Kyndryl Holdings, Inc. (KD)·Q1 2026 Earnings Summary

Executive Summary

• Q1 FY26 delivered steady earnings expansion but modest top-line softness: revenue was $3.74B (–2.6% cc YoY) while adjusted EPS was $0.37; vs S&P consensus, revenue missed ($3.80B*) while EPS was slightly ahead ($0.36*) as margins improved on “three‑A” initiatives and Kyndryl Consult strength . Estimates: Values retrieved from S&P Global.*
• Kyndryl reaffirmed FY26 guidance: ≥$725M adjusted pretax income, ~18% adjusted EBITDA margin, ~$550M free cash flow, and ~1% cc revenue growth; CFO reiterated 2H-weighted earnings and cash generation .
• Strategic engines remain on track: Kyndryl Consult grew 30% YoY; hyperscaler-related revenue nearly doubled to $400M; TTM signings reached $18.3B with high‑single‑digit pretax margins embedded .
• Management attributed revenue pressure to focus-account remediation and deal timing; expects growth to accelerate into Q2 and further in 2H as pipeline is larger and less concentrated YoY .
• Capital allocation remains supportive: $65M of Q1 buybacks with $141M remaining authorization; net leverage 0.6x adj. EBITDA, investment-grade ratings maintained .

What Went Well and What Went Wrong

• What Went Well

  • Margin expansion and earnings growth: Adjusted EBITDA rose to $647M (17.3% margin, +240 bps YoY), adjusted pretax income +39% YoY to $128M on Alliances, Advanced Delivery (Bridge automation), and Accounts initiatives .
  • Kyndryl Consult momentum: Revenues +30% YoY; CEO: “Our expertise in mission‑critical technology and… Kyndryl Bridge, are helping customers innovate and creating new growth opportunities” .
  • Hyperscaler alliances scaling: $400M in Q1 hyperscaler-related revenue (+86% YoY) toward $1.8B FY26 target; CFO: “puts us on track to deliver $1.8B this year” .

• What Went Wrong

  • Top-line softness: Revenue fell 2.6% in constant currency; CEO cited focus-account remediation and deals slipping beyond quarter-end as drivers of Q1 revenue change .
  • U.S. geography decline: U.S. revenue $911M, down 8% YoY; partially offset by growth in Japan (+2% reported), Principal (+3%), Strategic (+3%) .
  • Seasonal cash usage: Free cash flow was an outflow of $222M driven by typical Q1 seasonality (annual software and incentive payments); operating cash flow –$124M .

Financial Results

Note: Q3/Q4 reflect Adjusted Free Cash Flow as reported; Q1 reflects Free Cash Flow, consistent with management’s shift to emphasize FCF over adjusted FCF .

Actual vs S&P Global Consensus (Q1 FY2026)

Estimates marked with * are Values retrieved from S&P Global.

Segment Revenue (Geography)

Selected KPIs

Non‑GAAP and adjustments: Q1 adjusted EPS ($0.37) reflects add‑backs including stock‑based comp, amortization, and other items per the reconciliation tables .

Guidance Changes

Management reiterated 2H weighting and expects Q2 adjusted pretax income similar to Q1; ~35% of FY26 adj. pretax income in 1H vs 28% last year .

Earnings Call Themes & Trends

Management Commentary

• CEO (on growth engines): “Our performance in the quarter was once again led by Kyndryl Consult and hyperscaler related revenues… Over the last twelve months, Kyndryl Consult revenue has grown 32% in constant currency… Hyperscaler related revenue nearly doubled… to $400,000,000 in Q1 and is progressing well toward our $1,800,000,000 fiscal twenty twenty six target.”
• CFO (on margin/efficiency): “Our first quarter adjusted EBITDA was $647,000,000 and our adjusted EBITDA margin was 17.3%, up two forty basis points year over year… Advanced Delivery… powered by Kyndryl Bridge… [has] freed up thousands of delivery professionals… worth roughly a cumulative $825,000,000 a year… this past quarter.”
• CEO (on revenue cadence and pipeline): “We’ll accelerate from [Q1] into Q2… pipeline… is both well ahead of last year’s and a bit less concentrated… Some of the deals that we thought would have closed are closing now and will continue to close.”

Q&A Highlights

• Top-line cadence and pipeline: Management expects acceleration into Q2 and stronger 2H; pipeline larger and less concentrated YoY, with some Q1-targeted deals slipping but now closing .
• Focus accounts timing: Cumulative annualized profit benefit now $925M; timing of deals can be lumpy (e.g., one closed shortly after quarter-end) as customer, partner, and innovation elements are aligned .
• Margin drivers beyond account remediation: Mix shift to post-spin contracts (67% of FY26 P&L), Bridge-enabled automation, S,G&A efficiencies, and diminishing IBM software cost headwinds (no Q4 headwind) .
• AI opportunity and “triple, double, single”: AI benefits both cost (Bridge) and revenue (Consult); visibility into margin expansion supported by priced margins on signings and book-to-bill >1 for gross profit .
• Capital returns: $65M Q1 buybacks; ~$141M remaining authorization; assessing pace with cash flow, price, and market conditions as the year moves into cash-generation quarters .

Estimates Context

• Revenue missed S&P Global consensus: $3.74B vs $3.80B* (–1.5%); management cited focus-account actions and deal timing as drivers of constant-currency declines. Estimates: Values retrieved from S&P Global.*
• Adjusted EPS slightly beat: $0.37 vs $0.36* (+1.8%), reflecting mix (Consult, Alliances) and operational efficiencies via Bridge and focus-account remediation. Estimates: Values retrieved from S&P Global.*
• Coverage depth: 4 estimates for both EPS and revenue in the quarter, indicating relatively light Street coverage. Values retrieved from S&P Global.*

Key Takeaways for Investors

• Mix and margin story intact: Despite a modest revenue miss, margin expansion continued and EPS slightly exceeded expectations—driven by Consult growth, hyperscaler alliances, Bridge automation, and focus-account remediation .
• Reaffirmed FY26 outlook with 2H weighting: Management sees Q2 adjusted pretax similar to Q1 and stronger 2H, supporting ≥$725M adj. pretax income, ~18% adj. EBITDA margin, and ~$550M FCF in FY26 .
• Backlog quality remains high: High single-digit pretax margins on signings, gross profit book-to-bill ~1.5x LTM, and TTM signings up 43% YoY (to $18.3B) set up sustained earnings compounding .
• AI catalysts across ecosystem: Agentic AI Framework, Databricks alliance, Microsoft Acceleration Hub, and expanded HPE alliance enhance differentiation and multi-year demand for modernization and hybrid IT services .
• Near-term stock catalysts: Evidence of revenue acceleration in Q2, continued double-digit Consult growth, and hyperscaler revenue trajectory toward $1.8B target could drive sentiment; consistent buybacks add support .
• Watch U.S. segment trajectory: U.S. revenue was down 8% YoY; stabilization and conversion of pipeline into signings/revenue will be key to sustaining top-line growth .
• Cash flow seasonality subsides after Q1: Expect improving quarterly FCF as annual payments roll off; management now emphasizes FCF (vs adjusted FCF) as spin-related adjustments fade .

Why the Quarter Landed Where It Did

• Revenue: Focus-account pruning and deal slippage reduced Q1 constant-currency revenue; management expects acceleration from Q1→Q2 and further in 2H given larger, more diversified pipeline .
• EPS/Margins: Positive mix shifts (Consult, Alliances), Bridge-driven automation (run-rate savings ~$825M) and progress on focus accounts (cumulative benefit $925M) sustained margin expansion and delivered a slight EPS beat vs consensus .
• Guidance: Reaffirmation reflects visibility from high-margin signings and backlog (gross profit book‑to‑bill >1), hedged currency exposures, and diminishing legacy headwinds (e.g., IBM software costs) .

Additional References (Q1 FY26 and Related Press Releases):

• Q1 FY26 press release (duplicate of 8‑K exhibit): performance highlights, KPIs, and reconciliations .
• Agentic AI Framework (July 17, 2025) ; Microsoft Acceleration Hub (July 10, 2025) ; Databricks alliance (June 4, 2025) ; Expanded HPE alliance (Aug 6, 2025) .

Citations: Q1 FY26 8‑K and exhibit: Q1 FY26 earnings call transcript: Q3 FY25 8‑K: Q4 FY25 8‑K: