REG-Intnl Bus. Mach IBM Reports 2021 First-Quarter Results
20/04/2021 13:00
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IBM Reports 2021 First-Quarter Results
Growing Hybrid Cloud Platform Adoption; Return to Revenue Growth; Strong Cash
Flow
Highlights
First Quarter:
* GAAP EPS from continuing operations of $1.06; Operating (non-GAAP) EPS of
$1.77
* Revenue of $17.7 billion, up 1 percent (down 2 percent adjusting for currency)
-- Cloud & Cognitive Software up 4 percent (up 1 percent adjusting for
currency)
-- Systems up 4 percent (up 2 percent adjusting for currency)
-- Global Business Services up 2 percent (down 1 percent adjusting for
currency)
* Total cloud revenue of $6.5 billion, up 21 percent (up 18 percent adjusting
for divested businesses and currency)
-- Cloud revenue of $26.3 billion over last 12 months, up 19 percent (up 18
percent adjusting for divested businesses and currency)
* Red Hat revenue up 17 percent (up 15 percent adjusting for currency),
normalized for historical comparability
* GAAP gross profit margin of 46.3 percent, up 120 basis points; Operating
(non-GAAP) gross profit margin of 47.3 percent, up 110 basis points
* Net cash from operating activities of $4.9 billion, up $0.4 billion; adjusted
free cash flow of $2.2 billion, up $0.8 billion
-- Over last 12 months: Net cash from operating activities of $18.6 billion;
adjusted free cash flow of $11.6 billion
* Debt reduced by $5.1 billion since year end 2020
IBM (NYSE: IBM) today announced first-quarter 2021 earnings results.
“Strong performance this quarter in cloud, driven by increasing client
adoption of our hybrid cloud platform, and growth in software and consulting
enabled us to get off to a solid start for the year," said Arvind Krishna, IBM
chairman and chief executive officer. "While we have more work to do, we are
confident we can achieve full-year revenue growth and meet our adjusted free
cash flow target in 2021.”
FIRST QUARTER 2021
Pre-tax Gross
Diluted Net Pre-tax Income Profit
EPS Income Income Margin Margin
GAAP from Continuing Operations $ 1.06 $ 1.0B $ 0.9B 5.1 % 46.3 %
Year/Year (19) % (19) % NM 5.4 Pts 1.2 Pts
Operating (Non-GAAP) $ 1.77 $ 1.6B $ 1.8B 10.0 % 47.3 %
Year/Year (4) % (3) % 158 % 6.1 Pts 1.1 Pts
NM-Not meaningful
“In the first quarter we continued to improve the fundamentals of our
business model," said James Kavanaugh, IBM senior vice president and chief
financial officer. "With strong cash generation and disciplined financial
management, we increased investments in our hybrid cloud and AI capabilities,
while significantly deleveraging in the quarter and supporting our commitment
to a secure and growing dividend.”
Cash Flow and Balance Sheet
In the first quarter, the company generated net cash from operating activities
of $4.9 billion, or $2.1 billion excluding Global Financing receivables.
IBM’s free cash flow was $1.5 billion, which includes $0.6 billion of cash
impacts from the company’s structural actions initiated in the fourth
quarter of 2020 and the transaction costs associated with the separation of
the managed infrastructure services business. IBM’s adjusted free cash flow,
excluding these cash impacts, was $2.2 billion. The company returned $1.5
billion to shareholders in dividends.
Over the last 12 months, the company generated net cash from operating
activities of $18.6 billion. IBM’s free cash flow for the last 12 months was
$11.0 billion. The company’s adjusted free cash flow, excluding cash impacts
as described above, was $11.6 billion.
IBM ended the first quarter with $11.3 billion of cash on hand (includes
marketable securities), down $3.0 billion from year-end 2020. Debt, including
Global Financing debt of $18.3 billion, totaled $56.4 billion, down $5.1
billion since the end of 2020, and down $16.6 billion since closing the Red
Hat acquisition.
Segment Results for First Quarter
* Cloud & Cognitive Software (includes Cloud & Data Platforms, Cognitive
Applications and Transaction Processing Platforms) —revenues of $5.4
billion, up 3.8 percent (up 0.8 percent adjusting for currency). Cloud &
Data Platforms grew 13 percent (up 10 percent adjusting for currency), led by
the company’s hybrid cloud platform and Cloud Pak growth. Cognitive
Applications grew 4 percent (up 2 percent adjusting for currency), led by
growth in Security. Transaction Processing Platforms declined 12 percent (down
15 percent adjusting for currency). Cloud revenue up 38 percent (up 34 percent
adjusting for currency). Gross profit margin up 60 basis points.
* Global Business Services (includes Consulting, Application Management and
Global Process Services) — revenues of $4.2 billion, up 2.4 percent (down
1.4 percent adjusting for currency), with growth in Consulting and Global
Process Services. Application Management revenue declined. Cloud revenue up 33
percent (up 28 percent adjusting for currency). Gross profit margin up 100
basis points.
* Global Technology Services (includes Infrastructure & Cloud Services and
Technology Support Services) — revenues of $6.4 billion, down 1.5 percent
(down 5.3 percent adjusting for currency). Infrastructure & Cloud Services
and Technology Support Services declined. Cloud revenue up 6 percent (up 2
percent adjusting for currency). Gross profit margin up 60 basis points.
* Systems (includes Systems Hardware and Operating Systems Software) —
revenues of $1.4 billion, up 4.3 percent (up 2.2 percent adjusting for
currency), led by IBM Z, while Power and Storage Systems declined. Operating
Systems Software declined. Cloud revenue up 23 percent (up 21 percent
adjusting for currency). Gross profit margin up 430 basis points.
* Global Financing (includes financing and used equipment sales) — revenues of
$240 million, down 20.0 percent (down 21.9 percent adjusting for currency),
driven by lower financing volumes and sale of receivables.
Full-Year 2021 Expectations
The company expects to grow revenue for the full year 2021 based on mid-April
2021 foreign exchange rates. The company also expects adjusted free cash flow
of $11 billion to $12 billion in 2021. Adjusted free cash flow expectations
exclude approximately $3 billion of cash impacts from the company’s
structural actions initiated in the fourth quarter of 2020 and the transaction
costs associated with the separation of the managed infrastructure services
business.
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 possibility that the
proposed separation of the managed infrastructure services unit of the
company’s Global Technology Services segment will not be completed within
the anticipated time period or at all, the possibility of disruption or
unanticipated costs in connection with the proposed separation or the
possibility that the separation will not achieve its intended benefits; 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 from 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; 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);
* total cloud revenue adjusting for divested businesses and currency;
* Red Hat revenue normalized for historical comparability;
* presenting operating (non-GAAP) earnings per share amounts and related income
statement items;
* net cash from operating activities, excluding Global Financing receivables;
* free cash flow;
* adjusted free cash flow.
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-1q21
(https://cts.businesswire.com/ct/CT?id=smartlink&url=https%3A%2F%2Fwww.ibm.com%2Finvestor%2Fevents%2Fearnings-1q21&esheet=52414009&newsitemid=20210420005699&lan=en-US&anchor=https%3A%2F%2Fwww.ibm.com%2Finvestor%2Fevents%2Fearnings-1q21&index=1&md5=638d7019a92b42b0fd6346bbd7322ebe)
. 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).
INTERNATIONAL BUSINESS MACHINES CORPORATION
COMPARATIVE FINANCIAL RESULTS
(Unaudited; Dollars in millions except per share amounts)
Three Months Ended
March 31,
2021 2020
REVENUE
Cloud & Cognitive Software $ 5,437 $ 5,238
Global Business Services 4,234 4,136
Global Technology Services 6,370 6,467
Systems 1,427 1,368
Global Financing 240 299
Other 23 62
TOTAL REVENUE 17,730 17,571
GROSS PROFIT 8,204 7,922
GROSS PROFIT MARGIN
Cloud & Cognitive Software 76.0 % 75.4 %
Global Business Services 28.2 % 27.2 %
Global Technology Services 34.5 % 34.0 %
Systems 54.5 % 50.2 %
Global Financing 31.9 % 40.7 %
TOTAL GROSS PROFIT MARGIN 46.3 % 45.1 %
EXPENSE AND OTHER INCOME
S,G&A 5,174 5,955
R,D&E 1,630 1,625
Intellectual property and custom development income (147) (116)
Other (income) and expense 362 182
Interest expense 280 326
TOTAL EXPENSE AND OTHER INCOME 7,299 7,972
INCOME/(LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 905 (49)
Pre-tax margin 5.1 % (0.3) %
Provision for/(Benefit from) income taxes (51) (1,226)
Effective tax rate (5.6) % NM %
INCOME FROM CONTINUING OPERATIONS $ 956 $ 1,176
DISCONTINUED OPERATIONS
Income/(Loss) from discontinued operations, net of taxes (1) (1)
NET INCOME $ 955 $ 1,175
EARNINGS/(LOSS) PER SHARE OF COMMON STOCK
Assuming Dilution
Continuing Operations $ 1.06 $ 1.31
Discontinued Operations $ 0.00 $ 0.00
TOTAL $ 1.06 $ 1.31
Basic
Continuing Operations $ 1.07 $ 1.32
Discontinued Operations $ 0.00 $ 0.00
TOTAL $ 1.07 $ 1.32
WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (M’s)
Assuming Dilution 901.7 895.0
Basic 893.6 888.0
_________________________________
NM-Not meaningful
INTERNATIONAL BUSINESS MACHINES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
At At
March 31, December 31,
(Dollars in Millions) 2021 2020
ASSETS:
Current Assets:
Cash and cash equivalents $ 10,531 $ 13,212
Restricted cash 142 463
Marketable securities 600 600
Notes and accounts receivable - trade, net 6,458 7,132
Short-term financing receivables, net 8,822 10,892
Other accounts receivable, net 787 714
Inventories 1,828 1,839
Deferred costs 2,223 2,107
Prepaid expenses and other current assets 2,647 2,206
Total Current Assets 34,038 39,165
Property, plant and equipment, net 9,452 10,040
Operating right-of-use assets, net 4,483 4,686
Long-term financing receivables, net 5,922 7,086
Prepaid pension assets 7,800 7,610
Deferred costs 2,336 2,449
Deferred taxes 8,953 9,241
Goodwill 59,984 59,617
Intangibles, net 13,535 13,796
Investments and sundry assets 2,125 2,282
Total Assets $ 148,629 $ 155,971
LIABILITIES:
Current Liabilities:
Taxes $ 2,640 $ 3,301
Short-term debt 5,198 7,183
Accounts payable 4,140 4,908
Deferred income 14,197 12,833
Operating lease liabilities 1,337 1,357
Other liabilities 9,031 10,287
Total Current Liabilities 36,542 39,869
Long-term debt 51,206 54,355
Retirement related obligations 17,346 18,248
Deferred income 4,153 4,301
Operating lease liabilities 3,379 3,574
Other liabilities 14,489 14,897
Total Liabilities 127,116 135,244
EQUITY:
IBM Stockholders’ Equity:
Common stock 56,788 56,556
Retained earnings 162,218 162,717
Treasury stock — at cost (169,360) (169,339)
Accumulated other comprehensive income/(loss) (28,257) (29,337)
Total IBM Stockholders’ Equity 21,389 20,597
Noncontrolling interests 124 129
Total Equity 21,513 20,727
Total Liabilities and Equity $ 148,629 $ 155,971
INTERNATIONAL BUSINESS MACHINES CORPORATION
CASH FLOW ANALYSIS
(Unaudited)
Trailing Twelve
Three Months Ended Months Ended
March 31, March 31,
(Dollars in Millions) 2021 2020 2021
Net Cash Provided by Operating Activities per GAAP: $ 4,914 $ 4,476 $ 18,635
Less: change in Global Financing (GF) Receivables 2,863 2,381 4,831
Capital Expenditures, Net (529) (737) (2,835)
Free Cash Flow 1,522 1,358 10,969
Structural actions initiated in 4Q20 & Spin-off charges ((1)) 631 — 680
Adjusted Free Cash Flow 2,153 1,358 11,649
Free Cash Flow 1,522 1,358 10,969
Acquisitions (1,120) (13) (1,442)
Divestitures (15) 26 461
Dividends (1,457) (1,440) (5,815)
Non-GF Debt (1,725) 3,503 (5,007)
Other (includes GF Net Receivables and GF Debt) (207) (426) 88
Change in Cash, Cash Equivalents, Restricted Cash and Short-term Marketable $ (3,002) $ 3,008 $ (744)
Securities
_________________________________
(1) Includes cash impacts incurred in the period related to structural actions
initiated in 4Q20 and spin-off related costs.
INTERNATIONAL BUSINESS MACHINES CORPORATION
CASH FLOW
(Unaudited)
Three Months Ended
March 31,
(Dollars in Millions) 2021 2020
Net Income from Operations $ 955 $ 1,175
Depreciation/Amortization of Intangibles 1,672 1,635
Stock-based Compensation 213 189
Working Capital / Other (789) (905)
Global Financing A/R 2,863 2,381
Net Cash Provided by Operating Activities $ 4,914 $ 4,476
Capital Expenditures, net of payments & proceeds (529) (737)
Divestitures, net of cash transferred (15) 26
Acquisitions, net of cash acquired (1,120) (13)
Marketable Securities / Other Investments, net (335) (178)
Net Cash Provided by/(Used in) Investing Activities $ (2,000) $ (902)
Debt, net of payments & proceeds (4,299) 1,356
Dividends (1,457) (1,440)
Common Stock Transactions - Other (26) (31)
Net Cash Provided by/(Used in) Financing Activities $ (5,783) $ (115)
Effect of Exchange Rate changes on Cash (134) (403)
Net Change in Cash, Cash Equivalents and Restricted Cash $ (3,002) $ 3,057
INTERNATIONAL BUSINESS MACHINES CORPORATION
SEGMENT DATA
(Unaudited)
Three Months Ended March 31, 2021
Cloud & Global Global
Cognitive Business Technology Global
(Dollars in Millions) Software Services Services Systems Financing
Revenue
External $ 5,437 $ 4,234 $ 6,370 $ 1,427 $ 240
Internal 832 55 313 189 168
Total Segment Revenue $ 6,269 $ 4,289 $ 6,683 $ 1,616 $ 408
Pre-tax Income/(Loss) from Continuing Operations 1,428 390 140 (2) 166
Pre-tax Margin 22.8 % 9.1 % 2.1 % (0.1) % 40.8 %
Change YTY Revenue - External 3.8 % 2.4 % (1.5) % 4.3 % (20.0) %
Change YTY Revenue - External @constant currency 0.8 % (1.4) % (5.3) % 2.2 % (21.9) %
Three Months Ended March 31, 2020
Cloud & Global Global
Cognitive Business Technology Global
(Dollars in Millions) Software Services Services Systems Financing
Revenue
External $ 5,238 $ 4,136 $ 6,467 $ 1,368 $ 299
Internal 813 46 294 148 212
Total Segment Revenue $ 6,052 $ 4,183 $ 6,761 $ 1,516 $ 511
Pre-tax Income/(Loss) from Continuing Operations 933 271 (178) (217) 194
Pre-tax Margin 15.4 % 6.5 % (2.6) % (14.3) % 37.9 %
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, 2021
Continuing Operations
Acquisition- Retirement- Tax Spin-off-
Related Related Reform Related Operating
GAAP Adjustments( (1)) Adjustments( (2)) Impacts Charges( (4)) (Non-GAAP)
Gross Profit $ 8,204 $ 175 $ — $ — $ 3 $ 8,382
Gross Profit Margin 46.3 % 1.0 Pts — Pts — Pts 0.0 Pts 47.3 %
S,G&A 5,174 (293) — — (58) 4,823
R,D&E 1,630 — — — — 1,630
Other (Income) & Expense 362 (1) (343) — — 18
Interest Expense 280 — — — — 280
Total Expense & Other (Income) 7,299 (294) (343) — (58) 6,604
Pre-tax Income from Continuing Operations 905 469 343 — 61 1,777
Pre-tax Income Margin from Continuing Operations 5.1 % 2.6 Pts 1.9 Pts — Pts 0.3 Pts 10.0 %
Provision for/(Benefit from) Income Taxes ((3)) (51) 104 61 49 15 179
Effective Tax Rate (5.6) % 7.3 Pts 4.5 Pts 2.7 Pts 1.0 Pts 10.1 %
Income from Continuing Operations 956 365 282 (49) 46 1,599
Income Margin from Continuing Operations 5.4 % 2.1 Pts 1.6 Pts (0.3) Pts 0.3 Pts 9.0 %
Diluted Earnings/(Loss) Per Share: Continuing Operations $ 1.06 $ 0.40 $ 0.31 $ (0.05) $ 0.05 $ 1.77
Three Months Ended March 31, 2020
Continuing Operations
Acquisition- Retirement- Tax Spin-off-
Related Related Reform Related Operating
GAAP Adjustments ((1)) Adjustments ((2)) Impacts Charges ((4)) (Non-GAAP)
Gross Profit $ 7,922 $ 188 $ — $ — $ — $ 8,110
Gross Profit Margin 45.1 % 1.1 Pts — Pts — Pts — Pts 46.2 %
S,G&A 5,955 (285) — — — 5,670
R,D&E 1,625 — — — — 1,625
Other (Income) & Expense 182 (1) (264) — — (83)
Interest Expense 326 — — — — 326
Total Expense & Other (Income) 7,972 (285) (264) — — 7,422
Pre-tax Income/(Loss) from Continuing Operations (49) 473 264 — — 688
Pre-tax Income Margin from Continuing Operations (0.3) % 2.7 Pts 1.5 Pts — Pts — Pts 3.9 %
Provision for/(Benefit from) Income Taxes ((3)) (1,226) 102 14 149 — (961)
Income from Continuing Operations 1,176 371 250 (149) — 1,649
Income Margin from Continuing Operations 6.7 % 2.1 Pts 1.4 Pts (0.8) Pts — Pts 9.4 %
Diluted Earnings/(Loss) Per Share: Continuing Operations $ 1.31 $ 0.42 $ 0.28 $ (0.17) $ — $ 1.84
_________________________________
(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) 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. The effective tax rate is not displayed as the
calculated rate for the three months ended March 31, 2020 is not meaningful.
(4) Managed infrastructure services spin-off charges primarily relate to
transaction and third-party support costs, business separation and applicable
employee retention fees, pension settlements and related tax charges.
INTERNATIONAL BUSINESS MACHINES CORPORATION
U.S. GAAP TO OPERATING (Non-GAAP) RESULTS RECONCILIATION
(Unaudited; Dollars in millions except per share amounts)
Three Months Ended Trailing Twelve Months
March 31, 2021 March 31, 2021
Cloud Revenue Adjusting for Divested Businesses and Currency Change YTY Change YTY
Cloud revenue as reported 21.3 % 19.2 %
Impact from divested businesses 0.3 Pts 1.0 Pts
Currency impact (4.0) Pts (1.7) Pts
Cloud revenue adjusting for divested businesses and currency (non-GAAP) 17.7 % 18.4 %
Three Months Ended
March 31, 2021
Red Hat Revenue, Normalized for Historical Comparability Change YTY
Red Hat Revenue GAAP growth rate( (1)) 53 %
Impact from purchase accounting deferred revenue and intercompany adjustments( (35) Pts
(2))
Red Hat revenue growth rate, normalized for historical comparability 17 %
(non-GAAP)
Impact from currency (3) Pts
Red Hat revenue growth rate, normalized for historical comparability and 15 %
adjusting for currency (non-GAAP)
_________________________________
(1) Represents change in GAAP revenue as reported by IBM, which is included in
the Cloud & Cognitive Software segment.
(2) Represents change in the first-quarter 2021 impact of the deferred revenue
purchase accounting adjustment and adjustments to add back revenue which was
eliminated for sales between Red Hat and IBM. This line represents revenue
that would have been recognized by Red Hat under GAAP if the acquisition had
not occurred, but was not recognized by IBM due to purchase accounting and
intercompany adjustments.
IBM
Sarah Meron, 347‑891‑1770
sarah.meron@ibm.com
(mailto:sarah.meron@ibm.com)
John Bukovinsky, 732‑618‑3531
jbuko@us.ibm.com (mailto:jbuko@us.ibm.com)
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