Kyndryl Shares Halved Amid CFO Departure, Accounting Review

Core Viewpoint - Kyndryl Holdings has significantly reduced its fiscal year outlook, anticipating a revenue decline due to lower profits and missing Wall Street estimates for the fiscal third quarter [2][4]. Financial Outlook - The company now expects constant currency revenue to decline between 2% and 3%, a shift from a previous forecast of a 1% increase [4]. - Projected adjusted pretax income is between $575 million and $600 million, down from an earlier expectation of at least $725 million [4]. - Free cash flow is now expected to be between $325 million and $375 million, compared to a prior estimate of about $550 million [4]. Stock Performance - Kyndryl's shares fell 40% to $14.20 in pre-market trading following the announcement [5]. Quarterly Performance - The company reported a fiscal third-quarter profit of $57 million, or 25 cents per share, down from $215 million, or 89 cents per share, a year earlier [5]. - Adjusted earnings were reported at 52 cents per share, below the expected 60 cents per share [5]. - Revenue increased to $3.86 billion from $3.74 billion a year prior, but fell short of the expected $3.89 billion [5]. Revenue Sources - Kyndryl reported that $500 million of its quarterly revenue came from cloud hyperscaler alliances, marking a 58% year-over-year increase [6]. - The company is on track to exceed its initial target of $1.8 billion in hyperscaler revenue for the fiscal year [6]. - Revenue from Kyndryl Consult grew by 24% year-over-year [6]. Financial Reporting Review - The company announced a delay in its 10-Q form as its board reviews cash management practices and financial reporting [7]. - Kyndryl expects to report "material weakness in the company's internal control over financial reporting" for both the third quarter and the full fiscal year ending in March 2025 [8]. - The reliability of the internal control assessment in the most recent annual report and the external assessment by PricewaterhouseCoopers has been questioned [8].