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Kyndryl Holdings, Inc. - Q1 2026 Filing Summary

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended June 30, 2026. Kyndryl Holdings, Inc. operates as the world's largest IT infrastructure services provider, offering advisory, implementation, and managed services across four geographic segments: United States, Japan, Principal Markets, and Strategic Markets. The company is currently navigating a transition period following its spin-off from IBM, focusing on cost restructuring and operational efficiency.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Decline: Revenue decreased 3% year-over-year to $3.6 billion. While the United States segment grew 5%, Japan, Principal Markets, and Strategic Markets declined due to currency headwinds and strategic reductions in low-margin legacy contracts.
• Profitability Shift: The company reported a net loss of $55 million compared to a net income of $56 million in the prior year. This swing was primarily driven by a $127 million increase in workforce rebalancing charges and a $38 million impairment expense.
• Adjusted EBITDA: Adjusted EBITDA fell 21% to $512 million, impacted significantly by the Strategic Markets segment, which saw a 62% decline in adjusted EBITDA due to restructuring costs.
• Cash Flow: Operating cash flow turned negative at $310 million used, compared to $124 million used in the prior year. This was driven by timing of working capital, specifically higher software subscription payments ($166 million) and lower billings/collections ($96 million).

Outlook, Risks, and Unusual Items

• Restructuring (Fiscal 2027 Actions): Management initiated new cost-reduction actions expected to result in approximately $200 million in total charges. $152 million was recognized in Q1 2026. These actions aim to reduce annual payroll and related expenses by $400-$500 million.
• Acquisition Block: The proposed acquisition of Solvinity Group B.V. was prohibited by the Dutch government in May 2026. The company is exploring remedies, including contesting the decision.
• Divestiture Gain: The company recognized a $40 million pretax gain from the sale of a digital solutions subsidiary in the Principal Markets segment.
• Internal Control Weaknesses: Management concluded that disclosure controls and procedures were not effective as of June 30, 2026, due to material weaknesses in the control environment, specifically regarding transparency with the CEO/Audit Committee on cash management practices and the escalation of hotline complaints.
• Legal Proceedings: The company is cooperating with an ongoing SEC investigation regarding cash management practices and internal controls. Additionally, a securities class action lawsuit remains pending in the Southern District of New York.
• Liquidity: The company maintains $2.1 billion in cash and $2.2 billion in available revolver capacity. A $1 billion draw on the revolver was extended to mature in November 2026.

Investor Verification Checklist

• Verify the timeline and expected cost savings realization of the "Fiscal 2027 Actions" workforce rebalancing program.
• Monitor the status of the SEC investigation and the remediation plan for material weaknesses in internal controls, with a target remediation date of March 31, 2027.
• Assess the impact of the blocked Solvinity acquisition on future growth strategies in the European market.
• Review the sustainability of operating cash flows given the significant outflows for software renewals and the timing of receivables.
• Track the progress of the pending securities litigation in the Southern District of New York.