Analyst: Camberley Bates
Publication Date: November 12, 2024
Kyndryl’s second-quarter fiscal 2025 earnings report reveals significant growth, with total signings hitting $5.6 billion a 132% increased YTY and adjusted EBITDA of $557 million. The company’s “three-A” initiatives—Alliances, Accounts, and Advanced Delivery —are enhancing profitability, along with solid results from Kyndryl Consult and its AI-driven platform, Kyndryl Bridge. Kyndryl has reaffirmed its financial forecast and continues its focus on cloud computing, artificial intelligence, and IT modernization prospects.
What is Covered in this Article:
- Overview of Kyndryl’s Q2 FY25 financial performance and revenue highlights
- Analysis of the three-A initiatives driving Kyndryl’s growth this quarter
- Record-breaking signings and their contribution to margin expansion
- Fiscal year 2025 outlook and projected growth targets
- Insights on Kyndryl’s strategic focus areas and future growth potential
The News: Kyndryl announced its second-quarter earnings for fiscal year 2025, ending on September 30, 2024, indicating significant progress in its strategic growth goals. The company achieved an overall revenue of $3.8 billion, driven by Kyndryl Consult and its cloud hyperscaler alliances. Record signings of $5.6 billion—a 132% increase compared to the previous year—highlight the growing client demand for Kyndryl’s IT modernization and digital transformation services.
Kyndryl experienced a 7% decrease in revenue compared to the previous year, caused by planned cuts in low-margin contracts. However, it recorded an 80% rise in adjusted pretax income, indicating enhanced profitability. The company reaffirmed its FY25 forecast, anticipating an adjusted EBITDA margin of 16.3% and a constant currency revenue increase in the fourth quarter.
Kyndryl Q2 FY25 Earnings: Key Growth Drivers and Strategic Initiatives
Analyst Take: Kyndryl’s Q2 FY25 performance is reflective of its focus on high margins services combined with its “three-A” growth strategy, which focuses on alliances, accounts, and advanced delivery. Kyndryl’s alliances with cloud hyperscalers hasexpand its market reach and enhance its position in the growing cloud and artificial intelligence sectors growing to an anticipated $1B in revenues for FY25. The Kyndryl Bridge platform, which uses AI for operational savings, is a major difference that allows Kyndryl to reduce costs while improving service quality.
By addressing low-margin contracts through the Accounts initiative, Kyndryl is creating a more sustainable revenue base with greater profitability. Overall, Kyndryl is showing significant progress in providing long term growth in revenues, cash and profits through its focus on high-demand areas such as cloud migration, cybersecurity, and AI-powered services.
Financial Performance Highlights
Kyndryl’s revenue in Q2 FY25 was $3.8 billion, a 7% decline QoQ. This decrease reflects the company’s aggressive efforts to remove low-margin third-party content in its service mix, notably in the United States and strategic markets. While this reduction had an impact on top-line revenue, it also helped Kyndryl consolidate its services, positioning the company for future development in higher-margin sectors. Despite the revenue reduction, Kyndryl’s profitability indicators remained good. Adjusted pretax income increased by 80% from the previous year to $45 million, demonstrating the effectiveness of Kyndryl’s cost-cutting methods and margin expansion efforts.
The quarter also showed an improvement in operating cash flow, which totaled $149 million, up $103 million year on year. This increase in cash flow demonstrates Kyndryl’s operational efforts both in workforce adjustments and its leverage of Kyndryl Bridge to deliver improved use of its IT operational force. Adjusted EBITDA for the quarter was $557 million, including Kyndryl’s workforce rebalancing efforts. These steps are part of the company’s broader strategy to improve operational efficiency and save costs, resulting in higher overall profitability.
Key Growth Drivers: Kyndryl’s Three-A Initiatives
Kyndryl’s growth strategy is centered on its “three-A” initiatives: Alliances, Accounts and Advanced Delivery. These programs aim to enhance client engagement, expand high-margin offerings, and promote sustained revenue development. Each strategy has substantially enhanced Kyndryl’s performance in Q2 FY25, creating an effective foundation for future success.
Alliances Initiative
Kyndryl’s collaborations with cloud hyperscalers notably influence growth, with Q2 FY25 revenue from these agreements totaling $260 million. This figure indicates consistent progress towards Kyndryl’s fiscal 2025 goal of achieving around $1 billion in revenue from hyperscaler partnerships. Kyndryl’s collaborations with prominent cloud providers enable the provision of cloud migration, management, and modernization services to its clients. The alliances give leverage for Kyndryl as a consultative partner in the digital transformation initiatives of its clients.
The company’s increasing revenue from hyperscaler collaborations highlights the significance of these partnerships as a competitive edge, allowing Kyndryl to generate additional value for clients while engaging in high-growth sectors like cloud infrastructure and software-as-a-service (SaaS) solutions.
Advanced Delivery Initiative
The Advanced Delivery initiative, powered by Kyndryl Bridge, an AI-enabled platform, marks a big step forward in Kyndryl’s ability to provide efficient, high-quality services. Kyndryl Bridge not only enhances service delivery but also allows the corporation to optimize its workforce by releasing over 11,500 delivery professionals. This optimization resulted in annualized savings of about $700 million as of the quarter’s end, putting Kyndryl on track toward achieving its fiscal 2025 savings target of $750 million.
Kyndryl Bridge uses AI to streamline operations, automate repetitive tasks, and increase service delivery accuracy. Kyndryl’s service delivery strategy incorporates AI, allowing them to provide clients with more responsive and efficient services, enhancing client satisfaction and retention. Furthermore, Kyndryl Bridge’s AI-driven insights enable the organization to uncover additional potential for cost reductions and performance improvements, resulting in increased efficiency and service quality.
Accounts Initiative
The Accounts initiative, which focuses on increasing the profitability of current contracts, has been effective in driving margin expansion. Kyndryl has realized annualized benefits of $775 million by eliminating contract components that resulted in inadequate margins, bringing it closer to its year-end objective of $850 million. This project includes renegotiating contracts, broadening service offerings, and eliminating non-essential services in order to build a more profitable and sustainable client portfolio.
Kyndryl’s Accounts initiative highlights the company’s strategic shift toward high-margin services, as well as its commitment to maximizing the value of every client relationship. As part of this strategy, Kyndryl has been actively seeking contract renewals and scope expansions that are consistent with its profitability objectives. By focusing on contracts with better margins, Kyndryl can reduce revenue volatility and increase overall financial stability, paving the way for long-term profitability development.
Record Signings and Margin Expansion
Kyndryl’s notable accomplishment in Q2 FY25 was its total signings of $5.6 billion, reflecting a year-over-year growth of 132%. The increase in signings reflects substantial continued demand for Kyndryl’s services, as clients aim to transform their business, address cloud initiatives and AI strategies. These signings indicate an anticipated pretax income margin in the high single digits, consistent with Kyndryl’s continuous emphasis on margin expansion. In the trailing twelve months, total signings amounted to $16 billion, representing a 33% rise from the prior year.
In the second quarter of fiscal year 2025, Kyndryl Consult experienced a 23% year-over-year revenue rise, accompanied by an 81% growth in signings. This expansion highlights Kyndryl’s effective progression in advisory services. Kyndryl states it can enhance client engagement in the initial phases of its digital transformation by providing advisory services that enhance its infrastructure management capabilities, therefore improving the probability of obtaining long-term service contracts.
Looking Forward
Kyndryl’s Q2 FY25 earnings report shows a corporation transforming itself through strategic efforts in an evolving and competitive sector. Alliances, enhanced delivery, and account profitability have benefited the company financially and operationally. Kyndryl has also become a key player in the cloud ecosystem by working with cloud hyperscalers to provide digital transformation solutions.
The AI-enabled Kyndryl Bridge platform, an essential component of Advanced Delivery, shows Kyndryl’s dedication to innovation and efficiency. Kyndryl’s Accounts initiative emphasizes its disciplined profitability strategy by focusing on contracts that meet margin goals.
Kyndryl’s FY25 projection shows confidence in its growth plan and three-A initiatives. Kyndryl can sustain growth and increase its value to shareholders with a strong pipeline of signings, a concentration on high-margin services, and cautious cost control. Kyndryl can leverage on secular trends changing the IT industry as it executes its strategy, maintaining its future relevance and success.
Click here to read the full press release on Kyndryl’s Q2 2025 earnings 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.
Other insights from The Futurum Group:
Kyndryl Launches Services to Accelerate AI Adoption for Microsoft 365 Copilot
How Kyndryl’s Consult Business and Bridge Platform Drive Revenue Growth
Kyndryl Unveils AI for Mainframe Modernization and Hybrid Cloud
Author Information
Camberley brings over 25 years of executive experience leading sales and marketing teams at Fortune 500 firms. Before joining The Futurum Group, she led the Evaluator Group, an information technology analyst firm as Managing Director.
Her career has spanned all elements of sales and marketing including a 360-degree view of addressing challenges and delivering solutions was achieved from crossing the boundary of sales and channel engagement with large enterprise vendors and her own 100-person IT services firm.
Camberley has provided Global 250 startups with go-to-market strategies, creating a new market category “MAID” as Vice President of Marketing at COPAN and led a worldwide marketing team including channels as a VP at VERITAS. At GE Access, a $2B distribution company, she served as VP of a new division and succeeded in growing the company from $14 to $500 million and built a successful 100-person IT services firm. Camberley began her career at IBM in sales and management.
She holds a Bachelor of Science in International Business from California State University – Long Beach and executive certificates from Wellesley and Wharton School of Business.
