REG-International Business Machines Corp: 1st Quarter Results
25/04/2024 07:15
IBM RELEASES FIRST-QUARTER RESULTS
Accelerated Software revenue growth; Strong gross margin expansion and cash
generation
Announces strategic acquisition of HashiCorp, Inc.
ARMONK, N.Y., April 25, 2024 -- IBM (NYSE: IBM (http://www.ibm.com/investor))
today announced first-quarter 2024 earnings results.
Logo - https://mma.prnewswire.com/media/2319830/IBM_LOGO_1.jpg
"We began the year with solid revenue and free cash flow growth, reflecting
the strength of our hybrid cloud and AI strategy. We continue to capitalize on
the excitement and demand for enterprise AI from our clients. Our book of
business for watsonx and generative AI again showed strong momentum, growing
quarter over quarter, and has now eclipsed one billion dollars since we
launched watsonx in mid-2023. As a result, for the full year, we continue to
expect revenue performance in line with our mid-single digit model and about
$12 billion in free cash flow," said Arvind Krishna, IBM chairman and chief
executive officer. "To strengthen our position in today's hybrid cloud and
AI-driven technology landscape, we also announced our intent to acquire
HashiCorp. IBM's and HashiCorp's combined portfolios will help clients manage
growing application and infrastructure complexity and create a comprehensive
hybrid cloud platform designed for the AI era."
Strategic Acquisition
IBM today announced its intent to acquire HashiCorp, Inc. for $35 per share in
cash, representing an enterprise value of $6.4 billion. The acquisition will
create a comprehensive end-to-end hybrid cloud platform for the AI era. The
transaction is expected to close by the end of 2024, subject to approval by
HashiCorp shareholders, regulatory approvals and other customary closing
conditions.
First-Quarter Highlights
* Revenue
- Revenue of $14.5 billion, up 1 percent, up 3 percent at constant currency
- Software revenue up 5 percent, up 6 percent at constant currency
- Consulting revenue flat, up 2 percent at constant currency
- Infrastructure revenue down 1 percent, flat at constant currency
* Profit Margin
- Gross Profit Margin: GAAP: 53.5 percent, up 80 basis points; Operating
(Non-GAAP): 54.7 percent, up 100 basis points
- Pre-Tax Income Margin: GAAP: 7.4 percent, flat; Operating (Non-GAAP): 11.5
percent, up 130 basis points
* Cash Flow
- Net cash from operating activities of $4.2 billion, up $0.4 billion; free
cash flow of $1.9 billion, up $0.6 billion
- Over the last twelve months, net cash from operating activities of $14.3
billion; free cash flow of $11.8 billion
FIRST QUARTER 2024 INCOME STATEMENT SUMMARY
Revenue Gross Profit Gross Profit Margin Pre-tax Income Pre-tax Income Margin Net Income (1) Diluted Earnings Per Share
GAAP from $ 14.5 B $ 7.7 B 53.5 % $ 1.1 B 7.4 % $ 1.6 B $ 1.69
Continuing Operations
Year/Year 1 % (2) 3 % 0.8 Pts 1 % 0.0 Pts 69 % 66 %
Operating (Non-GAAP) $ 7.9 B 54.7 % $ 1.7 B 11.5 % $ 1.6 B $ 1.68
Year/Year 3 % 1.0 Pts 14 % 1.3 Pts 25 % 24 %
(1) 2024 includes a net benefit from discrete tax events.
(2) 3% at constant currency.
"In the quarter we continued to focus on the fundamentals of our business,
growing revenue, expanding operating margins, improving profit performance and
increasing productivity and operating leverage," said James Kavanaugh, IBM
senior vice president and chief financial officer. "These fundamentals,
combined with our strong cash generation, position us to invest both
organically and through strategic acquisitions like today's announcement with
HashiCorp. At the same time, we continue to return value to shareholders
through our dividend."
Segment Results for First Quarter
* Software — revenues of $5.9 billion, up 5.5 percent, up 5.9 percent at
constant currency:
- Hybrid Platform & Solutions up 6 percent, up 7 percent at constant
currency:
-- Red Hat up 9 percent
-- Automation up 13 percent
-- Data & AI up 1 percent
-- Security down 3 percent
- Transaction Processing up 3 percent, up 4 percent at constant currency
* Consulting — revenues of $5.2 billion, down 0.2 percent, up 1.7 percent at
constant currency:
- Business Transformation up 1 percent, up 3 percent at constant currency
- Technology Consulting up 1 percent, up 3 percent at constant currency
- Application Operations down 3 percent, down 1 percent at constant currency
* Infrastructure — revenues of $3.1 billion, down 0.7 percent, up 0.2
percent at constant currency:
- Hybrid Infrastructure up 5 percent, up 6 percent at constant currency
-- IBM Z up 4 percent, up 5 percent at constant currency
-- Distributed Infrastructure up 6 percent, up 7 percent at constant
currency
- Infrastructure Support down 8 percent, down 7 percent at constant currency
* Financing — revenues of $0.2 billion, down 1.6 percent, down 1.5 percent
at constant currency
Cash Flow and Balance Sheet
In the first quarter, the company generated net cash from operating activities
of $4.2 billion, up $0.4 billion year to year. Net cash from operating
activities excluding IBM Financing receivables was $2.3 billion. IBM's free
cash flow was $1.9 billion, up $0.6 billion year to year. Over the last twelve
months, the company generated net cash from operating activities of $14.3
billion and free cash flow of $11.8 billion. The company returned $1.5 billion
to shareholders in dividends in the first quarter.
IBM ended the first quarter with $19.3 billion of cash and marketable
securities, up $5.8 billion from year-end 2023. Debt, including IBM Financing
debt of $9.9 billion, totaled $59.5 billion, up $3.0 billion since the end of
2023.
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-and-a-half to two-point headwind to
revenue growth
* Free cash flow: The company continues to expect about $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 watsonx and 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-1q24. 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
sarah.meron@ibm.com
Tim Davidson, 914-844-7847
tfdavids@us.ibm.com
INTERNATIONAL BUSINESS MACHINES CORPORATION COMPARATIVE FINANCIAL RESULTS (Unaudited; Dollars in millions except per share amounts)
Three Months Ended
March 31,
2024 2023 (1)
REVENUE BY SEGMENT
Software $ 5,899 $ 5,591
Consulting 5,186 5,197
Infrastructure 3,076 3,098
Financing 193 196
Other 108 169
TOTAL REVENUE 14,462 14,252
GROSS PROFIT 7,742 7,509
GROSS PROFIT MARGIN
Software 82.4 % 82.6 %
Consulting 25.3 % 25.5 %
Infrastructure 54.2 % 51.8 %
Financing 48.5 % 43.9 %
TOTAL GROSS PROFIT MARGIN 53.5 % 52.7 %
EXPENSE AND OTHER INCOME
S,G&A 4,974 4,853
R,D&E 1,796 1,655
Intellectual property and custom development income (216) (180)
Other (income) and expense (317) (245)
Interest expense 432 367
TOTAL EXPENSE AND OTHER INCOME 6,669 6,451
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 1,074 1,058
Pre-tax margin 7.4 % 7.4 %
Provision for/(Benefit from) income taxes (2) (502) 124
Effective tax rate (2) (46.7) % 11.7 %
INCOME FROM CONTINUING OPERATIONS $ 1,575 $ 934
DISCONTINUED OPERATIONS
Income/(loss) from discontinued operations, net of taxes 30 (7)
NET INCOME $ 1,605 $ 927
EARNINGS/(LOSS) PER SHARE OF COMMON STOCK
Assuming Dilution
Continuing Operations $ 1.69 $ 1.02
Discontinued Operations $ 0.03 $ (0.01)
TOTAL $ 1.72 $ 1.01
Basic
Continuing Operations $ 1.72 $ 1.03
Discontinued Operations $ 0.03 $ (0.01)
TOTAL $ 1.75 $ 1.02
WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (M's)
Assuming Dilution 933.4 917.8
Basic 917.2 907.5
____________________
(1) Recast to reflect segment changes.
(2) 2024 includes a net benefit from discrete tax events.
INTERNATIONAL BUSINESS MACHINES CORPORATION CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited)
(Dollars in Millions) At March 31, At December 31,
2024 2023
ASSETS:
Current Assets:
Cash and cash equivalents $ 14,603 $ 13,068
Restricted cash 162 21
Marketable securities 4,512 373
Notes and accounts receivable - trade, net 6,041 7,214
Short-term financing receivables, net 5,521 6,793
Other accounts receivable, net 760 640
Inventories 1,212 1,161
Deferred costs 1,047 998
Prepaid expenses and other current assets 2,804 2,639
Total Current Assets 36,663 32,908
Property, plant and equipment, net 5,594 5,501
Operating right-of-use assets, net 3,204 3,220
Long-term financing receivables, net 4,927 5,766
Prepaid pension assets 7,545 7,506
Deferred costs 810 842
Deferred taxes 6,465 6,656
Goodwill 59,534 60,178
Intangibles, net 10,750 11,036
Investments and sundry assets 1,678 1,626
Total Assets $ 137,169 $ 135,241
LIABILITIES:
Current Liabilities:
Taxes $ 1,710 $ 2,270
Short-term debt 5,471 6,426
Accounts payable 3,588 4,132
Deferred income 14,051 13,451
Operating lease liabilities 784 820
Other liabilities 6,794 7,022
Total Current Liabilities 32,397 34,122
Long-term debt 54,033 50,121
Retirement related obligations 10,421 10,808
Deferred income 3,488 3,533
Operating lease liabilities 2,583 2,568
Other liabilities 10,914 11,475
Total Liabilities 113,836 112,628
EQUITY:
IBM Stockholders' Equity:
Common stock 60,145 59,643
Retained earnings 151,362 151,276
Treasury stock — at cost (169,759) (169,624)
Accumulated other comprehensive income/(loss) (18,488) (18,761)
Total IBM Stockholders' Equity 23,261 22,533
Noncontrolling interests 72 80
Total Equity 23,333 22,613
Total Liabilities and Equity $ 137,169 $ 135,241
INTERNATIONAL BUSINESS MACHINES CORPORATION CASH FLOW ANALYSIS (Unaudited)
Three Months Ended Trailing Twelve Months Ended March 31,
March 31,
(Dollars in Millions) 2024 2023 2024
Net Cash from Operations per GAAP $ 4,168 $ 3,774 $ 14,325
Less: change in IBM Financing receivables 1,897 1,977 1,152
Capital Expenditures, net (361) (457) (1,393)
Free Cash Flow 1,910 1,340 11,780
Acquisitions (82) (22) (5,142)
Divestitures 703 — 699
Dividends (1,522) (1,497) (6,065)
Non-Financing Debt 5,244 9,692 1,098
Other (includes IBM Financing net receivables and debt) (437) (762) (684)
Change in Cash, Cash Equivalents, Restricted Cash and Short-term Marketable Securities $ 5,815 $ 8,752 $ 1,686
INTERNATIONAL BUSINESS MACHINES CORPORATION CASH FLOW (Unaudited)
Three Months Ended
March 31,
(Dollars in Millions) 2024 2023
Net Income from Operations $ 1,605 $ 927
Depreciation/Amortization of Intangibles (1) 1,132 1,074
Stock-based Compensation 320 268
Operating assets and liabilities/Other, net (2) (785) (473)
IBM Financing A/R 1,897 1,977
Net Cash Provided by Operating Activities $ 4,168 $ 3,774
Capital Expenditures, net of payments & proceeds (361) (457)
Divestitures, net of cash transferred 703 -
Acquisitions, net of cash acquired (82) (22)
Marketable Securities / Other Investments, net (4,469) (7,481)
Net Cash Provided by/(Used in) Investing Activities $ (4,210) $ (7,960)
Debt, net of payments & proceeds 3,382 7,304
Dividends (1,522) (1,497)
Financing - Other 17 (99)
Net Cash Provided by/(Used in) Financing Activities $ 1,877 $ 5,708
Effect of Exchange Rate changes on Cash (159) 24
Net Change in Cash, Cash Equivalents and Restricted Cash $ 1,676 $ 1,547
____________________
(1) Includes operating lease right-of-use assets amortization.
(2) Includes the reduction of tax reserves.
INTERNATIONAL BUSINESS MACHINES CORPORATION GAAP NET INCOME TO ADJUSTED EBITDA RECONCILIATION (Unaudited)
Three Months Ended March 31,
(Dollars in Billions) 2024 2023 Yr/Yr
Net Income as reported (GAAP) $ 1.6 $ 0.9 $ 0.7
Less: Income/(loss) from discontinued operations, net of tax 0.0 0.0 0.0
Income from continuing operations 1.6 0.9 0.6
Provision for/(Benefit from) income taxes from continuing ops. (0.5) 0.1 (0.6)
Pre-tax income from continuing operations (GAAP) 1.1 1.1 0.0
Non-operating adjustments (before tax)
Acquisition-related charges (1) 0.5 0.4 0.1
Non-operating retirement-related costs/(income) 0.1 0.0 0.1
Operating (non-GAAP) pre-tax income from continuing ops. 1.7 1.4 0.2
Net interest expense 0.2 0.2 0.0
Depreciation/Amortization of non-acquired intangible assets 0.7 0.7 0.0
Stock-based compensation 0.3 0.3 0.1
Workforce rebalancing charges 0.4 0.3 0.1
Corporate (gains) and charges (2) (0.2) 0.0 (0.2)
Adjusted EBITDA $ 3.0 $ 2.8 $ 0.2
____________________
(1) Primarily consists of amortization of acquired intangible assets.
(2) Corporate (gains) and charges primarily consists of unique corporate actions such as gains on divestitures.
INTERNATIONAL BUSINESS MACHINES CORPORATION SEGMENT DATA (Unaudited)
Three Months Ended March 31, 2024
(Dollars in Millions) Software Consulting Infrastructure Financing
Revenue $ 5,899 $ 5,186 $ 3,076 $ 193
Segment Profit $ 1,500 $ 424 $ 311 $ 92
Segment Profit Margin 25.4 % 8.2 % 10.1 % 47.7 %
Change YTY Revenue 5.5 % (0.2) % (0.7) % (1.6) %
Change YTY Revenue - Constant Currency 5.9 % 1.7 % 0.2 % (1.5) %
Three Months Ended March 31, 2023 (1)
(Dollars in Millions) Software Consulting Infrastructure Financing
Revenue $ 5,591 $ 5,197 $ 3,098 $ 196
Segment Profit $ 1,379 $ 427 $ 307 $ 100
Segment Profit Margin 24.7 % 8.2 % 9.9 % 51.2 %
____________________
(1) Recast to reflect segment changes.
INTERNATIONAL BUSINESS MACHINES CORPORATION U.S. GAAP TO OPERATING (Non-GAAP) RESULTS RECONCILIATION (Unaudited; Dollars in millions except per share amounts)
Three Months Ended March 31, 2024
Continuing Operations
GAAP Acquisition- Related Adjustments (1) Retirement- Related Adjustments (2) Tax Reform Impacts (3) Operating (Non- GAAP)
Gross Profit $ 7,742 $ 170 $ — $ — $ 7,913
Gross Profit Margin 53.5 % 1.2 pts. — pts. — pts. 54.7 %
S,G&A $ 4,974 $ (268) $ — $ — $ 4,706
Other (Income) & Expense (317) (50) (96) — (463)
Total Expense & Other (Income) 6,669 (318) (96) — 6,255
Pre-tax Income from Continuing Operations 1,074 488 96 — 1,658
Pre-tax Income Margin from Continuing Operations 7.4 % 3.4 pts. 0.7 pts. — pts. 11.5 %
Provision for/(Benefit from) Income Taxes (4) $ (502) $ 142 $ 5 $ 448 $ 94
Effective Tax Rate (46.7) % 22.3 pts. 3.0 pts. 27.0 pts. 5.6 %
Income from Continuing Operations $ 1,575 $ 346 $ 91 $ (448) $ 1,564
Income Margin from Continuing Operations 10.9 % 2.4 pts. 0.6 pts. (3.1) pts. 10.8 %
Diluted Earnings Per Share: Continuing Operations $ 1.69 $ 0.37 $ 0.10 $ (0.48) $ 1.68
Three Months Ended March 31, 2023
Continuing Operations
GAAP Acquisition- Related Adjustments (1) Retirement- Related Adjustments (2) Tax Reform Impacts Operating (Non- GAAP)
Gross Profit $ 7,509 $ 148 $ — $ — $ 7,658
Gross Profit Margin 52.7 % 1.0 pts. — pts. — pts. 53.7 %
S,G&A $ 4,853 $ (246) $ — $ — $ 4,607
Other (Income) & Expense (245) (2) 5 — (242)
Total Expense & Other (Income) 6,451 (247) 5 — 6,209
Pre-tax Income from Continuing Operations 1,058 396 (5) — 1,449
Pre-tax Income Margin from Continuing Operations 7.4 % 2.8 pts. 0.0 pts. — pts. 10.2 %
Provision for/(Benefit from) Income Taxes (4) $ 124 $ 91 $ (10) $ (5) $ 200
Effective Tax Rate 11.7 % 3.1 pts. (0.7) pts. (0.3) pts. 13.8 %
Income from Continuing Operations $ 934 $ 305 $ 5 $ 5 $ 1,249
Income Margin from Continuing Operations 6.6 % 2.1 pts. — pts. — pts. 8.8 %
Diluted Earnings Per Share: Continuing $ 1.02 $ 0.33 $ 0.01 $ 0.01 $ 1.36
Operations
____________________
(1) Includes amortization of purchased intangible assets, in process R&D, transaction costs, applicable restructuring and related expenses, tax charges related to acquisition integration and pre-closing charges, such as financing costs. 2024 also includes a loss of $50 million on foreign exchange call option contracts related to the company's planned acquisition of StreamSets and webMethods from Software AG.
(2) Includes 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.
(3) 2024 includes a net benefit from discrete tax events.
(4) Tax impact on operating (non-GAAP) pre-tax income from continuing operations is calculated under the same accounting principles applied to the As Reported pre-tax income under ASC 740, which employs an annual effective tax rate method to the results.
INTERNATIONAL BUSINESS MACHINES CORPORATION GAAP OPERATING CASH FLOW TO ADJUSTED EBITDA RECONCILIATION (Unaudited)
Three Months Ended
March 31,
(Dollars in Billions) 2024 2023
Net Cash Provided by Operating Activities $ 4.2 $ 3.8
Add:
Net interest expense 0.2 0.2
Provision for/(Benefit from) income taxes from continuing operations (0.5) 0.1
Less change in:
Financing receivables 1.9 2.0
Other assets and liabilities/Other, net (1) (1.0) (0.7)
Adjusted EBITDA $ 3.0 $ 2.8
____________________
(1) Other assets and liabilities/Other, net mainly consists of Operating assets and liabilities/Other, net in the Cash flow chart, workforce rebalancing charges, non-operating impacts and corporate (gains) and charges.
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