INTERNATIONAL BUSINESS MACHINES CORP (IBM) · Material Event (8-K) SEC Filing

EX-99.1 2 ibm-20260722xex991.htm EX-99.1 DocumentExhibit 99.1IBM RELEASES SECOND-QUARTER RESULTSCompany provides updated full-year expectationsARMONK, N.Y., July 22, 2026 . . . IBM (NYSE IBM) today announced second-quarter 2026 earnings results. We are confident in IBM's strategy and portfolio, and in our ability to capture growth opportunities ahead. We fundamentally believe that we are in the early innings of a structural shift for business, and that our portfolio - across software, infrastructure, and consulting - is well-positioned to help our clients tap the value, and manage the challenges, of an AI-driven future, said Arvind Krishna, IBM chairman, president and chief executive officer. In addition, we are taking action to accelerate our revenue growth and profitability, driving productivity across the company with AI and automation, and heavily investing in commercializing innovation at speed and scale. We now expect constant currency revenue growth in the range of four-to-five percent, and we continue to expect free cash flow to increase by about $1 billion year-over-year for the full year. Full-Year 2026 Expectations Revenue The company now expects full-year constant currency revenue growth in the range of four-to-five percent. At current foreign exchange rates, currency is expected to be neutral to growth for the year Free cash flow The company continues to expect full-year free cash flow to increase by about $1 billion year-over-yearOperational Focus Areas High-Growth Portfolio Areas of IBM's software business that help clients manage, deploy and build AI-ready solutions, like Red Hat, the watsonx portfolio, HashiCorp, and Confluent continue to deliver strong performance. Within Distributed Infrastructure, Power and Storage grew at a record pace in the second quarter, now having built up an order backlog of nearly $500 million. Together, these offerings closely map to where client demand is strongest. To capture these growth opportunities, IBM is accelerating changes to its go-to-market model by expanding sales coverage across thousands of additional clients where there is significant opportunity. As AI adoption moves from experimentation to enterprise-scale deployment, the company is also investing in more specialized technical and client-facing talent, including Forward Deployed Engineers. Rapid Innovation at Scale IBM is acting decisively to capture new opportunities as they arise. Lightwell, a new capability to address open source security vulnerabilities, leverages IBM and Red Hat's trust within the open source community, unique approach to AI, and global scale. In the first two weeks of availability, Lightwell has already made more than 7,500 open source patches available to help clients secure vulnerabilities. Additionally, quantum computing continues to be an investment priority for the company. In May, with the U.S. Department of Commerce, IBM announced a letter of intent to build Anderon, the world's first pure-play quantum wafer foundry. IBM will invest more than $10 billion in quantum over the next five years, and remains on track to deliver the first large-scale fault-tolerant quantum computer by 2029. Productivity Enables Investment and Value IBM is accelerating productivity by scaling software development leveraging AI, increasing the effectiveness of its sales and marketing organization, and optimizing its supply chain. These efforts help enhance margin and free cash flow, and strengthen the company's ability to capture significant growth opportunities. The company now expects improved pre-tax income margin expansion for the full year. Although we faced revenue headwinds late in the second quarter, we continued to focus on the fundamentals of our business, including driving productivity, strengthening our portfolio, and generating free cash flow, said James Kavanaugh, IBM senior vice president and chief financial officer. In a quarter like this, it is critical that our financial and operational discipline remains strong and that we continue to invest for growth while returning value to shareholders through our dividend. SECOND-QUARTER 2026 INCOME STATEMENT SUMMARY Revenue Gross Profit Gross Profit Margin Pre-tax Income Pre-tax Income Margin Net Income Diluted Earnings Per Share GAAP from Continuing Operations $ 17.2B $ 9.9B 57.7 % $ 2.5B 14.4 % $ 2.2B $ 2.27 Year Year 1 % (1) % (1.0) Pts (5) % (0.9) Pts (1) % (2) % Operating (Non-GAAP) $ 10.2B 59.4 % $ 3.3B 19.2 % $ 2.8B $ 2.93 Year Year 0 % (0.7) Pts 3 % 0.3 Pts 5 % 5 % Segment Results for Second Quarter Software revenues of $7.8 billion, up 5 percent Hybrid Cloud (Red Hat) up 11 percent Automation up 4 percent, up 3 percent at constant currency Data up 19 percent, up 18 percent at constant currency Transaction Processing down 8 percent, down 9 percent at constant currency Consulting revenues of $5.3 billion, flat, up 1 percent at constant currency Strategy and Technology flat, up 1 percent at constant currency Intelligent Operations flat, up 1 percent at constant currency Infrastructure revenues of $3.8 billion, down 7 percent Hybrid Infrastructure down 10 percent IBM Z down 42 percent Distributed Infrastructure up 37 percent Infrastructure Support down 1 percent Financing revenues of $0.2 billion, up 12 percent, up 11 percent at constant currencyCash Flow and Balance SheetIn the second quarter, the company generated net cash from operating activities of $2.6 billion, up $0.9 billion year to year. IBM s free cash flow was $2.5 billion, down $0.3 billion year to year. The company returned $1.6 billion to shareholders in dividends in the second quarter.For the first six months of the year, the company generated net cash from operating activities of $7.8 billion, up $1.7 billion year to year. IBM's free cash flow was $4.8 billion, flat year to year.IBM ended the second quarter with $8.2 billion of cash, restricted cash and marketable securities, down $6.3 billion from year-end 2025. The company invested $10.5 billion in acquisitions this year. Debt, including IBM Financing debt of $13.0 billion, totaled $62.0 billion, up $0.7 billion year to date.Dividend DeclarationThe IBM board of directors approved a regular quarterly cash dividend of $1.69 per common share, to stockholders of record on August 10, 2026. With payment of the September 10, 2026 dividend, IBM will have paid consecutive quarterly dividends every year since 1916. Forward-Looking and Cautionary StatementsExcept 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 divestitures, including integration challenges, failure to achieve objectives, the assumption or retention 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 and service quality issues the development and use of AI, including the company's increased AI solutions and use of AI technologies impacts of business with government clients reliance on third party distribution channels and ecosystems cybersecurity and data protection considerations adverse effects related to climate change and other 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 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 ReleaseIn 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 adjusting for currency (i.e., at constant currency) presenting operating (non-GAAP) earnings per share amounts and related income statement items free cash flow net cash from operating activities excluding IBM Financing receivables adjusted EBITDA adjusted EBITDA margin.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 WebcastIBM s regular quarterly earnings conference call is scheduled to begin at 5 00 p.m. ET, today. The Webcast may be accessed via a link at https www.ibm.com investor events earnings-2q26. 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 Tim Davidson, 914-844-7847 tfdavids us.ibm.com Erin McElwee, 347-920-6825 erin.mcelwee ibm.com INTERNATIONAL BUSINESS MACHINES CORPORATIONCOMPARATIVE FINANCIAL RESULTS(Unaudited $ in millions except per share amounts) Three Months EndedJune 30, Six Months EndedJune 30, 2026 2025 2026 2025 REVENUE BY SEGMENT Software $ 7,761 $ 7,387 $ 14,813 $ 13,722 Consulting 5,327 5,314 10,599 10,382 Infrastructure 3,835 4,142 7,161 7,027 Financing 186 166 406 357 Other 52 (31) 100 30 TOTAL REVENUE 17,162 16,977 33,079 31,519 GROSS PROFIT 9,907 9,977 18,857 18,008 GROSS PROFIT MARGIN Software 82.6 % 83.9 % 82.7 % 83.7 % Consulting 28.9 % 27.5 % 28.2 % 27.4 % Infrastructure 58.4 % 61.5 % 57.7 % 57.9 % Financing 42.5 % 45.7 % 43.0 % 45.8 % TOTAL GROSS PROFIT MARGIN 57.7 % 58.8 % 57.0 % 57.1 % EXPENSE AND OTHER INCOME SG A 4,981 5,027 10,071 9,913 R D 2,311 2,097 4,485 4,047 Intellectual property and custom development income (166) (215) (338) (468) Other (income) and expense (185) (39) (186) (204) Interest expense 486 510 959 965 TOTAL EXPENSE AND OTHER INCOME 7,428 7,380 14,991 14,253 INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 2,479 2,597 3,866 3,755 Pre-tax income margin 14.4 % 15.3 % 11.7 % 11.9 % Provision for (benefit from) income taxes 313 404 484 507 Effective tax rate 12.6 % 15.5 % 12.5 % 13.5 % INCOME FROM CONTINUING OPERATIONS $ 2,166 $ 2,193 $ 3,382 $ 3,248 DISCONTINUED OPERATIONS Income (loss) from discontinued operations, net of taxes (1) 1 (1) 1 NET INCOME $ 2,165 $ 2,194 $ 3,381 $ 3,249 EARNINGS PER SHARE OF COMMON STOCK Assuming dilution Continuing operations $ 2.27 $ 2.31 $ 3.55 $ 3.43 Discontinued operations $ 0.00 $ 0.00 $ 0.00 $ 0.00 TOTAL $ 2.27 $ 2.31 $ 3.55 $ 3.43 Basic Continuing operations $ 2.30 $ 2.36 $ 3.60 $ 3.49 Discontinued operations $ 0.00 $ 0.00 $ 0.00 $ 0.00 TOTAL $ 2.30 $ 2.36 $ 3.60 $ 3.50 WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (M s) Assuming dilution 953.3 948.0 952.7 946.7 Basic 941.2 930.8 939.9 929.4 INTERNATIONAL BUSINESS MACHINES CORPORATIONCONDENSED CONSOLIDATED BALANCE SHEET(Unaudited) ($ in millions) At June 30,2026 At December 31,2025 ASSETS Current assets Cash and cash equivalents $ 7,172 $ 13,587 Restricted cash 45 54 Marketable securities 960 830 Notes and accounts receivable - trade, net 6,044 8,112 Short-term financing receivables Held for investment, net 5,782 7,344 Held for sale 874 1,131 Other accounts receivable, net 1,348 1,052 Inventories 1,746 1,220 Deferred costs 1,238 1,084 Prepaid expenses and other current assets 3,188 2,530 Total current assets 28,398 36,944 Property, plant and equipment, net 5,736 5,899 Operating right-of-use assets, net 3,068 3,129 Long-term financing receivables, net 7,126 7,708 Prepaid pension assets 7,645 7,544 Deferred costs 835 825 Deferred taxes 8,709 8,610 Goodwill 74,599 67,717 Intangibles, net 13,955 11,391 Investments and sundry assets 2,028 2,112 Total assets $ 152,099 $ 151,880 LIABILITIES Current Liabilities Taxes $ 2,023 $ 2,347 Short-term debt 5,775 6,424 Accounts payable 4,395 4,756 Compensation and benefits 3,364 4,114 Deferred income 16,160 16,101 Operating lease liabilities 770 800 Other liabilities 3,425 4,116 Total current liabilities 35,912 38,658 Long-term debt 56,212 54,836 Retirement-related obligations 8,603 9,018 Deferred income 4,272 4,271 Operating lease liabilities 2,515 2,547 Other liabilities 10,044 9,810 Total liabilities 117,558 119,139 EQUITY IBM stockholders equity Common stock 64,600 63,318 Retained earnings 155,937 155,648 Treasury stock - at cost (170,934) (170,605) Accumulated other comprehensive income (loss) (15,151) (15,713) Total IBM stockholders equity 34,452 32,648 Noncontrolling interests 89 93 Total equity 34,541 32,740 Total liabilities and equity $ 152,099 $ 151,880 INTERNATIONAL BUSINESS MACHINES CORPORATIONSTATEMENT OF CASH FLOWS(Unaudited) Three Months EndedJune 30, Six Months EndedJune 30, ($ in millions) 2026 2025 (1) 2026 2025 (1) Cash flows from operating activities Net income $ 2,165 $ 2,194 $ 3,381 $ 3,249 Adjustments to reconcile net income to cash provided by operating activities Depreciation (2) 533 578 1,088 1,114 Amortization of capitalized software and acquired intangible assets 817 687 1,535 1,328 Stock-based compensation 498 441 1,004 842 Net (gain) loss on divestitures, asset sales and other (67) (18) (78) (40) Changes in operating assets and liabilities, net of acquisitions divestitures (1,349) (2,180) 836 (421) Net cash provided by operating activities 2,597 1,701 7,766 6,071 Cash flows from investing activities Payments for property, plant and equipment (229) (209) (461) (454) Proceeds from disposition of property, plant and equipment other 23 37 31 111 Investment in software (154) (164) (313) (314) Purchases of marketable securities and other investments (1,259) (1,255) (2,871) (7,740) Proceeds from disposition of marketable securities and other investments 1,152 4,036 3,123 4,962 Acquisition of businesses, net of cash acquired (15) (747) (10,480) (7,845) Divestiture of businesses, net of cash transferred - - 1 (1) Net cash provided by (used in) investing activities (481) 1,698 (10,970) (11,281) Cash flows from financing activities Proceeds from new debt 0 7 7,437 8,385 Payments to settle debt (4,213) (1,308) (7,141) (2,565) Short-term borrowings (repayments) less than 90 days - net 1 0 0 (29) Common stock repurchases for tax withholdings (116) (153) (465) (437) Proceeds from issuance of shares 240 186 418 401 Financing - other (49) (22) (91) (54) Cash dividends paid (1,590) (1,563) (3,166) (3,112) Net cash provided by (used in) financing activities (5,728) (2,855) (3,008) 2,589 Effect of exchange rate changes on cash, cash equivalents and restricted cash (35) 320 (211) 487 Net change in cash, cash equivalents and restricted cash (3,646) 865 (6,423) (2,134) Cash, cash equivalents and restricted cash at the beginning of the period 10,864 11,161 13,640 14,160 Cash, cash equivalents and restricted cash at the end of the period $ 7,217 $ 12,026 $ 7,217 $ 12,026 (1) Reclassified to align with the Consolidated Statement of Cash Flows presentation.(2) Includes operating lease right-of-use assets amortization.INTERNATIONAL BUSINESS MACHINES CORPORATIONGAAP NET INCOME TO ADJUSTED EBITDA RECONCILIATION(Unaudited) Three Months EndedJune 30, Six Months EndedJune 30, ($ in billions) 2026 2025 Yr Yr 2026 2025 Yr Yr Net income as reported (GAAP) $ 2.2 $ 2.2 $ 0.0 $ 3.4 $ 3.2 $ 0.1 Less income from discontinued operations, net of tax 0.0 0.0 0.0 0.0 0.0 0.0 Income from continuing operations 2.2 2.2 0.0 3.4 3.2 0.1 Provision for (benefit from) income taxes from continuing ops. 0.3 0.4 (0.1) 0.5 0.5 0.0 Pre-tax income from continuing operations (GAAP) 2.5 2.6 (0.1) 3.9 3.8 0.1 Non-operating adjustments (before tax) Acquisition-related charges (1) 0.7 0.6 0.1 1.4 1.1 0.2 Non-operating retirement-related costs (income) 0.1 0.0 0.1 0.2 0.0 0.1 Operating (non-GAAP) pre-tax income from continuing ops. 3.3 3.2 0.1 5.4 4.9 0.5 Net interest expense 0.4 0.3 0.1 0.7 0.6 0.1 Depreciation amortization of non-acquired intangible assets 0.7 0.7 0.0 1.4 1.4 0.0 Stock-based compensation 0.5 0.4 0.1 1.0 0.8 0.2 Workforce rebalancing charges 0.0 0.0 0.0 0.4 0.3 0.0 Corporate (gains) and charges (2) (0.1) 0.0 (0.1) (0.1) 0.0 (0.1) Adjusted EBITDA $ 4.8 $ 4.7 $ 0.1 $ 8.8 $ 8.1 $ 0.7 Revenue $ 17.2 $ 17.0 1 % $ 33.1 $ 31.5 5 % GAAP net income margin 12.6 % 12.9 % (0.3)pts 10.2 % 10.3 % (0.1)pts Adjusted EBITDA margin 27.8 % 27.6 % 0.2pts 26.5 % 25.7 % 0.8pts (1) Primarily consists of amortization of acquired intangible assets. (2) Primarily consists of unique corporate actions such as gains on divestitures and asset sales.INTERNATIONAL BUSINESS MACHINES CORPORATIONSEGMENT DATA(Unaudited) Three Months Ended June 30, 2026 ($ in millions) Software Consulting Infrastructure Financing Revenue $ 7,761 $ 5,327 $ 3,835 $ 186 Segment profit $ 2,502 $ 647 $ 835 $ 108 Segment profit margin 32.2 % 12.1 % 21.8 % 58.0 % Change YTY revenue 5.1 % 0.2 % (7.4) % 12.2 % Change YTY revenue - constant currency 4.6 % 1.1 % (7.4) % 11.3 % Three Months Ended June 30, 2025 ($ in millions) Software Consulting Infrastructure Financing Revenue $ 7,387 $ 5,314 $ 4,142 $ 166 Segment profit $ 2,296 $ 562 $ 965 $ 179 Segment profit margin 31.1 % 10.6 % 23.3 % 107.9 % Six Months Ended June 30, 2026 (Dollars in Millions) Software Consulting Infrastructure Financing Revenue $ 14,813 $ 10,599 $ 7,161 $ 406 Segment Profit $ 4,601 $ 1,205 $ 1,360 $ 226 Segment Profit Margin 31.1 % 11.4 % 19.0 % 55.8 % Change YTY Revenue 7.9 % 2.1 % 1.9 % 13.6 % Change YTY Revenue - Constant Currency 6.1 % 1.0 % 0.5 % 10.7 % Six Months Ended June 30, 2025 (Dollars in Millions) Software Consulting Infrastructure Financing Revenue $ 13,722 $ 10,382 $ 7,027 $ 357 Segment Profit $ 4,143 $ 1,121 $ 1,213 $ 248 Segment Profit Margin 30.2 % 10.8 % 17.3 % 69.3 % INTERNATIONAL BUSINESS MACHINES CORPORATIONU.S. GAAP TO OPERATING (Non-GAAP) RESULTS RECONCILIATION(Unaudited $ in millions except per share amounts) Three Months Ended June 30, 2026 Continuing Operations GAAP Acquisition-Related Adjustments (1) Retirement-Related Adjustments (2) Tax Reform Impacts Operating (Non-GAAP) Gross profit $ 9,907 $ 287 $ $ $ 10,194 Gross profit margin 57.7 % 1.7 pts pts pts 59.4 % SG A $ 4,981 $ (421) $ $ $ 4,560 Other (income) expense (185) 1 (96) (280) Total expense other (income) 7,428 (429) (96) 6,903 Pre-tax income from continuing operations 2,479 716 96 3,290 Pre-tax income margin from continuing operations 14.4 % 4.2 pts 0.6 pts pts 19.2 % Provision for (benefit from) income taxes (3) $ 313 $ 167 $ 20 $ (2) $ 498 Effective tax rate 12.6 % 2.3 pts 0.2 pts (0.1) pts 15.1 % Income from continuing operations $ 2,166 $ 548 $ 76 $ 2 $ 2,792 Income margin from continuing operations 12.6 % 3.2 pts 0.4 pts 0.0 pts 16.3 % Diluted earnings per share continuing operations $ 2.27 $ 0.58 $ 0.08 $ 0.00 $ 2.93 Three Months Ended June 30, 2025 Continuing Operations GAAP Acquisition-Related Adjustments (1) Retirement-Related Adjustments (2) Tax Reform Impacts Operating (Non-GAAP) Gross profit $ 9,977 $ 225 $ $ $ 10,202 Gross profit margin 58.8 % 1.3 pts pts pts 60.1 % SG A $ 5,027 $ (348) $ $ $ 4,679 Other (income) expense (39) (1) (25) (65) Total expense other (income) 7,380 (350) (25) 7,005 Pre-tax income from continuing operations 2,597 575 25 3,197 Pre-tax income margin from continuing operations 15.3 % 3.4 pts 0.1 pts pts 18.8 % Provision for (benefit from) income taxes (3) $ 404 $ 132 $ 9 $ $ 545 Effective tax rate 15.5 % 1.3 pts 0.2 pts pts 17.0 % Income from continuing operations $ 2,193 $ 443 $ 17 $ $ 2,652 Income margin from continuing operations 12.9 % 2.6 pts 0.1 pts pts 15.6 % Diluted earnings per share continuing operations $ 2.31 $ 0.47 $ 0.02 $ $ 2.80 (1)Includes amortization of acquired intangible assets and acquisition-related charges such as in-process research and development, transaction costs, applicable retention, restructuring and related expenses, tax charges related to acquisition integration, and pre-closing charges, such as financing costs. (2)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.(3)The tax impact on operating (non-GAAP) pre-tax income from continuing operations is calculated under the same accounting principles applied to the GAAP pre-tax income.INTERNATIONAL BUSINESS MACHINES CORPORATIONU.S. GAAP TO OPERATING (Non-GAAP) RESULTS RECONCILIATION(Unaudited $ in millions except per share amounts) Six Months Ended June 30, 2026 Continuing Operations GAAP Acquisition-Related Adjustments (1) Retirement-Related Adjustments (2) Tax Reform Impacts Operating (Non-GAAP) Gross Profit $ 18,857 $ 524 $ $ $ 19,380 Gross Profit Margin 57.0 % 1.6 pts pts pts 58.6 % SG A $ 10,071 $ (829) $ $ $ 9,242 Other (Income) Expense (186) 1 (192) (378) Total Expense Other (Income) 14,991 (838) (192) 13,961 Pre-tax Income from Continuing Operations 3,866 1,361 192 5,419 Pre-tax Income Margin from Continuing Operations 11.7 % 4.1 pts 0.6 pts pts 16.4 % Provision for (Benefit from) Income Taxes (3) $ 484 $ 305 $ 23 $ (6) $ 806 Effective Tax Rate 12.5 % 2.5 pts 0.0 pts (0.1) pts 14.9 % Income from Continuing Operations $ 3,382 $ 1,056 $ 169 $ 6 $ 4,613 Income Margin from Continuing Operations 10.2 % 3.2 pts 0.5 pts 0.0 pts 13.9 % Diluted Earnings Per Share Continuing Operations $ 3.55 $ 1.11 $ 0.18 $ 0.01 $ 4.84 Six Months Ended June 30, 2025 Continuing Operations GAAP Acquisition-Related Adjustments (1) Retirement-Related Adjustments (2) Tax Reform Impacts Operating (Non-GAAP) Gross Profit $ 18,008 $ 426 $ $ $ 18,434 Gross Profit Margin 57.1 % 1.4 pts pts pts 58.5 % SG A $ 9,913 $ (701) $ $ $ 9,212 Other (Income) Expense (204) (1) (48) (253) Total Expense Other (Income) 14,253 (706) (48) 13,499 Pre-tax Income from Continuing Operations 3,755 1,132 48 4,935 Pre-tax Income Margin from Continuing Operations 11.9 % 3.6 pts 0.2 pts pts 15.7 % Provision for (Benefit from) Income Taxes (3) $ 507 $ 260 $ (3) $ 2 $ 766 Effective Tax Rate 13.5 % 2.2 pts (0.2) pts 0.0 pts 15.5 % Income from Continuing Operations $ 3,248 $ 872 $ 51 $ (2) $ 4,169 Income Margin from Continuing Operations 10.3 % 2.8 pts 0.2 pts 0.0 pts 13.2 % Diluted Earnings Per Share Continuing Operations $ 3.43 $ 0.92 $ 0.05 $ 0.00 $ 4.40 (1)Includes amortization of acquired intangible assets, and acquisition-related charges such as in-process research and development, transaction costs, applicable retention, restructuring and related expenses, tax charges related to acquisition integration, and pre-closing charges, such as financing costs. (2)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.(3)The tax impact on operating (non-GAAP) pre-tax income from continuing operations is calculated under the same accounting principles applied to the GAAP pre-tax income.INTERNATIONAL BUSINESS MACHINES CORPORATIONGAAP OPERATING CASH FLOW TO FREE CASH FLOW RECONCILIATION(Unaudited) Three Months EndedJune 30, Six Months EndedJune 30, ($ in millions) 2026 2025 2026 2025 Net cash provided by operating activities per GAAP $ 2,597 $ 1,701 $ 7,766 $ 6,071 Less change in IBM Financing receivables (302) (1,480) 2,264 606 Net cash from operating activities excl. IBM Financing receivables 2,899 3,182 5,503 5,465 Capital expenditures, net (359) (336) (743) (657) Free cash flow $ 2,540 $ 2,845 $ 4,760 $ 4,808 INTERNATIONAL BUSINESS MACHINES CORPORATIONGAAP OPERATING CASH FLOW TO ADJUSTED EBITDA RECONCILIATION(Unaudited) Three Months EndedJune 30, Six Months EndedJune 30, ($ in billions) 2026 2025 2026 2025 Net cash provided by operating activities $ 2.6 $ 1.7 $ 7.8 $ 6.1 Add Net interest expense 0.4 0.3 0.7 0.6 Provision for (benefit from) income taxes from continuing operations 0.3 0.4 0.5 0.5 Less change in Financing receivables (0.3) (1.5) 2.3 0.6 Net (gain) loss on divestitures, assets sales and other (1) (0.1) 0.0 (0.1) 0.0 Other assets and liabilities other, net (1,2) (1.1) (0.7) (2.0) (1.5) Adjusted EBITDA $ 4.8 $ 4.7 $ 8.8 $ 8.1 Revenue $ 17.2 $ 17.0 $ 33.1 $ 31.5 Net cash provided by operating activities margin 15.1 % 10.0 % 23.5 % 19.3 % Adjusted EBITDA margin 27.8 % 27.6 % 26.5 % 25.7 % (1)Reclassified to align with the presentation of similar line items in the Statement of Cash Flows. (2)Mainly consists of Changes in operating assets and liabilities, net of acquisitions divestitures in the Statement of Cash Flows chart, workforce rebalancing charges, non-operating impacts, and corporate (gains) and charges, less the change in Financing receivables.

EX-99.2 3 ibm-20260722xex992.htm EX-99.2 DocumentExhibit 99.2Non-GAAP Metrics and Other Financial InformationOperating (non-GAAP) Earnings Per Share and Related Income Statement ItemsIn an effort to provide better transparency into the operational results of the business, supplementally, the company separates business results into operating and non-operating categories. Operating earnings from continuing operations is a non-GAAP measure that excludes the effects of certain acquisition-related charges and intangible asset amortization, expense resulting from basis differences on equity method investments, retirement-related costs and their related tax impacts. Due to the unique, non-recurring nature of the enactment of the U.S. Tax Cuts and Jobs Act (TCJA or U.S. tax reform), the company characterizes the one-time provisional charge recorded in the fourth quarter of 2017, and adjustments to that charge, as non-operating. Adjustments include the tax effect of true-ups, audit adjustments, accounting elections and new regulations, or laws (e.g., H.R. 1 in July of 2025) that impact the TCJA provisions which resulted in the one-time provisional charge. For acquisitions, operating (non-GAAP) earnings exclude the amortization of acquired intangible assets and acquisition-related charges such as in-process research and development, transaction costs, applicable retention, restructuring and related expenses, tax charges related to acquisition integration, and pre-closing charges, such as financing costs. These charges are excluded as they may be inconsistent in amount and timing from period to period and are significantly impacted by the size, type and frequency of the company s acquisitions. All other spending for acquired companies is included in both earnings from continuing operations and in operating (non-GAAP) earnings. For retirement-related costs, the company characterizes certain items as operating and others as non-operating, consistent with GAAP. The company includes defined benefit plan and nonpension postretirement benefit plan service costs, multi-employer plan costs and the cost of defined contribution plans in operating earnings. Non-operating retirement-related costs include defined benefit plan and nonpension postretirement benefit plan 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. Non-operating retirement-related costs are primarily related to changes in pension plan assets and liabilities which are tied to financial market performance, and the company considers these costs to be outside of the operational performance of the business. Overall, the company believes that supplementally providing investors with a view of operating earnings as described above provides increased transparency and clarity into both the operational results of the business and the performance of the company s pension plans improves visibility to management decisions and their impacts on operational performance enables better comparison to peer companies and allows the company to provide a long-term strategic view of the business going forward. In addition, these non-GAAP measures provide a perspective consistent with areas of interest the company routinely receives from investors and analysts. Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) and adjusted EBITDA marginAdditionally, the company reports adjusted EBITDA and adjusted EBITDA margin which, in addition to the operating (non-GAAP) earnings adjustments described above, also excludes income (loss) from discontinued operations, income tax expense, net interest expense, depreciation amortization of non-acquired intangible assets including operating lease right-of-use assets, stock-based compensation, and certain other activity that is not reflective of the company s ongoing operational results such as workforce rebalancing charges and corporate gains and charges. Adjusted EBITDA margin is calculated by dividing adjusted EBITDA by total revenue. The company uses adjusted EBITDA and adjusted EBITDA margin to measure its operating performance and believes that supplementally providing adjusted EBITDA will provide investors with additional transparency and clarity into how the company s operational profitability is driving its free cash flow results. Free Cash Flow Net Cash from Operating Activities Excluding IBM Financing ReceivablesThe company uses free cash flow as a measure to evaluate its operating results, strategic investments, plan shareholder return levels and assess its ability and need to incur and service debt. The entire free cash flow amount is not necessarily available for discretionary expenditures. The company defines free cash flow as net cash from operating activities less the change in Financing receivables and net capital expenditures, including the investment in software and other asset sales. A key objective of the Financing business is to generate strong returns on equity, and our Financing receivables are the basis for that growth. Accordingly, management considers Financing receivables as a profit-generating investment, not as working capital that should be minimized for efficiency. Therefore, management presents both free cash flow and net cash from operating activities that exclude the effect of Financing receivables. Free cash flow guidance is derived using an estimate of profit, working capital and operational cash flows. Since the company views Financing receivables as a profit-generating investment which it seeks to maximize, it is not considered when formulating guidance for free cash flow and adjusted EBITDA. As a result, the company does not estimate a GAAP net cash from operations expectation metric.Constant CurrencyWhen the company refers to growth rates at constant currency or adjusts such growth rates for currency, it is done so that certain financial results can be viewed without the impact of fluctuations in foreign currency exchange rates, thereby facilitating period-to-period comparisons of its business performance. Financial results adjusted for currency are calculated by translating current period activity in local currency using the comparable prior year period s currency conversion rate. This approach is used for countries where the functional currency is the local currency. Generally, when the dollar either strengthens or weakens against other currencies, the growth at constant currency rates or adjusting for currency will be higher or lower than growth reported at actual exchange rates.Key Performance IndicatorsAnnual Recurring Revenue (ARR) ARR is a key performance metric management uses to assess the health and growth trajectory of our Software segment and is calculated by using the current quarter s recurring revenue and then multiplying that value by four. This value includes the following consumption models (1) software subscription agreements, including committed term licenses, (2) as-a-service arrangements such as SaaS and PaaS, and (3) maintenance and support contracts. ARR should be viewed independently of software revenue as this performance metric and its inputs may not represent revenue that will be recognized in future periods. Red Hat Annual Bookings Annual bookings (or Annual Contract Value (ACV)) is a key performance metric management uses in its assessment of a customer's commitment under Red Hat subscription and services contracts and provides an indication of forward-looking Red Hat revenue trajectory. It represents the value of a contract over a 12-month period, as of the date of contract signing. Annual bookings is calculated by taking the total subscription and service contract value divided by the number of days in the contract, multiplied by 365, plus the revenue recognized in the quarter for select cloud based offerings. Annual bookings should be viewed independently of revenue as this performance metric and its inputs may not represent the amount of revenue recognized in the period. For example, the conversion of annual bookings to revenue may vary based on types of services, customer decisions, start dates, and other factors. Therefore, annual bookings is not intended to represent current period revenue or revenue that will be recognized in future periods.GenAI Book of Business Generative AI (GenAI) book of business is a key performance metric management uses to assess the progress and growth of the company's AI strategy and offerings. It is calculated as inception to date Software transactional revenue, plus new SaaS Annual Contract Value and Consulting signings related to specific offerings. Since second-quarter 2023, approximately one-fifth of this book of business comes from Software, and the remaining four-fifths is Consulting. Our book of business reflects the value we are delivering to clients in two ways. First, we are partnering with our clients to design and scale AI solutions, whether that be leveraging AI capabilities of IBM, our partners, or a combination of both. Second, we are utilizing generative AI solutions to improve delivery by developing new ways of working and driving productivity within our client contracts. GenAI book of business should be viewed independently of revenue as this performance metric is not intended to represent current period revenue or revenue that will be recognized in future periods.