Kyndryl Shoots To Q3 Profit With ‘Strong’ Signings Growth
Kyndryl, which as part of IBM’s managed services business just a bit over three years ago had to focus on sales of IBM products and services, now says it is on its way to exceed its original forecast of nearly $1 billion in services from the major hyperscalers this fiscal year.
IT infrastructure services provider Kyndryl proved in its third fiscal quarter 2025 that it has achieved profitable growth, and the New York-based company expects more of the same for the rest of its fiscal year.
Kyndryl, formed in 2021 when IBM spun out its ailing managed services business, Monday used its quarterly financial report to show that it has become a solidly profitable company.
The company’s third fiscal 2025 quarterly conference call is slated to be held early Tuesday morning of this week.
[Related: Eight Key Takeaways From Kyndryl’s First Investor Day]
Executives of Kyndryl, which is ranked No. 10 on CRN’s 2024 Solution Provider 500, were not available Monday to provide further comment on the quarter.
When Kyndryl was formed, it was saddled with low-margin contracts by IBM focused on selling Big Blue's hardware and software. Kyndryl CEO Martin Schroeter in late 2023 told CRN that the key to the company’s future was moving away from its IBM-focused past in part by actually decreasing its revenue in order to find its own way to prosperity.
“What we’ve been talking about, particularly this year, is engineering a decline in revenue to get rid of either low-[margin] or no-margin businesses that we inherited in the [spin-out from IBM]. ... We inherited a business [from IBM] that was basically reselling other people’s equipment. And we’re taking that down dramatically this year because there’s nothing in it for us,” he said at the time.
That strategy seems to have paid off.
Kyndryl, after the close of the trading day Monday, reported revenue for the quarter, which ended December 31, of $3.74 billion, which was down 5.1 percent from the $3.94 billion the company reported for its third fiscal quarter 2024.
Revenue missed analyst expectations by $7 million, according to Seeking Alpha.
That included U.S. revenue of $961 million, down from $1.03 billion; Japan revenue of $579 million, about flat with last year’s $581 million; revenue from the company’s “principal" markets of Canada, France, Germany, India, Italy, Spain, Portugal, the U.K., and Ireland of $1.30 billion, down from $1.36 billion, and other revenue of $904 million, down from last year’s $962 million.
Kyndryl Consult revenue grew 26 percent year-over-year, marking its sixth straight quarter of growth for that business.
Kyndryl also reported that it recognized $300 million in revenue from cloud hyperscaler alliances and expects to exceed its revenue target of nearly $1 billion by the end of fiscal 2025. That represents extremely fast growth for a company which under IBM’s control was tied to selling IBM’s products and services.
The company reported a 31 percent growth in signings over the past 12 months, representing deals worth $16.3 billion, along with a fifth straight quarter of signings growth.
"In the third quarter, we delivered another quarter of strong signings growth and significant margin expansion, led by Kyndryl Consult, Kyndryl Bridge and our alliances with hyperscalers, said Schroeter in a statement.
The New York-based company reported GAAP net income of $215 million or 89 cents per share, up significantly from the loss of $12 million or 5 cents per share the company reported last year.
On a non-GAAP basis, Kyndryl reported net income of $124 million or 51 cents per share, up from last year’s loss of $11 million or 5 cents per share.
Non-GAAP earnings beat analyst expectations by 10 cents per share, according to Seeking Alpha.
Looking ahead, Kyndryl said it has raised its full fiscal year 2025 adjusted pretax income to $475 million, up $310 million over fiscal 2024, as well as raised its adjusted free cash flow up 17 percent to $350 million.