Kyndryl Holdings Incorporation ((KD)) has held its Q3 earnings call. Read on for the main highlights of the call.
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Kyndryl Holdings’ latest earnings call revealed a robust quarter, showcasing a strong financial performance with notable growth in signings and revenue, particularly within the Kyndryl Consult segment. Despite some challenges, such as a decline in constant currency revenue and persistent headwinds from IBM software costs, the overall sentiment remains positive. The company is demonstrating significant momentum and a promising outlook, with highlights outweighing any setbacks.
Record Signings and Revenue Growth
Kyndryl Holdings reported a remarkable fifth consecutive quarter of year-over-year growth in signings, with an impressive 31% increase to $16.3 billion over the past year. The Kyndryl Consult segment experienced a revenue rise of 18%, while signings surged by 45%, contributing to a $3 billion revenue stream.
Strong Financial Performance
The company achieved a substantial increase in adjusted pretax margins and exceeded $170 million in adjusted free cash flow. Additionally, the adjusted EBITDA margin reached a record high of 18.8%, marking a 320 basis point improvement from the previous year.
Increased Fiscal 2025 Earnings Outlook
Looking ahead, Kyndryl Holdings has raised its fiscal 2025 adjusted EBITDA margin outlook to at least 16.7%, with an adjusted pretax income outlook of at least $475 million, indicating strong confidence in its future financial performance.
Growth in Hyperscaler Related Revenue
The company reported that hyperscaler-related revenue exceeded $300 million in the quarter, positioning Kyndryl well ahead of its nearly $1 billion full-year target.
Successful Execution of 3A’s Initiatives
The strategic focus on the 3A’s initiatives—alliances, accounts, and advanced delivery—continues to drive incremental signings, revenue, and earnings, demonstrating successful execution of these growth strategies.
Revenue Decline in Constant Currency
Despite the positive results, the company faced a 3% decline in constant currency revenue, highlighting a challenge amid its otherwise strong performance.
Forex Impact on Reported Revenue
Currency movements impacted reported revenues, leading to a 2-point gap between reported revenue change and constant currency revenue change, presenting a hurdle in financial reporting.
Continued IBM Software Cost Headwinds
Kyndryl Holdings continues to face challenges from IBM software costs, with a $50 million year-over-year increase included in adjusted pretax income, affecting overall profitability.
Forward-Looking Guidance
Kyndryl’s forward-looking guidance is optimistic, with plans to triple adjusted free cash flow by fiscal 2028 and more than double adjusted pretax income. The company aims for mid-single-digit annual revenue growth and has initiated a stock buyback under its share repurchase authorization, underscoring its commitment to sustained profitable growth.
In conclusion, Kyndryl Holdings’ earnings call highlights a strong quarter with record signings and significant revenue growth, despite facing some challenges. The company’s strategic initiatives and optimistic guidance underscore a promising outlook, maintaining positive momentum in the financial markets.
