International Business Machines Corporation · NYSE:IBM
International Business Machines — Q3 2019 Earnings Presentation
31 slides from International Business Machines's earnings presentation, Oct 16, 2019
Slide 1: IBM 3Q 2019 Earnings
IBM 3Q 2019 Earnings Oct 16, 2019 ibm.com/investor 1
Slide 2: 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 3: Overview 3Q19
3 Overview 3Q19 $18.0B Revenue $2.68 Operating (non-GAAP) EPS $12.3B Free Cash Flow Last 12 Months Strong performance in cloud, data/AI, security and digital − Led by Cloud & Cognitive Software and Global Business Services Momentum in hybrid cloud − Cloud revenue +14% yr/yr @CC*, $20 billion cloud r
Slide 4: Red Hat Update
4 Red Hat Update Completed acquisition of Red Hat on July 9 Red Hat revenue growth accelerated to 20% yr/yr @CC* ● ● Double-digit growth in Infrastructure, led by RHEL Continued strong growth in App Dev & emerging tech, led by OpenShift and Ansible − − Bringing innovation to market, leveraging Linux
Slide 5: Key Financial Metrics
5 Key Financial Metrics Expanded operating gross margin, excluding impact of divested businesses Solid free cash flow performance, with normalized free cash flow realization of 126% over the last 12 months y y Financial results reflect impact of transaction-related adjustments associated with the ac
Slide 6: Debt Update
6 Debt Update Total Debt $73B ●Debt reduction of nearly $7 billion since Red Hat close Global Financing bt ●Suspended share repurchase to focus on debt reduction ●Committed to achieving leverage ratio consistent with mid to high single-A credit rating within a couple of years Core Debt 2Q19 (Pre-Red
Slide 7: Cloud & Cognitive Software Segment
7 Cloud & Cognitive Software Segment Cloud & Data Platforms growth driven by hybrid cloud strategy, including Red Hat Cognitive Applications performance led by integrated security solutions and verticals such as IoT Pre-tax income reflects investments for software innovation and impacts from transac
Slide 8: Global Business Services Segment
8 Global Business Services Segment Revenue growth driven by application modernization for the cloud and next-generation enterprise apps Early progress with Red Hat with over 20 deals signed in 3Q19 Gross margin expansion reflects shift to higher value, leveraging global delivery footprint and produc
Slide 9: Global Technology Services Segment
9 Global Technology Services Segment Revenue and gross margin impacted by in-period client business volumes Signings growth of 20% contributed to sequential improvement in yr/yr backlog growth Cloud signings grew over 60% yr/yr; cloud now represents over 40% of outsourcing backlog y y y Segment Reve
Slide 10: Systems Segment
10 Systems Segment IBM Z revenue performance reflects back end of z14 cycle; new z15 shipments in last week of the quarter Power performance driven by challenging yr/yr compare Margin reflects mix headwinds and investments for portfolio innovation y y y Segment Revenue Elements Segment Results Overv
Slide 11: Cash Flow and Balance Sheet Highlights
11 Cash Flow and Balance Sheet Highlights Free cash flow up $0.5 billion year-to-date; 3Q19 yr/yr impacted by cash tax payments Free cash flow realization 126%* over last 12 months Debt reduction of nearly $7 billion since Red Hat close ● ● ● $ in billions *Adjusted for charges associated with enact
Slide 12: Summary
12 Summary Strong performance in cloud, data/AI, security and digital y Momentum in hybrid cloud across IBM, including Red Hat y Investing to deliver innovation y Strong cash generation and balance sheet y Continue to expect at least $12.80 of operating earnings per share, and approximately $12 bill
Slide 13: ibm.com/investor
13 ibm.com/investor
Slide 14: Supplemental Materials
14 Supplemental Materials Currency – Impact on Revenue Growth ● Additional Revenue Information ● Additional Revenue, Gross Profit & Backlog Information ● Global Technology Services Revenue Dynamics ● Expense Summary ● Balance Sheet Summary ● Cash Flow Summary ● Cash Flow (ASC 230) ● Non-GAAP Supplem
Slide 15: Currency – Impact on Revenue Growth
15 Currency – Impact on Revenue Growth 20 %) % 0% s) Prior View @ 7/16/19 Spot ~(1 pts) 0 pts ~(2 pts) US$B Yr/Yr Revenue As Reported Currency Impact Revenue @ CC $18.0 ($0.2) (3.9%) (1.3 pts) (2.6%) Supplemental Materials Quarterly Averages per US $ 3Q19 Yr/Yr 10/15/2019 Spot 4Q19 FY19 1Q20 FY Euro
Slide 16: Additional Revenue Information
16 Additional Revenue Information B/(W) Yr/Yr* B/(W) Yr/Yr Geography Revenue 3Q19 Segment Revenue 3Q19 Cloud & Cognitive Software Cognitive Applications Cloud & Data Platforms Transaction Processing Platforms Global Business Services Consulting Global Process Services Application Management Global T
Slide 17: Additional Revenue, Gross Profit & Backlog Information
17 Additional Revenue, Gross Profit & Backlog Information B/(W) Yr/Yr B/(W) Yr/Yr Systems Revenue 3Q19 Signings & Backlog* 3Q19 Systems Hardware Revenue IBM Z Power Storage $1.1 (16%) (20%) (27%) (4%) Signings Backlog Backlog Yr/Yr @Actual $9.0 $107.6 15% (2%) (5%) B/(W) Yr/Yr Systems Gross Profit 3
Slide 18: Global Technology Services Revenue Dynamics
18 Global Technology Services Revenue Dynamics 2Q19 2H19 2Q19 3Q19 4Q19 Projected revenue from backlog run-out as of Jul 1 ~(3%) Yr/Yr Projected revenue from backlog run-out as of Jul 1 (1-2%) Yr/Yr 3Q19 Infrastructure Services Revenue Dynamics Revenue impacted by lower in-period client business vol
Slide 19: Balance Sheet Summary
20 Balance Sheet Summary $ in billions *includes eliminations of inter-company activity Supplemental Materials Sep 19 Dec 18 Sep 18 Cash & Marketable Securities $11.0 Core (non-GF) Assets* $113.3 Global Financing Assets$25.4 Total Assets$149.6 Other Liabilities $65.2 Core (non-GF) Debt* $43.2 Global
Slide 20: Cash Flow Summary
21 Cash Flow Summary $ in billions Supplemental Materials QTDB/(W) 3Q19Yr/Yr YTDB/(W) 3Q19 Yr/Yr Net Cash from Operations $3.6 ($0.6) Less: Global Financing Receivables $1.1 $0.0 Net Cash from Operations (excluding GF Receivables)$2.5 ($0.7) Net Capital Expenditures ($0.7) $0.3 Free Cash Flow (exclu
Slide 21: Cash Flow (ASC 230)
22 Cash Flow (ASC 230) QTD 3Q19 QTD 3Q18 YTD 3Q19 YTD 3Q18 Net Income from Operations Depreciation / Amortization of Intangibles Stock-based Compensation Working Capital / Other Global Financing A/R Net Cash provided by Operating Activities Capital Expenditures, net of payments & proceeds Divestitur
Slide 22: Reconciliation of Operating Earnings Per Share
23 Non-GAAP Supplemental Materials Reconciliation of Operating Earnings Per Share 2019 Full-Year Expectations GAAP Diluted EPS Operating EPS (Non-GAAP) at least $10.58 at least $12.80 Adjustments Acquisition-Related Charges* Non-Operating Retirement-Related Items Tax Reform Enactment Impacts $1.52 $
Slide 23: Reconciliation of Revenue Performance - 3Q 2019
24 Non-GAAP Supplemental Materials Reconciliation of Revenue Performance - 3Q 2019 3Q19 Yr/Yr 3Q19 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 Global
Slide 24: Reconciliation of Revenue Performance - 3Q 2019
25 Non-GAAP Supplemental Materials Reconciliation of Revenue Performance - 3Q 2019 3Q19 Yr/Yr Divest impact Currency impact Adjusted GAAP Americas Europe/ME/Africa Asia Pacific (4%) (6%) (1%) 3 pts 2 pts 1 pts 0 pts 4 pts (1 pts) (1%) Flat (1%) 3Q19 Yr/Yr Divest impact Currency impact GAAP Adjusted
Slide 25: Reconciliation of Revenue Performance - 3Q 2019
26 Non-GAAP Supplemental Materials Reconciliation of Revenue Performance - 3Q 2019 3Q19 Yr/Yr GAAP Divest impact Currency impact Adjusted Revenue (3.9%) 2.0 pts 1.3 pts (0.6%) The above reconciles the Non-GAAP financial information contained in the “Key Financial Metrics”, and “3Q19 Prepared Remarks
Slide 26: Reconciliation of Revenue for Red Hat, Normalized
27 Non-GAAP Supplemental Materials Reconciliation of Revenue for Red Hat, Normalized - 3Q 2019 Three Months Ended Revenue for Red Hat, Normalized for Historical Comparability Sep 30 2019 Sep 30 2018 Yr/Yr Yr/Yr@CC Red Hat revenue as reported in IBM consolidated results (1) $371 $ - Add: Red Hat reve
Slide 27: Reconciliation of Expense Summary - 3Q 2019
28 Non-GAAP Supplemental Materials Reconciliation of Expense Summary - 3Q 2019 3Q19 Non-GAAP Adjustments Operating (Non-GAAP) GAAP SG&A Currency Acquisitions/Divestitures Base* RD&E Currency Acquisitions/Divestitures Base* Operating Expense & Other Income Currency Acquisitions/Divestitures Base* 2 p
Slide 28: Reconciliation of Free Cash Flow - Last 12 Months
29 Non-GAAP Supplemental Materials Reconciliation of Free Cash Flow - Last 12 Months 12 Months Ended Sep 2019 Net Cash from Operating Activities per GAAP: $15.4 Less: change in Global Financing (GF) Receivables $0.5 Net Cash from Operating Activities (Excluding GF Receivables) $14.9 Capital Expendit
Slide 29: Reconciliation of Free Cash Flow Realization - Last 12 Months
30 Non-GAAP Supplemental Materials Reconciliation of Free Cash Flow Realization - Last 12 Months LTM Excluding Tax Reform* LTM Free Cash Flow Realization 160% 126% The above reconciles the Non-GAAP financial information contained in the “Key Financial Metrics”, “Cash Flow and Balance Sheet Highlight
Slide 30: Reconciliation of Tax Rate
31 Non-GAAP Supplemental Reconciliation of Tax Rate Materials Tax Rate Expectation GAAP Non-GAAP Full Year 2019* 8-9% 9-10% *includes estimate of discrete tax events for the year; actual events will be recorded as they occur The above reconciles the Non-GAAP financial information contained in the “3
Slide 31: ibm.com/investor
32 ibm.com/investor
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