IBM RELEASES FOURTH-QUARTER RESULTS
Strong, broad-based performance, led by double-digit Software and Infrastructure growth; Double-digit growth in full-year profit and free cash flow
ARMONK, N.Y., January 28, 2026 . . . IBM (NYSE: IBM) today announced fourth-quarter 2025 earnings results.
“In the fourth quarter, we delivered strong revenue growth, with double-digit Software performance. Additionally, Infrastructure continued its double-digit revenue growth with the robust adoption of the next generation of our mainframe platform. Our generative AI book of business now stands at more than $12.5 billion. This capped a strong 2025 for IBM where we exceeded expectations for revenue, profit and free cash flow," said Arvind Krishna, IBM chairman, president and chief executive officer. "We enter 2026 with momentum and in a position of strength, giving us confidence in our full-year expectations of more than 5 percent constant currency revenue growth and an increase of about $1 billion in year-over-year free cash flow.”
Fourth-Quarter Highlights
•Revenue
–Revenue of $19.7 billion, up 12 percent, up 9 percent at constant currency
–Software revenue up 14 percent, up 11 percent at constant currency
–Consulting revenue up 3 percent, up 1 percent at constant currency
–Infrastructure revenue up 21 percent, up 17 percent at constant currency
•Profit
–Gross Profit Margin: GAAP: 60.6 percent, up 110 basis points; Operating (Non-GAAP): 61.8 percent, up 120 basis points
Full-Year Highlights
•Revenue
–Revenue of $67.5 billion, up 8 percent, up 6 percent at constant currency
–Software revenue up 11 percent, up 9 percent at constant currency
–Consulting revenue up 2 percent, flat at constant currency
–Infrastructure revenue up 12 percent, up 10 percent at constant currency
•Profit
–Gross Profit Margin: GAAP: 58.2 percent, up 150 basis points; Operating (Non-GAAP): 59.5 percent, up 170 basis points
•Cash Flow
–Net cash from operating activities of $13.2 billion; free cash flow of $14.7 billion
Full-Year 2026 Expectations
•Revenue: The company expects full-year constant currency revenue growth of more than 5 percent. At current foreign exchange rates, currency is expected to be about a half-point tailwind to growth for the year
•Free cash flow: The company expects full-year free cash flow to increase by about $1 billion year-over-year
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| FOURTH-QUARTER 2025 INCOME STATEMENT SUMMARY | |
| | |
| Revenue | | Gross
Profit | | | Gross Profit Margin | | | Pre-tax
Income | | Pre-tax
Income
Margin | | Net
Income | | Diluted
Earnings
Per Share |
| GAAP from Continuing Operations | $ | 19.7B | | | $ | 11.9B | | | 60.6 | % | | $ | 4.1B | | | 21.0 | % | | $ | 5.6B | (2) | | $ | 5.86 | (2) |
| Year/Year | 12 | %(1) | | 14 | % | | 1.1 | Pts | | 25 | %(3) | | 2.2 | Pts(3) | | 91 | %(2,3) | | 88 | %(2,3) |
Operating
(Non-GAAP) | | | | $ | 12.2B | | | 61.8 | % | | $ | 4.7B | | | 24.1 | % | | $ | 4.3B | | | $ | 4.52 | |
| Year/Year | | | | 14 | % | | 1.2 | Pts | | 11 | % | | (0.2) | Pts | | 17 | % | | 15 | % |
(1) 9% at constant currency.
(2) 2025 GAAP results include a benefit from income taxes primarily driven by the resolution of certain tax audit matters.
(3) GAAP YTY results include the impact of a pension settlement charge in fourth-quarter 2024.
“2025 put IBM's durability, resilience and differentiation on display. Our portfolio mix, integrated value and rapid innovation drove higher revenue growth and double-digit profit and free cash flow growth," said James Kavanaugh, IBM senior vice president and chief financial officer. "We are excited about our prospects for 2026 as our disciplined execution and unwavering focus on productivity will continue to enable us to invest in the future while returning value to shareholders.”
Segment Results for Fourth Quarter
•Software — revenues of $9.0 billion, up 14 percent, up 11 percent at constant currency:
–Hybrid Cloud (Red Hat) up 10 percent, up 8 percent at constant currency
–Automation up 18 percent, up 14 percent at constant currency
–Data up 22 percent, up 19 percent at constant currency
–Transaction Processing up 8 percent, up 4 percent at constant currency
•Consulting — revenues of $5.3 billion, up 3 percent, up 1 percent at constant currency:
–Strategy & Technology up 2 percent, flat at constant currency
–Intelligent Operations up 5 percent, up 3 percent at constant currency
•Infrastructure — revenues of $5.1 billion, up 21 percent, up 17 percent at constant currency:
–Hybrid Infrastructure up 29 percent, up 24 percent at constant currency
•IBM Z up 67 percent, up 61 percent at constant currency
•Distributed Infrastructure up 3 percent, flat at constant currency
–Infrastructure Support up 1 percent, down 2 percent at constant currency
•Financing — revenues of $0.2 billion, up 5 percent, up 2 percent at constant currency
Cash Flow and Balance Sheet
In the fourth quarter, the company generated net cash from operating activities of $4.0 billion, down $0.3 billion year to year. Net cash from operating activities excluding IBM financing receivables was $8.1 billion, up $1.5 billion. IBM’s free cash flow was $7.6 billion, up $1.4 billion year to year. The company returned $1.6 billion to shareholders in dividends in the fourth quarter.
For the year, the company generated net cash from operating activities of $13.2 billion, down $0.3 billion year to year. Net cash from operating activities excluding IBM financing receivables was $16.4 billion, up $2.5 billion. IBM's free cash flow was $14.7 billion, up $2.0 billion year to year.
IBM ended the fourth quarter with $14.5 billion of cash, restricted cash and marketable securities, down $0.3 billion from year-end 2024. Debt, including IBM Financing debt of $15.1 billion, totaled $61.3 billion, up $6.3 billion since year-end 2024.
Full-Year 2025 Results
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| FULL-YEAR 2025 INCOME STATEMENT SUMMARY | | |
| | |
| Revenue | | Gross
Profit | | | Gross Profit Margin | | | Pre-tax
Income | | Pre-tax
Income
Margin | | Net
Income | | Diluted
Earnings
Per Share |
| GAAP from Continuing Operations | $ | 67.5B | | | $ | 39.3B | | | 58.2 | % | | $ | 10.3B | | | 15.3 | % | | $ | 10.6B | (2) | | $ | 11.14 | (2) |
| Year/Year | 8 | %(1) | | 11 | % | | 1.5 | Pts | | 78 | %(3) | | 6.1 | Pts(3) | | 76 | %(2,3) | | 74 | %(2,3) |
Operating
(Non-GAAP) | | | | $ | 40.2B | | | 59.5 | % | | $ | 12.7B | | | 18.8 | % | | $ | 11.0B | | | $ | 11.59 | |
| Year/Year | | | | 11 | % | | 1.7 | Pts | | 13 | % | | 1.0 | Pts | | 14 | % | | 12 | % |
(1) 6% at constant currency
(2) 2025 GAAP results include a benefit from income taxes primarily driven by the resolution of certain tax audit matters.
(3) GAAP YTY results include the impacts of pension settlement charges in the third and fourth quarters of 2024.
Dividend Declaration
The IBM board of directors approved a regular quarterly cash dividend of $1.68 per common share, to stockholders of record on February 10, 2026. With payment of the March 10, 2026 dividend, IBM will have paid consecutive quarterly dividends every year since 1916.
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 divestitures, including integration challenges, failure to achieve objectives, the assumption or retention 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 and service quality issues; the development and use of AI and generative AI, including the company's increased offerings and use of AI-based technologies; impacts of business with government clients; reliance on third party distribution channels and ecosystems; cybersecurity, privacy, and AI considerations; adverse effects related to climate change and other 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; 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.
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 inception to date Software transactional revenue, plus new SaaS Annual Contract Value and Consulting signings related to specific offerings. 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;
•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.
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-4q25. 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).
INTERNATIONAL BUSINESS MACHINES CORPORATION
COMPARATIVE FINANCIAL RESULTS
(Unaudited; Dollars in millions except per share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
December 31, | | | Year Ended
December 31, | |
| 2025 | | | 2024 | | | 2025 | | | 2024 | |
| REVENUE BY SEGMENT | | | | | | | | | | | |
| Software | $ | 9,031 | | | | $ | 7,924 | | | | $ | 29,962 | | | | $ | 27,085 | | |
| Consulting | 5,349 | | | | 5,175 | | | | 21,055 | | | | 20,692 | | |
| Infrastructure | 5,132 | | | | 4,256 | | | | 15,718 | | | | 14,020 | | |
| Financing | 179 | | | | 170 | | | | 737 | | | | 713 | | |
| Other | (5) | | | | 29 | | | | 63 | | | | 243 | | |
| TOTAL REVENUE | 19,686 | | | | 17,553 | | | | 67,535 | | | | 62,753 | | |
| | | | | | | | | | | |
| GROSS PROFIT | 11,928 | | | | 10,439 | | | | 39,297 | | | | 35,551 | | |
| | | | | | | | | | | |
| GROSS PROFIT MARGIN | | | | | | | | | | | |
| Software | 83.4 | | % | | 85.0 | | % | | 83.5 | | % | | 83.7 | | % |
| Consulting | 28.4 | | % | | 28.0 | | % | | 28.1 | | % | | 27.0 | | % |
| Infrastructure | 60.6 | | % | | 56.9 | | % | | 58.6 | | % | | 55.8 | | % |
| Financing | 44.1 | | % | | 46.9 | | % | | 45.3 | | % | | 47.9 | | % |
| | | | | | | | | | | |
| TOTAL GROSS PROFIT MARGIN | 60.6 | | % | | 59.5 | | % | | 58.2 | | % | | 56.7 | | % |
| | | | | | | | | | | |
| EXPENSE AND OTHER INCOME | | | | | | | | | | | |
| SG&A | 5,462 | | | | 4,866 | | | | 20,123 | | | | 19,688 | | |
| R&D | 2,187 | | | | 1,967 | | | | 8,316 | | | | 7,479 | | |
| Intellectual property and custom development income | (277) | | | | (301) | | | | (964) | | | | (996) | | |
Other (income) and expense (1) | (66) | | | | 177 | | | | (442) | | | | 1,871 | | |
| Interest expense | 478 | | | | 424 | | | | 1,935 | | | | 1,712 | | |
| TOTAL EXPENSE AND OTHER INCOME | 7,784 | | | | 7,133 | | | | 28,968 | | | | 29,754 | | |
| | | | | | | | | | | |
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES | 4,144 | | | | 3,306 | | | | 10,328 | | | | 5,797 | | |
| Pre-tax margin | 21.0 | | % | | 18.8 | | % | | 15.3 | | % | | 9.2 | | % |
Provision for/(Benefit from) income taxes (1) | (1,435) | | | | 379 | | | | (242) | | | | (218) | | |
| Effective tax rate | (34.6) | | % | | 11.5 | | % | | (2.3) | | % | | (3.8) | | % |
| | | | | | | | | | | |
| INCOME FROM CONTINUING OPERATIONS | $ | 5,579 | | | | $ | 2,927 | | | | $ | 10,571 | | | | $ | 6,015 | | |
| | | | | | | | | | | |
| DISCONTINUED OPERATIONS | | | | | | | | | | | |
| Income/ (loss) from discontinued operations, net of taxes | 21 | | | | (12) | | | | 22 | | | | 8 | | |
| | | | | | | | | | | |
NET INCOME (1) | $ | 5,600 | | | | $ | 2,915 | | | | $ | 10,593 | | | | $ | 6,023 | | |
| | | | | | | | | | | |
EARNINGS PER SHARE OF COMMON STOCK (1) | | | | | | | | | | | |
| Assuming Dilution | | | | | | | | | | | |
| Continuing Operations | $ | 5.86 | | | | $ | 3.11 | | | | $ | 11.14 | | | | $ | 6.42 | | |
| Discontinued Operations | $ | 0.02 | | | | $ | (0.01) | | | | $ | 0.02 | | | | $ | 0.01 | | |
| TOTAL | $ | 5.88 | | | | $ | 3.09 | | | | $ | 11.17 | | | | $ | 6.43 | | |
| | | | | | | | | | | |
| Basic | | | | | | | | | | | |
| Continuing Operations | $ | 5.96 | | | | $ | 3.16 | | | | $ | 11.34 | | | | $ | 6.53 | | |
| Discontinued Operations | $ | 0.02 | | | | $ | (0.01) | | | | $ | 0.02 | | | | $ | 0.01 | | |
| TOTAL | $ | 5.98 | | | | $ | 3.15 | | | | $ | 11.36 | | | | $ | 6.53 | | |
| | | | | | | | | | | |
| WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (M’s) | | | | | | | | | | | |
| Assuming Dilution | 952.4 | | | 942.4 | | | 948.7 | | | 937.2 | |
| Basic | 936.5 | | | 926.0 | | | 932.3 | | | 921.8 | |
(1)2025 results include a benefit from income taxes primarily driven by the resolution of certain tax audit matters, and 2024 results include the impacts of pension settlement charges in the third quarter of $2.7 billion ($2.0 billion net of tax) and fourth quarter of $0.4 billion.
INTERNATIONAL BUSINESS MACHINES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
| | | | | | | | | | | | | | |
| (Dollars in Millions) | | At December 31,
2025 | | At December 31,
2024 |
| ASSETS: | | | | |
| Current Assets: | | | | |
| Cash and cash equivalents | | $ | 13,587 | | | $ | 13,947 | |
| Restricted cash | | 54 | | | 214 | |
| Marketable securities | | 830 | | | 644 | |
| Notes and accounts receivable - trade, net | | 8,112 | | | 6,804 | |
| Short-term financing receivables, net | | | | |
| Held for investment, net | | 7,344 | | | 6,259 | |
| Held for sale | | 1,131 | | | 900 | |
| Other accounts receivable, net | | 1,052 | | | 947 | |
| Inventories | | 1,220 | | | 1,289 | |
| Deferred costs | | 1,084 | | | 959 | |
| Prepaid expenses and other current assets | | 2,530 | | | 2,520 | |
| Total Current Assets | | 36,944 | | | 34,482 | |
| | | | |
| Property, plant and equipment, net | | 5,899 | | | 5,731 | |
| Operating right-of-use assets, net | | 3,129 | | | 3,197 | |
| Long-term financing receivables, net | | 7,708 | | | 5,353 | |
| Prepaid pension assets | | 7,544 | | | 7,492 | |
| Deferred costs | | 825 | | | 788 | |
| Deferred taxes | | 8,610 | | | 6,978 | |
| Goodwill | | 67,717 | | | 60,706 | |
| Intangibles, net | | 11,391 | | | 10,660 | |
| Investments and sundry assets | | 2,112 | | | 1,787 | |
| Total Assets | | $ | 151,880 | | | $ | 137,175 | |
| | | | |
| LIABILITIES: | | | | |
| Current Liabilities: | | | | |
| Taxes | | $ | 2,347 | | | $ | 2,033 | |
| Short-term debt | | 6,424 | | | 5,089 | |
| Accounts payable | | 4,756 | | | 4,032 | |
| Compensation and benefits | | 4,114 | | | 3,605 | |
| Deferred income | | 16,101 | | | 13,907 | |
| Operating lease liabilities | | 800 | | | 768 | |
| Other accrued expense and liabilities | | 4,116 | | | 3,709 | |
| Total Current Liabilities | | 38,658 | | | 33,142 | |
| | | | |
| Long-term debt | | 54,836 | | | 49,884 | |
| Retirement-related obligations | | 9,018 | | | 9,432 | |
| Deferred income | | 4,271 | | | 3,622 | |
| Operating lease liabilities | | 2,547 | | | 2,655 | |
| Other liabilities | | 9,810 | | | 11,048 | |
| Total Liabilities | | 119,139 | | | 109,783 | |
| | | | |
| EQUITY: | | | | |
| IBM Stockholders’ Equity: | | | | |
| Common stock | | 63,318 | | | 61,380 | |
| Retained earnings | | 155,648 | | | 151,163 | |
| Treasury stock - at cost | | (170,605) | | | (169,968) | |
| Accumulated other comprehensive income/(loss) | | (15,713) | | | (15,269) | |
| Total IBM Stockholders’ Equity | | 32,648 | | | 27,307 | |
| | | | |
| Noncontrolling interests | | 93 | | | 86 | |
| Total Equity | | 32,740 | | | 27,393 | |
| | | | |
| Total Liabilities and Equity | | $ | 151,880 | | | $ | 137,175 | |
INTERNATIONAL BUSINESS MACHINES CORPORATION
CASH FLOW
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
December 31, | | Year Ended
December 31, |
| (Dollars in Millions) | | 2025 | | 2024 | | 2025 | | 2024 |
| Net Income from Operations | | $ | 5,600 | | | $ | 2,915 | | | $ | 10,593 | | | $ | 6,023 | |
| Pension Settlement Charges | | - | | | 388 | | | - | | | 3,113 | |
Depreciation/Amortization of Intangibles (1) | | 1,297 | | | 1,112 | | | 5,021 | | | 4,667 | |
| Stock-based Compensation | | 430 | | | 345 | | | 1,715 | | | 1,311 | |
Operating assets and liabilities/Other, net (2) | | 777 | | | 1,824 | | | (978) | | | (1,238) | |
| IBM Financing A/R | | (4,063) | | | (2,255) | | | (3,159) | | | (431) | |
| Net Cash Provided by Operating Activities | | $ | 4,040 | | | $ | 4,330 | | | $ | 13,193 | | | $ | 13,445 | |
| | | | | | | | |
| Capital Expenditures, net of payments & proceeds | | (550) | | | (422) | | | (1,617) | | | (1,127) | |
| Divestitures, net of cash transferred | | - | | | (7) | | | (1) | | | 698 | |
| Acquisitions, net of cash acquired | | (391) | | | (541) | | | (8,294) | | | (3,289) | |
| Marketable Securities / Other Investments, net | | 2,358 | | | (409) | | | (390) | | | (1,218) | |
| Net Cash Provided by/(Used in) Investing Activities | | $ | 1,417 | | | $ | (1,379) | | | $ | (10,302) | | | $ | (4,937) | |
| | | | | | | | |
| Debt, net of payments & proceeds | | (1,810) | | | (103) | | | 2,873 | | | (880) | |
| Dividends | | (1,573) | | | (1,546) | | | (6,255) | | | (6,147) | |
| Financing - Other | | (23) | | | (26) | | | (447) | | | (52) | |
| Net Cash Provided by/(Used in) Financing Activities | | $ | (3,406) | | | $ | (1,675) | | | $ | (3,829) | | | $ | (7,079) | |
| | | | | | | | |
| Effect of Exchange Rate changes on Cash | | (10) | | | (330) | | | 418 | | | (359) | |
| Net Change in Cash, Cash Equivalents and Restricted Cash | | $ | 2,041 | | | $ | 946 | | | $ | (520) | | | $ | 1,071 | |
(1) Includes operating lease right-of-use assets amortization.
(2) 2025 includes a benefit from income taxes primarily driven by the resolution of certain tax audit matters, and the year ended December 31, 2024 includes a $0.7 billion tax effect associated with a pension settlement charge in the third-quarter.
INTERNATIONAL BUSINESS MACHINES CORPORATION
GAAP NET INCOME TO ADJUSTED EBITDA RECONCILIATION
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
December 31, | | Year Ended
December 31, |
| (Dollars in Billions) | | 2025 | | 2024 | | Yr/Yr | | 2025 | | 2024 | | Yr/Yr |
Net Income as reported (GAAP) (1) | | $ | 5.6 | | | $ | 2.9 | | | $ | 2.7 | | | $ | 10.6 | | | $ | 6.0 | | | $ | 4.6 | |
| Less: Income/(loss) from discontinued operations, net of tax | | 0.0 | | | 0.0 | | | 0.0 | | | 0.0 | | | 0.0 | | | 0.0 | |
| Income from continuing operations | | 5.6 | | | 2.9 | | | 2.7 | | | 10.6 | | | 6.0 | | | 4.6 | |
Provision for/(Benefit from) income taxes from continuing ops. (1) | | (1.4) | | | 0.4 | | | (1.8) | | | (0.2) | | | (0.2) | | | 0.0 | |
| Pre-tax income from continuing operations (GAAP) | | 4.1 | | | 3.3 | | | 0.8 | | | 10.3 | | | 5.8 | | | 4.5 | |
| Non-operating adjustments (before tax) | | | | | | | | | | | | |
Acquisition-related charges (2) | | 0.6 | | | 0.5 | | | 0.1 | | | 2.3 | | | 2.0 | | | 0.4 | |
Non-operating retirement-related costs/(income) (1) | | 0.0 | | | 0.5 | | | (0.5) | | | 0.1 | | | 3.5 | | | (3.4) | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Operating (non-GAAP) pre-tax income from continuing ops. | | 4.7 | | | 4.3 | | | 0.5 | | | 12.7 | | | 11.2 | | | 1.5 | |
| | | | | | | | | | | | |
| Net interest expense | | 0.3 | | | 0.3 | | | 0.1 | | | 1.3 | | | 1.0 | | | 0.3 | |
| Depreciation/Amortization of non-acquired intangible assets | | 0.7 | | | 0.7 | | | 0.0 | | | 2.9 | | | 2.8 | | | 0.0 | |
| Stock-based compensation | | 0.4 | | | 0.3 | | | 0.1 | | | 1.7 | | | 1.3 | | | 0.4 | |
| Workforce rebalancing charges | | 0.3 | | | 0.0 | | | 0.3 | | | 0.7 | | | 0.7 | | | 0.0 | |
Corporate (gains) and charges (3) | | 0.0 | | | 0.0 | | | 0.0 | | | 0.0 | | | (0.6) | | | 0.6 | |
| | | | | | | | | | | | |
| Adjusted EBITDA | | $ | 6.5 | | | $ | 5.6 | | | $ | 1.0 | | | $ | 19.2 | | | $ | 16.4 | | | $ | 2.8 | |
(1)2025 includes a benefit from income taxes primarily driven by the resolution of certain tax audit matters, and 2024 includes the impacts of pension settlement charges in the third quarter of $2.7 billion ($2.0 billion net of tax) and fourth quarter of $0.4 billion.
(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 in 2024).
INTERNATIONAL BUSINESS MACHINES CORPORATION
SEGMENT DATA
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended December 31, 2025 | |
| | | | | | | | | | | | |
| (Dollars in Millions) | | Software | | | Consulting | | | Infrastructure | | | Financing | |
| Revenue | | $ | 9,031 | | | | $ | 5,349 | | | | $ | 5,132 | | | | $ | 179 | | |
| Segment Profit | | $ | 3,403 | | | | $ | 658 | | | | $ | 1,601 | | | | $ | 150 | | |
| Segment Profit Margin | | 37.7 | | % | | 12.3 | | % | | 31.2 | | % | | 83.5 | | % |
| Change YTY Revenue | | 14.0 | | % | | 3.4 | | % | | 20.6 | | % | | 5.3 | | % |
| Change YTY Revenue - Constant Currency | | 10.7 | | % | | 1.0 | | % | | 16.6 | | % | | 2.4 | | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended December 31, 2024 | |
| | | | | | | | | | | | |
| (Dollars in Millions) | | Software | | | Consulting | | | Infrastructure | | | Financing | |
| Revenue | | $ | 7,924 | | | | $ | 5,175 | | | | $ | 4,256 | | | | $ | 170 | | |
| Segment Profit | | $ | 3,102 | | | | $ | 606 | | | | $ | 1,063 | | | | $ | 94 | | |
| Segment Profit Margin | | 39.2 | | % | | 11.7 | | % | | 25.0 | | % | | 55.0 | | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2025 | |
| | | | | | | | | | | | |
| (Dollars in Millions) | | Software | | | Consulting | | | Infrastructure | | | Financing | |
| Revenue | | $ | 29,962 | | | | $ | 21,055 | | | | $ | 15,718 | | | | $ | 737 | | |
| Segment Profit | | $ | 9,920 | | | | $ | 2,464 | | | | $ | 3,458 | | | | $ | 521 | | |
| Segment Profit Margin | | 33.1 | | % | | 11.7 | | % | | 22.0 | | % | | 70.7 | | % |
| Change YTY Revenue | | 10.6 | | % | | 1.8 | | % | | 12.1 | | % | | 3.3 | | % |
| Change YTY Revenue - Constant Currency | | 9.1 | | % | | 0.4 | | % | | 10.4 | | % | | 2.5 | | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2024 | |
| | | | | | | | | | | | |
| (Dollars in Millions) | | Software | | | Consulting | | | Infrastructure | | | Financing | |
| Revenue | | $ | 27,085 | | | | $ | 20,692 | | | | $ | 14,020 | | | | $ | 713 | | |
| Segment Profit | | $ | 8,684 | | | | $ | 2,054 | | | | $ | 2,450 | | | | $ | 348 | | |
| Segment Profit Margin | | 32.1 | | % | | 9.9 | | % | | 17.5 | | % | | 48.8 | | % |
INTERNATIONAL BUSINESS MACHINES CORPORATION
U.S. GAAP TO OPERATING (Non-GAAP) RESULTS RECONCILIATION
(Unaudited; Dollars in millions except per share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended December 31, 2025 | |
| Continuing Operations | |
| GAAP | | | Acquisition- Related Adjustments (1) | | | Retirement- Related Adjustments (2) | | | Tax Reform Impacts (3) | | | | | | Operating
(Non-GAAP) | |
| Gross Profit | $ | 11,928 | | | | $ | 231 | | | | $ | — | | | | $ | — | | | | | | | $ | 12,159 | | |
| Gross Profit Margin | 60.6 | | % | | 1.2 | | pts | | — | | pts | | — | | pts | | | | | 61.8 | | % |
| SG&A | $ | 5,462 | | | | $ | (362) | | | | $ | — | | | | $ | — | | | | | | | $ | 5,100 | | |
| | | | | | | | | | | | | | | | | |
| Other (Income) & Expense | (66) | | | | (5) | | | | (4) | | | | — | | | | | | | (74) | | |
| | | | | | | | | | | | | | | | | |
| Total Expense & Other (Income) | 7,784 | | | | (366) | | | | (4) | | | | — | | | | | | | 7,414 | | |
| Pre-tax Income from Continuing Operations | 4,144 | | | | 597 | | | | 4 | | | | — | | | | | | | 4,745 | | |
| Pre-tax Income Margin from Continuing Operations | 21.0 | | % | | 3.0 | | pts | | 0.0 | | pts | | — | | pts | | | | | 24.1 | | % |
Provision for/(Benefit from) Income Taxes (3,4) | $ | (1,435) | | | | $ | 390 | | | | $ | 15 | | | | $ | 1,468 | | | | | | | $ | 438 | | |
| Effective Tax Rate | (34.6) | | % | | 12.6 | | pts | | 0.4 | | pts | | 30.9 | | pts | | | | | 9.2 | | % |
| Income from Continuing Operations | $ | 5,579 | | | | $ | 208 | | | | $ | (11) | | | | $ | (1,468) | | | | | | | $ | 4,307 | | |
| Income Margin from Continuing Operations | 28.3 | | % | | 1.1 | | pts | | (0.1) | | pts | | (7.5) | | pts | | | | | 21.9 | | % |
| Diluted Earnings Per Share: Continuing Operations | $ | 5.86 | | | | $ | 0.22 | | | | $ | (0.01) | | | | $ | (1.54) | | | | | | | $ | 4.52 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended December 31, 2024 | |
| Continuing Operations | |
| GAAP | | | Acquisition- Related Adjustments (1) | | | Retirement- Related Adjustments (2) | | | Tax
Reform
Impacts | | | | | | Operating
(Non-GAAP) | |
| Gross Profit | $ | 10,439 | | | | $ | 191 | | | | $ | — | | | | $ | — | | | | | | | $ | 10,630 | | |
| Gross Profit Margin | 59.5 | | % | | 1.1 | | pts | | — | | pts | | — | | pts | | | | | 60.6 | | % |
| SG&A | $ | 4,866 | | | | $ | (305) | | | | $ | — | | | | $ | — | | | | | | | $ | 4,561 | | |
| | | | | | | | | | | | | | | | | |
| Other (Income) & Expense | 177 | | | | (2) | | | | (467) | | | | — | | | | | | | (291) | | |
| | | | | | | | | | | | | | | | | |
| Total Expense & Other (Income) | 7,133 | | | | (307) | | | | (467) | | | | — | | | | | | | 6,359 | | |
| Pre-tax Income from Continuing Operations | 3,306 | | | | 498 | | | | 467 | | | | — | | | | | | | 4,271 | | |
| Pre-tax Income Margin from Continuing Operations | 18.8 | | % | | 2.8 | | pts | | 2.7 | | pts | | — | | pts | | | | | 24.3 | | % |
Provision for/(Benefit from) Income Taxes (4) | $ | 379 | | | | $ | 123 | | | | $ | 58 | | | | $ | 21 | | | | | | | $ | 581 | | |
| Effective Tax Rate | 11.5 | | % | | 1.5 | | pts | | 0.1 | | pts | | 0.5 | | pts | | | | | 13.6 | | % |
| Income from Continuing Operations | $ | 2,927 | | | | $ | 375 | | | | $ | 408 | | | | $ | (21) | | | | | | | $ | 3,690 | | |
| Income Margin from Continuing Operations | 16.7 | | % | | 2.1 | | pts | | 2.3 | | pts | | (0.1) | | pts | | | | | 21.0 | | % |
| Diluted Earnings Per Share: Continuing Operations | $ | 3.11 | | | | $ | 0.40 | | | | $ | 0.43 | | | | $ | (0.02) | | | | | | | $ | 3.92 | | |
(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/settlements and pension insolvency costs and other costs. 2024 also includes the impact of a pension settlement charge.
(3)2025 includes a benefit from income taxes primarily driven by the resolution of certain tax audit matters.
(4)Tax impact on operating (non-GAAP) pre-tax income from continuing operations is calculated under the same accounting principles applied to the GAAP pre-tax income.
INTERNATIONAL BUSINESS MACHINES CORPORATION
U.S. GAAP TO OPERATING (Non-GAAP) RESULTS RECONCILIATION
(Unaudited; Dollars in millions except per share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2025 | |
| Continuing Operations | |
| GAAP | | | Acquisition- Related Adjustments (1) | | | Retirement- Related Adjustments (2) | | | Tax Reform Impacts (3) | | | | | | Operating
(Non-GAAP) | |
| Gross Profit | $ | 39,297 | | | | $ | 888 | | | | $ | — | | | | $ | — | | | | | | | $ | 40,184 | | |
| Gross Profit Margin | 58.2 | | % | | 1.3 | | pts | | — | | pts | | — | | pts | | | | | 59.5 | | % |
| SG&A | $ | 20,123 | | | | $ | (1,417) | | | | $ | — | | | | $ | — | | | | | | | $ | 18,706 | | |
| R&D | 8,316 | | | | (4) | | | | — | | | | — | | | | | | | 8,312 | | |
| Other (Income) & Expense | (442) | | | | (11) | | | | (65) | | | | — | | | | | | | (518) | | |
| | | | | | | | | | | | | | | | | |
| Total Expense & Other (Income) | 28,968 | | | | (1,432) | | | | (65) | | | | — | | | | | | | 27,472 | | |
| Pre-tax Income from Continuing Operations | 10,328 | | | | 2,320 | | | | 65 | | | | — | | | | | | | 12,713 | | |
| Pre-tax Income Margin from Continuing Operations | 15.3 | | % | | 3.4 | | pts | | 0.1 | | pts | | — | | pts | | | | | 18.8 | | % |
Provision for/(Benefit from) Income Taxes (3,4) | $ | (242) | | | | $ | 786 | | | | $ | 15 | | | | $ | 1,161 | | | | | | | $ | 1,719 | | |
| Effective Tax Rate | (2.3) | | % | | 6.6 | | pts | | 0.1 | | pts | | 9.1 | | pts | | | | | 13.5 | | % |
| Income from Continuing Operations | $ | 10,571 | | | | $ | 1,534 | | | | $ | 49 | | | | $ | (1,161) | | | | | | | $ | 10,993 | | |
| Income Margin from Continuing Operations | 15.7 | | % | | 2.3 | | pts | | 0.1 | | pts | | (1.7) | | pts | | | | | 16.3 | | % |
| Diluted Earnings Per Share: Continuing Operations | $ | 11.14 | | | | $ | 1.62 | | | | $ | 0.05 | | | | $ | (1.22) | | | | | | | $ | 11.59 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2024 | |
| Continuing Operations | |
| GAAP | | | Acquisition- Related Adjustments (1) | | | Retirement- Related Adjustments (2) | | | Tax Reform Impacts (3) | | | | | | Operating
(Non-GAAP) | |
| Gross Profit | $ | 35,551 | | | | $ | 724 | | | | $ | — | | | | $ | — | | | | | | | $ | 36,275 | | |
| Gross Profit Margin | 56.7 | | % | | 1.2 | | pts | | — | | pts | | — | | pts | | | | | 57.8 | | % |
| SG&A | $ | 19,688 | | | | $ | (1,159) | | | | $ | — | | | | $ | — | | | | | | | $ | 18,529 | | |
| | | | | | | | | | | | | | | | | |
| Other (Income) & Expense | 1,871 | | | | (70) | | | | (3,457) | | | | — | | | | | | | (1,656) | | |
| | | | | | | | | | | | | | | | | |
| Total Expense & Other (Income) | 29,754 | | | | (1,229) | | | | (3,457) | | | | — | | | | | | | 25,068 | | |
| Pre-tax Income from Continuing Operations | 5,797 | | | | 1,953 | | | | 3,457 | | | | — | | | | | | | 11,207 | | |
| Pre-tax Income Margin from Continuing Operations | 9.2 | | % | | 3.1 | | pts | | 5.5 | | pts | | — | | pts | | | | | 17.9 | | % |
Provision for/(Benefit from) Income Taxes (4) | $ | (218) | | | | $ | 497 | | | | $ | 790 | | | | $ | 455 | | | | | | | $ | 1,523 | | |
| Effective Tax Rate | (3.8) | | % | | 5.1 | | pts | | 8.2 | | pts | | 4.1 | | pts | | | | | 13.6 | | % |
| Income from Continuing Operations | $ | 6,015 | | | | $ | 1,456 | | | | $ | 2,668 | | | | $ | (455) | | | | | | | $ | 9,684 | | |
| Income Margin from Continuing Operations | 9.6 | | % | | 2.3 | | pts | | 4.3 | | pts | | (0.7) | | pts | | | | | 15.4 | | % |
| Diluted Earnings Per Share: Continuing Operations | $ | 6.42 | | | | $ | 1.55 | | | | $ | 2.85 | | | | $ | (0.49) | | | | | | | $ | 10.33 | | |
(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 include 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 impacts of pension settlement charges.
(3)2025 and 2024 include benefits from income taxes primarily driven by the resolution of certain tax audit matters.
(4)Tax impact on operating (non-GAAP) pre-tax income from continuing operations is calculated under the same accounting principles applied to the GAAP pre-tax income.
INTERNATIONAL BUSINESS MACHINES CORPORATION
GAAP OPERATING CASH FLOW TO FREE CASH FLOW RECONCILIATION
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
December 31, | | Year Ended
December 31, | | |
| (Dollars in Millions) | | 2025 | | 2024 | | 2025 | | 2024 | | |
| Net Cash from Operations per GAAP | | $ | 4,040 | | | $ | 4,330 | | | $ | 13,193 | | | $ | 13,445 | | | |
| | | | | | | | | | |
| Less: change in IBM Financing receivables | | (4,063) | | | (2,255) | | | (3,159) | | | (431) | | | |
| | | | | | | | | | |
| Net cash from operating activities excl. IBM Financing receivables | | 8,104 | | | 6,584 | | | 16,352 | | | 13,876 | | | |
| | | | | | | | | | |
| Capital Expenditures, net | | (550) | | | (422) | | | (1,617) | | | (1,127) | | | |
| | | | | | | | | | |
| Free Cash Flow | | 7,553 | | | 6,163 | | | 14,734 | | | 12,749 | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
INTERNATIONAL BUSINESS MACHINES CORPORATION
GAAP OPERATING CASH FLOW TO ADJUSTED EBITDA RECONCILIATION
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
December 31, | | Year Ended
December 31, |
| (Dollars in Billions) | | 2025 | | 2024 | | 2025 | | 2024 |
| Net Cash Provided by Operating Activities | | $ | 4.0 | | | $ | 4.3 | | | $ | 13.2 | | | $ | 13.4 | |
| | | | | | | | |
| Add: | | | | | | | | |
| Net interest expense | | 0.3 | | | 0.3 | | | 1.3 | | | 1.0 | |
Provision for/(Benefit from) income taxes from continuing operations (1) | | (1.4) | | | 0.4 | | | (0.2) | | | (0.2) | |
| | | | | | | | |
| Less change in: | | | | | | | | |
| Financing receivables | | (4.1) | | | (2.3) | | | (3.2) | | | (0.4) | |
Other assets and liabilities/other, net (2) | | 0.5 | | | 1.7 | | | (1.8) | | | (1.8) | |
| | | | | | | | |
| Adjusted EBITDA | | $ | 6.5 | | | $ | 5.6 | | | $ | 19.2 | | | $ | 16.4 | |
(1)2025 includes a benefit from income taxes primarily driven by the resolution of certain tax audit matters.
(2)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.
Exhibit 99.2
Non-GAAP Metrics and Other Financial Information
Operating (non-GAAP) Earnings Per Share and Related Income Statement Items
In an effort to provide better transparency into the operational results of the business, supplementally, the company 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 and 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 (TCJA or U.S. tax reform), the company characterizes the one-time provisional charge recorded in the fourth quarter of 2017, and adjustments to that charge, as non-operating. Adjustments include the tax effect of true-ups, audit adjustments, accounting elections and new regulations, or laws (e.g., H.R. 1 in July of 2025) that impact the TCJA provisions which resulted in the one-time provisional charge. For acquisitions, operating (non-GAAP) earnings exclude the amortization of acquired 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 the company’s acquisitions. Management also characterized as non-operating expense, given its unique and temporary nature, the impact on the foreign exchange derivative contracts entered into prior to the acquisition of StreamSets and webMethods from Software AG, beginning in December 2023, to economically hedge the foreign currency exposure related to the purchase price of this acquisition. These derivative contracts expired by June 28, 2024. All other spending for acquired companies is included in both earnings from continuing operations and in operating (non-GAAP) earnings. For retirement-related costs, the company characterizes certain items as operating and others as non-operating, consistent with GAAP. The company includes 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 the settlement charges of $3.1 billion ($2.4 billion net of tax) resulting from the transfer to insurers of a portion of U.S. and non-U.S. defined benefit pension obligations and related plan assets in 2024 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 the company considers these costs to be outside of the operational performance of the business.
Overall, the company believes that supplementally providing investors with a view of operating earnings as described above provides increased transparency and clarity into both the operational results of the business and the performance of the company’s pension plans; improves visibility to management decisions and their impacts on operational performance; enables better comparison to peer companies; and allows the company to provide a long-term strategic view of the business going forward. In addition, these non-GAAP measures provide a perspective consistent with areas of interest the company routinely receives from investors and analysts.
Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)
Additionally, the company reports adjusted EBITDA which, in addition to the operating (non-GAAP) earnings adjustments described above, also excludes income/(loss) from discontinued operations, income tax expense, net interest expense, depreciation/amortization of non-acquired intangible assets including operating lease right-of-use assets, stock-based compensation, and certain other activity that is not reflective of the company’s ongoing operational results such as workforce rebalancing charges and corporate gains and charges. The company uses adjusted EBITDA to measure its operating performance and believes that supplementally providing adjusted EBITDA will provide investors with additional transparency and clarity into how the company’s operational profitability is driving its free cash flow results.
Free Cash Flow / Net Cash from Operating Activities Excluding IBM Financing Receivables
The company uses free cash flow as a measure to evaluate its operating results, strategic investments, plan shareholder return levels and assess its ability and need to incur and service debt. The entire free cash flow amount is not necessarily available for discretionary expenditures. The company defines free cash flow as net cash from operating activities less the change in Financing receivables and net capital expenditures, including the investment in software and other asset sales (e.g., certain QRadar SaaS assets in 2024). A key objective of the Financing business is to generate strong returns on equity, and our Financing receivables are the basis for that growth. Accordingly, management considers Financing receivables as a profit-generating investment, not as working capital that should be minimized for efficiency. Therefore, management presents both free cash flow and net cash from operating activities that exclude the effect of Financing receivables. Free cash flow guidance is derived using an estimate of profit, working capital and operational cash flows. Since the company views Financing receivables as a profit-generating investment which it seeks to maximize, it is not considered when formulating guidance for free cash flow and adjusted EBITDA. As a result, the company does not estimate a GAAP net cash from operations expectation metric.
Constant Currency
When the company refers to growth rates at constant currency or adjusts such growth rates for currency, it is done so that certain financial results can be viewed without the impact of fluctuations in foreign currency exchange rates, thereby facilitating period-to-period comparisons of its business performance. Financial results adjusted for currency are calculated by translating current period activity in local currency using the comparable prior year period’s currency conversion rate. This approach is used for countries where the functional currency is the local currency. Generally, when the dollar either strengthens or weakens against other currencies, the growth at constant currency rates or adjusting for currency will be higher or lower than growth reported at actual exchange rates.
Key Performance Indicators
Annual Recurring Revenue (ARR):
In the first quarter of 2025, the ARR calculation was updated to include all recurring revenue within the Software segment. ARR is a key performance metric management uses to assess the health and growth trajectory of our Software segment and 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 software revenue as this performance metric and its inputs may not represent revenue that will be recognized in future periods.
Red Hat Annual Bookings:
Annual bookings (or Annual Contract Value (ACV)) is a key performance metric management uses in its assessment of a customer's commitment under Red Hat subscription and services contracts and provides an indication of forward-looking Red Hat revenue trajectory. It represents the value of a contract over a 12-month period, as of the date of contract signing. Annual bookings is calculated by taking the total subscription and service contract value divided by the number of days in the contract, multiplied by 365, plus the revenue recognized in the quarter for select cloud based offerings. Annual bookings should be viewed independently of revenue as this performance metric and its inputs may not represent the amount of revenue recognized in the period. For example, the conversion of annual bookings to revenue may vary based on types of services, customer decisions, start dates, and other factors. Therefore, annual bookings is not intended to represent current period revenue or revenue that will be recognized in future periods.
GenAI Book of Business:
Generative AI (GenAI) book of business is a key performance metric management uses to assess the progress and growth of the company's AI strategy and offerings. It is calculated as inception to date Software transactional revenue, plus new SaaS Annual Contract Value and Consulting signings related to specific offerings. Since second-quarter 2023, approximately one-fifth of this book of business comes from Software, and the remaining four-fifths is Consulting. Our book of business reflects the value we are delivering to clients in two ways. First, we are partnering with our clients to design and scale AI solutions, whether that be leveraging AI capabilities of IBM, our partners, or a combination of both. Second, we are utilizing generative AI solutions to improve delivery by developing new ways of working and driving productivity within our client contracts. GenAI book of business should be viewed independently of revenue as this performance metric is not intended to represent current period revenue or revenue that will be recognized in future periods.