Kyndryl's Shift from Adjusted to Reported Free Cash Flow Preceded an Accounting Investigation into Cash Management

Rhea-AI Summary

{"summary":"","positive":[],"negative":[],"faq":[]}

News Market Reaction

+8.99%

22 alerts

+8.99% News Effect

+4.4% Peak Tracked

-6.5% Trough Tracked

+$231M Valuation Impact

$2.80B Market Cap

1.3x Rel. Volume

On the day this news was published, KD gained 8.99%, reflecting a notable positive market reaction. Argus tracked a peak move of +4.4% during that session. Argus tracked a trough of -6.5% from its starting point during tracking. Our momentum scanner triggered 22 alerts that day, indicating elevated trading interest and price volatility. This price movement added approximately $231M to the company's valuation, bringing the market cap to $2.80B at that time.

Data tracked by StockTitan Argus on the day of publication.

Key Figures

Q2 FY2026 free cash flow: $22 million Cash balance: $1.3 billion Net leverage: 0.7x +3 more

6 metrics

Q2 FY2026 free cash flow $22 million Free cash flow generated in second quarter FY2026, now under internal review

Cash balance $1.3 billion Cash balance at September 30, 2025 cited on Q2 FY2026 call

Net leverage 0.7x Net leverage at quarter-end, described as below 1x and in target range

Leverage threshold 1x Net leverage referenced as being below 1x on Q2 FY2026 call

FCF conversion guidance 100% Forecast of roughly 100% conversion of adjusted pretax income less cash taxes into free cash flow

Share repurchase increase $400 million Increase to share-repurchase program potentially based on questioned cash-flow data

Market Reality Check

Price: $12.24 Vol: Volume 12,733,244 is 1.66...

high vol

$12.24 Last Close

Volume Volume 12,733,244 is 1.66x the 20-day average of 7,677,650, indicating elevated trading activity ahead of and around this accounting investigation headline. high

Technical Current price 12.12 is trading below the 200-day moving average of 31.46, leaving shares deeply discounted versus longer-term trend and the 44.20 52-week high.

Peers on Argus

KD is up 8.99% while key peers like G (-6.47%), EPAM (-7.16%), and EXLS (-3.39%)...

KD is up 8.99% while key peers like G (-6.47%), EPAM (-7.16%), and EXLS (-3.39%) are down, indicating a stock-specific move despite sector weakness.

Common Catalyst One peer, Parsons (PSN), reported earnings today, but no broader sector news theme matches KD’s accounting-related headlines.

Historical Context

5 past events · Latest: Feb 09 (Positive)

Pattern 5 events

Date	Event	Sentiment	Move	Catalyst
Feb 09	Earnings results	Positive	-54.9%	Q3 FY2026 results with stronger cash generation and reiterated guidance plus 10-Q delay.
Jan 27	AI initiative	Positive	-2.5%	Launch of SAP Transformations Center of Excellence focused on agentic AI modernizations.
Jan 26	Earnings date	Neutral	+0.9%	Announcement of Q3 FY2026 earnings release timing and webcast details.
Jan 23	Partnership extension	Positive	-2.6%	Five-year extension with Hertz to continue technology transformation using AI framework.
Jan 21	AI approach launch	Positive	+1.1%	Unveiling of Clean Field approach for SAP ECC to S/4HANA migrations powered by agentic AI.

Pattern Detected

Recent history shows KD often sold off on operational or earnings news, including a steep -54.92% reaction to Q3 FY2026 results, even when cash flow metrics appeared strong.

Recent Company History

Over the last few weeks, Kyndryl reported Q3 FY2026 results on Feb 9, 2026, highlighting stronger cash generation and free cash flow of $217M, but the stock fell 54.92% and the Form 10‑Q filing was delayed. This followed multiple AI and partnership announcements in January 2026 that produced modest, often negative reactions. The current accounting investigation into cash management and non‑GAAP cash‑flow disclosures directly intersects with those previously emphasized free cash flow metrics and guidance.

Market Pulse Summary

The stock moved +9.0% in the session following this news. A strong positive reaction aligns with hei...

Analysis

The stock moved +9.0% in the session following this news. A strong positive reaction aligns with heightened focus on Kyndryl’s cash-flow reporting, as the stock gained 8.99% on elevated volume of 12.7M shares despite the internal accounting investigation. Historically, KD sold off sharply on its Feb 9, 2026 Q3 earnings despite stronger cash generation. The investigation into cash management, non‑GAAP metrics, and expected material weaknesses in internal controls adds uncertainty that could challenge the durability of any rally driven by perceived clarity or legal overhang relief.

Key Terms

adjusted free cash flow, non-gaap financial measures, regulation g, regulation s-k, +3 more

7 terms

adjusted free cash flow financial

"non-GAAP financial measures such as "adjusted free cash flow," it must reconcile"

Adjusted free cash flow is the amount of money a company generates from its operations after accounting for essential expenses and investments, like maintaining or upgrading equipment. It shows how much cash is truly available to grow the business, pay debts, or return to shareholders, helping investors see the company's financial health more clearly.

non-gaap financial measures financial

"SEC regulations require that when a company presents non-GAAP financial measures"

Non-GAAP financial measures are numbers companies use to show their financial performance that exclude certain expenses or income. They help investors see how the company might perform without one-time costs or other unusual items, giving a different perspective from official reports. However, since they can be adjusted, they don’t always tell the full story and should be looked at alongside standard financial figures.

regulation g regulatory

"Regulation G and Item 10(e) of Regulation S-K govern these disclosures"

Regulation G is a U.S. securities rule that requires companies to show and explain how any highlighted financial numbers that differ from standard accounting figures were calculated, and to provide a clear bridge to the official results. For investors this acts like a recipe card: when a company presents a simplified or adjusted profit number, Regulation G forces them to show the original ingredients and steps so readers can judge whether the adjusted figure gives a clearer or misleading picture of financial health.

regulation s-k regulatory

"Regulation G and Item 10(e) of Regulation S-K govern these disclosures"

A set of U.S. Securities and Exchange Commission rules that tell public companies which narrative and qualitative details must be disclosed in filings, such as risk factors, management discussion, executive pay, legal proceedings and business description. Think of it as a standardized checklist or blueprint that ensures investors get the same types of background information from every company so they can compare risks, management quality and strategy before making investment decisions.

free cash flow financial

"So we're now highlighting free cash flow rather than adjusted free cash flow."

Free cash flow is the amount of money a company has left over after paying all its expenses and investing in its business, like buying equipment or updating facilities. It shows how much cash is available to reward shareholders, pay down debt, or save for future growth. This helps investors understand if a company is financially healthy and able to grow.

material weaknesses regulatory

"The company expects to report "material weaknesses" in its internal controls"

Material weaknesses are significant flaws in a company’s systems for ensuring its financial reports are accurate and reliable. Like a broken lock on a safe, they increase the chance that financial statements contain big errors or omissions, which can mislead investors about performance and risk; discovering one often raises questions about management oversight, may lead to restated results, and can affect investor confidence and a company’s valuation.

internal controls regulatory

"material weaknesses" in its internal controls and "is developing a remediation plan""

Internal controls are the policies, procedures and routine checks a company uses to keep its financial records accurate, safeguard assets, and ensure laws and internal rules are followed. For investors they matter because strong controls reduce the risk of accounting errors, fraud or surprise liabilities; think of them as locks, alarms and bookkeeping checklists that make a company’s reported results more trustworthy and lower the chance of unexpected losses.

AI-generated analysis. Not financial advice.

(NYSE: KD)

NEW YORK, Feb. 11, 2026 /PRNewswire/ -- Levi & Korsinsky, LLP is investigating Kyndryl Holdings, Inc. (NYSE: KD) following the company's February 9, 2026 announcement that it is reviewing its cash management procedures and related disclosures as part of an internal accounting investigation. Investors who held KD shares and incurred losses may obtain more information about their rights.

A key element of the investigation concerns Kyndryl's cash-flow disclosures. SEC regulations require that when a company presents non-GAAP financial measures such as "adjusted free cash flow," it must reconcile those figures to the nearest GAAP equivalent and explain why the non-GAAP measure is useful to investors. Regulation G and Item 10(e) of Regulation S-K govern these disclosures and require that non-GAAP presentations not be misleading.

During the Q1 FY2026 earnings call on August 5, 2025, CFO David Wyshner announced a notable change in Kyndryl's reporting approach: "Our cash-flow adjustments have become immaterial spin-related costs have subsided. So we're now highlighting free cash flow rather than adjusted free cash flow." This transition from adjusted to reported free cash flow was presented as a sign of financial maturity – the implication being that the gap between GAAP and non-GAAP cash metrics had narrowed to the point of insignificance.

However, the February 9, 2026 disclosure revealed that Kyndryl was reviewing the very cash management procedures underlying these metrics. The company expects to report "material weaknesses" in its internal controls and "is developing a remediation plan" to deal with the fallout. If the cash-flow adjustments that Kyndryl characterized as "immaterial" were, in fact, material or subject to internal-control deficiencies, the transition announcement may have created a misleading impression of the company's financial reporting integrity.

On the Q2 FY2026 earnings call (November 5, 2025), Wyshner further stated: "We generated free cash flow of $22 million in the second quarter… Our cash balance at September 30 was $1.3 billion… Net leverage was below 1x … and we ended the quarter well within our target range at 0.7x." He also guided: "We're forecasting roughly 100% conversion of adjusted pretax income less cash taxes into free cash flow." These figures are now subject to review under the internal accounting investigation.

The gap between the company's presentation of clean, maturing cash-flow metrics and the subsequent disclosure of a cash-management accounting probe is significant. If the investigation determines that prior cash-flow figures were misstated, the entire framework upon which investors evaluated Kyndryl's capital-allocation strategy – including the $400 million increase to the share-repurchase program – would have been based on unreliable data.

Shareholders who purchased KD stock and want to learn about their legal options may contact Joseph E. Levi, Esq. for further details.

Levi & Korsinsky, LLP is a nationally recognized firm with offices in New York, California, Connecticut, and Washington, D.C. that prosecutes securities, merger, and consumer class actions on behalf of investors and consumers; more information is available at www.zlk.com.

CONTACT:
Joseph E. Levi, Esq.
Levi & Korsinsky, LLP
33 Whitehall Street, 27th Floor
New York, NY 10004
Tel: (212) 363-7500
Fax: (212) 363-7171
Email: jlevi@levikorsinsky.com
www.zlk.com

View original content to download multimedia:https://www.prnewswire.com/news-releases/kyndryls-shift-from-adjusted-to-reported-free-cash-flow-preceded-an-accounting-investigation-into-cash-management-302685626.html

SOURCE Levi & Korsinsky, LLP