International Business Machines Corporation · NYSE:IBM
International Business Machines — Q4 2020 Earnings Presentation
36 slides from International Business Machines's earnings presentation, Jan 21, 2021
Slide 1: IBM 4Q 2020 Earnings
IBM 4Q 2020 Earnings January 21, 2021 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: Presenters: Arvind Krishna and James Kavanaugh
Arvind Krishna Chairman and Chief Executive Officer James Kavanaugh SVP, Finance & Operations, Chief Financial Officer 3
Slide 4: CEO Perspective
CEO Perspective “We made progress in 2020 growing our hybrid cloud platform as the foundation for our clients’ digital transformations while dealing with the broader uncertainty of the macro environment.” Hybrid Cloud and AI Strategy Actions to Accelerate Change “The actions we are taking to focus o
Slide 5: Hybrid Cloud and AI Strategy
Hybrid Cloud Hybrid Cloud Value and AI Strategy IBM’s Hybrid Cloud and AI Solutions AI Differentiation SERVICES Partners SOFTWARE IBM Software Cloud Paks SaaS Partners HYBRID CLOUD PLATFORM INFRASTRUCTURE IBM Systems IBM Public Cloud Public Clouds AWS | Azure | Others Enterprise Infrastructure 5 Hyb
Slide 6: Actions to Accelerate Change
Actions to Accelerate Change 6 Redesign go-to-market model Advance culture and growth mindset Optimize capital structure Separate Managed Infrastructure Services Expand ecosystem Increase investment
Slide 7: Accelerating IBM's Performance
Accelerating IBM’s Performance Hybrid Cloud and AI Strategy Actions to Accelerate Change Driving Growth 7
Slide 8: 4Q20 Highlights
4Q20 Highlights $20.4B Revenue $2.07 Operating (non-GAAP) EPS $10.8B Free Cash Flow (FY) Cloud Strength Strong Liquidity Position 20% @CC Revenue Growth (FY) $25B Revenue (FY) $14B Cash Balance 143% FCF Realization (FY) Cloud growth @CC excludes impact of divested businesses; Red Hat normalized for
Slide 9: Cloud & Cognitive Software
Cloud & Cognitive Software Gross Margin Expansion Revenue $6.8B (7%) yr/yr +20 yr/yr bps Demand led by Red Hat, Cloud Paks and Security Performance reflects seasonally large transactional base and 4Q19 compare (+10%) Segment Elements Cognitive Applications (2%) yr/yr Clients opting for shorter durat
Slide 10: Global Business Services
Global Business Services Revenue $4.2B (5%) yr/yr Gross Margin Expansion +260 yr/yr bps Strong book-to-bill contributes to backlog growth Consulting signings up 8% driven by application modernization Segment Elements Growth in Red Hat engagements Consulting (3%) yr/yr Application Management (9%) yr/
Slide 11: Systems
Systems Revenue $2.5B (19%) yr/yr Gross Margin Expansion +380 yr/yr bps Performance reflects product cycle dynamics IBM Z revenue up for the year; expect z15 performance consistent with past cycles Segment Elements Strong gross margin performance Systems Hardware (20%) yr/yr Operating Systems Softwa
Slide 12: Global Technology Services
Global Technology Services Revenue $6.6B (8%) yr/yr Gross Margin Expansion +70 yr/yr bps Strong new client additions and renewal rates Client volumes down in current environment Segment Elements Restructuring contracts to improve financial profile Infrastructure & Cloud Services (8%) yr/yr Managed I
Slide 13: IBM Strategic Update: Managed Infrastructure Services NewCo
As presented: IBM Strategic Update, October 8, 2020 Infrastructure Services Company NewCo: #1 Managed End-to-end Capabilities to Manage and Modernize Client-owned Infrastructures …with Unparalleled Scale and Expertise $19B revenue*, 2x size of next largest provider $60B services backlog, of which ~4
Slide 14: Summary
Summary Focus on hybrid cloud and AI strategy • • Actions across portfolio, operating model, capital structure to accelerate change Improving financial profile - company expects: • Full year 2021 revenue growth based on current spot rates • Adjusted free cash flow* of $11-12 billion in 2021 and $12-
Slide 15: (eo) 7) o > e = iS [o} =
(eo) 7) o > e = iS [o} 2 = 2
Slide 16: Supplemental Materials
Supplemental Materials Currency – Impact on Revenue Growth Revenue and P&L Highlights Services Segments Details Software and Systems Segment Details Expense Summary Balance Sheet Summary Cash Flow Summary Cash Flow (ASC 230) Revenue and P&L Highlights – FY 2020 Services Segments Details –FY 2020 Sof
Slide 17: Currency – Impact on Revenue Growth
Currency – Impact on Revenue Growth US$B Yr/Yr Revenue As Reported Currency Impact Revenue @CC $20.4 $0.5 (6%) 2 pts (9%) Supplemental Materials 17 Quarterly Averages per US $ 4Q20 Yr/Yr 1/20/2021 Spot 1Q21 2Q21 3Q21 4Q21 FY21 Euro 0.84 7% Pound 0.76 3% Yen 104 4% Revenue Impact, Future @ 1/20/21 Sp
Slide 18: Revenue and P&L Highlights
Revenue and P&L Highlights Results include the impact of $2.04B pre-tax charge for structural actions B/(W) Yr/Yr* B/(W) Yr/Yr Revenue Highlights 4Q20 Operating P&L Highlights $ 4Q20 Revenue Cloud $20.4 $7.5 (8%) 8% Gross Profit Expense** Pre-Tax Income** Net Income** Earnings Per Share** $10.7 $8.6
Slide 19: Services Segments Details
Services Segments Details B/(W) Yr/Yr B/(W) Yr/Yr GBS Segment 4Q20 GTS Segment 4Q20 Revenue (External) Consulting Application Management Global Process Services Gross Profit Margin (External) Pre-Tax Income impact of structural actions Pre-Tax Income Margin impact of structural actions Cloud Revenue
Slide 20: Software and Systems Segment Details
Software and Systems Segment Details B/(W) Yr/Yr B/(W) Yr/Yr Cloud & Cognitive Software Segment 4Q20 Systems Segment 4Q20 Revenue (External) Cloud & Data Platforms Cognitive Applications Transaction Processing Platforms Pre-Tax Income impact of structural actions Pre-Tax Income Margin impact of stru
Slide 21: Expense Summary
Expense Summary $ in billions *includes acquisitions in the last twelve months net of non-operating acquisition-related charges and includes impact of divested businesses **represents the percentage change after excluding the impact of currency, acquisitions and divestitures Supplemental Materials 2
Slide 22: Balance Sheet Summary
Balance Sheet Summary Dec 20 Dec 19 Cash & Marketable Securities Core (non-GF) Assets* Global Financing Assets Total Assets $14.3 $118.5 $23.2 $156.0 $9.0 $115.3 $27.9 $152.2 Other Liabilities Core (non-GF) Debt* Global Financing Debt Total Debt Total Liabilities Equity $73.7 $40.4 $21.2 $61.5 $135.
Slide 23: Cash Flow Summary
Cash Flow Summary $ in billions Supplemental Materials 23 B/(W) 4Q20Yr/Yr B/(W) FY20 Yr/Yr Net Cash from Operations $5.9 $2.4 Less: Global Financing Receivables ($1.0) $2.2 Net Cash from Operations (excluding GF Receivables)$6.8 $0.2 Net Capital Expenditures ($0.8) ($0.1) Free Cash Flow (excluding G
Slide 24: Cash Flow (ASC 230)
Cash Flow (ASC 230) $ in billions Supplemental Materials 24 4Q204Q19 FY20 FY19 Net Income from Operations$1.4 $3.7 Depreciation / Amortization of Intangibles$1.7 $1.6 Stock-based Compensation$0.3 $0.2 Working Capital / Other $3.5 $1.1 Global Financing A/R($1.0) ($3.2) Net Cash provided by Operating
Slide 25: Revenue and P&L Highlights – FY 2020
Revenue and P&L Highlights – FY 2020 Results include the impact of $2.04B pre-tax charge for structural actions in 4Q20 B/(W) Yr/Yr* B/(W) Yr/Yr Revenue Highlights FY20 Operating P&L Highlights $ FY20 Gross Profit Expense** Pre-Tax Income** Net Income** Earnings Per Share** $36.3 $28.6 $7.7 $7.8 $8.
Slide 26: Services Segments Details – FY 2020
Services Segments Details – FY 2020 B/(W) Yr/Yr B/(W) Yr/Yr GBS Segment FY20 GTS Segment FY20 Revenue (External) Consulting Application Management Global Process Services Gross Profit Margin (External) Pre-Tax Income * Pre-Tax Income Margin* Cloud Revenue (External) $16.2 $8.1 $7.1 $0.9 29.7% $1.4 8
Slide 27: Software and Systems Segment Details – FY 2020
Software and Systems Segment Details – FY 2020 B/(W) Yr/Yr B/(W) Yr/Yr Cloud & Cognitive Software Segment FY20 Systems Segment FY20 Revenue (External) Cloud & Data Platforms Cognitive Applications Transaction Processing Platforms Pre-Tax Income* Pre-Tax Income Margin * Cloud Revenue (External) $23.4
Slide 28: Expense Summary – FY 2020
Expense Summary – FY 2020 $ in billions *includes impact of $2.04B pre-tax charge for structural actions in 4Q20 **includes acquisitions in the last twelve months net of non-operating acquisition-related charges and includes impact of divested businesses ***represents the percentage change after exc
Slide 29: Retirement Related Summary
Retirement Related Summary $ in billions *Qualified defined benefit plans **includes cash and non-cash contributions Supplemental Materials 29 Key Assumptions and Metrics2019 2020 2021 Expected Cost and Contributions2020 2021 Funded Status at Year end* US107% 108% WW102% 102% Discount Rate at Year e
Slide 30: Reconciliation of Revenue Performance - 4Q 2020
Non-GAAP Supplemental Materials Reconciliation of Revenue Performance - 4Q 2020 4Q20 Yr/Yr 4Q20 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 (5%) (5%)
Slide 31: Reconciliation of Revenue Performance - FY 2020
Non-GAAP Supplemental Materials Reconciliation of Revenue Performance - FY 2020 FY20 Yr/Yr FY20 Yr/Yr GAAP @CC GAAP @CC Cloud & Cognitive Software Cloud & Data Platforms Cognitive Applications Transaction Processing Platforms Cloud Global Business Services Consulting Application Management Global Pr
Slide 32: Reconciliation of Revenue Performance - 4Q & FY 2020
Non-GAAP Supplemental Materials Reconciliation of Revenue Performance - 4Q & FY 2020 The above reconciles the Non-GAAP financial information contained in the “4Q20 Highlights”, “Revenue and P&L Highlights”, “Revenue and P&L Highlights – FY 2020”, and “Prepared Remarks” discussions in the company’s e
Slide 33: Reconciliation of Continuing Operations - 4Q 2020
Non-GAAP Supplemental Materials Reconciliation of Continuing Operations - 4Q 2020 4Q20 Acquisition-Related Adjustments Retirement-Related Adjustments Spin-off-Related Charges Tax Reform Impacts Adjusted GAAP Gross Profit Gross Profit Margin SG&A Total Expense Pre-tax Income Pre-tax Income Margin Tax
Slide 34: Reconciliation of Expense Summary - 4Q & FY 2020
Non-GAAP Supplemental Materials Reconciliation of Expense Summary - 4Q & FY 2020 The above reconciles the Non-GAAP financial information contained in the “Expense Summary” and “Expense Summary – FY 2020” discussions in the company’s earnings presentation. See Exhibit 99.2 included in the company’s F
Slide 35: Reconciliation of Free Cash Flow Realization - FY 2020
Non-GAAP Supplemental Materials Reconciliation of Free Cash Flow Realization - FY 2020 FY Excluding Structural Actions* FY Free Cash Flow Realization 196% 143% The above reconciles the Non-GAAP financial information contained in the “4Q20 Highlights” discussion in the company’s earnings presentation
Slide 36: (eo) 7) o > e = iS [o} =
(eo) 7) o > e = iS [o} 2 = 2
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