Core Insights - Kyndryl's recent quarterly report revealed disappointing results, leading to a significant drop in stock price by 47.9% over the last week of trading [1][2] Financial Performance - For fiscal Q3 2026, Kyndryl reported non-GAAP earnings per share of $0.52 on sales of $3.86 billion, falling short of analyst expectations of $0.60 per share and $3.91 billion in sales [4] - The Kyndryl Consult business experienced a 24% year-over-year sales growth, but overall revenue still did not meet expectations, and margins were softer than anticipated [5] Guidance and Forecasts - Kyndryl lowered its full-year guidance, now expecting free cash flow between $325 million and $375 million, down from a previous forecast of approximately $550 million [7] - The company projected a decline in constant-currency sales between 2% and 3% for the year, a significant shift from the earlier forecast of 1% growth [7] - Updated forecasts indicate a substantial performance deterioration for the current quarter, causing a loss of investor confidence despite reiterating targets for the 2028 fiscal year [8]

Group 1 - Kyndryl Holdings, Inc. (NYSE:KD) is considered one of the best affordable tech stocks to buy currently, with a Buy rating maintained by Guggenheim analyst Jonathan Lee, who lowered the price target to $28 from $30 due to concerns about potential deal slippages impacting revenue growth for FY2026 [1][2] - Kyndryl has extended its technology services agreement with The Hertz Corporation for an additional five years, continuing their partnership focused on technology transformation initiatives [3] - During the extension period, Kyndryl will utilize its Agentic AI Framework and Kyndryl Consult services to modernize Hertz's technology ecosystem, enhancing workflows through AI deployment [4] Group 2 - Kyndryl Holdings, Inc. provides IT infrastructure services, including cloud migration, network management, cybersecurity, and digital workplace solutions, and was spun off from IBM in 2021 [5]

Financial Data and Key Metrics Changes - The company reported revenue of $3.9 billion for the third quarter, reflecting a 3% increase year-over-year on a reported basis, unchanged in constant currency [15] - Adjusted EBITDA decreased by 1% year-over-year to $696 million, while Adjusted Pre-Tax Income grew by 5% year-over-year to $168 million [16] - Free cash flow generated in the third quarter was $217 million, with a net CapEx of $210 million [18] Business Line Data and Key Metrics Changes - Kyndryl Consult experienced a strong performance with a 20% year-over-year growth in constant currency, now representing 25% of total revenue [15][16] - Hyperscaler-related revenue reached $500 million in the third quarter, marking a 58% increase year-over-year [17] - Signings for the quarter totaled $3.9 billion, with a trailing 12-month revenue book-to-bill ratio remaining above 1.0x [5][15] Market Data and Key Metrics Changes - The company noted a slowdown in attrition rates, which has led to higher labor costs in the near term [7] - The evolving partnership with IBM has resulted in a significant reduction in annualized spend from nearly $4 billion to approximately $2 billion [9] - The company is addressing market dynamics such as data sovereignty and AI, which are impacting customer decision-making processes [39] Company Strategy and Development Direction - The company is focused on expanding its capabilities in AI and private cloud services, responding to increased demand driven by industry trends [12][66] - The strategic partnership with IBM is evolving, with efforts to enhance the value proposition for customers [8][10] - The company aims to achieve fiscal 2028 targets, with a focus on margin expansion and profitability through high-value service offerings [13][14] Management's Comments on Operating Environment and Future Outlook - Management acknowledged that longer sales cycles and evolving customer consumption models are impacting revenue growth expectations [24] - The company remains confident in its growth strategy despite recent challenges, emphasizing the importance of adapting to market dynamics [7][13] - Management expects to generate approximately $800 million in free cash flow over fiscal 2025 and 2026 combined [14][23] Other Important Information - The company disclosed a delay in filing its quarterly report due to an ongoing review of cash management practices by the SEC, but does not expect a restatement of financial statements [25] - The company has repurchased 3.7 million shares in the quarter, representing 1.6% of outstanding shares, as part of its capital allocation strategy [18][19] Q&A Session Summary Question: Outlook and Revision Factors - Analysts inquired about the reasons behind the revised outlook, focusing on longer sales cycles and the evolving IBM partnership [27][28] - Management explained that the sales cycle extension affected multiple business areas, including Consult and hyperscaler services [28][29] Question: Strategic Markets and UK Operations - Questions were raised regarding changes in Strategic Markets and the UK, with management indicating that local investments are more expensive and adjustments will take time [30][31] Question: Impact of Review on Forward Commentary - Analysts asked about the impact of the SEC review on future guidance, to which management reiterated confidence in achieving fiscal 2028 goals without expecting a restatement [36] Question: Sales Cycle Length and Deal Timelines - Analysts sought clarification on the timeframe for closing deals affected by extended sales cycles, with management indicating that many discussions are linked to customer renewals and should stabilize within a couple of quarters [61][63] Question: Free Cash Flow and Working Capital - Questions were raised about the decrease in free cash flow guidance, attributed primarily to changes in pre-tax income [49][50] Question: Confidence in Fiscal 2028 Targets - Analysts asked about the building blocks supporting confidence in fiscal 2028 targets, with management highlighting improved cash flow and profitability driven by high-margin backlog [56][58]

Third Quarter 2026 Earnings February 9, 2026 Disclaimers Forward-looking statements This presentation and the related conference call contain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements often contain words such as "aim," "anticipate," "believe," "could," "estimate," "expect," "forecast," "intend," "may," "objectives," "opportunity," "plan," "position," "predict," "project," "should," "seek," "target," "will," "would ...

Core Insights - Kyndryl reported revenues of $3.9 billion for the third quarter of fiscal year 2026, reflecting a 3% year-over-year increase on a reported basis, while remaining unchanged in constant currency [3][6] - The company experienced a decline in pretax income to $91 million from $258 million in the prior-year period, primarily due to a significant transaction-related benefit recorded last year [3][4] - Kyndryl's net income was $57 million, or $0.25 per diluted share, compared to $215 million, or $0.89 per diluted share, in the same quarter last year [3][4] Financial Performance - Adjusted pretax income increased to $168 million, up $8 million from $160 million in the prior-year period, driven by contributions from Kyndryl's three-A initiatives [4][10] - Adjusted net income was $122 million, or $0.52 per diluted share, compared to $124 million, or $0.51 per diluted share, in the prior-year period [4][10] - Cash flow from operations was $427 million, significantly higher than $260 million in the prior-year period [3][21] Business Segments and Growth - Kyndryl Consult achieved double-digit revenue growth of 24% year-over-year in the third quarter, with total revenues of $3.6 billion over the last twelve months [7][10] - The company signed eleven customer contracts exceeding $50 million each during the third quarter, contributing to total signings of $15.4 billion for the trailing twelve months [4][10] - Revenue from hyperscaler alliances reached $500 million, marking a 58% year-over-year increase, and is expected to exceed the initial target of $1.8 billion for fiscal 2026 [7][10] Strategic Initiatives - Kyndryl continues to expand its AI-related capabilities, with a quarter of its signings now including AI-related content [10] - The company announced the acquisition of Solvinity Group, B.V., a provider of secure managed cloud platforms and services, expected to close in the first half of calendar year 2026 [10] - Leadership changes were made, with Harsh Chugh appointed as Interim Chief Financial Officer and other key positions filled [7][10] Fiscal Year 2026 Outlook - Kyndryl provided an outlook for fiscal year 2026, projecting adjusted pretax income of $575 to $600 million and free cash flow of $325 to $375 million [10][10] - The company anticipates a constant-currency revenue decline of 2% to 3% for the fiscal year [10]

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 Holdings, Inc. reported a second-quarter earnings beat with adjusted earnings per share of 38 cents, surpassing the analyst consensus estimate of 36 cents [1] - The company is expanding its AI services in multiple countries and has increased share buybacks [1] Financial Performance - Quarterly revenues were $3.721 billion, a 1% decline year over year, which slightly missed the expected $3.840 billion [2] - Sales fell 3.7% in constant currency, reflecting efforts to exit low-margin third-party content and longer sales cycles [3] - Adjusted EBITDA was $641 million, marking a 15% year-over-year increase [5] Segment Performance - Hyperscaler cloud revenue surged 65% to $440 million, positioning the company to meet its $1.8 billion target for 2026 [4] - Kyndryl Consult revenues grew 28% year-over-year, with signings increasing by 11% over the past twelve months [4] - The book-to-bill ratio remained above 1 for the fifth consecutive quarter, with AI-related signings accounting for about 25% of last quarter's total [4] AI Expansion - Kyndryl is enhancing its AI capabilities by establishing technology hubs in England, France, and Singapore, and launching an AI Innovation Lab in India [5] Share Buyback and Cash Position - The company repurchased 2.9 million shares for $89 million in the second quarter and has approved an additional $400 million for share buybacks [6] - Kyndryl ended the quarter with cash and equivalents of $1.33 billion, down from $1.786 billion as of March 31, 2025 [6] Future Outlook - For fiscal year 2026, Kyndryl anticipates constant-currency revenue growth of 1%, equating to approximately $15.20 billion, below the analyst consensus of $15.60 billion [8] - The company projects an adjusted EBITDA margin of around 18%, reflecting a year-over-year increase of approximately 130 basis points [8] - Kyndryl expects activity to strengthen in the second half of fiscal 2026, supported by a robust pipeline and positive discussions with customers [9] Long-term Goals - The company aims to more than double adjusted pretax income by fiscal year 2028, contingent on achieving sustainable mid-single-digit revenue growth [10]

Core Insights - Kyndryl Holdings, Inc. reported a second-quarter earnings beat with adjusted earnings per share of 38 cents, surpassing the analyst consensus estimate of 36 cents [1] - The company is expanding its AI services in multiple countries, including the U.K., France, Singapore, and India, while also increasing share buybacks [1][5] Financial Performance - Quarterly revenues were $3.721 billion, a 1% decline year over year, which slightly missed the analyst expectations of $3.840 billion [2] - Sales fell 3.7% in constant currency, reflecting efforts to exit low-margin third-party content and longer sales cycles impacting year-over-year comparisons [2][3] - Adjusted EBITDA was $641 million, representing a 15% year-over-year increase [5] Segment Performance - Hyperscaler cloud revenue surged 65% to $440 million, positioning the company to meet its $1.8 billion target for 2026 [4] - Kyndryl Consult revenues grew 28% year-over-year, with signings increasing by 11% over the past twelve months [4] - The book-to-bill ratio remained above 1 for the fifth consecutive quarter, with AI-related signings accounting for about 25% of last quarter's total [4] AI Expansion - Kyndryl is enhancing its AI capabilities by establishing technology hubs in England, France, and Singapore, and launching an AI Innovation Lab in India [5] Share Buyback and Cash Position - The company repurchased 2.9 million shares for $89 million in the second quarter and has approved an additional $400 million for share buybacks [6] - Kyndryl ended the quarter with cash and equivalents of $1.33 billion, down from $1.786 billion as of March 31, 2025 [6] Future Outlook - For fiscal year 2026, Kyndryl anticipates constant-currency revenue growth of 1%, translating to approximately $15.20 billion, compared to the analyst consensus of $15.60 billion [8] - The firm projects an adjusted EBITDA margin of around 18%, reflecting a year-over-year increase of approximately 130 basis points [9] - The CFO stated that the company is on track to meet its fiscal 2028 targets, including generating over $1 billion in free cash flow [7]