International Business Machines Corporation · NYSE:IBM
International Business Machines — Q1 2020 Earnings Presentation
29 slides from International Business Machines's earnings presentation, Apr 20, 2020
Slide 1: IBM 1Q 2020 Earnings
IBM 1Q 2020 Earnings April 20, 2020 ibm.com/investor
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
Slide 3: Arvind Krishna and James Kavanaugh
Arvind Krishna Chief Executive Officer James Kavanaugh SVP, Finance & Operations, Chief Financial Officer 3
Slide 4: CEO Perspective
CEO Perspective “IBM remains focused on helping our clients adapt to the immediate challenges of the COVID-19 pandemic, while we continue to enable them to shift their mission-critical workloads to hybrid cloud and expand their use of AI to help transform their operations. Leading in the Current Env
Slide 5: Positioned for the Current Environment and Beyond
Positioned for the Current Environment and Beyond Large enterprise incumbency Aligning investments to near-term opportunities High-value business model Majority of revenue from financial Strong balance sheet services, public sector & telecom Structural actions for long-term competitiveness Ample liq
Slide 6: 1Q20 Highlights
1Q20 Highlights $17.6B Revenue $1.84 Operating (non-GAAP) EPS $11.6B Free Cash Flow LTM Revenue & Gross Margin Solid Cash Generation Modest Revenue Growth $12B Cash Balance 128% FCF Realization (LTM) 150 bps Gross Margin Expansion Revenue/cloud growth @cc and excludes impact of divested businesses;
Slide 7: Cloud & Cognitive Software
Cloud & Cognitive Software Revenue Growth Revenue $5.2B 7% Cloud & Data Platform growth led by Red Hat and Data & AI Cognitive Applications and Transaction Processing Platforms impacted by client buying behavior in March Segment Elements Cognitive Applications (3%) yr/yr Portfolio aligned to longer-
Slide 8: Global Business Services
Global Business Services Consulting driven by cloud modernization and intelligent workflows Revenue $4.1B +1% yr/yr Gross Margin Expansion 100 bps Continued scaling of Red Hat engagements Segment Elements Consulting +5% yr/yr Clients are deprioritizing projects with longer-term paybacks Application
Slide 9: Global Technology Services
Global Technology Services Actions to accelerate the shift to higher value segments and improve cost competitiveness Revenue Gross Margin Expansion $6.5B (4%) yr/yr 30 bps Tighter integration across GTS & GBS to address cloud opportunity Segment Elements Strong signings growth led by cloud Infrastru
Slide 10: Systems
Systems Revenue $1.4B Revenue Growth 4% IBM Z and Storage growth driven by product cycle and mission-critical workloads Power decline reflects cycle dynamics and exposure to smaller enterprises Segment Elements Gross Margin expansion reflects mix benefit from new innovations in IBM Z and Storage Sys
Slide 11: Summary
Summary • Aligning resources and investments to near-term opportunities • Strategy and portfolio aligned to hybrid cloud and AI Managing cost & expense Multiple scenarios; prepared for wide-range of outcomes Solid free cash flow & ample liquidity Structural actions for long-term competitiveness High
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Slide 13: Supplemental Materials
Supplemental Materials Currency – Impact on Revenue Growth Revenue and P&L Highlights Services Segment Details Software & Systems Segment Details Expense Summary Balance Sheet Summary Cash Flow Summary Cash Flow (ASC 230) Offering Realignment between Segments Historical Segment Recast to reflect Off
Slide 14: Currency – Impact on Revenue Growth
Currency – Impact on Revenue Growth US$B Yr/Yr Revenue As Reported Currency Impact Revenue @ CC $17.6 (3.4%) (1.5 pts) (1.9%) Supplemental Materials 14 Quarterly Averages per US $ 1Q20 Yr/Yr 4/17/2020 Spot 2Q20 3Q20 4Q20 FY20 Euro 0.91 (3%) Pound 0.78 (2%) Yen 109 1% Revenue Impact, Future @ 4/17/20
Slide 15: Revenue and P&L Highlights
Revenue and P&L Highlights Financial results reflect impact of transaction-related adjustments associated with the Red Hat acquisition B/(W) Yr/Yr* B/(W) Yr/Yr Revenue Highlights 1Q20 Operating P&L Highlights $ 1Q20 Revenue Cloud $17.6 $5.4 Flat 23% Gross Profit Expense Pre-Tax Income** Net Income E
Slide 16: Services Segments Details
Services Segments Details B/(W) GBS Segment 1Q20 Yr/Yr B/(W) GTS Segment 1Q20 Yr/Yr Revenue (External) Consulting Global Process Services Application Management Gross Profit Margin (External) Pre-Tax Income impact of structural actions/charges Pre-Tax Income Margin impact of structural actions/charg
Slide 17: Software and Systems Segment Details
Software and Systems Segment Details B/(W) Yr/Yr B/(W) Yr/Yr Cloud & Cognitive Software Segment 1Q20 Systems Segment 1Q20 Revenue (External) Cognitive Applications Cloud & Data Platforms Transaction Processing Platforms Pre-Tax Income impact of structural actions/charges Pre-Tax Income Margin impact
Slide 18: Expense Summary
Expense Summary $ in billions *includes acquisitions in the last twelve months net of non-operating acquisition-related charges and includes impact of divested businesses **represents the percentage change after excluding the impact of currency, acquisitions and divestitures Supplemental Materials 1
Slide 19: Balance Sheet Summary
Balance Sheet Summary Mar 19** Mar 20 Dec 19 Cash & Marketable Securities Core (non-GF) Assets* Global Financing Assets Total Assets $12.0 $116.4 $24.9 $153.4 $9.0 $115.3 $27.9 $152.2 $18.1 $77.6 $35.2 $130.9 Other Liabilities Core (non-GF) Debt* Global Financing Debt Total Debt Total Liabilities Eq
Slide 20: Cash Flow Summary
Cash Flow Summary $ in billions Supplemental Materials 20 B/(W) 1Q20Yr/Yr FY19 Net Cash from Operations $4.5 ($0.3) Less: Global Financing Receivables$2.4 ($0.1) Net Cash from Operations (excluding GF Receivables)$2.1 ($0.2) Net Capital Expenditures ($0.7) ($0.1) Free Cash Flow (excluding GF Receiva
Slide 21: Cash Flow (ASC 230)
Cash Flow (ASC 230) 1Q20 1Q19 Net Income from Operations Depreciation / Amortization of Intangibles Stock-based Compensation Working Capital / Other Global Financing A/R Net Cash provided by Operating Activities Capital Expenditures, net of payments & proceeds Divestitures, net of cash transferred A
Slide 22: Offering Realignment between Segments
Offering Realignment between Segments In 2019, IBM updated its reportable segments and in 2020, this segment structure remains consistent. During the first quarter of 2020, the company realigned offerings and the related management system to reflect divestitures completed in the second half of 2019
Slide 23: Historical Segment Recast to reflect Offering Realignment
Historical Segment Recast to reflect Offering Realignment Cloud & Cognitive Software 1Q19 Global Business Services 1Q19 Total Revenue External Revenue Cognitive Applications Cloud & Data Platforms Transaction Processing Platforms Internal Revenue Gross Profit $ (External) Gross Margin % (External) S
Slide 24: Reconciliation of Revenue Performance - 1Q 2020
Non-GAAP Supplemental Materials Reconciliation of Revenue Performance - 1Q 2020 1Q20 Yr/Yr 1Q20 Yr/Yr GAAP @CC GAAP @CC Global Technology Services Infrastructure & Cloud Services Technology Support Services Cloud Systems Systems Hardware IBM Z Power Storage Operating Systems Software Cloud (6%) (6%)
Slide 25: Reconciliation of Revenue Performance - 1Q 2020
Non-GAAP Supplemental Materials Reconciliation of Revenue Performance - 1Q 2020 1Q20 Yr/Yr Divest impact Currency impact Adjusted GAAP Total Revenue (3.4%) 2 pts 2 pts 0.1% Americas Europe/ME/Africa Asia Pacific (4%) (4%) (2%) 2 pts 2 pts 1 pts 1 pts 3 pts 1 pts Flat 1% Flat Total Cloud 19% 2 pts 2
Slide 26: Reconciliation of Revenue for Red Hat, Normalized
Non-GAAP Supplemental Materials Reconciliation of Revenue for Red Hat, Normalized - 1Q 2020 Three Months Ended Red Hat Revenue, Normalized for Historical Comparability Mar 31 2020 Mar 31 2019 Yr/Yr Yr/Yr@CC Red Hat revenue as reported in IBM consolidated results (1) $719 $ - Add: Red Hat revenue pri
Slide 27: Reconciliation of Expense Summary - 1Q 2020
Non-GAAP Supplemental Materials Reconciliation of Expense Summary - 1Q 2020 1Q20 Non-GAAP Adjustments Operating (Non-GAAP) GAAP SG&A Currency Acquisitions/Divestitures Base* RD&E Currency Acquisitions/Divestitures Base* Operating Expense & Other Income Currency Acquisitions/Divestitures Base* 1 pts
Slide 28: Reconciliation of Free Cash Flow - Last 12 Months
Non-GAAP Supplemental Materials Reconciliation of Free Cash Flow - Last 12 Months 12 Months Ended Mar 2020 Net Cash from Operating Activities per GAAP: $14.5 Less: change in Global Financing (GF) Receivables $0.4 Net Cash from Operating Activities (Excluding GF Receivables) $14.1 Capital Expenditure
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