Kyndryl (NYSE: KD) reported fiscal Q1 2027 revenue of $3.618 billion, down 3% year over year, while diluted EPS swung to a $0.25 loss from earnings of $0.23 a year earlier. The company recorded a $55 million net loss as $152 million of workforce-rebalancing charges weighed on both GAAP and adjusted results. Growth in Kyndryl Consult, hyperscaler-related revenue, and quarterly signings did not offset broader revenue and margin pressure.
Core financial results
The modest revenue decline was accompanied by a much larger deterioration in profitability. The $127 million year-over-year increase in workforce-rebalancing charges accounted for a substantial portion of the $161 million decline in GAAP pretax results, although it did not explain the entire change.
Importantly, Kyndryl includes these rebalancing charges in its adjusted results. Adjusted pretax income therefore also swung to a loss, while adjusted EBITDA declined by about 21% and its margin contracted by 310 basis points.
| Metric | Fiscal Q1 2027 | Fiscal Q1 2026 | Year-over-year change |
|---|---|---|---|
| Revenue | $3.618 billion | $3.743 billion | Down 3% |
| GAAP pretax income (loss) | $(69) million | $92 million | Swung to a loss |
| Net income (loss) | $(55) million | $56 million | Swung to a loss |
| Diluted EPS | $(0.25) | $0.23 | Down $0.48 |
| Adjusted pretax income (loss) | $(37) million | $128 million | Swung to a loss |
| Adjusted EPS | $(0.12) | $0.37 | Down $0.49 |
| Adjusted EBITDA | $512 million | $647 million | Down about 21% |
| Adjusted EBITDA margin | 14.2% | 17.3% | Down 310 basis points |
| Operating cash flow | $(310) million | $(124) million | Cash use increased $186 million |
| Free cash flow | $(401) million | $(222) million | Cash use increased $179 million |
Business and segment performance
The United States was the only geographic segment to report revenue growth, while Principal Markets and Strategic Markets declined on both reported and constant-currency bases. Japan’s 8% reported decline contrasted with 2% constant-currency growth, indicating that currency movements were the main reason for its reported contraction.
| Segment | Q1 revenue | Reported growth | Constant-currency growth | Adjusted EBITDA, current/prior year |
|---|---|---|---|---|
| United States | $954 million | 5% | 5% | $220 million / $196 million |
| Japan | $534 million | (8%) | 2% | $109 million / $115 million |
| Principal Markets | $1.262 billion | (7%) | (8%) | $151 million / $197 million |
| Strategic Markets | $868 million | (3%) | (8%) | $62 million / $163 million |
| Total | $3.618 billion | (3%) | (3%) | $512 million / $647 million |
Strategic Markets produced the largest EBITDA decline, falling by $101 million, while Principal Markets declined by $46 million. The United States partially offset those pressures with a $24 million improvement.
Kyndryl’s higher-growth offerings continued to expand. Kyndryl Consult revenue increased 10% in the quarter, while hyperscaler-related revenue rose 34% to more than $530 million. The hyperscaler-related annualized run rate exceeded $2.1 billion, but this figure is simply quarterly revenue multiplied by four and is not a forecast.
First-quarter signings rose approximately 22% to $3.9 billion from $3.2 billion, supported by the United States segment. However, trailing-12-month signings declined approximately 22% to $14.2 billion from $18.3 billion. The company signed 10 contracts worth more than $50 million each during the quarter and 40 over the past 12 months.
Profitability, cash flow, and the balance sheet
Operating cash use increased primarily because of working-capital timing, including higher software payments and lower billings and collections. Lower incentive compensation payments provided a partial offset. Net capital expenditures were $91 million, bringing free cash flow to negative $401 million.
Cash and equivalents decreased by $519 million during the quarter, from $2.623 billion at March 31 to $2.104 billion at June 30. Debt was nearly unchanged at $4.070 billion, compared with $4.089 billion at the end of March.
Kyndryl also spent $64 million to repurchase 5 million shares during the quarter. Since the repurchase program was authorized in November 2024, the company has bought back 19.3 million shares for $462 million, representing 8% of shares outstanding.
Restructuring costs precede targeted fiscal 2028 savings
Kyndryl incurred $152 million of workforce-rebalancing charges in the first quarter and continues to expect approximately $200 million for the full fiscal year. This means roughly three-quarters of the expected annual charges were recognized in the first quarter.
Once the actions are completed, management expects annualized run-rate operating expense savings of approximately $400 million to $500 million in fiscal 2028. These are targeted run-rate savings rather than savings already reflected in the current quarter, leaving execution and timing important to the future margin impact.
Fiscal 2027 guidance
Kyndryl reaffirmed its fiscal 2027 outlook without changing any of its three quantitative targets. Its adjusted pretax income definition continues to include workforce-rebalancing charges.
| Metric | Reaffirmed fiscal 2027 outlook | Previous outlook | Change |
|---|---|---|---|
| Constant-currency revenue growth | Flat to down 2% | Same | Unchanged |
| Adjusted pretax income | $600 million to $700 million | Same | Unchanged |
| Free cash flow | $400 million to $500 million | Same | Unchanged |
The first-quarter results leave a meaningful amount of improvement required during the remaining nine months. On a simple arithmetic basis, the full-year outlook implies $637 million to $737 million of adjusted pretax income and $801 million to $901 million of free cash flow after the first quarter. The constant-currency revenue outlook also calls for a better full-year result than the first quarter’s 3% decline.
Risks investors should monitor
- Profitability must improve materially: Adjusted EBITDA margin fell to 14.2%, and the company began the year with an adjusted pretax loss despite reaffirming substantial full-year adjusted pretax income.
- Cash conversion depends on working-capital execution: Higher software payments and lower billings and collections contributed to a $401 million free-cash-flow use, increasing the importance of reversing those timing effects.
- Segment weakness remains concentrated: Principal Markets and Strategic Markets both contracted in constant currency, with Strategic Markets producing the largest EBITDA decline.
- Restructuring savings are not yet realized: The company recognized most of its expected fiscal 2027 rebalancing charges in the first quarter, while the targeted expense benefits are annualized fiscal 2028 run-rate savings.
- Signings do not guarantee future revenue: Quarterly signings increased, but trailing-12-month signings declined, and Kyndryl notes that conversion into revenue varies with contract terms and customer decisions.
Summary
Kyndryl’s fiscal Q1 2027 combined a modest revenue decline with a sharper reversal in earnings, lower adjusted EBITDA margins, and increased cash use. Workforce-rebalancing charges were a major near-term burden, while the United States, Kyndryl Consult, hyperscaler-related revenue, and quarterly signings provided areas of growth. The main issue for the rest of fiscal 2027 is whether Kyndryl can turn those growth areas and its restructuring program into the substantial profitability and cash-flow improvement embedded in its reaffirmed outlook.
More questions
Why did Kyndryl’s adjusted results include restructuring charges?
Kyndryl’s non-GAAP definitions do not exclude the workforce-rebalancing charges incurred this quarter. As a result, the $152 million charge affected both reported and adjusted results, including adjusted pretax income and adjusted EBITDA.
Does $3.9 billion of quarterly signings equal future revenue?
No. Signings are Kyndryl’s estimate of customer commitments under contracts. The amount and timing converted into revenue can vary based on contract structure, customer decisions, and other factors.
Is the $2.1 billion hyperscaler-related run rate a revenue forecast?
No. Kyndryl calculates the run rate by multiplying the most recent quarter’s hyperscaler-related revenue by four. It measures recent revenue-generating capacity rather than expected future revenue.
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