International Business Machines Corporation · NYSE:IBM
International Business Machines — Q3 2018 Earnings Presentation
30 slides from International Business Machines's earnings presentation, Oct 16, 2018
Slide 1: Forward Looking Statements and Non-GAAP Information
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
Slide 2: Overview
Overview 3 3Q18 $18.8B Revenue $3.42 Operating EPS $12.2B Free Cash Flow Last 12 Months y Solid profit performance and operating leverage - Gross margin flat yr/yr; services gross margins up 160 basis points - Pre-tax profit growth reflects operating efficiencies while maintaining high investment le
Slide 3: Operating Earnings per Share Drivers – 3Q17 to 3Q18
Operating Earnings per Share Drivers – 3Q17 to 3Q18 4 3.42 0.07 3Q17 Revenue @Actual Pre-Tax Margin Tax Shares Significant Items (1Q only) 3Q18 • Solid pre-tax margin expansion; tax reflects 3Q18 discrete benefit • Mid-single digit operating EPS growth in third quarter and year to date *Significant
Slide 4: Key Financial Metrics
Key Financial Metrics 5 Last 12 B/(W) • • Growth in pre-tax profit and margin expansion Gross profit margin flat yr/yr, with productivity benefits offset by mix headwinds; services margin expanded Expense performance reflects operational efficiencies while maintaining high investment levels Free cas
Slide 5: Cognitive Solutions Segment
Cognitive Solutions Segment 6 Segment Revenue Elements Solutions Software (3%) Yr/Yr Transaction Processing Software (8%) Yr/Yr Highlights • Solutions Software performance mixed, with growth in several key areas and repositioning of some horizonal applications Transaction Processing Software perform
Slide 6: Global Business Services Segment
Global Business Services Segment 7 Segment Revenue Elements Consulting +7% Yr/Yr Application Management (1%) Yr/Yr Global Process Services +2% Yr/Yr Highlights • Revenue growth accelerated, with improved trajectory across all three business areas Consulting growth led by Digital Strategy and iX, and
Slide 7: Technology Services and Cloud Platforms Segment
Technology Services and Cloud Platforms Segment 8 Segment Revenue Elements Infrastructure Services +1% Yr/Yr Integration Software +1% Yr/Yr Technical Support Services (3%) Yr/Yr Highlights • Second consecutive quarter of revenue growth, led by hybrid cloud implementations Gross margin expansion driv
Slide 8: Systems Segment
Systems Segment 9 Segment Revenue Elements Systems Hardware +4% Yr/Yr Operating Systems Software (4%) Yr/Yr Highlights Strategic Imperatives Revenue within Systems • IBM Z growth in fifth quarter of z14 cycle; most successful program in IBM’s history based on shipped capacity Power Systems double-di
Slide 9: Cash Flow and Balance Sheet Highlights
Cash Flow and Balance Sheet Highlights 10 • Free cash flow performance through nine months reflects higher capital expenditures and cash taxes Free cash flow realization ~108%** over last 12 months • Positioned to support business over the longer term • $ in billions *Excludes Global Financing recei
Slide 10: Summary
Summary 11 • IBM’s differentiated value proposition is driven by innovative technologies, industry expertise, trust and security, delivered through an integrated model • Continued growth in offerings that address hybrid cloud, security, digital and analytics/AI • Year-to-date performance reflects re
Slide 11: Summary
Summary “ e IBM's differentiated value proposition is driven by innovative technologies, industry expertise, trust and security, delivered through an integrated model e Continued growth in offerings that address hybrid cloud, security, digital and analytics/AI e Year-to-date performance reflects rev
Slide 12: Supplemental Materials
Supplemental Materials 13 • • • • • • • • • • Currency – Impact on Revenue Growth Strategic Imperatives Revenue Geographic Revenue Segment Revenue & Gross Profit Additional Revenue & Backlog Information Expense Summary Balance Sheet Summary Cash Flow Summary Cash Flow (ASC 230) Non-GAAP Supplemental
Slide 13: Currency – Impact on Revenue Growth
Currency – Impact on Revenue Growth 14 US$B Yr/Yr Revenue As Reported $18.8 (2%) Currency Impact ($0.3) (2 pts) Revenue @ CC Flat Supplemental Materials Quarterly Averages per US $ 2Q18 Yr/Yr 3Q18 Yr/Yr 10/15/2018 Spot 4Q18 FY18 FY19 Euro 0.84 8% 0.86 (1%) 0.86 (2%) 5% (2%) Pound 0.74 6% 0.77 0% 0.7
Slide 14: Strategic Imperatives Revenue
Strategic Imperatives Revenue 15 • Growth in 3Q18 led by security and cloud, with strong growth in as-a-Service mitigated by product cycle • Strategic Imperatives revenue of $39.5 billion over last 12 months • Cloud revenue of $19 billion over last 12 months, up 20% at actual rates, 24% of IBM reven
Slide 15: Geographic Revenue
Geographic Revenue 16 • Americas growth led by Canada and Latin America, and modest growth in US • E/ME/A performance mixed, with solid growth in UK and Spain, offset by declines in Germany and France • Asia Pacific down yr/yr, with modest growth in Japan Revenue growth rates @CC, $ in billions Supp
Slide 16: Segment Revenue & Gross Profit
Segment Revenue & Gross Profit 17 Segment Revenue & Gross Profit Metrics - 3Q18 Cognitive Solutions Global Business Services Technology Services & Cloud Platforms Systems Global Financing Revenue growth rates @CC, $ in billions Supplemental Materials 3Q18 Revenue Yr/Yr 3Q18 GP% Yr/Yr $4.1 (5%) 76.0%
Slide 17: Additional Revenue & Backlog Information
Additional Revenue & Backlog Information 18 IBM Z 6% Power 17% Backlog Yr/Yr @Actual (5%) Storage (6%) Growth rates @CC, $ in billions, Services Backlog calculated using September 30 currency spot rates Supplemental Materials 3Q18 Yr/Yr Signings $8.0 (21%) Services Backlog $113 (3%) 3Q18 Yr/Yr Syste
Slide 18: Expense Summary
Expense Summary 19 • • Continuing to invest to deliver innovation across areas including hybrid cloud, AI, security, blockchain Yr/yr “Base” performance reflects operational efficiencies in SG&A and RD&E, mitigated by lower level of IP income $ in billions *includes acquisitions made in the last twe
Slide 19: Balance Sheet Summary
Balance Sheet Summary 20 $ in billions *Reflects adoption of the FASB guidance on restricted cash, Dec 17 and Sept 17 recast **includes eliminations of inter-company activity Supplemental Materials Sep 18 Dec 17 Sep 17 Cash & Marketable Securities* $14.7 $12.8 $11.8 Non-GF Assets*, ** $71.2 $74.2 $7
Slide 20: Cash Flow Summary
Cash Flow Summary 21 YTD 3Q18 B/(W) Yr/Yr $ in billions *Reflects adoption of the FASB guidance on restricted cash, 2017 recast Supplemental Materials QTD 3Q18 B/(W) Yr/Yr Net Cash from Operations $4.2 $0.7 $11.1 $0.1 Less: Global Financing Receivables $1.1 $0.8 $2.9 $0.4 Net Cash from Operations (e
Slide 21: Cash Flow (ASC 230)
Cash Flow (ASC 230) 22 $ in billions *Reflects adoption of the FASB guidance on restricted cash, 3Q17 recast Supplemental Materials QTD 3Q18 QTDYTDYTD 3Q17 3Q18 3Q17 Net Income from Operations $2.7 $2.7 $6.8 $6.8 Depreciation / Amortization of Intangibles $1.1 $1.2 $3.4 $3.4 Stock-based Compensation
Slide 22: Reconciliation of Operating Earnings Per Share
Non-GAAP Supplemental Materials Reconciliation of Operating Earnings Per Share 23 2018 Expectations GAAP Diluted EPS at least $11.60 Operating EPS (Non-GAAP) at least $13.80 Adjustments Acquisition-Related Charges* $0.78 Non-Operating Retirement-Related Items $1.32 YTD Tax Reform Enactment Charge Ad
Slide 23: Reconciliation of Revenue Growth - 3Q 2018 (Geographic)
Non-GAAP Supplemental Materials Reconciliation of Revenue Growth - 3Q 2018 24 3Q18 Yr/Yr GAAP @CC Americas (1%) 1% Europe/ME/Africa (3%) (2%) Asia Pacific (3%) (1%) United States Flat Flat Japan Flat Flat Latin America (9%) 3% The above reconciles the Non-GAAP financial information contained in the
Slide 24: Reconciliation of Revenue Growth - 3Q 2018 (Strategic Imperatives)
Non-GAAP Supplemental Materials Reconciliation of Revenue Growth - 3Q 2018 25 3Q18 Yr/Yr GAAP @CC Strategic Imperatives 5% 7% Analytics 1% 2% Cloud 11% 13% aaS annual run rate 21% 24% Mobile 4% 5% Security 33% 34% Social (15%) (14%) The above reconciles the Non-GAAP financial information contained i
Slide 25: Reconciliation of Revenue Growth - 3Q 2018 (Segments)
Non-GAAP Supplemental Materials Reconciliation of Revenue Growth - 3Q 2018 3Q18 Yr/Yr 26 3Q18 Yr/Yr GAAP @CC GAAP @CC C ognitive Sol utions (6%) (5%) T ech Svcs & Cloud Platfor m s (2%) Flat Solutions Software (4%) (3%) Global Technology Services (2%) Flat Transaction Processing Software (10%) (8%)
Slide 26: Reconciliation of Expense Summary - 3Q 2018
Non-GAAP Supplemental Materials Reconciliation of Expense Summary - 3Q 2018 27 Non-GAAP Adjustments Operating (Non-GAAP) GAAP SG&A Currency 2 pts 0 pts 2 pts Acquisitions 0 pts 0 pts 0 pts Base * 4 pts 0 pts 3 pts RD &E Currency 1 pts 0 pts 1 pts Acquisitions 0 pts 0 pts 0 pts Base * 2 pts 0 pts 2 p
Slide 27: Reconciliation of Free Cash Flow-Last 12 Months
Non-GAAP Supplemental Materials Reconciliation of Free Cash Flow-Last 12 Months 28 12 Months Ended Sep 2018 Net Cash from Operating Activities per GAAP: $16.9 Less: the change in Global Financing (GF) Receivables $0.8 Net Cash from Operating Activities (Excluding GF Receivables) $16.0 Capital Expend
Slide 28: Reconciliation of Free Cash Flow Realization-Last 12 Months
Non-GAAP Supplemental Materials Reconciliation of Free Cash Flow Realization-Last 12 Months 29 LTM Excluding Tax Reform* LTM Free Cash Flow Realization 214% ~108% The above reconciles the Non-GAAP financial information contained in the “Cash Flow and Balance Sheet Highlights” discussion in the compa
Slide 29: Reconciliation of Free Cash Flow Realization-Last 12 Months
Non-GAAP Supplemental Materials ” Reconciliation of Free Cash Flow Realization-Last 12 Months LTM Excluding LT™ Tax Reform* Free Cash Flow Realization 214% ~108% The above reconciles the Non-GAAP financial information contained in the “Cash Flow and Balance Sheet Highlights” discussion in the compan
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en — ibm.com/investor
International Business Machines — Q3 2018 Earnings Presentation on 6ix