Kyndryl NYSE: KD reported flat full-year fiscal 2026 revenue on a reported basis and outlined a fiscal 2027 outlook that reflects continued pressure from longer sales cycles and changes in how customers buy IBM-related technology, while management emphasized margin expansion, cash generation and growth in consulting and hyperscaler-related services.
Chairman and Chief Executive Officer Martin Schroeter said the company delivered adjusted pretax income growth, margin expansion and more than $400 million in free cash flow during the year ended March 31, 2026. He said the results came despite an environment that “continued to extend sales cycles and weigh on our revenue and signings performance.”
“Customers are telling us that they are eager to embrace innovative solutions and modernization strategies, yet they are increasingly thoughtful and deliberate in their IT decision-making,” Schroeter said, citing data sovereignty, artificial intelligence and cyber preparedness as factors influencing customer decisions.
Fiscal 2026 Revenue Flat on Reported Basis
Kyndryl generated $15.1 billion in fiscal 2026 revenue, flat from the prior year on a reported basis and down 3% in constant currency. Total signings were $13.5 billion. Adjusted EBITDA was $2.7 billion, and adjusted pretax income was $581 million.
Management said adjusted EBITDA margin rose 100 basis points year over year, while adjusted pretax margin increased 60 basis points. The improvement reflected a shift toward higher-margin post-spin signings flowing through the profit and loss statement.
Harsh, speaking during the company’s prepared remarks, said Kyndryl’s “three-A’s” initiatives remained a source of margin expansion. Through alliances, Kyndryl generated $1.9 billion in hyperscaler-related revenue in fiscal 2026, up 59% from the prior year and ahead of the 50% growth target the company had expected at the start of the year. Advanced Delivery has generated roughly $1 billion in cumulative annual savings, while the Accounts initiative has produced $1 billion in cumulative annualized profit savings from focus accounts.
Free cash flow was $406 million for fiscal 2026, which management said was about $50 million above the midpoint of the company’s February guidance range of $325 million to $375 million. Kyndryl ended the year with $2.6 billion in cash, including $1 billion drawn under its revolving credit facility. Management said net leverage was 0.5 times adjusted EBITDA.
Consulting and Hyperscaler Revenue Remain Growth Areas
Schroeter said Kyndryl Consult delivered double-digit revenue growth for the third consecutive year. He said Consult signings exceeded revenue for the year, positioning the business for another year of growth.
Schroeter also highlighted hyperscaler-related revenue, which reached nearly $2 billion in fiscal 2026. He said that revenue stream was “essentially zero” four years ago. In addition to hyperscalers, Kyndryl is also expanding relationships with partners including Broadcom, Dell and Hewlett Packard Enterprise as private cloud demand becomes a more important growth factor.
The company said 80% of fiscal 2027 revenue is expected to come from post-spin, higher-margin signings. Kyndryl signed 38 deals larger than $50 million in fiscal 2026, with more than 30% consisting of new scope or new logos. Over the past three years, the company has signed more than 125 large deals.
AI and Modernization Central to Customer Demand
Schroeter said customer conversations are increasingly centered on agentic AI, including return on investment, cybersecurity, workforce implications and compliance in regulated industries. He said modernization has become a requirement as customers contend with technology debt and rising operational costs.
Within Kyndryl’s own delivery operations, Schroeter said AI agents embedded in the Kyndryl Bridge platform are improving productivity. He cited incidents being resolved 70% to 90% faster, root cause analysis cycles becoming approximately 75% faster and dependence on people’s time being reduced by 50% to 70%.
Schroeter also described customer examples involving a large European bank, a global insurance company and U.S. state government agencies. In those cases, he said Kyndryl is applying agentic AI and modernization services to hybrid cloud, mainframe transformation and digital public-sector platforms.
IBM Buying Shift Weighs on Revenue, Not Profit
Management repeatedly addressed the evolving relationship with IBM. Harsh said customers have changed how they consume Kyndryl’s services and IBM innovation, especially in the second half of fiscal 2026. He said those changes do not affect the scope or margin of Kyndryl’s services, but they do affect signings size and revenue over time.
At the time of Kyndryl’s spin-off, Harsh said the company’s annualized run rate of spend with IBM was nearly $4 billion. By the end of fiscal 2026, that run rate was less than $2 billion.
In response to a question from Susquehanna analyst Jamie Friedman, Schroeter said the IBM dynamic has evolved differently than the company expected, including compared with assumptions made at its Investor Day and at the start of the prior year.
“It is only on the revenue side,” Schroeter said. “We have zero ability to mark up IBM’s content within our deals.” He said customers’ choices affect signings, backlog and revenue, but not profit.
Fiscal 2027 Outlook and 2028 Targets
For fiscal 2027, Kyndryl expects adjusted pretax income of $600 million to $700 million. The outlook includes about $200 million of charges tied to workforce rebalancing actions, expected primarily in the first quarter. Management said related savings should largely offset those charges during fiscal 2027 and generate annualized savings of $400 million to $500 million in fiscal 2028.
The company expects fiscal 2027 free cash flow of $400 million to $500 million, with cash taxes estimated at about $200 million. Revenue is expected to be flat to down 2% in constant currency. Management said Kyndryl Consult and alliance-related revenue should continue to grow, while the IBM-related headwind is expected to remain similar to recent experience. Second-half revenue is expected to be stronger than first-half revenue.
Schroeter said Kyndryl remains focused on its fiscal 2028 targets of more than $1.2 billion in adjusted pretax income and more than $1 billion in free cash flow. He said those targets can be achieved with low single-digit constant currency revenue growth in fiscal 2028.
During the Q&A, Schroeter said sales cycles are likely to remain complex because of the mission-critical nature of Kyndryl’s work, customer choice, regulatory considerations and sovereignty concerns. He said the company’s pipeline entering fiscal 2027 is larger than it was a year earlier and noted that some deals expected in March closed in April.
Kyndryl also said it continues to address previously disclosed material weaknesses in internal controls. Schroeter said the issues did not affect previously issued financial statements and that the company expects design, implementation and testing of controls to be completed when it files its fiscal 2027 Form 10-K next year.
About Kyndryl NYSE: KD
Kyndryl NYSE: KD is a global managed infrastructure services provider formed in November 2021 through the spin-off of IBM's Managed Infrastructure Services business. The company designs, builds, manages and modernizes critical information technology systems for enterprises worldwide. Kyndryl's core offerings include cloud migration and management, network and edge computing solutions, digital workplace services and IT resiliency and security capabilities.
With a workforce of approximately 90,000 professionals and operations in more than 60 countries, Kyndryl serves clients across a broad range of industries, including financial services, telecommunications, healthcare, manufacturing and retail.
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