Kyndryl Q2 Margin Expands as Revenue Declines; FY2027 Outlook Reaffirmed

Kyndryl (NYSE: KD) reported a year-over-year revenue decline for its fiscal second quarter, but higher adjusted profit margins highlighted progress in the technology-services provider’s profitability strategy. The company reaffirmed its fiscal 2027 outlook, including constant-currency revenue ranging from flat to down 2% and free cash flow of $400 million to $500 million.

Revenue for the quarter ended Sept. 30, 2026, was $3.65 billion, down 1.9% as reported and 0.8% in constant currency. Adjusted EBITDA increased to $699 million from $641 million a year earlier, while adjusted EBITDA margin expanded to 19.1% from 17.2%.

Adjusted pretax income rose to $150 million from $123 million, with the corresponding margin increasing to 4.1% from 3.3%. Adjusted earnings per share were $0.42, compared with $0.38 in the prior-year period. On a GAAP basis, net income was $59 million, or $0.27 per diluted share, compared with $68 million, or $0.29 per share, a year earlier.

The quarterly results included $38 million of workforce-rebalancing charges, up from $19 million in the prior-year quarter.

Consult and hyperscaler activity support growth strategy

Kyndryl said demand for AI-led modernization supported Kyndryl Consult and hyperscaler-related revenue. Kyndryl Consult revenue for the 12 months through September reached $3.6 billion, up 8% as reported from $3.4 billion a year earlier. Hyperscaler-related revenue increased 39% to $2.1 billion from $1.5 billion; about 35% of that revenue was also included in Kyndryl Consult.

Kyndryl Consult generated $4.6 billion of signings over the same 12-month period, while total company signings exceeded revenue. Kyndryl recorded 43 deals valued above $50 million during the period, including 11 in the second quarter. It also signed 154 deals worth more than $10 million, with one-third involving expanded scope or new customers.

The United States segment posted 9% year-over-year revenue growth, including three percentage points related to the resolution of a commercial matter. Kyndryl said it continues to focus on winning new customers, expanding work with existing clients and investing in Kyndryl Bridge, artificial intelligence capabilities, alliances and consulting services.

The projected pretax income margin on signings was 8% for the 12 months through September, while projected gross margin on signings was 25%. Gross profit book-to-bill stood at 1.2 times. Management said the economics of recent contracts support its high-single-digit margin objective.

Fiscal 2027 outlook maintained

Kyndryl continues to expect fiscal 2027 adjusted pretax income of $600 million to $700 million and an adjusted EBITDA margin of about 19%. Its revenue outlook remains constant-currency performance ranging from flat to down 2% year over year.

Based on October 2026 exchange rates, the company expects currency movements to reduce reported revenue by about $50 million from the prior year. Its outlook also assumes approximately $200 million of workforce-rebalancing charges, $730 million of depreciation expense, $1.3 billion of amortization expense for transition costs and prepaid software, and $160 million of interest expense.

Free cash flow was negative $34 million in the second quarter and negative $434 million for the first half. The company nevertheless reaffirmed its full-year free cash flow forecast of $400 million to $500 million. Kyndryl reported $4.8 billion of available liquidity as of Sept. 30 and expects to finish fiscal 2027 below its net-leverage target of one times adjusted EBITDA.

Kyndryl’s outlook depends on its ability to convert signings into revenue, maintain pricing and delivery performance, control labor and administrative costs, and generate the anticipated second-half cash flow. Other disclosed risks include competition, rapid technological change, supplier and partner dependencies, contract-cost estimation, cybersecurity and data-privacy issues, currency fluctuations, refinancing conditions, macroeconomic and geopolitical developments, and the timing and cost of remediating material weaknesses in internal control over financial reporting.