Kyndryl Holdings, Inc. - Q2 2026 (Period Ended Sept 30, 2025) Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended September 30, 2025, representing the second quarter of Kyndryl's fiscal year 2026. Kyndryl is the world's largest IT infrastructure services provider, spun off from IBM in November 2021. The company operates across four reportable segments: United States, Japan, Principal Markets, and Strategic Markets.
Key Financial Metrics
| Metric | Q2 2026 (3 Months) | Q2 2025 (3 Months Prior Year) | YTD 2026 (6 Months) | YTD 2025 (6 Months Prior Year) |
|---|---|---|---|---|
| Revenue | $3,721 million | $3,774 million | $7,464 million | $7,513 million |
| Net Income (Loss) | $68 million | ($43 million) | $124 million | ($32 million) |
| Diluted EPS | $0.29 | ($0.19) | $0.52 | ($0.14) |
| Adjusted EBITDA | $641 million | $557 million | $1,288 million | $1,113 million |
| Operating Cash Flow (YTD) | $22 million | $101 million | N/A | N/A |
| Cash & Equivalents | $1,331 million | N/A | N/A | N/A |
| Total Debt (Long-term + Current) | $3,128 million | N/A | N/A | N/A |
Note: Revenue declined slightly year-over-year (-1% for Q2, -1% YTD) due to the expiration of low-margin contracts, though Adjusted EBITDA grew significantly (+15% Q2, +16% YTD) driven by cost efficiencies.
Material Changes vs. Prior Period
- Profitability Turnaround: The company returned to profitability, reporting net income of $68 million in Q2 2026 compared to a net loss of $43 million in the prior year quarter. This was driven by a $30 million reduction in workforce rebalancing charges and the absence of transaction-related costs.
- Revenue Mix: While total revenue declined slightly, the company actively reduced low-margin revenues. The United States segment saw a 6% revenue decline but a 22% increase in Adjusted EBITDA.
- Cost Structure: Workforce rebalancing charges decreased to $19 million in Q2 2026 from $39 million in the prior year. Cost of services as a percentage of revenue improved to 78.5% from 80.1%.
- Share Repurchases: The company repurchased 2.9 million shares for $89 million in Q2 2026. In November 2025, the Board approved an additional $400 million in repurchase capacity.
Guidance, Outlook, and Risks
- Outlook: Management expects continued progress on operating efficiency initiatives. The "Fiscal 2026 Program" aims to reduce annual payroll costs by over $100 million, with total expected charges of approximately $80 million.
- Signings: Total signings decreased 49% in Q2 2026 ($2.8 billion) compared to the prior year, largely due to a one-time $1.8 billion signing in Q2 2025. Management views signings as a measure of customer engagement but notes variability based on contract size and timing.
- Acquisition: In November 2025, Kyndryl agreed to acquire Solvinity Group B.V. for approximately €100 million to expand managed cloud platform capabilities.
- Risks: Key risks include global macroeconomic uncertainty, trade tensions, cybersecurity threats, and the ability to retain customers and key personnel. The company also faces risks related to currency fluctuations and pension plan obligations.
Investor Verification Checklist
- Revenue Quality: Verify the sustainability of Adjusted EBITDA growth given the slight revenue decline and the strategic exit from low-margin contracts.
- Cash Flow Conversion: Review the significant drop in operating cash flow ($22 million YTD vs. $101 million prior year) and its drivers, specifically the change in accounts receivable collections.
- Deferred Costs: Examine the $942 million increase in deferred costs, primarily due to an extended multi-year software agreement, and its impact on future amortization expenses.
- Signings Pipeline: Assess the impact of the 49% drop in signings on future revenue visibility, distinguishing between the one-time large contract in the prior year and organic growth trends.
- Debt Covenants: Confirm continued compliance with the 3.50x indebtedness to EBITDA maintenance covenant under the Revolving Credit Agreement.