyperscaler-related revenue.
- Kyndryl Holdings Inc (KD) is pulling forward the timing of returning to revenue growth, now expecting positive revenue growth in the fourth quarter of this fiscal year.
- The company has successfully expanded its hyperscaler relationships and accelerated the adoption of Kyndryl Bridge, contributing to its growth trajectory.
- Kyndryl Holdings Inc (KD) generated positive adjusted free cash flow, demonstrating a focus on cash generation to support long-term strategies and goals.
Negative Points
- Despite overall growth, revenue in the fourth quarter totaled $3.8 billion, marking a 9% decline in constant currency, primarily due to intentional exits from negative, no, and low-margin revenue streams.
- The company anticipates a revenue decline of 2% to 4% in constant currency for fiscal 2025, with expectations of returning to year-over-year revenue growth only in the fourth quarter.
- Kyndryl Holdings Inc (KD) faces ongoing challenges in transitioning from transformation to growth, with significant efforts required to shift revenue mix towards higher-margin post-spin signings.
- The company expects to incur workforce rebalancing charges of roughly $100 million in fiscal 2025, indicating ongoing cost management and restructuring efforts.
- While Kyndryl Holdings Inc (KD) is expanding its consultative services, the broader consulting industry environment remains under pressure, posing potential challenges in maintaining growth momentum.
Q & A Highlights
Q: What makes Kyndryl macro resilient despite a weakness being continuously noted across the technology services ecosystem?
A: Martin J. Schroeter, Chairman & CEO of Kyndryl Holdings, Inc., explained that Kyndryl's resilience stems from investments in employee skills, new capabilities, and intellectual property, particularly Kyndryl Bridge, which provides actionable insights for customers. The company's mission-critical role and the integration of these elements into customer business outcomes contribute to its robust performance.
Q: What is driving the significant growth in Kyndryl Consult, and what could be a reasonable run rate for this business going forward?
A: Martin J. Schroeter highlighted that Kyndryl Consult's growth is driven by its focus on infrastructure, which is essential and non-discretionary, making it resilient in various economic conditions. The growth is supported by the deployment of Kyndryl Bridge across their customer base, enhancing system optimization and productivity. Schroeter anticipates a solid double-digit growth trajectory for Kyndryl Consult, supported by ongoing investments in capabilities and expansion.
Q: Can you provide insights on the inflection in signings and the impact of new logos versus renewals on pricing?
A: Martin J. Schroeter discussed that despite focusing on moving away from low-margin business, which impacts overall signings, Kyndryl has managed to grow by focusing on expanding relationships within their existing customer base. He expressed confidence in Kyndryl's ability to attract new customers and drive revenue growth through new scope and capabilities offered.
Q: How has Kyndryl managed to improve gross margins and maintain high-quality delivery across different global regions?
A: Martin J. Schroeter affirmed that Kyndryl's delivery remains world-class, attributing it to investments in advanced delivery initiatives and Kyndryl Bridge, which enhance service quality and efficiency. These investments have significantly contributed to gross margin improvements and high service levels.
Q: Why is the accounts initiative in the 3As strategy performing better and faster than expected?
A: Martin J. Schroeter explained that the success of the accounts initiative is due to strong customer engagement and the investments Kyndryl has made in innovation and capabilities. These factors have accelerated the restructuring of relationships and improved profitability more quickly than anticipated.
Q: What are the demand drivers for Kyndryl Consult, and how durable are these drivers looking into FY '25 and beyond?
A: Martin J. Schroeter noted that the demand for Kyndryl Consult is driven by the essential nature of the services, such as system optimization, resilience, and readiness for Gen AI. These drivers are supported by ongoing investments in skills and capabilities, making them enduring and likely to continue driving growth in FY '25 and beyond.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
