Kyndryl Holdings Inc

Previous wording

FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2023

Current wording

FOR THE THREE MONTHS ENDED JUNE 30, 2024

Previous wording

(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” below.

Current wording

(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.”

Previous wording

In fiscal year 2024, we have seen continuing demand for information technology services, despite concerns about economic growth, increased geopolitical tensions, inflationary pressures and government efforts to stem inflation. Although government efforts to stem inflation are expected to suppress economic growth, most economists, including the International Monetary Fund, continue to expect positive global macroeconomic growth in calendar year 2024.

Current wording

In fiscal year 2024, we saw continuing demand for information technology services, despite concerns about economic growth, increased geopolitical tensions, inflationary pressures and government efforts to stem inflation. Most economists, including the International Monetary Fund, expect positive macroeconomic growth to continue in calendar years 2024 and 2025.

Previous wording

For the three months ended December 31, 2023, we reported $3.9 billion in revenue, a decline of 9 percent compared to the three months ended December 31, 2022. The revenue decline was largely attributable to actions the Company has taken to reduce unprofitable and low-margin components of its customer relationships. United States revenue declined 18 percent, Japan revenue declined 4 percent, Principal Markets revenue declined 2 percent and Strategic Markets revenue decreased 9 percent, compared to the three months ended December 31, 2022. Net loss of $12 million improved by $94 million versus the prior-year period driven by progress on our key initiatives to drive operating efficiencies, increased margins and the impact of an agreement to collect previously reserved receivables from our former Parent.

Current wording

For the three months ended June 30, 2024, we reported $3.7 billion in revenue, a decline of 11 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 declined 15 percent, Japan revenue declined 7 percent (but increased in constant currency), Principal Markets revenue declined 5 percent and Strategic Markets revenue decreased 15 percent, in each case compared to the three months ended June 30, 2023. Net income of $11 million improved by $152 million versus the prior-year period driven by a combination of lower depreciation expenses resulting from the change of useful life ofinformation technology equipment effective April 1, 2024 (a net year-over-year benefit of $60 million), lower workforce rebalancing charges, lower transaction-related costs, progress on our key initiatives to drive operating efficiencies and increased margins, and a vendor credit, partially offset by increased software costs.

Previous wording

The following table presents our reportable segments’ revenue and adjusted EBITDA for the three and nine months ended December 31, 2023 and 2022. Segment revenue and revenue growth in constant currency exclude any transactions between the segments.

Current wording

The Company made a minor change to its geographic reportable segments effective June 1, 2024 to reflect how the Company manages its operations and measures business performance, transitioning the reporting and management of its operations in Australia/New Zealand from the Principal Markets segment to the Strategic Markets segment. All historical segment information has been recast to reflect this change. The following table presents our reportable segments’ revenue and adjusted EBITDA for the three months ended June 30, 2024 and 2023. Segment revenue and revenue growth in constant currency exclude any transactions between the segments.

Previous wording

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.

Current wording

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, enables better comparison to peer companies and allows us to provide a long-term strategic view of the business going forward.

Previous wording

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 and benefits, pension expenses other than pension servicing costs and multi-employer plan costs, stock-based compensation expense, workforce rebalancing charges, impairment expense, significant litigation costs and 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.

Current wording

Additionally, management uses adjusted EBITDA to evaluate our performance. Adjusted EBITDA is a non-GAAP measure and defined as net income (loss) excluding income taxes, interest expense, 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 expenses other than pension servicing costs and multi-employer plan costs, stock-based compensation expense, workforce rebalancing charges incurred prior to March 31, 2024, impairment expense, significant litigation costs and benefits, and currency impacts of highly inflationary countries. We believe that adjusted EBITDA is a helpful supplemental measure to assist

Previous wording

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.

Current wording

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 these measures for comparative purposes.

Previous wording

For the nine months ended December 31, 2023, Japan revenue of $1.8 billion decreased 5 percent compared to the nine months ended December 31, 2022, driven primarily by an unfavorable currency exchange rate impact of four points. Adjusted EBITDA decreased $40 million from the prior-year period, primarily driven by unfavorable currency movements that impacted both non-yen-denominated costs and the translation of earnings into U.S. dollars.

Current wording

For the three months ended June 30, 2024, Japan revenue of $569 million decreased 7 percent compared to the prior-year quarter, driven by an unfavorable currency exchange rate impact of thirteen points. Adjusted EBITDA decreased $17 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.

Previous wording

Corporate and other had an adjusted EBITDA loss of $25 million in the three months ended December 31, 2023, compared to a loss of $16 million in the three months ended December 31, 2022. Corporate and other had an adjusted EBITDA loss of $71 million in the nine months ended December 31, 2023, compared to a loss of $57 million in the nine months ended December 31, 2022.

Current wording

Corporate and other had an adjusted EBITDA loss of $21 million in the three months ended June 30, 2024, compared to a loss of $24 million in the three months ended June 30, 2023.

Previous wording

The Company classifies certain expenses and benefits related to the Separation, acquisitions and divestitures (if any) as “transaction-related costs (benefits)” 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 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, costs and benefits resulting from settlements with our former Parent associated with pre-Separation and Separation-related matters, and other costs related to contract and supplier novation and integration.

Current wording

The Company classifies certain expenses and benefits related to the Separation, acquisitions and divestitures (if any) as “transaction-related costs” in the Consolidated Income Statement. Transaction-related costs include employee retention expenses, information technology costs, marketing expenses to establish the Kyndryl brand, legal, accounting, consulting and other professional service costs required, pre-Separation and post-Separation, to prepare for and execute the Separation, costs and benefits resulting from settlements with our former Parent associated with pre-Separation and Separation-related matters, and other costs related to contract and supplier novation and integration.

Previous wording

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 December 31, 2023, the Company recognized $19 million in workforce rebalancing charges and $14 million in charges related to ceasing to use leased and owned fixed assets and lease termination charges. During the nine months ended December 31, 2023, the Company recognized $115 million in workforce rebalancing charges and $24 million in charges related to ceasing to use leased and owned fixed assets and lease termination charges.

Current wording

During the year ended March 31, 2023, management initiated certain actions to reduce the Company’s overall cost structure and increase our operating efficiency, which continued through the year ended March 31, 2024. These actions resulted in 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. 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.

Previous wording

Management expects total future charges for this program to be approximately $25 million, primarily relating to workforce rebalancing. The Company estimates that the program in aggregate will require a cash outlay of approximately $300 million, of which approximately $170 million has been paid through December 31, 2023 (including $30 million of contractual payments toward leased assets we have ceased to use) and approximately $60 million is expected to be paid through the end of fiscal year 2024, and the remainder thereafter. Management expects that these workforce rebalancing and site-rationalization activities will reduce payroll costs, rent expenses and depreciation of property and equipment by approximately $300 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.

Current wording

Total cash outlays for this program were $300 million, of which approximately $240 million has been paid through June 30, 2024 (including approximately $50 million of contractual payments toward leased assets we have ceased to use) and approximately $20 million is expected to be paid in fiscal year 2025. Management estimates that these workforce rebalancing and site-rationalization activities will reduce payroll costs, rent expenses and depreciation of property and equipment by approximately $400 million in fiscal year 2025. There can be no guarantee that we will achieve our expected cost savings.

Previous wording

The provision for income taxes for the three months ended December 31, 2023 was $65 million of expense, compared to a $32 million benefit for the three months ended December 31, 2022. Our income tax expense for the three months ended December 31, 2023 was primarily related to taxes on foreign operations, uncertain tax positions and valuation allowances recorded in certain jurisdictions against deferred tax assets that are not more likely than not to be realized. Our income tax benefits for the three months ended December 31, 2022 were primarily due to return-to-provision adjustments related to the filing of income tax returns.

Current wording

The provision for income taxes for the three months ended June 30, 2024 was $53 million of expense, compared to $32 million of expense for the three months ended June 30, 2023. Our income tax expense for each of the three months ended June 30, 2024 and 2023 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.

Previous wording

Total assets of $11.0 billion decreased by $495 million (and decreased by $572 million adjusted for currency) from March 31, 2023, primarily driven by: a decrease in deferred costs of $326 million due to amortization outpacing additions; and a decrease in cash and cash equivalents of $159 million mainly due to our net loss in the period; partially offset by an increase of $135 million in accounts receivable due to the timing of billing and collection and the release of reserves for certain receivables from our former Parent.

Current wording

Total assets of $10.2 billion decreased by $427 million (and decreased by $297 million adjusted for currency) from March 31, 2024, primarily driven by: a decrease in cash and cash equivalents of $284 million mainly due to payments for annual license agreements and annual incentives; a decrease of $159 million in accounts receivable mainly due to lower revenue; and a decrease of $73 million in deferred costs due to amortization outpacing addition and currency impact; partially offset by an increase of $99 million in prepaid expenses and other current assets mainly due to prepayment for software subscriptions.

Previous wording

Total liabilities of $9.7 billion decreased by $326 million (and decreased by $352 million adjusted for currency) from March 31, 2023, primarily as a result of: a decrease in accounts payable of $297 million due to lower costs and the timing of payments; and a decrease in deferred income of $63 million; partially offset by an increase in accrued contract costs of $169 million due to the timing of vendors’ billings.

Current wording

Total liabilities of $9.1 billion decreased by $406 million (and decreased by $310 million adjusted for currency) from March 31, 2024, primarily as a result of: a decrease in accrued compensation and benefits of $195 million due to payments of annual incentives; and a decrease in accounts payable of $71 million due to lower costs. Total equity of $1.1 billion decreased by $21 million from March 31, 2024, principally due to our comprehensive loss in the period.

Previous wording

Net cash used in investing activities was $350 million in the nine months ended December 31, 2023, compared to a net cash use of $699 million in the prior-year period due to lower capital expenditures.

Current wording

Net cash used in investing activities was $166 million in the three months ended June 30, 2024, compared to a net cash use of $113 million in the prior-year period due to higher capital expenditures and the acquisition of Skytap.

Previous wording

Net cash used in financing activities totaled $123 million in the nine months ended December 31, 2023, compared to net cash used in financing activities of $100 million in the prior-year period.

Current wording

Net cash used in financing activities totaled $51 million in the three months ended June 30, 2024, compared to net cash used by financing activities of $38 million in the prior-year period.

Previous wording

The following table presents the Company’s signings for the three and nine months ended December 31, 2023 and 2022.

Current wording

The following table presents the Company’s signings for the three months ended June 30, 2024 and 2023.

Previous wording

Signings increased by $492 million in the three months ended December 31, 2023, or 15%, compared to the prior-year quarter. Signings increased by $289 million in the nine months ended December 31, 2023, or 3%, compared to the nine months ended December 31, 2022. 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 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.

Current wording

Signings increased by $304 million in the three months ended June 30, 2024, or 11%, compared to the prior-year quarter. Management uses signings as a tool to monitor the performance of the business including the business’ ability to attract new customers and sell additional scope into our existing customer base. 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 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.

Previous wording

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.

Current wording

We believe that our existing cash and cash equivalents and the Company’s revolving credit agreement entered into in October 2021 will be sufficient to meet our anticipated cash needs for at least the next twelve months.

Previous wording

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.

Current wording

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 “Initial Notes”). The Initial 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. In connection with the issuance of the Initial Notes, we entered into a registration rights agreement with the purchasers of the Initial Notes, pursuant to which we completed a registered offering to exchange each series of Initial Notes for new notes with substantially identical terms during the quarter ended September 30, 2022.

Previous wording

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 December 31, 2023, there were no borrowings under the Revolving Credit Agreement.

Current wording

In October 2021, we entered into a $3.15 billion multi-currency revolving credit agreement (the “Revolving Credit Agreement”), which expires, unless extended, in October 2026. The Revolving Credit Agreement was amended in June 2023, replacing the London Interbank Offered Rate (“LIBOR”) with the Secured Overnight Financing Rate (“SOFR”). Interest rates on borrowings under the Revolving Credit Agreement will be based on prevailing market interest rates, plus a margin, as further described in the Revolving Credit Agreement. As of June 30, 2024, there has been no drawdown on the Revolving Credit Agreement.

Previous wording

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 certain of our trade receivables to the counterparty. The initial term of this agreement was 18 months, and the agreement automatically

Current wording

The Company has entered into arrangements 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 certain of our trade receivables to 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 either party elects not to extend. The second agreement was executed in June 2022 with a separate third-party financial institution and renews automatically on its anniversary date.

Previous wording

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 $846 million and $2.9 billion for the three and nine months ended December 31, 2023, respectively, and $930 million and $2.3 billion for the three and nine months ended December 31, 2022, respectively. The fees associated with the transfers of receivables were $11 million and $39 million for the three and nine months ended December 31, 2023, respectively, and $14 million and $34 million for the three and nine months ended December 31, 2022, respectively.

Current wording

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 the aforementioned programs were $0.8 billion and $1.2 billion for the three months ended June 30, 2024 and June 30, 2023, respectively. The fees associated with the transfers of receivables were $10 million and $16 million for the three months ended June 30, 2024 and June 30, 2023, respectively.

Previous wording

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, without limitation, 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,” “future,” “estimate,” “expect,” “intend,” “target,” “may,” “should,” “would,” “could,” “outlook,” “goal,” “objective,” “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:

Current wording

This report contains “forward-looking statements” within the meaning ofthe 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 “aim,” “anticipate,” “believe,” “contemplate,” “could,” “estimate,” “expect,” “forecast,” “intend,” “may,” “opportunity,” “plan,” “position,” “predict,” “project,” “should,” “seek,” “target,” “will,” “would” 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: