IBM Reports 2017 Third-Quarter Results

ARMONK, NY - 17 Oct 2017: IBM (NYSE: IBM) today announced third-quarter earnings results.

Highlights

Diluted EPS from continuing operations: GAAP of $2.92; Operating (non-GAAP) of $3.30

Revenue of $19.2 billion

Strategic imperatives revenue of $34.9 billion over the trailing 12 months, up 10 percent; represents 45 percent of IBM revenue

Third-quarter revenue up 11 percent (up 10 percent adjusting for currency)

Cloud revenue of $15.8 billion over the trailing 12 months, up 25 percent year to year (up 26 percent adjusting for currency)

As-a-service annual exit run rate of $9.4 billion in the quarter, up 25 percent year to year (up 24 percent adjusting for currency)

Maintains full-year EPS and free cash flow expectations

IBM (NYSE: IBM) today announced third-quarter earnings results.

"In the third quarter we achieved double-digit growth in our strategic imperatives, extended our enterprise cloud leadership, and expanded our cognitive solutions business," said Ginni Rometty, IBM chairman, president and chief executive officer. "There was enthusiastic adoption of IBM s new z Systems mainframe, which delivers breakthrough security capabilities to our clients."

THIRD QUARTER 2017

Diluted EPS Net Income Gross Profit Margin

GAAP from Continuing Operations $2.92 $2.7B 45.9%

Year/Year -2% -4% -0.9Pts

Operating (Non-GAAP) $3.30 $3.1B 47.6%

Year/Year 0% -2% -0.4Pts

REVENUE Total IBM Strategic Imperatives Cloud As-a-service annual exit run rate

As reported (US$) $19.2B $8.8B $4.1B $9.4B

Year/Year 0% 11% 20% 25%

Year/Year adjusting for currency -1% 10% 20% 24%

"During the first three quarters of the year, our strong free cash flow has enabled us to maintain our R&D investments and to expand IBM s cloud and cognitive capabilities through capital investments," said Martin Schroeter, IBM senior vice president and chief financial officer. "In addition, we have returned nearly $8 billion to shareholders through dividends and share repurchases."

Strategic Imperatives Revenue

Third-quarter cloud revenues increased 20 percent to $4.1 billion. Cloud revenue over the last 12 months was $15.8 billion, including $8.8 billion delivered as-a-service and $7.0 billion for hardware, software and services to enable IBM clients to implement comprehensive cloud solutions. The annual exit run rate for as-a-service revenue increased to $9.4 billion from $7.5 billion in the third quarter of 2016. In the quarter, revenues from analytics increased 5 percent. Revenues from mobile increased 7 percent and revenues from security increased 51 percent (up 49 percent adjusting for currency).

Full-Year 2017 Expectations

The company continues to expect operating (non-GAAP) diluted earnings per share of at least $13.80 and GAAP diluted earnings per share of at least $11.95. Operating (non-GAAP) diluted earnings per share exclude $1.85 per share of charges for amortization of purchased intangible assets, other acquisition-related charges and retirement-related charges. IBM continues to expect free cash flow to be relatively flat year to year.

Cash Flow and Balance Sheet

In the third quarter, the company generated net cash from operating activities of $3.6 billion, or $3.3 billion excluding Global Financing receivables. IBM's free cash flow was $2.5 billion. IBM returned $1.4 billion in dividends and $0.9 billion of gross share repurchases to shareholders. At the end of September 2017, IBM had $1.5 billion remaining in the current share repurchase authorization.

IBM ended the third quarter of 2017 with $11.5 billion of cash on hand. Debt totaled $45.6 billion, including Global Financing debt of $29.4 billion. The balance sheet remains strong and is well positioned over the long term.

Segment Results for Third Quarter

Cognitive Solutions (includes solutions software and transaction processing software) -- revenues of $4.4 billion, up 4 percent (up 3 percent adjusting for currency), driven by solutions software, including security and analytics, and transaction processing software.

Global Business Services (includes consulting, global process services and application management) -- revenues of $4.1 billion, down 2 percent. Strategic imperatives revenue grew 10 percent led by the cloud practice.

Technology Services & Cloud Platforms (includes infrastructure services, technical support services and integration software) -- revenues of $8.5 billion, down 3 percent (down 4 percent adjusting for currency). Strategic imperatives revenue grew 12 percent, driven by hybrid cloud services, security and mobile.

Systems (includes systems hardware and operating systems software) -- revenues of $1.7 billion, up 10 percent, driven by growth in z Systems and storage.

Global Financing (includes financing and used equipment sales) -- revenues of $427 million, up 4 percent (up 3 percent adjusting for currency).

Expense and Other Income

Third-quarter GAAP expense and other income year-to-year performance reflects lower IP income of $221 million, an impact of $105 million year to year related to several commercial disputes and a benefit of $91 million resulting from the favorable resolution of pension-related litigation in the U.K.

Operating (non-GAAP) expense and other income for the third quarter of 2017 compared to 2016 reflects lower IP income of $221 million and an impact of $105 million year to year related to several commercial disputes.

Tax Rate

IBM s third-quarter effective GAAP and operating (non-GAAP) tax rates were 11.0 percent and 14.7 percent, respectively. The company continues to expect a full-year effective operating (non-GAAP) tax rate of 15 percent, plus or minus 3 points, excluding discrete items.

Year-To-Date 2017 Results

Consolidated diluted earnings per share were $7.24 compared to $7.67, down 6 percent year to year. Consolidated net income w

LINK:	http://www-03.ibm.com/press/uk/en/pressrelease/53382.wss...
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