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Kyndryl Holdings, Inc. (KD)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 FY2025 delivered strong margin expansion despite a 5% YoY revenue decline; GAAP diluted EPS rose to $0.89 and adjusted EPS to $0.51, with adjusted EBITDA up 14% YoY and margin at 18.8% .
  • Signings were $4.1B (+10% YoY), with hyperscaler alliance revenue of $300M; Kyndryl Consult revenues grew 26% YoY, underscoring mix shift to higher-value services .
  • Full-year guidance raised: adjusted pretax income ≥$475M (from ≥$460M), adjusted EBITDA margin ≥16.7% (from ≥16.3%), adjusted FCF ≈$350M (from ≈$300M); Q4 expected to return to constant-currency revenue growth (~2%) .
  • Stock narrative catalysts: visible margin trajectory, increased signings quality (high-single-digit projected pretax margins), and capital return (859k shares repurchased for $30M) .

What Went Well and What Went Wrong

What Went Well

  • Significant margin expansion: adjusted EBITDA $704M (+14% YoY) and margin 18.8% (+320 bps YoY), adjusted pretax income $160M (+154% YoY) . CFO: “record margins and earnings… result of strong execution on our powerful strategy” .
  • Strong commercial momentum: $4.1B signings (+10% YoY) and trailing-12-month signings $16.3B (+31% YoY); projected pretax margins on signings high-single digits, book-to-bill gross profit above 1 (1.4) .
  • Kyndryl Consult and hyperscaler alliances drove growth: Consult revenues +26% YoY; $300M hyperscaler revenue in Q3, tracking ahead of ~$1B FY target . CEO: “led by Kyndryl Consult, Kyndryl Bridge and our alliances with hyperscalers” .

What Went Wrong

  • Top-line contraction and FX headwinds: revenue $3.74B (-5% YoY; -3% constant currency), with unfavorable FX gap to constant currency; U.S. segment down 7% YoY . CFO flagged “reported revenues were affected by currency movements” .
  • Elevated IBM software cost headwind: contractually required IBM software costs increased ~$50M YoY in Q3, part of a $200M annual series through Jan 2025; P×Q pricing regime started Jan 2025 (expected to aid cost control going forward) .
  • Workforce rebalancing charges and lower adjusted FCF vs prior year: Q3 workforce rebalancing $17M; adjusted FCF $171M vs $348M in prior-year Q3 due to capex timing and adjustments .

Financial Results

Consolidated Performance (FY2025 Q1 → Q2 → Q3)

MetricQ1 FY2025 (Jun 30, 2024)Q2 FY2025 (Sep 30, 2024)Q3 FY2025 (Dec 31, 2024)
Revenue ($USD Billions)$3.74 $3.77 $3.74
GAAP Diluted EPS ($)$0.05 ($0.19) $0.89
Adjusted EPS ($)$0.13 $0.01 $0.51
Adjusted EBITDA ($USD Millions)$556 $557 $704
Adjusted EBITDA Margin (%)14.9% 14.8% 18.8%
Adjusted Pretax Income ($USD Millions)$92 $45 $160
GAAP Net Income ($USD Millions)$11 ($43) $215
Cash from Operations ($USD Millions)($48) $149 $260
Adjusted Free Cash Flow ($USD Millions)($116) $56 $171

Notes:

  • Q3 YoY revenue -5% reported, -3% constant currency; Q3 adjusted EBITDA +14% YoY .
  • Signings trajectory supports forward earnings/cash flow; margins on signings high-single digits .

Segment Revenue and Adjusted EBITDA (Q3 FY2025)

SegmentRevenue ($USD Millions)YoY ReportedYoY Constant CurrencyAdjusted EBITDA ($USD Millions)
United States$961 (7%) (7%) $204
Japan$579 (0%) 3% $111
Principal Markets$1,300 (4%) (4%) $226
Strategic Markets$904 (6%) (3%) $187
Corporate and OtherN/AN/AN/A($24)
Total$3,744 (5%) (3%) $704

KPIs and Other Balance Sheet/Cash Metrics (Q3 FY2025)

KPIValue
Total Signings ($USD Billions)$4.1
Trailing 12-Month Signings ($USD Billions)$16.3
Hyperscaler Alliance Revenue ($USD Millions)$300
Kyndryl Consult Revenue Growth YoY+26%
Adjusted Free Cash Flow ($USD Millions)$171
Cash and Equivalents ($USD Billions)$1.501
Total Debt ($USD Billions)$3.201
Net Leverage (Net Debt / Adjusted EBITDA, quarter-end)0.7x
Shares Repurchased (Shares / $USD Millions)859,000 / $30

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Adjusted Pretax Income ($USD Millions)FY2025≥$460 ≥$475 Raised
Adjusted EBITDA Margin (%)FY2025≥16.3% ≥16.7% Raised
Adjusted Free Cash Flow ($USD Millions)FY2025≈$300 ≈$350 Raised
Q4 Constant-Currency Revenue Growth (%)Q4 FY2025Reaffirmed growth in Q4 ≈2% Reaffirmed with specificity

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 FY2025)Previous Mentions (Q2 FY2025)Current Period (Q3 FY2025)Trend
AI initiatives (Bridge, Gen/Agentic AI)Bridge central; growing consult; alliances progressing Continued Bridge-driven delivery savings; AI readiness; dedicated AI private cloud in Japan announced Nov (outside earnings PR) Expanded AI work incl. agentic AI; private AI clouds; Bridge insights driving automation and self-healing architectures Strengthening, broader deployments
Hyperscaler alliances revenue$210M Q1 $260M Q2 $300M Q3; tracking ahead of ~$1B FY target Up each quarter
Kyndryl Consult mix/scale+10% YoY revenue; strong signings growth +23% YoY revenue; signings +81% YoY +26% YoY revenue; signings +35% YoY; crossed 20% of revenue; target ~25% of revenue Scaling structurally
Accounts initiative (margin remediation)$725M annualized benefits $775M $825M Ahead of track
Advanced Delivery (Bridge) savings10.5k professionals freed; ~$650M annualized savings 11.5k; ~$700M 12.3k; ~$725M; tracking >$750M goal Continuous efficiency gains
FX/hedgingUnfavorable currency net offset by vendor credit; lower depreciation FX neutral to constant currency; reported match constant; Q2 detail FX headwind created 2-pt gap to constant; hedging kept bottom-line impact near plan FX headwind but managed
Tariffs/macroN/A in Q1 PRN/A in Q2 PRNo direct impact; volatility drives demand for modernization and resiliency Neutral to positive demand driver
Capital returnN/ABuyback authorization announced Nov 21 [58]Repurchased 859k shares for $30M in Q3 Initiated execution

Management Commentary

  • CEO: “We delivered another quarter of strong signings growth and significant margin expansion, led by Kyndryl Consult, Kyndryl Bridge and our alliances with hyperscalers” .
  • CFO: “We delivered dramatically higher record margins and earnings this quarter… projected pretax margins on our signings… very high single digits… added over $4 billion of projected gross profit to our backlog” .
  • CEO on strategic outlook: “We expect to triple adjusted free cash flow and more than double adjusted pretax earnings over the next three years… initiated a $300 million share repurchase program” .
  • CFO on FY25 outlook: “Adjusted EBITDA margin is now at least 16.7%, and adjusted pretax income at least $475 million… expect ~2% constant-currency revenue growth in Q4” .
  • CFO on IBM software costs: 2025 shift to price×quantity aids cost management; last step-down of declining rebate occurred Jan 2025, concluding the $200M annual increases .

Q&A Highlights

  • Pipeline and conversion: Management sees strong Q4 pipeline led by Consult and alliances; demand tailwinds from increasing complexity and AI readiness gaps (only ~39% feel ready per readiness survey) .
  • FX and hedging: Hedging program kept bottom-line currency impact close to plan despite large FX moves; net variance only ~$5M vs initial expectations .
  • Signings breadth and large deals: Strength broad-based across geographies and practices; 20 signings >$100M YTD vs 10 in prior year; includes new logos as well as renewals/expansions .
  • Tariffs/macro: No direct KD impact; volatility and regulatory changes generally increase demand for Kyndryl’s services (modernization, resiliency) .
  • AI and DeepSeek context: KD supports customers from data architecture to production; evaluates innovations like distributed resource utilization; Bridge ML already drives automation and insights .

Estimates Context

  • Wall Street consensus (S&P Global Capital IQ) for Q3 FY2025 could not be retrieved due to a daily request limit being exceeded; therefore, estimate comparisons are unavailable at this time [SPGI returned errors while fetching estimates]. We will update when access is restored.

Key Takeaways for Investors

  • Margin expansion is the core story: adjusted EBITDA margin rose to 18.8% and adjusted pretax to $160M, pointing to sustained mix and delivery improvements .
  • Commercial quality improving: signings up 10% YoY in Q3 with high-single-digit projected pretax margins and 1.4x gross profit book-to-bill, supporting forward earnings/FCF .
  • Consult scaling as a growth engine: 26% YoY revenue growth in Q3; rising to >20% of revenue with superior margins, enhancing the mix .
  • Alliances driving hyperscaler revenue: $300M in Q3; on track to exceed ~$1B FY target, reinforcing the cloud modernization vector .
  • Guidance raised across earnings and cash flow, with Q4 constant-currency revenue growth expected (~2%): operational upside vs prior outlook .
  • Capital return and balance sheet strength: buybacks initiated; net leverage 0.7x and investment-grade ratings provide flexibility .
  • Near-term trading lens: positive bias from raised guidance and margin trajectory; watch FX volatility effects on reported revenue vs constant currency and execution of P×Q IBM software cost management .

Appendix: Prior Quarter Snapshots (for trend)

  • Q2 FY2025: Revenue $3.77B (-7% YoY), GAAP diluted EPS ($0.19), adjusted EPS $0.01, adjusted EBITDA $557M, signings $5.6B (record), reaffirmed FY guidance .
  • Q1 FY2025: Revenue $3.74B (-11% YoY), GAAP diluted EPS $0.05, adjusted EPS $0.13, adjusted EBITDA $556M, signings $3.1B; raised adjusted earnings outlook .