IBM RELEASES FOURTH-QUARTER RESULTS

Revenue Growth in All Key Segments; Expanded Margins; Solid Cash Generation

ARMONK, N.Y., Jan. 25, 2023 /PRNewswire/ -- IBM (NYSE: IBM) today announced fourth-quarter 2022 earnings results.

"Our solid fourth-quarter performance capped a year in which we grew revenue above our mid-single digit model. Clients in all geographies increasingly embraced our hybrid cloud and AI solutions as technology remains a differentiating force in today's business environment," said Arvind Krishna, IBM chairman and chief executive officer. "Looking ahead to 2023, we expect full-year revenue growth consistent with our mid-single digit model."

Fourth-Quarter Highlights

• Revenue of $16.7 billion, flat, up 6 percent at constant currency 
  - Software revenue up 3 percent, up 8 percent at constant currency
  - Consulting revenue up 0.5 percent, up 9 percent at constant currency
  - Infrastructure revenue up 2 percent, up 7 percent at constant currency

Full-Year Highlights

• Revenue of $60.5 billion, up 6 percent, up 12 percent at constant currency (about 4 points from sales to Kyndryl)
  - Hybrid cloud revenue of $22.4 billion, up 11 percent, up 17 percent at constant currency
  
  
• On a consolidated basis, net cash from operating activities of $10.4 billion; free cash flow of $9.3 billion

Full-Year 2023 Expectations

• The company expects constant currency revenue growth consistent with its mid-single digit model and about $10.5 billion in consolidated free cash flow, up more than $1 billion year to year

"IBM's revenue growth and operating profit in 2022 demonstrate the strength and multiplier effect of our platform-centric approach to hybrid cloud and AI," said James Kavanaugh, IBM senior vice president and chief financial officer. "Our client-focused portfolio and strong recurring revenue stream position IBM well for continued growth, solid cash generation and returning value to shareholders through dividends."

Segment Results for Fourth Quarter

• Software (includes Hybrid Platform & Solutions, Transaction Processing)— revenues of $7.3 billion, up 2.8 percent, up 8.0 percent at constant currency:
  - Hybrid Platform & Solutions up 5 percent, up 10 percent at constant currency:
        -- Red Hat up 10 percent, up 15 percent at constant currency
        -- Automation up 4 percent, up 9 percent at constant currency
        -- Data & AI up 4 percent, up 8 percent at constant currency
        -- Security up 4 percent, up 10 percent at constant currency
  - Transaction Processing down 3 percent, up 3 percent at constant currency
  
  
• Consulting (includes Business Transformation, Technology Consulting and Application Operations)— revenues of $4.8 billion, up 0.5 percent, up 9.3 percent at constant currency:
  - Business Transformation down 1 percent, up 7 percent at constant currency
  - Technology Consulting up 1 percent, up 10 percent at constant currency
  - Application Operations up 2 percent, up 12 percent at constant currency
  
  
• Infrastructure (includes Hybrid Infrastructure, Infrastructure Support)— revenues of $4.5 billion, up 1.6 percent, up 7.4 percent at constant currency:
  - Hybrid Infrastructure up 6 percent, up 11 percent at constant currency:
        -- IBM z Systems up 16 percent, up 21 percent at constant currency
        -- Distributed Infrastructure flat, up 5 percent at constant currency
  - Infrastructure Support down 8 percent, flat at constant currency
  
  
• Financing (includes client and commercial financing)— revenues of $0.2 billion, down 0.4 percent, up 3.9 percent at constant currency

Cash Flow and Balance Sheet
On a consolidated basis, in the fourth quarter, the company generated net cash from operating activities of $4.0 billion, up $1.4 billion. Net cash from operating activities excluding IBM Financing receivables was $5.8 billion, up $1.9 billion. IBM's free cash flow was $5.2 billion, up $1.9 billion. The company returned $1.5 billion to shareholders in dividends in the fourth quarter.

On a consolidated basis, for the full year, the company generated net cash from operating activities of $10.4 billion, down $2.4 billion. Net cash from operating activities excluding IBM Financing receivables was $11.2 billion, up $2.3 billion. IBM's free cash flow was $9.3 billion, up $2.8 billion. IBM returned $5.9 billion to shareholders in dividends.

IBM ended the fourth quarter with $8.8 billion of cash on hand (which includes marketable securities), up $1.3 billion from year-end 2021. Debt, including IBM Financing debt of $12.9 billion, totaled $50.9 billion, down $0.8 billion since the end of 2021.

Full-Year 2022 Results

Full-Year 2023 Expectations

• Revenue Growth: The company expects constant currency revenue growth consistent with its mid-single digit model. At current foreign exchange rates, currency is expected to be neutral to a one-point tailwind to revenue growth.
  
  
• Free Cash Flow: The company expects about $10.5 billion in consolidated free cash flow, up more than $1 billion year to year.

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; 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 dispositions, including integration challenges, failure to achieve objectives, the assumption 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 quality issues; impacts of business with government clients; reliance on third party distribution channels and ecosystems; cybersecurity and data privacy considerations; adverse effects related to climate change and environmental matters; tax matters; legal proceedings and investigatory risks; the company's pension plans; currency fluctuations and customer financing risks; impact of changes in market liquidity conditions and customer credit risk on receivables; potential failure of the separation of Kyndryl Holdings, Inc. to qualify for tax-free treatment; 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 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
On November 3, 2021, IBM completed the separation of Kyndryl. Unless otherwise specified, results are presented on a continuing operations basis. The reference in Full-Year Highlights to the revenue impacts from sales to Kyndryl are incremental sales post-separation, year to date through October.

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);
• presenting operating (non-GAAP) earnings per share amounts and related income statement items;
• consolidated free cash flow;
• consolidated cash from operating activities excluding IBM 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. EST, today. The Webcast may be accessed via a link at https://www.ibm.com/investor/events/earnings-4q22. 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
                     Sarah Meron, 347–891–1770
                     sarah.meron@ibm.com

                     Tim Davidson, 914–844–7847
                     tfdavids@us.ibm.com