37 slides from International Business Machines's earnings presentation, Oct 20, 2014
Slide 1: 3Q 2014 Earnings Presentation
3Q 2014 Earnings Presentation October!20,!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: 3Q 2014 Overview
3Q 2014 Overview $ in Billions, except EPS Operating Discontinued Ops. 3Q14 3Q14 $ Yr/Yr $ Revenue $22.4 (4%) $0.4 @CC excl. Customer Care (2%) Net Income $3.7 (18%) ($3.4) EPS* $3.68 (10%) ($3.44)** * See EPS reconciliation on slide 19 ** Includes one-time transaction-related charges ($3.35) and on
Slide 4: Key Transactions
Key Transactions x86 Business Microelectronics Manufacturing • Divested x86 business to Lenovo • Divesting semiconductor technology manufacturing to GLOBALFOUNDRIES • Strategic reseller relationship • IBM continues to lead semiconductor R&D and systems innovation; GLOBALFOUNDRIES to supply semicondu
Slide 5: Reporting Format
Reporting Format Current Presentation Basis for Prior Presentation reflecting Discontinued Operations Operating Results Operating Results Continuing (Non-GAAP) (Non-GAAP) Operations (GAAP) $3.68 EPS Basis for EPS in $3.46 EPS 2015 Roadmap IBM 3Q Actuals and (GAAP) 2014 guidance $0.02 EPS Non-Operati
Slide 6: Key Financial Metrics – 3Q 2014
Key Financial Metrics – 3Q 2014 $ in Billions, except EPS B/(W) P&L Ratios P&L Highlights B/(W) 3Q14 Yr/Yr (Operating) 3Q14 Yr/Yr Revenue $22.4 (4%) GP Margin 49.2% (0.9 pts) @CC excl. Cust. Care (2%) PTI Margin 20.7% (2.6 pts) PTI – Operating $4.6 (15%) Tax Rate 20.8% (3.2 pts) NI – Operating $3.7
Slide 7: Revenue by Geography
Revenue by Geography $ in Billions B/(W) Yr/Yr 3Q14 Rptd @CC Americas $10.1 (2%) (1%) Canada/!!!!! LA!!! Europe/ME/A 7.2 (2%) (3%) Asia Pacific 5.0 (9%) (8%) EMEA!!!!!! U.S.! :3%!! IBM $22.4 (4%) (4%) excl. Cust. Care BPO (3%) (2%) AP! Japan!ex.!Japan! :1%! @CC! Major Markets (3%) (3%) Growth Market
Slide 8: 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) 3Q14 Rptd @CC 3Q14 Yr/Yr Pts Global Technology Services $9.2 (3%) (2%) 38.5% (0.5 pts) excl. Cust. Care BPO Flat 1% Global Business Services 4.5 (2%) (1%) 31.3% (1.6 pts) Software 5.7 (2%
Slide 9: Expense Summary
Expense Summary B/(W) B/(W) Yr/Yr Drivers $ in Billions 3Q14 Yr/Yr Currency Acq.* Base SG&A – Operating $5.1 (2%) 0 pts (1 pts) (1 pts) RD&E – Operating 1.4 (2%) 0 pts (2 pts) 0 pts IP and Development Income (0.1) (24%) Other (Income)/Expense (0.1) 60% Interest Expense 0.1 (30%) Operating Expense &
Slide 10: Services Segments
Services Segments Global!Technology!Services!(GTS)! Global!Business!Services!(GBS)! B/(W) Yr/Yr B/(W) Yr/Yr $ in Billions 3Q14 Rptd @CC $ in Billions 3Q14 Rptd @CC Revenue (External) $9.2 (3%) (2%) Revenue (External) $4.5 (2%) (1%) excl. Cust. Care BPO Flat 1% Gross Margin (External) 38.5% (0.5 pts)
Slide 11: Software Segment
Software Segment B/(W) Yr/Yr $ in Billions 3Q14 Rptd @CC Revenue (External) $5.7 (2%) (2%) Gross Margin (External) 87.6% (0.4 pts) PTI Margin 35.5% (1.3 pts) 3Q14 Revenue Yr/Yr 3Q14!Revenue!!!!!!!!!!!!! Rptd @CC (%!of!Total!SoZware)! WebSphere 7% 6% Information Management (5%) (5%) Tivoli 3% 3% Key!
Slide 12: Systems & Technology Segment
Systems & Technology Segment B/(W) Yr/Yr $ in Billions 3Q14 Rptd @CC Revenue (External) $2.4 (15%) (15%) Gross Margin (External) 33.9% (5.9 pts) PTI Margin (3.8%) (3.5 pts) 3Q14!Revenue! 3Q14 Revenue Yr/Yr (%!of!Total!Sys!&!Tech)! Rptd @CC System z (35%) (35%) Power Systems (12%) (12%) System x (10%
Slide 13: Cash Flow Analysis
Cash Flow Analysis YTD $ in Billions 3Q14 Yr/Yr 3Q14 Yr/Yr Net Cash from Operations $3.9 $0.1 $10.8 ($0.1) Less: Global Financing Receivables 0.7 0.2 2.2 0.6 Net Cash from Operations 3.2 (0.1) 8.6 (0.7) (excluding GF Receivables) Net Capital Expenditures (1.0) 0.0 (2.8) (0.1) Free Cash Flow (excludi
Slide 14: Balance Sheet Summary
Balance Sheet Summary $ in Billions Sept. ‘13 Dec. ‘13 Sept. ‘14** Cash & Marketable Securities $10.2 $11.1 $9.6 Non-GF Assets* 73.0 76.5 74.5 Global Financing Assets 34.7 38.7 34.8 Total Assets 117.8 126.2 118.9 Other Liabilities 61.7 63.6 58.8 Non-GF Debt* 10.4 12.2 17.1 Global Financing Debt 25.8
Slide 15: Strategic Imperatives
Strategic Imperatives ! Strategic imperatives address market shifts in data, cloud, engagement • Business Analytics +8% yr/yr YTD • Cloud >50% yr/yr YTD – Cloud-as-a-Service $3.1B annual run rate, exiting 3Q14 • Engagement – Mobile >100% yr/yr YTD – Social +1% yr/yr YTD – Security >20% yr/yr YTD ! D
Slide 16: Summary
Summary ! Strategy addresses shift to new areas of IT • Strong performance in strategic imperatives • Actions and investments to accelerate shift ! Updating expectations • Expect 2014 Operating EPS -4% to -2% as compared to $16.64 in 2013 – Reflects new definition based on Continuing Operations • No
Slide 17: www.ibm.com/investor
www.ibm.com/investor 17
Slide 18: Supplemental Materials
Supplemental Materials Supplemental Materials Some columns and rows in these materials, including the supplemental exhibits, may not add due to rounding. 2013 reclassified to reflect discontinued operations presentation. ! Earnings Per Share Reconciliation ! Currency – Year/Year Comparison ! Supplem
Slide 19: Earnings Per Share Reconciliation
Supplemental Materials Earnings Per Share Reconciliation 3Q14 3Q13 GAAP EPS $0.02 $3.68 Discontinued Operations EPS (GAAP) (3.44) (0.09) Continuing Operations EPS (GAAP) 3.46 3.77 Adjustments Acquisition-Related Charges 0.16 0.15 Non-Operating Retirement-Related Items 0.06 0.16 Operating EPS (Non-GA
Slide 20: Currency – Year/Year Comparison
Supplemental Materials Currency – Year/Year Comparison Quarterly Averages per US $! 10/17 10/17 Spot 1Q14 Yr/Yr 2Q14 Yr/Yr 3Q14 Yr/Yr Spot 4Q14 FY14 1Q15 2Q15 Euro 0.73 4% 0.73 5% 0.76 0% 0.78 (7%) 1% (7%) (7%) Pound 0.60 6% 0.59 9% 0.60 7% 0.62 (1%) 5% (3%) (5%) Yen 103 (11%) 102 (3%) 104 (5%) 107
Slide 21: Supplemental Segment Information – 3Q 2014
Supplemental Materials Supplemental Segment Information – 3Q 2014 Global Services Revenue Global Services Backlog / Signings Revenue!Growth! $!in!Billions! Backlog! Yr/Yr! @CC! 3Q14! Yr/Yr! @CC! GTS Outsourcing (5%) (4%) Total Backlog $128 (9%) (5%) excl. Cust. Care BPO 1% 2% excl. Cust. Care BPO (7
Slide 22: Supplemental Segment Information – 3Q 2014
Supplemental Materials Supplemental Segment Information – 3Q 2014 Systems & Technology Software Revenue!Growth! Revenue!Growth! Yr/Yr! @CC! GP%! Yr/Yr! @CC! System z (35%) (35%) WebSphere 7% 6% Power Systems (12%) (12%) Information Management (5%) (5%) Tivoli 3% 3% System x (10%) (9%) Workforce Solu
Slide 23: Global Financing Portfolio
Supplemental Materials Global Financing Portfolio 3Q14 – $27.8B Net External Receivables Investment Grade Non-Investment Grade 58% 42% 3Q14 2Q14 3Q13 Identified Loss Rate 1.5% 1.1% 1.0% Anticipated Loss Rate 0.3% 0.4% 0.3% Reserve Coverage 1.8% 1.5% 1.3% Client Days Delinquent Outstanding 4.0 3.8 3.
Slide 24: Cash Flow (FAS 95)
Supplemental Materials Cash Flow (FAS 95) $ in Billions QTD QTD YTD YTD 3Q14 3Q13 3Q14 3Q13 Net Income from Operations $0.0 $4.0 $6.5 $10.3 Depreciation / Amortization of Intangibles 1.1 1.2 3.4 3.5 Stock-based Compensation 0.2 0.1 0.4 0.5 Working Capital / Other (1.5) (2.1) (5.2) (4.9) Global Finan
Slide 25: 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 26: Non-GAAP Supplemental Materials
Supplemental Materials Non-GAAP Supplemental Materials Cash Flow Management uses a free cash flow measure to evaluate the companys operating results, plan share repurchase levels, evaluate strategic investments and assess the companys ability and need to incur and service debt. The entire free cash
Slide 27: Reconciliation of Operating Earnings Per Share
Supplemental Materials Non-GAAP Supplemental Materials Reconcilia=on!of!Opera=ng!Earnings!Per!Share! Full Year 2014 Expectations 2013 vs. 2013 IBM Continuing Operations EPS (GAAP) $15.30 0% to -2% IBM Operating EPS (Non-GAAP) $16.64 -2% to -4% Adjustments 2014 Expectations Acquisition-Related Charge
Slide 28: GAAP to Operating (Non-GAAP) Bridge – 3Q 2014
Supplemental Materials Non-GAAP Supplemental Materials GAAP!to!Opera=ng!(Non:GAAP)!Bridge!–!3Q!2014! $ in Millions, except EPS Acquisition-related Retirement-related Operating GAAP Adjustments* Adjustments** (Non-GAAP) Gross Profit $10,874 $106 $43 $11,023 SG&A 5,281 (96) (48) 5,137 RD&E 1,354 0 19
Slide 29: GAAP to Operating (Non-GAAP) Bridge – 3Q 2013
Supplemental Materials Non-GAAP Supplemental Materials GAAP!to!Opera=ng!(Non:GAAP)!Bridge!–!3Q!2013! $ in Millions, except EPS Acquisition-related Retirement-related Operating GAAP Adjustments* Adjustments** (Non-GAAP) Gross Profit $11,429 $102 $154 $11,686 SG&A 5,260 (111) (89) 5,060 RD&E 1,356 0 (
Slide 30: GAAP to Operating (Non-GAAP) Bridge – 3Q YTD 2014
Supplemental Materials Non-GAAP Supplemental Materials GAAP!to!Opera=ng!(Non:GAAP)!Bridge!–!3Q!YTD!2014! $ in Millions, except EPS Acquisition-related Retirement-related Operating GAAP Adjustments* Adjustments** (Non-GAAP) Gross Profit $33,545 $315 $141 $34,001 SG&A 17,146 (291) (162) 16,693 RD&E 4,
Slide 31: GAAP to Operating (Non-GAAP) Bridge – 3Q YTD 2013
Supplemental Materials Non-GAAP Supplemental Materials GAAP!to!Opera=ng!(Non:GAAP)!Bridge!–!3Q!YTD!2013! $ in Millions, except EPS Acquisition-related Retirement-related Operating GAAP Adjustments* Adjustments** (Non-GAAP) Gross Profit $34,347 $289 $474 $35,110 SG&A 17,463 (294) (286) 16,884 RD&E 4,
Slide 32: GAAP to Operating (Non-GAAP) Bridge – 3Q 2014 and 3Q 2013
Supplemental Materials Non-GAAP Supplemental Materials GAAP!to!Opera=ng!(Non:GAAP)!Bridge!–!3Q!2014!and!3Q!2013! Acquisition- Retirement-related related Adjustments ** Operating 3Q 2014 GAAP Adjustments* (Non-GAAP) Gross Profit Margin from Continuing Operations 48.6% 0.5 pts 0.2 pts 49.2% PTI Margin
Slide 33: Reconciliation of B/(W) Yr/Yr Expense Drivers – 3Q14
Supplemental Materials Non-GAAP Supplemental Materials Reconcilia=on!of!B/(W)!Yr/Yr!Expense!Drivers!–!3Q14! Non-GAAP Operating GAAP Adjustments (Non-GAAP) SG&A Currency 0 pts 0 pts 0 pts Acquisitions (1 pts) 0 pts (1 pts) Base 1 pts (1 pts) (1 pts) RD&E Currency 0 pts 0 pts 0 pts Acquisitions (2 pts
Slide 34: Reconciliation of Debt-to-Capital Ratio
Supplemental Materials Non-GAAP Supplemental Materials Reconcilia=on!of!Debt:to:Capital!Ra=o! Sept. 2014* Dec. 2013 Sept. 2013 Non-Global Financing Debt / Capital 62% 39% 39% IBM Consolidated Debt / Capital 76% 63% 64% *September 2014 reflects $3.3 billion net loss on divestiture of Microelectronics
Slide 35: Reconciliation of Free Cash Flow (excluding GF Receivables)
Supplemental Materials Non-GAAP Supplemental Materials Reconcilia=on!of!Free!Cash!Flow!(excluding!GF!Receivables)! 12 months ended $ in Billions 9/30/14 Net Cash from Operations $17.3 Less: Global Financing Receivables (0.7) Net Cash from Operations (excluding GF Receivables) 18.0 Net Capital Expend
Slide 36: Reconciliation of Revenue Growth
Supplemental Materials Non-GAAP Supplemental Materials Reconcilia=on!of!Revenue!Growth! 3Q14 Yr/Yr 2Q14 Yr/Yr At Constant At Constant As Reported Currency As Reported Currency Major Markets Flat (1%) Growth Markets (7%) (4%) Japan (6%) (1%) Global Services (3%) (2%) The above serves to reconcile the
Slide 37: www.ibm.com/investor
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