International Business Machines Corporation (NYSE:IBM) Q2 2016 Earnings Conference Call Transcript

Jul 18, 2016 • 05:00 pm ET


International Business Machines Corporation (NYSE:IBM) Q2 2016 Earnings Conference Call Transcript


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Welcome, and thank you for standing by. At this time, all participants are in listen-only mode. Today's conference is being recorded, if you have any objections, you may disconnect at this time.

Now I'll turn the meeting over to Ms. Patricia Murphy, Vice President up Investor Relations. Ma'am, you may begin.

Patricia Murphy

Thank you. This is Patricia Murphy, Vice President of Investor Relations for IBM. I'm here today with Martin Schroeter, IBM's Senior Vice President and Chief Financial Officer. I'd like to welcome you to our second quarter earnings presentation. The prepared remarks will be available within a couple of hours, and a replay of the webcast will be posted by this time tomorrow.

(Forward-Looking Cautionary Statements)

So with that, I'll turn the call over to Martin Schroeter.

Martin Schroeter

Thanks, Patricia. In the second quarter, we generated $20.2 billion in revenue, $3.5 billion in pre-tax income, and $2.95 of operating earnings per share. 90 days ago, we told you what we expected for the second quarter. We said we'd continue to see strength in the Strategic Imperatives, and we delivered 1% revenue growth, led by cloud. We said we'd continue to build as-a-Service capabilities. Our Cloud-as-a-Service revenue was up 50%, and we exited the quarter with an annual run rate of $6.7 billion in our Cloud-as-a-Service businesses. That's up from $5.4 billion last quarter. Certainly we have a benefit from the acquisitions recently closed, but we had solid organic growth as well.

We said we'd continue a high level of investment, as we move into new areas and build new markets, and we did that, both organically, and through acquisitions. And we said that given seasonality and actions we took in the first quarter, we'd grow our pre-tax income by about $2 billion quarter-to-quarter, and we grew a bit more than that.

In total, we got done what we set out to do, and we saw some improvements in trajectory relative to long-term trends, though as always, the rate and pace varied by business unit and geography. Let me touch quickly on some of the drivers for the quarter.

As I said, we continued to deliver double-digit revenue growth in our Strategic Imperatives. Over the last twelve months, Strategic Imperatives delivered $31 billion in revenue, and now represent 38% of IBM. Growth was led by cloud, where our revenue was up 30% to $3.4 billion in the quarter, and over $11.5 billion over the last year, so good progress in cloud.

Looking at revenue from a segment perspective, the strongest growth came from Cognitive Solutions, led by our analytics and cognitive capabilities, and security. In Technology Services and Cloud Platforms, our Infrastructure Services revenue continues to grow, while Integration Software declined as we shift those offerings to cloud. And our GTS backlog grew on the back of strong signings. Our Systems business again reflects the product cycle dynamics in terms of revenue and margin.

And Global Business Services continues to reflect a shift in our business. We're continuing to deliver double-digit growth in