Accelerated Software revenue growth, expanded gross profit margin, and strong free cash flow
IBM today announced third-quarter 2024 earnings results.
"Our third-quarter performance was led by double-digit growth in Software, including a re-acceleration in Red Hat. We continue to see great momentum in AI as our models are trusted, fit-for-purpose, and lower cost, with performance leadership. Our generative AI book of business now stands at more than $3 billion, up more than $1 billion quarter to quarter," said Arvind Krishna, IBM chairman, president and chief executive officer. "Heading into the final quarter of 2024, we expect fourth-quarter constant currency revenue growth to be consistent with the third quarter, with continued strength in Software. We are confident in our ability to deliver more than $12 billion in free cash flow for the year, driven by continued expansion of our operating margins."
Third-Quarter Highlights
- Revenue
- Revenue of $15.0 billion, up 1 percent, up 2 percent at constant currency
- Software revenue up 10 percent
- Consulting revenue flat
- Infrastructure revenue down 7 percent - Profit
- Gross Profit Margin: GAAP: 56.3 percent, up 190 basis points; Operating (Non-GAAP):
57.5 percent, up 210 basis points - Cash Flow
- Year to date, net cash from operating activities of $9.1 billion; free cash flow of $6.6 billion
|
THIRD-QUARTER 2024 INCOME STATEMENT SUMMARY |
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|
GAAP results include impact of one-time, non-cash pension settlement charge (1) |
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|
Revenue |
Gross Profit |
Gross Profit Margin |
Pre-tax Income/ (Loss) (1) |
Pre-tax Income Margin (1) |
Net Income/ (Loss) (1) |
Diluted Earnings/ (Loss) Per Share (1) |
||||||||||||||
|
GAAP from Continuing Operations |
$ 15.0 B |
$ 8.4 B |
56.3 |
% |
$ (0.8) B |
(5.4) |
% |
$ (0.3) B |
$ (0.34) |
|||||||||||
|
Year/Year |
1 |
%(2) |
5 |
% |
1.9 |
Pts |
NM |
-18.1 |
Pts |
NM |
NM |
|||||||||
|
Operating (Non-GAAP) |
$ 8.6 B |
57.5 |
% |
$ 2.5 B |
16.6 |
% |
$ 2.2 B |
$ 2.30 |
||||||||||||
|
Year/Year |
5 |
% |
2.1 |
Pts |
8 |
% |
1.0 |
Pts |
6 |
% |
5 |
% |
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|
(1) 2024 GAAP results include the impact of a one-time, non-cash, pension settlement charge of $2.7 billion ($2.0 billion net of tax) related to the transfer of a portion of the company's U.S. defined benefit pension obligations and related plan assets to a third-party insurer, announced in September 2024. |
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(2) 2% at constant currency. |
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"Our investments are paying off in Software as we've repositioned our portfolio in recent years. In the third quarter, Software delivered broad-based growth and now represents nearly 45 percent of our total revenue. Our ongoing focus on product mix, coupled with our productivity initiatives enables us to continue to drive operating leverage in our underlying profit performance," said James Kavanaugh, IBM senior vice president and chief financial officer. "With our strong cash generation, we are well-positioned to continue investing for growth while returning value to shareholders through dividends."
Segment Results for Third Quarter
- Software — revenues of $6.5 billion, up 9.7 percent, up 9.6 percent at constant currency:
- Hybrid Platform & Solutions up 10 percent
-- Red Hat up 14 percent
-- Automation up 13 percent
-- Data & AI up 5 percent
-- Security down 1 percent
- Transaction Processing up 9 percent
- Consulting — revenues of $5.2 billion, down 0.5 percent, down 0.2 percent at constant currency:
- Business Transformation up 2 percent
- Technology Consulting down 4 percent
- Application Operations down 1 percent
- Infrastructure — revenues of $3.0 billion, down 7.0 percent, down 6.7 percent at constant currency:
- Hybrid Infrastructure down 9 percent
-- IBM Z down 19 percent
-- Distributed Infrastructure down 3 percent
- Infrastructure Support down 4 percent, down 3 percent at constant currency
- Financing — revenues of $0.2 billion, down 2.5 percent, down 1.3 percent at constant currency
Cash Flow and Balance Sheet
In the third quarter, the company generated net cash from operating activities of $2.9 billion, down $0.2 billion year to year. IBM's free cash flow was $2.1 billion, up $0.4 billion year to year. The company returned $1.5 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 $9.1 billion, down $0.4 billion year to year. IBM's free cash flow was $6.6 billion, up $1.5 billion year to year.
IBM ended the third quarter with $13.7 billion of cash, restricted cash and marketable securities, up $0.3 billion from year-end 2023. Debt, including IBM Financing debt of $10.4 billion, totaled $56.6 billion, flat year to date.
Expectations
- Revenue: The company expects fourth-quarter constant currency revenue growth consistent with the third quarter. At current foreign exchange rates, currency is expected to be about a half-point headwind to revenue growth in the quarter
- Free cash flow: The company continues to expect more than $12 billion in free cash flow for the full year
Forward-Looking and Cautionary Statements
Except for the historical information and discussions contained herein, statements contained in this release may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on the company's current assumptions regarding future business and financial performance. These statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially, including, but not limited to, the following: a downturn in economic environment and client spending budgets; a failure of the company's innovation initiatives; damage to the company's reputation; risks from investing in growth opportunities; failure of the company's intellectual property portfolio to prevent competitive offerings and the failure of the company to obtain necessary licenses; the company's ability to successfully manage acquisitions, alliances and dispositions, including integration challenges, failure to achieve objectives, the assumption of liabilities and higher debt levels; fluctuations in financial results; impact of local legal, economic, political, health and other conditions; the company's failure to meet growth and productivity objectives; ineffective internal controls; the company's use of accounting estimates; impairment of the company's goodwill or amortizable intangible assets; the company's ability to attract and retain key employees and its reliance on critical skills; impacts of relationships with critical suppliers; product quality issues; impacts of business with government clients; reliance on third party distribution channels and ecosystems; cybersecurity and data privacy considerations; adverse effects related to climate change and environmental matters; tax matters; legal proceedings and investigatory risks; the company's pension plans; currency fluctuations and customer financing risks; impact of changes in market liquidity conditions and customer credit risk on receivables; potential failure of the separation of Kyndryl Holdings, Inc. to qualify for tax-free treatment; risk factors related to IBM securities; and other risks, uncertainties and factors discussed in the company's Form 10-Qs, Form 10-K and in the company's other filings with the U.S. Securities and Exchange Commission or in materials incorporated therein by reference.
Statements in this communication regarding the strategic acquisition that are forward-looking may include projections as to closing date for the transaction, the extent of, and the time necessary to obtain, the regulatory approvals required for the transaction, the anticipated benefits of the transaction, the impact of the transaction on IBM's business, the synergies from the transaction, and the combined company's future operating results.
Any forward-looking statement in this release 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.
Presentation of Information in this Press Release
For generative AI, book of business includes Software transactional revenue, SaaS Annual Contract Value and Consulting signings. The generative AI book of business is further defined within Exhibit 99.2 in the Form 8-K that includes this press release.
In an effort to provide investors with additional information regarding the company's results as determined by generally accepted accounting principles (GAAP), the company has also disclosed in this press release the following non-GAAP information, which management believes provides useful information to investors:
IBM results —
- adjusting for currency (i.e., at constant currency);
- presenting operating (non-GAAP) earnings per share amounts and related income statement items;
- free cash flow;
- adjusted EBITDA.
The rationale for management's use of these non-GAAP measures is included in Exhibit 99.2 in the Form 8-K that includes this press release and is being submitted today to the SEC.
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