International Business Machines (IBM) 8-K Ibm Reports 2020 First-quarter Results

Exhibit 99.1

IBM REPORTS 2020 FIRST-QUARTER RESULTS

Continued Cloud Revenue Growth; Gross Margin Expansion; Strong Balance Sheet and Liquidity Position

ARMONK, N.Y., April 20, 2020 . . . 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.

	FIRST QUARTER 2020
	Results Reflect the Impact of Items Related to
	the Red Hat Acquisition Closed in July 2019
										Pre-tax		Gross
	Diluted			Net			Pre-tax			Income/(Loss)		Profit
	EPS			Income			Income/(Loss)			Margin		Margin
GAAP from Continuing Operations	$	1.31		$	1.2B		$	0.0B		(0.3)	%	45.1	%
Year/Year		(26)	%		(26)	%		(103)	%	(10.6)	Pts	0.9	Pts
Operating (Non-GAAP)	$	1.84		$	1.6B		$	0.7B		3.9	%	46.2	%
Year/Year		(18)	%		(18)	%		(69)	%	(8.4)	Pts	1.5	Pts

“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).

Contact:	IBM
	Edward Barbini, 914-499-6565
	barbini@us.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,
	2020			2019
REVENUE
Cloud & Cognitive Software	$	5,238		$	4,967		*
Global Business Services		4,136			4,155		*
Global Technology Services		6,467			6,875
Systems		1,368			1,328
Global Financing		299			406
Other		62			451		*
TOTAL REVENUE		17,571			18,182
GROSS PROFIT		7,922			8,043
GROSS PROFIT MARGIN
Cloud & Cognitive Software		75.4	%		75.6	%	*
Global Business Services		27.2	%		26.2	%	*
Global Technology Services		34.0	%		33.7	%
Systems		50.2	%		46.2	%
Global Financing		40.7	%		34.9	%
TOTAL GROSS PROFIT MARGIN		45.1	%		44.2	%
EXPENSE AND OTHER INCOME
S,G&A		5,955			4,691
R,D&E		1,625			1,433
Intellectual property and custom development income		(116)			(101)
Other (income) and expense		182			(73)
Interest expense		326			210
TOTAL EXPENSE AND OTHER INCOME		7,972			6,160
INCOME/(LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES		(49)			1,883
Pre-tax margin		(0.3)	%		10.4	%
Provision for / (Benefit from) income taxes		(1,226)			289
Effective tax rate		NM	%		15.4	%
INCOME FROM CONTINUING OPERATIONS	$	1,176		$	1,593
DISCONTINUED OPERATIONS
Income / (Loss) from discontinued operations, net of taxes		(1)			(2)
NET INCOME	$	1,175		$	1,591
EARNINGS / (LOSS) PER SHARE OF COMMON STOCK
Assuming Dilution
Continuing Operations	$	1.31		$	1.78
Discontinued Operations	$	0.00		$	0.00
TOTAL	$	1.31		$	1.78
Basic
Continuing Operations	$	1.32		$	1.79
Discontinued Operations	$	0.00		$	0.00
TOTAL	$	1.32		$	1.79
WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (M’s)
Assuming Dilution		895.0			893.9
Basic		888.0			889.6

*Recast to conform with 2020 presentation.

NM = Not Meaningful

INTERNATIONAL BUSINESS MACHINES CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEET

(Unaudited)

	At			At
	March 31,			December 31,
(Dollars in Millions)	2020		���	2019
ASSETS:
Current Assets:
Cash and cash equivalents	$	11,218		$	8,172
Restricted cash		152			141
Marketable securities		647			696
Notes and accounts receivable - trade, net		6,927			7,870
Short-term financing receivables, net		12,126			14,192
Other accounts receivable, net		1,616			1,733
Inventories		1,786			1,619
Deferred costs		1,948			1,896
Prepaid expenses and other current assets		2,509			2,101
Total Current Assets		38,931			38,420
Property, plant and equipment, net		9,626			10,010
Operating right-of-use assets, net		4,871			4,996
Long-term financing receivables, net		7,708			8,712
Prepaid pension assets		6,933			6,865
Deferred costs		2,459			2,472
Deferred taxes		8,782			5,182
Goodwill		57,517			58,222
Intangibles, net		14,666			15,235
Investments and sundry assets		1,911			2,074
Total Assets	$	153,403		$	152,186
LIABILITIES:
Current Liabilities:
Taxes	$	2,348		$	2,839
Short-term debt		11,642			8,797
Accounts payable		4,172			4,896
Deferred income		13,377			12,026
Operating lease liabilities		1,327			1,380
Other liabilities		7,806			7,763
Total Current Liabilities		40,673			37,701
Long-term debt		52,685			54,102
Retirement related obligations		16,474			17,142
Deferred income		3,769			3,851
Operating lease liabilities		3,799			3,879
Other liabilities		15,874			14,526
Total Liabilities		133,275			131,202
EQUITY:
IBM Stockholders’ Equity:
Common stock		56,092			55,895
Retained earnings		162,626			162,954
Treasury stock — at cost		(169,437)			(169,413)
Accumulated other comprehensive income/(loss)		(29,283)			(28,597)
Total IBM Stockholders’ Equity		19,999			20,841
Noncontrolling interests		129			144
Total Equity		20,128			20,985
Total Liabilities and Equity	$	153,403		$	152,186

INTERNATIONAL BUSINESS MACHINES CORPORATION

CASH FLOW ANALYSIS

(Unaudited)

	Three Months Ended				Trailing Twelve Months
	March 31,				Ended March 31,
(Dollars in Millions)	2020		2019		2020
Net Cash Provided by Operating Activities per GAAP:	$	4,476	$	4,759	$	14,487
Less: change in Global Financing (GF) Receivables		2,381		2,458		415
Capital Expenditures, Net		(737)		(614)		(2,493)
Free Cash Flow		1,358		1,688		11,579
Acquisitions		(13)		(1)		(32,642)
Divestitures		26		33		1,069
Dividends		(1,440)		(1,397)		(5,749)
Share Repurchase		—		(920)		(441)
Non-GF Debt		3,503		5,890		20,405
Other (includes GF Net Receivables and GF Debt)		(426)		629		(346)
Change in Cash, Cash Equivalents, Restricted Cash and Short-term Marketable Securities	$	3,008	$	5,922	$	(6,127)

INTERNATIONAL BUSINESS MACHINES CORPORATION

CASH FLOW

(Unaudited)

	Three Months Ended
	March 31,
(Dollars in Millions)	2020		2019
Net Income from Operations	$	1,175	$	1,591
Depreciation/Amortization of Intangibles		1,635		1,446
Stock-based Compensation		189		113
Working Capital / Other		(905)		(848)
Global Financing A/R		2,381		2,458
Net Cash Provided by Operating Activities	$	4,476	$	4,759
Capital Expenditures, net of payments & proceeds		(737)		(614)
Divestitures, net of cash transferred		26		33
Acquisitions, net of cash acquired		(13)		(1)
Marketable Securities / Other Investments, net		(178)		(271)
Net Cash Provided by / (Used in) Investing Activities	$	(902)	$	(853)
Debt, net of payments & proceeds		1,356		4,232
Dividends		(1,440)		(1,397)
Common Stock Repurchases		—		(920)
Common Stock Transactions - Other		(31)		(51)
Net Cash Provided by / (Used in) Financing Activities	$	(115)	$	1,863
Effect of Exchange Rate changes on Cash		(403)		(102)
Net Change in Cash, Cash Equivalents and Restricted Cash	$	3,057	$	5,668

INTERNATIONAL BUSINESS MACHINES CORPORATION

SEGMENT DATA

(Unaudited)

	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	%
Change YTY Revenue - External		5.5	%		(0.5)	%		(5.9)	%		3.0	%		(26.2)	%
Change YTY Revenue - External @constant currency		6.8	%		0.9	%		(4.0)	%		4.1	%		(24.9)	%

	Three Months Ended March 31, 2019
	Cloud &			Global			Global
	Cognitive			Business			Technology						Global
(Dollars in Millions)	Software*			Services*			Services			Systems			Financing
Revenue
External	$	4,967		$	4,155		$	6,875		$	1,328		$	406
Internal		841			74			290			163			300
Total Segment Revenue	$	5,808		$	4,229		$	7,164		$	1,491		$	706
Pre-tax Income / (Loss) from Continuing Operations		1,785			298			275			(202)			288
Pre-tax margin		30.7	%		7.0	%		3.8	%		(13.5)	%		40.8	%

* Recast to conform with 2020 presentation.

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, 2020
	Continuing Operations
				Acquisition-			Retirement-			Tax
				Related			Related			Reform			Operating
	GAAP			Adjustments*			Adjustments**			Impacts			(Non-GAAP)
Gross Profit	$	7,922		$	188			—			—		$	8,110
Gross Profit Margin		45.1	%		1.1	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/(Loss) Margin from Continuing Operations		(0.3)	%		2.7	Pts		1.5	Pts		—			3.9	%
Provision for / (Benefit from) Income Taxes***		(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		9.4	%
Diluted Earnings / (Loss) Per Share: Continuing Operations	$	1.31		$	0.42		$	0.28		$	(0.17)		$	1.84

	Three Months Ended March 31, 2019
	Continuing Operations
				Acquisition-			Retirement-			Tax
				Related			Related			Reform			Operating
	GAAP			Adjustments*			Adjustments**			Impacts			(Non-GAAP)
Gross Profit	$	8,043		$	76			—			—		$	8,119
Gross Profit Margin		44.2	%		0.4	Pts		—			—			44.7	%
S,G&A		4,691			(124)			—			—			4,566
R,D&E		1,433			—			—			—			1,433
Other (Income) & Expense		(73)			23			(138)			—			(187)
Interest Expense		210			(36)			—			—			174
Total Expense & Other (Income)		6,160			(137)			(138)			—			5,886
Pre-tax Income/(Loss) from Continuing Operations		1,883			212			138			—			2,233
Pre-tax Income/(Loss) Margin from Continuing Operations		10.4	%		1.2	Pts		0.8	Pts		—			12.3	%
Provision for / (Benefit from) Income Taxes***		289			49			26			(141)			224
Effective Tax Rate		15.4	%		0.7	Pts		0.2	Pts		(6.3)	Pts		10.0	%
Income from Continuing Operations		1,593			164			111			141			2,009
Income Margin from Continuing Operations		8.8	%		0.9	Pts		0.6	Pts		0.8	Pts		11.0	%
Diluted Earnings / (Loss) Per Share: Continuing Operations	$	1.78		$	0.18		$	0.13		$	0.16		$	2.25

*     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.

**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.

***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.

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 Ended
	March 31, 2020						March 31, 2020
	Change YTY						Change YTY
Revenue Adjusting for Divested Businesses and Currency	Cloud			Total IBM			Cloud
Revenue as reported		18.8	%		(3.4)	%		13.2	%
Impact from divested businesses		2.4	Pts		1.9	Pts		1.5	Pts
Currency impact		1.8	Pts		1.5	Pts		1.6	Pts
Revenue adjusting for divested businesses and currency (non-GAAP)		23.0	%		0.1	%		16.4	%

	Three Months Ended				Change
Red Hat Revenue, Normalized for Historical Comparability	March 31, 2020		March 31, 2019		YTY		YTY @constant currency
Red Hat revenue as reported in IBM consolidated results (1)	$	719	$	—
Add: Red Hat revenue prior to acquisition (2)		—		900
Add: Purchase accounting deferred revenue and intercompany adjustments (3)		347		—
Red Hat revenue, normalized for historical comparability (non-GAAP)	$	1,066	$	900	18	%	20	%

(1) Represents GAAP revenue as reported by IBM, which is included in the Cloud & Cognitive Software segment.

(2) Revenue for the three months ended March 31, 2019 represents pre-acquisition Red Hat standalone revenue and is included for comparative purposes.

(3) Represents the first-quarter 2020 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.