KD — Kyndryl Holdings, Inc.

Kyndryl Holdings, Inc. Q3 2026 Earnings Call Summary

1. Key Financial Results and Metrics

• Revenue: $3.9 billion, up 3% year-over-year, unchanged in constant currency.
• Adjusted EBITDA: Decreased 1% to $696 million.
• Adjusted Pretax Income: Increased 5% to $168 million.
• Free Cash Flow: Generated $217 million in Q3; revised fiscal 2026 guidance for free cash flow is now $325 million to $375 million.
• Signings: $3.9 billion in new contracts, with a trailing twelve-month revenue book-to-bill ratio above 1.0, totaling $15.4 billion in the last year.
• Hyperscaler Revenue: Achieved $500 million in Q3, a 58% year-over-year increase.

2. Strategic Updates and Business Highlights

• Leadership Change: Harsh Chug appointed as interim CFO.
• Kyndryl Consult: Continued strong performance with 20% year-over-year growth, now representing 25% of total revenue.
• Investment in AI: Ongoing investments in AI capabilities and Kyndryl Bridge to enhance service delivery and operational efficiency.
• Partnership with IBM: Evolving dynamics affecting revenue, with a noted decline in IBM-related spending from $4 billion to $2 billion, impacting growth.
• Focus on Private Cloud: Renewed demand driven by AI, data sovereignty, and security requirements.

3. Forward Guidance and Outlook

• Fiscal 2026 Adjusted Pretax Income: Revised outlook to $575 million to $600 million.
• Adjusted EBITDA Margin: Expected to be approximately 17.5%.
• Long-term Goals: Confidence remains in achieving fiscal 2028 targets, projecting over $1.2 billion in adjusted pretax income and more than $1 billion in adjusted free cash flow.

4. Bad News, Challenges, or Points of Concern

• Sales Cycle Lengthening: Extended sales cycles due to complex customer needs around AI and data sovereignty, impacting revenue expectations.
• UK Operations: Notable challenges in strategic markets, particularly the UK, leading to slower performance.
• Labor Costs: Higher than anticipated due to lower attrition rates, affecting near-term profitability.
• Regulatory Uncertainties: Ongoing review by the SEC regarding cash management practices and internal controls, though no restatement of financials is expected.

5. Notable Q&A Insights

• Sales Cycle Dynamics: Management acknowledged that the elongation of sales cycles is affecting both Kyndryl Consult and hyperscaler growth, with expectations for improvement in the coming quarters.
• IBM Partnership Impact: The evolving consumption model of IBM's services is creating additional complexity, but management remains optimistic about the future growth potential.
• Strategic Market Adjustments: Plans to address challenges in strategic markets, particularly in the UK, with a focus on local hiring and automation to improve efficiency.
• Confidence in Future Growth: Despite current challenges, management expressed confidence in the company’s ability to generate cash flow and achieve long-term growth targets, emphasizing the importance of high-margin contracts in the backlog.

Overall, while Kyndryl reported stable revenue growth and strong performance in certain segments, it faces challenges related to sales cycles, labor costs, and the evolving nature of its partnership with IBM. The company remains focused on strategic investments and operational efficiencies to drive future growth.