(Reuters) -Kyndryl Holdings’ first-quarter profit soared more than five-fold, the company said on Monday, as the former IBM unit’s renegotiation of contracts helped improve margins on its services.
The company, formerly IBM’s infrastructure services business, has been restructuring multiple no-margin contracts it inherited from the Big Blue to generate higher profits, but at the cost of revenue growth.
Kyndryl’s net income soared to $56 million for the June quarter from a profit of $11 million in the year-ago-period, while revenue was flat at $3.74 billion.
The software provider’s quarterly net income margin stood at 1.5%, up from 0.3% in the year-ago period.
Businesses have prioritized spending on essential software amid macroeconomic uncertainty spurred by U.S. President Donald Trump’s ongoing global trade negotiations. This has shielded companies like Kyndryl, whose software helps businesses conduct day-to-day operations and enable artificial intelligence integration.
“We’re not completely immune to it (macroeconomic conditions), but definitely we’re significantly insulated because of the nature of what we do. It is generally mission critical and not discretionary,” CFO David Wyshner told Reuters.
Sales in the consulting unit grew 30% in the June quarter, as clients seek expertise on integrating AI technology.
Revenue tied to large cloud providers grew 86% to $400 million in the quarter.
Customers continue to use a hybrid cloud approach and the company benefits from multi-cloud management, Oppenheimer analysts said last month.
The company reaffirmed its forecasts for the fiscal year, still expecting constant-currency revenue growth of 1% in its current fiscal year.
Kyndryl CFO Wyshner does not expect Trump’s massive package of tax and spending cuts, signed into law last month, to have a significant impact on the company in the next two or three years.
“But as we look at the longer-term, this will be helpful to us, potentially by a point or two in terms of our longer term effective tax rate,” Wyshner said.
(Reporting by Arsheeya Bajwa in Bengaluru; Editing by Leroy Leo)
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