International Business Machines Corporation · NYSE:IBM
International Business Machines — Q3 2023 Earnings Presentation
30 slides from International Business Machines's earnings presentation, Oct 25, 2023
Slide 1: IBM 3Q 2023 Earnings
IBM 3Q 2023 Earnings October 25, 2023 ibm.com/investor
Slide 2: Forward-looking statements and non-GAAP information
Forward-looking statements and non-GAAP information Certain comments made in this presentation may be characterized as forward adjustments for currency. The rationale for management’s use of this non-GAAP looking under the Private Securities Litigation Reform Act of 1995. Forward- information is inc
Slide 3: Arvind Krishna and James Kavanaugh
Arvind Krishna James Kavanaugh Chairman and SVP, Finance & Operations, Chief Executive Officer Chief Financial Officer 3
Slide 4: CEO perspective
CEO perspective “Technology remains a critical source of competitive differentiation and progress for 3Q23 organizations around the world. Performance Clients are increasingly adopting our watsonx AI and data platform along with our hybrid cloud solutions to unlock productivity and operational effic
Slide 5: IBM's generative AI tech stack and expertise
IBM’s generative AI tech stack and expertise AI assistants Empower individuals to do work watsonx Code Assistant Generative AI strategy, experience, technology, operations Consulting System Integrators, Software and SaaS partners, Public Cloud providers Ecosystem without expert knowledge watsonx Ass
Slide 6: Financial highlights
Financial highlights 3Q23 $14.8B 170bps +3.5% +$1B Revenue Pre-tax margin expansion (operating) Revenue growth yr/yr Free cash flow ytd yr/yr ~75% $5.1B “Our continued focus on the fundamentals of our business Revenue mix Free cash flow ytd in software and consulting is driving solid revenue growth,
Slide 7: Software
Software $6.3B +6% Revenue Revenue growth Revenue growth reflects hybrid cloud and AI value Solid and growing recurring revenue base; ARR* of $14 billon, +7% yr/yr Revenue categories Hybrid Platform & Solutions Gross and pre-tax margin expansion +7% yr/yr Transaction Processing +5% yr/yr Launched wa
Slide 8: Consulting
Consulting $5.0B +5% Revenue Revenue growth Growth across all revenue categories and geographies Strength in Red Hat and strategic partner practices Revenue categories Business Transformation Book-to-bill ratio of >1.15 for the last year +5% yr/yr Application Operations +7% yr/yr Continued gross and
Slide 9: Infrastructure
Infrastructure $3.3B (3%) Revenue Revenue growth zSystems revenue growth reflects enduring platform Distributed Infrastructure performance reflects Power growth offset by storage Revenue categories Hybrid declines Infrastructure Flat yr/yr Infrastructure Support Strong gross and pre-tax margin (7%)
Slide 10: Summary
Summary 3Q23 Summary 2023 Expectations Executing a focused hybrid cloud & AI Revenue growth of 3% to 5% @CC strategy to address today’s client needs Free cash flow of ~$10½ billion, Continued strong performance in up >$1 billion yr/yr growth vectors of software and consulting Portfolio mix and produ
Slide 11: ibm.com/investor
ibm.com/investor
Slide 12: Supplemental material
Supplemental material ● Revenue and P&L highlights ● Cash flow and balance sheet highlights ● Currency impact on revenue growth ● Software & Infrastructure segment details ● Consulting segment details ● Expense summary ● Balance sheet summary ● Cash flow summary ● Cash flow (ASC 230) ● Software segm
Slide 13: Revenue and P&L highlights
Revenue and P&L highlights Revenue highlights 3Q23 B/(W) Operating P&L highlights $ 3Q23 B/(W) Yr/Yr Yr/Yr Revenue $14.8 3% Gross profit $8.2 8% Expense $5.9 (5%) Americas $7.7 4% Pre-tax income $2.3 17% Europe/ME/Africa $4.2 Flat Net income $2.0 23% Asia Pacific $2.8 7% Earnings per share $2.20 22%
Slide 14: Cash flow and balance sheet highlights
Cash flow and balance sheet highlights Cash flow 3Q23 YTD Yr/Yr * Balance sheet Sep 23 Dec 22 Sep 22 Net cash from operations** $6.3 $0.9 Cash & marketable securities $11.0 $8.8 $9.7 Free cash flow*** $5.1 $1.0 Total debt $55.2 $50.9 $50.9 Selected uses of cash 3Q23 YTD Yr/Yr * Selected debt measure
Slide 15: Currency impact on revenue growth
Currency impact on revenue growth Quarterly averages per US $ 3Q23 Yr/Yr Spot 4Q23 FY23 1Q24 2Q24 FY24 10/24/23 Euro 0.92 7% 0.94 4% 2% (1%) (3%) (2%) Pound 0.79 7% 0.82 4% 0% 0% (3%) (2%) Yen 145 (5%) 150 (6%) (7%) (13%) (9%) (6%) Revenue impact, future @ 10/24/23 Spot 1.1 pts (0-1 pts) ~(1 pts) (2
Slide 16: Software & Infrastructure segment details
Software & Infrastructure segment details Software segment 3Q23 B/(W) Infrastructure segment 3Q23 B/(W) Yr/Yr Yr/Yr Revenue $6.3 6% Revenue $3.3 (3%) Hybrid Platform & Solutions $4.5 7% Hybrid Infrastructure $1.9 Flat Red Hat 8% zSystems 9% Automation 13% Distributed Infrastructure (6%) Data & AI 6%
Slide 17: Consulting segment details
Consulting segment details Consulting segment 3Q23 B/(W) Yr/Yr Revenue $5.0 5% Business Transformation $2.3 5% Technology Consulting $1.0 1% Application Operations $1.7 7% Gross profit margin 27.4% 1.5 pts Pre-tax income $0.5 10% Pre-tax income margin 10.2% 0.4 pts Signings $5.8 32% Book-to-bill rat
Slide 18: Expense summary
Expense summary Expense 3Q23 B/(W) Acq/ Yr/Yr Currency Divest* Base** Operating expense & other income $5.9 (5%) (5 pts) (1 pts) 1 pts SG&A – operating $4.2 (1%) (1 pts) (1 pts) 0 pts RD&E $1.7 (5%) 0 pts (1 pts) (4 pts) IP and custom development income ($0.2) 56% Other (income)/expense - operating
Slide 19: Balance sheet summary
Balance sheet summary Sep 23 Dec 22 Sep 22 Cash & marketable securities $11.0 $8.8 $9.7 Core (non-IBM Financing) assets* $106.8 $103.4 $102.9 IBM Financing assets $11.5 $15.0 $13.2 Total assets $129.3 $127.2 $125.8 Other liabilities $50.9 $54.3 $54.8 Core (non-IBM Financing) debt* $45.4 $38.1 $39.7
Slide 20: Cash flow summary
Cash flow summary QTD B/(W) YTD B/(W) 3Q23 Yr/Yr 3Q23 Yr/Yr* Net cash from operations $3.1 $1.2 $9.5 $3.0 Less: IBM Financing receivables $1.1 $0.4 $3.1 $2.0 Net cash from operations (excluding IBM Financing receivables) $2.0 $0.8 $6.3 $0.9 Net capital expenditures ($0.3) $0.2 ($1.2) $0.1 Free cash
Slide 21: Cash flow (ASC230)
Cash flow (ASC230) QTD QTD YTD YTD 3Q23 3Q22 3Q23 3Q22 Net income from operations $1.7 ($3.2) $4.2 ($1.1) Pension settlement charges - $5.9 - $5.9 Depreciation / amortization of intangibles $1.1 $1.2 $3.2 $3.7 Stock-based compensation $0.3 $0.3 $0.8 $0.7 Working capital / other ($1.1) ($2.9) ($2.0)
Slide 22: Software segment categories
Software segment categories Revenue categories Revenue categories – FY 2022 Hybrid Platform & Solutions Software, infused with AI, to help clients operate, manage, and optimize their IT resources and business processes within hybrid, multi-cloud environments Hybrid Platform & Red Hat: incl. RHEL, Op
Slide 23: Consulting segment categories
Consulting segment categories Revenue categories Revenue categories – FY 2022 Business Transformation Strategy, process design, system implementation and operations services to improve and transform key business processes. Deploys AI and automation in business processes to exploit the value of Busin
Slide 24: Infrastructure segment categories
Infrastructure segment categories Revenue categories Revenue categories – FY 2022 Hybrid Infrastructure Innovative infrastructure platforms to help meet the new requirements of hybrid multi-cloud and enterprise AI workloads leveraging flexible and as-a-service consumption models Hybrid zSystems: inc
Slide 25: Non-GAAP supplemental materials: revenue performance
Non-GAAP supplemental materials Reconciliation of revenue performance - 3Q 2023 3Q23 Yr/Yr GAAP @CC Total revenue 5% 3% Americas 4% 4% Europe/ME/Africa 7% Flat Asia Pacific 4% 7% The above reconciles the non-GAAP financial information contained in the “Revenue and P&L highlights” and “Prepared remar
Slide 26: Non-GAAP supplemental materials: segment revenue performance
Non-GAAP supplemental materials Reconciliation of segment revenue performance - 3Q 2023 3Q23 Yr/Yr 3Q23 Yr/Yr GAAP @CC GAAP @CC Software 8% 6% Consulting 6% 5% Hybrid Platform & Solutions 8% 7% Business Transformation 6% 5% Red Hat 9% 8% Technology Consulting 2% 1% Automation 14% 13% Application Ope
Slide 27: Non-GAAP supplemental materials: expense summary
Non-GAAP supplemental materials Reconciliation of expense summary - 3Q 2023 3Q23 GAAP Non-GAAP Operating adjustments (non-GAAP) SG&A Currency (1 pts) 0 pts (1 pts) Acquisitions/divestitures (1 pts) 0 pts (1 pts) Base* 0 pts 1 pts 0 pts RD&E Currency 0 pts 0 pts 0 pts Acquisitions/divestitures (1 pts
Slide 28: Non-GAAP supplemental materials: continuing operations
Non-GAAP supplemental materials Reconciliation of continuing operations - 3Q 2023 3Q23 Acquisition- Retirement- related related Tax reform Operating GAAP adjustments adjustments impacts (non-GAAP) Gross profit $8,023 $162 — — $8,185 Gross profit margin 54.4% 1.1 pts — — 55.5% SG&A 4,458 (277) — — 4,
Slide 29: Non-GAAP supplemental materials: pre-tax income margin
Non-GAAP supplemental materials Reconciliation of Pre-tax income margin – FY 2023 expectations Operating GAAP (non-GAAP) B/(W) B/(W) Pre-tax income margin Yr/Yr ~12 pts * ~0.5 pts *Yr/Yr reflects a one-time non-cash pension settlement charge of $5.9 billion in 2022. The above reconciles the non-GAAP
Slide 30: ibm.com/investor
ibm.com/investor
International Business Machines — Q3 2023 Earnings Presentation on 6ix