Value Creation Opportunity - Kyndryl CEO Martin Schroeter

Summary

Martin Schroeder, CEO of Kindrel Holdings, discusses the company's journey since its spin-off from IBM, highlighting the challenges and opportunities it faces. With a focus on investing in the business, building new capabilities, and navigating the changing technological landscape, Schroeder outlines Kindrel's strategy to grow in cloud services, data management, and cybersecurity. He shares insights on how the company is positioning itself in the face of potential economic downturns, as well as its efforts to close the value gap in its stock price. Ultimately, Schroeder emphasizes the excitement of leading Kindrel's independent path forward, fueled by innovation and strategic partnerships.

Takeaways

• 😀 The spin-off of Kindrel from IBM was a significant event, with the company becoming its own publicly traded entity in a challenging business environment.
• 😀 Martin Schroeder, CEO of Kindrel, expressed excitement about leading the company through its post-spin transition and new opportunities.
• 😀 The first nine months as an independent company have been a mix of challenges and opportunities, particularly with rebuilding internal processes and culture.
• 😀 Kindrel's main advantage post-spin is the ability to invest in the business and create new capabilities, something that IBM had previously avoided.
• 😀 With the spin-off, Kindrel gained the freedom to operate more flexibly within the tech ecosystem, creating new partnerships with cloud hyperscalers like Microsoft Azure and AWS.
• 😀 The company sees a significant growth opportunity in industries like banking, where they aim to help clients transition to cloud services and improve data security and resiliency.
• 😀 Despite concerns about a potential recession, Kindrel remains optimistic because its services are essential and mission-critical for industries like banking, cybersecurity, and cloud infrastructure.
• 😀 The company is focusing on three strategic areas to drive growth: forming alliances, advanced delivery, and focusing on key accounts that need long-term investment.
• 😀 Stock performance post-spin has been challenging, with share prices falling significantly from the initial $26 to around $9, but the leadership team is focused on closing this value gap.
• 😀 The market challenges include an overhang from IBM's retained shares, which has created short-term pressure on the stock, but Kindrel is addressing this through increased sell-side coverage and improved investor communications.
• 😀 Martin Schroeder's return to Kindrel after retirement was motivated by the appeal of the company's mission, the freedom of action in the spin-off, and the opportunity to build a strong team and strategy.

Q & A

How has Kindrel's journey been since it spun out from IBM?

Martin Schroeder described the first nine months as an incredible journey with numerous challenges, involving transitioning internal processes and creating a new corporate culture for the 90,000-person company. Despite the challenges, he is excited about the future and the opportunities that come with Kindrel's independence.

What was the primary motivation behind IBM spinning off Kindrel?

IBM recognized that Kindrel's business required investment to grow, but it was not a priority for IBM, which had other opportunities to pursue. The spin-off allowed Kindrel the freedom to invest in and develop its capabilities to better serve customers.

What key benefits has Kindrel gained from its spin-off from IBM?

Kindrel has gained the ability to invest more in its business and create new capabilities that were previously out of reach. Additionally, it now has the freedom to engage with a wider ecosystem that aligns with customer needs, positioning itself as a more focused and adaptable organization.

What are Kindrel's main growth opportunities in the current market?

Kindrel sees significant growth potential in helping customers move their workloads to public clouds, managing their data journeys, ensuring security, and building system resiliency. This includes leveraging partnerships with cloud providers such as Microsoft Azure, AWS, and Google Cloud.

How does Kindrel plan to maintain momentum amidst potential economic challenges?

Schroeder noted that Kindrel's core services are essential and mission-critical, making them somewhat insulated from economic cycles. Even during a recession, demand for IT infrastructure and cybersecurity services is expected to remain strong.

What are the specific strategic priorities Kindrel has set for itself?

Kindrel has focused on three main strategic priorities: building alliances with major cloud providers, advancing delivery efforts to upskill employees and optimize resource allocation, and deepening engagement with key accounts to foster long-term economic stability.

What challenges have impacted Kindrel's stock performance since going public?

Since going public, Kindrel's stock price has faced pressure due to the shift in its investor base, particularly after being spun out through a dividend. Initial passive investors, who typically invest in large-cap dividend-paying stocks like IBM, were not suited to hold Kindrel’s shares. Additionally, IBM's retained shares created an overhang, which affected stock performance.

What steps is Kindrel taking to improve its stock performance and investor confidence?

Kindrel is working on building more sell-side coverage to help tell its story and establish credibility with investors. Additionally, the company aims to address the stock overhang created by IBM's retained shares and execute its strategic plans for revenue growth and margin improvement.

Why did Martin Schroeder decide to come out of retirement to join Kindrel?

Schroeder was motivated by the nature of the work Kindrel does, which he finds impactful and meaningful. The opportunity to build a new company culture, lead a team, and create strategic direction with the freedom to shape Kindrel’s future appealed to him, making it an opportunity he couldn't pass up.

How does Kindrel differentiate itself in the competitive managed services market?

Kindrel differentiates itself by leveraging its extensive partnerships with major cloud providers and its ability to integrate innovative solutions for its clients. It also emphasizes its focus on delivering essential, resilient IT infrastructure and cybersecurity services that touch billions of people daily, making its services mission-critical.