Kyndryl Holdings, Inc. Q2 FY2026 earnings call

• Delivered margin expansion, substantial earnings increase, and strong growth in Kyndryl Consult and Hyperscaler-related revenue streams. Trailing 12 months revenue book-to-bill remains above 1. - Reaffirmed fiscal 2026 outlook, increased share repurchase program by $400 million. - Kyndryl Bridge, AI-powered operating platform, performs over 186 million automations and generates 15 million actionable insights monthly, with over 100 partners integrated. - Infrastructure modernization is a growth vector, with AI adoption driving demand for modernization. - Agentic AI framework helps customers deploy AI, with 25% of signings already containing AI-related content. - Acquired a midsized cloud services provider in Europe. - Accounts initiative remediating contracts with substandard margins, increased cumulative annualized profit from focus accounts by $25 million to $950 million.

In the second quarter, revenue totaled $3.7 billion, down 1% from the prior year quarter on a reported basis and 3.7% in constant currency. Kyndryl Consult revenues grew 25% year-over-year in constant currency. Over the last 12 months, Kyndryl Consult revenue has increased 32% in constant currency and is now running at an annual pace of $3.4 billion. Hyperscaler-related revenues have doubled since last year and are tracking above the initial $1.8 billion fiscal 2026 target. Adjusted EBITDA increased 15% year-over-year to $641 million, and adjusted EBITDA margin was 17.2%, up 250 basis points year-over-year. Adjusted pretax income grew 171% to $123 million, and adjusted pretax margin increased 210 basis points year-over-year.

• Reaffirm fiscal 2026 outlook. - Expected adjusted pretax income this year at least $725 million, growing by at least 50%. - Adjusted EBITDA margin in fiscal 2026 approximately 18%, increase of roughly 130 basis points vs fiscal 2025. - Constant currency revenue growth in fiscal 2026 expected to be positive 1%, implying 4%-5% growth in the second half. - Projected free cash flow for the year approximately $550 million.

Forward-looking statements subject to risk factors that may cause actual results to differ materially from expectations. Customer decision cycles and potential deal slippage may impact revenue conversion.

Q: Congratulations on a strong quarter. Wanted to ask about capital allocation opportunities and AI's impact on competitive position.

A: Martin Schroeter mentioned investing in business, tuck-in acquisitions, and returning capital to shareholders. AI-related content in 25% of signings, focused on cloud, digital workplace, apps data and AI practices, helping customers with data architecture, AI-enabled solutions, cloud migration, and agentic AI development.

Q: On CapEx, acquisitions, and sales cycles.

A: Martin Schroeter said acquisitions are in line with mission-critical infrastructure services, around EUR 100 million, and sales cycles seem normal with cautious decision-making due to mission-critical nature. David Wyshner mentioned CapEx around 4%-5% of revenues, funded by free cash flow, and capital allocation includes share repurchases and acquisitions.

Q: On revenue and second half risk.

A: Martin Schroeter said second half starting point is better due to contracted backlog and divestiture wrap, consult investments and hyperscaler momentum, with stronger pipeline content having nearer-term realization but not likely to shift year-to-year.

Q: On pipeline, verticals, and expanded scope.

A: Martin Schroeter said strong verticals include retail, travel, TMT; geographies like Canada, Spain, India, Latin America. Example of expanding scope with a long-standing customer in APAC, modernizing environment and driving revenue increase.