Revenue Growth in All Key Segments Led by Global Hybrid Cloud Adoption; Solid Cash Generation.

IBM (NYSE: IBM) today announced third-quarter 2022 earnings results.

'IBM delivered strong revenue growth in the quarter, reflecting our continued focus on the execution of our strategy. Globally, clients view technology as an opportunity to enhance their business, which is evident in the results across our portfolio,' said Arvind Krishna, IBM chairman and chief executive officer. 'With our year-to-date performance, we now expect full-year revenue growth above our mid-single digit model.'

Third-Quarter Highlights

Revenue

Revenue of $14.1 billion, up 6 percent, up 15 percent at constant currency (about 5 points from sales to Kyndryl)

Software revenue up 7 percent, up 14 percent at constant currency (about 8 points from sales to Kyndryl)

Consulting revenue up 5 percent, up 16 percent at constant currency

Infrastructure revenue up 15 percent, up 23 percent at constant currency (about 9 points from sales to Kyndryl)

Hybrid cloud revenue, over the last 12 months, of $22.2 billion, up 15 percent, up 20 percent at constant currency

Cash Flow

On a consolidated basis, year to date, net cash from operating activities of $6.5 billion; free cash flow of $4.1 billion

THIRD QUARTER 2022 INCOME STATEMENT SUMMARY

GAAP results include impact of one-time, non-cash pension settlement charge*

Pre-tax

Diluted

Gross

Pre-tax

Income/(Loss)

Net

Earnings/(Loss)

Revenue

Profit

Income/(Loss)

Margin

Income/(Loss)

Per Share

GAAP from

Continuing

Operations

$

14.1B

$

7.4B

$

(4.5B)

*

(31.9)

%*

$

(3.2B)

*

$

(3.55)

*

Year/Year

6

%**

5

%

NM

*

(38.0)

Pts*

NM

*

NM

*

Operating

(Non-GAAP)

$

7.6B

$

2.0B

13.9

%

$

1.7B

$

1.81

Year/Year

4

%

23

%

1.8

Pts

(1)

%

(2)

%

GAAP results include the impact of a one-time, non-cash pension settlement charge of $5.9 billion ($4.4 billion net of tax) related to the transfer of a portion of the company's U.S. defined benefit pension obligations and related plan assets to third party insurers, announced on September 13, 2022.

** 15% at constant currency

'Both our revenue growth and operating profit profile for the first three quarters of the year align to the investment thesis we outlined last fall,' said James Kavanaugh, IBM senior vice president and chief financial officer. 'Our portfolio mix, business fundamentals, strong recurring revenue stream and solid cash generation allow us to invest for continued growth and return value to shareholders through dividends.'

Segment Results for Third Quarter

Software (includes Hybrid Platform & Solutions, Transaction Processing)- revenues of $5.8 billion, up 7.5 percent, up 14.2 percent at constant currency (about 8 points from sales to Kyndryl):

Hybrid Platform & Solutions up 2 percent, up 8 percent at constant currency (about 1.5 points from sales to Kyndryl):

Red Hat up 12 percent, up 18 percent at constant currency

Automation down 2 percent, up 3 percent at constant currency

Data & AI down 1 percent, up 4 percent at constant currency

Security down 1 percent, up 6 percent at constant currency

Transaction Processing up 23 percent, up 33 percent at constant currency (about 26 points from sales to Kyndryl)

Consulting (includes Business Transformation, Technology Consulting and Application Operations)- revenues of $4.7 billion, up 5.4 percent, up 15.6 percent at constant currency:

Business Transformation up 5 percent, up 14 percent at constant currency

Technology Consulting up 6 percent, up 17 percent at constant currency

Application Operations up 6 percent, up 17 percent at constant currency

Infrastructure (includes Hybrid Infrastructure, Infrastructure Support)- revenues of $3.4 billion, up 14.8 percent, up 23.1 percent at constant currency (about 9 points from sales to Kyndryl):

Hybrid Infrastructure up 33 percent, up 41 percent at constant currency (about 11 points from sales to Kyndryl):

IBM z Systems up 88 percent, up 98 percent at constant currency

Distributed Infrastructure up 13 percent, up 21 percent at constant currency

Infrastructure Support down 3 percent, up 5 percent at constant currency (about 7 points from sales to Kyndryl)

Financing (includes client and commercial financing)- revenues of $0.2 billion, down 5.7 percent, down 0.6 percent at constant currency

Cash Flow and Balance Sheet

On a consolidated basis, in the third quarter, the company generated net cash from operating activities of $1.9 billion or $1.2 billion excluding IBM Financing receivables. IBM's free cash flow was $0.8 billion. The company returned $1.5 billion to shareholders in dividends in the third quarter.

On a consolidated basis, for the first nine months of the year, the company generated net cash from operating activities of $6.5 billion or $5.4 billion excluding IBM Financing receivables. IBM's free cash flow was $4.1 billion, which includes cash impacts from the company's structural actions initiated at the end of 2020.

IBM ended the third quarter with $9.7 billion of cash on hand (which includes marketable securities), up $2.2 billion from year-end 2021. Debt, including IBM Financing debt of $11.2 billion, totaled $50.9 billion, down $0.8 billion since the end of 2021.

Full-Year 2022 Expectations

Revenue Growth: The company now expects constant currency revenue growth above its mid-single digit model. The company continues to expect an additional contribution of approximately 3.5 points from sales to Kyndryl, concentrated in the first three quarters. At mid-October 2022 foreign exchange rates, currency is expected to be about a seven-point headwind.

Free Cash Flow: The company continues to expect about $10 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. All references to revenue impacts from sales to Kyndryl are incremental sales post-separation.

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-3q22. 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

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