International Business Machines Corporation · NYSE:IBM
International Business Machines — Q3 2012 Earnings Presentation
40 slides from International Business Machines's earnings presentation, Oct 16, 2012
Slide 1: 3Q 2012 Earnings Presentation
® 3Q 2012 Earnings Presentation October 16, 2012 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 2012
3Q 2012 Revenue $24.7B (5%), (2%) yr/yr @CC Operating Pre-Tax Income $5.5B +7% yr/yr Operating (Non-GAAP) EPS $3.62 +10% yr/yr Revenue performance: • Europe consistent with 2Q • Japan stabilized • BRIC double-digit growth • North America declined Continued strong performance in key solution area
Slide 4: Key Financial Metrics
Key Financial Metrics $ in Billions, except EPS P&L Highlights P&L Ratios B/(W) B/(W) (Operating) 3Q12 Yr/Yr 3Q12 Yr/Yr Revenue $24.7 (5%) GP Margin 48.1% 1.2 pts @CC (2%)* PTI Margin 22.3% 2.5 pts NI – Operating $4.2 5% Tax Rate 24.7% (1.1 pts) EPS – Operating $3.62 10% NI Margin 16.8% 1.7 pts Cash
Slide 5: Operating EPS Bridge – 3Q11 to 3Q12
Operating EPS Bridge – 3Q11 to 3Q12 $0.17 $3.62 $0.34 $3.28 ($0.17) RSS Divestiture Gain * $0.23 Gross Margin Expansion $0.19 Expense Productivity $0.16 W/F Rebalancing Charge ($0.24) 3Q11 Revenue Growth Margin Share 3Q12 Operating EPS @ Actual Expansion Repurchases Operating EPS * Based on discrete
Slide 6: Operating EPS Bridge – 1H11 to 1H12
Operating EPS Bridge – 1H11 to 1H12 $0.32 $6.29 $0.56 $5.50 ($0.09) 1H11 Revenue Growth Margin Share 1H12 Operating EPS @ Actual Expansion Repurchases Operating EPS www.ibm.com/investor 6
Slide 7: Revenue by Geography
Revenue by Geography $ in Billions B/(W) Yr/Yr 3Q12 Rptd @CC Americas $10.4 (4%) (3%) Canada/ Europe/ME/A 7.2 (9%) (1%) LA Asia Pacific 6.5 1% 2% EMEA U.S. Total Geographies $24.2 (5%) (1%) -4% excl. Retail Store Solutions (4%) Flat Japan APac IBM $24.7 (5%) (2%) Flat excl. Retail Store Solutions (5
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) 3Q12 Rptd @CC 3Q12 Yr/Yr Pts Global Technology Services $9.9 (4%) 1% 37.3% 1.6 pts Global Business Services 4.5 (6%) (3%) 31.2% 1.7 pts Software 5.8 (1%) 3% 88.0% Flat Systems & Technolog
Slide 9: Expense Summary
Expense Summary B/(W) B/(W) Yr/Yr Drivers $ in Billions 3Q12 Yr/Yr Currency Acq.* Base SG&A – Operating $5.6 (1%) 4 pts (2 pts) (3 pts) includes Workforce Rebalancing 0.4 SG&A excl. Workforce Rebalancing 5.2 6% 4 pts (2 pts) 5 pts RD&E – Operating 1.5 2% 3 pts (4 pts) 3 pts IP and Development Income
Slide 10: Pre-Tax Income by Segment
Pre-Tax Income by Segment Segment PTI $ Segment PTI Margin $ in Billions B/(W) Yr/Yr B/(W) Yr/Yr B/(W) w/o Wkfrce B/(W) w/o Wkfrce PTI $ Yr/Yr Rebal.* PTI % Yr/Yr Rebal.* Global Technology Services $1.7 Flat 9% 16.6% 0.7 pts 2.1 pts Global Business Services 0.7 (5%) 9% 15.6% 0.2 pts 2.5 pts Software
Slide 11: Services Segments
Services Segments Global Technology Services (GTS) Global Business Services (GBS) B/(W) Yr/Yr $ in Billions B/(W) Yr/Yr $ in Billions 3Q12 Rptd @CC 3Q12 Rptd @CC Revenue (External) $9.9 (4%) 1% Revenue (External) $4.5 (6%) (3%) Gross Margin (External) 37.3% 1.6 pts Gross Margin (External) 31.2% 1.7
Slide 12: Software Segment
Software Segment B/(W) Yr/Yr $ in Billions 3Q12 Rptd @CC Revenue (External) $5.8 (1%) 3% Gross Margin (External) 88.0% Flat Pre-Tax Income $2.4 6% excluding Wkfrce Rebal. $2.4 10% PTI Margin 35.6% 2.2 pts excluding Wkfrce Rebal. 37.1% 3.5 pts 3Q12 Revenue Yr/Yr 3Q12 Revenue Rptd @CC (% of Total Soft
Slide 13: Systems & Technology Segment
Systems & Technology Segment $ in Billions B/(W) Yr/Yr 3Q12 Rptd @CC Revenue (External) – including RSS $3.9 (13%) (12%) excluding RSS (11%) (9%) Gross Margin (External) 37.3% (2.6 pts) Pre-Tax Income $0.1 (61%) excluding Wkfrce Rebal. $0.2 (47%) PTI Margin 3.0% (3.8 pts) excluding Wkfrce Rebal. 4.1
Slide 14: Growth Initiatives
Growth Initiatives Smarter Planet 3Q YTD Revenue up >20% yr/yr Growth Markets Business Analytics 3Q YTD Revenue 3Q YTD Revenue up 7% yr/yr @CC up 14% yr/yr Cloud 3Q YTD Revenue > Full Year 2011 Continued strength in our key growth initiatives 14 www.ibm.com/investor 14
Slide 15: Free Cash Flow Bridge – 3Q11 to 3Q12
Free Cash Flow Bridge – 3Q11 to 3Q12 $0.2B ($0.2B) $0.2B ($0.3B) $3.5B ($0.2B) GAAP Net Income ($0.1B) Flat Yr/Yr $3.1B 3Q11 Operating Non- B/S Impact of Cash Taxes Workforce Capex 3Q12 Free Net Income Operating Non-Operating, Rebalancing Free Cash Flow Charges/ Non-Cash Adjs. Payments/Other Cash Fl
Slide 16: Cash Flow Analysis
Cash Flow Analysis B/(W) YTD B/(W) $ in Billions 3Q12 Yr/Yr 3Q12 Yr/Yr Net Cash from Operations $4.5 ($0.2) $13.2 $0.5 Less: Global Financing Receivables 0.3 0.1 1.2 (0.9) Net Cash from Operations 4.2 (0.3) 12.0 1.4 (excluding GF Receivables) Net Capital Expenditures (1.0) (0.1) (3.3) (0.3) Free Cas
Slide 17: Balance Sheet Summary
Balance Sheet Summary $ in Billions Sept. 11 Dec. 11 Sept. 12 Cash & Marketable Securities $11.3 $11.9 $12.3 Non-GF Assets* 67.5 69.4 71.2 Global Financing Assets 31.4 35.1 32.3 Total Assets 110.2 116.4 115.8 Other Liabilities 57.6 64.9 60.4 Non-GF Debt* 7.4 8.0 10.3 Global Financing Debt 22.8 23.3
Slide 18: 3Q 2012 Summary
2015e At least $20 3Q 2012 Summary Double-digit operating EPS growth Strong performance in key solution areas of 2012e $15.10+ Smarter Planet, Business Analytics and Cloud 2011 $13.44 Annuity businesses provide solid base of revenue 2010 $11.67 and profit Productivity and mix contribute to g
Slide 19: www.ibm.com/investor
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Slide 20: Supplemental Materials
Supplemental Materials Supplemental Materials Some columns and rows in these materials, including the supplemental exhibits, may not add due to rounding Currency – Year/Year Comparison Supplemental Segment Information – Global Services Supplemental Segment Information – Systems & Technology, S
Slide 21: Currency – Year/Year Comparison
Supplemental Materials Currency – Year/Year Comparison Quarterly Averages per US $ 10/15 @ 10/15 Spot 1Q12 Yr/Yr 2Q12 Yr/Yr 3Q12 Yr/Yr Spot 4Q12 FY12 Euro 0.76 (4%) 0.78 (12%) 0.80 (13%) 0.77 (4%) (8%) Pound 0.64 (2%) 0.63 (3%) 0.63 (2%) 0.62 2% (1%) Yen 79 4% 80 2% 79 (1%) 79 (2%) 1% Revenue Impact
Slide 22: Supplemental Segment Information – 3Q 2012
Supplemental Materials Supplemental Segment Information – 3Q 2012 Supplemental Revenue Information Supplemental Backlog / Signings Information Revenue Growth $ in Billions Backlog Global Services Yr/Yr @CC Global Services 3Q12 Yr/Yr @CC GTS Outsourcing (5%) Flat Total Backlog $138 1% 1% Integrated T
Slide 23: Supplemental Segment Information – 3Q 2012
Supplemental Materials Supplemental Segment Information – 3Q 2012 Revenue Growth Revenue Growth Systems & Technology Yr/Yr @CC GP% Share Software Yr/Yr @CC WebSphere Family 2% 5% System z (20%) (19%) = Information Management (1%) 3% Power Systems (2%) (1%) Tivoli 5% 9% System x (5%) (3%) Lotus (10%)
Slide 24: Global Financing Portfolio
Supplemental Materials Global Financing Portfolio 3Q12 – $25.1B Net External Receivables Investment Grade Non-Investment Grade 40% 60% 40% 36% 30% 20% 24% 21% 10% 12% 6% 1% 0% Aaa-A3 Baa1-Baa3 Ba1-Ba2 Ba3-B1 B2-B3 Caa-D 3Q12 2Q12 3Q11 Identified Loss Rate 0.9% 0.8% 1.0% Anticipated Loss Rate 0.5% 0.
Slide 25: Revenue by Key Industry Sales Unit
Supplemental Materials Revenue by Key Industry Sales Unit $ in Billions B/(W) Yr/Yr 3Q12 Rptd @CC Public Industrial Financial Services $7.2 (3%) 1% Public 3.7 (3%) (1%) Distribution Financial Industrial 2.3 (6%) (2%) Services Comms Distribution 2.2 (10%) (6%) General Communications 2.3 (7%) (4%) Bus
Slide 26: Cash Flow (FAS 95)
Supplemental Materials Cash Flow (FAS 95) $ in Billions QTD QTD YTD YTD 3Q12 3Q11 3Q12 3Q11 Net Income from Operations $3.8 $3.8 $10.8 $10.4 Depreciation / Amortization of Intangibles 1.2 1.2 3.5 3.6 Stock-based Compensation 0.2 0.2 0.5 0.5 Working Capital / Other (1.0) (0.7) (2.8) (3.9) Global Fina
Slide 27: 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 28: Non-GAAP Supplemental Materials
Supplemental Materials Non-GAAP Supplemental Materials Cash Flow Management uses a free cash flow measure to evaluate the company’s operating results, plan share repurchase levels, evaluate strategic investments and assess the company’s ability and need to incur and service debt. The entire free cas
Slide 29: Reconciliation of Operating Earnings Per Share
Supplemental Materials Non-GAAP Supplemental Materials Non-GAAP Reconciliation of Operating Earnings Per Share 2012 Expectations IBM GAAP EPS $14.29+ IBM Operating EPS (Non-GAAP) $15.10+ Adjustments Acquisition-Related Charges * $0.47 Amortization of Purchased Intangibles $0.45 Other Acquisition-Rel
Slide 30: GAAP to Operating (Non-GAAP) Bridge – 3Q 2012
Supplemental Materials Non-GAAP Supplemental Materials GAAP to Operating (Non-GAAP) Bridge – 3Q 2012 $ in Millions, except EPS Acquisition-related Retirement-related Operating GAAP Adjustments* Adjustments** (Non-GAAP) Gross Profit $11,732 $95 $67 $11,894 SG&A 5,908 (88) (196) 5,625 RD&E 1,534 0 5 1
Slide 31: GAAP to Operating (Non-GAAP) Bridge – 3Q 2011
Supplemental Materials Non-GAAP Supplemental Materials GAAP to Operating (Non-GAAP) Bridge – 3Q 2011 $ in Millions, except EPS Acquisition-related Retirement-related Operating GAAP Adjustments* Adjustments** (Non-GAAP) Gross Profit $12,173 $87 ($7) $12,253 SG&A 5,662 (75) (0) 5,587 RD&E 1,546 0 22 1
Slide 32: Reconciliation of Operating EPS Bridge 3Q11 to 3Q12
Supplemental Materials Non-GAAP Supplemental Materials Reconciliation of Operating EPS Bridge 3Q11 to 3Q12 Acquisition- Retirement- related related Operating GAAP Adjustments* Adjustments** (Non-GAAP) 3Q11 EPS $3.19 0.11 (0.01) $3.28 Revenue growth @ actual (0.17) 0.00 0.00 (0.17) Margin expansion 0
Slide 33: Reconciliation of Operating EPS Bridge 1H11 to 1H12
Supplemental Materials Non-GAAP Supplemental Materials Reconciliation of Operating EPS Bridge 1H11 to 1H12 Acquisition- Retirement- related related Operating GAAP Adjustments* Adjustments** (Non-GAAP) 1H11 EPS $5.30 0.20 0.00 $5.50 Revenue growth @ actual (0.08) (0.01) 0.00 (0.09) Margin expansion 0
Slide 34: Reconciliation of Revenue Growth
Supplemental Materials Non-GAAP Supplemental Materials Reconciliation of Revenue Growth As Rptd @CC 3Q12 Yr/Yr Japan (1%) Flat North America - Software 4% 4% Russia 10% 11% India (6%) 13% China 20% 19% Brazil (17%) (3%) Growth Markets – ITS 9% 13% Japan – GBS 1% 2% North America – GBS (6%) (6%) Euro
Slide 35: GAAP to Operating (Non-GAAP) Bridge – 3Q 2012
Supplemental Materials Non-GAAP Supplemental Materials GAAP to Operating (Non-GAAP) Bridge – 3Q 2012 Acquisition- Retirement- related related Operating GAAP Adjustments* Adjustments ** (Non-GAAP) Gross Profit Margin 47.4% 0.4 pts 0.3 pts 48.1% PTI Margin 20.5% 0.8 pts 1.0 pts 22.3% Tax Rate *** 24.6
Slide 36: GAAP to Operating (Non-GAAP) Bridge – 3Q 2011
Supplemental Materials Non-GAAP Supplemental Materials GAAP to Operating (Non-GAAP) Bridge – 3Q 2011 Acquisition- Retirement- related related Operating GAAP Adjustments* Adjustments ** (Non-GAAP) Gross Profit Margin 46.5% 0.3 pts 0.0 pts 46.8% PTI Margin 19.2% 0.7 pts (0.1 pts) 19.8% Tax Rate *** 23
Slide 37: Reconciliation of B/(W) Yr/Yr Expense Drivers – 3Q12
Supplemental Materials Non-GAAP Supplemental Materials Reconciliation of B/(W) Yr/Yr Expense Drivers – 3Q12 Non-GAAP Operating GAAP Adjustments (Non-GAAP) SG&A Currency 4 pts 0 pts 4 pts Acquisitions (3 pts) 0 pts (2 pts) Base (6 pts) 3 pts (3 pts) RD&E Currency 3 pts 0 pts 3 pts Acquisitions (4 pts
Slide 38: Reconciliation of Free Cash Flow (excluding GF Receivables)
Supplemental Materials Non-GAAP Supplemental Materials Reconciliation of Free Cash Flow (excluding GF Receivables) $ in Billions 12 months ended 3 months ended 9/30/12 9/30/11 Net Cash from Operations $20.3 $4.7 Less: Global Financing Receivables (1.7) (0.2) Net Cash from Operations (excluding GF 22
Slide 39: Reconciliation of Debt-to-Capital Ratio
Supplemental Materials Non-GAAP Supplemental Materials Reconciliation of Debt-to-Capital Ratio Sept. 11 Dec. 11 Sept. 12 Non-Global Financing Debt / Capital 28% 32% 36% IBM Consolidated Debt / Capital 57% 61% 61% The above serves to reconcile the Non-GAAP financial information contained in the “Bala
Slide 40: www.ibm.com/investor
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