Kyndryl Holdings, Inc. Q1 FY2026 earnings call

• Made significant progress on strategic initiatives, drove margin expansion, and delivered a substantial increase in earnings in Q1.
• Reaffirmed fiscal '26 outlook and advanced toward fiscal 2028 objectives.
• Q1 revenue declined in constant currency due to actions on focus accounts and deals moving out of the quarter, but Kyndryl Consult saw above-market growth, won new logos, and expanded customer relationships.
• Leveraged leadership in essential mission-critical services and investments in skills, innovation, and alliances.
• Kyndryl Bridge operating platform combines operational data, AI, and machine learning to drive actionable insights and operational efficiency.
• Technology alliances, such as with Databricks, enable delivery of AI at scale and modernize enterprise IT estates.
• Investments in technology hubs in England, France, Singapore, etc., support AI adoption and digital transformation.

In the first quarter, Kyndryl Consult revenue grew 30% year-over-year. Hyperscaler-related revenue nearly doubled from a year ago to $400 million in Q1 and is on track to reach $1.8 billion in fiscal 2026, a 50% increase from fiscal 2025. Kyndryl Consult revenue has grown 32% in constant currency over the last 12 months and is running at an annual pace of more than $3 billion.

• Fiscal 2026 revenue expected to grow 1% in constant currency, with the second half stronger than the first.
• Kyndryl Consult revenue expected to grow double digits.
• Adjusted EBITDA margin in fiscal 2026 estimated at approximately 18%, an increase of ~130 basis points versus fiscal 2025.
• Adjusted pretax income outlook is at least $725 million, representing a growth of at least $243 million year-over-year.
• Projected free cash flow for fiscal 2026 is approximately $550 million, with roughly 100% conversion of adjusted pretax income less cash taxes into free cash flow.

• Forward-looking statements are subject to risk factors detailed in the Risk Factors section of the annual report on Form 10-K.
• Complexity in repositioning and reimagining relationships with focus accounts, which may affect timing of signings.

Q: On the top line, how did first quarter revenue come in versus planned and growth cadence for the rest of the year?

A: Martin noted good momentum in growth vectors like Consult and alliance activity, pipeline is larger and not concentrated on a few deals, expects to accelerate from Q1 to Q2 and finish at 1% growth as guided.

Q: On focus accounts, any trends and confidence in signings execution timing?

A: Martin said focused accounts have made progress with $925 million of cumulative benefit, complexity in closing deals but one transaction closed shortly after Q1 ended, expects continued progress but timing of individual deals is tricky.

Q: On margins, beyond account renegotiation, what are other catalysts for margin expansion?

A: Martin pointed to Kyndryl Consult being accretive to margins, gross profit book-to-bill showing value creation, more of P&L driven by own margins over time, reduced IBM software cost increases, and efficiency in SG&A.

Q: How are you articulating the opportunity of AI-related technology transitions and visibility on triple-double-single?

A: Martin said AI provides cost savings and revenue opportunities via Kyndryl Bridge and consulting practices, visibility on triple-double-single is good due to cash flow timing, reduced cash tax outflows, and visibility into gross profit book-to-bill and priced margins; David added margins on signings show good visibility into future margin growth.