UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report: April 16, 2019
(Date of earliest event reported)
INTERNATIONAL BUSINESS MACHINES
CORPORATION
(Exact name of registrant as specified in its charter)
New York |
|
1-2360 |
|
13-0871985 |
(State of Incorporation) |
|
(Commission File Number) |
|
(IRS employer Identification No.) |
ARMONK, NEW YORK |
|
10504 |
(Address of principal executive offices) |
|
(Zip Code) |
914-499-1900
(Registrants telephone number)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Item 2.02. Results of Operations and Financial Condition.
The registrants press release dated April 16, 2019, regarding its financial results for the periods ended March 31, 2019, including consolidated financial statements for the periods ended March 31, 2019, is Exhibit 99.1 of this Form 8-K.
In an effort to provide investors with additional information regarding the companys results as determined by generally accepted accounting principles (GAAP), the company has disclosed in the attached press release certain non-GAAP information which management believes provides useful information to investors. Reconciliations of these non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP are included in the press release, which is Exhibit 99.1 to this Form 8-K. The rationale for managements use of non-GAAP measures is included in Exhibit 99.2 to this Form 8-K.
The information in this Item 2.02, including the corresponding Exhibits 99.1 and 99.2, is hereby filed.
Item 7.01. Regulation FD Disclosure.
The slides for IBMs Chief Financial Officer Jim Kavanaughs first-quarter 2019 earnings presentation on April 16, 2019 are Exhibit 99.3 to this Form 8-K.
The information in this Item 7.01, including the corresponding Exhibit 99.3, is being furnished with the Commission and shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits
The following exhibits are being filed as part of this report:
Exhibit No. |
|
Description of Exhibit |
99.1 |
|
|
99.2 |
|
The following exhibit is being furnished as part of this report:
Exhibit No. |
|
Description of Exhibit |
99.3 |
|
Earnings Presentation of the Registrant, dated April 16, 2019 |
IBMs web site (www.ibm.com) contains a significant amount of information about IBM, including financial and other information for investors (www.ibm.com/investor/). IBM encourages investors to visit its various web sites from time to time, as information is updated and new information is posted.
IBM REPORTS 2019 FIRST-QUARTER RESULTS
Acceleration in Cloud Revenue Growth; Continued Margin Expansion
Highlights
First Quarter:
· GAAP EPS from continuing operations of $1.78
· Operating (non-GAAP) EPS of $2.25
· Revenue of $18.2 billion, down 4.7 percent (down 0.9 percent adjusting for currency)
· Cloud revenue growth accelerated in the quarter; now $19.5 billion over the last 12 months, up 10 percent (up 12 percent adjusting for currency)
· As-a-service annual exit run rate for cloud revenue of $11.7 billion, up 10 percent year to year (up 15 percent adjusting for currency)
· Gross profit margin: GAAP, up 100 basis points; Operating (non-GAAP), up 90 basis points
GBS gross profit margin up 280 basis points; GTS up 110 basis points
· Pre-tax income margin: GAAP, up 440 basis points; Operating (non-GAAP), up 320 basis points
· Maintains full-year EPS and free cash flow expectations
ARMONK, N.Y., April 16, 2019 . . . IBM (NYSE: IBM) today announced first-quarter results.
In the first quarter, our cloud revenue growth accelerated, and we again grew in key, high-value areas in Cloud and Cognitive Software and in consulting, said Ginni Rometty, IBM chairman, president and chief executive officer. IBMs investments in innovative technologies coupled with our industry expertise and our commitment to trust and security position us well to help clients move to chapter two of their digital reinvention.
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FIRST QUARTER 2019 |
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|||||||||||
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Pre-tax |
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Gross |
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|||
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Diluted |
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Net |
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Pre-tax |
|
Income |
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Profit |
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|||
|
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EPS |
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Income |
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Income |
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Margin |
|
Margin |
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|||
GAAP from Continuing Operations |
|
$ |
1.78 |
|
$ |
1.6B |
|
$ |
1.9B |
|
10.4 |
% |
44.2 |
% |
Year/Year |
|
-2 |
% |
-5 |
% |
66 |
% |
4.4 |
Pts |
1.0 |
Pts |
|||
|
|
|
|
|
|
|
|
|
|
|
|
|||
Operating (Non-GAAP) |
|
$ |
2.25 |
|
$ |
2.0B |
|
$ |
2.2B |
|
12.3 |
% |
44.7 |
% |
Year/Year |
|
-8 |
% |
-12 |
% |
28 |
% |
3.2 |
Pts |
0.9 |
Pts |
Our results reflect the fundamental changes we have made to our business, allowing us to generate greater operating leverage. In the first quarter, we significantly expanded profit margins, led by our services businesses, said James Kavanaugh, IBM senior vice president and chief financial officer. Our focus on prioritizing our investments in the emerging high-value segments of our industry has enabled us to drive higher profitability and strong cash generation.
Cash Flow and Balance Sheet
In the first quarter, the company generated net cash from operating activities of $4.8 billion, or $2.3 billion, excluding Global Financing receivables. IBMs free cash flow was $1.7 billion. IBM returned $2.3 billion to shareholders through $1.4 billion in dividends and $0.9 billion in gross share repurchases. At the end of March 2019, IBM had $2.4 billion remaining in the current share repurchase authorization.
IBM ended the first quarter with $18.1 billion of cash on hand. Debt totaled $50.0 billion, including Global Financing debt of $29.5 billion. The balance sheet remains strong and is well positioned for the long term.
Segment Results for First Quarter
· Cloud & Cognitive Software (includes cloud and data platforms, cognitive applications and transaction processing platforms) revenues of $5.0 billion, down 2 percent (up 2 percent adjusting for currency), led by cognitive applications, up 2 percent (up 4 percent adjusting for currency), and by cloud and data platforms, down 2 percent (up 2 percent adjusting for currency).
· Global Business Services ( includes consulting, application management and global process services) revenues of $4.1 billion, flat year to year (up 4 percent adjusting for currency), with growth in consulting and global process services. Gross profit margin increased 280 basis points.
· Global Technology Services ( includes infrastructure and cloud services and technology support services) revenues of $6.9 billion, down 7 percent (down 3 percent adjusting for currency), with growth in hybrid cloud revenue. Gross profit margin increased 110 basis points.
· Systems ( includes systems hardware and operating systems software) revenues of $1.3 billion, down 11 percent (down 9 percent adjusting for currency), with growth in Power, offset by the impact of the IBM Z product cycle dynamics and weakness in Storage.
· Global Financing (includes financing and used equipment sales) revenues of $406 million, flat year to year (up 4 percent adjusting for currency).
Full-Year 2019 Expectations
The company continues to expect GAAP diluted earnings per share of at least $12.45, and operating (non-GAAP) diluted earnings per share of at least $13.90. Operating (non-GAAP) diluted earnings per share exclude $1.45 per share of charges for: amortization of purchased intangible assets and other acquisition-related charges, including pre-closing charges, such as financing costs, associated with the Red Hat acquisition; retirement-related charges; and tax reform enactment impacts.
IBM continues to expect free cash flow of approximately $12 billion, with a realization rate of approximately 100 percent of GAAP Net Income.
Forward-Looking and Cautionary Statements
Except for the historical information and discussions contained herein, statements contained in this release may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on the companys current assumptions regarding future business and financial performance. These statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially, including the following: a downturn in economic environment and client spending budgets; the companys failure to meet growth and productivity objectives; a failure of the companys innovation initiatives; damage to the companys reputation; risks from investing in growth opportunities; failure of the companys intellectual property portfolio to prevent competitive offerings and the failure of the company to obtain necessary licenses; cybersecurity and data privacy considerations; fluctuations in financial results, impact of local legal, economic, political and health conditions; adverse effects from environmental matters, tax matters and the companys pension plans; ineffective internal controls; the companys use of accounting estimates; the companys ability to attract and retain key employees and its reliance on critical skills; impacts of relationships with critical suppliers; product quality issues; impacts of business with government clients; currency fluctuations and customer financing risks; impact of changes in market liquidity conditions and customer credit risk on receivables; reliance on third party distribution channels and ecosystems; the companys ability to successfully manage acquisitions, alliances and dispositions, including integration challenges, failure to achieve objectives, the assumption of liabilities, and higher debt levels; legal proceedings and investigatory risks; risk factors related to IBM securities; and other risks, uncertainties and factors discussed in the companys Form 10-Qs, Form 10-K and in the companys other filings with the U.S. Securities and Exchange Commission (SEC) or in materials incorporated therein by reference. Any forward-looking statement in this release speaks only as of the date on which it is made. The company assumes no obligation to update or revise any forward-looking statements.
Presentation of Information in this Press Release
In an effort to provide investors with additional information regarding the companys results as determined by generally accepted accounting principles (GAAP), the company has also disclosed in this press release the following non-GAAP information, which management believes provides useful information to investors:
IBM results
· presenting operating (non-GAAP) earnings per share amounts and related income statement items;
· adjusting for free cash flow;
· adjusting for currency (i.e., at constant currency).
Free cash flow guidance is derived using an estimate of profit, working capital and operational cash outflows. The company views Global Financing receivables as a profit-generating investment, which it seeks to maximize and therefore it is not considered when formulating guidance for free cash flow. As a result, the company does not estimate a GAAP Net Cash from Operations expectation metric.
The rationale for managements use of these non-GAAP measures is included in Exhibit 99.2 in the Form 8-K that includes this press release and is being submitted today to the SEC.
Conference Call and Webcast
IBMs regular quarterly earnings conference call is scheduled to begin at 5:00 p.m. EDT, today. The Webcast may be accessed via a link at http://www.ibm.com/investor/events/earnings/1q19.html. Presentation charts will be available shortly before the Webcast.
Financial Results Below (certain amounts may not add due to use of rounded numbers; percentages presented are calculated from the underlying whole-dollar amounts).
Contact: |
IBM |
|
Melinda Zurich, 914-499-4034 |
|
melinda.zurich@us.ibm.com |
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John Bukovinsky, 732-618-3531 |
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jbuko@us.ibm.com |
INTERNATIONAL BUSINESS MACHINES CORPORATION
COMPARATIVE FINANCIAL RESULTS
(Unaudited; Dollars in millions except per share amounts)
|
|
Three Months Ended |
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||||
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March 31, |
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||||
|
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2019 |
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2018 |
|
||
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|
|
|
|
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||
REVENUE |
|
|
|
|
|
||
Cloud & Cognitive Software |
|
$ |
5,037 |
|
$ |
5,116 |
* |
Global Business Services |
|
4,119 |
|
4,115 |
* |
||
Global Technology Services |
|
6,875 |
|
7,421 |
* |
||
Systems |
|
1,328 |
|
1,500 |
|
||
Global Financing |
|
406 |
|
405 |
|
||
Other |
|
417 |
|
515 |
* |
||
TOTAL REVENUE |
|
18,182 |
|
19,072 |
|
||
|
|
|
|
|
|
||
GROSS PROFIT |
|
8,043 |
|
8,247 |
|
||
|
|
|
|
|
|
||
GROSS PROFIT MARGIN |
|
|
|
|
|
||
Cloud & Cognitive Software |
|
75.1 |
% |
76.3 |
%* |
||
Global Business Services |
|
26.2 |
% |
23.4 |
%* |
||
Global Technology Services |
|
33.7 |
% |
32.6 |
%* |
||
Systems |
|
46.2 |
% |
43.7 |
% |
||
Global Financing |
|
34.9 |
% |
34.4 |
% |
||
|
|
|
|
|
|
||
TOTAL GROSS PROFIT MARGIN |
|
44.2 |
% |
43.2 |
% |
||
|
|
|
|
|
|
||
EXPENSE AND OTHER INCOME |
|
|
|
|
|
||
S,G&A |
|
4,691 |
|
5,445 |
|
||
R,D&E |
|
1,433 |
|
1,405 |
|
||
Intellectual property and custom development income |
|
(101 |
) |
(317 |
) |
||
Other (income) and expense |
|
(73 |
) |
413 |
|
||
Interest expense |
|
210 |
|
165 |
|
||
TOTAL EXPENSE AND OTHER INCOME |
|
6,160 |
|
7,111 |
|
||
|
|
|
|
|
|
||
INCOME FROM CONTINUING OPERATIONS |
|
|
|
|
|
||
BEFORE INCOME TAXES |
|
1,883 |
|
1,136 |
|
||
Pre-tax margin |
|
10.4 |
% |
6.0 |
% |
||
Provision for (Benefit from) income taxes |
|
289 |
|
(540 |
) |
||
Effective tax rate |
|
15.4 |
% |
(47.5 |
)% |
||
|
|
|
|
|
|
||
INCOME FROM CONTINUING OPERATIONS |
|
$ |
1,593 |
|
$ |
1,675 |
|
DISCONTINUED OPERATIONS |
|
|
|
|
|
||
Income/(Loss) from discontinued operations, net of taxes |
|
(2 |
) |
4 |
|
||
|
|
|
|
|
|
||
NET INCOME |
|
$ |
1,591 |
|
$ |
1,679 |
|
|
|
|
|
|
|
||
EARNINGS / (LOSS) PER SHARE OF COMMON STOCK |
|
|
|
|
|
||
Assuming Dilution |
|
|
|
|
|
||
Continuing Operations |
|
$ |
1.78 |
|
$ |
1.81 |
|
Discontinued Operations |
|
$ |
0.00 |
|
$ |
0.00 |
|
TOTAL |
|
$ |
1.78 |
|
$ |
1.81 |
|
|
|
|
|
|
|
||
Basic |
|
|
|
|
|
||
Continuing Operations |
|
$ |
1.79 |
|
$ |
1.82 |
|
Discontinued Operations |
|
$ |
0.00 |
|
$ |
0.00 |
|
TOTAL |
|
$ |
1.79 |
|
$ |
1.82 |
|
|
|
|
|
|
|
||
WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (Ms) |
|
|
|
|
|
||
Assuming Dilution |
|
893.9 |
|
925.4 |
|
||
Basic |
|
889.6 |
|
920.7 |
|
* Recast to conform with 2019 presentation.
INTERNATIONAL BUSINESS MACHINES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
|
|
At |
|
At |
|
||
|
|
March 31, |
|
December 31, |
|
||
(Dollars in Millions) |
|
2019 |
|
2018 |
|
||
ASSETS: |
|
|
|
|
|
||
|
|
|
|
|
|
||
Current Assets: |
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
17,134 |
|
$ |
11,379 |
|
Restricted cash |
|
137 |
|
225 |
|
||
Marketable securities |
|
872 |
|
618 |
|
||
Notes and accounts receivable - trade, net |
|
6,987 |
|
7,432 |
|
||
Short-term financing receivables, net |
|
20,287 |
|
22,388 |
|
||
Other accounts receivable, net |
|
671 |
|
743 |
|
||
Inventory |
|
1,771 |
|
1,682 |
|
||
Deferred Costs |
|
2,368 |
|
2,300 |
|
||
Prepaid expenses and other current assets |
|
2,478 |
|
2,378 |
|
||
Total Current Assets |
|
52,705 |
|
49,146 |
|
||
|
|
|
|
|
|
||
Property, plant and equipment, net |
|
10,675 |
|
10,792 |
|
||
Operating right-of-use assets, net * |
|
4,634 |
|
|
|
||
Long-term financing receivables, net |
|
8,361 |
|
9,148 |
|
||
Prepaid pension assets |
|
4,966 |
|
4,666 |
|
||
Deferred costs |
|
2,663 |
|
2,676 |
|
||
Deferred taxes |
|
5,284 |
|
5,216 |
|
||
Goodwill and intangibles, net |
|
39,237 |
|
39,353 |
|
||
Investments and sundry assets |
|
2,403 |
|
2,386 |
|
||
Total Assets |
|
$ |
130,926 |
|
$ |
123,382 |
|
|
|
|
|
|
|
||
LIABILITIES: |
|
|
|
|
|
||
|
|
|
|
|
|
||
Current Liabilities: |
|
|
|
|
|
||
Taxes |
|
$ |
2,484 |
|
$ |
3,046 |
|
Short-term debt |
|
10,250 |
|
10,207 |
|
||
Accounts payable |
|
5,711 |
|
6,558 |
|
||
Deferred income |
|
12,134 |
|
11,165 |
|
||
Operating lease liabilities * |
|
1,313 |
|
|
|
||
Other liabilities |
|
6,979 |
|
7,251 |
|
||
Total Current Liabilities |
|
38,871 |
|
38,227 |
|
||
|
|
|
|
|
|
||
Long-term debt |
|
39,727 |
|
35,605 |
|
||
Retirement related obligations |
|
16,467 |
|
17,002 |
|
||
Deferred income |
|
3,481 |
|
3,445 |
|
||
Operating lease liabilities * |
|
3,590 |
|
|
|
||
Other liabilities |
|
12,184 |
|
12,174 |
|
||
Total Liabilities |
|
114,320 |
|
106,452 |
|
||
|
|
|
|
|
|
||
EQUITY: |
|
|
|
|
|
||
|
|
|
|
|
|
||
IBM Stockholders Equity: |
|
|
|
|
|
||
Common stock |
|
55,287 |
|
55,151 |
|
||
Retained earnings |
|
159,396 |
|
159,206 |
|
||
Treasury stock at cost |
|
(169,021 |
) |
(168,071 |
) |
||
Accumulated other comprehensive income/(loss) |
|
(29,182 |
) |
(29,490 |
) |
||
Total IBM Stockholders Equity |
|
16,481 |
|
16,796 |
|
||
|
|
|
|
|
|
||
Noncontrolling interests |
|
126 |
|
134 |
|
||
Total Equity |
|
16,607 |
|
16,929 |
|
||
|
|
|
|
|
|
||
Total Liabilities and Equity |
|
$ |
130,926 |
|
$ |
123,382 |
|
* Reflects the adoption of the FASB guidance on leases.
INTERNATIONAL BUSINESS MACHINES CORPORATION
CASH FLOW ANALYSIS
(Unaudited)
|
|
Three Months Ended |
|
||||
|
|
March 31, |
|
||||
(Dollars in Millions) |
|
2019 |
|
2018 |
|
||
|
|
|
|
|
|
||
Net Cash Provided by Operating Activities per GAAP: |
|
$ |
4,759 |
|
$ |
4,602 |
|
|
|
|
|
|
|
||
Less: change in Global Financing (GF) Receivables |
|
2,458 |
|
2,360 |
|
||
Capital Expenditures, Net |
|
(614 |
) |
(893 |
) |
||
|
|
|
|
|
|
||
Free Cash Flow |
|
1,688 |
|
1,349 |
|
||
|
|
|
|
|
|
||
Acquisitions |
|
(1 |
) |
(71 |
) |
||
Divestitures |
|
33 |
|
|
|
||
Dividends |
|
(1,397 |
) |
(1,382 |
) |
||
Share Repurchase |
|
(920 |
) |
(777 |
) |
||
Non-GF Debt |
|
5,890 |
|
(547 |
) |
||
Other (includes GF Net Receivables and GF Debt) |
|
629 |
|
1,741 |
|
||
|
|
|
|
|
|
||
Change in Cash, Cash Equivalents, Restricted Cash and Short-term Marketable Securities |
|
$ |
5,922 |
|
$ |
313 |
|
INTERNATIONAL BUSINESS MACHINES CORPORATION
CASH FLOW
(Unaudited)
|
|
Three Months Ended |
|
||||
|
|
March 31, |
|
||||
(Dollars in Millions) |
|
2019 |
|
2018 |
|
||
|
|
|
|
|
|
||
Net Income from Operations |
|
$ |
1,591 |
|
$ |
1,679 |
|
Depreciation/Amortization of Intangibles |
|
1,446 |
|
1,114 |
|
||
Stock-based Compensation |
|
113 |
|
116 |
|
||
Working Capital / Other |
|
(848 |
) |
(668 |
) |
||
Global Financing A/R |
|
2,458 |
|
2,360 |
|
||
Net Cash Provided by Operating Activities |
|
$ |
4,759 |
|
$ |
4,602 |
|
Capital Expenditures, net of payments & proceeds |
|
(614 |
) |
(893 |
) |
||
Divestitures, net of cash transferred |
|
33 |
|
|
|
||
Acquisitions, net of cash acquired |
|
(1 |
) |
(71 |
) |
||
Marketable Securities / Other Investments, net |
|
(271 |
) |
(800 |
) |
||
Net Cash Used in Investing Activities |
|
$ |
(853 |
) |
$ |
(1,764 |
) |
Debt, net of payments & proceeds |
|
4,232 |
|
(713 |
) |
||
Dividends |
|
(1,397 |
) |
(1,382 |
) |
||
Common Stock Repurchases |
|
(920 |
) |
(777 |
) |
||
Common Stock Transactions - Other |
|
(51 |
) |
(37 |
) |
||
Net Cash (Used in) / Provided by Financing Activities |
|
$ |
1,863 |
|
$ |
(2,909 |
) |
Effect of Exchange Rate changes on Cash |
|
(102 |
) |
100 |
|
||
Net Change in Cash, Cash Equivalents and Restricted Cash |
|
$ |
5,668 |
|
$ |
28 |
|
INTERNATIONAL BUSINESS MACHINES CORPORATION
SEGMENT DATA
(Unaudited)
|
|
FIRST - QUARTER 2019 |
|
|||||||||||||
|
|
Cloud & |
|
Global |
|
Global |
|
|
|
|
|
|||||
|
|
Cognitive |
|
Business |
|
Technology |
|
|
|
Global |
|
|||||
(Dollars in Millions) |
|
Software |
|
Services |
|
Services |
|
Systems |
|
Financing |
|
|||||
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|||||
External |
|
$ |
5,037 |
|
$ |
4,119 |
|
$ |
6,875 |
|
$ |
1,328 |
|
$ |
406 |
|
Internal |
|
841 |
|
74 |
|
290 |
|
163 |
|
300 |
|
|||||
Total Segment Revenue |
|
$ |
5,879 |
|
$ |
4,193 |
|
$ |
7,164 |
|
$ |
1,491 |
|
$ |
706 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Pre-tax Income (Loss) from Continuing Operations |
|
1,767 |
|
315 |
|
275 |
|
(202 |
) |
288 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Pre-tax margin |
|
30.1 |
% |
7.5 |
% |
3.8 |
% |
(13.5 |
)% |
40.8 |
% |
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Change YTY Revenue - External |
|
(1.5 |
)% |
0.1 |
% |
(7.4 |
)% |
(11.4 |
)% |
0.2 |
% |
|||||
Change YTY Revenue - External @constant currency |
|
1.5 |
% |
4.3 |
% |
(3.0 |
)% |
(8.8 |
)% |
3.9 |
% |
|
|
FIRST - QUARTER 2018 |
|
|||||||||||||
|
|
Cloud & |
|
Global |
|
Global |
|
|
|
|
|
|||||
|
|
Cognitive |
|
Business |
|
Technology |
|
|
|
Global |
|
|||||
(Dollars in Millions) |
|
Software * |
|
Services * |
|
Services * |
|
Systems |
|
Financing |
|
|||||
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|||||
External |
|
$ |
5,116 |
|
$ |
4,115 |
|
$ |
7,421 |
|
$ |
1,500 |
|
$ |
405 |
|
Internal |
|
931 |
|
89 |
|
141 |
|
153 |
|
429 |
|
|||||
Total Segment Revenue |
|
$ |
6,047 |
|
$ |
4,204 |
|
$ |
7,562 |
|
$ |
1,653 |
|
$ |
834 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Pre-tax Income (Loss) from Continuing Operations |
|
1,680 |
|
125 |
|
66 |
|
(203 |
) |
377 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Pre-tax margin |
|
27.8 |
% |
3.0 |
% |
0.9 |
% |
(12.3 |
)% |
45.1 |
% |
* Recast to conform with 2019 presentation.
INTERNATIONAL BUSINESS MACHINES CORPORATION
U.S. GAAP TO OPERATING (Non-GAAP) RESULTS RECONCILIATION
(Unaudited; Dollars in millions except per share amounts)
|
|
FIRST - QUARTER 2019 |
|
|||||||||||||
|
|
CONTINUING OPERATIONS |
|
|||||||||||||
|
|
|
|
Acquisition- |
|
Retirement- |
|
Tax |
|
|
|
|||||
|
|
|
|
Related |
|
Related |
|
Reform |
|
Operating |
|
|||||
|
|
GAAP |
|
Adjustments* |
|
Adjustments** |
|
Impacts |
|
(Non-GAAP) |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Gross Profit |
|
$ |
8,043 |
|
$ |
76 |
|
|
|
|
|
$ |
8,119 |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Gross Profit Margin |
|
44.2 |
% |
0.4 |
Pts |
|
|
|
|
44.7 |
% |
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
S,G&A |
|
4,691 |
|
(124 |
) |
|
|
|
|
4,566 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
R,D&E |
|
1,433 |
|
|
|
|
|
|
|
1,433 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Other (Income) & Expense |
|
(73 |
) |
23 |
|
(138 |
) |
|
|
(187 |
) |
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Interest Expense |
|
210 |
|
(36 |
) |
|
|
|
|
174 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Total Expense & Other (Income) |
|
6,160 |
|
(137 |
) |
(138 |
) |
|
|
5,886 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Pre-tax Income from Continuing Operations |
|
1,883 |
|
212 |
|
138 |
|
|
|
2,233 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Pre-tax Income Margin from Continuing Operations |
|
10.4 |
% |
1.2 |
Pts |
0.8 |
Pts |
|
|
12.3 |
% |
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Provision for Income Taxes*** |
|
289 |
|
49 |
|
26 |
|
(141 |
) |
224 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Effective Tax Rate |
|
15.4 |
% |
0.7 |
Pts |
0.2 |
Pts |
(6.3 |
)Pts |
10.0 |
% |
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Income from Continuing Operations |
|
1,593 |
|
164 |
|
111 |
|
141 |
|
2,009 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Income Margin from Continuing Operations |
|
8.8 |
% |
0.9 |
Pts |
0.6 |
Pts |
0.8 |
Pts |
11.0 |
% |
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Diluted Earnings / (Loss) Per Share: Continuing Operations |
|
$ |
1.78 |
|
$ |
0.18 |
|
$ |
0.13 |
|
$ |
0.16 |
|
$ |
2.25 |
|
|
|
FIRST - QUARTER 2018 |
|
|||||||||||||
|
|
CONTINUING OPERATIONS |
|
|||||||||||||
|
|
|
|
Acquisition- |
|
Retirement- |
|
Tax |
|
|
|
|||||
|
|
|
|
Related |
|
Related |
|
Reform |
|
Operating |
|
|||||
|
|
GAAP |
|
Adjustments* |
|
Adjustments ** |
|
Impacts |
|
(Non-GAAP) |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Gross Profit |
|
$ |
8,247 |
|
$ |
93 |
|
|
|
|
|
$ |
8,340 |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Gross Profit Margin |
|
43.2 |
% |
0.5 |
Pts |
|
|
|
|
43.7 |
% |
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
S,G&A |
|
5,445 |
|
(110 |
) |
|
|
|
|
5,335 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
R,D&E |
|
1,405 |
|
|
|
|
|
|
|
1,405 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Other (Income) & Expense |
|
413 |
|
|
|
(402 |
) |
|
|
11 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Interest Expense |
|
165 |
|
|
|
|
|
|
|
165 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Total Expense & Other (Income) |
|
7,111 |
|
(110 |
) |
(402 |
) |
|
|
6,600 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Pre-tax Income from Continuing Operations |
|
1,136 |
|
203 |
|
402 |
|
|
|
1,740 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Pre-tax Income Margin from Continuing Operations |
|
6.0 |
% |
1.1 |
Pts |
2.1 |
Pts |
|
|
9.1 |
% |
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Provision for (Benefit from) Income Taxes*** |
|
(540 |
) |
39 |
|
76 |
|
(107 |
) |
(532 |
) |
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Effective Tax Rate |
|
(47.5 |
)% |
7.8 |
Pts |
15.4 |
Pts |
(6.1 |
)Pts |
(30.5 |
)% |
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Income from Continuing Operations |
|
1,675 |
|
164 |
|
325 |
|
107 |
|
2,272 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Income Margin from Continuing Operations |
|
8.8 |
% |
0.9 |
Pts |
1.7 |
Pts |
0.6 |
Pts |
11.9 |
% |
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Diluted Earnings / (Loss) Per Share: Continuing Operations |
|
$ |
1.81 |
|
$ |
0.17 |
|
$ |
0.35 |
|
$ |
0.12 |
|
$ |
2.45 |
|
* |
Includes amortization of purchased intangible assets, in process R&D, transaction costs, applicable restructuring and related expenses, tax charges related to acquisition integration and pre-closing charges, such as financing costs. |
** |
Includes amortization of prior service costs, interest cost, expected return on plan assets, amortized actuarial gains/losses, the impacts of any plan curtailments/settlements and pension insolvency costs and other costs. |
*** |
Tax impact on operating (non-GAAP) pre-tax income from continuing operations is calculated under the same accounting principles applied to the As Reported pre-tax income under ASC 740, which employs an annual effective tax rate method to the results. |
INTERNATIONAL BUSINESS MACHINES CORPORATION
RECONCILIATION OF OPERATING EARNINGS PER SHARE
(Unaudited)
|
|
2019 |
|
||
EPS Guidance |
|
Expectations |
|
||
|
|
|
|
||
GAAP Diluted EPS |
|
at least $12.45 |
|
||
|
|
|
|
||
Operating EPS (non-GAAP) |
|
at least $13.90 |
|
||
|
|
|
|
||
Adjustments |
|
|
|
||
|
|
|
|
||
Acquisition-related Charges * |
|
$ |
|
0.76 |
|
|
|
|
|
||
Non-Operating Retirement-Related Items |
|
$ |
|
0.45 |
|
|
|
|
|
||
Tax Reform Enactment Impacts |
|
$ |
|
0.24 |
|
* Includes acquisitions as of March 31, 2019, and pre-closing charges, such as financing costs, associated with the Red Hat acquisition
Non-GAAP Financial Information
Operating (non-GAAP) Earnings Per Share and Related Income Statement Items
In an effort to provide better transparency into the operational results of the business, the company separates business results into operating and non-operating categories. Operating earnings from continuing operations is a non-GAAP measure that excludes the effects of certain acquisition-related charges, intangible asset amortization expense resulting from basis differences on equity method investments, retirement-related costs and discontinued operations and their related tax impacts. Due to the unique, non-recurring nature of the enactment of the U.S. Tax Cuts and Jobs Act (U.S. tax reform), the company characterizes the one-time provisional charge recorded in the fourth quarter of 2017 and adjustments to that charge as non-operating. Adjustments include true-ups, accounting elections, any changes to regulations, laws, audit adjustments, etc. that affect the recorded one-time charge. For acquisitions, operating (non-GAAP) earnings exclude the amortization of purchased intangible assets and acquisition-related charges such as in-process research and development, transaction costs, applicable restructuring and related expenses, tax charges related to acquisition integration and pre-closing charges, such as financing costs. These charges are excluded as they may be inconsistent in amount and timing from period to period and are dependent on the size, type and frequency of the companys acquisitions. All other spending for acquired companies is included in both earnings from continuing operations and in operating (non-GAAP) earnings. For retirement-related costs, the company characterizes certain items as operating and others as non-operating, consistent with GAAP. The company includes defined benefit plan and nonpension postretirement benefit plan service costs, multi-employer plan costs and the cost of defined contribution plans in operating earnings. Non-operating retirement-related costs include defined benefit plan and nonpension postretirement benefit plan amortization of prior service costs, interest cost, expected return on plan assets, amortized actuarial gains/losses, the impacts of any plan curtailments/settlements and pension insolvency costs and other costs. Non-operating retirement-related costs are primarily related to changes in pension plan assets and liabilities which are tied to financial market performance, and the company considers these costs to be outside of the operational performance of the business.
Overall, the company believes that providing investors with a view of operating earnings as described above provides increased transparency and clarity into both the operational results of the business and the performance of the companys pension plans; improves visibility to management decisions and their impacts on operational performance; enables better comparison to peer companies; and allows the company to provide a long-term strategic view of the business going forward. The companys reportable segment financial results reflect pre-tax operating earnings from continuing operations, consistent with the companys management and measurement system.
Free Cash Flow
The company uses free cash flow as a measure to evaluate its operating results, plan share repurchase levels, strategic investments and assess its ability and need to incur and service debt. The entire free cash flow amount is not necessarily available for discretionary expenditures. The company defines free cash flow as net cash from operating activities less the change in Global Financing receivables and net capital expenditures, including the investment in software. A key objective of the Global Financing business is to generate strong returns on equity, and increasing receivables is the basis for growth. Accordingly, management considers Global Financing receivables as a profit-generating investment, not as working capital that should be minimized for efficiency. Therefore, management includes presentations of both free cash flow and net cash from operating activities that exclude the effect of Global Financing receivables. Free cash flow guidance is derived using an estimate of profit, working capital and operational cash outflows. Since the company views Global Financing receivables as a profit-generating investment which it seeks to maximize, it is not considered when formulating guidance for free cash flow. As a result the company does not estimate a GAAP Net Cash from Operations expectation metric.
Constant Currency
When the company refers to growth rates at constant currency or adjusts such growth rates for currency, it is done so that certain financial results can be viewed without the impact of fluctuations in foreign currency exchange rates, thereby facilitating period-to-period comparisons of its business performance. Financial results adjusted for currency are calculated by translating current period activity in local currency using the comparable prior year periods currency conversion rate. This approach is used for countries where the functional currency is the local currency. Generally, when the dollar either strengthens or weakens against other currencies, the growth at constant currency rates or adjusting for currency will be higher or lower than growth reported at actual exchange rates.
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 companys current assumptions regarding future business and financial performance. Those statements by their nature address matters that are uncertain to different degrees. Those statements involve a number of factors that could cause actual results to differ materially. Additional information concerning these factors is contained in the Companys filings with the SEC. Copies are available from the SEC, from the IBM web site, or from IBM Investor Relations. Any forward-looking statement made during this presentation speaks only as of the date on which it is made. The company assumes no obligation to update or revise any forward-looking statements. These charts and the associated remarks and comments are integrally related, and are intended to be presented and understood together. In an effort to provide additional and useful information regarding the companys financial results and other financial information as determined by generally accepted accounting principles (GAAP), the company also discusses, in its earnings press release and earnings presentation materials, certain non-GAAP information including operating earnings and other operating financial measures. The rationale for managements use of this non-GAAP information is included as Exhibit 99.2 to the companys Form 8-K submitted to the SEC on April 16, 2019. The reconciliation of non-GAAP information to GAAP is included on the slides entitled Non-GAAP Supplemental Materials in this presentation, as well as in Exhibit 99.1 to the companys Form 8-K submitted to the SEC on April 16, 2019. For other related information please visit the Companys investor relations web site at: http://www.ibm.com/investor/events/earnings/1q19.html
Overview 3 1Q19 $18.2B Revenue $2.25 Operating EPS $12.2B Free Cash Flow Last 12 Months Revenue growth in key high-value areas - Continued strong performance in Cloud & Cognitive Software and Global Business Services - Accelerating growth in cloud revenue, up 12% @cc, with 15% @cc growth in as-a-Service Strong margin performance and operating leverage - Gross margin expansion led by services, up 160 basis points - Continued actions to optimize portfolio Positioned to lead in the next chapter of cloud Maintaining full-year expectations for earnings per share and free cash flow y y y y
Operating Earnings per Share Drivers 4 Solid operating leverage and margin expansion EPS yr/yr performance reflects headwind from 32 cent benefit in 1Q18 earnings per share* 0.55 (0.73) 2.45 2.25 (0.10) 0.08 1Q18 Revenue @Actual Pre-Tax Margin Tax Shares 1Q19 *1Q18 results included tax benefit, mitigated by pre-tax workforce rebalancing charges Operating Leverage
Key Financial Metrics Gross and pre-tax margin expansion, led by services Expense E/R reflects ongoing productivity and lower level of workforce actions, mitigated by lower IP income Net income and operating earnings per share reflect significant tax headwind Solid free cash flow performance supports investment and shareholder returns 5 y y y y B/(W) Yr/Yr B/(W) Yr/Yr P&L Highlights 1Q19 P&L Ratios - Operating 1Q19 Revenue Cloud & Cognitive Software Global Business Services Global Technology Services Systems Pre-Tax Income - Operating Net Income - Operating Earnings Per Share - Operating $18.2 $5.0 $4.1 $6.9 $1.3 $2.2 $2.0 $2.25 (1%) 2% 4% (3%) (9%) 28% (12%) (8%) Gross Profit Margin Expense E/R Pre-Tax Income Margin Tax Rate Net Income Margin 44.7% 32.4% 12.3% 10.0% 11.0% 0.9 pts 2.2 pts 3.2 pts (40.6 pts) (0.9 pts) Cash Highlights LTM Free Cash Flow (excl. GF Receivables) Share Repurchase (Gross) Dividends Cash Balance @ March 31 $1.7 $0.9 $1.4 $18.1 $12.2 $4.6 $5.7 Revenue growth rates @CC, $ in billions
2019 Segment Structure 6 Cloud & Cognitive Software established to address clients evolving needs and prepare for the acquisition of Red Hat Other now includes announced divested businesses; provides better visibility to ongoing operational performance Reflects management system changes; better aligns portfolio to underlying business models y y y Cloud & Cognitive Software Global Business Services Cloud & Data Platforms Cognitive Applications Transaction Processing Platforms Consulting Application Management Global Process Services Systems Systems Hardware Operating Systems Software Global Technology Services Infrastructure & Cloud Services Technology Support Services Global Financi g Other
Cloud & Cognitive Software Segment Cloud & Data Platforms growth across portfolio, supporting clients journeys to cloud and AI Cognitive Applications growth led by security and solutions such as health and weather Pre-tax margin expansion driven by lower workforce charges yr/yr, mitigated by investments and lower IP income 7 y y y Segment Revenue Elements Segment Results Overview B/(W) Yr/Yr Segment 1Q19 Cognitive Applications +4% Yr/Yr Revenue (External) Pre-Tax Income Pre-Tax Income Margin $5.0 $1.8 30.1% 2% 5% 2.3 pts Cloud & Data Platforms +2% Yr/Yr Cloud Revenue Transaction Processing Platforms Flat Yr/Yr Cloud as-a-Service annual run rate $0.7 $2.1 10% Revenue growth rates @CC, $ in billions
Global Business Services Segment Revenue growth driven by digital consulting and cloud offerings across Consulting and Application Management Gross margin expansion reflects shift to higher value, productivity actions, leveraging global delivery footprint Investing in offerings across the Advise, Move, and Build stages of the cloud life cycle 8 y y y Segment Results Overview Segment Revenue Elements B/(W) Yr/Yr Segment 1Q19 Revenue (External) Gross Margin (External) Pre-Tax Income Pre-Tax Income Margin $4.1 26.2% $0.3 7.5% 4% 2.8 pts 152% 4.5 pts Consulting +9% Yr/Yr Application Management Flat Yr/Yr Global Process Services +5% Yr/Yr Cloud Revenue Cloud as-a-Service annual run rate $1.2 $1.8 25% Revenue growth rates @CC, $ in billions
Global Technology Services Segment Continued double-digit growth in cloud revenue Optimizing portfolio by de-emphasizing lower value services content Gross margin expansion driven by mix shift to higher value, scaling of cloud and productivity improvements Investing in offerings across the Move, Build, and Manage stages of the cloud life cycle 9 y y y y Segment Revenue Elements Segment Results Overview B/(W) Yr/Yr Segment 1Q19 Revenue (External) Gross Margin (External) Pre-Tax Income Pre-Tax Income Margin $6.9 33.7% $0.3 3.8% (3%) 1.1 pts 315% 3.0 pts Infrastructure & Cloud Services (3%) Yr/Yr Technology Support Services (2%) Yr/Yr Cloud Revenue Cloud as-a-Service annual run rate $2.1 $7.5 13% Revenue growth rates @CC, $ in billions
Systems Segment IBM Z performance in line with product cycle; continued strong demand for new workloads Power grew for sixth consecutive quarter, driven by continued POWER9 adoption Storage declines driven by high end due to IBM Z cycle, and ongoing market and competitive dynamics Margin performance reflects mix headwind from IBM Z cycle 10 y y y y Segment Revenue Elements Segment Results Overview B/(W) Yr/Yr Segment 1Q19 Revenue (External) Pre-Tax Income Pre-Tax Income Margin $1.3 ($0.2) (13.5%) (9%) Flat (1.3 pts) Systems Hardware (14%) Yr/Yr Cloud Revenue Operating Systems Software +5% Yr/Yr Cloud $0.4 (15%) Revenue growth rates @CC, $ in billions
Cash Flow and Balance Sheet Solid performance in free cash flow Free cash flow realization 114%* over last 12 months Positioned to support the business over the longer term Highlights 11 $ in billions *Adjusted for charges associated with enactment of U.S. tax reform **Excludes Global Financing receivables Balance SheetMar 19 Dec 18 Mar 18 Cash & Marketable Securities $18.1 Global Financing Debt $29.5 Core (non-GF) Debt $20.5 Total Debt $50.0 $12.2 $13.2 $31.2 $31.7 $14.6 $14.7 $45.8 $46.4 Cash Flow 1Q19 Yr/Yr LTM Net Cash from Operations* $2.3 $0.1 Free Cash Flow* $1.7 $0.3 Selected Uses of Cash Net Capital Expenditures $0.6 Acquisitions $0.0 Dividends/Share Repurchase$2.3 $15.7 $12.2 $3.4 $0.1 $10.3
Summary 12 Revenue growth in key high-value areas y Strong margin performance and operating leverage y Positioned to lead in the next chapter of cloud y Maintaining full-year expectations for earnings per share and free cash flow y at least $13.90 Operating EPS approximately $12B Free Cash Flow FY19 Expectations
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Supplemental Materials 14 Currency Impact on Revenue Growth Additional Revenue Information Additional Revenue, Gross Profit & Backlog Information Expense Summary Balance Sheet Summary Cash Flow Summary Cash Flow (ASC 230) Non-GAAP Supplemental Materials Some columns and rows in these materials, including the supplemental exhibits, may not add due to rounding
Currency Impact on Revenue Growth 15 19 %) %) %) s) s) US$B Yr/Yr Revenue As Reported Currency Impact Revenue @ CC $18.2 ($0.7) (5%) (4 pts) (1%) Supplemental Materials Quarterly Averages per US $ 1Q19 Yr/Yr 4/15/2019 Spot 2Q19 3Q19 4Q19 FY Euro 0.88 (8%) Pound 0.77 (7%) Yen110 (2%) Revenue Impact, Future @ 4/15/19 Spot Prior View @ 1/18/19 Spot 0.88 0.76 112 (5%) (3%) (1%) (4 (4%) 1% 2% (2 (3%) 0% 0% (1 ~(2.5 pts) ~(1 pts) 0 pts ~(2 pt ~(2 pts) (0-1 pts) 0-1 pts (1-2 pt
Additional Revenue Information 16 B/(W) Yr/Yr B/(W) Yr/Yr Segment Revenue 1Q19 Geography Revenue 1Q19 Cloud & Cognitive Software Cognitive Applications Cloud & Data Platforms Transaction Processing Platforms Global Business Services Consulting Global Process Services Application Management Global Technology Services Infrastructure & Cloud Services Technology Support Services Systems Systems Hardware Operating Systems Software Global Financing $5.0 $1.3 $1.9 $1.8 $4.1 $2.0 $0.2 $1.9 $6.9 $5.2 $1.7 $1.3 $0.9 $0.4 $0.4 2% 4% 2% Flat 4% 9% 5% Flat (3%) (3%) (2%) (9%) (14%) 5% 4% Americas Europe/ME/Africa Asia Pacific $8.5 $5.7 $4.0 (1%) Flat (2%) B/(W) Yr/Yr Cloud Revenue Revenue Total Cloud - 1Q19 as-a-Service annual run rate Total Cloud - LTM $4.5 $11.7 $19.5 12% 15% 12% Revenue growth rates @CC, $ in billions Supplemental Materials
Additional Revenue, Gross Profit & Backlog Information 17 B/(W) Yr/Yr B/(W) Yr/Yr Systems Revenue 1Q19 Signings & Backlog* 1Q19 Systems Hardware Revenue IBM Z Power Storage $0.9 (14%) (38%) 9% (11%) Signings Backlog Backlog Yr/Yr @Actual $7.6 $111.6 (14%) (2%) (8%) B/(W) Yr/Yr Systems Gross Profit 1Q19 Systems Gross Profit Systems Hardware Operating Systems Software 46.2% 28.9% 84.2% 2.5 pts 0.4 pts (0.1 pts) Growth rates @CC, $ in billions, Services Backlog calculated using March 31 currency spot rates *Signings & Backlog includes Global Technology Services, Global Business Services and Security Services; consistent with 2018 reporting Supplemental Materials
Expense Summary 18 ** ts ts pts) ts $ in billions *includes acquisitions made in the last twelve months, net of non-operating acquisition-related charges **represents the percentage change after excluding the impact of currency and acquisitions Supplemental Materials B/(W) Expense1Q19 Yr/Yr CurrencyAcq.*Base SG&A Operating $4.6 14% Yr/Yr Impact of 1Q18 Workforce Actions10 pts RD&E$1.4 (2%) IP and Custom Development Income ($0.1) (68%) Other (Income)/Expense - Operating ($0.2) NM Interest Expense $0.2 (6%) Operating Expense & Other Income $5.9 11% 3 pts 0 pts 12 p 10 p 2 pts 0 pts (4 6 pts0 pts5 p
Balance Sheet Summary 19 $ in billions *includes eliminations of inter-company activity Supplemental Materials Mar 19 Dec 18 Mar 18 Cash & Marketable Securities $18.1 Core (non-GF) Assets* $77.6 Global Financing Assets$35.2 Total Assets$130.9 Other Liabilities $64.3 Core (non-GF) Debt* $20.5 Global Financing Debt $29.5 Total Debt $50.0 Total Liabilities $114.3 Equity $16.6 $12.2 $13.2 $71.7 $75.6 $39.5 $36.5 $123.4 $125.3 $60.6 $60.6 $14.6 $14.7 $31.2 $31.7 $45.8 $46.4 $106.5 $107.0 $16.9 $18.3
Cash Flow Summary 20 $ in billions Supplemental Materials B/(W) 1Q19Yr/Yr FY18 Net Cash from Operations $4.8 $0.2 Less: Global Financing Receivables $2.5 $0.1 Net Cash from Operations (excluding GF Receivables)$2.3 $0.1 Net Capital Expenditures ($0.6) $0.3 Free Cash Flow (excluding GF Receivables)$1.7 $0.3 Acquisitions ($0.0) $0.1 Divestitures $0.0 $0.0 Dividends ($1.4) ($0.0) Share Repurchases (Gross) ($0.9) ($0.1) Non-GF Debt $5.9 $6.4 Other (includes GF Net A/R & GF Debt) $0.6 ($1.1) Change in Cash & Marketable Securities $5.9 $5.6 $15.2 ($0.3) $15.6 ($3.7) $11.9 ($0.1) $0.0 ($5.7) ($4.4) ($0.5) ($1.7) ($0.6)
Cash Flow (ASC 230) 21 1Q19 1Q18 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 Divestitures, net of cash transferred Acquisitions, net of cash acquired Marketable Securities / Other Investments, net Net Cash used in Investing Activities Debt, net of payments & proceeds Dividends Common Stock Repurchases Common Stock Transactions - Other Net Cash used in Financing Activities Effect of Exchange Rate changes on Cash Net Change in Cash & Cash Equivalents $1.6 $1.4 $0.1 ($0.8) $2.5 $4.8 ($0.6) $0.0 ($0.0) ($0.3) ($0.9) $4.2 ($1.4) ($0.9) ($0.1) $1.9 ($0.1) $5.7 $1.7 $1.1 $0.1 ($0.7) $2.4 $4.6 ($0.9) $0.0 ($0.1) ($0.8) ($1.8) ($0.7) ($1.4) ($0.8) ($0.0) ($2.9) $0.1 $0.0 $ in billions Supplemental Materials
Non-GAAP Supplemental Materials Reconciliation of Operating Earnings Per Share 22 2019 Expectations GAAP Diluted EPS Operating EPS (Non-GAAP) at least $12.45 at least $13.90 Adjustments Acquisition-Related Charges* Non-Operating Retirement-Related Items Tax Reform Enactment Impacts $0.76 $0.45 $0.24 *Includes acquisitions as of March 31, 2019 The above reconciles the Non-GAAP financial information contained in the Summary discussion in the companys earnings presentation. See Exhibit 99.2 included in the Companys Form 8-K dated April 16, 2019 for additional information on the use of these Non-GAAP financial measures. Supplemental Materials
Non-GAAP Supplemental Materials Reconciliation of Revenue Growth - 1Q 2019 23 1Q19 Yr/Yr 1Q19 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 Financing (7%) (8%) (7%) 8% (11%) (16%) (39%) 6% (13%) 2% (18%) Flat (3%) (3%) (2%) 13% (9%) (14%) (38%) 9% (11%) 5% (15%) 4% Cloud & Cognitive Software Cognitive Applications Cloud & Data Platforms Transaction Processing Platforms Cloud Global Business Services Consulting Global Process Services Application Management Cloud (2%) 2% (2%) (4%) 7% Flat 5% Flat (5%) 20% 2% 4% 2% Flat 10% 4% 9% 5% Flat 25% The above reconciles the Non-GAAP financial information contained in the Key Financial Metrics, Cloud & Cognitive Software Segment, Global Business Services Segment, Global Technology Services Segment, Systems Segment, Additional Revenue Information, Additional Revenue, Gross Profit & Backlog Information, and 1Q19 Prepared Remarks discussions in the companys earnings presentation. See Exhibit 99.2 included in the Companys Fo rm 8-K dated April 16, 2019 for additional information on the use of these Non-GAAP financial measures. Supplemental Materials
Non-GAAP Supplemental Materials Reconciliation of Revenue Growth - 1Q 2019 & Last 12 Months 24 1Q19 Yr/Yr GAAP @CC Americas Europe/ME/Africa Asia Pacific (2%) (7%) (5%) (1%) Flat (2%) 1Q19 Yr/Yr Last 12 Months GAAP @CC GAAP @CC Total Cloud Revenue Total as-a-Service Revenue 7% 10% 12% 15% 10% 12% The above reconciles the Non-GAAP financial information contained in the Overview, Additional Revenue Information and 1Q Prepared Remarks discussions in the companys earnings presentation. See Exhibit 99.2 included in the Companys Form 8-K dated April 16, 2019 for additional information on the use of these Non-GAAP financial measures. Supplemental Materials
Non-GAAP Supplemental Materials Reconciliation of Expense Summary - 1Q 2019 1Q19 25 Non-GAAP Adjustments Operating (Non-GAAP) GAAP SG&A Currency Acquisitions Base * RD&E Currency Acquisitions Base * Operating Expense & Other Income Currency Acquisitions Base* 3 pts 0 pts 11 pts 0 pts 0 pts 1 pts 3 pts 0 pts 12 pts 2 pts 0 pts (4 pts) 0 pts 0 pts 0 pts 2 pts 0 pts (4 pts) 5 pts 0 pts 8 pts 0 pts 0 pts (3 pts) 6 pts 0 pts 5 pts The above reconciles the Non-GAAP financial information contained in the Expense Summary discussion in the companys earnings presentation. See Exhibit 99.2 included in the Companys Form 8-K dated April 16, 2019 for additional information on the use of these Non-GAAP financial measures. *Represents the percentage change after excluding the impact of currency and acquisitions. Supplemental Materials
Non-GAAP Supplemental Materials Reconciliation of Free Cash Flow-Last 12 Months 26 12 Months Ended Mar 2019 Net Cash from Operating Activities per GAAP: $15.4 Less: change in Global Financing (GF) Receivables ($0.2) Net Cash from Operating Activities (Excluding GF Receivables) $15.7 Capital Expenditures, Net ($3.4) Free Cash Flow (Excluding GF Receivables) $12.2 $ in billions The above reconciles the Non-GAAP financial information contained in the Overview, Key Financial Metrics and Cash Flow and Balance Sheet Highlights discussions in the companys earnings presentation. See Exhibit 99.2 included in the Companys Form 8-K dated April 16, 2019 for additional information on the use of these Non-GAAP financial measures. Supplemental Materials
Non-GAAP Supplemental Materials Reconciliation of Free Cash Flow Realization-Last 12 Months 27 LTM Excluding Tax Reform* LTM Free Cash Flow Realization 141% 114% The above reconciles the Non-GAAP financial information contained in the Cash Flow and Balance Sheet Highlights discussion in the companys earnings presentation. See Exhibit 99.2 included in the Companys Form 8-K dated April 16, 2019 for additional information on the use of these Non-GAAP financial measures. * Adjusted for the charges associated with enactment of U.S. tax reform Supplemental Materials
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