REG-Intnl Bus. Mach: 1st Quarter Results
20/04/2022 07:15
IBM RELEASES FIRST QUARTER RESULTS
Double-Digit Software and Consulting Growth Led by Hybrid Cloud Adoption;
Strong Profit Generation
ARMONK, N.Y., April 19, 2022 -- IBM (NYSE: IBM
(https://c212.net/c/link/?t=0&l=en&o=3509139-1&h=3267030657&u=http%3A%2F%2Fwww.ibm.com%2Finvestor&a=IBM))
today announced first-quarter 2022 earnings results.
"Demand for hybrid cloud and AI drove growth in both Software and Consulting
in the first quarter. Today we're a more focused business and our results
reflect the execution of our strategy," said Arvind Krishna, IBM chairman and
chief executive officer. "We are off to a solid start for the year, and we now
see revenue growth for 2022 at the high end of our model."
First-Quarter Highlights
* Revenue
- Revenue of $14.2 billion, up 8 percent, up 11 percent at constant currency
(over 5 points from incremental sales to Kyndryl)
- Software revenue up 12 percent, up 15 percent at constant currency (over 8
points from incremental sales to Kyndryl)
- Consulting revenue up 13 percent, up 17 percent at constant currency
- Infrastructure revenue down 2 percent, flat at constant currency (over 8
points from incremental sales to Kyndryl)
- Hybrid cloud revenue:
-- First Quarter: $5.0 billion, up 14 percent, up 17 percent at
constant currency
-- Last 12 months: $20.8 billion, up 17 percent
* Free Cash Flow
- On a consolidated basis, net cash from operating activities of $3.2
billion; free cash flow of $1.2 billion
FIRST QUARTER 2022 INCOME STATEMENT SUMMARY
Pre-tax
Gross Pre-tax Income Net Diluted
Revenue Profit Income Margin Income EPS
GAAP from $ 14.2B $ 7.3B $ 0.6B 4.4 % $ 0.7B $ 0.73
Continuing
Operations
Year/Year 8 %* 4 % 156 % 2.5 Pts 64 % 62 %
Operating $ 7.5B $ 1.5B 10.7 % $ 1.3B $ 1.40
(Non-GAAP)
Year/Year 4 % 46 % 2.8 Pts 25 % 25 %
* 11% at constant currency
"In the first quarter we continued to strengthen the fundamentals of our
business, consistent with our medium-term model," said James Kavanaugh, IBM
senior vice president and chief financial officer. "We are a faster growing,
more profitable company with a higher-value business mix, a significant
recurring revenue base and strong cash generation."
Segment Results for First Quarter
* Software (includes Hybrid Platform & Solutions, Transaction Processing)—
revenues of $5.8 billion, up 12.3 percent, up 15.4 percent at constant
currency (over 8 points from incremental sales to Kyndryl):
- Hybrid Platform & Solutions up 7 percent, up 10 percent at constant
currency (about 1.5 points from incremental sales to Kyndryl):
-- Red Hat up 18 percent, up 21 percent at constant currency
-- Automation up 3 percent, up 5 percent at constant currency
-- Data & AI up 2 percent, up 4 percent at constant currency
-- Security up 5 percent, up 8 percent at constant currency
- Transaction Processing up 26 percent, up 31 percent at constant currency
(about 28 points from incremental sales to Kyndryl)
- Software segment hybrid cloud revenue up 22 percent, up 25 percent at
constant currency
* Consulting (includes Business Transformation, Technology Consulting and
Application Operations)— revenues of $4.8 billion, up 13.3 percent, up
17.4 percent at constant currency:
- Business Transformation up 15 percent, up 19 percent at constant currency
- Technology Consulting up 14 percent, up 19 percent at constant currency
- Application Operations up 10 percent, up 14 percent at constant currency
- Consulting segment hybrid cloud revenue up 24 percent, up 29 percent at
constant currency
* Infrastructure (includes Hybrid Infrastructure, Infrastructure
Support)— revenues of $3.2 billion, down 2.3 percent, up 0.3 percent at
constant currency (over 8 points from incremental sales to Kyndryl):
- Hybrid Infrastructure down 5 percent, down 2 percent at constant
currency (over 8 points from incremental sales to Kyndryl)
-- IBM z Systems down 19 percent, down 18 percent at constant currency
-- Distributed Infrastructure up 5 percent, up 8 percent at constant
currency
- Infrastructure Support flat, up 4 percent at constant currency (over 8
points from incremental sales to Kyndryl)
- Infrastructure segment hybrid cloud revenue down 20 percent, down 18
percent at constant currency
* Financing (includes client and commercial financing)— revenues of $0.2
billion, down 26.2 percent, down 24.5 percent at constant currency
Cash Flow and Balance Sheet
On a consolidated basis, in the first quarter, the company generated net cash
from operating activities of $3.2 billion or $1.6 billion excluding IBM
Financing receivables. IBM's free cash flow was $1.2 billion, which includes
cash impacts from the company's structural actions initiated at the end of
2020.
IBM ended the first quarter with $10.8 billion of cash on hand (which includes
marketable securities), up $3.2 billion from year-end 2021. Debt, including
IBM Financing debt of $12.2 billion, totaled $54.2 billion, up $2.5 billion
since the end of 2021. The company returned $1.5 billion to shareholders in
dividends in the first quarter.
Full-Year 2022 Expectations
* Revenue growth: The company now expects constant currency revenue growth at
the high end of the mid-single digit range. The company also expects an
additional 3.5 point contribution from incremental sales to Kyndryl. At
mid-April 2022 foreign exchange rates, currency is expected to be a three to
four point headwind.
* Free Cash Flow: The company continues to expect $10 billion to $10.5 billion
in consolidated free cash flow.
Forward-Looking and Cautionary Statements
Except for the historical information and discussions contained herein,
statements contained in this release may constitute forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements are based on the company's current assumptions
regarding future business and financial performance. These statements involve
a number of risks, uncertainties and other factors that could cause actual
results to differ materially, including, but not limited to, the following: a
downturn in economic environment and client spending budgets; a failure of the
company's innovation initiatives; damage to the company's reputation; risks
from investing in growth opportunities; failure of the company's intellectual
property portfolio to prevent competitive offerings and the failure of the
company to obtain necessary licenses; the company's ability to successfully
manage acquisitions, alliances and dispositions, including integration
challenges, failure to achieve objectives, the assumption of liabilities, and
higher debt levels; fluctuations in financial results; impact of local legal,
economic, political, health and other conditions; the company's failure to
meet growth and productivity objectives; ineffective internal controls; the
company's use of accounting estimates; impairment of the company's goodwill or
amortizable intangible assets; the company's ability to attract and retain key
employees and its reliance on critical skills; impacts of relationships with
critical suppliers; product quality issues; impacts of business with
government clients; reliance on third party distribution channels and
ecosystems; cybersecurity and data privacy considerations; adverse effects
related to climate change and environmental matters, tax matters; legal
proceedings and investigatory risks; the company's pension plans; currency
fluctuations and customer financing risks; impact of changes in market
liquidity conditions and customer credit risk on receivables; potential
failure of the separation of Kyndryl Holdings, Inc. to qualify for tax-free
treatment; risk factors related to IBM securities; and other risks,
uncertainties and factors discussed in the company's Form 10-Qs, Form 10-K and
in the company's other filings with the U.S. Securities and Exchange
Commission or in materials incorporated therein by reference. Any
forward-looking statement in this release speaks only as of the date on which
it is made. Except as required by law, the company assumes no obligation to
update or revise any forward-looking statements.
Presentation of Information in this Press Release
On November 3, 2021, IBM completed the separation of Kyndryl. Unless otherwise
specified, results are presented on a continuing operations basis.
In an effort to provide investors with additional information regarding the
company's results as determined by generally accepted accounting principles
(GAAP), the company has also disclosed in this press release the following
non-GAAP information, which management believes provides useful information to
investors:
IBM results —
* adjusting for currency (i.e., at constant currency);
* presenting operating (non-GAAP) earnings per share amounts and related
income statement items;
* consolidated free cash flow;
* consolidated cash from operating activities excluding IBM Financing
receivables;
The rationale for management's use of these non-GAAP measures is included in
Exhibit 99.2 in the Form 8–K that includes this press release and is being
submitted today to the SEC.
Conference Call and Webcast
IBM's regular quarterly earnings conference call is scheduled to begin at
5:00 p.m. EDT, today. The Webcast may be accessed via a link
at https://www.ibm.com/investor/events/earnings-1q22. Presentation charts
will be available shortly before the Webcast.
Financial Results Below (certain amounts may not add due to use of rounded
numbers; percentages presented are calculated from the underlying
whole-dollar amounts).
Contact: IBM
Sarah Meron, 347 891 1770
sarah.meron@ibm.com
Tim Davidson, 914 844 7847
tfdavids@us.ibm.com
INTERNATIONAL BUSINESS MACHINES CORPORATION COMPARATIVE FINANCIAL RESULTS (Unaudited; Dollars in millions except per share amounts)
Three Months Ended
March 31,
2022 2021*
REVENUE
Software $ 5,772 $ 5,138
Consulting 4,829 4,262
Infrastructure 3,219 3,293
Financing 154 208
Other 224 284
TOTAL REVENUE 14,197 13,187
GROSS PROFIT 7,335 7,027
GROSS PROFIT MARGIN
Software 78.8 % 77.8 %
Consulting 24.3 % 27.8 %
Infrastructure 50.5 % 56.3 %
Financing 37.7 % 35.5 %
TOTAL GROSS PROFIT MARGIN 51.7 % 53.3 %
EXPENSE AND OTHER INCOME
S,G&A 4,597 4,688
R,D&E 1,679 1,616
Intellectual property and custom development income (121) (146)
Other (income) and expense 246 346
Interest expense 311 280
TOTAL EXPENSE AND OTHER INCOME 6,712 6,784
INCOME/(LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 623 244
Pre-tax margin 4.4 % 1.8 %
Provision for/(Benefit from) income taxes (39) (160)
Effective tax rate (6.3) % (65.5) %
INCOME FROM CONTINUING OPERATIONS $ 662 $ 403
DISCONTINUED OPERATIONS
Income/(Loss) from discontinued operations, net of taxes 71 552
NET INCOME $ 733 $ 955
EARNINGS/(LOSS) PER SHARE OF COMMON STOCK
Assuming Dilution
Continuing Operations $ 0.73 $ 0.45
Discontinued Operations $ 0.08 $ 0.61
TOTAL $ 0.81 $ 1.06
Basic
Continuing Operations $ 0.74 $ 0.45
Discontinued Operations $ 0.08 $ 0.62
TOTAL $ 0.82 $ 1.07
WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (M's)
Assuming Dilution 909.2 901.7
Basic 899.3 893.6
____________________ * Recast to conform with 2022 presentation.
INTERNATIONAL BUSINESS MACHINES CORPORATION CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited)
At At
March 31, December 31,
(Dollars in Millions) 2022 2021
ASSETS:
Current Assets:
Cash and cash equivalents $ 9,934 $ 6,650
Restricted cash 286 307
Marketable securities 550 600
Notes and accounts receivable - trade, net 5,963 6,754
Short-term financing receivables, net 7,169 8,014
Other accounts receivable, net 1,003 1,002
Inventories 1,776 1,649
Deferred costs 1,103 1,097
Prepaid expenses and other current assets 3,548 3,466
Total Current Assets 31,330 29,539
Property, plant and equipment, net 5,559 5,694
Operating right-of-use assets, net 3,108 3,222
Long-term financing receivables, net 4,610 5,425
Prepaid pension assets 9,995 9,850
Deferred costs 916 924
Deferred taxes 7,567 7,370
Goodwill 56,106 55,643
Intangibles, net 12,312 12,511
Investments and sundry assets 1,771 1,823
Total Assets $ 133,275 $ 132,001
LIABILITIES:
Current Liabilities:
Taxes $ 1,798 $ 2,289
Short-term debt 7,690 6,787
Accounts payable 3,453 3,955
Deferred income 13,526 12,518
Operating lease liabilities 954 974
Other liabilities 6,635 7,097
Total Current Liabilities 34,056 33,619
Long-term debt 46,545 44,917
Retirement related obligations 13,937 14,435
Deferred income 3,423 3,577
Operating lease liabilities 2,358 2,462
Other liabilities 13,844 13,996
Total Liabilities 114,162 113,005
EQUITY:
IBM Stockholders' Equity:
Common stock 57,603 57,319
Retained earnings 153,401 154,209
Treasury stock — at cost (169,422) (169,392)
Accumulated other comprehensive income/(loss) (22,532) (23,234)
Total IBM Stockholders' Equity 19,050 18,901
Noncontrolling interests 62 95
Total Equity 19,112 18,996
Total Liabilities and Equity $ 133,275 $ 132,001
INTERNATIONAL BUSINESS MACHINES CORPORATION CASH FLOW ANALYSIS (Unaudited)
Three Months Ended
March 31,
(Dollars in Millions) 2022 2021
Consolidated Net Cash from Operations per GAAP $ 3,248 $ 4,914
Less: change in IBM Financing receivables 1,631 2,863
Capital Expenditures, net (378) (529)
Consolidated Free Cash Flow 1,240 1,522
Acquisitions (698) (1,120)
Divestitures 61 (15)
Dividends (1,475) (1,457)
Non-Financing Debt 4,675 (1,725)
Other (includes IBM Financing net receivables and debt) (590) (207)
Change in Cash, Cash Equivalents, Restricted Cash and Short-term Marketable Securities* $ 3,213 $ (3,002)
____________________ * Cash flows are presented on a consolidated basis.
INTERNATIONAL BUSINESS MACHINES CORPORATION CASH FLOW (Unaudited)
Three Months Ended
March 31,
(Dollars in Millions) 2022 2021
Net Income from Operations $ 733 $ 955
Depreciation/Amortization of Intangibles 1,257 1,672
Stock-based Compensation 234 213
Working Capital / Other (606) (789)
IBM Financing A/R 1,631 2,863
Net Cash Provided by Operating Activities $ 3,248 $ 4,914
Capital Expenditures, net of payments & proceeds (378) (529)
Divestitures, net of cash transferred 61 (15)
Acquisitions, net of cash acquired (698) (1,120)
Marketable Securities / Other Investments, net (344) (335)
Net Cash Provided by/(Used in) Investing Activities $ (1,358) $ (2,000)
Debt, net of payments & proceeds 2,948 (4,299)
Dividends (1,475) (1,457)
Financing - Other (95) (26)
Net Cash Provided by/(Used in) Financing Activities $ 1,377 $ (5,783)
Effect of Exchange Rate changes on Cash (5) (134)
Net Change in Cash, Cash Equivalents and Restricted Cash* $ 3,263 $ (3,002)
____________________ * Cash flows are presented on a consolidated basis.
INTERNATIONAL BUSINESS MACHINES CORPORATION SEGMENT DATA (Unaudited)
Three Months Ended March 31, 2022
(Dollars in Millions) Software Consulting Infrastructure Financing
Revenue $ 5,772 $ 4,829 $ 3,219 $ 154
Pre-tax Income/(Loss) from Continuing Operations 1,134 348 199 84
Pre-tax Margin 19.7 % 7.2 % 6.2 % 54.6 %
Change YTY Revenue 12.3 % 13.3 % (2.3) % (26.2) %
Change YTY Revenue - constant currency 15.4 % 17.4 % 0.3 % (24.5) %
Three Months Ended March 31, 2021*
(Dollars in Millions) Software Consulting Infrastructure Financing
Revenue $ 5,138 $ 4,262 $ 3,293 $ 208
Pre-tax Income/(Loss) from Continuing Operations 658 277 292 98
Pre-tax Margin 12.8 % 6.5 % 8.9 % 47.0 %
____________________ * Recast to conform with 2022 presentation.
INTERNATIONAL BUSINESS MACHINES CORPORATION U.S. GAAP TO OPERATING (Non-GAAP) RESULTS RECONCILIATION (Unaudited; Dollars in millions except per share amounts)
Three Months Ended March 31, 2022
Continuing Operations
Acquisition- Retirement- Tax Kyndryl-
Related Related Reform Related Operating
GAAP Adjustments ((1)) Adjustments ((2)) Impacts Impacts ((3)) (Non-GAAP)
Gross Profit $ 7,335 $ 181 $ — $ — $ — $ 7,516
Gross Profit Margin 51.7 % 1.3 pts. — pts. — pts. — pts. 52.9 %
S,G&A $ 4,597 $ (286) $ — $ — $ (0) $ 4,311
Other (Income) & Expense 246 (1) (202) — (222) (179)
Total Expense & Other (Income) 6,712 (287) (202) — (222) 6,001
Pre-tax Income from Continuing Operations 623 468 202 — 222 1,515
Pre-tax Income Margin from Continuing Operations 4.4 % 3.3 pts. 1.4 pts. — pts. 1.6 pts. 10.7 %
Provision for/(Benefit from) Income Taxes ((4)) $ (39) $ 109 $ 58 $ 116 $ — $ 244
Effective Tax Rate (6.3) % 9.1 pts. 4.6 pts. 7.7 pts. 0.9 pts. 16.1 %
Income from Continuing Operations $ 662 $ 359 $ 144 $ (116) $ 222 $ 1,271
Income Margin from Continuing Operations 4.7 % 2.5 pts. 1.0 pts. (0.8) pts. 1.6 pts. 9.0 %
Diluted Earnings/(Loss) Per Share: Continuing Operations $ 0.73 $ 0.39 $ 0.16 $ (0.13) $ 0.24 $ 1.40
Three Months Ended March 31, 2021
Continuing Operations
Acquisition- Retirement- Tax Kyndryl-
Related Related Reform Related Operating
GAAP Adjustments ((1)) Adjustments ((2)) Impacts Impacts ((3)) (Non-GAAP)
Gross Profit $ 7,027 $ 174 $ — $ — $ — $ 7,201
Gross Profit Margin 53.3 % 1.3 pts. — pts. — pts. — pts. 54.6 %
S,G&A $ 4,688 $ (288) $ — $ — $ — $ 4,399
Other (Income) & Expense 346 (1) (332) — — 13
Total Expense & Other (Income) 6,784 (289) (332) — — 6,162
Pre-tax Income/(Loss) from Continuing Operations 244 463 332 — — 1,039
Pre-tax Income Margin from Continuing Operations 1.8 % 3.5 pts. 2.5 pts. — pts. — pts. 7.9 %
Provision for/(Benefit from) Income Taxes ((4)) $ (160) $ 132 $ 33 $ 19 $ — $ 25
Effective Tax Rate (65.5) % 41.9 pts. 24.2 pts. 1.8 pts. — pts. 2.4 %
Income from Continuing Operations $ 403 $ 330 $ 299 $ (19) $ — $ 1,013
Income Margin from Continuing Operations 3.1 % 2.5 pts. 2.3 pts. (0.1) pts. — pts. 7.7 %
Diluted Earnings/(Loss) Per Share: Continuing Operations $ 0.45 $ 0.37 $ 0.33 $ (0.02) $ — $ 1.12
____________________
(1) Includes amortization of purchased intangible assets, in process R&D, transaction costs, applicable restructuring and related expenses, tax charges related to acquisition integration and pre-closing charges, such as financing costs.
(2) Includes amortization of prior service costs, interest cost, expected return on plan assets, amortized actuarial gains/losses, the impacts of any plan curtailments/ settlements and pension insolvency costs and other costs.
(3) Primarily relates to fair value changes in shares of Kyndryl common stock that were retained by IBM.
(4) Tax impact on operating (non-GAAP) pre-tax income from continuing operations is calculated under the same accounting principles applied to the As Reported pre-tax income under ASC 740, which employs an annual effective tax rate method to the results.
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