International Business Machines Corporation · NYSE:IBM
International Business Machines — Q3 2016 Earnings Presentation
32 slides from International Business Machines's earnings presentation, Oct 17, 2016
Slide 1: 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 financial performance. Those statements by their na
Slide 2: Overview
3 Overview Continued strength in strategic imperatives Growth led by cloud and analytics Solid recurring revenue base Addressing new opportunities and creating new markets, while delivering innovation in existing businesses Investing organically and through acquisitions Shifting spending and skills
Slide 3: A Cognitive Solutions & Cloud Platform Company
4 A Cognitive Solutions & Cloud Platform Company Revenue growth rates @CC, $ in billions Overlap in Strategic Imperatives revenue primarily reflects solutions delivered via cloud 3Q16 Progress Significant ramp in cloud as-a-Service revenue over the last two quarters Continued global expansion of clo
Slide 4: Key Financial Metrics
5 Key Financial Metrics Revenue growth rates @CC, $ in billions except for EPS B/(W) Gross margin across the segments reflects higher level of investment and mix to as-a-Service Expense reflects higher levels of investment, currency impact and benefits from IP licensing P&L Highlights 3Q16 Yr/Yr Rev
Slide 5: Cognitive Solutions Segment
6 Cognitive Solutions Segment Sequential improvement in Solutions Software revenue, led by analytics including Watson Margin reflects high value content, increased investment levels and SaaS ramp Expanding Watson capabilities and enhancing industry focus Highlights Revenue growth rates @CC, $ in bil
Slide 6: Global Business Services Segment
7 Global Business Services Segment Growth in digital practices offset by declines in traditional consulting areas Engineered shift to digital practices with strong growth in cloud, analytics and mobility Margin decline driven by Consulting Highlights Revenue growth rates @CC, $ in billions Segment R
Slide 7: Technology Services and Cloud Platforms Segment
8 Technology Services and Cloud Platforms Segment Continued momentum in hybrid cloud with growth in Infrastructure Services Growth in Integration Software driven by Connect products and mission critical offerings Margin expansion in Infrastructure Services offset by decline in Technical Support Serv
Slide 8: Systems Segment
9 Systems Segment z Systems performance reflects product cycle, with revenue down and margin expansion Power impacted by Unix decline, while transitioning to Linux Storage value continues to shift to software Gross Margin expansion in z Systems offset by Power and Storage Highlights Revenue growth r
Slide 9: Software Revenue Highlights
10 Software Revenue Highlights Software Revenue Composition - 3Q16 Cognitive Solutions Annuity +7% Yr/Yr Transactional (5%) Yr/Yr Operating Systems Annuity (9%) Yr/Yr Integration Software Annuity +2% Yr/Yr Revenue growth rates @CC Software portfolio is broad, open and runs across IBM and non-IBM env
Slide 10: Cash Flow and Balance Sheet Highlights
11 Cash Flow and Balance Sheet Highlights Free Cash Flow realization over 100% on a trailing twelve month basis 12 acquisitions through September Positioned to support business over the longer term $ in billions *Excludes Global Financing receivables; **Prior year reclassified for the adoption of th
Slide 11: Summary
12 Summary 3Q results demonstrate stability in IBM’s business Continued strength in cloud, analytics Investing to address new opportunities and create new markets Continue to expect at least $13.50 of operating earnings per share for the year and free cash flow at higher end of the range provided in
Slide 12: Summary
Summary 3Q results demonstrate stability in IBM's business Continued strength in cloud, analytics Investing to address new opportunities and create new markets Continue to expect at least $13.50 of operating earnings per share for the year and free cash flow at higher end of the range provided in Ja
Slide 13: Supplemental Materials
14 Supplemental Materials Currency – Impact on Revenue Growth Geographic Revenue Segment Revenue & Gross Profit Margin Additional Revenue & Backlog Information Expense Summary Global Financing Portfolio Balance Sheet Summary Cash Flow Summary Cash Flow (ASC 230) Non-GAAP Supplemental Materials Some
Slide 14: Currency – Impact on Revenue Growth
15 Currency – Impact on Revenue Growth Supplemental Materials 10/14/16 Quarterly Averages per US $ 1Q16 Yr/Yr 2Q16 Yr/Yr 3Q16 Yr/Yr Spot 4Q16 FY16 1Q17 2Q17 Euro 0.91 (2%) 0.89 2% 0.90 0% 0.91 1% 0% 0% (3%) Pound 0.70 (6%) 0.70 (7%) 0.76 (18%) 0.82 (24%) (14%) (17%) (18%) Yen 115 3% 108 11% 102 16%
Slide 15: Geographic Revenue
16 Geographic Revenue Sequential improvement in the Americas and EMEA performance US performance flat vs. last year; growth in Latin America EMEA improvement driven by UK, Germany, France, and the Nordics Asia Pacific performance mixed with a decline in Japan (-3%) and continued strong performance i
Slide 16: Segment Revenue & Gross Profit
17 Segment Revenue & Gross Profit Revenue growth rates @CC, $ in billions Supplemental Materials Segment Revenue & Profit Metrics - 3Q16 Revenue Yr/Yr GP% GP Yr/Yr Cognitive Solutions $4.2 5% 80.4% (3.9) pts Global Business Services $4.2 (2%) 28.8% (0.9) pts Cognitive Solutions & Industry Services $
Slide 17: Additional Revenue & Backlog Information
18 Additional Revenue & Backlog Information Growth rates @CC, $ in billions, Actual backlog calculated using September 30 currency spot rates *Total Software = Cognitive Solutions + Integration Software + Operating Systems Software **Prior year reclassified to reflect current segment structure. Supp
Slide 18: Expense Summary
19 Expense Summary Supplemental Materials $ in billions *includes acquisitions made in the last twelve months, net of non-operating acquisition-related charges B/(W) Expense Metrics 3Q16 Yr/Yr Currency Acq. * Base SG&A – Operating $4.5 1% (1 pts) (4 pts) 6 pts RD&E – Operating $1.4 (9%) 1 pts (9 pts
Slide 19: Global Financing Portfolio
20 Global Financing Portfolio 3Q16 – $24.4B Net External Receivables Global Financing Metrics 3Q16 2Q16 3Q15 Identified Loss Rate 2.1% 2.1% 2.1% Anticipated Loss Rate 0.5% 0.5% 0.3% Reserve Coverage 2.6% 2.6% 2.4% Client Days Delinquent Outstanding 3.9 3.5 4.2 Commercial A/R > 30 days $19M $25M $32M
Slide 20: Balance Sheet Summary
21 Balance Sheet Summary *Prior year reclassified for the adoption of the FASB guidance (Debt issuance cost and Deferred Tax classification) **includes eliminations of inter-company activity Supplemental Materials $ in billions Sep 16 Dec 15 Sep 15* Cash & Marketable Securities $10.0 $8.2 $9.6 Non-G
Slide 21: Cash Flow Summary
22 Cash Flow Summary Supplemental Materials $ in billions B/(W) YTD B/(W) 3Q16 Yr/Yr 2016 Yr/Yr Net Cash from Operations $4.2 ($0.0) $13.3 $1.6 Less: Global Financing Receivables $0.9 $0.2 $3.6 $1.7 Net Cash from Operations (excluding GF Receivables) $3.3 ($0.2) $9.7 ($0.1) Net Capital Expenditures
Slide 22: Cash Flow (ASC 230)
23 Cash Flow (ASC 230) Supplemental Materials $ in billions QTD QTD YTD YTD 3Q16 3Q15 3Q16 3Q15 Net Income from Operations $2.9 $3.0 $7.4 $8.7 Depreciation / Amortization of Intangibles $1.1 $0.9 $3.3 $2.9 Stock-based Compensation $0.1 $0.1 $0.4 $0.4 Working Capital / Other ($0.8) ($0.5) ($1.4) ($2.
Slide 23: Reconciliation of Operating Earnings Per Share
Reconciliation of Operating Earnings Per Share 24 Non-GAAP Supplemental Materials *Includes acquisitions through September 30, 2016 The above reconciles the Non-GAAP financial information contained in the “Overview“ and “Summary” discussions in the company’s earnings presentation. See Exhibit 99.2 i
Slide 24: Reconciliation of Revenue Growth - 3Q 2016
Reconciliation of Revenue Growth - 3Q 2016 25 Non-GAAP Supplemental Materials The above reconciles the Non-GAAP financial information contained in the “Geographic Revenue” discussions in the company’s earnings presentation. See Exhibit 99.2 included in the Company’s Form 8-K dated October 17, 2016 f
Slide 25: Reconciliation of Revenue Growth - 3Q 2016
Reconciliation of Revenue Growth - 3Q 2016 26 Non-GAAP Supplemental Materials The above reconciles the Non-GAAP financial information contained in the “Becoming a Cognitive Solutions & Cloud Platform Company” discussions in the company’s earnings presentation. See Exhibit 99.2 included in the Compan
Slide 26: Reconciliation of Revenue Growth - 3Q 2016
Reconciliation of Revenue Growth - 3Q 2016 27 Non-GAAP Supplemental Materials The above reconciles the Non-GAAP financial information contained in the “Segment Revenue & Gross Profit”, “Additional Revenue & Backlog Information”, “Cognitive Solutions Segment”, “Global Business Services Segment”, “Tec
Slide 27: Reconciliation of Expense Summary - 3Q 2016
Reconciliation of Expense Summary - 3Q 2016 28 Non-GAAP Supplemental Materials The above reconciles the Non-GAAP financial information contained in the “Expense Summary” discussions in the company’s earnings presentation. See Exhibit 99.2 included in the Company’s Form 8-K dated October 17, 2016 for
Slide 28: Reconciliation of Software Revenue Growth - 3Q 2016
Reconciliation of Software Revenue Growth - 3Q 2016 29 Non-GAAP Supplemental Materials The above reconciles the Non-GAAP financial information contained in the “Software Revenue” discussions in the company’s earnings presentation. See Exhibit 99.2 included in the Company’s Form 8-K dated October 17,
Slide 29: Reconciliation of Debt-to-Capital Ratio
Reconciliation of Debt-to-Capital Ratio 30 Non-GAAP Supplemental Materials Supplemental Materials The above reconciles the Non-GAAP financial information contained in the “Cash Flow and Balance Sheet Highlights” and “Balance Sheet Summary” discussions in the company’s earnings presentation. See Exhi
Slide 30: Reconciliation of Free Cash Flow-Last 12 Months
31 Reconciliation of Free Cash Flow-Last 12 Months Non-GAAP Supplemental Materials The above reconciles the Non-GAAP financial information contained in the “Overview”, “Key Financial Metrics” and “Cash Flow and Balance Sheet Highlights” discussions in the company’s earnings presentation. See Exhibit
Slide 31: Non-GAAP Supplemental Materials
Non-GAAP Supplemental Materials Reconciliation of Free Cash Flow-Last 12 Months 12 Months Ended Sep 2016 Net Cash from Operating Activities per GAAP: $18.6 Less: the change in Global Financing (GF) Receivables $18 Net Cash from Operating Activities (Excluding GF Receivables) $16.7 Capital Expenditur
Slide 32: ibm.com/investor
ibm.com/investor
International Business Machines — Q3 2016 Earnings Presentation on 6ix