International Business Machines Corporation · NYSE:IBM

International Business Machines — Q3 2015 Earnings Presentation

35 slides from International Business Machines's earnings presentation, Oct 19, 2015

  1. Slide 1: 3Q 2015 Earnings Presentation

    3Q 2015 Earnings Presentation October 19, 2015 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: 3Q Overview

    3Q Overview 3Q15 Yr/Yr Revenue ($B) $ 19.3 (1%)* Yr/Yr As Reported (14%) Operating (Non-GAAP) EPS $ 3.34 (9%) * Revenue growth rate @CC and excluding divested System x business Ø Continued strength in Strategic Imperatives • YTD revenue growth > 30% yr/yr Ø Expanded gross and net margins • Reflect

  4. Slide 4: Key Financial Metrics

    Key Financial Metrics $ in Billions, except EPS P&L Highlights P&L Ratios B/(W) 3Q15 Yr/Yr (Operating) 3Q15 Yr/Yr Revenue $ 19.3 (1%) GP Margin 50.0% 0.8 pts PTI – Operating $ 4.0 (14%) PTI Margin 20.7% 0.0 pts NI – Operating $ 3.3 (11%) Tax Rate 18.0% 2.8 pts EPS – Operating $ 3.34 (9%) NI Margin 1

  5. Slide 5: Revenue by Geography

    Revenue by Geography $ in Billions 3Q15 Yr/Yr Canada/ Americas $9.1 (3%) LA Europe/ME/Africa 6.1 1% U.S. EMEA Asia Pacific 4.1 (1%) -­‐4% IBM $19.3 (1%) Japan AP Major Markets (1%) ex. Japan +7% Growth Markets (3%) BRIC Countries (7%) Revenue growth rate @CC and excluding divested System x business

  6. Slide 6: Revenue and Gross Profit Margin by Segment

    Revenue and Gross Profit Margin by Segment Operating Revenue Gross Profit Margin $ in Billions 3Q15 Yr/Yr 3Q15 Yr/Yr Pts Global Technology Services $ 7.9 1% 38.1% (1.0 pts) Global Business Services 4.2 (5%) 29.7% (1.3 pts) Software 5.1 (3%) 86.4% (1.2 pts) Systems Hardware 1.5 (2%) 44.7% 10.8 pts Gl

  7. Slide 7: Expense Summary

    Expense Summary $ in Billions B/(W) 3Q15 Yr/Yr SG&A – Operating $4.6 11% B/(W) Drivers Yr/Yr RD&E – Operating 1.3 7% Currency 9 pts IP and Development Income (0.2) 29% System x Divestiture 2 pts Other Workforce Rebalancing (2 pts) (0.1) 30% (Income)/Expense Interest Expense 0.1 7% Operating Expense

  8. Slide 8: Services Segments

    Services Segments Global Technology Services (GTS) Global Business Services (GBS) $ in Billions $ in Billions 3Q15 Yr/Yr 3Q15 Yr/Yr Revenue (External) $7.9 1% Revenue (External) $4.2 (5%) Gross Margin (External) 38.1% (1.0 pts) Gross Margin (External) 29.7% (1.3 pts) PTI Margin 15.7% (2.2 pts) PTI M

  9. Slide 9: Software Segment

    Software Segment $ in Billions 3Q15 Yr/Yr Revenue (External) $5.1 (3%) Gross Margin (External) 86.4% (1.2 pts) PTI Margin 32.1% (3.4 pts) 3Q15 Revenue 3Q15 Revenue Yr/Yr (% of Total SoVware) WebSphere 1% Information Management 1% Tivoli (2%) Key Other Workforce Solutions (3%) Branded Middleware Midd

  10. Slide 10: Systems Hardware Segment

    Systems Hardware Segment $ in Billions 3Q15 Yr/Yr Revenue (External) $1.5 (2%) Gross Margin (External) 44.7% 10.8 pts PTI Margin (1.5%) 2.3 pts 3Q15 Revenue 3Q15 Revenue (% of Total Sys Hardware) Yr/Yr z Systems 20% Power Systems 2% Storage (14%) Servers Storage Total Systems Hardware (2%) 34% 63% O

  11. Slide 11: Cash Flow Summary

    Cash Flow Summary $ in Billions B/(W) YTD B/(W) 3Q15 Yr/Yr 3Q15 Yr/Yr Net Cash from Operations $4.2 $0.3 $11.7 $0.9 Less: Global Financing Receivables 0.7 0.0 2.0 (0.3) Net Cash from Operations 3.5 0.3 9.8 1.2 (excluding GF Receivables) Net Capital Expenditures (0.9) 0.1 (2.8) 0.0 Free Cash Flow (ex

  12. Slide 12: Balance Sheet Summary

    Balance Sheet Summary $ in Billions Sept. 14 Dec. 14 Sept. 15 Cash & Marketable Securities $9.6 $8.5 $9.6 Non-GF Assets* 74.5 71.7 67.5 Global Financing Assets 34.8 37.3 31.5 Total Assets 118.9 117.5 108.6 Other Liabilities 58.8 64.7 55.5 Non-GF Debt* 17.1 11.7 13.7 Global Financing Debt 28.6 29.1 2

  13. Slide 13: Summary

    Summary ØStrong performance in Strategic Imperatives ØMargin expansion reflects shift to higher value ØInvesting and adding capabilities Ø2015 Full Year Expectations • Operating EPS of $14.75 - $15.75 • Free Cash Flow relatively flat yr/yr ConZnued progress in transformaZon of the business www.i

  14. Slide 14: www.ibm.com/investor

    www.ibm.com/investor 14

  15. Slide 15: 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 Hardware, So

  16. Slide 16: Currency – Year/Year Comparison

    Supplemental Materials Currency – Year/Year Comparison Quarterly Averages per US $ 10/16 Yr/Yr @ 10/16 Spot 1Q15 Yr/Yr 2Q15 Yr/Yr 3Q15 Yr/Yr Spot 4Q15 FY15 1Q16 2Q16 Euro 0.89 (22%) 0.90 (24%) 0.90 (19%) 0.88 (10%) (18%) 1% 3% Pound 0.66 (9%) 0.65 (10%) 0.65 (8%) 0.65 (2%) (7%) 2% 1% Yen 119 (16%) 1

  17. Slide 17: Supplemental Segment Information – 3Q 2015

    Supplemental Materials Supplemental Segment Information – 3Q 2015 Global Services Revenue Global Services Backlog / Signings $ in Billions Revenue Growth Yr/Yr Backlog 3Q15 Yr/Yr GTS Outsourcing Flat Total Backlog $118 1% Integrated Tech Services 4% Change in Backlog due to Currency Maintenance 1% Q

  18. Slide 18: Supplemental Segment Information – 3Q 2015

    Supplemental Materials Supplemental Segment Information – 3Q 2015 Systems Hardware Software Revenue Growth Yr/Yr GP% Revenue Growth Yr/Yr z Systems 20% WebSphere 1% Information Management 1% Power Systems 2% Tivoli (2%) Storage (14%) Workforce Solutions (3%) Total Systems Hardware (2%) Rational (11%

  19. Slide 19: Global Financing Portfolio

    Supplemental Materials Global Financing Portfolio 3Q15 – $25.2B Net External Receivables Investment Grade Non-Investment Grade 55% 45% 40% 30% 34% 20% 21% 22% 10% 13% 8% 2% 0% Aaa to A3 Baa1 to Baa3 Ba1 to Ba2 Ba3 to B1 B2 to B3 Caa1 to D 3Q15 2Q15 3Q14 Identified Loss Rate 2.1% 2.1% 1.5% Anticipate

  20. Slide 20: Cash Flow (FAS 95)

    Supplemental Materials Cash Flow (FAS 95) QTD QTD YTD YTD $ in Billions 3Q15 3Q14 3Q15 3Q14 Net Income from Operations $3.0 $0.0 $8.7 $6.5 Depreciation / Amortization of Intangibles 0.9 1.1 2.9 3.4 Stock-based Compensation 0.1 0.2 0.4 0.4 Working Capital / Other (0.5) (1.5) (2.2) (5.2) Global Financ

  21. Slide 21: 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

  22. Slide 22: 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

  23. Slide 23: Reconciliation of Operating Earnings Per Share

    Supplemental Materials Non-GAAP Supplemental Materials ReconciliaZon of OperaZng Earnings Per Share 2015 Expectations IBM GAAP EPS $13.25 - $14.25 IBM Operating EPS (Non-GAAP) $14.75 - $15.75 Adjustments Acquisition-Related Charges * $0.70 Non-Operating Retirement-Related Items $0.80 * Includes acqu

  24. Slide 24: GAAP to Operating (Non-GAAP) Bridge – 3Q 2015

    Supplemental Materials Non-GAAP Supplemental Materials GAAP to OperaZng (Non-­‐GAAP) Bridge – 3Q 2015 $ in Millions, except EPS Acquisition-related Retirement-related Operating GAAP Adjustments* Adjustments** (Non-GAAP) Gross Profit $9,436 $89 $118 $9,643 SG&A 4,731 (76) (74) 4,581 RD&E 1,287 - (12)

  25. Slide 25: GAAP to Operating (Non-GAAP) Bridge – 3Q 2014

    Supplemental Materials Non-GAAP Supplemental Materials GAAP to OperaZng (Non-­‐GAAP) Bridge – 3Q 2014 $ in Millions, except EPS Acquisition-related Retirement-related Operating GAAP Adjustments* Adjustments** (Non-GAAP) Gross Profit $10,874 $106 $43 $11,023 SG&A 5,281 (96) (48) 5,137 RD&E 1,354 - 19

  26. Slide 26: GAAP to Operating (Non-GAAP) Bridge – 3Q YTD 2015

    Supplemental Materials Non-GAAP Supplemental Materials GAAP to OperaZng (Non-­‐GAAP) Bridge – 3Q YTD 2015 $ in Millions, except EPS Acquisition-related Retirement-related Operating GAAP Adjustments* Adjustments** (Non-GAAP) Gross Profit $29,278 $268 $350 $29,896 SG&A 15,273 (230) (445) 14,598 RD&E 3

  27. Slide 27: GAAP to Operating (Non-GAAP) Bridge – 3Q YTD 2014

    Supplemental Materials Non-GAAP Supplemental Materials GAAP to OperaZng (Non-­‐GAAP) Bridge – 3Q YTD 2014 $ in Millions, except EPS Acquisition-related Retirement-related Operating GAAP Adjustments* Adjustments** (Non-GAAP) Gross Profit $33,545 $315 $141 $34,001 SG&A 17,146 (291) (162) 16,693 RD&E 4

  28. Slide 28: GAAP to Operating (Non-GAAP) Bridge – 3Q 2015 and 3Q 2014

    Supplemental Materials Non-GAAP Supplemental Materials GAAP to OperaZng (Non-­‐GAAP) Bridge – 3Q 2015 and 3Q 2014 Acquisition- related Retirement-related Operating 3Q 2015 GAAP Adjustments* Adjustments ** (Non-GAAP) Gross Profit Margin from Continuing Operations 48.9% 0.5 pts 0.6 pts 50.0% PTI Margi

  29. Slide 29: Reconciliation of Free Cash Flow (excluding GF Receivables)

    Supplemental Materials Non-GAAP Supplemental Materials ReconciliaZon of Free Cash Flow (excluding GF Receivables) 12 months $ in Billions ended 9/30/15 Net Cash from Operations $17.8 Less: Global Financing Receivables 0.5 Net Cash from Operations 17.3 (excluding GF Receivables) Net Capital Expenditu

  30. Slide 30: Reconciliation of Debt-to-Capital Ratio

    Supplemental Materials Non-GAAP Supplemental Materials ReconciliaZon of Debt-­‐to-­‐Capital RaZo Sept. 2015 Dec. 2014 Sept. 2014 Non-Global Financing Debt / Capital 58% 59% 62% IBM Consolidated Debt / Capital 75% 77% 76% The above serves to reconcile the Non-GAAP financial information contained in t

  31. Slide 31: Reconciliation of Revenue Growth

    Supplemental Materials Non-GAAP Supplemental Materials ReconciliaZon of Revenue Growth 3Q YTD 2015 Yr/Yr @CC excl. Divested GAAP @CC Businesses IBM (13%) (5%) (1%) 3Q 2015 Yr/Yr @CC excl. Divested GAAP @CC Business Total Strategic Imperatives 17% 25% 27% The above serves to reconcile the Non-GAAP fi

  32. Slide 32: Reconciliation of Revenue Growth

    Supplemental Materials Non-GAAP Supplemental Materials ReconciliaZon of Revenue Growth 3Q15 Yr/Yr @CC excl. Divested GAAP @CC Business Americas (10%) (5%) (3%) U.S. (7%) (7%) (4%) Europe/ME/Africa (16%) (3%) 1% Asia Pacific (19%) (8%) (1%) Japan (11%) 4% 7% Major Markets (11%) (3%) (1%) Growth Marke

  33. Slide 33: Reconciliation of Revenue Growth

    Supplemental Materials Non-GAAP Supplemental Materials ReconciliaZon of Revenue Growth 3Q15 Yr/Yr GAAP @CC GTS Outsourcing (11%) Flat Integrated Technology Services (6%) 4% GBS Outsourcing (8%) 1% Consulting & Systems Integration (15%) (7%) Total Outsourcing (11%) Flat Total Transactional (11%) (2%)

  34. Slide 34: Reconciliation of Revenue Growth

    Supplemental Materials Non-GAAP Supplemental Materials ReconciliaZon of Revenue Growth 3Q15 Yr/Yr GAAP @CC WebSphere (5%) 1% Information Management (7%) 1% Tivoli (8%) (2%) Workforce Solutions (10%) (3%) Rational (17%) (11%) Total Middleware (9%) (2%) Other Middleware (15%) (7%) Other Software/Servi

  35. Slide 35: www.ibm.com/investor

    www.ibm.com/investor 35

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