Kyndryl shares plunge amid accounting review and leadership shakeup – News

Shares of Kyndryl Holdings Inc. plunged by more than half in early trading today after the company delayed its quarterly filing, disclosed material weaknesses in financial controls, cut its full-year outlook and announced the departure of its chief financial officer.

The New York-based information technology infrastructure services provider, which was spun off from IBM Corp. in 2021, said it will postpone filing its Form 10-Q for the quarter ended Dec. 31 as its audit committee reviews cash management practices, related disclosures and the effectiveness of internal controls over financial reporting. The review follows voluntary document requests from the enforcement division of the U.S. Securities and Exchange Commission, according to regulatory filings.

Kyndryl said it expects to report material weaknesses in internal controls spanning multiple periods, including its fiscal year ended March 2025 and the first three quarters of fiscal 2026. The company cautioned investors that they should no longer rely on management’s prior assessment of internal controls or the opinion issued by auditor PricewaterhouseCoopers International Ltd. for fiscal 2025.

Despite the disclosure, Kyndryl said it does not currently expect the review to result in a restatement or material impact on its financial statements.

CFO departs

The company also said that CFO David Wyshner and General Counsel Edward Sebold have left. Harsh Chugh, previously Kyndryl’s global head of practices, corporate development and administration, was appointed interim CFO. Former Assistant General Counsel Mark Ringes was named interim general counsel.

Kyndryl declined to comment on the financial review or whether the executive departures related to it. “We just can’t comment until the examination is complete,” Chief Executive Martin Schroeter said in a call with analysts. “The teams are working expeditiously so we can share a remediation plan.”

Accompanying the disclosures, Kyndryl sharply reduced its fiscal 2026 outlook. It now expects constant-currency revenue to decline between 2% and 3% for the year ending in March, down from its prior forecast of 1% growth.

Kyndryl also cut its adjusted pretax income guidance to between $575 million and $600 million, down from the $725 million it had previously forecast, and lowered free cash flow expectations to $325 million to $375 from the $550 million previously projected.

For the fiscal third quarter, Kyndryl reported revenue of $3.86 billion, up 3% year-over-year on a reported basis and flat in constant currency. Adjusted earnings of 52 cents per share missed analysts’ expectations of 60 cents. The bright spot was that revenue from hyperscaler-related services topped $500 million in the quarter, up 58% year over year.

Schroeter attributed the weaker outlook to several factors, including lengthening sales cycles, slower-than-expected conversion of consulting investments into revenue and changes in customer consumption patterns related to its partnership with IBM. Lower-than-expected employee attrition also put pressure on labor costs.

Sales cycles lengthening

“With the accelerating pace of new AI capabilities being introduced, and regulatory uncertainties specifically on data sovereignty, long-term agreements have become more complex and therefore sales cycles are taking longer,” Schroeter said on the call with analysts. He added that large enterprise resource planning migrations to cloud platforms are also taking more time than anticipated.

Kyndryl said its consulting unit continued to grow, posting 20% year-over-year growth in constant currency, but still below internal expectations for the quarter. Consulting now represents about 25% of total revenue.

Schroeter said customer consumption of IBM technology through Kyndryl contracts has changed, reducing the size of some service engagements and cutting expected revenue growth by roughly 3.5% in the quarter. Since the spinoff, Kyndryl has cut its annualized spending with IBM from nearly $4 billion to about $2 billion.

Despite the near-term turbulence, Schroeter said Kyndryl remains confident in its longer-term strategy and reiterated its fiscal 2028 targets. The company continues to invest in its Kyndryl Bridge operating platform, automation, agentic AI capabilities and private-cloud services, while working to realign its cost structure.

Following this morning’s call, JPMorgan Chase & Co. analyst Tien-tsin Huang downgraded Kyndryl’s investment rating to underweight from overweight with a price target of $16, down from $40. Oppenheimer analyst Ian Zaffino downgraded Kyndryl to perform from outperform and removed the firm’s prior price target, citing uncertainty around Wyshner’s departure.

Photo: Kyndryl