Kyndryl Navigates Transition with Narrowing Losses and Strategic Gains

Kyndryl Holdings (NYSE:KD), the infrastructure services spinoff from IBM, reported its fourth-quarter 2024 results, highlighting a continued focus on margin improvement despite ongoing revenue headwinds. While the company recorded a net loss of $45 million for the quarter ended March 31, 2024, its adjusted metrics and strategic initiatives point to progress in its long-term turnaround strategy.

Key Financials and Strategic Shifts

Kyndryl’s fourth-quarter results underscore its deliberate strategy to eliminate low-margin revenue streams inherited from IBM, even at the cost of short-term top-line declines. Revenue fell 10% year-over-year to $3.8 billion, driven by the intentional reduction of no-margin third-party content in customer contracts. However, the company’s adjusted EBITDA rose 19% to $566 million, fueled by contributions from its three-A initiatives: Alliances, Advanced Delivery, and Accounts.

The pretax loss narrowed to $4 million from $61 million in the prior-year quarter, while adjusted pretax income turned positive at $30 million—marking a stark improvement from an adjusted pretax loss of $61 million a year earlier. These metrics reflect operational discipline, as Kyndryl prioritizes high-margin services like consulting and cloud integration.

Strategic Initiatives Driving Progress

1. Alliances: Revenue from partnerships with cloud hyperscalers tripled to over $500 million in fiscal 2024, exceeding targets. This segment now accounts for a growing share of Kyndryl’s high-margin work.
2. Advanced Delivery: The AI-powered Kyndryl Bridge platform redeployed 9,500 delivery professionals, generating $575 million in annualized savings. This initiative has cut costs while freeing resources for higher-value projects.
3. Accounts: Aggressive renegotiation of substandard-margin contracts added $600 million in annualized benefits, further bolstering margins.

Kyndryl Consult, the company’s consulting division, emerged as a bright spot, with revenue rising 13% in constant currency in Q4 and full-year growth of 15%. The segment’s signings surged 26% in Q4, signaling strong demand for its expertise in hybrid cloud and AI-driven infrastructure.

Outlook for 2025 and Investment Considerations

Kyndryl’s management projects a return to positive constant-currency revenue growth by Q4 2025, alongside ambitious margin targets. The company aims for at least $435 million in adjusted pretax income in fiscal 2025—up 160% from 2024’s $165 million—and an adjusted EBITDA margin of 16.2%, up from 14.7% in 2024.

Investors should note that Kyndryl’s path to profitability remains fraught with challenges. IBM software costs rose $50 million in Q4, a recurring headwind tied to its legacy agreements. Additionally, the company’s net losses persist due to non-operational charges, though adjusted metrics increasingly reflect its progress.

Conclusion

Kyndryl’s fourth-quarter results reinforce its transition from cost-cutting to sustainable growth. While the net loss persists, the narrowing losses and robust adjusted EBITDA growth of 20% year-over-year demonstrate operational resilience. The company’s focus on high-margin services—driven by its three-A initiatives—has positioned it to capitalize on long-term trends in hybrid cloud and AI infrastructure.

With a 2025 revenue rebound in sight and margin targets that could deliver over $400 million in adjusted pretax income, Kyndryl appears to be on track to exit its restructuring phase. Investors weighing a position in KD should monitor execution against its 2025 goals, including the projected return to revenue growth and margin expansion. For now, the data suggests Kyndryl is navigating its strategic shift with discipline—and the patience to see it through.