Analyst(s): Krista Case
Publication Date: February 5, 2025
Kyndryl’s Q3 FY 2025 earnings report showcases margin expansion and a return to profitability, driven by higher-margin signings and continued growth in Kyndryl Consult. While revenue declined YoY due to contract restructuring and divestitures, the company posted significant improvements in earnings.
What is Covered in this Article:
- Kyndryl Q3 FY 2025 results highlight margin expansion and profitability improvement
- Strong signings growth, with total signings up 10% YoY and consulting signings rising 35%
- Execution of Three-A initiatives (Alliances, Advanced Delivery, and Accounts), driving cost efficiencies and higher-margin contracts
- Hyperscaler partnerships accelerating cloud and AI-driven transformation services
- Raised FY 2025 guidance, with improved EBITDA margins and free cash flow outlook
The News: Kyndryl Holdings Inc. (NYSE: KD) reported fiscal Q3 2025 results, with revenue of $3.7 billion, marking a 5% year-on-year (YoY) decline (3% decline in constant currency). The decline was driven by reducing no-margin and low-margin customer contracts, along with the divestiture of its Securities Industry Services (SIS) platform.
Adjusted EBITDA rose 14% YoY to $704 million, with margins expanding to 18.8% (Q3 2024: 15.6%). The company reported net income of $215 million, a sharp turnaround from the $12 million net loss in Q3 2024. Diluted earnings per share (EPS) improved to $0.89, compared to a loss per share of $0.05 in the prior-year period.
“Once again, our performance was led by double-digit revenue growth in Kyndryl Consult and demand for modernization, cloud, security and AI services,” said Martin Schroeter, Chairman and CEO of Kyndryl. “Our 3As initiatives, alliances, accounts and advanced delivery continue to generate incremental signings, revenue and earnings.”
Kyndryl Delivers Strong Q3 FY 2025 Signing Growth and Margin Expansion
Analyst Take: Kyndryl’s Q3 FY 2025 results signal a solid turnaround in profitability, with notable margin expansion and rising adjusted EBITDA, even as revenue saw a decline. The company has been actively refining its portfolio, cutting back on low-margin contracts inherited in its spinout from IBM, while also reshaping its revenue base through the sale of its SIS platform. At the same time, the strong momentum of Kyndryl Consult and its strategic partnerships with hyperscalers continue to fuel higher-margin growth, setting the stage for stronger earnings and cash flow in the future.
Strong Signings Growth and a Focus on Earnings Quality
Kyndryl reported total signings of $4.1 billion in Q3 FY 2025, marking a 10% YoY increase (or 12% in constant currency) reflecting strong customer demand for the company’s expertise and essential services. Over the past 12 months, signings have climbed 31% YoY to reach $16.3 billion. The company’s ability to land large-scale, multi-year transformation deals is accelerating, with 20 contracts exceeding $100 million signed year-to-date. A rising proportion of these are with new customers, reflecting Kyndryl’s expanding enterprise adoption beyond IBM legacy contracts.
Kyndryl Consult remains a key growth driver, with revenues up 26% YoY and quarterly signings increasing by 35% YoY. The contribution to total revenue is now >21% as compared to 10% at the time of the spin-off from IBM. Over the last 12 months, signings have surged 45% YoY, highlighting the continued demand for Kyndryl’s capabilities in IT modernization and cloud transformation. The division’s rapid growth is strengthening Kyndryl’s positioning as a strategic IT partner rather than just a services provider.
Although overall revenue declined due to contract restructuring and divestitures, the company’s focus on higher-margin signings and cost efficiencies is driving profitability gains. These strategic improvements position Kyndryl to convert its expanding signings pipeline into more profitable revenue streams in the quarters ahead.
Strategic Direction: Executing the Three-A Initiatives
Kyndryl’s Three-A strategy – focusing on Alliances, Advanced Delivery, and Accounts – continues to drive margin expansion and profitability improvements as the company restructures contracts, enhances service delivery, and strengthens strategic partnerships.
The Alliances strategy, particularly in hyperscaler partnerships, is gaining momentum, contributing $300 million in Q3 revenue and staying on track to exceed the company’s $1 billion FY 2025 revenue target. Additionally, alliances with Microsoft Azure, AWS, and Google Cloud are driving new mainframe modernization and cloud migration opportunities, further reinforcing Kyndryl’s position as a preferred partner for enterprise IT modernization.
The Advanced Delivery initiative, powered by the AI-driven Kyndryl Bridge platform, remains central to operational efficiency. By automating workflows and optimizing service execution, the platform has freed up 12,300 delivery professionals and generated $725 million in annualized cost savings – putting Kyndryl on pace to surpass its FY 2025 cost savings target of $750 million. These efficiencies, combined with a shift toward higher-margin service offerings, have directly contributed to EBITDA margin expansion in Q3. Meanwhile, the Accounts initiative has already delivered $825 million in annualized benefits by eliminating inherited low-margin contracts, bringing Kyndryl close to its $850 million FY 2025 target ahead of schedule. This disciplined approach is reshaping the company’s revenue mix, paving the way for sustained earnings growth.
Raising FY 2025 Guidance
Kyndryl has raised its earnings and cash flow projections for FY 2025, fueled by ongoing margin expansion and strong signings momentum. The company now anticipates adjusted pretax income of at least $475 million – a $310 million YoY increase – alongside an adjusted EBITDA margin of at least 16.7%, reflecting a 200-basis-point improvement. Additionally, adjusted free cash flow is expected to reach around $350 million. Meanwhile, Q4 FY 2025 revenue is projected to grow by approximately 2% in constant currency. This improved outlook highlights Kyndryl’s strong execution, enhanced earnings quality, and shift toward a more profitable revenue mix.
Looking ahead
Kyndryl’s continued transformation hinges on sustaining momentum in higher-margin contracts, consulting services, and operational efficiencies. A key factor in this shift has been addressing unprofitable pre-spinoff contracts inherited from IBM, which had previously weighed on profitability. By phasing out low-margin deals and doubling down on hyperscaler partnerships and AI-driven service delivery, the company is positioning itself for stronger earnings quality and cash flow. Kyndryl’s long-term targets – tripling adjusted free cash flow to ~$1 billion, more than doubling pretax income to $1.2 billion, and achieving mid-single-digit revenue growth by FY 2028 – highlight its focus on earnings quality and profitability.
Moving forward, disciplined execution of its Three-A strategy, combined with cost management, will be crucial to sustaining margin expansion. The projected return to constant-currency revenue growth in Q4 marks a significant step, but long-term success will depend on maintaining strong signing growth and scaling high-value services in the $95 billion IT outsourcing market.
Read the full press release on the Kyndryl website.
Disclosure: The Futurum Group is a research and advisory firm that engages or has engaged in research, analysis, and advisory services with many technology companies, including those mentioned in this article. The author does not hold any equity positions with any company mentioned in this article.
Analysis and opinions expressed herein are specific to the analyst individually and data and other information that might have been provided for validation, not those of The Futurum Group as a whole.
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Author Information
Krista Case brings over 15 years of experience providing research and advisory services and creating thought leadership content. Her vantage point spans technology and vendor portfolio developments; customer buying behavior trends; and vendor ecosystems, go-to-market positioning, and business models. Her work has appeared in major publications including eWeek, TechTarget and The Register.
