Kyndryl's Q1 Results: Profit Soars Amid AI and Cloud Growth, but Revenue Misses Mark

Kyndryl's first-quarter profit soars as renegotiated contracts aid margins

Aug 4 (Reuters) - Kyndryl Holdings' (KD.N), opens new tab first-quarter profit soared more than five-fold, the company said on Monday, as the former IBM (IBM.N), opens new tab unit's renegotiation of contracts helped improve margins on its services. The company, formerly IBM's infrastructure services business, has been restructuring multiple no-margin contracts it inherited from the Big Blue to generate higher profits, but at the cost of revenue growth. Kyndryl's net income soared to $56 million for the June quarter from a profit of $11 million in the year-ago-period, while revenue was flat at $3.74 billion. The software provider's quarterly net income margin stood at 1.5%, up from 0.3% in the year-ago period. Businesses have prioritized spending on essential software amid macroeconomic uncertainty spurred by U.S. President Donald Trump's ongoing global trade negotiations. This has shielded companies like Kyndryl, whose software helps businesses conduct day-to-day operations and enable artificial intelligence integration. "We're not completely immune to it (macroeconomic conditions), but definitely we're significantly insulated because of the nature of what we do. It is generally mission critical and not discretionary," CFO David Wyshner told Reuters. Sales in the consulting unit grew 30% in the June quarter, as clients seek expertise on integrating AI technology. Revenue tied to large cloud providers grew 86% to $400 million in the quarter. Customers continue to use a hybrid cloud approach and the company benefits from multi-cloud management, Oppenheimer analysts said last month. The company reaffirmed its forecasts for the fiscal year, still expecting constant-currency revenue growth of 1% in its current fiscal year. Kyndryl CFO Wyshner does not expect Trump's massive package of tax and spending cuts, signed into law last month, to have a significant impact on the company in the next two or three years. "But as we look at the longer-term, this will be helpful to us, potentially by a point or two in terms of our longer term effective tax rate," Wyshner said. Reporting by Arsheeya Bajwa in Bengaluru; Editing by Leroy Leo Our Standards: The Thomson Reuters Trust Principles., opens new tab

Kyndryl's stock sinks on revenue miss and lower guidance - SiliconANGLE

Shares of the technology consultancy Kyndryl Holdings Inc. were battered and bruised today after it failed to meet Wall Street's first-quarter revenue projections. It also offered underwhelming guidance for current quarter sales, and that helped push its stock down more than 13% in extended trading. The company reported earnings before certain costs such as stock compensation of 37 cents per share, in line with the Street's expectations, but revenue came up short. It delivered just $3.74 billion in sales, flat from the year-ago period, but well below the analysts' consensus estimate of $3.83 billion. However, Kyndryl did at least improve its bottom line, with net income of $56 million, surpassing the $11 million profit it posted in the same period last year. Kyndryl is focused on providing information technology consulting services to enterprises, having split off from IBM Corp. in November 2021. It's organized into six global managed services practices, each managing a different aspect of technology: applications, data and artificial intelligence; core enterprise and zCloud, IBM's mainframe-as-a-service offering; digital workplace; network and edge; security and resiliency; and cloud. It also offers a customer advisory practice that combines managed services, advisory services and implementation. In addition to its six core practices, it offers services designed to help companies set up and maintain their workloads on leading cloud infrastructure platforms, such as Amazon Web Services, Google Cloud, Microsoft Azure and IBM Cloud. Kyndryl Chairman and Chief Executive Martin Schroeter (pictured), put on a brave face, saying in a statement that the company made steady progress in "key growth areas," with contributions from Kyndryl Consult, hyperscaler-related activity, scope expansions and productivity gains. In an interview with the Wall Street Journal, Schroeter elaborated on the company's strong fundamentals, saying it's seeing a lot of progress from businesses that are investing in productivity-boosting technologies and require assistance to get them up and running. "Customers are completely willing to engage in discussions to help them take advantage of opportunities like AI, or prepare for challenges such as cybersecurity and new regulatory environments," Schroeter said. The CEO alluded to strong demand for Kyndryl's consulting services, as well as its AI and cloud partnerships, adding that the strength here was the main reason for the company's higher profitability during the quarter. He said companies continue to up spending in these areas, despite facing economic uncertainty. According to Schroeter, AI is critical for the company's long-term growth strategy, because it's the one area where technology investment continues to grow. He explained that many businesses need help in readying their infrastructure and workers for AI. There's a lot of work that goes into it, he said, from strengthening security to improving day-to-day operations to staff training. That's why Kyndryl continues to invest heavily in supporting this kind of work, building strong partnerships with companies such as Nvidia Corp., Dell Technologies Inc. and Hewlett Packard Enterprise Co., which provide the data center infrastructure needed for running AI on-premises. During the quarter, Kyndryl announced a new Agentic AI Framework that's designed to help enterprises overcome the complexities of deploying AI-powered agents that can automate business tasks with minimal human supervision. They're notoriously tricky to get up and running, as they must be integrated with dozens, if not hundreds, of different business systems and applications to make themselves useful. It's also striving to help companies with their on-premises AI deployments. In April, it announced a new set of AI Private Cloud services, aiming to help customers design and deploy "enterprise-grade AI solutions" in their own data centers with full regulatory compliance. It services here extend to the identification of high-return use cases, designing and building prototypes and moving deployments into production. Schroeter also talked about Kyndryl's progress in the cloud. He said revenue tied to cloud hyperscalers such as Microsoft Corp. and Alphabet Inc.'s Google Cloud hit around $400 million in the quarter, up 86% from a year earlier, putting the company well on track to achieve its target of $1.8 billion in the fiscal year. Despite all of the positivity mentioned by Schroeter, it didn't mask the fact that the company's guidance came up short of expectations. Kyndryl said it's expecting revenue of around $3.81 billion at the midpoint of its forecast range, trailing the Street's forecast of $3.87 billion. Investors voted with their feet, and the sharp after-hours drop means Kyndryl's stock is now up just 6% in the year to date, trailing the broader S&P 500 Index, which is up 7% in the same timeframe.

Kyndryl (KD) Q1 EPS Drops 55 Percent

Kyndryl (KD -20.98%), the world's largest IT infrastructure services provider, reported its first quarter fiscal 2026 results on August 4, 2025. The key news from the release was a significant earnings and revenue miss: Earnings per share came in at $0.37 (non-GAAP), missing the analyst estimate of $0.83, and GAAP revenue was flat at $3.74 billion, missing consensus expectations of $3.92 billion by 4.6%. Despite the shortfall, the company delivered a 16% year-over-year increase in adjusted EBITDA and a notable improvement in profitability. Management reiterated its full-year guidance, pointing to high-margin growth in consulting, cloud partnerships, and an expanding services backlog. Overall, the quarter showed operational progress in margins and signings but raised questions about forecasting reliability and top-line momentum. Source: Analyst estimates provided by FactSet. Management expectations based on management's guidance, as provided in Q4 2025 earnings report. About Kyndryl's Business and Key Focus Areas Kyndryl (KD -20.98%) designs, manages, and modernizes complex information technology (IT) systems for enterprise clients. Its services cover cloud, data management, security, artificial intelligence (AI), and networking. The company's core business is helping large organizations navigate digital transformation by upgrading, securing, and running critical IT infrastructure, both in-house and in the cloud. Recently, Kyndryl has focused on expanding higher-value services, such as consulting and cloud infrastructure partnerships, as well as developing AI tools for enterprise clients. Success depends on its ability to modernize clients' systems, grow through partnerships with top technology vendors, capitalize on the enterprise move to digital and cloud systems, and maintain a highly trained and adaptable workforce. Security and resiliency also remain central, as clients increasingly expect robust protection from cyber threats and disruptions. This Quarter's Performance: Financial and Operational Highlights Kyndryl posted nearly flat GAAP revenue, falling short of analyst expectations by $180 million but holding steady compared to the prior-year period. Adjusted earnings per share (non-GAAP) missed by more than half, at $0.37 versus the estimated $0.83, while adjusted EBITDA reached $647 million, a 16% increase from a year earlier. Despite robust signings growth -- contracts valued at $3.2 billion, up 3% -- U.S. revenue, the company's largest market, slid 8%. Japan's reported growth was offset by currency effects, showing an underlying decline once adjusted. Margins, however, showed strong improvement. The adjusted EBITDA margin rose to 17.3% from 14.9% in Q1 FY2025, reflecting gains from higher-margin service lines and improved operational efficiency. Net income (GAAP) climbed to $56 million from $11 million in the prior-year period, while adjusted pre-tax income rose 39%, hitting $128 million. Kyndryl Consult, its advisory services line, saw revenue jump 30% year over year. Signings for consulting services surged 36% over the last twelve months, pointing to future growth in this area. In cloud alliances, revenue linked to major public cloud providers (often called "hyperscalers," such as Amazon Web Services, Google Cloud, and Microsoft Azure) soared 86% to $400 million. These segments contributed to a high book-to-bill ratio for FY2025 -- a measure indicating that signed contracts exceed revenue recognized -- suggesting a healthy pipeline for future earnings. The company also showcased the launch of its Agentic AI Framework, an enterprise-grade platform to help businesses adopt advanced AI solutions across different IT environments. This move strengthens Kyndryl's position in automation and AI-enabled IT operations. Share repurchases totaled 1.8 million shares at a cost of $65 million, marking continued efforts to return capital to shareholders. Non-GAAP free cash flow was negative $222 million, reflecting typical seasonal outflows, and was higher than the prior year's outflow. Overall, cash and equivalents stood at $1.46 billion, and debt totaled $3.14 billion as of June 30, 2025. Business Context: Product Families and Market Trends Kyndryl's services center around managed IT infrastructure -- supporting the critical backbone of large organizations' technology systems. Kyndryl Consult, comprising advisory and transformation consulting, has grown steadily to account for over 25% of revenue as of Q4 FY2025. This segment helps clients modernize applications, transition to cloud systems, manage data, and address technology "debt," which refers to outdated systems or incomplete technology initiatives. The company's hyperscaler alliances represent a product family focused on integrating clients with major cloud providers. These cloud partnerships generate significant revenue through migration projects and ongoing management of cloud-based systems. The recently introduced Agentic AI Framework builds on Kyndryl Bridge, its platform for automating IT workflows, and aims to help clients deploy and manage artificial intelligence solutions at enterprise scale. These toolsets are designed to bring higher efficiency, cost savings, and improved system resilience -- attributes increasingly demanded by enterprise customers. Although signings and higher-value services are trending up, legacy revenue streams such as traditional IT outsourcing continue to shrink, pulling down total sales in some regions, particularly the United States. Signings, however, remained strong overall, and management views the backlog of high-margin contracts as a support for future business performance. Share buybacks also continued, supported by recent financial gains. Looking Ahead: Guidance and Key Watchpoints For full FY2026, management reaffirmed earlier guidance, projecting at least $725 million in adjusted pre-tax income, an adjusted EBITDA margin of approximately 18%, free cash flow of approximately $550 million, and 1% growth in constant-currency revenue. These FY2026 targets rely on continued margin expansion and revenue conversion from the expanding backlog of signed contracts. No notable change or update to guidance was made for FY2026, despite the shortfalls in the current quarter. Investors should monitor the company's ability to convert contract signings into recognized revenue, especially within the high-growth consulting and cloud alliance lines. The scaling of new service launches, such as the Agentic AI Framework, and performance on free cash flow in upcoming quarters will be important for tracking progress against management's stated goals. Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.