By IBM
Accelerated revenue growth led by Software; Raises full-year free cash flow expectation
ARMONK, N.Y., July 24, 2024 /PRNewswire/ — IBM (NYSE: IBM) today announced second-quarter 2024 earnings results.
“We had a strong second quarter, exceeding our expectations, driven by growth in both revenue and free cash flow. We continue to see that clients turn to IBM for our technology and our expertise in enterprise AI, and our book of business for generative AI has grown to more than two billion dollars since the launch of watsonx one year ago,” said Arvind Krishna, IBM chairman and chief executive officer. “Given our first-half results, we are raising our full-year view of free cash flow, which we now expect to be more than $12 billion.”
Second-Quarter Highlights
Revenue
– Revenue of $15.8 billion, up 2 percent, up 4 percent at constant currency
– Software revenue up 7 percent, up 8 percent at constant currency
– Consulting revenue down 1 percent, up 2 percent at constant currency
– Infrastructure revenue up 1 percent, up 3 percent at constant currency
Profit Margin
– Gross Profit Margin: GAAP: 56.8 percent, up 180 basis points; Operating (Non-GAAP): 57.8 percent, up 190 basis points
– Pre-Tax Income Margin: GAAP: 14.1 percent, up 110 basis points; Operating (Non-GAAP): 17.7 percent, up 220 basis points
Cash Flow
– Year to date, net cash from operating activities of $6.2 billion, down $0.2 billion; free cash flow of $4.5 billion, up $1.1 billion
– Over the last twelve months, net cash from operating activities of $13.8 billion; free cash flow of $12.3 billion
SECONDQUARTER 2024 INCOME STATEMENT SUMMARY
Revenue
Gross
Profit
Gross
Profit
Margin
Pre-tax
Income
Pre-tax
Income
Margin
Net
Income
Diluted
Earnings
Per Share
GAAP from
Continuing
Operations
$ 15.8 B
$ 8.9 B
56.8
%
$ 2.2 B
14.1
%
$ 1.8 B
$ 1.96
Year/Year
2
%(1)
5
%
1.8
Pts
11
%
1.1
Pts
16
%
14
%
Operating
(Non-GAAP)
$ 9.1 B
57.8
%
$ 2.8 B
17.7
%
$ 2.3 B
$ 2.43
Year/Year
5
%
1.9
Pts
17
%
2.2
Pts
14
%
11
%
(1) 4% at constant currency.
“In the quarter, we accelerated our revenue growth as we continue to execute well on our strategy. Our business fundamentals, operating leverage, product mix and productivity initiatives all contributed to significant margin expansion and increased profit and free cash flow,” said James Kavanaugh, IBM senior vice president and chief financial officer. “Our strong cash generation enables us to continue investing in innovation and expertise across the portfolio, while returning value to shareholders through dividends.”
Segment Results for Second Quarter
Software — revenues of $6.7 billion, up 7.1 percent, up 8.4 percent at constant currency:
– Hybrid Platform & Solutions up 5 percent, up 6 percent at constant currency:
— Red Hat up 7 percent, up 8 percent at constant currency
— Automation up 15 percent, up 16 percent at constant currency
— Data & AI down 3 percent, down 2 percent at constant currency
— Security up 2 percent, up 3 percent at constant currency
– Transaction Processing up 11 percent, up 13 percent at constant currency
Consulting — revenues of $5.2 billion, down 0.9 percent, up 1.8 percent at constant currency:
– Business Transformation up 3 percent, up 6 percent at constant currency
– Technology Consulting down 3 percent, up 1 percent at constant currency
– Application Operations down 4 percent, down 2 percent at constant currency
Infrastructure — revenues of $3.6 billion, up 0.7 percent, up 2.7 percent at constant currency:
– Hybrid Infrastructure up 4 percent, up 6 percent at constant currency
— IBM Z up 6 percent, up 8 percent at constant currency
— Distributed Infrastructure up 3 percent, up 5 percent at constant currency
– Infrastructure Support down 5 percent, down 3 percent at constant currency
Financing — revenues of $0.2 billion, down 8.3 percent, down 6.6 percent at constant currency
Cash Flow and Balance Sheet
In the second quarter, the company generated net cash from operating activities of $2.1 billion, down $0.6 billion year to year. IBM’s free cash flow was $2.6 billion, up $0.5 billion year to year. The company returned $1.5 billion to shareholders in dividends in the second quarter.
For the first six months of the year, the company generated net cash from operating activities of $6.2 billion, down $0.2 billion year to year. IBM’s free cash flow was $4.5 billion, up $1.1 billion year to year. Over the last twelve months, the company generated net cash from operating activities of $13.8 billion and free cash flow of $12.3 billion.
IBM ended the second quarter with $16.0 billion of cash, restricted cash and marketable securities, up $2.5 billion from year-end 2023. Debt, including IBM Financing debt of $11.1 billion, totaled $56.5 billion, flat year to date.
Full-Year 2024 Expectations
Revenue: The company continues to expect constant currency revenue growth consistent with its mid-single digit model. At current foreign exchange rates, currency is expected to be about a one to two-point headwind to revenue growth
Free cash flow: The company now expects more than $12 billion in free cash flow
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
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;
net cash from operating activities excluding IBM Financing receivables;
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.
For generative AI, book of business includes Software transactional revenue, SaaS Annual Contract Value and Consulting signings.
Conference Call and Webcast
IBM’s regular quarterly earnings conference call is scheduled to begin at 5:00 p.m. ET, today. The Webcast may be accessed via a link at https://www.ibm.com/investor/events/earnings-2q24. Presentation charts will be available shortly before the Webcast.
Financial Results Below (certain amounts may not add due to use of rounded numbers; percentages presented are calculated from the underlying whole-dollar amounts).
Contact: IBM
Sarah Meron, 347-891-1770
Tim Davidson, 914-844-7847
INTERNATIONAL BUSINESS MACHINES CORPORATION
COMPARATIVE FINANCIAL RESULTS
(Unaudited; Dollars in millions except per share amounts)
Three Months Ended
June 30,
Six Months Ended
June 30,
2024
2023 (1)
2024
2023 (1)
REVENUE BY SEGMENT
Software
$ 6,739
$ 6,294
$ 12,637
$ 11,885
Consulting
5,179
5,226
10,365
10,423
Infrastructure
3,645
3,618
6,721
6,716
Financing
169
185
362
380
Other
38
152
146
321
TOTAL REVENUE
15,770
15,475
30,231
29,727
GROSS PROFIT
8,950
8,501
16,692
16,010
GROSS PROFIT MARGIN
Software
83.6
%
82.1
%
83.0
%
82.3
%
Consulting
26.3
%
25.9
%
25.8
%
25.7
%
Infrastructure
56.5
%
56.0
%
55.4
%
54.1
%
Financing
48.9
%
49.2
%
48.7
%
46.5
%
TOTAL GROSS PROFIT MARGIN
56.8
%
54.9
%
55.2
%
53.9
%
EXPENSE AND OTHER INCOME
S,G&A
4,938
4,900
9,912
9,754
R,D&E
1,840
1,687
3,637
3,342
Intellectual property and custom development income
(241)
(248)
(458)
(428)
Other (income) and expense
(233)
(261)
(550)
(506)
Interest expense
427
423
859
790
TOTAL EXPENSE AND OTHER INCOME
6,730
6,501
13,399
12,952
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES
2,219
2,000
3,293
3,058
Pre-tax margin
14.1
%
12.9
%
10.9
%
10.3
%
Provision for/(Benefit from) income taxes
389
419
(112)
543
Effective tax rate
17.5
%
21.0
%
(3.4)
%
17.8
%
INCOME FROM CONTINUING OPERATIONS
$ 1,830
$ 1,581
$ 3,405
$ 2,515
DISCONTINUED OPERATIONS
Income/(loss) from discontinued operations, net of taxes
4
2
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