Core Insights - Kyndryl has launched new AI-powered services that enhance managed services delivery for IBM Z customers, combining mainframe expertise with agentic AI and hybrid IT capabilities to improve application development and operational agility [1][2][3] AI-Powered Services - The new agentic AI mainframe services are designed to help IBM z/OS customers adopt innovative technologies, facilitating faster decision-making and simplifying complex processes in application and infrastructure management [2][3] - Kyndryl's AI services integrate with the Kyndryl Bridge platform, providing intelligent automation, predictive analytics, and insights across mainframe infrastructure and applications [4][5] Collaboration and Expertise - Kyndryl collaborates with IBM to enhance AI capabilities in core business systems, enabling clients to leverage advanced AI on mainframes for improved decision-making and operational agility [5][6] - The company utilizes its intellectual property and expertise in mainframe transformation, along with technologies from cloud hyperscalers, to drive innovation for customers [6][7] Market Insights - According to Kyndryl's 2025 State of Mainframe Modernization Survey, 88% of respondents have implemented or plan to implement AI in their mainframe environments, with expected benefits including increased business agility (37%), faster operational actions (32%), and cost savings (31%) [8][9] - The survey predicts that AI will generate $12.7 billion in cost savings and $19.5 billion in increased revenues over the next three years, with key use cases in performance enhancement, fraud detection, and security [9]

Core Insights - Kyndryl has renewed its partnership with Vodafone Idea (Vi) for three years, focusing on transforming Vi's IT operations and enhancing cybersecurity measures [1][3] - The collaboration aims to implement a next-generation IT operations delivery model that emphasizes automation and data-driven insights, leading to improved service delivery and operational efficiency [2][4] Company Collaboration - Kyndryl will develop a cyber resilience framework for Vi, which includes security governance, zero-touch services, data protection, and incident recovery services [1][3] - The partnership will leverage Kyndryl Bridge, an AI-powered integration platform, which has already deployed over 1,000 automations at Vi, reducing delivery event noise by 15% [2][3] Strategic Objectives - The collaboration is designed to align Vi's IT strategy with its business objectives, maximizing returns on IT investments and accelerating the time-to-market for new digital services [4] - Kyndryl's expertise in managing mission-critical systems has been recognized by Vi, highlighting the importance of this partnership in driving business agility and operational efficiencies [3]

Core Insights - Kyndryl has been recognized as a Leader in the 2025 Gartner Magic Quadrant for Data Center Outsourcing Services, highlighting its strong execution capabilities and innovative solutions [1][2][5] - The report evaluates 17 global providers based on their Ability to Execute and Completeness of Vision, with Kyndryl demonstrating significant strengths in both areas [1][4] Company Capabilities - Kyndryl's AI-powered solutions, particularly through Kyndryl Bridge, are designed to deliver real-time insights and drive customer outcomes in complex IT environments [2][3] - The company emphasizes a shift from traditional infrastructure management to AI-led capability orchestration, which is seen as a critical evolution in data center services [3] - Kyndryl offers a comprehensive suite of services that includes deployment, consolidation, optimization, and managed services for various IT infrastructures, including data centers and private clouds [3][4] Market Position - Gartner describes Leaders as those who not only perform skillfully but also shape the market with a clear vision of its direction, which includes digital transformation and intelligent automation [4] - Kyndryl's strategic approach combines advisory-led delivery with managed services, aligning IT solutions with customer business priorities [8] Industry Context - The data center outsourcing services market is evolving rapidly, driven by increasing demands for AI capabilities and digital transformation [3] - Kyndryl's expertise in IBM Z and Power systems positions it well to support customers in modernizing and optimizing their core systems [8]

Financial Data and Key Metrics Changes - Revenue for the second quarter totaled $3.7 billion, down 1% from the prior year quarter on a reported basis and 3.7% in constant currency [22] - Adjusted EBITDA increased 15% year over year to $641 million, with an Adjusted EBITDA margin of 17.2%, up 250 basis points year over year [23] - Adjusted Pre-Tax Income grew 171% to $123 million, with an Adjusted Pre-Tax margin increasing by 210 basis points year over year [23] - Free cash flow generated in the second quarter was $22 million, with a cash balance of $1.3 billion at the end of the quarter [26][31] Business Line Data and Key Metrics Changes - Kyndryl Consult revenues grew 32% in constant currency over the last 12 months, now running at an annual pace of $3.4 billion [10] - Hyperscaler-related revenues doubled since last year, tracking above the initial $1.8 billion fiscal 2026 target [10] - The last 12 months signings total was $15.6 billion, giving a book to bill ratio above 1 [22] Market Data and Key Metrics Changes - Strongest geographies for growth included Canada, Spain, India, and Latin America [10] - Fastest growing practices were in applications, data and AI, and digital workplace [22] Company Strategy and Development Direction - The company is focused on margin expansion and has removed low-margin hardware and software content from customer relationships, which is expected to lead to positive constant currency revenue growth [5][9] - The strategy includes expanding Kyndryl Consult capabilities and alliances, driving scope expansion with existing customers, and adding new logos [8][13] - The company aims to achieve fiscal year 2028 objectives, including over $1 billion in adjusted free cash flow and more than $1.2 billion in adjusted pre-tax income [19] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving revenue growth in the second half of the year, supported by a record pipeline and committed backlog [6][34] - The demand for IT modernization, AI, and cybersecurity is driving customer demand for Kyndryl's services [13][33] - Management noted that customer decision cycles remain normal, with a cautious approach due to the mission-critical nature of services [58] Other Important Information - The company announced a $400 million increase in its share repurchase program, reflecting confidence in its earnings trajectory and cash flow growth [26] - The company is pursuing tuck-in acquisitions, with a recent agreement to acquire a midsize cloud services provider in Europe [20][54] Q&A Session Summary Question: Capital allocation opportunities for the company - Management highlighted the balance between investing in the business, accelerating capabilities, and returning capital to shareholders through share repurchases [40][41] Question: AI's impact on competitive position - About 25% of signings have AI-related content, with a focus on data architecture and migration services to support customer AI models [42][46] Question: Insights on customer decision cycles - Management noted that decision-making remains cautious but normal, especially when adding new scope or customers [58] Question: Revenue expectations and risks - Management indicated that the second half has a stronger contracted backlog and investments in consult resources will drive acceleration [66] Question: Strong verticals and examples of expanded scope - Strongest verticals include retail, travel, and technology, with examples of expanding services into new geographies and additional cybersecurity content [70][72]

Financial Performance & Outlook - Kyndryl's Q2 2026 adjusted EBITDA reached $641 million, a year-over-year increase from $557 million in Q2 2025[43] - The adjusted EBITDA margin increased by 250 basis points, reaching 17.2% in Q2 2026 compared to 14.8% in Q2 2025[43] - Adjusted pretax income for Q2 2026 was $123 million, significantly up from $45 million in Q2 2025[43] - The company reaffirms its fiscal year 2026 outlook, projecting adjusted pretax income of at least $725 million, a year-over-year increase of at least 50%[51] - Kyndryl anticipates approximately 1% constant-currency revenue growth for fiscal year 2026[51] Growth Drivers - Kyndryl Consult revenue reached $3.4 billion (LTM Sept 2025), a 32% increase compared to $2.5 billion (LTM Sept 2024)[19] - Hyperscaler-related revenue increased by 94%, reaching $1.5 billion (LTM Sept 2025) compared to $0.8 billion (LTM Sept 2024)[19] - The company's signings reached $15.6 billion[19] Capital Allocation - The company increased its repurchase authorization by $400 million[17]

Core Insights - Kyndryl's second quarter performance indicates momentum in key growth areas such as Kyndryl Consult, partnerships with hyperscalers, and innovative services in AI, cloud, and security [1][2] Financial Performance - Kyndryl reported revenues of $3.7 billion for the second quarter, a decrease of 1% year-over-year and 3.7% in constant currency [2][6] - The company achieved pretax income of $98 million, a significant increase from a pretax loss of $5 million in the prior-year period [2][6] - Net income was $68 million, or $0.29 per diluted share, compared to a net loss of $43 million, or ($0.19) per diluted share, in the same quarter last year [2][6] - Adjusted pretax income rose to $123 million, up from $45 million year-over-year, reflecting contributions from Kyndryl's three-A initiatives [3][6] - Adjusted EBITDA increased by 15% year-over-year to $641 million [3][6] Strategic Initiatives - Kyndryl's signings for the trailing twelve months reached $15.6 billion, surpassing the previous twelve months' revenue of $15.0 billion [4][6] - The company is focused on expanding customer relationships and maintaining attractive margins, with a goal of generating over $1 billion in free cash flow by fiscal 2028 [4][6] - Kyndryl announced a $400 million increase in its share repurchase program, in addition to the previously authorized $300 million buyback [5][6] Market Outlook - Kyndryl reaffirms its fiscal 2026 outlook, expecting stronger second-half revenue driven by backlog contributions and growth in Kyndryl Consult and hyperscaler-related revenue [8][6] - The company generated $440 million in revenue from cloud hyperscaler alliances, marking a 65% year-over-year increase, and is on track to exceed its initial hyperscaler revenue target of $1.8 billion for fiscal 2026 [11][6] - Kyndryl Consult revenues grew by 28% year-over-year, with signings increasing by 11% over the last twelve months [11][6]

Core Insights - Kyndryl (KD) is set to report its second-quarter fiscal 2026 results on November 4, after market close, with a strong earnings surprise history, surpassing estimates in three of the last four quarters and averaging a 36.1% earnings surprise [1] Kyndryl's Q2 Expectations - The Zacks Consensus Estimate for Kyndryl's revenues is $3.8 billion, reflecting a 1.1% year-over-year increase, driven by new signings in AI adoption, cyber resiliency, and cloud migration services [2] - The consensus estimate for earnings is 35 cents per share, indicating a more than 100% increase from the same quarter last year, supported by prudent cost control and strong margins [3][10] Earnings Prediction Model - Current analysis does not predict a definitive earnings beat for Kyndryl, as it holds an Earnings ESP of +12.50% and a Zacks Rank of 4 (Sell), which does not align with the conditions typically favorable for an earnings beat [4]

Core Insights - The Kyndryl Readiness Report indicates that while businesses are experiencing momentum in AI investments, they face significant foundational gaps in technology and talent that hinder further progress [1][2]. AI Investment and ROI - AI spending has increased by an average of 33% across industries, with 68% of organizations investing heavily in AI [3]. - There is heightened pressure on business leaders to demonstrate ROI from AI investments, with three in five feeling more pressure this year compared to last [3]. Cloud Infrastructure Challenges - Organizations are reassessing their cloud strategies due to geopolitical risks and regulatory changes, with 75% expressing concerns about data management in global cloud environments [4]. - 65% of leaders have adjusted their cloud strategies, focusing on data repatriation and shifting towards private cloud models [4]. Talent and Cultural Readiness - Nearly 90% of leaders believe AI will transform jobs within the next year, yet only 29% feel their workforce is prepared to leverage AI effectively [5][6]. - Cultural barriers are significant, with 48% of CEOs stating their organizations stifle innovation and 45% indicating slow decision-making processes [5]. Current State of AI Projects - 54% of organizations report positive returns on AI investments, a 12-point increase from the previous year, but 62% have not moved beyond the pilot phase of their AI projects [6]. - Despite confidence in their tools, over half of the organizations find their foundational technology stack a barrier to innovation [6]. Geopolitical and Regulatory Impact - Organizations are reevaluating data storage and processing strategies due to geopolitical pressures, with 70% of CEOs admitting their cloud setups were reached by accident rather than design [6].

Core Insights - Kyndryl and VML have formed a partnership to enhance customer engagement through AI, data, and emerging technologies, aiming to create personalized experiences for brands [1][2][3] - The collaboration seeks to streamline the transformation of customer experiences by integrating Kyndryl's technology services with VML's creative solutions, addressing the evolving expectations of customers [2][3] Company Overview - Kyndryl is a leading provider of mission-critical enterprise technology services, operating in over 60 countries and focusing on IT infrastructure and data management [6] - VML is recognized for its innovative digital transformation services, working with major brands and celebrated for its award-winning campaigns [7] Partnership Details - The partnership combines Kyndryl's advisory and design services with VML's experience transformation expertise, enabling brands to unlock new ideas and improve customer interactions [2][3] - Kyndryl's AI-powered platform, Kyndryl Bridge, and VML's WPP Open operating system will facilitate real-time data utilization for enhanced customer experiences [2][3] Industry Challenges - Companies face challenges in integrating enterprise data and ensuring security while trying to leverage AI for personalized customer experiences [5] - The partnership aims to address these challenges by deploying expert teams to support businesses in navigating complex technology ecosystems [3][5] Use Cases - In financial services, the partnership will explore AI agents to enhance customer intelligence and personalized banking experiences [5] - In retail, Kyndryl and VML will assist brands in utilizing customer data for tailored engagements and improving security across omnichannel commerce [5]

Core Viewpoint - Kyndryl is committing $2.25 billion over the next three years to enhance its presence in India, focusing on modernizing technology infrastructure and advancing AI initiatives while developing future-ready talent [1][4]. Group 1: Investment and Growth Plans - Kyndryl's investment aims to modernize essential technology infrastructure for leading organizations in India [1]. - The company plans to establish an AI Innovation Lab in Bengaluru to enhance its AI-powered consulting services [6]. - Kyndryl's commitment includes deepening engagement with the Government of India on AI initiatives and supporting digital training for approximately 200,000 citizens [5][10]. Group 2: Collaboration with Government - Kyndryl's CEO met with Indian Prime Minister Narendra Modi to discuss expansion plans and AI initiatives [2][3]. - The company is signing a Memorandum of Understanding with the Ministry of Commerce & Industry to support the Ease of Doing Business initiative through its AI platform, Kyndryl Bridge [9]. Group 3: Talent Development and Skilling - Kyndryl is focused on addressing the rising demand for advanced digital skills, committing to upskill its workforce in AI, cybersecurity, and other technologies [10]. - The company plans to establish offices in Tier 2 and Tier 3 cities to tap into high-potential talent and strengthen regional innovation ecosystems [10]. - Kyndryl aims to provide resources to train 200,000 beneficiaries in India through its social impact initiatives and the Kyndryl Skilling program [12]. Group 4: AI and Digital Infrastructure - Kyndryl's AI Innovation Lab will focus on hiring and training professionals skilled in AI, data, cloud, and platform engineering [6]. - The company is contributing enterprise-grade AI capabilities to support India's digital public infrastructure and governance transformation [7]. - Recent research indicates that India leads in AI workforce readiness, with 37% of business leaders confident in their teams' preparedness to adopt AI, surpassing the global average of 29% [11].