IBM Reports 2019 Third-Quarter Results

Strong Performance by Red Hat Accelerates Cloud Revenue Growth

Highlights

Third Quarter:

  • GAAP EPS from continuing operations of $1.87
  • Operating (non-GAAP) EPS of $2.68
  • Net cash from operating activities of $15.4 billion and free cash flow of $12.3 billion, over the last 12 months
  • Debt reduced by $6.7 billion since the end of second quarter
  • Revenue of $18.0 billion, down 3.9 percent (down 0.6 percent adjusting for divested businesses and currency)
  • Revenue for Red Hat, up 19 percent (up 20 percent adjusting for currency), normalized for historical comparability
  • Revenue growth in Cloud & Cognitive Software and Global Business Services segments
    -- Cloud & Cognitive Software up 6 percent (up 8 percent adjusting for currency)
    -- Global Business Services up 1 percent (up 2 percent adjusting for currency)
  • Cloud revenue of $5.0 billion in the third quarter, up 11 percent (up 14 percent adjusting for divested businesses and currency)
    -- Cloud revenue of $20.0 billion over the last 12 months

2019 Full-year Expectations:

  • GAAP EPS of at least $10.58; maintains operating (non-GAAP) EPS of at least $12.80
  • Maintains free cash flow of approximately $12 billion

 

ARMONK, N.Y.--()-- 

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

“In the third quarter, as we continued to help clients with their digital reinventions, we grew revenue in our Cloud & Cognitive Software segment and in Global Business Services," said Ginni Rometty, IBM chairman, president and chief executive officer. "Our results demonstrate that clients see IBM and Red Hat as a powerful combination and they trust us to provide them with the open hybrid cloud technology, innovation and industry expertise to help them shift their mission-critical workloads to the cloud.”

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

THIRD QUARTER 2019

 

 

 

Results Reflect the Impact of Items Related to

 

 

 

the Red Hat Acquisition Closed in July 2019

 

 

 

 

 

 

 

 

 

 

 

 

Pre-tax

 

Gross

 

 

 

Diluted

 

Net

 

Pre-tax

 

Income

 

Profit

 

 

 

EPS

 

Income

 

Income

 

Margin

 

Margin

 

GAAP from Continuing Operations

 

$

1.87

 

$

1.7B

 

$

1.5B

 

8.4

%

46.2

%

Year/Year

 

 

(36)

%

 

(38)

%

 

(49)

%

(7.5)

Pts

(0.7)

Pts

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating (Non-GAAP)

 

$

2.68

 

$

2.4B

 

$

2.4B

 

13.3

%

47.4

%

Year/Year

 

 

(22)

%

 

(24)

%

 

(33)

%

(5.9)

Pts

(0.0)

Pts

“We continued our focus on the strength of our balance sheet in the third quarter," said James Kavanaugh, IBM senior vice president and chief financial officer. "We generated $12.3 billion in free cash flow over the last 12 months and with our disciplined financial management we reduced debt by nearly $7 billion in the quarter, while maintaining a strong cash balance.”

Cash Flow and Balance Sheet

In the third quarter, the company generated net cash from operating activities of $3.6 billion, or $2.5 billion excluding Global Financing receivables. IBM’s free cash flow was $1.8 billion. IBM returned $1.6 billion to shareholders through $1.4 billion in dividends and $0.1 billion in gross share repurchases. The company suspended its share repurchase program on July 9.

IBM ended the third quarter with $11.0 billion of cash on hand. Debt, including Global Financing debt of $23.1 billion, totaled $66.3 billion – down $6.7 billion since the end of the second quarter.

Segment Results for Third Quarter

  • Cloud & Cognitive Software (includes cloud and data platforms which includes Red Hat; cognitive applications; and transaction processing platforms) — revenues of $5.3 billion, up 6.4 percent (up 7.8 percent adjusting for currency), led by security, IoT, data and AI platforms and hybrid cloud; cloud and data platforms, up 17 percent (up 19 percent adjusting for currency); cognitive applications, up 4 percent (up 6 percent adjusting for currency); transaction processing platforms, down 5 percent (down 4 percent adjusting for currency).
  • Global Business Services (includes consulting, application management and global process services) — revenues of $4.1 billion, up 1.0 percent (up 2.2 percent adjusting for currency), led by growth in consulting, up 4 percent (up 5 percent adjusting for currency); gross profit margin increased 110 basis points.
  • Global Technology Services (includes infrastructure and cloud services and technology support services) — revenues of $6.7 billion, down 5.6 percent (down 4.1 percent adjusting for currency).
  • Systems (includes systems hardware and operating systems software) — revenues of $1.5 billion, down 14.7 percent (down 13.8 percent adjusting for currency), reflecting the end of the IBM z14 product cycle and shipping of the new IBM z15 in the last week of September; gross profit margin expansion in Power and Storage.
  • Global Financing (includes financing and used equipment sales) — revenues of $343 million, down 11.7 percent (down 10.7 percent adjusting for currency); revenue reflects the wind-down of OEM commercial financing; gross profit margin expansion.

Full-Year 2019 Expectations

On August 2, 2019, the company updated full-year expectations to reflect the impact of the Red Hat acquisition and related activities. IBM expects GAAP diluted earnings per share for the full year to be at least $10.58. The company continues to expect operating (non-GAAP) diluted earnings per share of at least $12.80. Operating (non-GAAP) diluted earnings per share exclude $2.22 per share of charges for: amortization of purchased intangible assets and other acquisition-related charges, including pre-closing charges, such as financing costs, associated with the Red Hat acquisition; retirement-related charges; and tax reform enactment impacts.

IBM continues to expect free cash flow of approximately $12 billion, with a realization rate over 100 percent of GAAP Net Income.

Year-To-Date 2019 Results

Year-to-date results reflect the impact of items related to the Red Hat acquisition closed in July 2019. Consolidated diluted earnings per share was $6.45 compared to $7.37, down 12 percent year to year. Consolidated net income was $5.8 billion, down 15 percent year to year. Revenues for the nine-month period ended September 30, 2019 totaled $55.4 billion, a decrease of 4 percent year to year (down 0.7 percent adjusting for divested businesses and currency) compared with $57.8 billion for the first nine months of 2018.

Operating (non-GAAP) diluted earnings per share from continuing operations was $8.10 compared with $8.96 per diluted share for the 2018 period, a decrease of 10 percent. Operating (non-GAAP) net income for the nine months ended September 30, 2019 was $7.2 billion compared with $8.2 billion in the prior-year period, a decrease of 12 percent.

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; the company’s failure to meet growth and productivity objectives; 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; cybersecurity and data privacy considerations; fluctuations in financial results, impact of local legal, economic, political and health conditions; adverse effects from environmental matters, tax matters and the company’s pension plans; ineffective internal controls; the company’s use of accounting estimates; 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; currency fluctuations and customer financing risks; impact of changes in market liquidity conditions and customer credit risk on receivables; reliance on third party distribution channels and ecosystems; 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; legal proceedings and investigatory risks; 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 (SEC) 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 revenue and cloud revenue adjusting for divested businesses and currency;
  • revenue for Red Hat normalized for historical comparability;
  • presenting operating (non-GAAP) earnings per share amounts and related income statement items;
  • adjusting for free cash flow;
  • net cash from operating activities, excluding Global Financing receivables.

Free cash flow guidance is derived using an estimate of profit, working capital and operational cash outflows. The company views Global Financing receivables as a profit-generating investment, which it seeks to maximize and therefore it is not considered when formulating guidance for free cash flow. As a result, the company does not estimate a GAAP Net Cash from Operations expectation metric.

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 http://www.ibm.com/investor/events/earnings/3q19.html. 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

 

 

 

Nine Months Ended

 

 

 

 

September 30,

 

 

 

September 30,

 

 

 

 

2019

 

2018

 

 

 

2019

 

2018

 

 

REVENUE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cloud & Cognitive Software

 

$

5,280

 

$

4,962

 

*

 

$

15,962

 

$

15,548

 

*

Global Business Services

 

 

4,117

 

 

4,076

 

*

 

 

12,391

 

 

12,326

 

*

Global Technology Services

 

 

6,700

 

 

7,101

 

*

 

 

20,412

 

 

21,846

 

*

Systems

 

 

1,481

 

 

1,736

 

 

 

 

4,562

 

 

5,412

 

 

Global Financing

 

 

343

 

 

388

 

 

 

 

1,100

 

 

1,188

 

 

Other

 

 

107

 

 

493

 

*

 

 

944

 

 

1,511

 

*

TOTAL REVENUE

 

 

18,028

 

 

18,756

 

 

 

 

55,370

 

 

57,830

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GROSS PROFIT

 

 

8,336

 

 

8,803

 

 

 

 

25,388

 

 

26,249

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GROSS PROFIT MARGIN

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cloud & Cognitive Software

 

 

74.1

%

 

76.1

%

*

 

 

75.5

%

 

76.8

%

*

Global Business Services

 

 

31.1

%

 

30.0

%

*

 

 

27.8

%

 

26.5

%

*

Global Technology Services

 

 

35.8

%

 

37.0

%

*

 

 

34.6

%

 

34.3

%

*

Systems

 

 

52.6

%

 

52.7

%

 

 

 

51.1

%

 

49.3

%

 

Global Financing

 

 

36.9

%

 

26.3

%

 

 

 

35.6

%

 

29.1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL GROSS PROFIT MARGIN

 

 

46.2

%

 

46.9

%

 

 

 

45.9

%

 

45.4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EXPENSE AND OTHER INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

S,G&A

 

 

5,024

 

 

4,363

 

 

 

 

15,171

 

 

14,665

 

 

R,D&E

 

 

1,553

 

 

1,252

 

 

 

 

4,393

 

 

4,021

 

 

Intellectual property and custom development income

 

 

(166)

 

 

(275)

 

 

 

 

(489)

 

 

(842)

 

 

Other (income) and expense

 

 

(31)

 

 

275

 

 

 

 

(850)

 

 

968

 

 

Interest expense

 

 

432

 

 

191

 

 

 

 

990

 

 

530

 

 

TOTAL EXPENSE AND OTHER INCOME

 

 

6,813

 

 

5,807

 

 

 

 

19,215

 

 

19,341

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME FROM CONTINUING OPERATIONS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BEFORE INCOME TAXES

 

 

1,522

 

 

2,996

 

 

 

 

6,173

 

 

6,908

 

 

Pre-tax margin

 

 

8.4

%

 

16.0

%

 

 

 

11.1

%

 

11.9

%

 

Provision for / (Benefit from) income taxes

 

 

(151)

 

 

304

 

 

 

 

407

 

 

138

 

 

Effective tax rate

 

 

(9.9)

%

 

10.2

%

 

 

 

6.6

%

 

2.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME FROM CONTINUING OPERATIONS

 

$

1,673

 

$

2,692

 

 

 

$

5,766

 

$

6,770

 

 

DISCONTINUED OPERATIONS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income / (Loss) from discontinued operations, net of taxes

 

 

(1)

 

 

2

 

 

 

 

(5)

 

 

7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INCOME

 

$

1,672

 

$

2,694

 

 

 

$

5,761

 

$

6,777

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EARNINGS / (LOSS) PER SHARE OF COMMON STOCK

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assuming Dilution

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing Operations

 

$

1.87

 

$

2.94

 

 

 

$

6.46

 

$

7.36

 

 

Discontinued Operations

 

$

0.00

 

$

0.00

 

 

 

$

(0.01)

 

$

0.01

 

 

TOTAL

 

$

1.87

 

$

2.94

 

 

 

$

6.45

 

$

7.37

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing Operations

 

$

1.89

 

$

2.95

 

 

 

$

6.50

 

$

7.39

 

 

Discontinued Operations

 

$

0.00

 

$

0.00

 

 

 

$

(0.01)

 

$

0.01

 

 

TOTAL

 

$

1.89

 

$

2.95

 

 

 

$

6.49

 

$

7.40

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (M’s)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assuming Dilution

 

 

892.8

 

 

915.2

 

 

 

 

892.5

 

 

920.0

 

 

Basic

 

 

886.0

 

 

911.2

 

 

 

 

887.3

 

 

915.6

 

 

 

_________________________________

* Recast to conform with 2019 presentation.

INTERNATIONAL BUSINESS MACHINES CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEET

(Unaudited)

 

 

 

 

 

 

 

 

 

At

 

At

 

 

September 30,

 

December 31,

(Dollars in Millions)

 

2019

 

2018

ASSETS:

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

10,087

 

$

11,379

Restricted cash

 

 

138

 

 

225

Marketable securities

 

 

733

 

 

618

Notes and accounts receivable - trade, net

 

 

6,753

 

 

7,432

Short-term financing receivables, net

 

 

12,330

 

 

22,388

Other accounts receivable, net

 

 

1,876

 

 

743

Inventories

 

 

1,712

 

 

1,682

Deferred costs

 

 

1,978

 

 

2,300

Prepaid expenses and other current assets

 

 

2,515

 

 

2,378

Total Current Assets

 

 

38,121

 

 

49,146

 

 

 

 

 

 

 

Property, plant and equipment, net

 

 

10,063

 

 

10,792

Operating right-of-use assets, net*

 

 

4,901

 

 

Long-term financing receivables, net

 

 

7,739

 

 

9,148

Prepaid pension assets

 

 

5,481

 

 

4,666

Deferred costs

 

 

2,535

 

 

2,676

Deferred taxes

 

 

4,994

 

 

5,216

Goodwill and intangibles, net

 

 

73,564

 

 

39,353

Investments and sundry assets

 

 

2,221

 

 

2,386

Total Assets

 

$

149,620

 

$

123,382

 

 

 

 

 

 

 

LIABILITIES:

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

Taxes

 

$

2,154

 

$

3,046

Short-term debt

 

 

8,530

 

 

10,207

Accounts payable

 

 

4,042

 

 

6,558

Deferred income

 

 

11,223

 

 

11,165

Operating lease liabilities*

 

 

1,377

 

 

Other liabilities

 

 

7,739

 

 

7,251

Total Current Liabilities

 

 

35,066

 

 

38,227

 

 

 

 

 

 

 

Long-term debt

 

 

57,797

 

 

35,605

Retirement related obligations

 

 

15,925

 

 

17,002

Deferred income

 

 

3,382

 

 

3,445

Operating lease liabilities*

 

 

3,790

 

 

Other liabilities

 

 

15,564

 

 

12,174

Total Liabilities

 

 

131,524

 

 

106,452

 

 

 

 

 

 

 

EQUITY:

 

 

 

 

 

 

 

 

 

 

 

 

 

IBM Stockholders’ Equity:

 

 

 

 

 

 

Common stock

 

 

55,808

 

 

55,151

Retained earnings

 

 

160,709

 

 

159,206

Treasury stock — at cost

 

 

(169,474)

 

 

(168,071)

Accumulated other comprehensive income/(loss)

 

 

(29,086)

 

 

(29,490)

Total IBM Stockholders’ Equity

 

 

17,956

 

 

16,796

 

 

 

 

 

 

 

Noncontrolling interests

 

 

139

 

 

134

Total Equity

 

 

18,096

 

 

16,929

 

 

 

 

 

 

 

Total Liabilities and Equity

 

$

149,620

 

$

123,382

 

________________________

* Reflects the adoption of the FASB guidance on leases.

INTERNATIONAL BUSINESS MACHINES CORPORATION

CASH FLOW ANALYSIS

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30,

 

September 30,

(Dollars in Millions)

 

2019

 

2018

 

2019

 

2018

Net Cash Provided by Operating Activities per GAAP:

 

$

3,619

 

$

4,232

 

$

11,319

 

$

11,128

 

 

 

 

 

 

 

 

 

 

 

 

 

Less: change in Global Financing (GF) Receivables

 

 

1,135

 

 

1,096

 

 

3,712

 

 

2,874

Capital Expenditures, Net

 

 

(681)

 

 

(942)

 

 

(1,725)

 

 

(2,839)

 

 

 

 

 

 

 

 

 

 

 

 

 

Free Cash Flow

 

 

1,803

 

 

2,194

 

 

5,882

 

 

5,415

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisitions

 

 

(32,587)

 

 

(1)

 

 

(32,630)

 

 

(123)

Divestitures

 

 

39

 

 

 

 

927

 

 

Dividends

 

 

(1,436)

 

 

(1,431)

 

 

(4,269)

 

 

(4,250)

Share Repurchase

 

 

(126)

 

 

(627)

 

 

(1,361)

 

 

(2,393)

Non-GF Debt

 

 

(4,967)

 

 

2,218

 

 

28,432

 

 

1,607

Other (includes GF Net Receivables and GF Debt)

 

 

1,823

 

 

382

 

 

1,755

 

 

1,564

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in Cash, Cash Equivalents, Restricted Cash and Short-term Marketable Securities

 

$

(35,451)

 

$

2,736

 

$

(1,265)

 

$

1,820

INTERNATIONAL BUSINESS MACHINES CORPORATION

CASH FLOW

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30,

 

September 30,

(Dollars in Millions)

 

2019

 

2018

 

2019

 

2018

Net Income from Operations

 

$

1,672

 

$

2,694

 

$

5,761

 

$

6,777

Depreciation/Amortization of Intangibles

 

 

1,669

 

 

1,138

 

 

4,409

 

 

3,368

Stock-based Compensation

 

 

220

 

 

129

 

 

468

 

 

371

Working Capital / Other

 

 

(1,077)

 

 

(825)

 

 

(3,031)

 

 

(2,261)

Global Financing A/R

 

 

1,135

 

 

1,096

 

 

3,712

 

 

2,874

Net Cash Provided by Operating Activities

 

$

3,619

 

$

4,232

 

$

11,319

 

$

11,128

Capital Expenditures, net of payments & proceeds

 

 

(681)

 

 

(942)

 

 

(1,725)

 

 

(2,839)

Divestitures, net of cash transferred

 

 

39

 

 

 

 

927

 

 

Acquisitions, net of cash acquired

 

 

(32,587)

 

 

(1)

 

 

(32,630)

 

 

(123)

Marketable Securities / Other Investments, net

 

 

2,856

 

 

(2,026)

 

 

6,365

 

 

(2,406)

Net Cash Provided by / (Used in) Investing Activities

 

$

(30,373)

 

$

(2,969)

 

$

(27,064)

 

$

(5,368)

Debt, net of payments & proceeds

 

 

(6,608)

 

 

1,595

 

 

20,465

 

 

845

Dividends

 

 

(1,436)

 

 

(1,431)

 

 

(4,269)

 

 

(4,250)

Common Stock Repurchases

 

 

(126)

 

 

(627)

 

 

(1,361)

 

 

(2,393)

Common Stock Transactions - Other

 

 

(7)

 

 

26

 

 

(118)

 

 

(66)

Net Cash Provided by / (Used in) Financing Activities

 

$

(8,177)

 

$

(437)

 

$

14,717

 

$

(5,864)

Effect of Exchange Rate changes on Cash

 

 

(378)

 

 

(55)

 

 

(352)

 

 

(399)

Net Change in Cash, Cash Equivalents and Restricted Cash

 

$

(35,310)

 

$

771

 

$

(1,379)

 

$

(503)

INTERNATIONAL BUSINESS MACHINES CORPORATION

SEGMENT DATA

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 2019

 

 

 

Cloud &

 

Global

 

Global

 

 

 

 

 

 

 

 

 

Cognitive

 

Business

 

Technology

 

 

 

 

Global

 

(Dollars in Millions)

 

Software

 

Services

 

Services

 

Systems

 

Financing

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

External

 

$

5,280

 

$

4,117

 

$

6,700

 

$

1,481

 

$

343

 

Internal

 

 

686

 

 

70

 

 

287

 

 

195

 

 

302

 

Total Segment Revenue

 

$

5,966

 

$

4,187

 

$

6,988

 

$

1,676

 

$

645

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pre-tax Income / (Loss) from Continuing Operations

 

 

1,283

 

 

573

 

 

490

 

 

39

 

 

275

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pre-tax margin

 

 

21.5

%

 

13.7

%

 

7.0

%

 

2.3

%

 

42.6

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change YTY Revenue - External

 

 

6.4

%

 

1.0

%

 

(5.6)

%

 

(14.7)

%

 

(11.7)

%

Change YTY Revenue - External @constant currency

 

 

7.8

%

 

2.2

%

 

(4.1)

%

 

(13.8)

%

 

(10.7)

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 2018

 

 

 

Cloud &

 

Global

 

Global

 

 

 

 

 

 

 

 

 

Cognitive

 

Business

 

Technology

 

 

 

 

Global

 

(Dollars in Millions)

 

Software*

 

Services*

 

Services*

 

Systems

 

Financing

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

External

 

$

4,962

 

$

4,076

 

$

7,101

 

$

1,736

 

$

388

 

Internal

 

 

777

 

 

77

 

 

279

 

 

181

 

 

338

 

Total Segment Revenue

 

$

5,738

 

$

4,153

 

$

7,380

 

$

1,917

 

$

726

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pre-tax Income / (Loss) from Continuing Operations

 

 

2,050

 

 

566

 

 

607

 

 

209

 

 

308

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pre-tax margin

 

 

35.7

%

 

13.6

%

 

8.2

%

 

10.9

%

 

42.5

%

 

______________________

* Recast to conform with 2019 presentation.

INTERNATIONAL BUSINESS MACHINES CORPORATION

SEGMENT DATA

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2019

 

 

 

Cloud &

 

Global

 

Global

 

 

 

 

 

 

 

 

 

Cognitive

 

Business

 

Technology

 

 

 

 

Global

 

(Dollars in Millions)

 

Software

 

Services

 

Services

 

Systems

 

Financing

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

External

 

$

15,962

 

$

12,391

 

$

20,412

 

$

4,562

 

$

1,100

 

Internal

 

 

2,135

 

 

213

 

 

879

 

 

528

 

 

884

 

Total Segment Revenue

 

$

18,097

 

$

12,604

 

$

21,291

 

$

5,091

 

$

1,983

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pre-tax Income / (Loss) from Continuing Operations

 

 

5,052

 

 

1,188

 

 

1,000

 

 

(101)

 

 

803

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pre-tax margin

 

 

27.9

%

 

9.4

%

 

4.7

%

 

(2.0)

%

 

40.5

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change YTY Revenue - External

 

 

2.7

%

 

0.5

%

 

(6.6)

%

 

(15.7)

%

 

(7.4)

%

Change YTY Revenue - External @constant currency

 

 

4.9

%

 

3.3

%

 

(3.6)

%

 

(14.1)

%

 

(5.0)

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2018

 

 

 

Cloud &

 

Global

 

Global

 

 

 

 

 

 

 

 

 

Cognitive

 

Business

 

Technology

 

 

 

 

Global

 

(Dollars in Millions)

 

Software*

 

Services*

 

Services*

 

Systems

 

Financing

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

External

 

$

15,548

 

$

12,326

 

$

21,846

 

$

5,412

 

$

1,188

 

Internal

 

 

2,518

 

 

249

 

 

589

 

 

576

 

 

1,240

 

Total Segment Revenue

 

$

18,066

 

$

12,575

 

$

22,435

 

$

5,989

 

$

2,428

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pre-tax Income / (Loss) from Continuing Operations

 

 

5,760

 

 

1,063

 

 

1,124

 

 

352

 

 

1,042

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pre-tax margin

 

 

31.9

%

 

8.5

%

 

5.0

%

 

5.9

%

 

42.9

%

___________________

* Recast to conform with 2019 presentation.

INTERNATIONAL BUSINESS MACHINES CORPORATION

U.S. GAAP TO OPERATING (Non-GAAP) RESULTS RECONCILIATION

(Unaudited; Dollars in millions except per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 2019

 

 

 

Continuing Operations

 

 

 

 

 

 

Acquisition-

 

Retirement-

 

Tax

 

 

 

 

 

 

 

 

 

Related

 

Related

 

Reform

 

Operating

 

 

 

GAAP

 

Adjustments*

 

Adjustments**

 

Impacts

 

(Non-GAAP)

 

Gross Profit

 

$

8,336

 

$

209

 

 

 

 

 

$

8,545

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Profit Margin

 

 

46.2

%

 

1.2

Pts

 

 

 

 

 

47.4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

S,G&A

 

 

5,024

 

 

(451)

 

 

 

 

 

 

4,573

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

R,D&E

 

 

1,553

 

 

(53)

 

 

 

 

 

 

1,500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other (Income) & Expense

 

 

(31)

 

 

10

 

 

(145)

 

 

 

 

(166)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest Expense

 

 

432

 

 

(24)

 

 

 

 

 

 

408

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Expense & Other (Income)

 

 

6,813

 

 

(518)

 

 

(145)

 

 

 

 

6,150

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pre-tax Income from Continuing Operations

 

 

1,522

 

 

727

 

 

145

 

 

 

 

2,395

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pre-tax Income Margin from Continuing Operations

 

 

8.4

%

 

4.0

Pts

 

0.8

Pts

 

 

 

13.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision for / (Benefit from) Income Taxes***

 

 

(151)

 

 

142

 

 

16

 

 

(5)

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effective Tax Rate

 

 

(9.9)

%

 

8.9

Pts

 

1.3

Pts

 

(0.2)

Pts

 

0.1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from Continuing Operations

 

 

1,673

 

 

586

 

 

130

 

 

5

 

 

2,394

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income Margin from Continuing Operations

 

 

9.3

%

 

3.3

Pts

 

0.7

Pts

 

0.0

Pts

 

13.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted Earnings / (Loss) Per Share: Continuing Operations

 

$

1.87

 

$

0.66

 

$

0.14

 

$

0.01

 

$

2.68

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 2018

 

 

 

Continuing Operations

 

 

 

 

 

 

Acquisition-

 

Retirement-

 

Tax

 

 

 

 

 

 

 

 

 

Related

 

Related

 

Reform

 

Operating

 

 

 

GAAP

 

Adjustments*

 

Adjustments**

 

Impacts

 

(Non-GAAP)

 

Gross Profit

 

$

8,803

 

$

96

 

 

 

 

 

$

8,899

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Profit Margin

 

 

46.9

%

 

0.5

Pts

 

 

 

 

 

47.4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

S,G&A

 

 

4,363

 

 

(112)

 

 

 

 

 

 

4,251

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

R,D&E

 

 

1,252

 

 

 

 

 

 

 

 

1,252

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other (Income) & Expense

 

 

275

 

 

(1)

 

 

(389)

 

 

 

 

(115)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest Expense

 

 

191

 

 

 

 

 

 

 

 

191

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Expense & Other (Income)

 

 

5,807

 

 

(113)

 

 

(389)

 

 

 

 

5,304

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pre-tax Income from Continuing Operations

 

 

2,996

 

 

209

 

 

389

 

 

 

 

3,594

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pre-tax Income Margin from Continuing Operations

 

 

16.0

%

 

1.1

Pts

 

2.1

Pts

 

 

 

19.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision for / (Benefit from) Income Taxes***

 

 

304

 

 

56

 

 

100

 

 

 

 

460

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effective Tax Rate

 

 

10.2

%

 

1.0

Pts

 

1.7

Pts

 

Pts

 

12.8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from Continuing Operations

 

 

2,692

 

 

153

 

 

289

 

 

 

 

3,134

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income Margin from Continuing Operations

 

 

14.4

%

 

0.8

Pts

 

1.5

Pts

 

Pts

 

16.7

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted Earnings / (Loss) Per Share: Continuing Operations

 

$

2.94

 

$

0.17

 

$

0.31

 

$

 

$

3.42

 

______________________________

* 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.

** 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.

*** 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.

INTERNATIONAL BUSINESS MACHINES CORPORATION

U.S. GAAP TO OPERATING (Non-GAAP) RESULTS RECONCILIATION

(Unaudited; Dollars in millions except per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2019

 

 

 

Continuing Operations

 

 

 

 

 

 

Acquisition-

 

Retirement-

 

Tax

 

 

 

 

 

 

 

 

 

Related

 

Related

 

Reform

 

Operating

 

 

 

GAAP

 

Adjustments*

 

Adjustments**

 

Impacts

 

(Non-GAAP)

 

Gross Profit

 

$

25,388

 

$

359

 

 

 

 

 

$

25,747

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Profit Margin

 

 

45.9

%

 

0.6

Pts

 

 

 

 

 

46.5

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

S,G&A

 

 

15,171

 

 

(724)

 

 

 

 

 

 

14,447

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

R,D&E

 

 

4,393

 

 

(53)

 

 

 

 

 

 

4,340

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other (Income) & Expense

 

 

(850)

 

 

152

 

 

(419)

 

 

 

 

(1,118)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest Expense

 

 

990

 

 

(228)

 

 

 

 

 

 

762

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Expense & Other (Income)

 

 

19,215

 

 

(853)

 

 

(419)

 

 

 

 

17,942

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pre-tax Income from Continuing Operations

 

 

6,173

 

 

1,212

 

 

419

 

 

 

 

7,805

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pre-tax Income Margin from Continuing Operations

 

 

11.1

%

 

2.2

Pts

 

0.8

Pts

 

 

 

14.1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision for / (Benefit from) Income Taxes***

 

 

407

 

 

245

 

 

82

 

 

(160)

 

 

575

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effective Tax Rate

 

 

6.6

%

 

2.1

Pts

 

0.7

Pts

 

(2.0)

Pts

 

7.4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from Continuing Operations

 

 

5,766

 

 

967

 

 

338

 

 

160

 

 

7,230

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income Margin from Continuing Operations

 

 

10.4

%

 

1.7

Pts

 

0.6

Pts

 

0.3

Pts

 

13.1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted Earnings / (Loss) Per Share: Continuing Operations

 

$

6.46

 

$

1.08

 

$

0.38

 

$

0.18

 

$

8.10

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2018

 

 

 

Continuing Operations

 

 

 

 

 

 

Acquisition-

 

Retirement-

 

Tax

 

 

 

 

 

 

 

 

 

Related

 

Related

 

Reform

 

Operating

 

 

 

GAAP

 

Adjustments*

 

Adjustments**

 

Impacts

 

(Non-GAAP)

 

Gross Profit

 

$

26,249

 

$

283

 

 

 

 

 

$

26,531

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Profit Margin

 

 

45.4

%

 

0.5

Pts

 

 

 

 

 

45.9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

S,G&A

 

 

14,665

 

 

(332)

 

 

 

 

 

 

14,333

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

R,D&E

 

 

4,021

 

 

 

 

 

 

 

 

4,021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other (Income) & Expense

 

 

968

 

 

(1)

 

 

(1,185)

 

 

 

 

(219)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest Expense

 

 

530

 

 

 

 

 

 

 

 

530

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Expense & Other (Income)

 

 

19,341

 

 

(333)

 

 

(1,185)

 

 

 

 

17,822

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pre-tax Income from Continuing Operations

 

 

6,908

 

 

616

 

 

1,185

 

 

 

 

8,709

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pre-tax Income Margin from Continuing Operations

 

 

11.9

%

 

1.1

Pts

 

2.0

Pts

 

 

 

15.1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision for / (Benefit from) Income Taxes***

 

 

138

 

 

138

 

 

285

 

 

(93)

 

 

468

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effective Tax Rate

 

 

2.0

%

 

1.4

Pts

 

3.0

Pts

 

(1.1)

Pts

 

5.4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from Continuing Operations

 

 

6,770

 

 

478

 

 

900

 

 

93

 

 

8,241

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income Margin from Continuing Operations

 

 

11.7

%

 

0.8

Pts

 

1.6

Pts

 

0.2

Pts

 

14.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted Earnings / (Loss) Per Share: Continuing Operations

 

$

7.36

 

$

0.52

 

$

0.98

 

$

0.10

 

$

8.96

 

______________________________
* 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.
** 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.
*** 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.

INTERNATIONAL BUSINESS MACHINES CORPORATION

U.S. GAAP TO OPERATING (Non-GAAP) RESULTS RECONCILIATION

(Unaudited; Dollars in millions except per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30, 2019

 

 

September 30, 2019

 

 

 

Change YTY

 

 

Change YTY

 

Revenue Adjusting for Divested Businesses and Currency

 

Cloud

 

Total IBM

 

 

Total IBM

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue as reported

 

 

10.6

%

 

(3.9)

%

 

 

(4.3)

%

Impact from divested businesses

 

 

1.8

Pts

 

2.0

Pts

 

 

0.9

Pts

Currency impact

 

 

1.5

Pts

 

1.3

Pts

 

 

2.6

Pts

Revenue adjusting for divested businesses and currency (non-GAAP)

 

 

13.9

%

 

(0.6)

%

 

 

(0.7)

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Change

 

Revenue for Red Hat, Normalized for Historical Comparability

 

September 30,
2019

 

September 30,
2018

 

YTY

 

YTY @constant
currency

 

 

 

 

 

 

 

 

 

 

 

 

 

Red Hat revenue as reported in IBM consolidated results (1)

 

$

371

 

$

 

 

 

 

 

Add: Red Hat revenue prior to acquisition (2)

 

 

84

 

 

829

 

 

 

 

 

Add: Purchase accounting deferred revenue and intercompany adjustments (3)

 

 

531

 

 

 

 

 

 

 

Red Hat revenue, normalized for historical comparability (non-GAAP)

 

$

987

 

$

829

 

19

%

20

%

(1) Represents GAAP revenue as reported by IBM, which is included in the Cloud & Cognitive Software segment.
(2) Red Hat revenue was included in IBM's consolidated results beginning on July 9, 2019. Revenue for July 1 - July 8, 2019 and the three months ended September 30, 2018 represents pre-acquisition Red Hat standalone revenue and is included for comparative purposes.
(3) Represents the third-quarter 2019 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.

 

 

 

 

2019 Full Year Expectations

 

 

(as of third quarter 2019)

 

 

GAAP Diluted EPS

 

 

at least $10.58

 

 

 

 

Operating EPS (non-GAAP)

 

 

at least $12.80

 

 

 

 

Adjustments

 

 

 

 

 

 

 

Acquisition-related Charges *

 

$

1.52

 

 

 

 

Non-Operating Retirement-Related Items

 

$

0.51

 

 

 

 

Tax Reform Enactment Impacts

 

$

0.19

 

______________________________

* Includes acquisitions as of September 30, 2019.

IBM
Edward Barbini, 914‑499‑6565
barbini@us.ibm.com

John Bukovinsky, 732‑618‑3531
jbuko@us.ibm.com

Short Name: Intnl Bus. Mach
Category Code: QRT
Sequence Number: 678404
Time of Receipt (offset from UTC): 20191016T183708+0100

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IBM

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