10-QPeriod: Q2 FY2016

INTERNATIONAL BUSINESS MACHINES CORP Quarterly Report for Q2 Ended Jun 30, 2016

Filed July 26, 2016For Securities:IBM

Summary

IBM's Q2 2016 filing shows a revenue decline of 2.8% year-over-year to $20.2 billion, with a net income of $2.5 billion. The company reported diluted earnings per share of $2.61, a decrease from $3.50 in the prior year's quarter. Despite the overall revenue dip, IBM highlighted continued strong growth in its strategic imperatives—cloud, analytics, and engagement—which grew 12% and now represent 38% of total revenue. Cloud revenue, in particular, surged 30%, with Cloud as-a-Service revenue up 50%, reaching an annual run rate of $6.7 billion by the end of the quarter. The company continued its transformation into a cognitive solutions and cloud platform company, marked by significant investments and acquisitions, including The Weather Company and Truven Health Analytics, which contributed $4.4 billion in goodwill. These investments and strategic shifts, along with product cycle dynamics in Systems, led to a decrease in overall profitability and margins. Management's outlook anticipates continued growth in strategic imperatives, with an expectation of low single-digit revenue growth and high single-digit operating earnings per share growth in the long term.

Financial Highlights

51 data points
Beta

Revenue

$20.24B

47.9% Gross Margin

Net Income

$2.50B

12.4% Net Margin

EPS (Diluted)

$2.61

Total Assets

$118.06B

Cash & Equivalents

$10.02B

Free Cash Flow

$2.59B

Financial Statements
Beta
Revenue$20.24B
Cost of Revenue$10.54B
Gross Profit$9.70B
R&D Expenses$1.47B
SG&A Expenses$5.35B
Operating Income$4.52B
Interest Expense$167.00M
Net Income$2.50B
EPS (Basic)$2.62
EPS (Diluted)$2.61
Shares Outstanding (Basic)957.40M
Shares Outstanding (Diluted)960.50M

Key Highlights

  • 1Total revenue for the quarter was $20.2 billion, a decrease of 2.8% year-over-year (2.6% adjusted for currency).
  • 2Net income was $2.5 billion, down from $3.4 billion in the prior year's quarter.
  • 3Diluted Earnings Per Share (EPS) was $2.61, a significant decrease from $3.50 in the comparable quarter of 2015.
  • 4Strategic imperatives (cloud, analytics, engagement) revenue grew 12% year-over-year (as reported and adjusted for currency) and represented 38% of total revenue.
  • 5Cloud revenue increased 30%, with Cloud as-a-Service revenue up 50%, reaching an annual run rate of $6.7 billion.
  • 6The company completed significant acquisitions, including The Weather Company and Truven Health Analytics, contributing to a substantial increase in goodwill.
  • 7Investments in strategic growth areas and workforce transformation resulted in increased expenses and impacted profit margins.

Frequently Asked Questions

IBM reported total revenue of $20.2 billion for the second quarter of 2016, a decrease of 2.8% compared to $20.8 billion in the same period of 2015. Adjusted for currency, the revenue decline was 2.6%.

IBM's strategic imperatives, which include cloud, analytics, and engagement solutions, showed strong growth, increasing by 12% year-over-year (both as reported and adjusted for currency). These strategic areas accounted for approximately 38% of IBM's total revenue during the quarter.

IBM completed significant acquisitions during the period, including The Weather Company and Truven Health Analytics. These acquisitions contributed to an increase in goodwill and intangible assets, and while enhancing IBM's strategic capabilities, they also led to higher acquisition-related expenses, impacting short-term profitability.

IBM revised its GAAP earnings per share forecast downward slightly due to higher acquisition-related expenses, now expecting at least $12.23. However, it maintained its operating (non-GAAP) earnings per share expectation of at least $13.50 and expects free cash flow to be at the high end of its $11 billion to $12 billion range. The company anticipates an improved trajectory for earnings per share growth in the second half of the year.