Kyndryl Holdings Inc., the services business that IBM Corp. spun off in late 2021, today reported a 3% constant-currency revenue increase to $4.3 billion in its fiscal third quarter and a net loss of $106 million, or 47 cents per diluted share.

That compared with a net loss of $731 million in the same period last year. Both figures handily beat consensus analyst estimates of $3.92 billion in revenue and a loss of 82 cents per share.

Kyndryl also raised its revenue outlook for its fiscal year ending March 31, 2023 to reflect higher constant-currency revenue growth and currency effects. And it reaffirmed its outlook for adjusted earnings before interest, taxes, depreciation and amortization as well as adjusted pretax margins.

In after-hours trading, investors bid Kyndryl shares up more than 6%.

The adjusted pretax loss of $4 million compared to pro forma adjusted pretax income of $65 million in the prior-year period. Kyndryl said currency fluctuations exacted a $90 million penalty on adjusted pretax income.

“Currency currency is having a significant impact on us because we have dollar-denominated costs in our global operations in addition to international earnings,” said Kyndryl Chief Financial Officer David Wyshner on a call with analysts. “Currency is masking the operational progress we are making.”

Kyndryl said it is making strong progress on all of what it calls its “Three-As” initiatives: alliances, advanced delivery and accounts. It is particularly focused on driving profit margins into the mid-20% range of what it calls its “blueprint” accounts, which comprise about 60% of revenues. The goal is to move lower-margin multi-year managed services relationships into the blueprint range, executives said, and recent signings better reflect the targets of 29% gross margins and $149 million in annualized profit improvement.

The projected margins associated with all signings increased “meaningfully” this fiscal year compared to 2021, the company said, reflecting its commitment to winning profitable business and declining low-margin contracts.

“If we already had in the [profit and loss statement] what we recently signed would be at our target profit margin today,” said Chief Executive Martin Schroeter.

The company said its alliance initiatives are bearing fruit, citing $750 million in contracts with hyperscaler cloud vendors in the past nine months. That puts the company on track to achieve its target of $1 billion in hyperscaler signings this year. Nearly 32,000 employees have also logged hyperscaler certifications, up 98% year-over-year. One-third of employees are cloud-certified.

Since its separation from IBM, Kyndryl has formed alliances with all three major public cloud vendors as well as Cisco Systems Inc., Dell Technologies Inc., Oracle Corp., Red Hat Inc., SAP SE and VMware Inc.

More than 4,500 employees have been redeployed to serve new revenue streams and backfill for attrition, generating annualized savings of approximately $225 million and putting the company on track to exceed its $200 million fiscal 2023 year-end cost-saving objective.

Kyndryl turned in the strongest performance in its cloud computing segment, where revenue grew 33% on a 35% jump in signings. It also showed strong growth in its security & resiliency practice, with revenue up 13% and in core enterprise & zCloud, with 33% growth.

Schroeter said the company enjoys a level of insulation from macroeconomic factors because its focus is on managing core operational systems. “We tend to thrive in environments where there is a focus on optimizing and productivity because that’s what we do for a living,” he said. “This is a good demand environment for us.”

Photo: Kyndryl