INTERNATIONAL BUSINESS MACHINES CORP

Previous wording

In an effort to provide better transparency into the operational results of the business, supplementally, management separates business results into operating and non-operating categories. Operating earnings from continuing operations is a non-GAAP measure that excludes the effects of certain acquisition-related charges, intangible asset amortization, expense resulting from basis differences on equity method investments, retirement-related costs and their related tax impacts. Due to the unique, non-recurring nature of the enactment of the U.S. Tax Cuts and Jobs Act (U.S. tax reform), management characterizes the one-time provisional charge recorded in the fourth quarter of 2017 and adjustments to that charge as non-operating. Adjustments primarily include true-ups, accounting elections and any changes to regulations, laws or audit adjustments that affect the recorded one-time charge. For acquisitions, operating (non-GAAP) earnings exclude the amortization of purchased intangible assets and acquisition-related charges such as in-process research and development, transaction costs, applicable retention, restructuring and related expenses, tax charges related to acquisition integration and pre-closing charges, such as financing costs. These charges are excluded as they may be inconsistent in amount and timing from period to period and are significantly impacted by the size, type and frequency of our acquisitions. Given its unique and temporary nature, management has also characterized as non-operating expense, the mark-to-market impact on the foreign exchange derivative contracts entered into prior to the acquisition of StreamSets and webMethods from SoftwareAG to economically hedge the foreign currency exposure related to the purchase price of this acquisition. These derivative contracts expired by June 28, 2024. This impact was recorded in other (income) and expense in the Consolidated Income Statement and reflects the realized loss from the changes in fair value of these derivative contracts. All other spending for acquired companies is included in both earnings from continuing operations and in operating (non-GAAP) earnings. For retirement-related costs, management characterizes certain items as operating and others as non-operating, consistent with GAAP. We include defined benefit plan and nonpension postretirement benefit plan service costs, multi-employer plan costs and the cost of defined contribution plans in operating earnings. Non-operating retirement-related costs include defined benefit plan and nonpension postretirement benefit plan amortization of prior service costs, interest cost, expected return on plan assets, amortized actuarial gains/losses, the impacts of any plan curtailments/settlements and pension insolvency costs and other costs. Non-operating retirement-related costs are primarily related to changes in pension plan assets and liabilities which are tied to financial market performance, and we consider these costs to be outs…

Excerpt shortened here; the source contains the full paragraph.

Current wording

In an effort to provide better transparency into the operational results of the business, supplementally, management separates business results into operating and non-operating categories. Operating earnings from continuing operations is a non-GAAP measure that excludes the effects of certain acquisition-related charges, intangible asset amortization, expense resulting from basis differences on equity method investments, retirement-related costs and their related tax impacts. Due to the unique, non-recurring nature of the enactment of the U.S. Tax Cuts and Jobs Act (U.S. tax reform), management characterizes the one-time provisional charge recorded in the fourth quarter of 2017 and adjustments to that charge as non-operating. Adjustments primarily include true-ups, accounting elections and any changes to regulations, laws or audit adjustments that affect the recorded one-time charge. For acquisitions, operating (non-GAAP) earnings exclude the amortization of purchased intangible assets and acquisition-related charges such as in-process research and development, transaction costs, applicable retention, restructuring and related expenses, tax charges related to acquisition integration and pre-closing charges, such as financing costs. These charges are excluded as they may be inconsistent in amount and timing from period to period and are significantly impacted by the size, type and frequency of our acquisitions. Given its unique and temporary nature, management has also characterized as non-operating expense, the mark-to-market impact on the foreign exchange derivative contracts entered into prior to the acquisition of StreamSets and webMethods from SoftwareAG to economically hedge the foreign currency exposure related to the purchase price of this acquisition. These derivative contracts expired by June 28, 2024. This impact was recorded in other (income) and expense in the Consolidated Income Statement and reflects the realized loss from the changes in fair value of these derivative contracts. All other spending for acquired companies is included in both earnings from continuing operations and in operating (non-GAAP) earnings. For retirement-related costs, management characterizes certain items as operating and others as non-operating, consistent with GAAP. We include defined benefit plan and nonpension postretirement benefit plan service costs, multi-employer plan costs and the cost of defined contribution plans in operating earnings. Non-operating retirement-related costs include defined benefit plan and nonpension postretirement benefit plan amortization of prior service costs, interest cost, expected return on plan assets, amortized actuarial gains/losses, the impacts of any plan curtailments/settlements including the impact of a one-time, non-cash, pre-tax settlement charge of $2.7 billion ($2.0 billion net of tax) resulting from the transfer to the Insurer of a portion of the Qualified PPP’s defined benefit pension obligations and related pl…

Excerpt shortened here; the source contains the full paragraph.

Previous wording

(1)Year-to-year revenue growth of 3.8 percent adjusted for currency.

Current wording

(1)Year-to-year revenue growth of 1.6 percent adjusted for currency.

Previous wording

The following table provides the company’s operating (non-GAAP) earnings for the second quarter of 2024 and 2023.

Current wording

The following table provides the company’s operating (non-GAAP) earnings for the third quarter of 2024 and 2023.

Previous wording

(1)Refer to page 81 for a more detailed reconciliation of net income to operating earnings.

Current wording

(2)Refer to page 85 for a more detailed reconciliation of net income to operating earnings.

Previous wording

Our business portfolio positions us well in challenging macroeconomic times. Our diversification across geographies, industries, clients and business mix and our recurring revenue base provides some stability in revenue, profit and cash generation. Clients and partners continue to leverage technology to allow businesses to scale, drive efficiencies, fuel growth and gain competitive advantage. The short-term uncertainty caused by interest rates and inflation is leading clients to manage their discretionary spending, but the overall macroeconomic outlook for technology spending remains positive.

Current wording

Our business portfolio positions us well to capture market opportunities in challenging macroeconomic times. Our diversification across geographies, industries, clients and business mix and our recurring revenue base provides some stability in revenue, profit and cash generation. Clients and partners continue to leverage technology to allow businesses to scale, drive efficiencies, fuel growth and gain competitive advantage. The economic uncertainty caused by temporary factors including geopolitical issues, upcoming elections, and the changing landscape of interest rates and inflation is leading clients to manage their discretionary spending, which has impacted certain areas of our Consulting business. The consulting market remains dynamic, with significant opportunity as clients and partners prepare for AI.

Previous wording

In the first six months of 2024, movements in global currencies continued to impact our reported year-to-year revenue and profit. We execute hedging programs which defer, but do not eliminate, the impact of currency. The (gains)/losses from these hedging programs are reflected primarily in other income and expense. Refer to “Currency Rate Fluctuations,” for additional information.

Current wording

In the first nine months of 2024, movements in global currencies continued to impact our reported year-to-year revenue and profit. We execute hedging programs which defer, but do not eliminate, the impact of currency. The (gains)/losses from these hedging programs are reflected primarily in other income and expense. Refer to “Currency Rate Fluctuations,” for additional information.

Previous wording

In the second quarter of 2024, we reported $15.8 billion in revenue, income from continuing operations of $1.8 billion and operating (non-GAAP) earnings of $2.3 billion. Diluted earnings per share from continuing operations was $1.96 as reported and $2.43 on an operating (non-GAAP) basis. We generated $2.1 billion in cash from operations and $2.6 billion in free cash flow, and delivered shareholder returns of $1.5 billion in dividends. Our second-quarter performance reflects solid revenue growth and cash flow generation, demonstrating the continued success of our hybrid cloud and AI strategy, and the strength of our diversified business model. We continued to focus on the fundamentals of our business which, combined with our cash generation, position us to continue investing in innovation and expertise across the portfolio while continuing to return value to shareholders through dividends.

Current wording

In the third quarter of 2024, we reported $15.0 billion in revenue and a net loss from continuing operations of $0.3 billion, which includes the impact of a one-time, non cash, pre-tax pension settlement charge of $2.7 billion ($2.0 billion net of tax). The pension settlement charge was the result of the transfer to the Insurer of a portion of the Qualified PPP’s defined benefit pension obligations and related plan assets, an action we took to further reduce the risk profile of our worldwide retirement-related plans. Our operating (non-GAAP) earnings for the three months ended September 30, 2024 were $2.2 billion. Diluted loss per share from continuing operations was $0.34 as reported, including an impact of $2.18 from the pension settlement charge, and diluted earnings per share was $2.30 on an operating (non-GAAP) basis. We generated $2.9 billion in cash from operations and $2.1 billion in free cash flow, and delivered shareholder returns of $1.5 billion in dividends. Our third-quarter performance reflects accelerated Software revenue growth, expanded gross profit margin, and strong cash generation, demonstrating the continued success of our hybrid cloud and AI strategy, and the strength of our diversified business model. We continued to focus on the fundamentals of our business which, combined with our cash generation, position us to continue investing in innovation and expertise across the portfolio while continuing to return value to shareholders through dividends.

Previous wording

From a geographic perspective, Americas revenue decreased 0.8 percent as reported (0.5 percent adjusted for currency). Europe/Middle East/Africa (EMEA) increased 2.6 percent as reported and 3.2 percent adjusted for currency. Asia Pacific increased 8.6 percent as reported (17.2 percent adjusted for currency).

Current wording

From a geographic perspective, Americas revenue decreased 3.0 percent as reported (2.4 percent adjusted for currency). Europe/Middle East/Africa (EMEA) increased 8.5 percent as reported (6.8 percent adjusted for currency). Asia Pacific increased 3.1 percent as reported (4.5 percent adjusted for currency).

Previous wording

Gross margin of 56.8 percent increased 1.8 points year to year with continued margin expansion driven by revenue growth, portfolio mix and ongoing productivity actions. Operating (non-GAAP) gross margin of 57.8 percent increased 1.9 points compared to the prior-year period due to the same dynamics.

Current wording

Gross margin of 56.3 percent increased 1.9 points year to year with continued margin expansion driven by revenue growth, portfolio mix and ongoing productivity actions. Operating (non-GAAP) gross margin of 57.5 percent increased 2.1 points compared to the prior-year period due to the same dynamics.

Previous wording

Total expense and other (income) increased 3.5 percent in the second quarter of 2024 versus the prior-year period primarily driven by higher spending reflecting our continued investment in portfolio innovation to drive our strategy, higher acquisition-related charges, amortization of acquired intangible assets and non-operating retirement-related cost, partially offset by the benefits from productivity actions and lower workforce rebalancing charges. Total operating (non-GAAP) expense and other (income) increased 1.2 percent year to year, driven primarily by the factors described above, excluding the higher non-operating retirement-related costs, acquisition-related charges and amortization of acquired intangible assets.

Current wording

Total expense and other (income) increased 50.0 percent in the third quarter of 2024 versus the prior-year period primarily driven by the pension settlement charge of $2.7 billion described above, higher workforce rebalancing charges and higher spending reflecting our continued investment in portfolio innovation to drive our strategy. This was partially offset by a gain from the sale of certain QRadar SaaS assets and the benefits from productivity and the actions we have taken to transform our operations. Total operating (non-GAAP) expense and other (income) increased 4.1 percent year to year, driven primarily by the factors described above, excluding the pension settlement charge.

Previous wording

Operating (non-GAAP) pre-tax income from continuing operations of $2.8 billion increased 16.5 percent compared to the second quarter of 2023 and the operating (non-GAAP) pre-tax margin from continuing operations increased 2.2 points to 17.7 percent primarily driven by the combination of our revenue growth and gross margin performance and the benefits from productivity actions. The operating (non-GAAP) provision for income taxes in the second quarter of 2024 was $516 million, compared to $393 million in the second quarter of 2023. Operating (non-GAAP) net income from continuing operations of $2.3 billion increased 13.6 percent and the operating (non-GAAP) net income margin from continuing operations of 14.4 percent was up 1.5 points year to year.

Current wording

Operating (non-GAAP) pre-tax income from continuing operations of $2.5 billion increased 8.2 percent compared to the third quarter of 2023 and the operating (non-GAAP) pre-tax margin from continuing operations increased 1.0 point to 16.6 percent primarily driven by our revenue growth and gross margin performance and the benefits from productivity and the actions taken to transform our operations, partially offset by our continued investments to drive innovation. The operating (non-GAAP) provision for income taxes was $0.3 billion in both the third quarter of 2024 and the third quarter of 2023. Operating (non-GAAP) net income from continuing operations of $2.2 billion increased 6.1 percent and the operating (non-GAAP) net income margin from continuing operations of 14.4 percent was up 0.6 points year to year.

Previous wording

Cash provided by operating activities was $2.1 billion in the second quarter of 2024, a decrease of $0.6 billion compared to the second quarter of 2023 and free cash flow was $2.6 billion, an increase of $0.5 billion versus the prior-year period. Net cash provided by investing activities of $2.2 billion increased $2.2 billion and net cash used in financing activities of $4.5 billion increased $1.8 billion compared to the second quarter of 2023.

Current wording

Cash provided by operating activities was $2.9 billion in the third quarter of 2024, a decrease of $0.2 billion compared to the third quarter of 2023 and free cash flow was $2.1 billion, an increase of $0.4 billion versus the prior-year period. Net cash used in investing activities of $1.6 billion decreased $0.4 billion and net cash used in financing activities of $2.8 billion decreased $0.4 billion compared to the third quarter of 2023.

Previous wording

(1)Year-to-year revenue growth of 3.2 percent adjusted for currency.

Current wording

(1)Year-to-year revenue growth of 2.7 percent adjusted for currency.

Previous wording

The following table provides the company’s operating (non-GAAP) earnings for the first six months of 2024 and 2023.

Current wording

The following table provides the company’s operating (non-GAAP) earnings for the first nine months of 2024 and 2023.

Previous wording

(1)Refer to page 82 for a more detailed reconciliation of net income to operating earnings.

Current wording

(2)Refer to page 86 for a more detailed reconciliation of net income to operating earnings.

Previous wording

In the first six months of 2024, we reported $30.2 billion in revenue, income from continuing operations of $3.4 billion and operating (non-GAAP) earnings of $3.8 billion. Diluted earnings per share from continuing operations was $3.65 as reported and $4.11 on an operating (non-GAAP) basis. We generated $6.2 billion in cash from operations and $4.5 billion in free cash flow, and delivered shareholder returns of $3.1 billion in dividends. Our year-to-date performance reflects our deep focus on the business fundamentals with continued revenue growth, margin expansion, cash generation and a strong balance sheet with financial flexibility to support our business.

Current wording

In the first nine months of 2024, we reported $45.2 billion in revenue, net income from continuing operations of $3.1 billion, including the impact of a one-time, non cash, pre-tax pension settlement charge of $2.7 billion ($2.0 billion net of tax), and operating (non-GAAP) earnings of $6.0 billion. Diluted earnings per share from continuing operations was $3.30 as reported, including an impact of $2.18 from the pension settlement charge, and diluted earnings per share was $6.41 on an operating (non-GAAP) basis. We generated $9.1 billion in cash from operations and $6.6 billion in free cash flow, and delivered shareholder returns of $4.6 billion in dividends. Our year-to-date performance reflects our deep focus on the business fundamentals with continued revenue growth, gross profit margin expansion and strong cash generation, and a balance sheet with financial flexibility to support our business.

Previous wording

Total revenue grew 1.7 percent as reported and 3 percent adjusted for currency compared to the prior-year period. Software delivered revenue growth of 6.3 percent as reported and 7.2 percent adjusted for currency, with solid growth in both Hybrid Platform & Solutions and Transaction Processing. Consulting revenue decreased 0.6 percent as reported but grew 1.8 percent adjusted for currency, led by strength in our Business Transformation offerings, and reflecting continued organic growth. Infrastructure revenue was flat as reported and increased 1.5 percent adjusted for currency, with growth in Hybrid Infrastructure reflecting continued demand across our hardware portfolio, offset by a decline in Infrastructure Support reflecting product cycle dynamics.

Current wording

Total revenue grew 1.6 percent as reported and 3 percent adjusted for currency compared to the prior-year period. Software delivered revenue growth of 7.5 percent as reported and 8.0 percent adjusted for currency, with solid growth in Hybrid Platform & Solutions and Transaction Processing. Consulting revenue decreased 0.5 percent as reported but grew 1.1 percent adjusted for currency, led by strength in our Business Transformation offerings with revenue growth year to year driven by transformation projects for data, finance and supply chain. Infrastructure revenue decreased 2.3 percent as reported and 1.2 percent adjusted for currency, driven by declines in Infrastructure Support, partially offset by growth in Hybrid Infrastructure.

Previous wording

From a geographic perspective, Americas revenue increased 1.0 percent year to year as reported (1.2 percent adjusted for currency). EMEA increased 1.1 percent (0.7 percent adjusted for currency). Asia Pacific increased 4.4 percent (12.5 percent adjusted for currency).

Current wording

From a geographic perspective, Americas revenue decreased 0.4 percent year to year as reported (flat adjusted for currency). EMEA increased 3.5 percent (2.6 percent adjusted for currency). Asia Pacific increased 4.0 percent (9.8 percent adjusted for currency).

Previous wording

Gross margin of 55.2 percent increased 1.4 points year to year with gross profit margin expansion across all reportable segments driven by our improving portfolio mix and productivity actions. Operating (non-GAAP) gross margin of 56.3 percent increased 1.5 points compared to the prior-year period due to the same dynamics.

Current wording

Gross margin of 55.6 percent increased 1.5 points year to year with gross profit margin expansion across all reportable segments driven by our improving portfolio mix and productivity actions. Operating (non-GAAP) gross margin of 56.7 percent increased 1.7 points compared to the prior-year period due to the same dynamics.

Previous wording

Total expense and other (income) increased 3.5 percent in the first six months of 2024 versus the prior-year period primarily driven by higher spending reflecting our continued investment in portfolio innovation to drive our strategy, higher acquisition-related charges, amortization of acquired intangible assets and non-operating retirement-related cost, and the effects of currency; partially offset by the gain on the divestiture of The Weather Company assets and the benefits from productivity actions. Total operating (non-GAAP) expense and other (income) increased 1.0 percent year to year, driven primarily by the factors described above, excluding the higher non-operating retirement-related costs, acquisition-related charges and amortization of acquired intangible assets.

Current wording

Total expense and other (income) increased increased 18.4 percent in the first nine months of 2024 versus the prior-year period primarily driven by the pension settlement charge of $2.7 billion described above, higher workforce rebalancing charges and higher spending reflecting our continued investment in portfolio innovation to drive our strategy. This was partially offset by a gain from the sale of certain QRadar SaaS assets, the gain on the divestiture of The Weather Company assets in the first quarter and the benefits from productivity and the actions taken to transform our operations. Total operating (non-GAAP) expense and other (income) increased 2.0 percent year to year, driven primarily by the factors described above, excluding the pension settlement charge.

Previous wording

Pre-tax income from continuing operations of $3.3 billion increased 7.7 percent and pre-tax margin was 10.9 percent, an increase of 0.6 points versus the first half of 2023. Performance in the first six months of 2024 reflects our gross margin expansion and the benefits from productivity actions which enabled investments to drive innovation. The continuing operations benefit from income taxes for the first six months of 2024 was $112 million, compared to a provision for income taxes of $543 million for the first six months of 2023. The benefit from income taxes in the first six months of 2024 was primarily driven by the resolution of certain tax audit matters in the first quarter. Net income from continuing operations of $3.4 billion increased 35.4 percent and the net income from continuing operations margin was 11.3 percent, up 2.8 points year to year.

Current wording

Pre-tax income from continuing operations of $2.5 billion decreased 49.5 percent and pre-tax margin was 5.5 percent, a decrease of 5.6 points as compared to the first nine months of 2023. Performance in the first nine months of 2024 reflects the impact from the pension settlement charge described above partially offset by our gross margin expansion and the benefits from productivity and the actions taken to transform our operations which enabled investments to drive innovation. The continuing operations benefit from income taxes for the first nine months of 2024 was $0.6 billion, compared to a provision for income taxes of $0.7 billion for the first nine months of 2023. The current-year tax benefit was primarily driven by the resolution of certain tax audit matters in the first quarter and the pension settlement charge in the third quarter. Net income from continuing operations of $3.1 billion decreased 27.0 percent and the net income from continuing operations margin was 6.8 percent, down 2.7 points year to year.

Previous wording

Operating (non-GAAP) pre-tax income from continuing operations of$4.4 billion increased 15.7 percent compared to the prior-year period and the operating (non-GAAP) pre-tax margin from continuing operations increased 1.8 points to 14.7 percent. The operating (non-GAAP) provision for income taxes in the first six months of 2024 was $610 million, compared to $593 million in the first six months of 2023. Operating (non-GAAP) income from continuing operations of$3.8 billion increased 18.0 percent and the operating (non-GAAP) income margin from continuing operations of 12.7 percent increased 1.8 points year to year.

Current wording

Operating (non-GAAP) pre-tax income from continuing operations of$6.9 billion increased 12.9 percent compared to the prior-year period and the operating (non-GAAP) pre-tax margin from continuing operations increased 1.5 points to 15.3 percent. The operating (non-GAAP) provision for income taxes was $0.9 billion in both the first nine months of 2024 and the first nine months of 2023. Operating (non-GAAP) income from continuing operations of$6.0 billion increased 13.4 percent and the operating (non-GAAP) income margin from continuing operations of 13.3 percent increased 1.4 points year to year.

Previous wording

At June 30, 2024, the balance sheet remained strong with financial flexibility to support and invest in the business. Cash and cash equivalents, restricted cash and marketable securities at June 30, 2024 of $16.0 billion increased $2.5 billion from December 31, 2023 and debt of $56.5 billion at June 30, 2024 was flat from prior-year end.

Current wording

At September 30, 2024, the balance sheet remained strong with financial flexibility to support and invest in the business. Cash and cash equivalents, restricted cash and marketable securities at September 30, 2024 of $13.7 billion increased $0.3 billion from December 31, 2023 and debt of $56.6 billion at September 30, 2024 was flat from prior-year end.

Previous wording

Total assets decreased $1.4 billion (increased $0.5 billion adjusted for currency) from December 31, 2023 primarily driven by increases in cash and cash equivalents, restricted cash and marketable securities; partially offset by a decrease in receivables. Total liabilities decreased $2.9 billion ($1.0 billion adjusted for currency) from December 31, 2023 primarily driven by decreases in tax liabilities and accounts payable; partially offset by an increase in deferred income. Total equity of $24.1 billion increased $1.5 billion from December 31, 2023 primarily driven by first-half 2024 net income and common stock issuances; partially offset by dividends paid.

Current wording

Total assets decreased $0.9 billion ($0.7 billion adjusted for currency) from December 31, 2023 primarily driven by a decrease in receivables, partially offset by an increase in goodwill and intangible assets mainly related to the StreamSets and webMethods acquisition. Total liabilities decreased $2.8 billion ($2.9 billion adjusted for currency) from December 31, 2023 primarily driven by decreases in tax liabilities and accounts payable. Total equity of $24.5 billion increased $1.9 billion from December 31, 2023 primarily driven by the year-to-date net income, including the impact of the pension settlement charge, a decrease in accumulated other comprehensive loss mainly driven by retirement-related benefit plans due to the pension settlement charge of $2.0 billion net of tax, and common stock issuances; partially offset by dividends paid.

Previous wording

Cash provided by operating activities was $6.2 billion in the first six months of 2024, a decrease of $0.2 billion compared to the first six months of 2023 and free cash flow was $4.5 billion, an increase of $1.1 billion versus the prior-year period. Refer to page 77 for additional information on free cash flow. Net cash used in investing activities of 2.0 billion decreased 6.0 billion and financing activities were a net use of cash of 2.6 billion in the first six months of 2024 compared to a net source of cash of $3.0 billion in the prior-year period.

Current wording

Cash provided by operating activities was $9.1 billion in the first nine months of 2024, a decrease of $0.4 billion compared to the first nine months of 2023 and free cash flow was $6.6 billion, an increase of $1.5 billion versus the prior-year period. Refer to page 81 for additional information on free cash flow. Net cash used in investing activities of $3.6 billion decreased $6.3 billion compared to the prior-year period. Financing activities were a net use of cash of $5.4 billion in the first nine months of 2024 compared to $0.2 billion in the prior-year period.

Previous wording

The following tables present each reportable segment’s revenue and gross margin results, followed by an analysis of the second quarter and first six months of 2024 versus the second quarter and first six months of 2023 reportable segments results. Prior-year results have been recast to reflect the January 2024 segment changes as described in note 4, "Segments."

Current wording

The following tables present each reportable segment’s revenue and gross margin results, followed by an analysis of the third quarter and first nine months of 2024 versus the third quarter and first nine months of 2023 reportable segments results. Prior-year results have been recast to reflect the January 2024 segment changes as described in note 4, "Segments."

Previous wording

Hybrid Platform & Solutions revenue of $4,575 million increased 5.2 percent as reported (6.3 percent adjusted for currency) in the second quarter of 2024 compared to the prior-year period, driven primarily by growth in Red Hat and Automation. Red Hat revenue increased 6.9 percent as reported (8.1 percent adjusted for currency), with double-digit growth in OpenShift and Ansible, and solid growth in RHEL in the second quarter of 2024 compared to the prior-year period. The revenue growth within Red Hat reflects the demand for our hybrid cloud solutions, including application modernization, management automation, generative AI and virtualization. Automation revenue increased 14.6 percent as reported (15.9 percent adjusted for currency), driven by strong growth in our Software-as-a-Service subscription offerings such as AIOps and Management, which includes the revenue contribution from the Apptio acquisition which closed in the third quarter of 2023. The synergy between Apptio's FinOps offerings and our broader automation portfolio helps clients manage, optimize and automate technology spending decisions. Data & AI revenue decreased 3.0 percent as reported (2.1 percent adjusted for currency), due to a challenging year-to-year revenue performance comparison where we had strong, broad-based, double-digit revenue growth in the second quarter of 2023.

Current wording

Hybrid Platform & Solutions revenue of $4,600 million increased 9.8 percent as reported (9.7 percent adjusted for currency) in the third quarter of 2024 compared to the prior-year period, driven primarily by strong growth in Red Hat, Automation and Data & AI. Red Hat revenue increased 13.7 percent as reported (13.8 percent adjusted for currency) in the third quarter of 2024. We gained market share across each of our key solutions, as OpenShift and Ansible each continued to grow year-to-year revenue greater than 20 percent in the third quarter, and RHEL had double-digit, year-to-year growth in the quarter. This revenue growth within Red Hat reflects the demand for our hybrid cloud solutions as clients continue to prioritize application modernization on OpenShift containers and Ansible automation to optimize their IT spend and reduce operational complexity. We had strong acceleration in Red Hat's subscription business this quarter compared to the second-quarter 2024 and the consumption-based services business returned to growth in the third quarter compared to the prior-year period. Automation revenue increased 13.2 percent as reported (12.9 percent adjusted for currency) in the third quarter of 2024 compared to the prior-year period driven by our Software-as-a-Service subscription offerings such as AI Ops and Management, which includes the revenue contribution from Apptio. The Apptio acquisition closed in August last year and continues to build strong synergies with our automation capabilities and broader software portfolio, driving continued growth in signings and annual recurring revenue. Data & AI revenue increased 5.3 percent as reported (5.1 percent adjusted for currency) driven by continued growth in watsonx including our AI Assistant for Customer Care.

Previous wording

Across Hybrid Platform & Solutions, our annual recurring revenue (ARR) was $14.1 billion. ARR is a key performance metric management uses to assess the health and growth trajectory of our Hybrid Platform & Solutions business within the Software segment. The metric was updated in the first quarter of 2024 to reflect the organizational changes described in note 4, “Segments,” and to simplify the calculation. ARR is calculated by using the current quarter’s recurring revenue and then multiplying that value by four. This value includes the following consumption models: (1) software subscription agreements, including committed term licenses, (2) as-a-service arrangements such as SaaS and PaaS, and (3) maintenance and support contracts. ARR should be viewed independently of revenue as this performance metric and its inputs may not represent revenue that will be recognized in future periods.

Current wording

Across Hybrid Platform & Solutions, our annual recurring revenue (ARR) was $14.9 billion. ARR is a key performance metric management uses to assess the health and growth trajectory of our Hybrid Platform & Solutions business within the Software segment. The metric was updated in the first quarter of 2024 to reflect the organizational changes described in note 4, “Segments,” and to simplify the calculation. ARR is calculated by using the current quarter’s recurring revenue and then multiplying that value by four. This value includes the following consumption models: (1) software subscription agreements, including committed term licenses, (2) as-a-service arrangements such as SaaS and PaaS, and (3) maintenance and support contracts. ARR should be viewed independently of revenue as this performance metric and its inputs may not represent revenue that will be recognized in future periods.

Previous wording

For the first six months of 2024, Software revenue of $12,637 million increased 6.3 percent as reported (7.2 percent adjusted for currency) compared to the same period in 2023, driven by solid growth in Hybrid Platform & Solutions, led by Red Hat and Automation, and Transaction Processing. This performance reflects the continued demand for the high-value capabilities within our Hybrid Platform & Solutions offerings and the value of our mission-critical software within Transaction Processing.

Current wording

For the first nine months of 2024, Software revenue of $19,162 million increased 7.5 percent as reported (8.0 percent adjusted for currency) compared to the same period in 2023, driven by solid growth in Hybrid Platform & Solutions, led by Automation and Red Hat, and Transaction Processing. This performance reflects the continued demand for the high-value capabilities within our Hybrid Platform & Solutions offerings and the value of our mission-critical software portfolio within Transaction Processing which supports growing workloads on our hardware platforms. This revenue performance also reflects the investments we have been making in Software, both organically and in acquisitions.

Previous wording

Software gross profit margin increased 1.5 points to 83.6 percent in the second quarter of 2024 compared to the prior-year period. Segment profit of $2,113 million increased 20.8 percent and segment profit margin of 31.3 percent increased 3.6 points compared to the prior-year period. The segment profit growth reflects our operating leverage driven by our revenue performance and portfolio mix. The benefits of our continued productivity actions, partially offset by key investments in software innovation, also contributed to segment profit and margin expansion.

Current wording

Software gross profit margin increased 0.9 points to 83.2 percent in the third quarter of 2024 compared to the prior-year period. Segment profit of $1,969 million increased 14.4 percent and segment profit margin of 30.2 percent increased 1.2 points compared to the prior-year period. The segment profit growth reflects our operating leverage driven by our revenue performance and portfolio mix and the benefits of our continued productivity actions, partially offset by key investments in software innovation.

Previous wording

For the first six months of 2024, gross profit margin increased 0.7 points to 83.0 percent, compared to the first six months of 2023. Segment profit of $3,612 million increased 15.5 percent and segment profit margin of 28.6 percent increased 2.3 points compared to the prior-year period. The segment profit growth for the first half of 2024 was driven by the same factors described for the second quarter. The segment profit margin also included about half of a point of impact from currency.

Current wording

For the first nine months of 2024, gross profit margin increased 0.8 points to 83.1 percent, compared to the first nine months of 2023. Segment profit of $5,582 million increased 15.1 percent and segment profit margin of 29.1 percent increased 1.9 points compared to the prior-year period. The segment profit growth for the first nine months of 2024 was driven by the same factors described for the third quarter.

Previous wording

In the second quarter of 2024, Business Transformation revenue of $2,360 million increased 2.8 percent as reported (5.5 percent adjusted for currency) compared to the prior-year period, led by finance and supply chain transformations. Data transformation offerings also contributed to revenue growth in the quarter.

Current wording

In the third quarter of 2024, Business Transformation revenue of $2,327 million increased 1.6 percent as reported (1.7 percent adjusted for currency) compared to the prior-year period driven by strength in transformation projects for data, finance and supply chain.

Previous wording

In the second quarter of 2024, Consulting gross profit margin of 26.3 percent increased 0.4 points on a year-to-year basis. Segment profit of $463 million decreased 4.0 percent and segment profit margin of 8.9 percent decreased 0.3 points year to year. The gross profit margin expansion was driven by productivity and pricing actions we have taken, partially offset by continued labor inflation which is also reflected in the modest decline in segment profit margin.

Current wording

In the third quarter of 2024, Consulting gross profit margin of 28.4 percent increased 0.9 points on a year-to-year basis. Segment profit of $559 million decreased 1.2 percent and segment profit margin of 10.9 percent decreased 0.1 points year to year. The gross profit margin expansion reflects the savings from productivity actions we have taken. Our segment profit margin improved 2.0 points compared to the second-quarter 2024 reflecting the benefits from our productivity actions, but was essentially flat year to year.

Previous wording

For the first six months of 2024, Consulting gross profit margin of 25.8 percent increased 0.1 points compared to the prior-year period. Segment profit of $888 million decreased 2.4 percent and segment profit margin of 8.6 percent decreased 0.2 points in the first six months of 2024 compared to the prior-year period. The six-month margin performance was driven by the same factors as described above for the second quarter. The segment profit margin also included about half of a point of impact from currency.

Current wording

For the first nine months of 2024, Consulting gross profit margin of 26.7 percent increased 0.4 points compared to the prior-year period. Segment profit of $1,447 million decreased 1.9 percent and segment profit margin of 9.3 percent decreased 0.1 points in the first nine months of 2024 compared to the prior-year period. The nine-month margin performance was driven primarily by the same factors as described above for the third quarter.

Previous wording

In the second quarter of 2024, Consulting signings decreased 4.5 percent as reported and 2.5 percent adjusted for currency. While discretionary spending constraints impacted our small engagement performance in the second-quarter 2024, we had solid demand for large engagements across finance and supply chain transformation, cloud modernization and application development. Our book-to-bill ratio for the trailing twelve-months remains over 1.15. Book-to-bill represents the ratio of IBM Consulting signings to its revenue over the same period. The metric is a useful indicator of the demand of our business over time.

Current wording

In the third quarter of 2024, Consulting signings decreased 8.7 percent as reported and 9.3 percent adjusted for currency. Clients are reprioritizing their IT budgets to prepare for investments in generative AI, while the challenging macroeconomic environment is impacting client spending, particularly on more discretionary projects. We continued to have solid demand for large digital transformations that contributed to the $5.4 billion in signings in the quarter. Our book-to-bill ratio for the trailing twelve-months was 1.14. Book-to-bill represents the ratio of IBM Consulting signings to its revenue over the same period. The metric is a useful indicator of the demand of our business over time.

Previous wording

Infrastructure Support revenue of $1,285 million decreased 5.4 percent as reported (2.9 percent adjusted for currency) in the second quarter of 2024 compared to the prior-year period, driven by volume decline in support of non-IBM equipment and IBM product cycle dynamics.

Current wording

Infrastructure Support revenue of $1,277 million decreased 3.9 percent as reported (3.1 percent adjusted for currency) in the third quarter of 2024 compared to the prior-year period, driven by product cycle dynamics and volume decline in support of non-IBM equipment.

Previous wording

Infrastructure gross profit margin of 56.5 percent increased 0.5 points in the second quarter of 2024 compared to the prior-year period, with solid margin expansion in Hybrid Infrastructure and Infrastructure Support. The increase in margin within Hybrid Infrastructure was driven primarily by margin expansion within Distributed Infrastructure, driven by Power systems, and portfolio mix to IBM Z. In the second quarter of 2024, Infrastructure segment profit of $654 million decreased 10.7 percent and segment profit margin of 17.9 percent decreased 2.3 points compared to the prior-year period. The year-to-year decrease in segment profit and margin reflects key investments we are making in the business across areas such as AI, hybrid cloud and quantum, partially offset by the benefits from productivity actions we have taken. The segment profit margin included approximately 1 point of impact from currency.

Current wording

Infrastructure gross profit margin of 55.0 percent increased 1.2 points in the third quarter of 2024 compared to the prior-year period, with margin expansion in Infrastructure Support and Hybrid Infrastructure. The increase in margin within Infrastructure Support was driven by product mix. The increase in margin within Hybrid Infrastructure was driven primarily by margin expansion in both IBM Z and Distributed Infrastructure, partially offset by portfolio mix. In the third quarter of 2024, Infrastructure segment profit of $422 million decreased 13.8 percent and segment profit margin of 13.9 percent decreased 1.1 points compared to the prior-year period. The year-to-year decrease in segment profit and margin reflects the revenue decline due to product cycle dynamics in IBM Z and Distributed Infrastructure and continued investments in innovation for our next generation of products. This performance was partially offset by higher IP and custom development income year to year and savings from productivity actions.

Previous wording

For the first six months of 2024, gross profit margin of 55.4 percent increased 1.4 points compared to the prior-year period, driven by margin expansion in Hybrid Infrastructure and Infrastructure Support. Infrastructure profit of $965 million decreased 7.1 percent and segment profit margin of 14.4 percent decreased 1.1 points in the first six months of 2024 compared to the prior-year period. This performance reflects the same factors described in the second-quarter performance, which were partially offset by higher IP and custom development income year to year. The segment profit margin also included approximately 1 point of impact from currency.

Current wording

For the first nine months of 2024, gross profit margin of 55.3 percent increased 1.3 points compared to the prior-year period, driven by margin expansion in Hybrid Infrastructure and Infrastructure Support. Within Hybrid Infrastructure, we had margin improvement across our hardware platforms. The gross profit margin improvement in Infrastructure Support reflects the benefits from productivity and cost management. Infrastructure segment profit of $1,387 million decreased 9.3 percent and segment profit margin of 14.2 percent decreased 1.1 points in the first nine months of 2024 compared to the prior-year period. This performance reflects the same factors described for the third quarter, and also included approximately a half of a point of impact from currency.

Previous wording

Refer to pages 78 through 80 for a discussion of Financing’s segment results.

Current wording

Refer to pages 82 through 84 for a discussion of Financing’s segment results.

Previous wording

Geographic revenue performance for the six months ended June 30, 2024:

Current wording

Geographic revenue performance for the nine months ended September 30, 2024: