Industry Summary Articles

IBM announced first-quarter 2024 earnings results.

"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

"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

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.

To view the original press release, please click here.

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