KD

Kyndryl’s second quarter results saw a negative market reaction, as sales declined and missed Wall Street’s revenue expectations. Management attributed the revenue shortfall to ongoing headwinds in its legacy focus accounts and customers increasingly procuring IBM hardware and software directly. CEO Martin Schroeter cited positive momentum in Kyndryl Consult and hyperscaler partnerships, but acknowledged that lengthening sales cycles and workforce rebalancing charges weighed on profitability. He stated, “AI, modernization and cyber preparedness remain important priorities for enterprises,” but also noted that “there is more work ahead.” Is now the time to buy KD? Find out in our full research report (it’s free). Revenue: $3.62 billion vs analyst estimates of $3.64 billion (3.3% year-on-year decline, 0.7% miss) Adjusted EPS: -$0.12 vs analyst estimates of -$0.17 (29.4% beat) Adjusted EBITDA: $512 million vs analyst estimates of $460.6 million (14.2% margin, 11.2% beat) Operating Margin: -1.2%, down from 3.3% in the same quarter last year Market Capitalization: $2.91 billion While we enjoy listening to the management’s commentary, our favorite part of earnings calls is the analyst questions. Those are unscripted and can often highlight topics that management teams would rather avoid or topics where the answer is complicated. Here is what has caught our attention. Yu Lee (Guggenheim Securities) asked about the assumptions behind the Consult segment’s growth and sales cycle duration. CEO Martin Schroeter explained that high single to low double-digit growth is expected, with robust signings and consistent sales cycles. Kevin Krishnaratne (Scotiabank) inquired about headwinds in European markets and evolving AI sovereignty concerns. Schroeter said trends remain consistent with guidance, citing complexity and regulatory issues but not longer deal cycles. Tien-Tsin Huang (JPMorgan) focused on workforce reskilling and redeployment amid AI-driven transformation. Schroeter detailed how automation frees staff for higher-value work, while Chugh emphasized success in reskilling and managing costs. Bradley Clark (BMO Capital Markets) asked about Kyndryl’s advantage in winning new logos and pricing dynamics. Schroeter highlighted the company’s Agentic AI Framework, Kyndryl Bridge, and industry expertise as differentiators, especially in consulting. Spencer Anson (Susquehanna) queried the scale and opportunity in mainframe modernization and its impact on the IBM relationship. Schroeter stressed Kyndryl’s market-leading expertise and the continued importance of mainframe services for customers. In the coming quarters, the StockStory team will be watching (1) sustained revenue growth in Kyndryl Consult and hyperscaler partnerships, (2) evidence that workforce rebalancing and automation initiatives deliver the expected improvement in margins, and (3) further reduction in the impact of legacy focus account headwinds. The pace of new contract signings and execution against AI-driven modernization goals will remain critical markers. Kyndryl currently trades at $13.47, down from $14.69 just before the earnings. Is there an opportunity in the stock? See for yourself in our full research report (it’s free for active Edge members). ONE MORE THING: Top 5 Growth Stocks. The biggest stock winners almost always had one thing in common before they ran. Revenue growing like crazy. Meta. CrowdStrike. Broadcom. Our AI flagged all three. They returned 315%, 314%, and 455%, respectively. Find out which 5 stocks it’s flagging this month — FREE. Get Our Top 5 Growth Stocks for Free HERE. Stocks that have made our list include now familiar names such as Nvidia (+1,460% between June 2020 and June 2025) as well as under-the-radar businesses like the once-small-cap company Comfort Systems (+1,154% between June 2020 and June 2025). Find your next big winner with StockStory today.

Image source: The Motley Fool. Wednesday, Aug. 5, 2026 at 8:30 a.m. ET Global Head of Investor Relations - Lori Chaitman Chairman and Chief Executive Officer - Martin Schroeter Chief Financial Officer - Harsh Chugh Operator: Good day, and thank you for standing by. Welcome to the Fiscal First Quarter 2027 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference call is being recorded. I would now like to hand the conference over to your first speaker today, Lori Chaitman, Global Head of Investor Relations. Please go ahead. Lori Chaitman: Good morning, everyone, and welcome to Kyndryl's earnings call for the first fiscal quarter June 30, 2026. Before we begin, I'd like to remind you that our remarks today include forward-looking statements. These statements do not guarantee future performance and speak only as of today, and the company assumes no obligation to update its forward-looking statements, except as required by law. Actual outcomes or results may differ materially from those suggested by forward-looking statements as a result of risks and uncertainties. For more information on some of these risks and uncertainties, please see the Risk Factors section of our annual report on Form 10-K for the year ended March 31, 2026, and as such, factors may be updated from time to time in the company's subsequent filings with the SEC. Also in today's remarks, we refer to certain non-GAAP financial metrics. Definitions and additional information about our calculation of non-GAAP financial metrics as well as a reconciliation of non-GAAP metrics to GAAP metrics for historical periods are provided in the presentation materials for today's event, which are available on our website at investors.kyndryl.com. Following our prepared remarks, we'll hold a Q&A session. I'd now like to turn the call over to Kyndryl's Chairman and Chief Executive Officer, Martin Schroeter. Martin? Martin Schroeter: Thank you, Lori, and thanks to each of you for joining us. In the first quarter, we executed on our key priorities and made progress in our targeted growth areas supported by continued strength in the United States. Signings and revenue grew in Kyndryl Consult, and we continue to see positive momentum with hyperscalers. We continue to invest in the areas where we see opportunity, Kyndryl Consult, our alliance partnerships and our Agentic AI capabilities through Kyndryl Bridge and our IP to support and modernize our customers' most complex mission-critical IT estates. And at the same time, we took actions to further streamline our operations. While there is more work ahead, our strategic priorities remain clear. We're focused on delivering our fiscal 2027 outlook and our 2028 objectives. With more revenue expected to come from higher-margin post-spin signings this year and next, the quality of that revenue base gives us confidence in our ability to increase profitability and deliver more than $1.2 billion in adjusted pretax income and $1 billion in free cash flow in fiscal 2028. And these targets can be achieved on low single-digit constant currency revenue growth. Harsh will provide more detail in a few minutes on our recent financial results and our outlook. Last quarter, we outlined the priorities that support our fiscal 2028 targets. As we highlighted, we entered the fiscal year with a 5-point improvement in beginning backlog versus fiscal 2026. And 4 months into the year, our pipeline consists of more scope expansions and new logos that support future signings growth and better mix of higher-value services. AI, modernization and cyber preparedness remain important priorities for enterprises around the world as they balance innovation and transformation with operational stability in an uncertain macro environment. This is driving demand for Kyndryl Consult with signings exceeding revenue over the last 12 months. These same dynamics are creating opportunities across our alliance ecosystem with customers' modernization needs accelerating demand in both public and private cloud. We continue to sign deals with average projected pretax margins in the high single digits, reflecting our focus on higher-value services and pricing discipline central to our transformation. Through our advanced delivery initiative, we are embedding more automation and AI into our operations, improving productivity and upskilling our teams for higher-value work. And with Kyndryl Bridge, our AI-powered services delivery platform, we're providing our customers with the technology foundation to deploy, govern and orchestrate AI agents and agentic workflows across complex IT estates. In parallel, we're taking workforce rebalancing actions to address lower-than-normal voluntary attrition and our SG&A costs with savings expected to begin in the back half of this year. We'll continue to share our progress against these signposts as we drive our business toward our multiyear objectives. I want to focus my discussion on total signings performance. While our customers remain thoughtful and deliberate in their IT decision-making, we're seeing demand for AI-led modernization, especially where Kyndryl Consult and our hyperscaler alliances help customers address their mission-critical needs. We're encouraged that over the last 6 months, our total signings have exceeded our revenue. Deal size and composition are additional proof points that demonstrate how we're executing our strategy. Over the last 12 months, we signed 40 deals in excess of $50 million, of which 10 were signed in the first quarter. And among these 40 large deals, approximately 30% of their value consists of scope expansion or our new logos, which compares to 15% in fiscal 2025. Strong signings in Kyndryl Consult and momentum in hyperscalers are translating to revenue growth in these targeted areas. Kyndryl Consult revenue grew 14% and hyperscaler-related revenue streams grew 48% in the last 12 months on a year-over-year basis. Performance in Kyndryl Consult and hyperscalers has partially offset the revenue headwinds from focus accounts over the last few years and more recently, lengthening sales cycles and customers' decisions to procure hardware and software directly from IBM. Kyndryl Consult's results demonstrate broad demand from enterprises looking to design and scale Agentic AI across their business workflows, modernize complex hybrid IT environments and strengthen cybersecurity and resilience. To meet that demand, we've been expanding our consulting skills and capabilities, including investments in forward deploy engineers, human systems architects and AI innovation labs, where we co-create Agentic solutions at scale with our Kyndryl Agentic Framework. To further address customers' modernization and AI needs, we've been expanding our relationships with our alliance partners. Recently, we expanded our alliance with AWS to help enterprises adopt and scale Agentic AI as they modernize and run mission-critical workloads in the cloud. We also expanded our work with Microsoft Azure to help customers design, build and operate cloud architectures that align with evolving data residency and operational requirements. And we continue to strengthen collaborations with partners such as Broadcom and Dell, HP Enterprise and Red Hat to support customers' modernization efforts in complex private and hybrid cloud environments. AI is accelerating the need for modernization. Every day, I speak with business and technology leaders in different industries and nearly every customer conversation comes back to the same long-term themes. First, enterprises are eager to realize the benefits of AI, but many are trying to deploy next-generation technologies on infrastructure applications and processes that were not designed for them. As you've heard me say before, it's like trying to run a new 200-mile per hour capable bullet train on tracks built for a 30-mile per hour world. Equally challenging as our Kyndryl People Readiness Report found, there's also a lack of skills as only 23% of business leaders said their workforce is ready for AI. The need for Kyndryl's expertise and modernization capabilities to continue running their business while transforming it, that run and transform and run approach is where Kyndryl is differentiated. Second, AI, cybersecurity and data residency regulations and mandates are becoming fundamental considerations in how customers plan and invest in IT. Enterprises increasingly want greater control over their data, their AI models and their digital infrastructure, and Kyndryl helps our customers navigate and build technology foundations that can adapt to the evolving regulatory requirements, geopolitical realities and business needs over the long term. Third, and related to the previous theme, cybersecurity and resilience remain top priorities. As Agentic AI becomes more powerful, as we've seen with recent frontier models and further embedded into how enterprises operate, our customers need strong guardrails and policies to bolster the governance and security of their critical systems. This is especially important in the highly regulated and mission-critical environments where Kyndryl has deep expertise in governing and securing data across complex hybrid environments and adhering to unique compliance requirements. Fourth, customers increasingly want open and interconnected platforms for flexibility and choice across public cloud, private cloud and on-premises environments. As technology ecosystems become even more diverse and interconnected, organizations need agile platforms that integrate seamlessly across environments and applications, enabling interoperability, reducing vendor lock-in and accelerating innovation. And finally, while most AI investments were initially justified through productivity gains, customers are increasingly looking beyond efficiency toward growth, towards speed and toward new business outcomes. These are structural and durable trends that leverage our heritage and expertise in mission-critical IT infrastructure, our ecosystem, Kyndryl Bridge and our differentiated portfolio of Agentic AI capabilities. We're helping customers simplify complexity and build technology environments that can adapt as business, regulatory and technology requirements evolve while improving resilience, security and operational performance. Now let's talk about 3 tangible examples of how we're helping customers deliver business outcomes across the modernization continuum using an Agentic AI approach. First, with a large global payments company that we've been working with for decades, the challenge wasn't deciding to modernize. It was to better understand the complexities and dependencies across decades of mission-critical mainframe applications to modernize effectively, maximize their ROI and drive the agility and scale that the business required. We expanded our scope to roll out Kyndryl's Agentic modernization platform with prepackaged AI modernization workflows, which can be scaled to support multiple customer teams globally carrying out modernization work. We deployed our engineers to develop additional AI workflows to meet the customers' unique modernization and tech stack needs. Next, we expanded our scope with a leading European financial institution to transform its operations and technology while improving efficiency and meeting increasingly complex regulatory requirements. This customer wants to modernize applications, infrastructure and operations at the same time, not as separate initiatives. We're bringing together Kyndryl Consult, Kyndryl Bridge and our managed services expertise to implement an AI-native Agentic banking platform. This end-to-end modernization effort will automate its operations, strengthen security and resilience, improve overall decision-making and enhance the customer experience. And then we were recently awarded a new logo with a global technology company to help streamline software engineering and IT operations using the Kyndryl Agentic AI Framework. This will help them grow while improving security, resilience and speed. By combining Kyndryl's expertise in Agentic software development, platform engineering and IT operations, we will deliver a scalable, secure and efficient technology foundation that supports their expanding Edge AI global business while reducing deployment complexity and operational risk. In all 3 examples, our AI-led modernization approach is accelerating transformation timeline and improving efficiency, strengthening the resilience of their mission-critical technology environments. We were awarded new scope with each of these customers and now expect to expand into new areas, demonstrating the breadth of our capabilities and importantly, creating opportunities to deepen and expand our long-term strategic relationships with our customers. We're a trusted adviser and a long-term partner for our customers with differentiated solutions that center on achieving tangible business results. With the expectation that higher-value signings continue to improve, our focus is clear, drive profitable growth and stronger free cash flow. And with that, I'd like to pass the call over to Harsh to discuss our quarterly results and our fiscal year outlook. Harsh? Harsh Chugh: Thanks, Martin, and hello, everyone. Today, I will focus my comments on our first quarter results and outlook for fiscal year 2027. In Q1, we generated $3.6 billion of revenue, down 3% year-over-year on both a reported and constant currency basis. For the second consecutive quarter, we delivered 5% revenue growth in the U.S. as our AI-led modernization approach continues to resonate with our customers. We exited the period with 12-month signings of $14.2 billion, of which $3.9 billion was signed in Q1. As Martin noted, it was encouraging to see signings gain momentum as we exited the March quarter and kicked off our new fiscal year. Our adjusted EBITDA in the quarter was $512 million, and our adjusted pretax loss was $37 million. The year-over-year declines in earnings and margin were primarily driven by $152 million of workforce rebalancing charges incurred in the quarter. These charges had more than a 4-point impact on adjusted pretax income margin in the quarter. Our 3A's initiative have become central to how we run the business as the savings from our workforce actions begin to materialize, we expect to see greater operating leverage flow through to the bottom line. Through our alliances, we generated more than $530 million of hyperscaler-related revenue streams in the quarter with $2 billion over the last 12 months. We continue to expect hyperscalers to be a positive contributor to revenue and earnings growth going forward. Through advanced delivery, we are embedding more AI-based technology into our services through Kyndryl Bridge, driving continuous productivity improvements, reducing cost and further increasing our already strong service levels. And while the work to address focused accounts through our accounts initiative is largely behind us, the discipline we developed continues to inform how we pursue higher-value growth. through scope expansions, new logos, our expanding consulting and agentic AI capabilities and our broad alliance ecosystem. I want to provide an update on what we have been sharing on our evolving partnership with IBM, largely driven by how customers are consuming IBM innovation. This chart illustrates a 3-point adverse impact on revenue performance in constant currency, driven by our focus accounts initiative in earlier years and more recently by this evolving relationship. As we have described before, at the time of the spin-off, approximately 40% of revenue from our inherited commercial agreements were in a low-to-no margin position. To give you a sense of the magnitude of this, when we were spun-off, the annualized run rate of our spend with IBM was nearly $4 billion. Over the past 4 years, we have addressed most of the focus accounts, leading to improved profitability gains. In fact, our spend with IBM over the last 12 months was less than $2 billion, less than half of the spend since we spun off. During fiscal 2026, especially in second half, customers increasingly procured certain IBM hardware and software directly from IBM, while continuing to rely on Kyndryl for high-value services. That pattern has continued into fiscal 2027 and is creating a similar headwind to our top line performance over the last 12-month period. Importantly, these changes do not affect the scope or margin profile of our services or our ability to grow services content over time. However, they do reduce the size of our signings and consequently, our revenue growth over time. And as we have said, this has limited impact on our earnings. Our outlook for fiscal 2027 continues to be based on the assumption that we'll see similar headwinds throughout the remainder of the year. Turning to cash flow. As a reminder, our first quarter is a seasonal use of cash driven by working capital timing. This year, free cash flow was $401 million outflow. Compared to the same period a year ago, we had higher payments related to multiyear renewals and annual prepaid software subscriptions and lower billings and collections. This was partially offset by lower broad-based annual incentive compensation payments. Importantly, working capital dynamics were contemplated in our full year fiscal 2027 outlook. As we move through the year, we expect meaningfully higher earnings, particularly in second half and stronger working capital to drive free cash flow. While quarter-to-quarter dynamics can vary, we continue to target a strong conversion of earnings to free cash flow on a full year basis. We have provided a bridge from our adjusted pretax income to our free cash flow as well as a bridge from our adjusted EBITDA to our free cash flow in the appendix and more information on the free cash flow metric calculation. Our financial position remains strong. Our cash balance at June 30 was $2.1 billion. Our debt maturities are well laddered from late 2026 to 2041. We plan to refinance or use cash on hand to fund our near-term debt maturity of $700 million. Our net leverage ratio exiting the quarter was 0.8x, and our investment-grade rating was recently reaffirmed by Fitch, Moody's and S&P. Under the share repurchase authorization, we bought 5 million of shares of common stock at a cost of $64 million in the first quarter. Since the inception of the program, we have repurchased 8% of our outstanding shares. On capital allocation, our top priorities are to maintain an investment-grade balance sheet and financial flexibility. We have remained focused on winning business with healthy margins, which takes significant discipline as enterprises prolong decision-making. Over the last 4 years, we have signed contracts with projected gross margin in the mid-20s and projected pretax margins in the high single digits. We have again included a gross profit book-to-bill chart that illustrates how we have been creating and capturing value in our business. With an average projected gross margin of 25% on signings over the last 12 months, we have added more gross profit dollars to our backlog than we have reported as gross profit over the same period. Having a gross profit book-to-bill ratio at or above one demonstrates the quality of post-spin signings and the expected future profit growth from committed contracts. And as Martin highlighted, new scope and new logos continue to increase as a percent of our large deal signings. Turning to our outlook for fiscal 2027. We continue to expect adjusted pretax income to be in the range of $600 million to $700 million. This pretax income outlook includes approximately $200 million of workforce rebalancing charges and a similar amount of savings associated with these actions to offset the charges. In fiscal 2028, these actions are expected to yield annualized savings in the range of $400 million to $500 million. Looking at the second quarter, we expect adjusted pretax income to be relatively in line with the $123 million we reported last year, which includes more workforce rebalancing charges compared to the prior year. The progress we are making on our workforce actions are on track to what we have previously outlined. For the full year, we continue to expect our free cash flow in the range of $400 million to $500 million. We continue to expect revenue to be flat to down 2% in constant currency with year-over-year trends projected to improve each quarter. Within that, we expect Kyndryl Consult and our alliances-related revenue streams will continue to grow. While at the same time, as I discussed earlier, we are assuming that our evolving relationship with IBM will be a similar headwind to what we have been experiencing. Taking into consideration the pace of signings over the last 15 months and what we expect to sign in the second quarter, we expect our second half 2027 revenue to be stronger than the first half. Let me now pass the call back to Martin. Martin? Martin Schroeter: Thank you, Harsh. To wrap up, we are executing against a clear strategy in a market where customers need trusted partners to modernize mission-critical environments, adopt AI and navigate increasing complexity. We're seeing momentum in the areas that matter most, Kyndryl Consult, hyperscalers, alliance-led growth and AI-led modernization. Our differentiated capabilities, including Kyndryl Bridge and Agentic AI are helping customers deliver tangible business outcomes while creating opportunities to expand our relationships. At the same time, we continue to improve the quality of our signings, embed automation into our operations and drive greater efficiency across the business. Taken together, these actions give us confidence in our ability to deliver on our fiscal 2027 and our fiscal 2028 targets. Operator, let's now move on to questions. Operator: [Operator Instructions] Our first question comes from the line of Jonathan Lee with Guggenheim Securities. Yu Lee: Can you help us think through what's contemplated in the fiscal '27 outlook across the key moving pieces, specifically the assumed Consult growth pace, the level of signings conversion assumed and any embedded assumptions around sales cycle duration? Where do you see the biggest sources of upside and downside relative to the flat to down 2% constant currency revenue outlook range? Martin Schroeter: Sure. Thank you, and thanks for the time this morning. A couple of comments. I'll ask Harsh, obviously, if he wants to add anything to my answer. So first, let's start where you did, which is on Consult. At the beginning of the year, when we provided our guidance -- revenue guidance, we said Consult would be kind of high single, low-double digit. And I think we've just printed at 10%. So we feel very good about the start we had to stay within that range and have Consult deliver what we've embedded in our initial guidance. Additionally, we feel really good about the signings in the first quarter. As everybody knows, we have to keep the signings machine going and the 50% growth in Consult in the first quarter says our assumption for the year, it looks quite good. I would add to that, by the way, that in addition to the first quarter where we had good consult growth, I'd also say that we had a good July in signings. So I think we feel like we're on track to deliver what we said for the year. Now let's recognize that while the 50% growth, for instance, in signings in Consult in the first quarter is certainly a help. We also have a tough compare in the second quarter with Consult. Again, it doesn't affect the year. We're still confident in the year. On sales cycles, look, given what we do and the role we play in our customers' environments, our customers are making long-term decisions. And so that hasn't changed. At the same time, we run mission-critical. We run their hearts and lungs. So there's a big component of trust in how our customers make decisions, and that hasn't changed. At the same time, the world is getting more complex. And since we had our last earnings call, for instance, Mythos was announced, and that's certainly captured the attention of the enterprise tech world. So our customers are making long-term decisions on mission-critical elements and the complexity of technology and what they're thinking through is still ever present. Is there -- in certain instances, is there a new dynamic like sovereignty, for instance, in Europe? Sure, that's a discussion that leads into the overall sales cycle. But I wouldn't say that we're seeing dramatically different sales cycles, again, relative to the role we play in the world on long-term commitments, the role of trust in running mission-critical and the complexity of technology. Harsh, anything to add? Harsh Chugh: Yes. A couple of things I would add. We continue to see momentum in our hyperscaler kind of that we have continued to see. And I think the higher value elements that we have in our signings, once again, the new scope and new logo, it continued at a pace of 30%, as Martin mentioned in his prepared remarks compared to 2025 fiscal, which was like 15%. And we do see a good mix of pipeline for new scope and new logo as we look forward as well. Operator: Our next question will be from Kevin Krishnaratne with Scotiabank. Kevin Krishnaratne: Good strength -- continued strength in the U.S., but I want to switch to the Principal Markets and maybe Europe was down 8% constant currency, 7% last quarter. I mean, I think that's expected. You did talk last quarter about some of the headwinds on AI sovereignty and buying decisions. But just curious, was that ahead or below your expectations? And how do you see trends out of Europe evolving into Q2, Q3? Martin Schroeter: Yes. So a couple of things. It is all consistent with what we've assumed as we started the year and still supports our guidance for the full year. And the trends, as I just talked about, that we see in terms of deal closings and cycle times are not a lot different. Again, does Europe sometimes have a sovereignty discussion? It does sometimes. But by and large, it's the complexity of the environments that our customers are dealing with. It's the choices they have. And they know that while they need to commit over the long term to Kyndryl to run their infrastructure mission-critical, they also know that in 3 months, somebody can make an announcement that changes the world of AI again. And so it's all of these things that I think come to a head, a little bit more so in Europe than here in the U.S. Obviously, the world changes here in the U.S. as well, but the sovereignty issue is not at all an issue here in the U.S. So no, the short answer is, all consistent with what we assumed for our guidance. We're not seeing any trends, if you will, that would suggest the deal cycles are getting longer. It's just the world in which we live and it's the role we play in our customers. Harsh, anything you'd add? Harsh Chugh: Yes, I think it's consistent with what we had talked about. If you remember in the last couple of quarters, we had talked about U.K. as well as the European segment of Strategic Markets, like that has been kind of what we have continued to see. So it was as we were anticipating and not impacting our view for what we see the full year. Operator: Our next question will be from Tien-Tsin Huang with JPMorgan. Tien-Tsin Huang: Just thinking about the workforce in general. So you've got robust signings, you've got some savings on the way from the workforce rebalancing. I'm curious if you can just comment on resourcing or headcount and just your line of sight there in reskilling and lining up the workforce to deliver on the AI-led modernization and the value-added services work that you're focusing on. Do you feel good about the pathway there? I would expect you'll probably see some increase in revenue per head or PTI per head. But just again, just looking for more detail there. Martin Schroeter: Yes, sure. Thanks, Tien-Tsin. A couple of comments. And again, I'll invite Harsh if he wants to add anything. Our use of AI, which we've talked about for a number of years already, starting with the machine learning we use from the bridge data that we have in order to automate things, now moving into an agentic world. And for us, we have 1,800 or so agents in the infrastructure, helping us get to solutions faster, helping us reduce impact events, helping us reduce errors, helping us automate things. So it's very real for us, and it is something that allows us to free up people and reposition them in higher-value roles, still with a customer base that trust them. And so we've been very successful in doing that. I think we've deployed in the tens of thousands of -- redeployed in tens of thousands of people since we started this process, and I expect that to continue. There is a chance that Agentic can accelerate some of that, but we're just assuming that we can continue to free people up and redeploy them. And remember, our business model is one that's paid on outcomes. So we have to deliver uptime. We have to deliver resiliency features. We have to deliver security features. And I think what we've proven to ourselves, to our customers and to our investors is that as we -- as long as we continue to deliver on those outcomes, and again, agentic and automation actually improves quality, improves the way we deliver, we get to keep a piece of the savings we can generate as we manage those contracts. And I think our customers see the benefit in efficiency. They see the benefit in quality. And I think that is part of how we've generated about $1 billion in cumulative savings since we were spun out using, again, machine data, Kyndryl Bridge and our ability to automate in our advanced delivery initiative, all while our Net Promoter Scores on the run part of our business, which is what our customers are really are really looking at continues to improve. We're in world-class territory on NPS. We're in world-class territory on quality of service. So look, the use of AI, the use now of Agentic is very real for us. It's how our advanced delivery part of our strategy has generated a lot of value. And our model is one again that allows us to continue down this path and continue to redeploy. Harsh, anything you'd add? Harsh Chugh: Yes. I would say kind of some of the deals that you heard Martin talk about, I think it's important to talk about the value that we bring through the forward deployed engineers that we bring as well as the agentification that we bring in that's kind of helping us win against some of our competition because some of the insights that we have on the existing environment is unique from our point of view, that's kind of giving us an edge in some of the new scope, new logo that we've won. But also, we know how to kind of manage our bench like in terms of reskilling and redeployment kind of we have a great success rate in redeployment. We started to have great success in reskilling resources. And then we now -- as we talked about exiting kind of last year into this year, importance of workforce management that we are doing, which allows us to manage the cost of something that's kind of stranded, like? So that's kind of allowing us to kind of think about this as a more holistic way that we are approaching it, and you cannot miss agentification as an important element of that. Operator: [Operator Instructions] It looks like our next question will be with Bradley Clark from BMO Capital Markets. Bradley Clark: I want to hone in on some of the new logos that were highlighted on the call and specifically one in the presentation. But more broadly, like in this competitive environment, how is Kyndryl like approaching new logos? And what -- where do you think your advantages lie as you win new customers, particularly in the consulting business? And then if you could also comment on any pricing dynamics that Kyndryl is experiencing approaching new logos for some of these services versus what you're seeing more in the renewals with your existing customers? Martin Schroeter: Yes, sure. Thank you. Thanks for joining, and thanks for the question. Look, we've had -- and we've talked about this already at our Investor Day a couple of years ago. We've added hundreds and hundreds of new customers. And that shouldn't -- I mean, it certainly doesn't surprise us. We win for a number of reasons. And the most recent wins are tied to our leadership with the Kyndryl Agentic Framework, which allows which allows -- provides the architecture and the delivery framework so that our customers, we can really industrialize both -- not both, but the design and the integration and then the operations of their infrastructure. So the Kyndryl Agentic Framework is highly unique, highly differentiated in the marketplace, supported by Bridge. Bridge is the control plane, if you will, that connects the tools and the workflows and the telemetry and the automation across the enterprise. It provides us with real-time data and provides our customers with 16 million, 17 million, 18 million insights a month on how their infrastructure is running. And it also provides us with over 200 million automations a month. And then all of that supported by our expertise and our engineering talent in the form of Kyndryl Consult. And some of that we've had, but we've also been very active and very aggressive in investing in Kyndryl Consult to get industry expertise and industry points of view to get the talent that we need in order to help the Kyndryl Agentic Framework and Bridge land in the right spot. And that expertise has proven to be hugely valuable and is why you see the great consult signings growth that we've delivered over the last number of years and the continued revenue growth. These are very complex, as you would imagine, infrastructures. And it's not that when AI comes along or when Agentic AI comes along that our customers are adding a model for a new application. I mean these are models and agents and workflows and applications that need data and they need to sit on an infrastructure and somebody this is why our customers call us, somebody needs to integrate and orchestrate and govern and operate that in a world that is highly complex and at scale. And so what the expertise we've built, the investments we've made not only in our people, but in Bridge and our Kyndryl Agentic Framework is highly differentiated in the marketplace, and that's why we see a good long-term growth arc for Kyndryl. Lori Chaitman: Thanks, Martin. Operator, I believe we have one more question in the queue, and then Martin is going to close us out with some remarks. Operator: Our next question is with Spencer Anson from Susquehanna. Spencer Anson: There's been a lot of talk over the years about mainframe modernization and COBOL modernization. Can you just talk to the opportunity you see there, how it might affect your business? And any impact to the relationship with IBM? Martin Schroeter: Yes, sure. So look, mainframe modernization is a thing. It's real. It's something we're experts in. We have more scale than anybody else in mainframe and mainframe services. And that scale allows us to -- it allows us to invest and create career paths for that next generation of mainframe talent. So we have 8,000, 9,000 deep mainframe experts, but those 8,000 or 9,000 look more like my kids instead of me because we've invested and partnered with universities to build curriculums, et cetera, et cetera, et cetera. So our scale gives us an ability to invest there in what is a very common and important set of dialogues with our customers. Modernization, mainframe being one of those, but modernization in general is the sort of the top of the list on what customers are thinking about. You heard some of this in our prepared remarks. Modernization in order to use the new technologies that are coming out like AI in order to stay ahead of the bad guys and become more secure and resilient and in order to keep up with an ever-changing regulatory environment. So modernization of which, again, mainframe is one where we have more scale than anybody. We, I think, run more than half the world's outsourced mainframes. So we're really good at this. And it is driving a lot of interest from customers because, again, I've used this metaphor before, AI and GenAI and Agentic AI represents a nice shiny new bullet train that can go 200 miles an hour, but most customers are still running on tracks that were built for 30 miles an hour. So that is sort of a way to capture this idea of modernization. As for the relationship with IBM, look, our relationship with IBM, it's quite good. It continues to evolve. We spent the first few years working very cooperatively and closely with IBM and our customers to execute our focus account initiative. We're largely through that, not entirely. Some of these have long tails, but we've worked very well with IBM and our customer base in order to execute that. And even today, we're lined up with IBM to help customers get to the right answer. By the way, that right answer is quite often a mainframe. And quite often, by the way, we have to modernize in a way that allows customers to continue to deliver the services. So modernization is real. Mainframe is one of those flavors. We have the scale and the investments and the capabilities that nobody else has to do this. And it's been a -- the partnership with IBM has been good, and I expect it will continue to be quite good because our customers, they need IBM's technology just like they need access to public clouds and all the other complexity we manage. Harsh Chugh: Yes. I think the other thing that I would add is kind of eventually, customers will decide, depending on their business needs, kind of what business modernization they need and where the IT environment for them will go. It's important that we are bringing all the capabilities and high-value services to follow their wallet share, which is important to us, which means largely the whole ecosystem, we have to be relevant for all the ecosystem players. In some cases, mainframe, including private cloud, will remain relevant for them. So they have to exist, especially the customers that we deal with, they exist in all such environment, and they will evolve around cloud, public cloud, they will evolve around SaaS-based application. They will evolve around private cloud and mainframe. So there is a relevance that we have to bring across. And modernization for us means we're playing across all the spectrum. Martin Schroeter: Thanks, Harsh. Operator, I think that was the last in the queue. So before we close, a couple of notes. One, I do want to thank Harsh for stepping into the CFO role and leading our finance organization and being a critical leader here at Kyndryl for the past 6 months. And of course, before that, he was our first COO. And after a distinguished career, Harsh has made the decision to retire. Now he will continue as an executive adviser here to me and to the leadership team. And from the very beginning, from the start of Kyndryl, Harsh has been a trusted partner. He's been an exceptional leader who always puts the success of our customers, the success of the Kyndryls around the world and, quite frankly, the success of Kyndryl first. So Harsh, thank you for your leadership. I have nothing but gratitude and thanks for you. Now as we announced in July, we're pleased to welcome Ellen Johnson as our incoming CFO. Ellen, highly experienced in driving financial discipline, operational excellence, and she is a great addition to strengthen our leadership team. Ellen officially starts in the role tomorrow, August 6, and I know she's looking forward to meeting with our investors, our analysts in the coming weeks and months. So welcome, Ellen. Thank you. And again, every day, we deliver the world-class services our customers and the world relies on. Our focus this year is to drive progress across the targeted growth areas of our business, including Kyndryl Consult, the work we do around the hyperscalers, our modernization efforts that's come up a number of times and obviously, the role of AI and how our customers deploy it and also how we use it to streamline the way we operate. We've got a great team around the world that's focused on delivering every day. We are and have been confident in our ability to deliver the year and to deliver our multiyear objectives. So thanks, everyone, for joining. Operator: Thank you for participating in today's call. You may now disconnect. Before you buy stock in Kyndryl, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Kyndryl wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years. 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As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability. The Motley Fool has positions in and recommends Kyndryl. The Motley Fool has a disclosure policy. Kyndryl (KD) Q1 2027 Earnings Call Transcript was originally published by The Motley Fool

Interested in Kyndryl Holdings, Inc.? Here are five stocks we like better. Revenue and profitability declined: Kyndryl’s fiscal Q1 revenue fell 3% to $3.6 billion, while adjusted EBITDA was $512 million and adjusted pre-tax income was a $37 million loss. Workforce rebalancing charges of $152 million significantly reduced margins. Growth areas gained momentum: U.S. revenue rose 5%, Kyndryl Consult revenue increased 14%, and hyperscaler-related revenue grew 48% to more than $530 million for the quarter, supported by demand for AI, cloud modernization and cybersecurity services. Outlook reaffirmed despite IBM headwinds: Kyndryl maintained its fiscal 2027 targets for flat-to-2% constant-currency revenue decline, $600 million-$700 million in adjusted pre-tax income and $400 million-$500 million in free cash flow. Management expects IBM-related revenue pressure to continue, while workforce actions are projected to generate $400 million-$500 million in annualized savings by fiscal 2028. MarketBeat Week in Review – 02/17 - 02/21 Kyndryl (NYSE:KD) reported fiscal first-quarter revenue of $3.6 billion, down 3% from a year earlier on both a reported and constant-currency basis, while maintaining its full-year outlook as it pursues growth in consulting, hyperscaler partnerships and AI-led modernization services. For the quarter ended June 30, the company generated adjusted EBITDA of $512 million and an adjusted pre-tax loss of $37 million. Interim Chief Financial Officer Harsh Chugh said earnings and margin declined year over year primarily because of $152 million in workforce rebalancing charges, which reduced adjusted pre-tax income margin by more than four points. → Sandisk Just Delivered a Blowout Quarter—Here's Why the Stock Is Falling Kyndryl Soars on AI, Cybersecurity Growth—What’s Next? Kyndryl continued to see growth in the U.S., where revenue increased 5% for a second consecutive quarter. The company exited the period with $14.2 billion in trailing 12-month signings, including $3.9 billion signed during the quarter. Chairman and Chief Executive Officer Martin Schroeter said Kyndryl Consult and hyperscaler-related activities were helping offset revenue pressure from focus accounts, extended sales cycles and customers purchasing certain IBM hardware and software directly from IBM. → 4 Oil and Gas ETF Plays as Prices Stay Sky-High MarketBeat Week in Review – 9/25 - 9/29 Kyndryl Consult revenue rose 14% over the last 12 months, while hyperscaler-related revenue streams increased 48%. In the first quarter, Kyndryl generated more than $530 million in hyperscaler-related revenue, bringing the trailing 12-month total to $2 billion. Schroeter said customers are increasingly seeking help with AI deployment, modernization of hybrid technology estates, cybersecurity and data-residency requirements. He said the company has expanded its AWS alliance to support enterprise adoption of agentic AI and broadened work with Microsoft Azure around cloud architectures and operational requirements. Kyndryl also cited partnerships with Broadcom, Dell, Hewlett Packard Enterprise and Red Hat. → No Hangover: Revisiting Microsoft One Week After Earnings The company signed 40 deals valued at more than $50 million during the past 12 months, including 10 in the first quarter. About 30% of the value of those larger deals came from scope expansions or new customers, compared with 15% in fiscal 2025, according to Schroeter. Kyndryl Consult signings rose 50% in the first quarter, Schroeter said during the question-and-answer session. New scope and new-logo business represented 30% of large-deal signings, management said. Average projected gross margin on signings over the last 12 months was 25%, according to Chugh. Chugh said Kyndryl’s changing commercial relationship with IBM has created a three-point adverse effect on constant-currency revenue performance, alongside earlier effects from the company’s focus-account initiative. Customers have increasingly chosen to procure some IBM hardware and software directly from IBM while continuing to rely on Kyndryl for services. Chugh said the shift reduces the size of signings and future revenue but does not affect the service scope or margin profile of Kyndryl’s work. Kyndryl’s spending with IBM was less than $2 billion over the past 12 months, down from an annualized run rate of nearly $4 billion when Kyndryl was spun off. Management said it expects a similar IBM-related revenue headwind through the remainder of fiscal 2027. Schroeter said the company continues to work closely with IBM, particularly in helping customers modernize technology environments that may include mainframes, private cloud, public cloud and software-as-a-service applications. He said Kyndryl has between 8,000 and 9,000 mainframe experts and runs more than half of the world’s outsourced mainframes. Kyndryl is taking workforce rebalancing actions in response to lower-than-normal voluntary attrition and SG&A costs. Savings from those actions are expected to begin in the second half of fiscal 2027. The company expects about $200 million in workforce rebalancing charges during the year, offset by a similar amount of savings, with annualized savings of $400 million to $500 million expected in fiscal 2028. Schroeter said Kyndryl is using automation and AI through its Kyndryl Bridge platform and Advanced Delivery initiative to improve productivity and redeploy workers into higher-value roles. He said the company has about 1,800 agents in its infrastructure operations and has redeployed tens of thousands of employees since beginning its automation efforts. First-quarter free cash flow was an outflow of $401 million, reflecting seasonal working-capital timing, higher payments associated with multiyear renewals and software subscriptions, and lower billing and collections. Kyndryl ended the quarter with $2.1 billion in cash and a net leverage ratio of 0.8 times. It repurchased 5 million shares for $64 million during the quarter. The company reaffirmed its fiscal 2027 outlook for adjusted pre-tax income of $600 million to $700 million, free cash flow of $400 million to $500 million, and constant-currency revenue ranging from flat to down 2%. Management expects revenue trends to improve each quarter and anticipates stronger revenue in the second half than the first half. For fiscal 2028, Kyndryl continues to target more than $1.2 billion in adjusted pre-tax income and $1 billion in free cash flow, based on low-single-digit constant-currency revenue growth. Schroeter also said Chugh has decided to retire after serving as interim CFO for the past six months. Chugh will remain an executive adviser to Schroeter and the leadership team. Ellen Johnson, previously announced as the incoming CFO, was scheduled to begin in the role on Aug. 6. Kyndryl (NYSE: KD) is a global managed infrastructure services provider formed in November 2021 through the spin-off of IBM's Managed Infrastructure Services business. The company designs, builds, manages and modernizes critical information technology systems for enterprises worldwide. Kyndryl's core offerings include cloud migration and management, network and edge computing solutions, digital workplace services and IT resiliency and security capabilities. With a workforce of approximately 90,000 professionals and operations in more than 60 countries, Kyndryl serves clients across a broad range of industries, including financial services, telecommunications, healthcare, manufacturing and retail. This instant news alert was generated by narrative science technology and financial data from MarketBeat in order to provide readers with the fastest reporting and unbiased coverage. Please send any questions or comments about this story to [email protected]. The article "Kyndryl Q1 Earnings Call Highlights" was originally published by MarketBeat. View MarketBeat's top stocks for August 2026.

Make better investment decisions with Simply Wall St's easy, visual tools that give you a competitive edge. Kyndryl Holdings (KD) is back in focus after reporting first quarter results that fell short of Wall Street expectations, with lower revenue and a move from profit to loss, while the company reaffirmed its guidance. See our latest analysis for Kyndryl Holdings. The latest earnings miss and shift to a quarterly loss have weighed on sentiment, reflected in a year to date share price return that has declined 45.12%. At the same time, the recent 30 day share price return of 12.91% and 90 day share price return of 14.11% suggest some short term momentum. Over a longer horizon, total shareholder return over the past year declined 53.64% and the 3 year total shareholder return declined 14.17%. This frames Kyndryl Holdings as a stock where investors are still reassessing risk despite the new AI led modernization offerings and recent buybacks. If earnings volatility and AI driven projects have your attention, this could be a good moment to broaden your research and check out 68 profitable AI stocks that aren't just burning cash Kyndryl Holdings now sits at the crossroads of a growing AI services story and a stock that has fallen sharply this year, then bounced in recent weeks. Do the current numbers actually justify today’s price tag? The most followed narrative on Kyndryl Holdings sees a fair value of $14.10 per share compared to the last close at $13.99, and links that gap to a detailed view on earnings quality, margins and contract mix. Read the complete narrative. Want to see what sits behind that confidence in higher margins at Kyndryl Holdings? The narrative leans on specific earnings, mix shift and valuation assumptions that might surprise you. Result: Fair Value of $14.10 (UNDERVALUED) Have a read of the narrative in full and understand what's behind the forecasts. However, there is still clear downside risk if legacy, lower margin contracts take longer to roll off or if complex account restructurings disrupt the earnings profile of Kyndryl Holdings. Find out about the key risks to this Kyndryl Holdings narrative. Multiples tell a different story. Kyndryl Holdings trades on a P/E of 35x, compared with 13.5x for peers and 18.6x for the wider US IT industry. The fair ratio for Kyndryl is 52x, which implies room either for earnings to catch up or for the share price to reset. Which side do you think adjusts first? For a closer look at how this price compares with the fair ratio and the sector, See what the numbers say about this price — find out in our valuation breakdown. Conflicted by both the risks and rewards around Kyndryl Holdings so far this year? Use the data as a prompt to move quickly and review the 2 key rewards and 3 important warning signs. If Kyndryl Holdings has sharpened your focus on risk, reward and valuation, now is the time to widen your watchlist and compare it with other opportunities. Target potential bargains by reviewing companies that screen well on quality and valuation through the 50 high quality undervalued stocks. Strengthen your income stream by checking stocks that deliver higher yields and resilient payouts using the 8 dividend fortresses. Prioritize resilience by assessing companies that score well on financial robustness in the solid balance sheet and fundamentals stocks screener (49 results). This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned. Companies discussed in this article include KD. Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email [email protected]

Our analysts just identified a stock with the potential to be the next Nvidia. Tell us how you invest and we'll show you why it's our #1 pick. Tap here. Performance is increasingly driven by higher-margin post-spin signings, with 12-month signings reaching $14.2 billion and total signings exceeding revenue for the last six months. The Kyndryl Consult segment grew 14% over the last 12 months, reflecting broad enterprise demand for designing and scaling Agentic AI across business workflows and modernizing complex hybrid IT environments. Hyperscaler-related revenue streams grew 48% year-over-year, partially offsetting headwinds from legacy focus accounts and shifts in how customers procure IBM hardware and software. Management is embedding AI-powered automation via Kyndryl Bridge to drive productivity, which has generated approximately $1 billion in cumulative savings since the company's spin-off. Strategic positioning is centered on the 'run and transform' approach, helping customers manage mission-critical infrastructure while simultaneously deploying next-generation technologies. The company is executing workforce rebalancing to address lower-than-normal voluntary attrition and streamline SG&A costs, with savings expected to materialize in the second half of the fiscal year. Management reaffirmed fiscal 2027 adjusted pretax income guidance of $600 million to $700 million, assuming revenue remains flat to down 2% in constant currency. Fiscal 2028 targets include delivering more than $1.2 billion in adjusted pretax income and $1 billion in free cash flow, achievable on low single-digit constant currency revenue growth. Workforce rebalancing actions are projected to yield annualized savings between $400 million and $500 million starting in fiscal 2028. Revenue trends are expected to improve each quarter, with second-half fiscal 2027 performance projected to be stronger than the first half based on recent signing momentum. Guidance assumes continued top-line headwinds as customers increasingly procure certain IBM hardware and software directly from IBM rather than through Kyndryl. Incurred $152 million in workforce rebalancing charges during Q1, which had a more than 4-point negative impact on adjusted pretax income margin. The evolving IBM relationship resulted in a 3-point adverse impact on constant currency revenue performance, though management notes this has limited impact on earnings. Free cash flow for Q1 was a $401 million outflow, attributed to seasonal working capital timing and higher payments for multiyear renewals and software subscriptions. Net leverage remains low at 0.8x, with the company repurchasing 5 million shares for $64 million during the quarter as part of its capital allocation strategy. One stock. Nvidia-level potential. 30M+ investors trust Moby to find it first. Get the pick. Tap here. Management confirmed Consult is on track with high single to low-double digit growth expectations, supported by 50% signings growth in Q1. July signings remained strong, providing confidence in the full-year revenue trajectory despite a tough year-over-year comparison expected in Q2. Weakness in Europe (down 8% constant currency) was attributed to complex sovereign data discussions and deliberate decision-making cycles. Management clarified that these trends were already contemplated in the annual guidance and do not signal a fundamental shift in deal cycle duration. Kyndryl is using 'Agentic AI' internally with 1,800 agents to automate infrastructure tasks, allowing for the redeployment of tens of thousands of employees into higher-value roles. The business model focuses on outcome-based payments, where automation improvements allow Kyndryl to retain a portion of the generated efficiency savings. New logos and scope expansions now represent 30% of large deal value, up from 15% in fiscal 2025, driven by the proprietary Kyndryl Agentic Framework and Bridge platform. Pricing discipline remains a priority, with signings maintaining projected gross margins in the mid-20s and pretax margins in the high single digits.

Revenues for the quarter ended June 30, 2026 total $3.6 billion, pretax loss is $69 million, and net loss is $55 million Adjusted EBITDA is $512 million, adjusted pretax loss is $37 million, and adjusted net loss is $26 million Actions to streamline operations resulted in $152 million of workforce rebalancing charges, which are included in reported and adjusted results Company reaffirms fiscal 2027 outlook for revenue, earnings and free cash flow NEW YORK, Aug. 5, 2026 /PRNewswire/ -- Kyndryl (NYSE: KD), a leading provider of mission-critical enterprise technology services, today released financial results for the quarter ended June 30, 2026, the first quarter of its 2027 fiscal year. "Our first quarter results reflected strong momentum in signings, supported by strength in Kyndryl Consult and hyperscalers, with an increasing demand for AI-led modernization solutions," said Chairman and Chief Executive Officer Martin Schroeter. "We're encouraged by the progress we're making to improve business fundamentals and remain focused on driving consistent execution and delivering our fiscal 2027 and multi-year objectives." Results for the Fiscal First Quarter Ended June 30, 2026 For the first quarter, Kyndryl reported revenues of $3.6 billion, down 3% year-over-year on a reported basis and down 3% in constant currency. The Company reported a pretax loss of $69 million, compared to pretax income of $92 million in the prior-year period. Net loss was $55 million, or ($0.25) per diluted share, in the quarter, compared to net income of $56 million, or $0.23 per diluted share, in the prior-year period. The first quarter 2027 results include workforce rebalancing charges of $152 million. Cash used from operations was $310 million, compared to $124 million in the prior-year period, primarily due to timing of working capital, including higher software payments and lower billings and collections, partially offset by lower incentive compensation payments. Adjusted pretax loss was $37 million, compared to adjusted pretax income of $128 million in the prior-year period. Adjusted net loss was $26 million, or ($0.12) per diluted share, compared to adjusted net income of $90 million, or $0.37 per diluted share, in the prior-year period. Adjusted EBITDA was $512 million compared to $647 million in the prior-year period. The first quarter 2027 results include workforce rebalancing charges of $152 million. Free cash flow was a use of $401 million in the quarter, compared to a use of $222 million in the prior year, consistent with drivers of cash used from operations as described above. See "Non-GAAP Metric Definitions and Reconciliations." Highlights Signings – In the trailing twelve months signings were $14.2 billion, including $3.9 billion signed in the first quarter, supported by strength in the United States segment. Kyndryl signed 40 customer contracts exceeding $50 million each in the last twelve months, of which 10 were signed in the first quarter. Kyndryl Consult revenue – In the first quarter, Kyndryl Consult revenues grew 10% year-over-year. Over the last twelve months, Kyndryl Consult revenues were $3.6 billion, a 14% increase year-over-year. Kyndryl Consult signings were $4.4 billion over the last twelve months, an 8% increase year-over-year. Hyperscaler-related revenue – In the first quarter, hyperscaler-related revenues of more than $530 million grew 34% year-over-year, exiting the quarter at an annualized revenue run-rate of more than $2.1 billion. AI-led modernization – During the quarter, Kyndryl expanded its AI capabilities to support AI-led modernization with the launch of Kyndryl AI Orchestration for Business and a patented agentic AI capability in Kyndryl Bridge. Kyndryl also released its People Readiness Report, which found that 57% of enterprises have embedded AI in core business processes, but only 32% have achieved their AI goals, underscoring the opportunity to help enterprises realize greater value from their AI investments. Actions to streamline operations – In the first quarter, Kyndryl incurred $152 million of charges related to workforce-rebalancing actions. The Company continues to expect approximately $200 million of charges in fiscal 2027. These workforce rebalancing efforts, once completed, are expected to result in annualized run-rate operating expense savings of approximately $400 to $500 million in the Company's fiscal year 2028. Share repurchases – In the first quarter, the Company repurchased 5.0 million shares of its common stock at a cost of $64 million. Since the authorization of its share repurchase program in November 2024, the Company has bought back 19.3 million shares for $462 million, or 8% of its shares outstanding. Reaffirms Fiscal Year 2027 Outlook Kyndryl reaffirms its outlook for its fiscal 2027, which runs from April 2026 to March 2027: Adjusted pretax income of $600 to $700 million Free cash flow of $400 to $500 million Constant-currency revenue flat to down 2% See "Non-GAAP Metric Definitions and Reconciliations." Earnings Webcast Kyndryl's earnings call for the first fiscal quarter is scheduled to begin at 8:30 a.m. ET on August 5, 2026. 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 August 5, 2026. Following the event, a replay will be available via webcast for twelve months at investors.kyndryl.com. About Kyndryl Kyndryl (NYSE: KD) is a leading provider of mission-critical enterprise technology services, offering advisory, implementation and managed service capabilities to thousands of customers in more than 60 countries. As the world's largest IT infrastructure services provider, the Company designs, builds, manages and modernizes the complex 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 outlook and financial objectives in this press release (which does not assume any future acquisitions or divestitures), are forward-looking statements. Such forward-looking statements often contain words such as "aim," "anticipate," "believe," "could," "estimate," "expect," "forecast," "intend," "may," "objectives," "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: failure to attract new customers, retain existing customers or sell services to customers; failure to meet growth and productivity objectives and maintain our capital allocation strategy; competition; impacts of relationships with critical suppliers and partners; failure to address and adapt to technological developments and trends; inability to attract and retain key personnel and other skilled employees; impact of economic, geopolitical, public health and other conditions; damage to the Company's reputation and impact on the Company and our stock price resulting from negative publicity; inability to accurately estimate the cost of services and the timeline for completion of contracts; service delivery issues; the Company's ability to successfully manage acquisitions and dispositions, including integration challenges, failure to achieve objectives, the assumption of liabilities and higher debt levels; the Company's ability to refinance maturing debt on favorable terms in a timely manner, or at all, and risks related to the Company's access to capital and credit markets; failure of the Company's intellectual property rights to prevent competitive offerings and the failure of the Company to obtain, retain and extend necessary licenses; the impairment of our goodwill or long-lived assets; risks relating to cybersecurity, data governance and privacy; risks relating to non-compliance with legal and regulatory requirements and changes in laws, regulations and policies in the U.S. and countries where the Company and its customers do business, including with respect to tariffs, taxes and other controls on imports or exports; adverse effects from tax matters; risks related to legal and regulatory claims, suits, investigations, proceedings and other matters, and consequences relating thereto; the Company's ability to remediate, and the timing and costs related to the remediation of, material weaknesses in internal control over financial reporting, as well as the Company's ability to maintain effective controls in the future; 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, 2026, as such factors may be 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. Forecasted amounts are based on currency exchange rates as of July 2026. 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 (loss), adjusted net income (loss), adjusted EPS, adjusted EBITDA margin, adjusted pretax margin, adjusted net margin, net debt and 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 and additional information about our calculation 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 Company is unable to predict with reasonable certainty some individual components of such reconciliation without unreasonable effort. These items are uncertain, depend on various factors and could have a material impact on future results computed in accordance with GAAP. Investor Contact:  [email protected] Media Contact:  [email protected] Table 4 DEFINITIONS AND NON-GAAP RECONCILIATIONS (dollars in millions, except signings) Non-GAAP Metrics 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. Moreover, we use certain of these non-GAAP financial metrics in measuring performance under our executive compensation plans. 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 (loss) is defined as pretax income (loss) excluding transaction-related costs and benefits, charges related to ceasing to use leased / fixed assets, charges related to lease terminations, pension costs other than pension servicing costs and multi-employer plan costs, stock-based compensation expense, amortization of acquisitionrelated intangible assets, impairment expense, significant litigation costs and benefits, and currency impacts of highly inflationary countries. Adjusted pretax margin is calculated by dividing adjusted pretax income (loss) 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 and benefits, pension costs other than pension servicing costs and multi-employer plan costs, stock-based compensation expense, impairment expense, significant litigation costs and benefits, and currency impacts of highly inflationary countries. Adjusted EBITDA margin is calculated by dividing adjusted EBITDA by revenue. Adjusted net income (loss) is defined as adjusted pretax income (loss) less the reported provision for income taxes, minus or plus the tax effect of the non-GAAP adjustments made to calculate adjusted pretax income (loss), and excluding exceptional items impacting the reported provision for income taxes. Adjusted net margin is calculated by dividing adjusted net income (loss) by revenue. Adjusted earnings (loss) per share (EPS) is defined as adjusted net income (loss) divided by diluted weighted average shares outstanding to reflect shares that are dilutive or anti-dilutive based on the amount of adjusted net income (loss). The weighted average common shares outstanding used to calculate adjusted earnings (loss) per share will differ from such shares used to calculate diluted earnings (loss) per share (GAAP) when the inclusion of dilutive shares has an antidilutive effect for one calculation but not for the other. Free cash flow is defined as cash flows from operating activities (GAAP), less net capital expenditures. Management uses free cash flow as a measure to evaluate our operating results, plan strategic investments and assess our ability and need to incur and service debt. We believe this metric is useful supplemental financial measures to aid investors in assessing our ability to pursue business opportunities and investments and to service our debt. 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. As part of the Company's ongoing cash and commercial management strategy with customers and suppliers and as previously disclosed, the Company's standard practice since the time of the Company's spin-off from International Business Machines Corporation is to actively manage the Company's working capital, including accounts receivables and accounts payables. This includes optimizing payment terms and conditions, accelerating certain cash receipts and delaying certain cash payments (including deferring vendor payments quarter to quarter), and undertaking other discretionary cash and working capital management initiatives. The magnitude of these practices (including deferrals) has varied from quarter to quarter and impacted the Company's cash flows, including positively in certain periods. The effects of these practices have been and are reflected in the Company's accounts payable, accounts receivable and cash flow balance, which are accounted for in accordance with GAAP. The Company's working capital and cash flows have also reflected the impact of accrued contract costs in certain periods due to the timing of vendor billings. The Company may, from time to time, revise or adapt the Company's cash and working capital management practices as it deems appropriate. Free cash flow for the three months ended June 30, 2026 and 2025, as well as the free cash flow guidance included in this press release or the Company's other earnings materials, reflect the historical and expected application of these practices. Other Metrics Signings are defined by Kyndryl 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. 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, as well as the length of those contracts. Signings should not be considered a comprehensive measure of future revenue, and 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 to monitor the performance of the business, as a measure of customer engagement and our ability to drive growth. Hyperscaler-related annualized revenue run-rate is a metric that we define as revenue for the most recently completed fiscal quarter multiplied by four. Management believes this metric provides investors with an additional perspective regarding the current revenue-generating capacity based on recent operating performance and to assess business momentum over time. Hyperscaler-related annualized revenue run-rate is not a forecast, projection, or prediction of future revenue and should not be viewed as an indication of expected revenue for any future period. View original content to download multimedia:https://www.prnewswire.com/news-releases/kyndryl-reports-first-quarter-fiscal-2027-results-302843680.html

This article first appeared on GuruFocus. Release Date: August 05, 2026 For the complete transcript of the earnings call, please refer to the full earnings call transcript. Kyndryl Holdings Inc (NYSE:KD) delivered 5% revenue growth in the US for the second consecutive quarter, driven by its AI-led modernization approach. Kyndryl Consult revenue grew 14% year-over-year, and hyperscaler-related revenue streams grew 48% over the last 12 months. Total signings exceeded revenue over the last six months, with 40 deals over $50 million signed in the past year, 30% of which came from scope expansions or new logos. The company signed contracts with an average projected gross margin of 25% and high single-digit pre-tax margins, improving the quality of its revenue backlog. Kyndryl Holdings Inc (NYSE:KD) reaffirmed its fiscal 2028 targets of over $1.2 billion in adjusted pre-tax income and $1 billion in free cash flow, achievable on low single-digit revenue growth. The company is embedding AI and automation through its Kindle Bridge platform, with over 1,800 agents in infrastructure, generating significant productivity savings and improving service quality. Kyndryl Holdings Inc (NYSE:KD) reported a 3% year-over-year revenue decline in Q1, with an adjusted pre-tax loss of $37 million due to $152 million in workforce rebalancing charges. The evolving relationship with IBM, where customers procure hardware and software directly, is creating a persistent headwind, reducing signings and revenue growth. The company faces lengthening sales cycles and delayed customer decisions, particularly in Europe, where sovereignty concerns and market complexity are impacting performance. Free cash flow was a $401 million outflow in Q1, driven by higher payments for renewals and lower billing and collections, though this was anticipated for the season. Kyndryl Holdings Inc (NYSE:KD) expects the IBM-related headwind to continue throughout fiscal 2027, with revenue projected to be flat to down 2% in constant currency. The company incurred significant workforce rebalancing charges, with approximately $200 million expected for the full year, impacting near-term profitability. Warning! GuruFocus has detected 3 Warning Signs with KD. Is KD fairly valued? Test your thesis with our free DCF calculator. Q: Can you help us think through what's contemplated in the fiscal '27 outlook across the moving pieces, specifically the assumed consult growth pace, the level of signings conversion assumed and any embedded assumptions around sales cycle duration, where do you see the biggest sources of upside and downside relative to the flat to down to constant currency revenue outlook range? A: Martin Schroeder (CEO): We started the year guiding consult to high single to low double-digit growth, and we just printed 10%, so we feel very good about that start. We also feel good about Q1 signings, with 50% growth in consult signings, and we had a good July in signings as well. On sales cycles, customers are making long-term decisions on mission-critical elements, and the complexity of technology is ever-present. We are not seeing dramatically different sales cycles relative to the role we play in long-term commitments. Harsh adds that we continue to see momentum in hyperscalers, and the higher value elements in our signingsnew scope and new logoscontinued at a pace of 30% compared to 15% in fiscal 2025, with a good pipeline mix looking forward. Q: There's been a lot of talk over the years about mainframe modernization and COBOL modernization, can you just talk to the opportunities you see there, how it might affect your business and any impact to the relationship with IBM? A: Martin Schroeder (CEO): Mainframe modernization is real, and we have more scale than anybody else, running more than half the world's outsourced mainframes. We have 8,000-9,000 deep mainframe experts, and our scale allows us to invest in the next generation of talent. Modernization is the top of the list for customers to use new technologies like AI, stay ahead of security threats, and keep up with regulatory changes. Our relationship with IBM is quite good and continues to evolve. We are lined up with IBM to help customers get to the right answer, which is quite often a mainframe. Harsh adds that customers will decide where their IT environment goes based on business needs, and we must be relevant across the whole ecosystempublic cloud, private cloud, and mainframeto follow their wallet share. Q: I want to switch to the principal markets, maybe Europe is down 8%, constant currency 7% last quarter. Was that ahead or below your expectations, and how do you see trends out of Europe evolving into Q2, Q3? A: Martin Schroeder (CEO): It is all consistent with what we assumed as we started the year and still supports our guidance for the full year. The trends in deal closings and cycle times are not a lot different. Europe sometimes has a sovereignty discussion, but by and large, it's the complexity of the environments customers are dealing with. They know they need to commit long-term to run their infrastructure, but also know that in 3 months, someone can make an announcement that changes the world of AI again. Harsh adds that this is consistent with what we discussed in the last couple of quarters regarding the UK and the European segment of strategic markets, and it was as anticipated, not impacting our view for the full year. Q: Just thinking about the workforce in general, you've got robust signings and savings on the way from workforce rebalancing. Can you comment on resourcing or headcount, reskilling, and lining up the workforce to deliver on the AI-led modernization and value-added services work? A: Martin Schroeder (CEO): We have about 1,800 agents in the infrastructure helping us get to solutions faster, reduce impact events, and automate things. This allows us to free up people and reposition them in higher value roles. We've redeployed tens of thousands of people since we started this process. Our business model is paid on outcome, so as long as we deliver on uptime, resiliency, and security, we get to keep a piece of the savings. We've generated about $1 billion in cumulative savings since the spinoff using machine data, Kindle Bridge, and automation, all while our net promoter scores continue to improve. Harsh adds that the forward-deployed engineers and insights we bring are helping us win against competition, and we have a great success rate in reskilling and redeployment, with workforce management allowing us to manage stranded costs holistically. Q: In this competitive environment, how is Kyndryl approaching new logos, and what do you think your advantages lie as you win new customers, particularly in the consult business? Can you also comment on any pricing dynamics you're experiencing? A: Martin Schroeder (CEO): We've added hundreds and hundreds of new customers. Our most recent wins are tied to our leadership with the Kyndryl Agentic framework, which provides the architecture and delivery framework to industrialize the design, integration, and operations of customer infrastructure. This is supported by Kyndryl Bridge, our control plane that connects tools, workflows, telemetry, and automation, providing customers with 16-18 million insights a month and over 200 million automations a month. We've been aggressive in investing in Kyndryl Consult to get industry expertise and talent. These are complex infrastructures, and customers need someone to integrate, orchestrate, govern, and operate AI models and agents at scale. Our expertise and investments are highly differentiated, giving us a good long-term growth arc. Q: Can you help us understand the evolving partnership with IBM and the impact on revenue performance? A: Harsh (CFO): At the time of the spinoff, approximately 40% of revenue from inherited commercial agreements were in a low to no margin position. Our annual spend with IBM was nearly $4 billion, but over the last 12 months, it was less than $2 billionless than half since the spinoff. During fiscal 2026, especially in the second half, customers increasingly procured certain IBM hardware and software directly from IBM while continuing to rely on Kyndryl for high value services. This pattern has continued into fiscal 2027, creating a similar headwind to our top-line performance. Importantly, these changes do not affect the scope or margin profile of our services, and they have limited impact on our earnings. Our fiscal 2027 outlook assumes similar headwinds throughout the remainder of the year. Q: Can you provide an update on the financial results for the first quarter and the outlook for fiscal 2027? A: Harsh (CFO): In Q1, we generated $3.6 billion of revenue, down 3% year over year on both reported and constant currency basis. For the second consecutive quarter, we delivered 5% revenue growth in the US. We exited the period with For the complete transcript of the earnings call, please refer to the full earnings call transcript.