Earnings Recap — Q1 FY2027
CY Q3 2026 · Reported August 5, 2026 · Beat 5 of last 7 quarters
The Buildout is a website built on agentic AI tools, currently in beta, and could have factual errors.
Kyndryl's continued growth in Kyndryl Consult and hyperscaler-related revenue, up 14% and 48% respectively, underscores the accelerating demand for AI-led modernization and cloud migration services across mission-critical IT estates. The company's expanded alliances with AWS, Microsoft Azure, and others, along with its Agentic AI framework, position it as a key services layer in the AI infrastructure buildout, helping enterprises deploy and operate AI workloads on modernized infrastructure. The persistent IBM procurement headwind, however, highlights the ongoing shift in how customers consume hardware and software directly from vendors, which could temper top-line growth even as services content expands.
Kyndryl reported Q1 FY27 revenue of $3.6B, down 3% YoY, with adjusted EBITDA of $512M and an adjusted pretax loss of $37M, impacted by $152M of workforce rebalancing charges. Signings totaled $3.9B in the quarter, with 12-month signings of $14.2B, and the company signed 10 deals over $50M. Kyndryl Consult revenue grew 14% and hyperscaler-related revenue grew 48% over the last 12 months. Free cash flow was a $401M outflow, reflecting seasonal working capital timing, and the company repurchased 5 million shares for $64M.
Management reaffirmed fiscal 2027 guidance: adjusted pretax income of $600M to $700M, free cash flow of $400M to $500M, and revenue flat to down 2% in constant currency, with year-over-year trends improving each quarter. They expect second-half revenue to be stronger than first half, driven by signings momentum and continued growth in Kyndryl Consult and hyperscaler-related streams. The evolving IBM relationship is expected to remain a similar top-line headwind for the remainder of the year, but with limited earnings impact. Workforce rebalancing actions are on track, with ~$200M of charges and similar savings in FY27, and annualized savings of $400M-$500M expected in FY28. Management reiterated confidence in achieving fiscal 2028 targets of more than $1.2B adjusted pretax income and $1B free cash flow on low single-digit constant currency revenue growth.
“It's like trying to run a new 200-mile per hour capable bullet train on tracks built for a 30-mile per hour world.”
on AI-led modernization
“With more revenue expected to come from higher-margin post-spin signings this year and next, the quality of that revenue base gives us confidence in our ability to increase profitability and deliver more than $1.2 billion in adjusted pretax income and $1 billion in free cash flow in fiscal 2028.”
on Fiscal 2028 targets
“We continue to see momentum in our hyperscaler kind of that we have continued to see. And I think the higher value elements that we have in our signings, once again, the new scope and new logo, it continued at a pace of 30%, as Martin mentioned in his prepared remarks compared to 2025 fiscal, which was like 15%.”
on Signings quality and hyperscaler momentum
Can you help us think through what's contemplated in the fiscal '27 outlook across the key moving pieces, specifically the assumed Consult growth pace, the level of signings conversion assumed and any embedded assumptions around sales cycle duration? Where do you see the biggest sources of upside and downside relative to the flat to down 2% constant currency revenue outlook range?
Martin noted Consult growth of 10% in Q1, within the high single to low double-digit range assumed in guidance, and strong signings momentum including 50% growth in Consult signings in Q1 and a good July. He acknowledged a tough compare in Q2 for Consult but remained confident in the full year. Sales cycles are not dramatically different, though customers are making long-term decisions on mission-critical environments. Harsh added that new scope and new logos continue at a 30% pace in signings, with a good pipeline mix.
Good strength -- continued strength in the U.S., but I want to switch to the Principal Markets and maybe Europe was down 8% constant currency, 7% last quarter. I mean, I think that's expected. You did talk last quarter about some of the headwinds on AI sovereignty and buying decisions. But just curious, was that ahead or below your expectations? And how do you see trends out of Europe evolving into Q2, Q3?
Martin said the European performance was consistent with assumptions for the year and that deal cycles are not getting longer, though sovereignty discussions add complexity. Harsh added that the U.K. and European segment of Strategic Markets have been as anticipated, with no impact on the full-year view.
Just thinking about the workforce in general. So you've got robust signings, you've got some savings on the way from the workforce rebalancing. I'm curious if you can just comment on resourcing or headcount and just your line of sight there in reskilling and lining up the workforce to deliver on the AI-led modernization and the value-added services work that you're focusing on. Do you feel good about the pathway there? I would expect you'll probably see some increase in revenue per head or PTI per head. But just again, just looking for more detail there.
Martin discussed the use of AI and agentic automation in operations, with 1,800 agents in the infrastructure, and redeployment of tens of thousands of people into higher-value roles. He noted $1 billion in cumulative savings since spin-off and improving NPS. Harsh added that forward-deployed engineers and agentification are helping win deals, and that workforce management is holistic, with strong reskilling and redeployment success.