International Business Machines Corporation · NYSE:IBM
International Business Machines — Q2 2023 Earnings Presentation
30 slides from International Business Machines's earnings presentation, Jul 19, 2023
Slide 1: IBM 2Q 2023 Earnings
IBM 2Q 2023 Earnings July 19, 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 Financing receivables, and adjustments for currency. The rationale for looking under the Private Securities Litigation Reform Act of 1995. Forward- management’s use of this
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 “Organizations are using our hybrid cloud and AI technology, and our consulting 2Q23 capabilities, to transform their operations. Performance We continue to respond to the needs of our clients who seek trusted, enterprise AI solutions, and we are particularly excited about the respon
Slide 5: Financial highlights
Financial highlights 2Q23 ~75% 140bps $15.5B $3.4B Revenue mix Gross margin expansion (operating) in software and consulting Revenue Free Cash Flow YTD 8% 6% $16.3B “In the quarter, revenue performance was led by our growth Software Consulting Cash and marketable securities vectors of software and c
Slide 6: Software
Software $6.6B +8% Revenue Revenue growth Solid and growing recurring revenue base; ARR* of $13.6 billion, +7% yr/yr OpenShift annual recurring revenue of $1.1 billion Revenue categories Hybrid Platform & Solutions Gross and pre-tax margin expansion +7% yr/yr Transaction Processing +10% yr/yr Red Ha
Slide 7: Consulting
Consulting $5.0B +6% Revenue Revenue growth Technology-driven transformations driving broad-based growth Red Hat and strategic partnerships continue double-digit growth Revenue categories Business Transformation Book-to-bill ratio of 1.1 for the last year +5% yr/yr Application Operations +8% yr/yr G
Slide 8: Infrastructure
Infrastructure $3.6B (14%) Revenue Revenue growth Infrastructure performance reflects wrap on product innovation cycles z16 revenue performance exceeding prior programs Revenue categories Hybrid Infrastructure Gross profit margin expansion; (18%) yr/yr Infrastructure Support pre-tax margin impacted
Slide 9: Summary
Summary 2Q23 Summary 2023 Expectations Continued client demand for digital Revenue growth of 3% to 5% @CC transformations Free cash flow of ~$10½ billion, Momentum in growth vectors of up >$1 billion yr/yr software and consulting Portfolio mix and productivity support improving margin dynamics Highe
Slide 10: ibm.com/investor
ibm.com/investor
Slide 11: 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 12: Revenue and P&L highlights
Revenue and P&L highlights Revenue highlights 2Q23 B/(W) Operating P&L highlights $ 2Q23 B/(W) Yr/Yr Yr/Yr* Revenue $15.5 Flat Gross profit $8.7 2% Expense $6.3 (5%) Americas $8.0 Flat Pre-tax income $2.4 (5%) Europe/ME/Africa $4.6 Flat Net income $2.0 (5%) Asia Pacific $2.8 3% Earnings per share $2
Slide 13: Cash flow and balance sheet highlights
Cash flow and balance sheet highlights Cash flow 2Q23 YTD Yr/Yr * Balance sheet Jun 23 Dec 22 Jun 22 Net cash from operations** $4.4 $0.2 Cash & marketable securities $16.3 $8.8 $7.8 Free cash flow*** $3.4 $0.1 Total debt $57.5 $50.9 $50.3 Selected uses of cash 2Q23 YTD Yr/Yr * Selected debt measure
Slide 14: Currency impact on revenue growth
Currency impact on revenue growth Quarterly averages per US $ 1Q23 Yr/Yr 2Q23 Yr/Yr Spot 3Q23 4Q23 FY23 7/18/23 Euro 0.93 (5%) 0.92 2% 0.89 10% 9% 4% Pound 0.82 (10%) 0.80 (0%) 0.76 10% 10% 3% Yen 132 (14%) 137 (6%) 139 (1%) 2% (4%) Revenue impact, future @ 7/18/23 Spot (1 pts) 2-3 pts ~3 pts ~0 pts
Slide 15: Software & Infrastructure segment details
Software & Infrastructure segment details Software segment 2Q23 B/(W) Infrastructure segment 2Q23 B/(W) Yr/Yr Yr/Yr Revenue $6.6 8% Revenue $3.6 (14%) Hybrid Platform & Solutions $4.7 7% Hybrid Infrastructure $2.3 (18%) Red Hat 11% zSystems (30%) Automation 2% Distributed Infrastructure (6%) Data &
Slide 16: Consulting segment details
Consulting segment details Consulting segment 2Q23 B/(W) Yr/Yr Revenue $5.0 6% Business Transformation $2.3 5% Technology Consulting $1.0 5% Application Operations $1.8 8% Gross profit margin 25.9% 1.8 pts Pre-tax income $0.4 30% Pre-tax income margin 8.9% 1.8 pts Signings $5.7 24% Book-to-bill rati
Slide 17: Expense summary
Expense summary Expense 2Q23 B/(W) Acq/ Yr/Yr Currency Divest** Base*** SG&A – operating $4.7 (2%) 1 pts 1 pts (3 pts) RD&E $1.7 (1%) 1 pts 3 pts (5 pts) IP and custom development income ($0.2) 41% Other (income)/expense - operating ($0.3) (37%) Interest expense $0.4 (42%) Operating expense & other
Slide 18: Balance sheet summary
Balance sheet summary Jun 23 Dec 22 Jun 22 Cash & marketable securities $16.3 $8.8 $7.8 Core (non-IBM Financing) assets* $103.4 $103.4 $105.4 IBM Financing assets $12.5 $15.0 $14.3 Total assets $132.2 $127.2 $127.5 Other liabilities $52.5 $54.3 $57.7 Core (non-IBM Financing) debt* $46.9 $38.1 $38.0
Slide 19: Cash flow summary
Cash flow summary QTD B/(W) YTD B/(W) 2Q23 Yr/Yr* 2Q23 Yr/Yr* Net cash from operations $2.6 $1.3 $6.4 $1.8 Less: IBM Financing receivables $0.1 $1.3 $2.0 $1.7 Net cash from operations (excluding IBM Financing receivables) $2.6 $0.0 $4.4 $0.2 Net capital expenditures ($0.5) $0.0 ($0.9) ($0.1) Free ca
Slide 20: Cash flow (ASC230)
Cash flow (ASC230) QTD QTD YTD YTD 2Q23 2Q22 2Q23 2Q22 Net income from operations $1.6 $1.4 $2.5 $2.1 Depreciation / amortization of intangibles $1.1 $1.2 $2.2 $2.5 Stock-based compensation $0.3 $0.3 $0.6 $0.5 Working capital / other ($0.4) ($0.3) ($0.8) ($0.9) IBM Financing A/R $0.1 ($1.3) $2.0 $0.
Slide 21: 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 22: 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 23: 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 24: Non-GAAP supplemental materials: revenue performance
Non-GAAP supplemental materials Reconciliation of revenue performance - 2Q 2023 2Q23 Yr/Yr GAAP @CC Total revenue Flat Flat Americas (1%) Flat Europe/ME/Africa 2% Flat Asia Pacific (1%) 3% The above reconciles the non-GAAP financial information contained in the “Revenue and P&L highlights”, and “Pre
Slide 25: Non-GAAP supplemental materials: segment revenue performance
Non-GAAP supplemental materials Reconciliation of segment revenue performance - 2Q 2023 2Q23 Yr/Yr 2Q23 Yr/Yr GAAP @CC GAAP @CC Software 7% 8% Consulting 4% 6% Hybrid Platform & Solutions 6% 7% Business Transformation 3% 5% Red Hat 11% 11% Technology Consulting 4% 5% Automation 1% 2% Application Ope
Slide 26: Non-GAAP supplemental materials: expense summary
Non-GAAP supplemental materials Reconciliation of expense summary - 2Q 2023 2Q23 GAAP Non-GAAP Operating adjustments (non-GAAP) SG&A Currency 0 pts 0 pts 1 pts Acquisitions/divestitures 1 pts 0 pts 1 pts Base* (3 pts) (1 pts) (3 pts) RD&E Currency 1 pts 0 pts 1 pts Acquisitions/divestitures 3 pts 0
Slide 27: Non-GAAP supplemental materials: continuing operations
Non-GAAP supplemental materials Reconciliation of continuing operations - 2Q 2023 2Q23 Acquisition- Retirement- Kyndryl- related related Tax reform related Operating GAAP adjustments adjustments impacts impact (non-GAAP) Gross profit $8,501 $150 — — — $8,650 Gross profit margin 54.9% 1.0 pts — — — 5
Slide 28: Non-GAAP supplemental materials: pre-tax income margin
Non-GAAP supplemental materials Reconciliation of Pre-tax income margin – 2Q 2023 2Q23 Yr/Yr Pre-tax income margin B/(W) GAAP 1.8 pts Non-operating adjustments * (2.6 pts) Operating (non-GAAP) (0.7 pts) Adjusted to exclude gains on the 2Q22 sale of healthcare software assets 1.4 pts Operating (non-G
Slide 29: Non-GAAP supplemental materials: FY 2023 pre-tax margin
Non-GAAP supplemental materials Reconciliation of Pre-tax 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 financ
Slide 30: ibm.com/investor
ibm.com/investor
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