Kyndryl Celebrates Strong Financial Results

Kyndryl, the IT infrastructure provider that spun out from IBM in 2021, marked its second anniversary with impressive financial performance. The company reported revenue of $4.1 billion for the third quarter, surpassing analysts' expectations by $100 million according to FactSet. The adjusted earnings before interest, taxes, depreciation, and amortization (Ebitda) stood at $574 million, significantly higher than the Street consensus of $487 million.

In a surprising turn of events, Kyndryl achieved a pretax profit of $25 million for the quarter, proving the Street wrong as they had anticipated a loss of $21 million. The adjusted net loss per share for the quarter was reported as five cents, beating the Street's projected loss of 30 cents. Under generally accepted accounting principles (GAAP), the company endured a loss of $142 million, or 62 cents per share, which showed notable improvement compared to the year-earlier quarter's loss of $281 million and $1.24 per share.

Despite initial expectations of a slow journey towards growth and profitability following its spinout, Kyndryl's CEO Martin Schroeter revealed in an interview that the company is ahead of schedule. Emphasizing their position at the forefront of key market trends, such as hybrid infrastructure, cloud computing, and artificial intelligence software, Schroeter expressed confidence in Kyndryl's ability to assist customers in these areas. As a result, Kyndryl has raised its forecast for full-year 2023 adjusted pretax income from at least $100 million to at least $140 million. Additionally, the estimate for adjusted Ebitda margin has been increased from 14% to 14.5%.

With a strong performance on its second anniversary, Kyndryl is proving itself as a leading player in the IT infrastructure industry, capitalizing on evolving customer demands and driving innovation in emerging technologies.

Kyndryl: Driving Customer Success and Future Growth

Kyndryl, a leading player in the industry, has surpassed expectations by quickly turning around its business. As the CEO states, their success lies in their crucial role in enabling customers to seize opportunities presented by secular trends. They are the heart and lungs for their clients.

Part of this turnaround involved a strategic decision to reduce zero-margin and low-margin business that existed during the spin from IBM. While this impacted revenues, it was a necessary step. Additionally, the company reported $87 million in costs related to the spin and recent workforce reductions.

Despite the short-term challenges, Kyndryl's CEO, Schroeter, remains optimistic about the future. He predicts that the company will start experiencing revenue growth from 2025 onwards. In the medium term, Kyndryl aims to achieve an adjusted pretax margin in the high single digits and generate pretax income in the range of $1 billion, with an emphasis on converting these profits into cash.

Following the spin from IBM, Kyndryl's shares encountered difficulties due to the shrinking top line and lack of income prospects, deterring dividend-seeking investors. However, Schroeter believes that things will change in the medium term. He envisions Kyndryl as a business with strong visibility and outlook, making it suitable for returning cash to shareholders. While the focus remains on maintaining credit ratings and cash balance in the short term, Schroeter acknowledges the potential for considering shareholder returns in the future.

Remarkably, Kyndryl shares have rallied a remarkable 40% year-to-date, demonstrating investor confidence in the company's future prospects.