Kyndryl Holdings Inc at UBS Global TMT Conference (Virtual) Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: David Vogt - UBS Investment Bank, Research Division - Analyst : So that's a great overview. And I think investors will appreciate that. I mean maybe I just want to start with why Kyndryl. Your name, Martin, clearly familiar with people that know IBM have invested in IBM over the years given your background. You brought in people pre -- outside of IBM -- existing IBM, David comes from a slightly different background from the hospitality and the logistics business. And I think I've done a lot of questions over the last 3 or 4 months. What does the management team see here? I understand Martin's background and his role, but maybe less so David's role kind of lot of tech investors, unfortunately, have not been focused on XPO or Windham or any of the other hospitality companies. So maybe I'll just direct this to David first. If you can kind of just maybe give investors an overview of kind of your background, your experience and how it lends itself to what Kyndryl is sort of trying to accomplish over the next 3 to 5 years?

Question: David Vogt - UBS Investment Bank, Research Division - Analyst : And maybe, Martin, a little bit of a different question but along the same lines. IBM over the last 5 years has been hyper focused on Red Hat hybrid cloud. And to be frank, the MIS business, which is now Kyndryl, has been sort of an afterthought as David mentioned, sort of a captive business that's supported the rest of the business. When you think about the opportunity, you touched on partnerships with Microsoft, VMware, SAP certification. How do you think about being -- from being separate from IBM means from a long-term revenue dynamic. We understand that the near term is going to be somewhat depressed given all of the contracts that you have to renegotiate or sign up new contracts. But being separate from IBM, which sort of, at least at my perspective, is underinvested in the business -- How do you think about this over the long term? Because the way we've been talking to investors about this is that this is a long-term opportunity. It's not a 3-, 6-, 9-month turnaround. It's a multiyear process. Just would love to get your thoughts having been in the seat before at IBM to where you are today.

Question: David Vogt - UBS Investment Bank, Research Division - Analyst : Well, you were up a great point about skill set capabilities obviously, recognizing that Kyndryl relatively recently spun out public company, how do you think about enhancing your skill set of your existing team versus going out to the market to bring in skills that you may or may not have that are critical to deepen the relationship with your existing customers and obviously any potential new customers? And how does that market look right now? We've heard obviously from a lot of companies that the market is a little bit tight. I just would love to get your perspective on how you're thinking about that sort of skill set opportunity set that you need to sort of build out over the next couple of years?

Question: David Vogt - UBS Investment Bank, Research Division - Analyst : Right. No, that's great. So I think you've mentioned in the past along those lines that you view Kyndryl like a $19 billion start-up. So is there something different about how you're thinking about retention, recruitment versus maybe the way IBM might have thought in the past. And you mentioned sort of co-investment from partners. Obviously, I would imagine that's not something that was common place when the MIS segment was within the IBM umbrella. So has there been sort of a change in terms of what that you do. But in terms of how you're thinking about philosophically what your company looks like over the next 5 years versus if you have been sort of in your old seeded IBM and kind of running the same old playbook effectively for the last 30, 40 years.

Question: David Vogt - UBS Investment Bank, Research Division - Analyst : Great. Now that's helpful. I appreciate it. I would say maybe just switching gears for a little bit, over the last 3, 4 months, while the spin was happening, and we were getting a lot of questions on what does the model look like going forward? And I think at your Investor Day, you laid out sort of a framework over the next several years. And I think just for the benefit of this audience, because I'm not quite sure that everyone unfortunately, had the time or was privy to that presentation. maybe, David, if you can just kind of remind us again how you're thinking about the next 3 years from a revenue perspective? And maybe touch on what the visibility looks like when you enter a particular year and how investors should think about what, sort of, not pre-book but effectively in the sales funnel that you're going to recognize that year, how should we think about the next 2 to 3 years as this business turns around. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 06, 2021 / 4:00PM, KD.N - Kyndryl Holdings Inc at UBS Global TMT Conference (Virtual)

Question: David Vogt - UBS Investment Bank, Research Division - Analyst : Right. And maybe this might not be an answerable question. But longer term, once we get past this revenue stability, you have invested in skill sets, you readdress the go-to-market strategy. Obviously, this is not a hyperscale and tight growth company, but obviously, some of your end markets are cloud services, data security. Is there any way to think about or frame sort of what kind of revenue growth trajectory of this business can be on over, let's say, years 5 through 10. I know crystal balls are not particularly accurate. Is this like a GDP-like business, given the tailwinds in the markets that you currently operate in?

Question: David Vogt - UBS Investment Bank, Research Division - Analyst : Got it. And then maybe just turning maybe, Martin, back to the TAM. You talked about the $415 billion TAM, 2024, north of $500 billion TAM. When you look at the segments of the market that you really couldn't compete in previously when this was part of IBM, and you talked about intelligent automation, data services, cloud services, security. Are those 4 buckets of faster-growing opportunities within the overall high? Secondly, when I think about traditional opportunities, is that sort of the slower growth piece of the pie and then these sort of ancillary pieces that you think there's an extended TAM on are growing faster than sort of the traditional opportunities.

Question: David Vogt - UBS Investment Bank, Research Division - Analyst : All right. Now that's helpful. And we also get a ton of questions on the complexity of interpreting your numbers versus what they look like from IBM in the Form 10. I know you published a bunch of different presentations and sort of documents, sort of I guess, pro forma adjust for being a new start-up effectively. When we think about this business over the long term, what's the right set of metrics that you think investors need to focus on? Is it, besides revenue growth, is it EBIT margin, EBITDA margin, free cash flow? When you look at the business today, how would you define success in 5 to 10 years from a metrics perspective?

Question: David Vogt - UBS Investment Bank, Research Division - Analyst : Great. That's helpful. Maybe just a quick follow-up. So obviously, there were some debate leading into the spin about what the capital structure would look like. I think you guys have started with a pretty conservative capital structure from a debt perspective. And the Board and your team have decided not to pay dividend. Maybe can you just touch on over the next couple of years, the priorities from a cash flow perspective? I know there's been some discussion of maybe reducing debt a little bit further going forward. I just would love to kind of get your updated thoughts on where cash flow is going to be allocated? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 06, 2021 / 4:00PM, KD.N - Kyndryl Holdings Inc at UBS Global TMT Conference (Virtual)

Question: David Vogt - UBS Investment Bank, Research Division - Analyst : Got it. And is it fair to say these 12- to 14-month cash flow priorities have been already contemplated by the rating agency? There's no surprise?

Question: David Vogt - UBS Investment Bank, Research Division - Analyst : Got it. That's helpful for investors. And then just maybe one question I get a lot, and it just came in again is when I think about this business, as we think through, let's say, 2024 and we get on a stronger footing, the balance sheet's in an even better position and presumably, you'll get a rating upgrade. So you'll have no dividend, you'll have a very low leverage business growing theoretically. And so what's the use of cash flow in 5 years? Does M&A make sense? Are there pockets of technological innovation or lack of innovation that you need to address? Obviously, as you reinvest in this business over the next couple of years. And some companies have done these bolt-on acquisitions. Should we love to kind of get your thoughts on how you see that being a potential source of technical skill set growth for Kyndryl and potentially revenue growth longer term?

Question: David Vogt - UBS Investment Bank, Research Division - Analyst : No, that's helpful. Got it. I think we're about to run out of time. I still want to give you the opportunity. I know you covered a lot at the beginning in your prepared remarks. Is there anything that we didn't touch on that you want to leave investors with as we wrap up today as you guys embark on this new journey?