ARMONK, N.Y.-- IBM (NYSE:IBM) today announced first-quarter 2020 earnings results.

“IBM remains focused on helping our clients adapt to the immediate challenges of the COVID-19 pandemic, while we continue to enable them to shift their mission-critical workloads to hybrid cloud and expand their use of AI to help transform their operations," said Arvind Krishna, IBM chief executive officer. "Our first-quarter performance in cloud is a reflection of the trust clients place in IBM's technology and expertise today, and positions us to continue building an enduring hybrid cloud platform for the future.”

Highlights for the first quarter include:

• GAAP EPS from continuing operations of $1.31
• Operating (non-GAAP) EPS of $1.84
• Revenue of $17.6 billion, down 3.4 percent (up 0.1 percent adjusting for divested businesses and currency)
  -- Cloud & Cognitive Software up 5 percent (up 7 percent adjusting for currency)
  -- Systems up 3 percent (up 4 percent adjusting for currency)
  -- Global Business Services flat (up 1 percent adjusting for currency)
• Total cloud revenue of $5.4 billion, up 19 percent (up 23 percent adjusting for divested businesses and currency)
  -- Cloud revenue of $22 billion over last 12 months, up 13 percent (up 16 percent adjusting for divested businesses and currency)
• Red Hat revenue, up 18 percent (up 20 percent adjusting for currency), normalized for historical comparability
• GAAP gross profit margin up 90 basis points; Operating (non-GAAP) gross profit margin up 150 basis points
• Net cash from operating activities of $14.5 billion and free cash flow of $11.6 billion, over the last 12 months
• IBM is withdrawing its full-year 2020 guidance in light of the current COVID-19 crisis. The company will reassess this position based on the clarity of the macroeconomic recovery at the end of the second quarter.

“Our recurring revenue stream, continued gross profit margin expansion and strong balance sheet and liquidity position remain stabilizing elements in an unprecedented business climate,” said James Kavanaugh, IBM senior vice president and chief financial officer. “We’ve taken actions within our business to provide the necessary flexibility and operating efficiency for the current environment.”

Cash Flow and Balance Sheet

In the first quarter, the company generated net cash from operating activities of $4.5 billion, or $2.1 billion excluding Global Financing receivables. IBM’s free cash flow was $1.4 billion. The company returned $1.4 billion to shareholders in dividends.

IBM ended the first quarter with $12.0 billion of cash on hand which includes marketable securities. Debt, including Global Financing debt of $22.3 billion, totaled $64.3 billion – down $8.7 billion since the end of the second-quarter 2019.

Segment Results for First Quarter

• Cloud & Cognitive Software (includes Cloud & Data Platforms which includes Red Hat; Cognitive Applications; and Transaction Processing Platforms) — revenues of $5.2 billion, up 5 percent (up 7 percent adjusting for currency), with growth in Cloud & Data Platforms, up 32 percent (up 34 percent adjusting for currency) led by Red Hat.
• Global Business Services (includes Consulting, Application Management and Global Process Services) — revenues of $4.1 billion, flat year-to-year (up 1 percent adjusting for currency), with growth in Consulting, up 4 percent (up 5 percent adjusting for currency); gross profit margin up 100 basis points.
• Global Technology Services (includes Infrastructure & Cloud Services and Technology Support Services) — revenues of $6.5 billion, down 6 percent (down 4 percent adjusting for currency); gross profit margin up 30 basis points.
• Systems (includes Systems Hardware and Operating Systems Software) — revenues of $1.4 billion, up 3 percent (up 4 percent adjusting for currency), led by IBM Z, up 59 percent (up 61 percent adjusting for currency) and Storage Systems revenue up 18 percent (up 19 percent adjusting for currency); gross profit margin up 410 basis points.
• Global Financing (includes financing and used equipment sales) — revenues of $299 million, down 26 percent (down 25 percent adjusting for currency); revenue reflects the wind-down of OEM commercial financing; gross profit margin up 580 basis points.

Pre-Tax Income and Tax Rate

Pre-tax income was impacted by charges of approximately $0.9 billion, predominantly related to structural actions to improve competitiveness in Global Technology Services. IBM’s reported GAAP and operating (non-GAAP) tax rates for the first quarter include the effect of a non-cash discrete tax benefit, associated with the intercompany transfer of intellectual property, which more than offsets the charges for those structural actions.

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; 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; 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.

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/1q20.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).

Contacts

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

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