International Business Machines Corporation · NYSE:IBM
International Business Machines — Q2 2018 Earnings Presentation
31 slides from International Business Machines's earnings presentation, Jul 18, 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 2Q18 $20.0B Revenue $3.08 Operating EPS $12.6B Free Cash Flow Last 12 Months y Revenue up 4% yr/yr, up 2% at constant currency - Strategic imperatives revenue growth accelerated to 13% @cc, led by cloud and security - Cloud driven by as-a-Service growth of 24% @cc; total cloud revenue now
Slide 3: Operating Earnings per Share Drivers – 2Q17 to 2Q18
Operating Earnings per Share Drivers – 2Q17 to 2Q18 4 (0.22) 0.20 3.08 0.07 0.10 2Q17 Revenue @Actual Pre-Tax Margin Tax Shares 2Q18 • • • • Growth in revenue, operating gross profit, pre-tax income Solid pre-tax operating leverage Significant tax headwind driven by 2Q17 discrete tax benefit Mid-sin
Slide 4: Key Financial Metrics
Key Financial Metrics 5 Last 12 B/(W) • • • Broad-based revenue growth across geographies and sectors Strong pre-tax profit growth with 2/3 from gross profit Gross margin performance driven by mix and investments; productivity benefits from 1Q18 actions to ramp in second half Expense performance ref
Slide 5: Cognitive Solutions Segment
Cognitive Solutions Segment 6 Segment Revenue Elements Solutions Software (1%) Yr/Yr Transaction Processing Software (2%) Yr/Yr Highlights • Solutions Software reflects growth in analytics and industry verticals; repositioning of some offerings Transaction Processing Software performance impacted by
Slide 6: Global Business Services Segment
Global Business Services Segment 7 Segment Revenue Elements Consulting +4% Yr/Yr Application Management (3%) Yr/Yr Global Process Services (3%) Yr/Yr Highlights • • • Continued improvement in revenue performance Consulting growth reflects strength in digital offerings Gross margin expansion driven b
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 (4%) Yr/Yr Highlights • Returned to modest growth led by Infrastructure Services, moving clients to hybrid cloud Technical Support Se
Slide 8: Systems Segment
Systems Segment 9 Segment Revenue Elements Systems Hardware +31% Yr/Yr Operating Systems Software (1%) Yr/Yr Highlights Strategic Imperatives Revenue within Systems • • Growth in all three brands; overall Systems share gain IBM Z up > 100% yr/yr reflects high adoption rate of z14, and strong demand
Slide 9: Cash Flow and Balance Sheet Highlights
Cash Flow and Balance Sheet Highlights 10 • Free cash flow reflects solid working capital performance, offset by higher cash taxes and capital expenditures Free cash flow realization ~111%** over last 12 months • Positioned to support business over the longer term • $ in billions *Excludes Global Fi
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 • Strong revenue and profit performance in second quarter • Maintaining full-year expectations of at least $13.80 of operating EPS a
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 Strong revenue and profit performance in second quarter e Maintaining full-year expectations of at least $13.80 of operating EPS and
Slide 12: Supplemental Materials
Supplemental Materials 13 • • • • • • • • • • Currency – Impact on Revenue Growth Strategic Imperatives Revenue Geographic Revenue Segment Revenue & Gross Profit Additional Revenue & Backlog Information Expense Summary Balance Sheet Summary Cash Flow Summary Cash Flow (ASC 230) Non-GAAP Supplemental
Slide 13: Currency – Impact on Revenue Growth
Currency – Impact on Revenue Growth 14 US$B Yr/Yr Revenue As Reported $20.0 3.7% Currency Impact $0.4 2.1 pts Revenue @ CC 1.6% Supplemental Materials Quarterly Averages per US $ 1Q18 Yr/Yr 2Q18 Yr/Yr 7/17/18 Spot 3Q18 4Q18 FY18 Euro 0.81 13% 0.84 8% 0.86 0% (1%) 5% Pound 0.72 11% 0.74 6% 0.76 1% (1
Slide 14: Strategic Imperatives Revenue
Strategic Imperatives Revenue 15 • Growth accelerated in 2Q18, led by security and cloud • Strategic Imperatives revenue of $39B over last 12 months, 48% of IBM revenue • Cloud revenue of $18.5B over last 12 months, up 23% at actual rates, 23% of IBM revenue Revenue growth rates @CC, $ in billions O
Slide 15: Geographic Revenue
Geographic Revenue 16 • Broad-based performance across geographies and markets • Americas reflects continued growth in Latin America and modest growth in US • E/ME/A accelerated to 4%, led by Germany, UK, France, Spain, and growth across business areas • Asia Pacific yr/yr performance consistent wit
Slide 16: Segment Revenue & Gross Profit
Segment Revenue & Gross Profit 17 Segment Revenue & Gross Profit Metrics - 2Q18 Cognitive Solutions Global Business Services Technology Services & Cloud Platforms Systems Global Financing Revenue growth rates @CC, $ in billions Supplemental Materials 2Q18 Revenue Yr/Yr 2Q18 GP% Yr/Yr $4.6 (1%) 77.7%
Slide 17: Additional Revenue & Backlog Information
Additional Revenue & Backlog Information 18 IBM Z 112% Power 4% Backlog Yr/Yr @Actual (2%) Storage 2% Growth rates @CC, $ in billions, Services Backlog calculated using June 30 currency spot rates Supplemental Materials 2Q18 Yr/Yr Signings $11.5 6% Services Backlog $116 (1%) 2Q18 Yr/Yr Systems Hardw
Slide 18: Expense Summary
Expense Summary 19 • • Continuing to invest to build innovation pipeline in areas including AI, security, blockchain Yr/yr performance reflects operational efficiencies in SG&A and RD&E, mitigated by currency impact and lower level of IP income $ in billions *includes acquisitions made in the last t
Slide 19: Balance Sheet Summary
Balance Sheet Summary 20 $ in billions *Reflects adoption of the FASB guidance on restricted cash, Dec 17 and Jun 17 recast **includes eliminations of inter-company activity Supplemental Materials Jun 18 Dec 17 Jun 17 Cash & Marketable Securities* $11.9 $12.8 $12.5 Non-GF Assets*, ** $72.4 $74.2 $73
Slide 20: Cash Flow Summary
Cash Flow Summary 21 YTD 2Q18 B/(W) Yr/Yr $ in billions *Reflects adoption of the FASB guidance on restricted cash, 2017 recast Supplemental Materials QTD 2Q18 B/(W) Yr/Yr Net Cash from Operations $2.3 ($1.2) $6.9 ($0.5) Less: Global Financing Receivables ($0.6) ($0.7) $1.8 ($0.4) Net Cash from Oper
Slide 21: Cash Flow (ASC 230)
Cash Flow (ASC 230) 22 $ in billions *Reflects adoption of the FASB guidance on restricted cash, 2Q17 recast Supplemental Materials QTD 2Q18 QTDYTDYTD 2Q17 2Q18 2Q17 Net Income from Operations $2.4 $2.3 $4.1 $4.1 Depreciation / Amortization of Intangibles $1.1 $1.1 $2.2 $2.2 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 Tax Reform Enactment Charge Adjust
Slide 23: Reconciliation of Revenue Growth - 2Q 2018
Non-GAAP Supplemental Materials Reconciliation of Revenue Growth - 2Q 2018 24 2Q18 Yr/Yr GAAP @CC Americas Flat 1% Europe/ME/Africa 11% 4% Asia Pacific 2% Flat U.S. Flat Flat Japan 3% 1% LA (3%) 3% The above reconciles the Non-GAAP financial information contained in the “Geographic Revenue” discussi
Slide 24: Reconciliation of Revenue Growth - 2Q 2018
Non-GAAP Supplemental Materials Reconciliation of Revenue Growth - 2Q 2018 25 2Q18 Yr/Yr GAAP @CC Strategic Imperatives 15% 13% Analytics 7% 5% Cloud 20% 18% aaS annual run rate 26% 24% Mobile 5% 3% Security 81% 79% Social (17%) (18%) The above reconciles the Non-GAAP financial information contained
Slide 25: Reconciliation of Revenue Growth - 2Q 2018
Non-GAAP Supplemental Materials Reconciliation of Revenue Growth - 2Q 2018 2Q18 Yr/Yr 26 2Q18 Yr/Yr GAAP @CC GAAP @CC C ognitive Sol utions Fl at (1%) T ech Svcs & Cloud Platfor m s 2% Flat Solutions Software 1% (1%) Global Technology Services 2% Flat Transaction Processing Software Flat (2%) Infras
Slide 26: Reconciliation of Revenue Growth - 2Q 2018
Non-GAAP Supplemental Materials Reconciliation of Revenue Growth - 2Q 2018 27 2Q18 Yr/Yr GAAP @CC as-a-Service -Global Business Services 27% 25% as-a-Service - Tech Services & Cloud Platform 33% 30% The above reconciles the Non-GAAP financial information contained in the “2Q18 Prepared Remarks” and
Slide 27: Reconciliation of Expense Summary - 2Q 2018
Non-GAAP Supplemental Materials Reconciliation of Expense Summary - 2Q 2018 28 Non-GAAP Adjustments Operating (Non-GAAP) GAAP SG&A Currency (1 pts) 0 pts (1 pts) Acquisitions 0 pts 0 pts 0 pts Base * 5 pts 0 pts 5 pts RD &E Currency (1 pts) 0 pts (1 pts) Acquisitions 0 pts 0 pts 0 pts Base * 6 pts 0
Slide 28: Reconciliation of Free Cash Flow-Last 12 Months
Non-GAAP Supplemental Materials Reconciliation of Free Cash Flow-Last 12 Months 29 12 Months Ended Jun 2018 Net Cash from Operating Activities per GAAP: $16.2 Less: the change in Global Financing (GF) Receivables ($0.0) Net Cash from Operating Activities (Excluding GF Receivables) $16.2 Capital Expe
Slide 29: Reconciliation of Free Cash Flow Realization-Last 12 Months
Non-GAAP Supplemental Materials Reconciliation of Free Cash Flow Realization-Last 12 Months 30 LTM Excluding Tax Reform* LTM Free Cash Flow Realization 219% ~111% The above reconciles the Non-GAAP financial information contained in the “Cash Flow and Balance Sheet Highlights” discussion in the compa
Slide 30: Reconciliation of Free Cash Flow Realization-Last 12 Months
Non-GAAP Supplemental Materials Reconciliation of Free Cash Flow Realization-Last 12 Months LT Excluding L™M Tax Reform* Free Cash Flow Realization 219% ~111% The above reconciles the Non-GAAP financial information contained in the “Cash Flow and Balance Sheet Highlights” discussion in the company’s
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