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INTERNATIONAL BUSINESS MACHINES CORP (IBM)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 revenue was $17.553B, up 1% YoY (2% constant currency), with double‑digit Software growth; GAAP diluted EPS was $3.11 and operating EPS was $3.92 as margin expansion continued .
  • Software led by Red Hat (+16% YoY), Automation (+15%), Transaction Processing (+10%); Consulting declined 2% and Infrastructure declined 7.6% with IBM Z down 21% late‑cycle .
  • Full‑year free cash flow reached $12.749B, above prior expectations, and Q4 FCF was $6.163B; management guided FY2025 revenue growth of at least 5% (cc) and about $13.5B FCF, with a ~2‑pt currency headwind .
  • Generative AI “book of business” accelerated to >$5B inception‑to‑date (up ~$2B QoQ), a key growth narrative into 2025; IBM also declared a $1.67 quarterly dividend payable March 10, 2025 .

What Went Well and What Went Wrong

  • What Went Well

    • Software grew 10.4% YoY in Q4, led by Red Hat (+16%), Automation (+15%), and Transaction Processing (+10%), with operating gross margin up 50 bps and operating pretax margin up 40 bps .
    • Generative AI traction: book of business >$5B inception‑to‑date, up nearly $2B QoQ; CEO: “Clients globally continue to turn to IBM to transform with AI” .
    • Cash generation exceeded expectations: FY FCF $12.749B; CFO: “far‑outpacing our expectation for the year” .

  • What Went Wrong

    • Consulting revenue declined 2.0% YoY in Q4 amid clients reprioritizing spend; management expects low single‑digit growth in 2025 despite strong record signings .
    • Infrastructure revenue fell 7.6% YoY, with IBM Z down 21% late in the z16 cycle; segment profit margin fell vs prior year as investments continued .
    • GAAP results impacted by a one‑time, non‑cash pension settlement charge ($0.4B in Q4), depressing GAAP margins/EPS; operating EPS adds back $0.43 for retirement‑related adjustments .

Financial Results

MetricQ4 2023Q2 2024Q3 2024Q4 2024
Total Revenue ($USD Billions)$17.381 $15.770 $14.968 $17.553
GAAP Diluted EPS – Continuing Ops ($)$3.54 $1.96 $(0.34) $3.11
Operating (Non‑GAAP) EPS ($)$3.87 $2.43 $2.30 $3.92
Gross Profit Margin % (GAAP)59.1% 56.8% 56.3% 59.5%
Gross Profit Margin % (Operating)60.1% 57.8% 57.5% 60.6%
Pre‑Tax Income Margin % (GAAP)21.6% 14.1% (5.4)% 18.8%

Segment revenue breakdown (Q4 YoY):

Segment Revenue ($USD Billions)Q4 2023Q4 2024YoY Change
Software$7.179 $7.924 +10.4%
Consulting$5.283 $5.175 −2.0%
Infrastructure$4.604 $4.256 −7.6%
Financing$0.175 $0.170 −2.5%

KPIs and cash metrics:

KPIQ2 2024Q3 2024Q4 2024
Adjusted EBITDA ($USD Billions)$4.0 $3.8 $5.6
Free Cash Flow ($USD Billions)$2.612 $2.064 $6.163
GenAI Book of Business (Inception‑to‑date, $USD Billions)>$2 >$3 >$5
Hybrid Platform & Solutions ARR ($USD Billions)——$15.3
OpenShift ARR ($USD Billions)——$1.4

Balance sheet snapshot (Q4 2024):

  • Cash, restricted cash & marketable securities: $14.8B; Total debt: $55.0B (incl. $12.1B Financing debt) .
  • Cash and cash equivalents: $13.947B; Total assets $137.175B; Total equity $27.393B .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue Growth (constant currency)FY2025—At least 5%New
Currency Impact to RevenueFY2025—~2‑pt headwindNew
Free Cash FlowFY2025—About $13.5BNew
Operating Pretax MarginFY2025—Expand >0.5 ptNew
Tax RateFY2025—Mid‑teensNew
Software Revenue GrowthFY2025—Approaching double digitsNew
Red Hat GrowthFY2025—Mid‑teensNew
Consulting Revenue GrowthFY2025—Low single digitsNew
Infrastructure Contribution to IBM GrowthFY2025—~1 pointNew
Constant‑currency Revenue Growth vs Q4Q1 2025—Similar to Q4New
Dividend per ShareNext payment$1.67 (prior)$1.67 on Mar 10, 2025Maintained
Free Cash Flow (Full Year)FY2024>$12B (raised in Q2) Actual $12.749BExceeded

Earnings Call Themes & Trends

TopicQ2 2024 (Previous Mentions)Q3 2024 (Previous Mentions)Q4 2024 (Current Period)Trend
Generative AI tractionBook of business >$2B >$3B (+$1B QoQ) >$5B (+~$2B QoQ) Accelerating
Software growth and Red HatSoftware +7% YoY; Red Hat +7% Software +10% YoY; Red Hat +14% Software +10.4% YoY; Red Hat +16% Strengthening
Consulting−0.9% YoY; clients reprioritizing −0.5% YoY; dynamic environment −2.0% YoY; record signings (+23%); backlog +8% Pressured near term; signs of 2025 inflection
Infrastructure/mainframeIBM Z +6% YoY IBM Z −19% YoY IBM Z −21% YoY; z17 mid‑2025Late‑cycle trough ahead of refresh
MarginsOperating GPM +190 bps YoY; operating PT margin +220 bps Operating GPM +210 bps; PT margin +100 bps Operating GPM +50 bps; PT margin +40 bps Expansion ongoing; moderated in Q4
Cash flowFY FCF guide >$12B YTD FCF $6.6B FY FCF $12.749B; 2025 FCF guide ~$13.5B Outperformance; higher 2025 target

Management Commentary

  • CEO Arvind Krishna: “We closed the year with double‑digit revenue growth in Software for the quarter, led by further acceleration in Red Hat… Our generative AI book of business now stands at more than $5 billion… we’re well‑positioned for 2025 and beyond and expect revenue growth of at least five percent and free cash flow of about $13.5 billion this year” .
  • CFO James Kavanaugh: “We generated $12.7 billion in free cash flow, far‑outpacing our expectation for the year. Continued strength in operating profitability and free cash flow fuels our ability to invest for the future while returning value to shareholders through dividends” .
  • Strategy emphasis: Mixed shift to software‑led platform, strong Red Hat bookings, and product innovation (e.g., watsonx Code Assistant, Guardium Quantum Safe) supporting growth vectors .

Q&A Highlights

  • 2025 linearity: Strong Software execution through H1/H2; Consulting likely back‑half inflection; Infrastructure to return to growth with z17; overall revenue growth a point lower in H1 vs H2, with free cash flow similar to historical patterns .
  • M&A and HashiCorp: Management expects friendlier regulatory environment; “guide all‑in” includes Hashi; ~1‑pt revenue contribution and ~$0.30 EPS dilution near‑term, with adjusted EBITDA accretion within 12 months and FCF accretion within 2 years .
  • Consulting yield: Record signings (+23% in Q4), GenAI book of business >$4B (Consulting portion), backlog +8%; early‑cycle lower yield but strategic provider decisions drive long‑term vector of growth .
  • Transaction Processing & mainframe: TPP grew 11% exit‑rate; mix of capacity demand, GenAI product monetization (watsonx Code Assistant for Z), and price optimization; prudent view of mid‑single‑digit TPP growth in 2025 .
  • Business climate: Despite macro headwinds, leaders view software budgets as essential; optimism for 2025 growth supports Software guidance approaching double digits .

Estimates Context

  • S&P Global Wall Street consensus for Q4 2024 EPS and revenue was unavailable due to API limit; therefore, beat/miss vs consensus cannot be determined at this time. Values would normally be retrieved from S&P Global.

Key Takeaways for Investors

  • Software strength and AI adoption are central: double‑digit Software growth with Red Hat at +16% and a >$5B GenAI book of business support a 2025 growth inflection narrative .
  • Cash flow quality: FY2024 FCF $12.749B and 2025 FCF guide ~$13.5B provide support for continued investment and shareholder returns; dividend maintained at $1.67/share .
  • Consulting near‑term softness vs strong signings/backlog: −2% revenue in Q4, but record signings (+23%) and backlog +8% set up low single‑digit growth in 2025 as GenAI projects ramp .
  • Infrastructure cycle positioning: IBM Z down 21% in Q4 late‑cycle; z17 launch mid‑2025 expected to contribute ~1 pt to IBM’s overall revenue growth, with AI‑adjacent storage growth noted .
  • Margin expansion durability: Operating gross margin and pretax margin expanded again in Q4 (albeit at a slower pace), underpinned by mix and productivity initiatives .
  • Non‑GAAP adjustments matter: Q4 GAAP results include $0.4B pension settlement charge; operating EPS adjusts for ~$0.43 retirement‑related impact; use operating metrics for underlying trend assessment .
  • 2025 watch‑items: Currency (~2‑pt headwind), M&A integration (Hashi all‑in), tax rate mid‑teens, higher CapEx for AI/mainframe; monitor Software approaching double digits and Red Hat mid‑teens growth delivery .