[Complete article text from OP quoted below].
By: Zaheer Kachwala in Bengaluru; additional reporting by Arsheeya Bajwa; Editing by Krishna Chandra Eluri and Shreya Biswas
March 27, 202510:48 AM CDT | Updated 9 hours ago
Shares of Kyndryl (KD.N) fell nearly 13% on Thursday, after a research report from short-seller Gotham City alleged the IT services provider has manipulated certain financial metrics.
Gotham City said Kyndryl manipulated its reported adjusted EBITDA and adjusted free cash flow to give the appearance of profits and cash flow while in reality it generated losses and burned cash.
"An economically realistic calculation of FCF shows that the company has never generated free cash flow, which should be particularly concerning that revenue has declined every single year," the report said.
Kyndryl is a former infrastructure services business of IBM (IBM.N) and operates in the consulting and IT industry where it has been benefiting from higher demand for its offerings due to a push into artificial intelligence.
"Kyndryl rejects in the strongest possible terms the conclusions reached within the report, which was clearly designed to manipulate the company's stock for the short seller's benefit," a Kyndryl spokesperson said.
"Kyndryl has never spoken to this firm, and had we been afforded the opportunity to do so, we would have pointed out the many inaccuracies and falsehoods contained in this so-called analysis," the spokesperson added.
Gotham City also said the company faces "much higher" additional costs to IBM than the market thinks and the escalation in costs "will unravel the misleading narratives that management has relied on to boost the stock".
It added Kyndryl faces up to $1 billion to $2 billion bump to cost of services over the next few years.
Additionally, the short-seller said it has identified accounting and disclosure irregularities regarding Kyndryl's reported payments to IBM from 2019 to 2023.