Kyndryl’s first quarter performance was marked by a positive market reaction, as the company surpassed Wall Street’s revenue and non-GAAP profit expectations despite a modest year-over-year sales decline. Management credited the results to accelerated growth in its consulting business and the increasing impact of strategic partnerships, particularly with hyperscale cloud providers. CEO Martin Schroeter emphasized that the company’s focus on operational transformation and expanding capabilities led to stronger customer relationships and higher-value contracts. He highlighted that, “Consult signings grew 50% in constant currency and accounted for 22% of our total signings,” underlining the firm’s shift toward higher-margin services.
Is now the time to buy KD? Find out in our full research report (it’s free).
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: $10.05 billion
While we enjoy listening to the management's commentary, our favorite part of earnings calls are the analyst questions. Those are unscripted and can often highlight topics that management teams would rather avoid or topics where the answer is complicated. Here is what has caught our attention.
Our Top 5 Analyst Questions Kyndryl’s Q1 Earnings Call
- Jamie Friedman (Susquehanna) asked about Kyndryl’s ability to sustain its growth trajectory and achieve midterm targets. CEO Martin Schroeter highlighted strong execution and the company’s control over its business model, emphasizing ongoing investments in innovation and capabilities.
- Tien-Tsin Huang (JPMorgan) questioned whether the book-to-bill ratio could remain above one, given recent large deal wins. Schroeter affirmed management’s expectation that a book-to-bill above one is sustainable, supported by consulting and cloud partnerships.
- Ian Zaffino (Oppenheimer) sought clarification on why revenue growth guidance appeared conservative despite strong signings. Schroeter explained that the revenue mix still reflects legacy contracts rolling off, but future years should see acceleration as higher-margin contracts dominate.
- Divya Goyal (Scotiabank) inquired about the impact of macro uncertainty on global strategic accounts. Schroeter responded that technology’s role as a productivity driver tends to benefit Kyndryl even during uncertainty, with most annual revenue already contracted.
- Tyler DuPont (Bank of America) asked about the margin profile of consulting contracts. Schroeter noted that consulting margins are modestly higher than the company average, and continued investment in this area is expected to support future profit growth.
Catalysts in Upcoming Quarters
In the coming quarters, our analysts will be closely watching (1) the pace of consulting revenue growth and its impact on margins, (2) continued expansion of hyperscaler partnerships and the resulting deal flow, and (3) progress on operational efficiency initiatives, particularly as more legacy contracts are replaced by higher-margin, post-spin agreements. Execution on AI-enabled services and Bridge platform adoption will also serve as key indicators of Kyndryl’s competitive positioning.
Kyndryl currently trades at $43.52, up from $33.12 just before the earnings. In the wake of this quarter, is it a buy or sell? Find out in our full research report (it’s free).
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