Kyndryl (KD) Q4 2026 Earnings Call Summary

1Key Financial Results and Metrics

Revenue: $15.1 billion, flat year-over-year on a reported basis; down 3% in constant currency.

Adjusted EBITDA: $2.7 billion with a margin increase of 100 basis points.

Adjusted Pretax Income: $581 million, up 60 basis points year-over-year.

Free Cash Flow: $406 million, exceeding guidance of $325 million to $375 million.

Total Signings: $13.5 billion, impacted by extended sales cycles and evolving relationships with IBM.

Cash Position: $2.6 billion, up $1.3 billion from the previous quarter.

2Strategic Updates and Business Highlights

Kyndryl Consult: Achieved double-digit revenue growth for the third consecutive year, with signings exceeding revenue.

Hyperscaler Revenue: Nearly $2 billion in revenue, a 59% increase year-over-year, indicating strong growth in this segment.

Advanced Delivery Initiative: Focus on embedding AI into operations, resulting in significant productivity improvements and cost savings.

Workforce Rebalancing: Actions expected to yield $400 million to $500 million in annualized savings by fiscal 2028.

Agentic AI: Central to modernization strategies, helping clients navigate complex IT environments and improve operational resilience.

3Forward Guidance and Outlook

Fiscal 2027 Outlook:

Adjusted pretax income expected between $600 million and $700 million.

Revenue anticipated to be flat to down 2% in constant currency.

Continued growth expected from Kyndryl Consult and hyperscaler-related revenue streams.

First quarter of fiscal 2027 expected to be a low point for earnings, with improvement anticipated in subsequent quarters.

Fiscal 2028 Targets: More than $1.2 billion in adjusted pretax income and over $1 billion in free cash flow, with low single-digit revenue growth expected.

4Bad News, Challenges, or Points of Concern

Sales Cycle Elongation: Extended decision-making processes from customers, particularly in the U.K. and strategic markets, impacting revenue and signings.

IBM Relationship: Evolving dynamics with IBM have led to a 3-point adverse impact on revenue performance, with customers increasingly choosing to procure directly from IBM.

Market Complexity: Increased focus on data sovereignty and regulatory compliance is complicating customer decisions and prolonging sales cycles.

Material Weaknesses: Ongoing efforts to address identified material weaknesses in internal controls, with expectations for resolution by the next fiscal year.

5Notable Q&A Insights

Customer Spending Priorities: Customers are increasingly focused on modernization, data sovereignty, and AI deployment, which complicates their purchasing decisions.

Sales Cycle Normalization: Management does not foresee a return to quicker sales cycles due to the complexity of customer environments and choices.

Impact of IBM Dynamics: The evolving relationship with IBM is affecting the size of signings and backlog, but does not impact profitability.

Pipeline Strength: There is confidence in the pipeline, with a notable increase in new scope and high-value services, despite the challenges faced. Overall, Kyndryl is navigating a complex environment with a focus on modernization and AI, while addressing challenges related to customer decision-making and its relationship with IBM. The company remains optimistic about its strategic initiatives and future growth potential.