Kyndryl Holdings Inc., the information technology infrastructure services company that was formerly part of IBM Corp., delivered a narrow earnings and revenue beat today, nudging its stock higher after-hours.

The company reported a fiscal second-quarter loss before certain costs such as stock compensation of 19 cents per share, better than the 24-cent-per-share loss expected by analysts. Revenue for the period dropped by 7% from a year earlier, but at $3.77 billion, it was still higher than the Wall Street analysts’ consensus estimate of $3.72 billion.

The positive results enabled Kyndryl to reduce its net loss from $142 million in the year-ago period to just $43 million at the end of the quarter. Investors liked what they saw, as the company’s stock moved 2% higher in late trading, adding to a gain of almost 5% earlier in the day, a huge one for the market.

Kyndryl is exclusively focused on providing IT services, having split off from IBM in November 2021. It’s organized into six global managed services practices, each managing a different aspect of technology: applications, data and artificial intelligence; core enterprise and zCloud, IBM’s mainframe-as-a-service offering; digital workplace; network and edge; security and resiliency; and cloud. It also offers a customer advisory practice that combines managed services, advisory services and implementation.

In addition to its six core practices, it offers services designed to help companies set up and maintain their workloads on leading cloud infrastructure platforms, such as Amazon Web Services, Google Cloud, Microsoft Azure and IBM Cloud.

The company said it is benefiting from enterprise’s desire to implement AI-powered applications and services, as many lack the expertise to go it alone. That was the main reason why its consulting revenue increased 23% in the quarter, it added.

“For every company which is considering AI and generative AI, the heart of that always requires data,” Kyndryl Chief Executive Martin Schroeter (pictured) said in an interview with Reuters shortly after the earnings release went live. “We play a role in helping them with their data architecture before they could even start to consider generative AI.”

Kyndryl has high hopes for generative AI, and has set itself a target of generating $1 billion in revenue from so-called “hyperscalers” during fiscal 2025. It appears to be on track to hitting that goal, recognizing $260 million in revenue tied to customers using cloud infrastructure services.

During the quarter, Kyndryl announced the launch of new consulting services for Microsoft’s Copilot tool, which has befuddled many enterprises due to the difficult of setting it up and extracting value.

When the company split from IBM, it inherited a number of “no-margin” contracts, and it has been trying to rework those to generate greater profits, and the result of that has been what Schroeter termed an “engineered decline” in its overall revenue.

However, the CEO insisted that the company is making good progress in that respect, and said it hopes to return to revenue growth by the end of the fiscal year.

Looking ahead, the company reaffirmed its fiscal 2025 revenue forecast of between $15.2 billion and $15.5 billion, the midpoint of which is above the Street’s target of $15.27 billion.

Holger Mueller of Constellation Research Inc. said Kyndryl’s quarter gave investors plenty to mull over, but he believes they’ll be happy with its progress on the road to profitability.

“The company is trying to get rid of the low-margin deals it inherited from IBM, so it can focus on higher-margin contracts, and that’s what investors want to see,” the analyst said. “As with many companies, AI demand is helping Kyndryl, and its efforts there played a big part in it being able to reduce its total losses by almost $100 million. The declining losses show that Schroeder is making good on his promise to get a better deal mix, and investors will be keen to see further progress in the next quarter.”

Kydryl does not provide quarterly guidance, but it said it will provide some commentary on what to expect when it holds its conference call with analysts on Thursday.

Photo: SiliconANGLE