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    KD
    Earnings call· Jun 2026(Q1 FY27)

    Kyndryl Holdings Q1 FY27 earnings call KD

    Aug 5, 2026 Source

    Executive summary

    Kyndryl Q1 FY27 — Strong Signings and AI-Led Modernization Drive Momentum

    Kyndryl delivered Q1 FY27 results marked by strong execution in strategic growth areas, particularly Kyndryl Consult and hyperscaler alliances, driven by AI-led modernization. Despite revenue declines and a seasonal free cash flow outflow, the company remains confident in its ability to achieve its FY27 and FY28 financial targets, supported by workforce rebalancing actions and a focus on higher-value signings. The evolving IBM partnership continues to impact top-line revenue but is not expected to materially affect earnings or service scope.

    Highlights

    5

    • Kyndryl Consult revenue grew 14% year-over-year.

    • Hyperscaler related revenue streams grew 48% year-over-year over the last 12 months.

    • Total signings exceeded revenue over the last 6 months, with 12-month signings at $14.2 billion.

    • Signed 10 deals in excess of $50 million in Q1 FY27, with 30% of value from scope expansion or new logos in the last 12 months.

    • Achieved a gross profit book-to-bill ratio at or above 1, with an average projected gross margin of 25% on signings.

    Concerns

    5

    • Revenue declined 3% year-over-year on both reported and constant currency basis to $3.6 billion.

    • Adjusted pretax loss of $37 million, primarily due to $152 million of workforce rebalancing charges.

    • Free cash flow was an outflow of $401 million in Q1, a seasonal use of cash.

    • Evolving IBM partnership created a 3-point adverse impact on revenue performance in constant currency.

    • European markets were down 8% constant currency, consistent with prior quarter trends.

    Guidance & targets

    7
    CategoryTargetConfidence
    Adjusted pretax income
    $600 million to $700 million
    high materiality
    High
    Free cash flow
    $400 million to $500 million
    high materiality
    High
    Revenue growth
    flat to down 2%
    high materiality
    High
    Adjusted pretax income
    relatively in line with $123 million
    medium materiality
    Medium
    Workforce rebalancing annualized savings
    $400 million to $500 million
    high materiality
    High
    Adjusted pretax income
    more than $1.2 billion
    high materiality
    High
    Free cash flow
    $1 billion
    high materiality
    High

    Segment performance

    4
    SegmentRevenueYoYQoQMargin
    United States
    Delivered 5% revenue growth for the second consecutive quarter, driven by AI-led modernization.
    		—5%——
    Europe
    Revenue declined 8% in constant currency, consistent with prior quarter trends and company assumptions.
    		—down 8%——
    Kyndryl Consult
    Revenue grew 14%, demonstrating broad demand for agentic AI, modernization, and cybersecurity.
    		—14%——
    Hyperscaler related revenue streams
    Generated over $530 million in the quarter, with $2 billion over the last 12 months, partially offsetting revenue headwinds.
    		$530 million———

    Operational metrics

    18
    Adjusted EBITDA
    $512 million
    Q1 FY27

    Reported for the first fiscal quarter.

    Adjusted pretax loss
    $37 millionyear-over-year declines
    Q1 FY27

    Primarily driven by workforce rebalancing charges.

    Workforce rebalancing charges
    $152 million
    Q1 FY27

    Incurred in the quarter, impacting adjusted pretax income margin by more than 4 points.

    IBM spend at spin-off (annualized run rate)
    nearly $4 billion
    at spin-off

    Approximately 40% of revenue from inherited commercial agreements were low to no margin.

    IBM spend (last 12 months)
    less than $2 billionless than half since spin-off
    last 12 months

    Reduced significantly since the spin-off due to addressing focus accounts.

    Cash balance
    $2.1 billion
    June 30

    Company's financial position remains strong.

    Debt maturity
    $700 million
    near-term

    Planned to refinance or use cash on hand for this near-term debt maturity.

    Net leverage ratio
    0.8x
    exiting Q1 FY27

    Company maintains an investment-grade rating.

    Shares repurchased
    5 million
    Q1 FY27

    Part of the share repurchase authorization.

    Cost of shares repurchased
    $64 million
    Q1 FY27

    Cost incurred for share repurchases in the quarter.

    Outstanding shares repurchased (since inception)
    8%
    since inception of program

    Total percentage of outstanding shares repurchased since the program began.

    Projected gross margin on signings
    mid-20s
    last 4 years

    Reflects focus on healthy margins and pricing discipline.

    Projected pretax margins on signings
    high single digits
    last 4 years

    Reflects focus on healthy margins and pricing discipline.

    Average projected gross margin on signings
    25%
    last 12 months

    Demonstrates value creation and capture in the business.

    Cumulative savings from advanced delivery
    $1 billion
    since spin-off

    Generated through machine data, Kyndryl Bridge, and automation.

    Agents in infrastructure
    1,800
    current

    Helping to get to solutions faster, reduce impact events, and automate processes.

    Automations per month
    over 200 million
    monthly

    Provided by Kyndryl Bridge.

    Insights per month
    16 million to 18 million
    monthly

    Provided to customers on infrastructure performance by Kyndryl Bridge.

    Industry KPIs

    8
    MetricValueDetails
    Headcount dso—
    Rpo current rpo5-point improvement
    Customer logo metricshundreds and hundreds
    Large customer cohorts40 deals
    Bookings tcv book to billat or above 1
    Genai ai book of business—
    Sales capacity productivity—
    Ai agentic channel product adoption1,800agents

    Orderbook & backlog

    6
    12-month signings$14.2 billionQ1 FY27
    Q1 signings$3.9 billionQ1 FY27
    Beginning backlog improvement5-point improvementstart of FY27

    vs FY26

    Large deals signed (last 12 months)40 dealslast 12 months

    Each deal in excess of $50 million.

    Large deals signed (Q1 FY27)10 dealsQ1 FY27

    Each deal in excess of $50 million.

    Value of large deals from scope expansion or new logos30%last 12 months

    vs 15% in FY25

    Percentage of value from 40 large deals.

    Product announcements

    3
    ProductTypeDetails
    Kyndryl Bridgeupdate
    Kyndryl Agentic Modernization Platformlaunch
    Kyndryl Agentic AI Frameworklaunch

    Deals & partnerships

    6
    AWSExpanded alliance to help enterprises adopt and scale agentic AI as they modernize and run mission-critical workloads in the cloud.

    Focus on agentic AI adoption and scaling for mission-critical workloads in the cloud.

    Microsoft AzureExpanded work to help customers design, build and operate cloud architectures that align with evolving data residency and operational requirements.

    Focus on cloud architectures for data residency and operational requirements.

    Broadcom, Dell, HP Enterprise, Red HatStrengthened collaborations to support customers' modernization efforts in complex private and hybrid cloud environments.

    Collaborations aimed at supporting modernization in private and hybrid cloud.

    Large global payments companyExpanded scope to roll out Kyndryl agentic modernization platform with prepackaged AI modernization workflows.

    Helps understand complexities across mainframe applications for effective modernization, maximizing ROI and driving agility.

    Leading European financial institutionExpanded scope to transform operations and technology, implementing an AI-native agentic banking platform using Kyndryl Bridge and managed services expertise.

    Aims to automate operations, strengthen security and resilience, improve decision-making, and enhance customer experience.

    Global technology companyAwarded a new logo to help streamline software engineering and IT operations using the Kyndryl agentic AI framework.

    Combines Kyndryl's expertise in agentic software development, platform engineering, and IT operations to deliver a scalable, secure, and efficient technology foundation.

    Risks & headwinds

    7
    Workforce rebalancing chargesQ1 FY27

    $152 million

    Mitigation: Expected to yield annualized savings of $400 million to $500 million in FY28, offsetting the charges.

    Evolving IBM partnershiplast 12 months and continuing into FY27

    3-point adverse impact on revenue performance in constant currency

    Mitigation: Changes do not affect the scope or margin profile of Kyndryl's services or ability to grow services content; limited impact on earnings.

    Customers procuring IBM hardware and software directlyFY26 H2 and continuing into FY27

    Similar headwind to top line performance

    Mitigation: Does not affect the scope or margin profile of Kyndryl's services or ability to grow services content; limited impact on earnings.

    Seasonal use of cashQ1 FY27

    $401 million outflow

    Mitigation: Contemplated in full year FY27 outlook; expect meaningfully higher earnings and stronger working capital to drive free cash flow in H2.

    Uncertain macro environmentongoing

    Not quantified

    Mitigation: Enterprises balancing innovation and transformation with operational stability, driving demand for Kyndryl's services.

    Lengthening sales cyclesongoing

    Not quantified

    Mitigation: Customers making long-term decisions on mission-critical elements; Kyndryl's role involves trust and managing technology complexity.

    Lack of skills for AIcurrent

    Only 23% of business leaders feel their workforce is ready for AI

    Mitigation: Kyndryl provides expertise and modernization capabilities to help customers run and transform their businesses.

    What to watch in Q2 FY27

    5

    Kyndryl Consult growth pace

    Q2 FY27
    Current14% YoY in Q1
    TargetMaintain high single to low double-digit growth

    Why it matters

    Kyndryl Consult is a key targeted growth area and a driver of higher-value signings and future profitability.

    We said consult would be kind of high single, low double digit. And I think we've just printed at 10%, so we feel very good about the start we had to stay within that range and have Consulteliver what we've embedded in our initial guidance.

    Q&A highlights

    5

    Can you elaborate on the assumptions embedded in the FY27 outlook, particularly regarding Kyndryl Consult growth, signings conversion, and sales cycle duration? What are the main sources of upside and downside for the revenue range?

    Management is confident in the initial guidance for Kyndryl Consult, expecting high single to low double-digit growth, supported by strong Q1 signings. Sales cycles are not dramatically different, reflecting the long-term, mission-critical nature of their services and the increasing complexity of technology, including new dynamics like data sovereignty in Europe.

    “So first, let's start where you did, which is on consult at the beginning of the year when we provided our guidance -- revenue guidance, we said consult would be kind of high single, low double digit. And I think we've just printed at 10%, so we feel very good about the start we had to stay within that range and have Consulteliver what we've embedded in our initial guidance.”

    asked by Jonathan Lee · answered by Martin Schroeter

    2 min read6 chapters

    Detailed Narrative

    01

    Strategic Priorities and FY28 Objectives

    Kyndryl is focused on delivering its fiscal 2027 outlook and 2028 objectives, aiming for over $1.2 billion in adjusted pretax income and $1 billion in free cash flow by FY28, achievable on low single-digit constant currency revenue growth. The company entered the fiscal year with a 5-point improvement in beginning backlog and a pipeline consisting of more scope expansions and new logos, supporting future signings growth and a better mix of higher-value services. AI, modernization, and cyber preparedness remain key priorities driving demand.

    02

    AI-Led Modernization and Kyndryl Consult Momentum

    Demand for AI-led modernization is driving strong performance in Kyndryl Consult, with signings exceeding revenue over the last 12 months. Kyndryl Consult revenue grew 14% year-over-year, reflecting broad demand for designing and scaling agentic AI, modernizing hybrid IT environments, and strengthening cybersecurity. The company is expanding consulting skills, investing in engineers and AI innovation labs, and leveraging its Kyndryl Agentic framework to co-create solutions at scale.

    03

    Hyperscaler Alliances and Ecosystem Expansion

    Kyndryl continues to see positive momentum with hyperscalers, with related revenue streams growing 48% year-over-year over the last 12 months, reaching over $530 million in Q1. Expanded alliances with AWS and Microsoft Azure focus on helping enterprises adopt and scale agentic AI and build cloud architectures. Collaborations with partners like Broadcom, Dell, HP Enterprise, and Red Hat are also strengthening to support modernization efforts in complex private and hybrid cloud environments.

    04

    Workforce Rebalancing and Operational Efficiency

    The company is taking workforce rebalancing actions to address lower-than-normal voluntary attrition and optimize SG&A costs, with savings expected to begin in the second half of FY27. These actions resulted in $152 million of charges in Q1 but are projected to yield annualized savings of $400 million to $500 million in FY28. Kyndryl is embedding more automation and AI into operations through Kyndryl Bridge, driving productivity improvements and upskilling teams for higher-value work.

    05

    Evolving IBM Partnership Impact

    The evolving partnership with IBM continues to create a headwind to top-line revenue performance, contributing a 3-point adverse impact in constant currency. This is largely due to customers increasingly procuring certain IBM hardware and software directly from IBM, a pattern that continued into FY27. However, management emphasizes that these changes do not affect the scope or margin profile of Kyndryl's services or its ability to grow services content, having limited impact on earnings.

    06

    Customer Success Stories with Agentic AI

    Kyndryl highlighted three tangible examples of AI-led modernization: expanding scope with a global payments company to roll out its agentic modernization platform, partnering with a European financial institution to implement an AI-native agentic banking platform, and securing a new logo with a global technology company to streamline software engineering and IT operations using the Kyndryl agentic AI framework. These engagements demonstrate the breadth of capabilities and opportunities to deepen strategic relationships.

    AI-generated summary of the company’s earnings call. Not investment advice.