International Business Machines Corporation · NYSE:IBM
International Business Machines — Q2 2024 Earnings Presentation
32 slides from International Business Machines's earnings presentation, Jul 24, 2024
Slide 1: 2Q 2024 Earnings
2Q 2024 Earnings July 24, 2024 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 adjusted EBITDA and adjustments for currency. The rationale for management’s looking under the Private Securities Litigation Reform Act of 1995. Forward- use of this non-GAA
Slide 3: Arvind Krishna and James Kavanaugh
Arvind Krishna James Kavanaugh Chairman and Chief SVP, Finance & Operations Executive Officer and Chief Financial Officer 3
Slide 4: CEO perspective
CEO perspective “We had a strong second quarter, exceeding our 2Q24 Performance expectations, driven by growth in both revenue and free cash flow. We continue to see that clients turn to IBM for our technology and our expertise in enterprise AI, and our book of business for generative AI has grown t
Slide 5: Financial highlights
Financial highlights 2Q24 4% $1.1B $15.8B $4.5B Revenue growth Free cash flow ytd yr/yr Revenue Free cash flow ytd 190bps 220bps Gross margin expansion Pre-tax margin expansion “In the quarter, we accelerated our revenue growth as we (operating) (operating) continue to execute well on our strategy.
Slide 6: Software
Software $6.7B +8% Revenue Revenue growth Strong revenue growth including 6+ points of organic contribution Accelerated Red Hat annual bookings growth and Revenue categories 6-month revenue under contract up mid-teens Transaction Hybrid Platform Solid and growing recurring revenue base; Processing &
Slide 7: Consulting
Consulting $5.2B +2% Revenue Revenue growth Growth driven by large transformational offerings Book-to-bill ratio of >1.15 for the last year Revenue categories Strong momentum in generative AI bookings Application Business Operations Transformation Discretionary spend constraints continued to (2%) yr
Slide 8: Infrastructure
Infrastructure $3.6B +3% Revenue Revenue growth IBM Z delivered growth, with z16 significantly ahead of prior cycles Revenue categories Installed MIPS capacity up ~3x over the last few cycles Infrastructure Hybrid Distributed Infrastructure performance reflects Support Infrastructure strength in Pow
Slide 9: Summary
Summary 2Q24 Summary 2024 Expectations Exceeded our expectations for key metrics Revenue growth @CC in line with mid-single digit model Investments in innovation driving strong organic growth Raising operating pre-tax margin expansion to over half a point Generative AI continues to gain traction; bo
Slide 10: ibm.com/investor
ibm.com/investor
Slide 11: Supplemental material
Supplemental material Revenue and P&L highlights Adjusted EBITDA performance 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) Softw
Slide 12: Revenue and P&L highlights
Revenue and P&L highlights Revenue highlights 2Q24 B/(W) Operating P&L highlights $ 2Q24 B/(W) Yr/Yr Yr/Yr Revenue $15.8 4% Gross profit $9.1 5% Expense $6.3 (1%) Americas $8.0 (1%) Pre-tax income $2.8 17% Europe/ME/Africa $4.7 3% Net income $2.3 14% Asia Pacific $3.1 17% Earnings per share $2.43 11
Slide 13: Adjusted EBITDA performance
Adjusted EBITDA performance QTD YTD 2Q24 Yr/Yr 2Q24 Yr/Yr Operating (non-GAAP) pre-tax income from continuing operations $2.8 $0.4 $4.4 $0.6 Net interest expense $0.2 ($0.0) $0.4 $0.0 Depreciation/Amortization of non-acquired intangible assets $0.7 $0.0 $1.4 $0.0 Stock-based compensation $0.3 $0.0 $
Slide 14: Cash flow and balance sheet highlights
Cash flow and balance sheet highlights Cash flow 2Q24 YTD Yr/Yr Balance sheet Jun 24 Dec 23 Jun 23 Net cash from operations* $5.3 $0.9 Cash & marketable securities $16.0 $13.5 $16.3 Free cash flow** $4.5 $1.1 Total debt $56.5 $56.5 $57.5 Select uses of cash 2Q24 YTD Yr/Yr Select debt measures Jun 24
Slide 15: Currency impact on revenue growth
Currency impact on revenue growth Quarterly averages per US $ 1Q24 Yr/Yr 2Q24 Yr/Yr Spot 3Q24 4Q24 FY24 assumed Euro 0.92 1% 0.93 (1%) 0.92 0% 1% 0% Pound 0.79 4% 0.79 1% 0.77 2% 4% 3% Yen 148 (12%) 156 (14%) 156 (8%) (6%) (10%) Revenue impact, future @assumed Spot (2 pts) ~(1.5 pts) ~(1 pts) (1-2 p
Slide 16: Software & Infrastructure segment details
Software & Infrastructure segment details Software segment 2Q24 B/(W) Infrastructure segment 2Q24 B/(W) Yr/Yr Yr/Yr Revenue $6.7 8% Revenue $3.6 3% Hybrid Platform & Solutions $4.6 6% Hybrid Infrastructure $2.4 6% Red Hat 8% IBM Z 8% Automation 16% Distributed Infrastructure 5% Data & AI (2%) Infras
Slide 17: Consulting segment details
Consulting segment details Consulting segment 2Q24 B/(W) Yr/Yr Revenue $5.2 2% Business Transformation $2.4 6% Technology Consulting $0.9 1% Application Operations $1.9 (2%) Gross profit margin 26.3% 0.4 pts Segment profit $0.5 (4%) Segment profit margin 8.9% (0.3 pts) Signings $5.7 (2%) Book-to-bil
Slide 18: Expense summary
Expense summary Expense 2Q24 B/(W) Acq/ Yr/Yr Currency Divest* Base** Operating expense & other income $6.3 (1%) 1 pts (1 pts) (1 pts) impact of workforce rebalancing $0.0 2 pts SG&A – operating $4.7 Flat 1 pts (1 pts) 0 pts impact of workforce rebalancing $0.0 2 pts RD&E $1.8 (9%) 0 pts 0 pts (9 pt
Slide 19: Balance sheet summary
Balance sheet summary Jun 24 Dec 23 Jun 23 Cash & marketable securities $16.0 $13.5 $16.3 Core (non-IBM Financing) assets* $105.3 $107.9 $103.4 IBM Financing assets $12.5 $13.9 $12.5 Total assets $133.8 $135.2 $132.2 Other liabilities $53.2 $56.1 $52.5 Core (non-IBM Financing) debt* $45.4 $44.7 $46.
Slide 20: Cash flow summary
Cash flow summary QTD B/(W) YTD B/(W) 2Q24 Yr/Yr 2Q24 Yr/Yr Net cash from operations $2.1 ($0.6) $6.2 ($0.2) Less: IBM Financing receivables ($0.9) ($1.0) $1.0 ($1.1) Net cash from operations (excluding IBM Financing receivables) $3.0 $0.4 $5.3 $0.9 Net capital expenditures ($0.4) $0.1 ($0.8) $0.2 F
Slide 21: Cash flow (ASC230)
Cash flow (ASC230) QTD QTD YTD YTD 2Q24 2Q23 2Q24 2Q23 Net income from operations $1.8 $1.6 $3.4 $2.5 Depreciation / amortization of intangibles $1.2 $1.1 $2.3 $2.2 Stock-based compensation $0.3 $0.3 $0.6 $0.6 Operating assets and liabilities / other, net ($0.3) ($0.4) ($1.1) ($0.8) IBM Financing A/
Slide 22: Software segment categories
Software segment categories Revenue categories Revenue categories – FY 2023 Hybrid Platform & Solutions Hybrid Platform Software, infused with AI, to help clients operate, manage, and optimize their & Solutions IT resources and business processes within hybrid, multi-cloud environments: – Red Hat: i
Slide 23: Consulting segment categories
Consulting segment categories Revenue categories Revenue categories – FY 2023 Business Transformation Business Strategy, process design, system implementation and operations services to Transformation improve and transform key business processes. Deploys AI and automation in business processes to ex
Slide 24: Infrastructure segment categories
Infrastructure segment categories Revenue categories Revenue categories – FY 2023 Hybrid Infrastructure Hybrid Innovative infrastructure platforms to help meet the new requirements Infrastructure of hybrid multi-cloud and enterprise AI workloads leveraging flexible and as-a-service consumption model
Slide 25: Non-GAAP supplemental materials: revenue performance
Non-GAAP supplemental materials Reconciliation of revenue performance – 2Q 2024 2Q24 Yr/Yr GAAP @CC Total revenue 2% 4% Americas (1%) (1%) Europe/ME/Africa 3% 3% Asia Pacific 9% 17% The above reconciles the non-GAAP financial information contained in the “Financial highlights”, “Revenue and P&L high
Slide 26: Non-GAAP supplemental materials: segment revenue performance
Non-GAAP supplemental materials Reconciliation of segment revenue performance – 2Q 2024 2Q24 Yr/Yr 2Q24 Yr/Yr GAAP @CC GAAP @CC Software 7% 8% Consulting (1%) 2% Hybrid Platform & Solutions 5% 6% Business Transformation 3% 6% Red Hat 7% 8% Technology Consulting (3%) 1% Automation 15% 16% Application
Slide 27: Non-GAAP supplemental materials: expense summary
Non-GAAP supplemental materials Reconciliation of expense summary – 2Q 2024 2Q24 Non-GAAP Operating GAAP adjustments (non-GAAP) SG&A Currency 1 pts 0 pts 1 pts Acquisitions/divestitures (1 pts) 0 pts (1 pts) Base* (1 pts) 1 pts 0 pts RD&E Currency 0 pts 0 pts 0 pts Acquisitions/divestitures 0 pts 0
Slide 28: Non-GAAP supplemental materials: continuing operations
Non-GAAP supplemental materials Reconciliation of continuing operations – 2Q 2024 2Q24 Acquisition- Retirement- related related Tax reform Operating GAAP adjustments adjustments impacts (non-GAAP) Gross profit $8,950 $170 — — $9,120 Gross profit margin 56.8% 1.1 pts — — 57.8% SG&A 4,938 (286) — — 4,
Slide 29: Non-GAAP supplemental materials: net income to adjusted EBITDA
Non-GAAP supplemental materials Reconciliation of GAAP net income to adjusted EBITDA QTD YTD 2Q24 Yr/Yr 2Q24 Yr/Yr Net income as reported (GAAP) $1.8 $0.3 $3.4 $0.9 Less: Income/(loss) from discontinued operations, net of tax $0.0 $0.0 $0.0 $0.0 Income from continuing operations $1.8 $0.2 $3.4 $0.9
Slide 30: Non-GAAP supplemental materials: operating cash to adjusted EBITDA
Non-GAAP supplemental materials Reconciliation of net cash from operations to adjusted EBITDA QTD QTD YTD YTD 2Q24 2Q23 2Q24 2Q23 Net cash provided by operating activities $2.1 $2.6 $6.2 $6.4 Add: Net interest expense $0.2 $0.2 $0.4 $0.4 Provision for/(Benefit from) income taxes from continuing oper
Slide 31: Non-GAAP supplemental materials: FY 2024 expectations
Non-GAAP supplemental materials Reconciliation of tax rate and Pre-tax income margin – FY 2024 expectations Operating Tax rate GAAP (Non-GAAP) Full-Year 2024* Mid-to-High Single Digits Mid Teens Operating GAAP (non-GAAP) Pre-tax income margin B/(W) B/(W) Pre-tax income margin Yr/Yr Flat >0.5 pts *In
Slide 32: ibm.com/investor
ibm.com/investor
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