46 slides from International Business Machines's earnings presentation, Jan 21, 2014
Slide 1: 4Q 2013 Earnings Presentation
4Q 2013 Earnings Presentation January 21, 2014 www.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: 2013 Summary
2013 Summary 4Q13 FY13 $ Yr/Yr $ Yr/Yr Revenue $27.7 (5%) $99.8 (5%) @CC (3%) (2%) Operating (Non-GAAP) EPS $6.13 14% $16.28 7% Momentum in key growth areas drives mix to higher value Software and GBS • Software growth across the portfolio • Services revenue performance stable, growth led by GBS Har
Slide 4: Key Financial Metrics
Key Financial Metrics $ in Billions, except EPS P&L Highlights P&L Ratios B/(W) B/(W) (Operating) 4Q13 Yr/Yr 4Q13 Yr/Yr Revenue $27.7 (5%) GP Margin 52.6% 0.3 pts @CC (3%) PTI Margin 26.8% (0.8 pts) PTI – Operating $7.4 (8%) Tax Rate 11.0% 13.5 pts NI – Operating $6.6 8% NI Margin 23.9% 3.0 pts EPS
Slide 5: Revenue by Geography
Revenue by Geography $ in Billions B/(W) Yr/Yr 4Q13 Rptd @CC Americas $12.2 (3%) (2%) Canada/ Europe/ME/A 9.2 1% (2%) LA Asia Pacific 5.9 (16%) (6%) EMEA U.S. Total Geographies $27.2 (5%) (3%) -3% Japan IBM $27.7 (5%) (3%) APac +4% @CC Major Markets (3%) (2%) OEM Growth Markets (9%) (6%) -33% BRIC C
Slide 6: 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) 4Q13 Rptd @CC 4Q13 Yr/Yr Pts Global Technology Services $9.9 (4%) (1%) 38.8% 1.2 pts Global Business Services 4.7 1% 4% 30.7% 0.7 pts Software 8.1 3% 4% 90.5% (0.1 pts) Systems & Technolo
Slide 7: Expense Summary
Expense Summary B/(W) B/(W) Yr/Yr Drivers $ in Billions 4Q13 Yr/Yr Currency Acq.* Base SG&A – Operating $5.8 Flat 2 pts (2 pts) 0 pts RD&E – Operating 1.6 2% 0 pts (2 pts) 3 pts IP and Development Income (0.2) (12%) Other (Income)/Expense (0.1) 126% Interest Expense 0.1 (4%) Operating Expense & Othe
Slide 8: Services Segments
Services Segments Global Technology Services (GTS) Global Business Services (GBS) B/(W) Yr/Yr $ in Billions B/(W) Yr/Yr $ in Billions 4Q13 Rptd @CC 4Q13 Rptd @CC Revenue (External) $9.9 (4%) (1%) Revenue (External) $4.7 1% 4% Gross Margin (External) 38.8% 1.2 pts Gross Margin (External) 30.7% 0.7 pt
Slide 9: Software Segment
Software Segment B/(W) Yr/Yr $ in Billions 4Q13 Rptd @CC Revenue (External) $8.1 3% 4% Gross Margin (External) 90.5% (0.1 pts) Pre-Tax Income $4.2 6% PTI Margin 47.0% 1.0 pts 4Q13 Revenue Yr/Yr 4Q13 Revenue Rptd @CC (% of Total Software) WebSphere Family 14% 15% Information Management 5% 5% Tivoli 1
Slide 10: Systems & Technology Segment
Systems & Technology Segment B/(W) Yr/Yr $ in Billions 4Q13 Rptd @CC Revenue (External) $4.3 (26%) (25%) Gross Margin (External) 38.6% (5.5 pts) Pre-Tax Income $0.2 (79%) PTI Margin 4.7% (11.7 pts) 4Q13 Revenue 4Q13 Revenue Yr/Yr (% of Total Sys & Tech) Rptd @CC System z (37%) (37%) Power Systems (3
Slide 11: Cash Flow Analysis
Cash Flow Analysis B/(W) B/(W) $ in Billions 4Q13 Yr/Yr FY13 Yr/Yr Net Cash from Operations $6.5 $0.2 $17.5 ($2.1) Less: Global Financing Receivables (2.9) 1.2 (1.3) 1.6 Net Cash from Operations 9.5 (1.0) 18.8 (3.7) (excluding GF Receivables) Net Capital Expenditures (1.1) (0.1) (3.8) 0.5 Free Cash
Slide 12: Balance Sheet Summary
Balance Sheet Summary $ in Billions Dec. 12 Dec. 13 Cash & Marketable Securities $11.1 $11.1 Non-GF Assets* 70.6 76.5 Global Financing Assets 37.5 38.7 Total Assets 119.2 126.2 Other Liabilities 67.0 63.6 Non-GF Debt* 8.8 12.2 Global Financing Debt 24.5 27.5 Total Debt 33.3 39.7 Total Liabilities 10
Slide 13: FY 2013 Summary
2015e At least $20 FY 2013 Summary Continued momentum in key growth areas 2014e $18.00+ • Smarter Planet ~20% yr/yr • Business Analytics +9% yr/yr 2013 $16.28 • Cloud 69% yr/yr 2012 $15.25 2011 $13.44 Delivered profit growth in Software, Services and Financing, while Hardware declined 2010 $11.67 In
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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 Currency – Year/Year Comparison Supplemental Segment Information – Global Services Supplemental Segment Information – Systems & Technology, Softwar
Slide 16: Currency – Year/Year Comparison
Supplemental Materials Currency – Year/Year Comparison Quarterly Averages per US $ 1/17 Yr/Yr @ 1/17 Spot 3Q13 Yr/Yr 4Q13 Yr/Yr Spot 1Q14 2Q14 3Q14 4Q14 FY14 Euro 0.75 6% 0.73 5% 0.74 3% 4% 2% 0% 2% Pound 0.64 (2%) 0.62 1% 0.61 6% 7% 6% 2% 5% Yen 99 (26%) 100 (24%) 104 (13%) (6%) (5%) (4%) (7%) IBM
Slide 17: Supplemental Segment Information – 4Q 2013
Supplemental Materials Supplemental Segment Information – 4Q 2013 Global Services Revenue Global Services Backlog / Signings Revenue Growth $ in Billions Backlog Yr/Yr @CC 4Q13 Yr/Yr @CC GTS Outsourcing (4%) (1%) Total Backlog $143 2% 5% Integrated Tech Services (3%) Flat Change in Backlog due to Cu
Slide 18: Supplemental Segment Information – 4Q 2013
Supplemental Materials Supplemental Segment Information – 4Q 2013 Systems & Technology Software Revenue Growth Revenue Growth Yr/Yr @CC GP% Share Yr/Yr @CC System z (37%) (37%) WebSphere Family 14% 15% Power Systems (31%) (31%) Information Management 5% 5% = Tivoli 1% 1% System x (16%) (15%) Social
Slide 19: Global Financing Portfolio
Supplemental Materials Global Financing Portfolio 4Q13 – $31.9B Net External Receivables Investment Grade Non-Investment Grade 59% 41% 40% 30% 20% 38% 10% 21% 20% 7% 12% 2% 0% AAA to A- BBB+ to BBB- BB+ to BB BB- to B+ B to B- CCC+ to D 4Q13 3Q13 4Q12 Identified Loss Rate 0.8% 1.0% 0.8% Anticipated
Slide 20: Operating EPS Bridge
Supplemental Materials Operating EPS Bridge 4Q12 to 4Q13 $0.30 $6.13 ($0.29) $0.73 $5.39 4Q12 Revenue Growth Margin Share 4Q13 Operating EPS @ Actual Expansion Repurchases Operating EPS FY12 to FY13 $0.74 $16.28 $15.25 ($0.69) $0.98 FY12 Revenue Growth Margin Share FY13 Operating EPS @ Actual Expans
Slide 21: Key Financial Metrics – FY 2013
Supplemental Materials Key Financial Metrics – FY 2013 $ in Billions, except EPS P&L Highlights P&L Ratios B/(W) B/(W) (Operating) FY13 Yr/Yr FY13 Yr/Yr Revenue $99.8 (5%) GP Margin 49.7% 0.9 pts @CC (2%) PTI Margin 21.4% (0.7 pts) PTI – Operating $21.4 (8%) Tax Rate 16.0% 7.9 pts EPS – Operating $1
Slide 22: Revenue by Geography – FY 2013
Supplemental Materials Revenue by Geography – FY 2013 $ in Billions B/(W) Yr/Yr FY13 Rptd @CC Americas $43.2 (3%) (2%) Canada/ LA Europe/ME/A 31.6 Flat (2%) EMEA Asia Pacific 22.9 (12%) (3%) U.S. -3% Total Geographies $97.8 (4%) (2%) Japan APac IBM $99.8 (5%) (2%) +4% @CC OEM Major Markets (4%) (2%)
Slide 23: Revenue and Gross Profit Margin by Segment – FY 2013
Supplemental Materials Revenue and Gross Profit Margin by Segment – FY 2013 Operating Revenue Gross Profit Margin $ in Billions B/(W) Yr/Yr B/(W) FY13 Rptd @CC FY13 Yr/Yr Pts Global Technology Services $38.6 (4%) (1%) 38.1% 1.5 pts Global Business Services 18.4 (1%) 3% 30.9% 0.9 pts Software 25.9 2%
Slide 24: Revenue by Key Industry Sales Unit – 4Q & FY 2013
Supplemental Materials Revenue by Key Industry Sales Unit – 4Q & FY 2013 $ in Billions B/(W) Yr/Yr B/(W) Yr/Yr 4Q13 Rptd @CC FY13 Rptd @CC Financial Services $7.8 (3%) 1% $26.8 (1%) 2% Public 3.1 (7%) (6%) 11.6 (5%) (5%) Industrial 2.0 (7%) (4%) 7.6 (4%) (1%) Distribution 1.8 (6%) (5%) 6.6 (7%) (5%)
Slide 25: Expense Summary – FY 2013
Supplemental Materials Expense Summary – FY 2013 B/(W) B/(W) Yr/Yr Drivers $ in Billions FY13 Yr/Yr Currency Acq.* Base SG&A – Operating $22.7 1% 1 pts (1 pts) 1 pts RD&E – Operating 6.2 2% 0 pts (2 pts) 4 pts IP and Development Income (0.8) (23%) Other (Income)/Expense (0.3) (60%) Interest Expense
Slide 26: Cash Flow (FAS 95)
Supplemental Materials Cash Flow (FAS 95) $ in Billions 4Q13 4Q12 FY13 FY12 Net Income from Operations $6.2 $5.8 $16.5 $16.6 Depreciation / Amortization of Intangibles 1.2 1.2 4.7 4.7 Stock-based Compensation 0.2 0.2 0.6 0.7 Working Capital / Other 1.9 3.3 (3.0) 0.5 Global Financing A/R (2.9) (4.2)
Slide 27: Retirement-Related Charges
Supplemental Materials Retirement-Related Charges Funded Status* Expected ROA Actual ROA Discount Rate US WW WW WW WW YE 2012 98% 94% 7.3% 11.1% 3.4% YE 2013 109% 102% 7.2% 7.1% 3.9% Operating Non-Operating Pre-Tax Retirement-Related (Cost) / Income ($B) $0.5 $0.4 $0.1 $0.1 ($0.5) ($0.3) ($1.1) ($1.
Slide 28: Retirement-Related Charges
Supplemental Materials Retirement-Related Charges Funded Status* Expected ROA Actual ROA Discount Rate US WW WW WW WW YE 2012 98% 94% 7.3% 11.1% 3.4% YE 2013 109% 102% 7.2% 7.1% 3.9% Upside 7.2% 14.0% 4.4% Downside 7.2% 0.0% 3.4% Operating Non-Operating Pre-Tax Retirement-Related (Cost) / Income ($B
Slide 29: 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
Slide 30: 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
Slide 31: Non-GAAP Supplemental Materials
Supplemental Materials Non-GAAP Supplemental Materials Reconciliation of Operating Earnings Per Share 2014 Expectations IBM GAAP EPS $17.00 IBM Operating EPS (Non-GAAP) $18.00+ Adjustments Acquisition-Related Charges * $0.76 Amortization of Purchased Intangibles $0.73 Other Acquisition-Related Charg
Slide 32: Non-GAAP Supplemental Materials
Supplemental Materials Non-GAAP Supplemental Materials GAAP to Operating (Non-GAAP) Bridge – 4Q 2013 $ in Millions, except EPS Acquisition-related Retirement-related Operating GAAP Adjustments* Adjustments** (Non-GAAP) Gross Profit $14,315 $105 $154 $14,574 SG&A 5,989 (101) (90) 5,798 RD&E 1,566 0 (
Slide 33: Non-GAAP Supplemental Materials
Supplemental Materials Non-GAAP Supplemental Materials GAAP to Operating (Non-GAAP) Bridge – 4Q 2012 $ in Millions, except EPS Acquisition-related Retirement-related Operating GAAP Adjustments* Adjustments** (Non-GAAP) Gross Profit $15,167 $100 $60 $15,327 SG&A 5,921 (91) (29) 5,801 RD&E 1,580 0 6 1
Slide 34: Non-GAAP Supplemental Materials
Supplemental Materials Non-GAAP Supplemental Materials GAAP to Operating (Non-GAAP) Bridge – FY 2013 $ in Millions, except EPS Acquisition-related Retirement-related Operating GAAP Adjustments* Adjustments** (Non-GAAP) Gross Profit $48,505 $394 $629 $49,527 SG&A 23,502 (394) (376) 22,731 RD&E 6,226
Slide 35: Non-GAAP Supplemental Materials
Supplemental Materials Non-GAAP Supplemental Materials GAAP to Operating (Non-GAAP) Bridge – FY 2012 $ in Millions, except EPS Acquisition-related Retirement-related Operating GAAP Adjustments* Adjustments** (Non-GAAP) Gross Profit $50,298 $376 $264 $50,938 SG&A 23,553 (349) (294) 22,910 RD&E 6,302
Slide 36: Non-GAAP Supplemental Materials
Supplemental Materials Non-GAAP Supplemental Materials GAAP to Operating (Non-GAAP) Bridge – 4Q 2013 and 4Q 2012 Acquisition- Retirement- related related Operating 4Q 2013 GAAP Adjustments* Adjustments ** (Non-GAAP) Gross Profit Margin 51.7% 0.4 pts 0.6 pts 52.6% PTI Margin 25.1% 0.8 pts 0.9 pts 26.
Slide 37: Non-GAAP Supplemental Materials
Supplemental Materials Non-GAAP Supplemental Materials GAAP to Operating (Non-GAAP) Bridge – FY 2013 and FY 2012 Acquisition- Retirement- related related Operating FY 2013 GAAP Adjustments* Adjustments ** (Non-GAAP) Gross Profit Margin 48.6% 0.4 pts 0.6 pts 49.7% PTI Margin 19.6% 0.8 pts 1.1 pts 21.
Slide 38: Non-GAAP Supplemental Materials
Supplemental Materials Non-GAAP Supplemental Materials Reconciliation of B/(W) Yr/Yr Expense Drivers – 4Q13 Non-GAAP Operating GAAP Adjustments (Non-GAAP) SG&A Currency 2 pts 0 pts 2 pts Acquisitions (2 pts) 0 pts (2 pts) Base (1 pts) 1 pts 0 pts RD&E Currency 0 pts 0 pts 0 pts Acquisitions (2 pts)
Slide 39: Non-GAAP Supplemental Materials
Supplemental Materials Non-GAAP Supplemental Materials Reconciliation of B/(W) Yr/Yr Expense Drivers – FY13 Non-GAAP Operating GAAP Adjustments (Non-GAAP) SG&A Currency 1 pts 0 pts 1 pts Acquisitions (2 pts) 0 pts (1 pts) Base 1 pts 0 pts 1 pts RD&E Currency 0 pts 0 pts 0 pts Acquisitions (2 pts) 0
Slide 40: Non-GAAP Supplemental Materials
Supplemental Materials Non-GAAP Supplemental Materials Reconciliation of Operating EPS Bridge 4Q12 to 4Q13 Acquisition- Retirement- related related Operating GAAP Adjustments* Adjustments** (Non-GAAP) 4Q12 EPS $5.13 $0.21 $0.05 $5.39 Revenue growth @ actual (0.28) (0.01) 0.00 (0.29) Margin expansion
Slide 41: Non-GAAP Supplemental Materials
Supplemental Materials Non-GAAP Supplemental Materials Reconciliation of Operating EPS Bridge FY12 to FY13 Acquisition- Retirement- related related Operating GAAP Adjustments* Adjustments** (Non-GAAP) FY12 EPS $14.37 $0.55 $0.33 $15.25 Revenue growth @ actual (0.65) (0.03) (0.01) (0.69) Margin expan
Slide 42: Non-GAAP Supplemental Materials
Supplemental Materials Non-GAAP Supplemental Materials Reconciliation of Debt-to-Capital Ratio FY 13 FY 12 Non-Global Financing Debt / Capital 39% 36% IBM Consolidated Debt / Capital 63% 64% The above serves to reconcile the Non-GAAP financial information contained in the “Balance Sheet Summary” dis
Slide 43: Non-GAAP Supplemental Materials
Supplemental Materials Non-GAAP Supplemental Materials Reconciliation of Free Cash Flow (excluding GF Receivables) 3 months $ in Billions ended 9/30/13 Net Cash from Operations $3.8 Less: Global Financing Receivables 0.5 Net Cash from Operations 3.3 (excluding GF Receivables) Net Capital Expenditure
Slide 44: Non-GAAP Supplemental Materials
Supplemental Materials Non-GAAP Supplemental Materials Reconciliation of Revenue Growth 4Q13 Yr/Yr FY13 Yr/Yr As Rptd @CC As Rptd @CC Japan (16%) 4% (15%) 4% China (22%) (23%) Key Branded Middleware 5% 6% 4Q12 Yr/Yr As Rptd @CC Latin America 13% 18% The above serves to reconcile the Non-GAAP financi
Slide 45: Non-GAAP Supplemental Materials
Supplemental Materials Non-GAAP Supplemental Materials Reconciliation 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 The above serves to reconcile the Non-GAAP financial informat
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