Kyndryl chairman and CEO Martin Schroeter and CFO David Wyshner participated in a fireside chat at the JPMorgan Global TMT Conference today to discuss the company’s progress in its first fiscal year as an independent company.
The executives spoke about how the company is executing a powerful strategy focused on three key areas — Alliances, Advanced Delivery and Accounts, also known as its “Three-As.” That focus is paving the way to accelerate Kyndryl’s transformation and position it for profitable growth, they said.
“We're accelerating all that progress across the Three-As, a continuation of growth in the Alliance business and a continuation of growth in the consulting business,” said Schroeter. “It’s a really good start and [we’re] certainly on track, maybe even a little bit ahead of what we think this business can deliver.”
When asked about revenue expectations for fiscal year 2024, guiding to revenue loss of 6% - 8%, Schroeter emphasized the backlog Kyndryl was born with and the actions the company is taking in addressing low or no margin accounts inherited from IBM, which spun off Kyndryl in 2021.
It’s a really good start and [we’re] certainly on track, maybe even a little bit ahead of what we think this business can deliver.
“When we enter a year, about 85% of our revenue is coming out of the backlog we started the year with. So, the in-year signings and the in-year activity is only about 15%. As we've laid out in our earnings discussion, the backlog that we inherited is down a couple of points. We also said that 5 to 6 points of revenue decline is driven by our actions to improve focus accounts, sometimes that means taking [out non-profitable elements of a contract], such as reducing low profit pass-through of third-party product sales.”
Kyndryl expects to gain $300 million in additional revenues in fiscal year 2024 (which began in April) as a result of increased signings related to work with cloud hyperscalers.
When discussing the broader macro environment, Schroeter highlighted the benefits Kyndryl Consult provides to its customers — an area that insulates the company from economic extremes.
It will take a few years to sort through the low-margin, no-margin content inherited from IBM, according to the executives. However, higher-margin services like Kyndryl Consult, which delivered a 30% increase in signings, have translated to 13% of revenue.
“We said we were going to move much more heavily into advisory, into consulting work. So we created something called Kyndryl Consult. That grew pretty dramatically — very strong double-digit signings growth and revenue growth, and we see that well positioned for the future,” said Schroeter.
Wyshner added: “And one year, one-and-a-half years ago, when we said we wanted to get consult revenues to 15% of our aggregate revenue … I didn't expect us to be at 13% a year into that.”
Upskilling, automation and generative AI have also been a focus as part of the company’s Advanced Delivery initiative and Kyndryl’s cultural transformation. Investments in developing skills and achieving hyperscaler certifications is enabling Kyndryl to be part of customers’ future, not just their past. To date, 35,000 Kyndryls have earned certifications across cloud hyperscalers, up from less than 1,000 before the spin-off from IBM.
“We've invested in skills and partnerships, we’ve created opportunities, and we created alliances,” said Schroeter. “Google's invested in us and our skills, Microsoft, AWS. But all of that has to be met with people who are energized by doing the work and who are energized by being part of that future.”
Wyshner also touched on the importance of AI and applying machine learning to operate technology infrastructure — a core part of Kyndryl Bridge, the company’s open integration platform. He said there is an opportunity for Kyndryl to apply AI and machine learning to operating its business technology and infrastructure.
Kyndryl has significant opportunity as part of a $510 billion total addressable market and a unique opportunity to “catch up” with customers across cloud management as new innovation is brought to the cloud, the executives said. The continued investments Kyndryl is making in high growth areas like Cloud, cybersecurity and Network & Edge, as well as its Kyndryl Consult capabilities will continue to propel Kyndryl’s long-term success.
Kyndryl was unable to form strategic alliances with the cloud hyperscalers — AWS, Google Cloud and Microsoft Azure — and other technology leaders as a captive unit of IBM. With its independence and new freedom of action, customers have a lot to gain from Kyndryl’s expanded ecosystem of alliances and partnerships and new capabilities, according to Wyshner.
“[Kyndryl Consult’s growth] highlights the amount of catch-up, the amount of Kyndryl-specific opportunity that we have almost regardless of the macro environment out there because it’s infrastructure, because it’s catch-up for us,” said Wyshner. “That’s really exciting, particularly when you layer on the higher margin associated with these sorts of revenue.”
