Core Insights - Kyndryl reported a significant earnings and revenue miss for Q1 FY26, with non-GAAP EPS at $0.37, missing the estimate of $0.83, and GAAP revenue flat at $3.74 billion, missing expectations of $3.92 billion by 4.6% [1][5] - Despite the shortfall, the company achieved a 16% year-over-year increase in adjusted EBITDA and improved profitability, with management reaffirming full-year guidance [1][13] Financial Performance - Non-GAAP EPS was $0.37, missing the estimate of $0.83, and showing a 184.6% increase from $0.13 in Q1 FY25 [2] - GAAP revenue was $3.74 billion, unchanged from the prior year, but below the consensus estimate of $3.92 billion [2] - Adjusted EBITDA reached $647 million, a 16.4% increase from $556 million in Q1 FY25, with adjusted EBITDA margin rising to 17.3% from 14.9% [2][6] - Free cash flow was negative $222 million, reflecting typical seasonal outflows, and higher than the prior year's outflow [2][9] Business Focus and Strategy - Kyndryl specializes in designing, managing, and modernizing IT systems for enterprise clients, focusing on cloud, data management, security, AI, and networking [3] - The company is expanding higher-value services, particularly in consulting and cloud partnerships, and developing AI tools for enterprise clients [4] - Kyndryl Consult saw a revenue increase of 30% year-over-year, with signings for consulting services up 36% [7] Market Trends and Product Development - The hyperscaler alliances, which integrate clients with major cloud providers, generated significant revenue, with cloud-related revenue soaring 86% to $400 million [7][11] - The launch of the Agentic AI Framework aims to help businesses adopt advanced AI solutions, enhancing Kyndryl's position in automation and AI-enabled IT operations [8][11] Future Outlook - Management reaffirmed guidance for FY2026, projecting at least $725 million in adjusted pre-tax income, an adjusted EBITDA margin of approximately 18%, and free cash flow of approximately $550 million [13] - The company emphasizes the importance of converting contract signings into recognized revenue, particularly in consulting and cloud alliance segments [14]

[Part I - Financial Information](index=4&type=section&id=Part%20I%20-%20Financial%20Information) [Item 1. Consolidated Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Consolidated%20Financial%20Statements%20(Unaudited)) Kyndryl's unaudited consolidated financial statements for Q1 FY2026 show a significant increase in net income and detailed financial notes [Consolidated Financial Statements](index=4&type=section&id=Consolidated%20Financial%20Statements) Kyndryl's Q1 FY2026 financial results show stable revenue, a substantial increase in net income, and growth in total assets Consolidated Income Statement Highlights | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :--- | :--- | :--- | | **Revenues** | $3,743 million | $3,739 million | | **Income before income taxes** | $92 million | $64 million | | **Net income** | $56 million | $11 million | | **Diluted earnings per share** | $0.23 | $0.05 | Consolidated Balance Sheet Summary | Metric | June 30, 2025 | March 31, 2025 | | :--- | :--- | :--- | | **Total current assets** | $4,468 million | $4,589 million | | **Total assets** | $11,495 million | $10,452 million | | **Total current liabilities** | $4,242 million | $4,300 million | | **Total liabilities** | $10,151 million | $9,121 million | | **Total equity** | $1,343 million | $1,331 million | Consolidated Statement of Cash Flows Summary | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :--- | :--- | :--- | | **Net cash provided by (used in) operating activities** | ($124) million | ($48) million | | **Net cash used in investing activities** | ($74) million | ($166) million | | **Net cash used in financing activities** | ($170) million | ($51) million | | **Net change in cash, cash equivalents and restricted cash** | ($323) million | ($281) million | [Notes to Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Detailed notes on accounting policies, segment performance, and strategic initiatives, including workforce rebalancing and share repurchases, are provided - At June 30, 2025, the aggregate amount of remaining performance obligations (RPO) related to customer contracts was **$34.8 billion**. Approximately **57%** is expected to be recognized as revenue in the next two years[34](index=34&type=chunk) Segment Adjusted EBITDA | Segment | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :--- | :--- | :--- | | United States | $196 million | $133 million | | Japan | $115 million | $83 million | | Principal Markets | $197 million | $241 million | | Strategic Markets | $163 million | $120 million | | **Total Segments** | **$672 million** | **$577 million** | - The company initiated a new workforce rebalancing program (Fiscal 2026 Program) during the quarter, expecting to incur approximately **$80 million** in charges to reduce its cost structure[102](index=102&type=chunk) - During the quarter, the company repurchased **1.8 million shares** of its common stock for an aggregate cost of **$65 million** under its Share Repurchase Program[98](index=98&type=chunk) - The effective tax rate for the quarter was **39.1%**, a significant decrease from **82.7%** in the prior-year period, primarily due to taxes on foreign operations and valuation allowances[51](index=51&type=chunk)[52](index=52&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=33&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Kyndryl's financial performance, highlighting stable revenue, increased net income, segment results, and strategic cost-saving initiatives [Financial Performance Summary](index=33&type=section&id=Financial%20Performance%20Summary) Kyndryl's Q1 FY2026 revenue remained flat, while net income significantly increased due to lower taxes and reduced charges Q1 FY2026 Financial Highlights | Metric | Q1 FY2026 (ended June 30, 2025) | Q1 FY2025 (ended June 30, 2024) | | :--- | :--- | :--- | | **Revenue** | $3,743 million | $3,739 million | | **Revenue Growth (GAAP)** | 0% | (11)% | | **Revenue Growth (Constant Currency)** | (3)% | (8)% | | **Net Income** | $56 million | $11 million | | **Adjusted EBITDA** | $647 million | $556 million | - The **$45 million** increase in net income was primarily due to a lower provision for income taxes, reduced workforce rebalancing charges, and no transaction-related costs in the current period[114](index=114&type=chunk) [Segment Results](index=34&type=section&id=Segment%20Results) Segment analysis reveals varied performance, with total adjusted EBITDA increasing by **16%** despite revenue declines in some markets, driven by efficiency gains and specific market dynamics Segment Performance (YoY Change) | Segment | Revenue Change | Adjusted EBITDA Change | | :--- | :--- | :--- | | United States | (8)% | +48% | | Japan | +2% | +39% | | Principal Markets | +3% | (18)% | | Strategic Markets | +3% | +36% | | **Total** | **0%** | **+16%** | - The decline in U.S. revenue was driven by efforts to reduce low-margin revenues and the expiration of certain pre-spin-off contracts[123](index=123&type=chunk) - The decrease in Principal Markets' adjusted EBITDA was primarily due to a vendor credit received in the prior-year period[125](index=125&type=chunk) [Workforce Rebalancing and Site-Rationalization Charges](index=37&type=section&id=Workforce%20Rebalancing%20and%20Site-Rationalization%20Charges) The company initiated a new workforce rebalancing program, incurring **$25 million** in charges this quarter, aiming for significant annual payroll savings alongside ongoing benefits from a prior program - A new "Fiscal 2026 Program" was initiated, with **$25 million** in charges taken in the quarter. Total expected charges are **~$80 million**, with expected annual savings of over **$100 million**[131](index=131&type=chunk)[132](index=132&type=chunk) - The prior "Fiscal 2025 Program" is expected to reduce payroll, rent, and depreciation costs by more than **$200 million** in fiscal year 2026[135](index=135&type=chunk) [Financial Position and Cash Flow](index=39&type=section&id=Financial%20Position%20and%20Cash%20Flow) Total assets increased by **$1.0 billion** due to deferred costs, while net cash used in operating and financing activities significantly increased due to share repurchases and tax withholdings - Total assets increased by **$1.0 billion**, primarily driven by a **$1.1 billion** increase in deferred costs related to an extended multi-year, third-party software agreement[139](index=139&type=chunk) Cash Flow Summary | Cash Flow Activity | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :--- | :--- | :--- | | **Operating Activities** | ($124) million | ($48) million | | **Investing Activities** | ($74) million | ($166) million | | **Financing Activities** | ($170) million | ($51) million | - The increase in cash used for financing activities was mainly due to **$65 million** in share repurchases and **$67 million** of shares repurchased to settle tax withholdings[145](index=145&type=chunk) [Liquidity and Capital Resources](index=41&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains sufficient liquidity through existing cash and an undrawn **$3.15 billion** revolving credit facility, while actively managing capital through trade receivable sales and share repurchases - The company's **$3.15 billion** multi-currency revolving credit agreement was amended to extend its maturity to March 2030. It remained undrawn as of June 30, 2025[154](index=154&type=chunk) - Gross proceeds from the sale of trade receivables to third parties were **$0.6 billion** for the quarter[157](index=157&type=chunk) - During the quarter, **1.8 million shares** were repurchased for **$65 million**. As of June 30, 2025, **$141 million** remained available under the **$300 million** share repurchase authorization[160](index=160&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=47&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) No material changes to the company's market risk disclosures have occurred since the prior fiscal year's Form 10-K filing - There have been no material changes to the Company's disclosure about market risk since the Form 10-K for the fiscal year ended March 31, 2025[166](index=166&type=chunk) [Item 4. Controls and Procedures](index=47&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective, with no material changes to internal control over financial reporting during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of the end of the period covered by this report[167](index=167&type=chunk) - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal controls[168](index=168&type=chunk) [Part II - Other Information](index=48&type=section&id=Part%20II%20-%20Other%20Information) [Item 1. Legal Proceedings & Item 1A. Risk Factors](index=48&type=section&id=Item%201.%20Legal%20Proceedings%20%26%20Item%201A.%20Risk%20Factors) Information on legal proceedings is referenced in Note 10, with no material changes to previously disclosed risk factors - Information regarding legal proceedings is available in Note 10 – Commitments and Contingencies[170](index=170&type=chunk) - There have been no material changes to the risk factors previously disclosed in the Form 10-K[171](index=171&type=chunk) [Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities](index=48&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%2C%20Use%20of%20Proceeds%2C%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company repurchased **1,779,698 shares** of common stock for **$65 million** under its **$300 million** Share Repurchase Program, with **$141 million** remaining available Common Stock Repurchases (Q1 FY2026) | Period | Total Shares Repurchased | Average Price Paid Per Share | Approximate Dollar Value Remaining (in millions) | | :--- | :--- | :--- | :--- | | April 2025 | 595,693 | $30.23 | $188 | | May 2025 | 339,241 | $36.97 | $175 | | June 2025 | 844,764 | $40.78 | $141 | | **Total** | **1,779,698** | **N/A** | **$141** | [Other Items (Items 3, 4, 5, 6)](index=48&type=section&id=Other%20Items%20(Items%203%2C%204%2C%205%2C%206)) The company reported no defaults on senior securities, confirmed no Rule 10b5-1 trading arrangement changes by officers, and included a list of filed exhibits - The company reported no defaults upon senior securities[174](index=174&type=chunk) - During the quarter, no directors or executive officers adopted, terminated, or modified a Rule 10b5-1 trading arrangement[176](index=176&type=chunk)

Core Insights - Kyndryl has announced a strategic collaboration with Nova Intelligence to enhance its SAP Services by integrating AI-driven solutions for faster customer migration to SAP Cloud ERP and achieving cost savings [1][2][4] Partnership Details - The partnership aims to combine Kyndryl's SAP modernization and data transformation services with Nova Intelligence's AI solutions to facilitate quicker and more cost-effective transformations for enterprise customers [2][4] - Kyndryl will utilize Nova Intelligence's AI capabilities to modernize legacy custom code into compliant applications, thereby supporting customers on their SAP Clean Core journey [3][4] Technology and Benefits - Nova Intelligence's AI agents will accelerate the documentation, simplification, generation, and unit testing of custom code, which, when combined with Kyndryl's services, will help customers achieve Clean Core compliance and reduce risks [4] - Kyndryl has already applied Nova Intelligence AI agents to modernize its own legacy SAP applications, resulting in significant reductions in manual development work and transformation costs [5] Company Background - Kyndryl is a leading provider of mission-critical enterprise technology services, offering advisory, implementation, and managed service capabilities globally [7] - Nova Intelligence is recognized as the first provider of a multi-agent platform for SAP transformations, led by a team with extensive experience in SAP projects [8]

Financial Data and Key Metrics Changes - In Q1 2026, revenue totaled $3.7 billion, reflecting a slight increase from the prior year quarter on a reported basis, but a 2.6% decline in constant currency due to focus accounts initiative [21][22] - Adjusted pre-tax income grew 39% to $128 million, with an adjusted pre-tax margin increasing by 100 basis points year over year [22][31] - Adjusted EBITDA was $647 million, with an adjusted EBITDA margin of 17.3%, up 240 basis points year over year [22][31] Business Line Data and Key Metrics Changes - Kindrel Consult revenues grew 30% year over year, indicating strong growth in higher-margin advisory services [21][22] - Hyperscaler-related revenue nearly doubled from a year ago to $400 million in Q1, progressing towards a fiscal 2026 target of $1.8 billion [8][23] - Aggregate signings increased by 2% year over year, totaling $18.3 billion, a 43% increase from the previous year [22][29] Market Data and Key Metrics Changes - The company reported a book-to-bill ratio above 1%, indicating strong demand for services and a healthy pipeline [8][22] - The focus accounts initiative has increased cumulative annualized profit from these accounts by $25 million to $925 million [24][46] Company Strategy and Development Direction - The company is focused on driving margin expansion and sustainable profitable growth through strategic initiatives, including partnerships and innovation in AI, cloud, and cybersecurity [5][8] - Investments in technology alliances and advanced delivery initiatives are central to the company's strategy, enhancing service delivery and operational efficiency [9][23] - The company aims to achieve over $1 billion in adjusted free cash flow and $1.2 billion in adjusted pre-tax income by fiscal 2028, requiring mid-single-digit revenue growth [19][31] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to achieve financial and operational goals, citing strong customer demand and a solid pipeline [20][75] - The outlook for fiscal 2026 includes expectations for approximately $550 million in free cash flow and positive 1% constant currency revenue growth [19][32] - Management highlighted the importance of AI adoption and modernization initiatives as key drivers of future growth [16][68] Other Important Information - The company repurchased 1.8 million shares at a cost of $65 million during the quarter, with $141 million remaining under the share repurchase authorization [26][50] - The cash balance at June 30 was $1.5 billion, with a net leverage ratio of 0.6 times adjusted EBITDA, indicating a strong financial position [26][27] Q&A Session Summary Question: How did first quarter revenue come in versus planned? - Management indicated good momentum in growth vectors, with Kindrel Consult showing strong growth and a healthy pipeline supporting future revenue [35][37] Question: What trends have been noticed among focus accounts? - Management noted that while some deals were pushed out, they are confident in the ongoing progress and innovation being delivered to these accounts [43][46] Question: What catalysts could drive margin expansion beyond account renegotiation? - Management highlighted the increasing contribution of new contracts to the P&L, reduced software cost increases, and improved efficiency in SG&A as key factors for margin expansion [53][56] Question: What is the visibility on the triple, double, single strategy? - Management expressed strong visibility into achieving the triple, double, single goals, citing a solid cash flow forecast and a favorable margin outlook [64][72]

Financial Data and Key Metrics Changes - In Q1 2026, revenue totaled $3.7 billion, reflecting a slight increase from the prior year but a 2.6% decline in constant currency, primarily due to the focus accounts initiative [21][22] - Adjusted pre-tax income grew 39% to $128 million, with an adjusted pre-tax margin increasing by 100 basis points year over year [22][31] - Adjusted EBITDA was $647 million, with an adjusted EBITDA margin of 17.3%, up 240 basis points year over year [22][31] Business Line Data and Key Metrics Changes - Kindrel Consult revenues grew 30% year over year, indicating strong growth in higher-margin advisory services [21][31] - Hyperscaler-related revenue nearly doubled to $400 million in Q1, progressing towards a fiscal 2026 target of $1.8 billion [9][23] - Aggregate signings increased by 43% year over year to $18.3 billion, with a book-to-bill ratio above 1 [22][30] Market Data and Key Metrics Changes - The company reported a 44% increase in signings in constant currency over the last twelve months, with strong performance in the US market [9][22] - The focus accounts initiative has increased cumulative annualized profit from these accounts by $25 million to $925 million [24][46] Company Strategy and Development Direction - The company is focused on expanding its capabilities in AI, cloud migration, and cybersecurity, positioning itself as a key partner in IT modernization [10][12] - Strategic initiatives include leveraging technology alliances, advanced delivery, and enhancing the Kindrel Consult and Kindrel Bridge offerings [10][19] - The company aims to achieve over $1 billion in adjusted free cash flow and $1.2 billion in adjusted pre-tax income by fiscal 2028, requiring mid-single-digit revenue growth [19][31] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving fiscal 2026 targets, expecting revenue growth to accelerate from Q1 to Q2 and further in the second half of the year [20][32] - The company anticipates generating approximately $550 million in free cash flow for the fiscal year, with a strong conversion of earnings to cash flow [32][33] - Management highlighted the importance of innovation and customer relationships in driving future growth [10][80] Other Important Information - The company repurchased 1.8 million shares at a cost of $65 million during the quarter, with $141 million remaining under the share repurchase authorization [26][51] - The cash balance at June 30 was $1.5 billion, with a net leverage ratio of 0.6 times adjusted EBITDA [26][27] Q&A Session Summary Question: How did Q1 revenue come in versus planned, and what is the growth cadence for the rest of the year? - Management indicated good momentum in growth vectors, with Kindrel Consult showing strong growth and a solid pipeline for the year [35][39] Question: What trends have been noticed among focus accounts, and what is the confidence level for signings this quarter? - Management noted that while some deals were pushed out, progress continues, and they expect to close some transactions in Q2 [44][50] Question: What are the catalysts for margin expansion beyond account renegotiation? - Management highlighted the increasing contribution of their own margins to the P&L and improved efficiency in SG&A as key factors for margin expansion [55][59] Question: How does the company articulate the opportunity of AI-related technology transitions? - Management emphasized that AI presents both cost-saving and revenue opportunities, with Kindrel Bridge leveraging AI to enhance service delivery [66][70] Question: What is the visibility on the triple, double, single strategy? - Management expressed strong visibility on achieving the triple, double, single goals, supported by a solid cash flow forecast and growth in key business areas [72][76]

Group 1 - U.S. stock futures are higher, with Dow futures gaining around 0.1% [1] - Inspire Medical Systems, Inc. shares fell 25% to $98.00 in pre-market trading after reporting second-quarter results and cutting FY25 guidance below estimates [1] - Ichor Holdings, Ltd. declined 24.3% to $15.24 in pre-market trading due to worse-than-expected second-quarter adjusted EPS results and below-estimate third-quarter adjusted EPS guidance [3] Group 2 - Gartner, Inc. shares fell 15% to $287.20 after issuing soft FY25 guidance [3] - Vertex Pharmaceuticals Incorporated declined 14.5% to $403.85 following second-quarter financial results and Vx-993 Phase 2 trial results [3] - Semrush Holdings, Inc. fell 14.1% to $7.91 after reporting a second-quarter EPS miss [3] - Navitas Semiconductor Corporation shares dropped 14.1% to $6.92 after issuing third-quarter sales guidance below estimates [3] - Kyndryl Holdings, Inc. fell 12.2% to $32.21 after reporting a first-quarter revenue miss [3]

[Financial Performance Overview](index=1&type=section&id=Financial%20Performance%20Overview) [First Quarter Fiscal 2026 Financial Highlights](index=1&type=section&id=First%20Quarter%20Fiscal%202026%20Financial%20Highlights) For the first quarter of fiscal year 2026, Kyndryl reported revenues of $3.74 billion, a slight year-over-year increase on a reported basis but a 2.6% decrease in constant currency, demonstrating significant profitability improvement with pretax income rising 44% to $92 million and net income surging to $56 million from $11 million in the prior year, while Adjusted EBITDA grew 16% to $647 million, reflecting strong operational performance driven by strategic initiatives Q1 FY2026 Key Financial Results (GAAP) | Metric | Q1 FY2026 | Q1 FY2025 | Change | | :--- | :--- | :--- | :--- | | Revenues | $3.74 billion | $3.74 billion | ~0% | | Pretax Income | $92 million | $64 million | +44% | | Net Income | $56 million | $11 million | +409% | | Diluted EPS | $0.23 | $0.05 | +360% | Q1 FY2026 Key Financial Results (Adjusted, Non-GAAP) | Metric | Q1 FY2026 | Q1 FY2025 | Change | | :--- | :--- | :--- | :--- | | Adjusted Pretax Income | $128 million | $92 million | +39% | | Adjusted Net Income | $90 million | $31 million | +190% | | Adjusted Diluted EPS | $0.37 | $0.13 | +185% | | Adjusted EBITDA | $647 million | $556 million | +16% | - Cash used from operations was **$124 million**, and free cash flow was a use of **$222 million**, reflecting typical seasonal outflows for the first fiscal quarter[4](index=4&type=chunk)[5](index=5&type=chunk) [Business and Strategic Progress](index=1&type=section&id=Business%20and%20Strategic%20Progress) Kyndryl demonstrated strong business momentum with a 43% year-over-year increase in trailing twelve-month signings, reaching $18.3 billion, driven by strategic initiatives including a 30% revenue increase in Kyndryl Consult and an 86% surge in revenue from hyperscaler alliances, while also advancing AI capabilities by launching the Kyndryl Agentic AI Framework and continuing its capital return program by repurchasing $65 million in shares - Signings for the trailing twelve months were **$18.3 billion**, representing a **43% year-over-year increase**[7](index=7&type=chunk) - Kyndryl Consult revenues grew **30% year-over-year** in the first quarter, with signings for this segment growing **36%** over the last twelve months[10](index=10&type=chunk) - As part of the Alliances initiative, revenue tied to cloud hyperscalers reached **$400 million** in the quarter, an **86% year-over-year increase**[10](index=10&type=chunk) - The company's Advanced Delivery and Accounts initiatives continued to drive earnings growth and margin expansion[10](index=10&type=chunk) - The company repurchased **1.8 million shares** of its common stock at a cost of **$65 million** in the first quarter[10](index=10&type=chunk) [Fiscal Year 2026 Outlook](index=2&type=section&id=Fiscal%20Year%202026%20Outlook) [Reaffirmed Fiscal Year 2026 Outlook](index=2&type=section&id=Reaffirmed%20Fiscal%20Year%202026%20Outlook) Kyndryl reaffirmed its full-year outlook for fiscal 2026, signaling confidence in its strategic direction, expecting constant-currency revenue growth of 1%, a significant increase in profitability with adjusted pretax income of at least $725 million, an adjusted EBITDA margin of approximately 18%, and strong free cash flow generation of approximately $550 million Fiscal Year 2026 Full-Year Guidance | Metric | Outlook | | :--- | :--- | | Constant-Currency Revenue Growth | 1% | | Adjusted Pretax Income | At least $725 million | | Adjusted EBITDA Margin | Approximately 18% | | Free Cash Flow | Approximately $550 million | - The company is progressing well toward its hyperscaler revenue target of **$1.8 billion** in fiscal 2026[10](index=10&type=chunk) - The projected pretax margin associated with new signings was in the **high-single-digit range**, consistent with recent quarters[10](index=10&type=chunk) [Detailed Financial Statements](index=6&type=section&id=Detailed%20Financial%20Statements) [Consolidated Income Statement](index=6&type=section&id=Consolidated%20Income%20Statement) For the quarter ended June 30, 2025, revenues remained flat year-over-year at approximately $3.74 billion, however, income before taxes increased to $92 million from $64 million in the prior year, primarily due to controlled expenses and a significant reduction in the provision for income taxes, which fell from $53 million to $36 million, resulting in a substantial increase in net income to $56 million, or $0.23 per diluted share Consolidated Income Statement Highlights (in millions) | Line Item | Q1 FY2026 | Q1 FY2025 | | :--- | :--- | :--- | | Revenues | $3,743 | $3,739 | | Total costs and expenses | $3,651 | $3,675 | | Income before income taxes | $92 | $64 | | Provision for income taxes | $36 | $53 | | **Net income** | **$56** | **$11** | [Segment Results and Balance Sheet](index=7&type=section&id=Segment%20Results%20and%20Balance%20Sheet) Revenue performance varied geographically, with the United States segment declining 8%, while Principal Markets and Strategic Markets both grew 3% on a reported basis, and Japan's revenue increased 2% as reported but fell 6% in constant currency, with total adjusted EBITDA growing to $647 million from $556 million, and the company ending the quarter with $1.46 billion in cash and equivalents and $3.14 billion in total debt Revenue by Segment (in millions) | Segment | Q1 FY2026 | Q1 FY2025 | YoY Growth (Reported) | YoY Growth (Constant Currency) | | :--- | :--- | :--- | :--- | :--- | | United States | $911 | $986 | (8%) | (8%) | | Japan | $578 | $569 | 2% | (6%) | | Principal Markets | $1,356 | $1,315 | 3% | (1%) | | Strategic Markets | $898 | $869 | 3% | 3% | | **Total revenue** | **$3,743** | **$3,739** | **0%** | **(3%)** | Selected Balance Sheet Data (in millions) | Item | June 30, 2025 | March 31, 2025 | | :--- | :--- | :--- | | Cash and equivalents | $1,462 | $1,786 | | Debt (short-term and long-term) | $3,141 | $3,172 | [Consolidated Statement of Cash Flows](index=8&type=section&id=Consolidated%20Statement%20of%20Cash%20Flows) In the first quarter, net cash used in operating activities was $124 million, an increase from the $48 million used in the prior-year period, largely influenced by changes in deferred costs and other liabilities, with investing activities using $74 million, a decrease from the prior year, and financing activities using $170 million, which included $62 million for common stock repurchases, resulting in the company ending the period with $1.47 billion in cash, cash equivalents, and restricted cash Cash Flow Summary (in millions) | Cash Flow Activity | Q1 FY2026 | Q1 FY2025 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $(124) | $(48) | | Net cash used in investing activities | $(74) | $(166) | | Net cash used in financing activities | $(170) | $(51) | | **Net change in cash, cash equivalents and restricted cash** | **$(323)** | **$(281)** | [Non-GAAP Financial Measures and Reconciliations](index=9&type=section&id=Non-GAAP%20Financial%20Measures%20and%20Reconciliations) [Definitions of Non-GAAP Metrics](index=9&type=section&id=Definitions%20of%20Non-GAAP%20Metrics) This section defines the non-GAAP financial measures Kyndryl uses to supplement its GAAP results, including Adjusted Pretax Income, Adjusted EBITDA, and Free Cash Flow, which exclude items such as transaction-related costs, stock-based compensation, and certain amortization expenses, providing better insight into operational performance and comparability with peers, while also defining Signings as an estimate of a customer's commitment value under a contract - Adjusted EBITDA is defined as net income excluding items like net interest expense, taxes, depreciation, amortization, transaction-related costs, and stock-based compensation[32](index=32&type=chunk) - Free Cash Flow is defined as cash flows from operating activities less net capital expenditures, with adjusted free cash flow further adding back certain payments like transaction-related costs[35](index=35&type=chunk) - Signings are an initial estimate of the value of a customer's commitment under a contract, used by management to monitor business performance and customer engagement[36](index=36&type=chunk) [Reconciliation of GAAP to Non-GAAP Metrics](index=10&type=section&id=Reconciliation%20of%20GAAP%20to%20Non-GAAP%20Metrics) This section provides detailed reconciliations of GAAP to non-GAAP results, showing that for Q1 FY2026, GAAP pretax income of $92 million was adjusted for items like stock-based compensation ($24 million) to arrive at an adjusted pretax income of $128 million, GAAP net income of $56 million was adjusted to $90 million, and cash flow from operations of -$124 million resulted in a free cash flow of -$222 million, with signings for the quarter at $3.2 billion and trailing twelve-month signings reaching $18.3 billion, a 43% increase Reconciliation of Net Income to Adjusted Pretax Income & EBITDA (in millions) | Line Item | Q1 FY2026 | Q1 FY2025 | | :--- | :--- | :--- | | Pretax income (GAAP) | $92 | $64 | | Stock-based compensation expense | $24 | $24 | | Other adjustments | $12 | $(12) | | **Adjusted pretax income (non-GAAP)** | **$128** | **$92** | | **Adjusted EBITDA (non-GAAP)** | **$647** | **$556** | Reconciliation of Operating Cash Flow to Free Cash Flow (in millions) | Line Item | Q1 FY2026 | Q1 FY2025 | | :--- | :--- | :--- | | Cash flows from operating activities (GAAP) | $(124) | $(48) | | Less: Net capital expenditures | $(97) | $(98) | | **Free cash flow (non-GAAP)** | **$(222)** | **$(145)** | Signings (in billions) | Period | Q1 FY2026 | Q1 FY2025 | YoY Growth | | :--- | :--- | :--- | :--- | | Three Months Ended June 30 | $3.2 | $3.1 | +2% | | Last Twelve Months Ended June 30 | $18.3 | $12.8 | +43% |

Core Insights - Kyndryl reported steady progress in key growth areas, including Kyndryl Consult and hyperscaler-related activities, contributing to innovation and growth opportunities [2][3] - The company reaffirmed its fiscal 2026 outlook, targeting adjusted pretax income of at least $725 million, a year-over-year increase of at least $243 million [8] Financial Performance - For the first quarter ended June 30, 2025, Kyndryl reported revenues of $3.74 billion, a slight increase year-over-year, but down 2.6% in constant currency [3][9] - Pretax income was $92 million, a 44% increase from $64 million in the prior-year period, while net income rose to $56 million, or $0.23 per diluted share, compared to $11 million, or $0.05 per diluted share, in the prior-year period [3][9] - Adjusted pretax income was $128 million, a 39% increase from $92 million in the prior-year period, and adjusted net income was $90 million, or $0.37 per diluted share, compared to $31 million, or $0.13 per diluted share, in the prior-year period [4][9] Operational Highlights - Kyndryl's signings for the trailing twelve months reached $18.3 billion, representing a year-over-year increase of 43% [5][9] - Hyperscaler-related revenue generated $400 million in the first quarter, an 86% year-over-year increase, with a target of $1.8 billion in fiscal 2026 [10] - Kyndryl Consult experienced a 30% year-over-year revenue growth in the first quarter, with signings growing 36% over the last twelve months [10] Strategic Initiatives - The company is focused on its three-A initiatives: Alliances, Advanced Delivery, and Accounts, which are driving earnings growth and margin expansion [4][10] - Kyndryl launched the Agentic AI Framework in July, enabling customers to adopt and scale AI solutions across various IT settings [10] Shareholder Returns - Kyndryl repurchased 1.8 million shares at a cost of $65 million in the first quarter, as part of a $300 million share repurchase program authorized in November 2024 [10]

Core Viewpoint - Kyndryl (KD) is set to report its first-quarter fiscal 2026 results on August 4, with expectations of revenue growth driven by consulting services and cost-cutting initiatives [1][11]. Revenue Expectations - The Zacks Consensus Estimate for Kyndryl's revenues is $3.8 billion, reflecting a 1.6% year-over-year increase, primarily attributed to strong performance in Kyndryl Consult [2][11]. - The growth is supported by ongoing demand in security and resiliency, as well as capabilities in data discovery, data integrity, AI assessment, and governance programs [2]. Strategic Alliances and Competitive Edge - The expansion of Kyndryl's alliances with hyperscalers and leading technology providers, along with the advantages provided by AI-powered Kyndryl Bridge operating platforms, is expected to enhance revenue [3]. Earnings Projections - The consensus estimate for earnings is 37 cents per share, indicating a more than 100% increase from the same quarter last year, driven by strong margins and cost reductions from advanced delivery initiatives [4][11]. Earnings Prediction Model - Current analysis indicates that Kyndryl does not have a conclusive prediction for an earnings beat, with an Earnings ESP of -4.05% and a Zacks Rank of 2 (Buy) [5].

Core Insights - Kyndryl Holdings, Inc. (KD) and AppLovin (APP) are being compared for their value to investors in the Technology Services sector [1] - KD has a Zacks Rank of 2 (Buy) while APP has a Zacks Rank of 3 (Hold), indicating a more favorable earnings outlook for KD [3] Valuation Metrics - KD has a forward P/E ratio of 17.78, significantly lower than APP's forward P/E of 44.28 [5] - KD's PEG ratio is 0.71, while APP's PEG ratio is 2.21, suggesting that KD is expected to grow earnings at a more favorable rate relative to its price [5] - KD's P/B ratio is 6.9 compared to APP's P/B of 218.13, indicating that KD is more reasonably valued in terms of its book value [6] Investment Conclusion - Based on stronger estimate revision activity and more attractive valuation metrics, KD is considered the superior investment option for value investors at this time [7]