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SEC filingIBM delivered 9.5% revenue growth and 14.3% EPS growth, driven by software and infrastructure strength, while operating margin expanded 1.0 point to 11.4%.
IBM reported first-quarter 2026 revenue of $15.9 billion, a 9.5 percent increase as reported and 6.1 percent adjusted for currency. This top-line growth was broad-based, with Software and Infrastructure delivering double-digit increases. Gross profit margin expanded 1.0 point to 56.2 percent, driven by productivity actions, revenue growth, and favorable portfolio mix. Total expense and other income increased 10.0 percent, reflecting organic and inorganic investments in portfolio innovation, partially offset by productivity savings.
Income from continuing operations was $1.2 billion, a 15.3 percent increase, with a net income margin of 7.6 percent, up 0.4 points. Diluted earnings per share from continuing operations was $1.28, a 14.3 percent increase. On an operating (non-GAAP) basis, which excludes acquisition-related charges, non-operating retirement costs, and U.S. tax reform impacts, earnings were $1.8 billion, up 20.1 percent, with a diluted EPS of $1.91. The company generated $5.2 billion in cash from operations and $2.2 billion in free cash flow, an increase of $0.3 billion year over year.
Software revenue grew 11.3 percent (7.9 percent adjusted for currency) to $7.1 billion, with growth across all lines of business. Data revenue surged 19.2 percent, reflecting demand for generative AI products and contributions from the DataStax and Confluent acquisitions. Hybrid Cloud (Red Hat) revenue increased 12.9 percent, with OpenShift reaching a $2 billion annual recurring revenue milestone. Software gross margin declined 0.8 points to 82.8 percent due to investments in portfolio innovation, but segment profit margin expanded 0.6 points to 29.8 percent.
Consulting revenue increased 4.0 percent (0.9 percent adjusted for currency) to $5.3 billion, with growth in both Strategy and Technology and Intelligent Operations. Signings returned to growth, up 8.5 percent, and the trailing twelve-month book-to-bill ratio was 1.04. However, segment profit margin contracted 0.4 points to 10.6 percent as productivity gains were offset by investments and currency headwinds.
Infrastructure revenue grew 15.3 percent (11.7 percent adjusted for currency) to $3.3 billion, driven by a 50.9 percent increase in IBM Z revenue from the z17 program and a 16.7 percent increase in Distributed Infrastructure. Gross margin expanded 4.1 points to 56.9 percent, and segment profit more than doubled, with margin expanding 7.2 points to 15.8 percent.
Management expressed confidence in its hybrid cloud and AI strategy, noting that technology remains a key driver of growth and competitive advantage. The company highlighted its portfolio of AI offerings, including watsonx, as critical for helping clients scale AI and generate returns through productivity improvements. The recent acquisition of Confluent is expected to enhance data flow capabilities for generative and agentic AI deployments. IBM also pointed to its Client Zero approach, leveraging AI internally to drive efficiency, and the general availability of IBM Bob, its AI-based software development system. The company believes its first-quarter performance reflects the durability of its portfolio and supports its ability to deliver long-term growth aligned with its financial model.
IBM's balance sheet expanded significantly, with total assets increasing to $156.2 billion from $151.9 billion at year-end 2025, primarily due to the Confluent acquisition. Goodwill rose by $7.0 billion to $74.7 billion, and net intangible assets increased by $3.2 billion to $14.6 billion. Cash and equivalents decreased by $2.8 billion to $10.8 billion, reflecting the cash outlay for acquisitions. Total debt increased to $66.3 billion from $61.3 billion, driven by $7.4 billion in new issuances, partially offset by $2.9 billion in repayments. The debt includes $1.1 billion in short-term convertible notes assumed from Confluent, which were settled post-quarter. Shareholders' equity stood at $33.0 billion.
The company's remaining performance obligations (RPO) were approximately $69 billion, a critical forward-looking metric not detailed in the MD&A. Of this, 69% is expected to be recognized as revenue within two years, and 28% in the subsequent three to five years. The company also disclosed $2.2 billion in unused extended lines of credit to third parties and $1.8 billion in commitments for future client financing. The long-term debt maturity schedule shows $3.5 billion due in the remainder of 2026 and $6.7 billion in 2027.
IBM paid $1.6 billion in cash dividends ($1.68 per share) during the quarter. A subsequent event on April 22, 2026, announced a dividend increase to $1.69 per share. Financing activities show a net cash inflow of $2.7 billion, with $7.4 billion in new debt proceeds significantly outweighing $2.9 billion in debt settlements. Capital expenditures for property, plant, and equipment were $232 million. The company repurchased $350 million of common stock for tax withholdings under employee plans, not as part of a discretionary buyback program.
The Notes provide a detailed segment view. Software was the most profitable segment with a 29.8% margin, followed by Infrastructure at 15.8% and Consulting at 10.6%. The Financing segment, though small in revenue, had a 53.8% margin. Geographically, the Americas contributed 49.4% of total revenue, EMEA 32.9%, and Asia Pacific 17.7%. The Confluent acquisition goodwill was allocated $7.1 billion to Software and $89 million to Consulting.
IBM's cash flow from operations (CFO) for Q1 2026 was $5.2 billion, significantly exceeding net income of $1.2 billion. This strong cash conversion was supported by $1.8 billion in non-cash adjustments (depreciation, amortization, and stock-based compensation) and a substantial $2.2 billion positive swing from changes in operating assets and liabilities. This working capital benefit was a key driver of the 18% year-over-year CFO growth.
Capital expenditures, defined as payments for property, plant, and equipment ($0.2B) plus investment in software ($0.2B), totaled $0.4 billion. This results in a calculated free cash flow (FCF) of $4.8 billion for the quarter. The FCF comfortably covered the $1.9 billion returned to shareholders via dividends ($1.6B) and share repurchases for tax withholdings ($0.4B).
Investing activities consumed $10.5 billion, dominated by $10.5 billion in acquisition spending, which was a significant increase from $7.1 billion in the prior-year quarter. This was partially offset by net proceeds from marketable securities. Financing activities provided $2.7 billion, as $7.4 billion in new debt issuance more than offset debt repayments of $2.9 billion and dividend payments. The net change in cash was a decrease of $2.8 billion, reflecting the heavy acquisition-driven outflow.