IBM: Fiscal 3Q26 Financial Results

IBM announced third-quarter 2026 earnings results.“Disciplined execution throughout the quarter drove accelerated revenue growth and strong free cash flow. Our clients are now deploying Super Intelligence in ways that transform entire operating models, instead of simply addressing narrow or novel problems. IBM’s technology and expertise are helping organizations drive growth and serve customers with greater speed, precision and efficiency than ever before,” said Arvind Krishna, chairman, president and CEO, IBM. “For the full year, we continue to expect constant currency revenue growth in the range of four-to-five%, and we now expect free cash flow to increase by more than $1 billion YoY.”

Third-Quarter Highlights

• Revenue
  • Revenue of $17.1 billion, up 5%, up 6% at constant currency
  • Software revenue up 8%, up 9% at constant currency
  • Consulting revenue flat, up 2% at constant currency
  • Infrastructure revenue up 4%, up 5% at constant currency
• Profit
  • Gross Profit Margin: GAAP: 56.8%, down 50 basis points; Operating (Non-GAAP): 58.5%, down 20 basis points
  • Pre-Tax Income Margin: GAAP: 14.6%, down 30 basis points; Operating (Non-GAAP): 19.3%, up 70 basis points
• Cash Flow
  • Year to date, net cash from operating activities of $11.8 billion; free cash flow of $7.8 billion

“Demand across our portfolio combined with strong operational execution led to accelerated growth and solid operating pre-tax margin expansion in the quarter,” said James Kavanaugh, SVP and CFO, IBM. “Just as we are helping clients extract value from their operations with Super Intelligence, we are driving tangible returns through our productivity initiatives inside IBM. This approach fuels profit and free cash flow growth and enables us to continue to invest in our business while returning value to shareholders through our dividend.”

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Segment Results for Third Quarter

• Software — revenues of $7.8 billion, up 8%, up 9% at constant currency
  • Hybrid Cloud (Red Hat) up 11%
  • Automation down 3%
  • Data up 19%, up 20% at constant currency
  • Transaction Processing up 9%, up 10% at constant currency 
• Consulting — revenues of $5.3 billion, flat, up 2% at constant currency
  • Strategy and Technology up 2%, up 4% at constant currency
  • Intelligent Operations down 2%, flat at constant currency 
• Infrastructure — revenues of $3.7 billion, up 4%, up 5% at constant currency
  • Hybrid Infrastructure up 8%, up 9% at constant currency
    • IBM Z down 20%, down 19% at constant currency
    • Distributed Infrastructure up 31%, up 32% at constant currency
  • Infrastructure Support down 3%, down 2% at constant currency 
• Financing — revenues of $0.2 billion, down 4%, down 3% at constant currency

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Cash Flow and Balance Sheet
In the third quarter, the company generated net cash from operating activities of $4.0 billion, up $0.9 billion year to year. IBM’s free cash flow was $3.0 billion, up $0.7 billion year to year. The company returned $1.6 billion to shareholders in dividends in the third quarter.

For the first nine months of the year, the company generated net cash from operating activities of $11.8 billion, up $2.6 billion year to year. IBM’s free cash flow was $7.8 billion, up $0.6 billion year to year.

IBM ended the third quarter with $11.1 billion of cash, restricted cash and marketable securities, down $3.4 billion from year-end 2025. The company invested $11.4 billion in acquisitions this year. Debt, including IBM Financing debt of $12.7 billion, totaled $63.8 billion, up $2.6 billion year to date.

Full-Year 2026 Expectations

• Revenue: The company continues to expect full-year constant currency revenue growth in the range of four-to-five%. At current foreign exchange rates, currency is expected to be neutral to growth for the year
• Free cash flow: The company now expects full-year free cash flow to increase by more than $1 billion YoY

Dividend Declaration
The IBM board of directors approved a regular quarterly cash dividend of $1.69 per common share, to stockholders of record on November 10, 2026. With payment of the December 10, 2026 dividend, IBM will have paid consecutive quarterly dividends every year since 1916.

(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.