Kyndryl Holdings, Inc. · NYSE:KD
Kyndryl — Q4 2021 Earnings Presentation
40 slides from Kyndryl's earnings presentation, Mar 1, 2022
Slide 1: Fourth Quarter 2021 Earnings
Fourth Quarter 2021 Earnings March 1, 2022
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: Martin Schroeter, Chairman and Chief Executive Officer
Martin Schroeter Chairman and Chief Executive Officer
Slide 4: Key highlights
Key highlights Successfully completed Delivered fourth quarter Announced significant our spin-off and results in line with new partnerships with expanded our expectations key technology providers addressable market Expanded existing Further enhanced our Implementing three relationships and signed se
Slide 5: Our independence unlocks a large and growing addressable market
Our independence unlocks a large and growing addressable market Market trends are producing industry tailwinds Becoming independent changes Kyndryl’s mission $510B Applications, Data & AI Growing demand Ongoing Increasing need for digital migration to for secure Cloud Services transformation the clo
Slide 6: We are transforming Kyndryl
We are transforming Kyndryl Building on our existing strengths + Benefiting from our “new freedom” + Focusing on profitable growth • World’s largest infrastructure • New ability to be provider- • Structuring relationships to services provider agnostic in designing solutions provide margins and ROI –
Slide 7: New opportunities with partners and customers
New opportunities with partners and customers • Landmark global strategic • Global strategic partnership • Strategic partnership bringing • Agreement to modernize partnership in service of focused on accelerating together expertise, skills and Raytheon’s digital technology enterprise customers custo
Slide 8: Customer example: Our transformation unlocks revenue growth opportunities
Customer example: Our transformation unlocks revenue growth opportunities Starting point Without spin With our “new freedom” Our Practices Annual revenue Annual revenue Annual revenue Core Enterprise Some workloads moving to Workloads moving to $100M $80M $80M & zCloud hyperscalers hyperscalers (no
Slide 9: We are focused on clear, important and achievable strategic objectives
We are focused on clear, important and achievable strategic objectives Pre-spin Medium-term Limited partnerships with hyperscalers, Extensive, integrated IT ecosystem ISVs and systems integrators 20% of employees have cloud-related certifications, 50% of employees have cloud-related certifications,
Slide 10: We have identified three major initiatives to drive our progress
We have identified three major initiatives to drive our progress Alliances Advanced Accounts Delivery Driving signings, Transforming service Addressing elements certifications and delivery through of the business with revenues with our new upskilling and substandard margins ecosystem partners automa
Slide 11: Alliances
Major initiatives Alliances Opportunity Action steps Fiscal year ’23 milestones • Revenue growth through • Develop new joint solutions to • ~$1 billion in signings tied to Driving signings, ecosystem partners power our customer outreach hyperscalers, virtually all certifications and • Increase in “s
Slide 12: Advanced Delivery
Major initiatives Advanced Delivery Opportunity Action steps Fiscal year ’23 milestones • Upskilling and automation • Implement advanced tooling • Redeploy to serve new sources Transforming service enhance delivery quality and processes across more of revenue than 200 of our larger delivery through
Slide 13: Accounts
Major initiatives Accounts Opportunity Action steps Fiscal year ’23 milestones • Turn around revenue streams • Engage constructively to adopt • Deliver $75 million of in-year Addressing elements that are generating substandard new solutioning and deliver benefit and enter fiscal year ’24 margins add
Slide 14: Margin expansion opportunities
Margin expansion opportunities Alliances Advanced Delivery Accounts Driving signings, Transforming service Addressing elements of the certifications and revenues delivery through upskilling business with substandard with our new ecosystem and automation margins partners and capabilities plus plus pl
Slide 15: Strong commitment to ESG principles
Strong commitment to ESG principles Environment Social Governance • Establish Kyndryl’s baseline, systems and • Execute human capital strategy to attract, retain • Establish Board oversight of ESG issues and processes to track and validate environmental and motivate our workforce commit to maintaini
Slide 16: David Wyshner, Chief Financial Officer
David Wyshner Chief Financial Officer 16
Slide 17: Financial overview
Financial overview Fourth quarter and Balance sheet, liquidity Outlook full-year results and free cash flow 17
Slide 18: Fourth quarter and full-year 2021 financial highlights
Fourth quarter and full-year 2021 financial highlights ($ in millions) 4Q 2020 4Q 2021 Full-year 2020 Full-year 2021 Pro Forma Pro Forma Pro Forma Pro Forma Revenue $4,879 $4,579 $19,096 $18,523 Growth, in constant currency (4%) (5%) Adjusted EBITDA $889 $667 $2,917 $2,730 Adjusted EBITDA margin 18.
Slide 19: Other items related to fourth quarter results
Other items related to fourth quarter results • We have revised our reportable segments to align with our post-spin operating structure Strategic United Markets States • Our principal earnings metric for segment reporting is $4.0B $4.8B adjusted EBITDA • Our reported Q4 results include $129 million
Slide 20: Global practices align to market segments and growth opportunities
Global practices align to market segments and growth opportunities Cloud Applications, Data & AI • Supporting private and public cloud environments • Delivering high-performance application and with hyperscaler alliances to help accelerate data environments 33% 4% customers’ digital transformations
Slide 21: Year-end 2021 balance sheet and cash flow metrics
Year-end 2021 balance sheet and cash flow metrics $5.4B $2.2B $(119M) Available liquidity1 Cash Cash flow from operations (full-year 2021) $3.2B 0.4x $904M Debt Net leverage2 Pro forma adjusted free cash flow3 1 Consists of $2.2 billion of cash and $3.2 billion of undrawn senior unsecured credit fac
Slide 22: Outlook
Outlook First Quarter 2022 Outlook Fiscal Year 2023 Trend1 (transition period January – March 2022) (year ending March 31, 2023) Signings • Double-digit year-over-year growth • Double-digit year-over-year growth • Approximately 85% of our revenue will Revenues • ~(5)% growth in constant currency2 co
Slide 23: Over the medium term, our initiatives will contribute to profit growth
Over the medium term, our initiatives will contribute to profit growth Alliances Advanced Accounts plus Delivery Driving signings, certifications Transforming service Addressing elements of the A&IS growth, growth in and revenues through our new delivery through upskilling and business with substand
Slide 24: Our initiatives will deliver substantial incremental profits over time
Our initiatives will deliver substantial incremental profits over time Fiscal year 2024: Fiscal year 2023: Medium-term Starting run-rate In-year benefits annual amounts Gross pretax benefit from initiatives $0.5B $0.2B $2.0B Impact of higher IBM software costs ($0.2B) ($0.05B) ($0.6B) Net pretax ben
Slide 25: Our strategies will help us deliver revenue and profit growth in the medium term
Our strategies will help us deliver revenue and profit growth in the medium term Revenue growth Growth Return to practices revenue Advisory & growth 2021 0% implementation services Accounts Medium-term (5%) Alliances Margin expansion Growth practices Advisory & implementation High-teens services EBI
Slide 26: Our strategic flywheel
Our strategic flywheel Harvest IP and insights to develop Recognized and manage state-of- leader in designing, the-art technology building, modernizing solutions and operating systems at scale Build and Customers maintain broad entrust us with ecosystem of their mission- strategic critical systems p
Slide 27: Martin Schroeter, Chairman and Chief Executive Officer
Martin Schroeter Chairman and Chief Executive Officer
Slide 28: Investment highlights
Investment highlights Separation more than doubles our addressable market from $240 billion pre-spin to $510 billion by 2024, with market growth driven by numerous interrelated tailwinds World leader in designing, building, managing and modernizing mission-critical information systems spanning t
Slide 29: kyndryl.
kyndryl.
Slide 30: Appendix
Appendix Accolades Our services Financial charts Definitions and Reconciliation of rationale for non-GAAP metrics non-GAAP metrics 30
Slide 31: Recent accolades highlight strong performance and customer satisfaction
Recent accolades highlight strong performance and customer satisfaction • Best Partnership • Leader in cognitive & self-healing • 2021 Global Enabling Technology (Kyndryl and Microsoft), 2021 IT infrastructure management, Leadership Award in the 2021 managed enterprise resource planning market • Sys
Slide 32: Our services
Our services Practice Overview Services Cloud Delivering seamless, integrated, multicloud • Design, build and provide managed services for multicloud environments management in a hybrid model • Lead end-to-end cloud-native transformation, plus strategic development, security and operations services,
Slide 33: Fourth quarter 2021 pro forma adjusted pretax income and EBITDA
Fourth quarter 2021 pro forma adjusted pretax income and EBITDA ($ in millions) Pretax Pro forma Pro forma income (loss) adjusted 2 3 adjusted as reported 1 pretax EBITDA income 1Effects of amortization of intangible assets, stock-based compensation, pension costs other than pension servicing costs
Slide 34: Full-year 2021 pro forma adjusted pretax income and EBITDA
Full-year 2021 pro forma adjusted pretax income and EBITDA ($ in millions) Pretax Pro forma Pro forma 2 3 income (loss) adjusted adjusted 1 as reported pretax EBITDA income 1Effects of amortization of intangible assets, stock-based compensation, pension costs other than pension servicing costs and m
Slide 35: Full-year 2021 pro forma adjusted free cash flow
Full-year 2021 pro forma adjusted free cash flow ($ in millions) Pro forma adjusted Pro forma adjusted free pretax income cash flow 35
Slide 36: Definitions and rationale for non-GAAP metrics
Definitions and rationale for non-GAAP metrics Metric Definition Pro forma adjusted Adjusted EBITDA is defined as net income (loss) excluding net interest expense, income taxes, depreciation and amortization (excluding depreciation of right-of-use assets and amortization of capitalized contract cost
Slide 37: Reconciliation of non-GAAP metrics
Reconciliation of non-GAAP metrics ($ in millions) Reconciliation of historical revenue to pro forma revenue 1Q 2021 1Q 2020 Year-over-year Change Historical revenue (GAAP) $4,771 $4,832 (1%) Pro forma adjustments* (63) (72) Pro forma revenue $4,709 $4,760 (1%) Pro forma revenue in constant currency
Slide 38: Reconciliation of non-GAAP metrics (continued)
Reconciliation of non-GAAP metrics (continued) ($ in millions) Reconciliation of net income to pro forma pretax income and pro forma adjusted EBITDA 4Q 2021 1Q 2021 4Q 2020 Full-year 2021 Full-year 2020 Net income (loss) (GAAP) ($740) ($494) ($719) ($2,319) ($2,011) Plus: Provision for income taxes
Slide 39: Reconciliation of non-GAAP metrics (continued)
Reconciliation of non-GAAP metrics (continued) ($ in millions) Reconciliation of historical cash flow from operations to pro forma adjusted free cash flow Full-year 2021 Historical cash flow from operations (GAAP) ($119) Plus: Workforce rebalancing payments 370 Plus: Pro forma adjustments* 697 Plus:
Slide 40: Signings
Signings ($ in billions) Reconciliation of historical signings to pro forma signings 1Q 2021 4Q 2021 4Q 2020 Full-year 2021 Full-year 2020 Historical signings $2.5 $4.4 $5.7 $13.5 $17.8 Pro forma adjustments* 0.1 - 0.3 0.4 1.4 Pro forma signings $2.6 $4.4 $6.0 $13.9 $19.2 * Adjustments to reflect th