IBM (IBM) Q3 2024 earnings summary

Executive summary

• Q3 2024 revenue reached $15.0 billion, up 1–2% year-over-year at constant currency, led by double-digit Software growth and a re-acceleration in Red Hat, while a one-time, non-cash pension settlement charge of $2.7 billion ($2.0 billion net of tax) resulted in a GAAP net loss.

• Software segment grew 10%, with Red Hat up 14%, annual recurring revenue at $14.9 billion (up 11%), and recurring revenue accounting for 80% of annual software revenue.

• Free cash flow for the first nine months was $6.6 billion, up $1.5 billion year-over-year, supporting investments and $4.6 billion in dividends.

• Generative AI book of business surpassed $3 billion, increasing by over $1 billion sequentially, with 80% from consulting signings.

• Strategic acquisitions and divestitures, including StreamSets/webMethods and QRadar SaaS, advanced the hybrid cloud and AI strategy.

Financial highlights

• Q3 revenue was $15.0 billion (+2% at constant currency); software revenue up 10%, consulting flat, infrastructure down 7%.

• Operating pre-tax income was $2.5 billion (+8%); adjusted EBITDA $3.8 billion (+6%); operating EPS $2.30 (+5–6%).

• Free cash flow YTD was $6.6 billion (+$1.5 billion year-over-year); cash & marketable securities at $13.7 billion.

• Gross profit margin expanded to 56.3% GAAP (+1.9 pts) and 57.5% operating (+2.1 pts); pre-tax margin (operating) 16.6%.

• Total debt at $56.6 billion, flat from year-end.

Outlook and guidance

• Q4 constant currency revenue growth expected to be consistent with Q3, led by Software; full-year free cash flow guidance reaffirmed at over $12 billion.

• Full-year operating pre-tax margin expansion now expected to be about one point.

• Currency expected to be a half-point headwind to Q4 revenue growth and 1-point for the year.

• Confident in upward growth inflection for 2025, driven by software acceleration, Red Hat, new mainframe cycle, AI, and acquisitions.

• HashiCorp acquisition expected to close by year-end 2024, enhancing hybrid cloud platform capabilities.