Kyndryl Holdings, Inc. Q4 FY2026 earnings call

In fiscal year 2026, adjusted pre-tax income grew and margin expanded, generating over $400 million in free cash flow. Continued to invest in Kindrel Consult, alliance partnerships, and agentic AI capabilities. Kindrel Consult had double-digit revenue growth in 2026. Hyperscaler-related revenue reached nearly $2 billion in 2026. Used AI in operations to drive productivity, e.g., incidents resolved faster, root cause analysis cycles faster, freeing up people for higher-value work. Worked with customers across modernization continuum using agentic AI approach, like with European bank, global insurance company, and U.S. state government agencies.

In fiscal 2026, Kindrel Consult delivered double-digit revenue growth for the third consecutive year. Hyperscaler-related revenue streams exceeded the initial target, realizing nearly $2 billion in revenue in fiscal 2026, which has grown consistently year after year since being almost zero four years ago.

2027 fiscal year adjusted pre-tax income outlook is $600 million to $700 million, including ~$200 million charges for workforce rebalancing actions. 2028 fiscal year targets over $1.2 billion in adjusted pre-tax income and over $1 billion in free cash flow, based on low single-digit constant currency revenue growth. 2027 fiscal year expected revenue flat to down 2% in constant currency, Kindrel Consult and alliances-related revenue streams to continue growing, IBM relationship to have similar headwinds, second half revenue stronger than first half.

Sales cycles extended weighing on revenue and signings performance. Customers more thoughtful in IT decision making driven by sovereignty, AI, and cyber preparedness. Evolving relationship with IBM affecting signings and revenue size but limited impact on earnings. Workforce rebalancing actions have timing and cost risks.

Q: Kevin Christianati at Scotiabank asked about macro and buying decisions, geographic perspective.

A: Harsh and Martin discussed customers being mission critical with long-term deals, choices in platforms, tech debt, security, sovereignty, sales cycles elongated but pipeline bigger, more growth in US and complexity in Europe.

Q: James Fawcett at Mark & Stanley asked about customer spend prioritization.

A: Security, governance, AI evolution, data sovereignty, private cloud, modernization in regulated industries like banks being key, agentic AI driving investment.

Q: Jamie Friedman at Susquehanna asked about evolving IBM relationship impact on original guide.

A: Evolution different from expectation, only impact on revenue, no impact on profit.

Q: Tenjin Huang at JPMorgan asked about catalyst for sales cycle normalization.

A: Not returning to past faster cycles, focus on new customers and new content in deals, high new scope in pipeline.

Q: Jonathan Lee at Guggenheim Partners asked about downtick in fiscal 28 revenue growth.

A: IBM relationship impact, but gross profit book to bill above one, consult book to bill double-digit, pipeline with new scope gives confidence.