Workflow
Kyndryl (KD) - 2026 Q1 - Quarterly Report

Part I - Financial Information Item 1. Consolidated Financial Statements (Unaudited) Kyndryl's unaudited consolidated financial statements for Q1 FY2026 show a significant increase in net income and detailed financial notes Consolidated Financial Statements 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 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 years34 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 structure102 - 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 Program98 - 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 allowances5152 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Kyndryl's financial performance, highlighting stable revenue, increased net income, segment results, and strategic cost-saving initiatives Financial Performance Summary 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 period114 Segment Results 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 contracts123 - The decrease in Principal Markets' adjusted EBITDA was primarily due to a vendor credit received in the prior-year period125 Workforce Rebalancing and Site-Rationalization Charges 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 million131132 - The prior "Fiscal 2025 Program" is expected to reduce payroll, rent, and depreciation costs by more than $200 million in fiscal year 2026135 Financial Position and Cash Flow 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 agreement139 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 withholdings145 Liquidity and Capital Resources 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, 2025154 - Gross proceeds from the sale of trade receivables to third parties were $0.6 billion for the quarter157 - 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 authorization160 Item 3. Quantitative and Qualitative Disclosures About Market Risk 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, 2025166 Item 4. Controls and Procedures 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 report167 - 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 controls168 Part II - Other Information Item 1. Legal Proceedings & Item 1A. Risk Factors 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 Contingencies170 - There have been no material changes to the risk factors previously disclosed in the Form 10-K171 Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities 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) 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 securities174 - During the quarter, no directors or executive officers adopted, terminated, or modified a Rule 10b5-1 trading arrangement176