International Business Machines Corporation · NYSE:IBM
International Business Machines — Q3 2020 Earnings Presentation
29 slides from International Business Machines's earnings presentation, Oct 19, 2020
Slide 1: IBM 3Q 2020 Earnings
IBM 3Q 2020 Earnings October 19, 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 In an effort to provide additional and useful information regarding characterized as forward looking under the Private Securities the company’s financial results and other financial information as L
Slide 3: Arvind Krishna, CEO and James Kavanaugh, CFO
Arvind Krishna Chief Executive Officer James Kavanaugh SVP, Finance & Operations, Chief Financial Officer 3
Slide 4: CEO Perspective
led by Red Hat, underscores the growing client services business creates a market-leading strategy and better position IBM to seize the CEO Perspective “The strong performance of our cloud business,Strategic Update adoption of our open hybrid cloud platform.” “Separating the managed infrastructure H
Slide 5: Accelerating IBM's Hybrid Cloud Platform Growth Strategy
Accelerating IBM’s Hybrid Cloud Platform Growth Strategy Creating value through focus Establishing the #1 Managed Infrastructure Services Company Improving growth trajectory of both businesses 5
Slide 6: Creating Two Market-Leading Companies
platform innovation modernization transformations excellence Company Services Company efficiency and cash opportunities Creating Two Market-Leading Companies Technology & IBM NewCoIT infrastructure #1 Hybrid Cloud#1 Managed Digital Platform and AI InfrastructureService delivery Significant growth Op
Slide 7: IBM's Hybrid Cloud Platform Leadership
Middleware X PLATFORM IBM’s Hybrid Cloud Platform Leadership Hybrid Cloud ValuePlatform Approach3Q20 Progress CLOUD TRANSFORMATION SERVICES SOFTWARE IBM INFRASTRUCTURE IBM IBM Public CloudsEnterprise SystemsPublic CloudAWS | Azure | OthersInfrastructure 7 Open Hybrid Cloud Platform Dev Sec Ops 3rd P
Slide 8: 3Q20 Highlights
Gross and PTI margin expansion-operating, cash includes marketable securities, FCF excludes financing receivables 3Q20 Highlights $17.6B $2.58 $10.8B RevenueOperating (non-GAAP) EPSFree Cash Flow LTM CloudSolid Cash StrengthGeneration +19% @CC$16B Revenue GrowthCash Balance $24B 136% Revenue (LTM)FC
Slide 9: Cloud & Cognitive Software
Revenue growth led by Red Hat, Segment Elements in current economic environment Flat yr/yr Cloud & Cognitive Software RevenueRevenue Growth $5.6B 6% Cloud Paks and Security Transaction Processing Platforms impacted by client buying behaviors Cognitive Profit reflects strong Red Hat Applications cont
Slide 10: Global Business Services
Double-digit signings growth, backlog returned to growth Consulting application modernization offset by project delays Gross margin expansion with (8%) yr/yr Process Global Business ServicesRevenueGross Margin $4.0B 32.9% (6%) yr/yr +1.9 pts yr/yr Continued scaling of Red Hat client engagements Segm
Slide 11: Global Technology Services
Revenue impacted by lower volumes (4%) yr/yr (0.8) pts yr/yr Closed 8 deals over $100M Global Technology ServicesRevenueGross Margin $6.5B 35.0% Margins reflect revenue mix and higher investment in IBM Cloud Segment Elements as clients continue to make long-term commitments Infrastructure & Cloud Se
Slide 12: Systems
IBM Z reflects product cycle in the Segment Elements Systems RevenueRevenue Growth $1.3B (16%) current economic environment Storage performance driven by high-end declines Gross margin performance in line with product cycle dynamics Systems Hardware (19%) yr/yr Operating Systems Software (8%) yr/yr
Slide 13: Summary
Summary Current environment provides near-term challenges and longer-term opportunities Accelerating hybrid cloud platform strategy Creating value through focus 13
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Slide 15: Supplemental Materials
Supplemental Materials ● Currency – Impact on Revenue Growth ● Revenue and P&L Highlights ● Services Segments Details ● Software & Systems Segment Details ● Expense Summary ● Balance Sheet Summary ● Cash Flow Summary ● Cash Flow (ASC 230) ● Non-GAAP Supplemental Materials Some columns and rows in th
Slide 16: Currency – Impact on Revenue Growth
Currency – Impact on Revenue Growth US$B Yr/Yr Revenue As Reported $17.6 (3%) Currency Impact $0.2 1 pts Revenue @CC(3%) Supplemental Materials 16 Quarterly Averages per US $ 3Q20 Yr/Yr 10/16/2020 Spot 4Q20 FY20 1Q21 FY21 Euro 0.86 5% Pound 0.77 5% Yen 106 1% Revenue Impact, Future @ 10/16/20 Spot 0
Slide 17: Revenue and P&L Highlights
Revenue and P&L Highlights B/(W) B/(W) Revenue Highlights3Q20 Yr/Yr*Operating P&L Highlights $ 3Q20 Yr/Yr Revenue$17.6 (3%) Gross Profit $8.6 1% Cloud $6.0 19% Expense$6.0 2% Pre-Tax Income $2.6 8% B/(W)Net Income$2.3(3%) Geography Revenue 3Q20 Yr/Yr* Earnings Per Share $2.58 (4%) Americas $8.1 (3%)
Slide 18: Services Segments Details
Services Segments Details B/(W) B/(W) GBS Segment 3Q20 Yr/YrGTS Segment3Q20 Yr/Yr Revenue (External) $4.0 (6%) Revenue (External) $6.5 (4%) Consulting $2.0 (4%) Infrastructure & Cloud Services$4.9 (4%) Application Management$1.8 (8%) Technology Support Services$1.5 (6%) Global Process Services$0.2 (
Slide 19: Software and Systems Segment Details
Software and Systems Segment Details B/(W) B/(W) Cloud & Cognitive Software Segment 3Q20 Yr/Yr Systems Segment3Q20 Yr/Yr Revenue (External) $5.6 6% Revenue (External) $1.3 (16%) Cloud & Data Platforms $2.8 19% Systems Hardware $0.9 (19%) Cognitive Applications $1.3 Flat IBM Z(20%) Transaction Proces
Slide 20: 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 2
Slide 21: Balance Sheet Summary
Balance Sheet Summary Sep 20 Dec 19 Sep 19 Cash & Marketable Securities $15.8 $9.0 $11.0 Core (non-GF) Assets* $115.7 $115.3 $113.3 Global Financing Assets$22.7 $27.9 $25.4 Total Assets$154.1 $152.2 $149.6 Other Liabilities $67.4 $68.3 $65.2 Core (non-GF) Debt* $44.5 $38.2 $43.2 Global Financing Deb
Slide 22: Cash Flow Summary
Cash Flow Summary $ in billions Supplemental Materials 22 QTDB/(W) 3Q20Yr/Yr YTDB/(W) 3Q20 Yr/Yr Net Cash from Operations $4.3 $0.7 Less: Global Financing Receivables $2.4 $1.2 Net Cash from Operations (excluding GF Receivables)$1.9 ($0.6) Net Capital Expenditures ($0.8) ($0.1) Free Cash Flow (exclu
Slide 23: Cash Flow (ASC 230)
Cash Flow (ASC 230) $ in billions Supplemental Materials 23 QTDQTD 3Q203Q19 YTDYTD 3Q20 3Q19 Net Income from Operations$1.7 $1.7 Depreciation / Amortization of Intangibles$1.7 $1.7 Stock-based Compensation$0.2 $0.2 Working Capital / Other ($1.7) ($1.1) Global Financing A/R$2.4 $1.1 Net Cash provided
Slide 24: Reconciliation of Revenue Performance - 3Q 2020
Non-GAAP Supplemental Materials Reconciliation of Revenue Performance - 3Q 2020 3Q20 Yr/Yr3Q20 Yr/Yr GAAP @CC GAAP @CC Cloud & Cognitive Software 7% 6% Global Technology Services (4%) (4%) Cloud & Data Platforms 20% 19% Infrastructure & Cloud Services (3%) (4%) Cognitive Applications 1% Flat Technol
Slide 25: Reconciliation of Revenue Performance - 3Q 2020
Non-GAAP Supplemental Materials Reconciliation of Revenue Performance - 3Q 2020 3Q20 Yr/Yr GAAPDivest impact Currency impact Adjusted Total Revenue(3%) 0 pts (1 pts) (3%) Americas (4%) 0 pts 1 pts (3%) Europe/ME/Africa 2% 0 pts (4 pts) (2%) Asia Pacific (4%) 0 pts (1 pts) (5%) Total Cloud19% 1 pts (
Slide 26: Reconciliation of Revenue for Red Hat, Normalized - 3Q 2020
Non-GAAP Supplemental Materials Reconciliation of Revenue for Red Hat, Normalized - 3Q 2020 Three Months Ended September 30, 2020 Red Hat Revenue, Normalized for Historical ComparabilityYr/Yr Red Hat Revenue GAAP Growth Rate 163% Impact from Red Hat revenue prior to acquisition (26 pts) Impact from
Slide 27: Reconciliation of Expense Summary - 3Q 2020
Non-GAAP Supplemental Materials Reconciliation of Expense Summary - 3Q 2020 3Q20 Non-GAAPOperating GAAPAdjustments(Non-GAAP) SG&A Currency 0 pts 0 pts 0 pts Acquisitions/Divestitures 2 pts 0 pts 2 pts Base* 6 pts (3 pts) 3 pts RD&E Currency 0 pts 0 pts 0 pts Acquisitions/Divestitures 1 pts 0 pts 1 p
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 Sep 2020 Net Cash from Operating Activities per GAAP:$15.8 Less: change in Global Financing (GF) Receivables$2.1 Net Cash from Operating Activities (Excluding GF Receivables)$13.7 Capital Expenditures,
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