International Business Machines Corporation · NYSE:IBM
International Business Machines — Q1 2023 Earnings Presentation
30 slides from International Business Machines's earnings presentation, Apr 19, 2023
Slide 1: IBM 1Q 2023 Earnings
IBM 1Q 2023 Earnings April 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 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 “Our first quarter results demonstrate that 1Q23 Performance clients are continuing to turn to IBM for our unique combination of an open hybrid cloud platform, enterprise-focused AI, and business expertise to unlock productivity and drive efficiency in their operations. Hybrid cloud
Slide 5: Financial highlights
Financial highlights 1Q23 4% 80bps $14.3B $1.3B Revenue growth Gross margin expansion (operating) Revenue Free Cash Flow ~75% 130bps “In the quarter, we remained focused on the fundamentals Revenue mix Operating pre-tax margin expansion in software and consulting excl. workforce rebalancing of our b
Slide 6: Software
Software $5.9B +6% Revenue Revenue growth Broad-based growth across the portfolio Solid and growing recurring revenue; Hybrid Platform & Solutions annual recurring revenue of $13.5 billion Revenue categories Hybrid Platform & Solutions OpenShift annual recurring revenue +5% yr/yr Transaction Process
Slide 7: Consulting
Consulting $5.0B +8% Revenue Revenue growth Continued strength in technology-driven transformations Growth across all revenue categories and geographies Revenue categories Business Transformation Book-to-bill ratio of 1.07 for the last year +6% yr/yr Application Operations +13% yr/yr Gross and pre-t
Slide 8: Infrastructure
Infrastructure $3.1B Flat Revenue Revenue growth zSystems performance reflects solid demand in the fourth quarter of z16 cycle Distributed Infrastructure performance driven by Storage growth offset by Revenue categories Hybrid Power10 wrap Infrastructure +4% yr/yr Infrastructure Support Gross and pr
Slide 9: Summary
Summary 1Q23 Summary 2023 Expectations Solid start to the year Revenue growth of 3% to 5% @CC Client demand for digital transformations Free cash flow of ~$10½ billion, with focus on cost reduction and ROI up >$1 billion yr/yr Delivering growth and productivity 9
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 1Q23 B/(W) Operating P&L highlights $ 1Q23 B/(W) impact of Yr/Yr Yr/Yr WFR* Revenue $14.3 4% Gross profit $7.7 2% Expense $6.2 (3%) (4 pts) Americas $7.1 1% Pre-tax income $1.4 (4%) (17 pts) Europe/ME/Africa $4.3 8% Net income $1.2 (2%) (16 pts) Asia Pac
Slide 13: Cash flow and balance sheet highlights
Cash flow and balance sheet highlights Cash flow 1Q23 Yr/Yr* Balance sheet Mar 23 Dec 22 Mar 22 Net cash from operations** $1.8 $0.2 Cash & marketable securities $17.6 $8.8 $10.8 Free cash flow*** $1.3 $0.1 Total debt $58.7 $50.9 $54.2 Selected uses of cash 1Q23 Yr/Yr Selected debt measures Mar 23 D
Slide 14: Currency impact on revenue growth
Currency impact on revenue growth Quarterly averages per US $ 1Q23 Yr/Yr Spot 2Q23 3Q23 4Q23 FY23 4/18/23 Euro 0.93 (5%) 0.91 3% 8% 7% 4% Pound 0.82 (10%) 0.80 (1%) 5% 6% 0% Yen 132 (14%) 134 (3%) 3% 5% (2%) Revenue impact, future @ 4/18/23 Spot (4 pts) (0-1 pts) 2-3 pts 2-3 pts ~0 pts Prior view @
Slide 15: Software & Infrastructure segment details
Software & Infrastructure segment details Software segment 1Q23 B/(W) Infrastructure segment 1Q23 B/(W) Yr/Yr Yr/Yr Revenue $5.9 6% Revenue $3.1 Flat Hybrid Platform & Solutions $4.2 5% Hybrid Infrastructure $1.7 4% Red Hat 11% zSystems 11% Automation 2% Distributed Infrastructure Flat Data & AI 3%
Slide 16: Consulting segment details
Consulting segment details Consulting segment 1Q23 B/(W) Yr/Yr Revenue $5.0 8% Business Transformation $2.3 6% Technology Consulting $0.9 4% Application Operations $1.7 13% Gross profit margin 25.2% 0.9 pts Pre-tax income $0.4 10% Pre-tax income margin 7.7% 0.5 pts Signings $5.2 7% Book-to-bill rati
Slide 17: Expense summary
Expense summary Expense 1Q23 B/(W) Acq/ Yr/Yr Currency Divest* Base** SG&A – operating $4.6 (7%) 2 pts 0 pts (10 pts) impact of workforce rebalancing $0.3 (6 pts) (6 pts) RD&E $1.7 1% 2 pts 4 pts (4 pts) IP and custom development income ($0.2) 49% Other (income)/expense - operating ($0.2) 35% Intere
Slide 18: Balance sheet summary
Balance sheet summary Mar 23 Dec 22 Mar 22 Cash & marketable securities $17.6 $8.8 $10.8 Core (non-IBM Financing) assets* $103.6 $103.4 $108.9 IBM Financing assets $12.5 $15.0 $13.6 Total assets $133.6 $127.2 $133.3 Other liabilities $53.3 $54.3 $59.9 Core (non-IBM Financing) debt* $48.2 $38.1 $42.1
Slide 19: Cash flow summary
Cash flow summary B/(W) 1Q23 Yr/Yr* Net cash from operations $3.8 $0.5 Less: IBM Financing receivables $2.0 $0.3 Net cash from operations (excluding IBM Financing receivables) $1.8 $0.2 Net capital expenditures ($0.5) ($0.1) Free cash flow (excluding IBM Financing receivables) $1.3 $0.1 Acquisitions
Slide 20: Cash flow (ASC230)
Cash flow (ASC230) 1Q23 1Q22 Net income from operations $0.9 $0.7 Depreciation / amortization of intangibles $1.1 $1.3 Stock-based compensation $0.3 $0.2 Working capital / other ($0.5) ($0.6) IBM Financing A/R $2.0 $1.6 Net cash provided by operating activities $3.8 $3.2 Capital expenditures, net of
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 - 1Q 2023 1Q23 Yr/Yr GAAP @CC Total revenue Flat 4% Americas Flat 1% Europe/ME/Africa 2% 8% Asia Pacific (2%) 7% The above reconciles the non-GAAP financial information contained in the “Financial highlights”, “Revenue and P&L hig
Slide 25: Non-GAAP supplemental materials: segment revenue performance
Non-GAAP supplemental materials Reconciliation of segment revenue performance - 1Q 2023 1Q23 Yr/Yr 1Q23 Yr/Yr GAAP @CC GAAP @CC Software 3% 6% Consulting 3% 8% Hybrid Platform & Solutions 2% 5% Business Transformation 1% 6% Red Hat 8% 11% Technology Consulting (1%) 4% Automation (1%) 2% Application
Slide 26: Non-GAAP supplemental materials: expense summary
Non-GAAP supplemental materials Reconciliation of expense summary - 1Q 2023 1Q23 GAAP Non-GAAP Operating adjustments (non-GAAP) SG&A Currency 2 pts 0 pts 2 pts Acquisitions/divestitures 0 pts 0 pts 0 pts Base* (8 pts) (1 pts) (10 pts) RD&E Currency 2 pts 0 pts 2 pts Acquisitions/divestitures 4 pts 0
Slide 27: Non-GAAP supplemental materials: continuing operations
Non-GAAP supplemental materials Reconciliation of continuing operations - 1Q 2023 1Q23 Acquisition- Retirement- Kyndryl- related related Tax reform related Operating GAAP adjustments adjustments impacts impact (non-GAAP) Gross profit $7,509 $148 — — — $7,658 Gross profit margin 52.7% 1.0 pts — — — 5
Slide 28: Non-GAAP supplemental materials: pre-tax income and margin
Non-GAAP supplemental materials Reconciliation of Pre-tax income and margin – 1Q 2023 1Q23 Yr/Yr 1Q23 Yr/Yr Pre-tax income Pre-tax margin B/(W) B/(W) GAAP 70% 3 pts Non-operating adjustments * (74 pts) (3.5 pts) Operating (non-GAAP) (4%) (0.5 pts) Adjusted to exclude workforce rebalancing charges**
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 finan
Slide 30: ibm.com/investor
ibm.com/investor
International Business Machines — Q1 2023 Earnings Presentation on 6ix