Kyndryl Holdings, Inc.

Kyndryl's multiyear service contracts require spending on software, equipment and employees before some customer receipts arrive. That payment cycle makes cash generation uneven across the year.

Quarterly operating results

Quarters ended September 30. Dollar amounts in millions. Revenue and pretax income are GAAP; adjusted pretax income is non-GAAP.

Measure	2026	2025
Revenue	$3,651	$3,721
Pretax income	$112	$98
Adjusted pretax income	$150	$123
Net income	$59	$68

Adjusted pretax income removes specified transaction, stock-compensation and other items, but retains workforce rebalancing charges. First-half workforce charges were $190 million against an approximately $200 million annual plan.

Quarterly revenue included a $39 million increase for work fulfilled in earlier periods, mainly from resolving a commercial matter.

The cash-flow target

For fiscal 2027, ending March 2027, Kyndryl still expects $400 million to $500 million of free cash flow and $600 million to $700 million of adjusted pretax income. August guidance contained the same ranges.

First-half free cash flow was negative $434 million, compared with negative $200 million a year earlier. Reaching the annual range therefore requires $834 million to $934 million in the second half. The comparable prior period generated approximately $605 million, calculated using rounded annual GAAP cash-flow inputs and the recast first-half figure. The old adjusted free-cash-flow measure added back certain cash costs and is a different basis.

Working-capital needs are normally highest in the first quarter. The current report identifies software-payment timing, advance customer billings and workforce payments as cash pressures, partly offset by lower incentive payments.

Cash, borrowing and acquisitions

At September 30, cash and cash equivalents were $1.659 billion and debt's carrying amount was $4.059 billion. The $3.15 billion revolving credit facility was undrawn. October's $700 million note repayment occurred after that balance-sheet date.

In September, Kyndryl issued $1 billion of senior notes, receiving $986 million after issuance costs and discounts. It also repaid the $1 billion outstanding on its revolver that month.

Kyndryl completed its Healthcare IT Leaders acquisition in September for $307 million in cash plus contingent consideration initially valued at $34 million. Additional cash payments can reach $40 million if revenue-based milestones are met. The company also temporarily paused stock repurchases. Acquisition spending is separate from the operating-cash-flow and net-capital-spending definition used for free cash flow.

A new commercial-paper program is backed by the same revolver, so it does not provide an additional layer of available borrowing capacity. The current report says no commercial paper had been borrowed.

Control remediation

The SEC investigation into cash-management practices, related disclosures and financial controls remains open. Enhanced controls have been implemented and are being tested, but the previously disclosed weaknesses remain unremediated. Management says the financial statements fairly present results under GAAP and that the deficiencies did not cause a misstatement.

Read our calculation of Kyndryl's second-half cash requirement.