International Business Machines : Press Release (139 KB) pdf

IBM RELEASES SECOND QUARTER RESULTS

Growth Across Key Segments Led by Hybrid Cloud Adoption; Solid Cash and Profit Generation

ARMONK, N.Y., July 18, 2022 . . . IBM (NYSE: IBM) today announced second-quarter 2022 earnings results.

"In the quarter we delivered good revenue performance with balanced growth across our geographies, driven by client demand for our hybrid cloud and AI offerings. The IBM team executed our strategy well," said Arvind Krishna, IBM chairman and chief executive officer. "With our first half results, we continue to expect full-year revenue growth at the high end of our mid-single digit model."

Second-Quarter Highlights

• Revenue
• • Revenue of $15.5 billion, up 9 percent, up 16 percent at constant currency (about 5 points from sales to Kyndryl)
  • Software revenue up 6 percent, up 12 percent at constant currency (about 7 points from sales to Kyndryl)
  • Consulting revenue up 10 percent, up 18 percent at constant currency
  • Infrastructure revenue up 19 percent, up 25 percent at constant currency (about 7 points from sales to Kyndryl)
  • Hybrid cloud revenue, over the last 12 months, of $21.7 billion, up 16 percent, up 19 percent at constant currency
• Cash Flow
• • On a consolidated basis, year to date, net cash from operating activities of $4.6 billion; free cash flow of $3.3 billion

			SECOND QUARTER 2022 INCOME STATEMENT SUMMARY
							Pre-tax
				Gross		Pre-tax	Income		Net		Diluted
GAAP from		Revenue		Profit		Income	Margin		Income		EPS
Continuing	$	15.5B	$	8.3B	$	1.7B	11.1 %	$	1.5B	$	1.61
Operations
Year/Year		9 %*		6 %		89 %	4.7 Pts		81 %		79 %
Operating			$	8.5B	$	2.5B	16.2 %	$	2.1B	$	2.31
(Non-GAAP)
Year/Year				5 %		48 %	4.2 Pts		45 %		43 %

*16% at constant currency

"We are a faster-growing, focused, disciplined company with sound business fundamentals," said James Kavanaugh, IBM senior vice president and chief financial officer. "Our recurring revenue stream and solid cash generation position us well to continue to invest in R&D, acquire new companies, and strengthen our talent in every part of the business, while also returning value to shareholders through our dividend."

Segment Results for Second Quarter

• Software (includes Hybrid Platform & Solutions, Transaction Processing)- revenues of $6.2 billion, up

6.4 percent, up 11.6 percent at constant currency (about 7 points from sales to Kyndryl):

• • Hybrid Platform & Solutions up 4 percent, up 9 percent at constant currency (about 1.5 points from sales to Kyndryl):
  • • Red Hat up 12 percent, up 17 percent at constant currency
    • Automation up 4 percent, up 8 percent at constant currency
    • Data & AI flat, up 4 percent at constant currency
    • Security flat, up 5 percent at constant currency
  • Transaction Processing up 12 percent, up 19 percent at constant currency (about 22 points from sales to Kyndryl)
  • Software segment hybrid cloud revenue up 14 percent, up 18 percent at constant currency
• Consulting (includes Business Transformation, Technology Consulting and Application Operations)- revenues of $4.8 billion, up 9.8 percent, up 17.8 percent at constant currency:
• • Business Transformation up 9 percent, up 16 percent at constant currency
  • Technology Consulting up 14 percent, up 23 percent at constant currency
  • Application Operations up 9 percent, up 17 percent at constant currency
  • Consulting segment hybrid cloud revenue up 20 percent, up 29 percent at constant currency
• Infrastructure (includes Hybrid Infrastructure, Infrastructure Support)- revenues of $4.2 billion, up
• • 
    19.0 percent, up 25.4 percent at constant currency (about 7 points from sales to Kyndryl):
  • Hybrid Infrastructure up 34 percent, up 41 percent at constant currency (about 7 points from sales to Kyndryl)
  • • IBM z Systems up 69 percent, up 77 percent at constant currency
    • Distributed Infrastructure up 11 percent, up 17 percent at constant currency
  • Infrastructure Support down 2 percent, up 5 percent at constant currency (about 8 points from sales to Kyndryl)
  • Infrastructure segment hybrid cloud revenue up 24 percent, up 30 percent at constant currency
• Financing (includes client and commercial financing)- revenues of $0.1 billion, down 29.9 percent, down 26.6 percent at constant currency

Cash Flow and Balance Sheet

On a consolidated basis, in the second quarter, the company generated net cash from operating activities of $1.3 billion or $2.6 billion excluding IBM Financing receivables. IBM's free cash flow was $2.1 billion. The company returned $1.5 billion to shareholders in dividends in the second quarter.

On a consolidated basis, for the first six months of the year, the company generated net cash from operating activities of $4.6 billion or $4.2 billion excluding IBM Financing receivables. IBM's free cash flow was $3.3 billion, which includes cash impacts from the company's structural actions initiated at the end of 2020.

IBM ended the second quarter with $7.8 billion of cash on hand (which includes marketable securities), up $0.2 billion from year-end 2021. Debt, including IBM Financing debt of $12.3 billion, totaled $50.3 billion, down $1.4 billion since the end of 2021.

Full-Year 2022 Expectations

• Revenue growth: The company continues to expect constant currency revenue growth at the high end of its mid-single digit model. The company also expects an additional 3.5 point contribution from incremental sales to Kyndryl. At mid-July 2022 foreign exchange rates, currency is expected to be about a six-point headwind.
• Free Cash Flow: The company now expects 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-2q22. 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 [e-mail]

Tim Davidson, 914-844-7847 [e-mail]

INTERNATIONAL BUSINESS MACHINES CORPORATION

COMPARATIVE FINANCIAL RESULTS

(Unaudited; Dollars in millions except per share amounts)

		Three Months Ended		Six Months Ended
			June 30,		June 30,
REVENUE			2022				2021*			2022			2021*
Software	$	6,166		$	5,795		$	11,938		$	10,933
Consulting			4,809				4,378			9,637			8,641
Infrastructure			4,235				3,560			7,453			6,853
Financing			146				209			300			417
Other			180				277			404			561
TOTAL REVENUE			15,535				14,218			29,732			27,405
GROSS PROFIT			8,290				7,852			15,625			14,879
GROSS PROFIT MARGIN			79.2 %			79.7 %		79.0 %		78.8 %
Software
Consulting			24.2 %			27.6 %		24.3 %		27.7 %
Infrastructure			53.8 %			57.1 %		52.4 %		56.7 %
Financing			35.3 %			29.9 %		36.5 %		32.7 %
TOTAL GROSS PROFIT MARGIN			53.4 %			55.2 %		52.6 %		54.3 %
EXPENSE AND OTHER INCOME			4,855				4,849			9,452			9,536
S,G&A
R,D&E			1,673				1,641			3,352			3,257
Intellectual property and custom development income			(176)				(133)			(297)			(278)
Other (income) and expense			(81)				302			166			647
Interest expense			297				281			607			561
TOTAL EXPENSE AND OTHER INCOME			6,568				6,940			13,280			13,724
INCOME/(LOSS) FROM CONTINUING OPERATIONS			1,722				912			2,345			1,155
BEFORE INCOME TAXES
Pre-tax margin			11.1 %			6.4 %		7.9 %		4.2 %
Provision for/(Benefit from) income taxes			257				101			218			(58)
Effective tax rate			14.9 %			11.1 %		9.3 %		(5.0)%
INCOME FROM CONTINUING OPERATIONS	$	1,465		$	810		$	2,127		$	1,213
DISCONTINUED OPERATIONS			(73)				515			(2)			1,067
Income/(Loss) from discontinued operations, net of taxes
NET INCOME	$	1,392		$	1,325		$	2,125		$	2,280
EARNINGS/(LOSS) PER SHARE OF COMMON STOCK
Assuming Dilution			1.61		$	0.90		$	2.34		$	1.34
Continuing Operations	$
Discontinued Operations	$	(0.08)		$	0.57		$	0.00		$	1.18
TOTAL	$	1.53		$	1.47		$	2.34		$	2.52
Basic			1.62		$	0.91		$	2.36		$	1.36
Continuing Operations	$
Discontinued Operations	$	(0.08)		$	0.57		$	0.00		$	1.19
TOTAL	$	1.54		$	1.48		$	2.36		$	2.55
WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (M's)			910.7				904.2			910.0			903.0
Assuming Dilution
Basic			901.5				895.0			900.4			894.3

* Recast to conform with 2022 presentation.