IBM's Q3 Net Income Soars, Revenue Up on Strong Sales Growth

TL;DR

**IBM's back, baby! Strong revenue and a massive profit swing make this a buy, pension charge is in the rearview.**

AI Summary

IBM reported a strong financial performance for the three and nine months ended September 30, 2025. Total revenue for the three months increased by 9.1% to $16,331 million from $14,968 million in the prior year, driven by a significant 14.6% increase in Sales revenue to $8,407 million. Net income for the quarter dramatically improved to $1,744 million, a substantial turnaround from a net loss of $330 million in the same period of 2024. For the nine months, total revenue grew by 5.9% to $47,849 million from $45,199 million, and net income surged by 60.6% to $4,993 million from $3,109 million. This improvement was largely due to the absence of the $2.7 billion pension settlement charge incurred in Q3 2024 and a $300 million one-time tax charge in Q3 2025 related to the H.R. 1 Act. Diluted EPS from continuing operations rose to $1.84 for the quarter and $5.27 for the nine months, compared to a loss of $0.34 and earnings of $3.30, respectively, in 2024. Cash and cash equivalents decreased to $11,569 million at September 30, 2025, from $13,947 million at December 31, 2024, primarily due to significant acquisition activities totaling $7,903 million.

Why It Matters

IBM's robust Q3 performance, marked by a significant net income turnaround and revenue growth, signals a positive shift for investors, especially given the prior year's pension settlement charge. The substantial increase in sales revenue suggests IBM's strategic focus on hybrid cloud and AI is gaining traction, potentially strengthening its competitive position against rivals like Microsoft and Amazon in enterprise technology. For employees, this financial health could translate into job security and investment in new projects. Customers may benefit from continued innovation and expanded service offerings. The broader market will watch if IBM can sustain this momentum, particularly as it navigates a complex macroeconomic environment and integrates recent acquisitions.

Risk Assessment

Risk Level: medium — While IBM's net income saw a significant improvement, the company's cash and cash equivalents decreased by $2,378 million from December 31, 2024, to September 30, 2025, largely due to $7,903 million spent on business acquisitions. This aggressive acquisition strategy, while potentially growth-driving, introduces integration risks and places pressure on future cash flow generation to justify these investments. Additionally, long-term debt increased by $5,290 million to $55,174 million, indicating increased leverage.

Analyst Insight

Investors should consider IBM's improved profitability and revenue growth as a positive signal, but remain cautious about the increased debt and significant acquisition spending. Monitor the integration success of recent acquisitions and their contribution to future revenue and cash flow. A long-term hold might be appropriate for those believing in IBM's strategic direction, but new investments should be phased in.

Financial Highlights

revenue

$16,331 million

total Debt

$55.17B

net Income

$1,744 million

eps

$1.84

gross Margin

57.3%

cash Position

$11,569 million

revenue Growth

+9.1%

Revenue Breakdown

Key Numbers

• $16.33B — Total Revenue (Q3 2025) (Increased 9.1% from $14.968 billion in Q3 2024)
• $1.74B — Net Income (Q3 2025) (Turnaround from a $330 million net loss in Q3 2024)
• $47.85B — Total Revenue (YTD Q3 2025) (Increased 5.9% from $45.199 billion in YTD Q3 2024)
• $4.99B — Net Income (YTD Q3 2025) (Increased 60.6% from $3.109 billion in YTD Q3 2024)
• $1.84 — Diluted EPS from Continuing Operations (Q3 2025) (Up from $(0.34) in Q3 2024)
• $5.27 — Diluted EPS from Continuing Operations (YTD Q3 2025) (Up from $3.30 in YTD Q3 2024)
• $2.7B — Pension Settlement Charge (Q3 2024) (Impacted prior year's net income, not present in Q3 2025)
• $300M — One-time Tax Charge (Q3 2025) (Related to H.R. 1 Act, impacted Q3 2025 income tax expense)
• $7.90B — Acquisition of Businesses (YTD Q3 2025) (Significant cash outflow for investing activities)
• $55.17B — Long-term Debt (September 30, 2025) (Increased from $49.884 billion at December 31, 2024)

Key Players & Entities

• INTERNATIONAL BUSINESS MACHINES CORP (company) — registrant
• New York Stock Exchange (regulator) — exchange where IBM stock is registered
• H.R. 1 (other) — bill signed into law in the United States
• Public Law 119-21 (other) — designation of the H.R. 1 Act
• IBM Qualified Personal Pension Plan (company) — pension plan that transferred obligations
• Microsoft (company) — competitor in enterprise technology
• Amazon (company) — competitor in enterprise technology

FAQ

Industry Context

IBM operates in the highly competitive technology sector, focusing on hybrid cloud, AI, and consulting services. The industry is characterized by rapid technological advancements, significant R&D investments, and evolving customer demands for integrated solutions. Companies like IBM are navigating a landscape where software and services are increasingly critical for driving recurring revenue and higher margins.

Regulatory Implications

IBM faces regulatory scrutiny common to large technology firms, including data privacy regulations (e.g., GDPR, CCPA) and antitrust concerns. The company also manages tax regulations globally, as evidenced by the one-time tax charge related to the H.R. 1 Act. Compliance with evolving accounting standards, such as those related to segment reporting and income tax disclosures, is also a key consideration.

What Investors Should Do

1. [object Object]
2. [object Object]
3. [object Object]

Key Dates

• 2024-09-30: Pension settlement charge incurred — Resulted in a $2.7 billion charge impacting prior year's net income and tax benefits.
• 2025-01-01: Segment Reporting Disclosures guidance effective — Changed segment reporting disclosures, impacting notes but not consolidated results.
• 2025-01-01: Revenue category changes within Software and Consulting — Realigned reporting for Hybrid Cloud, Automation, Data, Transaction Processing, Strategy and Technology, and Intelligent Operations.
• 2025-07-04: H.R. 1 Act related tax event — Resulted in a $300 million one-time tax charge in Q3 2025.

Glossary

Accumulated actuarial losses

Unrecognized losses in a defined benefit pension plan that have built up over time due to factors like lower-than-expected investment returns or higher-than-expected employee longevity. (These losses were a primary driver for the pension settlement charge recognized in Q3 2024.)

Diluted EPS

Earnings per share calculated by dividing net income by the weighted-average number of diluted common shares outstanding, including the effect of all dilutive potential common shares. (Key metric for shareholder value, showing a significant turnaround from a loss to earnings in Q3 2025.)

Pension settlement charge

A charge recognized when a company settles a portion of its pension obligations, often involving the transfer of obligations and assets to an insurer. (A $2.7 billion charge in Q3 2024 significantly impacted IBM's net income for that period.)

Other comprehensive income/(loss)

Unrealized gains and losses that are not reported in net income but are reported in a separate section of the income statement. (Includes items like foreign currency translation adjustments and changes in the value of available-for-sale securities, impacting total comprehensive income.)

Year-Over-Year Comparison

IBM demonstrated a significant financial recovery compared to the prior year. Total revenue for Q3 2025 grew by 9.1% to $16.33 billion, a substantial improvement from Q3 2024. Net income saw a dramatic turnaround, shifting from a $330 million loss to a $1.74 billion profit, largely due to the absence of a $2.7 billion pension settlement charge from the prior year, although Q3 2025 included a $300 million tax charge. Diluted EPS from continuing operations also rebounded strongly to $1.84 from a loss of $0.34. While cash reserves decreased due to substantial acquisition activities, the overall operational performance shows a positive trend.

Filing Documents

• ibm-20250930.htm (10-Q) — 3755KB
• form10-q3q25ex311102325.htm (EX-31.1) — 10KB
• form10-q3q25ex312102325.htm (EX-31.2) — 10KB
• form10-q3q25ex321102325.htm (EX-32.1) — 5KB
• form10-q3q25ex322102325.htm (EX-32.2) — 5KB
• 0000051143-25-000064.txt ( ) — 18288KB
• ibm-20250930.xsd (EX-101.SCH) — 93KB
• ibm-20250930_cal.xml (EX-101.CAL) — 147KB
• ibm-20250930_def.xml (EX-101.DEF) — 515KB
• ibm-20250930_lab.xml (EX-101.LAB) — 1072KB
• ibm-20250930_pre.xml (EX-101.PRE) — 787KB
• ibm-20250930_htm.xml (XML) — 4124KB

- Financial Information

Part I - Financial Information :

Consolidated Financial Statements (Unaudited)

Item 1. Consolidated Financial Statements (Unaudited) : Consolidated Income Statement for the three and nine months ended September 30, 202 5 and 202 4 3 Consolidated Statement of Comprehensive Income for the three and nine months ended September 30, 2025 and 2024 4 Consolidated Balance Sheet at September 30, 2025 and December 31, 2024 5 Consolidated Statement of Cash Flows for the nine months ended September 30, 2025 and 2024 7 Consolidated Statement of Equity for the three and nine months ended September 30, 2025 and 2024 8

Notes to Consolidated Financial Statements

Notes to Consolidated Financial Statements 10

Management's Discussion and Analysis of Results of Operations and Financial Condition

Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition 50

Controls and Procedures

Item 4. Controls and Procedures 83

- Other Information

Part II - Other Information :

Legal Proceedings

Item 1. Legal Proceedings 84

Unregistered Sales of Equity Securities and Use of Proceeds and Issuer Repurchases of Equity Securities

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds and Issuer Repurchases of Equity Securities 84

Other Information

Item 5. Other Information 84

Exhibits

Item 6. Exhibits 85 2 Table of Contents

- Financial Information

Part I - Financial Information

Consolidated Financial Statements

Item 1. Consolidated Financial Statements: INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED INCOME STATEMENT (UNAUDITED) Three Months Ended September 30, Nine Months Ended September 30, (Dollars in millions except per share amounts) 2025 2024 2025 2024 Revenue: Services $ 7,724 $ 7,453 $ 22,686 $ 22,329 Sales 8,407 7,334 24,606 22,329 Financing 200 180 557 542 Total revenue 16,331 14,968 47,849 45,199 Cost: Services 5,224 5,048 15,506 15,414 Sales 1,637 1,404 4,672 4,393 Financing 109 95 303 281 Total cost 6,970 6,548 20,481 20,087 Gross profit 9,360 8,420 27,369 25,112 Expense and other (income): Selling, general and administrative 4,748 4,911 14,661 14,823 Research and development 2,082 1,876 6,129 5,512 Intellectual property and custom development income ( 219 ) ( 238 ) ( 687 ) ( 696 ) Other (income) and expense (1) ( 173 ) 2,244 ( 376 ) 1,694 Interest expense 492 429 1,457 1,288 Total expense and other (income) 6,931 9,222 21,184 22,621 Income/(loss) from continuing operations before income taxes 2,430 ( 802 ) 6,185 2,491 Provision for/(benefit from) income taxes (1) 686 ( 485 ) 1,193 ( 597 ) Income/(loss) from continuing operations $ 1,744 $ ( 317 ) $ 4,992 $ 3,088 Income/(loss) from discontinued operations, net of tax 0 ( 13 ) 1 21 Net income/(loss) (1) $ 1,744 $ ( 330 ) $ 4,993 $ 3,109 Earnings/(loss) per share of common stock: (1) Assuming dilution: Continuing operations $ 1.84 $ ( 0.34 ) $ 5.27 $ 3.30 Discontinued operations 0.00 ( 0.01 ) 0.00 0.02 Total $ 1.84 $ ( 0.36 ) $ 5.27 $ 3.32 Basic: Continuing operations $ 1.87 $ ( 0.34 ) $ 5.36 $ 3.36 Discontinued operations 0.00 ( 0.01 ) 0.00 0.02 Total $ 1.87 $ ( 0.36 ) $ 5.36 $ 3.38 Weighted-average number of common shares outstanding: (millions) Assuming dilution 948.9 923.6 947.4 935.4 Basic 933.9 923.6 930.9 920.3 (1) 2024 includes the impact of a pension settlement charge. Refer to note U, "Retirement-Related Benefits,"

Notes to Consolidated Financial Statements

Notes to Consolidated Financial Statements 1 1. Basis of Presentation: The accompanying Consolidated Financial Statements and footnotes of the International Business Machines Corporation (IBM or the company) have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The financial statements and footnotes are unaudited. In the opinion of the company's management, these statements include all adjustments, which are only of a normal recurring nature, necessary to present a fair statement of the company's results of operations, financial position and cash flows. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amount of assets, liabilities, revenue, costs, expenses and other comprehensive income/(loss) that are reported in the Consolidated Financial Statements and accompanying disclosures. These estimates are based on management's best knowledge of current events, historical experience, actions that the company may undertake in the future and on various other assumptions that are believed to be reasonable under the circumstances. As a result, actual results may be different from these estimates. In the first quarter of 2025, the company made changes to the reported revenue categories within its Software and Consulting reportable segments. These changes did not impact the company's Consolidated Financial Statements or its reportable segments. The revenue categories are reported on a comparable basis for all periods. Refer to note 3, "Revenue Recognition," for additional information. In September 2024, the IBM Qualified Personal Pension Plan ("Qualified PPP") irrevocably transferred to an insurer approximately $ 6 billion of the Qualified PPP's Defined Benefit (DB) pension obligations and related plan assets. As a result of this transaction, the company recognized a pension settlement charge of $ 2.7 billion ($ 2.0 billio

Notes to Consolidated Financial Statements — (continued)

Notes to Consolidated Financial Statements — (continued) 2. Accounting Changes: New Standards to be Implemented Intangibles - Goodwill and Other - Internal-Use Software Standard/Description–Issuance date : September 2025. This guidance requires internal-use software development cost capitalization to begin when both of the following occur: management has authorized and committed to funding the software project and, it is probable the project will be completed and the software will be used to perform its intended function. This guidance eliminates accounting considerations of software development stages. Effective Date and Adoption Considerations –The guidance is effective for the company for annual and interim reporting periods beginning January 1, 2028. Early adoption is permitted. Effect on Financial Statements or Other Significant Matters –The company is evaluating the impact of the guidance in the consolidated financial results. Disaggregation of Income Statement Expenses Standard/Description –Issuance date: November 2024. This guidance requires a new tabular disclosure of certain types of expenses (including purchases of inventory, employee compensation, depreciation and amortization) that are included within commonly presented expense captions on the income statement. The guidance also requires the disclosure of a qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively. Additionally, the guidance requires the disclosure of the total amount of selling expenses and an entity's definition of selling expenses. The disclosures are required on an interim and annual basis. Effective Date and Adoption Considerations –The guidance is effective for the company for annual reporting periods beginning in 2027, and for interim reporting periods beginning January 1, 2028. Early adoption is permitted. The company expects to adopt the guidance as of the effective date and to apply the guida

Notes to Consolidated Financial Statements — (continued)

Notes to Consolidated Financial Statements — (continued) Standards Implemented Segment Reporting Disclosures Standard/Description –Issuance date: November 2023. This guidance requires the disclosure of significant segment expenses that are regularly provided to a company's chief operating decision maker and included within each reported measure of segment profit or loss. The company must also disclose "other segment items," which is the difference between segment revenue less significant expenses for each reported measure of segment profit or loss, and a description of its composition. This guidance also requires certain segment annual disclosures to be provided on an interim basis. Effective Date and Adoption Considerations –The guidance was effective for annual periods beginning in 2024, and for interim periods beginning January 1, 2025, and is required to be applied on a retrospective basis to all prior periods presented. Early adoption was permitted. The company adopted the guidance as of the effective date. Effect on Financial Statements or Other Significant Matters –The guidance is a change to disclosures only, that impacted the "Segments" note within the company's quarterly and annual financial statements but did not have an impact on the consolidated financial results. 12 Table of Contents

Notes to Consolidated Financial Statements — (continued)

Notes to Consolidated Financial Statements — (continued) 3. Revenue Recognition: Disaggregation of Revenue In the first quarter of 2025, the company made changes to the reported revenue categories within its Software and Consulting reportable segments to better reflect the market opportunities and how IBM addresses them. Beginning January 1, 2025, the company reports revenue for Hybrid Cloud (Red Hat), Automation, Data and Transaction Processing within Software; and it no longer reports revenue for Hybrid Platform & Solutions. Within Consulting, the company reports revenue for Strategy and Technology and Intelligent Operations. These changes did not impact the company's Consolidated Financial Statements or its reportable segments. The following tables provide details of revenue by major products/service offerings and revenue by geography. Revenue by Major Products/Service Offerings Three Months Ended September 30, Nine Months Ended September 30, (Dollars in millions) 2025 2024 (1) 2025 2024 (1) Hybrid Cloud $ 1,886 $ 1,659 $ 5,369 $ 4,716 Automation 1,934 1,563 5,401 4,574 Data 1,459 1,352 4,194 3,902 Transaction Processing 1,930 1,951 5,967 5,970 Total Software $ 7,209 $ 6,524 $ 20,932 $