IBM revenue rises 5% to $17.1 billion and raises free cash flow outlook

International Business Machines Corporation (IBM) reported third-quarter 2026 revenue of $17.1 billion on Wednesday, up 5% from a year earlier.

A regulatory filing showed the company released the results on Oct. 21, covering the quarter ended Sept. 30. At constant currency, which strips out the effect of exchange-rate changes, revenue rose 6%.

Here's how the company did:

• Diluted earnings per share: $2.31 vs. $1.84 a year earlier
• Operating (non-GAAP) diluted earnings per share: $2.95 vs. $2.65 a year earlier
• Revenue: $17.1 billion vs. $16.3 billion a year earlier
• Net income: $2.19 billion vs. $1.74 billion a year earlier

Operating figures exclude acquisition-related charges, which are mostly amortization of acquired intangible assets, and retirement-related costs.

Margins moved in different directions. The GAAP gross profit margin was 56.8%, down 50 basis points, and the GAAP pre-tax margin was 14.6%, down 30 basis points.

On an operating basis, the gross profit margin was 58.5%, down 20 basis points, and the pre-tax margin was 19.3%, up 70 basis points.

Revenue for the first nine months was $50.2 billion, up 5% from $47.8 billion a year earlier.

The company said it continues to expect full-year constant currency revenue growth of 4% to 5%. At current foreign exchange rates, currency is expected to be neutral to growth for the year.

The company raised its outlook for free cash flow. It now expects free cash flow to increase by more than $1 billion year over year.

The company gave no dollar revenue figure for the year. Its revenue outlook is stated only as constant currency growth.

"Disciplined execution throughout the quarter drove accelerated revenue growth and strong free cash flow," IBM chairman, president and chief executive officer Arvind Krishna said. "Our clients are now deploying Super Intelligence in ways that transform entire operating models, instead of simply addressing narrow or novel problems."

"Demand across our portfolio combined with strong operational execution led to accelerated growth and solid operating pre-tax margin expansion in the quarter," IBM senior vice president and chief financial officer James Kavanaugh said. He tied the margin gain to productivity initiatives inside the company.

Software revenue was $7.8 billion, up 8% from a year earlier and up 9% at constant currency. Hybrid Cloud (Red Hat) rose 11%, and Data rose 19%.

Transaction Processing revenue rose 9%, or 10% at constant currency. Automation fell 3%.

Consulting revenue was $5.3 billion, flat from a year earlier and up 2% at constant currency. Strategy and Technology rose 2%, while Intelligent Operations fell 2%, or was flat at constant currency.

Infrastructure revenue was $3.7 billion, up 4% from a year earlier and up 5% at constant currency. Distributed Infrastructure rose 31%, and Hybrid Infrastructure rose 8%.

IBM Z revenue fell 20%, and Infrastructure Support fell 3%.

Financing revenue was $0.2 billion, down 4% from a year earlier.

Selling, general and administrative expense was $4.6 billion, down from $4.7 billion a year earlier. Research and development expense rose to $2.4 billion from $2.1 billion.

Operating cash flow was $4.0 billion in the quarter, up $0.9 billion. Free cash flow was $3.0 billion, up $0.7 billion.

For the first nine months, operating cash flow was $11.8 billion and free cash flow was $7.8 billion, up $0.6 billion.

Adjusted EBITDA, or earnings before interest, taxes, depreciation and amortization adjusted for items the company excludes, was $4.9 billion, up from $4.6 billion. Its margin was 28.7%, up from 28.0%.

The company ended the quarter with $11.1 billion of cash, restricted cash and marketable securities, down $3.4 billion from year-end 2025. It invested $11.4 billion in acquisitions this year.

Total debt, including $12.7 billion of IBM Financing debt, was $63.8 billion, up $2.6 billion year to date.

The board approved a regular quarterly cash dividend of $1.69 per common share, payable Dec. 10 to stockholders of record on Nov. 10. The company returned $1.6 billion to shareholders in dividends in the third quarter.

The company said the December payment will extend its record of consecutive quarterly dividends every year since 1916.