International Business Machines Corporation (NYSE:IBM) Q3 2017 Earnings Conference Call Transcript

Oct 17, 2017 • 05:00 pm ET


International Business Machines Corporation (NYSE:IBM) Q3 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 we'll turn the meeting over to Ms. Patricia Murphy with IBM. 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 third quarter earnings presentation. The prepared remarks will be available within a couple of hours, and a replay of this webcast will be posted by this time tomorrow.

(Forward-Looking Cautionary Statements) Copies are available from the SEC, from the IBM website or from us in Investor Relations.

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 the 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.

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

Martin Schroeter

In the third quarter, we delivered $19.2 billion of revenue, operating pretax income of $3.6 billion and operating earnings per share of $3.30. Our revenue trajectory improved, and revenue was roughly flat year-to-year. This includes a modest benefit from currency, and so we were down 1% at constant currency, which is two points better than last quarter's growth rate.

Our gross and pre-tax margins again improved sequentially, and we again had good free cash flow performance. With this performance, we continue to expect at least $13.80 of operating EPS for 2017 and free cash flow consistent with last year.

From a geographic perspective, our trajectory improvement was broad based, and from a segment perspective, we had significant improvement in Cognitive Solutions and in Systems. Cognitive Solutions grew year-to-year, led by security, IoT and our analytics and cognitive offerings as well as growth in our transaction processing software, so broad-based improvement across cognitive.

In Systems, we had strong growth, driven by the third consecutive quarter of growth in storage and a solid launch of our new z14 mainframe, which was available for the last 2 weeks of the quarter.

And in services, the revenue performance in both Global Business Services and Technology Services & Cloud Platforms was very similar to the second at constant currency. We had good signings performance this quarter, which were up year-to-year in both segments, including strong double-digit growth in GTS signings.

Across our segments, our strategic imperatives revenue was up 11% or 10% at constant currency with strong double-digit growth in cloud and security. While there's not much difference between our constant currency and reported revenue rates this quarter, I'll continue to focus on constant currency growth rates throughout.

The revenue performance in the quarter was pretty much all organic. Revenue from our strategic imperatives over the last 12 months was also up 10% to $34.9 billion and now represents 45% of