International Business Machines Corp - IBM RELEASES THIRD-QUARTER RESULTS

IBM RELEASES THIRD-QUARTER RESULTS Accelerated Software revenue growth, expanded gross profit margin, and strong free cash flow ARMONK, N.Y., Oct. 23, 2024 -- IBM (NYSE: IBM (http://www.ibm.com/investor)) today announced third-quarter 2024 earnings results. [image] "Our third-quarter performance was led by double-digit growth in Software, including a re-acceleration in Red Hat. We continue to see great momentum in AI as our models are trusted, fit-for-purpose, and lower cost, with performance leadership. Our generative AI book of business now stands at more than $3 billion, up more than $1 billion quarter to quarter," said Arvind Krishna, IBM chairman, president and chief executive officer. "Heading into the final quarter of 2024, we expect fourth-quarter constant currency revenue growth to be consistent with the third quarter, with continued strength in Software. We are confident in our ability to deliver more than $12 billion in free cash flow for the year, driven by continued expansion of our operating margins." Third-Quarter Highlights · Revenue - Revenue of $15.0 billion, up 1 percent, up 2 percent at constant currency - Software revenue up 10 percent - Consulting revenue flat - Infrastructure revenue down 7 percent · Profit - Gross Profit Margin: GAAP: 56.3 percent, up 190 basis points; Operating (Non -GAAP):   57.5 percent, up 210 basis points · Cash Flow - Year to date, net cash from operating activities of $9.1 billion; free cash flow of $6.6 billion [][][][][][] THIRD-QUARTER 2024 INCOME STATEMENT SUMMARY GAAP results include impact of one -time, non -cash pension settlement charge[ (1)] Revenue Gross Gross Pre Pre Net Diluted -tax -tax Profit Profit Income/ Earnings/ Income/ Income Margin Margin (Loss) (Loss) (Loss) [(1)] [(1)] Per [(1)] Share [(1)] GAAP from $   $   56.3 % $ (0.8) (5.4) % $  $ 15.0 B 8.4 B B (0.3) (0.34) Continuing B Operations Year/Year 1 %[(2)] 5 % 1.9 Pts NM -18.1 Pts NM NM Operating $   57.5 % $    16.6 % $     $ 8.6 B 2.5 B 2.2 B 2.30 (Non-GAAP) Year/Year 5 % 2.1 Pts 8 % 1.0 Pts 6 % 5 % (1)  2024 GAAP results include the impact of a one-time, non -cash, pension settlement charge of $2.7 billion ($2.0 billion net of tax) related        to the transfer of a portion of the company's U.S. defined benefit pension obligations and related plan assets to a third -party insurer,  announced in September 2024. (2)  2% at constant currency. "Our investments are paying off in Software as we've repositioned our portfolio in recent years. In the third quarter, Software delivered broad-based growth and now represents nearly 45 percent of our total revenue. Our ongoing focus on product mix, coupled with our productivity initiatives enables us to continue to drive operating leverage in our underlying profit performance," said James Kavanaugh, IBM senior vice president and chief financial officer. "With our strong cash generation, we are well-positioned to continue investing for growth while returning value to shareholders through dividends." Segment Results for Third Quarter · Software - revenues of $6.5 billion, up 9.7 percent, up 9.6 percent at constant currency: - Hybrid Platform & Solutions up 10 percent       -- Red Hat up 14 percent       -- Automation up 13 percent       -- Data & AI up 5 percent       -- Security down 1 percent - Transaction Processing up 9 percent · Consulting - revenues of $5.2 billion, down 0.5 percent, down 0.2 percent at constant currency: - Business Transformation up 2 percent - Technology Consulting down 4 percent - Application Operations down 1 percent · Infrastructure - revenues of $3.0 billion, down 7.0 percent, down 6.7 percent at constant currency: - Hybrid Infrastructure down 9 percent       -- IBM Z down 19 percent       -- Distributed Infrastructure down 3 percent - Infrastructure Support down 4 percent, down 3 percent at constant currency · Financing - revenues of $0.2 billion, down 2.5 percent, down 1.3 percent at constant currency Cash Flow and Balance Sheet In the third quarter, the company generated net cash from operating activities of $2.9 billion, down $0.2 billion year to year. IBM's free cash flow was $2.1 billion, up $0.4 billion year to year. The company returned $1.5 billion to shareholders in dividends in the third quarter. For the first nine months of the year, the company generated net cash from operating activities of $9.1 billion, down $0.4 billion year to year. IBM's free cash flow was $6.6 billion, up $1.5 billion year to year. IBM ended the third quarter with $13.7 billion of cash, restricted cash and marketable securities, up $0.3 billion from year-end 2023. Debt, including IBM Financing debt of $10.4 billion, totaled $56.6 billion, flat year to date. Expectations · Revenue: The company expects fourth-quarter constant currency revenue growth consistent with the third quarter. At current foreign exchange rates, currency is expected to be about a half-point headwind to revenue growth in the quarter · Free cash flow: The company continues to expect more than $12 billion in free cash flow for the full year Forward-Looking and Cautionary Statements Except 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 Release For generative AI, book of business includes Software transactional revenue, SaaS Annual Contract Value and Consulting signings. The generative AI book of business is further defined within Exhibit 99.2 in the Form 8-K that includes this press release. In 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; · 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. Conference Call and Webcast IBM'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-3q24. 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                     sarah.meron@ibm.com                     Tim Davidson, 914-844-7847                     tfdavids@us.ibm.com [][][][] INTERNATIONAL BUSINESS MACHINES CORPORATION COMPARATIVE FINANCIAL RESULTS (Unaudited; Dollars in millions except per share amounts) Three Months Ended Nine Months Ended September 30, September 30, 2024 2023 [(1)] 2024 2023 [(1)] REVENUE BY SEGMENT Software $                   $ $                $ 6,524 5,947 19,162 17,832 Consulting 5,152 5,178 15,517 15,601 Infrastructure 3,042 3,272 9,764 9,988 Financing 181 186 543 566 Other 68 170 214 491 TOTAL REVENUE 14,968 14,752 45,199 44,479 GROSS PROFIT 8,420 8,023 25,112 24,033 GROSS PROFIT MARGIN Software 83.2 % 82.3 % 83.1 % 82.3 % Consulting 28.4 % 27.6 % 26.7 % 26.3 % Infrastructure 55.0 % 53.7 % 55.3 % 54.0 % Financing 47.2 % 49.7 % 48.2 % 47.5 % TOTAL GROSS PROFIT 56.3 % 54.4 % 55.6 % 54.0 % MARGIN EXPENSE AND OTHER INCOME S,G&A 4,911 4,458 14,823 14,212 R,D&E 1,876 1,685 5,512 5,027 Intellectual (238) (190) (696) (618) property and custom development income Other (income) and 2,244 (215) 1,694 (721) expense Interest expense 429 412 1,288 1,202 TOTAL EXPENSE AND 9,222 6,150 22,621 19,102 OTHER INCOME INCOME/(LOSS)  FROM (802) 1,873 2,491 4,931 CONTINUING OPERATIONS BEFORE INCOME TAXES Pre-tax margin (5.4) % 12.7 % 5.5 % 11.1 % Provision (485) 159 (597) 702 for/(Benefit from) income taxes Effective tax rate 60.4 % 8.5 % (24.0) % 14.2 % INCOME/(LOSS) FROM $                     $ $                   $ CONTINUING (317) 1,714 3,088 4,229 OPERATIONS DISCONTINUED OPERATIONS Income/ (loss) from (13) (10) 21 (15) discontinued operations, net of taxes NET INCOME/(LOSS) $                     $ $                   $ [(2)] (330) 1,704 3,109 4,214 EARNINGS/(LOSS) PER SHARE OF COMMON STOCK [(2)] Assuming Dilution Continuing $                    $ $                      $ Operations (0.34) 1.86 3.30 4.59 Discontinued $                    $ $                      $ Operations (0.01) (0.01) 0.02 (0.02) TOTAL $                    $ $                      $ (0.36) 1.84 3.32 4.58 Basic Continuing $                    $ $                      $ Operations (0.34) 1.88 3.36 4.65 Discontinued $                    $ $                      $ Operations (0.01) (0.01) 0.02 (0.02) TOTAL $                    $ $                      $ (0.36) 1.87 3.38 4.63 WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (M's) Assuming Dilution 923.6 923.7 935.4 920.3 Basic 923.6 912.8 920.3 910.1 ____________________ (1)  Recast to reflect January 2024 segment changes. (2)  2024 includes the impact of a one -time, non -cash, pension settlement charge of $2.7 billion ($2.0 billion net of tax). INTERNATIONAL BUSINESS MACHINES CORPORATION CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited) (Dollars in Millions) At At September 30, December 31, 2024 2023 ASSETS: Current Assets: Cash and cash $                    $ equivalents 13,197       13,068 Restricted cash 17 21 Marketable securities 505 373 Notes and accounts 5,390 7,214 receivable - trade, net Short-term financing 5,765 6,793 receivables, net Other accounts 928 640 receivable, net Inventories 1,367 1,161 Deferred costs 966 998 Prepaid expenses and 2,408 2,639 other current assets Total Current Assets 30,543 32,908 Property, plant and 5,614 5,501 equipment, net Operating right-of-use 3,355 3,220 assets, net Long-term financing 4,931 5,766 receivables, net Prepaid pension assets 7,975 7,506 Deferred costs 788 842 Deferred taxes 6,943 6,656 Goodwill 61,092 60,178 Intangibles, net 11,090 11,036 Investments and sundry 2,009 1,626 assets Total Assets $                  $ 134,339     135,241 LIABILITIES: Current Liabilities: Taxes $                      $ 1,584         2,270 Short-term debt 3,599 6,426 Accounts payable 3,274 4,132 Deferred income 12,882 13,451 Operating lease 790 820 liabilities Other liabilities 6,725 7,022 Total Current 28,853 34,122 Liabilities Long-term debt 52,980 50,121 Retirement-related 10,366 10,808 obligations Deferred income 3,666 3,533 Operating lease 2,757 2,568 liabilities Other liabilities 11,186 11,475 Total Liabilities 109,809 112,628 EQUITY: IBM Stockholders' Equity: Common stock 61,013 59,643 Retained earnings 149,789 151,276 Treasury stock - at (169,935) (169,624) cost Accumulated other (16,418) (18,761) comprehensive income/(loss) Total IBM 24,448 22,533 Stockholders' Equity Noncontrolling 82 80 interests Total Equity 24,530 22,613 Total Liabilities and $                  $ Equity 134,339     135,241 INTERNATIONAL BUSINESS MACHINES CORPORATION CASH FLOW ANALYSIS (Unaudited) Three Months Nine Months Ended Ended September September 30, 30, (Dollars in 2024 2023 2024 2023 Millions) Net Cash from $            $            $         $ Operations 2,881 3,055 9,115 9,468 per GAAP Less: change 873 1,092 1,824 3,119 in IBM Financing receivables Capital 55 (282) (705) (1,226) Expenditures, net Free Cash 2,064 1,682 6,586 5,123 Flow Acquisitions (2,513) (4,589) (2,748) (4,945) Divestitures 2 (10) 705 (4) Dividends (1,542) (1,515) (4,601) (4,522) Non-Financing (383) (942) 693 7,572 Debt Other 131 41 (379) (1,068) (includes IBM Financing net receivables and debt) Change in $          $          $              $ Cash, (2,241) (5,333) 257 2,156 Cash Equivalents, Restricted Cash and Short-term Marketable Securities [][][] INTERNATIONAL BUSINESS MACHINES CORPORATION CASH FLOW (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, (Dollars in 2024 2023 2024 2023 Millions) Net Income/(loss) $                       $ $                     $ from (330) 1,704 3,109 4,214 Operations Pension Settlement 2,725 - 2,725 - Charge Depreciation/Amortiza 1,268 1,093 3,555 3,243 tion of Intangibles [(1)] Stock-based 330 286 966 843 Compensation Operating assets and (1,984) (1,119) (3,063) (1,952) liabilities/Other, net [(2)] IBM Financing A/R 873 1,092 1,824 3,119 Net Cash Provided by $                     $ $                     $ Operating Activities 2,881 3,055 9,115  9,468 Capital 55 (282) (705) (1,226) Expenditures, net of payments & proceeds [(3)] Divestitures, net of 2 (10) 705 (4) cash transferred Acquisitions, net of (2,513) (4,589) (2,748) (4,945) cash acquired Marketable 869 2,927 (810) (3,732) Securities / Other Investments, net Net Cash Provided $                    $ $                  $ by/(Used (1,587)  (1,953)  (3,558) (9,906) in) Investing Activities Debt, net of (1,259) (1,550) (777) 4,619 payments & proceeds Dividends (1,542) (1,515) (4,601) (4,522) Financing - Other 35 (67) (26) (252) Net Cash Provided $                    $ $                  $ by/(Used (2,766)  (3,132)  (5,403) (154) in) Financing Activities Effect of Exchange 207 (119) (29) (120) Rate changes on Cash Net Change in Cash, $                    $                  $                   $ Cash (1,264)  (2,149)     125 (713) Equivalents and Restricted Cash ____________________ (1)  Includes operating lease right-of-use assets amortization. (2)  Includes a $0.7 billion tax effect associated with the one-time, non -cash pension settlement charge in the third-quarter 2024. (3)  2024 includes proceeds of $0.4 billion from the sale of certain QRadar SaaS assets. [][][][] INTERNATIONAL BUSINESS MACHINES CORPORATION GAAP NET INCOME TO ADJUSTED EBITDA RECONCILIATION (Unaudited) Three Nine Months Months Ended Ended September September 30, 30, (Dollars in 2024 2023 Yr/Yr 2024 2023 Yr/Yr Billions) Net Income/(Loss) as $         $           $ $           $           $ reported (0.3) 1.7 (2.0) 3.1 4.2 (1.1) (GAAP) [(1)] Less: Income/(loss) 0.0 0.0 0.0 0.0 0.0 0.0 from discontinued operations, net of tax Income/(Loss) from (0.3) 1.7 (2.0) 3.1 4.2 (1.1) continuing operations Provision (0.5) 0.2 (0.6) (0.6) 0.7 (1.3) for/(Benefit from) income taxes from continuing ops. Pre-tax (0.8) 1.9 (2.7) 2.5 4.9 (2.4) income/(loss) from continuing operations (GAAP) Non-operating adjustments (before tax) Acquisition-related 0.5 0.4 0.1 1.5 1.2 0.2 charges [(2)] Non-operating 2.8 0.0 2.8 3.0 0.0 3.0 retirement -related costs/(income) [(1)] Operating (non-GAAP) 2.5 2.3 0.2 6.9 6.1 0.8 pre-tax income/(loss) from continuing ops. Net interest expense 0.3 0.3 0.0 0.7 0.7 0.0 Depreciation/Amortiza 0.7 0.7 0.0 2.1 2.0 0.1 tion of non-acquired intangible assets Stock-based 0.3 0.3 0.0 1.0 0.8 0.1 compensation Workforce 0.3 0.0 0.3 0.7 0.4 0.3 rebalancing charges Corporate (gains) (0.4) 0.0 (0.3) (0.6) 0.0 (0.6) and charges [(3)] Adjusted EBITDA $           $           $ $        $        $ 3.8 3.5 0.2 10.8 10.1 0.8 ____________________ (1) 2024 includes the impact of a one-time, non-cash pension settlement charge of $2.7 billion ($2.0 billion net of tax). (2) Primarily consists of amortization of acquired intangible assets. (3) Corporate (gains) and charges primarily consists of unique corporate actions such as gains on divestitures and asset sales (e.g., certain QRadar SaaS assets). [][] INTERNATIO NAL BUSINESS MACHINES CORPORATI ON SEGMENT DATA (Unaudite d) Th ree Months Ended Se ptember 30, 2024 (Dollars in Software Consulting Infrastructure Financing Millions) Revenue $                       $   $                        $ 6,524 5,152 3,042 181 Segment Profit $ $                           $ $ 1,969 559 422 86 Segment Profit 30.2 % 10.9 % 13.9 % 47.5 % Margin Change YTY Revenue 9.7 % (0.5) % (7.0) % (2.5) % Change YTY Revenue - 9.6 % (0.2) % (6.7) % (1.3) % Constant Currency Th ree Months Ended Se ptember 30, 2023 [(1)] (Dollars in  Software Consulting Infrastructure Financing Millions) Revenue $                       $   $                        $ 5,947 5,178 3,272 186 Segment Profit $ $                           $ $ 1,722 566 490 91 Segment Profit 29.0 % 10.9 % 15.0 % 49.2 % Margin __________________ (1) Recast to reflect January 2024 segment changes. Ni ne Months Ended Se ptember 30, 2024 (Dollars in Software Consulting Infrastructure Financing Millions) Revenue $                    $   $                       $  19,162  15,517 9,764 543 Segment Profit $ $                       $ $ 5,582 1,447 1,387 254 Segment Profit 29.1 % 9.3 % 14.2 % 46.9 % Margin Change YTY Revenue 7.5 % (0.5) % (2.3) % (4.1) % Change YTY Revenue - 8.0 % 1.1 % (1.2) % (3.1) % Constant Currency Ni ne Months Ended Se ptember 30, 2023 [(1)] (Dollars in  Software Consulting Infrastructure Financing Millions) Revenue $                    $   $                       $  17,832  15,601 9,988 566 Segment Profit $ $                       $ $ 4,850 1,476 1,529 256 Segment Profit 27.2 % 9.5 % 15.3 % 45.2 % Margin ____________________ (1) Recast to reflect January 2024 segment changes. [][][][][][][] IN TERNATIONAL BUSINESS MACHIN ES CORPORATION U. S. GAAP TO OPERATING (Non -GAAP) RESULTS REC ONCILIATION (Unau dited; Dollars in milli ons except per sha re amounts) Three Months Ended September 30, 2024 Continuing Operations GAAP Acquisition- Retirement- Tax Operating Related Related Reform (Non-GAAP) Adjustments [(1)] Adjustments [(2)] Impacts Gross Profit $      $ $                                     $ $  8,420 192 - -  8,612 Gross Profit Margin 56.3 % 1.3 pts - pts - pts 57.5 % S,G&A $      $ $                                     $ $  4,911 (300) - -  4,611 Other (Income) & 2,244 - (2,797) - (553) Expense Total Expense & 9,222 (300) (2,797) - 6,125 Other (Income) Pre-tax (802) 492 2,797 - 2,487 Income/(Loss) from Continuing Operations Pre-tax Income (5.4) % 3.3 pts 18.7 pts - pts 16.6 % Margin from Continuing Operations Provision $        $                          $                                 $ $ for/(Benefit (485) 119 700  (2) 332 from) Income Taxes [(3)] Effective Tax Rate 60.4 % (7.2) pts (39.8) pts (0.1) pts 13.4 % Income/(Loss) from $        $                          $                            2,097 $                        $ Continuing (317) 373 2  2,155 Operations Income Margin from (2.1) % 2.5 pts 14.0 pts 0.0 pts 14.4 % Continuing Operations Diluted $      $ $                                $                   0.00 $ Earnings/(Loss)  (0.34)  0.40  2.27  2.30 Per Share: Continuing Operations [(4)] Three Months Ended September 30, 2023 Continuing Operations GAAP Acquisition- Retirement- Tax Operating Related Related Reform (Non-GAAP) Adjustments [(1)] Adjustments [(2)] Impacts Gross Profit $      $                          $                                 $                      $  8,023 162  -  -  8,185 Gross Profit Margin 54.4 % 1.1 pts - pts - pts 55.5 % S,G&A $      $                        $                                 $                      $  4,458 (277)  -  -  4,181 Other (Income) & (215) 0 12 - (203) Expense Total Expense & 6,150 (277) 12 - 5,885 Other (Income) Pre-tax 1,873 438 (12) - 2,299 Income/(Loss) from Continuing Operations Pre-tax Income 12.7 % 3.0 pts (0.1) pts - pts 15.6 % Margin from Continuing Operations Provision $          $                            $                                 $                      $ for/(Benefit 159 99  (14) 24 268 from) Income Taxes [(3)] Effective Tax Rate 8.5 % 2.7 pts (0.5) pts 1.0 pts 11.7 % Income/(Loss) from $      $                          $                                 $                    $ Continuing  1,714 340   1  (24)  2,031 Operations Income Margin from 11.6 % 2.3 pts 0.0 pts (0.2) pts 13.8 % Continuing Operations Diluted $         $ $                                $                  $ Earnings/(Loss) 1.86  0.37  0.00 (0.03)  2.20 Per Share: Continuing Operations ____________________ (1)    Includes amortization of purchased intangible assets, in process R&D, transaction costs, applicable restructuring and related expenses, tax charges related to acquisition integration and pre-closing charges, such as financing costs. (2)    Includes amortization of prior service costs, interest cost, expected return on plan assets, amortized actuarial gains/losses, the impacts of any plan curtailments/settleme nts and pension insolvency costs and other costs. 2024 also includes the impact of a one -time, non-cash, pre-tax pension settlement charge of  $2.7 billion ($2.0 billion net of tax). (3)    Tax impact on operating (non-GAAP) pre -tax income from continuing operations is calculated under the same accounting principles applied to the As Reported pre -tax income under ASC 740, which employs an annual effective tax rate method to the results. (4)   Operating (non -GAAP) earnings per share was calculated using 938.4 million shares, which includes 14.9 million dilutive potential shares under our stock-based compensation plans and contingently issuable shares. Due to the GAAP net loss for the three months ended September 30, 2024, these dilutive potential shares were excluded from the GAAP loss per share calculation as the effect would have been antidilutive. The difference in share count resulted in an additional $(0.04) reconciling item. [][][][][][][] INTERNATIO NAL BUSINESS MACHINES CORPORATION U.S. GAAP TO OPERATING (Non-GAAP) RESUL TS RECONCILIATION (Unaudited ; Dollars in millions except per share amounts) Nine Months Ended September 30, 2024 Continuing Operations GAAP Acquisition- Retirement- Tax Operating Related Related Reform (Non-GAAP) Adjustments [(1)] Adjustments [(2)] Impacts [(3)] Gross Profit $    $ $                                  $                   $  25,112 533 - -  25,645 Gross Profit Margin 55.6 % 1.2 pts - pts - pts 56.7 % S,G&A $    $ $                                  $                   $  14,823  (854) - -  13,969 Other (Income) & Expense 1,694 (68) (2,991) - (1,364) Total Expense & Other (Income) 22,621 (922) (2,991) - 18,709 Pre-tax Income/(Loss) from 2,491 1,454 2,991 - 6,936 Continuing Operations Pre-tax Income Margin from 5.5 % 3.2 pts 6.6 pts - pts 15.3 % Continuing Operations Provision for/(Benefit from) $        $ $                              $ $ Income Taxes [(4)] (597) 374  731 434 942 Effective Tax Rate (24.0) % 10.4 pts 20.9 pts 6.3 pts 13.6 % Income/(Loss) from Continuing $      $ $                            2,259 $              $ Operations 3,088 1,081  (434)  5,994 Income Margin from Continuing 6.8 % 2.4 pts 5.0 pts (1.0) pts 13.3 % Operations Diluted Earnings/(Loss) Per $        $ $                              $              $ Share: Continuing 3.30 1.16 2.42 (0.46)  6.41 Operations Nine Months Ended September 30, 2023 Continuing Operations GAAP Acquisition- Retirement- Tax Operating Related Related Reform (Non-GAAP) Adjustments [(1)] Adjustments [(2)] Impacts Gross Profit $    $ $                                  $                   $  24,033 460 - -  24,492 Gross Profit Margin 54.0 % 1.0 pts - pts - pts 55.1 % S,G&A $    $ $                                  $                  $  14,212  (768) -  -  13,444 Other (Income) & Expense (721) (2) 16 - (707) Total Expense & Other (Income) 19,102 (770) 16 - 18,348 Pre-tax Income from Continuing 4,931 1,229 (16) - 6,144 Operations Pre-tax Income Margin from 11.1 % 2.8 pts 0.0 pts - pts 13.8 % Continuing Operations Provision for/(Benefit from) $          $ $                                $                $ Income Taxes [(4)] 702 277 (27)  (91) 861 Effective Tax Rate 14.2 % 1.7 pts (0.4) pts (1.5) pts 14.0 % Income from Continuing Operations $      $ $                                  $                  $  4,229 953 11 91  5,283 Income Margin from Continuing 9.5 % 2.1 pts 0.0 pts 0.2 pts 11.9 % Operations Diluted Earnings Per Share: $         $ $                              $              $ Continuing 4.59 1.04 0.01  0.10  5.74 Operations ____________________ (1)    Includes amortization of purchased intangible assets, in process R&D, transaction costs, applicable restructuring and related expenses, tax charges related to acquisition integration and pre-closing charges, such as financing costs. 2024 also includes a loss of $68 million on foreign exchange derivative contracts entered into by the company prior to the acquisition of StreamSets and webMethods from Software AG. (2)    Includes 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. 2024 also includes the impact of a one-time, non -cash, pre-tax pension settlement charge of  $2.7 billion ($2.0 billion net of tax). (3)   2024 includes a net benefit from discrete tax events. (4)   Tax impact on operating (non-GAAP) pre-tax income from continuing operations is calculated under the same accounting principles applied to the As Reported pre-tax income under ASC 740, which employs an annual effective tax rate method to the results. [] INTERNATIONAL BUSINESS MACHINES CORPORATION GAAP OPERATING CASH FLOW TO ADJUSTED EBITDA RECONCILIATION (Unaudited) Three Nine Months Months Ended Ended September September 30, 30, (Dollars in Billions) 2024 2023 2024 2023 Net Cash Provided by $           $             $ $ Operating 2.9 3.1 9.1 9.5 Activities Add: Net interest expense 0.3 0.3 0.7 0.7 Provision (0.5) 0.2 (0.6) 0.7 for/(Benefit from) income taxes from continuing operations Less change in: Financing receivables 0.9 1.1 1.8 3.1 Other assets and (2.0) (1.2) (3.5) (2.3) liabilities/other, net [(1)] Adjusted EBITDA $           $             $ $ 3.8 3.5 10.8 10.1 ____________________ (1)    Other assets and liabilities/other, net mainly consists of operating assets and liabilities/Other, net in the Cash Flow chart, workforce  rebalancing charges, non -operating impacts and corporate (gains) and charges. SOURCE: IBM This information was brought to you by Cision http://news.cision.com

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