Shares of Kyndryl Holdings Inc. jumped more than 14% in initial after-hours trading today as the information technology infrastructure services provider reported fiscal first-quarter revenues and earnings that soundly beat Wall Street estimates.

Revenue declined 2% from a year ago — 1% in constant currency — to $4.2 billion but beat analyst expectations of $4.09 billion. The net loss of $141 million, or 62 cents per diluted share, shrank from a net loss of $250 million, or $1.11 per diluted share, a year ago.

Adjusted pretax income was $47 million, an increase of $97 million compared with the adjusted pretax loss of $50 million the company reported in the prior-year period. On an adjusted basis, Kyndryl’s earnings broke even this quarter, well ahead of analyst estimates of a loss of $1.11.

‘Turning point’

“We’re relentlessly transforming our business, and this past quarter represented an important turning point,” Kyndryl Chairman and Chief Executive Officer Martin Schroeter (pictured) said in a statement. “We now expect to generate adjusted pretax profit this fiscal year and going forward. This positions us well to deliver the significant margin expansion we’ve targeted.”

Kyndryl executives were particularly bullish on the performance of Kyndryl Consult, the business advisory arm it launched last fall. “Kyndryl Consult is growing double digits and is now targeted to reach 20% of our revenue by fiscal 2027, one-third more than our original target of 15%,” Schroeter said on a call with analysts.

That’s important as Kyndryl navigates the transition from being strictly a technology company to more of a strategic consultant. “We’re engaging with customers further up the technology stack including how to implement artificial intelligence in their businesses,” Schroeter said.

“It’s only natural for consulting to give way to the implementation of change and the services that go with it,” said Chief Financial Officer David Wyshner. “Kyndryl Consulting sits at the heart of some of our strategic work because it has so many attributes that are attractive.”

Adjusted earnings before interest, taxes, depreciation and amortization, which is an important indicator of underlying financial health, increased 25%, to $612 million. Kyndryl raised its fiscal 2024 adjusted margin outlook to about 14% from earlier projections of between 12% and 13% and said it now expects its fiscal 2024 adjusted pretax income to be at least $100 million.

The company also reaffirmed its constant-currency revenue outlook and its fiscal 2024 targets for its so-called “three-A” initiatives: alliances, advanced delivery and accounts. It said it’s continuing to make progress in its ongoing efforts to shed unprofitable accounts that were a legacy of its previous ownership by IBM Corp. That program has delivered more than $300 million of annualized benefits and is well on track to achieve or exceed the full-year $400 million goal, the company said.

“We continue to sign new business and renewals with meaningfully higher margins than our pre-spin, legacy contracts,” Wyshner said.  He predicted that 85% of Kyndryl’s 2027 revenue will be from contracts signed after the spinoff. “We are eager for the high-margin flywheel we’ve started to turn to gain momentum,” he said.

On the three-A initiatives, Kyndryl said it recognized more than $80 million in revenue tied to cloud hyperscale alliances and is on track to meet its hyperscale revenue target of more than $300 million for the fiscal year 2024. It also redeployed more than 6,500 employees to pursue new revenue streams while using attrition to generate annualized savings of about $375 million on a full-year target of $450 million.

Photo: IBM