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Kyndryl Discloses Declining Revenue; Spin-Off From IBM Still Planned By End Of Year

On a pro forma basis, the IBM managed infrastructure business now known as Kyndryl saw revenue of $19.35 billion last year, a 4.5 percent decline from the year before, according to a Kyndryl regulatory filing.

Kyndryl, the IBM managed infrastructure business that is set to be spun off, has reported three consecutive years of declining revenue along with a $2.01 billion net loss last year, according to a regulatory filing.

The disclosure came in a Form 10 filing with the U.S. Securities and Exchange Commission on Tuesday for registration of securities, and provided details including pro forma financial results for the business that is splitting off as Kyndryl.

[Related: 8 Big New Revelations About IBM’s Kyndryl Spin-Off]

On an adjusted basis, the business generated pretax profits of $378 million in 2020, according to a source close to the spin-off.

In a separate filing with the SEC on Tuesday, IBM said the spin-off of Kyndryl is still on track to be completed by the end of 2021.

IBM is spinning off its managed infrastructure business as Kyndryl as the tech giant continues to sharpen its focus on priority areas such as hybrid cloud and artificial intelligence.

CRN has reached out to Kyndryl for comment. IBM declined to comment.

Kyndryl’s Form 10 filing with the SEC includes historical financial results along with statements about the rationale for the separation.

The filing shows that the IBM business now known as Kyndryl generated $19.35 billion in pro forma revenue in 2020. That was down from $20.28 billion in revenue for 2019, and from $21.8 billion in 2018.

The business’ pro forma $2.01 billion net loss in 2020 represented an increase from 2019, when the reported net loss was $943 million, according to the Kyndryl filing.

Pro forma revenue for the business during the first six months of 2021 was $9.52 billion, with a net loss of $887 million, according to the Kyndryl filing. A source close to the spin-off said that the business’ pretax profit for the first half of the year was $156 million, on an adjusted basis.

After the separation, both companies “will leverage their respective strategies and strengths to accelerate customers’ digital transformations,” the Kyndryl filing says.

IBM “will focus on hybrid cloud and AI. IBM will leverage an open strategy, technology and platform innovation, and expertise to address the $1 trillion hybrid cloud market opportunity,” the Kyndryl filing says. “Post separation, IBM will move from a company with more than half of its revenues in services to one with a majority in high-value cloud software and solutions.”

Kyndryl, meanwhile, “will provide innovative services to design, run and modernize customer technology environments, participating in a $415 billion market,” the Kyndryl filing says. “These services will enable enterprises to realize strong, secure, resilient, and adaptive technology environments. Kyndryl is uniquely positioned to address these IT services needs, as a natural extension of the role it plays supporting the mission critical technology infrastructure of the world’s most important businesses and institutions.”

Risk factors outlined by Kyndryl in the document include potential for a lack of new customers or retention of existing customers, as well as competition in key markets.

“Our competitors include incumbents that have expanded their offerings to migration and management of cloud-based environments; companies that utilize labor-based models and leverage talent pools primarily in lower-cost countries that have grown to offer a broad range of services with a worldwide presence; and advisory-focused system integrators specializing in bringing together disparate technology environments so that they function as one,” Kyndryl said in its SEC filing.

The filing comes as New York-based Kyndryl continues to build out its leadership team, including with the announcement of Tuesday of the company’s 10-member board of directors. Martin Schroeter, an IBM executive who was named CEO of Kyndryl in January, was appointed to serve as chairman of the company’s board.

In its own SEC filing on Tuesday, Armonk, N.Y.-based IBM said it continues to expect the separation of Kyndryl will be completed by the end of the year, and the business will be “reclassified as a discontinued operation” after that point.

In terms of stock distribution for the publicly held Kyndryl, IBM said that at least 80.1 percent of common stock in Kyndryl will be distributed to IBM shareholders. IBM will retain “no more than” 19.9 percent of Kyndryl shares, but “intends to dispose of any retained common stock” in Kyndryl within 12 months after the initial distribution, according to the filing.

In the SEC filing, IBM wrote that the spin-off of Kyndryl “creates two industry-leading companies, which will continue to have a strong commercial relationship.”

“Each of these companies will have increased clarity and ability to focus on their respective operating and financial models, including capital deployment, investment strategies, and investment grade capital structures,” IBM said in the filing. “It will also enable greater freedom of action to partner and capture new opportunities.”

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