International Business Machines Corporation (NYSE:IBM) Q2 2017 Earnings Conference Call Transcript

Jul 18, 2017 • 05:00 pm ET


International Business Machines Corporation (NYSE:IBM) Q2 2017 Earnings Conference Call Transcript


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Welcome, and thank you for standing by. (Operator Instructions) 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 of 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 Statements) So with that, I'll turn the call over to Martin Schroeter.

Martin Schroeter

Thanks, Patricia. In the second quarter, we delivered $19.3 billion of revenue, operating pretax income of over $3 billion, operating earnings per share of $2.97 and free cash flow of over $2.5 billion. The quarter played out as we expected with continued solid growth in our strategic imperatives, which now really reflects organic growth. We wrapped on the acquisitive content, and we're at the stage where we can start to get some efficiency as a result of bringing them into IBM while we build on the new content.

Our gross margin is up over 2.5 points sequentially and positions us for the continued improvement over the course of the year we talked about 90 days ago. And we had good free cash flow performance, all again as we expected. In the second quarter, we signed a number of large contracts in Global Technology Services and again grew our Global Business Services signings, both of which will start to contribute in the second half.

And since the quarter ended, we announced our new IBM z System, which will be available later this quarter. With all of this, we expect improved performance in revenue and gross margin in the second half, and we continue to expect at least $13.80 of operating EPS and free cash flow consistent with last year. I'll spend time on the first to second half dynamics a little later, and you'll see it very similar to what we talked about in April.

We've been focused on helping our enterprise clients transform their businesses to leverage their data for competitive advantage and to improve the efficiency and agility of their IT environments. Our strategic imperatives performance has been an indication of our progress in moving to these areas. As you know, our strategic imperatives aren't separate businesses but signposts that represent the revenue across our business lines that work together to address demand for analytics, cloud, security, mobile and social.

Our clients are taking the productivity savings we're delivering to them in the more traditional areas of IT and reinvesting those savings to move into these new areas. These are the dynamics you've seen in our revenue. In the quarter, our strategic imperatives revenue was up 7% in constant currency, which, as I said, is pretty much all organic growth. Over