Kyndryl Holdings Inc. today reported adjusted earnings that beat analysts’ estimates on lower sales in its fiscal third quarter.

Earnings of 51 cents per diluted share compared with a loss of five cents a year earlier and beat the consensus estimate of 41 cents. Revenue fell to $3.74 billion from $3.94 billion a year earlier, below consensus estimates of $3.81 billion.

Kyndryl said the year-over-year constant-currency revenue decline reflects its continued progress in reducing inherited no-margin and low-margin contracts and the sale of its Securities Industry Services platform, which provides wealth management and capital markets software solutions to Canadian financial services firms, to Broadridge Financial Solutions Inc. in November. The company also blamed exchange rates for the revenue decline. Pretax income of $258 million and net income of $215 million improved significantly from a net loss of $12 million a year ago.

Investors mostly shrugged off the revenue miss, sending Kyndryl shares down about 1.5% in after-hours trading. The company reaffirmed earlier guidance that it would return to growth of at least 2% in the quarter ending in March, matching analyst expectations. Kyndryl also raised its full-year adjusted pretax income forecast to at least $475 million from the earlier estimate of at least $460 million and up 53% from $310 million last year.

Kyndryl said its Consult division, which launched in 2022, delivered double-digit revenue growth in the quarter and over the last 12 months.

Cash flow from operations was $260 million, and adjusted free cash flow was $171 million in the quarter. Chairman and Chief Executive Officer Martin Schroeter said the company expects to triple adjusted free cash flow and more than double adjusted pretax earnings over the next three years. It has also initiated a $300 million share repurchase program, “reflecting our confidence in our future growth trajectory,” he said.

Adjusted pretax income was $160 million was up 154% from $63 million in the prior-year period, driven by its “three-A initiative” (alliances, advanced delivery and accounts) and offset by a contractually required increase in IBM software costs and layoff charges of $17 million.

Adjusted earnings before interest, taxes, depreciation and amortization rose 14% from a year ago, to $704 million.  Total signings in the quarter rose 12% in constant currency, to $4.1 billion.  Total signings for the 12 months ended Dec. 31, 2024 were $16.3 billion, a year-over-year increase of 31%.

“The margins associated with our signings continue to support our outlook for future earnings and free cash flow growth,” Chief Financial Officer David Wyshner said in a statement.

Kyndryl said it recognized $300 million in revenue from cloud hyperscaler alliances, an important strategic initiative, and is on track to exceed its hyperscaler revenue target of nearly $1 billion in fiscal year 2025.

The company also said Kyndryl Bridge, a collection of curated cloud services that improve customers’ insights into their business, helped free up more than 12,300 delivery professionals and has generated annualized savings of approximately $725 million as of quarter’s end, putting it on track to exceed the company’s $750 million fiscal 2025 goal.

Photo: Kyndryl