IBM RELEASES SECOND-QUARTER RESULTS

Transcript

1. #1prepared remarks

   EX-99.1 2 ibm-20260722xex991.htm EX-99.1

2. #2prepared remarks

   Company provides updated full-year expectations

3. #3Arvind Krishna · IBM chairman, president and chief executive officer

   We are confident in IBM's strategy and portfolio, and in our ability to capture growth opportunities ahead. We fundamentally believe that we are in the early innings of a structural shift for business, and that our portfolio - across software, infrastructure, and consulting - is well-positioned to help our clients tap the value, and manage the challenges, of an AI-driven future,

4. #4prepared remarks

   Full-Year 2026 Expectations • Revenue: The company now expects full-year constant currency revenue growth in the range of four-to-five percent. At current foreign exchange rates, currency is expected to be neutral to growth for the year • Free cash flow: The company continues to expect full-year free cash flow to increase by about $1 billion year-over-year

5. #5prepared remarks

   Operational Focus Areas • High-Growth Portfolio: Areas of IBM's software business that help clients manage, deploy and build AI-ready solutions, like Red Hat, the watsonx portfolio, HashiCorp, and Confluent continue to deliver strong performance. Within Distributed Infrastructure, Power and Storage grew at a record pace in the second quarter, now having built up an order backlog of nearly $500 million. Together, these offerings closely map to where client demand is strongest. To capture these growth opportunities, IBM is accelerating changes to its go-to-market model by expanding sales coverage across thousands of additional clients where there is significant opportunity. As AI adoption moves from experimentation to enterprise-scale deployment, the company is also investing in more specialized technical and client-facing talent, including Forward Deployed Engineers. • Rapid Innovation at Scale: IBM is acting decisively to capture new opportunities as they arise. Lightwell, a new capability to address open source security vulnerabilities, leverages IBM and Red Hat's trust within the open source community, unique approach to AI, and global scale. In the first two weeks of availabi…

6. #6James Kavanaugh · IBM senior vice president and chief financial officer

   Although we faced revenue headwinds late in the second quarter, we continued to focus on the fundamentals of our business, including driving productivity, strengthening our portfolio, and generating free cash flow,

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   | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | SECOND - QUARTER 2026 INCOME STATEMENT SUMMARY | | | | | | Revenue | | Gross Profit | | | Gross Profit Margin | | | Pre-tax Income | | Pre-tax Income Margin | | Net Income | | Diluted Earnings Per Share | GAAP from Continuing Operations | $ | 17.2B | | | $ | 9.9B | | | 57.7 | % | | $ | 2.5B | | | 14.4 | % | | $ | 2.2B | | | $ | 2.27 | | Year/Year | 1 | % | | (1) | % | | (1.0) | Pts | | (5) | % | | (0.9) | Pts | | (1) | % | | (2) | % | Operating (Non-GAAP) | | | | $ | 10.2B | | | 59.4 | % | | $ | 3.3B | | | 19.2 | % | | $ | 2.8B | | | $ | 2.93 | | Year/Year | | | | 0 | % | | (0.7) | Pts | | 3 | % | | 0.3 | Pts | | 5 | % | | 5 | % |

8. #8prepared remarks

   Segment Results for Second Quarter • Software — revenues of $7.8 billion, up 5 percent: – Hybrid Cloud (Red Hat) up 11 percent – Automation up 4 percent, up 3 percent at constant currency – Data up 19 percent, up 18 percent at constant currency – Transaction Processing down 8 percent, down 9 percent at constant currency

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   • Consulting — revenues of $5.3 billion, flat, up 1 percent at constant currency: – Strategy and Technology flat, up 1 percent at constant currency – Intelligent Operations flat, up 1 percent at constant currency

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    • Infrastructure — revenues of $3.8 billion, down 7 percent: – Hybrid Infrastructure down 10 percent • IBM Z down 42 percent • Distributed Infrastructure up 37 percent – Infrastructure Support down 1 percent

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    • Financing — revenues of $0.2 billion, up 12 percent, up 11 percent at constant currency

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    Cash Flow and Balance Sheet In the second quarter, the company generated net cash from operating activities of $2.6 billion, up $0.9 billion year to year. IBM’s free cash flow was $2.5 billion, down $0.3 billion year to year. The company returned $1.6 billion to shareholders in dividends in the second quarter.

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    For the first six months of the year, the company generated net cash from operating activities of $7.8 billion, up $1.7 billion year to year. IBM's free cash flow was $4.8 billion, flat year to year.

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    IBM ended the second quarter with $8.2 billion of cash, restricted cash and marketable securities, down $6.3 billion from year-end 2025. The company invested $10.5 billion in acquisitions this year. Debt, including IBM Financing debt of $13.0 billion, totaled $62.0 billion, up $0.7 billion year to date.

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    Dividend Declaration The IBM board of directors approved a regular quarterly cash dividend of $1.69 per common share, to stockholders of record on August 10, 2026. With payment of the September 10, 2026 dividend, IBM will have paid consecutive quarterly dividends every year since 1916.

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    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

17. #17prepared remarks

    to, the following: a downturn in economic environment and client spending budgets; a failure of the company’s innovation initiatives; damage to the company’s reputation; risks from investing in growth opportunities; failure of the company’s intellectual property portfolio to prevent competitive offerings and the failure of the company to obtain necessary licenses; the company’s ability to successfully manage acquisitions, alliances and divestitures, including integration challenges, failure to achieve objectives, the assumption or retention 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 and service quality issues; the development and use of AI, including the company's increased AI solutions and use of AI technologies; impacts…

18. #18prepared remarks

    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: • adjusting for currency (i.e., at constant currency); • presenting operating (non-GAAP) earnings per share amounts and related income statement items; • free cash flow; • net cash from operating activities excluding IBM Financing receivables; • adjusted EBITDA; • adjusted EBITDA margin. 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.

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    Conference Call and Webcast IBM’s regular quarterly earnings conference call is scheduled to begin at 5:00 p.m. ET, today. The Webcast may be accessed via a link at https://www.ibm.com/investor/events/earnings-2q26. Presentation charts will be available shortly before the Webcast.

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    Financial Results Below (certain amounts may not add due to use of rounded numbers; percentages presented are calculated from the underlying whole-dollar amounts).

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    | | | | | | Contact: | IBM | | Tim Davidson, 914-844-7847 | | tfdavids@us.ibm.com | | | | Erin McElwee, 347-920-6825 | | erin.mcelwee@ibm.com |

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    INTERNATIONAL BUSINESS MACHINES CORPORATION COMPARATIVE FINANCIAL RESULTS (Unaudited; $ in millions except per share amounts) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended June 30, | | | Six Months Ended June 30, | | | 2026 | | | 2025 | | | 2026 | | | 2025 | | REVENUE BY SEGMENT | | | | | | | | | | | | Software | $ | 7,761 | | | | $ | 7,387 | | | | $ | 14,813 | | | | $ | 13,722 | | | Consulting | 5,327 | | | | 5,314 | | | | 10,599 | | | | 10,382 | | | Infrastructure | 3,835 | | | | 4,142 | | | | 7,161 | | | | 7,027 | | | Financing | 186 | | | | 166 | | | | 406 | | | | 357 | | | Other | 52 | | | | (31) | | | | 100 | | | | 30 | | | TOTAL REVENUE | 17,162 | | | | 16,977 | | | | 33,079 | | | | 31,519 | | | | | | | | | | | | | | | GROSS PROFIT | 9,907 | | | | 9,977 | | | | 18,857 | | | | 18,008 | | | | | | | | | | | | | | | GROSS PROFIT MARGIN | | | | | | | | | | | | Software | 82.6 | | % | | 83.9 | | % | | 82.7 | | % | | 83.7 | | % | Consulting | 28.9 | | % | | 27.5 | | % | | 28.2 | | % | | 27.4 | | % | Infrastructure | 58.4 | | % | | 61.5 | | % | | 57.7 | | % | | 57.9 | | % | Financing | 42.5 | | % | | 45.7 | | % | | …

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    INTERNATIONAL BUSINESS MACHINES CORPORATION CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited) | | | | | | | | | | | | | | | ($ in millions) | | At June 30, 2026 | | At December 31, 2025 | ASSETS: | | | | | Current assets: | | | | | Cash and cash equivalents | | $ | 7,172 | | | $ | 13,587 | | Restricted cash | | 45 | | | 54 | | Marketable securities | | 960 | | | 830 | | Notes and accounts receivable - trade, net | | 6,044 | | | 8,112 | | Short-term financing receivables | | | | | Held for investment, net | | 5,782 | | | 7,344 | | Held for sale | | 874 | | | 1,131 | | Other accounts receivable, net | | 1,348 | | | 1,052 | | Inventories | | 1,746 | | | 1,220 | | Deferred costs | | 1,238 | | | 1,084 | | Prepaid expenses and other current assets | | 3,188 | | | 2,530 | | Total current assets | | 28,398 | | | 36,944 | | | | | | | Property, plant and equipment, net | | 5,736 | | | 5,899 | | Operating right-of-use assets, net | | 3,068 | | | 3,129 | | Long-term financing receivables, net | | 7,126 | | | 7,708 | | Prepaid pension assets | | 7,645 | | | 7,544 | | Deferred costs | | 835 | | | 825 | | Deferred taxes | | 8,709 | | | 8,610 | | Goodwill | | 74,599 | | |…

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    INTERNATIONAL BUSINESS MACHINES CORPORATION STATEMENT OF CASH FLOWS (Unaudited) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended June 30, | | Six Months Ended June 30, | ($ in millions) | | 2026 | | 2025 (1) | | 2026 | | 2025 (1) | Cash flows from operating activities: | | | | | | | | | Net income | | $ | 2,165 | | | $ | 2,194 | | | $ | 3,381 | | | $ | 3,249 | | Adjustments to reconcile net income to cash provided by operating activities: | | | | | | | | | | | | | | | | | | Depreciation (2) | | 533 | | | 578 | | | 1,088 | | | 1,114 | | Amortization of capitalized software and acquired intangible assets | | 817 | | | 687 | | | 1,535 | | | 1,328 | | Stock-based compensation | | 498 | | | 441 | | | 1,004 | | | 842 | | Net (gain)/loss on divestitures, asset sales and other | | (67) | | | (18) | | | (78) | | | (40) | | Changes in operating assets and liabilities, net of acquisitions/divestitures | | (1,349) | | | (2,180) | | | 836 | | | (421) | | Net cash provided by operating activities | | 2,597 | | | 1,701 | | | 7,766 | | | 6,071 | | | | | | | | | | | Cash flows from investing activities: | | | | | | | | | Payments for property, …

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    (1) Reclassified to align with the Consolidated Statement of Cash Flows presentation. (2) Includes operating lease right-of-use assets amortization.

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    INTERNATIONAL BUSINESS MACHINES CORPORATION GAAP NET INCOME TO ADJUSTED EBITDA RECONCILIATION (Unaudited) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended June 30, | | Six Months Ended June 30, | ($ in billions) | | 2026 | 2025 | Yr/Yr | | 2026 | 2025 | Yr/Yr | Net income as reported (GAAP) | | $ | 2.2 | | $ | 2.2 | | $ | 0.0 | | | $ | 3.4 | | $ | 3.2 | | $ | 0.1 | | Less: income from discontinued operations, net of tax | | 0.0 | | 0.0 | | 0.0 | | | 0.0 | | 0.0 | | 0.0 | | Income from continuing operations | | 2.2 | | 2.2 | | 0.0 | | | 3.4 | | 3.2 | | 0.1 | | Provision for/(benefit from) income taxes from continuing ops. | | 0.3 | | 0.4 | | (0.1) | | | 0.5 | | 0.5 | | 0.0 | | Pre-tax income from continuing operations (GAAP) | | 2.5 | | 2.6 | | (0.1) | | | 3.9 | | 3.8 | | 0.1 | | Non-operating adjustments (before tax) | | | | | | | | | Acquisition-related charges (1) | | 0.7 | | 0.6 | | 0.1 | | | 1.4 | | 1.1 | | 0.2 | | Non-operating retirement-related costs/(income) | | 0.1 | | 0.0 | | 0.1 | | | 0.2 | | 0.0 | | 0.1 | | | | | | | | | | | | | | | | | | | | Operating (non-GAAP) pre-tax income from continuing ops. | | 3.3 | | 3.2 | | 0.1 | …

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    (1) Primarily consists of amortization of acquired intangible assets. (2) Primarily consists of unique corporate actions such as gains on divestitures and asset sales.

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    INTERNATIONAL BUSINESS MACHINES CORPORATION SEGMENT DATA (Unaudited)

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    | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended June 30, 2026 | | | | | | | | | | | | | | | ($ in millions) | | Software | | | Consulting | | | Infrastructure | | | Financing | | Revenue | | $ | 7,761 | | | | $ | 5,327 | | | | $ | 3,835 | | | | $ | 186 | | | Segment profit | | $ | 2,502 | | | | $ | 647 | | | | $ | 835 | | | | $ | 108 | | | Segment profit margin | | 32.2 | | % | | 12.1 | | % | | 21.8 | | % | | 58.0 | | % | Change YTY revenue | | 5.1 | | % | | 0.2 | | % | | (7.4) | | % | | 12.2 | | % | Change YTY revenue - constant currency | | 4.6 | | % | | 1.1 | | % | | (7.4) | | % | | 11.3 | | % |

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    | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended June 30, 2025 | | | | | | | | | | | | | | | ($ in millions) | | Software | | | Consulting | | | Infrastructure | | | Financing | | Revenue | | $ | 7,387 | | | | $ | 5,314 | | | | $ | 4,142 | | | | $ | 166 | | | Segment profit | | $ | 2,296 | | | | $ | 562 | | | | $ | 965 | | | | $ | 179 | | | Segment profit margin | | 31.1 | | % | | 10.6 | | % | | 23.3 | | % | | 107.9 | | % |