Strong execution on 'three-A's' strategy
drives margin expansion
- Revenues for the quarter ended September 30, 2023 total $4.1 billion, pretax loss is $109 million, and net loss is $142 million
- Adjusted EBITDA is $574
million, adjusted pretax income is $25 million, and adjusted net loss is
$12 million for the quarter ended
September 30, 2023
- Raises full-year adjusted earnings outlook
NEW
YORK, Nov. 7, 2023 /PRNewswire/ -- Kyndryl
Holdings, Inc. (NYSE: KD), the world's largest
IT infrastructure services provider, today released
financial results for the quarter ended
September 30, 2023, the second
quarter of its 2024 fiscal year.
"We're strengthening and transforming our business at an
accelerated pace, which is driving faster-than-anticipated margin
expansion and creating future growth opportunities for
Kyndryl. We're again increasing our adjusted earnings outlook
for the year, and we remain on track to return to revenue growth in
calendar 2025," said Kyndryl Chairman and Chief Executive Officer
Martin Schroeter. "Our
customers are increasingly relying on us to provide the
mission-critical expertise and technology necessary to harness
today's secular IT trends."
Results for the Fiscal Second Quarter Ended September 30, 2023
For the second quarter, Kyndryl reported revenues of
$4.1 billion, a year-over-year
decline of 3% and 5% in constant currency. The year-over-year
revenue decline reflects the Company's decision to reduce inherited
zero-margin and low-margin third-party content in customer
contracts. The Company reported a pretax loss of $109 million and a net loss of $142 million, or ($0.62) per diluted share, in the quarter,
compared to a net loss of $281
million, or ($1.24) per
diluted share, in the prior-year period. The net loss in the
quarter included $87 million of
transaction-related costs and workforce rebalancing charges.
Cash flow from operations was $46
million.
Adjusted pretax income was $25
million, an increase of $127
million compared to an adjusted pretax loss of $102 million in the prior-year period.
Currency movements had a positive year-over-year impact of
approximately $9 million on adjusted
pretax income. Adjusted net loss in the quarter was
$12 million, or ($0.05) per diluted share.
Adjusted EBITDA of $574 million
increased 34% compared to $428
million in the prior-year period, primarily driven by
contributions from the Company's Alliances, Advanced Delivery and
Accounts initiatives, partially offset by a software cost increase
of $50 million. Adjusted free
cash flow was $69 million.
"In our fiscal second quarter, we delivered outstanding growth
in adjusted EBITDA and adjusted pretax income, driven by continued
progress on our three-A initiatives and transforming how we
operate. At the same time, we're positioning Kyndryl for
future success by signing new contracts and renewals with
meaningfully higher margins than our pre-spin, legacy contracts,"
said Kyndryl Chief Financial Officer David
Wyshner.
Recent Developments
- Alliances initiative – In the first half of its fiscal
year, Kyndryl recognized $180 million
in revenue tied to cloud hyperscaler alliances, progressing well
toward the Company's hyperscaler revenue target of more than
$300 million for fiscal year
2024.
- Advanced Delivery initiative – To date, Kyndryl has
redeployed more than 7,500 delivery professionals to serve new
revenue streams and backfill attrition. This has generated
annualized savings of approximately $425
million as of quarter-end. Automation and the Kyndryl Bridge
platform, powered by AI, are driving this progress, and the Company
is therefore raising its fiscal 2024 year-end objective for
annualized savings from $450 million
to $550 million.
- Accounts initiative – Kyndryl continued to
address elements of contracts with substandard margins, bringing
the total impact from this initiative to $400 million of annualized benefits, achieving
the Company's $400 million fiscal
2024 year-end goal ahead of schedule. The Company is therefore
raising its fiscal 2024 year-end goal for annualized savings to
$500 million.
- Strong projected margin on recent signings – In
the quarter, projected pretax margins associated with total
signings were again in the high-single-digit range, which aligns
with levels achieved throughout fiscal 2023 and reflects the
Company's focus on margin expansion.
- Double-digit growth in Kyndryl Consult – In the quarter,
Kyndryl Consult revenues grew 19% year-over-year and 17% in
constant currency and were 14% of total revenue.
- Separation-related costs – Kyndryl's reported
results for the fiscal second quarter reflect $48 million of transaction-related costs,
primarily related to systems migrations associated with the
Company's spin-off. Separation-related costs are expected to end
this year.
Raising Fiscal Year 2024 Outlook
Kyndryl is raising its fiscal 2024 adjusted pretax income
outlook, which it now expects to be at least $140 million, compared to its prior outlook of at
least $100 million. The Company
is also raising its fiscal 2024 adjusted EBITDA margin outlook, now
expecting it to be approximately 14.5%, compared to its prior
outlook of approximately 14%.
The Company is raising its fiscal 2024 targets primarily because
of the benefits from its three-A initiatives, as discussed above,
and noted that it continues to expect its fiscal 2024 adjusted free
cash flow will be positive. Kyndryl is narrowing its outlook
for constant-currency revenue growth to (6%) to (7%), which
represents the stronger end of its prior estimate of (6%) to
(8%).
Earnings Webcast
Kyndryl's earnings call for the second fiscal quarter is
scheduled to begin at 8:30 a.m. ET on
November 8, 2023. The live
webcast can be accessed by visiting investors.kyndryl.com on
Kyndryl's investor relations website. A slide presentation
will be made available on Kyndryl's investor relations website
before the call on November 8,
2023. Following the event, a replay will be available via
webcast for twelve months at investors.kyndryl.com.
About Kyndryl
Kyndryl (NYSE: KD) is the world's largest IT infrastructure
services provider, serving thousands of enterprise customers in
more than 60 countries. The Company designs, builds, manages
and modernizes the complex, mission-critical information systems
that the world depends on every day. For more information, visit
www.kyndryl.com.
Forward-Looking and Cautionary Statements
This press release contains "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of
1995. All statements other than statements of historical fact
included in this press release, including statements concerning the
Company's plans, objectives, goals, beliefs, business strategies,
future events, business condition, results of operations, financial
position, business outlook and business trends and other
non-historical statements, including without limitation the
information presented in the "Outlook" section of this press
release, are forward-looking statements. Such forward-looking
statements often contain words such as "will," "anticipate,"
"predict," "project," "plan," "forecast," "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: 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, retain and/or manage key personnel
and other skilled employees; the impact of local legal, economic,
political, health and other conditions; a downturn in economic
environment and customer spending budgets; damage to the Company's
reputation; inability to accurately estimate the cost of services
and the timeline for completion of contracts; 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; the impact of changes in market liquidity
conditions and customer credit risk on receivables; the Company's
pension plans; the impact of currency fluctuations; and risks
related to the Company's common stock and the securities
market.
Additional risks and uncertainties include, among others, those
risks and uncertainties described in the "Risk Factors" section of
the Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 2023, and may be further
updated from time to time in the Company's subsequent filings with
the Securities and Exchange Commission. Any forward-looking
statement in this press release 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,
whether as a result of new information, future events or
otherwise.
In this release, certain amounts may not add due to the use of
rounded numbers; percentages presented are calculated based on the
underlying amounts.
Non-GAAP Financial Measures
In an effort to provide investors with additional information
regarding its results, the Company has provided certain metrics
that are not calculated based on generally accepted accounting
principles (GAAP), such as constant-currency results, adjusted
EBITDA, adjusted pretax income, adjusted net income, adjusted EPS,
adjusted EBITDA margin, adjusted pretax margin, adjusted net margin
and adjusted free cash flow. Such non-GAAP metrics are
intended to supplement GAAP metrics, but not to replace them.
The Company's non-GAAP metrics may not be comparable to similarly
titled metrics used by other companies. Definitions of
non-GAAP metrics and reconciliations of non-GAAP metrics for
historical periods to GAAP metrics are included in the tables in
this release.
A reconciliation of forward-looking non-GAAP financial
information is not included in this release because the individual
components of such reconciliation are not currently available
without unreasonable effort. For the same reason, we are
unable to address the probable significance of the unavailable
information, which could be material to future results.
Investor Contact:
Lori Chaitman
lori.chaitman@kyndryl.com
Media Contact:
Ed Barbini
edward.barbini@kyndryl.com
Table
1
|
KYNDRYL HOLDINGS,
INC. CONSOLIDATED INCOME STATEMENT (in
millions, except per share amounts)
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2023
|
|
2022
|
|
2023
|
|
2022
|
Revenues
|
|
$
|
4,073
|
|
$
|
4,179
|
|
$
|
8,266
|
|
$
|
8,467
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of
services
|
|
$
|
3,422
|
|
$
|
3,613
|
|
$
|
6,871
|
|
$
|
7,290
|
Selling, general and
administrative expenses
|
|
|
634
|
|
|
706
|
|
|
1,353
|
|
|
1,400
|
Workforce rebalancing
charges
|
|
|
39
|
|
|
3
|
|
|
97
|
|
|
6
|
Transaction-related
costs
|
|
|
48
|
|
|
68
|
|
|
89
|
|
|
171
|
Interest
expense
|
|
|
31
|
|
|
19
|
|
|
61
|
|
|
38
|
Other expense
(income)
|
|
|
8
|
|
|
(10)
|
|
|
13
|
|
|
(13)
|
Total costs and expenses
|
|
$
|
4,182
|
|
$
|
4,399
|
|
$
|
8,484
|
|
$
|
8,892
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income
taxes
|
|
$
|
(109)
|
|
$
|
(219)
|
|
$
|
(218)
|
|
$
|
(425)
|
Provision for income taxes
|
|
|
33
|
|
|
61
|
|
|
65
|
|
|
107
|
Net income (loss)
|
|
$
|
(142)
|
|
$
|
(281)
|
|
$
|
(283)
|
|
$
|
(531)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share data
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss)
per share
|
|
$
|
(0.62)
|
|
$
|
(1.24)
|
|
$
|
(1.24)
|
|
$
|
(2.35)
|
Diluted earnings (loss)
per share
|
|
|
(0.62)
|
|
|
(1.24)
|
|
|
(1.24)
|
|
|
(2.35)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average basic
shares outstanding
|
|
|
229.1
|
|
|
226.8
|
|
|
228.5
|
|
|
226.0
|
Weighted-average
diluted shares outstanding
|
|
|
229.1
|
|
|
226.8
|
|
|
228.5
|
|
|
226.0
|
Table
2
|
SEGMENT
RESULTS AND SELECTED BALANCE SHEET
INFORMATION (dollars in millions)
|
|
|
|
Three Months Ended September
30,
|
|
Year-over-Year Growth
|
|
|
|
|
|
|
|
|
As
|
|
Constant
|
Segment Results
|
|
2023
|
|
2022
|
|
Reported
|
|
Currency
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
United
States
|
|
$
|
1,108
|
|
$
|
1,149
|
|
(4 %)
|
|
(4 %)
|
Japan
|
|
|
569
|
|
|
614
|
|
(7 %)
|
|
(3 %)
|
Principal
Markets1
|
|
|
1,465
|
|
|
1,472
|
|
(0 %)
|
|
(5 %)
|
Strategic
Markets1
|
|
|
930
|
|
|
944
|
|
(1 %)
|
|
(7 %)
|
Total
revenue
|
|
$
|
4,073
|
|
$
|
4,179
|
|
(3 %)
|
|
(5 %)
|
Adjusted EBITDA2
|
|
|
|
|
|
|
|
|
|
|
United
States
|
|
$
|
176
|
|
$
|
167
|
|
|
|
|
Japan
|
|
|
84
|
|
|
113
|
|
|
|
|
Principal
Markets
|
|
|
185
|
|
|
57
|
|
|
|
|
Strategic
Markets
|
|
|
150
|
|
|
111
|
|
|
|
|
Corporate and
other3
|
|
|
(21)
|
|
|
(20)
|
|
|
|
|
Total adjusted
EBITDA
|
|
$
|
574
|
|
$
|
428
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended September 30,
|
|
Year-over-Year Growth
|
|
|
|
|
|
|
As
|
|
Constant
|
Segment Results
|
|
2023
|
|
2022
|
|
Reported
|
|
Currency
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
United
States
|
|
$
|
2,272
|
|
$
|
2,317
|
|
(2 %)
|
|
(2 %)
|
Japan
|
|
|
1,180
|
|
|
1,249
|
|
(6 %)
|
|
(1 %)
|
Principal
Markets1
|
|
|
2,949
|
|
|
2,988
|
|
(1 %)
|
|
(3 %)
|
Strategic
Markets1
|
|
|
1,865
|
|
|
1,914
|
|
(3 %)
|
|
(6 %)
|
Total
revenue
|
|
$
|
8,266
|
|
$
|
8,467
|
|
(2 %)
|
|
(3 %)
|
Adjusted EBITDA2
|
|
|
|
|
|
|
|
|
|
|
United
States
|
|
$
|
412
|
|
$
|
367
|
|
|
|
|
Japan
|
|
|
184
|
|
|
228
|
|
|
|
|
Principal
Markets
|
|
|
352
|
|
|
157
|
|
|
|
|
Strategic
Markets
|
|
|
283
|
|
|
207
|
|
|
|
|
Corporate and
other3
|
|
|
(45)
|
|
|
(40)
|
|
|
|
|
Total adjusted
EBITDA
|
|
$
|
1,186
|
|
$
|
919
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
March 31,
|
|
|
|
|
Balance Sheet Data
|
|
2023
|
|
2023
|
|
|
|
|
Cash and
equivalents
|
|
$
|
1,408
|
|
$
|
1,847
|
|
|
|
|
Debt (short-term and
long-term)
|
|
|
3,243
|
|
|
3,221
|
|
|
|
|
|
__________________________
|
1
|
Principal Markets is
comprised of Kyndryl's operations in Australia/New Zealand,
Canada, France, Germany, India, Italy, Spain/Portugal and the
United Kingdom/Ireland. Strategic Markets is comprised of
Kyndryl's operations in all other geographic locations.
|
2
|
In the three months
ended September 30, 2023, the Principal Markets and Japan segment
adjusted EBITDA includes lower software costs of $24 million and $4
million, respectively, and the United States and Strategic Markets
segment adjusted EBITDA includes higher software costs of $19
million and $9 million, respectively, when compared to the
prior-year period, due to a "zero-sum" amendment of the contract
with a software provider that re-allocated costs among our
segments. In the six months ended September 30, 2023, the
Principal Markets and Japan segment adjusted EBITDA includes lower
software costs of $48 million and $8 million, respectively, and the
United States and Strategic Markets segment adjusted EBITDA
includes higher software costs of $38 million and $17 million,
respectively, when compared to the prior-year period, due to this
amendment.
|
3
|
Represents net amounts
not allocated to segments.
|
Table
3
|
KYNDRYL HOLDINGS, INC. CONSOLIDATED
STATEMENT OF CASH FLOWS (dollars in
millions)
|
|
|
|
Six Months Ended September 30,
|
|
|
2023
|
|
2022
|
Cash flows from operating
activities:
|
|
|
|
|
|
|
Net income
(loss)
|
|
$
|
(283)
|
|
$
|
(531)
|
Adjustments to
reconcile net income (loss) to cash provided by operating
activities:
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
|
|
|
|
|
Depreciation of
property, equipment and capitalized software
|
|
|
431
|
|
|
449
|
Depreciation of
right-of-use assets
|
|
|
173
|
|
|
191
|
Amortization of
transition costs and prepaid software
|
|
|
631
|
|
|
584
|
Amortization of
capitalized contract costs
|
|
|
281
|
|
|
222
|
Amortization of
acquisition-related intangible assets
|
|
|
15
|
|
|
25
|
Stock-based
compensation
|
|
|
48
|
|
|
54
|
Deferred
taxes
|
|
|
51
|
|
|
41
|
Net (gain) loss on
asset sales and other
|
|
|
22
|
|
|
21
|
Change in operating
assets and liabilities:
|
|
|
|
|
|
|
Deferred costs
(excluding amortization)
|
|
|
(699)
|
|
|
(738)
|
Right-of-use assets
and liabilities (excluding depreciation)
|
|
|
(195)
|
|
|
(193)
|
Workforce rebalancing
liabilities
|
|
|
(18)
|
|
|
(1)
|
Receivables
|
|
|
(110)
|
|
|
471
|
Accounts
payable
|
|
|
(494)
|
|
|
181
|
Taxes
|
|
|
(55)
|
|
|
33
|
Other assets and other
liabilities
|
|
|
75
|
|
|
(316)
|
Net cash provided by (used in) operating
activities
|
|
$
|
(127)
|
|
$
|
491
|
|
|
|
|
|
|
|
Cash flows from investing
activities:
|
|
|
|
|
|
|
Capital
expenditures
|
|
$
|
(275)
|
|
$
|
(466)
|
Proceeds from
disposition of property and equipment
|
|
|
119
|
|
|
10
|
Other investing
activities, net
|
|
|
(53)
|
|
|
(60)
|
Net cash used in investing
activities
|
|
$
|
(208)
|
|
$
|
(516)
|
|
|
|
|
|
|
|
Cash flows from financing
activities:
|
|
|
|
|
|
|
Debt
repayments
|
|
$
|
(67)
|
|
$
|
(56)
|
Common stock
repurchases for tax withholdings
|
|
|
(12)
|
|
|
(13)
|
Other financing
activities, net
|
|
|
(1)
|
|
|
—
|
Net cash provided by (used in) financing
activities
|
|
$
|
(80)
|
|
$
|
(69)
|
|
|
|
|
|
|
|
Effect of exchange rate
changes on cash, cash equivalents and restricted cash
|
|
$
|
(33)
|
|
$
|
(160)
|
Net change in cash,
cash equivalents and restricted cash
|
|
$
|
(448)
|
|
$
|
(253)
|
|
|
|
|
|
|
|
Cash, cash equivalents
and restricted cash at beginning of period
|
|
$
|
1,860
|
|
$
|
2,154
|
Cash, cash equivalents and restricted cash at end of
period
|
|
$
|
1,412
|
|
$
|
1,901
|
|
|
|
|
|
|
|
Supplemental data
|
|
|
|
|
|
|
Income taxes paid, net
of refunds received
|
|
$
|
88
|
|
$
|
37
|
Interest paid on
debt
|
|
$
|
59
|
|
$
|
34
|
___________________________________
|
Net cash provided by
(used in) operating activities was $46 million in the three months
ended September 30, 2023 and ($173) million
in the three months ended June 30, 2023.
|
|
Table 4
NON-GAAP METRIC DEFINITIONS
AND RECONCILIATIONS
(dollars in millions, except
signings)
We report our financial results in accordance with GAAP.
We also present certain non-GAAP financial measures to provide
useful supplemental information to investors. We provide
these non-GAAP financial measures as we believe it enhances
investors' visibility to management decisions and their impacts on
operational performance; enables better comparison to peer
companies; and allows us to provide a long-term strategic view of
the business going forward.
Constant-currency information compares results between
periods as if exchange rates had remained constant period over
period. We define constant-currency revenues as total
revenues excluding the impact of foreign exchange rate movements
and use it to determine the constant-currency revenue growth on a
year-over-year basis. Constant-currency revenues are
calculated by translating current period revenues using
corresponding prior-period exchange rates.
Adjusted pretax income is defined as pretax income
excluding transaction-related costs, charges related to ceasing to
use leased / fixed assets, charges related to lease terminations,
pension expenses other than pension servicing costs and
multi-employer plan costs, stock-based compensation expense,
amortization of acquisition-related intangible assets, workforce
rebalancing charges, impairment expense, significant litigation
costs and currency impacts of highly inflationary countries.
Adjusted pretax margin is calculated by dividing adjusted pretax
income by revenue.
Adjusted EBITDA is defined as net income (loss) excluding
net interest expense, income taxes, depreciation and amortization
(excluding depreciation of right-of-use assets and amortization of
capitalized contract costs), charges related to ceasing to use
leased / fixed assets, charges related to lease 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. Adjusted EBITDA margin is
calculated by dividing adjusted EBITDA by revenue.
Adjusted net income is defined as adjusted pretax income
less the reported provision for income taxes, minus or plus the tax
effect of the non-GAAP adjustments made to calculate adjusted
pretax income, and excluding exceptional items impacting the
reported provision for income taxes. Adjusted net margin is
calculated by dividing adjusted net income by revenue.
Adjusted earnings per share (EPS) is defined as adjusted
net income divided by diluted weighted average shares outstanding
to reflect shares that are dilutive or anti-dilutive based on the
amount of adjusted net income.
Adjusted free cash flow is defined as cash flows from
operating activities (GAAP) after adding back transaction-related
payments, charges related to lease terminations, workforce
rebalancing payments and significant litigation payments, less net
capital expenditures. Management uses adjusted free cash flow
as a measure to evaluate its operating results, plan strategic
investments and assess our ability and need to incur and service
debt. We believe adjusted free cash flow is a useful
supplemental financial measure to aid investors in assessing our
ability to pursue business opportunities and investments and to
service our debt. Adjusted free cash flow is a financial
measure that is not recognized under U.S. GAAP and should not be
considered as an alternative to cash flows from operations or
liquidity derived in accordance with U.S. GAAP.
Signings are defined by Kyndryl as an initial estimate of
the value of a customer's commitment under a contract. We
calculate this based on various considerations including the type
and duration of the agreement as well as 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.
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, macroeconomic
environment or external events. 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.
Reconciliation of net income (loss)
to
|
|
|
|
|
|
|
|
|
|
|
|
|
adjusted pretax income (loss),
|
|
|
|
|
|
|
|
|
|
|
|
|
adjusted EBITDA, adjusted net
|
|
Three Months Ended
|
|
Six Months Ended
|
income (loss) and adjusted EPS
|
|
September 30,
|
|
September 30,
|
(in millions, except per share
amounts)
|
|
2023
|
|
2022
|
|
2023
|
|
2022
|
Net income (loss)
(GAAP)
|
|
$
|
(142)
|
|
$
|
(281)
|
|
$
|
(283)
|
|
$
|
(531)
|
Provision for income
taxes
|
|
|
33
|
|
|
61
|
|
|
65
|
|
|
107
|
Pretax income (loss)
(GAAP)
|
|
$
|
(109)
|
|
$
|
(219)
|
|
$
|
(218)
|
|
$
|
(425)
|
Workforce rebalancing
charges
|
|
|
39
|
|
|
3
|
|
|
97
|
|
|
6
|
Charges related to
ceasing to use leased/fixed
assets and lease terminations
|
|
|
—
|
|
|
—
|
|
|
10
|
|
|
—
|
Transaction-related
costs
|
|
|
48
|
|
|
68
|
|
|
89
|
|
|
171
|
Stock-based
compensation expense
|
|
|
25
|
|
|
28
|
|
|
48
|
|
|
54
|
Amortization of
acquisition-related intangible
assets
|
|
|
7
|
|
|
11
|
|
|
15
|
|
|
25
|
Other
adjustments1
|
|
|
15
|
|
|
9
|
|
|
31
|
|
|
18
|
Adjusted pretax income
(loss) (non-GAAP)
|
|
$
|
25
|
|
$
|
(102)
|
|
$
|
72
|
|
$
|
(152)
|
Interest
expense
|
|
|
31
|
|
|
19
|
|
|
61
|
|
|
38
|
Depreciation of
property, equipment and
capitalized software2
|
|
|
212
|
|
|
221
|
|
|
422
|
|
|
449
|
Amortization of
transition costs and prepaid
software
|
|
|
306
|
|
|
291
|
|
|
631
|
|
|
584
|
Adjusted EBITDA
(non-GAAP)
|
|
$
|
574
|
|
$
|
428
|
|
$
|
1,186
|
|
$
|
919
|
Operating margin3
|
|
|
(1.7) %
|
|
|
(5.0) %
|
|
|
(1.7) %
|
|
|
(4.7) %
|
Adjusted EBITDA margin
|
|
|
14.1 %
|
|
|
10.2 %
|
|
|
14.4 %
|
|
|
10.9 %
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted pretax income
(loss) (non-GAAP)
|
|
$
|
25
|
|
$
|
(102)
|
|
$
|
72
|
|
$
|
(152)
|
Provision for income
taxes (GAAP)
|
|
|
(33)
|
|
|
(61)
|
|
|
(65)
|
|
|
(107)
|
Tax effect of non-GAAP
adjustments
|
|
|
(4)
|
|
|
(5)
|
|
|
(19)
|
|
|
(11)
|
Adjusted net income
(loss) (non-GAAP)
|
|
$
|
(12)
|
|
$
|
(168)
|
|
$
|
(12)
|
|
$
|
(270)
|
Diluted weighted
average shares outstanding
|
|
|
229.1
|
|
|
226.8
|
|
|
228.5
|
|
|
226.0
|
Diluted earnings (loss)
per share (GAAP)
|
|
$
|
(0.62)
|
|
$
|
(1.24)
|
|
$
|
(1.24)
|
|
$
|
(2.35)
|
Adjusted diluted
earnings (loss) per share (non-
GAAP)
|
|
|
(0.05)
|
|
|
(0.74)
|
|
|
(0.05)
|
|
|
(1.19)
|
|
___________________________
|
1
|
Other adjustments
represent pension expenses other than pension servicing costs and
multi-employer plan costs, significant litigation costs, and
currency impacts of highly inflationary countries.
|
2
|
Current-year amounts
exclude $9 million of expense that is included in
transaction-related costs.
|
3
|
Operating margin is
calculated by dividing net income (loss) less income taxes,
interest expense and other expense (income), by revenue.
|
|
|
Three Months Ended
|
|
Six Months Ended
|
Reconciliation of cash flow from
operations
|
|
September 30,
|
|
September 30,
|
to adjusted free cash flow (in
millions)
|
|
2023
|
|
2022
|
|
2023
|
|
2022
|
Cash flows from
operating activities (GAAP)
|
|
$
|
46
|
|
$
|
387
|
|
$
|
(127)
|
|
$
|
491
|
Plus:
Transaction-related payments
|
|
|
42
|
|
|
70
|
|
|
84
|
|
|
135
|
Plus: Workforce
rebalancing payments
|
|
|
34
|
|
|
9
|
|
|
113
|
|
|
14
|
Plus: Significant
litigation payments
|
|
|
10
|
|
|
—
|
|
|
44
|
|
|
—
|
Plus: Payments related
to lease terminations
and ceasing to use fixed assets
|
|
|
(2)
|
|
|
—
|
|
|
5
|
|
|
—
|
Less: Net capital
expenditures
|
|
|
(61)
|
|
|
(250)
|
|
|
(155)
|
|
|
(456)
|
Adjusted free cash flow
(non-GAAP)
|
|
$
|
69
|
|
$
|
216
|
|
$
|
(37)
|
|
$
|
184
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
|
September 30,
|
|
September 30,
|
|
Fiscal Year-to-date
|
Signings (in billions)
|
|
2023
|
|
2022
|
|
2023
|
|
2022
|
|
2023
|
|
2022
|
Signings1
|
|
$
|
2.4
|
|
$
|
2.5
|
|
$
|
5.2
|
|
$
|
5.4
|
|
$
|
6.0
|
|
$
|
6.0
|
|
___________________________
|
1
|
Signings for the three
months ended September 30, 2023 decreased by 2%, and 3% in constant
currency, compared to the three months ended September 30,
2022. Signings for the six months ended September 30, 2023
decreased by 4%, and 4% in constant currency, compared to the six
months ended September 30, 2022. Fiscal year-to-date signings
are a preliminary estimate, are measured through October 31, and
decreased 1%, and 2% in constant currency, compared to the
prior-year period. The Company's strategy has entailed
reducing and eliminating 'pass-through' elements of customer
contracts and addressing focus accounts, which are actions that
have disproportionately affected its Enterprise & zCloud
practice; other than this practice, signings grew in the single
digits as reported and in constant currency in the seven months
ended October 31, 2023 compared to the prior-year
period.
|
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