International Business Machines Corporation · NYSE:IBM
International Business Machines — Q4 2016 Earnings Presentation
39 slides from International Business Machines's earnings presentation, Jan 19, 2017
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 Progress in building new businesses and creating new markets Delivering innovation in more traditional businesses and monetizing core technologies Returning capital to shareholders 4Q16 $21.8B $ 5.01 FY16 $79.9B $13.59 $11.6B Revenue Operating E
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 4Q16 Performance Strategic Imperatives revenue $10B, up 12% yr/yr 2016 Progress Solving real business problems in new era
Slide 4: Key Financial Metrics
5 Key Financial Metrics Revenue growth rates @CC, $ in billions except for EPS B/(W) Continued growth in annuity businesses Gross margin reflects high level of investment and mix to as-a-Service Expense reflects continued high level of investment, yield from workforce savings and success in rebuildi
Slide 5: Cognitive Solutions Segment
6 Cognitive Solutions Segment Analytics including Watson and security led growth in Solutions Software Continuing to scale our platforms and extend cognitive across offerings Margins impacted by investment levels and SaaS ramp Highlights Revenue growth rates @CC, $ in billions Segment Results 4Q16 Y
Slide 6: Global Business Services Segment
7 Global Business Services Segment Accelerated growth in digital practices led by cloud and mobile Revenue declines in more traditional areas like ERP Margins reflect continued investment to shift the business to new areas Highlights Revenue growth rates @CC, $ in billions Segment Revenue Elements A
Slide 7: Technology Services and Cloud Platforms Segment
8 Technology Services and Cloud Platforms Segment Leader in hybrid services integration with growth in Infrastructure Services Growth in Integration Software driven by hybrid cloud and WebSphere Gross margin reflects business mix Highlights Revenue growth rates @CC, $ in billions Strategic Imperativ
Slide 8: Systems Segment
9 Systems Segment Systems revenue and gross margin reflect growth in z Systems offset by Power and Storage declines Strong performance in z Systems, with revenue growth, margin expansion and new workloads added Continued to address shifting markets in Power and Storage Highlights Revenue growth rate
Slide 9: Software Revenue Highlights
10 Software Revenue Highlights Software Revenue Composition Cognitive Solutions Annuity +5% Yr/Yr Transactional (4%) Yr/Yr Operating Systems Annuity (7%) Yr/Yr Integration Software Annuity +3% Yr/Yr Revenue growth rates @CC Growth in total software revenue in 4Q and full year Continued growth in Cog
Slide 10: Cash Flow and Balance Sheet Highlights
11 Cash Flow and Balance Sheet Highlights Free Cash Flow realization of 97%, in line with longer term model 15 acquisitions in 2016 add to capabilities in cognitive and analytics, cloud and security Returned ~75% of free cash flow to shareholders Pension funding levels remain solid Implementing chan
Slide 11: Summary
12 Summary Continued strength in strategic imperatives; growing annuity base Significant investments; remixing to best opportunity areas Building new businesses and creating new markets Delivering innovation in more traditional businesses and monetizing core technologies 2016 progress supports 2017
Slide 12: Summary
Summary Continued strength in strategic imperatives; growing annuity base Significant investments; remixing to best opportunity areas Building new businesses and creating new markets Delivering innovation in more traditional businesses and monetizing core technologies 2016 progress supports 2017 exp
Slide 13: Supplemental Materials
14 Supplemental Materials Currency – Impact on Revenue Growth Strategic Imperatives Revenue 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) Key Financial
Slide 14: Currency – Impact on Revenue Growth
15 Currency – Impact on Revenue Growth Supplemental Materials 1/18/17 Quarterly Averages per US $ 3Q16 Yr/Yr 4Q16 Yr/Yr Spot 1Q17 2Q17 3Q17 4Q17 FY17 Euro 0.90 0% 0.93 (2%) 0.94 (3%) (6%) (4%) (1%) (4%) Pound 0.76 (18%) 0.81 (22%) 0.81 (16%) (16%) (6%) (1%) (9%) Yen 102 16% 110 10% 113 1% (5%) (11%)
Slide 15: Strategic Imperatives Revenue
16 Strategic Imperatives Revenue Revenue growth rates @CC, $ in billions Overlap in Strategic Imperatives revenue primarily reflects solutions delivered via cloud Supplemental Materials 4Q16 Yr/Yr FY16 Yr/Yr Total Strategic Imperatives $9.5 12% $32.8 14% Analytics $5.6 9% $19.5 9% Cloud $4.2 33% $13
Slide 16: Geographic Revenue
17 Geographic Revenue Sequential improvement in the Americas and Asia Pacific performance US returned to growth (+2%) Asia Pacific performance mixed, with double-digit growth in China, modest growth in India, and modest decline in Japan (-2%) EMEA reflects weakness in UK, Germany, Eastern Europe Rev
Slide 17: Segment Revenue & Gross Profit
18 Segment Revenue & Gross Profit Revenue growth rates @CC, $ in billions Supplemental Materials Segment Revenue & Gross Profit Metrics - 4Q16 Revenue Yr/Yr GP% Yr/Yr Cognitive Solutions $5.3 2% 82.7% (3.0) pts Global Business Services $4.1 (4%) 26.9% (1.3) pts Cognitive Solutions & Industry Service
Slide 18: Additional Revenue & Backlog Information
19 Additional Revenue & Backlog Information Growth rates @CC, $ in billions, Actual backlog calculated using December 31 currency spot rates *Total Software = Cognitive Solutions + Integration Software + Operating Systems Software **Prior year reclassified to reflect current segment structure Supple
Slide 19: Expense Summary
20 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 4Q16 Yr/Yr Currency Acq.* Base SG&A – Operating $4.8 4% 1 pts (4 pts) 7 pts RD&E – Operating $1.4 (6%) 1 pts (6 pts) (
Slide 20: Global Financing Portfolio
21 Global Financing Portfolio 4Q16 – $27.6B Net External Receivables Global Financing Metrics 4Q16 3Q16 4Q15 Identified Loss Rate* 1.2% 2.1% 1.8% Anticipated Loss Rate 0.4% 0.5% 0.3% Reserve Coverage* 1.6% 2.6% 2.1% Client Days Delinquent Outstanding 4.0 3.9 3.8 Commercial A/R > 30 days $22M $19M $1
Slide 21: Balance Sheet Summary
22 Balance Sheet Summary *includes eliminations of inter-company activity Supplemental Materials $ in billions Dec 16 Dec 15 Cash & Marketable Securities $8.5 $8.2 Non-GF Assets* $74.4 $67.7 Global Financing Assets $34.6 $34.6 Total Assets $117.5 $110.5 Other Liabilities $56.9 $56.2 Non-GF Debt* $14
Slide 22: Cash Flow Summary
23 Cash Flow Summary Supplemental Materials $ in billions B/(W) B/(W) 4Q16 Yr/Yr FY16 Yr/Yr Net Cash from Operations $3.2 ($2.1) $16.5 ($0.5) Less: Global Financing Receivables ($2.4) ($0.6) $1.2 $1.1 Net Cash from Operations (excluding GF Receivables) $5.6 ($1.4) $15.3 ($1.6) Net Capital Expenditur
Slide 23: Cash Flow (ASC 230)
24 Cash Flow (ASC 230) Supplemental Materials $ in billions 4Q16 4Q15 FY16 FY15 Net Income from Operations $4.5 $4.5 $11.9 $13.2 Depreciation / Amortization of Intangibles $1.1 $1.0 $4.4 $3.9 Stock-based Compensation $0.1 $0.1 $0.5 $0.5 Working Capital / Other ($0.1) $1.5 ($1.5) ($0.7) Global Financ
Slide 24: Key Financial Metrics – FY 2016
25 Key Financial Metrics – FY 2016 Revenue growth rates @CC, $ in billions except for EPS B/(W) Supplemental Materials P&L Highlights FY16 Yr/Yr Revenue $79.9 (2%) Expense - Operating $25.2 (6%) PTI - Operating $13.9 (21%) NI - Operating $13.0 (11%) EPS - Operating $13.59 (9%) P&L Ratios (Operating)
Slide 25: Segment Revenue & Gross Profit – FY 2016
26 Segment Revenue & Gross Profit – FY 2016 Revenue growth rates @CC, $ in billions Supplemental Materials Segment Revenue & Gross Profit Metrics - FY16 Revenue Yr/Yr GP% Yr/Yr Cognitive Solutions $18.2 3% 81.9% (3.3) pts Solutions Software $12.6 6% Transaction Processing Software $5.6 (3%) Global B
Slide 26: Expense Summary – FY 2016
27 Expense Summary – FY 2016 Supplemental Materials $ in billions *includes acquisitions made in the last twelve months, net of non-operating acquisition-related charges B/(W) Expense Metrics FY16 Yr/Yr Currency Acq.* Base SG&A – Operating $20.3 (4%) 1 pts (3 pts) (1 pts) RD&E – Operating $5.7 (10%)
Slide 27: Retirement-Related Summary
28 Retirement-Related Summary $ in billions *Tax Qualified Defined Benefit Plans ** Includes retirement-related interest cost, expected return on plan assets, recognized actuarial losses or gains, amortization of transition assets, other settlements, curtailments, multi-employer plans and insolvency
Slide 28: Reconciliation of Operating Earnings Per Share
Reconciliation of Operating Earnings Per Share 29 Non-GAAP Supplemental Materials *Includes acquisitions through December 31, 2016 The above reconciles the Non-GAAP financial information contained in the “Summary” discussions in the company’s earnings presentation. See Exhibit 99.2 included in the C
Slide 29: Reconciliation of Revenue Growth - 4Q 2016
Reconciliation of Revenue Growth - 4Q 2016 30 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 January 19, 2017 f
Slide 30: Reconciliation of Revenue Growth - 4Q & FY 2016
Reconciliation of Revenue Growth - 4Q & FY 2016 31 Non-GAAP Supplemental Materials The above reconciles the Non-GAAP financial information contained in the “A Cognitive Solutions & Cloud Platform Company” and “Strategic Imperatives Revenue” discussions in the company’s earnings presentation. See Exh
Slide 31: Reconciliation of Revenue Growth - 4Q 2016
Reconciliation of Revenue Growth - 4Q 2016 32 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 32: Reconciliation of Revenue Growth - FY 2016
Reconciliation of Revenue Growth - FY 2016 33 Non-GAAP Supplemental Materials The above reconciles the Non-GAAP financial information contained in the “Segment Revenue & Gross Profit – FY 2016” discussions in the company’s earnings presentation. See Exhibit 99.2 included in the Company’s Form 8-K da
Slide 33: Reconciliation of Expense Summary - 4Q 2016
Reconciliation of Expense Summary - 4Q 2016 34 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 January 19, 2017 for
Slide 34: Reconciliation of Expense Summary - FY 2016
Reconciliation of Expense Summary - FY 2016 35 Non-GAAP Supplemental Materials The above reconciles the Non-GAAP financial information contained in the “Expense Summary – FY 2016” discussions in the company’s earnings presentation. See Exhibit 99.2 included in the Company’s Form 8-K dated January 19
Slide 35: Reconciliation of Software Revenue Growth - 4Q 2016
Reconciliation of Software Revenue Growth - 4Q 2016 36 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 January 19,
Slide 36: Reconciliation of GBS Strategic Imperatives (Analytics) Revenue Growth - 4Q 2016
Reconciliation of GBS Strategic Imperatives (Analytics) Revenue Growth - 4Q 2016 37 Non-GAAP Supplemental Materials The above reconciles the Non-GAAP financial information contained in the “4Q16 Prepared Remarks” discussions in the company’s earnings presentation. See Exhibit 99.2 included in the Co
Slide 37: Reconciliation of Debt-to-Capital Ratio
Reconciliation of Debt-to-Capital Ratio 38 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 38: Reconciliation of Debt-to-Capital Ratio
Non-GAAP Supplemental Materials Reconciliation of Debt-to-Capital Ratio Dec 2016 Dec 2015 Non-Giobal Financing Debt/Capital 50% 54% IBM Consolidated Debt/Capital 70% 73% ‘The above reconciles the Non-GAAP financial information contained inthe “Cash Flow and Balance Sheet Highlights" and “Balance She
Slide 39: ibm.com/investor
ibm.com/investor
International Business Machines — Q4 2016 Earnings Presentation on 6ix