Kyndryl Hldgs (NYSE:KD) released fourth-quarter financial results and hosted an earnings call on Wednesday. Read the complete transcript below.
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Access the full call at https://edge.media-server.com/mmc/p/h59rxgvv/
Summary
Kyndryl Hldgs reported adjusted pre-tax income growth, margin expansion, and generated over $400 million in free cash flow despite challenges in sales cycles and revenue performance.
The company continues to invest in strategic areas such as Kyndryl Consult, alliance partnerships, and AI capabilities, aiming to drive sustainable, profitable growth.
For fiscal 2027, Kyndryl Hldgs expects adjusted pre-tax income between $600 million and $700 million and free cash flow of $400 million to $500 million, with a focus on higher value services and operational efficiency.
Revenue for fiscal 2026 was $15.1 billion, flat on a reported basis but down 3% in constant currency, impacted by extended sales cycles and an evolving relationship with IBM.
Kyndryl Hldgs achieved nearly $2 billion in hyperscaler-related revenue, marking significant progress in strengthening core capabilities and establishing vital partnerships.
Full Transcript
OPERATOR
Good day and thank you for standing by. Welcome to the Kyndryl 4th fiscal quarter 2026 earnings conference call. At this time, all participants are in a listen only mode. After the speaker’s presentation, there will be a question and answer session. To ask a question during this session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised to withdraw your question. Please press star 11 again. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your first speaker today, Lori Chaitman, Global Head of Investor Relations, Global Head of Investor Relations.
Lori Chaitman (Global Head of Investor Relations)
Good morning everyone and welcome to Kyndryl’s Earnings call for the fourth fiscal quarter and year end March 31, 2026. Before we begin, I would like to remind you that our remarks today include forward looking statements. These statements do not guarantee future performance and speak only as of today and the Company assumes no obligation to update its forward looking statements except as required by law. Actual outcomes or results may differ materially from those suggested by forward looking statements as a result of risks and uncertainties. For more information on some of these risks and uncertainties, please see the Risk Factors SECtion of our Annual report on Form 10K for the year ended March 31, 2025 and our quarterly report on Form 10Q for the quarter ended December 31, 2025 as such factors may be updated from time to time in the Company’s subsequent filings with the SEC. Also in today’s remarks, we refer to certain non Generally Accepted Accounting Principles (GAAP) financial metrics definitions and additional information about our calculation of non Generally Accepted Accounting Principles (GAAP) financial metrics as well as a reconciliation of non Generally Accepted Accounting Principles (GAAP) metrics to Generally Accepted Accounting Principles (GAAP) metrics for historical periods are provided in the presentation materials for today’s event, which are available on our website at. Investors following our prepared remarks, we will hold a Q and A session. I would now like to turn the call over to Kyndryl’s Chairman and Chief Executive Officer, Martin Schroeder. Martin
Martin Schroeder (Chairman and Chief Executive Officer)
thank you Laurie and thanks to each of you for joining us. In our fiscal year 2026, we delivered adjusted pre tax income growth and margin expansion and generated over $400 million in free cash flow. This performance comes against the backdrop of an environment that has continued to extend sales cycles and weigh on our revenue and signings performance. Customers are telling us that they are eager to embrace innovative solutions and modernization strategies, yet they are increasingly thoughtful and deliberate in their IT decision making, driven by the dynamic of sovereignty, AI and cyber preparedness aiming to balance transformation with operational stability in today’s complex environment. Considering these dynamics, we continue to invest in Kyndryl consult our alliance partnerships and our Agentix AI capabilities, all while supporting and modernizing our customers most complex mission critical IT environments. Our strategic focus remains unchanged. We’re focused on growing our revenues and earnings and generating cash to reinvest in our business. The successful execution and continuation of our Advanced Delivery initiative, the increasing use of AI across our own operations and the new workforce rebalancing actions gives us confidence that we’re progressing toward our multi year objectives. Both Harsh and I will discuss this in more detail. We will deliver sustainable, profitable growth by increasing high value consult engagements, deepening capabilities with our alliance partners and delivering innovative AI led modernization services. As more post spin signings convert into revenue in fiscal 27 and 28, these growth investments paired with our own use of innovation to drive productivity position us to achieve higher profitability going forward. On today’s call, I’ll highlight the underlining growth drivers that are strengthening our operations and the targeted actions we’re taking in fiscal 27 to advance us towards our fiscal 28 goals. Let me start with Kyndryl Consult. In fiscal 26, Kyndryl Consult again delivered double digit revenue growth, our third consecutive year of strong performance. We’ve invested heavily in Kyndryl Consult, including developing and hiring forward deployed engineers and human systems architects and our AI Innovation labs where we co create Agentix solutions at scale with customers. We exited the year with Kyndryl Consult signings exceeding revenue, positioning us well for another year of strong consult revenue growth. This demonstrates how enterprises are turning to Kyndryl for our high value services across Agentix AI automation, IT modernization, public and private cloud and cybersecurity to help them modernize at scale, strengthen resilience and unlock greater business value. Turning to our hyperscaler related revenue streams, we exceeded our initial target and realized nearly 2 billion in revenue in fiscal 26. Keep in mind this revenue source was essentially 0 four years ago and has consistently grown year after year. This underscores the significant progress we’ve made in strengthening our core capabilities and and establishing ourselves as a vital partner for our customers and alliances. We’ve been deepening our relationships with hyperscalers and most recently developing new capabilities in areas such as data sovereignty and Agentix modernization across the broader alliance ecosystem. Kyndryl continues to build strong momentum by translating innovation into secure, scalable and repeatable outcomes for customers. Additionally, we have continued to strengthen our collaborations with other important alliance partners beyond Hyperscalers as private cloud becomes an important growth vector including the likes of Broadcom, Dell, HP Enterprise and many others. For fiscal 27, we expect another year’s strong growth from Kyndryl Consult and Hyperscaler related revenue streams over the last few years. Our success with Kyndryl Consult and Hyperscalers has helped offset the headwinds we’ve been facing from our own accounts initiative and more recently from customers decisions to procure hardware and software directly from IBM. You can also see from the chart on the right that 80% of our revenue in fiscal 27 is expected to be derived from post spin higher margin signings, supporting our multi year objective of expanding projected pre tax margins on post spin signings into the high single digits. In fact, in fiscal 26 we signed 38 deals in excess of 50 million, of which more than 30% consisted of new scope or were new logos. Given the multiyear nature of our customer relationships, I’m encouraged that we’ve signed more than 125 large deals over the last three years. Importantly, the investments we’ve made in consult alliances and Agentix AI capabilities have well positioned us in today’s market where enterprises are turning to Kyndryl for their modernization needs. This reflects our ability to win large complex deals despite a more challenging environment including longer sales cycles. With our heritage and mission critical expertise and IP combined with AI powered Kyndryl Bridge platform and our differentiated solutions centered around the Kyndryl Agentic AI framework, Agentix service management and digital trust, we are seeing results in modernizing our own operations and in helping our customers continuously modernize their IT infrastructure and applications to scale AI, to unlock business value and to enhance resiliency and address AI enabled cyber threats. Every customer conversation right now is focused on Agentix AI and what IT means in the context of their business returns, on investment, implications for cybersecurity, their workforce and efficiency, and in regulated environments compliance. As customers embrace the Agentix era, expectations of IT organizations to reinvent themselves have changed. And when you consider additional factors such as increasing tech debt and operational costs, modernization is no longer optional, it is a requirement. And at the same time, customers need a different approach to modernization as most traditional approaches are labor intensive, slow, often encounter business disruptions and miss the expected roi, which is why most customers lack confidence in their ability to execute modernization effectively. Our Kyndryl Readiness Report found that nearly half of organizations struggled to generate meaningful returns on AI because their IT environments, their infrastructure, applications and business processes simply were not built for it. It’s like trying to run a shiny new 200 mile an hour bullet train on tracks built for 30 miles an hour. Our customers are challenged in moving from AI experiments to industrialized scale. In this rapidly evolving technological environment, Kyndryl becomes even more essential to our customers, helping them to prepare, navigate complexities and scale within our own delivery operations. We’re using AI agents embedded in the Kyndryl bridge platform to drive greater productivity and outcomes. For example, we’re seeing incidents being resolved 70 to 90% faster, which means less disruption and more consistent service. We’re seeing root cause analysis cycles approximately 75% faster, helping prevent the same issue from happening again. And we’re seeing that the dependency on people’s time reduced by 50 to 70%, freeing up our people and their expertise for higher value work that delivers transformation for customers and growth for Kyndryl. So let’s now turn to how we’re working with customers to deliver business outcomes across the modernization continuum using an Agentix AI approach. Importantly, these aren’t one off engagements. They create clear paths for us to further further develop and expand our long term strategic partnerships with customers from infrastructure and applications into higher value transformation work. We’re working with a large European bank to build a joint competency center to establish a vendor agnostic hybrid cloud design while complying with data sovereignty requirements and providing control over their AI adoption. They need flexibility and control across public and private cloud with a single simple view across their entire estate. We’re leveraging our deep platform engineering expertise and Agentix modernization capabilities to rapidly deploy their shared cloud platform by co creating this future state together. We’re also expanding our scope into the application layer. Next, with a global insurance company. The starting point was a decades old mainframe environment running millions of lines of mission critical code supported by a shrinking pool of in house expertise. Such products have traditionally failed because of system complexity, limited documentation and skill shortages. We used AI agents to rapidly understand the current functionality and rewrite the system to a modern cloud native architecture. The business outcomes we’re delivering include an Agentix digital twin to retain institutional knowledge and a 50% faster data center exit. This has positioned us to replicate and apply our modernization approach to to other mission critical systems in other countries where they operate and then with US state government agencies, in this case a dmv. We have a repeatable solution underpinned by Agentix AI to rapidly implement scalable and resilient digital platform services. The benefits of our approach include self service for government employees and enhanced citizen experiences by reducing wait times and improving self service. Importantly, we’re deploying the solution across multiple states and countries as a standardized repeatable offering. In all three examples, we were awarded new scope and now expect to expand into new areas. Customers are selecting Kyndryl for our decades of mission critical engineering expertise and our unique approach to AI led modernization services. We’re a trusted advisor and long term partner for our customers with differentiated solutions that center on achieving tangible business results. With that, I’d like to pass the call over to Harsh to discuss our fiscal year results and outlook and and then I’ll close with a more detailed discussion on our multi year objectives.
Harsh
Harsh thanks Martin and hello everyone. Today I will focus my comments on our year end results and our outlook for fiscal 2027. For fiscal year 2026 we generated $15.1 billion of revenue, flat from the prior year on a reported basis and down 3% in constant currency. We exited fiscal 2026 with total signings of 13.5 billion. As previously discussed, both revenue and signings were impacted by extended sales cycles, particularly in the UK and strategic markets and the evolution of our relationship with IBM. Our adjusted EBITDA in fiscal 2026 was 2.7 billion and our adjusted pre tax income was 581 million. Adjusted EBITDA margin increased 100 basis points and our adjusted pre tax margin increased 60 basis points year over year, reflective of a mix shift in the business. As more post spin signings flow to the P and L. Our three AS initiatives continue to be an important source of of margin expansion and value creation for us. Through our alliances, we generated 1.9 billion in hyperscaler related revenue in fiscal 2026, up 59% versus last year and exceeded the 50% growth in hyperscaler related revenue that we were expecting at the beginning of the year. Through advanced delivery, we continue to drive efficiency by incorporating more AI based technology into our services enabled through Kyndryl Bridge to further reduce our costs and increase our already strong service levels. Today this is worth …
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