Kyndryl Holdings, Inc.: Form 10-Q for the period ended Dec 31, 2025

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2025

Overview

(Dollars in millions)

* Revenue growth in constant currency and adjusted EBITDA are non-GAAP financial metrics. For definitions of these metrics and a reconciliation of adjusted EBITDA to the most directly comparable financial measure calculated and presented in accordance with U.S. GAAP, see “Segment Results.”

(Dollars in millions)

Kyndryl Holdings, Inc. was formed as a wholly-owned subsidiary of IBM in September 2021 to hold the operations of the infrastructure services unit of IBM’s Global Technology Services segment. On November 3, 2021, Kyndryl separated from IBM through a spin-off that was tax-free for U.S. federal tax purposes. Following the Separation, Kyndryl became an independent, publicly-traded company and the world’s leading IT infrastructure services provider.

Financial Performance Summary

Macro Dynamics

Most economists, including the International Monetary Fund, expect positive but subdued global macroeconomic growth in calendar year 2026 amid ongoing trade tensions and heightened macroeconomic uncertainties. Global markets have experienced volatility from time to time in recent months, driven by geopolitical developments, concerns over changes in global trade policies and the imposition of import tariffs by the United States, reactions from other nations and proposed U.S. government spending reductions. Increased economic uncertainty can impact the level and composition of global macroeconomic activity.

Financial Performance

For the three months ended December 31, 2025, we reported $3.9 billion in revenue, an increase of 3 percent compared to the prior-year period. The revenue performance included a favorable currency exchange rate impact of three points. United States revenue was unchanged, Japan revenue decreased 2 percent, Principal Markets revenue increased 10 percent and Strategic Markets revenue was unchanged, in each case compared to the three months ended December 31, 2024. During the period, growth in Kyndryl Consult and hyperscaler-related revenues were partially offset by lengthening sales cycles. Margins were adversely affected by the lengthening sales cycles, in addition to higher labor costs driven by investments to support our strategic growth initiatives and an unanticipated decline in overall employee attrition, partially offset by incremental savings from our strategic growth initiatives. Net income of $57 million decreased by $158 million versus the prior-year period, reflecting a $138 million after-tax gain from the sale of our SIS platform (classified as a transaction-related benefit) in the prior-year period and $28 million of an after-tax transaction-related cost in the current period related to an interim arbitration decision on a pre-spin matter.

For the nine months ended December 31, 2025, we reported $11.3 billion in revenue, an increase of 1 percent compared to the prior-year period. The revenue performance included a favorable currency exchange rate impact of three points. United States revenue declined 5 percent, Japan revenue declined 1 percent, Principal Markets revenue increased 5 percent and Strategic Markets revenue increased 2 percent, in each case compared to the nine months ended December 31, 2024. Net income of $181 million decreased by $2 million versus the prior-year period reflecting a $138 million after-tax gain from the sale of our SIS platform (classified as a transaction-related benefit) in the prior-year period, partially offset by progress on our key initiatives to drive operating efficiencies.

Segment Results

The following table presents our reportable segments’ revenue and adjusted EBITDA for the three and nine months ended December 31, 2025 and 2024. Segment revenue and revenue growth in constant currency exclude any transactions between the segments.

(Dollars in millions)

NM – not meaningful

* Revenue growth in constant currency and adjusted EBITDA are non-GAAP financial metrics. See the information below for definitions of these metrics and a reconciliation of adjusted EBITDA to net income.

† Represents net amounts not allocated to segments.

We report our financial results in accordance with U.S. GAAP. We also present certain non-GAAP financial measures to provide useful supplemental information to investors. We provide these non-GAAP financial measures as we believe they enhance visibility to underlying results and the impact of management decisions on operational performance, enable better comparison to peer companies and allow us to provide a long-term strategic view of the business going forward.

Revenue growth in constant currency is a non-GAAP measure that eliminates the effects of exchange rate fluctuations when translating from foreign currencies to the United States dollar. It is calculated by using the average exchange rates that existed for the same period of the prior year. Constant-currency measures are provided so that revenue can be viewed without the effect of fluctuations in currency exchange rates, which is consistent with how management evaluates our revenue results and trends.

Additionally, management uses adjusted EBITDA to evaluate our performance. Adjusted EBITDA is a non-GAAP measure and defined as net income excluding income taxes, interest expense, depreciation and amortization (excluding depreciation of right-of-use assets and amortization of capitalized contract costs), charges related to ceasing to use leased/fixed assets, charges related to lease terminations, transaction-related costs, pension expenses other than pension servicing costs and multi-employer plan costs, stock-based compensation expense, workforce rebalancing charges incurred prior to March 31, 2024, impairment expense, significant litigation costs and benefits, and currency impacts of highly inflationary countries. We believe that adjusted EBITDA is a helpful supplemental measure to assist investors in evaluating our operating results as it excludes certain items whose fluctuation from period to period does not necessarily correspond to changes in the operations of our business.

These disclosures are provided in addition to and not as a substitute for the percentage change in revenue and profit or loss measures on a U.S. GAAP basis compared to the corresponding period in the prior year. Other companies may calculate and define similarly labeled items differently, which may limit the usefulness of these measures for comparative purposes.

The following table provides a reconciliation of U.S. GAAP net income to adjusted EBITDA:

(Dollars in millions)

* Other adjustments represent pension expenses other than pension servicing costs and multi-employer plan costs, significant litigation costs and benefits, and currency impacts of highly inflationary countries.

United States

(Dollars in millions)

For the three months ended December 31, 2025, United States revenue of $958 million was unchanged compared to the prior-year period. Adjusted EBITDA increased $1 million from the prior-year quarter.

For the nine months ended December 31, 2025, United States revenue of $2.8 billion decreased 5 percent compared to the prior-year period, reflecting the Company’s efforts to reduce certain low-margin revenues and the expiration of certain low- and negative-margin contracts entered into before the Spin-off. Adjusted EBITDA increased $100 million from the prior-year period, primarily driven by progress on our key initiatives to drive operating efficiencies, including lower sales, general and administrative expenses.

Japan

(Dollars in millions)

For the three months ended December 31, 2025, Japan revenue of $568 million decreased 2 percent, and decreased 1 percent in constant currency, compared to the prior-year quarter. Adjusted EBITDA increased $15 million from the prior-year quarter, driven by progress on our key initiatives to drive operating efficiencies.

For the nine months ended December 31, 2025, Japan revenue of $1.7 billion decreased 1 percent, and decreased 4 percent in constant currency, compared to the prior-year period, driven by actions the Company has taken to reduce certain low-margin components of its customer relationships. Adjusted EBITDA increased $76 million from the prior-year period, driven by progress on our key initiatives to drive operating efficiencies.

Principal Markets

(Dollars in millions)

For the three months ended December 31, 2025, Principal Markets revenue of $1.4 billion increased 10 percent compared to the prior-year quarter, primarily driven by a favorable currency exchange rate impact of six points and signings from prior periods converting into revenue. Adjusted EBITDA decreased $5 million from the prior-year quarter, primarily due to increased expenses to support future growth.

For the nine months ended December 31, 2025, Principal Markets revenue of $4.1 billion increased 5 percent compared to the prior-year period, primarily driven by a favorable currency exchange rate impact of five points. Adjusted EBITDA decreased $26 million from the prior-year period, primarily due to a vendor credit in the prior year, largely offset by progress on our key initiatives to drive operating efficiencies.

Strategic Markets

(Dollars in millions)

For the three months ended December 31, 2025, Strategic Markets revenue of $905 million was unchanged, and decreased 7 percent in constant currency, compared to the prior-year quarter, primarily driven by actions the Company has taken to reduce certain low-margin components of its customer relationships. Additionally, revenues were impacted by certain regulatory uncertainties specifically regarding data sovereignty in Europe. Adjusted EBITDA decreased $18 million from the prior-year quarter, driven by increased costs to support future growth primarily due to higher labor costs from increased investments locally in Europe.

For the nine months ended December 31, 2025, Strategic Markets revenue of $2.7 billion increased 2 percent, and decreased 2 percent in constant currency, compared to the prior-year period, primarily driven by actions the Company has taken to reduce certain low-margin components of its customer relationships. Adjusted EBITDA increased $29 million from the prior-year period, primarily due to progress on our key initiatives to drive operating efficiencies.

Corporate and Other

Corporate and other had an adjusted EBITDA loss of $26 million in the three months ended December 31, 2025, compared to a loss of $24 million in the three months ended December 31, 2024. Corporate and other had an adjusted EBITDA loss of $79 million in the nine months ended December 31, 2025, compared to a loss of $66 million in the nine months ended December 31, 2024.

Costs and Expenses

(Dollars in millions)

NM – not meaningful

Cost of services was 78.1% of revenue in the three months ended December 31, 2025, compared to 79.6% in the three months ended December 31, 2024, driven by progress on our key initiatives to drive operating efficiencies. Selling, general and administrative expenses were 17.4% of revenue in the three months ended December 31, 2025 compared to 17.3% in the prior-year quarter, driven by increased expenses to support future growth and lower attrition rates. Workforce rebalancing charges were 0.4% of revenue in the three months ended December 31, 2025 versus 0.5% of revenue in the prior-year quarter. Transaction-related costs (benefits) were 1.0% of revenue in the three months ended December 31, 2025, compared to (4.0)% of revenue in the three months ended December 31, 2024, due to a current-quarter reserve for an interim arbitration decision on a pre-spin matter compared to a $145 million pretax gain from the sale of the SIS platform in the prior year. Interest expense was 0.5% of revenue in the three months ended December 31, 2025 compared to 0.6% in the prior-year quarter. Other expense (income) was 0.2% of revenue in the three months ended December 31, 2025, compared to (0.9)% of revenue in the prior-year quarter, driven by currency-related hedging gains in the prior period.

Management Discussion (continued)

(Dollars in millions)

NM – not meaningful

Cost of services was 78.4% of revenue in the nine months ended December 31, 2025, compared to 79.4% in the nine months ended December 31, 2024, driven by progress on our key initiatives to drive operating efficiencies. Selling, general and administrative expenses were 17.5% of revenue in the nine months ended December 31, 2025 compared to 17.3% in the prior-year period, driven by increased expenses to support future growth. Workforce rebalancing charges were 0.5% of revenue in the nine months ended December 31, 2025 versus 0.8% of revenue in the prior-year period. Transaction-related costs (benefits) were 0.3% of revenue in the nine months ended December 31, 2025, compared to (1.1)% of revenue in the nine months ended December 31, 2024, due to a current-quarter reserve for an interim arbitration decision on a pre-spin matter compared to a $145 million pretax gain from the sale of the SIS platform in the prior year. Interest expense was 0.5% of revenue in the nine months ended December 31, 2025 compared to 0.7% in the prior-year period. Other expense (income) was 0.2% of revenue in the nine months ended December 31, 2025 compared to 0.1% in the prior-year period.

Transaction-Related Costs

The Company classifies certain expenses and benefits related to the Separation, acquisitions and divestitures as “transaction-related costs (benefits)” in the Consolidated Income Statement. Transaction-related costs include gains or losses, employee retention expenses, information technology costs, marketing expenses to establish the Kyndryl brand, legal, accounting, consulting and other professional service costs, costs and benefits resulting from settlements with our former Parent associated with pre-Separation and Separation-related matters, and other costs related to contract and supplier novation and integration, associated with acquisitions, divestitures or the Separation.

Workforce Rebalancing and Site-Rationalization Charges

Fiscal 2026 Program

During the three and nine months ended December 31, 2025, management initiated actions to reduce the Company’s overall cost structure and enhance operating efficiency. As a result of these actions, the Company recorded workforce rebalancing charges of $16 million and $61 million for the three and nine months ended December 31, 2025, respectively.

Total cash outlays for this program are expected to be approximately $60 million, of which approximately $47 million has been paid through December 31, 2025, and the remainder is expected to be paid thereafter. Management expects that these workforce rebalancing activities will reduce annual payroll costs and related expenses by more than $100 million. There can be no guarantee that we will achieve our expected cost savings.

The Company will continue to seek opportunities to improve operational efficiency and reduce costs, which may result in additional charges in future periods. For additional information, see Note 14 – Workforce Rebalancing Charges in the accompanying Consolidated Financial Statements.

Fiscal 2025 Program

During fiscal year 2025, management implemented actions to reduce the Company’s overall cost structure and increase our operating efficiency. During the year ended March 31, 2025, the Company recorded $114 million in workforce rebalancing charges and $48 million in charges related to ceasing to use leased and owned fixed assets.

Total cash outlays for this program are expected to be approximately $150 million, of which approximately $138 million has been paid through December 31, 2025, and the remainder is expected to be paid thereafter. Management expects that these workforce rebalancing and site-rationalization activities will reduce payroll costs, rent expenses and depreciation of property and equipment by more than $200 million in fiscal year 2026. There can be no guarantee that we will achieve our expected cost savings.

Income Taxes

The provision for income taxes for the three months ended December 31, 2025 was $34 million, compared to $43 million for the three months ended December 31, 2024. Our income tax expense for the three months ended December 31, 2025 and 2024 was primarily related to taxes on foreign operations and valuation allowances recorded in certain jurisdictions against deferred tax assets that are not more likely than not to be realized.

The provision for income taxes for the nine months ended December 31, 2025 was $100 million, compared to $134 million for the nine months ended December 31, 2024. Our income tax expense for the nine months ended December 31, 2025 and 2024 was primarily related to taxes on foreign operations and valuation allowances recorded in certain jurisdictions against deferred tax assets that are not more likely than not to be realized.

In assessing the need for a valuation allowance, management considers all available evidence for each jurisdiction, including past operating results, estimates of future taxable income, the reversal of existing temporary differences, and the feasibility of ongoing tax planning strategies and actions. Estimates of future taxable income and loss could change, perhaps materially, which may require us to revise our assessment of the recoverability of the deferred tax asset at that time.

Financial Position

Dynamics

Total assets of $11.3 billion increased by $824 million (and increased by $447 million adjusted for currency) from March 31, 2025, primarily driven by an increase in deferred costs of $879 million mainly due to an extended and amended multi-year, third-party software agreement and an increase in operating right-of-use assets, net, of $124 million due to additions outpacing amortization, partially offset by a decrease in cash and cash equivalents of $438 million mainly due to share repurchases.

Total liabilities of $10.0 billion increased by $846 million (and increased by $630 million adjusted for currency) from March 31, 2025, primarily as a result of an increase in other noncurrent liabilities of $675 million driven by the extended and amended multi-year, third-party software agreement.

Total equity of $1.3 billion decreased by $22 million from March 31, 2025, principally due to $254 million of share repurchases under our Share Repurchase Program and $93 million of shares repurchased to settle tax withholdings related to the vesting of stock-based awards, partially offset by our nine-month earnings of $181 million and other comprehensive income of $62 million in the period, as well as activity related to employee stock plans of $80 million.

Cash Flow

Our cash flows from operating, investing and financing activities are summarized in the table below.

(Dollars in millions)

Net cash provided by operating activities was $450 million in the nine months ended December 31, 2025, compared to $361 million in the prior-year period mainly due to the year-over-year increase in net income excluding the gain on sale of the SIS platform in the prior year (the cash flow effect of which is included in net cash used in investing activities).

Net cash used in investing activities was $436 million in the nine months ended December 31, 2025, compared to a net cash use of $199 million in the prior-year period due to cash provided by the sale of the SIS platform in the prior-year period.

Net cash used in financing activities totaled $448 million in the nine months ended December 31, 2025, compared to net cash used by financing activities of $172 million in the prior-year period, mainly due to share repurchases of $254 million under the Company’s Share Repurchase Program.

As part of our ongoing cash and commercial management strategy with customers and suppliers and as previously disclosed, our standard practice since the time of our spin-off from IBM is to actively manage our working capital, including accounts receivables and accounts payables. This includes optimizing payment terms and conditions, accelerating certain cash receipts (including through the sale of trade receivables to third-party financial institutions) and delaying certain cash payments (including deferring vendor payments quarter to quarter, in certain cases beyond vendor payment terms), and undertaking other discretionary cash and working capital management initiatives. The magnitude of these practices (including deferrals) varies from quarter to quarter. The effects of these practices, including any impacts on our cash flows, have been and are reflected in our accounts payable, accounts receivable and operating cash flows, which are accounted for in accordance with U.S. GAAP. Our working capital and cash flows have also reflected the impact of accrued contract costs in certain periods due to the timing of vendor billings. We may, from time to time, revise or adapt our cash and working capital management practices as we deem appropriate.

Other Information

Signings

The following table presents the Company’s signings for the three and nine months ended December 31, 2025 and 2024.

(Dollars in billions)

Signings decreased by $140 million, or 3% in the three months ended December 31, 2025, compared to the prior-year quarter. Signings decreased by $2.8 billion, or 22%, in the nine months ended December 31, 2025, compared to the nine months ended December 31, 2024, primarily because the quarter ended September 30, 2024 included a $1.8 billion signing, the largest signing in Kyndryl’s history as an independent company. Management uses signings to monitor the performance of the business, as a measure of customer engagement and our ability to drive growth. There are no third-party standards or requirements governing the calculation of signings. We define signings as an initial estimate of the value of a customer’s commitment under a contract. The calculation involves estimates and judgments to gauge the extent of a customer’s commitment, including the type and duration of the agreement and the presence of termination charges or wind-down costs. Contract extensions and increases in scope are treated as signings only to the extent of the incremental new value. Signings can vary over time due to a variety of factors including, but not limited to, the timing of signing a small number of larger outsourcing contracts as well as the length of those contracts. The conversion of signings into revenue may vary based on the types of services and solutions, customer decisions and other factors, which may include, but are not limited to, the macroeconomic environment or external events.

Liquidity and Capital Resources

We believe that our existing cash and cash equivalents and our revolving credit agreement will be sufficient to meet our anticipated operating cash needs and to fund our planned capital investments, debt maturities, stock repurchases and acquisitions for at least the next twelve months.

Senior Unsecured Notes

In October 2021, in preparation for our Spin-off, we completed the offering of $2.4 billion in aggregate principal amount of senior unsecured fixed-rate notes as follows: $700 million aggregate principal amount of 2.05% Senior Notes due 2026, $500 million aggregate principal amount of 2.70% Senior Notes due 2028, $650 million aggregate principal amount of 3.15% Senior Notes due 2031 and $550 million aggregate principal amount of 4.10% Senior Notes due 2041 (the “Initial Notes”). The Initial Notes were offered and sold to qualified institutional buyers in reliance on Rule 144A under the Securities Act and to non-U.S. persons in reliance on Regulation S of the Securities Act. In connection with the issuance of the Initial Notes, we entered into a registration rights agreement with the purchasers of the Initial Notes, pursuant to which we completed a registered offering to exchange each series of Initial Notes for new notes with substantially identical terms during the quarter ended September 30, 2022.

In February 2024, we completed a registered offering of $500 million in aggregate principal amount of 6.35% senior unsecured notes due 2034 (the “2034 Notes”). We received proceeds of $494 million, net of debt issuance costs and discounts. The 2034 Notes are the Company’s senior unsecured obligations and rank equally in right of payment with all of the Company’s other existing and future senior unsecured indebtedness.

The Initial Notes and the 2034 Notes are subject to customary affirmative covenants, negative covenants and events of default for financings of this type and are redeemable at our option in a customary manner.

We have outstanding $700 million of fixed-rate notes that mature in October 2026. We expect to refinance these notes prior to maturity.

Revolving Credit Agreement

In October 2021, we entered into a $3.15 billion multi-currency revolving credit agreement (the “Revolving Credit Agreement”), which expires, unless extended, in October 2026. The Revolving Credit Agreement was amended in June 2023, replacing the London Interbank Offered Rate (“LIBOR”) with the Secured Overnight Financing Rate (“SOFR”). In March 2025, we further amended the agreement, extending the maturity to March 2030. Interest rates on borrowings under the Revolving Credit Agreement will be based on prevailing market interest rates, plus a margin, as further described in the Revolving Credit Agreement. As of December 31, 2025, no amounts were drawn under the Revolving Credit Agreement. In February 2026, the Company borrowed $1 billion under the Revolving Credit Agreement. Proceeds are intended to be used for working capital and other general corporate purposes, which may include repayment of indebtedness and acquisitions.

The Revolving Credit Agreement includes certain customary mandatory prepayment provisions. In addition, it includes customary events of default and affirmative and negative covenants as well as a maintenance covenant that will require that the ratio of our indebtedness for borrowed money to consolidated EBITDA (as defined in the Revolving Credit Agreement) for any period of four consecutive fiscal quarters be no greater than 3.50 to 1.00. As of December 31, 2025, the Company is in compliance with its debt covenants.

Transfers of Financial Assets

The Company has entered into arrangements with third-party financial institutions to sell certain financial assets (primarily trade receivables) without recourse. The Company has determined these are true sales. The carrying value of the financial asset sold is derecognized, and a net gain or loss on the sale is recognized, at the time of the transfer. An agreement, which was executed in November 2021 and subsequently amended, enabled us to sell certain of our trade receivables to the counterparty. The initial term of this agreement was 18 months, and the agreement automatically resets to a term of 18 months after every six months, unless either party elects not to extend. This agreement was further amended during the quarter ended September 30, 2024 to reduce the committed facility limit from $1 billion to $600 million and to add an incremental uncommitted facility limit of $200 million that is subject to the counterparty’s sole discretion to purchase such incremental amounts. We have also entered into additional agreements with a separate third-party financial institution that enable us to sell receivables. These agreements were first executed in June 2022 and subsequently amended to renew automatically every 18 months, unless either party elects not to extend. These facilities are committed for approximately $250 million in the aggregate.

The net proceeds from these agreements are reflected as cash provided by operating activities in the Consolidated Statement of Cash Flows. Gross proceeds from receivables sold to third parties under the aforementioned programs were $629 million and $1.8 billion for the three and nine months ended December 31, 2025, respectively, and $760 million and $2.6 billion for the three and nine months ended December 31, 2024, respectively. The fees associated with the transfers of receivables were $2 million and $12 million for the three and nine months ended December 31, 2025, and were $8 million and $28 million for the three and nine months ended December 31, 2024, respectively. The year-to-year decline in the gross proceeds from sales of receivables was primarily due to a higher volume of intra-period factoring transactions in the prior period.

Since our Spin-off, the declining volumes of sales of receivables have been primarily driven by factoring of receivables from pre-spin customer contracts that gave certain customers extended payment financing terms. As we have transitioned to new signings, including with existing customers, we have provided customers with less extended payment financing terms, which has caused these balances in the aggregate to continue to decline.

Supplier Financing Program

In the year ended March 31, 2024, the Company initiated a supplier financing program with a third-party financial institution under which the Company agrees to pay the financial institution the stated amounts of invoices from participating suppliers on the originally invoiced due date, which have an average term of 90 to 120 days. The financial institution offers earlier payment of the invoices at the sole discretion of the supplier for a discounted amount. The Company does not provide secured legal assets or other forms of guarantees under the arrangements. The Company or the financial institution may terminate the agreement upon at least 180 days’ notice. The Company’s obligations under this program continue to be recognized as accounts payable in the Consolidated Balance Sheet. The obligations outstanding under this program were immaterial at December 31, 2025 and March 31, 2025.

Share Repurchase Program

In November 2024, the Company’s Board of Directors authorized a share repurchase program of up to $300 million of the Company’s common stock, and in November 2025, the Company announced that the Board of Directors authorized an additional $400 million of repurchase capacity under this program. Under the Share Repurchase Program, the Company may repurchase shares of its common stock from time to time in open market transactions and may also repurchase shares in accelerated share buyback programs, tender offers, privately negotiated transactions or by other means. Repurchases may also be made under a Rule 10b5-1 trading plan. The timing and amount of repurchase transactions will be determined by the Company’s management based on its evaluation of market conditions, share price, legal requirements and other factors. The program does not have a set expiration date and may be suspended, modified or discontinued at any time without prior notice.

During the three and nine months ended December 31, 2025, the Company repurchased 3.7 and 8.4 million shares of its common stock at an aggregate cost of $100 and $254 million, respectively, under the Share Repurchase Program. As of December 31, 2025, approximately $351 million of capacity remained available under the Share Repurchase Program.

Critical Accounting Estimates

The application of U.S. GAAP requires us to make estimates and assumptions about certain items and future events that directly affect our reported financial condition. There have been no changes to our critical accounting policies and estimates as described in our Annual Report on Form 10-K for the fiscal year ended March 31, 2025 for more information; we refer to the Annual Report on Form 10-K for the fiscal year ended March 31, 2025 as the “Form 10-K”.

Cautionary Note Regarding Forward-Looking Statements

This report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact included in this report, including statements concerning the Company’s plans, objectives, goals, beliefs, business strategies, future events, business condition, results of operations, financial position, business outlook, business trends, the outcome of legal and regulatory claims, suits, investigations and other matters, the remediation of material weaknesses and other non-historical statements in this report are forward-looking statements. Such forward-looking statements often contain words such as “aim,” “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “intend,” “may,” “objectives,” “opportunity,” “plan,” “position,” “predict,” “project,” “should,” “seek,” “target,” “will,” “would,” and other similar words or expressions or the negative thereof or other variations thereon. Forward-looking statements are based on the Company’s current assumptions and beliefs. The Company’s actual business, financial condition, results of operations, liquidity, cash flows, internal controls, reputation, stock price and key relationships may differ materially from those suggested by forward-looking statements as a result of risks and uncertainties which include, among others:

• failure to attract new customers, retain existing customers or sell services to customers;
• failure to meet growth and productivity objectives and maintain our capital allocation strategy;
• competition;
• impacts of relationships with critical suppliers and partners;
• failure to address and adapt to technological developments and trends;
• inability to attract and retain key personnel and other skilled employees;
• impact of economic, geopolitical, public health and other conditions;
• damage to the Company’s reputation and impact resulting from negative publicity;
• inability to accurately estimate the cost of services and the timeline for completion of contracts;
• service delivery issues;
• the Company’s ability to successfully manage acquisitions and dispositions, including integration challenges, failure to achieve objectives, the assumption of liabilities and higher debt levels;
• the Company’s ability to refinance maturing debt on favorable terms in a timely manner, or at all, and risks related to the Company’s access to capital and credit markets;
• the impact of our business with foreign, state and local government customers;
• failure of the Company’s intellectual property rights to prevent competitive offerings and the failure of the Company to obtain, retain and extend necessary licenses;
• the impairment of our goodwill or long-lived assets;
• risks relating to cybersecurity, data governance and privacy;
• risks relating to non-compliance with legal and regulatory requirements and changes in laws, regulations and policies in the U.S. and countries where the Company and its customers do business, including with respect to tariffs, taxes and other controls on imports or exports;
• adverse effects from tax matters and environmental matters;
• risks related to legal and regulatory claims, suits, investigations, proceedings and other matters, and consequences related thereto;
• the Company’s ability to remediate, and the timing and costs related to the remediation of, material weaknesses in internal control over financial reporting, as well as the Company’s ability to maintain effective controls in the future;
• potential indemnification obligations;
• impact of changes in market liquidity conditions and customer credit risk on receivables;
• the Company’s pension plans;
• the impact of currency fluctuations; and
• risks related to the Company’s common stock and the securities market.

Additional risks and uncertainties include, among others, those risks and uncertainties described in the “Risk Factors” section of our Form 10-K for the fiscal year ended March 31, 2025 (as amended) and our Form 10-Qs for the fiscal quarters ended June 30, 2025 and September 30, 2025 (each, as amended), as such factors may be updated from time to time in the Company’s subsequent filings with the SEC. In addition, other risks and uncertainties that are not currently known to the Company or that the Company currently deems immaterial may also impact actual results and outcomes. Any forward-looking statement in this report speaks only as of the date on which it is made. Except as required by law, the Company assumes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Available Information

We routinely post on or make accessible through our corporate website at www.kyndryl.com (http://www.kyndryl.com) and Investor Relations website at https://investors.kyndryl.com information that may be material or of interest to our investors, including news and materials regarding our financial performance, business developments, investor events and other important information regarding the Company. You may automatically receive email alerts and other information about the Company when you enroll your email address by visiting the “Investor Email Alerts” section under the “Resources” section at https://investors.kyndryl.com. We encourage investors, media, our customers, consumers, business partners and others interested in our Company to review the information we provide through these channels. The information contained on the websites referenced above is not, and shall not be deemed to be, incorporated into this filing or any of our other filings with the SEC.

For our disclosures about market risk, see the information under the heading “Quantitative and Qualitative Disclosures About Market Risk” in the Form 10-K. There have been no material changes to the Company’s disclosure about market risk in the Form 10-K.

Disclosure Controls and Procedures

The Company’s management, with the participation of the Chief Executive Officer and the Interim Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of December 31, 2025. Based on that evaluation, management, with the participation of the Chief Executive Officer and the Interim Chief Financial Officer, has concluded that the Company’s disclosure controls and procedures were not effective as of December 31, 2025 due to the material weaknesses in internal control over financial reporting described below.

Management has concluded that the consolidated financial statements for the periods covered by and included in this report fairly present, in all material respects, the Company’s financial position, results of operations and cash flows in conformity with GAAP.

Material Weaknesses in Internal Control over Financial Reporting

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis. The material weaknesses described below did not result in a misstatement of the Company’s current or previously issued consolidated financial statements; however, these material weaknesses could result in misstatements that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected.

The Company identified the following material weaknesses in its internal control over financial reporting:

• The Company’s senior finance executives failed to set an appropriate tone at the top based on the principles associated with the control environment component of the COSO framework. Specifically, there was a lack of transparency with the Company’s Chief Executive Officer, the Audit Committee of the Board of Directors (the “Board”) and the Board, such that disclosure processes, including with respect to certain cash management practices regarding deferring vendor payments quarter to quarter, were impacted. Additionally, the Company lacked an appropriate complement of finance personnel with sufficient understanding of their responsibilities as Disclosure Committee members and with adequate competency in their responsibilities regarding disclosure controls.
• The Company did not design and maintain effective controls related to the information and communication component of the COSO framework to ensure appropriate communication pertaining to the disclosure process between certain functions within the Company, including the Company’s Disclosure Committee and the Chief Executive Officer, as well as with the Audit Committee and the Board.
• The aforementioned material weaknesses contributed to an additional material weakness. The Company did not design and maintain effective controls regarding the internal investigation, escalation and documentation of complaints made through the Company’s reporting hotline and certain other available reporting channels, including with respect to appropriate escalation of certain complaints to the Audit Committee.

Remediation Plan and Activities

The Company has appointed an Interim Chief Financial Officer, Interim General Counsel and Interim Corporate Controller. In addition, the Company expects to make the following enhancements to its internal control over financial reporting to remediate the material weaknesses described above:

• provide updated training on disclosure controls and procedures and internal control over financial reporting and requirements under the Sarbanes-Oxley Act of 2002, including training courses on applicable federal securities laws for members of management;
• enhance the Company’s controls, policies, procedures and training related to timely and accurate communication and information sharing, including enhancing key controls concerning information communicated regarding the application of the Company’s cash management practices;
• enhance existing Disclosure Committee responsibilities to include, among other requirements, additional discussions and provide incremental training on these responsibilities; and
• enhance the Company’s controls, policies, procedures and training related to the Company’s reporting hotline, including related to the evaluation and escalation to the Company’s Audit Committee of certain reports made through the hotline and certain other available reporting channels.

As the Company continues to evaluate and work to improve its internal control over financial reporting and disclosure controls and procedures, it may decide to take additional or different measures to address control deficiencies or modify the remediation actions described above. While the Company believes that these efforts will improve its internal control over financial reporting, the Company will not be able to conclude whether the steps the Company is taking will remediate the material weaknesses in internal control over financial reporting until a sustained period of time has passed to allow management to test the design and operational effectiveness of the new controls.

Changes in Internal Control over Financial Reporting

There have been no changes in the Company’s internal control over financial reporting (as such term is defined in Rule 13a-15(f) of the Exchange Act) that occurred during the quarter ended December 31, 2025 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

For a discussion of the Company’s potential risks and uncertainties, see the information under the heading “Risk Factors” in the Company’s Form 10-K for the year ended March 31, 2025 (as amended) and the information provided below.

The SEC matter and related events are ongoing, and the timing for their resolution and outcome cannot be predicted.

As previously disclosed, the Company, through the Audit Committee of its Board, is reviewing its cash management practices, related disclosures, the efficacy of the Company’s internal control over financial reporting, and certain other matters following the Company’s receipt of voluntary document requests from the Division of Enforcement of the SEC relating to such matters. This matter is ongoing and the Company cannot currently predict its final outcome.

As a result, the Company has become subject to a number of risks, including:

• the price of the Company’s common stock has declined, and may be volatile in the future, as a result of announcements, developments or actions related to the review;
• the Company is subject to legal and regulatory claims, suits, investigations, proceedings and other matters, which can be costly and time-consuming to defend, and may result in substantial financial and legal liability;
• the Company’s access to the capital and credit markets and the cost of such capital may be impacted, including as a result of actions taken by credit rating agencies;
• the Company experiences increased scrutiny from regulatory authorities, investors and other stakeholders, which could impact its business and result in additional investigations or regulatory actions;
• the availability of directors’ and officers’ liability insurance or other types of insurance may be costlier or more difficult to obtain; and
• the Company may be required to pay expenses, fines or damages, or agree to remedies, that could have an adverse impact on its business, results of operations, financial condition or liquidity.

The Company identified material weaknesses in the Company’s internal control over financial reporting, which impact the Company’s ability to maintain an effective system of internal control over financial reporting.

The Company has identified material weaknesses in the Company’s internal control over financial reporting. See “Controls and Procedures” in Part I, Item 4 of this report. While the Company has developed a remediation plan, the material weaknesses cannot be considered remediated until the applicable remedial controls are implemented and operate for a sufficient period of time to allow management to conclude, through testing, that the remediation plan is implemented and the controls are operating effectively. The Company may be unable to remediate these material weaknesses in a timely manner, which could cause investors to lose confidence in the accuracy and completeness of the Company’s financial reports and further impact the price of the Company’s common stock.

Negative publicity adversely affects the Company and the price of its common stock.

The Company is subject to negative publicity as a result of the Company’s review, through the Audit Committee of the Board, discussed above. Negative publicity, including adverse media coverage, unfavorable commentary or reports published by short sellers and public statements or actions by stockholders (such as in connection with efforts by private law firms to solicit clients for securities or derivative litigation), significantly impacts the price and volatility of the Company’s common stock, regardless of the accuracy of such commentary, reports or actions. Negative publicity also impacts the terms under which some customers and suppliers are willing to continue to do business with the Company, affects the Company’s ability to attract and retain employees, and harms the Company’s relationships with investors, lenders and other stakeholders. In addition, negative publicity or unfavorable perceptions make it more difficult for the Company and its employees to operate, resulting in reduced morale, a potential increase in employee turnover and difficulty attracting talent. As a result, negative publicity adversely impacts the Company’s business, reputation and the price of its common stock.