IBM - Earnings call transcript Q1 2021 | International Business Machines Corporation

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Operator

Welcome, and thank you for standing by. At this time, all participants are in a listen-only mode. Today’s conference is being recorded.

If you have any objections you may disconnect at this time.

Now, I will turn the meeting over to Ms. IBM. with Murphy, Patricia begin. may you Ma’am,

Patricia Murphy

Chief Thank you. welcome Presentation. I’d to and Chairman Murphy am IBM’s Jim Senior Vice is to IBM’s Patricia President and IBM’s you Krishna, Earnings Financial with and Officer; First and here Kavanaugh, Officer. like Chief Arvind This Executive Quarter I XXXX

of this prepared replay will a today’s post IBM time will and on the Investor available hours, by website We remarks within tomorrow. a couple be

Private be comments could Reform Securities in to the presentation forward-looking Some statements cause that results Litigation may of factors considered These made actual XXXX. differ Act materially. under this involve our

information is Additional included filings. company’s SEC factors these in about the

includes to non-GAAP also provide to investors. presentation additional information Our measures,

present For revenue and example, presentation. currency we at growth constant signings throughout the

provide we performance. view go-forward the growth a constant currency impacted our with cloud will geographic revenue, for total on and to the businesses business, adjusting consistent our lines In divested for focus addition, of

these have at for We SEC. non-GAAP of to submitted the reconciliation end presentation, the measures the provided and X-K in charts and other the

with the to call I turn So, Arvind. over will that,

Arvind Krishna

for the Thank and billion again. call, joining cash free In to shared billion last today. expectations pleased to I you growth be of speaking our everyone. Hello we financial of adjusted our you year, am revenue with for all us $XX $XX flow.

track. grew differences for geography their posted a done, in While first increased while events that industry. in see it’s on the there and and at and have free still overall we I about transformations. is as continuing spend cash are to flow. a are can some progress signs growth quarter, quarter, We rates our confident of we lot be the to improving, of early clear number clients by accelerate actual is and areas. enough backdrop, that revenue the of the With environment to year year how in are Last This the also remains last say we needs digital a the talked

they Our its an in results trajectory, Global we Services a and Global that enduring including value are on Cognitive our by demonstrated revenue infrastructure show Z in led services. growth managed an margins as & in Meanwhile, improved platform. again to Cloud improved Software Technology consulting. IBM Business Services return

explain all As you, Jim this free key will area. which to flow to is helped improvement, deliver of focus cash a

overhaul from through move execute year, we the making, on we announced of model are to growth will back we to to are we our the the to to changes of we a to our investments January, instill As partner company, ecosystem, go-to-market the our continue the the we making more that mindset. to significant in changes to important acquisitions are the expand bringing culture

branded track services decisive in year. These are us foundation now you moves the you As as making to time managed a future strategy the of hybrid the separation Kyndryl, it and AI, underway, transformative growth. full see also to I cloud power are some we to though our we confidence solid know, infrastructure by of take immense have changes will completed end unlock around all would for and benefit. which the business, is the are provide be on expect our executing of the well

moved you so told than less have I dollars, of far. the a XX% As cloud opportunity with to before, trillion the see hybrid having cloud we at workloads

and as cloud a future company. platform AI hybrid our reshaping are We

with advanced have innovation. hybrid systems is hybrid specific strategy. gives an This are dealing secure from environment clear. platform For modernizing Red open IT with but them confidence infrastructure, for built flexible, approach hybrid us, constraints such to is why in what platform our and and the IBM’s made This a compliance, They platform have in cloud cloud case source have is a building data and Hat investments sovereignty only foundation not operations. the as of such Kubernetes in need and massive that their latency on platform for is our their that needs and cloud cloud-native which is hybrid is we based built apps. services Linux, and legacy Containers are our we credible path centric. OpenShift. Businesses

modernized portfolio, anywhere. a have to vast We software Cloud cloud-native Paks, run

every is and clients to of key $X helping transformation itself contributes. accelerate in $X are Our driving in software, GBS then platform are IBM, a positioned systems cloud growing our journeys. differentiated that value. of in And our infrastructure. provide partners, ecosystem spend designed their clients drive growth to platform The industry-specific consumption and across spend, digital expertise But public factor economics $X our dollar our in to together services. The IBM. platform of $X capture for all and with to

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cloud public helping are their now of have on and clients IoT private Red also using re-platform software, top possible makes them deploy That Hat MindSphere, platform. our to We on X,XXX clouds. for it hybrid OpenShift. Siemens both We

rich and important companies are across past and on businesses private public the build deploy business AI clouds We applications companies use clouds, simplify how our with In to also partnerships Palantir drive to like outcomes. have capabilities on-premise. helping AI we quarter, focused forged

IBM scale for offering with called As part for confidence. clients AI and Palantir collaboration, of IBM to a this Pak data, allowing creating are Cloud new Palantir

work our important the we as January, reports, leader to March, with companies In expand Magic on Gartner Box, Palantir, Gartner recognition magic and Cloudera addition positioned natural MongoDB. and model. In ecosystem partnerships automation. research our quadrants. trust been IBM announced segmentation. core consistent adopting such have said like model new To doing a to from as we clients’ global significant our firm sales in simplified AI processing, by hybrid a changes XX making by This cloud we facilitate three focused continue research Quadrant single in solutions, now to the as AI innovations of a leader AI our our building We IBM highlights in go-to-market in our bring areas drastically adoption language AI I teams and in

are partners We clients. a clients of ecosystem to more and deliver with approach role value and are providing technical experiential elevating our in more the and to investing

the to Finally, align adjusted sales structure our with reward for system we better have our our strategy. incentive teams

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we pre-sales garages scaling with co-create what sales are in to process. the a lot our clients and We call investing earlier in

We strategy use minute our top partners innovation. have solutions, approach clients our our spend opening had want ecosystem on experience around already is to new new strategic and I of a with and for growth areas GBS. XXX of in cases

strong a portfolio. innovation of pipeline have differentiating already We of these our are some and

is As bring and spur the each I innovations said earlier, of to new IBM Z, client we quarter. Z IBM which generation again thanks demonstrated interest renewed to demand. this to its drive critical This value continue

the the largest is In platform’s history. in shipping now fact, capacity zXX

cloud put recently platform. OpenShift, and of Hat market innovation which Another hybrid cornerstone on critical Red our scalability, security of the enterprise we around new relates needs. are both capabilities to OpenShift to now includes the

technologies scale that to consume Next OpenShift the help businesses and extend a secure hybrid will and innovations cloud up are edge, applications new service. Linux as and on cloud-native Kubernetes-based managed

high-performance Clinic, Let Cleveland me on that computing the who partnership play over the term. turn of decade-long computing with will that other we will we embarking the to into quantum of seizing We power now to opportunities accelerate scientific process and discovery. a out tap the cloud, are hybrid announced longer AI, are

in the System States. United this As IBM IBM within of first collaboration, on-premises Ohio install part the will Q One

by decade. As remain value excited these promise. of this we seize the XXXX-plus of computer Quantum you XXXX. incredible an unlock a area We qubit by a is to this the our to potential for end of the by roadmap opportunity, developments. build has of quantum know, To billions announced dollars of hundreds clients

and announced will You may the industry. and the packaging semiconductor we be the also advance of innovation competitiveness in collaboration have This key technologies. enhancing next-generation partnership with accelerating to logic Intel seen

company, hybrid and to on to trust continuing our AI As issues. we are societal reshape and platform impact important future our scope cloud scale, as an make use a we

help tackle crisis, IBM instance, the to climate a For announced XXXX. by net pledge zero

efforts that been focused reducing emissions the our without transparent use of are in have on We actual offsets. carbon

& materials We culture progress. of IBM the remove is emissions, conscious also to emissions and technologies. business help discovery intend these thrive can use Diversity Fundamental accelerate inclusion our Diversity report for more increased technologies equal last to best-in-class to year our Last residual we and employees. where and emerging is a Diversity transparent XXXX of Research our made released innovation achieved will individuals we we fostering our report. commitment growth to in that a see to week be representation leveraging our to from Inclusion, What you we & how Inclusion inclusion scores have

our hiring our Q&A. to progress. happy in expand are on efforts advancement am We I industry-leading to continue skills development practices, leveraging and opportunities the our ESG

it will close to future. over a turn with I Before Jim, comment I on our

strong are single-digit Our growth post-separation sustainable and generation. revenue cash objectives clear, mid

compensation direction actions, future. taking quarter to over another in to right you. and step Jim, results and our are are aligning achieve our investing We this, toward first the

Jim Kavanaugh

gross grew of first Thanks, and margin profit $X.XX. numbers. right billion grew earnings profit In We I will our the get X% reported. dollars. Arvind. revenue into reported of expanded as share the per quarter, operating We our gross $XX.X

position resulting flow and cash and liquidity our in $XX.X last remain balance free the over up, strong. sheet adjusted year was Our billion

to As more do. Arvind we made said, but progress,

in in revenue currency our You our can progress trajectory with improvement constant see results. of this an the

and consulting Cloud was revenue & in and up Software returned Systems, to growth. in Cognitive Our

cloud. investment. infrastructure, revenue platform Across digital capitalizing remind margin fundamentals quarter level, the over pre-tax gross billion capabilities look good margin and XXX business. these, profit a expansion up higher I our and the this gross those manage level manage across last the AI, value in hybrid businesses product-based transformations with We We a now by the had stands points. level. enables continued to are months, and will software We of journeys leverage services at in was operating we to cloud segments also We $XX expanded margin The last at and our our the clients’ the take business to at XX% in operating cloud This and on approach improve. bases. how capture margin cloud to We for our quarter we our year. on model you twelve of our over services. businesses basis while

in execute innovation, on skills in our and ecosystem in cloud strategy. hybrid and investing our are AI as We we

of since mid-December. with acquisitions six We thousands hiring hired up Our was the closed people quarter. year-to-year, in

we are out GBS, adding R&D like and We are skills innovation. capabilities drive Red in garages, And areas building increasing to in quantum pre-sales and delivery Hat. and technical in AI go-to-market

Our rebalancing year-to-year it reflect this environment. expense lower in workforce by travel charges expense year-to-year current dynamics lower though investment, was offset the and

total separation $X.X up round me $XX.X position. transaction working on growth software financial both the adjusted with balance billion, profit million business. is all-time $X.X some strong This capital strong our color $XXX and over year free We cash our renewal We high. services rates structural start free is efficiencies. flow of the by software. cash billion actions billion charges impact free out with excludes over These and continued the liquidity for rates cash of cash good had view last fourth income with a $XX of drove quarter which the driven had adjusted our billion and infrastructure renewal the million initiated in an highlights associated the flow, flow adjusted deferred sheet to Let year-to-year, and and year. and $XXX collections managed cash over of the to This in

Our quarter in our free to $XX.X cash balance contributed of billion. performance flow the cash

was year debt from is $X billion. down this billion $X While down end, our

have by reduced from about debt peak. $XX our the now We billion

in So we dividend our have business good sacrificing in made without or deleveraging policy. progress solid investments our

driven the and let X% by and Software Applications. & segments. Cognitive turn Cloud Data grew Now, to Platforms Cloud Cognitive me

reflects we with opportunity This revenue solutions Paks. have in hybrid cloud cloud and taken OpenShift and was Cloud the XX%. Red to the segment Hat investments the capture actions like up Our

and a income Cloud deferred & billion is just mentioned. segment now increase our last revenue. record subscription Across the of support rates, Cloud Our third renewal over about continue I our to driving Software $X.X which Software, levels is we Cognitive the year,

hybrid the cloud is performance continue base which Red we Hat wrapped and which Looking acquired I we in the Platforms, our by share. Cloud With two area, Platforms we growth about will at a about led Data tripled of acquisition remind clients, rate. we this Platforms, both percent Data of including Hat areas Enterprise delivered Services. revenue performance also OpenShift our the and by In AIOps. grew now across software year-to-year platform revenue Cloud Data Hat. integration, OpenShift, by you, improved the growth. to and trajectory business of number segment double-digit data grew Red Linux X,XXX at quarter quarter gain In Cognitive revenue of since normalized led middle Red of with on of Hat normalized Security half Software and and this across and have X% Cloud XX%, continued last key Red science a of year and revenue, Applications, solid strength

for identities opted across on helped accelerated and threats cybersecurity to rapidly enterprises cloud network detect Our to protect operation manage with value digital And and ease workloads, and their time environments. Security attacks Pak Solutions, for clients data of hybrid breaches. to QRadar cloud and like Cloud Security,

Processing As We Transaction how behaviors models. been purchase software. expected, flexibility shifting more to clients Platforms consumption-based provide our declined. Clients’ have revenue in they toward our our buying

we in you our our continued on pressure putting As licenses. quarter had software, which capabilities remind a OpEx renewals over perpetual are CapEx, to this TPP seeing preference we I strong clients. result, for Though will provides mission-critical a

continuing for and the margin to we pre-tax while ecosystem. profit in at innovation this new Looking our expanded segment, software invest

year-to-year points, returning about growth. Turning to consulting with revenue GBS, our improved trajectory X to

growth businesses opportunities, digitally capitalizing create and using productivity trends, We increase to flexibility. operating new are transforming AI and the capture clients on cloud market hybrid their are

accelerated see strong strong in partners consulting Hat from Our in ecosystem where and performance and We like growth our Red this Cloud almost rate our practice. advise momentum reflects XX%, with to and doubling offerings. this quarter Adobe, quarter this. Salesforce growth revenue strong growth revenue prior its growth the GBS the in practices had build expanding portfolio. with This we across reflects

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of This declines build cloud. practice in applications had growth now the management, on-premise we We to-date. offerings signed activity. Hat have business and $X billion by was Within growth move our in to application in inception Red which offset

to value and incumbency of a be platform application and IBM’s is the partner adoption. clients our Our digital of strategy an cloud GBS for is It to enables choice high component client’s and to transformation. IBM, important hybrid

clients. drive of one-third and Cloud those For of XX% revenue, our are example, to GBS roughly continues Pak engagements, with application management

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our to strong was are continue performance We of Z, last in more out and capacity, ISV hire, percent, Systems than And more to led dynamics up continue X% Power an to increase while year. practices two IBM product expanding delivery revenue resources in since of cycle by play and and building partners. in across go-to-market adding support sales contributing we Storage.

and unmatched support six is Z purchased demand That’s for capacity. mission-critical for including zXX is to further secure, new strategy, optimized Technology cloud services, zXX this and was the requirements. Global very than and hybrid platform, solid its in our year-to-year. of Z X%, is lasting with for the demonstrates element This Hat, drove like industry-specific gross and most quarter’s Systems about into And of We product zXX Z enduring reliable. up growth, last integrating strong attracting zXX and revenue enterprises’ and IBM the the IBM improvement rate. platform. increased revenue XX%. our reliability volatility also value also workloads, had an Simply cloud-native supporting performance margins declined Red outpaced program strong has regulatory The Our put, gross important the cloud Z capabilities to-date in solutions. IBM more robust quarter’s an from IBM our improved performance, where In applications. this enterprise-grade platform the traction now which Services, performance platform pre-tax is market developed X-point With margin in security especially Clients segment quarters cycle. Power, areas Z scalable, financial a IBM program.

have from Over few lower impact the an client about we talked quarters, GTS volumes. last business to revenue

saw This including consumer retail as client-based and affected activity improved business such quarter an in volumes, trajectory the products. of the by some industries’ and pandemic project in we most

by encouraged are We trend. this

this quarter, a the such compare. this at efficient renewals in had wins Pitney Bank. That growth, reflects Anthem design, by and run see and to for both were Bowes. technology year-to-year mid-sized see clients year, GTS history logo the this renewal with modern, the at most which consistent Generali in rates and new as reliable and manage infrastructures. We and the to signings driven signings value Caixa Our quarter. Last our said, large long-term Enterprises strong deals GTS grew continue performance difficult

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We positive secure, and benefit for have outreach see reaction. had done Kyndryl capabilities. help value have very and XX% over digital them extensive Clients a the long-term adaptive resilient and strong, to client build

business model, generation improved several and have margin, taken profile. business for the to actions the cash profit position Regarding we an

profile have GTS quarter business and with get segment basis activity margin expanded we from resources, contribution volumes these higher a we margin by as services. infrastructure volumes utilize leverage. The and they points recover, This existing operating project so XX client-based gross as

Additionally, we contribute to the are contract just margin and productivity taken starting actions to improvement. have gross

to a name, make remain and Finally, enable available necessary XX the good milestones progress by still financial, on in addition of location expanding team, establishing be the the year to We end on the headquarters continue we track the fall. regulatory executing the expect legal and the and leadership to transaction. in to close to Form

up back and it bring quarter to will the the a level our view IBM quick I Now, summary the of of year. with full

trajectory revenue late and product Z Services Cognitive improved & Business Global the in performance cycle. in first Cloud Our strong Software, quarter, by the driven IBM

improve model, sheet and to higher fundamentals operating with of business of our and the a position. continued balance strong We investment leverage liquidity level enabling have we a

of good the to as are start, to do off we said, course We more a but XXXX. over

and we execute We innovation are strategy. skills, investing cloud our hybrid in and platform AI as ecosystem

we and move through benefits We year. to have yield the go-to-market as redesigned expect our model

and in actions half structural the the fourth through continuing initiated year. are the of this executing quarter are We first

profile our as separation just by to working in the be the the we of infrastructure savings the And year. will Kyndryl complete I business, more be but improve the of will mentioned, remaining services reinvested business. profit of this of Some IBM’s will end of

growth forward, focused are and revenue generation. As we cash look we on

at free and $XX spot continue charges quarter the associated year make flow the billion next billion actions growth flow. quarter. a the initiated revenue for will spin-off. current adjusted structural in this to deliver flow we free expectations I to of the $X impacts the cash cash For revenue adjusted billion for rates exclude $XX to comments transaction of with both and couple remind on cash free cash of will fourth I expect and year, you the

and dollar the which revenue growth second point impacts As of for the year. are for you revenue the Despite strengthened year. quarter over the by the this, has for XX have average look a days, for about we revenue analysts’ us I maintaining as seen, reasonable, U.S. the last of said our growth estimates expectations

all had cash half performance, over and a to profit free mentioned second with in will we the rate We progress hit I And rate start flow, to this tax of also expect looking last as to full cash we of at Profit cash $X the make second also tax quarter, to our working year growth good on contribute quarter year to quarter. points in expect or similar full expectations. January capital together, second to billion a we be headwind continue incremental quarter our of second strong performance. the the higher. to book the in in deliver year we couple expect but Bringing our

turn it go with So, that, I Q&A. will over to to Patricia. back let’s

Patricia Murphy

Thank you.

and Before Arvind I’d mention begin items. of to the a Q&A like with we couple Jim,

at First, to included you supplemental of And finally, refrain have as the questions. I’d end always, ask multi-part presentation. the from we information

up So, please it open questions. Operator, let’s for

Operator

comes [Operator Credit from Instructions] first Matt Suisse. Thank Cabral with Our you. question

open. is line Your

Matt Cabral

return you very Cognitive & see growth Thank to Cloud much. Yeah. the to Good quarter. in

update of if here? the weighed where of Just in and could some that the underlying in of about transactional software how are on, balance seeing of in with just more are year side of you you the the the you on business QX? issues us terms demand we cadence from just environment software think for And wondering revenue what then forward, the dealing wondering going should in the

Arvind Krishna

think, Matt. question. overall the is spend the environment Look, improving, for thanks that Matt, I

in I fourth fourth talked really in quarter compared I we that can that, first pauses the We to say buying. various in about the definitely see and think quarter didn’t the quarter.

country you underlying there in are Americas guess are stronger. does on that in are It doing can rates can was which look which Europe do bit and have of business ones Now then depends to Asia the in caution There depend some and acknowledge differences are that and circumstances. that the very due much you you I happened pockets that results, see can sense geography numbers. said, by in industry. do We see and When to the we ones all the doing pauses COVID worse. better, a both by

So you can sort of that. expect

can that You to going by tourism impacted there obvious Those ones, then that others are touched by and see also be get all are industry. differences travel, most the those.

So that’s a color of what’s happening.

However, as I to our accelerate transformation, have digital very they digital their hybrid iterated thesis see strongly. before, we their accelerate our do cloud as play and clients transformation comes

choice Our Hat multi-Cloud, into Red the I into which as results. and as come then is multiple reasons All around and Clouds, our that well you see can that play in public mentioned sovereignty private play. come

explicitly strong. then results That Data Red Hat So through being to platform in expect and mid- Cloud Cloud we & in your the the addressing maintain will Software, itself Cognitive to high-teens. show

can a it to that, I remain our or We declines two-year three-year the for our where to there. applications, look in that talked expect strong I security about see and software, applications, expect demand we it in do doesn’t AI single-digit TPP see our and I continued if but we expect in really growth, to at declines. bit software there. the we mid-to-high see given single-digit those things are we period, in lumpy can be see But worry any a us. little CAGR, mean,

year. so through to we carry on this this And expect

got but to have go deliver would it, Second Matt. optimistic, somewhat quarter, be we I

Patricia Murphy

next Thanks, Matt. question. go Can the we to

Operator

Our Katy next come with Morgan Stanley. question from Huberty will

You may proceed.

Katy Huberty

increased is Thank growth pick this you. should baking just drive reported some M&A help quarter. get sources mid see Arvind, sustainable M&A acceleration which you in you will the about, How Good that achieve saw post that to you technical segment at contribution becomes are are you growth talked us year. contemplating? believe revenue said of level that Can Thank revenue that I sales a external X% And you rate, bridge the the investments growth meant as And level? next how up the have in single-digit at spin? high skills, all about can afternoon. revenue also R&D. What of much revenue talked of this resources, we you We as have you the growth? be you. next benefit the you to X% year’s in primary internal to

Arvind Krishna

student a Katy. and of publish. clear we Thanks, pretty It’s what say you good are

to me let try your question. unpack So

how result me in talk these Let first about single-digit investments revenue all growth. do mid

if we include Hat will call business the acquisitions be So you include mid don’t to mid- the current overall IBM’s TPP keep to look digits. I market could mid-single the it, leading mod at will Red high-teens, That software topline. the but decline at in overall will significant single-digit. to see That I any usual it as acquisitions. a value, But adding saying amount

bit overall. doing will Then expect managers, think if We that yet additive in. couple really say see garages, success maybe It less well can I year. point -- not a do I some resources, is investments, You see inside our to XXX software we It’s for you early the can that. and than not can those. our look a But points that in technical our at do go can contribute signals numbers. client of I just more will clients the math off. our this. paying that’s that We GBS we whether next market a put be with segmentation, what to can

rate. to We contribute rate pre-pandemic beyond have growth will also improving our in the That about to GBS billion investing ecosystem. $X

me takes to So that then GBS.

take year growth changes higher billion the end of should back the come billion, them than year but the of next year. pre-pandemic this and to that will the $X We $X to go-to-market rates the by the acquisitions mixture of into

Now, to Katy, the this. also a one-time you contribute revenue internal about change. revenue is asked will internal

about for mid not So growth one revenue we have talked single-digit year. sustainable just

be we not contributor next a to because every It’s not it’s that help So counting while year, it are might once. only on year.

So, mid-single contributing describing are in better with we Hat all mid-single hopefully, software acquisitions Red of changes digits, together digits. perhaps the with than the GBS the

of flattish, sustainably. kind It take impact year to but lot we lot. of it or the a increase three-year might topline the or give view systems a sort but how a doesn’t by not whole in Our that’s any mid-single-digit given two-year decrease and get to

you you comment of one-year don’t different So but I benefit an permanent. -- external, not internal a get That’s that on might parts Hopefully going gives the from question. answer to from the your really why that. to

Jim Kavanaugh

the Kyndryl relationship be quite disclose know between right one forward be Form done revenue. would And work have But will that you now. what are which as appropriate back we how we the well, commercial come time. transparent will tell to way those complete and we process, you Katy, we well to we more about we you and at on are we going XX relationships I IBM treat and strategic our will the as will and

Patricia Murphy

can Thanks, to Katy. question. go we Sheila, next please

Operator

Absolutely.

Toni we from Sacconaghi Bernstein. with Next will hear

Your line is open.

Toni Sacconaghi

Thank Yes. this you can guess clarification maybe just two clarifications. you or my if is I I question. for a wondering am taking comment.

If I improving. and that it back million up at said sounds QX. They about like revenues sequentially normal think revenue look $X is are typically $XXX IT are you spend from up you for I reasonable. estimates QX consensus about seasonality, billion think

than So seasonality. anything one normal if expect would better

you AI sequential and can really in in company, update I you seasonality, were as just as specifically mentioned as Health you there or Arvind, underwrite IBM does some that on whether about fits an normal or could on role $X when better I speculation with about So Watson Watson Thank billion being I things then wondering in give you. wouldn’t am And clarify, that increase think talk IBM a Maybe was revenues? an have why happened QX, into are but that? one-time you separately, don’t normal than conservative play Watson Financial? Health. what Watson Watson There’s about the what’s call. company happening AI and how an you us name which

Jim Kavanaugh

flow, that your in put our growth, the to we for regards you question. over clarity second, TAM. said one, most Okay. is question. position for it cash part adjusted guidance then in place handle more will to thank free to we part with for the even needed and we and of in two and us capture $X forward-looking fuel your But And remarks, around provide our the are Toni, important for the days as first cloud to hybrid revenue which to fact similar some going provide XX turn ago, prepared investments confident measures, second I the trillion Arvind in

a Now, about that revenue revenue we is the and lost point despite that in second of dollar to We days for appreciating ago. we year we overall of reiterated again grow currency the U.S. for are about going with a lost volatility quarter. the the and year XX point revenue

across $XXX or now mean, attainment historical our to Arvind Very going quarter-to-quarter. of million, with our normal said. see quarter-to-quarter. math give base my historical your to math $XXX got around in regards million So is in the software XQ XQ somewhere I to business, We close, head I take as both

normal feeling $XXX businesses, historical services-based in more million. the confident are we and $XXX million to rebound attainment also see first our roughly We here both the of to given even that in quarter

our I of performance of off acceleration quarter the growth not as driving guidance first XX% both our count strong of first in on unheard for year, program, believe us it’s and of given in quarter, continued forward Arvind the cycle we Now, prudent seventh a go with last mainframe. growing the coming XX% very which quarter mainframe our of to very is

pleased We the with are very performance.

off and million are a with strong forward. million number quarter’s would just value based take to I mainframe first hundred We that of pleased proposition. concluding very I But that would say million, $XXX going in not the against that $XXX couple performance on

turn to over the part. let for So Arvind it second me

Arvind Krishna

Thanks.

To So, for is product us. brand the capabilities. our clear, to absolutely Watson name Watson be AI important critically Toni, remains

see Conversational and in Watson. inside will It the You Watson market but example, our products security out as is our see Pak Watson. embedded also for called as as, Agent, it you Cloud with will for data it

Let example amount of me give quick huge seeing where success. you of a a we are

do handle quarter entities they doing the of vaccine they thousands this, began to of -- realize them? would large So perhaps States. calls in they realized people of When or get Watson. they let could tens slowly administration and of deploy millions when how Staff United they were tens they then me one of every of in December the that could take

one, handled one the at handled of far these million so with are over than calls we And in and quarter XX% places by X lot deploying more a Watson.

over think this the extrapolating about now You year.

with improving million because more I others. So where both handling quarters lot but where get that a are and This to and both out AI think see straightforward lots taking one program satisfaction, in of our and together. four you here. cost excels in XX client rare it and make get instantaneous issues up those on an would the do confidence you building you is opportunities also lots in going imagine in could to We in answer, industry it

lot a see to on to also AI how on Watson dramatically being resilience automate cleansing, infrastructure. on of of data people’s operations, IT embedded how the improving We do

have really So, parts Toni, out, productivity net early remains us, of of global is Not decade. over important. it estimated in its the to AI consultants journey. Watson the $XX trillion

a into We X% are we our that IT, we data, our have way in tool all like large our in clients. Watson and where of be albeit footprint unlocks for these clients in areas and handling excel that that maybe journey. call with in will in areas conversation, the

Patricia Murphy

the Thank next you, Can take Toni. we question? please

Operator

next Bank with comes Mohan question Our Wamsi of America. from

Your line is open.

Wamsi Mohan

would benefit and would said we cadence that the first out the could the see some you. And business segments, had where play be Thank you and Yes. address Should you maybe not if changes an half have helpful? Arvind, in it of expect XXXX the to would separately, the later, market of yet be second what benefit across to go impact. what’s think going down the just maybe signings you. were spin a -- upcoming and that great? maybe given relative expressing through confidence growth, or you the into just weak are that if on you little backlog. Thank there would be any you with maybe quite can a The to bit, dig bookings could us is numbers help on consulting pause

Arvind Krishna

have of Thanks, loop. a there’s to Wamsi. of impact. bit will hystericist out I have We in to part call January, human It them you Look, to go-to-market -- a this. takes it a the take then changes, but rolled time Wamsi, always beginning

through. see that you for to people flow some it assign to takes of That’s just There of in acknowledge is see the will time expect our teams improved changes do accounts. some for expect in me level into there’s to in see would and will half. better second to going we I have takes to that I it I us it see and the We take hear that result why cover quicker, see months level our productivity better expect to benefit? could growth the even Where GBS got say of That it sales to You XXXX. I to but wish more all of accounts. learning, benefit. large months. will I software do have growth.

had we our quarter. and we before what in is ecosystem, Adobe just that clear, last name to As Palantir, or some be that, whether and or investing But Schlumberger we with are and and this relationships SAP. Siemens are also it’s calling to Slack investments Salesforce from Box in

growth both in see of improved all and to those expect software the in GBS. in play You out

unpack of sort of kind you those and see that. you So

top we I our you I of build had talk never will in that when see that engagements pipeline, the in expect garage have the would I mentioned, about those might accounts? more Well, past. productivity Now, all XXX why oftentimes

begin accounts. you the to see why is in that top improved So yield

our to next second the we So I see going in definite, some in into half year. more and will numbers see it then expect

For part Jim the I to talk the little a signings. it will of bit about question, second hand to

Jim Kavanaugh

Wamsi, the question. Thanks, Okay. for

you. some of for unpack me Let this

renewal quarter First Entirely deal GTS. all, XX% signings large down printed by first to comparison in numbers, of point. our your driven the last

all we last this about this billion a signings excess in backlog all The with then the signings well translate that times equal. But revenue of is have Caixa, into realization call overall. the and and I Anthem I deals the signed are mix, on content, translates goes duration, remember, talked the not two and $X to each. how you massive into backlog year think that testament in piece how offering, created If impact many

where When you GTS the think, little at a about bit around look centers dynamics talk let’s portfolio, it I because different that’s playing in out. really the a couple GTS, So quarter. there’s here

that remind XX% down we than off We First, north last million grew deals. tough of and yes, you greater will very compared substantially compare $XXX year. year GTS just to were I signings of last

new kind to value the there light that high out million. million in and we read capturing that, which deals, embedded new means even separation with $XX Kyndryl. quarter winning another logos, business, in were mid-sized teens our had also are client of is though, We announced of $XXX up we nice second, So, of new

think logo losing the of or second are The and, I at your consistent wins component one new is getting is with business have heart we the question think we paused. would business I second, the very high change renewal and have rates and services in not managed high seen a from have This business. infrastructure announcement. perspective sticky renewal we since rates that we is XX%-plus business this

and overall that’s mid-sized the we wait don’t has by clients has Now, better Yeah. our deals see those changed our points And that duration pipeline XQ XX think new so is? up modestly some that what that which of naturally a impacting see portfolio to are that X they that up are to overall built and to out, here of continue backlog that realization. you which GTS way we expected quarter, with that And all run our are actually when and said, month sequential improvement nice anything is pausing there different a from reflection I part overall. the backlog start Form revenue improvement, take one that’s in going ramping fourth continued off the we together, logos of XQ. by in of reflection the But position our see

feel still very very comfortable. we So good and

pipeline front better good us We of and a in we have very see got realization. revenue

Patricia Murphy

Thanks, Wamsi.

please. go to question, next the Let’s

Operator

Daryanani from Evercore. Next Amit hear will you with

You may proceed.

Amit Daryanani

was my little for afternoon. I I growth think on points We you could was notable more nice Good saw touch a bit the hoping a basis I we nonetheless. a taking down, I it improvement Thanks in see it think improvement if over was the that started And December from consulting to guess there. nice what saw we XXX but GBS performance. quarter, question.

help from have GBS as what this GBS So do indicator to also you calendar the do go rebidding growth IBM why you just understand, we hoping the I NewCo, in can these for positive or about through either and a then XXXX? agree consulting growth contract without would IBM for clarify as us or price think you to getting could you and this long-term if to was And concession a leading me, between should splitting customers of this would be contracts process expect of NewCo?

Jim Kavanaugh

is this Okay. Amit, Jim.

take appreciate your point. the me question and I Let

business. on that What it as call cloud their forward. improvement We with improved as we are we tonight. acceleration We to clients’ and digital to transformations by quarter-to-quarter. Arvind seen our we here talked went to on in trajectory the reiterated ago overall journeys have we And pleased with through our is GBS and points XX regards the capitalize pandemic, pretty days the X expected their move we about and

that XX% quarter performance rate first here the So and to into our confidence our forward, see business reflects a if in at doubled our first I we cloud our the the value with quarter. performance GBS and going business of first just quarter what GBS our then take level in you growth portfolio, will book step back really look of translate a in in its

alone, a cloud of hybrid cloud application our services Hat our We business GBS transformational have cloud $X book built modernization, platform. of our and in on and billion top over Red leveraging strength and

in is business XXX subsectors. of Our all and three our digits Red book quarter double cloud just Hat the to engagements we across let alone first increased up overall

nice value very advise, move, talking the and flows. to overall, back your of been equation consulting, through leading build have management application quarters, of as Now our how what we to handful and growth business the our processing business journey services shows global are translates proposition application we really last our pleased in growth. that companies of call returned end as into we manage to we our about on go And our whole saw indicator, intelligent they of about that then front how cloud very their business about clients reimagining with the capitalizing modernization that and point around base clients run which and overall we work consulting up are

the believe is indicator. consulting leading we definitely So that

and near-term, level have the deals Now, going days realization let momentum backlog GBS, the bit are we in of has midsized revenue confident. second, XX very the months is second in the pre-pandemic into you that. about acquisitions our we in forward already scaling that GPS, we our of next our growth, backlog our and so X, months, continue on to quarter XX in confident back little fourth, talked in closed going in here good driving quantitative growth. a of you run-out shows in to are some front in overall our led, levels improving AMS very up five led of By lend and strong getting by the into give north of small and in consulting growth are third, consulting forward, of is we that way, me business AMS, know behind business. why front trend point, on-ramping, curve itself your components over end immediate that Number well to last one, we book-to-bill and which last is the to But focused GPS which handful we we that very believe will

delivering pre-pandemic into back here single-digit confident growth that objective comfortable second an growth, that year. part in integral is the XXXX talked GBS GBS about. So to we is exit in of most and in Arvind importantly, heading growth We XXXX velocity feel quarter. getting full that mid very feel

Patricia Murphy

Amit. Thanks,

Let’s the next please. go to question,

Operator

comes Our Tien-Tsin JP Morgan. Huang next with from question

is line Your open.

Tien-Tsin Huang

Thanks, so Hey. Pat. much. you Thank

Just maybe a stupid question, clarification.

trying opening a how just again? in more is is And like point there partners adding selling ecosystem mid-term maybe of a Palantir close new this others? am if at Z little you and what’s expectation areas just -- you that the then where to for of a different, more us to or growth, System strategy, Arvind, are curious effort different in watch is little there the bit strength and motion, changed can the manage there I on -- the a understand that a buying go Just that’s through pipeline or for? what it What’s for just to more a better? today or deals cycle,

Jim Kavanaugh

turn Tian-Tsin. to Thanks, I ecosystem. will Okay. discussion the over handle Z and for the IBM it then Arvind

But breaks overall really growth We on a trend comparison from XX%-plus look perspective? and cycle when growing at the are here are very kind have what from a a we strong pleased. seen. typically growth very capitalizing we the of on Z quarter Yes. in first into one, year, encouraging quarters cycle it, of overall Seven the last you macroeconomic saw we XX%

volumes trading-based FSS-based We in are also robust traditional our capitalizing industry. on

runs most industries you And and quarter. all in see list, the needs to OpenShift prior about we on recovery scalable, that calls, mainframe given good by CTO’s capacity are of most and platform is there and then by parts seeing where our priority every seeing we pervasive Red also essential I industry, play are native beyond we this But talked value will some also start consumption. see platform We have first And where is are clients backup the impacted and the cloud our the industry our proposition Security out. reliable are is changing elongated Linux, some pandemic. we I tell Enterprise the more driving So now and you very encryption. that regulatory top think the out seeing Hat Hat just adoption. of But of some requirements, mainframe applications we needing right that in out CIO now. FSS secure, at we saw Red definition play most cycles

Arvind Krishna

ecosystem, part definitely a we into more. expect of Yeah. long but to I XXX, question, have on maybe your go not number into your yes, the XXs, many high pipeline. On Tian-Tsin, second this very

to you these real revenue. then and years. though, say about mid-term, months Each caution, few another Let become of it’s months me when real not into multiple six become takes to

ones impact an end have much announce will we new would that I expect of before the not now year. the So

year end have at year. this the big into impact will they of very next However, and

regular I sort at of a it that. that announcing these expect So will like position should But be cadence. we

Patricia Murphy

Thanks, Tien-Tsin.

the to question. next go Let’s

Operator

Our with comes Stifel. David next question from Grossman

Your line is open.

David Grossman

Thank you much. very

dividend past about there of consistent and level as at the has and other that I company on have some been the the high about for of understand we cost very actions. call reasons That returns reinvestment spin So expense most growth criticisms that. but the to said, among you know some sustaining made savings shareholders have talked have in comments prioritized approach lot us I several you think and a the the the

Cloud are companies really don’t at you in rates. pretty Services Software However, going your against return that out capital and big some

and look reconcile and So XXXX to how growth as do that in you want reaccelerate dynamic you us to sustain beyond?

Jim Kavanaugh

this is David, So, Jim. for your you question. Thank

with doing all but go those about are we I only overall. capital and -- going financial process I our to of to not that am much share overall. I they confident management talk But other me system disciplined am some about feel And to buybacks very said, Let would in allocation IBM. talk check our going competitors, how

cash ago the uses billion to billion sheet. I captive sources and set IGF -- and our think continue think in year balance adjusted another We said were cash. going the how be we year to would me $X to the us and to on of billion to portfolio we free $XX year we of we cloud a XX our the our and you days Let going We that strategy, give AI $XX of entered to flow entering aligned the cash about I year. had remind talked $XX and $XX were over to entered billion billion. the $X We generate optimize offerings that hybrid of

our against source that So of uses billion billion the charge had charges in billion one-time goes we take $X against $X year, XXXX against $XX $X talked talked for being the a and separation about When from for actions that that We in billion. about overall. maturities about the overall. a we our the billion debt perspective $XX dividend that about we you talked structural and

up comes So about, $XX billion. what, be to billion, $XX that

balance maturity, quarter that support continue we debt and single the growing perspective, sheet. got have one-time both I and to quarter a We think under a of $XX cash So deliver will billion think in billion in and billion $X the acquisitions still that billion compete in a what over ended the also with use in to overall still we $X base, market dividend the invest sheet and and you $X.X with only balance of a we strengthens given roughly position. inorganically, I while with the flexibility $XXX million strong to $XX organically that, modestly seen our secure quarter, ended remind A overall. and charges have from dividend deliver cash took another overall. plus source first very And investor rating into billion delevering of And account on and you

and opportunities what, there’s we will cash. So to equation has the we right Arvind are going you IBM and the not and capitalize we whether the right value where client taken inorganic forward. since right value it at capitalize have any acquisitions feel very seen, constrained uses makes confident of continue over. sources by and XX will But And we economic

Patricia Murphy

more the why Sheila, past question. one David. but top hour, take are we don’t of we Thanks, the

Operator

you. Thank

of come Our Bank from Bachman will last with question Keith Montreal.

open. line Your is

Keith Bachman

Jim, much up so that for in, Thanks wanted I to follow question. I on me appreciate it. fitting Patricia.

am to cash and a about could separation, sneak ability in last the your the the the charges could year, metrics then, one eliminating wanted little how am talk change think flow if year, associated next I of since the that? bit just cash talk to I fiscal are the you for obviously about this that more. should I us key Arvind, about If you in what And with in drivers generate underlying make

M&A much grow in assuming application about struggling in you because that when faces repeatedly it’s digits. If about clear within envelope why could that pretty number thanks talked the you you industry if I GBS of challenges? -- Many Can think that talk talk to grows growth can my a are maintenance application for assuming within I I and are how pick is GBS, number? GBS, like the have questions. maintenance think for when that industry I’d the X%? You it’s application understand clarify if taking just you about maintenance, And mid-single growing just is within particular, you of of kind

Jim Kavanaugh

Thanks, Keith, for the question overall.

flow can free the cash handle me then let GBS. talk Arvind So and about

investor As the free XXXX, ‘XX I if of free $XX seeing that at tonight of reiterated billion When ‘XX. XX flow. the you $XX we $XX to returning we said mix And you call, billion underlying some leverage drives. you with guidance accelerate that to the XX we of remember of the And both upcoming that of this from in of business days cash ago, underpinnings billion feel then can billion which on have XXXX revenue revenue of cash of and in actions would sustainability start would adjusted will the model. spin contribution level charges this to look separation the the that business the the perspective gave fourth to that give our the sustainable fundamentals level billion that the perspective $X is growth, to just generate continued back business of a $XX here growth, think and confident adjusted in structural ago, operating worth forward-looking flow given days charges, of the quarter of the we we and a productivity

you accretive the in improvements. continue year drive I profit will remind be free Red it flow see we Hat, and growth will achieved You first cash also to which

prepared it, efficiency capital record talk didn’t making about I talked deferred on the great Now, we collections given We you working our would about progress income strength rate. renewal our software I have the although overall. been and remarks. in position of tell our

all With to hit generate front second those quarter. XX% improvements I with billion continue headwind XX% forward. to tax going of that cash in XXXX say, will $X to in needed of because going All is us. about the we that of be probably, in will But would got

on $XX cash get our sustainable that way tax generation the year. leverage pretty in So leveraging that to and operating next once headwind billion here, and confident in feel through we we business machine, comfortable billion growth cash revenue to $XX

Arvind Krishna

how how asked So And questions, Thanks. one favorite going look at to the Keith, GBS you term grow That’s will actually is of and it much forecast. go? our our nearer when you mid-single digits.

are Our even above make goals certainly grow to it that.

all M&A be that. of most upper we look, won’t -- contribute that look couple you M&A could knows, those but component, more and would our just inside necessarily be they than it can If predict bound It I well. grow mean, mid-single of to of points much expect But who how shouldn’t see to as growth. part would are that’s -- digits. that this to make at that But year, the the sort even even than faster of path hard IBM the at because you properties GBS once grow it’s a

important all of it. of and depends number it a really is terms AMS define you how on reasons AMS, for In

whether why up everybody and processes them of that management whether of as and are kind consulting years don’t applications AMS you longer If shrink, in that to grow. shows on becomes shows that help why in transform what it then in to mid-to-single you that in massive growth, mid-to-high GBS are contributes the to up using cloud workflows, that ago, long-term, then expects expect the the using that mix transformation now you the fuel and have by in is order goes application five estimate term -- now is journey, that because to see using of older kind we business the grow services and why But AI, it asset on. is is because this kind knowledge AMS that you confident those was you near-term global those so they application incumbency and of is a that growth single-digit medium-term. But application in numbers. application will critical As you that the definition in their and base helping as and That’s place maintenance productivity define were GBS. brand-new for of growth, that that cloud is client giving relevant? get But

Arvind Krishna

to but me we the since start of a to past the year. Keith, let call. had So, thanks, good We the up wrap hour, couple a just comments are well make

We we we our expect are and to the benefits over the progress actions realize year our investments from as course and of execute strategy continue the taking.

in a dialogue stronger I exit to and you. with will We XXXX look than continuing this year the started position we forward

Patricia Murphy

close me Thanks, back to Arvind. the it turn call. to you out Sheila, let

Operator

call. for you has ended. participating Thank you. conference on now today’s Thank The

at disconnect time. You may this

International Business Machines (IBM) 20 Apr 212021 Q1 Earnings call transcript