International Business Machines Corporation · NYSE:IBM

International Business Machines — Q2 2013 Earnings Presentation

39 slides from International Business Machines's earnings presentation, Jul 17, 2013

  1. Slide 1: 2Q 2013 Earnings Presentation

    2Q 2013 Earnings Presentation July 17, 2013 www.ibm.com/investor

  2. 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 looking under the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on the company's current assumptions regarding future business and f

  3. Slide 3: 2Q 2013 Highlights

    2Q 2013 Highlights Revenue $24.9B -3%, -1% yr/yr @CC Operating (Non-GAAP) EPS $3.22 -8% yr/yr Excl. Workforce Rebalancing* $3.91 +8% yr/yr Ø Software Key Branded Middleware grew double-digits @CC with share gains across the portfolio Ø Global Business Services returned to revenue growth @CC Ø Ser

  4. Slide 4: 2013 Expectations

    2013 Expectations FY 2013 Operating EPS Expectations Excluding $1B 2Q Workforce All In Rebalancing Charge April “At Least” Expectations $16.70 $16.70 Rebalancing Charge without Offsetting Gain ~(0.65) Operational Performance 0.20 0.20 July “At Least” Expectations $16.25 $16.90 Ø No longer expect si

  5. Slide 5: Key Financial Metrics

    Key Financial Metrics $ in Billions, except EPS P&L Highlights P&L Ratios B/(W) B/(W) 2Q13 Yr/Yr (Operating) 2Q13 Yr/Yr Revenue $24.9 (3%) GP Margin 49.7% 1.4 pts @CC (1%) PTI – Operating $4.6 (16%) PTI Margin 18.4% (2.7 pts) Excludes WFR* $5.6 Flat Excludes WFR* 22.5% 0.8 pts NI – Operating $3.6 (1

  6. Slide 6: Operating EPS Bridge – 2Q12 to 2Q13

    Operating EPS Bridge – 2Q12 to 2Q13 $3.91 $0.24 ($0.59) 2Q13 $3.51 ($0.12) Workforce $0.18 $3.22 Rebalancing Charge WF Rebal 2Q13 ($0.69) 2Q12 ($0.10) Margin Expansion 2Q12 Revenue Growth Margin Workforce Share 2Q13 Opera4ng EPS @ Actual Expansion Rebalancing Repurchases Opera4ng EPS Excl. WFR www.i

  7. Slide 7: Revenue by Geography

    Revenue by Geography $ in Billions B/(W) Yr/Yr 2Q13 Rptd @CC Americas $10.7 (3%) (3%) Canada/ Europe/ME/A 7.8 Flat (1%) LA Asia Pacific 5.8 (8%) Flat EMEA U.S. Total Geographies $24.4 (4%) (1%) -­‐4% excl. Retail Store Solutions (3%) (1%) Japan APac IBM $24.9 (3%) (1%) +3% excl. Retail Store Solutio

  8. Slide 8: Revenue and Gross Profit Margin by Segment

    Revenue and Gross Profit Margin by Segment Operating Revenue Gross Profit Margin $ in Billions B/(W) Yr/Yr B/(W) 2Q13 Rptd @CC 2Q13 Yr/Yr Pts Global Technology Services $9.5 (5%) (2%) 37.8% 1.5 pts Global Business Services 4.6 (1%) 2% 31.2% 0.4 pts Software 6.4 4% 5% 88.8% 0.4 pts Systems & Technolo

  9. Slide 9: Expense Summary

    Expense Summary B/(W) B/(W) Yr/Yr Drivers $ in Billions 2Q13 Yr/Yr Currency Acq.* Base SG&A – Operating $6.5 (14%) 1 pts (1 pts) (14 pts) Excl. Workforce Rebalancing** 5.5 1% 1 pts (1 pts) 1 pts RD&E – Operating 1.5 4% 0 pts (2 pts) 6 pts IP and Development Income (0.2) (15%) Other (Income)/Expense

  10. Slide 10: Services Segments

    Services Segments Global Technology Services (GTS) Global Business Services (GBS) B/(W) Yr/Yr B/(W) Yr/Yr $ in Billions $ in Billions 2Q13 Rptd @CC 2Q13 Rptd @CC Revenue (External) $9.5 (5%) (2%) Revenue (External) $4.6 (1%) 2% Gross Margin (External) 37.8% 1.5 pts Gross Margin (External) 31.2% 0.4

  11. Slide 11: Software Segment

    Software Segment B/(W) Yr/Yr $ in Billions 2Q13 Rptd @CC Revenue (External) $6.4 4% 5% Gross Margin (External) 88.8% 0.4 pts Pre-Tax Income $2.4 (2%) excluding WFR $2.7 6% PTI Margin 34.1% (1.8 pts) excluding WFR 37.2% 0.9 pts 2Q13 Revenue Yr/Yr 2Q13 Revenue Rptd @CC (% of Total SoYware) WebSphere F

  12. Slide 12: Systems & Technology Segment

    Systems & Technology Segment B/(W) Yr/Yr $ in Billions 2Q13 Rptd @CC Revenue (External) – including RSS $3.8 (12%) (11%) excluding RSS (8%) (7%) Gross Margin (External) 36.7% (1.6 pts) Pre-Tax Income ($0.1) (160%) excluding WFR $0.1 (76%) PTI Margin (3.6%) (8.9 pts) excluding WFR 1.6% (4.3 pts) 2Q13

  13. Slide 13: Cash Flow Analysis

    Cash Flow Analysis B/(W) YTD B/(W) $ in Billions 2Q13 Yr/Yr 2Q13 Yr/Yr Net Cash from Operations $3.2 ($1.3) $7.2 ($1.5) Less: Global Financing Receivables (0.5) 0.1 1.1 0.2 Net Cash from Operations 3.6 (1.3) 6.1 (1.8) (excluding GF Receivables) Net Capital Expenditures (0.9) 0.3 (1.7) 0.6 Free Cash

  14. Slide 14: Balance Sheet Summary

    Balance Sheet Summary $ in Billions June 12 Dec. 12 June 13 Cash & Marketable Securities $11.2 $11.1 $10.4 Non-GF Assets* 70.2 70.6 70.1 Global Financing Assets 32.5 37.5 34.7 Total Assets 113.8 119.2 115.2 Other Liabilities 60.8 67.0 63.1 Non-GF Debt* 9.8 8.8 9.3 Global Financing Debt 22.6 24.5 24.

  15. Slide 15: 2Q 2013 Summary

    2015e At least $20 2Q 2013 Summary Ø Solid performance in higher margin Software and 2013e* $16.90+ System z mainframe businesses 2012 $15.25 Ø Continued strength in Smarter Planet, Cloud and 2011 $13.44 Business Analytics 2010 $11.67 Ø Services backlog growth driven by significant new business i

  16. Slide 16: www.ibm.com/investor

    www.ibm.com/investor 16

  17. Slide 17: Supplemental Materials

    Supplemental Materials Supplemental Materials Some columns and rows in these materials, including the supplemental exhibits, may not add due to rounding Ø Currency – Year/Year Comparison Ø Supplemental Segment Information – Global Services Ø Supplemental Segment Information – Systems & Technology

  18. Slide 18: Currency – Year/Year Comparison

    Supplemental Materials Currency – Year/Year Comparison Quarterly Averages per US $ 7/16 Yr/Yr @ 7/16 Spot 1Q13 Yr/Yr 2Q13 Yr/Yr Spot 3Q13 4Q13 FY13 Euro 0.76 1% 0.77 2% 0.76 5% 1% 2% Pound 0.65 (1%) 0.65 (3%) 0.66 (4%) (6%) (4%) Yen 92 (16%) 99 (23%) 99 (26%) (22%) (22%) IBM Revenue Impact (2 pts) (

  19. Slide 19: Supplemental Segment Information – 2Q 2013

    Supplemental Materials Supplemental Segment Information – 2Q 2013 Global Services Revenue Global Services Backlog / Signings Revenue Growth $ in Billions Backlog Yr/Yr @CC 2Q13 Yr/Yr @CC GTS Outsourcing (6%) (3%) Total Backlog $141 3% 7% Integrated Tech Services (2%) 1% Change in Backlog due to Curr

  20. Slide 20: Supplemental Segment Information – 2Q 2013

    Supplemental Materials Supplemental Segment Information – 2Q 2013 Systems & Technology Software Revenue Growth Revenue Growth Yr/Yr @CC GP% Share Yr/Yr @CC System z 10% 11% WebSphere Family 9% 10% Power Systems (25%) (24%) Information Management 5% 6% Tivoli 13% 14% System x (11%) (10%) Social Workf

  21. Slide 21: Pre-Tax Income by Segment

    Pre-Tax Income by Segment Segment PTI $ Segment PTI Margin $ in Billions B/(W) B/(W) Yr/Yr B/(W) B/(W) Yr/Yr PTI $ Yr/Yr Excl. WFR* PTI % Yr/Yr Excl. WFR* Global Technology Services $1.5 (14%) 3% 15.4% (1.7 pts) 1.3 pts Global Business Services 0.6 (22%) 2% 13.0% (3.6 pts) 0.5 pts Software 2.4 (2%)

  22. Slide 22: Global Financing Portfolio

    Supplemental Materials Global Financing Portfolio 2Q13 – $27.9B Net External Receivables Investment Grade Non-Investment Grade 61% 39% 50% 40% 39% 30% 20% 22% 20% 10% 12% 6% 1% 0% AAA to A- BBB+ to BBB- BB+ to BB BB- to B+ B to B- CCC+ to D 2Q13 1Q13 2Q12 Identified Loss Rate 0.8% 0.8% 0.8% Anticipa

  23. Slide 23: Revenue by Key Industry Sales Unit

    Supplemental Materials Revenue by Key Industry Sales Unit $ in Billions B/(W) Yr/Yr* 2Q13 Rptd @CC Industrial Public Financial Services $7.0 1% 4% Distribu4on Public 3.3 (6%) (5%) Financial Comms Industrial 2.3 Flat 3% Services Distribution 1.9 (6%) (5%) General Communications 2.0 (8%) (7%) Business

  24. Slide 24: Cash Flow (FAS 95)

    Supplemental Materials Cash Flow (FAS 95) $ in Billions QTD QTD YTD YTD 2Q13 2Q12 2Q13 2Q12 Net Income from Operations $3.2 $3.9 $6.3 $6.9 Depreciation / Amortization of Intangibles 1.1 1.2 2.3 2.3 Stock-based Compensation 0.2 0.2 0.3 0.3 Working Capital / Other (0.9) (0.3) (2.8) (1.8) Global Financ

  25. Slide 25: Non-GAAP Supplemental Materials

    Supplemental Materials Non-GAAP Supplemental Materials In an effort to provide investors with additional information regarding the company's results as determined by generally accepted accounting principles (GAAP), the company also discusses, in its earnings press release and earnings presentation m

  26. Slide 26: Non-GAAP Supplemental Materials

    Supplemental Materials Non-GAAP Supplemental Materials Cash Flow Management uses a free cash flow measure to evaluate the company’s operating results, plan share repurchase levels, evaluate strategic investments and assess the company’s ability and need to incur and service debt. The entire free cas

  27. Slide 27: Reconciliation of Operating Earnings Per Share

    Supplemental Materials Non-GAAP Supplemental Materials Reconcilia4on of Opera4ng Earnings Per Share 2013 2013 Expectations excl. Expectations 2Q Workforce Rebal. IBM GAAP EPS $15.08+ IBM Operating EPS (Non-GAAP) $16.25+ $16.90+ Adjustments Acquisition-Related Charges * $0.51 Amortization of Purchase

  28. Slide 28: GAAP to Operating (Non-GAAP) Bridge – 2Q 2013

    Supplemental Materials Non-GAAP Supplemental Materials GAAP to Opera4ng (Non-­‐GAAP) Bridge – 2Q 2013 $ in Millions, except EPS Acquisition- Retirement- related related Operating GAAP Adjustments* Adjustments** (Non-GAAP) Gross Profit $12,132 $91 $156 $12,379 SG&A 6,680 (91) (93) 6,496 RD&E 1,548 0

  29. Slide 29: GAAP to Operating (Non-GAAP) Bridge – 2Q 2012

    Supplemental Materials Non-GAAP Supplemental Materials GAAP to Opera4ng (Non-­‐GAAP) Bridge – 2Q 2012 $ in Millions, except EPS Acquisition- Retirement- related related Operating GAAP Adjustments* Adjustments** (Non-GAAP) Gross Profit $12,281 $93 $66 $12,440 SG&A 5,837 (87) (33) 5,717 RD&E 1,587 0 5

  30. Slide 30: GAAP to Operating (Non-GAAP) Bridge – 2Q YTD 2013

    Supplemental Materials Non-GAAP Supplemental Materials GAAP to Opera4ng (Non-­‐GAAP) Bridge – 2Q YTD 2013 $ in Millions, except EPS Acquisition- Retirement- related related Operating GAAP Adjustments* Adjustments** (Non-GAAP) Gross Profit $22,810 $186 $320 $23,316 SG&A 12,257 (183) (197) 11,878 RD&E

  31. Slide 31: GAAP to Operating (Non-GAAP) Bridge – 2Q YTD 2012

    Supplemental Materials Non-GAAP Supplemental Materials GAAP to Opera4ng (Non-­‐GAAP) Bridge – 2Q YTD 2012 $ in Millions, except EPS Acquisition- Retirement- related related Operating GAAP Adjustments* Adjustments** (Non-GAAP) Gross Profit $23,400 $181 $137 $23,718 SG&A 11,723 (171) (69) 11,483 RD&E

  32. Slide 32: Reconciliation of Operating EPS Bridge – 2Q 2012 to 2Q 2013

    Supplemental Materials Non-GAAP Supplemental Materials Reconcilia4on of Opera4ng EPS Bridge – 2Q 2012 to 2Q 2013 Acquisition- Retirement-related related Adjustments** Operating GAAP Adjustments* (Non-GAAP) 2Q12 EPS $3.34 $0.11 $0.06 $3.51 Revenue growth (0.11) (0.01) (0.00) (0.12) @ actual Margin ex

  33. Slide 33: GAAP to Operating (Non-GAAP) Bridge – 2Q 2013 and 2Q 2012

    Supplemental Materials Non-GAAP Supplemental Materials GAAP to Opera4ng (Non-­‐GAAP) Bridge – 2Q 2013 and 2Q 2012 Acquisition- Retirement- related related Operating 2Q 2013 GAAP Adjustments* Adjustments ** (Non-GAAP) Gross Profit Margin 48.7% 0.4 pts 0.6 pts 49.7% PTI Margin 16.6% 0.7 pts 1.1 pts 18

  34. Slide 34: Reconciliation of B/(W) Yr/Yr Expense Drivers – 2Q 2013

    Supplemental Materials Non-GAAP Supplemental Materials Reconcilia4on of B/(W) Yr/Yr Expense Drivers – 2Q 2013 Non-GAAP Operating GAAP Adjustments (Non-GAAP) SG&A Currency 1 pts 0 pts 1 pts Acquisitions (1 pts) 0 pts (1 pts) Base (14 pts) 1 pts (14 pts) RD&E Currency 0 pts 0 pts 0 pts Acquisitions (2

  35. Slide 35: Reconciliation of Free Cash Flow (excluding GF Receivables)

    Supplemental Materials Non-GAAP Supplemental Materials Reconcilia4on of Free Cash Flow (excluding GF Receivables) $ in Billions 12 months 3 months ended ended 6/30/13 6/30/12 Net Cash from Operations $18.1 $4.4 Less: Global Financing Receivables (2.7) (0.5) Net Cash from Operations (excluding GF 20.

  36. Slide 36: Reconciliation of Revenue Growth

    Supplemental Materials Non-GAAP Supplemental Materials Reconcilia4on of Revenue Growth 1Q13 Yr/Yr 2Q13 Yr/Yr As Rptd @CC As Rptd @CC Europe/ME/A (4%) (4%) Japan (16%) 3% Tivoli Security software 19% 20% Tivoli Storage software 16% 17% Global Business Services (3%) Flat Power Systems (32%) (31%) 1Q13

  37. Slide 37: Reconciliation of Debt-to-Capital Ratio

    Supplemental Materials Non-GAAP Supplemental Materials Reconcilia4on of Debt-­‐to-­‐Capital Ra4o June 2013 Dec. 2012 June 2012 Non-Global Financing Debt / Capital 39% 36% 36% IBM Consolidated Debt / Capital 66% 64% 61% The above serves to reconcile the Non-GAAP financial information contained in the

  38. Slide 38: Reconciliation of Consolidated EPS

    Supplemental Materials Non-GAAP Supplemental Materials Reconcilia4on of Consolidated EPS Non-Operating EPS Acquisition- Retirement- Operating (As Reported) Related Related EPS 2010 $11.52 $0.34 ($0.20) $11.67 2011 13.06 0.41 (0.03) 13.44 2012 14.37 0.55 0.33 15.25 The above serves to reconcile the N

  39. Slide 39: www.ibm.com/investor

    www.ibm.com/investor 39

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