Kyndryl (KD) Q3 2026 earnings summary

Executive summary

• Quarterly revenue was $3.9 billion, up 3% year-over-year, with margin expansion and adjusted EBITDA of $696 million, though results were below expectations due to longer sales cycles and evolving customer needs.

• Kyndryl Consult delivered 24% year-over-year revenue growth, now representing 25% of total revenue, driven by strategic focus on high-growth areas, but growth was below internal targets due to market complexity and delayed cloud transitions.

• Net income for the quarter was $57 million, down from the prior year due to the absence of a divestiture gain and higher transaction-related costs.

• Strategic focus remains on AI, hyperscaler alliances, and private cloud, with investments in automation and innovation to drive future growth.

• Leadership changes included the appointment of an interim CFO, General Counsel, and Corporate Controller.

Financial highlights

• Adjusted EBITDA was $696 million for the quarter, down 1% year-over-year; adjusted pretax income rose to $168 million, with an adjusted EBITDA margin of 18.0%.

• Free cash flow for the quarter was $217 million; cash and equivalents at December 31, 2025, were $1.35 billion, with total debt of $3.1 billion.

• Share repurchases totaled $100 million in the quarter, representing 1.6% of shares; 5% repurchased since program inception.

• Hyperscaler-related revenue grew 58% year-over-year to $500 million in Q3, on track to exceed $1.8 billion for fiscal 2026.

• Adjusted earnings per share for the quarter was $0.52.

Outlook and guidance

• Fiscal 2026 guidance: adjusted pretax income of $575–$600 million, adjusted EBITDA margin of ~17.5%, free cash flow of $325–$375 million, and constant-currency revenue decline of 2–3%.

• Fiscal 2028 targets reaffirmed: over $1.2 billion in adjusted pre-tax income and more than $1 billion in adjusted free cash flow.

• Management expects subdued but positive global macroeconomic growth in 2026, with ongoing volatility from geopolitical and trade factors.

• Workforce rebalancing and site rationalization actions are expected to reduce annual payroll and related costs by over $100 million.