REG-Intnl Bus. Mach: Final Results
20/04/2023 07:15
IBM RELEASES FIRST-QUARTER RESULTS
Software and Consulting Led Revenue Growth; Strong Gross Profit Margin
Expansion
ARMONK, N.Y., April 19, 2023 / IBM (NYSE: IBM
(http://www.ibm.com/investor)) today announced first-quarter 2023 earnings
results.
"Our first quarter results demonstrate that clients continue turning to IBM
for our unique combination of an open hybrid cloud platform,
enterprise-focused AI, and business expertise to unlock productivity and drive
efficiency in their operations," said Arvind Krishna, IBM chairman and chief
executive officer. "This gives us confidence in our current growth
expectations for revenue and free cash flow for the year."
First-Quarter Highlights
* Revenue
- Revenue of $14.3 billion, up 0.4 percent, up 4.4 percent at constant
currency
- Software revenue up 3 percent, up 6 percent at constant currency
- Consulting revenue up 3 percent, up 8 percent at constant currency
- Infrastructure revenue down 4 percent, flat at constant currency
* Cash Flow
- Net cash from operating activities of $3.8 billion, up $0.5 billion; free
cash flow of $1.3 billion, up $0.1 billion
FIRST QUARTER 2023 INCOME STATEMENT SUMMARY
Results include impact of charges for stranded costs related to portfolio actions*
Pre-tax Diluted
Gross Pre-tax Income Net Earnings
Revenue Profit Income* Margin* Income* Per Share*
GAAP from $ 14.3B $ 7.5B $ 1.1B 7.4 % $ 0.9B $ 1.02
Continuing
Operations
Year/Year 0.4 %** 2 % 70 % 3.0 Pts 41 % 40 %
Operating $ 7.7B $ 1.4B 10.2 % $ 1.2B $ 1.36
(Non-GAAP)
Year/Year 2 % (4) % (0.5) Pts (2) % (3) %
* Results include the impact of charges for stranded costs related to portfolio actions. YTY impact of charges for GAAP and Operating (Non-GAAP) results: Pre-Tax Income ($0.25B); Pre-Tax Income Margin (1.8 Pts); Net Income ($0.20B); EPS ($0.22).
** 4% at constant currency
"In the quarter, we remained focused on the fundamentals of our business,
increasing productivity and generating operating leverage," said James
Kavanaugh, IBM senior vice president and chief financial officer. "As a
result, we again expanded our gross profit margin, improved our underlying
profit performance and increased our cash generation. We are well-positioned
to continue investing for growth and returning value to shareholders through
dividends."
Segment Results for First Quarter
* Software — revenues of $5.9 billion, up 2.6 percent, up 5.6 percent at
constant currency:
- Hybrid Platform & Solutions up 2 percent, up 5 percent at constant
currency:
-- Red Hat up 8 percent, up 11 percent at constant currency
-- Automation down 1 percent, up 2 percent at constant currency
-- Data & AI up 1 percent, up 3 percent at constant currency
-- Security down 1 percent, up 2 percent at constant currency
- Transaction Processing up 3 percent, up 7 percent at constant currency
* Consulting — revenues of $5.0 billion, up 2.8 percent, up 8.2 percent at
constant currency:
- Business Transformation up 1 percent, up 6 percent at constant currency
- Technology Consulting down 1 percent, up 4 percent at constant currency
- Application Operations up 7 percent, up 13 percent at constant currency
* Infrastructure — revenues of $3.1 billion, down 3.7 percent, up 0.1
percent at constant currency:
- Hybrid Infrastructure up 1 percent, up 4 percent at constant currency:
-- z Systems up 7 percent, up 11 percent at constant currency
-- Distributed Infrastructure down 3 percent, flat at constant currency
- Infrastructure Support down 9 percent, down 4 percent at constant currency
* Financing — revenues of $0.2 billion, up 27.3 percent, up 31.0 percent at
constant currency
Cash Flow and Balance Sheet
In the first quarter, the company generated net cash from operating activities
of $3.8 billion, up $0.5 billion year to year. Net cash from operating
activities excluding IBM Financing receivables was $1.8 billion. IBM's free
cash flow was $1.3 billion, up $0.1 billion year to year.
IBM ended the first quarter with $17.6 billion of cash and marketable
securities, up $8.8 billion from year-end 2022. Debt, including IBM Financing
debt of $10.5 billion, totaled $58.7 billion, up $7.8 billion since the end of
2022. The company returned $1.5 billion to shareholders in dividends in the
first quarter.
Full-Year 2023 Expectations
* Revenue: The company expects constant currency revenue growth of three
percent to five percent. At current foreign exchange rates, currency is
expected to be neutral to revenue growth.
* Free cash flow: The company continues to expect about $10.5 billion in free
cash flow, up more than $1 billion year to year.
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
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;
* free cash flow;
* 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-1q23. 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,
2023 2022
REVENUE BY SEGMENT
Software $ 5,921 $ 5,772
Consulting 4,962 4,829
Infrastructure 3,098 3,219
Financing 196 154
Other 75 224
TOTAL REVENUE 14,252 14,197
GROSS PROFIT 7,509 7,335
GROSS PROFIT MARGIN
Software 79.5 % 78.8 %
Consulting 25.2 % 24.3 %
Infrastructure 51.7 % 50.5 %
Financing 43.9 % 37.7 %
TOTAL GROSS PROFIT MARGIN 52.7 % 51.7 %
EXPENSE AND OTHER INCOME
S,G&A 4,853 4,597
R,D&E 1,655 1,679
Intellectual property and custom development income (180) (121)
Other (income) and expense (245) 246
Interest expense 367 311
TOTAL EXPENSE AND OTHER INCOME 6,451 6,712
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 1,058 623
Pre-tax margin 7.4 % 4.4 %
Provision for/(Benefit from) income taxes 124 (39)
Effective tax rate 11.7 % (6.3) %
INCOME FROM CONTINUING OPERATIONS $ 934 $ 662
DISCONTINUED OPERATIONS
Income/(loss) from discontinued operations, net of taxes (7) 71
NET INCOME $ 927 $ 733
EARNINGS PER SHARE OF COMMON STOCK
Assuming Dilution
Continuing Operations $ 1.02 $ 0.73
Discontinued Operations $ (0.01) $ 0.08
TOTAL $ 1.01 $ 0.81
Basic
Continuing Operations $ 1.03 $ 0.74
Discontinued Operations $ (0.01) $ 0.08
TOTAL $ 1.02 $ 0.82
WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (M's)
Assuming Dilution 917.8 909.2
Basic 907.5 899.3
INTERNATIONAL BUSINESS MACHINES CORPORATION CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited)
At At
March 31, December 31,
(Dollars in Millions) 2023 2022
ASSETS:
Current Assets:
Cash and cash equivalents $ 9,337 $ 7,886
Restricted cash 198 103
Marketable securities 8,057 852
Notes and accounts receivable - trade, net 5,757 6,541
Short-term financing receivables, net 6,662 7,790
Other accounts receivable, net 812 817
Inventories 1,603 1,552
Deferred costs 1,055 967
Prepaid expenses and other current assets 2,501 2,611
Total Current Assets 35,982 29,118
Property, plant and equipment, net 5,344 5,334
Operating right-of-use assets, net 2,789 2,878
Long-term financing receivables, net 5,065 5,806
Prepaid pension assets 8,487 8,236
Deferred costs 846 866
Deferred taxes 6,419 6,256
Goodwill 56,193 55,949
Intangibles, net 10,905 11,184
Investments and sundry assets 1,607 1,617
Total Assets $ 133,637 $ 127,243
LIABILITIES:
Current Liabilities:
Taxes $ 1,650 $ 2,196
Short-term debt 4,887 4,760
Accounts payable 3,728 4,051
Deferred income 13,220 12,032
Operating lease liabilities 869 874
Other liabilities 6,638 7,592
Total Current Liabilities 30,993 31,505
Long-term debt 53,826 46,189
Retirement related obligations 9,509 9,596
Deferred income 3,443 3,499
Operating lease liabilities 2,094 2,190
Other liabilities 12,099 12,243
Total Liabilities 111,964 105,222
EQUITY:
IBM Stockholders' Equity:
Common stock 58,675 58,343
Retained earnings 149,253 149,825
Treasury stock — at cost (169,544) (169,484)
Accumulated other comprehensive income/(loss) (16,780) (16,740)
Total IBM Stockholders' Equity 21,604 21,944
Noncontrolling interests 68 77
Total Equity 21,672 22,021
Total Liabilities and Equity $ 133,637 $ 127,243
INTERNATIONAL BUSINESS MACHINES CORPORATION CASH FLOW ANALYSIS (Unaudited)
Three Months Ended
March 31,
(Dollars in Millions) 2023 2022*
Net Cash from Operations per GAAP $ 3,774 $ 3,248
Less: change in IBM Financing receivables 1,977 1,631
Capital Expenditures, net (457) (378)
Free Cash Flow 1,340 1,240
Acquisitions (22) (698)
Divestitures — 61
Dividends (1,497) (1,475)
Non-Financing Debt 9,692 4,675
Other (includes IBM Financing net receivables and debt) (762) (590)
Change in Cash, Cash Equivalents, Restricted Cash and Short-term Marketable Securities $ 8,752 $ 3,213
____________________
* Includes immaterial cash flows from discontinued operations.
INTERNATIONAL BUSINESS MACHINES CORPORATION CASH FLOW (Unaudited)
Three Months Ended
March 31,
(Dollars in Millions) 2023 2022*
Net Income from Operations $ 927 $ 733
Depreciation/Amortization of Intangibles 1,074 1,257
Stock-based Compensation 268 234
Working Capital / Other (473) (606)
IBM Financing A/R 1,977 1,631
Net Cash Provided by Operating Activities $ 3,774 $ 3,248
Capital Expenditures, net of payments & proceeds (457) (378)
Divestitures, net of cash transferred — 61
Acquisitions, net of cash acquired (22) (698)
Marketable Securities / Other Investments, net (7,481) (344)
Net Cash Provided by/(Used in) Investing Activities $ (7,960) $ (1,358)
Debt, net of payments & proceeds 7,304 2,948
Dividends (1,497) (1,475)
Financing - Other (99) (95)
Net Cash Provided by/(Used in) Financing Activities $ 5,708 $ 1,377
Effect of Exchange Rate changes on Cash 24 (5)
Net Change in Cash, Cash Equivalents and Restricted Cash $ 1,547 $ 3,263
____________________
* Includes immaterial cash flows from discontinued operations.
INTERNATIONAL BUSINESS MACHINES CORPORATION SEGMENT DATA (Unaudited)
Three Months Ended March 31, 2023
(Dollars in Millions) Software Consulting Infrastructure Financing
Revenue $ 5,921 $ 4,962 $ 3,098 $ 196
Pre-tax Income from Continuing Operations* $ 1,164 $ 382 $ 216 $ 100
Pre-tax Margin* 19.7 % 7.7 % 7.0 % 51.3 %
Change YTY Revenue 2.6 % 2.8 % (3.7) % 27.3 %
Change YTY Revenue - constant currency 5.6 % 8.2 % 0.1 % 31.0 %
Three Months Ended March 31, 2022
(Dollars in Millions) Software Consulting Infrastructure Financing
Revenue $ 5,772 $ 4,829 $ 3,219 $ 154
Pre-tax Income from Continuing Operations $ 1,134 $ 348 $ 199 $ 84
Pre-tax Margin 19.7 % 7.2 % 6.2 % 54.6 %
____________________
* The first quarter 2023 pre-tax charge of approximately $0.26 billion for stranded costs related to portfolio actions is not included in the measure of segment pre-tax income, consistent with the company's management system.
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, 2023
Continuing Operations
Acquisition- Retirement- Tax Kyndryl-
Related Related Reform Related Operating
GAAP Adjustments ((1)) Adjustments ((2)) Impacts Impacts ((3)) (Non-GAAP)
Gross Profit $ 7,509 $ 148 $ — $ — $ — $ 7,658
Gross Profit Margin 52.7 % 1.0 pts. — pts. — pts. — pts. 53.7 %
S,G&A $ 4,853 $ (246) $ — $ — $ — $ 4,607
Other (Income) & Expense (245) (2) 5 — — (242)
Total Expense & Other (Income) 6,451 (247) 5 — — 6,209
Pre-tax Income from Continuing Operations 1,058 396 (5) — — 1,449
Pre-tax Income Margin from Continuing Operations 7.4 % 2.8 pts. 0.0 pts. — pts. — pts. 10.2 %
Provision for/(Benefit from) Income Taxes ((4)) $ 124 $ 91 $ (10) $ (5) $ — $ 200
Effective Tax Rate 11.7 % 3.1 pts. (0.7) pts. (0.3) pts. — pts. 13.8 %
Income from Continuing Operations $ 934 $ 305 $ 5 $ 5 $ — $ 1,249
Income Margin from Continuing Operations 6.6 % 2.1 pts. 0.0 pts. 0.0 pts. — pts. 8.8 %
Diluted Earnings Per Share: Continuing Operations $ 1.02 $ 0.33 $ 0.01 $ 0.01 $ — $ 1.36
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 Per Share: Continuing Operations $ 0.73 $ 0.39 $ 0.16 $ (0.13) $ 0.24 $ 1.40
____________________
(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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