IBM services spin-out Kyndryl said it was reviewing its accounting practices after it announced revenue below market expectations and the departure of its CFO.
Investors reacted strongly to the news, sending the share price down more than 55 percent on Monday.
Although the company’s Q3 revenue increased three percent year-over-year to $3.86 billion, this was below analyst forecasts, as was its earnings per share.
In a notification of late filing to the US regulator, Kyndryl said it was “reviewing its cash management practices and related disclosures, regarding its adjusted free cash flow metric and other measures.” “Due to this review, the finalization of the Quarterly Report, including the Company’s assessment of internal control over financial reporting, requires additional time to complete,” it said.
Martin Schroeter, Chairman and CEO, told investors that the move followed the receipt of a voluntary document request from the Securities and Exchange Commission. The review included “cash management practices, related disclosures, the effectiveness of internal control of our financial reporting and certain other matters,” he said.
“We are cooperating with the SEC. We do not expect a restatement or other impact to our financial statements. Due to the ongoing nature of these matters, we will not be able to comment further at this time,” Schroeter said.
The company also announced that David Wyshner was stepping down as CFO and that Edward Sebold was leaving the general counsel position. Vineet Khurana also stepped down as senior vice president and global controller of the Company. Kyndryl appointed Harsh Chugh as interim CFO, Mark Ringes as interim general counsel, and Bhavna Doegar as interim corporate controller.
Kate Hanaghan, chief research officer at TechMarketView, said the episode was jarring in the context of the more positive operational narrative Kyndryl has been communicating in recent quarters. “The firm has been making progress in shifting away from low-margin legacy work [and] improving profitability… Investments in AI capabilities, sovereign and hybrid cloud offerings, and selective acquisitions – such as Solvinity in the Netherlands – have also been central to its repositioning strategy.
“For Kyndryl, restoring confidence will depend not just on completing the accounting review, but on demonstrating that the underlying transformation story remains intact and that financial controls are robust enough to support the next phase of growth,” she said.
Kyndryl was spun out as a separately-traded public entity by IBM in November 2021.
In 2024, insiders said that they doubted that the company was winning much new business. Later in the year, people familiar with the company told The Register that Kyndryl was struggling to develop its consulting business.
On both occasions, the company declined to respond to a request for comment.