International Business Machines Corporation · NYSE:IBM
International Business Machines — Q4 2023 Earnings Presentation
39 slides from International Business Machines's earnings presentation, Jan 24, 2024
Slide 1: IBM 4Q 2023 Earnings
IBM 4Q 2023 Earnings January 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 SVP, Finance & Operations, Chief Executive Officer Chief Financial Officer 3
Slide 4: CEO perspective
CEO perspective “In the fourth quarter, we grew revenue in all of our segments, driven by continued adoption of our hybrid cloud and AI offerings. Client 4Q23 Performance demand for AI is accelerating and our book of business for watsonx and generative AI roughly doubled from the third to the fourth
Slide 5: Financial highlights
Financial highlights 4Q23 FY23 $17.4B 140bps +3.3% $11.2B Revenue Gross margin expansion (operating) Revenue growth yr/yr Free cash flow ~75% 110bps “We again demonstrated the fundamental strengths of our Revenue mix (full yr) Pre-tax margin expansion business in the fourth quarter through solid, br
Slide 6: Software
Software +2% +5% 4Q23 revenue growth FY23 revenue growth $7.5B revenue $26.3B revenue Hybrid cloud and AI platforms resonating: OpenShift and watsonx Solid and growing recurring revenue base; ARR* of $14.4 billion, +7% yr/yr Revenue categories - 4Q23 Hybrid Platform & Solutions Wrapping on seasonall
Slide 7: Consulting
Consulting +5% +6% 4Q23 revenue growth FY23 revenue growth $5.0B revenue $20.0B revenue Technology-driven transformations continue to drive broad-based growth Strength in strategic partner practices Book-to-bill ratio >1.15 for the year Revenue categories – 4Q23 Business Transformation +5% yr/yr Con
Slide 8: Infrastructure
Infrastructure +2% (4%) 4Q23 revenue growth FY23 revenue growth $4.6B revenue $14.6B revenue zSystems delivered growth, with z16 significantly ahead of prior cycle Installed MIPS capacity up ~2X over last two z cycles Revenue categories – 4Q23 Hybrid Infrastructure Distributed Infrastructure perform
Slide 9: Summary
Summary 4Q23 / FY23 Summary 2024 Expectations Results demonstrate strength of portfolio Revenue growth @CC in line with and sustainability of revenue growth mid-term model watsonx gaining traction across Software Increased productivity target to $3 billion and Consulting in annual run-rate savings O
Slide 10: ibm.com/investor
ibm.com/investor
Slide 11: Supplemental material
Supplemental material ● Revenue and P&L highlights ● Revenue and P&L highlights – FY 2023 ● Adjusted EBITDA performance ● Software & Infrastructure segment details – FY 2023 ● Cash flow and balance sheet highlights ● Consulting segment details – FY 2023 ● Currency impact on revenue growth ● Expense
Slide 12: Revenue and P&L highlights
Revenue and P&L highlights Revenue highlights 4Q23 B/(W) Operating P&L highlights $ 4Q23 B/(W) Yr/Yr Yr/Yr Revenue $17.4 3% Gross profit $10.4 7% Expense $6.3 (5%) Americas $8.9 5% Pre-tax income $4.2 9% Europe/ME/Africa $5.3 (2%) Net income $3.6 9% Asia Pacific $3.2 8% Earnings per share $3.87 8% A
Slide 13: Adjusted EBITDA performance
Adjusted EBITDA performance 4Q23 Yr/Yr FY23 Yr/Yr Operating (non-GAAP) pre-tax income from continuing operations $4.2 $0.3 $10.3 $0.5 Net interest expense $0.3 $0.0 $0.9 ($0.1) Depreciation/Amortization of non-acquired intangible assets $0.7 ($0.0) $2.8 ($0.3) Stock-based compensation $0.3 $0.0 $1.1
Slide 14: Cash flow and balance sheet highlights
Cash flow and balance sheet highlights Cash flow FY23 Yr/Yr* Balance sheet Dec 23 Dec 22 Net cash from operations** $12.7 $1.5 Cash & marketable securities $13.5 $8.8 Free cash flow*** $11.2 $1.9 Total debt $56.5 $50.9 Selected uses of cash FY23 Yr/Yr* Selected debt measures Dec 23 Dec 22 Net capita
Slide 15: Currency impact on revenue growth
Currency impact on revenue growth Quarterly averages per US $ 4Q23 Yr/Yr Spot 1Q24 2Q24 3Q24 4Q24 FY24 1/23/24 Euro 0.93 5% 0.92 1% (0%) (0%) 1% 0% Pound 0.81 6% 0.79 4% 1% 0% 2% 2% Yen 148 (5%) 148 (12%) (8%) (3%) (0%) (5%) Revenue impact, future @ 1/23/24 Spot 0.8 pts (1-1.5 pts) (1-1.5 pts) (0-1
Slide 16: Software & Infrastructure segment details
Software & Infrastructure segment details Software segment 4Q23 B/(W) Infrastructure segment 4Q23 B/(W) Yr/Yr Yr/Yr Revenue $7.5 2% Revenue $4.6 2% Hybrid Platform & Solutions $5.3 1% Hybrid Infrastructure $3.3 7% Red Hat 7% zSystems 8% Automation Flat Distributed Infrastructure 7% Data & AI 1% Infr
Slide 17: Consulting segment details
Consulting segment details Consulting segment 4Q23 B/(W) Yr/Yr Revenue $5.0 5% Business Transformation $2.3 5% Technology Consulting $1.0 4% Application Operations $1.8 6% Gross profit margin 27.7% 0.3 pts Pre-tax income $0.6 11% Pre-tax income margin 11.5% 0.5 pts Signings $6.6 8% Book-to-bill rati
Slide 18: Expense summary
Expense summary Expense 4Q23 B/(W) Acq/ Yr/Yr Currency Divest* Base** Operating expense & other income $6.3 (5%) (5 pts) (2 pts) 1 pts SG&A – operating $4.5 Flat 0 pts (1 pts) 1 pts RD&E $1.7 (9%) 0 pts (2 pts) (7 pts) IP and custom development income ($0.2) (1%) Other (income)/expense - operating (
Slide 19: Balance sheet summary
Balance sheet summary Dec 23 Dec 22 Cash & marketable securities $13.5 $8.8 Core (non-IBM Financing) assets* $107.9 $103.4 IBM Financing assets $13.9 $15.0 Total assets $135.2 $127.2 Other liabilities $56.1 $54.3 Core (non-IBM Financing) debt* $44.7 $38.1 IBM Financing debt $11.9 $12.9 Total debt $5
Slide 20: Cash flow summary
Cash flow summary B/(W) B/(W) 4Q23 Yr/Yr FY23 Yr/Yr* Net cash from operations $4.5 $0.5 $13.9 $3.5 Less: IBM Financing receivables ($1.9) ($0.1) $1.2 $1.9 Net cash from operations (excluding IBM Financing receivables) $6.3 $0.6 $12.7 $1.5 Net capital expenditures ($0.3) $0.3 ($1.5) $0.4 Free cash fl
Slide 21: Cash flow (ASC230)
Cash flow (ASC230) 4Q23 4Q22 FY23 FY22** Net income from operations $3.3 $2.7 $7.5 $1.6 Pension settlement charges - - - $5.9 Depreciation / amortization of intangibles $1.2 $1.1 $4.4 $4.8 Stock-based compensation $0.3 $0.2 $1.1 $1.0 Operating assets and liabilities / other, net $1.6 $1.7 ($0.3) ($2
Slide 22: Revenue and P&L highlights – FY 2023
Revenue and P&L highlights – FY 2023 Revenue highlights FY23 B/(W) Operating P&L highlights $ FY23 B/(W) Yr/Yr Yr/Yr Revenue $61.9 3% Gross profit $34.9 5% Expense $24.6 (5%) Americas $31.7 2% Pre-tax income $10.3 5% Europe/ME/Africa $18.5 1% Net income $8.9 7% Asia Pacific $11.7 7% Earnings per sha
Slide 23: Software & Infrastructure segment details – FY 2023
Software & Infrastructure segment details – FY 2023 Software segment FY23 B/(W) Infrastructure segment FY23 B/(W) Yr/Yr Yr/Yr Revenue $26.3 5% Revenue $14.6 (4%) Hybrid Platform & Solutions $18.7 5% Hybrid Infrastructure $9.2 (2%) Red Hat 9% zSystems (4%) Automation 4% Distributed Infrastructure (1%
Slide 24: Consulting segment details – FY 2023
Consulting segment details – FY 2023 Consulting segment FY23 B/(W) Yr/Yr Revenue $20.0 6% Business Transformation $9.2 5% Technology Consulting $3.8 4% Application Operations $7.0 9% Gross profit margin 26.6% 1.1 pts Pre-tax income $1.9 14% Pre-tax income margin 9.6% 0.8 pts Signings $23.3 17% Book-
Slide 25: Expense summary – FY 2023
Expense summary – FY 2023 Expense FY23 B/(W) Acq/ Yr/Yr Currency Divest* Base** Operating expense & other income $24.6 (5%) (2 pts) (1 pts) (1 pts) SG&A – operating $18.0 (2%) 0 pts 0 pts (3 pts) RD&E $6.8 (3%) 1 pts 1 pts (5 pts) IP and custom development income ($0.9) 30% Other (income)/expense -
Slide 26: Retirement-related summary
Retirement-related summary Expected Key assumptions and metrics 2022 2023 2024 Cost and contributions 2023 2024 Funded status at year end* Operating cost 1.2 1.1 US 125% 123% Non-operating cost 0.0 0.4 WW 114% 111% Total cost 1.1 1.5 Discount rate at year end Contributions** 1.8 1.5 US 5.3% 5.0% WW
Slide 27: Software segment categories
Software segment categories Revenue categories Revenue categories – FY 2023 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, Open
Slide 28: Consulting segment categories
Consulting segment categories Revenue categories Revenue categories – FY 2023 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 29: Infrastructure segment categories
Infrastructure segment categories Revenue categories Revenue categories – FY 2023 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 30: Non-GAAP supplemental materials
Non-GAAP supplemental materials Reconciliation of revenue performance - 4Q 2023 & FY 2023 4Q23 Yr/Yr FY23 Yr/Yr GAAP @CC GAAP @CC Total revenue 4% 3% Total revenue 2% 3% Americas 5% 5% Americas 2% 2% Europe/ME/Africa 2% (2%) Europe/ME/Africa 3% 1% Asia Pacific 6% 8% Asia Pacific 2% 7% The above reco
Slide 31: Non-GAAP supplemental materials
Non-GAAP supplemental materials Reconciliation of segment revenue performance - 4Q 2023 4Q23 Yr/Yr 4Q23 Yr/Yr GAAP @CC GAAP @CC Software 3% 2% Consulting 6% 5% Hybrid Platform & Solutions 2% 1% Business Transformation 6% 5% Red Hat 8% 7% Technology Consulting 5% 4% Automation 1% Flat Application Ope
Slide 32: Non-GAAP supplemental materials
Non-GAAP supplemental materials Reconciliation of segment revenue performance - FY 2023 FY23 Yr/Yr FY23 Yr/Yr GAAP @CC GAAP @CC Software 5% 5% Consulting 5% 6% Hybrid Platform & Solutions 5% 5% Business Transformation 4% 5% Red Hat 9% 9% Technology Consulting 2% 4% Automation 3% 4% Application Opera
Slide 33: Non-GAAP supplemental materials
Non-GAAP supplemental materials Reconciliation of expense summary - 4Q 2023 & FY 2023 4Q23 FY23 GAAP Non-GAAP Operating GAAP Non-GAAP Operating adjustments (non-GAAP) adjustments (non-GAAP) SG&A Currency 0 pts 0 pts 0 pts 0 pts 0 pts 0 pts Acquisitions/divestitures (1 pts) 0 pts (1 pts) 0 pts 0 pts
Slide 34: Non-GAAP supplemental materials
Non-GAAP supplemental materials Reconciliation of continuing operations - 4Q 2023 4Q23 Acquisition- Retirement- related related Tax reform Operating GAAP adjustments adjustments impacts (non-GAAP) Gross profit $10,267 $172 — — $10,439 Gross profit margin 59.1% 1.0 pts — — 60.1% SG&A 4,791 (271) — —
Slide 35: Non-GAAP supplemental materials
Non-GAAP supplemental materials Reconciliation of continuing operations - FY 2023 FY23 Acquisition- Retirement- related related Tax reform Operating GAAP adjustments adjustments impacts (non-GAAP) Gross profit $34,300 $631 — — $34,931 Gross profit margin 55.4% 1.0 pts — — 56.5% SG&A 19,003 (1,039) —
Slide 36: Non-GAAP supplemental materials
Non-GAAP supplemental materials Reconciliation of GAAP net income to adjusted EBITDA 4Q23 Yr/Yr FY23 Yr/Yr Net income as reported (GAAP) $3.3 $0.6 $7.5 $5.9 Less: Income/(loss) from discontinued operations, net of tax $0.0 $0.2 ($0.0) $0.1 Income from continuing operations $3.3 $0.4 $7.5 $5.7 Provis
Slide 37: Non-GAAP supplemental materials
Non-GAAP supplemental materials Reconciliation of net cash from operations to adjusted EBITDA 4Q23 4Q22 FY23 FY22 Net cash provided by operating activities $4.5 $4.0 $13.9 $10.4 Add: Net interest expense $0.3 $0.2 $0.9 $1.1 Provision for/(Benefit from) income taxes from continuing operations* $0.5 $
Slide 38: Non-GAAP supplemental materials
Non-GAAP supplemental materials Reconciliation of Pre-tax income margin – FY 2024 expectations Operating GAAP (non-GAAP) B/(W) B/(W) Pre-tax income margin Yr/Yr Flat ~ 0.5Pts The above reconciles the non-GAAP financial information contained in the “Prepared remarks” discussion in the company’s earni
Slide 39: ibm.com/investor
ibm.com/investor
International Business Machines — Q4 2023 Earnings Presentation on 6ix