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Can Kyndryl Shed Old/Bad Revenue Fast Enough To Hit Long-Term Goals?
Profit surge on 3-A initiatives; Hyperscaler growth explodes 65%; TTM bookings exceed revenue; new $400M buyback signals cash confidence.
By the numbers:
- Revenue: $3.7 billion (down 3.7% in constant currency year-over-year)
- Adjusted EPS: $0.38 per diluted share (vs. $0.01 in prior-year period)
- Adjusted EBITDA: $641 million (a 15% year-over-year increase)
- Hyperscaler Revenue: $440 million (a 65% year-over-year increase)
- TTM Signings: $15.6 billion (exceeding TTM revenue of $15.0 billion)
Key Highlights
- The company’s concerted focus on higher-margin work is clearly driving a major jump in profitability across the board.
- Strong year-over-year expansion in hyperscaler-related revenue confirms the success of the new alliance strategy.
- Bookings momentum continued for the fifth straight quarter, with TTM signings comfortably exceeding TTM revenue.
- Kyndryl announced a substantial increase to its share repurchase program, signaling confidence in future cash flow generation.
- Strategic initiatives continue to ensure new contract margins align with the company's fiscal 2028 profit targets.
The News:
Kyndryl reported second-quarter fiscal 2026 results showing a significant improvement in adjusted profitability. Adjusted EBITDA grew 15% year-over-year, and Adjusted EPS climbed sharply to $0.38 per diluted share. This profit surge occurred even as overall revenue declined by 3.7% in constant currency, reflecting the intentional move away from low-margin business. The company reaffirmed its full-year guidance and expanded its share repurchase authorization by an additional $400 million. Find out more here.
Analyst Take:
My analysis of this quarter’s results centers entirely on the concept of velocity—the velocity of profitable transformation versus the velocity of legacy revenue contraction. Kyndryl is essentially running a race against its past. This quarter shows the strategic initiatives are creating a serious tailwind for profit, which is helping the company outrun the headwinds of revenue decline. The market must recognize this is a managed decline of low-quality revenue, not a sign of operational weakness.
The most important data point, in my view, is the 15% year-over-year growth in Adjusted EBITDA. This isn't a small adjustment; this is the direct result of the "three-A" initiatives—Alliances, Advanced Delivery, and Accounts—kicking into high gear. The work to renegotiate inherited contracts, deploy automation, and focus sales efforts on higher-value services is demonstrably changing the economics of the business model.
When I look closer at the Alliances pillar, the success is staggering. Hyperscaler-related revenue jumped 65% year-over-year to $440 million. This kind of explosive growth is the proof of concept the market needs. It shows Kyndryl is getting pulled into the lucrative, high-stakes cloud modernization deals. Customers with complex, mission-critical systems need a partner who can bridge the mainframe, core enterprise, and public cloud worlds. The hyperscaler alliance strategy positions Kyndryl squarely in the middle of these complex, high-margin transformation engagements. This segment is accelerating so rapidly that the company now expects to exceed its ambitious $1.8 billion fiscal 2026 hyperscaler revenue target. That is fantastic news.
The health of the business is also reflected in the order book. The TTM book-to-bill ratio of greater than one marks the fifth consecutive quarter of backlog expansion. Critically, management continues to reinforce that the projected pretax margin associated with this new signing activity is in the high-single-digit range. This consistency provides me with strong conviction that the fiscal 2028 margin target is achievable. They are not just winning deals; they are winning good deals that are architected to deliver sustainable profit.
Furthermore, the expansion of the share repurchase program by $400 million, bringing the total authorization to $700 million, is an important signal. This move directly relates to the company’s increasing confidence in its ability to consistently generate free cash flow. This is prudent capital allocation that rewards shareholders and reaffirms the belief in the multi-year Double/Triple/Single goals—specifically the target of generating over $1 billion in free cash flow by fiscal 2028. You buy back stock when you believe your stock is undervalued and your cash flow is certain. This is leadership putting their money where their mouths are.
What was Announced
The product and service layer announcements are centered on making Kyndryl the primary vendor for managing complex modern, hybrid infrastructure, often powered by AI.
- Kyndryl Bridge serves as the central operational platform. This open integration platform is designed to consolidate visibility, management, and automation across complex, multi-cloud, and mainframe environments. It is architected to deliver predictive intelligence, automating routine tasks and freeing up technical experts for higher-value work. This is the engine of the Advanced Delivery initiative.
- The company is significantly expanding its AI capabilities through global hubs in places like England, France, Singapore, and a new AI Innovation Lab in India. The major announcement is the Kyndryl Agentic AI Framework. This framework is aimed at helping enterprise customers securely and scalably develop and deploy custom AI solutions. For a company that manages the world's most critical infrastructures, introducing an Agentic AI layer is designed to allow customers to leverage AI for data processing and automation within security-rich, mission-critical systems. This push has momentum; a quarter of all new signings already contain specific AI-related content.
- Kyndryl Consult is the advisory arm driving a lot of the high-margin, growth-focused activity. This quarter, management noted an expected acceleration in the Consult business in the second half of the year, driven by both strong signings and capacity additions. This is the tip of the spear, leading customers into modernization projects and setting the stage for future managed services revenue.
- Purchase of Kyndryl Solvinity Group B.V. Solvinity is a specialized, Netherlands-based provider of secure managed cloud platforms and services for complex enterprise customers. This strategic move is designed to significantly expand Kyndryl's service portfolio for modernizing, innovating, and securing sensitive workloads for its clients. The acquisition reflects Kyndryl's proactive investment in mission-critical capabilities, helping customers address heightened security concerns and increasing regulatory requirements. By combining Kyndryl’s expertise with Solvinity's private and hybrid sovereign cloud offerings, the company plans to innovate in the area of how clients manage, secure, and automate their critical systems. According to the company, these expanded capabilities are vital for supporting customers who run highly sensitive workloads demanding stringent compliance and security standards. Customers will directly benefit from an enhanced service portfolio that includes advanced security capabilities, comprehensive cloud platform services, and AI enablement. Although the specific financial terms of the transaction were not disclosed, the closing remains subject to customary conditions, including regulatory approval and necessary consultation with employee representatives.
Finally, in a broader market context, the CEO confirmed that channel disruption in the wake of the Broadcom/VMware acquisition has not been a hurdle; in fact, it has presented opportunities for Kyndryl to boost its own business. When major shifts happen, customers look for safe hands to manage their infrastructure. Kyndryl is positioning itself as the steady, reliable partner in a world of increasing vendor turbulence. That is a smart play. The overall profit trajectory and the quality of new signings clearly tell me the operational and strategic restructuring is proceeding on schedule, despite the overall top-line revenue pressure.
Looking Ahead:
The strategic shift away from legacy low-margin revenue and toward high-value modernization is now fundamentally validated by the profitability metrics. The key trend that I am going to be tracking is the growth of the Kyndryl Consult business, specifically how fast it can accelerate in the second half of fiscal 2026, as predicted. The Consult business acts as the gatekeeper to the high-margin managed services deals. Based on my analysis of the market, the intentional revenue decline will bottom out in the near future as the growth in hyperscaler and Consult revenue starts to counteract the shedding of bad contracts. When you look at the market as a whole, the results reinforce Kyndryl’s role as the indispensable partner for core enterprise modernization, especially in a world where AI is demanding stability and security. HyperFRAME will be closely monitoring how the company performs on free cash flow generation in future quarters, confirming the sustainability of this model.
Steven Dickens | CEO HyperFRAME Research
Regarded as a luminary at the intersection of technology and business transformation, Steven Dickens is the CEO and Principal Analyst at HyperFRAME Research.
Ranked consistently among the Top 10 Analysts by AR Insights and a contributor to Forbes, Steven's expert perspectives are sought after by tier one media outlets such as The Wall Street Journal and CNBC, and he is a regular on TV networks including the Schwab Network and Bloomberg.