KD — Kyndryl Holdings, Inc.

Kyndryl Q2 2026 Earnings Call Summary

1. Key Financial Results and Metrics:

• Revenue: $3.7 billion, down 1% year-over-year (3.7% decline in constant currency).
• Kyndryl Consult Revenue: Grew 25% year-over-year in constant currency, now at an annual pace of $3.4 billion.
• Adjusted EBITDA: Increased 15% to $641 million, with a margin of 17.2% (up 250 basis points).
• Adjusted Pretax Income: Rose 171% to $123 million, with a margin increase of 210 basis points.
• Free Cash Flow: Generated $22 million in Q2, with a full-year forecast of approximately $550 million.
• Book-to-Bill Ratio: Maintained above 1 at 104% of last 12 months revenue, indicating strong future revenue potential.

2. Strategic Updates and Business Highlights:

• Focus on Kyndryl Consult and Hyperscaler-related revenues as key growth drivers, with the latter doubling year-over-year.
• Kyndryl Bridge: AI-powered platform enhancing service delivery, achieving over 186 million automations monthly.
• Acquisition Strategy: Announced acquisition of Solvinity, a midsized cloud services provider in Europe, to enhance capabilities in managed private cloud services.
• Customer Engagement: Strong performance in applications, data, AI, and digital workplace practices, with notable growth in Canada, Spain, India, and Latin America.

3. Forward Guidance and Outlook:

• Reaffirmed fiscal year 2026 outlook: targeting at least $725 million in adjusted pretax income and 1% constant currency revenue growth.
• Anticipating stronger second half with expected revenue growth of 4-5%, driven by a larger backlog and increased Kyndryl Consult resources.
• Projected adjusted EBITDA margin for fiscal 2026 at approximately 18%, indicating continued margin expansion.

4. Bad News, Challenges, or Points of Concern:

• Revenue for Q2 was approximately $100 million below expectations, attributed to longer sales cycles and the removal of low-margin hardware/software content, which negatively impacted revenue growth.
• The complexity of expanding scope in contracts is leading to longer decision-making processes from customers, potentially delaying revenue realization.
• Some verticals, such as industrials and public sector, are experiencing lighter activity, which could impact overall growth.

5. Notable Q&A Insights:

• Capital Allocation: Management emphasized a balanced approach to capital allocation, prioritizing investments in business growth, tuck-in acquisitions, and returning capital to shareholders through share repurchases.
• AI Integration: Approximately 25% of current signings include AI-related content, with a focus on enhancing customer operations and modernizing IT infrastructure.
• Sales Cycle Dynamics: While customer decision cycles remain normal, there is increased caution in adding new scope or customers due to the mission-critical nature of Kyndryl’s services.
• Pipeline Confidence: The pipeline is robust, with strong demand for IT modernization and AI, although there is some risk of deals shifting between quarters rather than years.

Overall, Kyndryl's performance reflects a strategic pivot towards higher-margin services and a commitment to leveraging AI and modernization trends, despite facing some near-term revenue challenges.