International Business Machines Corporation · NYSE:IBM
International Business Machines — Q4 2017 Earnings Presentation
36 slides from International Business Machines's earnings presentation, Jan 18, 2018
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 Fourth-quarter 2017 revenue up 4%, up 1% at constant currency Cloud and as-a-Service momentum Strong Systems growth across IBM Z, Power, storage Consulting growth, led by digital offerings Improved revenue and gross margin trajectory in second-half 2017 Maintaining high investment levels
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 Strategic Imperatives revenue up 11% in 2017, led by cloud (+24%) and security (+54%) Cloud revenue of $17B in 2017 – pub
Slide 4: Key Financial Metrics
5 Key Financial Metrics Revenue growth rates @CC, $ in billions except for EPS *Excludes one-time charge associated with the enactment of U.S. tax reform B/(W) Gross margin up nearly two points sequentially Expense yr/yr increase driven by currency and lower level of IP income; E/R improved excludin
Slide 5: Cognitive Solutions Segment
6 Cognitive Solutions Segment Solutions Software reflects: growth in Watson solutions and security weakness in a few traditional analytics offerings Transaction Processing Software growth reflects clients’ long-term commitment to our platform Annuity content continues to grow, driven by SaaS Overall
Slide 6: Global Business Services Segment
7 Global Business Services Segment Second consecutive quarter of growth in Consulting, driven by digital offerings Application Management performance driven by traditional ERP managed services Gross margin reflects continued investment in skills and transformation, and an impact from currency Highli
Slide 7: Technology Services and Cloud Platforms Segment
8 Technology Services and Cloud Platforms Segment Infrastructure Services revenue trajectory reflects large contract dynamics in prior year Integration Software includes strong SaaS growth, declines in transactional revenue as consumption shifts to cloud Gross margin reflects continued investments i
Slide 8: Systems Segment
9 Systems Segment Strong revenue performance with growth in all three brands IBM Z revenue up > 70% yr/yr driven by the new z14; highest MIPS shipped in history Power returns to growth; storage delivered four consecutive quarters of growth Gross margin decline consistent with product cycle dynamics
Slide 9: Cash Flow and Balance Sheet Highlights
10 Cash Flow and Balance Sheet Highlights Free Cash Flow performance reflects strong receivables performance and efficient cap ex deployment Free Cash Flow realization 116% in 2017, adjusting for one-time tax charge Returned ~75% of free cash flow to shareholders Positioned to support business over
Slide 10: Summary
11 Summary Entering 2018 with a stronger revenue profile Strategic imperatives revenue now 46% of IBM’s revenue, with double-digit growth in 2017 Leader in enterprise cloud with $17B revenue; building scale in as-a-Service offerings Backlog supports improving services revenue trajectory Systems well
Slide 11: Summary
Summary e Entering 2018 with a stronger revenue profile - Strategic imperatives revenue now 46% of IBM's revenue, with double-digit growth in 2017 - Leader in enterprise cloud with $17B revenue; building scale in as-a-Service offerings - Backlog supports improving services revenue trajectory - Syste
Slide 12: Supplemental Materials
13 Supplemental Materials Currency – Impact on Revenue Growth Geographic Revenue Segment Revenue & Gross Profit Additional Revenue & Backlog Information Expense Summary Global Financing Portfolio Balance Sheet Summary Cash Flow Summary Cash Flow (ASC 230) Some columns and rows in these materials, in
Slide 13: Currency – Impact on Revenue Growth
14 Currency – Impact on Revenue Growth Supplemental Materials 1/17/18 Quarterly Averages per US $ 3Q17 Yr/Yr 4Q17 Yr/Yr Spot 1Q18 2Q18 3Q18 4Q18 FY18 Euro 0.85 5% 0.85 8% 0.82 13% 10% 4% 4% 8% Pound 0.76 (0%) 0.75 6% 0.72 10% 7% 5% 4% 7% Yen 111 (8%) 113 (3%) 111 2% 0% 0% 2% 1% Revenue Impact, Futur
Slide 14: Geographic Revenue
15 Geographic Revenue Americas reflects growth across the US (+3%), Canada and Latin America E/ME/A performance varied, with growth in France, Spain and Middle East/Africa, offset by declines in UK, Germany Asia Pacific includes strong growth in Japan (+4%), while China declined vs. difficult compar
Slide 15: Segment Revenue & Gross Profit
16 Segment Revenue & Gross Profit Revenue growth rates @CC, $ in billions *Total Software = Cognitive Solutions + Integration Software + Operating Systems Software **Global Technology Services = Infrastructure Services + Technical Support Services Supplemental Materials 4Q17 4Q17 Segment Revenue & G
Slide 16: Additional Revenue & Backlog Information
17 Additional Revenue & Backlog Information Growth rates @CC, $ in billions, Services Backlog calculated using December 31 currency spot rates Supplemental Materials 4Q17 Yr/Yr Signings $13.7 (10%) Services Backlog $121 (3%) Currency Impact Year to Year $6 Currency Impact Quarter to Quarter $0 4Q17
Slide 17: Expense Summary
18 Expense Summary Supplemental Materials $ in billions *includes acquisitions made in the last twelve months, net of non-operating acquisition-related charges **represents the percentage change after excluding the impact of currency and acquisitions Expense yr/yr increase driven by currency and low
Slide 18: Global Financing Portfolio
19 Global Financing Portfolio 4Q17 – $30.7B Net External Receivables Global Financing Metrics 4Q17 3Q17 4Q16 Identified Loss Rate 0.8% 1.0% 1.2% Anticipated Loss Rate 0.3% 0.4% 0.4% Reserve Coverage 1.1% 1.3% 1.6% Client Days Delinquent Outstanding 4.6 6.9 4.0 Commercial A/R > 30 days $27M $33M $22M
Slide 19: Balance Sheet Summary
20 Balance Sheet Summary *includes eliminations of inter-company activity **Global Financing leverage reflects client and commercial financing entity established in 1Q17 Supplemental Materials $ in billions; Non-GF Debt/Capital not considered meaningful, will no longer be reported Dec 17 Dec 16 Cash
Slide 20: Cash Flow Summary
21 Cash Flow Summary Supplemental Materials $ in billions *Reclassified to reflect adoption of the FASB guidance on stock-based compensation QTD B/(W) YTD B/(W) 4Q17 Yr/Yr 4Q17 Yr/Yr Net Cash from Operations * $5.7 $1.8 $16.7 ($0.4) Less: Global Financing Receivables ($2.0) ($0.4) $0.4 ($1.2) Net Ca
Slide 21: Cash Flow (ASC 230)
22 Cash Flow (ASC 230) Supplemental Materials $ in billions *Reclassified to reflect adoption of the FASB guidance on stock-based compensation QTD QTD YTD YTD 4Q17 4Q16 4Q17 4Q16 Net Income from Operations ($1.1) $4.5 $5.8 $11.9 Depreciation / Amortization of Intangibles $1.1 $1.1 $4.5 $4.4 Stock-ba
Slide 22: Key Financial Metrics – FY 2017
23 Key Financial Metrics – FY 2017 Revenue growth rates @CC, $ in billions except for EPS *Excludes one-time charge associated with the enactment of U.S. tax reform B/(W) Supplemental Materials Cash Highlights 4Q17 FY Free Cash Flow (excl. GF Receivables) $6.8 $13.0 Share Repurchase (Gross) $0.7 $4.
Slide 23: Strategic Imperatives & Geographic Revenue – FY 2017
24 Strategic Imperatives & Geographic Revenue – FY 2017 Revenue growth rates @CC, $ in billions Overlap in Strategic Imperatives revenue primarily reflects solutions delivered via cloud Supplemental Materials FY17 Yr/Yr Total Strategic Imperatives $36.5 11% Analytics $20.6 6% Cloud $17.0 24% aaS ann
Slide 24: Segment Revenue & Gross Profit – FY 2017
25 Segment Revenue & Gross Profit – FY 2017 Revenue growth rates @CC, $ in billions Supplemental Materials Segment Revenue & Gross Profit Metrics - FY17 Revenue Yr/Yr GP% Yr/Yr Cognitive Solutions $18.5 1% 78.6% (3.2) pts Solutions Software $12.8 1% Transaction Processing Software $5.6 Flat Global B
Slide 25: Expense Summary – FY 2017
26 Expense Summary – FY 2017 Supplemental Materials $ in billions *includes acquisitions made in the last twelve months, net of non-operating acquisition-related charges **represents the percentage change after excluding the impact of currency and acquisitions B/(W) Expense Metrics FY17 Yr/Yr Curren
Slide 26: Retirement-Related Summary
27 Retirement-Related Summary $ in billions *Tax Qualified Defined Benefit Plans, **WW 2017 ROA Estimated *** 2017 reclassified to conform with 2018 presentation (2017 under prior presentation: Operating $1.4B, Non-operating $1.5B) **** Includes retirement-related interest cost, expected return on p
Slide 27: Reconciliation of Revenue Growth - 4Q & FY 2017
Reconciliation of Revenue Growth - 4Q & FY 2017 28 Non-GAAP Supplemental Materials The above reconciles the Non-GAAP financial information contained in the “Geographic Revenue” and “Strategic Imperatives & Geographic Revenue –FY 2017” discussions in the company’s earnings presentation. See Exhibit 9
Slide 28: Reconciliation of Revenue Growth - 4Q & FY 2017
Reconciliation of Revenue Growth - 4Q & FY 2017 29 Non-GAAP Supplemental Materials The above reconciles the Non-GAAP financial information contained in the “A Cognitive Solutions & Cloud Platform Company” and “Strategic Imperatives & Geographic Revenue –FY 2017” discussions in the company’s earnings
Slide 29: Reconciliation of Revenue Growth - 4Q 2017
Reconciliation of Revenue Growth - 4Q 2017 30 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 30: Reconciliation of Revenue Growth - FY 2017
Reconciliation of Revenue Growth - FY 2017 31 Non-GAAP Supplemental Materials The above reconciles the Non-GAAP financial information contained in the “Segment Revenue & Gross Profit – FY 2017” discussion in the company’s earnings presentation. See Exhibit 99.2 included in the Company’s Form 8-K dat
Slide 31: Reconciliation of Software Revenue Growth - 4Q 2017
Reconciliation of Software Revenue Growth - 4Q 2017 32 Non-GAAP Supplemental Materials The above reconciles the Non-GAAP financial information contained in the “4Q17 Prepared Remarks” discussion in the company’s earnings presentation. See Exhibit 99.2 included in the Company’s Form 8-K dated January
Slide 32: Reconciliation of Expense Summary - 4Q 2017
Reconciliation of Expense Summary - 4Q 2017 33 Non-GAAP Supplemental Materials The above reconciles the Non-GAAP financial information contained in the “Expense Summary” discussion in the company’s earnings presentation. See Exhibit 99.2 included in the Company’s Form 8-K dated January 18, 2018 for
Slide 33: Reconciliation of Expense Summary - FY 2017
Reconciliation of Expense Summary - FY 2017 34 Non-GAAP Supplemental Materials The above reconciles the Non-GAAP financial information contained in the “Expense Summary – FY 2017” discussions in the company’s earnings presentation. See Exhibit 99.2 included in the Company’s Form 8-K dated January 18
Slide 34: Reconciliation of Debt-to-Capital Ratio
Reconciliation of Debt-to-Capital Ratio 35 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 35: Reconciliation of Debt-to-Capital Ratio
Non-GAAP Supplemental Materials Reconciliation of Debt-to-Capital Ratio Dec 2017 Dec 2016 ‘Non-Global Financing DebuCapital 52% 50% IBM Consolidated Debt(Capital 73% 70% ‘The above reconciles the Non-GAAP financial information contained inthe “Cash Flow and Balance Sheet Highlights" and “Balance She
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