Kyndryl Q1 Earnings Call Highlights

Kyndryl’s fiscal Q1 revenue fell 3% to $3.6 billion, while adjusted EBITDA was $512 million and adjusted pre-tax income was a $37 million loss. Workforce rebalancing charges of $152 million significantly reduced margins. U.S. revenue rose 5%, Kyndryl Consult revenue increased 14%, and hyperscaler-related revenue grew 48% to more than $530 million for the quarter, supported by demand for AI, cloud modernization and cybersecurity services. Kyndryl maintained its fiscal 2027 targets for flat-to-2% constant-currency revenue decline, $600 million-$700 million in adjusted pre-tax income and $400 million-$500 million in free cash flow. Management expects IBM-related revenue pressure to continue, while workforce actions are projected to generate $400 million-$500 million in annualized savings by fiscal 2028.

Kyndryl NYSE: KD reported fiscal first-quarter revenue of $3.6 billion, down 3% from a year earlier on both a reported and constant-currency basis, while maintaining its full-year outlook as it pursues growth in consulting, hyperscaler partnerships and AI-led modernization services. For the quarter ended June 30, the company generated adjusted EBITDA of $512 million and an adjusted pre-tax loss of $37 million. Interim Chief Financial Officer Harsh Chugh said earnings and margin declined year over year primarily because of $152 million in workforce rebalancing charges, which reduced adjusted pre-tax income margin by more than four points.

Kyndryl continued to see growth in the U.S., where revenue increased 5% for a second consecutive quarter. The company exited the period with $14.2 billion in trailing 12-month signings, including $3.9 billion signed during the quarter.

Consulting and Alliance Growth Chairman and Chief Executive Officer Martin Schroeter said Kyndryl Consult and hyperscaler-related activities were helping offset revenue pressure from focus accounts, extended sales cycles and customers purchasing certain IBM hardware and software directly from IBM.

Kyndryl Consult revenue rose 14% over the last 12 months, while hyperscaler-related revenue streams increased 48%. In the first quarter, Kyndryl generated more than $530 million in hyperscaler-related revenue, bringing the trailing 12-month total to $2 billion. Schroeter said customers are increasingly seeking help with AI deployment, modernization of hybrid technology estates, cybersecurity and data-residency requirements. He said the company has expanded its AWS alliance to support enterprise adoption of agentic AI and broadened work with Microsoft Azure around cloud architectures and operational requirements. Kyndryl also cited partnerships with Broadcom, Dell, Hewlett Packard Enterprise and Red Hat. The company signed 40 deals valued at more than $50 million during the past 12 months, including 10 in the first quarter. About 30% of the value of those larger deals came from scope expansions or new customers, compared with 15% in fiscal 2025, according to Schroeter. Kyndryl Consult signings rose 50% in the first quarter, Schroeter said during the question-and-answer session. New scope and new-logo business represented 30% of large-deal signings, management said. Average projected gross margin on signings over the last 12 months was 25%, according to Chugh.

Chugh said Kyndryl’s changing commercial relationship with IBM has created a three-point adverse effect on constant-currency revenue performance, alongside earlier effec...