Accelerated Software revenue growth, expanded gross profit margin, and strong free cash flow
ARMONK, N.Y., Oct. 23, 2024 /PRNewswire/ -- IBM (NYSE: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 | ||||||||||||||||||||
GAAP results include impact of one-time, non-cash pension settlement charge (1) | ||||||||||||||||||||
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 | % | ||||||||
(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. | ||||||||||||||||||||
(2) 2% at constant currency. | ||||||||||||||||||||
"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.
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-3q24. 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
[email protected]
Tim Davidson, 914-844-7847
[email protected]
INTERNATIONAL BUSINESS MACHINES CORPORATION COMPARATIVE FINANCIAL RESULTS (Unaudited; Dollars in millions except per share amounts) | |||||||||||
Three Months Ended | Nine Months Ended | ||||||||||
2024 | 2023 (1) | 2024 | 2023 (1) | ||||||||
REVENUE BY SEGMENT | |||||||||||
Software | $ 6,524 | $ 5,947 | $ 19,162 | $ 17,832 | |||||||
Consulting | 5,152 | 5,178 | 15,517 | 15,601 | |||||||
Infrastructure | 3,042 | 3,272 | 9,764 | 9,988 | |||||||
Financing | 181 | 186 | 543 | 566 | |||||||
Other | 68 | 170 | 214 | 491 | |||||||
TOTAL REVENUE | 14,968 | 14,752 | 45,199 | 44,479 | |||||||
GROSS PROFIT | 8,420 | 8,023 | 25,112 | 24,033 | |||||||
GROSS PROFIT MARGIN | |||||||||||
Software | 83.2 | % | 82.3 | % | 83.1 | % | 82.3 | % | |||
Consulting | 28.4 | % | 27.6 | % | 26.7 | % | 26.3 | % | |||
Infrastructure | 55.0 | % | 53.7 | % | 55.3 | % | 54.0 | % | |||
Financing | 47.2 | % | 49.7 | % | 48.2 | % | 47.5 | % | |||
TOTAL GROSS PROFIT MARGIN | 56.3 | % | 54.4 | % | 55.6 | % | 54.0 | % | |||
EXPENSE AND OTHER INCOME | |||||||||||
S,G&A | 4,911 | 4,458 | 14,823 | 14,212 | |||||||
R,D&E | 1,876 | 1,685 | 5,512 | 5,027 | |||||||
Intellectual property and custom development income | (238) | (190) | (696) | (618) | |||||||
Other (income) and expense | 2,244 | (215) | 1,694 | (721) | |||||||
Interest expense | 429 | 412 | 1,288 | 1,202 | |||||||
TOTAL EXPENSE AND OTHER INCOME | 9,222 | 6,150 | 22,621 | 19,102 | |||||||
INCOME/(LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES | (802) | 1,873 | 2,491 | 4,931 | |||||||
Pre-tax margin | (5.4) | % | 12.7 | % | 5.5 | % | 11.1 | % | |||
Provision for/(Benefit from) income taxes | (485) | 159 | (597) | 702 | |||||||
Effective tax rate | 60.4 | % | 8.5 | % | (24.0) | % | 14.2 | % | |||
INCOME/(LOSS) FROM CONTINUING OPERATIONS | $ (317) | $ 1,714 | $ 3,088 | $ 4,229 | |||||||
DISCONTINUED OPERATIONS | |||||||||||
Income/ (loss) from discontinued operations, net of taxes | (13) | (10) | 21 | (15) | |||||||
NET INCOME/(LOSS) (2) | $ (330) | $ 1,704 | $ 3,109 | $ 4,214 | |||||||
EARNINGS/(LOSS) PER SHARE OF COMMON STOCK (2) | |||||||||||
Assuming Dilution | |||||||||||
Continuing Operations | $ (0.34) | $ 1.86 | $ 3.30 | $ 4.59 | |||||||
Discontinued Operations | $ (0.01) | $ (0.01) | $ 0.02 | $ (0.02) | |||||||
TOTAL | $ (0.36) | $ 1.84 | $ 3.32 | $ 4.58 | |||||||
Basic | |||||||||||
Continuing Operations | $ (0.34) | $ 1.88 | $ 3.36 | $ 4.65 | |||||||
Discontinued Operations | $ (0.01) | $ (0.01) | $ 0.02 | $ (0.02) | |||||||
TOTAL | $ (0.36) | $ 1.87 | $ 3.38 | $ 4.63 | |||||||
WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (M's) | |||||||||||
Assuming Dilution | 923.6 | 923.7 | 935.4 | 920.3 | |||||||
Basic | 923.6 | 912.8 | 920.3 | 910.1 | |||||||
____________________ | |||||||||||
(1) Recast to reflect January 2024 segment changes. | |||||||||||
(2) 2024 includes the impact of a one-time, non-cash, pension settlement charge of $2.7 billion ($2.0 billion net of tax). | |||||||||||
INTERNATIONAL BUSINESS MACHINES CORPORATION CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited) | ||||
(Dollars in Millions) | At September 30, | At December 31, | ||
ASSETS: | ||||
Current Assets: | ||||
Cash and cash equivalents | $ 13,197 | $ 13,068 | ||
Restricted cash | 17 | 21 | ||
Marketable securities | 505 | 373 | ||
Notes and accounts receivable - trade, net | 5,390 | 7,214 | ||
Short-term financing receivables, net | 5,765 | 6,793 | ||
Other accounts receivable, net | 928 | 640 | ||
Inventories | 1,367 | 1,161 | ||
Deferred costs | 966 | 998 | ||
Prepaid expenses and other current assets | 2,408 | 2,639 | ||
Total Current Assets | 30,543 | 32,908 | ||
Property, plant and equipment, net | 5,614 | 5,501 | ||
Operating right-of-use assets, net | 3,355 | 3,220 | ||
Long-term financing receivables, net | 4,931 | 5,766 | ||
Prepaid pension assets | 7,975 | 7,506 | ||
Deferred costs | 788 | 842 | ||
Deferred taxes | 6,943 | 6,656 | ||
Goodwill | 61,092 | 60,178 | ||
Intangibles, net | 11,090 | 11,036 | ||
Investments and sundry assets | 2,009 | 1,626 | ||
Total Assets | $ 134,339 | $ 135,241 | ||
LIABILITIES: | ||||
Current Liabilities: | ||||
Taxes | $ 1,584 | $ 2,270 | ||
Short-term debt | 3,599 | 6,426 | ||
Accounts payable | 3,274 | 4,132 | ||
Deferred income | 12,882 | 13,451 | ||
Operating lease liabilities | 790 | 820 | ||
Other liabilities | 6,725 | 7,022 | ||
Total Current Liabilities | 28,853 | 34,122 | ||
Long-term debt | 52,980 | 50,121 | ||
Retirement-related obligations | 10,366 | 10,808 | ||
Deferred income | 3,666 | 3,533 | ||
Operating lease liabilities | 2,757 | 2,568 | ||
Other liabilities | 11,186 | 11,475 | ||
Total Liabilities | 109,809 | 112,628 | ||
EQUITY: | ||||
IBM Stockholders' Equity: | ||||
Common stock | 61,013 | 59,643 | ||
Retained earnings | 149,789 | 151,276 | ||
Treasury stock - at cost | (169,935) | (169,624) | ||
Accumulated other comprehensive income/(loss) | (16,418) | (18,761) | ||
Total IBM Stockholders' Equity | 24,448 | 22,533 | ||
Noncontrolling interests | 82 | 80 | ||
Total Equity | 24,530 | 22,613 | ||
Total Liabilities and Equity | $ 134,339 | $ 135,241 | ||
INTERNATIONAL BUSINESS MACHINES CORPORATION CASH FLOW ANALYSIS (Unaudited) | ||||||||
Three Months Ended | Nine Months Ended | |||||||
(Dollars in Millions) | 2024 | 2023 | 2024 | 2023 | ||||
Net Cash from Operations per GAAP | $ 2,881 | $ 3,055 | $ 9,115 | $ 9,468 | ||||
Less: change in IBM Financing receivables | 873 | 1,092 | 1,824 | 3,119 | ||||
Capital Expenditures, net | 55 | (282) | (705) | (1,226) | ||||
Free Cash Flow | 2,064 | 1,682 | 6,586 | 5,123 | ||||
Acquisitions | (2,513) | (4,589) | (2,748) | (4,945) | ||||
Divestitures | 2 | (10) | 705 | (4) | ||||
Dividends | (1,542) | (1,515) | (4,601) | (4,522) | ||||
Non-Financing Debt | (383) | (942) | 693 | 7,572 | ||||
Other (includes IBM Financing net receivables and debt) | 131 | 41 | (379) | (1,068) | ||||
Change in Cash, Cash Equivalents, Restricted Cash and Short-term Marketable Securities | $ (2,241) | $ (5,333) | $ 257 | $ 2,156 | ||||
INTERNATIONAL BUSINESS MACHINES CORPORATION CASH FLOW (Unaudited) | ||||||||
Three Months Ended | Nine Months Ended | |||||||
(Dollars in Millions) | 2024 | 2023 | 2024 | 2023 | ||||
Net Income/(loss) from Operations | $ (330) | $ 1,704 | $ 3,109 | $ 4,214 | ||||
Pension Settlement Charge | 2,725 | - | 2,725 | - | ||||
Depreciation/Amortization of Intangibles (1) | 1,268 | 1,093 | 3,555 | 3,243 | ||||
Stock-based Compensation | 330 | 286 | 966 | 843 | ||||
Operating assets and liabilities/Other, net (2) | (1,984) | (1,119) | (3,063) | (1,952) | ||||
IBM Financing A/R | 873 | 1,092 | 1,824 | 3,119 | ||||
Net Cash Provided by Operating Activities | $ 2,881 | $ 3,055 | $ 9,115 | $ 9,468 | ||||
Capital Expenditures, net of payments & proceeds (3) | 55 | (282) | (705) | (1,226) | ||||
Divestitures, net of cash transferred | 2 | (10) | 705 | (4) | ||||
Acquisitions, net of cash acquired | (2,513) | (4,589) | (2,748) | (4,945) | ||||
Marketable Securities / Other Investments, net | 869 | 2,927 | (810) | (3,732) | ||||
Net Cash Provided by/(Used in) Investing Activities | $ (1,587) | $ (1,953) | $ (3,558) | $ (9,906) | ||||
Debt, net of payments & proceeds | (1,259) | (1,550) | (777) | 4,619 | ||||
Dividends | (1,542) | (1,515) | (4,601) | (4,522) | ||||
Financing - Other | 35 | (67) | (26) | (252) | ||||
Net Cash Provided by/(Used in) Financing Activities | $ (2,766) | $ (3,132) | $ (5,403) | $ (154) | ||||
Effect of Exchange Rate changes on Cash | 207 | (119) | (29) | (120) | ||||
Net Change in Cash, Cash Equivalents and Restricted Cash | $ (1,264) | $ (2,149) | $ 125 | $ (713) | ||||
____________________ | ||||||||
(1) Includes operating lease right-of-use assets amortization. | ||||||||
(2) Includes a $0.7 billion tax effect associated with the one-time, non-cash pension settlement charge in the third-quarter 2024. | ||||||||
(3) 2024 includes proceeds of $0.4 billion from the sale of certain QRadar SaaS assets. | ||||||||
INTERNATIONAL BUSINESS MACHINES CORPORATION GAAP NET INCOME TO ADJUSTED EBITDA RECONCILIATION (Unaudited) | ||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
(Dollars in Billions) | 2024 | 2023 | Yr/Yr | 2024 | 2023 | Yr/Yr | ||||||
Net Income/(Loss) as reported (GAAP) (1) | $ (0.3) | $ 1.7 | $ (2.0) | $ 3.1 | $ 4.2 | $ (1.1) | ||||||
Less: Income/(loss) from discontinued operations, net of tax | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | ||||||
Income/(Loss) from continuing operations | (0.3) | 1.7 | (2.0) | 3.1 | 4.2 | (1.1) | ||||||
Provision for/(Benefit from) income taxes from continuing ops. | (0.5) | 0.2 | (0.6) | (0.6) | 0.7 | (1.3) | ||||||
Pre-tax income/(loss) from continuing operations (GAAP) | (0.8) | 1.9 | (2.7) | 2.5 | 4.9 | (2.4) | ||||||
Non-operating adjustments (before tax) | ||||||||||||
Acquisition-related charges (2) | 0.5 | 0.4 | 0.1 | 1.5 | 1.2 | 0.2 | ||||||
Non-operating retirement-related costs/(income) (1) | 2.8 | 0.0 | 2.8 | 3.0 | 0.0 | 3.0 | ||||||
Operating (non-GAAP) pre-tax income/(loss) from continuing ops. | 2.5 | 2.3 | 0.2 | 6.9 | 6.1 | 0.8 | ||||||
Net interest expense | 0.3 | 0.3 | 0.0 | 0.7 | 0.7 | 0.0 | ||||||
Depreciation/Amortization of non-acquired intangible assets | 0.7 | 0.7 | 0.0 | 2.1 | 2.0 | 0.1 | ||||||
Stock-based compensation | 0.3 | 0.3 | 0.0 | 1.0 | 0.8 | 0.1 | ||||||
Workforce rebalancing charges | 0.3 | 0.0 | 0.3 | 0.7 | 0.4 | 0.3 | ||||||
Corporate (gains) and charges (3) | (0.4) | 0.0 | (0.3) | (0.6) | 0.0 | (0.6) | ||||||
Adjusted EBITDA | $ 3.8 | $ 3.5 | $ 0.2 | $ 10.8 | $ 10.1 | $ 0.8 | ||||||
____________________ | ||||||||||||
(1) 2024 includes the impact of a one-time, non-cash pension settlement charge of $2.7 billion ($2.0 billion net of tax). | ||||||||||||
(2) Primarily consists of amortization of acquired intangible assets. | ||||||||||||
(3) Corporate (gains) and charges primarily consists of unique corporate actions such as gains on divestitures and asset sales (e.g., certain QRadar SaaS assets). | ||||||||||||
INTERNATIONAL BUSINESS MACHINES CORPORATION SEGMENT DATA (Unaudited) | ||||||||||||
Three Months Ended September 30, 2024 | ||||||||||||
(Dollars in Millions) | Software | Consulting | Infrastructure | Financing | ||||||||
Revenue | $ 6,524 | $ 5,152 | $ 3,042 | $ 181 | ||||||||
Segment Profit | $ 1,969 | $ 559 | $ 422 | $ 86 | ||||||||
Segment Profit Margin | 30.2 | % | 10.9 | % | 13.9 | % | 47.5 | % | ||||
Change YTY Revenue | 9.7 | % | (0.5) | % | (7.0) | % | (2.5) | % | ||||
Change YTY Revenue - Constant Currency | 9.6 | % | (0.2) | % | (6.7) | % | (1.3) | % | ||||
Three Months Ended September 30, 2023 (1) | ||||||||||||
(Dollars in Millions) | Software | Consulting | Infrastructure | Financing | ||||||||
Revenue | $ 5,947 | $ 5,178 | $ 3,272 | $ 186 | ||||||||
Segment Profit | $ 1,722 | $ 566 | $ 490 | $ 91 | ||||||||
Segment Profit Margin | 29.0 | % | 10.9 | % | 15.0 | % | 49.2 | % | ||||
__________________ | ||||||||||||
(1) Recast to reflect January 2024 segment changes. | ||||||||||||
Nine Months Ended September 30, 2024 | ||||||||||||
(Dollars in Millions) | Software | Consulting | Infrastructure | Financing | ||||||||
Revenue | $ 19,162 | $ 15,517 | $ 9,764 | $ 543 | ||||||||
Segment Profit | $ 5,582 | $ 1,447 | $ 1,387 | $ 254 | ||||||||
Segment Profit Margin | 29.1 | % | 9.3 | % | 14.2 | % | 46.9 | % | ||||
Change YTY Revenue | 7.5 | % | (0.5) | % | (2.3) | % | (4.1) | % | ||||
Change YTY Revenue - Constant Currency | 8.0 | % | 1.1 | % | (1.2) | % | (3.1) | % | ||||
Nine Months Ended September 30, 2023 (1) | ||||||||||||
(Dollars in Millions) | Software | Consulting | Infrastructure | Financing | ||||||||
Revenue | $ 17,832 | $ 15,601 | $ 9,988 | $ 566 | ||||||||
Segment Profit | $ 4,850 | $ 1,476 | $ 1,529 | $ 256 | ||||||||
Segment Profit Margin | 27.2 | % | 9.5 | % | 15.3 | % | 45.2 | % | ||||
____________________ | ||||||||||||
(1) Recast to reflect January 2024 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 September 30, 2024 | ||||||||||||||
Continuing Operations | ||||||||||||||
GAAP | Acquisition- Related Adjustments (1) | Retirement- Related Adjustments (2) | Tax Reform Impacts | Operating (Non-GAAP) | ||||||||||
Gross Profit | $ 8,420 | $ 192 | $ — | $ — | $ 8,612 | |||||||||
Gross Profit Margin | 56.3 | % | 1.3 | pts | — | pts | — | pts | 57.5 | % | ||||
S,G&A | $ 4,911 | $ (300) | $ — | $ — | $ 4,611 | |||||||||
Other (Income) & Expense | 2,244 | — | (2,797) | — | (553) | |||||||||
Total Expense & Other (Income) | 9,222 | (300) | (2,797) | — | 6,125 | |||||||||
Pre-tax Income/(Loss) from Continuing Operations | (802) | 492 | 2,797 | — | 2,487 | |||||||||
Pre-tax Income Margin from Continuing Operations | (5.4) | % | 3.3 | pts | 18.7 | pts | — | pts | 16.6 | % | ||||
Provision for/(Benefit from) Income Taxes (3) | $ (485) | $ 119 | $ 700 | $ (2) | $ 332 | |||||||||
Effective Tax Rate | 60.4 | % | (7.2) | pts | (39.8) | pts | (0.1) | pts | 13.4 | % | ||||
Income/(Loss) from Continuing Operations | $ (317) | $ 373 | $ 2,097 | $ 2 | $ 2,155 | |||||||||
Income Margin from Continuing Operations | (2.1) | % | 2.5 | pts | 14.0 | pts | 0.0 | pts | 14.4 | % | ||||
Diluted Earnings/(Loss) Per Share: Continuing Operations (4) | $ (0.34) | $ 0.40 | $ 2.27 | $ 0.00 | $ 2.30 | |||||||||
Three Months Ended September 30, 2023 | ||||||||||||||
Continuing Operations | ||||||||||||||
GAAP | Acquisition- Related Adjustments (1) | Retirement- Related Adjustments (2) | Tax Reform Impacts | Operating (Non-GAAP) | ||||||||||
Gross Profit | $ 8,023 | $ 162 | $ — | $ — | $ 8,185 | |||||||||
Gross Profit Margin | 54.4 | % | 1.1 | pts | — | pts | — | pts | 55.5 | % | ||||
S,G&A | $ 4,458 | $ (277) | $ — | $ — | $ 4,181 | |||||||||
Other (Income) & Expense | (215) | 0 | 12 | — | (203) | |||||||||
Total Expense & Other (Income) | 6,150 | (277) | 12 | — | 5,885 | |||||||||
Pre-tax Income/(Loss) from Continuing Operations | 1,873 | 438 | (12) | — | 2,299 | |||||||||
Pre-tax Income Margin from Continuing Operations | 12.7 | % | 3.0 | pts | (0.1) | pts | — | pts | 15.6 | % | ||||
Provision for/(Benefit from) Income Taxes (3) | $ 159 | $ 99 | $ (14) | $ 24 | $ 268 | |||||||||
Effective Tax Rate | 8.5 | % | 2.7 | pts | (0.5) | pts | 1.0 | pts | 11.7 | % | ||||
Income/(Loss) from Continuing Operations | $ 1,714 | $ 340 | $ 1 | $ (24) | $ 2,031 | |||||||||
Income Margin from Continuing Operations | 11.6 | % | 2.3 | pts | 0.0 | pts | (0.2) | pts | 13.8 | % | ||||
Diluted Earnings/(Loss) Per Share: Continuing Operations | $ 1.86 | $ 0.37 | $ 0.00 | $ (0.03) | $ 2.20 | |||||||||
____________________ | ||||||||||||||
(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. | ||||||||||||||
(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. 2024 also includes the impact of a one-time, non-cash, pre-tax pension settlement charge of $2.7 billion ($2.0 billion net of tax). | ||||||||||||||
(3) 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. | ||||||||||||||
(4) Operating (non-GAAP) earnings per share was calculated using 938.4 million shares, which includes 14.9 million dilutive potential shares under our stock-based compensation plans and contingently issuable shares. Due to the GAAP net loss for the three months ended September 30, 2024, these dilutive potential shares were excluded from the GAAP loss per share calculation as the effect would have been antidilutive. The difference in share count resulted in an additional $(0.04) reconciling item. | ||||||||||||||
INTERNATIONAL BUSINESS MACHINES CORPORATION U.S. GAAP TO OPERATING (Non-GAAP) RESULTS RECONCILIATION (Unaudited; Dollars in millions except per share amounts) | ||||||||||||||
Nine Months Ended September 30, 2024 | ||||||||||||||
Continuing Operations | ||||||||||||||
GAAP | Acquisition- Related Adjustments (1) | Retirement- Related Adjustments (2) | Tax Reform Impacts (3) | Operating (Non-GAAP) | ||||||||||
Gross Profit | $ 25,112 | $ 533 | $ — | $ — | $ 25,645 | |||||||||
Gross Profit Margin | 55.6 | % | 1.2 | pts | — | pts | — | pts | 56.7 | % | ||||
S,G&A | $ 14,823 | $ (854) | $ — | $ — | $ 13,969 | |||||||||
Other (Income) & Expense | 1,694 | (68) | (2,991) | — | (1,364) | |||||||||
Total Expense & Other (Income) | 22,621 | (922) | (2,991) | — | 18,709 | |||||||||
Pre-tax Income/(Loss) from Continuing Operations | 2,491 | 1,454 | 2,991 | — | 6,936 | |||||||||
Pre-tax Income Margin from Continuing Operations | 5.5 | % | 3.2 | pts | 6.6 | pts | — | pts | 15.3 | % | ||||
Provision for/(Benefit from) Income Taxes (4) | $ (597) | $ 374 | $ 731 | $ 434 | $ 942 | |||||||||
Effective Tax Rate | (24.0) | % | 10.4 | pts | 20.9 | pts | 6.3 | pts | 13.6 | % | ||||
Income/(Loss) from Continuing Operations | $ 3,088 | $ 1,081 | $ 2,259 | $ (434) | $ 5,994 | |||||||||
Income Margin from Continuing Operations | 6.8 | % | 2.4 | pts | 5.0 | pts | (1.0) | pts | 13.3 | % | ||||
Diluted Earnings/(Loss) Per Share: Continuing Operations | $ 3.30 | $ 1.16 | $ 2.42 | $ (0.46) | $ 6.41 | |||||||||
Nine Months Ended September 30, 2023 | ||||||||||||||
Continuing Operations | ||||||||||||||
GAAP | Acquisition- Related Adjustments (1) | Retirement- Related Adjustments (2) | Tax Reform Impacts | Operating (Non-GAAP) | ||||||||||
Gross Profit | $ 24,033 | $ 460 | $ — | $ — | $ 24,492 | |||||||||
Gross Profit Margin | 54.0 | % | 1.0 | pts | — | pts | — | pts | 55.1 | % | ||||
S,G&A | $ 14,212 | $ (768) | $ — | $ — | $ 13,444 | |||||||||
Other (Income) & Expense | (721) | (2) | 16 | — | (707) | |||||||||
Total Expense & Other (Income) | 19,102 | (770) | 16 | — | 18,348 | |||||||||
Pre-tax Income from Continuing Operations | 4,931 | 1,229 | (16) | — | 6,144 | |||||||||
Pre-tax Income Margin from Continuing Operations | 11.1 | % | 2.8 | pts | 0.0 | pts | — | pts | 13.8 | % | ||||
Provision for/(Benefit from) Income Taxes (4) | $ 702 | $ 277 | $ (27) | $ (91) | $ 861 | |||||||||
Effective Tax Rate | 14.2 | % | 1.7 | pts | (0.4) | pts | (1.5) | pts | 14.0 | % | ||||
Income from Continuing Operations | $ 4,229 | $ 953 | $ 11 | $ 91 | $ 5,283 | |||||||||
Income Margin from Continuing Operations | 9.5 | % | 2.1 | pts | 0.0 | pts | 0.2 | pts | 11.9 | % | ||||
Diluted Earnings Per Share: Continuing Operations | $ 4.59 | $ 1.04 | $ 0.01 | $ 0.10 | $ 5.74 | |||||||||
____________________ | ||||||||||||||
(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 $68 million on foreign exchange derivative contracts entered into by the company prior to the 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. 2024 also includes the impact of a one-time, non-cash, pre-tax pension settlement charge of $2.7 billion ($2.0 billion net of tax). | ||||||||||||||
(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 | Nine Months Ended | |||||||
(Dollars in Billions) | 2024 | 2023 | 2024 | 2023 | ||||
Net Cash Provided by Operating Activities | $ 2.9 | $ 3.1 | $ 9.1 | $ 9.5 | ||||
Add: | ||||||||
Net interest expense | 0.3 | 0.3 | 0.7 | 0.7 | ||||
Provision for/(Benefit from) income taxes from continuing operations | (0.5) | 0.2 | (0.6) | 0.7 | ||||
Less change in: | ||||||||
Financing receivables | 0.9 | 1.1 | 1.8 | 3.1 | ||||
Other assets and liabilities/other, net (1) | (2.0) | (1.2) | (3.5) | (2.3) | ||||
Adjusted EBITDA | $ 3.8 | $ 3.5 | $ 10.8 | $ 10.1 | ||||
____________________ | ||||||||
(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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SOURCE IBM