Kyndryl, the IT services company that separated from IBM in November 2021, is making waves in the market following its impressive June quarter financial results. The company’s shares experienced a significant surge in late trading, propelled by results that exceeded Street estimates. Furthermore, Kyndryl has also revised its full-year guidance, indicating a promising future ahead.
IBM’s decision to divest Kyndryl was part of its strategic focus on high-growth, high-margin ventures such as hybrid cloud services and artificial intelligence software. Interestingly, Kyndryl’s shares have outperformed its former parent company this year, boasting a 12% increase compared to IBM’s modest 4% growth prior to Monday’s after-hours surge.
In the latest trading session, Kyndryl witnessed a substantial rally of 14.5%, reaching $14.26 per share.
The company’s success can be attributed to its “three A” strategy, which involves forging valuable alliances, particularly with cloud computing vendors, increasing automation, and eliminating low-margin accounts.
During the fiscal first quarter, Kyndryl (ticker: KD) achieved a revenue of $4.2 billion, marking a modest 2% decrease from the previous year. However, this figure still surpassed analysts’ consensus by approximately $100 million. Additionally, the company’s adjusted Ebitda (earnings before interest, taxes, depreciation, and amortization) stood at an impressive $612 million, surpassing the consensus estimate of $466 million. Notably, Kyndryl achieved an adjusted pretax profit of $47 million, defying the average analyst expectation of a $59 million loss. Moreover, the company reported a narrower-than-expected net loss of $141 million for the quarter, translating to 62 cents per share compared to the predicted 91-cent loss according to Street consensus.
Kyndryl’s CEO, Martin Schroeter, expressed his satisfaction with the company’s progress, stating, “We’re relentlessly transforming our business, and this past quarter represented an important turning point. We now expect to generate adjusted pretax profit this fiscal year and going forward. This return to profit, driven by our strong execution, positions us well to deliver the significant margin expansion we’ve targeted.”
Looking ahead, Kyndryl anticipates pretax income of at least $100 million for the fiscal year ending in March 2024. Additionally, the company has revised its adjusted Ebitda margin forecast to 14%, surpassing its previous guidance range of 12% to 13%. While Kyndryl expects a decline in constant currency revenue between 6% and 8% compared to the previous year, the company projects positive revenue growth in fiscal 2025.
In conclusion, Kyndryl’s exceptional performance in the June quarter showcases its solid execution of strategic initiatives. Its growth trajectory and improved financial outlook position the company for a prosperous future.