ARMONK, N.Y., July 20, 2021 — IBM announced second-quarter 2021 earnings results.

“In the second quarter client adoption of our hybrid cloud platform contributed to strong performance in Global Business Services and software and drove improved overall revenue growth. At the same time, we continued to help clients infuse our AI-based technology offerings into their core business workflows,” said Arvind Krishna, IBM chairman and chief executive officer. “We are pleased with our progress and we remain on track to deliver full-year revenue growth and meet our cash flow objective.”

Highlights

Second Quarter:

• Revenue of $18.7 billion, up 3 percent (flat adjusting for divested businesses and currency)
  —  Cloud & Cognitive Software up 6 percent (up 2 percent adjusting for currency)
  — Global Business Services up 12 percent (up 7 percent adjusting for currency)
• Net cash from operating activities of $17.7 billion and adjusted free cash flow of $11.0 billion, over last 12 months
• Total cloud revenue over last 12 months of $27.0 billion, up 15 percent (up 13 percent adjusting for divested businesses and currency)
• Total cloud revenue in the quarter of $7.0 billion, up 13 percent (up 9 percent adjusting for divested businesses and currency) led by
  — Cloud & Cognitive Software cloud revenue up 29 percent (up 25 percent adjusting for currency)
  — Global Business Services cloud revenue up 35 percent (up 30 percent adjusting for currency)
• Red Hat revenue up 20 percent (up 17 percent adjusting for currency), normalized for historical comparability
• GAAP gross profit margin of 48.0 percent, flat; Operating (non-GAAP) gross profit margin of 49.3 percent, up 30 basis points
• Debt reduced by $6.4 billion since year-end 2020

SECOND QUARTER 2021
											Pre-tax		Gross
			Diluted			Net			Pre-tax		Income		Profit
			EPS			Income			Income		Margin		Margin
GAAP from Continuing Operations		$	1.47		$	1.3B		$	1.6B		8.3	%	48.0	%
Year/Year			(3)	%		(3)	%		(1)	%	(0.4)	Pts	0.0	Pts
Operating (Non-GAAP)		$	2.33		$	2.1B		$	2.5B		13.5	%	49.3	%
Year/Year			7	%		8	%		9	%	0.7	Pts	0.3	Pts

GAAP EPS results include impacts related to the amortization of purchased intangible assets and other acquisition-related charges, retirement-related charges, U.S. tax reform enactment impacts, and transaction costs associated with the Kyndryl separation. The impact of the Kyndryl separation costs for second-quarter 2021 was ($0.15) per share.

“We expanded operating margins and grew profit dollars in the quarter, providing a key contribution to our cash performance,” said James Kavanaugh, IBM senior vice president and chief financial officer.  “In the first half of the year we increased adjusted free cash flow, invested in strategic acquisitions to strengthen our hybrid cloud and AI capabilities, continued to deleverage and, consistent with our commitment, again increased our dividend.”

Cash Flow and Balance Sheet

In the second quarter, the company generated net cash from operating activities of $2.6 billion.   IBM’s free cash flow was $1.0 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 Kyndryl. IBM’s adjusted free cash flow, excluding these cash impacts, was $1.6 billion.  The company returned $1.5 billion to shareholders in dividends.

In the first six months of the year, the company generated net cash from operating activities of $7.5 billion.  Free cash flow for the first six months was $2.6 billion.  The company’s adjusted free cash flow, excluding cash impacts of $1.2 billion for the structural actions and transaction separation costs, was $3.8 billion.

Over the last 12 months, the company generated net cash from operating activities of $17.7 billion.  IBM’s free cash flow for the last 12 months was $9.7 billion.  The company’s adjusted free cash flow, excluding cash impacts of $1.3 billion for the structural actions and transaction separation costs, was $11.0 billion.

IBM ended the second quarter with $8.2 billion of cash on hand (includes marketable securities), down $6.1 billion from year-end 2020 due primarily to acquisitions and debt reduction payments.  Debt, including Global Financing debt of $17.5 billion, totaled $55.2 billion, down $6.4 billion since the end of 2020, and down $17.9 billion since closing the Red Hat acquisition.

Segment Results for Second Quarter

• Cloud & Cognitive Software (includes Cloud & Data Platforms, Cognitive Applications and Transaction Processing Platforms) — revenues of $6.1 billion, up 6.1 percent (up 2.5 percent adjusting for currency).  Cloud & Data Platforms grew 12 percent (up 8 percent adjusting for currency), led by the company’s hybrid cloud platform and Cloud Pak growth.  Cognitive Applications grew 12 percent (up 8 percent adjusting for currency), led by growth in Security and AI applications.  Transaction Processing Platforms declined 7 percent (down 11 percent adjusting for currency).  Cloud revenue up 29 percent (up 25 percent adjusting for currency).
• Global Business Services (includes Consulting, Application Management and Global Process Services) — revenues of $4.3 billion, up 11.6 percent (up 7.3 percent adjusting for currency), with growth in Consulting, up 16 percent (up 11 percent adjusting for currency), Application Management up 5 percent (up 1 percent adjusting for currency) and Global Process Services up 28 percent (up 25 percent adjusting for currency).  Cloud revenue up 35 percent (up 30 percent adjusting for currency).  Gross profit margin declined 60 basis points.
• Global Technology Services (includes Infrastructure & Cloud Services and Technology Support Services) — revenues of $6.3 billion, up 0.4 percent (down 4.1 percent adjusting for currency).  Both Infrastructure & Cloud Services and Technology Support Services were flat (down 4 percent adjusting for currency).  Cloud revenue down 1 percent (down 5 percent adjusting for currency).  Gross profit margin up 110 basis points.
• Systems (includes Systems Hardware and Operating Systems Software) — revenues of $1.7 billion, down 7.3 percent (down 10.2 percent adjusting for currency), driven by declines in IBM Z (down 11 percent; down 13 percent adjusting for currency) and Storage Systems (down 7 percent, down 10 percent adjusting for currency).  Power systems declined 2 percent (down 5 percent adjusting for currency).  Cloud revenue down 16 percent (down 19 percent adjusting for currency).
• Global Financing (includes financing and used equipment sales) — revenues of $242 million, down 8.6 percent (down 11.6 percent adjusting for currency).

Year-To-Date 2021 Results

Revenues for the six-month period ended June 30, 2021 totaled $36.5 billion, an increase of 2 percent year to year (down 1 percent adjusting for divested businesses and currency) compared with $35.7 billion for the first six months of 2020.  Net income was $2.3 billion, down 10 percent year to year.  Diluted earnings per share was $2.52 compared with $2.83 per diluted share for the 2020 period, a decrease of 11 percent.

GAAP earnings per share results include a ($1.58) per-share impact for charges related to amortization of purchased intangible assets and other acquisition-related charges, retirement-related charges, U.S. tax reform enactment impacts, and transaction costs associated with the Kyndryl separation.  The impact of the Kyndryl separation costs was ($0.20) per share.

Operating (non-GAAP) net income for the six months ended June 30, 2021 was $3.7 billion compared with $3.6 billion in the prior-year period, an increase of 3 percent. Operating (non-GAAP) diluted earnings per share from continuing operations was $4.10 compared with $4.02 per diluted share for the 2020 period, an increase of 2 percent.

Full-Year 2021 Expectations

The company expects to grow revenue for the full year 2021 based on mid-July 2021 foreign exchange rates.  The company continues to expect 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 Kyndryl.

Click here for the full announcement.

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Source: IBM