International Business Machines Corp 8-K, filed Apr 19, 2021
International Business Machines Corp (IBM)
About this 8-K
International Business Machines Corp filed this 8-K on April 19, 2021.
Items reported
- Item 2.02: Financial results
- Item 7.01: Regulation FD disclosure
- Item 9.01: Financial statements and exhibits
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
CURRENT REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report:
(Date of earliest event reported)
(Exact name of registrant as specified in its charter)
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(Registrant’s telephone number)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | |
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | |
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | |
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act:
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Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 2.02. Results of Operations and Financial Condition.
The registrant’s press release dated April 19, 2021, regarding its financial results for the period ended March 31, 2021, including consolidated financial statements for the period ended March 31, 2021, is Exhibit 99.1 of this Form 8-K.
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 disclosed in the attached press release certain non-GAAP information which management believes provides useful information to investors. Reconciliations of these non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP are included in the press release, which is Exhibit 99.1 to this Form 8-K. The rationale for management’s use of non-GAAP measures is included in Exhibit 99.2 to this Form 8-K.
The information in this Item 2.02, including the corresponding Exhibits 99.1 and 99.2, is being furnished with the Commission and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934.
Item 7.01. Regulation FD Disclosure.
The slides for IBM’s Chairman and Chief Executive Officer Arvind Krishna and Chief Financial Officer Jim Kavanaugh’s first-quarter 2021 earnings presentation on April 19, 2021, are Exhibit 99.3 to this Form 8-K.
The information in this Item 7.01, including the corresponding Exhibit 99.3, is being furnished with the Commission and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits
The following exhibits are being furnished as part of this report:
Exhibit No. | | Description of Exhibit |
99.1 | | |
99.2 | | |
99.3 | | Earnings Presentation of the Registrant, dated April 19, 2021 |
The following exhibit is being filed as part of this report:
Exhibit No. | | Description of Exhibit |
104 | | Cover Page Interactive Data File – the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
IBM’s web site (www.ibm.com) contains a significant amount of information about IBM, including financial and other information for investors (www.ibm.com/investor/). IBM encourages investors to visit its various web sites from time to time, as information is updated and new information is posted.
2
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.
Date: April 19, 2021 | | |
| | |
| | |
| By: | /s/ Robert F. Del Bene |
| | Robert F. Del Bene |
| | Vice President and Controller |
3
Exhibit 99.1
IBM REPORTS 2021 FIRST-QUARTER RESULTS
Growing hybrid cloud platform adoption; Return to revenue growth; Strong cash flow
Highlights
First Quarter:
| ● | GAAP EPS from continuing operations of $1.06; Operating (non-GAAP) EPS of $1.77 |
| ● | Revenue of $17.7 billion, up 1 percent (down 2 percent adjusting for currency) |
- Cloud & Cognitive Software up 4 percent (up 1 percent adjusting for currency)
- Systems up 4 percent (up 2 percent adjusting for currency)
- Global Business Services up 2 percent (down 1 percent adjusting for currency)
| ● | Total cloud revenue of $6.5 billion, up 21 percent (up 18 percent adjusting for divested businesses and currency) |
- Cloud revenue of $26.3 billion over last 12 months, up 19 percent (up 18 percent adjusting for divested businesses and currency)
| ● | Red Hat revenue up 17 percent (up 15 percent adjusting for currency), normalized for historical comparability |
| ● | GAAP gross profit margin of 46.3 percent, up 120 basis points; Operating (non-GAAP) gross profit margin of 47.3 percent, up 110 basis points |
| ● | Net cash from operating activities of $4.9 billion, up $0.4 billion; adjusted free cash flow of $2.2 billion, up $0.8 billion |
- Over last 12 months: Net cash from operating activities of $18.6 billion; adjusted free cash flow of $11.6 billion
| ● | Debt reduced by $5.1 billion since year end 2020 |
ARMONK, N.Y., April 19, 2021 . . . IBM (NYSE: IBM) today announced first-quarter 2021 earnings results.
“Strong performance this quarter in cloud, driven by increasing client adoption of our hybrid cloud platform, and growth in software and consulting enabled us to get off to a solid start for the year," said Arvind Krishna, IBM chairman and chief executive officer. "While we have more work to do, we are confident we can achieve full-year revenue growth and meet our adjusted free cash flow target in 2021.”
| | FIRST QUARTER 2021 | ||||||||||||
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| Pre-tax |
| Gross |
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| | | Diluted | | | Net | | | Pre-tax | | Income | | Profit |
|
| | | EPS | | | Income | | | Income | | Margin | | Margin |
|
GAAP from Continuing Operations | | $ | 1.06 | | $ | 1.0B | | $ | 0.9B |
| 5.1 | % | 46.3 | % |
Year/Year | |
| (19) | % |
| (19) | % |
| NM | | 5.4 | Pts | 1.2 | Pts |
| | | | | | | | | | | | | | |
Operating (Non-GAAP) | | $ | 1.77 | | $ | 1.6B | | $ | 1.8B |
| 10.0 | % | 47.3 | % |
Year/Year | |
| (4) | % |
| (3) | % |
| 158 | % | 6.1 | Pts | 1.1 | Pts |
NM-Not meaningful
“In the first quarter we continued to improve the fundamentals of our business model," said James Kavanaugh, IBM senior vice president and chief financial officer. "With strong cash generation and disciplined financial management, we increased investments in our hybrid cloud and AI capabilities, while significantly deleveraging in the quarter and supporting our commitment to a secure and growing dividend.”
Cash Flow and Balance Sheet
In the first quarter, the company generated net cash from operating activities of $4.9 billion, or $2.1 billion excluding Global Financing receivables. IBM’s free cash flow was $1.5 billion, which includes $0.6 billion of cash impacts from the company’s structural actions initiated in the fourth quarter of 2020 and the transaction costs associated with the separation of the managed infrastructure services business. IBM’s adjusted free cash flow, excluding these cash impacts, was $2.2 billion. The company returned $1.5 billion to shareholders in dividends.
Over the last 12 months, the company generated net cash from operating activities of $18.6 billion. IBM’s free cash flow for the last 12 months was $11.0 billion. The company’s adjusted free cash flow, excluding cash impacts as described above, was $11.6 billion.
IBM ended the first quarter with $11.3 billion of cash on hand (includes marketable securities), down $3.0 billion from year-end 2020. Debt, including Global Financing debt of $18.3 billion, totaled $56.4 billion, down $5.1 billion since the end of 2020, and down $16.6 billion since closing the Red Hat acquisition.
Segment Results for First Quarter
| ● | Cloud & Cognitive Software (includes Cloud & Data Platforms, Cognitive Applications and Transaction Processing Platforms) — revenues of $5.4 billion, up 3.8 percent (up 0.8 percent adjusting for currency). Cloud & Data Platforms grew 13 percent (up 10 percent adjusting for currency), led by the company’s hybrid cloud platform and Cloud Pak growth. Cognitive Applications grew 4 percent (up 2 percent adjusting for currency), led by growth in Security. Transaction Processing Platforms declined 12 percent (down 15 percent adjusting for currency). Cloud revenue up 38 percent (up 34 percent adjusting for currency). Gross profit margin up 60 basis points. |
| ● | Global Business Services (includes Consulting, Application Management and Global Process Services) — revenues of $4.2 billion, up 2.4 percent (down 1.4 percent adjusting for currency), with growth in Consulting and Global Process Services. Application Management revenue declined. Cloud revenue up 33 percent (up 28 percent adjusting for currency). Gross profit margin up 100 basis points. |
| ● | Global Technology Services (includes Infrastructure & Cloud Services and Technology Support Services) — revenues of $6.4 billion, down 1.5 percent (down 5.3 percent adjusting for currency). Infrastructure & Cloud Services and Technology Support Services declined. Cloud revenue up 6 percent (up 2 percent adjusting for currency). Gross profit margin up 60 basis points. |
| ● | Systems (includes Systems Hardware and Operating Systems Software) — revenues of $1.4 billion, up 4.3 percent (up 2.2 percent adjusting for currency), led by IBM Z, while Power and Storage Systems declined. Operating Systems Software declined. Cloud revenue up 23 percent (up 21 percent adjusting for currency). Gross profit margin up 430 basis points. |
| ● | Global Financing (includes financing and used equipment sales) — revenues of $240 million, down 20.0 percent (down 21.9 percent adjusting for currency), driven by lower financing volumes and sale of receivables. |
Full-Year 2021 Expectations
The company expects to grow revenue for the full year 2021 based on mid-April 2021 foreign exchange rates. The company also expects adjusted free cash flow of $11 billion to $12 billion in 2021. Adjusted free cash flow expectations exclude approximately $3 billion of cash impacts from the company’s structural actions initiated in the fourth quarter of 2020 and the transaction costs associated with the separation of the managed infrastructure services business.
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 possibility that the proposed separation of the managed infrastructure services unit of the company’s Global Technology Services segment will not be completed within the anticipated time period or at all, the possibility of disruption or unanticipated costs in connection with the proposed separation or the possibility that the separation will not achieve its intended benefits; 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 from 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; 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 —
| ● | adjusting for currency (i.e., at constant currency); |
| ● | total cloud revenue adjusting for divested businesses and currency; |
| ● | Red Hat revenue normalized for historical comparability; |
| ● | presenting operating (non-GAAP) earnings per share amounts and related income statement items; |
| ● | net cash from operating activities, excluding Global Financing receivables; |
| ● | free cash flow; |
| ● | adjusted free cash flow. |
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-1q21. 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 |
| |
| John Bukovinsky, 732-618-3531 |
| jbuko@us.ibm.com |
INTERNATIONAL BUSINESS MACHINES CORPORATION
COMPARATIVE FINANCIAL RESULTS
(Unaudited; Dollars in millions except per share amounts)
| | Three Months Ended |
| | ||||
| | March 31, |
| | ||||
|
| 2021 |
| 2020 |
| | ||
REVENUE |
| |
|
| |
| | |
Cloud & Cognitive Software | | $ | 5,437 | | $ | 5,238 | | |
Global Business Services | |
| 4,234 | |
| 4,136 | | |
Global Technology Services | |
| 6,370 | |
| 6,467 | | |
Systems | |
| 1,427 | |
| 1,368 | | |
Global Financing | |
| 240 | |
| 299 | | |
Other | |
| 23 | |
| 62 | | |
TOTAL REVENUE | |
| 17,730 | |
| 17,571 | | |
| | | | | | | | |
GROSS PROFIT | |
| 8,204 | |
| 7,922 | | |
| | | | | | | | |
GROSS PROFIT MARGIN | |
| | |
| | | |
Cloud & Cognitive Software | |
| 76.0 | % |
| 75.4 | % | |
Global Business Services | |
| 28.2 | % |
| 27.2 | % | |
Global Technology Services | |
| 34.5 | % |
| 34.0 | % | |
Systems | |
| 54.5 | % |
| 50.2 | % | |
Global Financing | |
| 31.9 | % |
| 40.7 | % | |
| | | | | | | | |
TOTAL GROSS PROFIT MARGIN | |
| 46.3 | % |
| 45.1 | % | |
| | | | | | | | |
EXPENSE AND OTHER INCOME | |
| | |
|
| | |
S,G&A | |
| 5,174 | |
| 5,955 | | |
R,D&E | |
| 1,630 | |
| 1,625 | | |
Intellectual property and custom development income | |
| (147) | |
| (116) | | |
Other (income) and expense | |
| 362 | |
| 182 | | |
Interest expense | |
| 280 | |
| 326 | | |
TOTAL EXPENSE AND OTHER INCOME | |
| 7,299 | |
| 7,972 | | |
| | | | | | | | |
INCOME/(LOSS) FROM CONTINUING OPERATIONS | |
| | |
| | | |
BEFORE INCOME TAXES | |
| 905 | |
| (49) | | |
Pre-tax margin | |
| 5.1 | % |
| (0.3) | % | |
Provision for/(Benefit from) income taxes | |
| (51) | |
| (1,226) | | |
Effective tax rate | |
| (5.6) | % |
| NM | % | |
| | | | | | | | |
INCOME FROM CONTINUING OPERATIONS | | $ | 956 | | $ | 1,176 | | |
DISCONTINUED OPERATIONS | |
| | |
| | | |
Income/(Loss) from discontinued operations, net of taxes | |
| (1) | |
| (1) | | |
| | | | | | | | |
NET INCOME | | $ | 955 | | $ | 1,175 | | |
| | | | | | | | |
EARNINGS/(LOSS) PER SHARE OF COMMON STOCK | |
| | |
|
| | |
Assuming Dilution | |
| | |
|
| | |
Continuing Operations | | $ | 1.06 | | $ | 1.31 | | |
Discontinued Operations | | $ | 0.00 | | $ | 0.00 | | |
TOTAL | | $ | 1.06 | | $ | 1.31 | | |
| | | | | | | | |
Basic | |
| | |
| | | |
Continuing Operations | | $ | 1.07 | | $ | 1.32 | | |
Discontinued Operations | | $ | 0.00 | | $ | 0.00 | | |
TOTAL | | $ | 1.07 | | $ | 1.32 | | |
| | | | | | | | |
WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (M’s) | |
| | |
| | | |
Assuming Dilution | |
| 901.7 | |
| 895.0 | | |
Basic | |
| 893.6 | |
| 888.0 | | |
NM-Not meaningful
INTERNATIONAL BUSINESS MACHINES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
|
| At |
| At | ||
| | March 31, | | December 31, | ||
(Dollars in Millions) | | 2021 | | 2020 | ||
ASSETS: |
| |
|
| |
|
| | | | | | |
Current Assets: |
| |
|
| |
|
Cash and cash equivalents | | $ | 10,531 | | $ | 13,212 |
Restricted cash | |
| 142 | |
| 463 |
Marketable securities | |
| 600 | |
| 600 |
Notes and accounts receivable - trade, net | |
| 6,458 | |
| 7,132 |
Short-term financing receivables, net | |
| 8,822 | |
| 10,892 |
Other accounts receivable, net | |
| 787 | |
| 714 |
Inventories | |
| 1,828 | |
| 1,839 |
Deferred costs | |
| 2,223 | |
| 2,107 |
Prepaid expenses and other current assets | |
| 2,647 | |
| 2,206 |
Total Current Assets | |
| 34,038 | |
| 39,165 |
| | | | | | |
Property, plant and equipment, net | |
| 9,452 | |
| 10,040 |
Operating right-of-use assets, net | |
| 4,483 | |
| 4,686 |
Long-term financing receivables, net | |
| 5,922 | |
| 7,086 |
Prepaid pension assets | |
| 7,800 | |
| 7,610 |
Deferred costs | |
| 2,336 | |
| 2,449 |
Deferred taxes | |
| 8,953 | |
| 9,241 |
Goodwill | |
| 59,984 | |
| 59,617 |
Intangibles, net | | | 13,535 | | | 13,796 |
Investments and sundry assets | |
| 2,125 | |
| 2,282 |
Total Assets | | $ | 148,629 | | $ | 155,971 |
| | | | | | |
LIABILITIES: | |
|
| |
|
|
| | | | | | |
Current Liabilities: | |
|
| |
|
|
Taxes | | $ | 2,640 | | $ | 3,301 |
Short-term debt | |
| 5,198 | |
| 7,183 |
Accounts payable | |
| 4,140 | |
| 4,908 |
Deferred income | |
| 14,197 | |
| 12,833 |
Operating lease liabilities | |
| 1,337 | |
| 1,357 |
Other liabilities | |
| 9,031 | |
| 10,287 |
Total Current Liabilities | |
| 36,542 | |
| 39,869 |
| | | | | | |
Long-term debt | |
| 51,206 | |
| 54,355 |
Retirement related obligations | |
| 17,346 | |
| 18,248 |
Deferred income | |
| 4,153 | |
| 4,301 |
Operating lease liabilities | |
| 3,379 | |
| 3,574 |
Other liabilities | |
| 14,489 | |
| 14,897 |
Total Liabilities | |
| 127,116 | |
| 135,244 |
| | | | | | |
EQUITY: | |
| | |
|
|
| | | | | | |
IBM Stockholders’ Equity: | |
| | |
|
|
Common stock | |
| 56,788 | |
| 56,556 |
Retained earnings | |
| 162,218 | |
| 162,717 |
Treasury stock — at cost | |
| (169,360) | |
| (169,339) |
Accumulated other comprehensive income/(loss) | |
| (28,257) | |
| (29,337) |
Total IBM Stockholders’ Equity | |
| 21,389 | |
| 20,597 |
| | | | | | |
Noncontrolling interests | |
| 124 | |
| 129 |
Total Equity | |
| 21,513 | |
| 20,727 |
| | | | | | |
Total Liabilities and Equity | | $ | 148,629 | | $ | 155,971 |
INTERNATIONAL BUSINESS MACHINES CORPORATION
CASH FLOW ANALYSIS
(Unaudited)
| | | | | | | | Trailing Twelve | |
| | Three Months Ended | | Months Ended | |||||
| | March 31, | | March 31, | |||||
(Dollars in Millions) | | 2021 |
| 2020 |
| 2021 | |||
Net Cash Provided by Operating Activities per GAAP: | | $ | 4,914 | | $ | 4,476 | | $ | 18,635 |
| | | | | | | | | |
Less: change in Global Financing (GF) Receivables | |
| 2,863 | | | 2,381 | | | 4,831 |
Capital Expenditures, Net | |
| (529) | | | (737) | | | (2,835) |
| | | | | | | | | |
Free Cash Flow | |
| 1,522 | | | 1,358 | | | 10,969 |
| | | | | | | | | |
Structural actions initiated in 4Q20 & Spin-off charges (1) | |
| 631 | | | — | | | 680 |
| | | | | | | | | |
Adjusted Free Cash Flow | |
| 2,153 | | | 1,358 | | | 11,649 |
| | | | | | | | | |
Free Cash Flow | |
| 1,522 | | | 1,358 | | | 10,969 |
| | | | | | | | | |
Acquisitions | |
| (1,120) | | | (13) | | | (1,442) |
Divestitures | |
| (15) | | | 26 | | | 461 |
Dividends | |
| (1,457) | | | (1,440) | | | (5,815) |
Non-GF Debt | |
| (1,725) | | | 3,503 | | | (5,007) |
Other (includes GF Net Receivables and GF Debt) | |
| (207) | | | (426) | | | 88 |
| | | | | | | | | |
Change in Cash, Cash Equivalents, Restricted Cash and Short-term Marketable Securities | | $ | (3,002) | | $ | 3,008 | | $ | (744) |
(1) Includes cash impacts incurred in the period related to structural actions initiated in 4Q20 and spin-off related costs.
INTERNATIONAL BUSINESS MACHINES CORPORATION
CASH FLOW
(Unaudited)
| | Three Months Ended | | ||||
| | March 31, | | ||||
(Dollars in Millions) | | 2021 |
| 2020 |
| ||
Net Income from Operations | | $ | 955 | | $ | 1,175 | |
Depreciation/Amortization of Intangibles | |
| 1,672 | |
| 1,635 | |
Stock-based Compensation | |
| 213 | |
| 189 | |
Working Capital / Other | |
| (789) | |
| (905) | |
Global Financing A/R | |
| 2,863 | |
| 2,381 | |
Net Cash Provided by Operating Activities | | $ | 4,914 | | $ | 4,476 | |
Capital Expenditures, net of payments & proceeds | |
| (529) | |
| (737) | |
Divestitures, net of cash transferred | |
| (15) | |
| 26 | |
Acquisitions, net of cash acquired | |
| (1,120) | |
| (13) | |
Marketable Securities / Other Investments, net | |
| (335) | |
| (178) | |
Net Cash Provided by/(Used in) Investing Activities | | $ | (2,000) | | $ | (902) | |
Debt, net of payments & proceeds | |
| (4,299) | |
| 1,356 | |
Dividends | |
| (1,457) | |
| (1,440) | |
Common Stock Transactions - Other | |
| (26) | |
| (31) | |
Net Cash Provided by/(Used in) Financing Activities | | $ | (5,783) | | $ | (115) | |
Effect of Exchange Rate changes on Cash | |
| (134) | |
| (403) | |
Net Change in Cash, Cash Equivalents and Restricted Cash | | $ | (3,002) | | $ | 3,057 | |
INTERNATIONAL BUSINESS MACHINES CORPORATION
SEGMENT DATA
(Unaudited)
| | Three Months Ended March 31, 2021 |
| |||||||||||||
|
| Cloud & |
| Global |
| Global |
| | |
| | |
| |||
| | Cognitive | | Business | | Technology | | | | | Global |
| ||||
(Dollars in Millions) | | Software | | Services | | Services | | Systems | | Financing |
| |||||
Revenue |
| |
|
| |
|
| |
|
| |
|
| |
| |
External | | $ | 5,437 | | $ | 4,234 | | $ | 6,370 | | $ | 1,427 | | $ | 240 | |
Internal | |
| 832 | |
| 55 | |
| 313 | |
| 189 | |
| 168 | |
Total Segment Revenue | | $ | 6,269 | | $ | 4,289 | | $ | 6,683 | | $ | 1,616 | | $ | 408 | |
| | | | | | | | | | | | | | | | |
Pre-tax Income/(Loss) from Continuing Operations | |
| 1,428 | |
| 390 | |
| 140 | |
| (2) | |
| 166 | |
| | | | | | | | | | | | | | | | |
Pre-tax Margin | |
| 22.8 | % |
| 9.1 | % |
| 2.1 | % |
| (0.1) | % |
| 40.8 | % |
| | | | | | | | | | | | | | | | |
Change YTY Revenue - External | |
| 3.8 | % |
| 2.4 | % |
| (1.5) | % |
| 4.3 | % |
| (20.0) | % |
Change YTY Revenue - External @constant currency | |
| 0.8 | % |
| (1.4) | % |
| (5.3) | % |
| 2.2 | % |
| (21.9) | % |
| | Three Months Ended March 31, 2020 |
| |||||||||||||
|
| Cloud & |
| Global |
| Global |
| | |
| | |
| |||
| | Cognitive | | Business | | Technology | | | | | Global |
| ||||
(Dollars in Millions) | | Software | | Services | | Services | | Systems | | Financing |
| |||||
Revenue |
| |
|
| |
|
| |
|
| |
|
| |
| |
External | | $ | 5,238 | | $ | 4,136 | | $ | 6,467 | | $ | 1,368 | | $ | 299 | |
Internal | |
| 813 | |
| 46 | |
| 294 | |
| 148 | |
| 212 | |
Total Segment Revenue | | $ | 6,052 | | $ | 4,183 | | $ | 6,761 | | $ | 1,516 | | $ | 511 | |
| | | | | | | | | | | | | | | | |
Pre-tax Income/(Loss) from Continuing Operations | |
| 933 | |
| 271 | |
| (178) | |
| (217) | |
| 194 | |
| | | | | | | | | | | | | | | | |
Pre-tax Margin | |
| 15.4 | % |
| 6.5 | % |
| (2.6) | % |
| (14.3) | % |
| 37.9 | % |
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, 2021 |
| ||||||||||||||||
| | Continuing Operations |
| ||||||||||||||||
|
| | |
| Acquisition- |
| Retirement- |
| Tax |
| Spin-off- |
| | |
| ||||
| | | | | Related | | Related | | Reform | | Related | | Operating |
| |||||
| | GAAP | | Adjustments (1) | | Adjustments (2) | | Impacts | | Charges (4) | | (Non-GAAP) |
| ||||||
Gross Profit | | $ | 8,204 | | $ | 175 | | $ | — | | $ | — | | $ | 3 | | $ | 8,382 | |
Gross Profit Margin | |
| 46.3 | % |
| 1.0 | Pts | | — | Pts | | — | Pts | | 0.0 | Pts |
| 47.3 | % |
S,G&A | |
| 5,174 | |
| (293) | | | — | | | — | | | (58) | |
| 4,823 | |
R,D&E | |
| 1,630 | |
| — | | | — | | | — | | | — | |
| 1,630 | |
Other (Income) & Expense | |
| 362 | |
| (1) | | | (343) | | | — | | | — | |
| 18 | |
Interest Expense | |
| 280 | |
| — | | | — | | | — | | | — | |
| 280 | |
Total Expense & Other (Income) | |
| 7,299 | |
| (294) | | | (343) | | | — | | | (58) | |
| 6,604 | |
Pre-tax Income from Continuing Operations | |
| 905 | |
| 469 | | | 343 | | | — | | | 61 | |
| 1,777 | |
Pre-tax Income Margin from Continuing Operations | |
| 5.1 | % |
| 2.6 | Pts | | 1.9 | Pts | | — | Pts | | 0.3 | Pts |
| 10.0 | % |
Provision for/(Benefit from) Income Taxes (3) | |
| (51) | |
| 104 | | | 61 | | | 49 | | | 15 | |
| 179 | |
Effective Tax Rate | |
| (5.6) | % |
| 7.3 | Pts | | 4.5 | Pts | | 2.7 | Pts | | 1.0 | Pts |
| 10.1 | % |
Income from Continuing Operations | |
| 956 | |
| 365 | | | 282 | | | (49) | | | 46 | |
| 1,599 | |
Income Margin from Continuing Operations | |
| 5.4 | % |
| 2.1 | Pts | | 1.6 | Pts | | (0.3) | Pts | | 0.3 | Pts |
| 9.0 | % |
Diluted Earnings/(Loss) Per Share: Continuing Operations | | $ | 1.06 | | $ | 0.40 | | $ | 0.31 | | $ | (0.05) | | $ | 0.05 | | $ | 1.77 | |
| | Three Months Ended March 31, 2020 | | ||||||||||||||||
| | Continuing Operations | | ||||||||||||||||
|
| | |
| Acquisition- |
| Retirement- |
| Tax | | Spin-off- | | |
| | ||||
| | | | | Related | | Related | | Reform | | Related | | Operating | | |||||
| | GAAP | | Adjustments (1) | | Adjustments (2) | | Impacts |
| Charges (4) |
| (Non-GAAP) | | ||||||
Gross Profit | | $ | 7,922 | | $ | 188 | | $ | — | | $ | — | | $ | — | | $ | 8,110 | |
Gross Profit Margin | |
| 45.1 | % |
| 1.1 | Pts | | — | Pts | | — | Pts | | — | Pts |
| 46.2 | % |
S,G&A | |
| 5,955 | |
| (285) | | | — | | | — | | | — | |
| 5,670 | |
R,D&E | |
| 1,625 | |
| — | | | — | | | — | | | — | |
| 1,625 | |
Other (Income) & Expense | |
| 182 | |
| (1) | | | (264) | | | — | | | — | |
| (83) | |
Interest Expense | |
| 326 | |
| — | | | — | | | — | | | — | |
| 326 | |
Total Expense & Other (Income) | |
| 7,972 | |
| (285) | | | (264) | | | — | | | — | |
| 7,422 | |
Pre-tax Income/(Loss) from Continuing Operations | |
| (49) | |
| 473 | | | 264 | | | — | | | — | |
| 688 | |
Pre-tax Income Margin from Continuing Operations | |
| (0.3) | % |
| 2.7 | Pts | | 1.5 | Pts | | — | Pts | | — | Pts |
| 3.9 | % |
Provision for/(Benefit from) Income Taxes (3) | |
| (1,226) | |
| 102 | | | 14 | | | 149 | | | — | |
| (961) | |
Income from Continuing Operations | |
| 1,176 | |
| 371 | | | 250 | | | (149) | | | — | |
| 1,649 | |
Income Margin from Continuing Operations | |
| 6.7 | % |
| 2.1 | Pts | | 1.4 | Pts | | (0.8) | Pts | | — | Pts |
| 9.4 | % |
Diluted Earnings/(Loss) Per Share: Continuing Operations | | $ | 1.31 | | $ | 0.42 | | $ | 0.28 | | $ | (0.17) | | $ | — | | $ | 1.84 | |
(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) 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. The effective tax rate is not displayed as the calculated rate for the three months ended March 31, 2020 is not meaningful.
(4) Managed infrastructure services spin-off charges primarily relate to transaction and third-party support costs, business separation and applicable employee retention fees, pension settlements and related tax charges.
INTERNATIONAL BUSINESS MACHINES CORPORATION
U.S. GAAP TO OPERATING (Non-GAAP) RESULTS RECONCILIATION
(Unaudited; Dollars in millions except per share amounts)
| | Three Months Ended | | | Trailing Twelve Months | | ||
| | March 31, 2021 | | | March 31, 2021 | | ||
Cloud Revenue Adjusting for Divested Businesses and Currency | | Change YTY |
| | Change YTY |
| ||
| | | | | | | | |
Cloud revenue as reported | | | 21.3 | % | | | 19.2 | % |
Impact from divested businesses | |
| 0.3 | Pts | |
| 1.0 | Pts |
Currency impact | | | (4.0) | Pts | | | (1.7) | Pts |
Cloud revenue adjusting for divested businesses and currency (non-GAAP) | | | 17.7 | % | | | 18.4 | % |
| | Three Months Ended | | | | | ||
| | March 31, 2021 | | | | | ||
Red Hat Revenue, Normalized for Historical Comparability | | Change YTY | | | | | ||
| | | | | | | | |
Red Hat Revenue GAAP growth rate (1) | | | 53 | % | | | | |
Impact from purchase accounting deferred revenue and intercompany adjustments (2) | | | (35) | Pts | | | | |
Red Hat revenue growth rate, normalized for historical comparability (non-GAAP) | | | 17 | % | | | | |
Impact from currency | | | (3) | Pts | | | | |
Red Hat revenue growth rate, normalized for historical comparability and adjusting for currency (non-GAAP) | | | 15 | % | | | | |
(1) Represents change in GAAP revenue as reported by IBM, which is included in the Cloud & Cognitive Software segment.
(2) Represents change in the first-quarter 2021 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.
Exhibit 99.2
Non-GAAP Financial Information
Operating (non-GAAP) Earnings Per Share and Related Income Statement Items
In an effort to provide better transparency into the operational results of the business, supplementally, the company separates business results into operating and non-operating categories. Operating earnings from continuing operations is a non-GAAP measure that excludes the effects of certain acquisition-related charges, intangible asset amortization, expense resulting from basis differences on equity method investments, retirement-related costs, discontinued operations and certain managed infrastructure services spin-off charges and their related tax impacts. Due to the unique, non-recurring nature of the enactment of the U.S. Tax Cuts and Jobs Act (U.S. tax reform), the company characterizes the one-time provisional charge recorded in the fourth quarter of 2017 and adjustments to that charge as non-operating. Adjustments include true-ups, accounting elections and any changes to regulations, laws, audit adjustments, etc. that affect the recorded one-time charge. Management also characterizes direct and incremental charges incurred to accomplish the managed infrastructure services spin-off as non-operating given their unique and non-recurring nature. These charges primarily relate to transaction and third party support costs, business separation and applicable employee retention fees, pension settlement charges and related tax charges. All other spending for continued managed infrastructure services business operations is included in both earnings from continuing operations and in operating (non-GAAP) earnings. For acquisitions, operating (non-GAAP) earnings exclude the amortization of purchased intangible assets and acquisition-related charges such as in-process research and development, transaction costs, applicable retention, restructuring and related expenses, tax charges related to acquisition integration and pre-closing charges, such as financing costs. These charges are excluded as they may be inconsistent in amount and timing from period to period and are significantly impacted by the size, type and frequency of the company’s acquisitions. All other spending for acquired companies is included in both earnings from continuing operations and in operating (non-GAAP) earnings. For retirement-related costs, the company characterizes certain items as operating and others as non-operating, consistent with GAAP. The company includes defined benefit plan and nonpension postretirement benefit plan service costs, multi-employer plan costs and the cost of defined contribution plans in operating earnings. Non-operating retirement-related costs include defined benefit plan and nonpension postretirement benefit plan 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. Non-operating retirement-related costs are primarily related to changes in pension plan assets and liabilities which are tied to financial market performance, and the company considers these costs to be outside of the operational performance of the business.
Overall, the company believes that supplementally providing investors with a view of operating earnings as described above provides increased transparency and clarity into both the operational results of the business and the performance of the company’s pension plans; improves visibility to management decisions and their impacts on operational performance; enables better comparison to peer companies; and allows the company to provide a long-term strategic view of the business going forward. The company’s reportable segment financial results reflect pre-tax operating earnings from continuing operations, consistent with the company’s management and measurement system. In addition, these non-GAAP measures provide a perspective consistent with areas of interest the company routinely receives from investors and analysts.
Free Cash Flow / Adjusted Free Cash Flow
The company uses free cash flow as a measure to evaluate its operating results, plan share repurchase levels, strategic investments and assess its ability and need to incur and service debt. The entire free cash flow amount is not necessarily available for discretionary expenditures. The company defines free cash flow as net cash from operating activities less the change in Global Financing receivables and net capital expenditures, including the investment in software. A key objective of the Global Financing business is to generate strong returns on equity, and increasing receivables is the basis for growth. Accordingly, management considers Global Financing receivables as a profit-generating investment, not as working capital that should be minimized for efficiency. Therefore, management includes presentations of both free cash flow and net cash from operating activities that exclude the effect of Global Financing receivables. Adjusted free cash flow refers to the company’s free cash flow adjusted for the cash impacts of the structural actions (primarily workforce reduction) initiated in the fourth quarter of 2020 and the direct and incremental cash impacts of the spin-off of the managed infrastructure services business. Adjusted free cash flow guidance is derived using an estimate of profit, working capital and operational cash flows. Since the company views Global Financing receivables as a profit-generating investment which it seeks to maximize, it is not considered when formulating guidance for adjusted free cash flow. As a result, the company does not estimate a GAAP Net Cash from Operations expectation metric.
Constant Currency
When the company refers to growth rates at constant currency or adjusts such growth rates for currency, it is done so that certain financial results can be viewed without the impact of fluctuations in foreign currency exchange rates, thereby facilitating period-to-period comparisons of its business performance. Financial results adjusted for currency are calculated by translating current period activity in local currency using the comparable prior year period’s currency conversion rate. This approach is used for countries where the functional currency is the local currency. Generally, when the dollar either strengthens or weakens against other currencies, the growth at constant currency rates or adjusting for currency will be higher or lower than growth reported at actual exchange rates.
Revenue adjusted for divested businesses and constant currency
To provide better transparency on the recurring performance of the ongoing business, the company provides total revenue, cloud and geographic revenue growth rates excluding divested businesses and at constant currency. These divested businesses are included in the company’s Other segment.
Revenue for Red Hat and Cloud & Data Platforms, normalized for historical comparability
On July 9, 2019, the company completed the acquisition of Red Hat, Inc. (Red Hat) and began including Red Hat’s financial results in the company’s consolidated results. Red Hat is part of the company’s Cloud & Cognitive Software segment and the Cloud & Data Platforms business area. As part of the accounting for this acquisition, the company recorded certain adjustments, including a purchase accounting deferred revenue fair value adjustment and intercompany eliminations, each of which impact IBM’s post-acquisition revenue. To help investors better understand the underlying revenue performance of Red Hat and Cloud & Data Platforms, management presents a non-GAAP growth rate for both Red Hat and Cloud & Data Platform’s revenue performance year to year, normalized for historical comparability. The normalized (non-GAAP) growth rate of revenue for the three months ended March 31, 2021 includes adjustments to reverse the purchase accounting deferred revenue fair value adjustment and adjustments to add back revenue which was eliminated for post-acquisition sales between Red Hat and IBM. The deferred revenue adjustment 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. The sales between Red Hat and IBM, which were eliminated post-acquisition, are added back in this presentation to provide a comparative view of Red Hat on a pre-acquisition basis. This information is included to provide additional transparency and for comparative purposes only.
Exhibit 99.3
| IBM 1Q 2021 Earnings April 19, 2021 ibm.com/investor |
| Forward Looking Statements and Non-GAAP Information Certain comments made in this presentation may be In an effort to provide additional and useful information regarding characterized as forward looking under the Private Securities the company’s financial results and other financial information as Litigation Reform Act of 1995. Forward-looking statements aredetermined by generally accepted accounting principles (GAAP), the based on the company’s current assumptions regarding future company also discusses, in its earnings press release and earnings business and financial performance. Those statements by their presentation materials, certain non-GAAP information including year nature address matters that are uncertain to different degrees.to year change in revenue for Red Hat and Cloud & Data Platforms Those statements involve a number of factors that could causenormalized for historical comparability, revenue adjusting for actual results to differ materially. Additional information divested businesses and currency, operating earnings, other concerning these factors is contained in the Company’s filings “operating” financial measures, including free cash flow, adjusted with the SEC. Copies are available from the SEC, from the IBMfree cash flow, net cash from operating activities excluding Global website, or from IBM Investor Relations. Any forward-looking Financing receivables, and adjustments for currency. The rationale statement made during this presentation speaks only as of the for management’s use of this non-GAAP information is included as date on which it is made. The company assumes no obligation to Exhibit 99.2 to the company’s Form 8-K submitted to the SEC on update or revise any forward-looking statements except asApril 19, 2021. The reconciliation of non-GAAP information to GAAP required by law; these charts and the associated remarks andis included on the slides entitled “Non-GAAP Supplemental comments are integrally related, and are intended to be Materials” in this presentation, as well as in Exhibit 99.1 to the presented and understood together. company’s Form 8-K submitted to the SEC on April 19, 2021. For other related information please visit the Company’s investor relations website at: https://www.ibm.com/investor/events/earnings-1q21 2 |
| Arvind Krishna Chairman and Chief Executive Officer James Kavanaugh Senior Vice President and Chief Financial Officer 3 |
| hybrid cloud platform and growth in software Clients, Ecosystems and Innovation cash flow target in 2021.” CEO Perspective “Strong performance this quarter in cloud, driven by increasing client adoption of our 1Q21 Progress and consulting enabled us to get off to a solid start for the year.Hybrid Cloud and AI Strategy We are confident we can achieve full-year revenue growth and meet our adjusted free - Arvind Krishna, IBM Chairman and CEO 4 |
| Cloud Paks Systems Public Cloud Infrastructure AWS | Azure | Others IBM’s Hybrid Cloud & AI Strategy Our Platform Approach SERVICES Accelerating client adoption of hybrid cloud & AI Partners SOFTWARE IBM Software Expanding partner ecosystem HYBRID CLOUD PLATFORM Delivering innovation INFRASTRUCTURE IBM IBM Public CloudsEnterprise Executing actions to drive change 5 Hybrid Cloud Platform Dev Sec Ops Software and SaaS Partners System Integrator IBM Global Business Services |
| Cloud revenue growth returned to growth Fundamentals Financial Highlights 1Q21 $17.7B $11.6B RevenueFree Cash Flow, Adjusted (LTM) “In the first quarter we continued to improve the fundamentals of our business model. With strong cash generation and disciplined financial management, we increased investments in our hybrid cloud and AI capabilities, while significantly deleveraging in the quarter and supporting our commitment to a secure and growing dividend.” – James Kavanaugh, IBM SVP and CFO Cloud growth @CC excludes impact of divested businesses; Cash includes marketable securities; Adjusted FCF excludes cash impacts related to structural actions initiated in 4Q20 and spin-off related costs 6 Progress in Revenue Growth 18% Software & Consulting Improving Business Model >110 bps+$0.8B Gross margin expansionAdjusted FCF growth Strong Balance Sheet & Liquidity $11B $5B Cash balance Debt reduction |
| Cloud & Data Platforms grew yr/yr 1% yr/yr Segment Elements +2% yr/yr Transaction Processing Platforms +10% yr/yr Transaction Cloud & Cognitive Software RevenueC&CS Cloud Revenue Growth $5.4B +34% double-digit rate on strength in Red Hat and Cloud Paks ~3000 hybrid cloud platform clients Growth in Cognitive Applications Cognitive led by Security software and servicesApplications Cloud & Data Platforms impacted by client buying behaviors Processing Platforms (15%) yr/yr 1Q21 Results; Revenue growth rates @CC7 |
| Cloud revenue growth up 28% yr/yr yr/yr (1%) yr/yr Expanding gross margin, while Management Global Business ServicesRevenueGross Margin Expansion $4.2B +100 bps Consulting returns to growth driven by ecosystem and cloud offerings Segment Elements Accelerating Red Hat engagements Consulting +2% yr/yr continuing to invest Application (8%) yr/yr Global Process Services +19% yr/yr 1Q21 Results; Revenue growth rates @CC8 |
| IBM Z reflects demand for secure, Segment Elements Systems RevenueIBM Z Revenue Growth $1.4B +49% scalable and reliable platform +2% yr/yr yr/yr Storage and Power performance reflects product cycle dynamics Strong gross margin performance, +430 basis points yr/yr Systems Hardware +10% yr/yr Operating Systems Software (18%) yr/yr 1Q21 Results; Revenue growth rates @CC9 |
| Continued renewals and new client (5%) yr/yr yr/yr Segment Elements and projects Managed infrastructure services Support (5%) yr/yr end of 2021 Global Technology ServicesRevenueGross Margin Expansion $6.4B +60 bps additions Improving revenue trajectory driven by increased client volumes Gross margin expansion reflects recent actions Infrastructure & Cloud Services (5%) yr/yr Technology separation remains on track for Services 1Q21 Results; Revenue growth rates @CC10 |
| Summary Focus on hybrid cloud and AI strategy Progress in revenue trajectory and business model fundamentals Executing actions to accelerate change Maintaining expectations for full-year 2021 –Revenue growth based on mid-April spot rates –Adjusted free cash flow* of $11-12 billion *Adjusted FCF excludes cash impacts of ~$3B in 2021 from structural actions initiated in 4Q20 and transaction costs associated with the separation of managed infrastructure services business 11 Accelerating IBM’s Performance |
| ibm.com/investor |
| Supplemental Materials ● Revenue and P&L Highlights ● Cash Flow and Balance Sheet Highlights ● Currency – Impact on Revenue Growth ● Services Segments Details ● Software and Systems Segment Details ● Expense Summary ● Balance Sheet Summary ● Cash Flow Summary ● Cash Flow (ASC 230) ● Non-GAAP Supplemental Materials Some columns and rows in these materials, including the supplemental exhibits, may not add due to rounding Supplemental Materials 13 |
| Revenue and P&L Highlights B/(W) B/(W) Revenue Highlights1Q21 Yr/Yr*Operating P&L Highlights $ 1Q21 Yr/Yr Revenue$17.7 (2%) Gross Profit $8.4 3% Cloud $6.5 18% Expense$6.6 11%** Pre-Tax Income$1.8 158%** B/(W)Net Income$1.6 (3%) Geography Revenue1Q21 Yr/Yr* Earnings Per Share$1.77 (4%) Americas $8.2 FlatB/(W) Europe/ME/Africa$5.6 (5%) Operating P&L Highlights % 1Q21 Yr/Yr Asia Pacific $3.9 (4%) Gross Profit Margin47.3% 1.1 pts Expense E/R37.3% 5.0 pts** Pre-Tax Income Margin10.0% 6.1 pts** Net Income Margin9.0% (0.4 pts) Revenue growth rates @CC, $ in billions Tax Rate10.1% (150 pts) *Yr/Yr excludes impact of divested businesses **Yr/Yr reflects impact of ($0.15B) workforce rebalancing charges in 1Q21 and ($0.9B) workforce rebalancing and one-time charges in 1Q20 Supplemental Materials 14 |
| Cash Flow and Balance Sheet Highlights $ in billions *Non-GAAP metrics; excludes financing receivables **Non-GAAP metrics; excludes cash impacts incurred in the period related to structural actions initiated in 4Q20 and spin-off related costs Supplemental Materials 15 Cash Flow 1Q21 Yr/Yr LTM Balance SheetMar 21 Dec 20 Mar 20 Net Cash from Operations* $2.1 ($0.0) Adjusted Free Cash Flow** $2.2 $0.8 Selected Uses of Cash Net Capital Expenditures $0.5 Acquisitions $1.1 Dividends/Share Repurchase$1.5 $13.8 $11.6 $2.8 $1.4 $5.8 Cash & Marketable Securities $11.3 $14.3 $12.0 Total Debt $56.4 $61.5 $64.3 Selected Debt Measures Global Financing Debt $18.3 $21.2 $22.3 Core (non-GF) Debt $38.1 $40.4 $42.1 |
| Currency – Impact on Revenue Growth Revenue Impact, Future @ 4/16/21 Spot3 pts ~3 pts ~1 pts (1)-0 pts 1-2 pts Prior View @ 1/20/21 Spot3-4 pts ~4 pts 1-2 pts 0-1 pts ~2 pts US$B Yr/Yr Revenue As Reported $17.7 1% Currency Impact $0.6 3 pts Revenue @CC(2%) Supplemental Materials 16 Quarterly Averages per US $ 1Q21 Yr/Yr 4/16/2021 Spot 2Q21 3Q21 4Q21 FY21 Euro 0.83 9% Pound 0.73 7% Yen 106 3% 0.83 0.72 109 8% 2% 0% 5% 10% 6% 4% 7% (1%) (3%) (4%) (1%) |
| B/(W) Services Segments Details B/(W) B/(W) GBS Segment 1Q21 Yr/YrGTS Segment 1Q21 Yr/Yr Revenue (External) $4.2 (1%) Revenue (External) $6.4 (5%) Consulting $2.2 2% Infrastructure & Cloud Services$4.9 (5%) Application Management$1.8 (8%) Technology Support Services$1.5 (5%) Global Process Services$0.3 19% Gross Profit Margin (External) 34.5% 0.6 pts Gross Profit Margin (External) 28.2% 1.0 pts Pre-Tax Income$0.1 179% Pre-Tax Income$0.4 44% impact of structural actions/charges($0.1) 190 pts impact of structural actions/charges($0.0) 37 pts Pre-Tax Income Margin2.1% 4.7 pts Pre-Tax Income Margin9.1% 2.6 pts impact of structural actions/charges(1 pts) 5 pts impact of structural actions/charges(1 pts) 2 pts Cloud Revenue (External) $2.4 2% Cloud Revenue (External) $1.7 28% Services Signings & Backlog 1Q21 Yr/Yr Signings $6.7 (27%) Backlog $104.8 (7%) Backlog Yr/Yr @Actual(3%) Revenue & Signings growth rates @CC, $ in billions, Services Backlog calculated using March 31 currency spot rates, Signings & Backlog includes Security Services Supplemental Materials 17 |
| Software and Systems Segment Details B/(W) B/(W) Cloud & Cognitive Software Segment1Q21 Yr/Yr Systems Segment1Q21 Yr/Yr Revenue (External) $5.4 1% Revenue (External) $1.4 2% Cloud & Data Platforms $2.9 10% Systems Hardware $1.1 10% Cognitive Applications $1.2 2% IBM Z49% Transaction Processing Platforms $1.3 (15%) Power (13%) Pre-Tax Income$1.4 53% Storage(14%) impact of structural actions/charges ($0.0) 27 pts Operating Systems Software $0.3 (18%) Pre-Tax Income Margin22.8% 7.4 pts Gross Profit Margin (External) 54.5% 4.3 pts impact of structural actions/charges(0 pts) 3 pts Systems Hardware 47.4% 9.3 pts Cloud Revenue (External) $1.8 34% Operating Systems Software 79.8% (3.1 pts) Pre-Tax Income ($0.0) 99% impact of structural actions/charges ($0.0) NM Pre-Tax Income Margin(0.1%) 14.2 pts impact of structural actions/charges(1 pts) 3 pts Cloud Revenue (External)$0.521% Revenue growth rates @CC, $ in billions Supplemental Materials 18 |
| Expense Summary $ in billions *impact includes ($0.15B) workforce rebalancing charges in 1Q21 and ($0.9B) workforce rebalancing and one-time charges in 1Q20 **includes acquisitions in the last twelve months net of non-operating acquisition-related charges and includes impact of divested businesses ***represents the percentage change after excluding the impact of currency, acquisitions and divestitures Supplemental Materials 19 B/(W) Expense1Q21 Yr/Yr Acq/ CurrencyDivest**Base*** SG&A – Operating$4.8 15% impact of structural actions/charges*$0.1 12 pts RD&E$1.6 (0%) IP and Custom Development Income ($0.1) 26% Other (Income)/Expense - Operating $0.0 NM Interest Expense $0.3 14% Operating Expense & Other Income $6.6 11% impact of structural actions/charges * $0.1 10 pts (2 pts)0 pts17 pts 12 pts (2 pts)0 pts 2 pts (2 pts)(1 pts)14 pts 10 pts |
| Balance Sheet Summary Mar 21 Dec 20 Mar 20 Cash & Marketable Securities $11.3 $14.3 $12.0 Core (non-GF) Assets* $117.1 $118.5 $116.4 Global Financing Assets$20.2 $23.2 $24.9 Total Assets$148.6 $156.0 $153.4 Other Liabilities $70.7 $73.7 $68.9 Core (non-GF) Debt* $38.1 $40.4 $42.1 Global Financing Debt $18.3 $21.2 $22.3 Total Debt $56.4 $61.5 $64.3 Total Liabilities $127.1 $135.2 $133.3 Equity $21.5 $20.7 $20.1 $ in billions *includes eliminations of inter-company activity Supplemental Materials 20 |
| Cash Flow Summary B/(W) 1Q21 Yr/Yr Net Cash from Operations$4.9 $0.4 Less: Global Financing Receivables $2.9 $0.5 Net Cash from Operations (excluding GF Receivables)$2.1 ($0.0) Net Capital Expenditures ($0.5) $0.2 Free Cash Flow (excluding GF Receivables)$1.5 $0.2 Structural actions initiated in 4Q20 & spin-off charges* $0.6 $0.6 Adjusted Free Cash Flow $2.2 $0.8 Free Cash Flow (excluding GF Receivables)$1.5 $0.2 Acquisitions ($1.1) ($1.1) Divestitures ($0.0) ($0.0) Dividends ($1.5) ($0.0) Non-GF Debt ($1.7) ($5.2) Other (includes GF Net A/R & GF Debt) ($0.2) $0.2 Change in Cash & Marketable Securities($3.0) ($6.0) $ in billions *includes cash impacts incurred in the period related to structural actions initiated in 4Q20 and spin-off related costs Supplemental Materials 21 |
| Cash Flow (ASC 230) QTDQTD 1Q21 1Q20 Net Income from Operations$1.0 $1.2 Depreciation / Amortization of Intangibles$1.7 $1.6 Stock-based Compensation$0.2 $0.2 Working Capital / Other ($0.8) ($0.9) Global Financing A/R$2.9 $2.4 Net Cash provided by Operating Activities$4.9 $4.5 Capital Expenditures, net of payments & proceeds ($0.5) ($0.7) Divestitures, net of cash transferred ($0.0) $0.0 Acquisitions, net of cash acquired ($1.1) ($0.0) Marketable Securities / Other Investments, net ($0.3) ($0.2) Net Cash provided by/(used in) Investing Activities($2.0) ($0.9) Debt, net of payments & proceeds ($4.3) $1.4 Dividends ($1.5) ($1.4) Common Stock Repurchases-- Common Stock Transactions - Other ($0.0) ($0.0) Net Cash provided by/(used in) Financing Activities($5.8) ($0.1) Effect of Exchange Rate changes on Cash($0.1) ($0.4) Net Change in Cash, Cash Equivalents & Restricted Cash($3.0) $3.1 $ in billions Supplemental Materials 22 |
| Non-GAAP Supplemental Materials Reconciliation of Revenue Performance - 1Q 2021 1Q21 Yr/Yr1Q21 Yr/Yr GAAP @CC GAAP @CC Cloud & Cognitive Software 4% 1% Global Technology Services (1%) (5%) Cloud & Data Platforms 13% 10% Infrastructure & Cloud Services (1%) (5%) Cognitive Applications 4% 2% Technology Support Services (2%) (5%) Transaction Processing Platforms (12%) (15%) Cloud 6% 2% Cloud 38% 34% Systems 4% 2% Global Business Services2% (1%) Systems Hardware 12% 10% Consulting 6% 2% IBM Z 50% 49% Application Management (4%) (8%) Power(10%) (13%) Global Process Services 22% 19% Storage(12%) (14%) Cloud 33% 28% Operating Systems Software (16%) (18%) Cloud23% 21% The above reconciles the Non-GAAP financial information contained in the “Cloud & Cognitive Software”, “Global Business Services”, “Global Technology Services”, “Systems”, “Services Segments Details”, “Software and Systems Segment Details”, and “Prepared Remarks” discussions in the company’s earnings presentation. See Exhibit 99.2 included in the company’s Form 8-K dated April 19, 2021 for additional information on the use of these Non-GAAP financial measures. Supplemental Materials 23 |
| Non-GAAP Supplemental Materials Reconciliation of Revenue Performance - 1Q 2021 1Q21 Yr/Yr GAAPDivest impact Currency impact Adjusted Total Revenue1% 0 pts (3 pts) (2%) Americas 0% 0 pts 0 pts 0% Europe/ME/Africa 2% 0 pts (8 pts) (5%) Asia Pacific 1% 0 pts (4 pts) (4%) Total Cloud21% 0 pts (4 pts) 18% The above reconciles the Non-GAAP financial information contained in the “Financial Highlights”, “Revenue and P&L Highlights”, and “Prepared Remarks” discussions in the company’s earnings presentation. See Exhibit 99.2 included in the company’s Form 8-K dated April 19, 2021 for additional information on the use of these Non-GAAP financial measures. Supplemental Materials 24 |
| Non-GAAP Supplemental Materials Reconciliation of Revenue for Red Hat and Cloud & Data Platforms - 1Q 2021 1Q21 Yr/Yr Cloud & Data Revenue, Normalized for Historical ComparabilityRed Hat Platforms Revenue GAAP growth rate*53% 13% Impact from purchase accounting deferred revenue and intercompany adjustments ** (35 pts) (8 pts) Revenue growth rate, normalized for historical comparability (non-GAAP)17% 5% Impact from currency (3 pts) (3 pts) Revenue growth rate, normalized for historical comparability and adjusting for currency (non-GAAP)15% 2% *Represents change in GAAP revenue as reported by IBM. Red Hat is included in Cloud & Data Platforms, both are included the Cloud & Cognitive Software segment **Represents change in the first-quarter 2021 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. The above reconciles the Non-GAAP financial information contained in the “Prepared Remarks” discussion in the company’s earnings presentation. See Exhibit 99.2 included in the company’s Form 8-K dated April 19, 2021 for additional information on the use of these Non-GAAP financial measures. Supplemental Materials 25 |
| Non-GAAP Supplemental Materials Reconciliation of Expense Summary - 1Q 2021 1Q21 Non-GAAPOperating GAAPAdjustments(Non-GAAP) SG&A Currency (2 pts) 0 pts (2 pts) Acquisitions/Divestitures0 pts 0 pts 0 pts Base*15 pts 2 pts 17 pts RD&E Currency(2 pts) 0 pts (2 pts) Acquisitions/Divestitures0 pts 0 pts 0 pts Base*2 pts 0 pts 2 pts Operating Expense & Other Income Currency (3 pts) 0 pts (2 pts) Acquisitions/Divestitures (1 pts) 0 pts (1 pts) Base* 12 pts 3 pts 14 pts The above reconciles the Non-GAAP financial information contained in the “Expense Summary” discussion in the company’s earnings presentation. See Exhibit 99.2 included in the company’s Form 8-K dated April 19, 2021 for additional information on the use of these Non-GAAP financial measures. *Represents the percentage change after excluding the impact of currency, acquisitions and divestitures. Supplemental Materials 26 |
| Non-GAAP Supplemental Materials Reconciliation of Continuing Operations - 1Q 2021 1Q21 Acquisition-Retirement-Spin-off-Related Related Tax Reform Related GAAPAdjustmentsAdjustmentsImpactsChargesAdjusted Gross Profit $8,204 $175 ——$3 $8,382 Gross Profit Margin46.3% 1.0 pts ——0.0 pts 47.3% SG&A 5,174 (293) ——(58) 4,823 Other (Income) & Expense362 (1) (343) ——18 Total Expense7,299 (294) (343) —(58) 6,604 Pre-tax Income 905 469 343 —61 1,777 Pre-tax Income Margin 5.1% 2.6 pts 1.9 pts — 0.3 pts 10.0% Tax Rate (5.6%) 7.3 pts 4.5 pts 2.7 pts 1.0 pts 10.1% Net Income 956 365 282 (49) 46 1,599 Net Income Margin 5.4% 2.1 pts 1.6 pts (0.3 pts) 0.3 pts 9.0% Earnings Per Share$1.06 $0.40 $0.31 ($0.05) $0.05 $1.77 $ in millions (except EPS which is in whole dollars) The above reconciles the Non-GAAP financial information contained in the “Financial Highlights”, “Revenue and P&L Highlights”, “Expense Summary” and “Prepared Remarks” discussions in the company’s earnings presentation. See Exhibit 99.2 included in the company’s Form 8-K dated April 19, 2021 for additional information on the use of these Non-GAAP financial measures. Supplemental Materials 27 |
| Non-GAAP Supplemental Materials Reconciliation of Free Cash Flow - Last 12 Months 12 Months Ended Mar 2021 Net Cash from Operating Activities per GAAP:$18.6 Less: change in Global Financing (GF) Receivables$4.8 Net Cash from Operating Activities (Excluding GF Receivables)$13.8 Capital Expenditures, Net ($2.8) Free Cash Flow (Excluding GF Receivables)$11.0 Structural actions initiated in 4Q20 & spin-off charges* $0.7 Adjusted Free Cash Flow $11.6 $ in billions *includes cash impacts incurred in the period related to structural actions initiated in 4Q20 and spin-off related costs The above reconciles the Non-GAAP financial information contained in the “Financial Highlights”, “Cash Flow and Balance Sheet Highlights”, “Cash Flow Summary” and “Prepared Remarks” discussions in the company’s earnings presentation. See Exhibit 99.2 included in the company’s Form 8 -K dated April 19, 2021 for additional information on the use of these Non-GAAP financial measures. Supplemental Materials 28 |
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