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Atos Stock Plummets After U.S. Accounting Errors Disclosed

‘Atos is committed to the highest standards, and the group is strongly enhancing its preventive controls and processes through a comprehensive action plan,’ Atos says in a statement.

French solution provider Atos took a big stock hit today after disclosing that auditors discovered accounting errors at two of its U.S. subsidiaries.

Shares of the Bezons, France-based company fell the most in almost 2.5 years, dropping more than 21.6 percent to a low of 52.14 euros on the Paris Euronext Market before closing at 58.26 euros, down 12.4 percent.

The accounting errors were tied to the U.S.-based Atos IT Solutions and Services and Atos IT Outsourcing Services, which represent 11 percent of Atos’ 2020 revenue for the year ended Dec. 31, 2020, and 9 percent of its operating margin.

Atos generates approximately 60 percent of its group revenue in Europe and the United Kingdom and close to 30 percent in the United States. In February, it reported 2020 revenue of 11.2 billion euros, equivalent to $13.18 billion, and a net profit of 725 million euros or $853.6 million.

Auditors identified “several matters related to internal control weaknesses over financial reporting process and revenue recognition in accordance with IFRS 15 leading to several accounting errors, as well as risk of override of controls in this respect,” according to Atos, which is No. 25 on the CRN 2020 Solution Provider 500 list. IFRS 15 is an International Financial Reporting Standard regarding accounting for revenue from customer contracts.

Atos said it hired outside firms to conduct an independent forensic investigation and obtain “the necessary evidence that the financial reporting of these U.S. entities is free of material misstatements.” But those investigators were unable to finish their work before its regular financial audit was made public, according to the company.

“As of today, the group has not identified misstatements on the two U.S. entities that are material for the consolidated financial statements,” Atos said in a statement. “Atos is committed to the highest standards, and the group is strongly enhancing its preventive controls and processes through a comprehensive action plan.”

Atos, which has been on an acquisition spree, in November launched a five-year, $2.4 billion Atos OneCloud initiative aimed at proactively accelerating its customers’ migrations to the cloud, increasing cloud technical certification for its employees, research and development, hybrid cloud investments and acquisitions.

Atos has announced more than a dozen acquisitions in the last year. In February, it shelved plans to acquire DXC Technology, a Tysons, Va., solution provider that’s No. 3 on the CRN 2020 Solution Provider 500 list, for a reported $10 billion bid.

The two companies opted to “discontinue further discussions,” DXC said at the time.

“The offer was determined to be inadequate and lacking certainty in light of the value the board believes DXC can create on a standalone basis by executing our transformation journey,” DXC said in a statement. “After sharing certain high-level information in order to help Atos understand why the board believes the proposal undervalued DXC, Atos and DXC today agreed to discontinue further discussions.”

Citigroup Inc. analyst Amit Harchandani downgraded Atos shares to neutral today on the accounting error disclosure while also citing Atos’ merger and acquisition strategy.

“Combined with the diminished investor confidence in management strategy on the back of the recent M&A announcement, and indeed the continued skepticism around the rationale for that move, we now believe that the overhangs more than offset other positives,” Harchandani said in a research note, according to Bloomberg.

Atos is scheduled to release its first-quarter financial results on April 20.

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