IT infrastructure services provider Kyndryl (NYSE:KD) reported Q1 CY2025 results exceeding the market’s revenue expectations, but sales fell by 1.3% year on year to $3.8 billion. Guidance for next quarter’s revenue was better than expected at $3.78 billion at the midpoint, 0.6% above analysts’ estimates. Its non-GAAP profit of $0.52 per share was 2.7% above analysts’ consensus estimates.
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Kyndryl (KD) Q1 CY2025 Highlights:
- Revenue: $3.8 billion vs analyst estimates of $3.77 billion (1.3% year-on-year decline, 0.8% beat)
- Adjusted EPS: $0.52 vs analyst estimates of $0.51 (2.7% beat)
- Adjusted EBITDA: $698 million vs analyst estimates of $709.7 million (18.4% margin, 1.7% miss)
- Revenue Guidance for Q2 CY2025 is $3.78 billion at the midpoint, roughly in line with what analysts were expecting
- Operating Margin: 4.2%, up from 1% in the same quarter last year
- Market Capitalization: $9.26 billion
StockStory’s Take
Kyndryl’s first quarter results were propelled by continued growth in its consulting segment and the successful execution of its three strategic initiatives—accounts, alliances, and advanced delivery. CEO Martin Schroeter emphasized that signings increased 48% year over year, driven by demand for cloud migration, hybrid IT environments, and cybersecurity services. Kyndryl Consult, in particular, delivered above-market growth, with revenue rising more than 25% during the year. Schroeter highlighted the company’s ability to secure large, multi-year contracts across multiple sectors, including a $1 billion agreement with a financial services client and expanded relationships in healthcare and retail. These wins reflect Kyndryl’s expanded capabilities and reputation for managing mission-critical technology.
Looking ahead, Kyndryl’s management expects to sustain positive revenue momentum through a combination of margin expansion and increased demand for digital transformation services. CFO David Wyshner noted that the company anticipates double-digit revenue growth in Kyndryl Consult and a 50% increase in hyperscaler-related revenue for the year, reflecting growing partnerships with major cloud providers. Schroeter stated, “Our business providing mission critical services under multi-year contracts means that we are significantly insulated from, although not immune to, macro factors.” The company also aims to drive further operational efficiencies and invest in consulting capabilities, Kyndryl Bridge (its AI-powered platform), and strategic alliances to support long-term profitability and cash flow targets set for the next several years.
Key Insights from Management’s Remarks
Management attributed the quarter’s performance to significant consult signings, the expansion of cloud partnerships, and the impact of efficiency initiatives that improved margins.
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Consulting segment outperformance: Kyndryl Consult revenue grew over 25% for the year, with signings up 50%, fueled by demand for digital transformation projects such as cloud migration and application modernization. Management highlighted that consulting contracts typically convert to revenue faster than managed services and are accretive to company margins.
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Large deal momentum: The company secured multiple large contracts, including a $1 billion, six-year deal with a financial services firm and expanded agreements in healthcare and retail. Management sees these deals as expanding both the scope of services and the proportion of revenue from higher-margin offerings.
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Growth in hyperscaler alliances: Revenue from partnerships with major cloud providers more than doubled year over year, surpassing $1.2 billion. Management expects this trend to continue as enterprises modernize IT infrastructure and leverage AI capabilities.
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Margin improvement from strategic initiatives: The accounts, alliances, and advanced delivery (“3A”) initiatives have become core to Kyndryl’s operating model, delivering annualized savings and contributing to a 3.2 percentage point year-over-year increase in operating margin. Management noted that over 75% of targeted account savings have already been realized.
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Book-to-bill ratio and backlog: With a book-to-bill ratio above 1, Kyndryl is converting signings into a growing backlog, supporting future revenue visibility. Management reported 70-75% of annual revenue is already under contract at the start of the year, indicating strong predictability in the business.
Drivers of Future Performance
Management expects future performance to be shaped by consulting growth, expanded cloud partnerships, and ongoing operational efficiency gains.
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Consulting and advisory growth: The company forecasts continued double-digit growth in consulting revenue, underpinned by demand for cloud optimization, cybersecurity, and AI governance services. Management is increasing investment in consulting talent and capabilities to capture this demand.
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Expanding hyperscaler partnerships: Kyndryl anticipates a 50% increase in hyperscaler (major cloud provider) related revenue, driven by customer migration to hybrid and public cloud environments. These partnerships are expected to enhance both revenue growth and margin profile.
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Operational leverage and margin expansion: The shift toward post-spin, higher-margin contracts and the maturation of its 3A initiatives are projected to drive further operating margin improvement. Management cautioned that legacy contract roll-offs and ongoing investment in growth areas may moderate the pace of revenue acceleration in the near term.
Catalysts in Upcoming Quarters
In the coming quarters, the StockStory team will be watching (1) the pace of consulting and hyperscaler-related revenue growth, (2) progress on expanding operating margins through efficiency initiatives, and (3) the scale and profitability of new large multi-year contracts. The evolution of Kyndryl Bridge and its impact on customer adoption will also be a key marker of success.
Kyndryl currently trades at a forward P/E ratio of 19.4×. Is the company at an inflection point that warrants a buy or sell? The answer lies in our full research report (it’s free).
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