International Business Machines Corporation
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Item 1. Business:
International Business Machines Corporation (IBM or the company) was incorporated in the State of New York on June 16, 1911, as the Computing-Tabulating-Recording Co. (C-T-R), a consolidation of the Computing Scale Co. of America, the Tabulating Machine Co. and The International Time Recording Co. of New York. Since that time, IBM has focused on the intersection of business insight and technological innovation, and its operations and aims have been international in nature. This was signaled over 100 years ago, in 1924, when C-T-R changed its name to International Business Machines Corporation. And it continues today—we create sustained value for clients by helping them leverage the power of hybrid cloud and artificial intelligence (AI). Our hybrid cloud platform and AI technology support clients’ digital transformations and helps them reimagine critical workflows, at scale, and modernize applications to increase agility, drive innovation and create operational efficiencies. Our offerings draw from leading IBM capabilities in software, consulting services capability to deliver business outcomes, and deep incumbency in mission-critical infrastructure, all bolstered by one of the world’s leading research organizations.
The following information is included in IBM’s 2025 Annual Report to Stockholders and is incorporated by reference:
IBM Strategy—pages 11 to 12.
Business Segments and Capabilities—pages 12 to 14.
Human Capital—page 15.
Strategic Partnerships
We proactively partner with a broad variety of companies including hyperscalers, service providers, global system integrators, and software and hardware vendors. We work alongside our partners to deliver end-to-end solutions that address our clients’ complex business challenges while accelerating growth. Our strategic partners include: Adobe, Amazon Web Services (AWS), Microsoft, Oracle, Palo Alto Networks, Salesforce, Samsung Electronics and SAP, among others.
Companies with which we have strategic partnerships in some areas may be competitors in other areas.
Competition
IBM is a globally integrated enterprise that participates in a highly competitive environment. Our competitors vary by industry segment, and range from large multinational enterprises to smaller, more narrowly focused entities. Across our business segments, we recognize hundreds of competitors worldwide and as we execute our hybrid cloud and AI strategy, we are regularly exposed to new competitors.
Our principal methods of competition are: technology innovation; performance; price; quality; brand; our breadth of capabilities, products and services; talent; client relationships and trust; the ability to deliver business value to clients; and service and support. In order to maintain leadership, we optimize our portfolio with organic and inorganic innovations and effective resource allocation. These investments not only drive current performance but will extend our innovation leadership into the future.
Our breadth and depth of expertise enables us to take different technologies and bring them together to solve the most pressing business issues of our clients. We differentiate from other providers by bringing together incumbency with enterprises, deep expertise in technology, industries and business processes, a broad go-to-market reach including an ecosystem of partners and alliances, and a strong focus on innovation. All of these attributes position IBM for accelerated growth now and prepare us for the next set of business opportunities, such as quantum computing.
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Overall, the company is the leader or among the leaders in each of our business segments. A summary of the competitive environment for each business segment is included below:
Software:
The depth, breadth, and innovation of our software offerings, coupled with our global reach, deep industry expertise and research capabilities help differentiate our offerings from our competitors. Our hybrid cloud and AI platforms allow clients to realize their digital and AI transformations across the applications, data, and environments in which they operate. The principal competitors in this segment include: Alphabet (Google), Amazon, BMC, Broadcom, Microsoft, Oracle, Salesforce, SAP and Splunk, a CISCO Company. We also compete with smaller, niche competitors in specific geographic regions or product segments.
Consulting:
Consulting integrates strategy, experience design, technology and operations expertise by domain across industries to deliver transformation for clients. Consulting operates in a highly competitive, dynamic market that spans business consulting, systems integration, application development and management, and business process outsourcing services. Our competitors include global firms such as Accenture, Capgemini, India-based service providers, management consulting firms, the consulting practices of public accounting firms, engineering service providers, and niche specialists. Our competitive position is supported by industry expertise; hybrid cloud, data, and AI capabilities; and the use of IBM technology and ecosystem partners to deliver solutions aligned to clients’ strategic priorities.
Infrastructure:
IBM is well positioned in the growing hybrid cloud infrastructure market, providing on-premises and cloud-based server and storage solutions. We gain advantage and differentiation through investments in higher-value capabilities, including security, scalability, and reliability, designed especially for mission-critical and AI workloads. In addition, we offer a portfolio of life-cycle services for hybrid cloud infrastructure deployment. Our principal competitors include: Dell Technologies, Hewlett-Packard Enterprise (HPE), Intel, NetApp and Pure Storage as well as original device manufacturers (ODMs) who provide systems that are re-branded. Further, cloud service providers are leveraging innovation in technology and service delivery to compete with traditional providers and to offer additional routes to market for server and storage systems.
Financing:
Financing provides client and commercial financing, facilitating IBM clients’ acquisition of hardware, software and services. Financing’s ability to manage credit and residual value risk generates a competitive advantage for the company. The key competitive factors include: interest rates charged, IT product experience, client service, contract flexibility, ease of doing business, global capabilities and residual values. In client and commercial financing, Financing primarily competes with non-captive financing entities and financial institutions.
Forward-Looking and Cautionary Statements
Certain statements contained in this Form 10-K may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (“Reform Act”). Forward-looking statements are based on the company’s current assumptions regarding future business and financial performance. These statements by their nature address matters that are uncertain to different degrees. The company may also make forward-looking statements in other reports filed with the Securities and Exchange Commission (“SEC”), in materials delivered to stockholders and in press releases. In addition, the company’s representatives may from time to time make oral forward-looking statements. Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact. Words such as “anticipates,” “believes,” “expects,” “estimates,” “intends,” “plans,” “projects,” and similar expressions, may identify such forward-looking statements. Any forward-looking statement in this Form 10-K 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. In accordance with the Reform Act, set forth under Item 1A. “Risk Factors” on pages 3 to 10 are cautionary statements that accompany those forward-looking statements. Readers should carefully review such cautionary statements as they identify certain important factors that could cause actual results to differ materially from those in the forward-looking statements and from historical trends. Those
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cautionary statements are not exclusive and are in addition to other factors discussed elsewhere in this Form 10-K, in the company’s filings with the SEC or in materials incorporated therein by reference.
The following information is included in IBM’s 2025 Annual Report to Stockholders and is incorporated herein by reference:
Segment information and revenue by classes of similar products or services—pages 65 to 68.
Financial information regarding environmental activities—pages 92 to 93.
The number of persons employed by the registrant—page 15.
The management discussion overview—pages 8 to 10.
Website information and company reporting—page 118.
Information About Our Executive Officers (at February 24, 2026):
| Age | Officer since | |||||||||
Arvind Krishna, Chairman of the Board, President and Chief Executive Officer (1) | 63 | 2020 | ||||||||
| Gary D. Cohn, Vice Chairman | 65 | 2021 | ||||||||
| Nicolas A. Fehring, Vice President and Controller | 47 | 2023 | ||||||||
James J. Kavanaugh, Senior Vice President, Finance and Operations, and Chief Financial Officer | 59 | 2008 | ||||||||
| Nickle J. LaMoreaux, Senior Vice President and Chief Human Resources Officer | 46 | 2020 | ||||||||
| Anne Robinson, Senior Vice President and Chief Legal Officer | 55 | 2024 | ||||||||
Robert D. Thomas, Senior Vice President, Software and Chief Commercial Officer | 51 | 2023 | ||||||||
(1) Member of the Board of Directors.
All executive officers are elected by the Board of Directors annually as provided in the Company’s By-laws. Each executive officer named above, with the exception of Anne Robinson, has been an executive of IBM or its subsidiaries during the past five years. Ms. Robinson previously served as Managing Director, General Counsel and Corporate Secretary of The Vanguard Group, Inc. and Secretary of the Vanguard funds from August 2016 until June 2024.
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Financial statements
data from SEC XBRL filings. Values are as-reported; restatements supersede originals. Values reported in .
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Item 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FOR THE THREE MONTHS ENDED MARCH 31, 2026
Snapshot
Organization of Information:
The Management Discussion is designed to provide readers with an overview of the business and a narrative on our financial results and certain factors that may affect our future prospects from the perspective of management.
Within the tables presented, certain columns and rows may not add due to the use of rounded numbers for disclosure purposes. Percentages presented are calculated from the underlying whole-dollar amounts. Certain prior-period amounts have been reclassified to conform to the current-period presentation. This is annotated where applicable.
Currency:
The references to “adjusted for currency” or “at constant currency” in the Management Discussion do not include operational impacts that could result from fluctuations in foreign currency rates. When we refer to growth rates at constant currency or adjust 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 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. Refer to “Currency Rate Fluctuations” on page 53 for additional information.
Operating (non-GAAP) Earnings:
In an effort to provide better transparency into the operational results of the business, supplementally, management 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), management 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 our 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, management characterizes certain items as operating and others as non-operating, consistent with GAAP. We include 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 we consider these costs to be outside of the operational performance of the business.
Overall, management 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 our pension plans; improves visibility to management decisions and their impacts on operational performance; enables better comparison to peer companies; and allows us 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 we routinely receive from investors and analysts.
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Management Discussion – (continued)
Financial Results Summary — Three Months Ended March 31:
($ and shares in millions, except per share amounts) | Yr.-to-Yr. Percent/ Margin Change | ||||||||||||||||
| For the three months ended March 31: | 2026 | 2025 | |||||||||||||||
Revenue (1) | $ | 15,917 | $ | 14,541 | 9.5 | % | |||||||||||
| Gross profit margin | 56.2 | % | 55.2 | % | 1.0 | pts. | |||||||||||
Total expense and other (income) | $ | 7,562 | $ | 6,873 | 10.0 | % | |||||||||||
Income from continuing operations before income taxes | $ | 1,387 | $ | 1,158 | 19.8 | % | |||||||||||
Provision for/(benefit from) income taxes from continuing operations | $ | 172 | $ | 103 | 65.8 | % | |||||||||||
Income from continuing operations | $ | 1,216 | $ | 1,054 | 15.3 | % | |||||||||||
Income from continuing operations margin | 7.6 | % | 7.3 | % | 0.4 | pts. | |||||||||||
Income from discontinued operations, net of tax | $ | 0 | $ | 1 | nm | ||||||||||||
Net income | $ | 1,216 | $ | 1,055 | 15.2 | % | |||||||||||
Earnings per share from continuing operations - assuming dilution | $ | 1.28 | $ | 1.12 | 14.3 | % | |||||||||||
Consolidated earnings per share - assuming dilution | $ | 1.28 | $ | 1.12 | 14.3 | % | |||||||||||
| Weighted-average shares outstanding - assuming dilution | 952.1 | 945.4 | 0.7 | % | |||||||||||||
| At 3/31/2026 | At 12/31/2025 | ||||||||||||||||
| Assets | $ | 156,229 | $ | 151,880 | 2.9 | % | |||||||||||
| Liabilities | $ | 123,174 | $ | 119,139 | 3.4 | % | |||||||||||
| Equity | $ | 33,056 | $ | 32,740 | 1.0 | % | |||||||||||
(1)Year-to-year revenue growth of 6 percent adjusted for currency.
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The following table provides the company’s operating (non-GAAP) earnings for the first quarter of 2026 and 2025.
($ in millions, except per share amounts) | Yr.-to-Yr. Percent Change | ||||||||||||||||
| For the three months ended March 31: | 2026 | 2025 | |||||||||||||||
Net income as reported | $ | 1,216 | $ | 1,055 | 15.2 | % | |||||||||||
Income from discontinued operations, net of tax | 0 | 1 | nm | ||||||||||||||
Income from continuing operations | $ | 1,216 | $ | 1,054 | 15.3 | % | |||||||||||
| Non-operating adjustments (net of tax): | |||||||||||||||||
| Acquisition-related charges | $ | 508 | $ | 429 | 18.4 | ||||||||||||
Non-operating retirement-related costs/(income) | 94 | 35 | 169.4 | ||||||||||||||
U.S. tax reform impacts | 4 | (2) | nm | ||||||||||||||
Operating (non-GAAP) earnings (1) | $ | 1,821 | $ | 1,517 | 20.1 | % | |||||||||||
Diluted operating (non-GAAP) earnings per share (1) | $ | 1.91 | $ | 1.60 | 19.4 | % | |||||||||||
(1)Refer to the quarter-to-date "GAAP Reconciliation" on page 57 for additional information..
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Macroeconomic Environment:
The strength of our portfolio and the resiliency of our business model, underpinned by our software-led hybrid cloud and AI strategy, position us well to navigate the current climate. While the economic and geopolitical environment remain dynamic and uncertain, businesses continue to invest in technology to scale AI, drive productivity, increase resiliency and
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Management Discussion – (continued)
accelerate their growth. This was reflected in our performance in the first quarter. Our durable, high value portfolio enables us to execute on our strategy delivering innovation to our clients and partners.
In the first three months of 2026, movements in global currencies continued to impact our reported year-to-year revenue and profit. We execute hedging programs which defer, but do not eliminate, the impact of currency. The (gains)/losses from these hedging programs are reflected primarily in other (income) and expense. Refer to “Currency Rate Fluctuations” on page 53 for additional information.
Financial Performance Summary — Three Months Ended March 31:
In the first quarter of 2026, we reported $15.9 billion in revenue, income from continuing operations of $1.2 billion, and operating (non-GAAP) earnings of $1.8 billion. Diluted earnings per share from continuing operations was $1.28 as reported and $1.91 on an operating (non-GAAP) basis. We generated $5.2 billion in cash from operations and $2.2 billion in free cash flow. We returned $1.6 billion to shareholders in dividends and invested in the acquisition of Confluent, Inc. (Confluent). Our first-quarter performance reinforces the strategic choices we have made over the last several years to advance IBM as a software-led Hybrid Cloud and AI platform company. With our focus on the fundamentals of our business, we continue to maintain a strong liquidity position and solid investment grade balance sheet which enables us to invest in our business and return value to shareholders through dividends.
Total revenue grew 9.5 percent as reported and 6.1 percent adjusted for currency compared to the prior-year period. Software delivered revenue growth of 11.3 percent as reported (7.9 percent adjusted for currency). Consulting revenue increased 4.0 percent as reported (0.9 percent adjusted for currency). Infrastructure revenue increased 15.3 percent as reported (11.7 percent adjusted for currency).
From a geographic perspective, Americas revenue increased 9.1 percent as reported (8.2 percent adjusted for currency). Europe/Middle East/Africa (EMEA) increased 15.2 percent as reported (5.4 percent adjusted for currency). Asia Pacific increased 1.1 percent as reported (1.7 percent adjusted for currency).
Gross margin of 56.2 percent increased 1.0 point year to year with margin expansion driven primarily by productivity actions, revenue growth and portfolio mix. Operating (non-GAAP) gross margin of 57.7 percent increased 1.1 points compared to the prior-year period due to the same dynamics.
Total expense and other (income) increased 10.0 percent in the first quarter of 2026 compared to the first quarter of 2025 driven by our organic and inorganic investments in portfolio innovation and the effects of currency, partially offset by savings from productivity actions. Total operating (non-GAAP) expense and other (income) increased 8.7 percent year to year, driven primarily by the same factors.
Pre-tax income from continuing operations was $1.4 billion in the first quarter of 2025 compared to $1.2 billion in the prior-year period and pre-tax margin was up 0.8 points year to year to 8.7 percent. The continuing operations provision for income taxes was $0.2 billion in the first quarter of 2026, compared to $0.1 billion in the first quarter of 2025. Net income from continuing operations was $1.2 billion in the current period compared to $1.1 billion in the prior-year period and the net income from continuing operations margin of 7.6 percent was up 0.4 points year to year. The year-to-year performance was primarily driven by revenue growth, portfolio mix and increased productivity, partially offset by our organic and inorganic investments in portfolio innovation.
Operating (non-GAAP) pre-tax income from continuing operations of $2.1 billion increased 22.5 percent compared to the first quarter of 2025 and the operating (non-GAAP) pre-tax margin from continuing operations increased 1.4 points to 13.4 percent primarily driven by the factors described above. The operating (non-GAAP) provision for income taxes was $0.3 billion in the first quarter of 2026, compared to $0.2 billion in the first quarter of 2025. Operating (non-GAAP) net income from continuing operations of $1.8 billion increased 20.1 percent and the operating (non-GAAP) net income margin from continuing operations of 11.4 percent increased 1.0 point year to year.
Diluted earnings per share from continuing operations of $1.28 increased 14.3 percent and operating (non-GAAP) diluted earnings per share of $1.91 increased 19.4 percent compared to the first quarter of 2025.
At March 31, 2026, the balance sheet remained strong with financial flexibility to support and invest in the business. Cash and cash equivalents, restricted cash and marketable securities at March 31, 2026 of $11.8 billion decreased $2.6 billion from December 31, 2025 and debt of $66.4 billion at March 31, 2026 increased $5.1 billion. The company
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Management Discussion – (continued)
continues to make investments in innovation both organically and through acquisitions, including the Confluent acquisition in first-quarter 2026.
Total assets increased $4.3 billion ($5.1 billion adjusted for currency) from December 31, 2025 primarily driven by the Confluent acquisition. Total liabilities increased $4.0 billion ($4.9 billion adjusted for currency) from December 31, 2025. Total equity of $33.1 billion increased $0.3 billion from December 31, 2025.
Cash provided by operating activities was $5.2 billion in the first three months of 2026, an increase of $0.8 billion compared to the first three months of 2025. Free cash flow was $2.2 billion, an increase of $0.3 billion versus the prior-year period. Refer to page 55 for additional information on free cash flow. Net cash used in investing activities of $10.5 billion, which includes our investment in the acquisition of Confluent, decreased $2.5 billion compared to the prior-year period. Financing activities were a net source of cash of $2.7 billion, a decrease of $2.7 billion compared to the prior-year period.
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Management Discussion – (continued)
First Quarter in Review
Results of Continuing Operations
Segment Details
The following tables present each reportable segment’s revenue and gross margin results, followed by an analysis of the first three months of 2026 versus the first three months of 2025 reportable segments results.
| ($ in millions) | Yr.-to-Yr. Percent/Margin Change | Yr.-to-Yr. Percent Change Adjusted For Currency | ||||||||||||||||||||
| For the three months ended March 31: | 2026 | 2025 | ||||||||||||||||||||
| Revenue: | ||||||||||||||||||||||
| Software | $ | 7,052 | $ | 6,336 | 11.3 | % | 7.9 | % | ||||||||||||||
| Gross margin | 82.8 | % | 83.6 | % | (0.8) | pts. | ||||||||||||||||
| Consulting | 5,272 | 5,068 | 4.0 | % | 0.9 | % | ||||||||||||||||
| Gross margin | 27.5 | % | 27.3 | % | 0.2 | pts. | ||||||||||||||||
| Infrastructure | 3,326 | 2,886 | 15.3 | % | 11.7 | % | ||||||||||||||||
| Gross margin | 56.9 | % | 52.8 | % | 4.1 | pts. | ||||||||||||||||
| Financing | 220 | 191 | 14.8 | % | 10.2 | % | ||||||||||||||||
| Gross margin | 43.4 | % | 45.8 | % | (2.4) | pts. | ||||||||||||||||
Other (1) | 48 | 61 | (21.4) | % | (37.4) | % | ||||||||||||||||
| Gross margin | nm | (416.6) | % | nm | ||||||||||||||||||
| Total revenue | $ | 15,917 | $ | 14,541 | 9.5 | % | 6.1 | % | ||||||||||||||
| Total gross profit | $ | 8,950 | $ | 8,031 | 11.4 | % | ||||||||||||||||
| Total gross margin | 56.2 | % | 55.2 | % | 1.0 | pts. | ||||||||||||||||
| Non-operating adjustments: | ||||||||||||||||||||||
| Amortization of acquired intangible assets | 237 | 200 | 18.3 | % | ||||||||||||||||||
| Operating (non-GAAP) gross profit | $ | 9,187 | $ | 8,232 | 11.6 | % | ||||||||||||||||
| Operating (non-GAAP) gross margin | 57.7 | % | 56.6 | % | 1.1 | pts. | ||||||||||||||||
(1)Includes reductions in revenue for estimated residual value less related unearned income on sales-type leases, which reflects the z17 launch in June 2025. Refer to note A, "Significant Accounting Policies," in the company's 2025 Annual Report for additional information.
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Software
| ($ in millions) | Yr.-to-Yr. Percent Change | Yr.-to-Yr. Percent Change Adjusted For Currency | ||||||||||||||||||||
| For the three months ended March 31: | 2026 | 2025 | ||||||||||||||||||||
| Software revenue: | $ | 7,052 | $ | 6,336 | 11.3 | % | 7.9 | % | ||||||||||||||
Hybrid Cloud | $ | 1,905 | $ | 1,687 | 12.9 | % | 10.0 | % | ||||||||||||||
Automation | 1,741 | 1,584 | 9.9 | 6.7 | ||||||||||||||||||
Data | 1,474 | 1,236 | 19.2 | 15.9 | ||||||||||||||||||
Transaction Processing | 1,932 | 1,828 | 5.7 | 1.7 | ||||||||||||||||||
Software revenue of $7,052 million increased 11.3 percent as reported (7.9 percent adjusted for currency) in the first quarter of 2026 compared to the prior-year period, with growth in all lines of business. This revenue performance reflects the diversity of our portfolio, our ongoing generative AI innovation, and the continued shift to higher growth end markets.
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Management Discussion – (continued)
Revenue performance by line of business in the first quarter compared to the prior-year period was as follows:
Hybrid Cloud (Red Hat) revenue increased 12.9 percent as reported (10.0 percent adjusted for currency) in the first quarter, reflecting accelerated growth of approximately two points compared to fourth-quarter 2025, primarily driven by the stabilization of our consumption-based services revenue growth. OpenShift had strong year-to-year growth in the first quarter and now represents a $2 billion annual recurring revenue business. Automation revenue grew 9.9 percent as reported (6.7 percent adjusted for currency). This includes revenue growth contribution from our HashiCorp acquisition which closed in February 2025. Data revenue grew 19.2 percent as reported (15.9 percent adjusted for currency) reflecting demand for our generative AI products, strength in our strategic partnerships, and inorganic contribution from our acquisitions, including DataStax and Confluent which closed in mid-March 2026. Transaction Processing revenue increased 5.7 percent as reported (1.7 percent adjusted for currency), reflecting growth due to our strong IBM z17 program.
Across Software, our annual recurring revenue (ARR) was solid at $24.6 billion, which increased approximately $3 billion as reported year to year. ARR is a key performance metric management uses to assess the health and growth trajectory of our Software segment, and is calculated by using the current quarter’s recurring revenue and then multiplying that value by four. The first-quarter 2026 recurring revenue metric includes annualized Confluent recurring revenue since the acquisition date of March 17, 2026. This value includes the following consumption models: (1) software subscription agreements, including committed term licenses, (2) as-a-service arrangements such as SaaS and PaaS, and (3) maintenance and support contracts. ARR should be viewed independently of software revenue as this performance metric and its inputs may not represent revenue that will be recognized in future periods.
| ($ in millions) | Yr.-to-Yr. Percent/ Margin Change | ||||||||||||||||
| For the three months ended March 31: | 2026 | 2025 | |||||||||||||||
| Software: | |||||||||||||||||
| Gross profit | $ | 5,836 | $ | 5,294 | 10.2 | % | |||||||||||
| Gross profit margin | 82.8 | % | 83.6 | % | (0.8) | pts. | |||||||||||
| Segment profit | $ | 2,099 | $ | 1,847 | 13.7 | % | |||||||||||
| Segment profit margin | 29.8 | % | 29.1 | % | 0.6 | pts. | |||||||||||
Software gross profit margin decreased 0.8 points to 82.8 percent in the first quarter of 2026 compared to the prior-year period, reflecting our investments in portfolio innovation.
Segment profit of $2,099 million increased 13.7 percent and segment profit margin of 29.8 percent increased 0.6 points compared to the prior-year period, reflecting the benefits of our productivity actions, contributions from revenue growth and mix, partially offset by organic and inorganic investments in portfolio innovation.
Consulting
| ($ in millions) | Yr.-to-Yr. Percent Change | Yr.-to-Yr. Percent Change Adjusted For Currency | ||||||||||||||||||||
| For the three months ended March 31: | 2026 | 2025 | ||||||||||||||||||||
| Consulting revenue: | $ | 5,272 | $ | 5,068 | 4.0 | % | 0.9 | % | ||||||||||||||
Strategy and Technology | $ | 2,896 | $ | 2,782 | 4.1 | % | 0.9 | % | ||||||||||||||
Intelligent Operations | 2,376 | 2,286 | 4.0 | 0.8 | ||||||||||||||||||
Consulting revenue of $5,272 million increased 4.0 percent as reported and 0.9 percent adjusted for currency on a year-to-year basis. We had revenue growth across the portfolio reflecting momentum in the business as client demand continues to shift towards enterprise-wide transformation. Strategy and Technology revenue increased 4.1 percent as reported (0.9 percent adjusted for currency) and Intelligent Operations revenue increased 4.0 percent as reported (0.8 percent adjusted for currency). The revenue performance in Consulting reflects our differentiated, asset-led delivery model which continues to drive productivity and speed to value, combining our deep domain expertise with software, automation, and reusable assets to help clients deploy AI securely and at scale.
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Management Discussion – (continued)
| ($ in millions) | Yr.-to-Yr. Percent/ Margin Change | ||||||||||||||||
| For the three months ended March 31: | 2026 | 2025 | |||||||||||||||
| Consulting: | |||||||||||||||||
| Gross profit | $ | 1,449 | $ | 1,381 | 4.9 | % | |||||||||||
| Gross profit margin | 27.5 | % | 27.3 | % | 0.2 | pts. | |||||||||||
| Segment profit | $ | 558 | $ | 558 | (0.1) | % | |||||||||||
| Segment profit margin | 10.6 | % | 11.0 | % | (0.4) | pts. | |||||||||||
In the first quarter of 2026, Consulting gross profit margin of 27.5 percent increased 0.2 points on a year-to-year basis. Segment profit of $558 million decreased 0.1 percent and segment profit margin of 10.6 percent decreased 0.4 points year to year.
Consulting segment profit and profit margin performance in the first quarter of 2026 compared to the prior-year period declined modestly as productivity gains were offset by investments in the business and currency headwinds reflecting our geographic mix of the business.
Consulting Signings, Book-to-Bill and Backlog
| ($ in millions) | Yr.-to-Yr. Percent Change | Yr.-to-Yr. Percent Change Adjusted For Currency | ||||||||||||||||||||
| For the three months ended March 31: | 2026 | 2025 | ||||||||||||||||||||
| Total Consulting signings | $ | 5,354 | $ | 4,934 | 8.5 | % | 6.0 | % | ||||||||||||||
Consulting signings increased 8.5 percent as reported and 6.0 percent adjusted for currency for the three months ended March 31, 2026, compared to the prior-year period. Signings returned to growth in the first-quarter 2026, with strength across our application and data transformation offerings. Our book-to-bill ratio for the trailing twelve-months was 1.04. Book-to-bill represents the ratio of IBM Consulting signings to its revenue over the same period and is a useful indicator of the demand for our business over time. At March 31, 2026, backlog was $31.3 billion.
Signings are management’s initial estimate of the value of a client’s commitment under a services contract. The calculation used by management involves estimates and judgments to gauge the extent of a client’s commitment, including the type and duration of the agreement and the presence of termination charges or wind-down costs. Backlog reflects the estimated remaining value of overall work to be recognized as revenue under services contracts, and it is calculated as the total reported signings less already recognized revenue and less any backlog adjustments.
Contract extensions and increases in scope are treated as signings only to the extent of the incremental new value. Total signings can vary over time due to a variety of factors including, but not limited to, the timing of signing a small number of larger contracts. Signings associated with an acquisition will be recognized on a prospective basis. Backlog estimates are subject to change and are affected by several factors, including terminations, changes in the scope of contracts, periodic revalidations, adjustments for revenue not materialized and adjustments for currency.
Management believes the estimated values of signings and backlog provide an indication of our forward-looking revenue, which are used by management as tools to monitor the performance of the business and are viewed as useful decision-making information for investors. There are no third-party standards or requirements governing the calculation of these measurements. The conversion of signings and backlog into revenue may vary based on the types of services and solutions, contract duration, customer decisions, and other factors, which may include, but are not limited to, the macroeconomic environment or external events.
44
Management Discussion – (continued)
Infrastructure
| ($ in millions) | Yr.-to-Yr. Percent Change | Yr.-to-Yr. Percent Change Adjusted For Currency | ||||||||||||||||||||
| For the three months ended March 31: | 2026 | 2025 | ||||||||||||||||||||
| Infrastructure revenue: | $ | 3,326 | $ | 2,886 | 15.3 | % | 11.7 | % | ||||||||||||||
| Hybrid Infrastructure | $ | 2,108 | $ | 1,646 | 28.1 | % | 24.8 | % | ||||||||||||||
| IBM Z | 50.9 | 48.3 | ||||||||||||||||||||
| Distributed Infrastructure | 16.7 | |||||||||||||||||||||
Next expected filings
- ~2026-07-24 10-Q expected by 2026-08-08 (in 39 days)
- ~2026-10-23 10-Q expected by 2026-11-07 (in 130 days)
- ~2027-02-23 10-K expected by 2027-03-02 (in 253 days)
- ~2027-04-23 10-Q expected by 2027-05-08 (in 312 days)
Predicted from historical filing cadence; not an SEC commitment.
Recent SEC filings
- 2026-05-01 8-K Officer/Director Change; Bylaws/Articles Amended; Shareholder Vote Results
- 2026-04-30 S-8 Employee Benefit Plan Registration
- 2026-04-23 10-Q Quarterly Report
- 2026-04-22 8-K Earnings Release; Financial Statements and Exhibits
- 2026-02-24 10-K Annual Report
- 2026-01-30 8-K Officer/Director Change; Financial Statements and Exhibits
- 2026-01-28 8-K Earnings Release; Financial Statements and Exhibits
- 2025-10-23 10-Q Quarterly Report
- 2025-10-22 8-K Earnings Release; Financial Statements and Exhibits
- 2025-07-24 10-Q Quarterly Report
- 2025-07-23 8-K Earnings Release; Financial Statements and Exhibits
- 2025-06-20 8-K Material Agreement Entered; Material Financial Obligation; Financial Statements and Exhibits
- 2025-04-29 8-K Other Events; Financial Statements and Exhibits
- 2025-04-24 10-Q Quarterly Report
- 2025-04-23 8-K Earnings Release; Financial Statements and Exhibits