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) 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
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). |
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** 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
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
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
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) |
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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) |
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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) |
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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 | |||
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* Includes immaterial cash flows from discontinued operations. |
INTERNATIONAL BUSINESS MACHINES CORPORATION
CASH FLOW (Unaudited) |
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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) |
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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) |
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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 | |||||||
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(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. |
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(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. |
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(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. |