SEGMENTS

3 Months Ended

Jun. 30, 2022

SEGMENTS

SEGMENTS

NOTE 4. SEGMENTS

Our reportable segments correspond to how the chief operating decision maker (“CODM”) reviews performance and allocates resources. Our four reportable segments consist of the following:

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, depreciation and amortization (excluding depreciation of right-of-use assets and amortization of capitalized contract costs), 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. The Company has recast the prior-period results to reflect the change in segment structure that became effective in the fourth quarter of 2021. In addition, during the three months ended March 31, 2022, the Company updated certain allocation methodologies related to its measure of segment adjusted EBITDA and has accordingly recast the prior-period information to reflect these updates, which did not change the aggregate amount of segment adjusted EBITDA.

Our geographic markets frequently work together to sell and implement certain contracts. 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.

The following table reflects the results of the Company’s segments:

	Three Months Ended June 30,
(Dollars in millions)	2022		2021
Revenue
United States	$	1,168	$	1,210
Japan		634		747
Principal Markets		1,516		1,842
Strategic Markets		970		953
Total revenue	$	4,288	$	4,751
Segment adjusted EBITDA
United States	$	200	$	275
Japan		115		140
Principal Markets		100		71
Strategic Markets		96		133
Total segment adjusted EBITDA	$	511	$	620

The following table reconciles consolidated pretax income (loss) to segment adjusted EBITDA:

	Three Months Ended June 30,
(Dollars in millions)	2022		2021
Pretax income (loss)	$	(205)	$	(313)
Workforce rebalancing charges (benefits)		4		(11)
Transaction-related costs		103		173
Stock-based compensation expense		26		18
Interest expense		20		15
Depreciation expense		228		331
Amortization expense		308		351
Corporate expense not allocated to the segments		20		49
Other adjustments *		9		7
Segment adjusted EBITDA	$	511	$	620

* Other adjustments represent pension costs other than pension servicing costs and multi-employer plan costs.