Kyndryl (KD) - 2026 Q1 - Quarterly Results

Financial Performance Overview First Quarter Fiscal 2026 Financial Highlights 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][5] Business and Strategic Progress 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] - 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] - As part of the Alliances initiative, revenue tied to cloud hyperscalers reached $400 million in the quarter, an 86% year-over-year increase[10] - The company's Advanced Delivery and Accounts initiatives continued to drive earnings growth and margin expansion[10] - The company repurchased 1.8 million shares of its common stock at a cost of $65 million in the first quarter[10] Fiscal Year 2026 Outlook Reaffirmed Fiscal Year 2026 Outlook 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] - The projected pretax margin associated with new signings was in the high-single-digit range, consistent with recent quarters[10] Detailed Financial Statements Consolidated Income Statement 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 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 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 Definitions of Non-GAAP Metrics 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] - 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] - 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] Reconciliation of GAAP to Non-GAAP Metrics 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% |