Kyndryl Reports Fourth Quarter and Full-Year 2023 Results
- Revenues for the quarter ended
March 31, 2023 total$4.3 billion , net loss is$737 million , adjusted EBITDA is$476 million , and adjusted pretax loss is$61 million - Fiscal year 2023 revenues total
$17.0 billion , net loss is$1.4 billion , adjusted EBITDA is$2.0 billion , and adjusted pretax loss is$217 million - Exceeded all first-year targets for Alliances, Advanced Delivery and Accounts initiatives
- Provides outlook for fiscal year 2024, reflecting continuing progress on the ‘three-A initiatives’
“We delivered strong financial results in the fourth quarter, and we solidified our leadership position in infrastructure services throughout fiscal year 2023,” said
“This year, we will accelerate our transformation, double down on our three-A’s strategy, grow Kyndryl Consult, provide exceptional service to our customers, expand our margins and create more value for shareholders.”
Results for the Fiscal Fourth Quarter Ended
For the fourth quarter,
Adjusted pretax loss was
Results for the Fiscal Year Ended
For the fiscal year ended
“Our progress in fiscal year 2023 demonstrated that we’re executing a powerful strategy to move our business forward,” said
Recent Developments
- Alliances initiative –
Kyndryl signed contracts tied to cloud hyperscaler alliances with an aggregate value of$1.2 billion in fiscal year 2023, exceeding its$1 billion target for the year.Kyndryl also expanded its cloud-related capabilities, with 35,000 hyperscaler certifications among its employees at the end of the fiscal year, a 100% year-over-year increase.
- Advanced Delivery initiative – The Company has redeployed more than 5,500 delivery professionals to serve new revenue streams and backfill attrition. This will generate annualized savings of approximately
$275 million , exceeding the Company’s$200 million fiscal 2023 year-end objective.
- Accounts initiative –
Kyndryl continued to address elements of its business with substandard margins, bringing the total impact from this initiative to approximately$210 million of annualized benefits, surpassing the Company’s$200 million fiscal 2023 year-end goal.
Primarily due to the Accounts initiative, the projected margins associated with signings in fiscal 2023 increased meaningfully compared to the prior year, reflecting Kyndryl’s emphasis on winning profitable business and its strategic willingness as an independent company to turn away low- and no-margin business.
- Transaction-related costs – Kyndryl’s reported results for the fiscal fourth quarter and full year reflect
$45 million and$264 million , respectively, of transaction-related costs. These included systems-migration and employee-retention costs associated with the Company’s spin-off. Transaction-related cash outlays for the fiscal fourth quarter and full year were$56 million and$363 million , respectively.
- Workforce rebalancing and lease-exit costs –
Kyndryl recorded workforce rebalancing charges of$55 million in the quarter endedMarch 31, 2023 and expects to incur additional charges of approximately$95 million in fiscal year 2024 related to actions to rebalance its employee population and drive efficiencies. These actions are expected to produce cost savings of approximately$150 million in fiscal year 2024 and$200 million in fiscal year 2025, most of which are incremental to the benefits from the three-A initiatives.
The Company also recorded costs related to ceasing to use leased and fixed assets of$70 million for the quarter and$80 million for the year endedMarch 31, 2023 . The full or partial exit from more than 50 sites is expected to produce cost savings of approximately$50 million in fiscal year 2024.
Fiscal Year 2024 Outlook
- Revenue growth of (6%) to (8%) in constant currency compared to revenue of
$17.0 billion in fiscal 2023, with most of the decline due to accelerated actions byKyndryl to reduce certain low-margin revenue streams. Based on recent exchange rates, the Company’s outlook implies fiscal 2024 revenue of$16.0 to$16.4 billion . The Company continues to expect to return to positive revenue growth in calendar year 2025. - Adjusted EBITDA margin of 12% to 13%, an increase of 40 to 140 basis points compared to 11.6% in fiscal 2023.
- Adjusted pretax margin of 0% to (1%), an increase of 30 to 130 basis points compared to (1.3%) in fiscal 2023.
The Company also expects to deliver continued progress on its three-A initiatives:
- Revenue related to cloud hyperscaler alliances of more than
$300 million . - Cumulative annualized benefits from Advanced Delivery of approximately
$450 million byMarch 2024 . - Cumulative annualized benefits from its Accounts initiative of approximately
$400 million byMarch 2024 .
Forecasted amounts are based on currency exchange rates as of
Earnings Conference Call and Webcast
Kyndryl’s earnings call for the fourth fiscal quarter is scheduled to begin at
About
Forward-Looking and Cautionary Statements
This press release contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact included in this press release, including statements concerning the Company’s plans, objectives, goals, beliefs, business strategies, future events, business condition, results of operations, financial position, business outlook and business trends and other non-historical statements, including without limitation the information presented in the “Outlook” section of this press release, are forward-looking statements. Such forward-looking statements often contain words such as “will,” “anticipate,” “predict,” “project,” “plan,” “forecast,” “estimate,” “expect,” “intend,” “target,” “may,” “should,” “would,” “could,” “seek,” “aim” and other similar words or expressions or the negative thereof or other variations thereon. Forward-looking statements are based on the Company’s current assumptions and beliefs regarding future business and financial performance.
The Company’s actual business, financial condition or results of operations may differ materially from those suggested by forward-looking statements as a result of risks and uncertainties which include, among others: risks related to the Company’s spin-off from IBM; failure to attract new customers, retain existing customers or sell additional services to customers; technological developments and the Company’s response to such developments; failure to meet growth and productivity objectives; competition; impacts of relationships with critical suppliers and partners; inability to attract and retain key personnel and other skilled employees; the impact of local legal, economic, political, health and other conditions; a downturn in economic environment and customer spending budgets; damage to the Company’s reputation; inability to accurately estimate the cost of services and the timeline for completion of contracts; service delivery issues; the Company’s ability to successfully manage acquisitions, alliances and dispositions, including integration challenges, failure to achieve objectives, the assumption of liabilities, and higher debt levels; the impact of our business with government customers; failure of the Company’s intellectual property rights to prevent competitive offerings and the failure of the Company to obtain necessary licenses; risks relating to cybersecurity and data privacy; adverse effects from tax matters and environmental matters; legal proceedings and investigatory risks; the impact of changes in market liquidity conditions and customer credit risk on receivables; the Company’s pension plans; the impact of currency fluctuations; and risks related to the Company’s common stock and the securities market.
Additional risks and uncertainties include, among others, those risks and uncertainties described in the “Risk Factors” section of the Company’s Annual Report on Form 10-K for the fiscal year ended
In this release, certain amounts may not add due to the use of rounded numbers; percentages presented are calculated based on the underlying amounts. As previously announced,
Non-GAAP Financial Measures
In an effort to provide investors with additional information regarding its results, the Company has provided certain metrics that are not calculated based on generally accepted accounting principles (GAAP), such as constant-currency results, adjusted EBITDA, adjusted pretax income, adjusted EBITDA margin, adjusted pretax margin and adjusted free cash flow. Such non-GAAP metrics are intended to supplement GAAP metrics, but not to replace them. The Company’s non-GAAP metrics may not be comparable to similarly titled metrics used by other companies. Definitions of non-GAAP metrics and reconciliations of non-GAAP metrics for historical periods to GAAP metrics are included in the tables in this release.
A reconciliation of forward-looking non-GAAP financial information is not included in this release because the individual components of such reconciliation are not currently available without unreasonable effort. For the same reason, we are unable to address the probable significance of the unavailable information, which could be material to future results.
Table 1
CONSOLIDATED INCOME STATEMENT
(in millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
Three Months Ended |
|
Year Ended |
||||||||||||
|
|
2023 |
|
2022 |
|
2023 |
|
2022 |
||||||||
Revenues |
|
$ |
4,255 |
|
|
$ |
4,431 |
|
|
$ |
17,026 |
|
|
$ |
18,317 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cost of services |
|
$ |
3,612 |
|
|
$ |
3,824 |
|
|
$ |
14,498 |
|
|
$ |
16,057 |
|
Selling, general and administrative expenses |
|
|
783 |
|
|
|
690 |
|
|
|
2,914 |
|
|
|
2,752 |
|
Workforce rebalancing charges (benefits) |
|
|
55 |
|
|
|
— |
|
|
|
71 |
|
|
|
(13 |
) |
Transaction-related costs |
|
|
45 |
|
|
|
58 |
|
|
|
264 |
|
|
|
630 |
|
Impairment expense |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
469 |
|
Interest expense |
|
|
28 |
|
|
|
21 |
|
|
|
94 |
|
|
|
71 |
|
Other expense |
|
|
19 |
|
|
|
27 |
|
|
|
35 |
|
|
|
40 |
|
Total costs and expenses |
|
$ |
4,543 |
|
|
$ |
4,620 |
|
|
$ |
17,876 |
|
|
$ |
20,006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Income (loss) before income taxes |
|
$ |
(288 |
) |
|
$ |
(189 |
) |
|
$ |
(851 |
) |
|
$ |
(1,689 |
) |
Provision for income taxes |
|
$ |
449 |
|
|
$ |
40 |
|
|
$ |
524 |
|
|
$ |
350 |
|
Net income (loss) |
|
$ |
(737 |
) |
|
$ |
(229 |
) |
|
$ |
(1,374 |
) |
|
$ |
(2,039 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Earnings per share data |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic earnings (loss) per share |
|
$ |
(3.24 |
) |
|
$ |
(1.02 |
) |
|
$ |
(6.06 |
) |
|
$ |
(9.09 |
) |
Diluted earnings (loss) per share |
|
|
(3.24 |
) |
|
|
(1.02 |
) |
|
|
(6.06 |
) |
|
|
(9.09 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted-average basic shares outstanding |
|
|
227.6 |
|
|
|
224.4 |
|
|
|
226.7 |
|
|
|
224.2 |
|
Weighted-average diluted shares outstanding |
|
|
227.6 |
|
|
|
224.4 |
|
|
|
226.7 |
|
|
|
224.2 |
|
Table 2
SEGMENT RESULTS
AND SELECTED BALANCE SHEET INFORMATION
(dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
Three Months Ended |
|
Year-over-Year Growth |
||||||||||
|
|
|
|
|
|
|
|
As |
|
Constant |
||||
Segment Results |
|
2023 |
|
2022 |
|
Reported |
|
Currency |
||||||
Revenue |
|
|
|
|
|
|
|
|
|
|
||||
|
|
$ |
1,145 |
|
|
$ |
1,169 |
|
|
(2 |
%) |
|
(2 |
%) |
|
|
|
648 |
|
|
|
706 |
|
|
(8 |
%) |
|
4 |
% |
Principal Markets1 |
|
|
1,497 |
|
|
|
1,579 |
|
|
(5 |
%) |
|
1 |
% |
Strategic Markets1 |
|
|
966 |
|
|
|
978 |
|
|
(1 |
%) |
|
3 |
% |
Total revenue |
|
$ |
4,255 |
|
|
$ |
4,431 |
|
|
(4 |
%) |
|
1 |
% |
Adjusted EBITDA |
|
|
|
|
|
|
|
|
|
|
||||
|
|
$ |
200 |
|
|
$ |
248 |
|
|
|
|
|
||
|
|
|
89 |
|
|
|
154 |
|
|
|
|
|
||
Principal Markets |
|
|
123 |
|
|
|
98 |
|
|
|
|
|
||
Strategic Markets |
|
|
84 |
|
|
|
92 |
|
|
|
|
|
||
Corporate and other3 |
|
|
(21 |
) |
|
|
(56 |
) |
|
|
|
|
||
Total adjusted EBITDA |
|
$ |
476 |
|
|
$ |
536 |
|
|
|
|
|
|
|
Year Ended |
|
Year-over-Year Growth |
||||||||||
|
|
|
|
|
|
As |
|
Constant |
||||||
Segment Results |
|
2023 |
|
2022 |
|
Reported |
|
Currency |
||||||
Revenue |
|
|
|
|
|
|
|
|
|
|
||||
|
|
$ |
4,726 |
|
|
$ |
4,745 |
|
|
(0 |
%) |
|
(0 |
%) |
|
|
|
2,502 |
|
|
|
2,866 |
|
|
(13 |
%) |
|
5 |
% |
Principal Markets1 |
|
|
5,957 |
|
|
|
6,838 |
|
|
(13 |
%) |
|
(4 |
%) |
Strategic Markets1 |
|
|
3,840 |
|
|
|
3,867 |
|
|
(1 |
%) |
|
6 |
% |
Total revenue |
|
$ |
17,026 |
|
|
$ |
18,317 |
|
|
(7 |
%) |
|
0 |
% |
Adjusted EBITDA2 |
|
|
|
|
|
|
|
|
|
|
||||
|
|
$ |
839 |
|
|
$ |
910 |
|
|
|
|
|
||
|
|
|
407 |
|
|
|
532 |
|
|
|
|
|
||
Principal Markets |
|
|
371 |
|
|
|
387 |
|
|
|
|
|
||
Strategic Markets |
|
|
436 |
|
|
|
535 |
|
|
|
|
|
||
Corporate and other3 |
|
|
(77 |
) |
|
|
(170 |
) |
|
|
|
|
||
Total adjusted EBITDA |
|
$ |
1,975 |
|
|
$ |
2,195 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Balance Sheet Data |
|
2023 |
|
2022 |
|
|
|
|
||||
Cash and equivalents |
|
$ |
1,847 |
|
|
$ |
2,134 |
|
|
|
|
|
Debt (short-term and long-term) |
|
|
3,221 |
|
|
|
3,223 |
|
|
|
|
|
____________________ | |
1 |
Principal Markets is comprised of Kyndryl’s operations in |
2 |
The Company refined certain allocation methodologies related to its measure of segment adjusted EBITDA and has accordingly recast certain prior-period information through |
3 |
Represents net amounts not allocated to segments. |
Table 3
CONSOLIDATED STATEMENT OF CASH FLOWS
(dollars in millions)
|
|
Year Ended |
||||||
|
|
2023 |
|
2022 |
||||
Cash flows from operating activities: |
|
|
|
|
|
|
||
Net income (loss) |
|
$ |
(1,374 |
) |
|
$ |
(2,039 |
) |
Adjustments to reconcile net income (loss) to cash provided by operating activities: |
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
|
|
|
|
||
Depreciation of property, equipment and capitalized software |
|
|
900 |
|
|
|
1,206 |
|
Depreciation of right-of-use assets |
|
|
428 |
|
|
|
331 |
|
Amortization of transition costs and prepaid software |
|
|
1,199 |
|
|
|
1,274 |
|
Amortization of capitalized contract costs |
|
|
472 |
|
|
|
539 |
|
Amortization of intangible assets |
|
|
46 |
|
|
|
37 |
|
|
|
|
— |
|
|
|
469 |
|
Stock-based compensation |
|
|
113 |
|
|
|
86 |
|
Deferred taxes |
|
|
285 |
|
|
|
(428 |
) |
Net (gain) loss on asset sales and other |
|
|
6 |
|
|
|
23 |
|
Change in operating assets and liabilities: |
|
|
|
|
|
|
||
Deferred costs (excluding amortization) |
|
|
(1,592 |
) |
|
|
(1,743 |
) |
Right-of-use assets and liabilities (excluding depreciation) |
|
|
(361 |
) |
|
|
(373 |
) |
Workforce rebalancing liabilities |
|
|
41 |
|
|
|
(277 |
) |
Receivables |
|
|
664 |
|
|
|
(969 |
) |
Accounts payable |
|
|
282 |
|
|
|
608 |
|
Taxes (including items settled with former Parent in prior-year period) |
|
|
90 |
|
|
|
854 |
|
Other assets and other liabilities |
|
|
(415 |
) |
|
|
800 |
|
Net cash provided by operating activities |
|
$ |
781 |
|
|
$ |
398 |
|
|
|
|
|
|
|
|
||
Cash flows from investing activities: |
|
|
|
|
|
|
||
Capital expenditures |
|
$ |
(865 |
) |
|
$ |
(752 |
) |
Proceeds from disposition of property and equipment |
|
|
23 |
|
|
|
109 |
|
Other investing activities, net |
|
|
7 |
|
|
|
(54 |
) |
Net cash used in investing activities |
|
$ |
(835 |
) |
|
$ |
(697 |
) |
|
|
|
|
|
|
|
||
Cash flows from financing activities: |
|
|
|
|
|
|
||
Debt repayments |
|
$ |
(118 |
) |
|
$ |
(100 |
) |
Proceeds from issuance of debt, net of debt issuance costs |
|
|
— |
|
|
|
3,035 |
|
Net transfers (to) from Parent |
|
|
— |
|
|
|
(490 |
) |
Short-term borrowings (repayments), net |
|
|
— |
|
|
|
(2 |
) |
Common stock repurchases for tax withholdings |
|
|
(19 |
) |
|
|
(4 |
) |
Other financing activities, net |
|
|
(4 |
) |
|
|
(10 |
) |
Net cash provided by (used in) financing activities |
|
$ |
(141 |
) |
|
$ |
2,429 |
|
|
|
|
|
|
|
|
||
Effect of exchange rate changes on cash, cash equivalents and restricted cash |
|
$ |
(100 |
) |
|
$ |
(26 |
) |
Net change in cash, cash equivalents and restricted cash |
|
$ |
(294 |
) |
|
$ |
2,104 |
|
|
|
|
|
|
|
|
||
Cash, cash equivalents and restricted cash at beginning of period |
|
$ |
2,154 |
|
|
$ |
50 |
|
Cash, cash equivalents and restricted cash at end of period |
|
$ |
1,860 |
|
|
$ |
2,154 |
|
|
|
|
|
|
|
|
||
Supplemental data |
|
|
|
|
|
|
||
Income taxes paid, net of refunds received |
|
$ |
167 |
|
|
$ |
59 |
|
Interest paid on debt |
|
$ |
98 |
|
|
$ |
5 |
|
Table 4
NON-GAAP METRIC DEFINITIONS AND RECONCILIATIONS
(dollars in millions, except signings)
We report our financial results in accordance with GAAP. We also present certain non-GAAP financial measures to provide useful supplemental information to investors. We provide these non-GAAP financial measures as we believe it improves visibility to management decisions and their impacts on operational performance; enables better comparison to peer companies; and allows us to provide a long-term strategic view of the business going forward.
Constant-currency information compares results between periods as if exchange rates had remained constant period over period. We define constant-currency revenues as total revenues excluding the impact of foreign exchange rate movements and use it to determine the constant-currency revenue growth on a year-over-year basis. Constant-currency revenues are calculated by translating current period revenues using corresponding prior-period exchange rates.
Adjusted pretax income is defined as pretax income excluding transaction-related costs, charges related to ceasing to use leased / fixed assets, charges related to lease termination, pension costs other than pension servicing costs and multi-employer plan costs, stock-based compensation expense, amortization of intangible assets, workforce rebalancing charges, impairment expense, significant litigation costs and foreign currency impacts of highly inflationary countries. Adjusted pretax margin is calculated by dividing adjusted pretax income, as defined above, by revenue.
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 costs), charges related to ceasing to use leased / fixed assets, charges related to lease termination, transaction-related costs, pension costs other than pension servicing costs and multi-employer plan costs, stock-based compensation expense, workforce rebalancing charges, impairment expense, significant litigation costs, and foreign currency impacts of highly inflationary countries. Adjusted EBITDA margin is calculated by dividing adjusted EBITDA by revenue.
Adjusted free cash flow is defined as cash flows from operating activities (GAAP) after adding back transaction-related payments, charges related to lease termination, workforce rebalancing payments and significant litigation payments, less net capital expenditures. Management uses adjusted free cash flow as a measure to evaluate its operating results, plan strategic investments and assess our ability and need to incur and service debt. We believe adjusted free cash flow is a useful supplemental financial measure to aid investors in assessing our ability to pursue business opportunities and investments and to service our debt. Adjusted free cash flow is a financial measure that is not recognized under
Signings are defined by
Reconciliation of net income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
to adjusted pretax income (loss) |
|
Three Months Ended |
|
Year Ended |
||||||||||||
and adjusted EBITDA |
|
2023 |
|
2022 |
|
2023 |
|
2022 |
||||||||
Net income (loss) (GAAP) |
|
$ |
(737 |
) |
|
$ |
(229 |
) |
|
$ |
(1,374 |
) |
|
$ |
(2,039 |
) |
Provision for (benefit from) income taxes |
|
|
449 |
|
|
|
40 |
|
|
|
524 |
|
|
|
350 |
|
Workforce rebalancing charges |
|
|
55 |
|
|
|
— |
|
|
|
71 |
|
|
|
(13 |
) |
Charges related to ceasing to use leased/fixed assets and lease terminations |
|
|
70 |
|
|
|
— |
|
|
|
80 |
|
|
|
— |
|
Transaction-related costs |
|
|
45 |
|
|
|
58 |
|
|
|
264 |
|
|
|
630 |
|
Stock-based compensation expense |
|
|
32 |
|
|
|
31 |
|
|
|
113 |
|
|
|
86 |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
469 |
|
Amortization of acquisition-related intangible assets |
|
|
11 |
|
|
|
7 |
|
|
|
46 |
|
|
|
37 |
|
Other adjustments1 |
|
|
14 |
|
|
|
43 |
|
|
|
59 |
|
|
|
124 |
|
Adjusted pretax income (loss) (non-GAAP) |
|
$ |
(61 |
) |
|
$ |
(51 |
) |
|
$ |
(217 |
) |
|
$ |
(356 |
) |
Interest expense |
|
|
28 |
|
|
|
21 |
|
|
|
94 |
|
|
|
71 |
|
Depreciation of property, equipment and capitalized software |
|
|
219 |
|
|
|
246 |
|
|
|
900 |
|
|
|
1,206 |
|
Amortization of transition costs and prepaid software |
|
|
290 |
|
|
|
319 |
|
|
|
1,199 |
|
|
|
1,274 |
|
Adjusted EBITDA (non-GAAP) |
|
$ |
476 |
|
|
$ |
536 |
|
|
$ |
1,975 |
|
|
$ |
2,195 |
|
Adjusted EBITDA margin |
|
|
11.2 |
% |
|
|
12.1 |
% |
|
|
11.6 |
% |
|
|
12.0 |
% |
____________________ | |
1 |
Other adjustments represent pension costs other than pension servicing costs and multi-employer plan costs, significant litigation costs, and foreign currency impacts of highly inflationary countries. |
Reconciliation of cash flow from operations |
|
Year Ended |
||
to adjusted free cash flow |
|
|
||
Cash flows from operating activities (GAAP) |
|
$ |
781 |
|
Plus: Transaction-related payments |
|
|
363 |
|
Plus: Workforce rebalancing payments |
|
|
40 |
|
Plus: Charges related to lease termination |
|
|
1 |
|
Plus: Significant litigation payments |
|
|
9 |
|
Less: Net capital expenditures |
|
|
(842 |
) |
Adjusted free cash flow (non-GAAP) |
|
$ |
352 |
|
|
|
Year Ended |
||||||
Signings (in billions) |
|
2023 |
|
2022 |
||||
Signings1 |
|
$ |
12.2 |
|
|
$ |
14.2 |
|
____________________ | |
1 |
Signings for the year ended |
Investors:
lori.chaitman@kyndryl.com
Media:
edward.barbini@kyndryl.com
Source: