International Business Machines Corporation (NYSE:IBM) Q3 2016 Earnings Conference Call Transcript

Oct 17, 2016 • 05:00 pm ET

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International Business Machines Corporation (NYSE:IBM) Q3 2016 Earnings Conference Call Transcript

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Presentation
Executive
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 third quarter earnings presentation. 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)

Our presentation also includes certain non-GAAP financial measures in an effort to provide additional information to investors. All non-GAAP measures have been reconciled to their related GAAP measures in accordance with SEC rules. You'll find reconciliation charts at the end of the presentation and in the Form 8-K submitted to the SEC today. So with that, I'll turn the call over to Martin Schroeter.

Executive
Martin Schroeter

Thanks, Patricia. In the third quarter, we generated $19.2 billion in revenue, $3.7 billion in pre-tax income, and $3.29 of operating earnings per share. As we think back to the discussion 90 days ago, it was around Brexit and its impact on Europe, global spending in sectors like banking, and the attractiveness of investment in the emerging markets. All of these topics have the capacity to drive some volatility in results, but what you see in our third quarter results is stability in our revenue with continued strong growth and strategic imperatives and a top and bottom line consistent with what we expected. Our revenue was essentially flat relative to last year. Looking at the revenue dynamics, I want to point out a few things.

Our clients are focused on becoming digital businesses and our strong growth in cloud, security, mobile, and across our analytics portfolio reflects this. In total, we continue to deliver double-digit revenue growth in our strategic imperatives led by our cloud business. Cloud delivered as-a-service is part of a solid recurring revenue base across software and services and our annuity revenue continued to grow. Of course the acquisitions we've made in the last 12 months contributed to growth about the same amount as last quarter and for the first time in quite a while, currency was a modest tailwind to revenue growth. I'll talk to our revenue at constant currency going forward.

Looking at revenue from a segment perspective, we had very good performance in both cognitive solutions and technology services and cloud platforms. Cognitive solutions was up 5% and within that, solution software was up 8%. Technology services and cloud platforms revenue also grew with continued strength in our infrastructure services and growth in integration software as we help our clients build hybrid cloud capabilities. And with another quarter of signings growth, our GTS backlog is up year-to-year. Global Business Services made some progress this quarter in revenue trajectory as we continue to shift and mix toward digital offerings. Our systems revenue was down this quarter.

The z Systems performance reflects the fact that we're seven quarters into the product cycle while Power reflects the secular decline in UNIX mitigated by growth in Linux. There's a tremendous amount