Consulting Signings (Million USD)

Book-to-bill Ratio

Book-to-bill Ratio (>1.15)

ee71e0c6053dcfaccb9029205d6ff0bfb8a7b6af5d0cb4064b51c2e186a6dd4d

| Segment/Metric (USD Billion) | Q4 2022 | Q1 2023 | Q2 2023 | Q3 2023 | Q4 2023 | Q1 2024 | Q2 2024 | Q3 2024 |
|------------------------------|---------|---------|---------|---------|---------|---------|---------|---------|
| **Software**                 | 7.3  **[0001558370-23-000529_ibm-20230125xex99d1.htm:0]**  | 5.9  **[0001558370-23-006218_ibm-20230419xex99d1.htm:0]**  | 6.6  **[0000051143-23-000010_ibm-20230719xex991.htm:2]**  | 6.3  **[0000051143-23-000026_ibm-20231025xex991.htm:1]**  | 7.5  **[0000051143-24-000004_ibm-20240124xex991.htm:1]**  | 5.899  **[0000051143-24-000025_ibm-20240331.htm:10]**  | 6.739  **[0000051143-24-000033_ibm-20240724xex991.htm:1]**  | 6.5  **[0000051143-24-000043_ibm-20241023xex991.htm:2]**  |
| **Consulting**               | 4.8  **[0001558370-23-000529_ibm-20230125xex99d1.htm:0]**  | 5.0  **[0001558370-23-006218_ibm-20230419xex99d1.htm:0]**  | 5.0  **[0000051143-23-000010_ibm-20230719xex991.htm:2]**  | 5.0  **[0000051143-23-000026_ibm-20231025xex991.htm:1]**  | 5.0  **[0000051143-24-000004_ibm-20240124xex991.htm:1]**  | 5.186  **[0000051143-24-000025_ibm-20240331.htm:10]**  | 5.179  **[0000051143-24-000033_ibm-20240724xex991.htm:1]**  | 5.2  **[0000051143-24-000043_ibm-20241023xex991.htm:2]**  |
| **Infrastructure**           | 4.5  **[0001558370-23-000529_ibm-20230125xex99d1.htm:0]**  | 3.1  **[0001558370-23-006218_ibm-20230419xex99d1.htm:0]**  | 3.6  **[0000051143-23-000010_ibm-20230719xex991.htm:2]**  | 3.3  **[0000051143-23-000026_ibm-20231025xex991.htm:1]**  | 4.6  **[0000051143-24-000004_ibm-20240124xex991.htm:1]**  | 3.076  **[0000051143-24-000025_ibm-20240331.htm:10]**  | 3.645  **[0000051143-24-000033_ibm-20240724xex991.htm:1]**  | 3.0  **[0000051143-24-000043_ibm-20241023xex991.htm:2]**  |
| **Financing**                | N/A      | 0.2  **[0001558370-23-006218_ibm-20230419xex99d1.htm:0]**  | 0.2  **[0000051143-23-000010_ibm-20230719xex991.htm:2]**  | 0.2  **[0000051143-23-000026_ibm-20231025xex991.htm:1]**  | 0.2  **[0000051143-24-000004_ibm-20240124xex991.htm:1]**  | 0.193  **[0000051143-24-000025_ibm-20240331.htm:10]**  | 0.169  **[0000051143-24-000033_ibm-20240724xex991.htm:1]**  | 0.2  **[0000051143-24-000043_ibm-20241023xex991.htm:2]**  |
| **Other**                    | N/A      | N/A      | N/A      | N/A      | N/A      | 0.108  **[0000051143-24-000018_ibm-20240424xex991.htm:4]**  | 0.038  **[0000051143-24-000039_ibm-20240630.htm:56]**  | N/A      |
| **Total Revenue**            | N/A      | 14.3  **[0001558370-23-006218_ibm-20230419xex99d1.htm:0]**  | 15.5  **[IBM_3254896_3]**  | 14.8  **[0000051143-23-000026_ibm-20231025xex991.htm:0]**  | 17.4  **[0000051143-24-000004_ibm-20240124xex991.htm:0]**  | 14.462  **[0000051143-24-000018_ibm-20240424xex991.htm:4]**  | 15.770  **[0000051143-24-000039_ibm-20240630.htm:56]**  | 15.0  **[0000051143-24-000043_ibm-20241023xex991.htm:1]**  |

dbb2bfde813998334d9caaeb6ac0d1299d8bc1f4f4ff61c80828a1b866ff7ba9

2437aa9309d363533732b200bfaded74a6e139d6ca22a9086941bed06a59f5c2

Adjustments for Non-Cash Items

Stock-Based Compensation

Changes in Working Capital

Capital Expenditures (CapEx)

Proceeds from / Repayments of Debt

Share Repurchases

Dividend Payments

Net Change in Cash

81edc943ff066901598410140e83b5f98b05ebc365442f850341ab22f42eab88

834bd06bdd241a8ff8cdde334981035a1b85484921be4e6d29075452d237c003

IBM is a global technology company that focuses on providing integrated solutions and products leveraging hybrid cloud and artificial intelligence (AI) technologies. The company operates through key segments, including Software, Consulting, and Infrastructure, to support clients' digital transformations. IBM's offerings include a range of software solutions, consulting services, and infrastructure products, all designed to enhance business operations and drive innovation **[0000051143-24-000012_ibm-20231231.htm:3]** **[IBM_3403401_1]** **[0000051143-24-000012_ibm-20231231_d2.htm:62]** **[0000051143-24-000012_ibm-20231231_d2.htm:64]**.

1. **Software** - Offers hybrid platform software solutions, transaction processing, and distributed infrastructure software, including proprietary and open-source software delivered through as-a-Service or cloud models, and on-premise licenses. Red Hat, part of this segment, has shown substantial growth **[0000051143-24-000012_ibm-20231231.htm:3]** **[IBM_3403401_1]**.

2. **Consulting** - Provides business transformation, technology consulting, and application operations services, delivered through various models, including cloud and as-a-Service, crucial for clients preparing for AI integration **[0000051143-24-000012_ibm-20231231_d2.htm:62]** **[IBM_3403401_1]**.

3. **Infrastructure** - Delivers Hybrid Infrastructure solutions like zSystems and Distributed Infrastructure solutions such as Power and Storage, supporting mission-critical workloads and driving hardware and related software adoption **[0000051143-24-000012_ibm-20231231_d2.htm:64]** **[0000051143-24-000012_ibm-20231231_d2.htm:62]**.

72013e45ad32e9218ae3a6942330252538d8471ac00b514885f8fe009fffa405

| Metric [Unit: $ Million] | Q4 2022 | Q1 2023 | Q2 2023 | Q3 2023 | Q4 2023 | Q1 2024 | Q2 2024 | Q3 2024 |
|--------------------------|---------|---------|---------|---------|---------|---------|---------|---------|
| Americas                 | **8,400**  **[0001558370-23-000608_ibm-20230125xex99d2.htm:3]**  | **7,078**  **[0001558370-23-006656_ibm-20230331x10q.htm:36]** **[0001558370-23-006656_ibm-20230331x10q.htm:42]**  | **8,046**  **[0000051143-23-000021_ibm-20230630.htm:62]**  | **7,686**  **[0000051143-23-000032_ibm-20230930.htm:65]** **[0000051143-23-000032_ibm-20230930.htm:11]**  | **8,900**  **[0000051143-24-000007_ex992.htm:3]**  | **7,296**  **[0000051143-24-000025_ibm-20240331.htm:9]**  | **7,979**  **[0000051143-24-000039_ibm-20240630.htm:64]**  | **7,453**  **[0000051143-24-000049_ibm-20240930.htm:70]**  |
| EMEA                     | **5,200**  **[0001558370-23-000608_ibm-20230125xex99d2.htm:3]**  | **4,331**  **[0001558370-23-006656_ibm-20230331x10q.htm:36]** **[0001558370-23-006656_ibm-20230331x10q.htm:42]**  | **4,602**  **[0000051143-23-000021_ibm-20230630.htm:62]**  | **4,223**  **[0000051143-23-000032_ibm-20230930.htm:65]** **[0000051143-23-000032_ibm-20230930.htm:11]**  | **5,300**  **[0000051143-24-000007_ex992.htm:3]**  | **4,313**  **[0000051143-24-000025_ibm-20240331.htm:9]**  | **4,722**  **[0000051143-24-000039_ibm-20240630.htm:64]**  | **4,584**  **[0000051143-24-000049_ibm-20240930.htm:70]**  |
| Asia Pacific             | **3,000**  **[0001558370-23-000608_ibm-20230125xex99d2.htm:3]**  | **2,843**  **[0001558370-23-006656_ibm-20230331x10q.htm:36]** **[0001558370-23-006656_ibm-20230331x10q.htm:42]**  | **2,827**  **[0000051143-23-000021_ibm-20230630.htm:62]**  | **2,843**  **[0000051143-23-000032_ibm-20230930.htm:65]** **[0000051143-23-000032_ibm-20230930.htm:11]**  | **3,200**  **[0000051143-24-000007_ex992.htm:3]**  | **2,853**  **[0000051143-24-000025_ibm-20240331.htm:9]**  | **3,069**  **[0000051143-24-000039_ibm-20240630.htm:64]**  | **2,932**  **[0000051143-24-000049_ibm-20240930.htm:70]**  |

58d0cf2119db262165c42d507e695c221a827aef7461022197250c90dca2cdb6

1. Consulting revenue was flat this quarter with signings declining for the second consecutive quarter; given the ongoing macroeconomic challenges and client spending shifts, how confident are you in Consulting returning to growth in 2025, and what specific strategies are you implementing to drive this turnaround?

2. With the HashiCorp acquisition potentially diluting free cash flow in the near term, especially if Consulting remains flat, how do you plan to achieve the high single-digit free cash flow growth you've previously targeted for 2025?

3. IBM's revenue growth has averaged around 3% in several of the past four years, below your mid-single-digit model; considering that some growth drivers like the mainframe cycle and acquisitions could be one-time boosts, what initiatives are in place to ensure sustainable mid-single-digit revenue growth beyond 2025?

4. While your generative AI book of business has grown significantly, you mentioned that these AI engagements have longer durations and lower immediate revenue yield; how will this affect your Consulting revenue growth and margins in the near term, and when do you expect these AI investments to contribute meaningfully to your financial performance?

5. Software segment profit margin expanded to about 30% this quarter, above historical levels; given the competitive pressures in the software industry, how sustainable is this margin expansion, and what risks could potentially impact your software margins moving forward?

1d49457ebcdf5731e6396ded8184bff5dd32c8e0b7f71834cf98f6264f94a19a

- Alphabet (Google): Competitor in the Software segment  **[0000051143-24-000012_ibm-20231231.htm:4]** .
- Amazon: Competitor in the Software segment  **[0000051143-24-000012_ibm-20231231.htm:4]** .
- BMC: Competitor in the Software segment  **[0000051143-24-000012_ibm-20231231.htm:4]** .
- Broadcom: Competitor in the Software segment  **[0000051143-24-000012_ibm-20231231.htm:4]** .
- Informatica: Competitor in the Software segment  **[0000051143-24-000012_ibm-20231231.htm:4]** .
- Microsoft: Competitor in the Software segment  **[0000051143-24-000012_ibm-20231231.htm:4]** .
- Oracle: Competitor in the Software segment  **[0000051143-24-000012_ibm-20231231.htm:4]** .
- Palo Alto Networks: Competitor in the Software segment  **[0000051143-24-000012_ibm-20231231.htm:4]** .
- Salesforce: Competitor in the Software segment  **[0000051143-24-000012_ibm-20231231.htm:4]** .
- SAP: Competitor in the Software segment  **[0000051143-24-000012_ibm-20231231.htm:4]** .
- Splunk: Competitor in the Software segment  **[0000051143-24-000012_ibm-20231231.htm:4]** .
- Accenture: Competitor in the Consulting segment  **[0000051143-24-000012_ibm-20231231.htm:4]** .
- Capgemini: Competitor in the Consulting segment  **[0000051143-24-000012_ibm-20231231.htm:4]** .
- India-based service providers: Competitors in the Consulting segment  **[0000051143-24-000012_ibm-20231231.htm:4]** .
- Management consulting firms: Competitors in the Consulting segment  **[0000051143-24-000012_ibm-20231231.htm:4]** .
- Consulting practices of public accounting firms: Competitors in the Consulting segment  **[0000051143-24-000012_ibm-20231231.htm:4]** .
- Engineering service providers: Competitors in the Consulting segment  **[0000051143-24-000012_ibm-20231231.htm:4]** .
- Dell Technologies: Competitor in the Infrastructure segment  **[0000051143-24-000012_ibm-20231231.htm:4]** .
- Hewlett-Packard Enterprise (HPE): Competitor in the Infrastructure segment  **[0000051143-24-000012_ibm-20231231.htm:4]** .
- Intel: Competitor in the Infrastructure segment  **[0000051143-24-000012_ibm-20231231.htm:4]** .
- NetApp: Competitor in the Infrastructure segment  **[0000051143-24-000012_ibm-20231231.htm:4]** .
- Pure Storage: Competitor in the Infrastructure segment  **[0000051143-24-000012_ibm-20231231.htm:4]** .
- Original device manufacturers (ODMs): Competitors in the Infrastructure segment  **[0000051143-24-000012_ibm-20231231.htm:4]** .
- Non-captive financing entities: Competitors in the Financing segment  **[0000051143-24-000012_ibm-20231231.htm:4]** .
- Financial institutions: Competitors in the Financing segment  **[0000051143-24-000012_ibm-20231231.htm:4]** .

4e851d4e41f5659989d44aef24afea35f08f9a42eb159715ccdb302cec4d8efe

### Q3 2024 Earnings Call
- **Issued Period**: Q3 2024
- **Guided Period**: Q4 2024 and FY 2024
- **Guidance**:
  1. **Revenue Growth**: Consistent with Q3 levels; Software in low double digits, Consulting similar to Q3, Infrastructure with a 1-point impact for the year, currency a 0.5-point headwind for Q4 and 1-point for the year  **[IBM_3403401_6]** .
  2. **Profitability**: Operating pretax margin expansion of about 1 point year-to-year; Software margin expands by over 1 point, Consulting flat, Infrastructure in mid- to high teens  **[IBM_3403401_6]** .
  3. **Free Cash Flow**: Greater than $12 billion for the year  **[IBM_3403401_6]** .
  4. **Operating Tax Rate**: Mid-teens range  **[IBM_3403401_6]** .
  5. **Productivity Initiatives**: $3.5 billion in annual run rate savings by end of 2024  **[IBM_3403401_6]** .

### Q2 2024 Earnings Call
- **Issued Period**: Q2 2024
- **Guided Period**: FY 2024
- **Guidance**:
  1. **Revenue Growth**: Full-year constant currency growth at the low end of mid-single-digit model  **[IBM_3394145_7]** .
  2. **Free Cash Flow**: Greater than $12 billion  **[IBM_3394145_7]** **[IBM_3394145_3]** .
  3. **Software Segment**: High single-digit growth, profit margin expands by over 1 point  **[IBM_3394145_7]** .
  4. **Consulting Segment**: Low single-digit growth, profit margin expands by about 0.5 point  **[IBM_3394145_7]** .
  5. **Infrastructure Segment**: Neutral for the year, profit margin in mid- to high teens  **[IBM_3394145_7]** .
  6. **Operating Pretax Margin**: Expansion over 0.5 point year-to-year  **[IBM_3394145_7]** .
  7. **Operating Tax Rate**: Mid-teens range  **[IBM_3394145_7]** .
  8. **Currency Impact**: 100 to 200 basis point impact to revenue growth  **[IBM_3394145_7]** .

### Q1 2024 Earnings Call
- **Issued Period**: Q1 2024
- **Guided Period**: FY 2024
- **Guidance**:
  1. **Revenue Growth**: Full-year constant currency growth at the low end of mid-single-digit model  **[IBM_3380473_7]** .
  2. **Free Cash Flow**: About $12 billion  **[IBM_3380473_7]** .
  3. **Operating Pretax Margin**: Expansion by about 0.5 points  **[IBM_3380473_7]** .
  4. **Operating Tax Rate**: Mid-teens range  **[IBM_3380473_7]** .
  5. **Consulting Revenue Growth**: Mid-single digits  **[IBM_3380473_11]** .
  6. **Currency Impact**: 150 to 200 basis point impact to revenue growth  **[IBM_3380473_8]** .

### Q4 2023 Earnings Call
- **Issued Period**: Q4 2023
- **Guided Period**: FY 2024
- **Guidance**:
  1. **Revenue Growth**: Constant currency growth in line with mid-single-digit model, starting at low end  **[IBM_3370752_7]** **[IBM_3370752_3]** .
  2. **Free Cash Flow**: About $12 billion  **[IBM_3370752_8]** **[IBM_3370752_7]** **[IBM_3370752_3]** .
  3. **Operating Pretax Margin**: Expansion by about 0.5 point  **[IBM_3370752_8]** .
  4. **Tax Rate**: Consistent with 2023  **[IBM_3370752_8]** .
  5. **Software Revenue Growth**: Slightly above high end of mid-single-digit model  **[IBM_3370752_7]** .
  6. **Consulting Revenue Growth**: 6% to 8%, with acceleration  **[IBM_3370752_7]** **[IBM_3370752_13]** .
  7. **Infrastructure Revenue**: Decline, over 1-point impact to overall growth  **[IBM_3370752_8]** .
  8. **Adjusted EBITDA Growth**: Similar level of growth year-over-year  **[IBM_3370752_10]** .
  9. **CapEx**: Higher year-to-year  **[IBM_3370752_10]** .

ea38072f2693786febba8dca963147b13b80ae8890eb123b77c560e311061401

e2d9a4d43519ee13698b4070171b90e4234e9fc97093f9c065af499ec7fca3d7

9ffa905d760d59426c023a8f36734fad05d9396a767b110d1ea76e85a8a6407b

3da373d294322900b80915052ed5f9002d080df4bcc886ab223ef8fdb54323ed

23794d91c53ae875c8e247d72561e35d9d06ee07c70c9e0dbcc977a6d161504a

| Name                | Position                                                                 | Start Date | Short Bio                                                                                                                                                                                                 |
|---------------------|--------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Arvind Krishna      | Chairman of the Board and Chief Executive Officer                        | April 2020 | Arvind Krishna became the **CEO of IBM** and a member of the **Board of Directors in April 2020**. He was elected **Chairman of the Board in December 2020**. He joined IBM in 1990 and has held various leadership roles  **[0001104659-24-032641_tm2329614-d3_def14a.htm:13]** **[0000051143-24-000012_ibm-20231231.htm:5]** **[0001104659-23-029014_tm231774d2_def14a.htm:13]** .             |
| Michelle H. Browdy  | Senior Vice President, Legal and Regulatory Affairs, and General Counsel | 2015       | Michelle H. Browdy is the **Senior Vice President, Legal and Regulatory Affairs, and General Counsel** at IBM. She has been serving in this role since **2015**  **[0000051143-24-000012_ibm-20231231.htm:5]** .                                                                            |
| Gary D. Cohn        | Vice Chairman                                                            | 2021       | Gary D. Cohn serves as Vice Chairman at IBM. He joined IBM in **2021**. Prior to his role at IBM, he served as Assistant to the President for Economic Policy and Director of the National Economic Council  **[0000051143-24-000012_ibm-20231231.htm:5]** **[0001558370-23-002376_ibm-20221231x10k.htm:4]** .                             |
| Nicolas A. Fehring  | Vice President and Controller                                            | 2023       | Nicolas A. Fehring is the Vice President and Controller at IBM. He began serving in this role in **2023**  **[0000051143-24-000012_ibm-20231231.htm:5]** **[0001558370-23-002376_ibm-20221231x10k.htm:4]** .                                                                                                                              |
| James J. Kavanaugh  | Senior Vice President and Chief Financial Officer, Finance and Operations| 2008       | James J. Kavanaugh is the **Senior Vice President and Chief Financial Officer, Finance and Operations** at IBM. He has been serving in this role since **2008**  **[0000051143-24-000012_ibm-20231231.htm:5]** .                                                                            |
| Nickle J. LaMoreaux | Senior Vice President and Chief Human Resources Officer                  | 2020       | Nickle J. LaMoreaux serves as the **Senior Vice President and Chief Human Resources Officer** at IBM. She has been in this role since **2020**  **[0000051143-24-000012_ibm-20231231.htm:5]** .                                                                                            |
| Robert D. Thomas    | Senior Vice President, Software and Chief Commercial Officer             | 2023       | Robert D. Thomas serves as the **Senior Vice President, Software and Chief Commercial Officer** at IBM. He began his role as an executive officer in **2023**  **[0000051143-24-000012_ibm-20231231.htm:5]** .                                                                              |

855d10ce473580d9004b155349cbf50833d43ca90e3790b3e36f80e797e13114

| Program Details          | Program 1       |
|--------------------------|-----------------|
| Approval Date            | October 30, 2018  **[0000051143-24-000049_ibm-20240930.htm:97]**  |
| End Date/Duration        | No expiration date  **[0000051143-24-000049_ibm-20240930.htm:97]**  |
| Total additional amount  | **$4.0 billion**  **[0000051143-24-000049_ibm-20240930.htm:97]**  |
| Remaining authorization amount | **$2,007,611,768**  **[0000051143-24-000049_ibm-20240930.htm:97]**  |
| Details                  | Program suspended at the time of the Red Hat acquisition in 2019; remains suspended  **[0001558370-23-006656_ibm-20230331x10q.htm:60]** **[0001558370-22-015322_ibm-20220930x10q.htm:92]** **[0001558370-22-010985_ibm-20220630x10q.htm:84]** **[0001558370-23-002376_ibm-20221231x10k.htm:19]** **[0000051143-24-000012_ibm-20231231_d2.htm:125]** **[0000051143-24-000012_ibm-20231231.htm:21]** **[0000051143-24-000025_ibm-20240331.htm:68]**  |

06586af9f0736f7f4546bedd6760242ba5756fda73c4a8c5cc2962b3381e93f0

**Quarterly guidance for Q4 2024:**
- **Revenue growth**: consistent with Q3 levels, currency a 0.5-point headwind  **[IBM_3403401_6]**  (no prior guidance)

**Annual guidance for FY 2024:**
- **Revenue growth**: consistent with Q3 levels  **[IBM_3403401_6]**  (no change from “full-year constant currency growth at the low end of mid-single-digit model”  **[IBM_3394145_7]** )  
- **Software growth**: low double digits  **[IBM_3403401_6]**  (raised from high single digits  **[IBM_3394145_7]** )  
- **Software margin**: expands by over 1 point  **[IBM_3403401_6]**  (no change from prior guidance  **[IBM_3394145_7]** )  
- **Consulting growth**: similar to Q3  **[IBM_3403401_6]**  (no change from low single-digit growth  **[IBM_3394145_7]** )  
- **Consulting margin**: flat  **[IBM_3403401_6]**  (lowered from expands by about 0.5 point  **[IBM_3394145_7]** )  
- **Infrastructure growth**: 1-point impact for the year  **[IBM_3403401_6]**  (lowered from neutral for the year  **[IBM_3394145_7]** )  
- **Infrastructure margin**: mid- to high teens  **[IBM_3403401_6]**  (no change from prior guidance  **[IBM_3394145_7]** )  
- **Operating pretax margin**: expansion of about 1 point year-to-year  **[IBM_3403401_6]**  (raised from expansion over 0.5 point  **[IBM_3394145_7]** )  
- **Free cash flow**: greater than $12 billion  **[IBM_3403401_6]**  (no change from prior guidance  **[IBM_3394145_7]** )  
- **Operating tax rate**: mid-teens range  **[IBM_3403401_6]**  (no change from prior guidance  **[IBM_3394145_7]** )  
- **Currency impact**: 1 point for the year  **[IBM_3403401_6]**  (lowered from 100 to 200 basis points  **[IBM_3394145_7]** )  
- **Productivity initiatives**: $3.5 billion in annual run rate savings by end of 2024  **[IBM_3403401_6]**  (no prior guidance)  

e8a061ca0719d8c667e854e77d9a0a5b0acf4be6789c7b95a69076bc991fa209

| Name                        | Start Date | End Date | Reason for Change |
|-----------------------------|------------|----------|-------------------|
| PricewaterhouseCoopers LLP | 1923  **[0000051143-24-000012_ibm-20231231_d2.htm:51]**    | Present  | Current auditor   |

67ecca6b172fd25cfd836536abc31d3c21455d174b02f599057bb6736cfe9c9a

6350e290d27b11851d3ffba7dbfa23bc908a75863c9b982e1ef238248f154774

f8b9a73712a7074aab882f584f6fa19c27bbdbf3d67836453790eca2a4d90907

ec951b66b3a9dc718c07f07424d5ccb73cf7d6600132b71a4f4568260912dbe5

Total Consulting signings (USD millions)

Consulting trailing twelve-month book-to-bill ratio (ratio)

Percentage of Financing external portfolio that is investment grade (percent)

ed0334e40452305b5b0c64fb3a2c68209aaa44e4d65963f7b3010cf34633a71c

- Total Revenue: $17,553 million (+1% YoY)  **[0000051143-25-000005_ibm-20250129xex991.htm:8]**   
- Software: $7,923 million (+6% YoY)  **[0000051143-25-000005_ibm-20250129xex991.htm:8]**   
- Consulting: $5,175 million (+3% YoY)  **[0000051143-25-000005_ibm-20250129xex991.htm:8]**   
- Infrastructure: $4,257 million (-8% YoY)  **[0000051143-25-000005_ibm-20250129xex991.htm:8]**   
- Financing: $17 million (down **90%** YoY)  **[0000051143-25-000005_ibm-20250129xex991.htm:8]**   

18222306ccf1221bb92150a7b00f13a655f39af2e3b7b6a18f355b2d18391974

- **Strong growth in IBM's Software segment**, with revenue accelerating to **11% in Q4**  **[IBM_3413621_9]** , driven by products like **watsonx** and **Red Hat**. IBM expects **Software revenue growth approaching double digits in 2025**  **[IBM_3413621_5]** , indicating continued momentum in this high-margin segment.
- **Early leadership in Generative AI** within the Consulting segment, with a **greater than $4 billion book of business**  **[IBM_3413621_9]** , representing **over 5% of total backlog**, which is **up 8% entering 2025**.  **[IBM_3413621_9]**  This positions IBM to benefit from the growing demand for AI solutions and could drive future revenue growth.
- **Robust free cash flow generation** provides financial flexibility for investments and acquisitions. IBM generated **$12.7 billion of free cash flow in 2024**  **[IBM_3413621_3]**  and expects **about $13.5 billion in 2025**.  **[IBM_3413621_5]**  This strong cash flow allows IBM to pursue strategic acquisitions like **HashiCorp**, which is expected to add **1 point of revenue growth** in 2025.  **[IBM_3413621_12]**

d5111a3278fb5a9c1c3de15865182f2b9d41c354f9f92a93bd0c71d9dc14e032

- IBM's **Consulting revenue declined by 1%** in Q4 2024 due to clients reprioritizing IT spending away from on-premises customized services, leading to uncertainty about future consulting growth.  **[IBM_3413621_4]** ,  **[IBM_3413621_9]**
- The company's growth strategy **relies heavily on generative AI initiatives**, which currently have **lower yield and longer durations**, potentially impacting near-term profitability and introducing execution risk.  **[IBM_3413621_9]**
- The planned acquisition of HashiCorp is expected to be **dilutive to earnings in 2025**, with approximately **$300 million or $0.30 per share of dilution**, which may weigh on IBM's financial performance.  **[IBM_3413621_12]**

78d259a4692191b6da9d58a7f738df36c90dcedfd4b490673b6e86099b40d631

1. **M&A Plans and HashiCorp Acquisition**  
   **Q:** What are your thoughts on M&A and HashiCorp deal?  
   **A:** We anticipate a more rational regulatory environment, allowing reasonable deals to proceed without lengthy delays.  **[IBM_3413621_8]**  With our strong free cash flow, potentially up to **$7 billion** after dividends, we plan to pursue targets that meet our criteria.  **[IBM_3413621_8]**  Specifically, we expect the **HashiCorp acquisition** to close soon, opening opportunities for further deals.  **[IBM_3413621_8]** 

2. **Free Cash Flow Guidance and HashiCorp Inclusion**  
   **Q:** Does 2025 outlook include HashiCorp, and can you detail free cash flow puts and takes?  
   **A:** Yes, our guidance includes HashiCorp.  **[IBM_3413621_12]**  We expect the HashiCorp deal to add about **1 point** of revenue growth and approximately **$300 million** or **$0.30** of dilution.  **[IBM_3413621_12]**  Our free cash flow growth, over **$1.5 billion**, is driven by high-quality, sustainable adjusted EBITDA growth.  **[IBM_3413621_12]**  Mitigating factors include increased CapEx of a couple hundred million dollars for investments in software, GenAI, and next-gen mainframe, higher cash taxes of a couple hundred million, and net interest opportunity loss of another couple hundred million.  **[IBM_3413621_12]** 

3. **Software Growth and AI Products**  
   **Q:** Which AI software products will stand out in coming years?  
   **A:** Our **watsonx** family, including watsonx Code Assistant, is helping clients modernize their infrastructures and has been a standout in the market for almost a year.  **[IBM_3413621_9]**  Additionally, our **Red Hat** offerings, enhanced by our Neural Magic acquisition, optimize hardware use and aid in AI deployments.  **[IBM_3413621_9]** 

4. **Consulting Business Revenue Recovery**  
   **Q:** Confidence in consulting revenue recovery in second half?  
   **A:** We have over **$4 billion** in GenAI-related consulting business, over **5%** of our total backlog which is up **8%** entering 2025.  **[IBM_3413621_9]**  This positions us well for long-term growth, though yields are currently lower with higher durations. We expect this to contribute to a revenue inflection back to growth in 2025.  **[IBM_3413621_9]** 

5. **Sustainability of TPP and Mainframe Growth**  
   **Q:** How sustainable is TPP growth and mainframe cycle?  
   **A:** We grew Transaction Processing by **10%** in 2024, exiting at **11%**.  **[IBM_3413621_10]**  Growth drivers include mainframe workload capitalization (4 points), innovation like **watsonx Code Assistant for Z** (3 points), and price optimization (3 points).  **[IBM_3413621_10]**  For 2025, we prudently expect mid-single-digit growth in TPP, aligned with our accelerating software growth approaching double digits.  **[IBM_3413621_10]** 

6. **Business Climate and Software Budgets**  
   **Q:** How are customers thinking about software budgets in 2025?  
   **A:** Despite ongoing issues like geopolitical tensions and inflation, there's increased optimism for 2025.  **[IBM_3413621_11]**  Technology is essential for growth, and software budgets are the last to be cut. This gives us confidence as software is key to achieving business goals, supporting our software growth expectations approaching double digits.  **[IBM_3413621_11]** 

7. **Linearity of Revenue Growth in 2025 H1 vs H2**  
   **Q:** Expectations for revenue linearity between H1 and H2 in 2025?  
   **A:** We anticipate slightly less revenue in the first half versus the second half by about a point.  **[IBM_3413621_7]**  Software should see normal seasonality with strong performance.  **[IBM_3413621_7]**  Consulting is expected to accelerate in the second half as client spend prioritization stabilizes.  **[IBM_3413621_7]**  Infrastructure growth will pick up from the second quarter onward, following strong mainframe performance delivering **122%** of prior program.  **[IBM_3413621_7]** 

8a5ed5595c39a512592a7b931fba857eed678f3d99d520eaa0a81cb092e098c7

IBM Q4 software revenue surged 11%, powered by GenAI moves like watsonx and Red Hat. 2024 free cash flow hit $12.7B, projected to reach $13.5B in 2025—fueling M&A, including HashiCorp, despite a 1% consulting dip and near-term EPS dilution.

935b07713a16a9e8531e8bca6d720101578a0a6876e992392530abe372d7fb91

7af26cf6fd8905df1a9567758b093226aa31c091ee4746a9a898b9ecc65cceca

**Annual guidance for FY 2025:**  
- **Revenue Growth**: 5% plus  **[IBM_3413621_7]** **[IBM_3413621_2]** **[IBM_3413621_5]**  (no prior guidance)  
- **Free Cash Flow**: $13.5B  **[IBM_3413621_7]** **[IBM_3413621_2]** **[IBM_3413621_5]**  (raised from >$12B  **[IBM_3403401_6]** )  
- **Operating Pretax Margin**: expand by over 0.5 point  **[IBM_3413621_6]**  (lowered from 1 percentage point  **[IBM_3403401_6]** )  
- **Tax Rate**: mid-teens  **[IBM_3413621_6]**  (no change from mid-teens  **[IBM_3403401_6]** )  
- **Software Revenue Growth**: approach double digits  **[IBM_3413621_6]**  (no prior guidance)  
- **Red Hat Growth**: mid-teens  **[IBM_3413621_6]**  (no prior guidance)  
- **Consulting Growth**: accelerate to low single digits  **[IBM_3413621_6]**  (raised from weaker end of low single digits  **[IBM_3403401_6]** )  
- **Infrastructure Contribution**: about 1 point to IBM’s overall revenue growth  **[IBM_3413621_6]**  (raised from 1-point drag  **[IBM_3403401_6]** )

5e46cbd5cac81ab2f2b427502d0eb90397f45cfae32baf01b3f2ba39f705b673

| Year  | Amount Due (in millions) | Debt Type         | Interest Rate (%) | % of Total Debt                                                                 |
|-------|---------------------------|-------------------|-------------------|---------------------------------------------------------------------------------|
| 2024  | 93 **[0000051143-24-000049_ibm-20240930.htm:29]**               | Notes            | 3.5 **[0000051143-24-000049_ibm-20240930.htm:28]**       | 0.2% = (93 / 57,565) * 100 **[0000051143-24-000049_ibm-20240930.htm:29]**                                             |
| 2025  | 5,296 **[0000051143-24-000049_ibm-20240930.htm:29]**            | Notes            | 5.1 **[0000051143-24-000049_ibm-20240930.htm:28]**       | 9.2% = (5,296 / 57,565) * 100 **[0000051143-24-000049_ibm-20240930.htm:29]**                                         |
| 2026  | 6,321 **[0000051143-24-000049_ibm-20240930.htm:29]**            | Notes            | 3.7 **[0000051143-24-000049_ibm-20240930.htm:28]**       | 11.0% = (6,321 / 57,565) * 100 **[0000051143-24-000049_ibm-20240930.htm:29]**                                        |
| 2027  | 6,501 **[0000051143-24-000049_ibm-20240930.htm:29]**            | Notes            | 3.3 **[0000051143-24-000049_ibm-20240930.htm:28]**       | 11.3% = (6,501 / 57,565) * 100 **[0000051143-24-000049_ibm-20240930.htm:29]**                                        |
| 2028  | 4,043 **[0000051143-24-000049_ibm-20240930.htm:29]**            | Notes            | 5.0 **[0000051143-24-000049_ibm-20240930.htm:28]**       | 7.0% = (4,043 / 57,565) * 100 **[0000051143-24-000049_ibm-20240930.htm:29]**                                         |
| 2029  | 3,750 **[0000051143-24-000049_ibm-20240930.htm:28]**            | Notes            | 3.6 **[0000051143-24-000049_ibm-20240930.htm:28]**       | 6.5% = (3,750 / 57,565) * 100 **[0000051143-24-000049_ibm-20240930.htm:29]**                                         |
| 2030  | 1,350 **[0000051143-24-000049_ibm-20240930.htm:28]**            | Notes            | 2.0 **[0000051143-24-000049_ibm-20240930.htm:28]**       | 2.3% = (1,350 / 57,565) * 100 **[0000051143-24-000049_ibm-20240930.htm:29]**                                         |
| 2031  | 500 **[0000051143-24-000049_ibm-20240930.htm:28]**              | Notes            | 4.8 **[0000051143-24-000049_ibm-20240930.htm:28]**       | 0.9% = (500 / 57,565) * 100 **[0000051143-24-000049_ibm-20240930.htm:29]**                                           |
| 2032  | 1,850 **[0000051143-24-000049_ibm-20240930.htm:28]**            | Notes            | 4.4 **[0000051143-24-000049_ibm-20240930.htm:28]**       | 3.2% = (1,850 / 57,565) * 100 **[0000051143-24-000049_ibm-20240930.htm:29]**                                         |
| 2033  | 750 **[0000051143-24-000049_ibm-20240930.htm:28]**              | Notes            | 4.8 **[0000051143-24-000049_ibm-20240930.htm:28]**       | 1.3% = (750 / 57,565) * 100 **[0000051143-24-000049_ibm-20240930.htm:29]**                                           |
| 2034  | 1,000 **[0000051143-24-000049_ibm-20240930.htm:28]**            | Notes            | 4.9 **[0000051143-24-000049_ibm-20240930.htm:28]**       | 1.7% = (1,000 / 57,565) * 100 **[0000051143-24-000049_ibm-20240930.htm:29]**                                         |
| 2038  | 83 **[0000051143-24-000049_ibm-20240930.htm:28]**               | Notes            | 8.0 **[0000051143-24-000049_ibm-20240930.htm:28]**       | 0.1% = (83 / 57,565) * 100 **[0000051143-24-000049_ibm-20240930.htm:29]**                                            |
| 2039  | 2,745 **[0000051143-24-000049_ibm-20240930.htm:28]**            | Notes            | 4.5 **[0000051143-24-000049_ibm-20240930.htm:28]**       | 4.8% = (2,745 / 57,565) * 100 **[0000051143-24-000049_ibm-20240930.htm:29]**                                         |
| 2040  | 650 **[0000051143-24-000049_ibm-20240930.htm:28]**              | Notes            | 2.9 **[0000051143-24-000049_ibm-20240930.htm:28]**       | 1.1% = (650 / 57,565) * 100 **[0000051143-24-000049_ibm-20240930.htm:29]**                                           |
| 2042  | 1,107 **[0000051143-24-000049_ibm-20240930.htm:28]**            | Notes            | 4.0 **[0000051143-24-000049_ibm-20240930.htm:28]**       | 1.9% = (1,107 / 57,565) * 100 **[0000051143-24-000049_ibm-20240930.htm:29]**                                         |
| 2044  | 1,000 **[0000051143-24-000049_ibm-20240930.htm:28]**            | Notes            | 5.3 **[0000051143-24-000049_ibm-20240930.htm:28]**       | 1.7% = (1,000 / 57,565) * 100 **[0000051143-24-000049_ibm-20240930.htm:29]**                                         |
| 2045  | 27 **[0000051143-24-000049_ibm-20240930.htm:28]**               | Notes            | 7.0 **[0000051143-24-000049_ibm-20240930.htm:28]**       | 0.0% = (27 / 57,565) * 100 **[0000051143-24-000049_ibm-20240930.htm:29]**                                            |
| 2046  | 650 **[0000051143-24-000049_ibm-20240930.htm:28]**              | Notes            | 4.7 **[0000051143-24-000049_ibm-20240930.htm:28]**       | 1.1% = (650 / 57,565) * 100 **[0000051143-24-000049_ibm-20240930.htm:29]**                                           |
| 2049  | 3,000 **[0000051143-24-000049_ibm-20240930.htm:28]**            | Notes            | 4.3 **[0000051143-24-000049_ibm-20240930.htm:28]**       | 5.2% = (3,000 / 57,565) * 100 **[0000051143-24-000049_ibm-20240930.htm:29]**                                         |
| 2050  | 750 **[0000051143-24-000049_ibm-20240930.htm:28]**              | Notes            | 3.0 **[0000051143-24-000049_ibm-20240930.htm:28]**       | 1.3% = (750 / 57,565) * 100 **[0000051143-24-000049_ibm-20240930.htm:29]**                                           |
| 2052  | 1,400 **[0000051143-24-000049_ibm-20240930.htm:28]**            | Notes            | 4.2 **[0000051143-24-000049_ibm-20240930.htm:28]**       | 2.4% = (1,400 / 57,565) * 100 **[0000051143-24-000049_ibm-20240930.htm:29]**                                         |
| 2053  | 650 **[0000051143-24-000049_ibm-20240930.htm:28]**              | Notes            | 5.1 **[0000051143-24-000049_ibm-20240930.htm:28]**       | 1.1% = (650 / 57,565) * 100 **[0000051143-24-000049_ibm-20240930.htm:29]**                                           |
| 2054  | 1,400 **[0000051143-24-000049_ibm-20240930.htm:28]**            | Notes            | 5.3 **[0000051143-24-000049_ibm-20240930.htm:28]**       | 2.4% = (1,400 / 57,565) * 100 **[0000051143-24-000049_ibm-20240930.htm:29]**                                         |
| 2096  | 316 **[0000051143-24-000049_ibm-20240930.htm:28]**              | Debentures       | 7.1 **[0000051143-24-000049_ibm-20240930.htm:28]**       | 0.5% = (316 / 57,565) * 100 **[0000051143-24-000049_ibm-20240930.htm:29]**                                           |

8226d90457d684b505c42511d255de9f73d7fc96e4e33561d1f0b342cfbb0b09

f497d1e04b1d80ceab42b49ae067cae5daffe14af814f2b1a497f3a229d1de39

- **IBM's consulting revenue is flat**, impacted by a **challenging macroeconomic environment**, with clients reprioritizing spending, leading to a delay in consulting growth until the **second half of 2025**.  **[IBM_3403401_10]** ,  **[IBM_3403401_11]** ,  **[IBM_3403401_12]**
- **Revenue yield from Generative AI consulting projects is lower by about 3 to 4 percentage points** compared to traditional consulting engagements, reducing near-term revenue for IBM's consulting business.  **[IBM_3403401_11]** ,  **[IBM_3403401_12]**
- The **HashiCorp acquisition will result in dilution**, which could impact IBM's ability to grow free cash flow faster than revenue in **2025**.  **[IBM_3403401_10]**

acc6e174a0cec9409237ccb89afc0b506bbd234e9d496e4af429277f0c6a650b

- **IBM's Red Hat business is experiencing strong growth**, with a **17% increase in bookings**, and is expected to contribute **2 to 2.5 percentage points** to overall software growth in 2024.  **[IBM_3370752_16]**
- **IBM is well-positioned to capitalize on increased customer spending on AI and digital transformation**, with its AI book of business doubling quarter-over-quarter, and clients showing strong interest in AI offerings like watsonx.  **[IBM_3370752_14]** **[IBM_3370752_12]**
- **IBM expects to accelerate software growth above mid-single-digits in 2024**, driven by high-value recurring revenue, strategic acquisitions, and investments in innovation, including AI and automation, supporting sustained growth and profitability.  **[IBM_3370752_11]**

101685f11234478feb48022cd33236499bcd7aa55a79e5fcf7ce797b9d93b20e

- **Consulting revenue growth decelerated to 2% in the first quarter**, with **guidance reduced** from 6-8% to mid-single digits, indicating **pressure on consulting revenue** due to lengthening backlog duration and reduced revenue realization as clients tighten discretionary spending.  **[IBM_3380473_6]** **[IBM_3380473_11]** **[IBM_3380473_9]**
- **Software growth lags the overall market**, as IBM's software business has been **growing between 3% and 9%**, whereas **the overall market seems to be growing faster**, raising concerns about unlocking its full potential.  **[IBM_3380473_14]**
- IBM has spent **$16 billion on acquisitions since 2021**, including **HashiCorp for $6.4 billion**, raising questions about over-reliance on M&A for growth and whether these acquisitions are delivering the expected return, especially as some acquisitions may be **dilutive in the near term**.  **[IBM_3380473_13]** **[IBM_3380473_10]** **[IBM_3380473_2]**

0286589acfb35e238ef79d1be19dd8304fbd9db7e6fb1496d635ee4beac55673

1. **2025 Growth Outlook**  
   **Q:** Is IBM's anticipated 2025 growth sustainable or a one-off?  
   **A:** Arvind Krishna emphasized confidence in sustainable growth for 2025, citing strong organic growth in Software, with **7% organic growth** this quarter, not from acquisitions.  **[IBM_3403401_8]**  He noted that **80%** of software revenue is recurring, up significantly over the last few years, indicating real demand.  **[IBM_3403401_8]**  Mainframe software is expected to maintain **mid-single-digit growth** next year.  **[IBM_3403401_8]**  With the announced HashiCorp acquisition and plans for more M&A, supported by increased cash flows, they see further growth opportunities.  **[IBM_3403401_8]**  In Consulting, despite lower signings this year, they expect a positive turn, particularly in the second half of 2025, as Gen AI projects convert to revenue.  **[IBM_3403401_8]**  Additionally, the Infrastructure business, including hardware maintenance, is expected to become a tailwind, potentially contributing a **4–5 point** benefit.  **[IBM_3403401_8]** 

2. **Free Cash Flow Growth Potential**  
   **Q:** Can IBM achieve high single-digit free cash flow growth in 2025 despite the HashiCorp acquisition?  
   **A:** Jim Kavanaugh expressed confidence in growing free cash flow faster than revenue, even with the expected dilution from the HashiCorp acquisition.  **[IBM_3403401_10]**  He highlighted that IBM has transitioned from a no-growth company to a mid-single-digit growth company over the past three years, improving pretax margins by **700 to 800 basis points**.  **[IBM_3403401_10]**  The company intends to drive operating leverage and feels confident about their strategy and growth opportunities heading into 2025.  **[IBM_3403401_10]** 

3. **Consulting Business Dynamics**  
   **Q:** How is IBM's consulting business performing amid shifts toward AI projects?  
   **A:** Jim Kavanaugh explained that while overall consulting revenue growth has been flat, the Gen AI book of business is expanding rapidly, now over **$2.5 billion**, with about **80%** in consulting.  **[IBM_3403401_9]** **[IBM_3403401_11]**  These AI projects are longer-term and have lower immediate revenue yield, which puts short-term pressure on consulting revenue.  **[IBM_3403401_9]**  However, they are building a strong backlog that is expected to drive growth in consulting, particularly in the **second half of 2025**.  **[IBM_3403401_11]**  The company is focused on becoming the strategic provider of choice in Gen AI services, which they believe will fuel future growth.  **[IBM_3403401_9]** **[IBM_3403401_11]** 

4. **Software Margin Sustainability**  
   **Q:** Is IBM's high software margin sustainable?  
   **A:** Jim Kavanaugh affirmed that they are confident in sustaining the strong margins in their software business, which reached **30%** this quarter.  **[IBM_3403401_12]**  The margin improvement is driven by a strategic focus on high-value areas like hybrid cloud and AI, combined with productivity initiatives.  **[IBM_3403401_12]**  Software now constitutes about **45%** of IBM's revenue and **two-thirds** of their profit.  **[IBM_3403401_12]**  They see significant headroom to continue expanding margins in software.  **[IBM_3403401_12]** 

5. **M&A Strategy Focus**  
   **Q:** What areas is IBM targeting for future M&A?  
   **A:** Arvind Krishna stated that IBM's M&A strategy focuses on hybrid cloud, automation, and data and AI.  **[IBM_3403401_11]**  The goal is to find acquisitions that fit their existing strategy and offer synergy with IBM's portfolio, leveraging their go-to-market and distribution capabilities.  **[IBM_3403401_11]**  While not exclusively targeting open-source companies, they consider both open-source and proprietary solutions that align with their strategic areas.  **[IBM_3403401_11]** 

6. **Enterprise Response to Gen AI Models**  
   **Q:** How are customers reacting to IBM's cost-efficient Gen AI models?  
   **A:** Arvind Krishna explained that enterprises are interested in Gen AI but are concerned about the high costs of large models.  **[IBM_3403401_13]**  IBM's approach with the Granite models offers similar performance for specific tasks using smaller models with **8 to 30 billion parameters**, resulting in up to **97%** cost efficiency.  **[IBM_3403401_13]**  Customers appreciate the ability to refine models without owing improvements back to IBM, making it an attractive solution for enterprise deployment of generative AI.  **[IBM_3403401_13]** 

23656573ec8c718bfe455511e3af7159e4b6e1608ac7164090180b53eb7dbd32

1. **Reduced Consulting Growth Outlook**  
   **Q:** Why did you lower consulting growth guidance?  
   **A:** IBM reduced its consulting growth outlook from **6–8% to 5%**, impacting about **60 basis points** of company growth.  **[IBM_3380473_11]**  Despite this adjustment, they maintain mid-single-digit revenue growth guidance, expecting software growth to offset the slowdown in consulting.  **[IBM_3380473_11]** 

2. **HashiCorp Acquisition Synergies**  
   **Q:** What are the financial impacts of the HashiCorp acquisition?  
   **A:** IBM expects the HashiCorp acquisition to be **adjusted EBITDA accretive in the first 12 months** and **levered free cash flow accretive by the end of year two**.  **[IBM_3380473_10]**  They anticipate significant cost synergies, aiming to increase HashiCorp's free cash flow margin from **mid-single-digit** to about **30–40%** within a few years.  **[IBM_3380473_10]**  The acquisition strategically fits IBM's portfolio, providing **tremendous synergistic value** to their hybrid cloud AI offerings.  **[IBM_3380473_10]** 

3. **Red Hat Growth and HashiCorp Impact**  
   **Q:** How will HashiCorp affect Red Hat's growth?  
   **A:** While HashiCorp complements Red Hat, it is not included in Red Hat's current growth figures.  **[IBM_3380473_12]**  Red Hat accelerated to **9% growth** this quarter, up from **7%**, with OpenShift bookings growing **over 40%**.  **[IBM_3380473_12]**  HashiCorp enhances IBM's software strategy, making the portfolio more attractive, but Red Hat's growth is strong independently.  **[IBM_3380473_12]** 

4. **Software Growth Potential**  
   **Q:** How can IBM unlock more software growth?  
   **A:** IBM has progressed from a flat software portfolio to expected growth **north of 6%** this year.  **[IBM_3380473_14]**  By focusing on organic innovation and strategic acquisitions, they aim to improve year-over-year growth.  **[IBM_3380473_14]**  They are working to increase software growth beyond current levels while maintaining important but slower-growing segments like mainframe software.  **[IBM_3380473_14]** 

5. **M&A Strategy and Future Plans**  
   **Q:** Will you pursue more M&A beyond prior plans?  
   **A:** IBM remains disciplined in its M&A strategy, focusing on acquisitions that meet strategic goals, offer synergies, and are financially accretive within two years.  **[IBM_3380473_13]**  They are committed to investing in the business while maintaining dividends and investment-grade ratings, with flexibility to explore additional opportunities.  **[IBM_3380473_13]** 

6. **AI-Centric Backlog and Consulting**  
   **Q:** What is happening with consulting revenues and AI backlog?  
   **A:** Despite a deceleration in consulting revenue growth to **2%** this quarter  **[IBM_3380473_9]** , IBM sees strong demand in digital transformation and Gen AI, with an AI-centric backlog exceeding **$1 billion**.  **[IBM_3380473_9]**  They expect consulting growth to accelerate throughout the year, leveraging a strong backlog and focusing on key growth areas.  **[IBM_3380473_9]** 

7. **Red Hat Pipeline and VMware Impact**  
   **Q:** Are you benefiting from VMware's acquisition?  
   **A:** Clients are choosing platforms for the next **10–20 years**, and IBM sees increased interest in Red Hat’s solutions like OpenShift and virtualization offerings.  **[IBM_3380473_15]**  While not directly related to VMware, the addition of HashiCorp will enhance Red Hat's portfolio, accelerating growth by improving infrastructure management across environments.  **[IBM_3380473_15]** 

8. **Enterprise Pain Points in Gen AI**  
   **Q:** What challenges do clients face with Gen AI?  
   **A:** Enterprises are concerned about the **economics and ROI** of running Gen AI models.  **[IBM_3380473_16]**  IBM assists clients in addressing high infrastructure costs, offering cost-effective solutions like the **Granite series** models to improve ROI.  **[IBM_3380473_16]**  They advise focusing on scalable use cases that significantly impact productivity and revenue.  **[IBM_3380473_16]** 

cd2fd7add4a8551e4d1231bafb59c81985158d7227d97a65e29fc8faa3e145d0

- **IBM's Software segment is accelerating, with strong growth from Red Hat, which delivered 14% growth and is expected to continue similar performance, contributing significantly to software growth. Additionally, IBM expects the acquisition of HashiCorp to close by the end of this year, further boosting software performance.**  **[IBM_3403401_11]** **[IBM_3403401_5]** **[IBM_3403401_8]**
- **IBM's Generative AI book of business is rapidly expanding, now over $3 billion, up more than $1 billion quarter-over-quarter, with approximately 80% in Consulting. This positions IBM as a strategic provider in Gen AI and is expected to drive growth in Consulting as these mid- to long-term deals turn into revenue.**  **[IBM_3403401_11]** **[IBM_3403401_9]**
- **IBM anticipates an upward inflection in growth in 2025, driven by strong performance in Software, anticipated growth in Consulting from the Gen AI pipeline, and contributions from strategic acquisitions like HashiCorp, while maintaining operating leverage and growing free cash flow faster than revenue.**  **[IBM_3403401_8]** **[IBM_3403401_10]**

c7192975be1f6f640f61cb5fda3242c80e306c9545c3d755b82df86c16c7c45d

1. **Margin Progress and HashiCorp Acquisition**  
   **Q:** Can earnings sustain with margin improvements and HashiCorp acquisition?  
   **A:** IBM is pleased with its strong free cash flow of **$4.5 billion**, up **$1.1 billion** year-over-year, and believes margin progress is sustainable for the year.  **[IBM_3394145_12]**  They anticipate flowing the **$0.25 EPS** upside through to adjusted EBITDA and free cash flow guidance.  **[IBM_3394145_12]**  Regarding the HashiCorp acquisition, IBM sees it as a strategic fit with higher revenue growth, expecting it to be adjusted EBITDA accretive in **12 months** and free cash flow accretive within **2 years**.  **[IBM_3394145_12]** 

2. **Consulting Weakness and Outlook**  
   **Q:** Will non-AI consulting worsen in H2, and when will consulting weakness end?  
   **A:** IBM views the consulting weakness as temporary, driven by prolonged geopolitical uncertainties and inflation leading to higher interest rates.  **[IBM_3394145_10]**  They are optimistic about medium- to long-term prospects, expecting consulting growth to become a tailwind over time.  **[IBM_3394145_10]**  In the short term, they anticipate the weakness may last another **6 months**.  **[IBM_3394145_10]** 

3. **AI Investments in Consulting**  
   **Q:** Are AI investments in consulting shifting spending or additive?  
   **A:** IBM believes that the bulk of AI investments in consulting are a shift from other consulting areas rather than incremental or cannibalistic.  **[IBM_3394145_9]**  As clients move from early experimentation to scaling AI, these investments are expected to become additive and accretive over time.  **[IBM_3394145_9]**  They have over **$1.5 billion** in AI-related consulting signings in the first **12 months**, exceeding expectations.  **[IBM_3394145_9]** 

4. **Red Hat Growth Outlook**  
   **Q:** What's causing the slowdown in Red Hat growth, and what's the outlook?  
   **A:** Despite strong bookings growth between **14% and 20%**, Red Hat's revenue is recognized over time due to its consumption-based model.  **[IBM_3394145_13]**  IBM expects Red Hat revenue to grow in the **low double digits** in the second half of 2024, supported by mid-teens growth in revenue performance obligations and strong demand for OpenShift, which grew **40%** in the past quarter.  **[IBM_3394145_13]** 

5. **M&A Strategy and Valuations**  
   **Q:** What's IBM's M&A approach given current market valuations?  
   **A:** IBM remains disciplined and focused on acquisitions in hybrid cloud and artificial intelligence, seeking synergy and accretion to free cash flow within **2 years**.  **[IBM_3394145_11]**  They acknowledge that valuations are rich but reasonable compared to 18 months ago.  **[IBM_3394145_11]**  IBM plans to proceed with the HashiCorp acquisition in the second half of the year.  **[IBM_3394145_11]** 

6. **Transaction Processing Growth**  
   **Q:** How will Transaction Processing growth trend in 2024 and 2025?  
   **A:** IBM is increasing its guidance for Transaction Processing growth to **mid-single digits** for the year, driven by strong first-half performance.  **[IBM_3394145_8]**  They are confident in continuing this growth into 2025, supported by investments in offerings like **watsonx Code Assistant for Z**.  **[IBM_3394145_8]** 

7. **Open Sourcing Granite Models**  
   **Q:** Why is IBM open sourcing the Granite models and focusing on developers?  
   **A:** IBM believes that fit-for-purpose, smaller AI models are more efficient and cost-effective than extremely large models.  **[IBM_3394145_14]**  By open sourcing the Granite models under the Apache license, clients can customize models without sharing proprietary data.  **[IBM_3394145_14]**  This approach opens access to millions of developers and expands the market.  **[IBM_3394145_14]** 

20c149a040a2dbfaea867d819673114e709cd408df30ecdc85188db1a0d42bb5

- **Non-Red Hat software businesses, such as Data & AI and Automation, are continuing to decelerate** despite the focus on AI spending, raising concerns about IBM's ability to reaccelerate growth in these areas.  **[IBM_3370752_15]**
- **Red Hat's performance was somewhat below expectations in 2023 and continues to be impacted by consumption-based services**, leading to uncertainty about its contribution to IBM's software growth in 2024.  **[IBM_3370752_11]**
- **Analysts have expressed concerns about the transparency and sustainability of IBM's free cash flow projections**, particularly regarding the breakdown from net income to free cash flow and contributions of acquisitions.  **[IBM_3370752_12]**

f4a42367c0299358b853c53b7ab484076e23646c154ba500512b78aae657a920

- **IBM's Software segment accelerated growth to 6% overall in Q1, with Red Hat revenue up 9% and OpenShift bookings growing nearly 40%, positioning the company for double-digit growth for the full year.**  **[IBM_3380473_11]** ,  **[IBM_3380473_12]**
- **IBM's AI book of business has surpassed $1 billion**, with Consulting's Gen AI book of business in Q1 **doubling all of last year's total**, indicating strong demand and growth potential in AI services.  **[IBM_3380473_11]** ,  **[IBM_3380473_9]**
- The acquisition of HashiCorp is expected to be **accretive to adjusted EBITDA within the first 12 months** and **free cash flow accretive by year 2**, enhancing IBM's hybrid cloud and AI capabilities and accelerating their revenue growth profile.  **[IBM_3380473_11]** ,  **[IBM_3380473_10]** ,  **[IBM_3380473_2]**

00b9eb778d1197f75e2a9ed11d4a90846f94d460256ebeb298bb3c561fe21ff4

- **IBM expects near-term weakness in its Consulting business**, revising growth expectations to **low single digits for 2024**, due to **spending reprioritization around short-term discretionary projects** influenced by macroeconomic factors like prolonged geopolitical uncertainties and inflation leading to higher interest rates.  **[IBM_3394145_10]**
- Despite strong AI consulting signings, **AI investments are primarily a shift from other consulting areas rather than incremental**, with IBM acknowledging that **the bulk of the demand is indeed a shift** and **consulting expectations for the year are being lowered**.  **[IBM_3394145_9]**
- The acquisition of HashiCorp may lead to **potential dilution in 2025**, with concerns about a **loss of around $0.30 in interest income**, and IBM acknowledges the need to manage **balance sheet capital structure implications** and execute well to realize synergies.  **[IBM_3394145_12]**

5d49d5091a21c1adccc8b2dbf4d02bcca4cca3f7ce29ae82fd6277903411e288

- **IBM's AI-related consulting signings have exceeded $1.5 billion in the first 12 months, doubling quarter-over-quarter, demonstrating strong early momentum and positioning IBM as a strategic provider in generative AI services.**  **[IBM_3394145_9]**
- **IBM's Software business is seeing significant growth due to AI adoption, with an AI book of business of $0.5 billion through the first 12 months, contributing about 1 point of growth, leading IBM to raise its Software revenue guidance for the year.**  **[IBM_3394145_9]**
- **Red Hat's annual bookings growth accelerated to over 20%, with OpenShift bookings up over 40%, reflecting robust demand for IBM's hybrid cloud solutions and supporting expectations of low double-digit revenue growth going forward.**  **[IBM_3394145_13]**

1c54ad1830a15a791686b24b182adcecf0b18315d5f1ff5a8a605581cbd42795

1. **Free Cash Flow Outlook**  
   **Q:** What is driving IBM's $12B free cash flow guidance for 2024? How does it bridge from net income?  
   **A:** IBM expects to generate **$12 billion** in free cash flow in 2024, primarily driven by improving business fundamentals such as sustainable revenue growth and operating leverage. Adjusted EBITDA is anticipated to grow by around **$900 million**, similar to the growth in 2023. The increase from net income to free cash flow is largely due to this adjusted EBITDA growth. Other factors like higher cash taxes and capital expenditures will offset benefits from changes in retirement plans.  **[IBM_3370752_10]** ,  **[IBM_3370752_12]** 

2. **Software Growth Guidance and Red Hat Performance**  
   **Q:** How will IBM achieve its 2024 Software revenue growth guidance, and what is expected for Red Hat?  
   **A:** IBM projects Software revenue growth slightly above its mid-single-digit model in 2024, driven by about **2 points** from high-value recurring revenue streams, less than **2 points** from acquisitions, and around **2.5 points** from Red Hat growth. Red Hat showed strong bookings growth of **17%** in Q4, signaling increasing demand fueled by innovation in AI and hybrid cloud offerings. These factors give IBM confidence in accelerating Software growth.  **[IBM_3370752_11]** ,  **[IBM_3370752_15]** ,  **[IBM_3370752_16]** 

3. **Consulting Business Outlook**  
   **Q:** What is the outlook for IBM's Consulting business revenue growth in 2024 and beyond?  
   **A:** IBM expects Consulting revenue growth of **6% to 8%** in 2024, with an acceleration throughout the year supported by a strong backlog up **8%** and bookings growth of **17%** in 2023. The company is confident in taking market share by focusing on strategic partners and offerings in digital transformation and data and AI. This strong backlog provides tailwinds into 2025.  **[IBM_3370752_13]** 

4. **Business Climate and Software Budgets**  
   **Q:** How does IBM view the current business climate and trends in software budgets?  
   **A:** IBM sees the 2024 business climate as similar to 2023, with a resilient global economy across regions. Despite talks of reduced technology budgets, IBM is not observing decreases; instead, clients are investing in technology, especially in AI and digital transformation, to address challenges like inflation and supply chain issues. Technology remains a key area for clients to grow without increasing fixed costs.  **[IBM_3370752_14]** 

5. **M&A Strategy**  
   **Q:** Can you provide an update on IBM's M&A pipeline and philosophy behind transactions?  
   **A:** IBM's M&A strategy focuses on strategic fit with its hybrid cloud and AI platform, seeking acquisitions that offer synergistic value and financial attractiveness. The company targets high-growth, recurring revenue businesses that are profitable and quickly accretive to free cash flow. IBM remains opportunistic, with a strong balance sheet and **$13.5 billion** in cash to deploy for potential acquisitions.  **[IBM_3370752_17]** 

064810db260ce13a4a0237a496a0b83ddfe772a143358ce4343c79cdf4d67c23

International Business Machines Corp (IBM)

Financials