(Reuters) – IT services provider Kyndryl Holdings recorded its first quarterly profit since its spin-off in 2021, helped by growth in its consulting segment and a shift to higher-margin deals.
The company, the former infrastructure services business of IBM, also raised its forecast for 2024 core operating margin and annual adjusted pre-tax income.
Kyndryl reported a net income of $11 million in the first quarter, compared to a loss of $141 million in the year-ago period.
Consulting business rose 10% as enterprises adopting generative artificial intelligence applications sought expertise on how to integrate the technology with their systems.
“The consult business from a profit perspective tends to have margins that are two or three points higher than the average within Kyndryl,” CEO Martin Schroeter told Reuters.
“So that mix shift is also what’s helping profitability.”
Companies adapting their technological frameworks to new regulatory requirements is also driving demand for consulting services.
“Regulation plays a role and we help advise them and get them ready for a regulatory regime. Innovation plays a role whether that’s finding innovation in a cloud or their ability to use genAI,” Schroeter said.
In the first quarter, Kyndryl recognized $210 million in revenue tied to customers using services from large-scale cloud providers.
Kyndryl, which inherited multiple no-margin contracts from IBM, has been looking to re-work them to generate higher profits.
As of the previous quarter, the company re-priced about half of these contracts, and about two-thirds will see better pricing this year, Oppenheimer analysts had said in a note in June.
Customers have also prioritized spending on Kyndryl’s so-called “mission critical” services which are essential for companies’ IT infrastructure to operate.
Kyndryl reported revenue of $3.74 billion for the first quarter. Five analysts on average had estimated $3.79 billion according to LSEG data.
(Reporting by Arsheeya Bajwa in Bengaluru; Editing by Sriraj Kalluvila)
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