KD 10-K & 10-Q changes, risk factors and insider trading

An inability to attract new customers, retain existing customers and sell additional services to customers could adversely impact our revenue and results of operations.

Our ability to maintain or increase our revenues and profit may be impacted by a number of factors, including our ability to attract new customers, retain existing customers and sell additional, comparable or, in the case of accounts with substandard margins, services with greater gross margins to our customers. We may incur higher customer acquisition or retention costs as we seek to grow our customer base and expand our markets. Moreover, to the extent we are unable to retain and sell additional services to existing customers, including as part of our initiative to address existing accounts that have substandard margins, our revenue and results of operations may decrease. Our customer contracts typically have an average duration of over five years and, unless terminated, may be renewed or automatically extended on a month-to-month basis. Our customers have no obligation to renew their services after their initial contract periods expire, and any termination fees associated with an early termination may not be sufficient to recover our costs associated with such contracts. The loss of business from any of our major customers, whether by the cancellation of existing contracts, the failure to obtain new business or lower overall demand for our services, could adversely impact our revenue and results of operations.

Our goals for profitability and growth rely upon a number of assumptions, including our ability to make successful investments to grow and further develop our business and simplify our operations. The risks and challenges we face in connection with our strategies include expanding our professional services capability, expanding in areas where we currently have a small presence andpresence, ensuring that our services remain competitive in a rapidly changing technological environment.environment and streamlining our operations to optimize operational efficiency. We may invest significantly in key strategic areas to drive long-term revenue growth and share gains. These investments may adversely affect our near-term revenue growth and results of operations, and we cannot guarantee that they will ultimately be successful or produce any or all of the long-term benefits that we expect. Additionally,In emergingaddition, businessour productivity initiatives are subject to known and deliveryunknown modelsrisks and uncertainties, including assumptions about cash expenditures, cost savings and the effectiveness of the Company’s reduced spend and risks affecting the timing and amount of workforce rebalancing charges, payments and related savings, and we may unfavorablynot impactfully demandachieve the expected operational expense savings and profitabilityother forbenefits our solutions or services. If we are unable to find, and maintain relationships with, partners to develop cutting-edge innovations in a highly competitive and rapidly evolving environment or are unable to implement and integrate such innovations with sufficient speed and versatility, we could fail in our ongoing efforts to maintain and increase our revenue and profit margins, achieve and sustain our targeted growth rates or improve our market share, operating margins and competitive position generally or in specific markets or services.anticipated.

Our ability and decisions to return capital to shareholdersstockholders depend on a variety of factors, including our ability to maintain and increase operating margins, cash flow generated from operations, our cash and investment balances, our net income and our overall liquidity position, as well as our debt balance, potential alternative uses of cash and anticipated future economic conditions and financial results. Failure to carry out our capital allocation strategy may adversely impact shareholders’stockholders’ perception of our business and the trading price of our common stock.

Our business employs a wide variety of products and services from a number of suppliers and partners around the world. Our relationships with them are critical to our ability to provide many of our services and solutions, and our relationships with various alliance partners allow us to enter new markets and take advantage of existing ecosystems built and sustained by our alliance partners. There can be no assurance that we will be able to develop and maintain such relationships, that the products and services will be available on the expected timelines or for anticipated prices, or that the financial terms of our relationships will remain affordable. Among other things, such partners may in the future decide to compete with us, form exclusive or more favorable arrangements with our competitors or otherwise reduce our access to their products or services. If we are not able to maintain, or realize the expected benefits from, our relationships for any reason, we may be less competitive, and our ability to offer attractive services and solutions to address the needs and demands of our customers and our results of operations could be adversely affected. Any performance failure on the part of our critical suppliers or alliance partners, or the discontinuance by such suppliers or alliance partners of technologies or services that we have relied on them to provide for our customers, could impact our performance or require us to engage alternative third parties to perform the services at our cost or to perform them ourselves, any of which could deprive us of potential revenue or adversely impact our profitability. Further, changes in the business condition (financial or otherwise) of our suppliers or partners could subject us to losses and affect our ability to bring our offerings to market. Additionally, the failure of our suppliers and partners to deliver products and services in sufficient quantities, in a timely manner, and in compliance with all applicable laws and regulations could adversely affect our business. Any defective products or inadequate services received from suppliers or partners could reduce the reliability of our services and harm our reputation. We may not be able to quickly replace or secure alternative products or suppliers, and we may be forced to absorb higher costs, reduce margins, or adjust our pricing. Supply chain interruptions could harm our relationships with our customers, prevent us from acquiring new customers, harm our operational efficiency, financial performance, and reputation, and materially and adversely affect our business.

Our growth strategy depends in part on our ability to continue to develop and implement services and solutions that anticipate and respond to rapid and continuing changes in technology, offerings and industry standards to serve the evolving demands and needs of our customers. If we fail to respond and adapt successfully to technology developments and trends and customer demands in a timely or cost-effective manner or fail to effectively leverage new technologies into our services and solutions, or if our competitors or other third parties respond to such challenges more quickly or successfully than we do, the demand for our services and solutions may diminish. We have made and expect to continue to make investments in new technologies, including in AI, generative AI and generativeagentic AI. We sometimes dedicate a significant amount of resources to our development efforts before knowing to what extent our investments will result in services and solutions the market will accept. The adoption and use of new technologies that are still in their early stages, such as AI, generative AI and generativeagentic AI capabilities, involve significant risks and uncertainties. In addition, investments in technology systems, capabilities, talent and resources may not deliver the benefits or perform as expected, may be replaced or become obsolete more quickly than expected, or may reduce or replace some of our current services and offerings, which could result in operational difficulties or additional costs. If we do not sufficiently invest in new technologies and adapt to industry developments, if we are unable to commercialize them in our services and solutions, evolve, expand and scale them effectively with sufficient speed and versatility, or if we do not make the right strategic investments to respond to these developments and successfully drive innovation,innovation or if we do not adapt to these developments as effectively as our competition and/or new entrants to our industry, our results of operations and our ability to develop and maintain a competitive advantage and to execute on our growth strategy could be negatively affected.

If any of our key employees were to leave, we could face substantial difficulty in hiring qualified successors and could experience a loss in productivity while any successor obtains the necessary training and experience. AlthoughIn particular, we have experienced senior management changes in the last year, and may continue to experience further changes, which may adversely impact our business as we transition those roles. Such transitions can increase the risk of turnover among key personnel, require significant time and attention from management and the Board, hinder strategic planning, impact the effectiveness of our internal control environment and create uncertainty among investors, employees, customers and others regarding the Company’s future direction and performance. Further, although we have arrangements with some of our executive officers designed to promote retention, our employment relationships are generally at-will, and key employees may leave us. We intend to continue to hire additional highly qualified personnel with relevant skills and experience consistent with our current business strategy and offerings, but may not be able to attract, assimilate or retain similarly qualified personnel in the future. Further, for certain executives where a significant portion of compensation is in the form of equity grants, our ability to attract, retain, and motivate such employees may be adversely affected by our recent stock price volatility or our ability to obtain stockholder approval to provide additional stock to our employees.

In addition, much of our future success depends on the continued service, availability and integrity of skilled employees, including technical, sales and staff resources. Skilled and experienced personnel in the areas where we compete often are in high demand, and competition for their talents is often intense. Our inabilityInability to attract and retain skilled employees could intensify the adverse impact of a shortage of critical skills necessary to serve our customers, keep pace with the rapid and continuous technological changes in our industry and further our growth strategy, including talent trained in different areas of AI, machine learning, software engineering and other market-leading skills and capabilities in new technologies. Changing demographics and labor workforce trends also may result in a shortage of or insufficient knowledge and skills. Further, as global opportunities and industry demand shift, realignment, training and scaling of skilled resources may not be sufficiently rapid or successful. Any failure to attract, integrate, motivate and retain these employees could harm our business. If we are unable to hire or deploy employees with the needed skillsets or at scale to meet customer demand or if we are unable to adequately equip our employees with the skills needed, our business could be adversely affected and we may not be able to meet key objectives to further our growth strategy. Alternatively, from time to time, as a result of technological developments or changes in demand, we may have more people than we need in certain skill sets, geographies or compensation levels. In such cases, we have, and may in the future, rebalance our workforce, including reducing the rate of new hires and increasing involuntary terminations, which actions could negatively impact employee engagement and retention.

We are a globally integrated company doing business worldwide. Our results of operations have been and could in the future be affected by unfavorable, volatile or uncertain economic and geopolitical conditions and by macroeconomic changes, including recessions, inflation, currency fluctuations between the U.S. dollar and non-U.S. currencies, capital controls and adverse changes in trade relationships among those countries. Further, international trade disputes couldhave created and may continue to create uncertainty.volatility and uncertainty, due to geopolitical developments, concerns over changes in global trade policies, the imposition of tariffs, reactions from other nations and U.S. government spending reductions. Tariffs, including retaliatory tariffs, international trade sanctions and other controls on imports or exports resulting from these disputes could affect our ability to move goods and services across borders, or could impose added costs to those activities. Measures taken to date by us to mitigate these impacts could be made less effective should trade sanctions or tariffs change. In addition, any widespread outbreak of an illness, pandemic or other local or global health issue, natural disasters including those that could be related to climate change impacts, or uncertain political climates, international hostilities, geopolitical conflictconflict, other military conflicts or any terrorist activities, could adversely affect customer demand, our operations and supply chain, and our ability to source and deliver solutions to our customers. In the current macroeconomic environment, customers continue to balance short-term challenges and opportunities for transformation. While some customers have accelerated their digital transformation and increased their expenditures, the short-term priorities of other customers continue to be focused on operational stability, flexibility and cash preservation,preservation. Volatile and asuncertain such,global wemacroeconomic mayconditions experience some disruptionshave in transactionalthe performance.past and could in the future cause our customers to reduce, postpone, cancel or defer discretionary spending in enterprise technology and infrastructure, making it more difficult for us to accurately forecast customer demand and have available the right resources to profitably address such customer demand. Further, macroeconomic or geopolitical conditions, including inflationary pressures, trade disputes and other challenges could result in financial difficulties for our customers, which have in the past and could in the future cause customers to delay payments to us, request modifications to their payment arrangements or default on their payment obligations to us.

Damage to our reputation couldand negative publicity adversely impactaffects the Company and the price of our business.common stock.

Our commercial contracts are typically awarded on a competitive or “sole-source” basis. Our bids are priced upon, among other items, the expected cost to provide the services. We are dependent on our internal forecasts and predictions about our projects and the marketplace, and, to generate an acceptable return on our investment in these contracts, we must be able to accurately estimate our costs to provide the services required by the contract and to complete the contracts in a timely manner. We face a number of risks when pricing our contracts, as many of our projects entail the coordination of operations and workforces in multiple locations and utilizing workforces with different skill sets and competencies across geographically diverse service locations. In addition, revenues from a small portion of our contracts are recognized using the cost-to-cost method, which requires estimates of total costs at completion, fees earned on the contract, or both. This estimation process, particularly due to the technical nature of the services being performed and the long-term nature of certain contracts, is complex and involves significant judgment. Adjustments to original estimates are often required as work progresses, experience is gained and additional information becomes known, even though the scope of the work required under the contract may not change. Moreover, as inflation can increase both our labor and non-labor input costs, the profitability of our contracts could be negatively impacted if we are unable to adjust our pricing or costs to take inflation into account. In addition, the accelerating pace at which new AI capabilities are being introduced, combined with increased regulatory uncertainty, specifically with regard to data sovereignty in Europe, has increased the complexity of certain long-term contracts. This increased complexity, along with extended timelines in customer decision-making, have lengthened sales cycles, which have in the past and may in the future adversely impact our results. Furthermore, if we fail to accurately estimate the effort, costs or time required to complete a contract, the profitability of our contracts may be materially and adversely affected. If we are not able to increase our margins as anticipated, we may not be able to meet key objectives to further our growth strategy.

We have made, and may continue to make, acquisitions and dispositions in furtherance of our strategy. Such transactions can present significant challenges and risks, and there can be no assurances that we will identify or manage such transactions successfully or that strategic opportunities will be available to us on acceptable terms or at all. TheWe relatedhave risksfaced, includeand ourmay continue to face, delays in completing or failure to achievecomplete strategictransactions. objectives,Completing ourtransactions failureis subject to achievedelays, anticipated revenue improvementsuncertainties and costrisks, savings, our failure to retain key strategic relationships of acquired companies, our failure to retain key personnel and our assumption of liabilities related to litigation or other legal proceedings involvingincluding the businessesrisk in such transactions, as well as our failure to close planned transactions. Such transactions may require us to secure financing, and our indebtedness may limit the availability of financing to us or the favorability of the terms of available financing. If we do acquire other companies,that we may notbe realizeunable allto satisfy certain closing conditions, such as regulatory and financing conditions and the economic benefit from those acquisitions, which could cause an impairmentabsence of goodwillmaterial oradverse intangiblechanges assets.to our business, and related litigation.

Our customers include numerous governmental entities within and outside the United States, including foreign governments and U.S. state and local entities. Some of our agreements with these customers are subject to periodic funding approval or other government budgetary issues. FundingRecent funding reductions, delays or work stoppages couldhave adversely impactimpacted, and may continue to adversely impact, public sector demand for our services and can result in payment delays, payment reductions or contract terminations, any of which would have an adverse effect on our business, financial condition, results of operations and/or cash flows. Also, government contracts are generally subject to extensive and evolving procurement regulations and tend to have additional requirements beyond commercial contracts and, for example, may contain provisions providing for higher liability limits for certain losses and non-performance. Also, compliance violations in one state or locality could result in suspension or debarment as a governmental contractor, could incur civil and criminal fines and penalties, or could impact our ability to compete for new contracts, which could negatively impact our competitive position, results of operations, financial results and reputation.

Our intellectual property rights may not prevent competitors from independently developing services similar to or duplicative of ours, nor can there be any assurance that the resources invested by us to protect our intellectual property will be sufficient or that our intellectual property portfolio will adequately deter misappropriation or improper use of our technology. Our ability to protect our intellectual property could also be impacted by changes to existing laws, legal principles and regulations governing intellectual property. Further, we rely on third-party intellectual property rights, open-source software and other third-party software in providing some of our services and solutions, and there can be no assurances that we will be able to obtain from third parties the licenses we need in the future or retain all of these intellectual property rights upon renewal, expiration or termination of such licenses. If we cannot obtain, renew or extend licenses to third-party intellectual property on commercially reasonable terms, or if we must obtain alternative or substitute technology or redesign services, our business may be adversely affected. Additionally, we cannot be sure that our services and solutions, or the solutions of others that we offer to our customers, do not infringe on the intellectual property rights of third parties (including competitors as well as non-practicing holders of intellectual property assets), and these third parties could claim that we, our customers or parties indemnified by us are infringing upon their intellectual property rights. As we expand our use of AI, there may be uncertainty regarding intellectual property ownership and license rights of AI algorithms and content generated by AI, and we may become subject to similar claims of infringement. In addition, we may be the target of aggressive and opportunistic enforcement of patents by third parties, including patent assertion entities and non-practicing entities. These claims, even if we believe they have no merit, could subject us to a temporary or permanent injunction or damages, harm our reputation, divert management attention and resources and cause us to incur substantial costs or prevent us from offering some services or solutions in the future. Even if we have an agreement providing for third parties to indemnify us for the foregoing claims, the indemnifying parties may be unwilling or unable to fulfill their contractual obligations.

We maintain information, including confidential and proprietary information, in digital form regarding our business and the business of our customers, business partners, vendors, employees, contractors and other third parties. We also rely on third-party vendors to provide certain digital services in connection with our business and our delivery of services to customers. There are numerous and evolving risks relating to cybersecurity, data governance and privacy, including risks originating from intentional acts of criminal hackers, nation states and hacktivists; from intentional and unintentional acts of customers, business partners, vendors, employees, contractors, competitors and other third parties; and from errors, vulnerabilities and omissions in infrastructure, technology products, services and solutions that we use, as well as the risks associated with the number of customers, business partners, vendors, employees, contractors and other third parties working remotely. Computer hackers and others routinely attempt to exploit and attack the security of technology products, services, systems and networks using a wide variety of methods, including ransomware or other malicious softwaresoftware, and attempts to exploit vulnerabilities and flaws in hardware, software and infrastructure, technology products, services and solutions. Attacks also include social engineering to fraudulently induce customers, business partners, vendors, employees, contractors and other third parties to unwittingly disclose information, transfer funds or provide access to systems or data. We are at risk of security breaches not only of our own infrastructure, networks and services, but also those of customers, business partners, vendors, employees, contractors and other third parties.

Cyber threats and attacks are increasing in number and sophistication and continually evolving, particularly with the expanding availability of AI and generative and agentic AI tools and technologies, making it more challenging to defend against certain threats, attacks and vulnerabilities that can persist undetected over extended periods of time. Our technology infrastructure, products, services and solutions, including other third-party systems and technologies that we use to deliver our services or maintain on behalf of our customers, may be used in critical Company, customer or third-party operations, and involve the storage, processing and transmission of sensitive data, including proprietary or confidential data, regulated data, personal information and intellectual property of employees, customers and others. These products, services and solutions are also used by customers in heavily regulated industries, including those in the financial services, healthcare, critical infrastructure and government sectors. Cybersecurity attacks or other security incidents relating to our technology infrastructure, products, services and solutions or those of our vendors could result in, for example, one or more of the following: unauthorized access to, disclosure, modification, misuse, loss or destruction of Company, customer or other third-party data or systems; theft or import or export of sensitive, regulated or confidential data including personal information and intellectual property; the loss of access to critical data or systems through ransomware, destructive attacks or other means; and business delays, service or system disruptions or denials of service. In the event of such actions, we, our customers and other third parties could be exposed to liability (whether contractual or otherwise), litigation, and regulatory or other government inquiries, enforcement actions, fines or penalties, as well as the loss of existing or potential customers, negative publicity, damage to brand and reputation, damage to our competitive position and other financial loss.

The cost and operational consequences of responding to cybersecurity incidents and implementing remediation measures could be significant. In our industry, vulnerabilities in technology infrastructure, products, services and solutions are increasingly discovered, publicized and exploited, elevating the risk of attacks and the potential cost of response and remediation for us and our customers. The increasing number and sophistication of cyber threats, attacks and vulnerabilities, and the scale and complexity of our business and infrastructure, make it possible that certain threats, attacks or vulnerabilities will be undetected or unmitigated in time to prevent or minimize the impact on us or our customers. Cybersecurity riskrisks to us and our customers also dependsdepend on factors such as the actions, practices and investments of customers, business partners, vendors, employees, contractors and other third parties. Cybersecurity attacks or other catastrophic events resulting in disruptions to or failures in power, information technology, communication systems or other critical infrastructure could result in interruptions or delays to Company, customer or other third-party operations or services, financial loss, injury or death to persons or property, potential liability, and damage to brand and reputation. Although, to date, we have not experienced a cybersecurity incident that has had a material adverse effect on us and we continuously take steps to mitigate cybersecurity risk across a range of functions, such measures cannot eliminate the risk entirely or provide absolute security. While we continue to monitor for, identify, investigate, respond to, remediate and develop plans to quickly recover from cybersecurity incidents, notwithstanding our efforts, we may experience a cybersecurity incident in the future that may have a material adverse impact on the Company.

As we are a global enterprise, the regulatory environment with regard to cybersecurity, data governance, data sovereignty and localization requirements, privacy, AI and other issues to which we are subject is increasingly complex and will continue to impact our business, including through increased risk, increased compliance costs, and expanded or otherwise altered compliance obligations. The enactment and expansion of cybersecurity, data governance,governance (including data sovereignty), privacy, AI and other laws and regulations around the globe, including an increased focus on international data transfer mechanisms and supply chain management, the lack of harmonization of such laws and regulations, the increase in associated litigation and enforcement activity, the potential for damages, fines and penalties, and enacted or potential regulation of emerging and new technologies, such as AI and generative AI, will continue to result in increased compliance costs and increased risks. Any additional costs and penalties associated with increased compliance, enforcement and risk reduction could make certain offerings less profitable or increase the difficulty of bringing certain offerings to market.

Risks Relating to LawsLegal Matters and Regulations

We are subject to numerous, evolving, and sometimes conflicting, legal regimes on matters as diverse as anticorruption, import/export controls, content requirements, cybersecurity, data governancegovernance, data sovereignty and localization requirements, privacy, trade restrictions, tariffs, taxation, sanctions, immigration, internal and disclosure control obligations, securities regulation, anti-competition,anti-competition restrictions, anti-money-laundering, wage-and-hour standards, employment and labor relations, environmental, human rights, machine learning and AI. Further, we and the services we provide to customers may be impacted directly or indirectly by the development and enforcement of laws and regulations in the U.S. and globally that are specifically targeted at the technology and services sectors. As we expand our customer base and the scope of our offerings, both within the U.S. and globally, we may be further impacted by additional regulatory or other risks, including compliance with laws relating to corporate taxation, import, export and trade restrictions on technology and services. The global nature of our operations, including jurisdictions where legal systems may be less developed or understood by us, business practices and standards which deviate from international standards, and the diverse nature of our operations across a number of regulated industries, further increases the difficulty of compliance. Additionally, certain laws and regulations including the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act 2010 could make us responsible for acts of our employees, subcontractors, vendors, agents, alliance or joint venture partners, the companies we may acquire and their employees, subcontractors, vendors and agents, and other third parties with which we associate if they take actions that violate applicable anti-corruption laws or regulations (whether or not we participated or knew about the actions leading to the violations).

Compliance with diverse legal requirements is costly and time-consuming and requires significant resources. New and changing laws can also adversely affect the Company’s business by limiting the Company’s ability to offer a service or feature to customers, imposing changes to the design of the Company’s products and services, impacting customer demand for the Company’s products and services, and requiring changes to the Company’s supply chain and business. New and changing laws and regulations can also create uncertainty about how such laws and regulations will be interpreted and applied. Violations of one or more of these regulations in the conduct of our business could result in significant fines and penalties, disgorgement of profits, enforcement actions or criminal sanctions against us and/or our employees, contractors or agents, prohibitions on doing business, unfavorable publicity and damage to our reputation. Additionally, regulatory investigations can be expensive, disruptive and damaging. Violations of these regulations in connection with the performance of our obligations to our customers also could result in liability for significant monetary damages and restrictions on our ability to effectively carry out our contractual obligations and thereby expose us to potential claims from our customers. Due to the varying degrees of development of the legal systems of the countries in which we operate, local laws may not be well developed or provide sufficiently clear guidance and may be insufficient to protect our rights.

We are subject to income taxes and withholding taxes in both the United States and numerous foreign jurisdictions. We calculate and provide for taxes in each tax jurisdiction in which we operate. Tax accounting often involves complex matters and requires our judgment to determine our worldwide provision for income taxes and other tax liabilities. Our provision for income taxes and cash tax liability in the future could be adversely affected by numerous factors including, but not limited to, income before taxes being lower than anticipatedchanges in countriesthe withgeographic lowermix statutoryof tax rates and higher than anticipated in countries with higher statutory tax rates,income, changes in the valuation of deferred tax assets and liabilities, and changes in tax laws, regulations, accounting principles or interpretations thereof, which could adversely impact our results of operations and financial condition in future periods. The Organization for Economic Cooperation and Development (the “OECD”) continues to issue guidelines thatas arepart different,of its Base Erosion and Profit Shifting (“BEPS”) initiative and related international tax reform efforts. These initiatives reflect evolving views on the alignment of taxable income with economic activity and may differ in somecertain respects,respects thanfrom long-standing international tax principles. Local country adoption ofand some or allinterpretation of these rulesguidelines may increase tax uncertaintyuncertainty, result in inconsistent application among jurisdictions, and may adversely impact our income taxes. Furthermore, local country, state, provincial or municipal taxation may also be subject to review and potential override by regional, federal, national or similar forms of government, which may also adversely impact our income taxes. In addition, we are subject to periodic examinations of our domestic and foreigneffective tax returns by taxing authorities in the jurisdictions in which we do business. While we regularly assess the likelihood of adverse outcomes resulting from these examinations in order to determine the adequacy of our provision for income taxes, there can be no assurance that the outcomes from these examinations will not have an adverse effect on the Company’srate, provision for income taxes and cash flows.

As a multinational company with customers and employees around the world, weWe are orand may become involved as a party and/or may be subject to a variety of claims, demands, suits, investigations, tax matters and other proceedings that arise from time to time in the ordinary course of our business.time. In addition, our former Parent may obtain, or may seek to obtain, indemnity from us for judgments against it relating to events that occurred prior to the Separation pursuant to agreements put in place in connection with the Separation. The risks associated with known significant legal proceedings are described in more detail in Note 14 – Commitments and Contingencies in the financial statements elsewhere in this report. We believe that we have adopted appropriate risk management and compliance programs. Legal and compliance risks, however, will continue to exist, and additional legal proceedings and other contingencies, the outcome of which cannot be predicted with certainty, may arise from time to time.

Expectations relating to environmental, social and governancesustainability-related initiatives and considerations could expose us to potential liabilities, increased costs and reputational harm.

Over the past few years, governments,certain government entities, regulators, lawmakers, investors, employees, customers and other stakeholders have focused on environmental, social and governancesustainability-related initiatives and considerations relating to businesses. This includes matters relating to climate change and carbon emissions, human rights, diversity,workforce equity and inclusion,management, responsible supply chain management, ethics, cybersecurity and privacy. At the same time, a number of other stakeholders, including government entities, regulatorsregulators, lawmakers and lawmakersinvestors have expressed contrary views and expectations, including the proposalproposal, enactment or enactmentadoption of “anti-ESG” legislation, regulation, policiesenforcement priorities and enforcement priorities,policies, which may result in additional scrutiny, reputational risk, lawsuits or market access restrictions. Conflicting regulations and requirements, and a lack of harmonization of legal and regulatory environments across the jurisdictions in which we operate, may create enhanced compliance risks and costs. We have established and publicly announced certain goals, commitments and initiatives that reflect our current plans and aspirations on corporate citizenship matters, which are based on available data and estimates. There are no guarantees that we will be able to achieve these goalsgoals, andcommitments commitments.or initiatives. The implementation of programs designed to achieve these goals,goals or commitments and support these initiatives is subject to numerous risks, many of which are beyond our control, and in the future we may determine that further pursuit of them in light of changing circumstances is impracticable or inadvisable. Examples of such risks include but are not limited to: the availability and cost of resources and related technologies; the availability of suppliers and partners that can meet our standards; reliance on third-party performance and data; and our ability to manage geopolitical disruptions and natural disasters that could impact our employees, customers and businesses. Our failure, or perceived failure, to achieve any goals or commitments related to our corporate citizenship and other related goals and commitments,citizenship, maintain our practices, adhere to our prior public statements,statements complyregarding withour existing and new laws and regulationsaspirations or meet evolving and varied stakeholder expectations and standards could adversely affect our reputation, our financial condition and our ability to attract and retain customers and talent, and expose us to increased scrutiny from the investment community, enforcement authorities and others.

Recently, we have experienced adverse actions or developments with respect to our credit ratings. Any rating, outlook or watch assigned could be lowered or withdrawn entirely by a rating agency if, in that rating agency’s judgment, current or future circumstances relating to the basis of the rating, outlook or watch, such as adverse changes to our business, so warrant. Any future lowering of our ratings, outlook or watch likely would make it more difficult or more expensive for us to refinance or obtain additional debt financing.financing at competitive rates and impact the value and liquidity of our current debt. Moreover, a reduction in our ratingratings to below certain levels could potentially causeimpact our contracts and relationships with certain customers or vendors and lead them to reduce or cease to do business with us, or impact our ability to attract new customers, which would adversely impact our financial performance.

Our ability to issue debt or enter into other financing arrangements on acceptable terms couldcan be adversely affected if there is a material decline in the demand for our services or in the solvency of our customers or suppliers or if there are other significantly unfavorable changes in economic conditions. In addition, negative publicity or unfavorable perceptions and/or a lowering in our credit ratings, can harm our relationships with lenders and investors. Volatility in the world financial markets could increase borrowing costs or affect our ability to access the capital markets. These conditions mayand the other matters discussed in this Risk Factors section can adversely affect our credit ratings.

Our customer base includes many worldwide enterprises, from the world’s largest organizations and governments to smaller businesses, with a significant portion of our revenue coming from global customers across many sectors. As a result, our financial performance is exposed to a wide variety of industry sector dynamics worldwide, including sudden shifts in regional or global economic activity. Our earnings and cash flows, as well as our access to funding, could be negatively impacted by changes in market liquidity conditions. Additionally, if we become aware of information related to the creditworthiness of a major customer, or if future actual default rates on receivables in general differ from those currently anticipated, we may have to adjust our allowance for credit losses, which could affect our net income in the period the adjustments are made. Further, we enter into arrangements with financial institutions to sell certain of our trade receivables from customers without recourse. If we were to stop entering into these factoring arrangements or there are delays or failures in collecting trade receivables, our operating results, financial condition and cash flows could be adversely impacted. If any of these financial institutions experience financial difficulties or are otherwise unable to honor the terms of our factoring arrangements, we may experience a material impact to our cash flows.

Our Amended and Restated Certificate of Incorporation provides,provides in all cases to the fullest extent permitted by law,that unless we consent in writing to the selection of an alternative forum, the Court of Chancery located within the State of Delaware will be the sole and exclusive forum for any derivative action or proceeding brought on behalf of us, and to the fullest extent permitted by applicable law, any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee or stockholder to us or our stockholders, any action asserting a claim arising pursuant to the DGCL or as to which the DGCL confers jurisdiction on the Court of Chancery located in the State of Delaware or any action asserting a claim governed by the internal affairs doctrine or any other action asserting an “internal corporate claim” as that term is defined in Section 115 of the DGCL, or any action asserting a claim arising under the DGCL, our Amended and Restated Certificate of Incorporation or our Amended and Restated By-Laws.By-Laws or any action asserting a claim governed by the internal affairs doctrine. However, if the Court of Chancery within the State of Delaware does not have jurisdiction, thesuch action may be brought in another court in the State of Delaware, or if no court of the State of Delaware has jurisdiction, then in the United States District Court for the District of Delaware. The exclusive forum provision provides that it will not apply to claims arising under the Securities Act, the Exchange Act or other federal securities laws for which there is exclusive federal or concurrent federal and state jurisdiction. Unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States of America shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act.

In fiscal year 2025, we saw continuing demand for information technology services, despite concerns about economic growth, geopolitical tensions and inflationary pressures. Most economists, including the International Monetary Fund, expect positive global macroeconomic growth to continue in calendar year 2025. Global markets have experienced increased volatility in recent2026, months,amid ongoing trade tensions and heightened macroeconomic uncertainties, driven by geopolitical developments,developments and conflicts, 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 has impacted and may continue to impact the level and composition of global macroeconomic activity.

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 thisthese measuremeasures for comparative purposes.

For the year ended March 31, 2025,2026, Japan revenue of $2.4$2.3 billion increaseddecreased 13 percent, and increaseddecreased 64 percent in constant currency, compared to the year ended March 31, 2024, primarily2025, driven by expandingactions the scopeCompany has taken to reduce certain low-margin components of servicesits wecustomer providerelationships toentered ourinto customers.before the Spin-off. Adjusted EBITDA increased $29$96 million from the prior year, primarily driven by progress on our key initiatives.initiatives to drive operating efficiencies.

For the year ended March 31, 2025, Principal MarketsJapan revenue of $5.2$2.4 billion decreasedincreased 51 percent, and increased 6 percent in constant currency, compared to the year ended March 31, 2024, primarily driven by actionsexpanding the Companyscope hasof takenservices we provide to reduceour low-margin components of its customer relationships.customers. Adjusted EBITDA increased $209$29 million from the prior year, primarily duedriven by progress on our key initiatives to increaseddrive operating efficiencies and higher margins on recent signings, as well as a vendor credit.efficiencies.

For the year ended March 31, 2025,2026, StrategicPrincipal Markets revenue of $3.6$5.4 billion increased 4 percent, and decreased 82 percent in constant currency, compared to the year ended March 31, 2024.2025, The revenue decline was largely attributable to actionsreflecting the Companyexpiration hasof taken to reducecertain low-margin componentscontracts ofentered itsinto customerbefore relationships,the as well as an unfavorable currency exchange rate impact of three points.Spin-off. Adjusted EBITDA decreased $36$52 million from the prior year, primarily drivendue byto a vendor credit of $65 million in the impactprior of the inclusion of workforce rebalancing charges in adjusted EBITDA in fiscal 2025,year, partially offset by progress on our key initiatives.initiatives to drive operating efficiencies.

For the year ended March 31, 2024,2025, StrategicPrincipal Markets revenue of $3.9$5.2 billion decreased 75 percent, and decreased 4 percent in constant currency compared to the year ended March 31, 2023,2024, includingdriven a favorable currency exchange rate impact of three points. The revenue decline was largely attributable toby actions the Company has taken to reduce low-margin components of its customer relationships. Adjusted EBITDA increased $158$209 million from the prior year, primarily due to increased operating efficiencies and higher margins on recent signings, partiallyas offsetwell byas ana increasevendor in software costscredit of $29$65 million resulting from an amendment of the contract with a software provider that re-allocated costs among our segments.million.

Cost of services was 79.1%78.2% of revenue in the year ended March 31, 2025,2026, compared to 82.2%79.1% in the year ended March 31, 2024,2025, driven by lowerprogress depreciationon expense,our increasedkey initiatives to drive operating efficiencies, higherincluding marginsour onAdvanced recentDelivery signings, and a vendor credit.initiative. Selling, general and administrative expenses were 17.2%17.6% of revenue in the year ended March 31, 2025,2026, compared to 17.3%17.2% in the year ended March 31, 2024.2025, driven by increased expenses to support future growth. Transaction-related costs (benefits) were 0.3% of revenue in the year ended March 31, 2026, compared to transaction-related costs (benefits) of (0.8)% of revenue in the year ended March 31, 2025, primarilydue dueto a reserve for an interim arbitration decision on a pre-spin matter in the year ended March 31, 2026, compared to a $145 million pretax gain from the sale of the SIS platform in Canada,the comparedyear toended transaction-relatedMarch costs31, (benefits)2025. ofInterest (0.3)%expense was 0.6% of revenue in the year ended March 31, 2024,2026 which reflected an agreement that allowed uscompared to collect previously reserved receivables from our former Parent. Interest expense was 0.7% of revenue in the year ended March 31, 2025 compared to 0.8% in the year ended March 31, 2024. Other expense was 0.2% of revenue in the year ended March 31, 2025, compared to 0.3% in the year ended March 31, 2024, driven by currency-related hedging gains recorded this year.2025.

The Company classifies certain expenses and benefits related to the Separation, acquisitions and divestitures as “transaction-relatedTransaction-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.

During the year ended March 31, 2025, management initiatedimplemented actions to reduce the Company’s overall cost structure and increase our operating efficiency. These actions resulted in workforce rebalancing charges, charges related to ceasing to use leased and owned fixed assets, and charges related to lease terminations. 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, including lease termination charges.assets.

Total cash outlays for this program are expected to be approximately $150 million, of which approximately $110$142 million has been paid through March 31, 2025,2026, and the remainder is expected to be paid thereafter. Management expectsestimates that these workforce rebalancing and site-rationalization activities will reducereduced payroll costs, rent expenses and depreciation of property and equipment by more than $200$250 million in fiscal year 2026. There can be no guarantee that we will achieve our expected cost savings.

In the year ended March 31, 2026, we recorded income tax expense of $215 million, and in the year ended March 31, 2025, we recorded income tax expense of $184 million. In the yearsyear ended March 31, 2024 and 2023,2024, we recorded income tax expense of $172 million andon $524 million, respectively, ona pretax losses,loss, which resulted in a negative effective tax rates.rate. Our income tax expense for the yearyears ended March 31, 2025,2026, was primarily related to taxes on foreign operations2025 and uncertain tax positions. Our income tax expense for the year ended March 31, 2024 was primarily related to taxes on foreign operations and uncertain tax positions. Our income tax expense for the year ended March 31, 2023 was primarily related to the increases in valuation allowances in certain jurisdictions against deferred tax assets that are not more likely than not to be realized, taxes on foreign operations and uncertain tax positions.

The effective tax rate for the year ended March 31, 2026 was higher compared to the year ended March 31, 2025, primarily due to non-recurring, non-cash tax accruals from the refinement of certain tax positions recorded in the fourth quarter of fiscal 2026, and the jurisdictional mix of our earnings. The effective tax rate for the year ended March 31, 2025 was higher compared to the year ended March 31, 2024, primarily due to the Company’s pretax income in fiscal year 2025, compared to a pretax loss in 2024. The effective tax rate for the year ended March 31, 2024 was lower (more negative) compared to the year ended March 31, 2023 primarily due to the Company’s pretax loss being significantly lower in fiscal year 2024. For more information, see Note 5 – Taxes in the accompanying Consolidated Financial Statements.

Financial Position Dynamics

Total assets of $10.5$12.6 billion at March 31, 20252026 decreasedincreased by $138$2.1 millionbillion (and decreasedincreased by $52$1.9 millionbillion adjusted for currency) from March 31, 2024,2025, primarily driven by: aan decreaseincrease in deferred costs of $254$997 million in accounts receivable primarilymainly due to loweran past-due receivables; a reduction in operating right-of-use assets, net, of $133 million due to amortization outpacing additions;extended and aamended decreasemulti-year, inthird-party propertysoftware agreement and equipment, net, of $104 million due to depreciation outpacing net additions; partially offset by an increase in cash and cash equivalents of $234$837 million mainly due to our$1.0 net income in the period; and an increase in other non-current assetsbillion of $95cash borrowed under a revolving credit agreement, partially offset by a decrease of $304 million due to anshare increase in long-term prepaid assets.repurchases.

For a discussion of the Company’sour potential risks and uncertainties, see the information under the heading “Risk Factors” in the Company’sour Form 10-K for the year ended March 31, 20252026. (asThere amended)have andbeen no material changes with respect to the informationrisk providedfactors below.disclosed in the Form 10-K.

FOR THE THREE AND NINE MONTHS ENDED DECEMBERJUNE 31,30, 20252026

MostGlobal economists,markets includinghave thecontinued Internationalto Monetaryexperience Fund, expect positive but subdued global macroeconomic growthvolatility in calendar year 20262026, amid ongoing trade tensions and heightened macroeconomic uncertainties. Global markets have experienced volatility from time to time in recent months,uncertainties, driven by geopolitical developments,developments and conflicts, 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.

The following table presents our reportable segments’ revenue and adjusted EBITDA for the three and nine months ended DecemberJune 31,30, 20252026 and 2024.2025. Segment revenue and revenue growth in constant currency exclude any transactions between the segments.

Additionally, management uses adjusted EBITDA to evaluate our performance. Adjusted EBITDA is a non-GAAP measure and defined as net income (loss) 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,costs and benefits, 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.

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

For the three months ended DecemberJune 31,30, 2025,2026, JapanUnited States revenue of $568$954 million decreasedincreased 2 percent, and decreased 15 percent in constant currency, compared to the prior-year quarter.quarter, driven by higher revenue from recent signings. Adjusted EBITDA increased $15$24 million from the prior-year quarter, driven by the higher revenue from recent signings and progress on our key initiatives to drive operating efficiencies.efficiencies, partially offset by a $15 million increase in workforce rebalancing charges.

For the ninethree months ended DecemberJune 31,30, 2025,2026, Japan revenue of $1.7$534 billionmillion decreased 18 percent,percent and decreasedincluded 4a percent10 point impact from currency. Revenue growth in constant currency,currency comparedof to2 thepercent prior-year period,was driven by actionshigher therevenue Companyfrom hasrecent taken to reduce certain low-margin components of its customer relationships.signings. Adjusted EBITDA increaseddecreased $76$6 million from the prior-year period,quarter, driven by progressa on$5 ourmillion keyincrease initiativesin toworkforce driverebalancing operating efficiencies.charges.

For the ninethree months ended DecemberJune 31,30, 2025,2026, StrategicPrincipal Markets revenue of $2.7$1.3 billion increaseddecreased 27 percent, and decreased 28 percent in constant currency, compared to the prior-year period,quarter, primarily driven by actions the Company has taken to reduce certain low-margin components of its customer relationships.relationships entered into before the Spin-off. Adjusted EBITDA increaseddecreased $29$46 million from the prior-year period,quarter, primarilydriven dueby toa progress$33 onmillion ourincrease keyin initiativesworkforce torebalancing drivecharges operatingand efficiencies.lower revenue.

Cost of services was 78.4%78.6% of revenue in the ninethree months ended DecemberJune 31,30, 2025,2026, compared to 79.4%78.7% in the ninethree months ended DecemberJune 31,30, 2024, driven by progress on our key initiatives to drive operating efficiencies.2025. Selling, general and administrative expenses were 17.5%18.5% of revenue in the ninethree months ended DecemberJune 31,30, 20252026 compared to 17.3% in the prior-year period,quarter, driven by increased expenses to support future growth. Workforce rebalancing charges were 0.5%4.2% of revenue in the ninethree months ended DecemberJune 31,30, 20252026 versuscompared 0.8%to 0.7% of revenue in the prior-year period.quarter. 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 ninethree months ended DecemberJune 31,30, 2024,2026 due to a current-quarter reserve for an interim arbitration decision on a pre-spin matter compared to a $145$40 million pretax gain from the sale of thea SISwholly-owned platformdigital solutions subsidiary in the priorPrincipal year.Markets Interestsegment. Impairment expense was 0.5%1.0% of revenue in the ninethree months ended DecemberJune 31,30, 20252026 driven by the sale of a facility in the United States. Interest expense was 0.9% of revenue in the three months ended June 30, 2026 compared to 0.7%0.5% in the prior-year period.quarter, driven by an increase in debt due to cash borrowed under a revolving credit agreement. Other expense (income) was 0.2%(0.3)% of revenue in the ninethree months ended DecemberJune 31,30, 20252026, which was driven by net exchange gains, compared to 0.1%0.3% of revenue in the prior-yearthree period.months ended June 30, 2025, which was driven by net exchange losses.

The Company classifies certain expenses and benefits related to the Separation, acquisitions and divestitures as “transaction-relatedTransaction-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

During the three and nine monthsyear ended DecemberMarch 31, 2025,2026, 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$60 million for the three and nine monthsyear ended DecemberMarch 31, 2025, respectively.2026.

Total cash outlays for this program are expected to be approximately $60 million, of which approximately $47$57 million has been paid through DecemberJune 31,30, 2025,2026, 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.million in fiscal year 2027. There can be no guarantee that we will achieve our expected cost savings.

The provision for income taxes for the ninethree months ended DecemberJune 31,30, 20252026 was $100$14 million,million of benefit, compared to $134$36 million of expense for the ninethree months ended DecemberJune 31,30, 2024.2025. OurThe income tax benefit in the current-year period was primarily driven by a pretax loss, resulting in a tax benefit in jurisdictions where such losses are expected to be realized. The income tax expense forin the nineprior-year months ended December 31, 2025 and 2024period was primarily relatedattributable to taxes on foreign operations and valuation allowances recorded in certain jurisdictions against deferred tax assets that arewere 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. Recent improvements in profitability and forecasts of future taxable income have increased the positive evidence considered in certain jurisdictions as part of this assessment. Based on our evaluation of current results and anticipated future earnings, there is a reasonable possibility that we will conclude within the next twelve months that a portion of the valuation allowances recorded in certain jurisdictions is no longer necessary. However, our judgment regarding future taxable income and the timing and amount of any valuation allowance release is subject to change based on future business performance, market conditions and other factors.

Financial Position Dynamics

Total liabilities of $10.0$10.9 billion increaseddecreased by $846$400 million (and increaseddecreased by $630$387 million adjusted for currency) from March 31, 2025,2026, primarily as a result of an increase in other noncurrent liabilities of $675 million driven by thea extendeddecrease in accounts payable of $294 million due to annual and amended multi-year, third-partymulti-year software agreement.subscription and renewal payments and a decrease in accrued compensation and benefits of $48 million due to payments of annual incentive compensation.