Depending on whom you believe, Kyndryl Holdings Inc. defied the recent down-earnings trend by beating Wall Street estimates or it undershot expectations on critical metrics.

The information technology infrastructure services and consulting firm reported revenues of $3.74 billion in its first fiscal quarter, a decline of 8% in constant currency from the same quarter last year. According to Dow Jones, FactSet Research Systems Inc. had expected revenues to come in at $3.79 billion.

Pretax income of $64 million and net income of $11 million, or 13 cents per diluted share, improved from a net loss of $141 million, or 62 cents per diluted share, a year ago. However, that was below FactSet estimates of 17 cents.

Kyndryl begged to differ. It said it beat S&P Global Market Intelligence Inc.’s Capital IQ estimates on earnings per share, pretax income, adjusted pre-tax income and adjusted earnings before interest, taxes, depreciation and amortization. Either way, it raised full-year adjusted pretax income expectations to $460 million, up $25 million from earlier estimates. It also set an adjusted EBITDA margin of at least 16.3%, slightly up from its previous outlook of at least 16.2%.

The company also reaffirmed its outlook for constant-currency revenue declines of between 2% and 4% in the second fiscal quarter, indicating total fiscal 2025 revenue of between $15.2 and $15.5 billion.

Investors appeared to prefer Kyndryl’s take on things. They bid shares up nearly 4% after hours.

The year-over-year revenue decline had been expected. Kyndryl has been engaged in a multiyear program to reduce the no-margin and low-margin contracts inherited from its former IBM Corp. parent. The initiative has resulted in $725 million of annualized benefits and is on track to achieve the company’s objective of $850 million of savings in fiscal 2025.

Moreover, Kyndryl is demonstrating that it’s on track to generate significant new business rather than rely on legacy IBM contracts. “Half of the revenue this year came  from post-spin signings and it’ll be two-thirds in fiscal 2026,” said Chief Executive Martin Schroeter. “It’s a tipping point for our overall P&L.”

Kyndryl Consult saw double-digit growth in revenues, up 14% in constant currency, and a 49% jump in signings. The company said its consulting group posted a 31% rise in signings over the past 12 months on demand for modernization and secure artificial intelligence. The company said total signings were up 14% in the quarter and 7% over the last 12 months.

“We just had a great July so it’s likely we’ll have a fourth quarter of growth as well,” Schroeter said. “We remain on track to deliver top-line growth in the fourth quarter of this fiscal year.”

Cash flow used in operations was $48 million in what the firm said is a seasonally weak quarter for cash flow. It reaffirmed earlier forecasts of $300 million in cash flow in fiscal year 2025. Adjusted free cash flow was negative $116 million. Kyndryl recognized $210 million in revenue tied to cloud hyperscaler alliances, progressing well toward the company’s hyperscaler revenue target of nearly $1 billion in fiscal year 2025.

Schroeter said the company’s focus on artificial intelligence, cybersecurity, cloud migration, infrastructure and application modernization and skills are in the sweet spot of customer demand. “Customers are telling us there aren’t any challenges they can’t solve with technology,” he said. “That means infrastructure has to be a big part of their transformation journey.”

Photo: Kydryl/X