Executive Summary

Q2 FY2026 delivered solid margin expansion and earnings, but revenue was modestly below plan and missed consensus; KD reaffirmed FY26 guidance and increased its buyback by $400M, signaling confidence in H2 acceleration .
Revenue was $3.72B (-1% y/y; -3.7% cc), driven by continued removal of low/no‑margin third‑party content and elongated sales cycles; Adjusted EBITDA rose 15% y/y to $641M (17.2% margin) and adjusted EPS was $0.38 .
Versus S&P Global consensus, KD beat on EPS ($0.38 vs $0.358*) but missed revenue ($3.72B vs $3.84B*); management said revenue was ~$(100)M below internal target on timing and mix, with an estimated ~4% growth drag from content removal .
Strategic engines remain healthy: hyperscaler‑related revenue grew 65% y/y to $440M, Kyndryl Consult grew 28% y/y, and LTM book‑to‑bill remained >1 with $15.6B LTM signings vs $15.0B LTM revenue .
Near‑term catalysts: reaffirmed FY26 outlook (1% cc revenue growth; ~18% adj. EBITDA margin; ≥$725M adj. PTI; ~$550M FCF), larger buyback, agentic AI offerings/Bridge automation at scale, and a tuck‑in acquisition (Solvinity) to strengthen sovereign/private cloud capabilities .

What Went Well and What Went Wrong

What Went Well
- Material profitability improvement: Adjusted EBITDA up 15% y/y to $641M (17.2% margin, +250 bps y/y); adjusted pre‑tax income up to $123M (+$78M y/y) and adjusted EPS $0.38 .
- Growth engines scaling: hyperscaler‑related revenue up 65% y/y to $440M; Kyndryl Consult revenue up 28% y/y; 25% of signings include AI content .
- Capital allocation and balance sheet: $400M buyback expansion; Q2 repurchases of 2.9M shares ($89M); net leverage ~0.7x adjusted EBITDA; investment grade ratings .
- Management quote: “We expect activity to strengthen in the second half of fiscal 2026, supported by our pipeline…” – CEO Martin Schroeter .
What Went Wrong
- Top‑line shortfall: Q2 revenue was about $100M below internal target; sales cycles on expanded renewals remained elongated; removal of low‑margin third‑party content produced an estimated ~4% revenue growth drag .
- Revenue decline y/y: $3.72B (-1% y/y; -3.7% cc) as the company prioritized profitable mix over legacy low‑margin content .
- Quarterly signings fell y/y due to a difficult comp (prior‑year included a $1.8B mega‑deal): Q2 signings $2.8B vs $5.6B (y/y -49%), though LTM signings still healthy at $15.6B .

Financial Results

Metric	Q4 FY2025	Q1 FY2026	Q2 FY2026
Revenue ($B)	$3.80	$3.743	$3.721
GAAP Net Income ($M)	$68	$56	$68
GAAP Diluted EPS ($)	$0.28	$0.23	$0.29
Adjusted EBITDA ($M)	$698	$647	$641
Adjusted EBITDA Margin (%)	18.4%	17.3%	17.2%
Adjusted Pre‑tax Income ($M)	$185	$128	$123
Adjusted EPS ($)	$0.52	$0.37	$0.38

Results versus S&P Global consensus (Q2 FY2026):

Metric	S&P Global Consensus	Actual
Revenue ($B)	$3.840*	$3.721
Adj. EPS ($)	$0.358*	$0.38
Adj. EBITDA ($M)	$618.33*	$641
# of EPS / Revenue Estimates	4* / 3*	—

Values retrieved from S&P Global

Segment revenue (Q2 FY2026 vs Q2 FY2025):

Segment ($M)	Q2 FY2026	Q2 FY2025
United States	$899	$960
Japan	$581	$604
Principal Markets	$1,334	$1,318
Strategic Markets	$906	$892
Total	$3,721	$3,774

KPIs and operating highlights:

KPI	Q2 FY2026
Hyperscaler‑related revenue ($M)	$440
Kyndryl Consult revenue growth (y/y)	28%
Quarterly signings ($B)	$2.8
LTM signings ($B)	$15.6
LTM revenue ($B)	$15.0
Free Cash Flow ($M)	$22
Cash & Equivalents ($B)	$1.331
Total Debt ($B)	$3.127

Context/Drivers:

Revenue headwinds were mainly self‑inflicted by design (removal of third‑party content) and elongated cycles on larger, expanded renewals; management estimates removal reduced growth by ~4% in Q2 .
Profitability reflects “three‑A” initiatives (Alliances, Advanced Delivery, Accounts) and post‑spin mix shift; Bridge automation is generating ~$875M annual savings run‑rate (+$50M q/q) .

Guidance Changes

Metric	Period	Previous Guidance (Q1 FY26)	Current Guidance (Q2 FY26)	Change
Adjusted Pre‑tax Income	FY2026	≥$725M	≥$725M	Maintained
Adjusted EBITDA Margin	FY2026	~18%	~18%	Maintained
Free Cash Flow	FY2026	~$550M (cash taxes ~$175M)	~$550M (cash taxes ~$175M)	Maintained
Constant‑currency Revenue Growth	FY2026	~+1%	~+1% (implies 4–5% H2 growth)	Maintained

Management reiterated H2 revenue inflection driven by higher opening backlog contribution, accelerating Consult and hyperscaler growth, and a record pipeline .

Earnings Call Themes & Trends

Topic	Previous Mentions (Q4 FY2025 and Q1 FY2026)	Current Period (Q2 FY2026)	Trend
Hyperscaler alliances	FY2025: $1.2B hyperscaler revenue; Q4: $375M; exceeded FY25 target . Q1: $400M (+86% y/y) toward $1.8B FY26 target .	$440M (+65% y/y); positioned to exceed initial $1.8B FY26 target .	Strengthening
Kyndryl Consult	FY2025: +26% y/y; Q4: +45% y/y . Q1: +30% y/y .	+28% y/y; LTM run‑rate ~$3.4B cited on call .	Sustained double‑digit growth
Revenue headwinds from content removal	FY2025 narrative: content pruning drove y/y declines but improved margins . Q1: down 2.6% cc; mix prioritization continued .	Estimated ~4% growth drag in Q2; elongated cycles on expanded renewals; revenue ~$100M below internal target .	Headwind fading into H2
AI/Agentic AI & Bridge	FY2025: Bridge savings ~$775M run‑rate; FY26 initiatives ongoing . Q1: launched Agentic AI framework .	Bridge: 186M automations and 15M insights/month; ~25% of signings include AI content .	Scaling adoption
Pipeline/Book‑to‑bill	FY2025: record $18.2B signings; Q4: +53% y/y . Q1: LTM signings $18.3B .	LTM signings $15.6B; book‑to‑bill >1; H2 signings and revenue expected to improve .	Healthy; timing variability
Capital allocation	FY2025: began buybacks; strong cash ops . Q1: ongoing repurchases .	+$400M buyback authorization; 2.9M shares repurchased in Q2; net leverage ~0.7x .	More shareholder returns

Management Commentary

“Our second quarter performance reflects the momentum we’re building across key growth priorities… We expect activity to strengthen in the second half of fiscal 2026.” – CEO Martin Schroeter .
“Revenue for the quarter again came in about $100 million below what we were targeting… an estimated ~4% drag on revenue growth in Q2” from removing third‑party content .
“Kyndryl Bridge now performs more than 186 million automations and generates 15 million actionable insights each month…” .
“Adjusted EBITDA increased 15% y/y… Adjusted EBITDA margin was 17.2%… We bought back 2.9 million shares… and announced a $400 million increase in our share repurchase program.” – CFO David Wyshner .
“Our outlook… FY26 adjusted EBITDA margin ~18%, free cash flow approx. $550 million, and 1% full year constant currency revenue growth (implies 4–5% growth in the second half).” – CFO .

Q&A Highlights

Capital allocation priorities: continue investing in organic growth and tuck‑ins while returning capital; buybacks sized to trail cash flow; reiterated new $400M authorization .
AI monetization: ~25% of signings include AI content across Cloud, Digital Workplace, and Apps/Data/AI; focus on data architecture/migration, AI‑enabled workflows, and agentic AI development .
Capex: targeted at ~4–5% of revenue, majority to support customer infrastructure; free cash flow is after capex .
Sales cycles/pipeline: cycles consistent but expanded‑scope renewals/new logos require care; stronger H2 starting point from backlog, Consult capacity, and hyperscaler momentum .
Demand by vertical/geography: strongest in Retail/Travel and TMT; Industrials/Public a bit lighter; pitch centers on end‑to‑end mission‑critical solutions .
M&A: agreement to acquire Solvinity (terms undisclosed in PR), with management noting ~€100M purchase price on the call; bolsters sovereign/private cloud in Europe .

Estimates Context

Q2 FY2026 vs S&P Global consensus: revenue $3.721B vs $3.840B* (miss); adjusted EPS $0.38 vs $0.358* (beat). EBITDA comparable to consensus was above expectations on a non‑GAAP basis ($641M vs $618.33M*), though definitions may differ .
Estimate implications: near‑term top‑line estimates may moderate on elongated cycles and content pruning, while margin/earnings estimates may rise modestly given sustained three‑A execution, Bridge efficiencies, and mix shift to post‑spin contracts .

Values retrieved from S&P Global

Key Takeaways for Investors

Margin/earnings story intact (three‑A initiatives, Bridge automation) despite near‑term revenue headwinds; KD beat EPS but missed revenue vs S&P consensus .
H2 setup constructive: stronger opening backlog contribution, accelerating Consult/hyperscaler growth, and a robust pipeline support the reaffirmed FY26 outlook (4–5% H2 revenue growth implied) .
Strategic mix shift continues to favor profitability over low‑margin legacy content; management quantified an estimated ~4% revenue growth drag in Q2 from content removal .
Structural demand drivers—IT modernization, cybersecurity, and AI/agentic AI—are expanding scope with existing customers; ~25% of signings include AI components; Bridge telemetry at meaningful scale .
Capital returns increasing: additional $400M buyback and Q2 repurchases signal management confidence; net leverage ~0.7x and investment‑grade profile provide flexibility .
Watch catalysts: H2 signings/booking conversion, hyperscaler revenue trajectory, Consult growth pace, and integration of Solvinity to enhance sovereign/private cloud capabilities in Europe .
Risk checks: deal timing variability (renewals/new scope), macro uncertainty in Industrials/Public, and continued top‑line drag from legacy content removal until fully lapped .

Appendix: Additional Relevant Press Releases

Agreement to acquire Solvinity, expanding sovereign/private cloud capabilities for sensitive workloads; terms undisclosed in PR (management referenced ~€100M on call) .

Kyndryl Holdings, Inc. (KD)·Q2 2026 Earnings Summary