International Business Machines Corporation · NYSE:IBM
International Business Machines — Q3 2024 Earnings Presentation
33 slides from International Business Machines's earnings presentation, Oct 23, 2024
Slide 1: 3Q 2024 Earnings
3Q 2024 Earnings October 23, 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, President and SVP, Finance & Operations Chief Executive Officer and Chief Financial Officer 3
Slide 4: CEO perspective
CEO perspective “Our third-quarter performance was led by double-digit growth in Software, including a re-acceleration in Red Hat. 3Q24 Performance We continue to see great momentum in AI as our models are trusted, fit-for-purpose, and lower cost, with performance leadership. Our generative AI book
Slide 5: Financial highlights
Financial highlights 3Q24 2% $1.5B $15.0B $6.6B Revenue growth Free cash flow ytd yr/yr Revenue Free cash flow ytd 210bps 100bps Gross margin expansion Pre-tax margin expansion “Our investments are paying off in Software as we’ve repositioned (operating) (operating) our portfolio in recent years. In
Slide 6: Software
Software $6.5B +10% Revenue Revenue growth Growth accelerated to 10% including 7 points of organic contribution Red Hat revenue growth +14%, up 6 points Revenue categories sequentially Transaction Hybrid Platform Solid and recurring revenue base; Processing & Solutions ARR* of $14.9 billion, +11% yr
Slide 7: Consulting
Consulting $5.2B Flat Revenue Revenue growth Solid demand for large digital transformations Book-to-bill ratio 1.14 for the last year Revenue categories Continued momentum in generative AI bookings Application Business Operations Transformation Client reprioritization and spend constraints (1%) yr/y
Slide 8: Infrastructure
Infrastructure $3.0B (7%) Revenue Revenue growth Infrastructure performance reflects product cycle dynamics Revenue categories z16 continues to outpace prior programs Ongoing investment in innovation Infrastructure Hybrid Support Infrastructure (3%) yr/yr (9%) yr/yr IBM Z (19%) Distributed Infrastru
Slide 9: Summary
Summary 3Q24 Summary Expectations Software accelerated to 10% growth, with Red Hat Fourth quarter revenue growth @CC similar to delivering 14% growth third quarter Investments in innovation driving strong Raising full-year operating pre-tax margin expansion organic growth to about a point Generative
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 3Q24 B/(W) Operating P&L highlights $ 3Q24 B/(W) Yr/Yr Yr/Yr Revenue $15.0 2% Gross profit $8.6 5% Expense $6.1 (4%) Americas $7.5 (2%) Pre-tax income $2.5 8% Europe/ME/Africa $4.6 7% Net income $2.2 6% Asia Pacific $2.9 5% Earnings per share $2.30 5% Ad
Slide 13: Adjusted EBITDA performance
Adjusted EBITDA performance QTD YTD 3Q24 Yr/Yr 3Q24 Yr/Yr Operating (non-GAAP) pre-tax income/(loss) from continuing operations $2.5 $0.2 $6.9 $0.8 Net interest expense $0.3 $0.0 $0.7 $0.0 Depreciation/Amortization of non-acquired intangible assets $0.7 $0.0 $2.1 $0.1 Stock-based compensation $0.3 $
Slide 14: Cash flow and balance sheet highlights
Cash flow and balance sheet highlights Cash flow 3Q24 YTD Yr/Yr Balance sheet Sep 24 Dec 23 Sep 23 Net cash from operations* $7.3 $0.9 Cash & marketable securities $13.7 $13.5 $11.0 Free cash flow** $6.6 $1.5 Total debt $56.6 $56.5 $55.2 Select uses of cash 3Q24 YTD Yr/Yr Select debt measures Sep 24
Slide 15: Currency impact on revenue growth
Currency impact on revenue growth Quarterly averages per US $ 3Q24 Yr/Yr Spot 4Q24 FY24 1Q25 2Q25 FY25 Assumed Euro 0.91 1% 0.93 0% 0% (1%) 0% (1%) Pound 0.77 3% 0.77 4% 3% 2% 3% 1% Yen 149 (3%) 151 (3%) (8%) (3%) 2% (1%) Revenue impact, future @assumed Spot ~(0.5 pts) ~(1 pts) ~(1 pts) ~0 pts (0-1
Slide 16: Software & Infrastructure segment details
Software & Infrastructure segment details Software segment 3Q24 B/(W) Infrastructure segment 3Q24 B/(W) Yr/Yr Yr/Yr Revenue $6.5 10% Revenue $3.0 (7%) Hybrid Platform & Solutions $4.6 10% Hybrid Infrastructure $1.8 (9%) Red Hat 14% IBM Z (19%) Automation 13% Distributed Infrastructure (3%) Data & AI
Slide 17: Consulting segment details
Consulting segment details Consulting segment 3Q24 B/(W) Yr/Yr Revenue $5.2 Flat Business Transformation $2.3 2% Technology Consulting $0.9 (4%) Application Operations $1.9 (1%) Gross profit margin 28.4% 0.9 pts Segment profit $0.6 (1%) Segment profit margin 10.9% (0.1 pts) Signings $5.4 (9%) Book-t
Slide 18: Expense summary
Expense summary Expense 3Q24 B/(W) Acq/ Yr/Yr Currency Divest** Base*** Operating expense & other income $6.1 (4%) 0 pts (2 pts) (3 pts) impact of workforce rebalancing $0.3 (5 pts) SG&A – operating $4.6 (10%) 0 pts (1 pts) (9 pts) impact of workforce rebalancing $0.3 (6 pts) RD&E $1.9 (11%) 0 pts (
Slide 19: Balance sheet summary
Balance sheet summary Sep 24 Dec 23 Sep 23 Cash & marketable securities $13.7 $13.5 $11.0 Core (non-IBM Financing) assets* $109.0 $107.9 $106.8 IBM Financing assets $11.7 $13.9 $11.5 Total assets $134.3 $135.2 $129.3 Other liabilities $53.2 $56.1 $50.9 Core (non-IBM Financing) debt* $46.2 $44.7 $45.
Slide 20: Cash flow summary
Cash flow summary QTD B/(W) YTD B/(W) 3Q24 Yr/Yr 3Q24 Yr/Yr Net cash from operations $2.9 ($0.2) $9.1 ($0.4) Less: IBM Financing receivables $0.9 ($0.2) $1.8 ($1.3) Net cash from operations (excluding IBM Financing receivables) $2.0 $0.0 $7.3 $0.9 Net capital expenditures $0.1 $0.3 ($0.7) $0.5 Free
Slide 21: Cash flow (ASC230)
Cash flow (ASC230) QTD QTD YTD YTD 3Q24 3Q23 3Q24 3Q23 Net income from operations ($0.3) $1.7 $3.1 $4.2 Pension settlement charges $2.7 - $2.7 - Depreciation / amortization of intangibles* $1.3 $1.1 $3.6 $3.2 Stock-based compensation $0.3 $0.3 $1.0 $0.8 Operating assets and liabilities / other, net*
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 3Q 2024
Non-GAAP supplemental materials Reconciliation of revenue performance – 3Q 2024 3Q24 Yr/Yr GAAP @CC Total revenue 1% 2% Americas (3%) (2%) Europe/ME/Africa 9% 7% Asia Pacific 3% 5% The above reconciles the non-GAAP financial information contained in the “Financial highlights”, “Revenue and P&L highl
Slide 26: Non-GAAP supplemental materials: revenue performance 3Q24 YTD
Non-GAAP supplemental materials Reconciliation of revenue performance – 3Q24 YTD 3Q24 YTD Yr/Yr GAAP @CC Total revenue 2% 3% Consulting revenue (1%) 1% The above reconciles the non-GAAP financial information contained in the “Prepared remarks” discussion in the company’s earnings presentation. See E
Slide 27: Non-GAAP supplemental materials: segment revenue performance
Non-GAAP supplemental materials Reconciliation of segment revenue performance – 3Q 2024 3Q24 Yr/Yr 3Q24 Yr/Yr GAAP @CC GAAP @CC Software 10% 10% Consulting Flat Flat Hybrid Platform & Solutions 10% 10% Business Transformation 2% 2% Red Hat 14% 14% Technology Consulting (4%) (4%) Automation 13% 13% A
Slide 28: Non-GAAP supplemental materials: expense summary
Non-GAAP supplemental materials Reconciliation of expense summary – 3Q 2024 3Q24 Non-GAAP Operating GAAP adjustments (non-GAAP) SG&A Currency 0 pts 0 pts 0 pts Acquisitions/divestitures (1 pts) 0 pts (1 pts) Base* (9 pts) 0 pts (9 pts) RD&E Currency 0 pts 0 pts 0 pts Acquisitions/divestitures (1 pts
Slide 29: Non-GAAP supplemental materials: continuing operations
Non-GAAP supplemental materials Reconciliation of continuing operations – 3Q 2024 3Q24 Acquisition- Retirement- related related Tax reform Operating GAAP adjustments adjustments* impacts (non-GAAP) Gross profit $8,420 $192 — — $8,612 Gross profit margin 56.3% 1.3 pts — — 57.5% SG&A 4,911 (300) — — 4
Slide 30: Non-GAAP supplemental materials: net income to adjusted EBITDA
Non-GAAP supplemental materials Reconciliation of GAAP net income to adjusted EBITDA QTD YTD 3Q24 Yr/Yr 3Q24 Yr/Yr Net income/(loss) as reported (GAAP)* ($0.3) ($2.0) $3.1 ($1.1) Less: income/(loss) from discontinued operations, net of tax ($0.0) ($0.0) $0.0 $0.0 Income/(loss) from continuing operat
Slide 31: 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 3Q24 3Q23 3Q24 3Q23 Net cash provided by operating activities $2.9 $3.1 $9.1 $9.5 Add: Net interest expense $0.3 $0.3 $0.7 $0.7 Provision for/(Benefit from) income taxes from continuing oper
Slide 32: 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* Negative Low to Mid Single Digits Mid Teens Operating GAAP (non-GAAP) Pre-tax income margin B/(W)** B/(W) Pre-tax income margin Yr/Yr ~(5
Slide 33: ibm.com/investor
ibm.com/investor
International Business Machines — Q3 2024 Earnings Presentation on 6ix