43 slides from International Business Machines's earnings presentation, Jan 19, 2016
Slide 1: 4Q 2015 Earnings Presentation
4Q 2015 Earnings Presentation January 19, 2016 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: 4Q and Full Year 2015 Overview
4Q and Full Year 2015 Overview 4Q15 Yr/Yr FY15 Yr/Yr Revenue ($B) $ 22.1 (2%)* $ 81.7 (1%)* Yr/Yr As Reported (9%) (12%) Operating (Non-GAAP) EPS $ 4.84 (17%) $ 14.92 (10%) *Revenue growth rate @CC , FY15 Revenue growth also excludes divested businesses Ø Continued strength in Strategic Imperatives
Slide 4: Transformation Progress
Transformation Progress Strategic Imperatives Revenue Progression Capital deployed for growth 22% 35% of IBM +26% Yr/Yr $29B • Watson Health: Merge, Explorys, Phytel +19% +19% • Watson IoT: The Weather Co (announced) • Cloud acquisitions, including Cleversafe, Clearleap • Cloud data centers, Bluemix
Slide 5: Key Financial Metrics
Key Financial Metrics $ in Billions, except EPS impact of P&L Ratios B/(W) impact of P&L Highlights 4Q15 Yr/Yr 4Q14 gain* (Operating) 4Q15 Yr/Yr 4Q14 gain* Revenue $22.1 (2%) GP Margin 52.7% (1.2 pts) PTI – Operating $5.5 (25%) (17 pts) PTI Margin 25.0% (5.7 pts) (5.8 pts) NI – Operating $4.7 (19%)
Slide 6: Revenue by Geography
Revenue by Geography $ in Billions 4Q15 Yr/Yr Canada/ Americas $10.3 (4%) LA Europe/ME/Africa 7.3 1% U.S. EMEA Asia Pacific 4.4 (3%) -‐5% IBM $22.1 (2%) Japan AP Major Markets (2%) ex. Japan +3% Growth Markets (4%) BRIC Countries (11%) Revenue growth rate @CC www.ibm.com/investor 6
Slide 7: Revenue and Gross Profit Margin by Segment
Revenue and Gross Profit Margin by Segment Operating Revenue Gross Profit Margin $ in Billions 4Q15 Yr/Yr 4Q15 Yr/Yr Pts Global Technology Services $ 8.1 1% 37.7% (1.5 pts) Global Business Services 4.3 (4%) 28.2% (3.3 pts) Software 6.8 (6%) 88.0% (2.0 pts) Systems Hardware 2.4 3% 48.0% (1.6 pts) Glo
Slide 8: Expense Summary
Expense Summary $ in Billions B/(W) 4Q15 Yr/Yr B/(W) SG&A – Operating $5.0 15% Drivers Yr/Yr RD&E – Operating 1.4 (1%) Divestiture Gain 4Q’14* (25 pts) (OI/E) IP and Development Income (0.2) (3%) Workforce Rebalancing 10 pts (SG&A) Other (Income)/Expense (0.1) (90%) Currency 8 pts Interest Expense 0
Slide 9: Services Segments
Services Segments Global Technology Services (GTS) Global Business Services (GBS) $ in Billions $ in Billions 4Q15 Yr/Yr 4Q15 Yr/Yr Revenue (External) $8.1 1% Revenue (External) $4.3 (4%) Gross Margin (External) 37.7% (1.5 pts) Gross Margin (External) 28.2% (3.3 pts) PTI Margin 17.8% 1.9 pts PTI Mar
Slide 10: Software Segment
Software Segment $ in Billions 4Q15 Yr/Yr Revenue (External) $6.8 (6%) Gross Margin (External) 88.0% (2.0 pts) PTI Margin 39.4% (5.3 pts) 4Q15 Revenue 4Q15 Revenue Yr/Yr (% of Total SoWware) WebSphere (5%) Information Management (5%) Tivoli (1%) Key Workforce Solutions (4%) Branded Other Middleware
Slide 11: Systems Hardware Segment
Systems Hardware Segment $ in Billions 4Q15 Yr/Yr Revenue (External) $2.4 3% Gross Margin (External) 48.0% (1.6 pts) PTI Margin 13.9% (1.5 pts) 4Q15 Revenue 4Q15 Revenue (% of Total Systems Hardware) Yr/Yr z Systems 21% Power Systems 8% Storage (7%) Servers Storage Total Systems Hardware 3% 32% 66%
Slide 12: Cash Flow Summary
Cash Flow Summary $ in Billions B/(W) B/(W) 4Q15 Yr/Yr FY15 Yr/Yr Net Cash from Operations $5.3 ($0.8) $17.0 $0.1 Less: Global Financing Receivables (1.8) (0.3) 0.2 (0.6) Net Cash from Operations 7.1 (0.5) 16.9 0.7 (excluding GF Receivables) Net Capital Expenditures (1.0) (0.0) (3.8) (0.0) Free Cash
Slide 13: Balance Sheet Summary
Balance Sheet Summary $ in Billions Dec. 14* Dec. 15 Cash & Marketable Securities $8.5 $8.2 Non-GF Assets** 71.5 67.7 Global Financing Assets 37.3 34.6 Total Assets 117.3 110.5 Other Liabilities 64.5 56.2 Non-GF Debt* * 11.6 12.7 Global Financing Debt 29.1 27.2 Total Debt 40.7 39.9 Total Liabilities
Slide 14: Summary
Summary Ø Investing and adding capabilities • R&D 6% of revenue, $4B capital, $3B acquisitions • Building platforms and ecosystems Ø Strong base of business • Continued strength in Strategic Imperatives • Successful mainframe product cycle and repositioned Power systems • Large and growing service
Slide 15: www.ibm.com/investor
www.ibm.com/investor 15
Slide 16: Supplemental Materials
Supplemental Materials Supplemental Materials Some columns and rows in these materials, including the supplemental exhibits, may not add due to rounding Ø Currency – Year/Year Comparison Ø Supplemental Segment Information – Global Services Ø Supplemental Segment Information – Systems Hardware, So
Slide 17: Currency – Year/Year Comparison
Supplemental Materials Currency – Year/Year Comparison Quarterly Averages per US $ 1/15/16 Yr/Yr @ 1/15/16 Spot 3Q15 Yr/Yr 4Q15 Yr/Yr Spot 1Q16 2Q16 3Q16 4Q16 FY16 Euro 0.90 (19%) 0.91 (14%) 0.91 (3%) (1%) (2%) 0% (1%) Pound 0.65 (8%) 0.66 (4%) 0.70 (6%) (7%) (8%) (6%) (7%) Yen 122 (17%) 121 (6%) 11
Slide 18: Supplemental Segment Information – 4Q 2015
Supplemental Materials Supplemental Segment Information – 4Q 2015 Global Services Revenue Global Services Backlog / Signings $ in Billions Revenue Growth Yr/Yr Backlog 4Q15 Yr/Yr GTS Outsourcing (1%) Total Backlog $121 1% Integrated Tech Services 5% Change in Backlog due to Currency Maintenance Flat
Slide 19: Supplemental Segment Information – 4Q 2015
Supplemental Materials Supplemental Segment Information – 4Q 2015 Systems Hardware Software Revenue Growth Yr/Yr GP% Revenue Growth Yr/Yr z Systems 21% WebSphere (5%) Information Management (5%) Power Systems 8% Tivoli (1%) Storage (7%) = Workforce Solutions (4%) Total Systems Hardware 3% Rational (
Slide 20: Global Financing Portfolio
Supplemental Materials Global Financing Portfolio 4Q15 – $28.5B Net External Receivables Investment Grade Non-Investment Grade 55% 45% 40% 30% 33% 20% 22% 23% 10% 13% 8% 1% 0% Aaa to A3 Baa1 to Baa3 Ba1 to Ba2 Ba3 to B1 B2 to B3 Caa1 to D 4Q15 3Q15 4Q14 Identified Loss Rate 1.8% 2.1% 1.6% Anticipate
Slide 21: Key Financial Metrics – FY 2015
Supplemental Materials Key Financial Metrics – FY 2015 $ in Billions, except EPS impact of P&L Ratios B/(W) impact of P&L Highlights FY15 Yr/Yr 2014 gains* (Operating) FY15 Yr/Yr 2014 gains* Revenue $81.7 (1%) GP Margin 50.8% 0.2 pts PTI – Operating $17.7 (16%) (7 pts) PTI Margin 21.6% (1.1 pts) (1.
Slide 22: Revenue by Geography – FY 2015
Supplemental Materials Revenue by Geography – FY 2015 $ in Billions FY15 Yr/Yr Americas $38.5 (2%) Canada/ LA Europe/ME/Africa 26.1 Flat Asia Pacific 16.9 (2%) U.S. EMEA -‐3% IBM $81.7 (1%) Japan AP Major Markets (1%) +5% ex. Japan Growth Markets (3%) BRIC Countries (10%) Revenue growth rate @CC an
Slide 23: Revenue and Gross Profit Margin by Segment – FY 2015
Supplemental Materials Revenue and Gross Profit Margin by Segment – FY 2015 Operating Revenue Gross Profit Margin $ in Billions FY15 Yr/Yr FY15 Yr/Yr Pts Global Technology Services $32.0 1% 37.4% (1.5 pts) Global Business Services 17.2 (4%) 28.2% (2.2 pts) Software 22.9 (4%) 87.3% (1.3 pts) Systems
Slide 24: Expense Summary – FY 2015
Supplemental Materials Expense Summary – FY 2015 $ in Billions B/(W) FY15 Yr/Yr SG&A – Operating $19.6 13% B/(W) Drivers Yr/Yr RD&E – Operating 5.2 6% Currency 9 pts IP and Development Income (0.7) (8%) Divestiture Gains* (6 pts) Other (Income)/Expense (0.7) (62%) Workforce Rebalancing 3 pts Interes
Slide 25: Historical Free Cash Flow Performance
Supplemental Materials Historical Free Cash Flow Performance 108% 107% 103% 101% 98% 97% 98% 100% 94% 98% 89% 79% 2010 2011 2012 2013 2014 2015 FCF Realiza4on FCF Realiza4on adjusted for book/cash tax differen4al and cash from gains Free Cash Flow realization = Free Cash Flow / GAAP Net Income from c
Slide 26: Cash Flow (FAS 95)
Supplemental Materials Cash Flow (FAS 95) $ in Billions 4Q15 4Q14 FY15 FY14 Net Income from Operations $4.5 $5.5 $13.2 $12.0 Depreciation / Amortization of Intangibles 1.0 1.0 3.9 4.5 Stock-based Compensation 0.1 0.1 0.5 0.5 Working Capital / Other 1.5 0.9 (0.7) (4.3) Global Financing A/R (1.8) (1.5
Slide 27: Retirement-Related Charges
Supplemental Materials Retirement-Related Charges Funded Status* Expected ROA Actual ROA Discount Rate US WW WW WW WW YE 2014 102% 97% 6.7% 12.2% 3.1% YE 2015 101% 97% 6.4% -0.2% 3.3% Operating Non-Operating Pre-Tax Retirement-Related (Cost) / Income ($B) $0.1 ($0.5) ($0.4) ($0.5) ($1.1) ($1.0) ($1.
Slide 28: Retirement-Related Metrics
Supplemental Materials Retirement-Related Metrics YE 2014 YE 2015 US WW US WW Funded status 102% 97% 101% 97% Expected ROA 7.5% 6.7% 7.0% 6.4% Actual ROA 10.1% 12.2% -1.0% -0.2% Discount rate 3.7% 3.1% 4.0% 3.3% $ billions 2015 2016 Operating cost 1.5 1.4 Non-operating cost 1.0 0.5 Total cost 2.6 2.
Slide 29: 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 30: 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 31: Non-GAAP Supplemental Materials
Supplemental Materials Non-GAAP Supplemental Materials GAAP to Opera[ng (Non-‐GAAP) Bridge – 4Q 2015 $ in Millions, except EPS Acquisition-related Retirement-related Operating GAAP Adjustments* Adjustments** (Non-GAAP) Gross Profit $11,407 $105 $119 $11,630 SG&A 5,157 (95) (88) 4,975 RD&E 1,362 - (
Slide 32: Non-GAAP Supplemental Materials
Supplemental Materials Non-GAAP Supplemental Materials GAAP to Opera[ng (Non-‐GAAP) Bridge – 4Q 2014 $ in Millions, except EPS Acquisition-related Retirement-related Operating GAAP Adjustments* Adjustments** (Non-GAAP) Gross Profit $12,862 $101 $33 $12,996 SG&A 6,034 (94) (95) 5,845 RD&E 1,320 - 21
Slide 33: Non-GAAP Supplemental Materials
Supplemental Materials Non-GAAP Supplemental Materials GAAP to Opera[ng (Non-‐GAAP) Bridge – FY 2015 $ in Millions, except EPS Acquisition-related Retirement-related Operating GAAP Adjustments* Adjustments** (Non-GAAP) Gross Profit $40,684 $373 $469 $41,526 SG&A 20,430 (324) (533) 19,573 RD&E 5,247
Slide 34: Non-GAAP Supplemental Materials
Supplemental Materials Non-GAAP Supplemental Materials GAAP to Opera[ng (Non-‐GAAP) Bridge – FY 2014 $ in Millions, except EPS Acquisition-related Retirement-related Operating GAAP Adjustments* Adjustments** (Non-GAAP) Gross Profit $46,407 $416 $173 $46,996 SG&A 23,180 (385) (257) 22,537 RD&E 5,437
Slide 35: Non-GAAP Supplemental Materials
Supplemental Materials Non-GAAP Supplemental Materials GAAP to Opera[ng (Non-‐GAAP) Bridge – 4Q 2015 and 4Q 2014 Acquisition- related Retirement-related Operating 4Q 2015 GAAP Adjustments* Adjustments ** (Non-GAAP) Gross Profit Margin from Continuing Operations 51.7% 0.5 pts 0.5 pts 52.7% PTI Margi
Slide 36: Non-GAAP Supplemental Materials
Supplemental Materials Non-GAAP Supplemental Materials GAAP to Opera[ng (Non-‐GAAP) Bridge – FY 2015 and FY 2014 Acquisition- related Retirement-related Operating FY 2015 GAAP Adjustments* Adjustments ** (Non-GAAP) Gross Profit Margin from Continuing Operations 49.8% 0.5 pts 0.6 pts 50.8% PTI Margi
Slide 37: Non-GAAP Supplemental Materials
Supplemental Materials Non-GAAP Supplemental Materials Reconcilia[on of Debt-‐to-‐Capital Ra[o Dec. 2015 Sept. 2015* Dec. 2014* Non-Global Financing Debt / Capital 54% 58% 59% IBM Consolidated Debt / Capital 73% 75% 77% * Prior periods reclassified for the adoption of the FASB guidance (Debt issua
Slide 38: Non-GAAP Supplemental Materials
Supplemental Materials Non-GAAP Supplemental Materials Reconcilia)on of Revenue Growth FY15 Yr/Yr FY14 Yr/Yr FY13 Yr/Yr @CC excl. @CC excl. Divested Divested GAAP @CC Businesses GAAP @CC Businesses GAAP @CC Strategic Imperatives 17% 24% 26% 16% 18% 19% 17% 19% Cloud 43% 54% 57% FY15 Yr/Yr GAAP @CC M
Slide 39: Non-GAAP Supplemental Materials
Supplemental Materials Non-GAAP Supplemental Materials Reconcilia[on of Revenue Growth FY 2015 Yr/Yr @CC excl. Divested GAAP @CC Business Americas (7%) (4%) (2%) U.S. (4%) (4%) (3%) Europe/ME/Africa (15%) (2%) Flat Asia Pacific (17%) (7%) (2%) Japan (10%) 3% 5% Major Markets (10%) (2%) (1%) Growth M
Slide 40: Non-GAAP Supplemental Materials
Supplemental Materials Non-GAAP Supplemental Materials Reconcilia[on of Revenue Growth 4Q15 Yr/Yr GAAP @CC GTS Outsourcing (9%) (1%) Integrated Technology Services (3%) 5% GBS Outsourcing (10%) (4%) Consulting & Systems Integration (10%) (4%) Total Outsourcing (9%) (2%) Total Transactional (7%) Flat
Slide 41: Non-GAAP Supplemental Materials
Supplemental Materials Non-GAAP Supplemental Materials Reconcilia[on of Revenue Growth FY15 Yr/Yr @CC excl. Divested GAAP @CC Businesses Global Technology Services (10%) (0%) 1% Global Business Services (12%) (4%) (4%) Systems Hardware (24%) (20%) 8% FY15 Yr/Yr GAAP @CC Software (10%) (4%) Global Fi
Slide 42: Non-GAAP Supplemental Materials
Supplemental Materials Non-GAAP Supplemental Materials Reconcilia[on of Free Cash Flow (excluding GF Receivables, adjusted for Taxes and Gains) FY 2015 Free Cash Flow (excluding GF Receivables) $13.1 Less: Taxes and Gains adjustments Book/Cash Tax Differential* (0.1) Gains on assets sales and other*
Slide 43: www.ibm.com/investor
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