10-Q: Kyndryl Reports Strong Profit Turnaround Amid Revenue Dip

Kyndryl Holdings, Inc. reported a significant turnaround to net income and adjusted EBITDA growth for the quarter ended September 30, 2025, driven by operational efficiencies despite a slight revenue decline.

Summary

• Kyndryl reported net income of $68 million for the three months ended September 30, 2025, a substantial improvement from a net loss of $43 million in the prior-year period.
• Adjusted EBITDA increased by 15% to $641 million for the three months ended September 30, 2025, compared to $557 million in the same period last year.
• Revenue for the three months ended September 30, 2025, was $3.721 billion, a 1% decrease (4% in constant currency) from $3.774 billion in the prior-year quarter.
• For the six months ended September 30, 2025, net income was $124 million, up from a net loss of $32 million in the prior-year period, and adjusted EBITDA grew 16% to $1.288 billion.
• The company initiated a Fiscal 2026 Program to reduce its cost structure, expecting approximately $80 million in workforce rebalancing charges, with $44 million incurred to date, aiming for over $100 million in annual payroll cost reductions.
• Signings decreased by 49% to $2.8 billion for the three months ended September 30, 2025, and by 31% to $6.0 billion for the six months, primarily due to a large $1.8 billion signing in the prior-year quarter.
• The Remaining Performance Obligation (RPO) stood at $34.0 billion as of September 30, 2025, with 57% expected to be recognized as revenue in the next two years.
• Kyndryl's Board of Directors approved an increase of $400 million to its share repurchase program in November 2025, adding to the $51 million remaining capacity as of September 30, 2025.
• An agreement was made in November 2025 to acquire Solvinity Group B.V., a managed cloud platforms and services provider in the Netherlands, for approximately €100 million, expected to close in Q4 fiscal 2026.

Sentiment

Score: 7

Explanation: The significant turnaround in net income and adjusted EBITDA, coupled with strategic cost reduction programs and an acquisition, indicates strong operational execution. However, the continued revenue decline and substantial drop in signings, even with a prior-year anomaly, temper the overall positive sentiment.

Positives

• Net income significantly improved to $68 million for the three months ended September 30, 2025, from a loss of $43 million in the prior-year period.
• Adjusted EBITDA increased by 15% to $641 million for the three months and 16% to $1.288 billion for the six months ended September 30, 2025, reflecting progress on operating efficiencies.
• Cost of services as a percentage of revenue improved to 78.5% for the three months and 78.6% for the six months ended September 30, 2025, compared to 80.1% and 79.3% respectively in the prior periods.
• Workforce rebalancing charges decreased by 51% for the three months and 40% for the six months ended September 30, 2025, indicating reduced restructuring costs.
• Other expense decreased significantly by 89% for the three months and 59% for the six months, primarily due to lower currency-related hedging losses.
• The company's share repurchase program was increased by $400 million in November 2025, demonstrating confidence in its valuation and commitment to shareholder returns.
• The planned acquisition of Solvinity Group B.V. for approximately €100 million is a strategic move to enhance managed cloud platforms and services capabilities.

Negatives

• Revenue decreased by 1% (4% in constant currency) for the three months and 1% (3% in constant currency) for the six months ended September 30, 2025, compared to prior-year periods.
• Signings decreased substantially by 49% to $2.8 billion for the three months and 31% to $6.0 billion for the six months ended September 30, 2025, compared to prior-year periods, partly due to a large prior-year signing.
• Net cash provided by operating activities decreased to $22 million for the six months ended September 30, 2025, from $101 million in the prior-year period, mainly due to a decline in accounts receivables as a source of cash.

Risks

• Failure to attract new customers, retain existing customers, or sell additional services to customers.
• Inability to meet growth and productivity objectives and maintain the capital allocation strategy.
• Intense competition in the IT infrastructure services market.
• Impacts of relationships with critical suppliers and partners.
• Failure to address and adapt to rapid technological developments and trends.
• Inability to attract and retain key personnel and other skilled employees.
• Impact of economic, geopolitical, public health, and other conditions on global markets.
• Damage to the company's reputation.
• Inability to accurately estimate the cost of services and the timeline for completion of contracts.
• Service delivery issues.
• Challenges in successfully managing acquisitions and dispositions, including integration difficulties, failure to achieve objectives, assumption of liabilities, and higher debt levels.
• Risks relating to cybersecurity, data governance, and privacy.
• Risks relating to non-compliance with legal and regulatory requirements and changes in laws, regulations, and policies in various jurisdictions.
• Adverse effects from tax matters and environmental matters.
• Legal proceedings and investigatory risks, and potential indemnification obligations.
• Impact of changes in market liquidity conditions and customer credit risk on receivables.
• Risks associated with the company's pension plans.
• Impact of currency fluctuations on financial results.
• Risks related to the company's common stock and the securities market.

Future Outlook

Management expects to continue actions to reduce the overall cost structure and increase operating efficiency through the end of fiscal year 2026, with anticipated annual payroll cost reductions of over $100 million from the Fiscal 2026 Program and over $200 million in payroll, rent, and depreciation savings in fiscal year 2026 from the Fiscal 2025 Program. The acquisition of Solvinity Group B.V. is expected to close in the fourth quarter of fiscal 2026, expanding managed cloud services. The company believes existing cash and credit will be sufficient for anticipated operating needs, capital investments, debt maturities, and stock repurchases for at least the next twelve months.

Management Comments

• Net income reflects progress on our key initiatives to drive operating efficiencies and higher margins on recent signings.
• United States and Japan revenue declines were driven by the company's efforts to reduce certain low-margin revenues and the expiration of certain lowand negative-margin contracts entered into before the Spin-off.
• Adjusted EBITDA increases were primarily driven by progress on our key initiatives to drive operating efficiencies, including lower sales, general and administrative expenses.
• Management expects that workforce rebalancing activities will reduce annual payroll costs and related expenses by more than $100 million.
• Management expects that workforce rebalancing and site-rationalization activities will reduce payroll costs, rent expenses and depreciation of property and equipment by more than $200 million in fiscal year 2026.

Industry Context

Kyndryl, as the world's largest IT infrastructure services provider, operates in a global macroeconomic environment characterized by positive but subdued growth and ongoing volatility. The company's strategy of reducing low-margin contracts and focusing on operational efficiencies and higher-margin signings aligns with a mature industry seeking profitability optimization amidst competitive pressures and evolving technological landscapes, particularly in cloud services, as evidenced by the Solvinity acquisition.

Stakeholder Impact

• Shareholders: Benefit from improved profitability, increased share repurchase program, and strategic acquisitions aimed at long-term growth.
• Employees: Impacted by ongoing workforce rebalancing programs, which aim to reduce payroll costs but may involve job reductions.
• Customers: May experience changes in service delivery as the company optimizes its cost structure and focuses on higher-margin contracts; benefit from enhanced cloud services through acquisitions.
• Suppliers/Partners: Affected by contractual commitments and potential changes in supplier financing programs as the company manages its cost base.

Next Steps

• Continue workforce rebalancing actions under the Fiscal 2026 Program through the end of fiscal year 2026.
• Close the acquisition of Solvinity Group B.V. in the fourth quarter of fiscal 2026, subject to customary closing conditions and regulatory approval.
• Seek further opportunities to improve operational efficiency and reduce costs, which may result in additional charges in future periods.

Key Dates

Recommendation

While Kyndryl demonstrated a strong turnaround in profitability with significant increases in net income and adjusted EBITDA, driven by effective cost reduction initiatives, the persistent revenue decline and a substantial drop in new signings are areas of concern. The increased share repurchase program and strategic acquisition are positive, but the company needs to show consistent revenue stabilization or growth to warrant a 'buy' recommendation. For now, the improved efficiency balances the top-line challenges, suggesting a 'hold' position as the market assesses the long-term impact of these strategic shifts.

Keywords

Kyndryl, IT infrastructure services, managed services, cloud platforms, financial results, earnings, 10-Q, adjusted EBITDA, net income, share repurchase, acquisition, workforce rebalancing, cost reduction