Earnings call transcript Q2 2023

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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. President, Vice IBM's Murphy, Investor Relations. Patricia may you begin. Ma'am,

Patricia Murphy

and time you Thank website a available here Quarter this Second Chief a like Financial Executive today President, and post couple Senior welcome on you. to to will the Officer; Chief by of XXXX and prepared Arvind Officer. IBM's hours IBM's Kavanaugh, and within be Krishna, IBM's Vice I'd tomorrow. with Chairman Jim today's Earnings remarks We'll Presentation. replay I'm Investor IBM

provide our measures. To to includes presentation investors, additional our information certain non-GAAP

signings For are our example, all references of constant to revenue and growth currency. at

We the for end charts posted these at presentation the non-GAAP which is measures website. have provided of investor to and reconciliation our other

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

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

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

Arvind Krishna

here. being for you Thank

value. continued our turn Clients focus on Our growth results At execution productivity again and technology their partners of optimize strength financial continue in Clients us generation, their with to model. projects that as hybrid the continue strategy. prioritize AI to our to consulting of second We software consistent competitive business same modernize and reflect applications cloud a source quick advantage. vectors solid to up workflows. journeys, our speed and to transformation and time, and cash had quarter solid time and view of they deliver

unlocking in strategic we targeted new productivity initiatives. partnerships, investments making market, value opportunity, to our bringing expanding this seize are through To growth markets, while and innovations

focus. revenue flow, our gives expectations us achieve free of two confidence which cash of and to primary full-year ability areas our this All in our remain for

container our strategy architecture. innovation. along infrastructure. form of Hat crucial with IBM hybrid in OpenShift, possible a the and progress cloud innovations open-source key cloud made our based in Hybrid Red widespread on software of platform the plays AI, business IT leading two role We've and this is around drivers making most

knowledge transformation Our technology and business drive and consultants use help their speed-up of technical adoption journeys our clients' platforms. to digital

Our broad demand. meet ecosystem to and client reach amplifies ability partners of our

highlight platform-centric from advantage tap loyalty hybrid program. We're Canada, take improve helping a quarter and digital a commercial, Let Air operational, their application, connect this and past few and approach of me website, financial collaborations cloud their Canada better data. approach. that its helps footprint, including our mobile Using into Air

transformation improve With business Diageo, IBM digital to Consulting optimize financial reporting customer performance workflows, global and satisfaction, enhance embarked large its on a capabilities.

We also to the core platform partnership strategic a provider becomes Red Nokia's with where OpenShift business. preferred applications forged network Nokia, Hat

our center This to command environments. and comprehensive CFOs, automation to AI which our their we bolster Apptio, with optimize technology our past cloud IT announcement CIOs and made to to most offerings the acquire quarter, hybrid the approach plans their capabilities, with CEOs, IT IBM's software for of strategic capabilities give virtual manage the offer AI moves clients investments. will combined Apptio’s and

AI to McKinsey economy. up potential value. tremendous the has recent unlock According that technology transformative a to global could trillion is $X.X a study, the to AI business annually to add

augmenting code list monitoring, AI, problems. on fraud security, risk cases and generation, business forecasting, designed operations, financial supply management, detection, amongst predictive includes address others. and of these and solve to IT automation, HR, enterprise long compliance improved Our is chain opportunities The is service, maintenance, focus use sales, customer

into our software infused being is products. AI

AI opportunity. we Assistant. the partners, data AI enterprise Conference help such and specific the use address announced labor to and in enterprise-ready Think And with next, that Watson and what's customer products cases building as already Orchestrate, May, clients with co-generation digital Assistant, Code service platform with are We Watson capitalize Watson our on our

we businesses foundational Watsonx enabling began a by to platform has rollout ago to more little around To-date, the be and tapping industries foundation across the with from client the enterprise, value over AI to than shaped excited excited delivers watsonx, been one week machine models a about We Businesses their data of are to are them banking. to telco world more models in productive. learning the own the response. workloads. accelerate by generative XXX place, and

generative SAP for solutions. is is clients. use pursuing is example, chatbot unprecedented exploring For to its for models to Citi AI of processes. watsonx Watson IBM large into NatWest internal integrating to the their into customer experience is connecting deliver Samsung and potential innovation controls AI embedding language improve

expanding is work commentary. with including foundation space with first co-create and working analyzing geospatial and the build NASA data use watsonx tennis for produce industries across innovate IBM models and from where was an to to Wimbledon, sports, to also used ecosystem partners of to cases

use. are believe We in step-change for of models language for models enterprises language immense. of Large XX% with enterprises opportunity a the the more evolution AI, is their large exploring than

be existing speech. AI is including of on data, private enterprise both Given multiple data, code, effectively trained a more amount and this hybrid based from can AI private, data, geospatial course, Because includes and draws Enterprise the sensor chemistry business data, it open-source. public, cloud and models, approach. data, data, companies of and adopt material public also

few into important in a takes reality this account watsonx is Our differentiated platform ways. and

are instance, watsonx models a IBM's models, co-created instead on companies those their us. with they single whether the or meet model to enables to leverage open-source of relying technologies, needs, best For

ensuring of aspect free and Another fundamental is watsonx transparency bias trust, models.

IBM create empowers addition, beyond own. to offering tap In the to AI capability companies their existing into them models,

our clients The a of AI data AI, with staffed to consultants seize help skills AI AI have help already us launched and XX,XXX new opportunity. X,XXX on more in Excellence recently the products will and Center To specialized with making than generative investments over generative for we're and journey, consultants we this expertise.

we hybrid same with cloud path platform, that will Hat's way dollars, Red the a same Our the is in the in measured around have consulting is do built clear, AI. now billions of we practice

is watsonx Conference for the monitor, many OpenShift And we Shortly AI manage our solution at like OpenShift the will cloud new heart just which after technology technology the serve, of platform models capabilities. introduced hybrid a our Hat to at our innovations. one is AI, of just platform core train, capabilities, Watsonx Think Red watsonx be lifecycle unified of Summit, at the is and applications. previewing the and AI technology

This a And cloud an continue hybrid, as with solution how gas greenhouse agendas, clients also hybrid that multi-cloud we tool edge, streamlines unveiled application-centric track for to launched clients IBM of their connectivity mesh, their We helps we SaaS AI-powered To example and environments. help cloud-based our cloud that workloads. emissions for areas sustainability boundaries the hard techniques, a scale us can computers produce demonstrated that quantum recently results innovation, of push practical IBM materials. using that a XXX-plus mitigating cubits. in at of can firmly puts risk, solve on breakthrough and significant path finance, problems such is quantum a towards error as computers building

and me full-year productivity, in confidence flow paying our execution. that position to cash conclude clear The have achieve us growth. Let strategy is our focus expectations our in business on the momentum and is to of done off. we revenue our reiterating free by continued our better work It the deliver IBM clients sustainable and and to needs align

deeper I into our will would it and to over With performance that, to hand like expectations. Jim delve who

Jim Kavanaugh

Arvind. Thanks,

$XX.X in income; financial cash key $X.X operating of of through of start highlights second billion the the We I'll per always, flow. quarter. with revenue; As operating billion billion share $X.XX first-half free nearly the earnings $X.X and delivered pretax of

with divested constant currency, growth second a at dollar a X.X spot quarter, points, revenue impact had year. last of continue XX our impacted rates point point headwind X currency is and in businesses about growth rates modest we we revenue strengthening to XX-days; growth the worse last the than Currency In to over by which suggested includes that be April. over the from basis reported what

comments on of performance a As is I'll again revenue profit. software by contribute factors IBM's recurring and was revenue of growth currency. led three that These about represent focus typical, and quarters solid and Revenue consulting. together are to constant base my

with X% led hybrid across growth and & Hat solutions, good Processing. both, Red and was revenue Transaction platform Software Data AI and up by

X% geographies. of of lines growth was broad-based, also three growth and all revenue across Consulting business IBM with

Our to infrastructure Infrastructure expected, very revenue revenue dynamics. launch of successful had product zXX overall impact last quarter second given any This, was IBM's as a XX%. the disproportional in cycle down reflects quarter revenue growth the in this quarter, year.

infrastructure Looking was at the up. compounded revenue growth two-year rate,

basis We had Turning to segment. driven every this our our quarter margin mix improvements good profit margin operating productivity. in by and performance with expanded gross portfolio gross reportable metrics, XXX points,

our gains, a pre-tax year-to-year XX pre-tax assets. margin of about $XXX of our Last basis operating better impact of a we basis gain indication ongoing software This year points. XX is sale from the was Without margin performance. the operational the points. our million of had divestiture healthcare down Our up was operating

couple expense on our impacted items pre-tax comment performance. me of a our Let profile within income that

we remaining last of a year-to-year in higher another level in of resulting million quarter. this our calls, margin $XXX costs earnings pre-tax year, by Workforce about XX basis we rebalancing discussed expansion the in our workforce address points. stranded As couple the portfolio the actions, rebalancing from activity impacted

to by currency million impacted about PTI remained year. growth The our basis profit. to not operating a of hedging also points profit then and but pre-tax XX translation about $XXX operating revenue, year expense And and headwind, year-to-year pre-tax margin to combination only by and

discussed the this businesses. past, in I've As product-based our impacts disproportionately

Client have momentum our to our IBM productivity IT spend but contribute We're processes. as making deploying performance. to We free-up in and strong AI mentioned good digitally progress margin benefits business a mix, reinvestment across we're HR to productivity The for expansion. operational source-to-pay. workflows, initiatives. profit also our I and on transforming simplifying Zero underlying From operations

last actions. us we profit performance driven flow, to is working taxes. million and performance-based $X.X in year-to-year the capital up Turning cash to This compensation the full-year free is results higher for and payments and billion nearly track billion performance, our from cash and strong first-half. on first-half cash structural lower given $X.X efficiencies, mitigated This the higher keeps expectation. in was payments, by over our generated by quarter year's Growth $XXX

companies. to uses the continue automation acquisition expect In up dividends down that's through with billion over we over first-half, to in sheet billion we close billion which acquire terms have IT the year, December. From the $XX balance of of six shareholders about form of returned March, very this $X.X we our Later advances Apptio, and $X to perspective, million spent of cash since $XXX to billion position cash complements $X since liquidity strong a and capabilities. and

the billion, balance which of end is the was second $X.X year-end. up billion debt quarter at from over Our $XX

were of to prudently as year, XXXX allocation debt issued market we as recall in capital ahead in You'll maturities, earlier get the and and priorities. opportunistic debt the accessing XXXX well

Hybrid of Both hybrid Transaction quarter. & this AI is X% to clients performance as accelerated recurring Solutions grew, growth platform leverage revenue and transactional base, Platform cloud both annual revenue. our which our growth about software segments, XX% again the reflects revenue, and revenue well software as as This to Turning Processing across capabilities.

In Hybrid in automation. and Platform & AI, & fueled Data by Solutions X%, Red was growth up revenue Hat,

ARR Our Hybrid and of Platform our the offerings clients. & reflecting X%, up over our importance Solutions $XX.X is now with billion strategic

more grew Hat XX%. the OpenShift, hybrid grew delivered double-digit in Ansible revenue. now in than XX% and revenue this quarter leading quarter. gained and Red our growth $X.X market annual billion share recurring cloud has also platform

In automation, servers, reflecting automation. integration, X%, business growth application across revenue was up and

clients productivity optimization. through business value enhance and As performance drive

needs and business AI The management revenue growth and like workloads. data analytics, up visualization, the for AI broad-based organization, underpinnings as XX%. was for & included Data enterprise analysis, data giving insights areas

quarter. revenue by delivered offset than by driven software, We declines Insights. in with data Security security was This X%. security in Guardium this growth services more declined security

of contributed cloud and dynamics hybrid both transaction revenue to quarter. recurring price a couple rates revenue in installed processing. strong easier had year. increases, off importance we Transaction grew software this transactional of the platform the an of compare The cycles opportunity strong in zSystems over together environment. reflect software again with Processing, Putting In last increase and this XX% in zSystems last capacity renewal These performance

point, X.X operating Moving leverage, to segment, the margin seeing be considered other were United point We mix by delivered quarter. revenue software pre-tax discretionary meaningful given was our larger States. revenue we that X profit absorbing transformations Consulting same to the this currency. At was demand the of delivered In over up that while both time, impact for scale from X%. and for April, the discussed up predominantly more projects we in ROI. sustained

second in buying behavior same client played the The way. quarter out much

continued the both X.X demand Our savings for We signings over up projects productivity. our XX% with solid, last and engagements. growth up to were This as small increase over book-to-bill double-digit clients ratio large months. in drive technology-driven XX address prioritize takes and cost that transformations

be broad-based. in lines continue cloud-based a and service our Technology of strategy. and grew Digital to grew AI analytics-focused offerings consulting, modernization, Business embracing clients strength our growth transformations, application across projects. Turning again data was transformation underpinned across management. cloud business operations including consulting saw development, hybrid X%, as and and technology by driven to X%, grew X% application by and we services transformations

to grew signings performance strategic Contributing our solid AWS from and partnerships double-digits business, across partnerships the Azure. growth with revenue and with

Red Hat practice also double-digits. grew Our and revenue signings

rate an have run in billion. We annualized of revenue excess $X

expanded gross XXX a margins both we pre-tax profit, consulting basis and to points. Moving

and more actions is investments. and expansion pricing reflection margin labor Our costs offsetting we've taken, productivity a increased of the than the

hybrid seasonally is the of and and of cycles. clients. when the wrapped both revenue Infrastructure of the zXX infrastructure, the first on development The strong XX%, down to for Through embedded launched cloud-native zSystems zXX performance cloud cyber segment, availability, We've last ahead XX%. strong power brings hybrid Within scale, quarter. well impacted in year, quarters to five revenue the up resilience revenue reflecting security, Turning cycle our AI This support. prior at infrastructure XX%, hybrid product declined revenue was infrastructure dynamics.

data. adopting are down IBM's example, real-time AI volumes insights For significant processor clients the Distributed as for X%. Telum of and zXX across was revenue infrastructure the foundation

last Let Storage by on strong you, driven me we up wrapping in PowerXX remind XX% high-end are systems. growth and strength year,

XX pre-tax basis about including gross from infrastructure to currency. point basis down points, margin while margins Moving was expanded impact we X of XXX points, profit,

with with vectors let that results, I've and productivity. We're of level bring in our driven growth and IBM it software. performance, me a Now momentum We to the wrap up. delivering through the back performance, revenue our segments consulting good by growth mix feel gross software segment solid margin gone strong our up across to about our base recurring by high-value portfolio and first-half driven

expected as impact of dynamics year's last profit year-to-year divestiture. overall Our reflect the

two of As of to I'll cash full-year of X% we about cash billion We the you the year-to-year. metrics: growth and see we're free view revenue growth revenue flow primary expect to over which our $XX.X constant-currency remind we of $X on look X% our holding XXXX, and is free up flow. year billion,

me full-year Let on a comment few these items within expectations.

XX-days the driven product expand initiatives. also to margin our about progress by point with rate by of view on with a our We're which and view consistent ago pre-tax in is operating line range. combination IBM's X.X productivity year-to-year, That's the and expect mid-to-high We for mix of model. year, in our our maintaining our tax teens

expansion. pre-tax hedging impacted remind to I'll cash of gains, revenue And last year's rap of and been you this rates some by year at still our in which current year. rates, margin fairly volatility headwind over about the our to is be expected spot currency to currency finally, there couple while has neutral for last point on X that profit are weeks, dynamics the our growth is the then translation

software, segment good all-in we dynamics, growth mid-single-digit including and at revenue in had half This now end software's model. a terms first of high is expect In the of acquisitions.

operating drives expected leverage growth points points revenue with expand pre-tax X to software Our X.X year-to-year. to margin

view consulting, reposition we didn't we’ve in clients' needs. our business In address our to quarter year. saw the the today's second of change What

mid-term X% of least to to I the for the with X in dynamics. expect expand year past, X%. flat is in consulting consulting performance the as product horizon, revenue range then described roughly margin any We infrastructure, by pre-tax model in revenue at to cycle continue And growth And reflecting over point.

in on quarter. strong wrapped quarter, second the introduction the we a seasonally In zXX have

infrastructure XXXX X growth decline, over the year as point. revenue will revenue overall by IBM's impacting expect For you

expect the to margin continue in We low-teens. pre-tax

estimates analysts' XXXX expectations business these a Our analysts' have look to looks cash The as of estimates we today's higher-value for reflect higher-growth, also quarter, the referred strong what we reflect And reasonable. as dynamics. with third average generation, at the IBM.

and us grow pleased year. free for are to revenue track deliver expand growth, we closing, margin performance In our it first-half with and cash flow on keeps the

our get expectations Patricia, provide Q&A. I'm on happy let's and the in quarter the more to started. color

Patricia Murphy

you, Thank Jim.

we the of like Q&A, Before items. a to mention begin I'd couple

provided is you of ask presentation. always, And at information the as to supplemental end I'd the questions. refrain from First, second, multipart then

open up please let's questions. for it Operator,

Operator

session time is the Instructions] question of you. first Our this Thank question-and-answer from the At we'll Mohan begin [Operator of Bank with conference. Wamsi America.

You may go ahead.

Wamsi Mohan

term. AI. share Yes, much. terms ‘XX a wondering made Arvind, initial of and would possible, growth be if some over so or thank and you dollars around guys wondering, short quantification major on I noted thoughts in any in you the helpful? you rates announcements AI traction was either can have medium you some to around if of AI I'm monetization ‘XX, lot And

areas you noted there. talk fast, different for upside structural much Or items that to grow is to could, the are strong And year? expect if could if a versus you And XX% still growing there growth, just you so does that processing is I And you how other offsetting? saw was could Hat, software Jim, wondering this Red if processing revenue much. if you I few transaction to Thank very transaction that if about XX%? cyclical. of reiterate, are that you drive

Arvind Krishna

going you noted, we you as for then I'm And for importantly question. our return to clients so AI, progress most do as on by it. us Wamsi, course excited what very the thank monetize our of for and is and

would a Infrastructure through route. Our will and that. monetization and but monetization consulting I'll benefit, to is I that not be direct largely software explain going call

start So me consulting. with let

we tell get XXXX, that until have we so else and similar where round began In consulting. I we'll first and with about would have at inception hybrid in we'll expect down signed rate road, an be knowledge. then way. business precise the was to we billion year, have with about of run Jim play with this about call or done annual you we we what anything in of to-date of book AI business. And it aka noticed, case signed in billion a $X talked you point, to more $X billion in in months consulting, out zero. I journey If I $X this our it six to hesitate OpenShift and out the which cloud talked

reaction client initial the very by something have Now on, very, platform. by. are is software the really it interest, are of the very which on the we going we projects side, watsonx the excited we to pleased number very,

years. it So of what's how it to a each Red I Hat is about at the at annualized grew and literally in year billion we And this right in, the of revenue think was rate which $X.X four model it times on? doubled OpenShift, for the first As XXXX, quantified have think basis. point, in. product was came XX now came what it on And about run it our

So we and of as that sense to these you begin excitement for could have go projects, the gives what forward. us you a around technologies, it these do

but the not infuse fact will Telum. our the Now projects, third two products, I'm inside in models that it our categories. whether whether it's in have, mainframe it's want database of it's AI important, those first those the it's product quantify don't But is including sustainability, and whether whether most I to consulting every we single

TPs give question. for to So let Jim with the that, it me

Jim Kavanaugh

accelerating But X% transaction our And in to question. And pleased constant hybrid very Wamsi, both software the platform second We're question, at your acceleration quarter you the and overall obviously the was solution. by & in value processing. the currency pretty for to get double-digit Arvind. and here raise performance and and Thanks, with high in to pervasive, to our us overall, model. the first-half overall our Hat, high-end the business in exiting double-digit underneath transaction Red confidence processing way our mid-single-digit gives double-digit in the performance guidance Data which of software AI, thanks,

programs effect. We And shift It program our model. talk multiplier the the XX% successful profit growth that a up were software, Now also we've of TP flexibility Arvind about to the year, I cash had last that the tremendous in to the two. about and a talked times us overall. IBM over inflection value provides installed vector our source It's the gives on of saw and entered X way, the tremendous the your financial mainframe for question value of in constantly our about calls, reinvest ’XX. for in transaction By We TP MIPS these position was business that we processing. incumbency last predicated capacity. on

to have renewal go So a strong rates get overall. we much more opportunity base those extended

from us, shift But the we down is drain low-single-digit tremendous a which growth. we inflection mid-single-digit, saw perspective, a we versus said model on saw being

that, going were X, on Now the highly to Call that, X, ballpark. price environment, given don't in I that points disproportional just talked top we ‘XX. in we of inflationary get X about somewhere know,

easier look our you By first-half X%. our first-half were when relatively year It's half first the was last flat. performance, way, compare. So at up our our

have So more acknowledge enter second-half. it's in the to we -- easier compare going compare. a to We're difficult different

can of the year, points given once would compare, X This easier a said low-single-digit grow grow mid-single-digit. normalize exiting confident overall, that you we'd first-half. position, differentiated the price feel we just basis. But very we growth We sustainable I say, on for

Patricia Murphy

Wamsi. Thanks,

go to question, the Let's please. next

Operator

Thank you.

is Next with Daryanani Evercore. Amit question from

may You go ahead.

Amit Daryanani

spend peers on from X% actually did then versus the Thank confidence taking understand in the up does bit? market when in a decelerating what about guess, And maybe you. consulting a decelerate have and that's that saw X% you the my growth that for side about for how question. the time talked I'd half of just in I range little expectations? your a internal could the some stack of holds you to I was hoping bit we rate love deceleration talk of X% given consolidated year your to June, QX back gives up, there thanks the to QX bit growth growth X% Yes, X%. Yes, and that

Jim Kavanaugh

take I'll Amit. actually Thanks, one. consulting this We're our with performance. pleased

relatively project-based in around we down the of our discretionary I in growth, and realization real posted impacted mid-teens, the that in correctly we've month remember ago March strong had in first buying United the quarter. quarter, backlog saw But XX-days back and in activity if behavior, dial you particularly remember actually the a we slowed X% growth. You States that -- change signings

we in change behavior we have not at at look client When substantive second seen all. buying quarter, any

clients across that's markets think world. like second indicator. think a I focused of are ROI cost, growth at deal. in single us, the So X% it growth getting actually internally around I didn't we top Clients looking pervasive I'm other that. on quarter, permeate our We payback positive it, But day, be see that and quick I'm every small noted, should here signings large that the deal, delivered was both very strong productivity

a see we where there there, to overall. where clients, So client demand continued value momentum is is

differentiated in And we ourselves first by second signings transformation, by in technology, that way, you would quarter. would share. signings digital data gaining the how I was quarter. XX% that argue AI quite grew the We the XX% expect we're around And grew in driven modernization, and areas application, and

valley is opening how green AI and on to these some Arvind's this to shoots So going early monetize, things. about we're of

strongest some exited we've in we about the with the book-to-bill X.X that's had So by way, the quite book-to-bill, time. quarter

have behavior for Now we monitor got very piece. strategic strong by in any on buying not client inflection growing erosion And Hat we're or backlog very to realization. that business critical partnership erosion. good going That's change continue of the to half. seen Red We book positions us we this double-digit. But second velocity, good shift way, got our the well the

that guidance us second-half confidence the X%, year. positioned in our for So and gave the for X% maintaining well we're to

Patricia Murphy

Thanks, Amit.

question, Let's the please. take next

Operator

you. Thank

Next is Toni Sacconaghi Bernstein. with

You may ahead. go

Toni Sacconaghi

question QX an think both statement? Can and And just Yes. when revenue wanted basis XXX were you you're on and talked that clarify, XXX margin the was to to I year you point software, XXX. Thank about you. saying comfortable to speak for I EPS estimates you that? now my the then for with improvement feeling looking is

And something that? the And you. to AI were? your are revenue you why this you're software revenue not is your any look in Apptio beyond is transaction related processing modeling in above growth, or if from forecast in that improvement or you also and at that, And Thank outlook substantive consulting there way that improved just year? would when we impact because software

Jim Kavanaugh

thank of four at guidance Arvind and Toni, all, two full-year I'll first take talk questions the high-end But we're our then taking on can our the or your I you. up think piece overall. of software our first AI revenue Hey, margin look or three model. when to the about overall, of you

So that's in guidance a about X the the raise we've we pervasive overall. first-half as and prepared Apptio in. that But point that's think we're raise in pretty all-in, that of the stated how by seen about including we in way excited remarks, very acquisition, year-over-year is reflection I the confident feel performance

annuity, and to a would the coming year, of out let's X had enter growth we back, delivering said, we X we We PKLA, our headwind transactional. pretty a quarter above about have solid mid-single-digit, of entered we dial get on were X off We of we point points model. we first said,

transaction second by and accelerated quarter. And the and in both continued that overall. solution processing, the We hybrid it's platform way,

excited. a and It's assume customary regulations high-growth highly sometime a revenue, at So And very given Apptio, one, quarter. company. you profitable look company, recurring high closing, we see early when just yes, of we normal we it, fourth probably expect

raise. So that's about that X.X point of

strong And The on cycle. first-half. But first-half, seeing that's a TP going on in very on upsell mid-XX% understand very we're to strong clothing third the the quarter albeit then in to through actually is we very fourth with do solid growth, remaining wrap we're first-half going answer those to the year-over-year our ELA expiring ELAs be solid X.X we mid-single-digit transactional is Amit. point my to growth exited

pieces overall. three think I all it's So

on I just margin, first think, the really of in I quarter the is covered dilution both Toni. the Apptio. revenue effect piece the That

about we So basis the for points called year. XXX

remind XXX points XXX go But I'll putting basis quick accretive their Apptio and you, given as we're business we expect profitable between We're overall. a very basis Now in. somewhere points. we forward just

Arvind turn it over on the I'll AI. So to

Arvind Krishna

Yes. Thanks, Jim.

both revenue comment color I'll the and Toni, on software quickly from on AI, in So consulting.

are the the expecting signings, of a over the we a number in that projects. strong signings consulting So in. and that growth consulting the And get and is projects have By in we baked XX% in some lot way, second said, signed. in AI quarter that in that Jim was with to consulting, getting indeed data as I mentioned, of you're seeing as of

in than AI some clients we of that of doubt around no double-digit AI note Ditto with the they had and I'd colored that in us growth that and have is more software, data by software, doing just historically. subsegment

us But be in want laid I we that at as So in, see all including color. consulting see of do high the we the with out. expect sort and just end in our of range all to software We see Jim it. model, to the AI XXXX,

we that it a of are on it included excited traction lot about see in AI, very the is we gave. while estimates and we So just

Patricia Murphy

Thanks, Toni.

Let’s please. go question, to the next

Operator

you. Thank

from is Credit Shannon with Cross Suisse. question Next

may ahead. You go

Shannon Cross

Thank through? very is and interest Arvind, and it plays can What you having much. sort I do by -- know launched but right And the of sure you you AI you of talk how is understanding wondering, that level rolls out everybody and I'm conversations I'm haven't geography? globally, now. think

drivers leverage data model? you watch as how to that wondered the And on $XXX that. for. key of your you'll gaining were billion about you're just How we as acquisition, KPIs think curious bit sort also within commentary I should what could that then a talk then Thank the follow-up that anonymized the more with a And Apptio. of you. if to do you of what I'm foundational

Arvind Krishna

questions. great Shannon, Thanks.

last you So by simple months, in all when at thought that interest the six one at industries. markets, look across spans I of would the AI all level, geography, tell I AI over

is it a to phenomenon, U.S. So confined international the not

at got actually to clients embrace we've dig if look to maturity with have the their does to Then ready AI of their under North Now further that vary. to I be the market it. I acknowledge ahead employees, this. probably to most have is American to their The it. enterprise able clients, interact on

likely comes with the America. Europe South in and Western markets of think advanced I more together developed second, some

South. then what Following Asia is all the that and call we Global would of

South behind adopting I it to on by pretty cautious And they tend interest, year will a technology, Asia, technology In then or be quick. but in not where has a into two tends necessarily go experimenting. experimenting, Japan West. the strong adoption think they'll lag to always, be

So you of that. that gives some sense

that every company, wants into government, be every of questions that what privacy be talk and to few it left the that's up can every a all sovereignty said, on to around conversation, we depending talk that because data AI, do the private to international CEO, models talk and models behind why it their the players coming client, not enterprise, with models and more a country. is their And about and lot that I of But about in CIO and can should every come and more. only what

is And on you color some so play how out. gives that, this going I hope, to

I the is on across That, really their right give CEOs all money where the third-party people is What what's deeply more am not something few to pretty I but than question the the to a in talked they're and look my being lets Coming my and to them is that handle spend, And CFOs, going next play deeply, is part are to on and process What terms gives really What of acquisition public I've the When spend a people on SaaS a the them getting span on centers? about your across spent. What in. this, first on Apptio. own hybrid away. this I virtual we just CEOs, a worried drivers going cloud? spending it in Look, spend it is second? spend, said data my straightforward. all they're think, of on landscape. key of So cockpit on property? CIOs, at interested talk to the it do also

the the With right to coming went prop. billion. across you spend asset $XXX And in across aggregate anonymized data the the that is value enterprises, second

do can because Now or helping than Who better great a better? way spend you? total does benchmarks people with benchmark, on a this to interesting this guide It's fewer who does resource? performance. people is better oneself private Who to public this a to process

model it. large too. better give to spend, that we excited are we'll that be foundation take be can to able where able their people predictors monetize That's into or expect and language about time, a We or even over why they a so

of two-third, get inverse. I while KPIs. our almost call it, your question last international, is, was the we in the Look, as more I'll maybe to and part Apptio U.S., And think U.S. look much footprint one-third they're outside the

expansion so. we next over our channel, go that year as it as or one So the put will we distribution can into big be

The we clients. great have second is we to our the in also penetration larger believe a increase chance one

in rate So growth the using we own those metrics the success while big their are had they've channels. two continue

Patricia Murphy

Thank Shannon. you,

question, please. the go Let’s to next

Operator

Thank you.

Next is Morgan with Erik Woodring Stanley.

go You may ahead.

Erik Woodring

afternoon, love how still some other table, my today. announced thinking Arvind, M&A powder weeks few are dry off That guys. about you transformational but ago. the Thanks largely M&A I'd the to probably you Obviously, a additional Good to into deal you question. make acquisitions. Apptio dig obviously guys for have takes taking

you thinking talk is further end other so today restrictive post much. M&A. Is about Maybe differently, you? more Thanks now? if your for said Apptio? markets becoming target could Are or just maybe you M&A on So any about for valuation message your solutions appetite what's what you

Arvind Krishna

of somewhat you over topic. to Erik, who the me I this have on sound might repetitive two those so years past heard

$X it, let's maybe for That a if the period. about raise for couple. call year So taking been to spending circa of billion talked last additional Finflex debt we the a step includes moment, just actions a table unusual sort total about a back and $XX We've we three-year I say, if off so over the ability desired. billion just circa had

that and flexibility what's capability So tells you we the that have. the

are what reports hope this you in while so is I over you answer perhaps any, restrictive. multiples way, I'll the come down. and down because They've my that's was at in today coming reading, valuations which the we're valuations, about of, about But is that not on get market is that some the wouldn't asked categories lookout, of talking it up not gone much I I I they least case. always tremendous is. the call What also. that but tells You and that valuations, that say could to market have year. It kind seem doesn't the we asked On that

it So we get at right, individuals synergy, if our a has just moment. then criteria And by Doesn't give not it's and hundred are Doesn't find the meaning it's larger, larger, be say, strategy, the let's million. than got grow out faster within to few can entity accretive, with it than criteria, it's align meet very about to financial and And the in years my a us it meaning could It's properties terms. is accretive. tuck-in, two I'll if we combined our a mean before, pretty I that straightforward. latest. not that, call areas in actually those larger

So if certainly those an proposition. attractive it meets criteria, it's

The areas we open to so more to up we in, strategic speak. don't lane, are want

areas data cyber hybrid these. cloud, in help turn properties, are automation, and Our and consulting AI, those which

and it hybrid of many latest Apptio, from those because say AI And deploy kind look automation at data my human because of a three that's lanes cloud of cost it of we're you out I'd is those. what kind the it use. It the big one, hits that's property And I takes if hits out labor So four. in. it because helps they It processes. is

for And So to you it me. write are all can was have you actually a very, we of similar very good any suggestions if ears, certainly and things, fit.

Patricia Murphy

Hey, thank, Eric.

please. Let’s go question, to next the

Operator

you. Thank

Stifel. Next is Grossman David with

go ahead. You may

David Grossman

Thank that actions? the violate you other the processing from to sorry your business the could favorable portfolio. clarification. the flow extensively capital spoke repricing is Thanks. pricing million I of you. of sure impact segments potentially learned from transaction about benefit same. What a guide. Arvind, that on what rule. free have And got about portfolio? working you just recollection had And But similar $XXX factored into want tailwind the you to cash and My Jim, that right make of I I just that's one-question want

Arvind Krishna

a ’XX, in of well price there value part So the Was market, clients that the benefited given address on and TP some of mainframe careful. our and there and the to question has certainly year, David, be got labor they capacity see because that of the inflation pricing me part pricing. value effectively, Given because those the cycle first the increase? this factors, was ongoing that. let increase, see. dollar, by benefit the and XXXX the strong taken of biggest Yes. but Look, I'd the of on been like your

that other then because, to ‘XX expect be similar it range come I'll we same I I Would see definitely, TP both on agree, parts to of software? consulting I all and think David, and that, will based pricing because doubt, dollar, on pricing the think inflation. our had high together And expect the the in with but moderate maybe it labor I a TP. would strong will and go the I increases be don't on costs just as would as

to on, is that his of are And a lag. And remains remarks bit able that pass Now in expect X%, X%, that, pass with in coming heard not to appropriate prepared be built cost, underlying is increases has that's seeing you a some consulting. If through of XX% and a I in both it consulting go in Jim because, there labor on, labor inflation about got to able some clients again, inflation, think, I talk in. when healthy business fully to consulting albeit is, also what we on. with to of lag be a otherwise, to labor that

competitively you rest to I pricing, also so elements I'd would But on. it's and think labor renewal TP, remain have others the priced to a where that rates software, the on market, there, on I in except expect those say inflation come do are. competitive of as and is effectively

the very to a a our we By indication two: and on value then would in in So that but pricing can remain strong price. play renewal elements it's way, say tremendous those clients, provide these other the that consulting are I role. are that rates portfolio of competitive TP, portfolios our

Jim Kavanaugh

X, X, That's anywhere, been environment dealt very very been mean our X above what what, last disproportional value, around of about inflationary was points just for overall we've price David, in strategy still always history I Yes. put highly has a somewhere perspective, is year, a kind in with a with that overall. right? ‘XX. -- we're and dealing talking to pricing it we But, all

Arvind’s offer single clients. going to not the always differentiation but value year, to correlation I've is pricing point, to you optimization and said You're that get a direct every to

the got human the bring You et going cetera. to accept not they're our pricing. clients, capital-based business, talked to value about the with mission-critical seeing to we've good Arvind transaction been take-up or processing. And consulting,

We that's the $XXX to million, growth million billion December, improvement like question, tailwind remaining sheet fundamental operating $XXX and entering where second capital Working of discipline But wrap said a from you year-over-year cash said, profit. the a is of and the David. on your $X.X the margin of in capital. somewhere the piece our year. and working leaving year off of free flow we collected The operating revenue on just coming shortfall more and last had for probably around balance we cash much quickly is came in to remember, of the off year,

Patricia Murphy

Hey, thanks, David.

more Let’s see if we in. two squeeze

Let’s go next to question. the

Operator

Keith is The BMO. you. next with Thank Bachman from question

ahead. go may You

Keith Bachman

I to this you, if wanted Hui, question. to for could. Arvind, the direct many thanks I

about by that that at look even AI the mean over side these stages offerings signing of the you new the time, going at much you've to in side talked in You've business? How development I of what as And about software of supply is the more talked thinking are early business? as consulting become success Orlando, had, you efficient. process, is, the you about the

is by, And developers XX%, and are that so it's productivity because business your increasing XX% gen AI, model back. that consulting revenue don't will if clients a drives seat-based if really want I those presumably, know,

the think, sources? side you the I So gen associated is, opportunities associated with which from and demand distinct of the forces on delivery think separate disinflationary new model, AI do how with about

talk of years. total to out MIPS to experienced you you, And Jim, if next we over about the the you've total one just could growth, growth recently the not cycle look if just I the MIPS growth, couple but sneak in as that

on may for TP to trying leverage may how that Many use me. pricing be that thanks. Just you the increase, to to it what -- how pricing That's understand able MIPS?

Arvind Krishna

So Keith, let first address of me part your the question.

What coming the through at walk consulting just spend lot does in time optimize to the silos, about processes, helping processes, with of look short-term, which how how data cutting the the across I let's team roll help So architectures, going forward. side business, upfront they're business with if actually business business decide through. to could do? up They a the business it worrying going

it assuming even to All AI, that, candid, to a in gets world of holds of be perfection. gen

us, I part have Now perhaps that so let's our work get of to what a the to We to next Absolutely. I horizon, it XX-year over you unique five we tend and resilience productivity. I and first, tend is for are fundamental of expect consulting, financials, mission-critical second language more impact? that the with tell not and to gen would I to systems. do, to which the you see more business to cyber level. would and A lot on work teams agree things large AI look much on supply a models around agree Will that on. XX% much would if chain, an

that you the share for with Absolutely, would means it revenue frame, drive that's technology tell we IBM, time an because client, using, a is an to And can that labor are or work. is value there in lower be that not need the But believe code in I test would total Why? more we I for the automation that win Now pool amount obviously that writing. that disinflationary. of we if advantage, it's disadvantage. we

can little use And and one bit word, Keith, a have. talk example that about I'll maybe boastful. that be I we

as a which of to for for So Ansible productive. That most up the it help code I it's a assistant deployment, part watsonx is language Ansible, developers, IT for our family. and gets more XX% our we used code can think Ansible widely wrote adopted assistant is --

somewhere between would then XX% it. probably Now that's productivity. one deployment XX% overall, and of I overall gets piece say, IT

that's one topic. keep KOBOL, get our to before full across environments, think So all few is to take AI XX% the that's going the clients around good I a years Java, why go models, a number that icon, in But that mind. confidence to

Jim Kavanaugh

On thanks at, where for given overall, the Keith, in. mainframe Yes. pretty question. pleased four we're plus GA quarters

we this out last prior unlike launch year. year transactional grew and with, lot wrapped wrapped on We year. a on We came quarter the we So in we programs. last Remember, second seasonal a we a talked out with overall, last quarter, came year. and XX% that highly

CGR, we've our its in successful second printed we in quarter. think that far, had. two-year mainframe down so program most XX% But and I here quarters the five a

been it drives AI, MIPS you come you the outer before zXX. already. on path XXX% three it's multiplier security, important scale, we this why deliver value clients, happens MIPS actually capacity to cyber Yes, MIPS one. Now the right four up it's the to over development, forward whether quarters resilient talking an quarters zXX five platform program question, embedded times installed a a fast shift into last over us, that important? the X internally zXX we is it's And or because And we're cloud that X only zXX, -- That because definitely, we've it's native around the the was quarters know capacity installed to about to program. effect, we're of usually the into now with transaction your But out new processing. but in in, if next tail of XXX%

model confidence good, the mid-singles. year, I, pretty entering Arvind, being feel and down actually that's take we low this transaction So single-digit to had up from the we why processing and growth to

that So continuing. question. see for your Thanks we

Patricia Murphy

please. let’s the in But we’re hour. of top the one Okay, squeeze at more question,

Operator

you. Thank

Our final Research. from Ben Melius with Reitzes comes question

go You may ahead.

Ben Reitzes

Hey, better. of to consulting with that AI, unique regard pick IBM some that year? models off investors it positioned me in AI, have your for thanks is you place to sound wanted where growth and software to Arvind, to your And you, terms a have well I there. understand then software, cost? layman's lot. is want IBM's of in you are hand What and a to finding find has terms Thanks train, you for lot the right you next of like set in sneaking into about the to to I consulting with that heading their optimism place and people help IBM lower it the ask

Arvind Krishna

when for -- Ben, I question, intellectual and forms. when give direct asking start want want Look, that that property appreciate absolutely train go I it anybody in let have can me through look they Almost form. and take everyone look, data data, advantage to and that on to the in not form. preserve do your with thank it we they say, you they our like to deeply to models mean, I at extreme learnings, clients not three the the in going our data will we're

Okay.

imply. about you're learnings Do could I'll not of all of data? or word information. the in the word itself site the question that college also reveal understand the that use that of in model a can all? sure asking turn use certain what explicitly information. channel from my from you how very or that Next, I'm fact at training implicitly Three, kind you

So for AI estimate all about least bank people a who be the about to XX% overall worried dealing that, at Think which we regulatory compliance. are of with opportunity.

literature. effect care watson, FDA. of, formulations, worried worrying a company company a dealing with about proprietary pharma to about Think about a some, the Think chemicals the company Think something. their reports about just health not side kind about on

as larger of known a of go and are want of there where refinement examples people lots these, to model. it's train all lots a through you Maybe models. So

your models, I'll point other come So to and on to that.

are that found of and that us. people there's asking those lot opportunity, a we So questions are the

want. you XXX,XXX to to do one of models. a a that over everybody we world of model those addition models? public a the appropriate? is going we the have we great But clients number work next, Which there How great that not critically, open now And for Then models from right They're from people great are they IBM already have partners we because productivity. are constrain that conscious same need is the kind for are, the consumption. our source there's They strategy big also pick has taken in with, models provide.

on work for other source So we models will open teams, them. one which the with our models, help our our all is and consulting we on the can so best decide clients own

has gain is navigate Look, XX-years this better become process. that us, of and to clients revenue of being world through help here us we the trying shown much to helpful in and advisers the the complexity extreme can

are So of sense here share hopefully, market. to and that fair how gives you our this we win a get of going

the let call. passed top given So the we that of me just wrap the hour, up

of in a are as position really good half the enter we second year. We the

Solutions we market, bringing client needs, and are is operations. innovation productivity today's and to meet new momentum in underlying there our

capture As I opportunity always, the the in to the need execute rest front of sharing through move we you forward and to progress of to us, as with our look year. we

Patricia Murphy

to out Sue, it the turn back close you. me to let Thank you call.

Operator

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

You may at this disconnect time.

International Business Machines (IBM) 19 Jul 232023 Q2 Earnings call transcript