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IBM RELEASES FIRST-QUARTER RESULTS

Published: 2023-04-19 20:08:00 ET
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Software and Consulting Led Revenue Growth; Strong Gross Profit Margin Expansion

ARMONK, N.Y., April 19, 2023 /PRNewswire/ -- IBM (NYSE: IBM) today announced first-quarter 2023 earnings results.

IBM Corporation logo. (PRNewsfoto/IBM)

"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 Continuing Operations

$

14.3B

$

7.5B

$

1.1B

7.4

%

$

0.9B

$

1.02

    Year/Year

0.4

%**

2

%

70

%

3.0

Pts

41

%

40

%

Operating (Non-GAAP)

$

7.7B

$

1.4B

10.2

%

$

1.2B

$

1.36

    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 SheetIn 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 StatementsExcept 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 ReleaseIn 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 WebcastIBM'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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SOURCE IBM