Kyndryl Holdings, Inc. · NYSE:KD
Kyndryl — Investor Day (October 2021)
53 slides from Kyndryl's investor day presentation, October 2021
Slide 1: Investor Presentation October 2021
We design, build, manage and modernize the mission-critical technology systems that the world depends on every day. Investor Presentation October 2021
Slide 2: Disclaimers
Disclaimers Forward-looking statements This presentation contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements often contain words such as “will,” “anticipate,” “predict,” “project,” “plan,” “forecast,” “esti
Slide 3: Disclaimers (continued)
Disclaimers (continued) Securities matters This presentation and the information contained herein (unless otherwise indicated) have been provided by Kyndryl solely for informational purposes. This presentation does not constitute a recommendation regarding the securities of IBM or Kyndryl. This pres
Slide 4: Presenters
Presenters Martin Schroeter David Wyshner Chief Executive Officer Chief Financial Officer Elly Keinan Una Pulizzi Group President Global Head of Corporate Affairs Antoine Shagoury Chief Technology Officer 4
Slide 5: Who we are
Who we are Kyndryl has unrivaled expertise in designing, building, managing and modernizing complex, mission-critical information systems 5
Slide 6: Kyndryl at a glance
Kyndryl at a glance Recognized Industry Leader Our Services Our Customers We work in partnership with thousands of customers, Cloud dedicated to ensuring that each achieves its peak digital Delivering seamless, integrated, multicloud performance management in a hybrid model Leader: MarketScape: Worl
Slide 7: Noteworthy facts about Kyndryl
Noteworthy facts about Kyndryl 90,000 employees with 90,000 employees 750,000 with and virtual servers Operations in 63 countries 10+ years of experience 10+ years 270,000 of experience network deviceson on average average managed Able to process 6 trillion 25,000+ SAP and Oracle Managing vast mainf
Slide 8: Kyndryl solves critical customer technology issues
As digitization continues, Kyndryl solves critical customer technology issues with a comprehensive suite of capabilities Growing risk Barriers to As companies requires Top challenge: transformation: play catch up increased IT infrastructure Complexity & security skills shortages 1/2 1/3 62% Top 3 of
Slide 9: Investment highlights
Investment highlights Separation more than doubles our addressable market from $240 billion pre-spin to $510 billion by ✓ 2024, with market growth driven by numerous interrelated tailwinds World leader in designing, building, managing and modernizing mission-critical information systems ✓ spanning t
Slide 10: Strong commitment to ESG principles
Strong commitment to ESG principles Environmental Social Governance • Continue and expand our • Make a positive impact on society • Management incentives aligned renewable energy objectives through our operations and practices with shareholders - In 2020, over 60% of the electricity consumed in • Di
Slide 11: World-class Board with strong global experience
World-class Board with strong global experience leading some of world’s largest organizations Board of Directors Stephen Hester Martin Schroeter Lead Independent Director Chairman of the Board and Former Chief Executive Officer, RSA Chief Executive Officer, Kyndryl Insurance Diverse and complementar
Slide 12: Separation more than doubles our addressable market to $510 billion
Separation more than doubles our addressable market from $240 billion pre-spin to $510 billion by 2024 12
Slide 13: Large and growing addressable market with interrelated tailwinds
Large and growing addressable market benefitting from multiple interrelated tailwinds Greater demand for Rapid data growth Accelerating pace of digital transformation Enterprises created and technological services captured an estimated 64 advancement ~65% of GDP will be digitized zettabytes of data
Slide 14: Freedom to extend expertise to faster-growing service offerings
Kyndryl has freedom to extend mission-critical expertise to faster-growing service offerings Network Services $510B ~$509 Intelligent Automation Data Services ~$415 $415B Intelligent Automation New markets are Higher Data Services Cloud Services New markets higher growth value available to Cloud Ser
Slide 15: World leader in designing, building, managing and modernizing mission-critical systems
World leader in designing, building, managing and modernizing mission-critical information systems 15
Slide 16: Benefits of being the world's largest IT infrastructure services provider
We derive benefits from being the world’s largest IT infrastructure services provider Managed Infrastructure and Implementation Services Leaders1 Unmatched intellectual capital and Sector Revenue intellectual property # Company (B) M More than 3,000 issued patents, plus 800 pending 2 DXC Technology
Slide 17: Mission-critical capabilities for digital transformation journeys
Mission-critical capabilities catering to customers’ digital transformation journeys Drive transformation and agility Maintain business continuity and reduce Enable workload operational risk portability Capitalize on pace of technology change Digital Application, Workplace Data & AI Core Security &
Slide 18: Our strategic flywheel
Our strategic flywheel Harvest IP and Recognized insights to develop leader in and manage state-of- designing, the-art technology building, solutions modernizing and operating systems at scale Build and Customers maintain broad entrust us with ecosystem of their mission- strategic critical systems p
Slide 19: Elly Keinan
Elly Keinan Group President 19
Slide 20: Competitive advantage stems from our people, data and IP
Competitive advantage stems from our people, data and intellectual property 20
Slide 21: Continual investment in our people
Continual investment in our people powering world-class customer delivery of Kyndryl employees • Top-quartile NPS scores 96% acquire new skills annually hours of training 2.9M in first half 2021 • 99.8% attainment across 31,000 service-level agreements 247K skill badges earned1 LTM growth in 100%+ n
Slide 22: Unique insights from operational data built into our platform
Kyndryl generates unique insights from operational data, which we build into our platform • Resiliency and availability orchestration Capabilities • Cloud and service brokerage Customer • Enabling customers’ digital Platforms experiences • Continuous compliance Microservices • Automated health check
Slide 23: Trusted long-term partner to over 4,000 blue-chip customers
Trusted long-term partner to over 4,000 blue-chip customers, including 75% of the Fortune 100 23
Slide 24: Long-standing customer relationships
Our business is characterized by long-standing customer relationships 4,000 + Only 15% customers of revenue from top ten customers 75% of >50%Japan of Fortune 100 Fortune 500 are customers are customers 3 - 5 years 10+ yearsEMEA average contract term for average customer relationship managed service
Slide 25: Customer example: Digital transformation with public cloud
Customer example: Digital transformation with public cloud A major bank in Europe 10-year relationship Our Mission-Critical Role 2021 Transformation to the cloud We manage the core IT infrastructure • Kyndryl will enable the migration to a public cloud, offering security, data that enables key funct
Slide 26: Customer example: Digital transformation across the enterprise
Customer example: Digital transformation across the enterprise A Fortune 500 material sciences company in North America 16-year relationship Our Mission-Critical Role 2020’s Digital transformation We operate core systems that enable • Network transformation: software-defined, 5G, security and identi
Slide 27: New freedom to invest for growth
New freedom to invest for growth 27
Slide 28: Kyndryl's independence brings opportunities for growth
Kyndryl’s independence brings opportunities for growth Legacy GTS Independent Kyndryl Focused on multiple ecosystems, including faster-growing TAM Largely focused on IBM ecosystem ($240B) segment, hyperscalers ($510B, ~2x larger) Opportunity to grow with or above technology market Growth Trajectory
Slide 29: Independence brings opportunities to operate differently
Kyndryl’s independence brings opportunities to operate differently Flat, fast and focused culture delivering world- Speed through simplification class service quality Six global practices and a connected advisory Effectivenesss through integration and implementation services business Innovation thro
Slide 30: Capabilities, focused strategy and agility will drive enhanced growth
Our capabilities, focused strategy and new agility will drive enhanced growth Strategic actions… Targeting a larger market… Resulting in... • Expand mission-critical skills for modern digital environments Expertise • Continue to deploy new, more Increased engagement agile ways of working with custom
Slide 31: David Wyshner
David Wyshner Chief Financial Officer 31
Slide 32: Strong financial characteristics with $19 billion in annuity-like revenues
Strong financial characteristics with $19 billion in annuity-like annual revenues in 2020, ~15% adjusted EBITDA margins and investment-grade credit ratings 32
Slide 33: Spin logistics
Spin logistics Distribution Date • November 3rd (after market close) Regular-Way Trading Begins • November 4th Distribution Ratio • One Kyndryl share for every five IBM shares held Expected Kyndryl Shares • Approximately 224 million Outstanding Post-Spin Expected Tax Treatment • Tax-free to IBM and
Slide 34: Investment-grade balance sheet with strong financial characteristics
Investment-grade balance sheet with strong financial characteristics $19.1B $5.2B Annual pro forma revenues (2020) Available liquidity2 ~15% $2.0B Adjusted EBITDA margin1 Post-spin cash balance $0.8B Late 2024 Average annual cash flow from Earliest debt maturity operations (2018-20) 1 See appendix f
Slide 35: Diversified sources produce annuity-like revenue streams
Diversified sources produce annuity-like revenue streams By geography By sector Asia- Pacific Distribution & Other 8% 16% 16% Japan 38% Telecom Americas 13% 47% Financial Services Public 11% 38% 13% EMEA Industrial 2020 pro forma revenue: $19.1 billion We typically begin each year with ~85% of our e
Slide 36: Pro forma adjusted EBITDA
Pro forma adjusted EBITDA ($ in millions) Pro forma Pro forma 2020 2020 adjusted pretax income EBITDA (Form 10) Our pro forma adjusted EBITDA margin was 15% in 2020 See appendix for reconciliation of non-GAAP metrics 36
Slide 37: Pro forma adjusted free cash flow
Pro forma adjusted free cash flow ($ in millions) Pro forma Pro forma 2020 adjusted 2020 adjusted pretax income free cash flow Capital expenditures are less than depreciation expense as we become asset-light over time Pro forma adjusted pretax income excludes separation-related costs and workforce r
Slide 38: 2021 outlook
2021 outlook 2020 Pro Forma 2021E Pro Forma (in millions) (in billions) Revenue $19,096 $18.5 – 18.7 Growth, in constant currency (6%) 1 (6%) – (5%) Adjusted EBITDA $2,918 $2.8 – 2.9 Adjusted EBITDA margin 15.3% 15.0% – 15.7% Adjusted pretax income $67 $0.1 – 0.2 Adjusted pretax margin 0.4% 0.5% – 1
Slide 39: Core financial objectives
Core financial objectives Stabilize, Expand margins Re-invest in our Maintain and then grow business to strengthen revenues generate strong investment-grade returns credit profile Expect to drive strategic progress over the next three years 39
Slide 40: Revenue growth and margin expansion opportunities
Revenue growth and margin expansion opportunities Revenue Margin • Invest in sales and skills, especially cloud-related ✓✓ • Increase higher-margin value-add advisory and implementation volumes ✓ ✓✓ Pivot to growth • Grow data services, applications and edge practices ✓ ✓ • Grow cybersecurity and re
Slide 41: Future revenue and margin milestones
Future revenue and margin milestones Current Near-Term Medium-Term 20% of employees have cloud-related Extensive training of employees, 50% of employees have cloud-related certifications leveraging new partnerships certifications Limited share in applications, security, Industry-recognized leadershi
Slide 42: Key financial attributes
Key financial attributes • Approximately $2 billion of cash at close Liquidity • Committed $3 billion five-year undrawn credit facility • Cash flow from operations • Investment-grade credit rating Capitalization • $1.2 billion of net debt at spin – net leverage of 0.4x1 • Well-laddered debt limits r
Slide 43: Focused, growth-oriented culture, led by experienced executive team
Focused, growth-oriented culture, led by highly experienced executive team 43
Slide 44: Highly experienced leadership team
Highly experienced leadership team from IBM from external, with IBM experience from external Nel Akoth Michael Bradshaw Vic Bhagat Chief Transformation Officer Chief Information Officer Senior Partner, Advisory Practice Gonzalo Escajadillo Harsh Chugh Maryjo Charbonnier Strategic Solutions Chief Ope
Slide 45: Investment highlights
Investment highlights kyndryl
Slide 46: Investment highlights
Investment highlights Separation more than doubles our addressable market from $240 billion pre-spin to $510 billion by ✓ 2024, with market growth driven by numerous interrelated tailwinds World leader in designing, building, managing and modernizing mission-critical information systems ✓ spanning t
Slide 47: kyndryl
kyndryl
Slide 48: Appendix
Appendix kyndryl
Slide 49: Appendix
Appendix • Reconciliation of non-GAAP metrics • Investment-grade credit profile • Rationale for the spin-off Some columns and rows in these materials, including the supplemental exhibits, may not add due to the use of rounded figures 49
Slide 50: Reconciliation of non-GAAP metrics
Reconciliation of non-GAAP metrics Reconciliation of net income to pro forma adjusted pretax income and pro forma adjusted EBITDA ($ in millions) 2020 Historical Net Income / (loss), as reported ($2,011) Plus: Provision for income taxes 246 Income / (loss) before income taxes ($1,766) Pro forma adju
Slide 51: Reconciliation of non-GAAP metrics (continued)
Reconciliation of non-GAAP metrics (continued) Reconciliation of cash flow from operations to pro forma free cash flow and constant currency growth rate ($ in millions) 2020 Historical cash flow from operations (GAAP) $628 Plus: Workforce rebalancing payments 268 Plus: Pro forma adjustments without
Slide 52: Investment-grade credit profile
Investment-grade credit profile ($ in millions) Cash $2,013 Debt: Revolving credit facility (undrawn) - Term loan due 2024 $500 2.05% notes due 2026 700 2.70% notes due 2028 500 3.15% notes due 2031 650 4.10% notes due 2041 550 Capital leases and other 337 $3,237 Net debt $1,224 Net leverage1 0.4x 1
Slide 53: Rationale for the spin-off
Rationale for the spin-off Value through focus: IBM separation into two industry-leading companies creates strategic flexibility and focus to drive shareholder value • Creates two industry-leading enterprise technology companies with Kyndryl mission-critical portfolios ~$19B Revenue • Increased clar