Kyndryl Holdings, Inc. Q2 FY2025 earnings call

• Strong signings momentum: Record post-spin quarter signings, with 10 deals over $100 million, including a $2 billion+ scope expansion deal. Signings have grown 33% over 12 months to $16 billion.
• Consult growth: Double-digit growth in consult, with consult revenue up 23% and signings up 81% in the quarter. Consult is a $2.5 billion+ revenue stream with significant growth runway.
• Hyperscaler focus: More than doubled hyperscaler related revenue over the last year, on track to reach $1 billion in fiscal 2025.
• 3As initiatives: Alliances, accounts, and advanced delivery generating incremental benefits. Adjusted pretax income up substantially year-over-year.
• Kyndryl Readiness report: Combines proprietary data with survey data from over 3,000 senior leaders, analyzing IT readiness challenges and opportunities.
• Evolving business mix: Focus on higher value services driving increased profitability and future top-line growth.

In the second quarter, revenue totaled $3.8 billion, a 7% decline in constant currency. Signings were a record post-spin quarter, with total signings growing 132% year-over-year to $5.6 billion, marking the fourth consecutive quarter of signings growth. Trailing 12-month signings grew 33% to $16 billion. Consult revenue grew 23% year-over-year, with consult signings up 81%. Managed services signings increased 32% in the last 12 months. Hyperscaler related revenue was $260 million in Q2, on track to reach $1 billion for the year, doubling fiscal 2024 total.

• Fiscal 2025 revenue decline: Expected to decline 2% to 4% in constant currency, implying revenues of $15.2 billion to $15.5 billion.
• Return to revenue growth: Anticipated in the fourth quarter.
• Adjusted EBITDA margin: Outlook for full year at least 16.3%.
• Adjusted pretax income: Outlook for at least $460 million, with third quarter adjusted pretax income more than double the prior year's third quarter.

Q: Divya Goyal from Scotia Bank asked about macro impact on signings and if signings momentum could pick up as macro improves.

A: Martin Schroeter said Kyndryl aligns with long-term secular trends driving markets, and the alignment will continue to provide long-term signings and revenue growth.

Q: Jamie Friedman from Susquehanna asked about patterns in large deals.

A: Martin Schroeter said the deals reflect scope expansion, broad-based across practices (consult and managed), and each of the firm's practices. David Wyshner added they are disciplined about margins on signings with high single-digit pretax margins.

Q: Tien-Tsin Huang from JPMorgan asked about signings momentum sustainability and outlook.

A: David Wyshner said signings momentum is sustainable with a book-to-bill ratio at one and opportunities to move up. Martin Schroeter added Kyndryl Bridge fuels consult growth, and the firm is well-positioned with momentum for the second half.

Q: Isaac Sellhausen from Oppenheimer asked about consult revenue growth and margins.

A: David Wyshner said consult revenue is up over 20% year-over-year, tends to be a few points higher than managed services margins, and is a starting point for new logo relationships. Martin Schroeter supplemented on consult being central to customers' needs across various industries.