Accelerated Software revenue growth; Strong gross margin expansion and cash generationAnnounces strategic acquisition of HashiCorp, Inc. ARMONK, N.Y., April 24, 2024 /PRNewswire/ -- IBM (NYSE:IBM) today 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 AcquisitionIBM 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 FIRST QUARTER 2024 INCOME STATEMENT SUMMARY Revenue Gross Profit Gross Profit Margin Pre-tax Income Pre-tax Income Margin Net Income (1) Diluted Earnings Per Share GAAP from Continuing Operations $   14.5 B $   7.7 B 53.5 % $  1.1 B 7.4 % $     1.6 B $     1.69 Year/Year 1 %(2) 3 % 0.8 Pts 1 % 0.0 Pts 69 % 66 % Operating (Non-GAAP) $   7.9 B 54.7 % $  1.7 B 11.5 % $     1.6 B $     1.68 Year/Year 3 % 1.0 Pts 14 % 1.3 Pts 25 % 24 % (1) 2024 includes a net benefit from discrete tax events. (2) 3% at constant currency. "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 SheetIn 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 Forward-Looking and Cautionary StatementsExcept 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 ReleaseIn 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; net cash from operating activities excluding IBM Financing receivables; 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. For watsonx and generative AI, book of business includes Software transactional revenue, SaaS Annual Contract Value and Consulting signings. Conference Call and WebcastIBM'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. 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                                        Tim Davidson, 914-844-7847                    INTERNATIONAL BUSINESS MACHINES CORPORATION COMPARATIVE FINANCIAL RESULTS (Unaudited; Dollars in millions except per share amounts) Three Months EndedMarch 31, 2024 2023 (1) REVENUE BY SEGMENT Software $                   5,899 $                   5,591 Consulting 5,186 5,197 Infrastructure 3,076 3,098 Financing 193 196 Other 108 169 TOTAL REVENUE 14,462 14,252 GROSS PROFIT 7,742 7,509 GROSS PROFIT MARGIN Software 82.4 % 82.6 % Consulting 25.3 % 25.5 % Infrastructure 54.2 % 51.8 % Financing 48.5 % 43.9 % TOTAL GROSS PROFIT MARGIN 53.5 % 52.7 % EXPENSE AND OTHER INCOME S,G&A 4,974 4,853 R,D&E 1,796 1,655 Intellectual property and custom development income (216) (180) Other (income) and expense (317) (245) Interest expense 432 367 TOTAL EXPENSE AND OTHER INCOME 6,669 6,451 INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 1,074 1,058 Pre-tax margin 7.4 % 7.4 % Provision for/(Benefit from) income taxes (2) (502) 124 Effective tax rate (2) (46.7) % 11.7 % INCOME FROM CONTINUING OPERATIONS $                   1,575 $                        934 DISCONTINUED OPERATIONS Income/(loss) from discontinued operations, net of taxes 30 (7) NET INCOME $                   1,605 $                        927 EARNINGS/(LOSS) PER SHARE OF COMMON STOCK Assuming Dilution Continuing Operations $                      1.69 $                      1.02 Discontinued Operations $                      0.03 $                     (0.01) TOTAL $                      1.72 $                      1.01 Basic Continuing Operations $                      1.72 $                      1.03 Discontinued Operations $                      0.03 $                     (0.01)