Kyndryl’s fiscal second quarter of 2026 showed improving profitability and contract quality, not broad-based revenue growth. Revenue fell to approximately $3.7 billion for the quarter ended September 30, 2025, while adjusted EBITDA rose 15% to $641 million and net income improved to $68 million. CEO Martin Schroeter argued that stronger backlog, consulting growth, hyperscaler alliances and better-margin signings positioned the company for a stronger second half.
That distinction matters: Kyndryl had evidence of business-mix and margin improvement, but its full-year outlook still depended on converting backlog and pipeline into revenue and cash flow.
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First, what does “second quarter 2026” mean?
Kyndryl’s fiscal year runs from April through March. Its fiscal Q2 2026 covered July 1 through September 30, 2025 and was reported on November 4, 2025. It was not the calendar quarter ending June 30, 2026; that period was Kyndryl’s fiscal Q1 2027.
Kyndryl reported the results in its fiscal Q2 2026 earnings release, while CRN’s coverage included an interview with CEO Martin Schroeter.
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The headline: weaker revenue, much better profitability
Kyndryl’s revenue was approximately $3.7 billion, down about 1% on a reported basis and 3.7% in constant currency, according to the company’s release. CRN described the decline as approximately 1.4%.
| Measure | Fiscal Q2 2026 | What it shows |
|---|---|---|
| Revenue | Approximately $3.7 billion | Still declining; constant-currency performance was weaker than reported revenue |
| GAAP pretax income | $98 million | Improved from a $5 million pretax loss a year earlier |
| GAAP net income | $68 million, or $0.29 per diluted share | Improved from a $43 million loss |
| Adjusted EBITDA | $641 million | Up 15% year over year |
| Adjusted pretax income | $123 million | Up from $45 million |
| Cash flow from operations | $147 million | Positive operating cash generation |
| Free cash flow | $22 million | Positive, but well below the full-year target |
The apparent contradiction—falling revenue alongside rising earnings—reflects Kyndryl’s effort to improve the economics of its business. Management said it was reducing undesirable contract content, improving productivity and signing work with better expected margins.
Adjusted EBITDA and adjusted pretax income are non-GAAP measures. They help explain operating trends, but they are not substitutes for GAAP profit or cash flow.
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Why Schroeter said Kyndryl was positioned for growth
Schroeter’s argument rested on four main developments.
1. A stronger second-half starting point
Schroeter said committed backlog entering the second half was about one percentage point better than in the first half. Backlog represents work expected to be delivered, but it does not guarantee that revenue will be recognized in a particular quarter or that contracts will perform exactly as projected.
2. The effect of a divestiture
Kyndryl had completed the sale of its Canadian Securities Industry Services platform. The transaction removed associated revenue from comparisons, but management said Kyndryl could retain consulting and run-work opportunities connected with customers.
This creates an important reporting nuance: a divestiture can reduce headline revenue while leaving some strategic customer relationships intact.
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3. Faster Kyndryl Consult growth
Kyndryl Consult revenue grew 28% year over year in Q2. The company also said consulting signings increased 11% over the preceding 12 months and expected further acceleration as it expanded delivery capacity.
Consulting can be strategically valuable because it may be recognized faster than a long managed-services contract and can help identify later modernization, infrastructure or run-work opportunities. That is a potential benefit, not a guaranteed conversion from consulting work into future revenue.
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4. Hyperscaler momentum
Hyperscaler-related revenue reached $440 million, up 65% year over year. Kyndryl said it was on track to exceed its initial fiscal-2026 hyperscaler revenue target of $1.8 billion.
“On track” was management’s assessment at the time, not a reported result. Hyperscaler revenue growth is encouraging, but revenue volume alone does not establish equivalent profit growth.
What “better-quality growth” meant
Kyndryl emphasized the quality and expected economics of new signings rather than only their dollar value.
- Trailing-12-month book-to-bill remained above one for the fifth consecutive quarter.
- Projected pretax margins on recent signings were in the high-single-digit range.
- The pipeline contained more consulting and managed-services work that management expected to generate revenue earlier.
- Newer contracts were being signed with healthier economics than some inherited business.
A book-to-bill ratio above one generally means new bookings exceeded recognized revenue during the relevant period. It can support future growth, but it is not a guarantee of revenue, cash generation or contract profitability. Similarly, high-single-digit margins at signing are projections, not realized margins.
Kyndryl’s three-A plan
Management linked earnings improvement to three initiatives:
- Alliances: partnerships and revenue connected to hyperscalers and other technology providers.
- Advanced Delivery: AI-enabled automation and productivity improvements, including through the Kyndryl Bridge operating platform.
- Accounts: remediation of customer relationships and contracts with substandard margins.
Together, these initiatives explain how Kyndryl could improve profitability before revenue growth becomes consistent. Alliances are intended to expand demand, advanced delivery is intended to lower delivery costs, and account remediation is intended to improve the economics of existing work.
AI was part of the services story—not yet a separate AI revenue line
Kyndryl said one-quarter of its signings contained AI-related content. It also described plans to expand AI technology hubs in England, France, Singapore and India, and promoted its Agentic AI Framework for developing and deploying AI solutions in secure enterprise environments.
The company positioned AI within modernization, cloud, security and automation services. However, AI-related content in a contract is not the same as reported AI revenue or AI profit. The release did not establish how much of the value of those contracts was directly attributable to AI.
What the fiscal 2026 outlook required
Kyndryl reaffirmed its fiscal-year targets:
- At least $725 million of adjusted pretax income.
- Adjusted EBITDA margin of approximately 18%.
- Approximately $550 million of free cash flow, including about $175 million of cash taxes.
- Constant-currency revenue growth of 1%.
Management expected second-half revenue to be stronger than first-half revenue. That made execution the central issue: the company needed its backlog, consulting demand, alliances and pipeline to convert into recognized revenue and cash flow, not merely remain favorable indicators.
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What was demonstrated versus what remained a forecast
| Already demonstrated in Q2 | Still dependent on future execution |
|---|---|
| Adjusted EBITDA growth | Second-half revenue acceleration |
| Higher adjusted pretax income | Conversion of backlog and pipeline |
| 28% Kyndryl Consult revenue growth | Sustained consulting capacity |
| 65% growth in hyperscaler-related revenue | Exceeding the $1.8 billion annual target |
| High-single-digit projected margins on signings | Actual realized contract margins |
| Positive operating cash flow | Approximately $550 million of full-year free cash flow |
This separation is the clearest way to interpret the quarter. Kyndryl had made measurable progress on profitability and business mix, but the core revenue-growth claim was still forward-looking.
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Kyndryl’s strategy is relevant to channel partners and enterprise IT buyers because it combines managed infrastructure services with consulting, cloud, modernization, security and hyperscaler work.
In the CRN interview, Schroeter also discussed VMware, tariffs and H-1B visa costs. Those remarks represent Kyndryl management’s view of channel and operating conditions, not independently established forecasts. They should be treated as context rather than proof of a specific financial impact.
For customers, the practical implication is that Kyndryl was seeking more work around complex workload placement, modernization and managed operations. For partners, the opportunity was greater collaboration around hyperscalers and transformation projects. Neither opportunity guarantees that Kyndryl or its partners will produce higher margins.
What happened afterward?
Subsequent results provide useful retrospective context, but they were not known when Kyndryl reported fiscal Q2 2026.
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Outbyte PC Repair FREEClear out junk files and repair common Windows errorsFree Scan →Outbyte Driver Updater FREEScan for outdated or missing drivers - takes under a minuteDriver Scan →Kyndryl later reported fiscal 2026 full-year revenue of $15.1 billion, adjusted EBITDA of $2.7 billion, adjusted pretax income of $581 million and net income of $198 million in its fiscal Q4 and full-year 2026 results. The full-year adjusted pretax figure was below the Q2 outlook of at least $725 million, while adjusted EBITDA and revenue were reported on the later company figures.
Kyndryl also reported fiscal Q1 2027 results for the quarter ended June 30, 2026: revenue of $3.6 billion, adjusted EBITDA of $512 million and a $152 million workforce-rebalancing charge. The company reaffirmed its fiscal 2027 guidance, according to the company’s first-quarter release.
These later results do not erase the Q2 improvement in profitability, consulting and alliances. They do show why the original thesis required caution: stronger indicators did not automatically translate into meeting every earlier profit expectation.
The $400 million buyback authorization
Kyndryl’s board approved an additional $400 million share-repurchase authorization. That may support per-share metrics if shares are repurchased, but an authorization is not the same as money already spent. It also does not resolve weak organic revenue growth or improve the operating economics of a contract by itself.
Bottom line
Kyndryl’s fiscal Q2 2026 was best understood as a transition quarter. Revenue remained soft, but profitability, consulting, hyperscaler activity, backlog quality and new-contract economics improved. Schroeter’s “forward growth” case had credible supporting indicators, yet the decisive test remained whether those indicators would convert into second-half revenue and cash flow.
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