James J. Kavanaugh
Senior Vice President and Chief Financial Officer at International Business Machines
Thanks, Arvind. In the first quarter, we delivered $14.5 billion in revenue, $3 billion of adjusted EBITDA, $1.7 billion of operating pre-tax income and $1.68 operating earnings per share, and we generated free cash flow of $1.9 billion, up approximately $600 million year over year.
Our revenue for the quarter was up 3% at constant currency. We saw an impact to our top-line performance from the closing of The Weather Company earlier than expected in the quarter. Software grew by 6% with growth across hybrid platform and solutions and transaction processing and continued strength in our recurring revenue base. Consulting was up 2%, reflecting organic growth. We continue to have solid signings performance and a trailing 12-month book to bill of over 1.15. Infrastructure had strong performance, delivering growth across all of our hardware offerings.
Looking at our profit metrics, we expanded operating gross margin by 100 basis points and operating pre-tax margin by 130 basis points over last year, inclusive of about 100 basis point currency headwind to pre-tax margin. At the end of January, we closed on the divestiture of The Weather Company, generating a pre-tax gain of $241 million in the quarter. Mitigating that benefit, we took charges of $374 million to address workforce rebalancing.
Operating pre-tax margin was up 50 basis points, excluding the year-over-year impacts of workforce rebalancing and divestiture dynamics. We are pleased with this performance, in line with our guidance of roughly 50 basis points of operating pre-tax margin improvement in 2024. Margin expansion was driven by our operating leverage, product mix and ongoing productivity initiatives. This allowed for continued investments to drive innovation, which you can see in our higher R&D expense. The timing of discrete tax items this quarter resulted in an operating tax rate of about 6%. We are still expecting a full year operating tax rate consistent with last year.
Overall, the combination of our revenue and operating margin performance resulted in 7% growth in our adjusted EBITDA. This contributed to our free cash flow performance. For the quarter, we generated $1.9 billion of free cash flow, up $600 million year over year. This growth reflects the performance of our underlying business with adjusted EBITDA up $200 million year over year and about $400 million from timing of balance sheet dynamics and capex. Over the last 12 months, we generated free cash flow of $11.8 billion. This puts us on track to deliver about $12 billion of free cash flow for the year, with the growth largely driven by adjusted EBITDA.
Since our acquisition of Red Hat, excluding 2021, when we spun off Kyndryl, our operating net income to free cash flow realization averaged 120%. Two factors drive this. One is stock-based compensation, which today represents 15 points of realization. And two, given the shift in our portfolio to a growing software business, deferred income also contributes to our realization.
In terms of cash uses, we returned $1.5 billion to shareholders in the form of dividends. From a balance sheet perspective, we have a very strong liquidity position with cash of $19.3 billion, up from $13.5 billion at year end 2023. Our debt balance at the end of the first quarter was $59.5 billion, including $9.9 billion from our financing business.
Turning to the segments. Software revenue grew 6% with good performance across both hybrid platform & solutions and transaction processing. As mentioned in January, the software revenue growth drivers for the year include Red Hat growth, acquisitions, strong recurring revenue and transaction processing. And this is just how the first quarter played out. Hybrid platform and solutions revenue was up 7%.
Let me spend a minute on the various elements. Red Hat revenue grew 9%, reflecting solid performance across the three key solutions, RHEL, OpenShift and Ansible. Annual bookings growth was again in the mid teens, with OpenShift up over 40% this quarter and RHEL and Ansible each up double digits. Beyond Red Hat, recent acquisitions contributed to the growth profile of hybrid platform and solutions, as did new innovation areas including watsonx.
The combination of Apptio acquired mid last year and our IT automation portfolio has delivered strong results, unlocking the full benefits of a FinOps solution for technology investments across hybrid cloud environments. In fact, just this quarter, we partnered with Microsoft to bring Apptio to Azure and will co-sell to our joint customers and Microsoft has agreed to adopt Apptio's capabilities in parts of their organization. Our revenue performance continues to reflect growth in our high-value recurring revenue base. Our ARR, after removing The Weather Company and security services, is now $13.9 billion, up over 8% since last year.
Transaction processing, with its strong base of recurring revenue, delivered revenue growth of 4%. Clients continue to value this portfolio of mission-critical software, supporting growing workloads on our hardware platforms. And there's an increasing interest in generative AI application modernization capabilities like watsonx Code Assistant for Z.
Software segment profit was up 80 basis points, while absorbing both key investments in innovation and about 1 point of currency impact in the quarter. We continue to deliver operating leverage driven by our revenue performance this quarter.
Our consulting revenue was up 2%. We continue to see clients prioritizing large data and technology transformation projects focused on driving productivity with AI and analytics. These results reflect the organic performance of our business. Solid demand for our offerings led to signings growth of 4%, our highest absolute first quarter signings in recent history, and our trailing 12-month book-to-bill ratio remains over 1.15. Our overall backlog remains healthy, up 7% year over year, and backlog erosion levels remain stable. At the same time, we saw both a lengthening of backlog duration driven by large scale digital transformations and a reduced level of revenue realization in the quarter as clients tighten discretionary spending.
Contributing to growth across the business this quarter, our strategic partnerships continue to make up over 40% of our consulting revenue, with both AWS and Azure practices growing double digits. Additionally, our Red Hat practice grew revenue double digits. Expanding upon our partnerships, we are leveraging Microsoft Copilot to drive productivity for our clients. Just as we quickly ramped a meaningful book of business around Red Hat to address the hybrid cloud opportunity, we are ahead of pace at this stage with our generative AI book of business.
Turning to our lines of business. Business transformation revenue grew 3%, led by supply chain and finance transformations. Customer experience transformations also contributed to growth. Technology consulting revenue was also up 3% with double-digit growth in cloud modernization projects and both strategic partnerships and Red Hat engagements delivered double-digit growth. Application operations revenue declined, reflecting weakness in on-prem custom application management projects, partially offset by strength in cloud-based application management offerings.
Moving to consulting profit, we delivered over 8% of segment profit margin, which is flat year to year. Our segment profit margin was impacted by about 1 point of currency, offsetting improvements in pricing and productivity actions we have taken.
Moving to infrastructure, revenue grew, reflecting growth in hybrid infrastructure of 6% and declines in infrastructure Support of 7%. Within hybrid infrastructure, growth was broad based with strong demand from our hardware offerings across IBM Z, power and storage. In IBM Z, revenue was up 5% in the eighth quarter of z16 product availability.
Now, two years in, this product cycle continues to resonate with clients and surpass z15 revenue performance. IBM Z is uniquely positioned for AI with the first processor design with on-chip acceleration for real-time AI inferencing. In fact, we are working with over 100 clients on the application of AI on z16. Use cases range from fraud detection to anti-money laundering to anomaly detection. This remains an enduring platform, driving not just hardware adoption, but also related software, storage and services.
Distributed infrastructure delivered 7% revenue growth with strength in both power and storage. Power performance was fueled by demand for data-intensive workloads. Storage delivered strong double-digit revenue growth, including demand for high-end storage tied to the z16 cycle. And clients are also looking to our storage offerings for data curation, model building and fine tuning in support of generative AI.
Looking at infrastructure profit, we deliver both gross profit and segment profit margin expansion. Segment profit margin expanded 20 basis points in the quarter, reflecting benefits from productivity while absorbing about 1 point of impact from currency.
Now, let me bring it back to the IBM level to wrap up. More than two years into our mid-term model, we are a more focused business that has delivered sustained revenue and free cash flow growth. Over this time, we've continued to invest organically and inorganically, bring new products and innovation to market, expand our ecosystem, and drive productivity across our business. Our first quarter performance is another proof point of this progress with constant currency revenue growth, operating gross margin and operating pre-tax margin expansion and the strongest first quarter free cash flow in many years.
Looking to the full year 2024, we are holding our view on our two primary metrics, revenue and free cash flow. We see full year constant currency revenue growth in line with our mid-single-digit model, still prudently at the low end. And for free cash flow, we expect to generate about $12 billion, driven primarily by growth in adjusted EBITDA.
On the segments, in software, we had a solid start to the year and continue to expect growth slightly above the high end of our mid-single-digit model. In consulting, we continue to see strong demand for digital transformations. Though as I said, we are seeing some pressure on smaller, more discretionary projects. We now see mid-single-digit revenue growth in consulting with acceleration throughout the year. Given our ongoing productivity initiatives and investment in innovation, we expect to see about 1 point of segment profit margin expansion in both of these segments. And in infrastructure, given product cycle dynamics, we expect revenue to decline, driving about 0.5 point impact to our overall growth.
Given IBM Z cycle dynamics, we expect segment profit margin to be lower year over year. With these segment dynamics, we continue to expect IBM's operating pre-tax margin to expand by about 0.5 point year to year, consistent with our view 90 days ago, and we are maintaining our view of operating tax for the year to be consistent with last year in the mid-teens range.
We took a workforce rebalancing charge this quarter and, as I mentioned 90 days ago, we continue to see the overall amount this year consistent with last year. We expect this to pay back by the end of the year. On currency, given the strengthening of the dollar, we now expect a 150 basis point to 200 basis point impact to revenue growth for the year, which is about 1 point worse than 90 days ago. For the second quarter, I expect our constant currency revenue growth rate to be consistent with the full year. Our tax rate is expected to be in the high teens. And for profit, we expect the first half skew of net income will remain a couple points ahead of the prior year.
In closing, we are pleased with our performance to start the quarter. We are positioned to grow revenue, expand operating profit margin and grow free cash flow for the year. Arvind and I are now happy to take your questions. Olympia, let's get started.