Software and Consulting Growth Driven by Hybrid Cloud Adoption; Strong Profit Performance
IBM today announced fourth-quarter 2021 earnings results.
"We increased revenue in the fourth quarter with hybrid cloud adoption driving growth in software and consulting," said Arvind Krishna, IBM chairman and chief executive officer. "Our fourth-quarter results give us confidence in our ability to deliver our objectives of sustained mid-single digit revenue growth and strong free cash flow in 2022."
On November 3, 2021, IBM completed the separation of Kyndryl. Unless otherwise specified, fourth-quarter and full-year results are presented on a continuing operations basis.
Fourth-Quarter Highlights
- Revenue
- Revenue of $16.7 billion, up 6.5 percent, up 8.6 percent at constant currency (including about 3.5 points from incremental external sales to Kyndryl)
- Software revenue up 8 percent, up 10 percent at constant currency (including about 5 points from incremental external sales to Kyndryl)
- Consulting revenue up 13 percent, up 16 percent at constant currency
- Infrastructure revenue flat, up 2 percent at constant currency (including about 5 points from incremental external sales to Kyndryl)
- Hybrid cloud revenue:
-- Fourth Quarter: $6.2 billion, up 16 percent, up 18 percent at constant currency
-- Full Year: $20.2 billion, up 20 percent, up 19 percent at constant currency - Pre-tax Income:
- GAAP: $2.9 billion, up 183 percent, including 167 points from the impact of fourth-quarter 2020 charge for structural actions
- Operating (Non-GAAP): $3.5 billion, up 102 percent, including 92 points from the impact of fourth-quarter 2020 charge for structural actions
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FOURTH QUARTER 2021 INCOME STATEMENT SUMMARY |
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|
Pre-tax |
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|
Gross |
Pre-tax |
Income |
Net |
Diluted |
||||||||||||||
|
Revenue |
Profit |
Income** |
Margin** |
Income** |
EPS** |
|||||||||||||
|
GAAP from |
$16.7B |
$9.5B |
$2.9B |
17.2% |
$2.5B |
$2.72 |
||||||||||||
|
Year/Year |
6.5%* |
2.8% |
183% |
10.7 Pts |
107% |
106% |
||||||||||||
|
Operating |
$ |
$9.7B |
$3.5B |
21.2% |
$3.0B |
$3.35 |
||||||||||||
|
Year/Year |
2.8% |
102% |
10.0 Pts |
80% |
78% |
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|
* 8.6% at constant currency |
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|
** Year-to-year results include impact of $1.5 billion pre-tax charge for structural actions in fourth quarter of 2020 |
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"In 2021, we continued to invest for the future by increasing R&D spending, expanding our ecosystem and acquiring 15 companies to strengthen our hybrid cloud and AI capabilities," said James Kavanaugh, IBM senior vice president and chief financial officer. "With the separation of Kyndryl we now have taken the next step in the evolution of our strategy, creating value through focus and strengthening our financial profile."
Segment Results for Fourth Quarter
- Software (includes Hybrid Platform & Solutions, Transaction Processing)— revenues of $7.3 billion, up 8.2 percent, up 10.1 percent at constant currency (including about 5 points from incremental external sales to Kyndryl):
- Hybrid Platform & Solutions up 7 percent, up 9 percent at constant currency (including about 1 point from incremental external sales to Kyndryl):
-- Red Hat up 19 percent, up 21 percent at constant currency
-- Automation up 13 percent, up 15 percent at constant currency
-- Data & AI up 1 percent, up 3 percent at constant currency
-- Security down 2 percent, down 1 percent at constant currency
- Transaction Processing up 11 percent, up 14 percent at constant currency (including about 16 points from incremental external sales to Kyndryl)
- Software segment hybrid cloud revenue up 22 percent, up 24 percent at constant currency
- Consulting (includes Business Transformation, Technology Consulting and Application Operations)— revenues of $4.7 billion, up 13.1 percent, up 15.7 percent at constant currency:
- Business Transformation up 18 percent, up 20 percent at constant currency
- Technology Consulting up 14 percent, up 19 percent at constant currency
- Application Operations up 6 percent, up 8 percent at constant currency
- Consulting segment hybrid cloud revenue up 31 percent, up 34 percent at constant currency
- Infrastructure (includes Hybrid Infrastructure, Infrastructure Support)— revenues of $4.4 billion, down 0.2 percent, up 1.7 percent at constant currency (including about 5 points from incremental external sales to Kyndryl):
- Hybrid Infrastructure flat, up 2 percent at constant currency (including about 4 points from incremental external sales to Kyndryl)
-- IBM Z down 6 percent, down 4 percent at constant currency
-- Distributed Infrastructure up 5 percent, up 7 percent at constant currency
- Infrastructure Support down 1 percent, up 1 percent at constant currency (including about 6 points from incremental external sales to Kyndryl)
- Infrastructure segment hybrid cloud revenue down 12 percent, down 11 percent at constant currency
- Financing (includes client and commercial financing)— revenues of $0.2 billion, down 29.4 percent, down 28.8 percent at constant currency
Cash Flow and Balance Sheet
On a consolidated basis, full-year cash from operating activities was $12.8 billion and free cash flow was $6.5 billion. These consolidated results include ten months of Kyndryl results, and reflect cash paid in 2021 for separation charges and fourth-quarter 2020 structural actions.
IBM's post-separation baseline free cash flow for the year was $7.9 billion excluding Kyndryl charges and pre-separation activity. This view is aligned to the company's go-forward business. Payments for IBM-related structural actions and deferred cash taxes paid in 2021 contributed to the year-to-year decline in the post-separation baseline free cash flow.
IBM ended the year with $7.6 billion of cash on hand (which includes marketable securities), down $6.7 billion from year-end 2020, reflecting acquisitions of $3.3 billion and debt reduction payments consistent with the company's previously-stated intention to deleverage. Debt, including Financing debt of $13.9 billion, totaled $51.7 billion, down $9.6 billion since the end of 2020, and down more than $21 billion since closing the Red Hat acquisition. The company returned $5.9 billion to shareholders in dividends.
Full-Year 2022 Expectations
The company will discuss 2022 expectations during today's quarterly earnings conference call.
Continuing Operations
With the separation completed on November 3, 2021, Kyndryl's operational activity has been reclassified to IBM's discontinued operations results in accordance with U.S. Generally Accepted Accounting Principles (GAAP). As discussed in previous communications, discontinued operations does not include historical intercompany transactions between IBM and Kyndryl (e.g., purchases of IBM hardware and software) which were previously eliminated in consolidation. It also does not include the spending for shared services (e.g., finance, marketing, human resources, global sales coverage) that has already been transferred to Kyndryl. IBM results on a continuing operations basis after separation reflect the new commercial relationship with Kyndryl and do not include shared services costs, which have been transferred to Kyndryl.
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