IBM Q1 2024 earnings report: IBM to acquire HashiCorp

IBM shares fell as much as 9% in extended trading Wednesday after the hardware, software and consulting provider said it would acquire the cloud software maker HashiCorp and reported first-quarter revenue that fell short of analysts’ estimates.

IN statement, IBM announced it intended to pay $35 per share in cash for HashiCorp in a deal with an enterprise value of $6.4 billion, net of cash. On Tuesday, The Wall Street Journal reported that IBM was close to acquiring HashiCorp, sending the stock higher. Bloomberg said earlier Wednesday that IBM wanted to offer $35 per share.

The transaction will be accretive to adjusted earnings before interest, taxes, depreciation and amortization in the first full year following closing and accretive to free cash flow in the second year following closing. IBM said it expects the transaction to close by the end of 2024. Dave McGannett, HashiCorp’s chief executive, will report to Rob Thomas, IBM’s senior vice president of software, if the deal goes through, a spokesman said.

HashiCorp will complement Red Hat, which has contributed to IBM’s revenue growth since its $34 billion acquisition in 2019. IBM now sells Red Hat’s version of the Linux operating system for use in multiple public clouds, making it entity neutral.

HashiCorp is a pioneer in the open source software that developers rely on to control cloud infrastructure. Premium versions of Terraform cloud management software and other products have brought HashiCorp revenue.

In 2021, HashiCorp shares began trading on the Nasdaq. But revenue growth slowed and the company continued to report losses. Still, it’s adding revenue at a faster rate than IBM.

“We see multiple drivers of product synergies at IBM and accelerating growth at HashiCorp,” Jim Cavanaugh, IBM’s chief financial officer, said on a conference call with analysts. There are also short-term cost synergies, Cavanaugh said.

The combination should lead to more customers wanting to talk to IBM, said CEO Arvind Krishna.

HashiCorp shares rose 4% in extended trading after the acquisition was announced.

Here’s how IBM fared compared to the consensus among analysts polled by LSEG:

• Earnings per share: $1.68 adjusted vs. $1.60 expected
• Income: $14.46 billion vs. $14.55 billion expected

IBM’s revenue rose about 1.5% year over year in the quarter, according to a statement. This marks the company’s third revenue loss in the past five quarters.

Software revenue of $5.90 billion rose about 6% and missed the $5.96 billion consensus among analysts polled by StreetAccount. Red Hat’s revenue rose 9% in the quarter at constant currency.

IBM’s consulting services revenue came in at $5.19 billion, down slightly and slightly below the StreetAccount consensus of $5.20 billion.

“We saw both a lengthening of the backlog driven by large-scale digital transformations and a reduced level of revenue realization in the quarter as customers tightened discretionary spending,” Cavanaugh said.

Infrastructure revenues totaled $3.08 billion. It was down 0.7% but topped the StreetAccount consensus of $2.94 billion.

During the quarter, IBM said it provided its 160,000 consultants artificial intelligence assistants to increase productivity and the company completed the sale of The Weather Company of Francisco Partners.

Despite the after-hours move, IBM shares are up about 13% so far this year, outperforming the S&P 500, which has gained 6% over the same period.

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