Company Overview
Kyndryl Holdings, Inc. (KD) is the world's largest IT infrastructure services provider, serving thousands of enterprise customers across over 100 countries. Formed through the spin-off from IBM in 2021, Kyndryl has quickly established itself as a leader in mission-critical technology services, leveraging its global scale, expertise, and innovation to drive transformative outcomes for its clients.
Historical Background
Kyndryl's roots can be traced back to 1911 when IBM's predecessor, the Computing-Tabulating-Recording Company (CTR), was founded. Over the decades, the company evolved and grew into the technology powerhouse we know today as IBM. In 2021, IBM decided to spin-off its infrastructure services unit, which became Kyndryl, allowing the new independent company to sharpen its focus and better serve its diverse customer base.
Formation and Spin-off
Kyndryl Holdings, Inc. was officially formed in September 2021 as a wholly-owned subsidiary of IBM to hold the operations of IBM's infrastructure services unit, which was part of its Global Technology Services segment. On November 3, 2021, Kyndryl was spun off from IBM through a tax-free distribution to IBM's shareholders, making Kyndryl an independent, publicly-traded company. This spin-off allowed Kyndryl to leverage its global scale and expertise in mission-critical work to serve as a trusted partner for its customers' current and future technology needs.
Initial Challenges
In the early days as an independent company, Kyndryl faced several challenges. One of the key issues was the need to replace the transition services provided by IBM following the spin-off. Kyndryl had to rapidly migrate its internal systems and processes to standalone capabilities, which led to some initial control deficiencies in its information technology general controls. However, the company made progress in remediating these deficiencies over time.
Another significant challenge for Kyndryl was navigating the contractual disputes that arose between the company and IBM following the separation. Over the course of fiscal year 2024, Kyndryl was able to resolve most of these matters, including those in arbitration proceedings, largely in line with the company's accruals. This resolution allowed Kyndryl to focus more on its core business operations and strategic initiatives.
Company Strategy and Focus
Despite these initial hurdles, Kyndryl has continued to execute on its mission as the world's largest IT infrastructure services provider. The company has focused on investing in areas like data, automation, and AI-enabled operations to drive insights and efficiencies for its customers. Additionally, Kyndryl has worked to build strategic alliances with leading technology providers to offer hybrid, multi-vendor solutions, further enhancing its value proposition to clients.
Financials and Key Metrics
As of the end of fiscal year 2024, Kyndryl boasted $10.59 billion in total assets and employed over 300,000 highly skilled professionals around the world. The company's revenue for the fiscal year 2024 stood at $16.05 billion, with a net loss of $340 million. Annual operating cash flow was $454 million, and annual free cash flow was -$197 million. While the initial post-spin-off period presented some challenges, Kyndryl has demonstrated its resilience and ability to navigate the evolving IT landscape, as evidenced by its improved financial performance in recent quarters.
Service Portfolio
One of Kyndryl's key strengths is its comprehensive portfolio of services, which includes cloud migration, application modernization, managed infrastructure, and consulting. The company's focus on mission-critical systems and its deep understanding of enterprise IT needs have positioned it as a trusted partner for some of the world's largest organizations.
Financial Performance
Kyndryl's financial performance has shown signs of improvement in recent quarters. In the third quarter of fiscal year 2025, the company reported revenues of $3.74 billion, a 5% decline compared to the prior-year period. This decline was primarily due to the divestiture of the SIS business in Canada and the company's actions to reduce low-margin revenue streams, partially offset by growth in Kyndryl Consult. Net income for the quarter was $215 million, a significant improvement compared to the prior year quarter, driven by a $145 million gain on the SIS divestiture and progress on cost reduction initiatives.
The company's adjusted EBITDA for the third quarter of fiscal year 2025 was $704 million, with an adjusted EBITDA margin of 18.8%, a significant year-over-year improvement of 320 basis points. Adjusted pretax income also grew substantially, reaching $160 million, a 154% increase compared to the prior-year period. The adjusted pretax margin improved to 4.3%, up 270 basis points year-over-year. These impressive financial results demonstrate Kyndryl's ability to drive operational efficiencies and expand its profitability.
Strategic Initiatives
A key driver of Kyndryl's recent success has been its focus on its "3A's" initiatives: Alliances, Accounts, and Advanced Delivery. The company has forged strategic partnerships with leading technology providers, such as Microsoft, Amazon Web Services, and Google Cloud, allowing it to offer integrated, multi-vendor solutions to its customers. Additionally, Kyndryl's focused efforts on optimizing its existing customer accounts and deploying its advanced delivery capabilities, powered by its Kyndryl Bridge platform, have contributed to its improved financial performance.
Kyndryl's Consult practice has been a standout, with revenues growing 26% year-over-year in the third quarter of fiscal year 2025. Kyndryl Consult signings also grew by 35% year-over-year in the same quarter. This reflects the company's ability to capitalize on the growing demand for IT consulting and advisory services, as enterprises navigate complex digital transformation initiatives.
Segment Performance
Kyndryl operates through four reportable segments: United States, Japan, Principal Markets, and Strategic Markets.
The United States segment reported revenue of $961 million in the third quarter of fiscal year 2025, a 7% decrease compared to the prior-year period. Despite the revenue decline, which was largely attributable to the company's efforts to reduce low-margin components of its customer relationships, adjusted EBITDA for the segment increased 5% to $204 million.
The Japan segment saw revenue of $579 million, unchanged compared to the prior-year period but increasing 3% in constant currency. This growth was primarily driven by the company expanding the scope of services provided to customers. Adjusted EBITDA for the Japan segment increased 18% to $111 million.
The Principal Markets segment, which includes operations in Canada, France, Germany, India, Italy, Spain, Portugal, and the United Kingdom/Ireland, experienced a 4% revenue decline to $1.30 billion. This was impacted by the company's actions to reduce equipment sales and other low-margin components of its customer relationships, as well as the divestiture of its SIS platform in Canada. However, adjusted EBITDA for this segment increased 19% to $226 million.
The Strategic Markets segment, comprising all other countries in which Kyndryl operates, saw a 6% decrease in revenue to $904 million. This decline was driven by an unfavorable currency exchange rate impact and the company's actions to reduce low-margin components of its customer relationships. Despite this, adjusted EBITDA for the Strategic Markets segment increased 16% to $187 million.
Future Outlook and Guidance
Looking ahead, Kyndryl has provided an encouraging outlook for the remainder of fiscal year 2025. The company expects to deliver year-over-year constant currency revenue growth of approximately 2% in the fourth quarter, driven by continued momentum in its higher-margin service offerings. Additionally, Kyndryl has raised its earnings guidance, with an adjusted EBITDA margin of at least 16.7% and adjusted pretax income of at least $475 million for the full fiscal year.
For the fourth quarter of fiscal year 2025, Kyndryl anticipates adjusted pretax income to be a multiple of the $30 million reported in the same quarter of fiscal year 2024. The company has also updated its full-year fiscal 2025 expectations, projecting net capital expenditures of roughly $600 million, depreciation expense of $650 million, and cash taxes of $150 million. Kyndryl has raised its guidance for adjusted free cash flow to approximately $350 million, up from the previously guided $300 million.
Liquidity and Capital Structure
As of the most recent quarter, Kyndryl had $1.5 billion in cash and cash equivalents. The company has also secured a $3.15 billion multi-currency revolving credit facility in October 2021, of which there were no borrowings outstanding as of December 2024. This strong liquidity position provides Kyndryl with financial flexibility to pursue its strategic initiatives and navigate potential market uncertainties.
Industry Positioning
Kyndryl is well-positioned to address secular IT trends such as cloud migration, hybrid IT environments, technology skill shortages, cybersecurity risks, and the adoption of artificial intelligence. The company's comprehensive service offerings and deep expertise in managing complex IT infrastructures give it a competitive edge in the rapidly evolving technology services landscape.
Key Performance Indicators
Kyndryl has demonstrated strong performance across several key metrics. Signings growth reached 31% over the last 12 months, while managed services signings grew by 27% in the same period. These figures underscore the company's ability to win new business and expand its market share in a competitive environment.
Conclusion
While Kyndryl's journey as an independent company has not been without its challenges, the company's strategic execution, operational improvements, and focus on high-value services have positioned it well for future growth. As the world's largest IT infrastructure services provider, Kyndryl is poised to capitalize on the increasing demand for cloud migration, IT modernization, and managed services, leveraging its global scale, deep industry expertise, and innovative solutions to drive sustainable profitability and shareholder value.