36 slides from International Business Machines's earnings presentation, Jul 20, 2015
Slide 1: 2Q 2015 Earnings Presentation
2Q 2015 Earnings Presentation July!20,!2015! 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: 2Q and 1H 2015 Overview
2Q and 1H 2015 Overview 2Q15 Yr/Yr 1H15 Yr/Yr Revenue ($B) $20.8 (1%)* $40.4 0%* Yr/Yr As Reported (13%) (13%) Operating (Non-GAAP) EPS $3.84 (13%) $6.75 (5%) * Revenue growth rate @CC and excluding divested businesses ! First half revenue roughly flat yr/yr • Strategic imperatives up >30% yr/yr • S
Slide 4: Key Financial Metrics
Key Financial Metrics $ in Billions, except EPS P&L Highlights P&L Ratios B/(W) 2Q15 Yr/Yr (Operating) 2Q15 Yr/Yr Revenue $20.8 (1%) GP Margin 50.9% 0.2 pts PTI – Operating $4.6 (18%) PTI Margin 22.0% (1.3 pts) NI – Operating $3.8 (15%) Tax Rate 17.2% 3.3 pts EPS – Operating $3.84 (13%) NI Margin 18
Slide 5: Revenue by Geography
Revenue by Geography $ in Billions 2Q15 Yr/Yr Canada/!!!!! Americas $9.8 (2%) LA!!! Europe/ME/Africa 6.6 1% U.S.! EMEA! Asia Pacific 4.3 (1%) 23%!! !!!! IBM $20.8 (1%) Japan! AP! ex.!Japan! Major Markets Flat +7%! Growth Markets (5%) BRIC Countries (18%) Revenue growth rate @CC and excluding System
Slide 6: Revenue and Gross Profit Margin by Segment
Revenue and Gross Profit Margin by Segment Operating Revenue Gross Profit Margin $ in Billions 2Q15 Yr/Yr 2Q15 Yr/Yr Pts Global Technology Services $8.1 1% 36.6% (2.3 pts) Global Business Services 4.3 (3%) 27.4% (2.4 pts) Software 5.8 (3%) 87.8% (1.0 pts) Systems Hardware 2.1 5% 48.2% 8.5 pts Global
Slide 7: Expense Summary
Expense Summary $ in Billions B/(W) 2Q15 Yr/Yr SG&A – Operating $5.0 8% B/(W) Drivers Yr/Yr RD&E – Operating 1.3 7% Currency 11 pts IP and (0.1) (33%) System x Divestiture 2 pts Development Income Other (Income)/ Workforce Rebalancing (3 pts) (0.3) 52% Expense Divestiture Gains (1 pts) Interest Expe
Slide 8: Services Segments
Services Segments Global!Technology!Services!(GTS)! Global!Business!Services!(GBS)! $ in Billions $ in Billions 2Q15 Yr/Yr 2Q15 Yr/Yr Revenue (External) $8.1 1% Revenue (External) $4.3 (3%) Gross Margin (External) 36.6% (2.3 pts) Gross Margin (External) 27.4% (2.4 pts) PTI Margin 15.1% (2.9 pts) PTI
Slide 9: Software Segment
Software Segment $ in Billions 2Q15 Yr/Yr Revenue (External) $5.8 (3%) Gross Margin (External) 87.8% (1.0 pts) PTI Margin 34.4% (2.1 pts) 2Q15 Revenue 2Q15!Revenue!!!!!!!!!!!!! Yr/Yr (%!of!Total!SoUware)! WebSphere 5% Information Management Flat Tivoli (1%) Key!!!!!!! Other! Workforce Solutions (3%)
Slide 10: Systems Hardware Segment
Systems Hardware Segment $ in Billions 2Q15 Yr/Yr Revenue (External) $2.1 5% Gross Margin (External) 48.2% 8.5 pts PTI Margin 11.8% 5.5 pts 2Q15!Revenue! 2Q15 Revenue (%!of!Total!Sys!Hardware)! Yr/Yr z Systems 15% Power Systems 5% Storage (4%) Servers!!!!!!!! Storage!!!!!!! Total Systems Hardware 5%
Slide 11: Cash Flow Summary
Cash Flow Summary B/(W) YTD B/(W) $ in Billions 2Q15 Yr/Yr 2Q15 Yr/Yr Net Cash from Operations $3.9 $0.3 $7.5 $0.6 Less: Global Financing Receivables (0.4) (0.1) 1.2 (0.3) Net Cash from Operations 4.3 0.4 6.3 0.9 (excluding GF Receivables) Net Capital Expenditures (0.9) 0.0 (1.8) 0.0 Free Cash Flow
Slide 12: Balance Sheet Summary
Balance Sheet Summary $ in Billions Jun. 14 Dec. 14 Jun.15 Cash & Marketable Securities $9.7 $8.5 $8.8 Non-GF Assets* 77.3 71.7 70.7 Global Financing Assets 37.3 37.3 33.3 Total Assets 124.3 117.5 112.7 Other Liabilities 60.3 64.7 60.2 Non-GF Debt* 17.1 11.7 12.6 Global Financing Debt 29.4 29.1 26.1
Slide 13: Summary
Summary ! Strategic imperatives up >30% yr/yr in second quarter and first half • Core portfolio declining in declining market ! Margin improvements driven by shift to higher value ! Continuing high level of investment and shareholder returns ! Full year 2015 expectations • Continue to expect Operati
Slide 14: www.ibm.com/investor
www.ibm.com/investor 14
Slide 15: Supplemental Materials
Supplemental Materials Supplemental Materials Some columns and rows in these materials, including the supplemental exhibits, may not add due to rounding ! Currency – Year/Year Comparison ! Supplemental Segment Information – Global Services ! Supplemental Segment Information – Systems Hardware, Softw
Slide 16: Currency – Year/Year Comparison
Supplemental Materials Currency – Year/Year Comparison Quarterly!Averages!per!US!$! 7/17 Yr/Yr @ 7/17 Spot 1Q15 Yr/Yr 2Q15 Yr/Yr Spot 3Q15 4Q15 FY15 Euro 0.89 (22%) 0.90 (24%) 0.92 (22%) (15%) (21%) Pound 0.66 (9%) 0.65 (10%) 0.64 (7%) (1%) (7%) Yen 119 (16%) 121 (19%) 124 (19%) (8%) (15%) IBM Reven
Slide 17: Supplemental Segment Information – 2Q 2015
Supplemental Materials Supplemental Segment Information – 2Q 2015 Global Services Revenue Global Services Backlog / Signings $!in!Billions! Revenue!Growth! Yr/Yr! Backlog! 2Q15! Yr/Yr! GTS Outsourcing 1% Total Backlog $122 1% Integrated Tech Services 1% Change in Backlog due to Currency Maintenance
Slide 18: Supplemental Segment Information – 2Q 2015
Supplemental Materials Supplemental Segment Information – 2Q 2015 Systems Hardware Software Revenue!Growth! Yr/Yr! GP%! Revenue!Growth! Yr/Yr! z Systems 15% WebSphere 5% Information Management Flat Power Systems 5% Tivoli (1%) Storage (4%) Workforce Solutions (3%) Total Systems Hardware 5% Rational
Slide 19: Global Financing Portfolio
Supplemental Materials Global Financing Portfolio 2Q15 – $26.7B Net External Receivables Investment Grade Non-Investment Grade 57% 43% 40% 35% 30% 20% 22% 21% 10% 12% 8% 2% 0% Aaa to A3 Baa1 to Baa3 Ba1 to Ba2 Ba3 to B1 B2 to B3 Caa1 to D 2Q15 1Q15 2Q14 Identified Loss Rate 2.1% 1.9% 1.1% Anticipate
Slide 20: Cash Flow (FAS 95)
Supplemental Materials Cash Flow (FAS 95) $ in Billions QTD QTD YTD YTD 2Q15 2Q14 2Q15 2Q14 Net Income from Operations $3.4 $4.1 $5.8 $6.5 Depreciation / Amortization of Intangibles 1.0 1.2 1.9 2.3 Stock-based Compensation 0.1 0.1 0.3 0.3 Working Capital / Other (0.3) (1.6) (1.7) (3.7) Global Financ
Slide 21: 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 22: Non-GAAP Supplemental Materials
Supplemental Materials Non-GAAP Supplemental Materials Cash Flow Management uses a free cash flow measure to evaluate the companys operating results, plan share repurchase levels, evaluate strategic investments and assess the companys ability and need to incur and service debt. The entire free cash
Slide 23: Reconciliation of Operating Earnings Per Share
Supplemental Materials Non-GAAP Supplemental Materials ReconciliaZon!of!OperaZng!Earnings!Per!Share! 2015 Expectations IBM GAAP EPS $14.25 - $15.00 IBM Operating EPS (Non-GAAP) $15.75 - $16.50 Adjustments Acquisition-Related Charges * $0.70 Non-Operating Retirement-Related Items $0.80 * Includes acq
Slide 24: GAAP to Operating (Non-GAAP) Bridge – 2Q 2015
Supplemental Materials Non-GAAP Supplemental Materials GAAP!to!OperaZng!(Non2GAAP)!Bridge!–!2Q!2015! $ in Millions, except EPS Acquisition-related Retirement-related Operating GAAP Adjustments* Adjustments** (Non-GAAP) Gross Profit $10,390 $88 $112 $10,590 SG&A 5,179 (74) (63) 5,042 RD&E 1,300 - (11
Slide 25: GAAP to Operating (Non-GAAP) Bridge – 2Q 2014
Supplemental Materials Non-GAAP Supplemental Materials GAAP!to!OperaZng!(Non2GAAP)!Bridge!–!2Q!2014! $ in Millions, except EPS Acquisition-related Retirement-related Operating GAAP Adjustments* Adjustments** (Non-GAAP) Gross Profit $12,044 $105 $45 $12,195 SG&A 5,593 (98) (27) 5,468 RD&E 1,361 - 20
Slide 26: GAAP to Operating (Non-GAAP) Bridge – 2Q YTD 2015
Supplemental Materials Non-GAAP Supplemental Materials GAAP!to!OperaZng!(Non2GAAP)!Bridge!–!2Q!YTD!2015! $ in Millions, except EPS Acquisition-related Retirement-related Operating GAAP Adjustments* Adjustments** (Non-GAAP) Gross Profit $19,842 $179 $233 $20,253 SG&A 10,541 (154) (371) 10,017 RD&E 2,
Slide 27: GAAP to Operating (Non-GAAP) Bridge – 2Q YTD 2014
Supplemental Materials Non-GAAP Supplemental Materials GAAP!to!OperaZng!(Non2GAAP)!Bridge!–!2Q!YTD!2014! $ in Millions, except EPS Acquisition-related Retirement-related Operating GAAP Adjustments* Adjustments** (Non-GAAP) Gross Profit $22,671 $209 $98 $22,978 SG&A 11,865 (196) (114) 11,555 RD&E 2,7
Slide 28: GAAP to Operating (Non-GAAP) Bridge – 2Q 2015 and 2Q 2014
Supplemental Materials Non-GAAP Supplemental Materials GAAP!to!OperaZng!(Non2GAAP)!Bridge!–!2Q!2015!and!2Q!2014! Acquisition- related Retirement-related Operating 2Q 2015 GAAP Adjustments* Adjustments ** (Non-GAAP) Gross Profit Margin from Continuing Operations 49.9% 0.4 pts 0.5 pts 50.9% PTI Margin
Slide 29: Reconciliation of Free Cash Flow (excluding GF Receivables)
Supplemental Materials Non-GAAP Supplemental Materials ReconciliaZon!of!Free!Cash!Flow!(excluding!GF!Receivables)! 12 months $ in Billions ended 6/30/15 Net Cash from Operations $17.5 Less: Global Financing Receivables 0.4 Net Cash from Operations 17.0 (excluding GF Receivables) Net Capital Expendit
Slide 30: Reconciliation of Debt-to-Capital Ratio
Supplemental Materials Non-GAAP Supplemental Materials ReconciliaZon!of!Debt2to2Capital!RaZo! June 2015 Dec. 2014 June 2014 Non-Global Financing Debt / Capital 55% 59% 56% IBM Consolidated Debt / Capital 74% 77% 73% The above serves to reconcile the Non-GAAP financial information contained in the Ba
Slide 31: Reconciliation of Revenue Growth
Supplemental Materials Non-GAAP Supplemental Materials ReconciliaZon!of!Revenue!Growth!! 2Q15 Yr/Yr 1Q15 Yr/Yr @CC excl. @CC excl. Divested Divested GAAP @CC Businesses GAAP @CC Businesses IBM excluding BRIC countries (11%) (2%) 1% Growth Markets excluding BRIC countries (11%) (2%) 5% (13%) (6%) 1%
Slide 32: Reconciliation of Revenue Growth
Supplemental Materials Non-GAAP Supplemental Materials ReconciliaZon!of!Revenue!Growth!! 2Q15 Yr/Yr @CC excl. Divested GAAP @CC Businesses Americas (8%) (5%) (2%) U.S. (5%) (5%) (3%) Europe/ME/A (17%) (2%) 1% Asia Pacific (19%) (8%) (1%) Japan (13%) 4% 7% Major Markets (11%) (2%) Flat Growth Markets
Slide 33: Reconciliation of Revenue Growth
Supplemental Materials Non-GAAP Supplemental Materials ReconciliaZon!of!Revenue!Growth!! 2Q15 Yr/Yr GAAP @CC GTS Outsourcing (11%) 1% Integrated Technology Services (8%) 1% GBS Outsourcing (9%) Flat Consulting & Systems Integration (13%) (4%) Total Outsourcing (11%) Flat Total Transactional (11%) (2
Slide 34: Reconciliation of Revenue Growth
Supplemental Materials Non-GAAP Supplemental Materials ReconciliaZon!of!Revenue!Growth!! 2Q15 Yr/Yr GAAP @CC WebSphere (2%) 5% Information Management (8%) Flat Tivoli (8%) (1%) Workforce Solutions (12%) (3%) Rational (9%) (2%) Total Middleware (9%) (2%) Other Middleware (19%) (12%) Other Software/Se
Slide 35: Reconciliation of Revenue
Supplemental Materials Non-GAAP Supplemental Materials ReconciliaZon!of!Revenue!!! Trailing 12 months as of June 30, 2015 $ in Billions Excl. Divested GAAP Business Cloud $8.8 $8.7 The above serves to reconcile the Non-GAAP financial information contained in the “2Q and 1H2015 Overview” discussions
Slide 36: www.ibm.com/investor
www.ibm.com/investor 36