Kyndryl — Second Quarter Fiscal 2027 Earnings Summary

Financial Performance:

• Reported revenues for the quarter ended September 30, 2026, totaled $3.7 billion, down 1.9% year-over-year on a reported basis and down 0.8% in constant currency.
• Pretax income was $112 million, compared to $98 million in the prior-year period.
• Net income was $59 million ($0.27 per diluted share), compared to $68 million ($0.29 per diluted share) in the prior-year period.
• Adjusted EBITDA was $699 million, up from $641 million in the prior-year period.
• Adjusted pretax income was $150 million, compared to $123 million in the prior-year period.
• Adjusted net income was $92 million ($0.42 per diluted share), compared to $89 million ($0.38 per diluted share) in the prior-year period.
• Cash provided by operations was $172 million, compared to $147 million in the prior-year period.
• Free cash flow was a use of $34 million, compared to a source of cash of $22 million in the prior year.
• Workforce rebalancing charges for the quarter were $38 million, compared to $19 million in the prior-year period.
• Net debt stood at $4,059 million as of September 30, 2026, down from $4,089 million as of March 31, 2026.
• Cash and equivalents were $1,659 million as of September 30, 2026, down from $2,623 million as of March 31, 2026.

Guidance and Future Outlook:

• The company reaffirmed its fiscal 2027 outlook (April 2026 to March 2027).
• Fiscal 2027 adjusted pretax income guidance remains $600 to $700 million, inclusive of workforce rebalancing charges.
• Fiscal 2027 free cash flow guidance remains $400 to $500 million.
• Fiscal 2027 constant-currency revenue guidance remains flat to down 2%.
• Workforce rebalancing efforts are expected to result in annualized run-rate operating expense savings of approximately $400 to $500 million in fiscal 2028.

Business Segments and Product Lines:

• Kyndryl Consult revenues grew 4.2% year-over-year in the second quarter; over the last twelve months, revenues were $3.6 billion, an 8.1% increase year-over-year.
• Kyndryl Consult signings were $4.6 billion over the last twelve months, a 19.1% increase year-over-year.
• Hyperscaler-related revenues exceeded $550 million in the second quarter, growing 27.2% year-over-year; over the last twelve months, these revenues were $2.1 billion, a 38.5% increase year-over-year.
• The company expanded AI-led modernization capabilities through new Agentic Modernization services-as-software and the expansion of its global AI Innovation Lab network in Dallas, Texas, and Luxembourg.
• In the trailing twelve months, signings totaled $15.5 billion, including $4.1 billion in the second quarter.
• The company signed 43 customer contracts exceeding $50 million each in the last twelve months, with 11 signed in the second quarter.
• United States segment revenue grew 9.0% year-over-year in the quarter.
• Japan segment revenue decreased 4.6% year-over-year in the quarter.
• Principal Markets segment revenue decreased 6.1% year-over-year in the quarter.
• Strategic Markets segment revenue decreased 4.8% year-over-year in the quarter.

Market and Competitive Landscape:

• The 2026 State of Modernization Report indicates AI is driving new modernization demands, while 51% of organizations cite legacy integration as their top obstacle to progress.
• The acquisition of Healthcare IT Leaders, LLC strengthens capabilities in healthcare application implementation and managed services.
• Kyndryl operates in more than 60 countries as the world's largest IT infrastructure services provider.

Risks and Challenges:

• The company incurred $38 million in workforce rebalancing charges for the quarter and expects approximately $200 million in total charges for fiscal 2027.
• Savings from workforce rebalancing are expected to begin in the second half of fiscal 2027.
• Forward-looking statements are subject to risks including failure to attract or retain customers, competition, supplier relationships, technological adaptation, personnel retention, economic conditions, cybersecurity risks, and debt refinancing challenges.

Management Commentary and Tone:

• Chairman and CEO Martin Schroeter stated that strong signings and growth in Kyndryl Consult and hyperscaler-related revenue reinforce confidence in the fiscal 2027 outlook.
• Management highlighted demand for AI-led modernization capabilities and deep mission-critical expertise.
• CFO Ellen Johnson noted continued progress against strategic and financial priorities, with a focus on disciplined execution to strengthen fundamentals, support margin expansion, and drive free cash flow growth.

Other Key Points:

• Kyndryl completed the acquisition of Healthcare IT Leaders, LLC in mid-September 2026.
• On September 28, 2026, Kyndryl issued $600 million of 7.80% Senior Notes due 2029 and $400 million of 7.875% Senior Notes due 2032.
• Net proceeds from the senior notes offering were used to repay $700 million of 2.05% Senior Notes maturing in October 2026 and to repay the $1 billion outstanding balance under the revolving credit agreement at the end of September.
• The United States segment revenue growth included a 3-point favorable impact from the resolution of a commercial matter.
• India operations transitioned from Principal Markets to Strategic Markets in the quarter ended September 30, 2026.