UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED
OR
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _________________ TO _________________
(Commission file number)
(Exact name of registrant as specified in its charter)
| ||
(State or other jurisdiction of incorporation or organization) | (IRS employer identification number) | |
(Address of principal executive offices) | (Zip Code) |
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
| Trading symbol(s) |
| Name of each exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section l3 or l5(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
☒ | Accelerated filer ☐ |
Non-accelerated filer ☐ | Smaller reporting company |
Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
The number of shares of the registrant’s Common Stock, par value $0.01 per share, outstanding at August 1, 2023 was
Index
2
Part I - Financial Information
Item 1. Consolidated Financial Statements (Unaudited):
KYNDRYL HOLDINGS, INC.
CONSOLIDATED INCOME STATEMENT
(In millions, except per share amounts)
(Unaudited)
Three Months Ended June 30, | ||||||
| 2023 |
| 2022 | |||
Revenues * | $ | | $ | | ||
Cost of services ** | $ | | $ | | ||
Selling, general and administrative expenses | | | ||||
Workforce rebalancing charges | | | ||||
Transaction-related costs | | | ||||
Interest expense | | | ||||
Other expense (income) | | ( | ||||
Total costs and expenses | $ | | $ | | ||
Income (loss) before income taxes | $ | ( | $ | ( | ||
Provision for income taxes | $ | | $ | | ||
Net income (loss) | $ | ( | $ | ( | ||
Basic earnings (loss) per share | $ | ( | $ | ( | ||
Diluted earnings (loss) per share | $ | ( | $ | ( | ||
Weighted-average basic shares outstanding | | | ||||
Weighted-average diluted shares outstanding | | | ||||
* Including related-party revenue of $
** Including related-party cost of services of $
The accompanying notes are an integral part of the financial statements.
3
KYNDRYL HOLDINGS, INC.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)
(Dollars in millions)
(Unaudited)
| Three Months Ended June 30, | |||||
| 2023 |
| 2022 | |||
Net income (loss) | $ | ( | $ | ( | ||
Other comprehensive income (loss), before tax: | ||||||
Foreign currency translation adjustments | ( | ( | ||||
Unrealized gains (losses) on cash flow hedges: | ||||||
Unrealized gains (losses) arising during the period | | ( | ||||
Reclassification of (gains) losses to net income | ( | ( | ||||
Total unrealized gains (losses) on cash flow hedges | | ( | ||||
Retirement-related benefit plans – amortization of net (gains) losses | | | ||||
Other comprehensive income (loss), before tax | | ( | ||||
Income tax (expense) benefit related to items of other comprehensive income (loss) | ( | ( | ||||
Other comprehensive income (loss), net of tax | — | ( | ||||
Total comprehensive income (loss) | $ | ( | $ | ( | ||
The accompanying notes are an integral part of the financial statements.
4
KYNDRYL HOLDINGS, INC.
CONSOLIDATED BALANCE SHEET
(In millions, except per share amount)
(Unaudited)
June 30, | March 31, | |||||
| 2023 |
| 2023 | |||
Assets: |
|
| ||||
Current assets: | ||||||
Cash and cash equivalents | $ | | $ | | ||
Restricted cash | | | ||||
Accounts receivable (net of allowances for expected credit losses of $ | | | ||||
Deferred costs (current portion) |
| |
| | ||
Prepaid expenses and other current assets | | | ||||
Total current assets | $ | | $ | | ||
Property and equipment, net | $ | | $ | | ||
Operating right-of-use assets, net | | | ||||
Deferred costs (noncurrent portion) | | | ||||
Deferred taxes | | | ||||
Goodwill | | | ||||
Intangible assets, net | | | ||||
Pension assets | | | ||||
Other noncurrent assets | | | ||||
Total assets | $ | | $ | | ||
Liabilities: | ||||||
Current liabilities: | ||||||
Accounts payable | $ | | $ | | ||
Value-added tax and income tax liabilities | | | ||||
Current portion of long-term debt | | | ||||
Accrued compensation and benefits |
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Deferred income (current portion) |
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Operating lease liabilities (current portion) |
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Accrued contract costs | | | ||||
Other accrued expenses and liabilities | | | ||||
Total current liabilities | $ | | $ | | ||
Long-term debt | $ | | $ | | ||
Retirement and nonpension postretirement benefit obligations | | | ||||
Deferred income (noncurrent portion) | | | ||||
Operating lease liabilities (noncurrent portion) | | | ||||
Other noncurrent liabilities | | | ||||
Total liabilities | $ | | $ | | ||
Commitments and contingencies | ||||||
Equity: | ||||||
Stockholders’ equity | ||||||
Common stock, par value $ | $ | | $ | | ||
Accumulated deficit | ( | ( | ||||
Treasury stock, at cost (shares: June 30, 2023 – | ( | ( | ||||
Accumulated other comprehensive income (loss) | ( | ( | ||||
Total stockholders’ equity before non-controlling interests | $ | | $ | | ||
Non-controlling interests | | | ||||
Total equity | $ | | $ | | ||
Total liabilities and equity | $ | | $ | | ||
The accompanying notes are an integral part of the financial statements.
5
KYNDRYL HOLDINGS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in millions)
(Unaudited)
Three Months Ended June 30, | ||||||
| 2023 |
| 2022 | |||
Cash flows from operating activities: |
|
|
| |||
Net income (loss) | $ | ( | $ | ( | ||
Adjustments to reconcile net income (loss) to cash provided by operating activities: |
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Depreciation and amortization |
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Depreciation of property, equipment and capitalized software | | | ||||
Depreciation of right-of-use assets | | | ||||
Amortization of transition costs and prepaid software |
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Amortization of capitalized contract costs | | | ||||
Amortization of acquisition-related intangible assets |
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Stock-based compensation | | | ||||
Deferred taxes | | | ||||
Net (gain) loss on asset sales and other | | | ||||
Change in operating assets and liabilities: | ||||||
Deferred costs (excluding amortization) | ( | ( | ||||
Right-of-use assets and liabilities (excluding depreciation) | ( | ( | ||||
Workforce rebalancing liabilities | ( | | ||||
Receivables |
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| | |||
Accounts payable | ( | ( | ||||
Taxes | ( | | ||||
Other assets and other liabilities |
| ( |
| ( | ||
Net cash provided by (used in) operating activities | $ | ( | $ | | ||
Cash flows from investing activities: |
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| ||||
Capital expenditures | $ | ( | $ | ( | ||
Proceeds from disposition of property and equipment |
| |
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Other investing activities, net | ( | ( | ||||
Net cash used in investing activities | $ | ( | $ | ( | ||
Cash flows from financing activities: |
|
| ||||
Debt repayments | $ | ( | $ | ( | ||
Common stock repurchases for tax withholdings |
| ( |
| ( | ||
Other financing activities, net | ( | — | ||||
Net cash provided by (used in) financing activities | $ | ( | $ | ( | ||
Effect of exchange rate changes on cash, cash equivalents and restricted cash | $ | ( | $ | ( | ||
Net change in cash, cash equivalents and restricted cash | $ | ( | $ | ( | ||
Cash, cash equivalents and restricted cash at beginning of period | $ | | $ | | ||
Cash, cash equivalents and restricted cash at end of period | $ | | $ | | ||
Supplemental data | ||||||
Income taxes paid, net of refunds received | $ | | $ | | ||
Interest paid on debt | $ | | $ | | ||
The accompanying notes are an integral part of the financial statements.
6
KYNDRYL HOLDINGS, INC.
CONSOLIDATED STATEMENT OF EQUITY
(In millions)
(Unaudited)
Common Stock and | Accumulated | ||||||||||||||||||||
Additional | Other | Non- | |||||||||||||||||||
Paid-In Capital | Comprehensive | Treasury | Accumulated | Controlling | Total | ||||||||||||||||
Shares | Amount | Income (Loss) | Stock | Deficit | Interests | Equity | |||||||||||||||
Equity – April 1, 2023 | | $ | | $ | ( | $ | ( | $ | ( | $ | | $ | | ||||||||
Net income (loss) | ( | ( | |||||||||||||||||||
Other comprehensive income (loss), net of tax | — | — | |||||||||||||||||||
Common stock issued under employee plans | | | |||||||||||||||||||
Purchases of treasury stock | ( | ( | ( | ||||||||||||||||||
Changes in non-controlling interests | | ||||||||||||||||||||
Equity – June 30, 2023 | $ | $ | ( | $ | ( | $ | ( | $ | | $ | | ||||||||||
Common Stock and | Accumulated | ||||||||||||||||||||
Additional | Other | Non- | |||||||||||||||||||
Paid-In Capital | Comprehensive | Treasury | Accumulated | Controlling | Total | ||||||||||||||||
Shares | Amount | Income (Loss) | Stock | Deficit | Interests | Equity | |||||||||||||||
Equity - April 1, 2022 | | $ | | $ | ( | $ | ( | $ | ( | $ | | $ | | ||||||||
Net income (loss) | ( | ( | |||||||||||||||||||
Other comprehensive income (loss), net of tax | ( | ( | |||||||||||||||||||
Common stock issued under employee plans | | ||||||||||||||||||||
Purchases of treasury stock | ( | ( | ( | ||||||||||||||||||
Changes in non-controlling interests | | ||||||||||||||||||||
Equity - June 30, 2022 | $ | $ | ( | $ | ( | $ | ( | $ | | $ | | ||||||||||
The accompanying notes are an integral part of the financial statements.
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Kyndryl Holdings, Inc. (“we”, “the Company” or “Kyndryl”) is a leading technology services company and the largest IT infrastructure services provider in the world, serving as a partner to thousands of enterprise customers whose operations span over
In November 2021, our former Parent effected the spin-off (the “Separation” or the “Spin-off”) of the infrastructure services unit of its Global Technology Services (“GTS”) segment through the distribution of shares of Kyndryl’s common stock to IBM stockholders. In connection with the Separation, the Company entered into several agreements with IBM that govern the relationship of the parties following the Separation. Kyndryl’s stock began trading as an independent company on November 4, 2021.
Basis of Presentation
The accompanying Consolidated Financial Statements and footnotes have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Management believes the accompanying financial statements include all adjustments necessary to present fairly the Company’s financial position and its results of operations for all the periods presented. The information included in this Form 10-Q should be read in conjunction with the Company’s Annual Report for the fiscal year ended March 31, 2023.
Within the financial statements and tables presented, certain columns and rows may not add due to the use of rounded numbers for disclosure purposes. Percentages presented are calculated from the underlying whole-dollar amounts.
Principles of Consolidation
The accompanying financial statements are presented on a consolidated basis. All significant transactions and intercompany accounts between Kyndryl entities were eliminated.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect amounts that are reported in the consolidated financial statements and accompanying disclosures. Estimates are used in determining the following, among others: revenue, costs to complete service contracts, income taxes, pension assumptions, valuation of assets including goodwill and intangible assets, the depreciable and amortizable lives of long-lived assets, loss contingencies, allowance for credit losses and deferred transition costs.
The Company uses the estimated annual effective tax rate method in computing its interim tax provision in accordance with U.S. GAAP. The estimated annual effective tax rate is applied to the year-to-date ordinary income, exclusive of discrete items, to arrive at the reported interim tax provision.
NOTE 2. ACCOUNTING PRONOUNCEMENTS
New Standards to be Implemented
In September 2022, the FASB amended its guidance related to supplier finance programs. The amended guidance requires additional disclosures surrounding the use of supplier finance programs to purchase goods or services, including disclosing the key terms of the programs, the amount of obligations outstanding at the end of the reporting period, and a roll-forward of those obligations. The new guidance, except the roll-forward information, is effective for
8
Notes to Consolidated Financial Statements (continued)
fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The roll-forward information is effective for fiscal years beginning after December 15, 2023. The Company has evaluated the impact of the amended guidance and concluded that the guidance has no impact on the Company’s consolidated financial statements.
In March 2023, the FASB issued ASU 2023-01, Leases (Topic 842) – Common-Control Arrangements. This guidance amends the accounting for leasehold improvements in common-control arrangements by requiring a lessee in a common-control arrangement to amortize leasehold improvements that it owns over the improvements’ useful life to the common-control group, regardless of the lease term, if the lessee continues to control the use of the underlying asset through a lease. The Company has evaluated the impact of the amended guidance and concluded that the guidance does not have a material impact on the Company’s consolidated financial statements.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) – Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which included a sunset provision within Topic 848 based on expectations of when the London Interbank Offered Rate (“LIBOR”) would cease being published. The FASB issued temporary, optional expedients related to the accounting for contract modifications and hedging transactions as a result of markets transitioning from the use of LIBOR and other interbank offered rates to alternative reference rates. In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848, deferring the sunset date of Topic 848 to December 31, 2024. In June 2023, the Company modified its contracts that use LIBOR, transitioning from LIBOR to the Secured Overnight Financing Rate (“SOFR”). The use of SOFR became effective in modified contracts beginning on July 1, 2023.
NOTE 3. REVENUE RECOGNITION
Disaggregation of Revenue
The Company views its segment results to be the best view of disaggregated revenue. Refer to Note 4 – Segments.
Remaining Performance Obligations
The remaining performance obligation (“RPO”) represents the aggregate amount of contractual deliverables yet to be recognized as revenue at the end of the reporting period. It is intended to be a statement of overall work under contract that has not yet been performed and does not include contracts for which the customer is not committed. The customer is not considered committed when it is able to terminate for convenience without payment of a substantive penalty. The RPO also includes estimates of variable consideration. RPO estimates are subject to change and are affected by several factors, including terminations, changes in the scope of contracts, periodic revalidations, adjustments for revenue that has not materialized and adjustments for currency.
At June 30, 2023, the aggregate amount of RPO related to customer contracts that are unsatisfied or partially unsatisfied was $
During the three months ended June 30, 2023 and June 30, 2022, revenue was increased by $
9
Notes to Consolidated Financial Statements (continued)
Contract Balances
The following table provides information about accounts receivable, contract assets and deferred income balances:
June 30, | March 31, | |||||
(Dollars in millions) |
| 2023 |
| 2023 | ||
Accounts receivable (net of allowances for expected credit losses of $ | $ | | $ | | ||
Contract assets ** |
| |
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Deferred income (current) |
| |
| | ||
Deferred income (noncurrent) |
| |
| | ||
* | Included unbilled receivable balances of $ |
** |
The amount of revenue recognized during the three months ended June 30, 2023 and June 30, 2022 that was included within the deferred income balance at March 31, 2023 and March 31, 2022 was $
The following table provides roll-forwards of the accounts receivable allowance for expected credit losses for the three months ended June 30, 2023 and 2022:
Three Months Ended June 30, | ||||||
(Dollars in millions) | 2023 |
| 2022 | |||
Beginning balance | $ | | $ | | ||
Additions (releases) | ( | ( | ||||
Write-offs | ( | ( | ||||
Other * | | ( | ||||
Ending balance | $ | | $ | | ||
* |
The contract assets allowance for expected credit losses was not material in any of the periods presented.
Major Clients
Deferred Costs
Costs to acquire and fulfill customer contracts are deferred and amortized over the contract period or expected customer relationship life. The expected customer relationship period is determined based on the average customer relationship period, including expected renewals, for each offering type and ranges from to
10
Notes to Consolidated Financial Statements (continued)
The following table provides amounts of capitalized costs to acquire and fulfill customer contracts at June 30, 2023 and March 31, 2023:
June 30, | March 31, | |||||
(Dollars in millions) |
| 2023 |
| 2023 | ||
Deferred transition costs | $ | | $ | | ||
Prepaid software costs |
| |
| | ||
Capitalized costs to fulfill contracts |
| |
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Capitalized costs to obtain contracts |
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Total deferred costs * | $ | | $ | | ||
* | Of the total deferred costs, $ |
The amount of total deferred costs amortized for the three months ended June 30, 2023, was $
NOTE 4. SEGMENTS
Our reportable segments correspond to how the chief operating decision maker (“CODM”) reviews performance and allocates resources. Our
United States: This reportable segment is comprised of Kyndryl’s operations in the United States.
Japan: This reportable segment is comprised of Kyndryl’s operations in Japan.
Principal Markets: This reportable segment represents the aggregation of our operations in Australia / New Zealand, Canada, France, Germany, India, Italy, Spain / Portugal, and the United Kingdom / Ireland.
Strategic Markets: This reportable segment is comprised of our operations in all other countries in which we operate.
The measure of segment operating performance used by Kyndryl’s CODM is adjusted EBITDA. 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 and owned fixed assets, charges related to lease terminations, 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. The use of revenue and adjusted EBITDA aligns with how the CODM assesses performance and allocates resources for the Company’s segments.
Our geographic markets frequently work together to sell and implement certain contracts. The resulting revenues and costs from these contracts may be apportioned among the participating geographic markets. The economic environment and its effects on the industries served by our geographic markets affect revenues and operating expenses within our geographic markets to differing degrees. Currency fluctuations also tend to affect our geographic markets differently, depending on the geographic concentrations and locations of their businesses.
11
Notes to Consolidated Financial Statements (continued)
The following table reflects the results of the Company’s segments:
Three Months Ended June 30, | ||||||
(Dollars in millions) |
| 2023 |
| 2022 | ||
Revenue | ||||||
United States | $ | | $ | | ||
Japan | | | ||||
Principal Markets | | | ||||
Strategic Markets | | | ||||
Total revenue | $ | | $ | | ||
Segment adjusted EBITDA | ||||||
United States | $ | | $ | | ||
Japan | | | ||||
Principal Markets | | | ||||
Strategic Markets | | | ||||
Total segment adjusted EBITDA | $ | | $ | | ||
The following table reconciles segment adjusted EBITDA to consolidated pretax income (loss):
Three Months Ended June 30, | ||||||
(Dollars in millions) |
| 2023 |
| 2022 | ||
Segment adjusted EBITDA | $ | | $ | | ||
Workforce rebalancing charges | ( | ( | ||||
Charges related to ceasing to use leased/fixed assets and lease terminations | ( | — | ||||
Transaction-related costs | ( | ( | ||||
Stock-based compensation expense | ( | ( | ||||
Interest expense | ( | ( | ||||
Depreciation of property, equipment and capitalized software | ( | ( | ||||
Amortization expense | ( | ( | ||||
Corporate expense not allocated to the segments | ( | ( | ||||
Other adjustments* | ( | ( | ||||
Pretax income (loss) | $ | ( | $ | ( | ||
* 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.
NOTE 5. TAXES
For the three months ended June 30, 2023, the Company’s effective tax rate was (
The Company’s effective tax rate for the three months ended June 30, 2023 was lower than the Company’s statutory tax rate primarily due to taxes on foreign operations and valuation allowances recorded in certain jurisdictions against deferred tax assets that are not more likely than not to be realized.
The Company’s effective tax rate for the three months ended June 30, 2022 was lower than the Company’s statutory tax rate primarily due to taxes on foreign operations and the increase in valuation allowances recorded in certain jurisdictions against deferred tax assets that are not more likely than not to be realized. For the period ended June 30, 2022, the addition to valuation allowances primarily relates to a partial valuation allowance established against certain deferred tax assets in the United States.
12
Notes to Consolidated Financial Statements (continued)
NOTE 6. NET LOSS PER SHARE
We did
| ||||||
Three Months Ended June 30, | ||||||
(In millions, except per share amounts) | 2023 | 2022 | ||||
Net income (loss) on which basic and diluted earnings per share is calculated | $ | ( | $ | ( | ||
Number of shares on which basic and diluted earnings per share is calculated | | | ||||
Basic earnings (loss) per share | $ | ( | $ | ( | ||
Diluted earnings (loss) per share |
| ( | ( | |||
For the three months ended June 30, 2023 and 2022, the Company’s basic and diluted weighted-average shares outstanding were the same. The following securities were not included in the computation of diluted net loss per share because they would have been anti-dilutive:
Three Months Ended June 30, | ||||
(In millions) | 2023 | 2022 | ||
Nonvested restricted stock units | | | ||
Nonvested performance-conditioned stock units | | — | ||
Nonvested market-conditioned stock units | | | ||
Stock options issued and outstanding | | | ||
Total | | | ||
NOTE 7. FINANCIAL ASSETS AND LIABILITIES
Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company classifies certain assets and liabilities based on the following fair value hierarchy:
| ● | Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities that can be accessed at the measurement date. |
| ● | Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. |
| ● | Level 3 – Unobservable inputs for the asset or liability. |
The level of an asset or liability within the fair value hierarchy is determined based on the lowest level of any input that is significant to the fair value measurement.
13
Notes to Consolidated Financial Statements (continued)
In determining the fair value of certain financial instruments, the Company considers certain market valuation adjustments to the “base valuations” using the methodologies described below for several parameters that market participants would consider in determining fair value:
| ● | Counterparty credit risk adjustments are applied to certain financial instruments, taking into account the actual credit risk of a counterparty as observed in the credit default swap market to determine the true fair value of such an instrument. |
| ● | Credit risk adjustments are applied to reflect the Company’s own credit risk when valuing certain liabilities measured at fair value. The methodology is consistent with that applied in developing counterparty credit risk adjustments, but incorporates the Company’s credit risk as observed in the credit default swap market. |
Certain non-financial assets such as property, plant and equipment, operating right-of-use assets, land, goodwill and intangible assets are recorded at fair value or at cost, as appropriate, in the period they are initially recognized, and such balances may be adjusted in subsequent periods if an event occurs or circumstances change that indicate that the asset may be impaired. The impairment models used for non-financial assets depend on the type of asset. The fair value measurements, in such instances, would be classified in Level 3 of the fair value hierarchy. We perform a qualitative assessment of asset impairments on a periodic basis and recognize an impairment if there are sufficient indicators that the fair value is less than carrying value. There were
Financial Assets and Liabilities Measured at Fair Value
The following table presents the Company’s financial assets and financial liabilities that are measured at fair value on a recurring basis at June 30, 2023 and March 31, 2023.
Fair Value | ||||||||||||||||||||
Hierarchy | At June 30, 2023 | At March 31, 2023 | ||||||||||||||||||
(Dollars in millions) |
| Level |
| Assets |
| Liabilities |
| Fair Value |
| Assets |
| Liabilities |
| Fair Value | ||||||
Derivatives designated as hedging instruments: | ||||||||||||||||||||
Foreign exchange contracts | 2 | $ | | $ | | $ | | $ | | $ | | $ | | |||||||
Derivatives not designated as hedging instruments: | ||||||||||||||||||||
Foreign exchange contracts | 2 | | | | | | | |||||||||||||
Total | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
The gross balances of derivative assets are contained within prepaid expenses and other current assets, and the gross balances of derivative liabilities are contained within other accrued expenses and liabilities in the Consolidated Balance Sheet. The Company may enter into master netting agreements with certain counterparties that allow for netting of exposures. There was
Financial Assets and Liabilities Not Measured at Fair Value
Accounts receivable are financial assets with carrying values that approximate fair value. Accounts payable, other accrued expenses and short-term debt are financial liabilities with carrying values that approximate fair value. If measured at fair value in the consolidated financial statements, these financial assets and liabilities would be classified as Level 3 in the fair value hierarchy, except for short-term debt, which would be classified as Level 2.
14
Notes to Consolidated Financial Statements (continued)
The Company also has time deposits that have maturities of 90 days or less, and their carrying values approximate fair value. They are measured for impairment on a recurring basis by comparing their fair value with their amortized cost basis. There were
The fair value of our outstanding debt (excluding finance lease obligations) is based on various methodologies, including quoted prices in active markets for identical debt instruments, which is a Level 1 measurement, and calculated fair value using an expected present value technique that uses rates currently available to the Company for debt in active markets with similar terms and remaining maturities, which is a Level 2 measurement. Our outstanding debt (excluding finance lease obligations) had a carrying value of $
Transfers of Financial Assets
The Company has entered into agreements with third-party financial institutions to sell certain financial assets (primarily trade receivables) without recourse. The Company has determined these are true sales. The carrying value of the financial asset sold is derecognized, and a net gain or loss on the sale is recognized, at the time of the transfer.
The net proceeds from these agreements are reflected as cash provided by operating activities in the Consolidated Statement of Cash Flows. Gross proceeds from receivables sold to third parties under this program were $
Derivative Financial Instruments
Derivatives Designated as Hedging Instruments
The Company has foreign exchange derivative financial instruments designated as cash flow hedges to manage the volatility of cash flows that relate to operating expenses denominated in certain currencies. Changes in fair value of derivatives designated as cash flow hedges are recorded, net of applicable taxes, in other comprehensive income and subsequently reclassified into the same income statement line item as the hedged exposure when the underlying hedged item is recognized in earnings. The cash flows associated with derivatives designated as cash flow hedges are reported in cash flows from operating activities in the Consolidated Statement of Cash Flows.
At June 30, 2023 and March 31, 2023, the total gross notional amount of forward contracts designated as cash flow hedges of forecasted foreign currency cost transactions was $
At June 30, 2023 and March 31, 2023, in connection with cash flow hedges of foreign currency cost transactions, the Company had net deferred gains of $
15
Notes to Consolidated Financial Statements (continued)
Derivatives Not Designated as Hedging Instruments
The Company enters into currency forward and swap contracts to hedge exposures related to assets, liabilities and earnings across its subsidiaries. These contracts are not designated as hedging instruments, and therefore changes in fair value of these contracts are reported in earnings in other expense (income) in the Consolidated Income Statement. The gains and losses on these contracts generally offset the gains and losses in the underlying hedged exposures, which are also reported in other expense (income) in the Consolidated Income Statement. Cash flows from derivatives not designated as hedges are reported in cash flows from investing activities in the Consolidated Statement of Cash Flows. The terms of these swap contracts are generally less than
The Effect of Derivative Instruments in the Consolidated Income Statement
The effects of derivatives designated as hedging instruments on the Consolidated Income Statement and Other Comprehensive Income are as follows:
Unrealized Gain (Loss) | Consolidated | Gain (Loss) Reclassified | ||||||||||||
(Dollars in millions) | Recognized in OCI | Income Statement | from AOCI to Income | |||||||||||
Three months ended June 30: |
| 2023 |
| 2022 |
| Line Item |
| 2023 |
| 2022 | ||||
Foreign exchange contracts | $ | | $ | ( | $ | | $ | | ||||||
Total | $ | | $ | ( |
| $ | | $ | | |||||
For the three months ended June 30, 2023 and 2022, there were
The effects of derivatives not designated as hedging instruments on the Consolidated Income Statement are as follows:
Consolidated | Gain (Loss) | |||||||
(Dollars in millions) | Income Statement | Recognized on Derivatives | ||||||
Three months ended June 30: |
| Line Item | 2023 |
| 2022 | |||
Foreign exchange contracts | $ | ( | $ | ( | ||||
Total |
| $ | ( | $ | ( | |||
16
Notes to Consolidated Financial Statements (continued)
NOTE 8. INTANGIBLE ASSETS INCLUDING GOODWILL
Intangible Assets
The following tables present the Company’s intangible asset balances by major asset class.
At June 30, 2023 | At March 31, 2023 | |||||||||||||||||
| Gross Carrying |
| Accumulated |
| Net Carrying |
| Gross Carrying |
| Accumulated |
| Net Carrying | |||||||
(Dollars in millions) |
| Amount |
| Amortization |
| Amount |
| Amount |
| Amortization |
| Amount | ||||||
Capitalized software | $ | | $ | ( | $ | | $ | | $ | ( | $ | | ||||||
Customer relationships* | | ( | | |
| ( |
| | ||||||||||
Completed technology |
| |
| ( |
| — |
| |
| ( |
| — | ||||||
Patents and trademarks* |
| |
| ( |
| |
| |
| ( |
| | ||||||
Total | $ | | $ | ( | $ | | $ | | $ | ( | $ | | ||||||
| * | Amounts include effects from foreign currency translation. |
The net carrying amount of intangible assets increased by $
The future amortization expense relating to intangible assets currently recorded in the Consolidated Balance Sheet was estimated to be the following at June 30, 2023:
Capitalized | Customer | Patents and | ||||||||||
(Dollars in millions) | Software |
| Relationships | Trademarks | Total | |||||||
Year ending March 31: | ||||||||||||
2024 (remaining nine months) | $ | | $ | $ | $ | |||||||
2025 | |
| ||||||||||
2026 | |
| ||||||||||
2027 | |
| ||||||||||
2028 | — | — |
| |||||||||
Thereafter | — | | — |
| | |||||||
Goodwill
The changes in the goodwill balances by segment for the three months ended June 30, 2023 were as follows:
Additions and | |||||||||
(Dollars in millions) | Balance at | Other | Balance at | ||||||
Segment | March 31, 2023 | Adjustments* |
| June 30, 2023 | |||||
United States | $ | — | $ | — | $ | — | |||
Japan | | ( | | ||||||
Principal Markets |
| |
| — | | ||||
Strategic Markets |
| |
| — | | ||||
Total | $ | | $ | ( | | ||||
* | Primarily driven by foreign currency translation. |
17
Notes to Consolidated Financial Statements (continued)
There were
NOTE 9. BORROWINGS
Debt
The following table presents the components of our debt:
|
| June 30, | March 31, | |||||||
(Dollars in millions) | Interest Rate | Maturity | 2023 | 2023 | ||||||
Unsecured floating-rate term loan | November 2024 | $ | | $ | | |||||
Commercial loan agreement | July 2026 | | | |||||||
Unsecured senior notes due 2026 | October 2026 | | | |||||||
Unsecured senior notes due 2028 | October 2028 | | | |||||||
Unsecured senior notes due 2031 | October 2031 | | | |||||||
Unsecured senior notes due 2041 | October 2041 | | | |||||||
Finance lease obligations ** | 2023-2028 | | | |||||||
$ | | $ | | |||||||
Less: Unamortized discount | | | ||||||||
Less: Unamortized debt issuance costs |
|
| | | ||||||
Less: Current maturities of long-term debt |
|
| | | ||||||
Total long-term debt |
|
| $ | | $ | | ||||
* Floating rate calculated as of June 30, 2023, using a rate equal to one-month U.S. dollar LIBOR plus
** Finance lease obligations presented using the weighted-average interest rate.
Contractual obligations of long-term debt outstanding at June 30, 2023, exclusive of finance lease obligations, are as follows:
(Dollars in millions)* |
| Principal | |
Year ending March 31: | |||
2024 (remaining nine months) | $ | | |
2025 |
| | |
2026 |
| | |
2027 |
| | |
2028 | — | ||
Thereafter |
| | |
Total | $ | | |
* Contractual obligations approximate scheduled repayments.
As of June 30, 2023, there were
During the three months ended June 30, 2023, the right-of-use assets obtained in exchange for new finance lease liabilities were $
18
Notes to Consolidated Financial Statements (continued)
NOTE 10. COMMITMENTS AND CONTINGENCIES
The Company guarantees certain loans and financial commitments. The maximum potential future payment under these financial guarantees and the fair value of these guarantees recognized in the Consolidated Balance Sheet at June 30, 2023 and March 31, 2023 were not material. Additionally, the Company has contractual commitments that are noncancellable with certain software, hardware and cloud partners used in the delivery of services to customers. During the three months ended June 30, 2023, contractual commitments decreased due to satisfaction of existing commitments outpacing new additions.
As a company with approximately
The Company records a provision with respect to a claim, suit, investigation or proceeding when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. In accordance with the relevant accounting guidance, the Company provides disclosures of matters for which the likelihood of material loss is at least reasonably possible. In addition, the Company may also disclose matters based on its consideration of other matters and qualitative factors.
The Company reviews claims, suits, investigations and proceedings at least quarterly, and decisions are made with respect to recording or adjusting provisions and disclosing reasonably possible losses or range of losses (individually or in the aggregate) to reflect the impact and status of settlement discussions, discovery, procedural and substantive rulings, reviews by counsel and other information pertinent to a particular matter.
Whether any losses, damages or remedies finally determined in any claim, suit, investigation or proceeding could reasonably have a material effect on the Company’s business, financial condition, results of operations or cash flows will depend on a number of variables, including the timing and amount of such losses or damages; the structure and type of any such remedies; the significance of the impact any such losses, damages or remedies may have in the consolidated financial statements; and the unique facts and circumstances of the particular matter that may give rise to additional factors. While the Company will continue to defend itself vigorously, it is possible that the Company’s business, financial condition, results of operations or cash flows could be affected in any particular period by the resolution of one or more of these matters.
In July 2017, BMC Software, Inc. (“BMC”) filed suit against IBM in the U.S. Court for the Southern District of Texas in a dispute involving various aspects of IBM’s business, including its managed infrastructure business. BMC alleged IBM’s removal of BMC software from one of its client’s sites at the client’s request constituted breach of contract, fraudulent inducement and trade secret misappropriation. In May 2022, the trial court entered a judgment against IBM and awarded BMC $
19
Notes to Consolidated Financial Statements (continued)
Company in connection with this matter. Until there is a final and conclusive judgment in the case after all appeals and proceedings are concluded, until the amount of any applicable insurance is determined, and until a definitive assessment of Kyndryl’s indemnity obligations (if any) occurs, which in the aggregate will likely take several years, the amount of indemnity obligation (if any) that the Company may owe to IBM is indeterminate.
Separately, certain contractual disputes have arisen between Kyndryl and IBM following the Separation. IBM and Kyndryl have commenced arbitration proceedings related to certain of these matters. Kyndryl intends to vigorously pursue its interests and defenses in these matters, including asserting its own claims in arbitration if necessary.
NOTE 11. EQUITY
The following table presents reclassifications and taxes related to items of other comprehensive income (loss) for the three months ended June 30, 2023 and 2022:
| Pretax |
| Tax (Expense) |
| Net of Tax | ||||
(Dollars in millions) |
| Amount |
| Benefit |
| Amount | |||
For the three months ended June 30, 2023: | |||||||||
Foreign currency translation adjustments | $ | ( | $ | — | $ | ( | |||
Unrealized gains (losses) on cash flow hedges: | |||||||||
Unrealized gains (losses) arising during the period | $ | | $ | ( | $ | | |||
Reclassification of (gains) losses to net income | ( | — | — | ||||||
Total unrealized gains (losses) on cash flow hedges | $ | | $ | ( | $ | | |||
Retirement-related benefit plans – amortization of net (gains) losses* | | — | | ||||||
Other comprehensive income (loss) | $ | | $ | ( | $ | — | |||
For the three months ended June 30, 2022: | |||||||||
Foreign currency translation adjustments | $ | ( | $ | — | $ | ( | |||
Unrealized gains (losses) on cash flow hedges: | |||||||||
Unrealized gains (losses) arising during the period | ( | | ( | ||||||
Reclassification of (gains) losses to net income | ( | — | ( | ||||||
Total unrealized gains (losses) on cash flow hedges | $ | ( | $ | | $ | ( | |||
Retirement-related benefit plans – amortization of net (gains) losses* | $ | | $ | ( | $ | | |||
Other comprehensive income (loss) | $ | ( | $ | ( | $ | ( | |||
| * | These AOCI components are included in the computation of net periodic benefit cost. Refer to Note 12 – Retirement-Related Benefits for additional information. |
20
Notes to Consolidated Financial Statements (continued)
The following table presents the components of accumulated other comprehensive income (loss), net of taxes:
Net Unrealized | Foreign | Net Change | Accumulated | |||||||||
Gain (Losses) | Currency | Retirement- | Other | |||||||||
on Cash | Translation | Related | Comprehensive | |||||||||
(Dollars in millions) |
| Flow Hedges | Adjustments* |
| Benefit Plans | Income (Loss) | ||||||
April 1, 2023 | $ | — | $ | ( | $ | ( | $ | ( | ||||
Other comprehensive income (loss) | | ( | | — | ||||||||
June 30, 2023 | $ | | $ | ( | $ | ( | $ | ( | ||||
April 1, 2022 | $ | | $ | ( | $ | ( | $ | ( | ||||
Other comprehensive income (loss) | ( | ( | | ( | ||||||||
June 30, 2022 | $ | ( | $ | ( | $ | ( | $ | ( | ||||
* | Foreign currency translation adjustments are presented gross. |
NOTE 12. RETIREMENT-RELATED BENEFITS
The following table presents the components of net periodic pension cost for the defined benefit pension plans recognized in the Consolidated Income Statement for the three months ended June 30, 2023 and 2022.
For the three months ended June 30: | ||||||
(Dollars in millions) |
| 2023 |
| 2022 | ||
Service cost |
| $ | |
| $ | |
| |
| | |||
| ( |
| ( | |||
| |
| | |||
Net periodic pension cost |
| $ | |
| $ | |
| (1) | These components of net periodic pension cost are included in other expense (income) in the Consolidated Income Statement. |
The components of net periodic benefit cost for the nonpension postretirement benefit plans and multi-employer plans recognized in the Consolidated Income Statement were not material for any period presented.
NOTE 13. TRANSACTIONS WITH FORMER PARENT
Change in Beneficial Ownership
IBM ceased to be a related party of Kyndryl in August 2022 after IBM transferred all of its
Revenue and Purchases Related to Former Parent
Kyndryl provides various services to IBM, including those related to hosting data centers and servicing IBM’s information technology infrastructure, which are reported as revenue in the Company’s Consolidated Income Statement. Revenue generated from these services was $
Kyndryl utilizes various IBM products and services, recognized as costs of services, in the fulfillment of services contracts. Total cost of services recognized from these related-party transactions in the Company’s Consolidated Income Statement was $
21
Notes to Consolidated Financial Statements (continued)
the prior-year quarter includes outsourcing goods and services provided by the former Parent to Kyndryl’s customers post-Separation.
Capital expenditures for purchases of IBM hardware were reflected as payments for property and equipment within the investing section of the Company’s Consolidated Statement of Cash Flows in the amounts of $
Lease Guarantees
Kyndryl has lease agreements with third parties with an estimated aggregate lease liability of $
NOTE 14. WORKFORCE REBALANCING AND SITE-RATIONALIZATION CHARGES
During the fiscal year ended March 31, 2023, the Company initiated actions to reduce our overall cost structure and increase our operating efficiency. These actions are anticipated to occur over several quarters and result in workforce rebalancing charges, charges related to ceasing to use leased and owned fixed assets, and lease termination charges (collectively, the “charges”). We expect the total charges to be incurred for this program to be approximately $
The following table presents the segment breakout of charges incurred during the three months ended June 30, 2023.
Three Months Ended | Costs Incurred | |||||
(Dollars in millions) |
| June 30, 2023 | to Date | |||
United States | $ | | $ | | ||
Japan | | | ||||
Principal Markets | | | ||||
Strategic Markets | | | ||||
Corporate charges not allocated to the segments | | | ||||
Total charges | $ | | $ | | ||
The following table presents the classification of workforce rebalancing and site-rationalization activities in the Consolidated Income Statement during the three months ended June 30, 2023. Charges in the three months ended June 30, 2022 were immaterial.
Three Months Ended | |||
(Dollars in millions) |
| June 30, 2023 | |
Cost of services | $ | | |
Selling, general and administrative expenses | | ||
Workforce rebalancing charges | | ||
Total charges | $ | | |
22
Notes to Consolidated Financial Statements (continued)
The following table presents the components of and changes in our workforce rebalancing and site-rationalization charges liabilities during the three months ended June 30, 2023.
Liabilities | Liabilities | ||||||||||||||
Workforce | Related to | Related to | Liabilities Related | ||||||||||||
Rebalancing | Ceasing to Use | Lease | to Ceasing to Use | ||||||||||||
(Dollars in millions) |
| Liabilities* | Leased Assets | Terminations | Fixed Assets | Total | |||||||||
Balance at March 31, 2023 | $ | | $ | — | $ | | $ | — | $ | | |||||
Charges | | | | | | ||||||||||
Cash payments | ( | — | ( | ( | ( | ||||||||||
Non-cash adjustments | ( | ( | — | ( | ( | ||||||||||
Balance at June 30, 2023 | $ | | $ | — | $ | — | $ | — | $ | | |||||
| * | Excludes historical workforce rebalancing liabilities of $ |
NOTE 15. SUBSEQUENT EVENTS
In July 2023, the Company extinguished $
23
Item 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 2023
Overview
Three Months Ended June 30, | ||||||||
(Dollars in millions) |
| 2023 | 2022 | |||||
Revenue | $ | 4,193 | $ | 4,288 | ||||
Revenue growth (GAAP) | (2) | % | (10) | % | ||||
Revenue growth in constant currency(1) | (1) | % |
| (3) | % | |||
Net income (loss) | $ | (141) | $ | (250) | ||||
Adjusted EBITDA(1) | $ | 612 | $ | 491 | ||||
(1) Revenue growth in constant currency and adjusted EBITDA are non-GAAP financial metrics. For definitions of these metrics and a reconciliation of adjusted EBITDA to the most directly comparable financial measure calculated and presented in accordance with U.S. GAAP, see “⸺Segment Results.”
| June 30, | March 31, | ||||
(Dollars in millions) |
| 2023 |
| 2023 | ||
Assets | $ | 10,986 | $ | 11,464 | ||
Liabilities | 9,648 | 10,002 | ||||
Equity | 1,338 | 1,462 | ||||
Organization of Information
Kyndryl Holdings, Inc. was formed as a wholly-owned subsidiary of IBM in September 2021 to hold the operations of the managed infrastructure services unit of IBM’s Global Technology Services segment. On November 3, 2021, Kyndryl separated from IBM through a spin-off that was tax-free for U.S. federal tax purposes. Following the Separation, Kyndryl became an independent, publicly-traded company and the world’s leading managed infrastructure services provider.
Financial Performance Summary
Macro Dynamics
In fiscal year 2023, we saw continuing demand for information technology services, despite declining economic growth, increased geopolitical tensions, inflationary pressures and government efforts to stem inflation. Although the risk of economic slowdowns in certain geographies has increased due to higher interest rates and other factors, most economists, including the International Monetary Fund, expect positive global macroeconomic growth in calendar years 2023 and 2024.
Quarterly Financial Performance
For the three months ended June 30, 2023, we reported $4.2 billion in revenue, a decline of 2 percent compared to the prior-year period. The revenue decline was largely attributable to actions the Company has taken to reduce low-margin components of its customer relationships, as well as currency effects. United States revenue was unchanged, Japan revenue declined 4 percent (but increased in constant currency), Principal Markets revenue declined 2 percent and Strategic Markets revenue decreased 4 percent, in each case compared to the three months ended June 30, 2022. Net loss of $141 million improved by $109 million versus the prior-year period driven by lower transaction-related costs and progress on our key initiatives to drive operating efficiencies and increased margins, partially offset by a $54 million increase in workforce rebalancing charges in the current quarter.
24
Management Discussion (continued)
Segment Results
The following table presents our reportable segments’ revenue and adjusted EBITDA for the three months ended June 30, 2023 and 2022. Segment revenue and revenue growth in constant currency exclude any transactions between the segments.
Three Months Ended June 30, | Year-over-Year Change | ||||||||||
(Dollars in millions) |
| 2023 | 2022 | 2023 vs. 2022 | |||||||
Revenue | |||||||||||
United States | $ | 1,164 | $ | 1,168 | 0 | % | |||||
Japan | 610 | 634 | (4) | % | |||||||
Principal Markets | 1,484 | 1,516 | (2) | % | |||||||
Strategic Markets | 935 | 970 | (4) | % | |||||||
Total revenue | $ | 4,193 | $ | 4,288 | (2) | % | |||||
Revenue growth in constant currency(1) | (1) | % | (3) | % | |||||||
Adjusted EBITDA(1) | |||||||||||
United States | $ | 236 | $ | 200 | 18 | % | |||||
Japan | 100 | 115 | (13) | % | |||||||
Principal Markets | 167 | 100 | 67 | % | |||||||
Strategic Markets | 133 | 96 | 39 | % | |||||||
Corporate and other(2) | (24) | (20) | NM | ||||||||
Total adjusted EBITDA(1) | $ | 612 | $ | 491 | 25 | % | |||||
NM – not meaningful
| (1) | Revenue growth in constant currency and adjusted EBITDA are non-GAAP financial metrics. See the information below for definitions of these metrics and a reconciliation of adjusted EBITDA to net income (loss). |
| (2) | Represents net amounts not allocated to segments. |
We report our financial results in accordance with U.S. 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 enhances visibility to underlying results and the impact of management decisions on operational performance and enables better comparison to peer companies.
Revenue growth in constant currency is a non-GAAP measure that eliminates the effects of exchange rate fluctuations when translating from foreign currencies to the United States dollar. It is calculated by using the average exchange rates that existed for the same period of the prior year. Constant-currency measures are provided so that revenue can be viewed without the effect of fluctuations in currency exchange rates, which is consistent with how management evaluates our revenue results and trends.
Additionally, management uses adjusted EBITDA to evaluate our performance. Adjusted EBITDA is a non-GAAP measure and 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 terminations, 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. We believe that adjusted EBITDA is a helpful supplemental measure to assist investors in evaluating our operating results as it excludes certain items whose fluctuation from period to period does not necessarily correspond to changes in the operations of our business. We provide this non-GAAP financial measure as we believe it enhances visibility to underlying results and the impact of management decisions on operational performance, enables better comparison to peer companies and allows us to provide a long-term strategic view of the business.
25
Management Discussion (continued)
These disclosures are provided in addition to and not as a substitute for the percentage change in revenue and profit or loss measures on a U.S. GAAP basis compared to the corresponding period in the prior year. Other companies may calculate and define similarly labeled items differently, which may limit the usefulness of this measure for comparative purposes.
The following table provides a reconciliation of U.S. GAAP net income (loss) to adjusted EBITDA:
Three Months Ended June 30, | ||||||
(Dollars in millions) |
| 2023 |
| 2022 | ||
Net income (loss) | $ | (141) | $ | (250) | ||
Provision for income taxes | 32 | 45 | ||||
Workforce rebalancing charges | 58 | 4 | ||||
Charges related to ceasing to use leased/fixed assets and lease terminations | 10 | — | ||||
Transaction-related costs | 42 | 103 | ||||
Stock-based compensation expense | 22 | 26 | ||||
Interest expense | 29 | 20 | ||||
Depreciation of property, equipment and capitalized software | 210 | 228 | ||||
Amortization expense | 333 | 308 | ||||
Other adjustments* | 16 | 9 | ||||
Adjusted EBITDA (non-GAAP) | $ | 612 | $ | 491 | ||
| * | Other adjustments represent pension expense other than pension servicing costs and multi-employer plan costs, significant litigation costs and currency impacts of highly inflationary countries. |
United States
Three Months Ended June 30, | ||||||||
(Dollars in millions) |
| 2023 | 2022 | |||||
Revenue | $ | 1,164 | $ | 1,168 | ||||
Revenue year-over-year change | 0 | % | (3) | % | ||||
Adjusted EBITDA | $ | 236 | $ | 200 | ||||
Adjusted EBITDA year-over-year change | 18 | % | ||||||
For the three months ended June 30, 2023, United States revenue of $1.2 billion was unchanged compared to the prior-year quarter. Adjusted EBITDA increased $36 million from the prior-year quarter, primarily driven by increased operating efficiencies and higher margins on recent signings, partially offset by an increase in software costs of $16 million resulting from an amendment of the contract with a software provider that re-allocated costs among our segments.
Japan
Three Months Ended June 30, | ||||||||
(Dollars in millions) |
| 2023 | 2022 | |||||
Revenue | $ | 610 | $ | 634 | ||||
Revenue year-over-year change | (4) | % | (15) | % | ||||
Revenue growth in constant currency | 2 | % | 1 | % | ||||
Adjusted EBITDA | $ | 100 | $ | 115 | ||||
Adjusted EBITDA year-over-year change | (13) | % | ||||||
For the three months ended June 30, 2023, Japan revenue of $610 million decreased 4 percent compared to the prior-year quarter, driven by an unfavorable currency exchange rate impact of six points. Adjusted EBITDA decreased
26
Management Discussion (continued)
$15 million from the prior-year quarter, primarily driven by unfavorable currency movements that impacted both non-yen-denominated costs and the translation of earnings into U.S. dollars.
Principal Markets
Three Months Ended June 30, | ||||||||
(Dollars in millions) |
| 2023 | 2022 | |||||
Revenue | $ | 1,484 | $ | 1,516 | ||||
Revenue year-over-year change | (2) | % | (18) | % | ||||
Revenue growth in constant currency | (2) | % | (9) | % | ||||
Adjusted EBITDA | $ | 167 | $ | 100 | ||||
Adjusted EBITDA year-over-year change | 67 | % | ||||||
For the three months ended June 30, 2023, Principal Markets revenue of $1.5 billion decreased 2 percent compared to the prior-year quarter. The revenue decline was largely attributable to actions the Company has taken to reduce equipment sales and other low-margin components of its customer relationships. Adjusted EBITDA increased $67 million from the prior-year quarter, primarily due to a decrease in software costs of $21 million resulting from an amendment of the contract with a software provider that re-allocated costs among our segments, increased operating efficiencies and higher margins on recent signings.
Strategic Markets
Three Months Ended June 30, | ||||||||
(Dollars in millions) |
| 2023 | 2022 | |||||
Revenue | $ | 935 | $ | 970 | ||||
Revenue year-over-year change | (4) | % | 2 | % | ||||
Revenue growth in constant currency | (4) | % | 8 | % | ||||
Adjusted EBITDA | $ | 133 | $ | 96 | ||||
Adjusted EBITDA year-over-year change | 39 | % | ||||||
For the three months ended June 30, 2023, Strategic Markets revenue of $935 million decreased 4 percent compared to the prior-year quarter. The revenue decline was largely attributable to actions the Company has taken to reduce equipment sales and other low-margin components of its customer relationships. Adjusted EBITDA increased $37 million from the prior-year quarter, primarily due to increased operating efficiencies and higher margins on recent signings, partially offset by an increase in software costs of $9 million resulting from an amendment of the contract with a software provider that re-allocated costs among our segments.
Corporate and Other
Corporate and other had an adjusted EBITDA loss of $24 million in the three months ended June 30, 2023, compared to a loss of $20 million in the three months ended June 30, 2022.
27
Management Discussion (continued)
Costs and Expenses
Three Months Ended June 30, | Percent of Revenue | Change | |||||||||||||
(Dollars in millions) |
| 2023 | 2022 |
| 2023 | 2022 |
| 2023 vs. 2022 | |||||||
Revenue | $ | 4,193 | $ | 4,288 | 100.0 | % | 100.0 | % | (2) | % | |||||
Cost of services | 3,449 | 3,677 | 82.3 | % | 85.8 | % |
| (6) | % | ||||||
Selling, general and administrative expenses | 720 | 694 | 17.2 | % | 16.2 | % |
| 4 | % | ||||||
Workforce rebalancing charges |
| 58 |
| 4 |
| 1.4 | % | 0.1 | % |
| NM | ||||
Transaction-related costs | 42 | 103 | 1.0 | % | 2.4 | % | (60) | % | |||||||
Interest expense |
| 29 |
| 20 |
| 0.7 | % | 0.5 | % |
| 47 | % | |||
Other expense (income) |
| 5 |
| (3) |
| 0.1 | % | (0.1) | % |
| NM | ||||
Income (loss) before income taxes | $ | (109) | $ | (205) |
|
|
|
| |||||||
NM – not meaningful
Cost of services was 82.3% of revenue in the three months ended June 30, 2023, compared to 85.8% in the three months ended June 30, 2022, driven by increased operating efficiencies and higher margins on recent signings. Selling, general and administrative expenses were 17.2% of revenue in the three months ended June 30, 2023 compared to 16.2% in the prior-year quarter, driven by the impact of currency on revenue compared to our U.S. dollar-denominated expenses. Workforce rebalancing charges were 1.4% of revenue in the three months ended June 30, 2023 versus 0.1% of revenue in the prior-year quarter, due to workforce rebalancing actions in the first quarter of fiscal 2024. Transaction-related costs were 1.0% of revenue in the three months ended June 30, 2023 compared to 2.4% in the prior-year quarter driven by reduced rebranding and employee retention costs. Interest expense was 0.7% of revenue in the three months ended June 30, 2023 compared to 0.5% in the prior-year quarter.
Transaction-Related Charges
The Company classifies certain expenses related to the Separation, acquisitions and divestitures (if any) as “transaction-related costs” in the Consolidated Income Statement. Transaction-related costs include expenditures incurred to prepare for and execute the Separation and establish Kyndryl as a standalone business. These costs include employee retention expenses, information technology costs, marketing expenses to establish the Kyndryl brand, legal, accounting, consulting and other professional service costs required to prepare for and execute the Separation, and other costs related to contract and supplier novation and integration.
Workforce Rebalancing and Site-Rationalization Charges
During the fiscal year ending March 31, 2023, management initiated certain actions to reduce our overall cost structure and increase our operating efficiency. These actions include workforce rebalancing charges, charges related to ceasing to use leased and owned fixed assets, and charges related to lease terminations. Workforce rebalancing charges arise from cost-reduction actions to enhance productivity and cost-competitiveness and to rebalance skills that result in payments to the terminated employees. In addition, we identified certain leased and owned assets that were inherited from IBM as a result of the Separation that we determined will no longer provide any economic benefit to Kyndryl. As a result, we disposed of these assets through abandonment or early termination. During the three months ended June 30, 2023, the Company recognized $58 million in workforce rebalancing charges and $10 million in charges related to ceasing to use leased and owned fixed assets and lease termination charges.
Management expects total future charges for this program to be approximately $70 million, consisting of $50 million in workforce rebalancing charges and $20 million in charges related to ceasing to use leased and owned fixed assets and lease termination charges. The Company estimates that the program in aggregate will require a cash outlay of approximately $260 million, of which approximately $92 million has been paid through June 30, 2023 (including $11 million of contractual payments toward leased assets we have ceased to use) and approximately $100 million is expected to be paid within fiscal year 2024, and the remainder thereafter. Management expects that these workforce rebalancing
28
Management Discussion (continued)
and site-rationalization activities will reduce future payroll costs, rent expenses and depreciation of property and equipment by approximately $200 million in fiscal year 2024. There can be no guarantee that we will achieve our expected cost savings. The Company will continue to seek opportunities to improve operational efficiency and reduce costs, which may result in additional charges in future periods. For additional information, see Note 14 – Workforce Rebalancing and Site-Rationalization Charges in the accompanying Consolidated Financial Statements.
Income Taxes
The provision for income taxes for the three months ended June 30, 2023 was $32 million of expense, compared to $45 million of expense for the three months ended June 30, 2022. Our income tax expense for each of the three months ended June 30, 2023 and 2022 was primarily related to taxes on foreign operations and valuation allowances recorded in certain jurisdictions against deferred tax assets that are not more likely than not to be realized.
In assessing the need for a valuation allowance, management considers all available evidence for each jurisdiction, including past operating results, estimates of future taxable income, the reversal of existing temporary differences, and the feasibility of ongoing tax planning strategies and actions. Estimates of future taxable income and loss could change, perhaps materially, which may require us to revise our assessment of the recoverability of the deferred tax asset at that time.
Financial Position
Dynamics
Total assets of $11.0 billion decreased by $477 million (and decreased by $450 million adjusted for currency) from March 31, 2023, primarily driven by: a decrease in cash and cash equivalents of $341 million mainly due to the net loss in the period as well as payments for license agreements, annual incentives and workforce rebalancing liabilities; and a decrease of $33 million in accounts receivable due to lower revenue.
Total liabilities of $9.6 billion decreased by $354 million (and decreased by $379 million adjusted for currency) from March 31, 2023, primarily as a result of: a decrease in accounts payable of $148 million; a decrease in deferred income of $63 million mainly due to lower advanced billings; and a decrease in accrued compensation and benefits of $60 million due to payments of annual incentives; partially offset by an increase in debt of $63 million due to new finance leases. Total equity of $1.3 billion decreased $124 million from March 31, 2023, principally due to our comprehensive loss in the period.
Working Capital
June 30, | March 31, | |||||
(Dollars in millions) |
| 2023 |
| 2023 | ||
Current assets |
| $ | 4,653 |
| $ | 4,963 |
Current liabilities |
| 4,591 |
| 4,868 | ||
Working capital | $ | 62 | $ | 95 | ||
Working capital decreased $33 million from March 31, 2023. Current assets decreased $310 million (and decreased $300 million adjusted for currency) primarily driven by: a decrease of $341 million in cash and cash equivalents and a decrease of $33 million in accounts receivable. Current liabilities decreased $277 million (and decreased $298 million adjusted for currency) as a result of a decrease in accounts payable of $148 million and a decrease in accrued compensation and benefits of $60 million.
29
Management Discussion (continued)
Noncurrent Assets and Liabilities
Noncurrent assets of $6.3 billion at June 30, 2023 decreased by $167 million (and decreased by $150 million adjusted for currency) compared to March 31, 2023, driven by a decrease in deferred taxes of $58 million; and a decrease in deferred costs (noncurrent) of $44 million.
Noncurrent liabilities of $5.1 billion at June 30, 2023 decreased $77 million (and decreased by $82 million adjusted for currency) compared to March 31, 2023, mainly driven by a decrease in deferred tax liability of $30 million; and a decrease in deferred income (noncurrent) of $28 million; partially offset by an increase in long-term debt of $38 million.
Cash Flow
Our cash flows from operating, investing and financing activities are summarized in the table below.
Three Months Ended June 30, | ||||||
(Dollars in millions) |
| 2023 |
| 2022 | ||
Net cash provided by (used in): |
|
|
| |||
Operating activities | $ | (173) | $ | 104 | ||
Investing activities |
| (113) |
| (218) | ||
Financing activities |
| (38) |
| (41) | ||
Effect of exchange rate changes on cash, cash equivalents and restricted cash |
| (15) |
| (111) | ||
Net change in cash, cash equivalents and restricted cash | $ | (339) | $ | (266) | ||
Net cash used in operating activities was $173 million in the three months ended June 30, 2023, compared to net cash provided of $104 million in the prior-year period. This change was primarily driven by payments toward license agreements, annual incentives and workforce rebalancing liabilities in the current quarter and higher cash flows from receivables in the prior-year quarter.
Net cash used by investing activities was $113 million in the three months ended June 30, 2023, compared to a net cash use of $218 million in the prior-year period due to lower capital expenditures.
Net cash used by financing activities totaled $38 million in the three months ended June 30, 2023, compared to net cash used by financing activities of $41 million in the prior-year period.
Other Information
Signings
The following table presents the Company’s signings for the three months ended June 30, 2023 and 2022.
| Three Months Ended June 30, | |||||
(Dollars in billions) |
| 2023 |
| 2022 | ||
Total signings | $ | 2.8 | $ | 2.9 | ||
Signings decreased by $145 million in the three months ended June 30, 2023, or 5%, compared to the prior-year quarter due to the Company’s efforts to reduce certain low-margin revenues. We believe that the estimated values of signings provide insight into the Company’s potential future revenue and are a tool to monitor trends in the business, including the business’ ability to attract new customers and sell additional scope into our existing customer base, and we believe signings are helpful information for investors. There are no third-party standards or requirements governing the calculation of signings. We define signings as an initial estimate of the value of a customer’s commitment under a contract. The calculation involves estimates and judgments to gauge the extent of a customer’s commitment, including
30
Management Discussion (continued)
the type and duration of the agreement and the presence of termination charges or wind-down costs. Contract extensions and increases in scope are treated as signings only to the extent of the incremental new value. Signings can vary over time due to a variety of factors including, but not limited to, the timing of signing a small number of larger outsourcing contracts as well as the length of those contracts. The conversion of signings into revenue may vary based on the types of services and solutions, customer decisions and other factors, which may include, but are not limited to, the macroeconomic environment or external events.
Liquidity and Capital Resources
We believe that our existing cash and cash equivalents and the Revolving Credit Agreement entered into in October 2021, will be sufficient to meet our anticipated cash needs for at least the next twelve months.
Senior Unsecured Notes
In October 2021, in preparation for our Spin-off, we completed the offering of $2.4 billion in aggregate principal amount of senior unsecured fixed-rate notes as follows: $700 million aggregate principal amount of 2.05% Senior Notes due 2026, $500 million aggregate principal amount of 2.70% Senior Notes due 2028, $650 million aggregate principal amount of 3.15% Senior Notes due 2031 and $550 million aggregate principal amount of 4.10% Senior Notes due 2041 (the “Notes”). The Notes were offered and sold to qualified institutional buyers in reliance on Rule 144A under the Securities Act and to non-U.S. persons in reliance on Regulation S of the Securities Act. The Notes are subject to customary affirmative covenants, negative covenants and events of default for financings of this type and are redeemable at our option in a customary manner.
In connection with the issuance of the Notes, we entered into a registration rights agreement with the initial purchasers of the Notes, pursuant to which we completed a registered offering to exchange each series of Notes for new notes with substantially identical terms during the quarter ended September 30, 2022.
Term Loan and Revolving Credit Facility
In October 2021, we entered into a $500 million three-year variable rate term loan credit agreement (the “Term Loan Credit Agreement”). In November 2021, we drew down the full $500 million available under the Term Loan Credit Agreement.
In October 2021, we entered into a $3.15 billion multi-currency revolving credit agreement (the “Revolving Credit Agreement” and, together with the Term Loan Credit Agreement, the “Credit Agreements”) for our future liquidity needs.
In June 2023, we amended the Credit Agreements by replacing the London Interbank Offered Rate (“LIBOR”) as the interest rate benchmark for U.S. Dollar borrowings with the Secured Overnight Financing Rate (“SOFR”). The first repricing date using SOFR will be in July 2023.
The Revolving Credit Agreement expires, unless extended, in October 2026, and the Term Loan Credit Agreement matures, unless extended, in November 2024. Interest rates on borrowings under the Credit Agreements are based on prevailing market interest rates, plus a margin, as further described in the Credit Agreements. As of June 30, 2023, there were no borrowings under the Revolving Credit Agreement.
We may voluntarily prepay our debt without premium or penalty, subject to customary “breakage” costs. The Company is in compliance with all of its debt covenants for all periods presented.
31
Management Discussion (continued)
Transfers of Financial Assets
The Company has entered into agreements with third-party financial institutions to sell certain financial assets (primarily trade receivables) without recourse. The Company has determined these are true sales. The carrying value of the financial asset sold is derecognized, and a net gain or loss on the sale is recognized, at the time of the transfer. The first agreement, which was executed in November 2021 and subsequently amended, enabled us to sell, at any one time, on a revolving basis, our trade receivables with payment terms from three to nine months in the amount of up to $1.0 billion, and trade receivables with payment terms of less than three months with no defined limit, contingent on the approval of the counterparty. The initial term of this agreement was 18 months, and the agreement automatically resets to a term of 18 months after every six months, unless one of the parties elects not to extend. The second agreement was executed in June 2022 with a separate third-party financial institution, in which the sale of receivables is contingent on the approval of the counterparty with no defined facility limit. The initial term of this agreement is twelve months, and was extended for an additional year.
The net proceeds from these agreements are reflected as cash provided by operating activities in the Consolidated Statement of Cash Flows. Gross proceeds from receivables sold to third parties under such programs were $1.2 billion and $613 million for the three months ended June 30, 2023 and June 30, 2022, respectively. The fees associated with the transfers of receivables were $16 million and $8 million for the three months ended June 30, 2023 and June 30, 2022, respectively. The year-over-year change was due to the aforementioned amendments.
Critical Accounting Estimates
The application of U.S. GAAP requires us to make estimates and assumptions about certain items and future events that directly affect our reported financial condition. There have been no changes to our critical accounting policies and estimates as described in our Annual Report on Form 10-K for the fiscal year ended March 31, 2023 for more information; we refer to the Annual Report on Form 10-K for the fiscal year ended March 31, 2023 as the “Form 10-K”.
Cautionary Note Regarding Forward-Looking Statements
This report 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 report, 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 in this report are forward-looking statements. Such forward-looking statements often contain words such as “will,” “anticipate,” “predict,” “project,” “contemplate,” “plan,” “forecast,” “estimate,” “expect,” “intend,” “target,” “may,” “should,” “would,” “could,” “seek,” “aim,” “believe” 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; |
| ● | 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; |
32
Management Discussion (continued)
| ● | inability to accurately estimate the cost of services and the timeline for completion of contracts; |
| ● | its implementation of a new enterprise resource planning system and other systems and processes; |
| ● | 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; |
| ● | the impairment of our goodwill or long-lived assets; |
| ● | risks relating to cybersecurity and data privacy; |
| ● | risks relating to non-compliance with legal and regulatory requirements; |
| ● | adverse effects from tax matters and environmental matters; |
| ● | legal proceedings and investigatory risks and potential indemnification obligations; |
| ● | 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 our Form 10-K, as such factors may be updated from time to time in the Company’s periodic filings with the SEC. Any forward-looking statement in this report speaks only as of the date on which it is made. Except as required by law, the Company assumes no obligation to update or revise any forward-looking statements.
Website and Social Media Disclosure
The Company may use its website and/or social media outlets, such as Facebook, LinkedIn and Twitter, as distribution channels of material company information. Financial and other important information regarding the Company is routinely posted on and accessible through the Company’s website at https://investors.kyndryl.com, its Facebook page at https://www.facebook.com/kyndryl, its LinkedIn page at https://linkedin.com/company/kyndryl and its Twitter account (@Kyndryl) at https://twitter.com/Kyndryl. We may also use our Investors Relations website, https://investors.kyndryl.com, as means of disclosing material non-public information and for complying with our disclosure obligations under Regulation FD. In addition, you may automatically receive email alerts and other information about the Company when you enroll your email address by visiting the “Investor Email Alerts” section under the “Resources” section at https://investors.kyndryl.com.
33
Item 3. Quantitative and Qualitative Disclosures About Market Risk
For our disclosures about market risk, see the information under the heading “Quantitative and Qualitative Disclosures About Market Risk” in the Form 10-K. There have been no material changes to the Company’s disclosure about market risk in the Form 10-K.
Item 4. Controls and Procedures
The Company’s management evaluated, with the participation of the Chief Executive Officer and Chief Financial Officer, the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report.
Changes in Internal Control over Financial Reporting
During the quarter ended June 30, 2023, we completed the initial phase of a new SAP enterprise resource planning system implementation, which we expect will enhance our transactional processing and financial reporting. The implementation included changes to certain financial processes impacting key controls related to our internal controls over financial reporting. We believe we have maintained appropriate internal control over financial reporting during the implementation and will continue to monitor the impact of the implementation on our processes, procedures and internal control over financial reporting. There have been no other changes in the Company’s internal control over financial reporting (as such term is defined in Rule 13a-15(f) of the Exchange Act) that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
34
Part II — Other Information
Item 1. Legal Proceedings
Refer to Note 10 – Commitments and Contingencies, in the notes to consolidated financial statements in this report.
Item 1A. Risk Factors
For a discussion of our potential risks and uncertainties, see the information under the heading “Risk Factors” in our Form 10-K for the year ended March 31, 2023. There have been no material changes with respect to the risk factors disclosed in the Form 10-K.
Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
During the three months ended June 30, 2023, of the Company’s directors or officers (as defined in Rule 16a-1(f) of the Securities Exchange Act of 1934) , or modified a Rule b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement (as such terms are defined in Item 408 of Regulation S-K of the Securities Act of 1933).
35
Item 6. Exhibits
Exhibit Number | Description of Exhibit |
2.1 | |
3.1 | |
3.2 | |
10.1 | |
10.2 | |
31.1 | |
31.2 | |
32.1 | |
32.2 | |
101.INS | XBRL Instance Document – the instance document does not appear on the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
101.SCH | XBRL Taxonomy Extension Schema Document |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
104 | Cover Page Interactive Data File – the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by the Company in these agreements or other documents were made solely within the specific context of the relevant agreement or document and do not apply in any other context or at any time other than the date they were made.
36
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Kyndryl Holdings, Inc. | ||||
(Registrant) | ||||
Date: | August 8, 2023 | |||
By: | /s/ Vineet Khurana | |||
Vineet Khurana | ||||
Vice President and Controller (Principal Accounting Officer and Authorized Signatory) | ||||
37
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
I, Martin J. Schroeter, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Kyndryl Holdings, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 8, 2023
| /s/ Martin J. Schroeter |
| Martin J. Schroeter |
| Chairman and Chief Executive Officer |
| (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
I, David B. Wyshner, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Kyndryl Holdings, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 8, 2023
| /s/ David B. Wyshner |
| David B. Wyshner |
| Chief Financial Officer |
| (Principal Financial Officer) |
Exhibit 32.1
KYNDRYL HOLDINGS, INC.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Kyndryl Holdings, Inc. (the “Company”) on Form 10-Q for the quarterly period ended June 30, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Martin J. Schroeter, Chairman and Chief Executive Officer of the Company, do hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: August 8, 2023
| /s/ Martin J. Schroeter |
| Martin J. Schroeter |
| Chairman and Chief Executive Officer |
| (Principal Executive Officer) |
Exhibit 32.2
KYNDRYL HOLDINGS, INC.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Kyndryl Holdings, Inc. (the “Company”) on Form 10-Q for the quarterly period ended June 30, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, David B. Wyshner, Chief Financial Officer of the Company, do hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: August 8, 2023
| /s/ David B. Wyshner |
| David B. Wyshner |
| Chief Financial Officer |
| (Principal Financial Officer) |