Kyndryl rolls as cloud and consulting business drive earnings beat

Kyndryl Holdings Inc. beat analyst expectations for cash flow, adjusted pretax income and adjusted earnings for the third straight quarter and raised its fiscal full-year outlook, and investors responded by bidding the stock 5% higher in early after-hours trading.

The company said strong, double-digit growth in its Kyndryl Consult practice and better-than-expected revenue from hyperscale infrastructure providers drove a 16% increase in third fiscal quarter signings to $3.7 billion. The business consulting practice, which was launched 15 months ago, grew 12% year-over-year and contributed 15% of Kyndryl’s total revenue.

The strength of cloud bookings prompted the company to raise its annual revenue estimate for that business to $400 million, up from an earlier forecast of $300 million.

Quarterly revenue of $3.94 billion barely nudged out consensus estimates of $3.92 billion. The five-cents-per-share quarterly loss beat analyst forecasts of a 26-cent loss and compared to a net loss of 47 cents per diluted share in the same quarter a year ago.

Revenue fell 8.5% year-over-year, in line with the former IBM Corp. subsidiary’s ongoing efforts to purge low-margin business from its rolls. What drew greater investor attention was that Kyndryl increased its fiscal 2024 adjusted pretax income outlook to at least $150 million and raised expectations for adjusted earnings margin before interest, taxes, depreciation and amortization to at least 14.5%.

The company also said it expects fiscal 2024 adjusted free cash flow to be positive. Chief Executive Officer Martin Schroeter reiterated earlier forecasts that Kyndryl will return to revenue growth in calendar 2025.

“Our strong and consistent execution is enabling us to again increase our adjusted earnings outlook for the year and to remain on track for revenue growth in calendar year 2025,” he said in a statement.

Kyndryl said customer demand is particularly strong in artificial intelligence, automation, cybersecurity and edge computing. Its partnerships with the three big hyperscaler cloud providers will be in evidence tomorrow as the company announces a partnership with Google LLC on AI services for mission-critical enterprise environments.

Kyndryl also said it’s on track to save more than $550 million this year through the redeployment of more than 8,500 employees and the Kyndryl Bridge business process integration platform. It also said it retired $475 million worth of low-margin contracts in the quarter.

Photo: Kyndryl on Facebook