10-QPeriod: Q1 FY2020

INTERNATIONAL BUSINESS MACHINES CORP Quarterly Report for Q1 Ended Mar 31, 2020

Filed April 28, 2020For Securities:IBM

Summary

IBM's first quarter 2020 results showed a decrease in total revenue to $17.6 billion from $18.2 billion in the prior year, a 3.4% decline. This was attributed to the broader economic impact of the COVID-19 pandemic, which was particularly noticeable in March, affecting transaction closures, especially in the software business. Despite the revenue dip, gross profit margin improved to 45.1% from 44.2% year-over-year, indicating improved cost management or product mix. Net income decreased significantly to $1.2 billion from $1.6 billion, resulting in diluted earnings per share of $1.31, down from $1.78 in Q1 2019. The Red Hat acquisition, completed in July 2019, continued to influence the financial statements, contributing to higher expenses including amortization of intangible assets and interest costs. However, Red Hat also bolstered the Cloud & Cognitive Software segment, which saw revenue growth of 5.5% (7% adjusted for currency), with Cloud & Data Platforms experiencing a substantial 32.2% increase. The company maintained a strong liquidity position with $12.0 billion in cash, restricted cash, and marketable securities.

Financial Highlights

50 data points
Beta

Revenue

$17.57B

45.1% Gross Margin

Net Income

$1.18B

6.7% Net Margin

EPS (Diluted)

$1.31

Total Assets

$153.40B

Cash & Equivalents

$11.22B

Free Cash Flow

$3.85B

Financial Statements
Beta
Revenue$17.57B
Cost of Revenue$9.65B
Gross Profit$7.92B
R&D Expenses$1.63B
SG&A Expenses$5.96B
Operating Income$1.18B
Interest Expense$326.00M
Net Income$1.18B
EPS (Basic)$1.32
EPS (Diluted)$1.31
Shares Outstanding (Basic)887.97M
Shares Outstanding (Diluted)895.04M

Key Highlights

  • 1Total revenue declined 3.4% year-over-year to $17.6 billion, impacted by the COVID-19 pandemic, particularly in March.
  • 2Net income fell to $1.2 billion ($1.31 EPS) from $1.6 billion ($1.78 EPS) in the prior year.
  • 3The Cloud & Cognitive Software segment grew 5.5% (7% adjusted for currency), driven by strong performance in Red Hat and Cloud & Data Platforms (up 32.2%).
  • 4Gross profit margin improved to 45.1% from 44.2% year-over-year.
  • 5Operating (non-GAAP) earnings were $1.6 billion, or $1.84 per diluted share, down from $2.0 billion ($2.25 EPS) in Q1 2019.
  • 6The company generated $4.5 billion in cash from operations.
  • 7IBM withdrew its full-year 2020 financial expectations due to uncertainty surrounding the COVID-19 pandemic.

Frequently Asked Questions

The COVID-19 pandemic had a significant impact, particularly in March, leading to a noticeable shift in client priorities. This resulted in a pause in many transactions, especially in the software business, and a focus on operational stability and cash preservation. While IBM's enterprise focus and long-term client relationships provided some stability, the overall revenue declined.

The acquisition of Red Hat, completed in July 2019, is reflected in the financial results. It contributed to higher expenses, including amortization of intangible assets and interest expense. However, Red Hat significantly boosted the Cloud & Cognitive Software segment, driving revenue growth and strengthening IBM's hybrid cloud strategy.

IBM maintained a strong liquidity position at the end of the quarter, with $12.0 billion in cash, restricted cash, and marketable securities. The company also has significant unused credit facilities available. Despite a decrease in total equity, the balance sheet remained robust, with IBM committed to maintaining its dividend and target leverage profile.

IBM withdrew its full-year 2020 financial expectations on April 20, 2020, due to the high level of uncertainty surrounding the duration of the COVID-19 health crisis and the pace of economic recovery. The company plans to reassess its position after the second quarter.