International Business Machines Corp Investor Day Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Benjamin Reitzes - Melius Research - Analyst : Ben Reitzes with Melius Research. Arvind, by 2029, you should have revenues of about $75 billion plus based on your model and Quantum hits, the Sterling hits. And we were just talking -- and I think each Quantum computer is about $1 billion, right? So I mean, could you sell seven or eight of these things and maybe sell some services and have this come out of the gates as a big thing. Or when do we see that kind of revenue?

Question: Benjamin Reitzes - Melius Research - Analyst : Well, I'm rooting for you. Let's just say that. Also, just really quick, I know that people aren't supposed to do this, but I'm asking a second one because I got to dart out for earnings. Your free cash flow this year is estimated to be about 35% above the net income that the Street is looking for. And we're really focused on free cash flow. But do you see earnings converging towards that $14.60 in free cash flow? Or how should we think about the premium of free cash flow to earnings throughout the multiple? James Kavanaugh - International Business Machines Corp - Chief Financial Officer, Senior Vice President - Finance and Operations I'm glad you asked this question because we've been consistently getting this question over the last 18 months. Post the Kyndryl spin, our free cash flow realization has been running well north of 120%. We just finished 2024, 130%, 132%, to your point. By the way, some of that was the Palo Alto transaction. Overall, there's distortions that will move out. But we believe that the high-quality sustainable level of realization in this company will be north of 125%. Let me tell you why. Number one, over the last handful years since Arvind has taken over the company, he has aligned our company around a growth mindset and has aligned our actual compensation to much more of a growth equity base. Our stock-based compensation, which, by the way, we do not non-GAAP unlike many of our competitors, is in our numbers, and that has went from about $600 million pre-Arvind, so we just finished $1.3 billion, and it will be $1.6 billion in 2025. That is about 15 to 17 points of that realization delta right off the bat. Second piece. And hopefully, you got the theme of the entire day today about us being a much more software-led company, since the Red Hat acquisition, we have transitioned our software portfolio from about 25% of IBM to right now approaching 45% with a model to do 50%. That software composition, high growth, high recurring revenue with a growing profile of Red Hat's subscription SaaS businesses, that generates a higher deferred income level every single year. Just like every other software that you would talk to that is high growth. That in of itself is north of 10 points. So stock-based comp being 15 to 17 points over the time period, deferred income is going to be 10, 11, 12 points, you're already at the high 120s. By the way, I would call that high-quality, sustainable, durable cash generation. that creates that flywheel effect for us to have a multiplier of value moving forward. So appreciate the question. Hopefully, that clarifies it over time. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 04, 2025 / 6:00PM, IBM.N - International Business Machines Corp Investor Day