Kyndryl at Morgan Stanley Conference: Strategic Growth Plans Unveiled

On Tuesday, 04 March 2025, Kyndryl Holdings Inc. (NYSE: KD) presented its strategic vision at the Morgan Stanley Technology, Media & Telecom Conference. The company outlined ambitious goals, including a tripling of free cash flow and a doubling of profitability. However, challenges such as IBM software costs were also addressed, with executives expressing optimism about future growth.

Key Takeaways

• Kyndryl aims to triple its free cash flow and double profitability in the coming years.
• The company plans to transition revenue sources to new signings with higher margins.
• Over 300 new customers have been added in the past three years.
• The impact of IBM software costs is expected to ease soon, aiding margin improvement.
• Kyndryl maintains a strong balance sheet with net leverage below one times.

Financial Results

• Triple Double Single Objective:

- Free cash flow is expected to triple.

- Profitability aims to double.

- Revenue growth is targeted at single-digit levels.

• Revenue Growth:

- Anticipated return to growth by Q4 of fiscal year 2025.

- Mid-single-digit growth projected by fiscal year 2028.

• Profitability:

- Over $350 million in profit added last year by reducing $1 billion in revenue.

- An additional $300 million in profit is expected this year.

• IBM Software Costs:

- A $200 million annual headwind is concluding, easing future margin improvements.

• Backlog Contribution:

- By the end of the fiscal year, 50% of P&L is determined by post-spin backlog.

- More than 90% of P&L will be based on the current backlog within three years.

Operational Updates

• Kyndryl Consult:

- Book-to-bill ratio is above one, with double-digit revenue growth.

- Focus on addressing skill shortages, regulatory requirements, and AI adoption.

• Alliance Activity:

- Revenue from hyperscaler alliances exceeded $1 billion this year.

• Kyndryl Bridge:

- AI operations generate 5 to 6 million actionable insights monthly.

• Customer Retention Rate:

- Maintains a retention rate of over 95%.

• New Customer Acquisition:

- Over 300 new customers added in the last three years.

Future Outlook

• Revenue Growth:

- Continued growth expected in Kyndryl Consult and strategic alliances.

• Focus Areas:

- Addressing customer challenges related to skill shortages, regulatory requirements, and AI adoption.

• Kyndryl Bridge Expansion:

- Anticipated continued benefits as the platform is more fully deployed.

• Capital Allocation:

- Emphasis on organic growth, strategic tuck-in acquisitions, and a share repurchase program.

• Balance Sheet:

- Strong financial position with net leverage below one times.

Q&A Highlights

• Tariffs:

- No direct impact observed; macro environment complexity could be beneficial.

• IBM Software Costs:

- Concluding headwinds will ease margin improvement efforts.

• Customer Acquisition:

- Focus on growing wallet share within existing accounts while adding new customers.

• Capital Allocation:

- Prioritizing growth through tuck-in acquisitions and share repurchases.

For a detailed understanding, readers are encouraged to refer to the full transcript.

Full transcript - Morgan Stanley Technology, Media & Telecom Conference:

James Floss, Senior Research Analyst, Morgan Stanley: All right. We’ll go ahead and get started here. Thank you very much to everybody joining us in person as well as those that may be listening via webcast. I appreciate you taking the time to join us chat with the senior management of Kyndryl. Quickly before I get started for important disclosures, please see the Morgan Stanley Research Disclosure website at morganstanley.com/researchdisclosures.

If you have any questions, please reach out to your Morgan Stanley sales representative. So, I’m James Floss, a Senior Research Analyst at Morgan Stanley covering IT Services. Very pleased today to have, as I said, the senior management from Kyndryl, Martin Schroeder, CEO, as well as David Wishner Wishner or Weishner? Weishner. Weishner, that’s what I thought.

Apologies for that, CFO. So, let’s just get right into it. I’ll start with you, Martin. Can you give us some detail on how Kyndryl is looking to achieve its triple double single growth objectives, which I have to say is one of the catchier summarizations of targets that I’ve heard. Triple double single, it’s easy to remember.

It’s like the three As were. So look, triple double single, let’s start with the triple and we put it in this order for a very specific reason, which we’ll kind of come to at the end. The triple is around cash flow, right? Our free cash flow over the next few years will triple from where we finish this year. And the driver is really twofold in the terms of the drivers.

One is, we will double profitability, which I’ll come to. But importantly, we were born with, we were spun out with a really poor tax position, which has created for us the need to pay taxes, even though as everyone who knows our profitability would suggest, we had a really high tax rate, like a super high tax rate. So the triple will happen. Again, I’ll get to the double, but it will happen because David will, I guarantee, file the tax returns correctly and we’ll have to be able to double our profits without increasing the cash tax payments that go along with that. So the triple, we feel great about the triple with the doubling of profits.

Profits will double, again, two reasons. One is we’ll grow revenue. We’ll return this quarter and then we’ll grow over the next few years. I’ll come back to that. But importantly, in a business like ours, we have a backlog based business.

And so when we were spun out, very little of our P and L that those first twelve months was what we put into the backlog. And even this fiscal year, we are out now over three years. Even this fiscal year, only half of our P and L is determined by what we’ve put in the backlog, which has been as we’ve disclosed quarter after quarter in that high single digit PTI range and the other half still comes from what we inherited. So next year it will improve again, but in the time frames we’re talking about more than 90% of what’s in our P and L will be what we’ve put in. So it’s really just what is a feature of our business model, which is great visibility to the future in form of a backlog, it actually becomes a feature.

Right now, it’s been a headwind for us. So the double happens because over the time frames, nearly all of our P and L is from what we put in and what we’ve showed everybody is we’re putting things everything we put into the backlog is at that high single digit PTI. So that’s the triple and that’s the double. It’s more time based and more it’s really just physics. It will happen.

And then all of that just relies on single digit revenue growth for us to finish the we kind of accelerate towards single digit revenue growth. And that’s very achievable for us, the vectors of growth that we’ve been talking about to return to revenue growth such as consults, such as alliances have been going very, very well and those will continue. And then as we’ve talked about in the past, as we move through now the account focus activity and the focus on profitability, the rest of the business comes back to growth as well. So the triple happens because we’ll get the tax forms done correctly. The double happens because of time based the time based realization of where the backlog is coming from and the single digit revenue growth is what we’re on track to do and have demonstrated that we can grow in this marketplace.

So we feel really good about the triple double single. So let’s dig into the revenue growth component. So you’ve said that you expect to return to revenue growth in Q4 of your fiscal year twenty twenty five and you’re targeting mid single digit growth by fiscal year twenty twenty eight. Can you and you’ve kind of touched on like the visibility, etcetera, but can you help us create a more detailed build of like how you think you get there and what the puts and takes might be? Sure.

Let me start and I’ll ask David as well to jump in. So again, the two growth vectors that we’ve relied on, that we’ve been investing in order to return to revenue growth and we’ve demonstrated quarter after quarter the build and Kyndryl Consult is a great example. The Kyndryl Consult book to bill is well north of one. In fact, our total book to bill is north of one now. We’ve been growing signings, but Kyndryl Consult has really done extraordinarily well.

And we still see a lot of momentum in that business. It’s grown double digit revenue and will continue to do so. So the underpinnings of the consult business, which are around addressing our customers’ challenges in skill shortages, new regulatory requirements and importantly taking advantage of the opportunities they see around AI, where we’re helping them retain the resiliency characteristics that they enjoy now, where we’re helping them architect their data in a way they can get to it. So the underpinnings of why consult continues to do well are really tied into those long term secular trends that our customers either want to invest in or need to deal with. Right.

And then on the alliance activity, as an example, which again, we’ve built now, we said we would build we would do $1,000,000,000 in revenue this year, right? The first year, you may remember, first year we said we will sign $1,000,000,000 worth of business related to the hyperscalers. And we signed over $1,000,000,000 we signed $1,100,000,000 or $1,200,000,000 And then we said this year we’ll turn all of that plus what we did the second year into $1,000,000,000 of revenue and we’ll exceed $1,000,000,000 of revenue. We’re on good pace for that. So that continues as well as our customers continue to consume things on public clouds, not necessarily because they’re moving workloads, but that is where the innovation is coming.

And every time a customer sees innovation or sees data or sees an opportunity to expand their footprint, expand their infrastructure, it’s a tailwind for us because that becomes more and more complex for them to manage. So those are the two drivers that got us this far. And then from here, as I said, in total signings have been growing because our content, the capabilities we’ve built, our ability to deliver insights to our customers through Kyndryl Bridge will continue to support a long term growth for the entire business, not just Consultant Alliance. And remember, we’ve engineered for the decline in revenue so we could fix profitability. And that’s not just a margin statement, it’s actually an absolute dollar statement.

Last year, we took $1,000,000,000 of revenue out and we added three fifty million dollars plus of profit. This year, we’re going to engineer a smaller decline in revenue in total, right? We’ll get back to growth this quarter, but we engineered a smaller decline, but we added again another $300,000,000 plus of profit. So it was the right thing to do in order to address the backlog, but now with consult going well, with alliances going well, and with the overall, the total back to growth, we have a good long term growth trajectory ahead of us. Anything you would add?

David Wishner, CFO, Kyndryl: That last point is a really good one in that the tailwinds that we’ve had associated with hyperscalers and our alliances and growth there and with consult growing so fast have been really powerful. And they’ve been outweighed to date by the actions we’ve taken to take revenue out. And while we still have some work to do in focus accounts to exit some empty calorie revenue, that’s going to be much less of a headwind going forward. And what you’ll see is, as we return to growth is the things that have been growing will continue to grow and they won’t have to overcome as much of a headwind from the stepping away from empty calorie revenue. And in fact, you’ve already seen some of that in our quarter by quarter progression already this year.

James Floss, Senior Research Analyst, Morgan Stanley: So, let me ask you just in terms of question of the day, we’ve gotten some questions of how potential tariffs, etcetera, could impact hardware pricing and corporate projects, etcetera. What are the key things that we should be looking for or that you would be looking at to determine whether that’s going to create any type of disruption or at least incremental questioning from your customers? Yes. So nothing I’ve seen yet is direct, if you will, impact to us. And we’re not producers of hardware.

Obviously, our customers will have to deal with that. And to the extent it makes them rethink their approach, it makes them rethink what they’re doing, again, these things tend to be tailwinds. We sit in a space, infrastructure services, particularly mission critical, is not a discretionary space. Right. So regardless of the world in which we live, regardless of the macro environment, your infrastructure needs to work to the extent that it causes consolidation in an industry or bifurcation in an industry or a different outlook on macro or to reconstitute your supply chain, all those things and each of those things tends to add complexity to what CIOs are dealing with today and complexity is a tailwind for us, writ large.

And we don’t have look, we don’t have a big government business. Federal government business for us is tiny. It doesn’t even round. It’d have to be a lot bigger to round to half a point of our overall revenues. So we’re not directly exposed to anything we’ve seen.

Our customers are in an environment where they’re trying to figure it out. But there are some things I think even if we don’t have to predict, we can expect. We can expect that we can expect that the regulatory environment around resiliency like we’ve seen in Europe continues to become harder for customers to deal with. We can expect that the world supply chains get incrementally more complex. We can expect that innovation shows up in lots of new places and therefore our customers are going to want to go to those new places to consume all of that, which again makes their infrastructure more complex.

So while the world is obviously changing and trying to react, all of everything I’ve seen so far says it’s a good tailwind both to the way we run and the opportunities we have ahead of us. Anything you need? No. That’s great. That’s great perspective there, Martin.

And so let’s dig in a little bit more on the composition of revenue in the Kyndryl business right now. And wondering if you can elaborate on how the mix between inherited backlog and post spin signings is evolving, especially I think on the latest figures that we found were that 50% of revenue comes from post spin backlog. Yes. This fiscal year, which is going to end in three weeks, three point five weeks. So again, just to step back for a second, in a backlog based business like ours, this is a really powerful part of the business model when the backlog is ours, I.

E, when you have a margin profile that’s gone into the backlog of high single digit profit, which is what we’ve been putting in since the first day we’ve spun. As you correctly pointed out, this fiscal year, which ends in the March, it was only fiftyfifty. So you can get a sense, therefore, from the nature of the relationships, for instance, that we have with our customers. It’s taken us three years to only have half of the business, to half of the P and L being determined by what happened in the last three years and four months. That’s a really powerful feature of where we’re going.

It’s really powerful from a what does the future look like, how certain can I be, what are you focused on now, how do you adjust how do you adjust your skill space to be ready for whatever’s next? It gives you a sense of how powerful that is from how to manage the business, but it also gives you a sense of how powerful that is for our ability to allocate capital and be right. So next year, next fiscal year, we’ll enter next fiscal year expecting about two thirds of our P and L next year will be determined by what we do, maybe a little bit more. And now we’re a third or less from what we’ve inherited. And then it will continue to roll out, as I mentioned, in my triple, double, single.

The double is because in the timeframes that we’ve laid out for in our Investor Day, the next three years, that will be more than 90%. So we’ll be largely through the inherited backlog in the next few years. And having said all that, we will still enter every year, every fiscal year knowing roughly 75% of what’s going to happen to us in the year. We’re always working on a bit of the upcoming fiscal year and we’re working on a little bit more of the year after and we’re working heavily on the third and the fourth and the fifth year out. That’s the nature of the business, which gives us that great visibility.

So historically, we’ve known 80% of what we’re entering, but as we get back to growth, obviously, you know a little bit less because there’s growth now coming through the year. So we’ll know three quarters still next year even though more than two thirds of our P and L is already there. That takes any math guy, so Yes.

David Wishner, CFO, Kyndryl: And we’ve been trying to share some of this math with investors the last few quarters using a metric that we called gross profit book to bill. How much gross profit are we adding to our backlog compared to what our backlog is actually throwing off into our P and L? And it’s been north of 1.3 times. Okay. So adding 30 plus percent more to our backlog than it’s throwing off into our P and L.

And it’s a real sign that we’re putting a lot of cookies in the cupboard, a lot of acorns in the yard in terms of future value that’s going to that’s stored up and ready to present itself through the P and L over time.

James Floss, Senior Research Analyst, Morgan Stanley: Got it. So, Mario, I want to ask, so you highlighted the strength in consult. And I’m wondering if you can walk us through how consult is really has been and should be tip of spirit for your managed services contracts and how project work has evolved under that framework? Sure. So a few things to note without using either cookies or acorns.

But a few things to note. First, the capabilities we’ve built based on where we have customer permission, where we have deep, deep knowledge of our systems and quite frankly where we’ve been building up skills because we’ve invested heavily in a consulting mindset, in a consultative led cell, is what’s driving some of the growth here. Quite frankly, even three point five years ago, the day before the spin and for many, many years prior, when this business was part of IBM, customers were asking this business to please help with a broader range of problems. Please help us move workloads to the Microsoft cloud. Please help us manage our SAP workload.

All the things that you would expect given what we do for them, but this business wasn’t allowed. It was required to sit in a very narrow field that supported a broader IBM mission. So what we’ve done is we’ve really met customers now where they are by investing in the capabilities, by investing in partnerships to become a part of the ecosystem. And that investment plus the innovation we’ve brought in the form, for instance, of Kyndryl Bridge is what has turned this business into a much, much bigger part of our overall revenue streams, but also growing much faster than what we’d expect because we’re meeting sort of that unmet demand, if you will, that’s been building and building and building. So in the form of capabilities and skills, we’ve moved out obviously of the very heavily focused IBM content and IBM technology depth.

We still have it. We have it at scale, but we’ve also been able to move now into having probably nearly 40,000 hyperscaler cloud certifications and credentials and experience in helping customers. You don’t build a $1,000,000,000 a year business without having the skills and the credentials and experience. So we’ve invested heavily in that. And then we’ve also invested heavily in bringing innovation.

And Kyndryl Bridge is the platform that we use to deliver what we do to our customers. And within Kyndryl Bridge, there are some really powerful AI ops features that give insights to our customers that is also serves it gives them insights so they can understand, they can manage, they can see how their environments are being managed, but it also gives them ideas and it gives them what we call insights to what they should be doing. So as an example, we can tell every customer their data plus how do they stand in the industry, how do they stand in their country, for instance, on where are you on how much of your infrastructure is end of life. Right. End of life is easy to say, but end of life means you’re not getting patches, you now have new security exposures, etcetera, etcetera, etcetera.

So we can tell them where they are end of life. We can tell them how many of the issues they have in every device are solved in an automated way. And Kyndryl Bridge does a lot of the automations for them. We can tell them how what percentage of industry best practice and as you would imagine every technology provider is shipping out new best practices by the dozens every month. And when you have a big complex infrastructure with hundreds of products, it’s almost impossible to keep up with all that.

Kyndryl Bridge can tell them what percentage of industry best practice are you running at. So how resilient will you be in the case of an issue? And obviously, we give them through Kyndryl Bridge full visibility. So Kindrel Consult not only benefits from being part of the ecosystem that matters, having a much broader mission now to help across a much broader range of technology and knowing deeply and intimately their infrastructure, but it also benefits by having this view of their infrastructure and what it needs and what’s the right next step. And these are very by and large, these are very practical sort of ideas for them that solve real business challenges.

So our for instance, our consultants, when we show up to talk about Dura, Dura is the new resiliency regime that every financial services company in Europe has to comply with. Typically, when we show up not typical when we show up, we show up with here’s what your infrastructure looks like, here are the five things you need to do to these 12 servers, etcetera, etcetera, etcetera, we can get it done. Others show up with let me explain what Dora is and how can we help. And that’s not an idea. That’s just I’d like some business, but we show up in a very practical way solving a real business problem because we know their infrastructure.

So Kyndryl Bridge has benefited from where we started, but more importantly has benefited by the investments we’ve made in skills, investments we’ve made in innovation to make it real for customers. So I want to ask there about you mentioned AI and how that’s benefiting Kyndryl Consult. And look, Kyndryl Consult is growing at double digits and that’s great. But what is the long term vision for that business unit as it relates to AI? One of the things that we’ve heard speculated by services companies is that AI may represent a good opportunity for services companies to finally develop their own IP, get pricing on that and even incremental leverage and profitability in the long run.

But is that a pipe dream or how are you thinking about like the things that you can do with it? Yes. No, I would say that and again, I’ll ask David to comment on what he sees, but I would say that we are already experiencing the accretive benefit of AI in what we do for our customers. So again, I’ll give you an example. If Kyndryl Bridge and AIOps identify an issue, yes, it may go to some of our Kyndryl consult team to engage with a customer.

But a lot of times, we can just solve the problem for them and it doesn’t require new labor. We can automate it. And so we already see in many instances the ideas that Kyndryl Bridge, again through AIOps, is developing have much, much more accretive margins than other work. Our consult margins are already accretive to our total. Yes.

But some of the Kyndryl Bridge margins are double that again, because again, we can get the work done without people. Now our business model, bear in mind, our business model isn’t one that is focused on putting more people to work in a customer’s environment. Our business model is create business value with a combination of IP, our data and sometimes our expertise. But we’re not necessarily better off just like our customers aren’t necessarily better off if we find an idea and the only idea is to figure out how do we put 100 more people, how do we put 100 more kindles in the account. Quite often, as I said, we can address the issue in an automated way, not add any labor cost and have super accretive margins on what’s coming out of Kindrel Bridge.

And AIOps is generating 5,000,000, six million actionable insights a month. So this is already hitting a scale where we’re starting to see the benefit in the P and L. I expect that to continue. I expect that Kyndryl Bridge as we get more fully deployed, as we learn more, we have already the biggest set of data. No one’s going to catch us in data on infrastructure.

We have already the IP that is ours around how do we do them how do we execute machine learning to use our data. So, yes, we’re seeing it today is the short answer.

David Wishner, CFO, Kyndryl: Yes. In an AI environment, it’s a lot of fun to be the leader and being the, as Martin was saying, being the leader in our space in infrastructure, having the scale that we do, having the operational data about how systems work and interact with each other to feed into AI models, I would say sort of puts us further and further in the lead combined with the fact that as a leader and being fully committed to this space, we’re investing in these technologies. And as a result, I think we’re really expanding the capabilities we have in a way that sort of accelerates compared to anyone who doesn’t everyone who doesn’t have the amount of operational data that we have, isn’t as committed to the space and isn’t investing in it the way we are. So what that results in is the opportunity for Kyndryl Bridge to be even more of a value added, value providing element of what we do. And certainly, that can express itself in terms of stickiness in margins and winning new customers as well.

So, I think there will be just a ton of salutary benefits associated with operating this way.

James Floss, Senior Research Analyst, Morgan Stanley: Got it. We’ve been chatting here for about twenty five minutes. If there are any questions from the audience, please raise your hand. We’ll get your microphone. There’s one right here in the back.

Unidentified speaker: Could you guys just talk a little bit about the software, the IBM software cost? And I think the headwinds have been kind of dramatic over the last few years there from a margin perspective. How do you see that going forward in your triple double single philosophy? And then you talked about maybe the opportunity where it’s not as structural to just add the cost in every year, you can rationalize the seats. Is there also an opportunity like is there my estimation is a pretty big bill, like is there also an opportunity now that you have partnerships outside of IBM to move some of that software to other providers that might be a better deal?

James Floss, Senior Research Analyst, Morgan Stanley: I’ll start. I’ll ask David to complete as well. So a couple of things. First, I like the idea of triple double single as a philosophy. I mean, it’s more of a way of life for us, but I like the idea of philosophy.

Look, we as you correctly pointed out, the headwinds that IBM shipped us off were pretty substantial, right? The first three years each year, we had to pay them $200,000,000 more for software. Now we’re at the end of that period now and that ever increasing $200,000,000 bill now converts to a price times quantity approach to software costs. And we’ve done a lot of work to make sure that that P times Q equation fits within and is consistent with obviously, it’s consistent with the triple double single, but it’s consistent with how we’ve built our financial model and it’s consistent with how we’ve guided and it’s consistent with how we continue to deliver ever increasing profits in the future. So all of that is sort of tied down.

Having said all that, are there opportunities for us to continue to reduce the IBM footprint? Yes, yes. We are constantly and Kyndryl Bridge again, I’ll go back to Kyndryl Bridge. Kyndryl Bridge can scan a customer’s environment and look for unused licenses, not just IBM, anybody’s unused license. It can look for cloud instances that were spun up and no longer being used.

So there is an efficiency element to how we think about this going forward, which we’ll continue to do. Customers find great benefit in that. But at the same time, our customers have invested pretty heavily in the platform. They have architectural control more times than not. And so we partner with IBM to figure out what’s the right way to deliver a lot of value to the customer.

We’ve insulated ourselves now from it, not only from the ever increasing price increases, but we’ve insulated ourselves relative to where we started by protecting against price increases that they might have in the future. All the things that you would expect us to do, all that’s behind us. So now we can partner better with our customer base on the architecture that they see delivering their future. And we, of course, will then continue to deliver value around the services we provide and around the innovation we bring to market. So for us and again, I’ll ask David, we’re through the kind of the heavy lift on the IBM software costs, but we find ourselves in with one similarity to where we are today versus where we started, which is we’re still the largest IBM software customer on the planet.

Our customers consume more IBM software via us than anybody else does. So we’re still an important part of how they go to market. There is still an important part of how they reach a customer base that needs their software. And I don’t think that’s going to change too dramatically in the near future.

David Wishner, CFO, Kyndryl: Yes. And this is an exciting place for us to be because this calendar year is the last year that we’ve got the outsized increase in the software costs. That means for this upcoming fiscal year, there’s only going to be three quarters of a year of an impact. And after that, it goes away. We’ll play in the space like everyone else.

And the reason it’s so exciting is that we’ve been able to deliver two points of pre tax margin improvement, even having to overcome a $200,000,000 headwind each year. And having that headwind dissipate a little bit this coming year and disappear going forward is going to make future margin improvement just a little bit easier to come by. And again, going back to where your question started, that plays into just how mid single digit revenue growth can be so powerful to drive a doubling of pre tax income and then a tripling of adjusted free cash flow.

James Floss, Senior Research Analyst, Morgan Stanley: Thanks for that. Any other questions from the audience? Maybe I’ll ask, just talk about customer acquisition strategy, particularly as it relates to new logos. How do you see the overall project mix trending on a go forward basis between new and existing customers and logos? So that’s a great question and a couple of data points.

And none of this, I think, is going to surprise anybody. First, from a focus, we spent the first few years fixing the business, right? Engineering a decline in revenue, improving the dollar gross profit generating capability and that had to do with the customer base we inherited. So we spent a lot of time talking about focus counts. We spent a lot of time talking about growing wallet share.

And we haven’t spent a lot of time talking about new logos, etcetera, etcetera. Now having said all that, in the three years since we’ve in the three plus years since we spun out, we’ve added over 300 new customers. Okay. It’s just that we haven’t spent a lot of time talking about it, right? And that doesn’t include we’ve added another 80 or so through the one small acquisition we did called Skytap.

So we’ve added a substantial number of new customers. But keep in mind, I think two things. The path in to new customers tends to start small. It may be through our alliance activity. It may be through Kyndryl Consult, but it tends to start small and it will grow from there.

Now there’s always exceptions to that. For instance, one of the new logos we signed last quarter was more than $100,000,000 and we’ll continue to see those, but they tend to start small. So that’s one. And then two, we don’t lose customers. We have 95 plus percent retention rate.

So the mix, if you will, is going to move in a very glacial kind of way, because the denominator is not really moving. And we’re putting things in the numerator, notwithstanding $100,000,000 new greater than $100,000,000 new logo and we’ll have more of those. They go in light and they’ll grow. Right. But it’s really going to be the overall growth that’s going to you’re going to see it once they’re in, even if it’s a small, then it’s not a new logo anymore, right?

So they go in light, they go into a deep, deep, deep pool of customers who aren’t going anywhere. So the metric the good question, but the metric isn’t going to show the quantity or the volume of new customers we’re picking up. And I can’t think of a single even from the start, I can’t think of a single quarter when we didn’t add new customers. And again, over the last three plus years, it’s been over 300. And we’ll continue to do that.

We just haven’t focused on it. We focused on fixing and growing our wallet share of our customer base. They tend to not always, but they tend to start small and we’re retaining our customer base. So the math is just going to move in a very slow glacial way. Makes sense, makes sense.

The last minute or so we have let’s chat quickly capital allocation. You mentioned you’ve done a small acquisition, but how are your priorities right now? And are you seeing incremental opportunity for M and A versus share buybacks? Or are you still focused on your own shares? So two things.

One, the path since we began for us has always been a return to growth path. And while we’ve done it organically and when we grow this quarter, I would call it an organic fix and we’ll continue to talk about growth in an organic way, we are focused on growing and we do think that there are always going to be tuck in opportunities that can help us. And I think Skytap as an example was a really good sort of Venn diagram of a place where we have brand permission, where our customers have a real need and we could do it with a partner. And the technical side of this is Skytap has a technology that allows the old P Series, the old Power Series workloads that IBM still runs on their machines, allows those Power Series workloads to move to Azure. So So we got to partner with Microsoft, a wonderful partner.

We put it into a cloud environment. We have a we do run a pretty deep power base for our customer base, so they needed innovation. So it was very logical for us. And that’s always been the focus for us is back to growth with opportunities to invest in some things where it makes sense. Having said all that, I cannot tell you how delighted we were that we made so much progress that in at the end of last year, we announced on basically on our third anniversary that the board approved the start of a share repurchase program.

And we’re excited about that for many reasons because it demonstrated how much progress we’ve made, it demonstrated the strength of our balance sheet, it demonstrated the power of this business model to see far enough out ahead that it can start to return capital. I think we have an ability to continue to do both of those.

David Wishner, CFO, Kyndryl: Yes, particularly since our balance sheet is in great shape. Our net leverage is below one times. So, we feel really good about where our balance sheet is. And so, generating the free cash flow that we are gives us an opportunity to invest in the business and be returning capital to shareholders.

James Floss, Senior Research Analyst, Morgan Stanley: Well, great. And remember, the cash sorry, the cash flow is the triple part of the whole building. Right, right. That’s the part where you’re going to get the most movement. Yes, sure.

Well, great. Well, Martin, David, thank you very much for joining us and look forward to charting how you guys do. It’s great to see you guys.

David Wishner, CFO, Kyndryl: Thank you.

James Floss, Senior Research Analyst, Morgan Stanley: Appreciate it. Thank you, Martin.

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