International Business Machines Corporation · NYSE:IBM
International Business Machines — Q2 2020 Earnings Presentation
27 slides from International Business Machines's earnings presentation, Jul 20, 2020
Slide 1: IBM 2Q 2020 Earnings
IBM 2Q 2020 Earnings July 20, 2020 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: Arvind Krishna, CEO and James Kavanaugh, CFO
Arvind Krishna Chief Executive Officer James Kavanaugh SVP, Finance & Operations, Chief Financial Officer 3
Slide 4: CEO Perspective
CEO Perspective “Our clients see the value of IBM’s hybrid cloud platform, based on open technologies, at a time of unprecedented business disruption.” Current Environment Hybrid Cloud Platform “We are committed to building, with a growing ecosystem of partners, an enduring hybrid cloud platform tha
Slide 5: Positioned for the Current Environment and Beyond
Positioned for the Current Environment and Beyond Large enterprise incumbency Simplifying go-to-market High-value business model Favorable industry concentration Enabling virtual selling Strong balance sheet Broad geographic footprint Creating dynamic delivery model Ample liquidity & access to capit
Slide 6: 2Q20 Highlights
2Q20 Highlights $18.1B Revenue $2.18 Operating (non-GAAP) EPS $11.5B Free Cash Flow LTM Cloud Strength Solid Cash Generation +34% @CC Revenue Growth $23B LTM Revenue $14B Cash Balance 146% FCF Realization (LTM) Cloud growth @CC excludes impact of divested businesses; Red Hat normalized for historica
Slide 7: Cloud & Cognitive Software
Cloud & Cognitive Software Revenue Growth Revenue $5.7B 5% Growth in Cloud & Data Platform led by Red Hat and Cloud Paks Cognitive Applications and Transaction Processing Platforms impacted by economic environment Segment Elements Cognitive Applications (8%) yr/yr Profit reflects Red Hat purchase ac
Slide 8: Global Business Services
Global Business Services Digital transformation drives acceleration in cloud Revenue $3.9B (6%) yr/yr Gross Margin 28.4% +2.4 pts yr/yr Continued scaling of Red Hat engagements Segment Elements Clients deprioritizing discretionary spending and projects with longer-term paybacks Consulting (3%) yr/yr
Slide 9: Global Technology Services
Global Technology Services Revenue impacted by lower volumes in challenged industries Revenue $6.3B (5%) yr/yr Gross Margin 34.2% (0.3) pts yr/yr Digital transformation drives cloud revenue growth Segment Elements Continued signings momentum with 2Q signings and 1H signings growth Infrastructure & C
Slide 10: Systems
Systems Revenue $1.9B Revenue Growth 6% IBM Z and Storage growth reflects client demand for resiliency and offering innovation Power performance driven by product cycle dynamics Segment Elements Gross margin expansion benefits from IBM Z and Storage product cycle Systems Hardware +13% yr/yr Operatin
Slide 11: Summary
Summary Current environment provides near-term challenges and longer-term opportunities • • Compelling offerings aligned to hybrid cloud and AI Strong second half pipeline; results will be influenced by rate and pace of economic recovery Solid financial profile and ample liquidity • • 11 Positioned
Slide 12: ibm.com/investor
ibm.com/investor
Slide 13: Supplemental Materials
Supplemental Materials Currency – Impact on Revenue Growth Revenue and P&L Highlights Services Segments Details Software & Systems Segment Details Expense Summary Balance Sheet Summary Cash Flow Summary Cash Flow (ASC 230) Non-GAAP Supplemental Materials ● ● ● ● ● ● ● ● ● Some columns and rows in th
Slide 14: Currency – Impact on Revenue Growth
Currency – Impact on Revenue Growth US$B Yr/Yr Revenue As Reported Currency Impact Revenue @ CC 18.1 (0.3) (5.4%) (1.5 pts) (3.9%) Supplemental Materials 14 Quarterly Averages per US $ 1Q20 Yr/Yr2Q20 Yr/Yr 7/17/2020 Spot 3Q20 4Q20 FY20 Euro 0.91 (3%) 0.91 (2%) Pound 0.78 (2%) 0.81 (4%) Yen 109 1% 10
Slide 15: Revenue and P&L Highlights
Revenue and P&L Highlights Financial results reflect impact of transaction-related adjustments associated with the Red Hat acquisition B/(W) Yr/Yr* B/(W) Yr/Yr Revenue Highlights 2Q20 Operating P&L Highlights $ 2Q20 Revenue Cloud $18.1 $6.3 (1.9%) 34% Gross Profit Expense Pre-Tax Income Net Income E
Slide 16: Services Segments Details
Services Segments Details B/(W) Yr/Yr B/(W) Yr/Yr GBS Segment 2Q20 GTS Segment 2Q20 Revenue (External) Consulting Global Process Services Application Management Gross Profit Margin (External) Pre-Tax Income impact of workforce rebalancing Pre-Tax Income Margin impact of workforce rebalancing Cloud R
Slide 17: Software and Systems Segment Details
Software and Systems Segment Details B/(W) Yr/Yr B/(W) Yr/Yr Cloud & Cognitive Software Segment 2Q20 Systems Segment 2Q20 Revenue (External) Cognitive Applications Cloud & Data Platforms Transaction Processing Platforms Pre-Tax Income impact of workforce rebalancing Pre-Tax Income Margin impact of w
Slide 18: Expense Summary
Expense Summary $ in billions *2Q20 SG&A includes ~$140M workforce rebalancing; 2Q19 SG&A includes $495M workforce rebalancing and ~$85M other charges offset by ~$580M divestiture gains in Other (Income)/Expense **includes acquisitions in the last twelve months net of non-operating acquisition-relat
Slide 19: Balance Sheet Summary
Balance Sheet Summary Jun 19** Jun 20 Dec 19 Cash & Marketable Securities Core (non-GF) Assets* Global Financing Assets Total Assets $14.3 $115.2 $24.7 $154.2 $9.0 $115.3 $27.9 $152.2 $46.4 $79.0 $29.3 $154.7 Other Liabilities Core (non-GF) Debt* Global Financing Debt Total Debt Total Liabilities Eq
Slide 20: Cash Flow Summary
Cash Flow Summary $ in billions Supplemental Materials 20 QTDB/(W) 2Q20Yr/Yr YTDB/(W) 2Q20 Yr/Yr Net Cash from Operations $3.6 $0.6 Less: Global Financing Receivables $0.6 $0.5 Net Cash from Operations (excluding GF Receivables)$3.0 $0.2 Net Capital Expenditures ($0.7) ($0.3) Free Cash Flow (excludi
Slide 21: Cash Flow (ASC 230)
Cash Flow (ASC 230) $ in billions Supplemental Materials 21 QTDQTD 2Q202Q19 YTDYTD 2Q20 2Q19 Net Income from Operations$1.4 $2.5 Depreciation / Amortization of Intangibles $1.7 $1.3 Stock-based Compensation $0.2 $0.1 Working Capital / Other ($0.3) ($1.1) Global Financing A/R $0.6 $0.1 Net Cash provi
Slide 22: Reconciliation of Revenue Performance - 2Q 2020
Non-GAAP Supplemental Materials Reconciliation of Revenue Performance - 2Q 2020 2Q20 Yr/Yr 2Q20 Yr/Yr GAAP @CC GAAP @CC Global Technology Services Infrastructure & Cloud Services Technology Support Services Cloud Systems Systems Hardware IBM Z Power Storage Operating Systems Software Cloud (8%) (7%)
Slide 23: Reconciliation of Revenue Performance - 2Q 2020
Non-GAAP Supplemental Materials Reconciliation of Revenue Performance - 2Q 2020 2Q20 Yr/Yr Divest impact Currency impact Adjusted GAAP Total Revenue (5.4%) 2 pts 2 pts (1.9%) Americas Europe/ME/Africa Asia Pacific (4%) (7%) (5%) 2 pts 2 pts 1 pts 2 pts 2 pts 1 pts Flat (3%) (4%) Total Cloud 30% 2 pt
Slide 24: Reconciliation of Revenue for Red Hat, Normalized
Non-GAAP Supplemental Materials Reconciliation of Revenue for Red Hat, Normalized - 2Q 2020 Three Months Ended Red Hat Revenue, Normalized for Historical Comparability Jun 30 2020 Jun 30 2019 Yr/Yr Yr/Yr@CC Red Hat revenue as reported in IBM consolidated results (1) $867 $ - Add: Red Hat revenue pri
Slide 25: Reconciliation of Expense Summary - 2Q 2020
Non-GAAP Supplemental Materials Reconciliation of Expense Summary - 2Q 2020 2Q20 Non-GAAP Adjustments Operating (Non-GAAP) GAAP SG&A Currency Acquisitions/Divestitures Base* RD&E Currency Acquisitions/Divestitures Base* Operating Expense & Other Income Currency Acquisitions/Divestitures Base* 1 pts
Slide 26: Reconciliation of Free Cash Flow - Last 12 Months
Non-GAAP Supplemental Materials Reconciliation of Free Cash Flow - Last 12 Months 12 Months Ended Jun 2020 Net Cash from Operating Activities per GAAP: $15.1 Less: change in Global Financing (GF) Receivables $0.9 Net Cash from Operating Activities (Excluding GF Receivables) $14.2 Capital Expenditure
Slide 27: (eo) 7) o > e = iS [o} =
(eo) 7) o > e = iS [o} 2 = 2
International Business Machines — Q2 2020 Earnings Presentation on 6ix