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IBM RELEASES SECOND-QUARTER RESULTS

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IBM announced second-quarter 2023 earnings results.

"Organizations are using our hybrid cloud and AI technology, and our consulting capabilities, to transform their operations," said Arvind Krishna, IBM chairman and chief executive officer. "We continue to respond to the needs of our clients who seek trusted, enterprise AI solutions, and we are particularly excited about the response to the recently launched watsonx AI platform. Finally, we remain confident in our revenue and free cash flow growth expectations for the full year."

Second-Quarter Highlights

  • Revenue
    -  Revenue of $15.5 billion, down 0.4 percent, up 0.4 percent at constant currency
    -  Software revenue up 7 percent, up 8 percent at constant currency
    -  Consulting revenue up 4 percent, up 6 percent at constant currency
    -  Infrastructure revenue down 15 percent, down 14 percent at constant currency
     
  • Profit Margin
    -  Gross Profit Margin: GAAP: 54.9 percent, up 160 basis points; Operating (Non-GAAP): 55.9 percent, up 140 basis points
    -  Pre-Tax Income Margin: GAAP: 12.9 percent, up 180 basis points; Operating (Non-GAAP): 15.5 percent, down 70 basis points
     
  • Cash Flow
    -  Year to date net cash from operating activities of $6.4 billion, up $1.8 billion; free cash flow of $3.4 billion, up $0.1 billion
 

SECOND QUARTER 2023 INCOME STATEMENT SUMMARY

  
 

Results include YTY impact from gains on the 2Q22 sale of healthcare software assets*

  
 

Revenue

  

Gross

Profit

    

Gross

Profit

 Margin

  

Pre-tax

Income*

  

Pre-tax

Income

Margin*

  

Net

Income*

  

Diluted

Earnings

Per Share*

GAAP from

Continuing

Operations

$   15.5 B

    

$     8.5 B

    

54.9

%

  

$     2.0 B

    

12.9

%

  

$     1.6 B

    

$     1.72

  

Year/Year

(0.4)

%**

  

3

%

  

1.6

Pts

  

16

%

  

1.8

Pts

  

8

%

  

7

%

Operating

(Non-GAAP)

      

$     8.7 B

    

55.9

%

  

$     2.4 B

    

15.5

%

  

$     2.0 B

    

$     2.18

  

Year/Year

      

2

%

  

1.4

Pts

  

(5)

%

  

(0.7)

Pts

  

(5)

%

  

(6)

%

* Results include the YTY impact from the gains on the 2Q22 sale of healthcare software assets.  GAAP: Pre-Tax Income (17 pts); Pre-Tax 
  Income Margin (1.4 pts); Net Income (15 pts); EPS (15 pts).  Operating (Non-GAAP):  Pre-Tax Income (9 pts); Pre-Tax Income Margin (1.4
  pts); Net Income (9 pts); EPS (9 pts).

** 0.4% at constant currency

"In the quarter, revenue performance was led by our growth vectors of software and consulting, and we continued to expand our gross profit margin, driven by our improving portfolio mix and productivity initiatives," said James Kavanaugh, IBM senior vice president and chief financial officer. "This year we have leveraged our strong cash position to invest for growth, announcing seven acquisitions to bolster our hybrid cloud and AI strategy, while continuing to return value to shareholders through dividends."

Segment Results for Second Quarter

  • Software — revenues of $6.6 billion, up 7.2 percent, up 7.5 percent at constant currency:
    -  Hybrid Platform & Solutions up 6 percent, up 7 percent at constant currency:
       --  Red Hat up 11 percent
       --  Automation up 1 percent, up 2 percent at constant currency
       --  Data & AI up 10 percent, up 11 percent at constant currency
       --  Security down 2 percent, down 1 percent at constant currency
    -  Transaction Processing up 9 percent, up 10 percent at constant currency
     
  • Consulting — revenues of $5.0 billion, up 4.3 percent, up 5.9 percent at constant currency:
    -  Business Transformation up 3 percent, up 5 percent at constant currency
    -  Technology Consulting up 4 percent, up 5 percent at constant currency
    -  Application Operations up 6 percent, up 8 percent at constant currency
     
  • Infrastructure — revenues of $3.6 billion, down 14.6 percent, down 13.8 percent at constant currency:
    -  Hybrid Infrastructure down 18 percent:
       --  IBM z Systems down 30 percent
       --  Distributed Infrastructure down 6 percent
    -  Infrastructure Support down 8 percent, down 6 percent at constant currency
     
  • Financing — revenues of $0.2 billion, up 26.2 percent, up 27.1 percent at constant currency

Cash Flow and Balance Sheet
In the second quarter, the company generated net cash from operating activities of $2.6 billion, up $1.3 billion year to year. Net cash from operating activities excluding IBM Financing receivables was $2.6 billion. IBM's free cash flow was $2.1 billion, flat year to year. The company returned $1.5 billion to shareholders in dividends in the second quarter.

For the first six months of the year, the company generated net cash from operating activities of $6.4 billion, up $1.8 billion year to year. Net cash from operating activities excluding IBM Financing receivables was $4.4 billion. IBM's free cash flow was $3.4 billion, up $0.1 billion year to year.

IBM ended the second quarter with $16.3 billion of cash and marketable securities, up $7.5 billion from year-end 2022. Debt, including IBM Financing debt of $10.6 billion, totaled $57.5 billion, up $6.5 billion since the end of 2022.

Full-Year 2023 Expectations

  • Revenue: The company continues to expect constant currency revenue growth of three percent to five percent. At current foreign exchange rates, currency is expected to be neutral to revenue growth.
  • Free cash flow: The company continues to expect about $10.5 billion in free cash flow, up more than $1 billion year to year.
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