International Business Machines Corporation · NYSE:IBM
International Business Machines — Q2 2016 Earnings Presentation
33 slides from International Business Machines's earnings presentation, Jul 18, 2016
Slide 1: IBM 2Q 2016 Earnings
IBM 2Q 2016 Earnings July 18, 2016 ibm.com/investor
Slide 2: Forward Looking Statements and Non-GAAP Information
Forward Looking Statements and Non-GAAP Information 2 Certain comments made in this presentation may be In an effort to provide additional and useful information characterized as forward looking under the Private regarding the company’s financial results and other Securities Litigation Reform Act of
Slide 3: Overview
Overview 3 2Q16 $20.2B $2.95 $13.1B Revenue Operating EPS Free Cash Flow Last 12 Months Strong growth in Strategic Imperatives − Strategic Imperatives revenue of $31B over the last 12 months, now represents 38% of the business − Growth led by Cloud Continue to shift business and move to new spac
Slide 4: Becoming a Cognitive Solutions & Cloud Platform Company
Becoming a Cognitive Solutions & Cloud Platform Company 4 2Q16 Progress Last $31B 38% • Broadening the reach of Watson platform, Watson Health, 12 months Strategic Imperatives IBM Watson IoT with new solutions and partnerships Revenue Revenue • Announced Watson for Cyber Security • Extended cloud in
Slide 5: Key Financial Metrics
Key Financial Metrics 5 B/(W) Last 12 P&L Highlights 2Q16 Yr/Yr Cash Highlights 2Q16 Months Revenue $20.2 (2.6%) Free Cash Flow $2.1 $13.1 (excl. GF Receivables) Expense $6.4 (6.6%) Share Repurchase (Gross) $0.8 $4.1 PTI - Operating $3.5 (24%) Dividends $1.3 $5.1 NI - Operating $2.8 (25%) Cash Balan
Slide 6: Cognitive Solutions Segment
Cognitive Solutions Segment 6 Segment Results 2Q16 Yr/Yr Segment Revenue Elements Revenue (External) $4.7 4% Gross Margin (External) 82.2% (3.6 pts) Solutions Software PTI $1.5 (20%) 6% Yr/Yr Transaction PTI Margin 27.5% (8.6 pts) Processing Software (1%) Yr/Yr Highlights Strategic Imperatives Reven
Slide 7: Global Business Services Segment
Global Business Services Segment 7 Segment Results 2Q16 Yr/Yr Segment Revenue Elements Consulting Revenue (External) $4.3 (3%) (5%) Yr/Yr Gross Margin (External) 26.3% (1.1 pts) Application Management PTI $0.5 (26%) (1%) Yr/Yr Global Process Services PTI Margin 10.9% (3.5 pts) (3%) Yr/Yr Highlights
Slide 8: Technology Services and Cloud Platforms Segment
Technology Services and Cloud Platforms Segment 8 Segment Results 2Q16 Yr/Yr Segment Revenue Elements Infrastructure Revenue (External) $8.9 Flat Services Gross Margin (External) 41.6% (0.6 pts) +2% Yr/Yr PTI $1.3 (10%) Integration Technical Software PTI Margin 14.2% (1.4 pts) Support Services (8%)
Slide 9: Systems Segment
Systems Segment 9 Segment Results 2Q16 Yr/Yr Segment Revenue Elements Revenue (External) $2.0 (23%) Operating Systems Gross Margin (External) 56.5% 0.1 pts Systems Hardware PTI $0.2 (58%) Software (28)% Yr/Yr (4%) Yr/Yr PTI Margin 10.6% (9.1 pts) Highlights Strategic Imperatives Revenue 2Q16 Yr/Yr w
Slide 10: Software Revenue
Software Revenue 10 Software Revenue Growth Trends Software Revenue Composition Revenue mix represents last 12 months Revenue growth represents 2Q16 Yr/Yr 8% +7% 6% Cognitive Solutions Annuity 4% +9% Yr/Yr 2% +1% 0% Integration Software (2%) Annuity +2% Yr/Yr% (4%) Transactional (15%) Yr/Yr% (6%) (8
Slide 11: Cash Flow and Balance Sheet Highlights
Cash Flow and Balance Sheet Highlights 11 Last 12 Cash Flow 2Q16 Yr/Yr Months Balance Sheet Jun 16 Dec 15 **Jun 15 Net Cash from Operations* $3.1 ($1.2) $17.0 Cash & Marketable Securities $10.6 $8.2 $8.8 Free Cash Flow* $2.1 ($1.2) $13.1 Total Debt $44.5 $39.9 $38.6 Selected Uses of Cash Global Fina
Slide 12: 2016 EPS Drivers
2016 EPS Drivers 12 1H16 2H16 EPS YTY Drivers Results Expectations 1Q Charges and Savings Significant impact Contribution Mainframe compare Mid single digit headwind Nominal impact Cognitive/Cloud Organic Investments Mid single digit headwind Lower impact Acquisitions (closed) Low single digit headw
Slide 13: Summary
Summary 13 • IBM uniquely positioned to deliver value to clients - cognitive business - hybrid cloud environments - strong industry dimension • Moving to new spaces and creating new markets • Investing to add capabilities and deliver innovation
Slide 14: ibm.com/investor
iobm.com/investor
Slide 15: Supplemental Materials
Supplemental Materials 15 • 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 Suppleme
Slide 16: Currency – Impact on Revenue Growth
Currency – Impact on Revenue Growth 16 7/15/2016 Yr/Yr @ 7/15/16 Spot Quarterly Averages per US $ 1Q16 Yr/Yr 2Q16 Yr/Yr Spot 3Q16 4Q16 FY16 Euro 0.91 (2%) 0.89 2% 0.90 0% 1% 0% Pound 0.70 (6%) 0.70 (7%) 0.76 (17%) (15%) (11%) Yen 115 3% 108 11% 106 13% 13% 10% IBM Revenue Impact (2.6 pts) (0.2 pts)
Slide 17: Geographic Revenue
Geographic Revenue 17 Geography Revenue 2Q16 Yr/Yr • Americas reflects sequential improvement in the US (-2% yr/yr), Canada and LA Americas $9.5 (2%) Europe/ME/Africa $6.3 (4%) • EMEA weakened, driven by Germany and Switzerland; good growth in Middle East/Africa Asia Pacific $4.4 (2%) • Asia Pacific
Slide 18: Segment Revenue & Gross Profit
Segment Revenue & Gross Profit 18 Segment Revenue & Profit Metrics-2Q16 Revenue Yr/Yr GP% GP Yr/Yr Cognitive Solutions $4.7 4% 82.2% (3.6) pts Global Business Services $4.3 (3%) 26.3% (1.1) pts Cognitive Solutions & Industry Services $8.9 1% 55.5% (1.6) pts Technology Services & Cloud Platforms $8.9
Slide 19: Additional Revenue & Backlog Information
Additional Revenue & Backlog Information 19 2Q16 Yr/Yr 2Q16 Yr/Yr Software Revenue* $6.2 1% Services Revenue Cognitive Solutions $4.7 4% Global Technology Services $7.8 1% Solutions Software $3.2 6% Infrastructure Services $5.9 2% Transaction Processing Software $1.4 (1%) Technical Support Services
Slide 20: Expense Summary
Expense Summary 20 B/(W) Expense Metrics 2Q16 Yr/Yr Currency Acq. * Base SG&A – Operating $5.1 (1%) 0 pts (4 pts) 2 pts RD&E – Operating $1.5 (13%) 1 pts (8 pts) (6 pts) IP and Development Income ($0.4) 184% Other (Income)/Expense $0.0 N/M Interest Expense $0.2 (45%) Operating Expense & Other Income
Slide 21: Global Financing Portfolio
Global Financing Portfolio 21 2Q16 – $25.4B Net External Receivables Global Financing Metrics 2Q16 1Q16 2Q15 Identified Loss Rate 2.1% 2.0% 2.1% Investment Grade Non-Investment Grade 40% 52% 48% Anticipated Loss Rate 0.5% 0.6% 0.3% Reserve Coverage 2.6% 2.6% 2.4% 30% 31% Client Days Delinquent Outst
Slide 22: Balance Sheet Summary
Balance Sheet Summary 22 Jun 16 Dec 15 Jun 15* Cash & Marketable Securities $10.6 $8.2 $8.8 Non-GF Assets ** $75.3 $67.7 $70.4 Global Financing Assets $32.2 $34.6 $33.3 Total Assets $118.1 $110.5 $112.5 Other Liabilities $57.6 $56.2 $60.0 Non-GF Debt ** $18.0 $12.7 $12.5 Global Financing Debt $26.5
Slide 23: Cash Flow Summary
Cash Flow Summary 23 B/(W) YTD B/(W) 2Q16 Yr/Yr 2016 Yr/Yr Net Cash from Operations $3.4 ($0.4) $9.1 $1.6 Less: Global Financing Receivables $0.3 $0.7 $2.7 $1.5 Net Cash from Operations (excluding GF Receivables) $3.1 ($1.2) $6.4 $0.1 Net Capital Expenditures ($1.0) ($0.1) ($1.9) ($0.1) Free Cash Fl
Slide 24: Cash Flow (ASC 230)
Cash Flow (ASC 230) 24 QTD QTD YTD YTD 2Q16 2Q15 2016 2015 Net Income from Operations $2.5 $3.4 $4.5 $5.8 Depreciation / Amortization of Intangibles $1.1 $1.0 2.1 1.9 Stock-based Compensation $0.1 $0.1 0.3 0.3 Working Capital / Other ($0.6) ($0.3) (0.5) (1.7) Global Financing A/R $0.3 ($0.4) 2.7 1.2
Slide 25: Non-GAAP Supplemental Materials
Non-GAAP Supplemental Materials 25 Reconciliation of Operating Earnings Per Share 2016 EPS Guidance Expectations IBM GAAP EPS at least $12.23 IBM Operating EPS (Non-GAAP) at least $13.50 Adjustments Acquisition Related Charges* $0.84 Non-Operating Retirement-Related Items $0.43 * Includes acquisitio
Slide 26: Non-GAAP Supplemental Materials
Non-GAAP Supplemental Materials 26 Reconciliation of Revenue Growth-2Q 2016 2Q16 Yr/Yr GAAP @CC Americas (3%) (2%) Europe/ME/Africa (4%) (4%) Asia Pacific 1% (2%) U.S. (2%) (2%) Japan 13% 0% Growth Markets (8%) (3%) The above reconciles the Non-GAAP financial information contained in the “Geographic
Slide 27: Non-GAAP Supplemental Materials
Non-GAAP Supplemental Materials 27 Reconciliation of Revenue Growth-2Q 2016 2Q16 Yr/Yr GAAP @CC Strategic Imperatives 12% 12% Analytics 5% 4% Cloud 30% 30% Mobile 43% 43% Security 18% 18% Social (15%) (15%) The above reconciles the Non-GAAP financial information contained in the “Becoming a Cognitiv
Slide 28: Non-GAAP Supplemental Materials
Non-GAAP Supplemental Materials 28 Reconciliation of Revenue Growth-2Q 2016 2Q16 Yr/Yr 2Q16 Yr/Yr GAAP @CC GAAP @CC Cognitive Solutions 4% 4% Tech Svcs & Cloud Platforms Flat Flat Solutions Software 6% 6% Global Technology Services 1% 1% Transaction Processing Software (1%) (1%) Infrastructure Servi
Slide 29: Non-GAAP Supplemental Materials
Non-GAAP Supplemental Materials 29 Reconciliation of Expense Summary-2Q 2016 Non-GAAP Operating GAAP Adjustments (Non-GAAP) SG&A Currency 0 pts 0 pts 0 pts Acquisitions (5 pts) 2 pts (4 pts) Base 2 pts 0 pts 2 pts RD&E Currency 1 pts 0 pts 1 pts Acquisitions (8 pts) (0 pts) (8 pts) Base (5 pts) (0 p
Slide 30: Non-GAAP Supplemental Materials: Reconciliation of Software Revenue Growth
Non-GAAP Supplemental Materials 30 Reconciliation of Software Revenue Growth – 2Q 2016 2Q16 Yr/Yr GAAP @CC Transactional (15%) (15%) Annuity (Total Software) 6% 7% Cognitive Solutions Annuity 8% 9% Integration Software Annuity 2% 2% Operating Systems Annuity (5%) (4%) The above reconciles the Non-GA
Slide 31: Non-GAAP Supplemental Materials
Non-GAAP Supplemental Materials 31 Reconciliation of Debt-to-Capital Ratio Jun 2016 Dec 2015 Jun 2015* Non-Global Financing Debt/Capital 59% 54% 55% IBM Consolidated Debt/Capital 74% 73% 74% * Prior year reclassified for the adoption of the FASB guidance (Debt issuance cost) The above reconciles the
Slide 32: Non-GAAP Supplemental Materials
Non-GAAP Supplemental Materials 32 Reconciliation of Free Cash Flow-Last 12 Months 12 Months Ended Jun 2016 Net Cash from Operating Activities per GAAP: $18.6 Less: the change in Global Financing (GF) Receivables $1.7 Net Cash from Operating Activities (Excluding GF Receivables) $17.0 Capital Expend
Slide 33: ibm.com/investor
33 ibm.com/investor
International Business Machines — Q2 2016 Earnings Presentation on 6ix