International Business Machines Corporation · NYSE:IBM
International Business Machines — Q4 2018 Earnings Presentation
38 slides from International Business Machines's earnings presentation, Jan 22, 2019
Slide 1: Forward Looking Statements and Non-GAAP Information
Forward Looking Statements and Non-GAAP Information 2 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
Slide 2: Overview
Overview 3 4Q18 FY18 $21.8B $79.6B Revenue $ 4.87 $13.81 Operating EPS $11.9B Free Cash Flow y Full year performance reflects growth in revenue, operating pre-tax income, and operating earnings per share Continued growth in high value offerings that address hybrid cloud and analytics/AI y - - - Stro
Slide 3: Key Financial Metrics
Key Financial Metrics 4 • • • • Revenue growth in software and services, offset by IBM Z product cycle (3 point impact) Gross and pre-tax margin expansion, led by services Net income and operating earnings per share reflects yr/yr tax headwinds Free cash flow performance supports investment and shar
Slide 4: Cognitive Solutions Segment
Cognitive Solutions Segment 5 Segment Revenue Elements Solutions Software +3% Yr/Yr Transaction Processing Software +1% Yr/Yr Highlights • • Solutions Software growth led by analytics and AI offerings Transaction Processing Software growth reflects clients’ long-term commitment to our platform Pre-t
Slide 5: Global Business Services Segment
Global Business Services Segment 6 Segment Revenue Elements Consulting +10% Yr/Yr Application Management +4% Yr/Yr Global Process Services +5% Yr/Yr Highlights • Strong revenue performance, with growth across all three business areas Consulting growth driven by Digital Strategy, CRM, and next genera
Slide 6: Technology Services and Cloud Platforms Segment
Technology Services and Cloud Platforms Segment 7 Segment Revenue Elements Infrastructure Services Flat Yr/Yr Integration Software +4% Yr/Yr Technical Support Services (3%) Yr/Yr Highlights • Continued momentum in hybrid cloud with signings growth and increased adoption of IBM Cloud Private Gross ma
Slide 7: Systems Segment
Systems Segment 8 Segment Revenue Elements Systems Hardware (23%) Yr/Yr Operating Systems Software (3%) Yr/Yr Highlights Strategic Imperatives Revenue within Systems • IBM Z performance reflects expected wrap on robust 4Q17, continued strong demand for new workloads Power strength driven by POWER9 a
Slide 8: Cash Flow and Balance Sheet Highlights
Cash Flow and Balance Sheet Highlights 9 • Full-year free cash flow performance reflects expected yr/yr headwinds in capex, working capital, and cash tax Committed to continued dividend increases Free cash flow realization ~111%** for the year • • • Positioned to support business over the longer ter
Slide 9: Operating Earnings per Share Drivers – FY17 to FY18
Operating Earnings per Share Drivers – FY17 to FY18 10 0.35 (0.53) 0.30 (0.05) 0.07 13.81 13.66 FY17 Revenue @Actual Pre-Tax Margin Tax Shares Significant Items* (1Q only) FY18 • Full year performance reflects growth in revenue, operating pre-tax income, and operating earnings per share, with margin
Slide 10: Summary
Summary 11 • Full year performance reflects growth in revenue, operating pre-tax income, and operating earnings per share, with solid free cash flow realization - - - - Continued momentum in Global Business Services Strong finish in software Successful IBM Z and Power programs Operating leverage and
Slide 11: Summary
Summary e Full year performance reflects growth in revenue, operating pre-tax income, and operating earnings per share, with solid free cash flow realization Continued momentum in Global Business Services Strong finish in software Successful IBM Z and Power programs Operating leverage and productivi
Slide 12: Supplemental Materials
Supplemental Materials 13 • • • • • • • • • • Currency – Impact on Revenue Growth Divested Businesses – 2019 Implications Strategic Imperatives Revenue Geographic Revenue Segment Revenue & Gross Profit Additional Revenue & Backlog Information Expense Summary Balance Sheet Summary Cash Flow Summary C
Slide 13: Currency – Impact on Revenue Growth
Currency – Impact on Revenue Growth 14 US$B $21.8 Yr/Yr (3%) Revenue As Reported Currency Impact ($0.5) (2 pts) Revenue @ CC (1%) Supplemental Materials Quarterly Averages per US $ 3Q18 Yr/Yr 4Q18 Yr/Yr 1/18/2019 Spot 1Q19 2Q19 3Q19 4Q19 FY19 Euro 0.86 (1%) 0.88 (3%) 0.88 (8%) (5%) (2%) 0% (4%) Poun
Slide 14: Divested Businesses - 2019 Implications
Divested Businesses - 2019 Implications 15 • Announced divestiture of collaboration and on-premise marketing and commerce software, and Seterus mortgage servicing business Improves revenue and profit profile over the longer term - 2019 expectations include a headwind to revenue and free cash flow, a
Slide 15: Strategic Imperatives Revenue Excluding IBM Z
Strategic Imperatives Revenue 16 Excluding IBM Z • Strategic imperatives revenue of $39.8 billion in 2018, half of IBM revenue • Strategic imperatives revenue growth impacted by IBM Z cycle; double-digit growth across analytics, cloud, and security excluding IBM Z • Continued strong growth in cloud
Slide 16: Geographic Revenue
Geographic Revenue 17 • Americas reflects strong growth in Latin America offset by a decline in the US, reflecting IBM Z cycle dynamics • E/ME/A accelerated to 2% growth, led by Germany, UK, Spain, and Italy • Asia Pacific yr/yr performance consistent with 3Q18, with 5% growth in Japan Revenue growt
Slide 17: Segment Revenue & Gross Profit
Segment Revenue & Gross Profit 18 Segment Revenue & Gross Profit Metrics - 4Q18 Cognitive Solutions Global Business Services Technology Services & Cloud Platforms Systems Global Financing Revenue growth rates @CC, $ in billions Supplemental Materials 4Q18 Revenue Yr/Yr 4Q18 GP% Yr/Yr $5.5 2% 79.4% 0
Slide 18: Additional Revenue & Backlog Information
Additional Revenue & Backlog Information 19 IBM Z (44%) Power 10% Backlog Yr/Yr @Actual (4%) Storage (7%) Growth rates @CC, $ in billions, Services Backlog calculated using December 31 currency spot rates Supplemental Materials 4Q18 Yr/Yr Signings $15.8 21% Services Backlog $116 (1%) 4Q18 Yr/Yr Syst
Slide 19: Expense Summary
Expense Summary 20 • • • Yr/yr performance reflects operational efficiencies in SG&A and RD&E, mitigated by lower level of IP income Continued to invest in high growth opportunities Currency reflects translation and yr/yr hedging benefits, which mitigate currency impacts through P&L $ in billions *i
Slide 20: Balance Sheet Summary
Balance Sheet Summary 21 $ in billions *Reflects adoption of the FASB guidance on restricted cash, Dec 17 recast **includes eliminations of inter-company activity Supplemental Materials Dec 18 Dec 17 Cash & Marketable Securities* $12.2 $12.8 Non-GF Assets*, ** $71.7 $74.2 Global Financing Assets* $3
Slide 21: Cash Flow Summary
Cash Flow Summary 22 $ in billions *Reflects adoption of the FASB guidance on restricted cash, 2017 recast Supplemental Materials B/(W) B/(W) FY18Yr/Yr 4Q18 Yr/Yr Net Cash from Operations $4.1 ($1.6) $15.2 ($1.5) Less: Global Financing Receivables ($3.2) ($1.2) ($0.3) ($0.8) Net Cash from Operations
Slide 22: Cash Flow (ASC 230)
Cash Flow (ASC 230) 23 FY18 FY17 $ in billions *Reflects adoption of the FASB guidance on restricted cash, 4Q17 & FY17 recast Supplemental Materials 4Q18 4Q17 Net Income from Operations $2.0 ($1.1) $8.7 $5.8 Depreciation / Amortization of Intangibles $1.1 $1.1 $4.5 $4.5 Stock-based Compensation $0.1
Slide 23: Key Financial Metrics – FY 2018
Key Financial Metrics – FY 2018 24 B/(W) B/(W) Revenue growth rates @CC, $ in billions except for EPS Supplemental Materials Cash Highlights 4Q18 FY Free Cash Flow (excl. GF Receivables) $6.5 $11.9 Share Repurchase (Gross) $2.0 $4.4 Dividends $1.4 $5.7 Cash Balance @ Dec 31 $12.2 P&L Highlights FY18
Slide 24: Strategic Imperatives & Geographic Revenue – FY 2018
Strategic Imperatives & Geographic Revenue – FY 2018 25 Excluding IBM Z Revenue growth rates @CC, $ in billions Overlap in Strategic Imperatives revenue primarily reflects solutions delivered via cloud Supplemental Materials FY18 Yr/Yr Yr/Yr Total Strategic Imperatives $39.8 9% 9% Analytics $21.7 5%
Slide 25: Segment Revenue & Gross Profit – FY 2018
Segment Revenue & Gross Profit – FY 2018 26 Revenue growth rates @CC, $ in billions Supplemental Materials Segment Revenue & Gross Profit Metrics - FY18 FY18 Revenue Yr/Yr FY18 GP% Yr/Yr Cognitive Solutions $18.5 Flat 77.5% (1.1 pts) Solutions Software $12.9 Flat Transaction Processing Software $5.6
Slide 26: Expense Summary – FY 2018
Expense Summary – FY 2018 27 $ in billions *includes acquisitions made in the last twelve months, net of non-operating acquisition-related charges **represents the percentage change after excluding the impact of currency and acquisitions Supplemental Materials B/(W) Currency Acq.* Base** Expense Met
Slide 27: Retirement-Related Summary
Retirement-Related Summary 28 Expected 2019 Key Assumptions and Metrics 2017 2018 2019 Cost and Contributions 2018 Funded Status at Year-end* Operating Cost $1.5 $1.5 US 104% 104% Non-operating Cost** $1.6 $0.6 WW 100% 99% Total Cost $3.1 $2.0 D i s cou n t Ra t e a t Yea r-en d Contributions*** $2.
Slide 28: Reconciliation of Operating Earnings Per Share
Non-GAAP Supplemental Materials Reconciliation of Operating Earnings Per Share 29 2019 Expectations GAAP Diluted EPS at least $12.45 Operating EPS (Non-GAAP) at least $13.90 Adjustments Acquisition-Related Charges* $0.91 Non-Operating Retirement-Related Items $0.45 Tax Reform Enactment Impacts $0.09
Slide 29: Reconciliation of Revenue Growth - 4Q & FY 2018
Non-GAAP Supplemental Materials Reconciliation of Revenue Growth - 4Q & FY 2018 30 The above reconciles the Non-GAAP financial information contained in the “Geographic Revenue” and “Strategic Imperatives & Geographic Revenue – FY 2018” discussions in the company’s earnings presentation. See Exhibit
Slide 30: Reconciliation of Revenue Growth - 4Q & FY 2018
Non-GAAP Supplemental Materials Reconciliation of Revenue Growth - 4Q & FY 2018 31 The above reconciles the Non-GAAP financial information contained in the “Strategic Imperatives Revenue” and “Strategic Imperatives and Geographic Revenue – FY 2018” discussions in the company’s earnings presentation.
Slide 31: Reconciliation of Revenue Growth - 4Q & FY 2018
Non-GAAP Supplemental Materials Reconciliation of Revenue Growth - 4Q & FY 2018 32 The above reconciles the Non-GAAP financial information contained in the “Strategic Imperatives Revenue” and “Strategic Imperatives and Geographic Revenue – FY 2018” discussions in the company’s earnings presentation.
Slide 32: Reconciliation of Revenue Growth - 4Q 2018
Non-GAAP Supplemental Materials Reconciliation of Revenue Growth - 4Q 2018 4Q18 Yr/Yr 33 4Q18 Yr/Yr GAAP @CC GAAP @CC C ognitive Sol utions Fl at 2% T ech Svcs & C l oud Pl atfor m s (3%) Fl at Solutions Software 1% 3% Global Technology Services (4%) (1%) Transaction Processing Software (1%) 1% Infr
Slide 33: Reconciliation of Revenue Growth - FY 2018
Non-GAAP Supplemental Materials Reconciliation of Revenue Growth - FY 2018 FY18 Yr/Yr GAAP @CC 34 C og nitiv e S ol utions Fl a t Fl a t Solutions Software 1% Flat Transaction Processing Software (1%) (2%) G l ob a l Bus ines s S er v ices 3 % 2 % Consulting 6% 5% Global Process Services Flat (1%) A
Slide 34: Reconciliation of Revenue Growth - 4Q 2018
Non-GAAP Supplemental Materials Reconciliation of Revenue Growth - 4Q 2018 35 4Q18 Yr/Yr GAAP @CC Total Services Revenue (1%) 2% Total Software Revenue Flat 2% The above reconciles the Non-GAAP financial information contained in the “4Q18 Prepared Remarks” discussion in the company’s earnings presen
Slide 35: Reconciliation of Expense Summary - 4Q & FY 2018
Non-GAAP Supplemental Materials Reconciliation of Expense Summary - 4Q & FY 2018 36 4Q18 FY18 The above reconciles the Non-GAAP financial information contained in the “Expense Summary” and “ Expense Summary – FY 2018” discussions in the company’s earnings presentation. See Exhibit 99.2 included in t
Slide 36: Reconciliation of Free Cash Flow Realization - FY 2018
Non-GAAP Supplemental Materials Reconciliation of Free Cash Flow Realization - FY 2018 37 FY Excluding Tax Reform* FY Free Cash Flow Realization 136% ~111% The above reconciles the Non-GAAP financial information contained in the “Cash Flow and Balance Sheet Highlights” discussion in the company’s ea
Slide 37: Reconciliation of Free Cash Flow Realization - FY 2018
Non-GAAP Supplemental Materials ” Reconciliation of Free Cash Flow Realization - FY 2018 FY Excluding FY Tax Reform* Free Cash Flow Realization 136% ~111% The above reconciles the Non-GAAP financial information contained in the “Cash Flow and Balance Sheet Highlights” discussion in the company’s ear
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