Kyndryl Holdings Inc., the services business that spun out of IBM Corp. a year ago, reported flat revenues and a larger loss in its 2023 fiscal second-quarter earnings released today.

Revenue fell 9% from a year ago, to $4.2 billion but grew 2% in constant currency on a pro forma basis. The company reported a quarterly net loss of $281 million, or $1.24 per diluted share, compared with a net loss of $690 million in the prior-year period. That missed the consensus 84-cents-per-share loss of the two analysts who follow the company.

The pretax loss of $102 million compared with income of $63 million a year ago. Kyndryl blamed currency fluctuations, which it said dragged down adjusted pretax income by $69 million.

However, Kyndryl, which bills itself as the world’s largest information technology infrastructure services provider, reaffirmed its earlier revenue and earnings guidance for the full year and said it’s making good progress toward sustained profitability. At the same time, it has been less affected by the economic uncertainty that has dampened sales at other tech firms recently. “The non-discretionary nature of what we do insulates us to some extent from big swings in demand,” said Chief Executive Officer Martin Schroeter during a call with analysts.

The company signed contracts tied to cloud hyperscaler alliances totaling $425 million over the first six months and said it’s making good progress toward closing $1 billion in hyperscaler signings for the year. Those deals are critical to growing Kyndryl beyond its IBM roots.

“We’ve built the brand to the point that people know what Kyndryl is and what Kyndryl does separate from IBM,” Schroeter told analysts.

Kyndryl pointed to the launch of its Kyndryl Bridge, Kyndryl Vital and Kyndryl Consult operations, which the company is using to break out of its IT services niche and address broader business consulting opportunities.

The company is particularly bullish on the prospects for the Kyndryl Consult business advisory practice. “Demand for Kyndryl Consult is very strong and that converts into revenue more rapidly than a long-term managed services business,” Schroeter said on a call with analysts. “Customers trust us to run their multicloud systems and this is an opportunity for us to help them in other aspects of their business. We believe we can grow Consult to be half our business in the medium term.” He said advisory services signings are up 43% this year.

For the year, Kyndryl expects revenue of between $16.3 and $16.5 billion, which is in line with earlier estimates and reflects a roughly 10% drop from last year. The company is on track to meet “our medium-term goals, including top-line growth in calendar 2025 and meaningful margin expansion,” said Chief Financial Officer David Wyshner.

Kyndryl said it has redeployed over 3,000 of its 90,000 people to “backfill attrition,” or reduce headcount, generating annualized savings of approximately $150 million. At the same time, revenues from the new consulting business have been higher than expected and assumptions about revenue loss tied to the renegotiation of some contracts so far haven’t materialized.

Investors were underwhelmed, knocking the stock back nearly 6% after-hours.

Photo: Kyndryl