Kyndryl at Citi’s 2025 Conference: Strategic Shift and AI Focus

On Wednesday, 03 September 2025, Kyndryl Holdings Inc (NYSE:KD) presented at Citi’s 2025 Global Technology, Media and Telecommunications Conference, detailing its strategic transformation post-IBM spin-off. The company highlighted investments in new capabilities and partnerships, alongside challenges such as a Q1 revenue shortfall. CEO Martin Schroeder emphasized a shift towards a service-oriented model, while CFO David Weiser reaffirmed financial goals despite mixed results.

Key Takeaways

• Kyndryl is focusing on the "three A’s" strategy: Advanced Delivery, Alliances, and Focus Accounts.
• The company has formed key partnerships with major hyperscalers like Microsoft and Google.
• AI is seen as a significant growth driver, enhancing efficiency and customer outcomes.
• Despite a Q1 revenue shortfall, Kyndryl maintains its full-year revenue guidance for fiscal year 2026.
• The company plans to pursue tuck-in acquisitions and share repurchases as part of its capital allocation strategy.

Strategic Transformation and Investments

• Independence from IBM has allowed Kyndryl to invest in new capabilities and partnerships.
• Partnerships have been established with leading companies such as Microsoft, Google, Amazon, Oracle, and SAP.
• A cultural shift towards a service-oriented model has been emphasized through the "three A’s" strategy.
• Significant investment in hyperscaler skills, expanding to 35,000-40,000 employees with hyperscaler credentials.
• Development of the Kyndryl Bridge platform to enhance service delivery and automation.

Financial Results

• Improvement in PTI margin from -3% to a guided +5%.
• Focus Accounts initiative has contributed $925 million in annualized benefits, with a target increase to $1 billion per year.
• Intentional revenue decline engineered to boost profitability.
• Positive revenue growth reported in Q4 of twenty five.
• Gross profit book-to-bill ratio remains above one for several years.

Operational Updates

• Alliances activity generated $1.2 billion in revenue last year, expected to grow to $1.8 billion this year.
• Consult business has experienced strong double-digit revenue growth.
• Hundreds of new customers have been acquired since the company’s spin-off.
• Automation is central to operations, with AI processes executed 170-180 million times monthly.

Future Outlook

• Kyndryl aims to triple cash flow, double profit, and achieve mid-single-digit revenue growth by fiscal year 2028.
• Improvement in cash flow anticipated due to a favorable tax position.
• New backlog is expected to drive P&L with a 9% margin.
• Hyperscaler business growth is expected to match market growth rates.
• Consult business is projected to continue as a growth driver.

Q&A Highlights

• Q1 revenue shortfall attributed to focus accounts and deal rollovers.
• AI is viewed as a positive force, enhancing efficiency and customer outcomes.
• Plans for capital allocation include tuck-in acquisitions and increased share repurchase activity.

Readers are encouraged to refer to the full transcript for a detailed understanding of Kyndryl’s strategic plans and financial performance.

Full transcript - Citi’s 2025 Global Technology, Media and Telecommunications Conference:

Unidentified speaker, Citi Analyst, Citi: I cover IT services at Citi, and we’re excited to have Kendra here today. And format, what we’ll do is we’ll go through some fireside chat questions, and then feel free to to raise your hand, and and we’ll try to get to you before before we’re out of time. But we’re excited to have Martin Schroeder as the CEO and David Weiser as the CFO. So we’re kicking off, and thanks for being here, gentlemen. Thank you.

Thanks for having us. So I guess I wanted to start kind of thinking about the high level as an independent company. You guys have obviously, you know, changed the the the whole picture here for for Kyndryl. Cultural transformations, the three a’s, investments and partnerships in technology. I was hoping you could start maybe and highlight the core elements of your strategy, why Kindrel matters to its customers, and what you see driving the success.

Perfect. Yes. Thank you. Thank you. This should only take

Martin Schroeder, CEO, Kyndryl: of the thirty three and a half minutes we have left. Yeah.

Unidentified speaker, Citi Analyst, Citi: I thought I’d start with

Martin Schroeder, CEO, Kyndryl: an easy one. No. No. It’s a great question. It’s a great question.

So so, look, what what we got out of the spin were two things that we’ve been able to use to fundamentally reposition, not what we do for our customers, but but the breadth of what we can do and how we do it. So so we got, obviously, an ability to invest. IBM obviously has an ability to invest, but they didn’t invest in this space. And so with that ability to invest, we’ve brought, new capabilities, innovation, and and moved into into market spaces that this customer base, quite frankly, has been asking us to play in even when it was part of IBM. So as an example, we’ve built capabilities around other hyperscalers, which were just impossible to do because we couldn’t invest.

And secondly, we got a freedom of action to pursue the the and be part of the ecosystem that really matters to to in the into our customers in the enterprise IT environment. And and we were very quick to take advantage of both of those. So we were very quick, for instance, to, to create a very deep and meaningful partnership with Microsoft. We did that a week after we were spun out, so that’s nearly four years ago now. Then with that followed with Google and Amazon and Oracle and SAP and others that we couldn’t just, we just couldn’t, partner with.

So so it it’s a bit reductive. But between an ability to invest and the freedom of action, we’ve been able to reposition this firm so that it’s very much part of our customers’ future as opposed to just part of their past. And at the same time then, and you brought up culture because it’s a really a important part of what we’ve done, we’ve been able to shift the culture from being part of a a product business, and this is very much a services business, and services and product businesses don’t have the same culture. We’ve been able to to to take on the culture to make this a great services business, and that’s allowed our customers to be more and more increasingly comfortable with, with the direction we’re headed, increasingly comfortable with our ability to solve their problems. And and as I said, we’ve used our ability to invest in our freedom of action to prove to them that we we are not only a great services business culturally, but we are, the deepest engineering talent that knows their challenges the best that is now also an independent adviser on on technology, on how to implement how to implement it, and how to run it.

So so at a very high level, those two things plus culture have allowed us to reposition the firm, and and we shorthanded all of that so that our investor base could follow along on our progress into what we call the the the three a’s. So we we created a strategy focused on advanced delivery. We created a strategy focused on our alliances and and, created a strategy focused on, on focus accounts. And that’s allowed us to, address the the position in which we found ourselves when we were spun out and to improve profitability, to return the business to growth, etcetera, etcetera, etcetera. So there’s there’s a lot more that we could get into.

I’ll ask David if he has a a comment on any of this, but we have taken on, the culture. We have created a strategy that that our investors can easily follow our progress. The nature of what we do is very sticky with our customers. And as long as as long as we continue to invest to bring innovation, as long as we show up as a great services partner, and as long as we remain that independent adviser, I think, you know, I I feel great about the future. I feel great about where we’re positioned in order to help them solve, quite frankly, their their hardest problems in mission critical infrastructure.

David Weiser, CFO, Kyndryl: Yeah. And I’m I’m sure we’ll get get into this, but the growth opportunities associated with this are really starting to become apparent too. And you could see it in the hyperscaler related growth that we that we’re delivering, and particularly the way our consult activities have grown over time, starting out at at about 10% of our our business, now over 20% on its way to 25%, We’re we’re, you know, just more and more actively involved in the advisory and implementation work that our customers need in addition to the managed services work that we’ve always done.

Unidentified speaker, Citi Analyst, Citi: Where were the investments focused to to kinda change the the the kind of the outlook? Where where did you guys focus those investments? So And I don’t know if there’s a dollar amount that that you guys had to invest in the company.

Martin Schroeder, CEO, Kyndryl: Yeah. So so a couple of things. So first, we invested with our partners pretty heavily in skills so that, as an example, we could create the the the volume of hyperscaler skills that we needed. We were we were, spun out with, you know, I would I’d say something in the dozens of hyperscaler related skills. We had a lot of IBM cloud skills, but the market share just wasn’t there to support it.

So we invested quite heavily in skills. As we sit here today, we probably have between thirty five and forty thousand people with hyperscaler credentials. So so heavily in skills, heavily in our capabilities around security, around resiliency, and around network operations, very heavily in our skills around applications and data and and, obviously, AI. And now we’re in in a in a a place where we’re investing heavily in our consult skills. So there’s a whole big, element of investment on skills that, that not behind us, but very good head start.

And then we invested quite heavily in in the platform that allows us to do what we do. It’s called Kindrel Bridge. It’s how we deliver services. And Kindrel Bridge is is the way we provide insights to our customers. It’s the way, as I said, we deliver services.

It’s also the way through its AI ops capabilities that we’ve been able to automate so many so much of what we do on our customers’ behalf, and that’s allowed us to, to build now agents around how to run how to run infrastructure. It’s allowed us to be much more efficient with labor. So, you know, when I think about the quantum of investments, you know, I would I would I would argue, and I I think I know investors knew this. When we were spun out, we were losing money, so we were we were, you know, minus 3% PTI margin or so. And and this year, we’ve guided to a, you know, kind of a plus five.

So I would argue that within those first early years, we were asking our investors to support those investments by allowing us to lose money. Then we’ve now built that into the run rate, so obviously we’re growing profitability, we’re improving profitability dollar growth, not just margin and we’re able to invest. So we’ve we’ve repositioned the business in a way that, yes, we’ll continue to invest. Yes, we’ll continue to bring innovation in the form of bridge and in the form of new capabilities and skills in the form of, of new security operation centers and network operation centers, but that’s sort of now in the business model, if you will. So now we can do both.

Now we can, return to growth. David said there are plenty of growth opportunities. We can keep investing,

Unidentified speaker, Citi Analyst, Citi: and we can keep growing profitability. Awesome. Wanted to ask about the the accounts initiatives in more detail, which to date, I think, contributed to annualized benefits of, I think, it’s 925,000,000. How do you address these focused accounts, and what’s still left to go in this initiative?

Martin Schroeder, CEO, Kyndryl: Yeah. It’s a great question. It has been, the single largest contributor on a cumulative basis to our profitability improvement. So first, for context, so focus accounts were were a thing. Focus accounts were something that we needed to address because the relationships that we inherited, the relationships that IBM spun out in the form of Kindle were all envisioned in a in a different model.

They were envisioned as an integrated services and product provider, called IBM, none of none of which, were envisioned with a separate services arm from a separate hardware and software arm. So so when IBM created the commercial relationship between these two now separate firms, it took about 40% of our business and and and made it essentially breakeven on a gross profit dollar base, I. E, whatever we were paying for the hardware and the software that IBM created plus our cost to deliver labor was basically all we were getting from customers. In total, when when we when we talk about it, think about it at at the start as about 8,000,000,000 of our revenue annually, but that’s only the annual revenue. The backlog associated with that was about $20,000,000,000 worth of backlog.

So so we inherited a set of relationships that essentially translated into an uneconomic, situation for us. And so our focus account initiative was really about reimagining these relationships for the new reality, commercial agreement with IBM that dictated how much we paid for hardware and software, a new set of capabilities from us and innovation and investments in the form of Kindle Bridge, plus a new set of partners around us that we could work with. And we saw we we saw, what I’ll call patterns emerge from how we kinda worked our way through this, not through it yet, but but how we worked our way through this. In in many instances, it was, doing more for the customers. It was expanding the scope at at better margins.

So we provide value. We get to capture some of that, and that allowed us to grow the relationships. In some cases, because the single largest determinant tended to be the commercial relationship that IBM created between Kindredell and IBM for the hardware and software, it was pulling the IBM hardware and software content out and having those customers go direct to IBM to procure it, and we would still run the services. So so when you look at our in our, our our revenue profile over since the spin, And and, again, we’ve shared this. We engineered a decline in revenue in order to improve profitability dramatically.

So in the first in the first two years, we took out over a billion dollars of revenue, and we added over $6,600,000,000 worth of profit profit dollars. Not just focus accounts, but a big part of that was focus accounts. So we’re we’re about 85% of the way through now, I would say. There is a a long tail to some of these relationships, but we’ll keep making progress. We’ll keep, you know, we’ll keep bringing innovation.

We’ll keep expanding the scope with with some of these customers. And and we’re able to do this, I would argue, sort of unique, I think. We’re able to do this because the nature of what we do for our customers, and and they love they love the service we deliver. It’s mission critical. It’s kind of hearts and lungs.

They wanted us to figure out how can we get the relationship between the customer and Kindrel back to a place where Kindrel can keep investing in my account, can keep bringing me innovation. Know, again, most of them felt like we need to figure this out with Kindrel. They were put in this position, by IBM, and so we we just we we need to keep them, on-site as our infrastructure services provider. So so, again, not done. Good progress.

Very good contributor to our profit growth. But I I would argue we’re kind of unique in our ability to execute a a leg of the strategy called focus accounts because of who we are, what we do, and and how good we are at it. Anything you did?

David Weiser, CFO, Kyndryl: Yeah. And and financially, this has been incredibly powerful for us. When we announced the focus accounts initiative and said, this is gonna add $800,000,000 a year of annual $800,000,000 a year of profit. That was a, you know, that was a big audacious goal. And now we’re already, as pointed out, at $925,000,000 run rate.

We’ve raised our target for the initiative to get to a billion dollars a year, and and we feel really good about our ability to to reach and and surpass that contribution from this initiative, which, you know, as I said, really makes it tremendously powerful and a huge huge source of value creation for us.

Unidentified speaker, Citi Analyst, Citi: Great. I I wanted to ask about the resilient top line. You guys delivered positive revenue growth in in the fourth quarter of of twenty five and significant margin expansion over the last two years that some of that was obviously coming from those focus accounts. But Q1 revenue did fall short of expectations. So I was hoping we could dig into that, get some color on what you’re hearing from customers and the cadence we should expect to see that gets you to that full percent one year or full year revenue guide for fiscal year twenty six?

Martin Schroeder, CEO, Kyndryl: Sure. Sure. So so, look, I I think first quarter for us was, as we as we said on our call, five weeks ago now, six weeks ago, it was a it was the start we needed to deliver the year. We’ll we’ll I’ll say more about that. And, obviously, this year gets us to what we laid out in our Investor Day, not quite a year ago now, of what we shorthanded to triple double single.

We’ll triple cash flow over the few years by doubling profit, we’ll exit fiscal ’twenty eight with mid single digit revenue growth. And all of this, what we delivered in the first, how we positioned this year is all on track to do that. So I feel good about where we are and what we’ve gotten done. This is a business where, like we had great signings quarter last year great signings year last year, book to bill well north of one. Gross profit book to bill has been well north of one for a number of years.

And and that’s important, but it’s not enough in any one year to drive the top line growth. And and as I mentioned earlier, through our focused accounts initiative, we engineered a pretty substantial decline in revenue, which starts as a substantial decline in signings. And so what you saw the prior two years was a book to bill well south of of one by design, and that’s what allowed us to grow profit, etcetera, etcetera, etcetera. So so this year, as we think about the year, first quarter starts fine. The signings in the last twelve months book to bill stays north of one.

And I would expect that this year we’ll have another book to bill north of one that will deliver again next year another an increment to what will grow this year, but that’ll deliver another increment of growth next year, again, on our way to finish it kinda mid single digit growth. So so for for me, when I think about the vectors of growth that we’ve had, couple things that are worth mentioning. First, our alliances activity, which was a 1,200,000,000 last year on a full year basis from basically a standing start at spin. We had we had really zero business built around the hyperscalers. So $1.2 last year.

We said that will grow to $1.8 this year. When we look at our first quarter performance, we’re right on track to deliver that $1.8 Consult also, great twelve months of prior twelve months of signings. Actually, the twelve months prior to that were also quite good. So unlike the total, which we’ve engineered a decline, the consult business in total has had a book to bill north of one essentially since we were spun out. And so what we see in consult is a good double digit revenue growth as that converts now, into revenue, and and we we see that continuing as well.

So we have these two growth factors of, alliances and consult, which continue. And then, again, good book to bill in total last year. We’ll have another good book to bill this year, which says that over time, the the rest of the business, sort of the managed services business, doesn’t represent a big engineer decline anymore, but rather it gets back to growth over time, which delivers then growth in the medium term. First quarter, I see is a good start. As we said on the call, second quarter will be a bit better sequentially from first, which is all we need to deliver the second half.

The compares get a little easier second half, particularly third quarter, but all consistent again with us delivering single digit revenue growth as we exit fiscal twenty eight. One one important topic and and sort of maybe linking two things. Part of why I think the the the we’re we wind up talking about these small numbers is because the magnitude of the two things we’re talking about. So as I mentioned earlier, the the focus account backlog that we inherited was, like, $20,000,000,000. Right?

8,000,000,000 of revenue in a year. So $20,000,000,000, which we’re working our way through, we’ve taken a lot of it out in the form of hardware and software and IBM. That’ll come over time. That’s what you see. That’s part of what you saw in the first quarter.

And then the growth rates, the the two vectors of growth are delivering growth, but the net of all of that, just for this year as an example, is only 1% growth. Right? So so the magnitude of and we’re a $15,000,000,000 company, so that’s a $150,000,000 of revenue. So the magnitude of these two things is just sort of at a point where the the backlog that we inherited that we’re working down is massive. The growth that we’re pointing to is still fairly small.

As we get out of this fiscal year and we pump a little bit more growth, the focus account backlog continues to erode. This phenomena, I think, works its way out. But we are a backlog based business. It’s part of the value of the business model, I think, us it gives us good visibility to the long term. But it does mean that you’re at in these in these, in these orders where the one is still so big and and and we have to work our way through it and the growth vectors yet aren’t big enough or as big as as we want them to be and only a small amount of growth, you get into these instances where where, you know, you could look at it and go, well, it looked like we we feel good about.

I feel good about the quarter. I think we’re well positioned for the year.

Unidentified speaker, Citi Analyst, Citi: And and so in particularly in the in the first quarter, what was the shortfall and why doesn’t it linger, you know, throughout the year?

Martin Schroeder, CEO, Kyndryl: So a couple of things. One, focus accounts are certainly, you know, a a part of what we’ve been engineering, and and the offset to focus accounts has always been the two growth vectors. We know what the backlog looks like, and we know what the backlog runout looks like. And so we have pretty good visibility to to what does that how does that managed services business the decline, how does reduce over time? We have pretty good visibility to that.

Then on the other side, while and we talked a little bit on the call about you know, some deals that rolled over into the into the next quarter. Many are closed. All will close at some point. We have we have very we’re I think we’re very good at predicting kind of the year and some when something will sign. We’re less good at predicting the quarter for a number of reasons, regulators, business kit, whatever it is.

So so that can have a small impact as well. So focused accounts certainly had an impact in the declines in the first quarter, And, the things that were growing were not growing enough to kind of completely offset that, but we know what that looks like over time and we feel good about about that the next three the next three quarters to get us to the year.

Unidentified speaker, Citi Analyst, Citi: Yeah. I wanted to drill in on some of those growth areas like Kindle Consult and the hyperscalers. How should we think about the sustainability of those and the contribution of the mix you’re talking about as it hits the revenue line?

Martin Schroeder, CEO, Kyndryl: Yeah. Sure. So look, I think in each case we had a little bit of a catch up. Think we’re still a little bit in the catch up mode on the hyperscaler activity. What I mean by catch up is we had essentially zero business with hyperscalers or capabilities built around the hyperscalers.

So given the role we play in our customers’ environments, our customers were asking us to help them with cloud migrations, with running their mission critical on the cloud. So that catch up has allowed us to grow, up to $1.2 this year, another 50 percent growth. Over time, the catch up finishes, I think that business looks like hyperscaler growth, plus or minus a few points. So if hyperscalers are growing 26, 27 to 32, 33, then I think we’re within a few points of that kind of a growth rate over the long run. And then on the consult side, as David mentioned, it was a very small part, 10% of our revenue mix.

And again, customers were asking this business to bring its advisory skills, to bear to solve their toughest problems. Now with our investments, our additional capabilities, we’ve been able to grow that business. Some quarters, revenue grows 50%, 40%. Over time, that will also reduce, I think, to a good solid double digit growth rate. But we still see the demand.

We still see a book to bill that’s well north of one. While we’ve caught up, we’re still not at the mix that we see in other businesses. So we took, you know, 10% of our mix of revenue was advisory and consult. We’re now in the 20%, but we see others that have, you know, mixes of consultant in the 30 to 40 range. So I think there’s still more that, that will drive, a good tailwind for us, over the over the medium over the medium term.

Anything you’d

Unidentified speaker, Citi Analyst, Citi: Yeah.

David Weiser, CFO, Kyndryl: And and consult and hyperscalers are both opportunities for us to grow share of wallet and to expand into new customers. And we’re seeing our ability to grab both of those growth opportunities for us. And NIV share of wallet is being kind of a key source of maybe dollar growth, but at the same time we’ve added hundreds of new customers since our spin. And often those start with a consult relationship or end or hyperscaler related activity. And then that translates into a combination of consult work and managed services work over time.

Unidentified speaker, Citi Analyst, Citi: Martin, you mentioned earlier the triple double single from the Analyst Day. How should analysts or how should the investment community think about the progress and maybe describe your visibility and confidence going towards that mid single digit growth in top line. I think it’s $1,200,000,000 plus in pretax earnings and $1,000,000,000 plus in free cash flow by fiscal year. Yes. Sure.

Well, let

Martin Schroeder, CEO, Kyndryl: me start with the triple first. So I’ll work my way toward revenue growth. And we built this in a way that I think is very logical, very easy to follow along. So tripling cash flow is, I wouldn’t call it physics, but I would call it the fact base. And and it’s really driven by this by this idea that we were we were spun out with a horrible tax position, so we’ve been paying very heavily cash taxes in the first few years even though we didn’t make a ton of money.

And the result of that is that over the next few years, as profit grows, we will not be paying a ton more in cash taxes. So so our cash tax payments will basically be flat over the next few years while our profit while our profit moves to a billion 2. Right? Profit is the double. So so cash taxes, assuming David fills out the tax forms correctly, which I’m sure he will, cash taxes are the driver of that allows us to triple cash cash flow while profits double.

Profits double again, we’re a backlog based business, so so we have to keep delivering what we do. We have to keep putting things in the backlog at a single you know, high single digit margin. We share with our investor base every quarter what’s going into the backlog. And for the last now nearly four years, it’s been very consistently at 9%. So we know that the value capture is there.

We have to deliver. Excuse me. But the other thing that happens is in the backlog based business, even last year, a third year out of IBM, even last year, only half of our p and l was determined by what we put in. Half was still the inherited content that was spun out. Right?

Because that’s the nature of the contracts we have. We have we have four or five, six year deals. So so 50% was reflective of what we put in last year. 50% was reflective of what IBM spun out. This year, it moves to about two thirds, one third, which is great, but we’re years out now.

Right? So so I go through all of that because in the time frame that we laid out for Investor Day, fiscal twenty eight, it’ll be over 90% from what we put in, which is that 9% margin, and it’ll be less than 10% of what we inherited, which is which is a different margin profile. So that’s what gets us to a that what that’s what allows us to to we delivered, you know, we delivered a bit over three last year on a fifty fifty mix. We’re gonna do five this year on a two thirds, one third mix. So delivering nine, sorry, delivering a billion, right, doubling profit, billion 2, doubling profit with nine going in and it representing 9090%.

It is a lot of work to be done. It’s not like we can go on vacation for two and a half years. There’s a lot to get done, but it’s more physics than it is than it is something else. We just have to keep doing what we’ve been doing. We have to keep putting, high quality value capture, into the backlog, and we’ll get to the double.

And then importantly so that’s the triple. Triple is, is cash taxes. The double is just a mix of our p and l over time for a backlog based business. And then we wanted to build that very compelling triple double on a modest requirement for revenue growth. And the markets we serve, think support, a mid single digit growth rate.

Yes. It takes a little while to get there because, again, as I mentioned, one year of a book to bill north of one doesn’t deliver growth immediately. It takes a few years of that. So so we we didn’t want to put an enormous amount of pressure on, the revenue growth required because of how it takes to turn this business. So so single, you know, exiting a single digit is sufficient for us to grow profits, but double profits and triple cash flow.

So again, as we sit here now, I feel great about how we’re positioned. We will get to we will sign enough to continue to support that single digit revenue growth. And obviously, the mix of the P and L and the cash tax position allows us to deliver the double and the triple. Anything you’d add? Nope.

Wanted to turn to

Unidentified speaker, Citi Analyst, Citi: the big debate of AI. Can you talk a little bit about how do you think the services industry will be impacted by AI positively or negatively? And then how would it how do you see it for Kyndryl?

Martin Schroeder, CEO, Kyndryl: Yeah. It’s a great it’s a great question. So I I think a a a few things are important. First, we are we are massive users of and and have implemented AI. It’s it’s the way Kindredell Bridge runs.

It you know, in the in the in the continuum of AI, I I would put a lot of what Ridge runs on as the machine learning side of of AI. So we can spot patterns. It can use our engineers then to validate those patterns, and then we can automate a fix across our entire global delivery platform. So we do that now 170,000,000, 180,000,000 times a month, across our delivery platform, the use of automation to deliver what we deliver in a very efficient way. That’s allowed us to manage our labor costs.

It’s it’s allowed us to deliver higher quality. It’s allowed us to be more responsive. So AI sits at the heart of, how we do what we do. It’s also, obviously, like many others, we’re experimenting with AI across our functions. So David’s function is using it, operations, HR.

Others are using it as well. And there’s some, you know, there’s some good positive ways to run a company more efficiently with the use of AI spread through the functions, and that will also play a role for us over time. What we’re seeing in the marketplace in terms of how does AI affect services, I think we sit in a somewhat unique spot in infrastructure for a number of reasons. First and foremost, as I said, we’ve been we’ve been growing profit dollars even though we’ve been shrinking, our labor costs because we don’t either create value or bill based on how many people are in Right?

We’re delivering outcomes to customers. And while as we get more efficient, we have to share some of that with our customers, that doesn’t prevent us from growing profit and reducing labor in order to do it. So we have a slightly different relationship with AI. It’s for us, it’s tailwind for us, particularly for profit. We also play in a space where what we do is not it just can’t be done by a by AI today.

So AI is, you know, really good. If you went on to if you went on to ChatGPT or or or Claude, you you could ask it to write you a program. And while it it’ll write the code. And while you may spend a little more on testing, it it can actually write code. But if you went on to ChatGPT or Claude and said, I run this Oracle database of this size across this network on on on this cloud provider.

And, by the way, I have an x 86 data center that’s running, blah blah blah, SAP, and it just went down. What do I do? You’re not gonna get an answer. Right? ChatGPT, Gen A, I can’t manage an infrastructure for you, but it can help you with how you elements of how you do your work.

So so we’re sort of I think the impact to services of AI is gonna be mixed. It depends on where you sit in the value chain. If AI can do what you’re doing, then, obviously, you should be figuring out how are you gonna deliver value to customers in a different way. If if customers can use AI to do what you’re doing, then you really have a a a a a challenge. But as we sit here today, the the the the data we have, which is more than anybody has on how infrastructure runs, is hugely valuable to how we deliver, and and nobody else has that data.

But, also, you just can’t do what we do with AI in in in delivering infrastructure. In a in a future world where infrastructure and data matter, we’re sort of right at the heart of that. So so when we think about, you know, the what’s next next for us, and I mentioned the number of automations we have, those automations are now supporting agents that we use that not only of our own agents, but that we integrate with our partners so that we can deliver outcomes to our customers in a, again, in a more efficient way. And, yeah, we share some of that with them, but this is a very it’s a very exciting time to be in infrastructure services because AI is a massive tailwind to how we do what we do more efficiently.

Unidentified speaker, Citi Analyst, Citi: Has AI impacted pricing in infrastructure or not necessarily? Like, are the corporates asking, hey. You’re obviously getting cost saves. How can we get some of those saves?

Martin Schroeder, CEO, Kyndryl: We we’ve always been sharing savings and productivity. It’s part of the way you win. But I will tell you, again, we’re running mission critical. We are dealing with regulators in every industry in every country. And so, you know, the the question from regulators, as you would imagine around AI, is not the same one from from, from the CIO.

It it’s it it is it’s a different it’s a different world. It will take it will take a fair bit of work, and and we’re providing the advice. We’re providing the run assistance to our customers. It will take a fair bit of work to get regulators comfortable with embedding AI into, into the systems of record that exist today, which is really what what we run. Yep.

Yeah.

David Weiser, CFO, Kyndryl: And we also see AI as a as a growth opportunity for us. Our Apps Data and AI practice, has some has had some of the fastest signings growth across our entire business. And the the infrastructure needs our customers have, data foundations, data architecture, networking, and security associated with their own AI implementations all all represent significant, you know, growth opportunities for us, as we go to market and help them implement, what, what they want to implement and have the the compute power and the networking and the the data foundations and the security and the resiliency to do it the right way.

Unidentified speaker, Citi Analyst, Citi: Okay. I think we only got about sixty seconds left. So I do wanna ask about capital allocation. I know it’s 550,000,000 of free cash flow this year. We talked about the $1,000,000,000 plus in fiscal year twenty eight, and so you’re going to be gathering up some cash.

Is it M and A? Is it stock buybacks? Where should we see the capital allocation?

Martin Schroeder, CEO, Kyndryl: Look, I think you’ll see all of both of the above, right? So we have made one acquisition. It’s working out really, really well, and and we are always looking to either extend or or extend our lead or to get to a to get to a critical mass in a in a specific in a specific area a little bit faster. So we’ll keep looking at acquisitions. But as we’ve always said, these are small tuck in acquisitions that aren’t going to change the fabric fabric of what we do or the role we play in our customers’ environment.

So acquisitions are still on the list. And at the same time, we did initiate a share repurchase program and authorization last year our Board approved. We’ve increased the the activity under that. We’re a little bit more than halfway through the authorization, and we’ve increased it, each of the last three quarters. And look, given where we are, we’re gonna keep doing that as well.

And then we we see, as you said well, given the cash flow this year, we see an opportunity to return for another authorization at some point because we we think it’s a good it’s a good bet for us to make. Awesome.

Unidentified speaker, Citi Analyst, Citi: Well, great discussion. Thanks for being here, guys.

David Weiser, CFO, Kyndryl: Thank you. Thanks for having us.

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