8-K: Kyndryl Reports Strong Q2 FY26 Results, Boosts Buyback

Kyndryl Holdings, Inc. announced strong second fiscal quarter 2026 results, exceeding profitability expectations and expanding its share repurchase program.

Summary

• Revenues for the second fiscal quarter ended September 30, 2025, totaled $3.7 billion, a decrease of 1% year-over-year on a reported basis and 3.7% in constant currency.
• Pretax income was $98 million, a significant increase of $103 million compared to a pretax loss of $5 million in the prior-year period.
• Net income reached $68 million, or $0.29 per diluted share, compared to a net loss of $43 million, or ($0.19) per diluted share, in the prior-year period.
• Adjusted EBITDA increased 15% year-over-year to $641 million.
• Adjusted pretax income was $123 million, a $78 million increase compared to $45 million in the prior-year period.
• Adjusted net income was $89 million, or $0.38 per diluted share, up from $3 million, or $0.01 per diluted share, in the prior-year period.
• Cash flow from operations was $147 million, a decrease of $2 million compared to the prior-year period.
• Free cash flow for the quarter was $22 million.
• Signings for the trailing twelve months ended September 30, 2025, were $15.6 billion, exceeding trailing twelve months revenue of $15.0 billion.
• The Board of Directors authorized an additional $400 million increase in its share repurchase program, bringing the total authorization to $700 million.
• Hyperscaler-related revenue grew 65% year-over-year to $440 million in the second quarter and is positioned to exceed the initial $1.8 billion target for fiscal 2026.
• Kyndryl Consult revenues grew 28% year-over-year in the second quarter, with Kyndryl Consult signings growing 11% over the last twelve months.
• The company reaffirmed its fiscal 2026 outlook, including adjusted pretax income of at least $725 million, an adjusted EBITDA margin of approximately 18%, and free cash flow of approximately $550 million.

Sentiment

Score: 8

Explanation: The company demonstrated significant improvements in profitability metrics (pretax income, net income, adjusted EBITDA) and reaffirmed its positive fiscal year 2026 outlook. Strategic growth areas like hyperscaler alliances and Kyndryl Consult showed strong performance. The expanded share repurchase program signals confidence and commitment to shareholder value. While revenue saw a slight decline, it was attributed to a strategic reduction of low-margin contracts, and the overall financial health and future prospects appear robust.

Positives

• Pretax income significantly improved to $98 million from a $5 million loss in the prior-year period, a $103 million increase.
• Net income turned positive at $68 million ($0.29 per diluted share) compared to a net loss of $43 million ($0.19 per diluted share) in the prior-year period.
• Adjusted EBITDA increased by a strong 15% year-over-year to $641 million, demonstrating enhanced operational efficiency.
• Adjusted pretax income rose by $78 million to $123 million, reflecting contributions from the 'three-A' initiatives (Alliances, Advanced Delivery, Accounts).
• Adjusted net income saw a substantial increase to $89 million ($0.38 per diluted share) from $3 million ($0.01 per diluted share) in the prior-year period.
• Trailing twelve months signings of $15.6 billion exceeded trailing twelve months revenue of $15.0 billion, indicating future revenue potential.
• An additional $400 million share repurchase authorization was announced, signaling confidence in the company's valuation and commitment to shareholder returns.
• Hyperscaler-related revenue grew 65% year-over-year to $440 million and is on track to exceed the initial $1.8 billion target for fiscal 2026.
• Kyndryl Consult revenues experienced double-digit growth of 28% year-over-year, with signings up 11% over the last twelve months.
• Projected pretax margin associated with recent signings remained strong in the high-single-digit range, indicating profitable new business.
• The company reaffirmed its positive fiscal year 2026 outlook, including an expected adjusted pretax income of at least $725 million and an adjusted EBITDA margin of approximately 18%.
• Expansion of AI-related capabilities through new technology hubs and an AI Innovation Lab, with a quarter of signings already containing AI-related content.

Negatives

• Revenues decreased 1% year-over-year on a reported basis and 3.7% in constant currency, attributed to the reduction of inherited no-margin and low-margin third-party content, as well as longer sales cycles.
• Cash flow from operations decreased by $2 million year-over-year to $147 million.
• Free cash flow for the six months ended September 30, 2025, was negative $200 million, compared to negative $100 million in the prior-year period.
• Signings for the three months ended September 30, 2025, decreased by 49% (50% in constant currency) compared to the prior-year period, which included a large $1.8 billion signing.
• Signings for the six months ended September 30, 2025, decreased by 31% (32% in constant currency) compared to the prior-year period.

Risks

• Failure to attract new customers, retain existing customers, or sell additional services to customers.
• Failure to meet growth and productivity objectives and maintain the capital allocation strategy.
• Competition in the market for enterprise technology services.
• Impacts of relationships with critical suppliers and partners.
• Failure to address and adapt to technological developments and trends.
• Inability to attract and retain key personnel and other skilled employees.
• Impact of economic, geopolitical, public health, and other conditions.
• Damage to the company's reputation.
• Inability to accurately estimate the cost of services and the timeline for completion of contracts.
• Service delivery issues.
• Ability to successfully manage acquisitions and dispositions, including integration challenges, failure to achieve objectives, the assumption of liabilities, and higher debt levels.
• Failure of intellectual property rights to prevent competitive offerings and the failure to obtain, retain, and extend necessary licenses.
• The impairment of goodwill or long-lived assets.
• 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 the U.S. and countries where the company and its customers do business, including with respect to tariffs, taxes, and other controls on imports or exports.
• Adverse effects from tax matters.
• Legal proceedings and investigatory risks.
• The impact of changes in market liquidity conditions and customer credit risk on receivables.
• Risks related to the company's pension plans.
• The impact of currency fluctuations.
• Risks related to the company's common stock and the securities market.

Future Outlook

Kyndryl reaffirmed its fiscal 2026 outlook, expecting adjusted pretax income of at least $725 million, an adjusted EBITDA margin of approximately 18%, and free cash flow of approximately $550 million. The company anticipates stronger second-half revenue in fiscal 2026, driven by a larger revenue contribution from opening backlog, accelerated growth in Kyndryl Consult and hyperscaler-related revenue, and a record pipeline of in-process deals. The long-term objective is to generate more than $1 billion in free cash flow by fiscal 2028.

Management Comments

• Martin Schroeter, Chairman and CEO, stated: "Our second quarter performance reflects the momentum we’re building across key growth priorities – Kyndryl Consult, alliances with hyperscalers and other leading technology providers, and our innovative services in AI, cloud and security. We expect activity to strengthen in the second half of fiscal 2026, supported by our pipeline and the constructive discussions we’re having with new and existing customers."
• Martin Schroeter also commented: "With our deep expertise in mission-critical services and our AI-powered Kyndryl Bridge platform, we continue to help our customers realize greater value from their modernization and AI-related technology investments, fueling innovation and driving stronger business outcomes. Looking ahead, we remain committed to our multi-year objectives and to prudent capital allocation, including our significantly expanded share repurchase program."
• David Wyshner, CFO, noted: "We continued to advance our strategic and financial goals while maintaining attractive margins across our operations and on our new signings. We remain focused on expanding our scope with customers, sustaining our margin momentum, and achieving our fiscal 2028 objectives, which include generating more than $1 billion in free cash flow. Through our disciplined approach and operational rigor, we will continue to be tenacious in creating value for our customers and shareholders."

Industry Context

Kyndryl, as a leading provider of mission-critical enterprise technology services and the world's largest IT infrastructure services provider, operates in an industry undergoing significant digital transformation. The company's strategic focus on Kyndryl Consult, alliances with hyperscalers, and innovative services in AI, cloud, and security aligns directly with broader industry trends of cloud adoption, AI integration, and the demand for higher-value advisory and managed services. The strong growth in hyperscaler-related revenue indicates successful adaptation to the shift towards cloud-centric infrastructure, while the emphasis on reducing low-margin contracts reflects a strategic move common among mature IT services providers to enhance profitability and focus on more valuable offerings.

Comparison to Industry Standards

• The filing does not provide specific comparable companies, projects, or results to global benchmarks for direct assessment.
• As the world's largest IT infrastructure services provider, Kyndryl operates in a highly competitive market alongside major players such as Accenture, IBM (its former parent), DXC Technology, and various cloud service providers (e.g., AWS, Azure, Google Cloud).
• The 65% year-over-year growth in hyperscaler-related revenue to $440 million in Q2 FY26 demonstrates strong execution in a key growth area, potentially indicating a competitive edge in this specific segment.
• Kyndryl Consult revenues grew 28% year-over-year, suggesting successful expansion into higher-margin advisory and implementation services, a common strategic move for IT service firms aiming to enhance value.
• The reaffirmed fiscal 2026 outlook, including 1% constant-currency revenue growth and an 18% adjusted EBITDA margin, serves as an internal benchmark for the company's performance trajectory.

Stakeholder Impact

• Shareholders: Positive impact due to significant profitability improvement, reaffirmed positive outlook, and expanded share repurchase program, potentially leading to increased share value and returns.
• Customers: Benefit from Kyndryl's focus on higher-value services (Kyndryl Consult, AI, cloud, security) and strategic alliances, which can help them realize greater value from modernization and AI investments.
• Employees: Continued focus on strategic growth areas and AI capabilities may lead to opportunities for skill development and innovation within the company.
• Creditors: Improved financial performance and projected free cash flow generation enhance the company's ability to service its debt obligations.

Next Steps

• Strengthen activity in the second half of fiscal 2026, driven by opening backlog, accelerated growth in Kyndryl Consult and hyperscaler-related revenue, and a record pipeline of in-process deals.
• Continue building momentum across key growth priorities: Kyndryl Consult, alliances with hyperscalers and other leading technology providers, and innovative services in AI, cloud, and security.
• Remain committed to multi-year objectives, including generating more than $1 billion in free cash flow by fiscal 2028.
• Continue prudent capital allocation, including the expanded share repurchase program.
• Host an earnings call for the second fiscal quarter on November 5, 2025, at 8:30 a.m. ET.

Key Dates

Recommendation

Kyndryl delivered significantly improved profitability, exceeding prior-year performance across key metrics like pretax income, net income, and adjusted EBITDA. The reaffirmation of a strong fiscal 2026 outlook, including substantial increases in adjusted pretax income and EBITDA margin, provides confidence in future performance. Strategic initiatives in high-growth areas like hyperscaler alliances and Kyndryl Consult are showing strong traction. Furthermore, the substantial increase in the share repurchase authorization signals strong management confidence in the company's valuation and commitment to returning capital to shareholders. Despite a slight revenue decline, the strategic rationale (reducing low-margin contracts) is sound, and the overall financial trajectory is very positive, making it an attractive investment.

Keywords

Kyndryl, KD, Q2 2026, earnings, financial results, enterprise technology services, IT infrastructure, adjusted EBITDA, net income, share repurchase, hyperscaler, Kyndryl Consult, AI, cloud, security, corporate governance, financial reporting