Kyndryl Holdings Incorporation ((KD)) has held its Q2 earnings call. Read on for the main highlights of the call.
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Kyndryl Holdings Inc. recently held its earnings call, where the sentiment was largely positive despite some challenges. The company showcased significant margin expansion and earnings growth, driven by strong performances in Kyndryl Consult and Hyperscaler-related revenues. An increase in the share repurchase program further indicated confidence in future objectives. However, revenue fell short of expectations due to longer sales cycles and a strategic shift towards higher-margin content. Nonetheless, Kyndryl remains optimistic about the second half, bolstered by a strong pipeline and strategic acquisitions.
Margin Expansion and Earnings Growth
Kyndryl reported impressive margin expansion, with adjusted EBITDA increasing by 15% year-over-year and adjusted pretax income growing by a remarkable 171%. This reflects the company’s robust earnings growth, showcasing its ability to enhance profitability despite a challenging economic environment.
Growth in Kyndryl Consult and Hyperscaler-Related Revenue
The company saw a 32% increase in Kyndryl Consult revenue in constant currency over the past year. Additionally, Hyperscaler-related revenues doubled, surpassing the initial fiscal 2026 target of $1.8 billion. These figures highlight Kyndryl’s successful expansion in these key areas.
Increase in Share Repurchase Program
Kyndryl has increased its share repurchase program by $400 million, demonstrating its confidence in achieving fiscal 2028 objectives. This move indicates a strong belief in the company’s future growth prospects and financial stability.
Strong Pipeline for Second Half
Entering the third quarter, Kyndryl boasts a record pipeline, which supports signings growth in the second half and a full-year book-to-bill ratio above 1. This strong pipeline is expected to drive future revenue and growth.
Strategic Acquisition
Kyndryl announced the acquisition of a midsized cloud services provider in Europe, enhancing its capabilities in the sovereign cloud market. This strategic move is expected to strengthen Kyndryl’s position in the cloud services sector.
Revenue Below Expectations
Despite the positive developments, Kyndryl’s revenue for the quarter was approximately $100 million below target. This shortfall is attributed to longer sales cycles for expanded scope deals and a focus on margin expansion.
Constant Currency Revenue Decline
Revenue decreased by 3.7% in constant currency, impacted by a 4-point drag due to the removal of low-margin hardware and software content. This strategic decision, while affecting short-term revenue, is aimed at improving long-term profitability.
Forward-Looking Guidance
Looking ahead, Kyndryl maintains a positive outlook for fiscal 2026, expecting revenue growth of 4% to 5%. The company is on track to deliver over $1 billion in adjusted free cash flow and over $1.2 billion in adjusted pretax income by fiscal 2028. With a trailing 12-month revenue book-to-bill ratio above 1, Kyndryl anticipates robust future revenue growth.
In conclusion, Kyndryl’s earnings call reflected a positive sentiment, with significant margin expansion and earnings growth. While revenue fell short of expectations, the company’s strategic focus on higher-margin content and a strong pipeline for the second half provide a solid foundation for future growth. Kyndryl’s confidence is further underscored by an increased share repurchase program and strategic acquisitions, positioning it well for the coming years.