IBM (IBM) Q4 2024 earnings summary

Executive summary

• Achieved 3% revenue growth and $12.7B free cash flow in 2024, the highest margin in company history, with all segments delivering growth over the last three years and Software now ~45% of business.

• Software led with 9% full-year growth and double-digit Q4 growth, driven by Red Hat and AI demand; generative AI book of business reached $5B, up $2B quarter over quarter.

• Consulting met high single-digit growth targets over the midterm, though 2024 was below model; record Q4 signings and backlog up 8% YoY, with book-to-bill at 1.21.

• Closed the year with the highest free cash flow margin in company history and exceeded targets for revenue, profitability, and free cash flow.

• Continued innovation and strategic acquisitions, including Neural Magic, and pending HashiCorp acquisition to strengthen AI capabilities.

Financial highlights

• 2024 revenue: $63B; operating pre-tax income: $11.2B; operating EPS: $10.33; net income: $9.7B, up 9% YoY.

• Free cash flow grew 14% year-over-year to $12.7B, with operating pre-tax margin up 120 bps and gross margin up 130 bps.

• Q4 revenue: $17.6B, up over 2% at constant currency; software up 11%, consulting down 1%, infrastructure down 6%.

• Adjusted EBITDA for FY24 was $16.4B, up 6% year-over-year; Q4 operating EPS: $3.92, up 1%.

• Q4 gross profit margin: 60.6% operating (up 50 bps); full-year gross margin: 57.8% operating (up 130 bps).

Outlook and guidance

• 2025 revenue growth expected at least 5%+ (constant currency), with $13.5B free cash flow.

• Software revenue growth approaching double digits, Red Hat mid-teens, consulting low single digits, infrastructure to contribute about one point to overall growth.

• Operating pre-tax margin to expand by over half a point; double-digit adjusted EBITDA growth expected.

• Currency expected to be a two-point headwind to revenue growth.

• Q1 2025 revenue growth rate expected similar to Q4 2024; workforce rebalancing and margin expansion planned.