International Business Machines (IBM) 21 Jan 202019 Q4 Earnings call transcript

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

Financial President a today’s within prepared We’ll with Thank Vice you. by hours, of Relations you President Investor I’m Murphy, our is and IBM, and the Senior will Officer. Patricia investor here this Presentation. for Earnings welcome Quarter be tomorrow. Vice on available IBM Kavanaugh, post Chief I and IBM’s website couple remarks Fourth a of replay XXXX This Jim want to to time

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

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

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

quarter’s present constant we consistent For revenue last example, throughout currency with at presentation. the growth format,

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

We charges X-K and are reconciliation and of the in IBM’s remind profit at that and measures share primarily the Hat. per accounting non-cash. SEC. presentation, and associated the adjustments the these have These you other the impact adjustments charts acquisition to also want of with end the revenue, I to other provided reflect purchase and earnings submitted non-GAAP for transaction-related of Red

So, with Jim. the that, to turn over I’ll call

constant us. In it you of and revenue divestitures. joining the X% actual grew all We we to up a quarter, at to thanks was excluding for and Patricia, at fourth solid had Thanks finish XXXX. currency, rates,

operating income, in over best per operating cash share. of We up some time. and of $X.XX was two points, delivered billion $X margin billion of expansion had the gross we $X.X flow, and earnings free which margin operating is Our net

year with a with next This quarter, operating also In of to clients’ in chapter a billion we share, the debt a of revenue, $XX took $XX.XX in-line of expectations. our and flow, caps total actions $XX the cash earnings end June. XXXX, per another of foundation about our of for balance $X our strengthen since our reinventions. We digital the for off of reduced billion reduction of free number by billion billion $XX

We the and one RHEL, services acquired services. and the Red the journey, for industry’s and first with modernized software platform, announced operating portfolio, hybrid number making multi-cloud cloud our Hat system, OpenShift. Hat, skills cloud optimized and We Linux cloud for our We services for cloud-native it OpenShift. leading for financial Red management. the technology and public consulting designed offerings specifically expanded including We

expanded are AI leading of in and our transparency our for Watson AI. to we and reach offerings, approach trust the and industry the data We

and and to new and our we software fourth quantum. select businesses mainframe continued in to the divested portfolio. our as like revenue zXX quarter services X% deliver areas in our see we’ve our benefits started we investments optimize growth, to With continue results. We innovation And prioritize

demand we in security we their Services, in application Cloud posted Business growth X%. In of across was consulting We Red again growth Cloud three and adoption We of on continued projects, and monetization journeys. performance. in digital and strong had Global as in our Hat help clients software Cognitive reflecting business, portfolio. had our our revenue lines growth continued up good had Software all Paks,

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OpenShift. This we in performance strong quarter had and RHEL

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performance quarter of Our Paks example synergy the the combination. IBM this from Red strong is Cloud and in an Hat

them. advising As services, in the of we managing look hybrid moving forward, on opportunity workloads, largest and clients is course building choices, new applications cloud architectural

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value IBM Red and the Hat. partners also of see Our

IBM’s expanding example, For of providers. one enterprise-wide important our most business platform partnership Workday, we’re with

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the we billion Our than That’s the revenue of above in up high-end $XX.X of range $X.X sequentially. more October. discussed billion was

our transactional performance year-to-year Strong growth. revenue drove X%

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associated and includes the sustainable significant Our This on. debt was strengthen operating XX for and expense foundation of of acquisitions the XX Hat’s driven of we’re operational the higher and and took increase, the with two, impact we Red majority our chapter up spending Red growth. divestitures. incremental is points, The by revenue deliver investments interest XX%, to expense making reflecting Hat,

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the for free $X billion we XXX% $XX Looking and said That’s of year. earlier, GAAP nearly generated our at as flow, quarter, income. net cash in I the billion

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integration. together. We see business middleware revenue Red XX% area and broad-based automation at the and of to across one that the platform traction bringing this containerized are Clients Hat addresses improved realizing and Looking hybrid This suite of to workloads is of benefits quarter. Paks automation. we’re this faster areas, up the Cloud Platforms IBM cloud including to from Data the synergies with data deployment was portfolio, and starting had software Cloud data

quarter, including IoT. of strength Security led reflecting this grew areas Applications like the AI Cognitive solutions, our software and

era believe for effectively is drive November, early the to to in handle quickly, has cybersecurity. will continuing are Cloud standards. their data incidents hybrid tools security This to value clients in cloud in Security, connect to sources, security enabling they’ve what get existing We and been This new reaction for already In more client more them and integrate positive. we the allows resolve innovations offering security open we launched using the areas. Pak and way companies invested these

solution suite, assets. help the nearly Asset maintenance their by Maximo announced as high-value Maximo IDC a monitoring leaders of Asset new countries leader deployed extends Enterprise IoT, offering for This and In This Management we to understand is new physical and in applications. designed the performance XXX a AI-powered operations Monitor. recognized improve and better

spend. workloads, And their the grew Platforms, quarter. provide predictability for IT in managing this preference performance This Processing we clients also critical value revenue then in and Transaction reflects

commitment platform While correlated, bolsters drives innovation, not for our zXX to confidence directly mainframe, clients’ longer-term. the and like new the

purchase the decline the acquisition. by Red pre-tax segment, for this profit Hat the impacts Looking from was in driven at margin the accounting

our momentum pleased Red strength X% was and the of the in modernization IBM the for Cloud and by and of Software Revenue are in cloud with portfolio software together. year, hybrid up Cognitive We Hat the strategy, XXXX. driven

for up Services, help to bring clients and together the their the to was industry in technical reinventions. year. our Global Business quarter, expertise digital and we Moving with GBS, In flat revenue

making investing to clients As been their we enter applications a multi-cloud. architectural clients, and chapter on move to application-led hybrid transformations. embarking capabilities choices are We’ve in and advise offerings and two, help

our X%, development, We and modernization improvements. and We next-generation where hosted GBS create this journey. Against client productivity this its use of Salesforce, realize backdrop, our Hana driven and which in consulting enable to applications that in again and enterprise loyalty IBM revenue by opportunities each S/X new application growth services see at offerings announced unlock with digital Cloud. clients’ grew phase and the had that all-in-one the to ExxonMobil AI recently payment iX is partnered ExxonMobil, the Rewards+, on application, like

cloud continued Services, manage as the AMS decline business Our driven Application offerings that intelligent year growth offerings applications. a new the from reflects is strong accounts. and Management significant The Process build workflows. prior across traditional performance, year-to-year around performance BPO milestones Global platforms to demand by achievement shifting revenue across declined, revenue of few reflects In in

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gross was profit, XX%. GBS margin to Turning

yield global mix opportunity. improvements, flat another on is our from and value contract higher offset benefit in growth delivery and this by had resource had This content, a shift delivery capacity offerings year, revenue full-year was solid year-to-year, gross market point. and leveraging capture our currency by with footprint. While investments margin the almost we expanding margin we’re of to X% from making GBS to Overall, contribution

We quarter. In services. we revenue expectations with due some as more consistent declined X%, declines came labor-based volumes, Services, of had business into impacting to year-to-year Global lower client again traditional the Technology the our managed

opportunity. actions are market accelerate the the shift We taking to value to higher segments of

new for public introducing cloud, private areas services offerings are hybrid and in cybersecurity, and like management, We data orchestration. managed

offerings clients and solutions capability, as investing in infrastructure. across GTS, deploying joint services joint across and GBS and We look for applications go-to-market are

are we competitiveness, We cloud our to footprint, are a actions while our expanding data improve deploying and center more delivery asset-based taking model. structural cost

Bank An requirements. our differentiator and knowledge Our of of of incumbency mentioned I that the mission-critical address clients’ America, is cloud resiliency. in financial is to accelerates, regulatory our intimate public this, security, requirements our compliance, the industry the given a and huge financial with regulatory workloads as leveraging services-ready environment developed example shift business, industry, first the to for services cloud earlier. knowledge of collaboration the We

in to in growth GTS, and continued solid with our cloud in growth have XX% We double-digit cloud growth in revenue cloud offerings signings.

Banco IBM IT quarter, to and bank’s will This to enable are Sabadell, their as Sabadell IBM clients such turning transition Banco environment. cloud. At the to modernize Broadridge

industry-leading and We’re Services together IBM Red and mission-critical are solution the ones, expertise our will regulatory open source to to their we provide capabilities cloud-native bringing solutions. allow deploy deep OpenShift workloads and financial while Broadridge, Broadridge This leverage security to requirements. meeting existing moving Hat applications bank’s modernize And, to the industry new at and services cloud.

good we profit, GTS. to Turning in margin performance gross had

scale of of points actions. basis our expansion largest time. margin our margin out portfolio, XX the continued pre-tax of the and in gross year-to-year We our productivity some sequential was improvement public in by cloud, driven Our had mix

strong was and demonstrates The cloud. revenue a first quarter IBM Power. up Z decline hybrid Systems, client XX% demand in mitigated zXX, a addresses performance that was XX%. IBM resiliency, privacy this for In our the was quarter. data reflects and and across up of by Storage full technology Growth Z in

history adoption And industries driven by of seen in a of We in countries. new across number new broad shipped mainframe highest workloads. and quarter, this we’ve the the MIPs growth already

their their large and a zXX footprint cloud-native global For financial environment to as strategy. of example, we backbone migrating critical see institutions mainframe

development simplifies security IBM ones. across and way and Z. new a to resiliency, Cloud-native deploy This developers consistent their advantage of while clouds, public and applications existing underlying modernizing gives performance, of applications building private taking the

with we October, One. container together of Linux comprehensive for in platform OpenShift server platforms most IBM the and and the announced Kubernetes industry’s enterprise And Red enterprise IBM Hat Z Z, bringing

for continues innovations, With to clients. our these unique IBM platform a secure, high-value, deliver Z and scalable

the remind I’ll In U.S. Storage year in of up quarter, launched as fourth completed we the Power growth in of supercomputers the our roll-out our high-end, POWERX X%, the the Department last was next generation led declined. by revenue you for high-end. as that Energy. processors well

launched new we mainframe, next In times, storage the This the high-end and integrated encryption. November, tightly generation zXX end-to-end DSXXXX. system, industry-leading offers response with availability system, pervasive

than reflecting from five our launches. the margin was Systems pre-tax hardware profit, up Looking at more benefit points, new

and release lot high-end of innovation New is this year zXX new and the we’ve a fundamental the segment, to accomplished storage. both mainframe with this DSXXXX

cash financing Now turning to cash, and of we generated $X.X billion of cash cash financing off from $XX.X $X operations, receivables, free excluding excluding also operations, with a receivables. This of from capped our flow. year billion billion

strategy our expenditures across Our services were de-emphasize financing decline reflects and lower to The net billion. our year-to-year value content $X.X portfolios. capital

estate billion was our from cash CapEx. flow cash a on includes free the of financing our predominantly our cash sales, net discussed, also half, in with the cash Red of the real taxes, I’ll few realization headwinds view remind XXX%. benefit It the impacts the a year. $XX.X including which And flow from you XXXX, Hat, actions We reflects in-line beginning reduced free and impact generated we’ve in including pre-closing portfolio. the flow we’ve headwind costs, from our our second of taken in free

Red of of at largest cash, Hat. was Looking course the of acquisition uses our

in dividends. includes years, We We’ve growing consecutive to dividend shareholders remain year. share also we our for per XX returned our this billion increased billion to dividend. This $X.X committed $X over now and

repurchases Hat. also on to We of billion $X.X the closing prior spent share Red

of year Red increasing when year balance balance $X sheet, were we billion. we down acquisition. a our ago, $X of cash with the the balance in Hat from billion the at cash Looking advance a That’s ended

Now, our a profile. on minute debt let spend me

we to acquisition, the at focus Global the time and With we suspended debt the our cash on debt. to of call fund of on the the I’ll billion Red us June, of end Hat additional debt strong took Hat transaction, at repurchases $XX Financing share combination or what We generation non-financing, Red had in repayment. core our allowing debt debt, a

$XX the in contributing core June. our reduced reduction by fourth debt debt a In IBM’s quarter, to billion billion, $X we since

$XX total puts now This debt single-A $XX a a rating stands leverage Our track to is ratio which on of billion, high of billion. us achieve consistent a couple with years. within debt at to mid core

our which I also X debt, want is financing to a comment Financing fully with assets, of ratio Global on supported by to X. leverage

completed reduced since by there beginning our debt Global $X.X of announced of which second is to essentially in we the February, While financing debt wind our half, end no we billion operations, meaningful the the year. OEM the of we the year. by down In commercial change Financing the levels

reducing quality the retirement-related do year which ended to levels, this in In of our debt we I as provide plans. January, performance update typically XX% the our at an investment credit to our And overall improved addition want the on grade. of receivables,

Our and profile. risk, U.S. base plan frozen moved has over a been the to last several return we’ve asset our lower XXXX, lower years, since

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plans to can well retirement-related be funded. see our continue You

software this the hybrid these acquired Up to next create reinventions. talked clients’ Red a for We wrap about leading let our Now, modernized focused to me strengthen chapter chapter few comments for been Hat, how in the what up positions I our platform. brought portfolio, digital XXXX. our XXXX XXXX, of cloud together we’ve foundation two. done and We’ve front, with on us and on

cloud zXX high-end GTS the mentioned storage. Cloud new and on innovations Paks, to brought offerings to services public the journeys. GBS their joint and I financial We cloud, introducing are We market, clients help

and in position quantum, have a We in we’re the leadership again U.S. also patents. leader

in time, good divested the At the across our and two. to performance we now high-value weren’t same some transactional software businesses had systems. that we in fourth quarter, chapter important success And our

We’re Red growth in the along Hat services hybrid itself. migrate, starting and some labor-based IBM Hat to the in And in cloud build services, the Cloud realize synergies GBS to Paks, the with advise, services GTS traditional we’re and Red in combination of manage across and environments, engagements, in and good pressure in from services. seeing

mix we generation. All flow operating this cash together, and productivity, And and X% in high value flow, on free our XXXX share had quarter. and With delivered revenue we this to we revenue, free gross focus strong we growth gross our margin. of margin. trajectory, grow expand operating With expect cash earnings expanded per

on headwinds Red in that, businesses, especially face focused and business. have maintain divested our AI first half, remember, especially we’ll a high And continue P&L than the adjustments, from our of productivity the and data structural will Hat We’ll take impact drive we’ll investment, actions, XXXX. hybrid purchase Within level still cloud to year-to-year in an and the capabilities. non-cash from less though accounting also and GTS

operating the an of including expect deliver an tax, at in XXXX, for of to estimate of to earnings all-in we rate, rate year. tax range Put per that’s at expect share Like an X% this X%. all $XX.XX of Looking we the operating least discrete together, items.

that, cash flow, as expect in we Red XXXX. of expense. capacity. accretive And we as CapEx free to the net Turning we incremental $XX.X Hat continue growth and August, in that’s Within said to to we expect back flow, out we’re billion cloud build expecting to free interest cash in about be

back me With over Q&A. the that, turn Patricia to for it let

Jim. you, Thank

items. mention the like Q&A, Before we to begin a few I’d

Red today remind we’re are provide performance. growth that providing Red to normalized, comparability I’ll historical Hat’s rates you the to First, year-to-year for Hat

charts full always, to at information end Second, provide the deck quarter that the refrain as on finally, additional we questions. slide supplemental from you I’d ask year. and And of the the have multi-part

it open up let’s questions. Sheila, So, for

Bank Thank Instructions] of question you. Wamsi with Our [Operator first comes Mohan from America.

open. Your is line

I XXXX be well. and do you help items strong Red we about thinking revenue know for see can high-level Jim, should Yes. bridge nice Hat Red to and relative flow. know tax, be Thank break revenues, you but performance that you. revenues? $XXX CapEx, XXXX core Thank on year-to-year? a pension, business, cash the puts And in at That should of I it you. the touched increase then free between as in to little the would think million you takes don't that bit Hat, guide for the down performance larger explicitly a same overall big could great. that some about if maybe we what but are embedded you

compliment there, working you, Thank and the the been all Wamsi, appreciate hard. Okay. who around IBM-ers have I to

couple our It's the out business, of us went me into billion, gives always $XX.XX talk confidence underneath always that, that take color. multiple approximately And to of least all operational we're in trajectory do, let Let me we there etc., just them, we and with we XXXX business share talked coming out out EPS, things as of first about, the on regards scenarios about with account we guidance. guidance but start the overall. indices, and time as $XX.X of plans, our a you at some expectation which are and some

So, with of to been but first little quarter on in last to point challenged that's currency. a pretty bit be X of a rates. current in we what the years], a the going the [few at expect we've first spot half between be different minimis Currency, headwind, around de most point X and and first here full-year

about of half go similar on year. impact that we've what the we second be finished around portfolio Three, continuing X-point of lot going and to year Second, non-core half, a done a gave we in in is our roll and first embedded in a we're X-point assets, the to very the work the the we'll results impact just optimization, revenue divest remarks, to transparent Investor second about statement, our talked half that's out, with lessened. deal in we four-quarter four, half first it's were predominantly deferred we And and as on very you prepared Day, the through. impairment

would on of all-in be to the look offset our actions discrete and overall. again that discretes, expect charge, that on the the in which I will are basis tell full-year including first years, tax to much probably the X% you a tax, X%, when In that to if benefit last be going high-end at take GTS, to reposition on you, be that. the take guidance quarter look will aggressive is a fully And you few business at structural a pretty immaterial. we transparent we

So, behind of the the that's overall. some color

talk to will embedded guidance and out you I will flow, Hat will that, you plus the the growth when grow and the full-year, cash we we our earnings acceleration continued grow continue cloud expand in good per Now, about full-year, our be nicely. free operating revenue, will mean, at margins we And look of in continued share, Red we will together. business of IBM grow

Wamsi. Okay,

Let's please. go the next to question,

Thank you.

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

open. line is Your

afternoon guys. thanks, good Hi, you to

down, by I structural I'm revenue quarter. the again, also cycle visibility GTS the too segment against just again last but short signings what XXXX. that much your in thoughts, growth with to revenue recognizing also stuff – with Just you issue guess you the on GTS, outlook intrigued do. can't I'm some an have And that confidence for was growth I delivering curious, know actions or you see get

margins. of Within some that, you expect we IBM segment, let look at you about operating the as again, since the it colors well, when the me said, to you expand by segment. earnings grow cash got and continue a from give Yes, we level, for free share, asked Tien-tsin, at let's revenue, question. per and twice, talk Overall, thank to flow I

our one, and Red base value a IBM in to consistent that we strong portfolio Hat see of now acquisition, segment. you're our line-up to and the Number seeing have performance we're our in very with together, Hat business, we results continue software bringing offering synergistic the complementing bringing and clients, Red in

question, to GBS We XX pretty XX finished back quarter. in GBS, days very the we pretty about played ago. your in about the overall, guidance ago, GTS, out that returned for in talked fourth time backlog growth strong signings in optimistic strong we're consistent business growth to we first accelerated gave and XXXX. actually we the with pretty quarter days years

in ended, to into second in around when model position predominantly incentives going take improving our half. actions light you backlog seeing the an and high-value look And would operating the you as the and year around we're offerings, we move what models, trend around where look at in marketplace, portfolio around our are through and see changing optimization, we of we go-to-market in GTS XXXX, I

And then very we're market. That you always has look if based at good to innovation Systems, predicated a off new been value segment bringing to on and start.

Our which Value nicely. both new grew storage, we market, zXX brought the resonating. and high-end proposition

very half a we this we'll expect get half, second into first We out. of how strong both in those, and see plays the as cycle

next Thank Sheila, to can the you, Tien-tsin, go we for the question. please question?

question next Credit Matt from Our comes with Cabral Suisse.

Your line is open.

profitability can we PTI that, through the how quarter and you into margins fourth about consulting about to then what's management. should the Yes. if Thank and between divergence for driving and in And GBS, forward? you. segment the particular dig more the what if performance the going there in bit in Wondering related walk you could on drove little talk just pressure a apps think

fourth I Sure. look we talked were question. double-digit overall, of achieved way, single-digit the pre-tax were going significant talked XX% milestones we to grew the overall, improving quarter if our to first consulting remember I last our XX memory, And quality income management we about lot application a facing we and last fourth GBS done very that about correctly, to growth, had appreciate time at think off had was delivery quarter compare. work difficult of all, by of that we mid-single-digit XX% year, I'm that high returned we Thanks, we ago, growth. contributing I a we Matt. the up were last fourth at year. When days year. And you quarter

XX quarter, growth. were I'll consistent gross what basis points. more the row, in revenue knew but you, business year full-year, by the We couldn't profit be tell grew we for we fourth in entering So, operating the I with margins overall, a of space second here pleased GBS

clients' in nice We to the continue seeing to both. cloud, reinventions and growth our to reposition capture we're journey in business acceleration this digital

prior large you around going led And as regards to Chapter X hybrid XXXX. going forward is of to backlog a mission by, we've just rationale question, cloud, the GBS workloads on see And your going be that to accelerated the that's move as I of about really growth, know GBS and the to strong year said positioning talked returning signings move finished the destination. pretty overall an question, cloud in are we with hybrid we into to critical around growth that to portion and we back to

think innings is I businesses that out, early advisory, advisory services. of seeing application, cloud you're playing represented the so that project-based is more migration, in natural cloud and and what around

So, and to consulting the lead arrow our the but going going then forward. the me, leading AMS, managed GTS of matures, that's services to as then that's is tip way, eventually that

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

Toni from with comes question Sacconaghi Bernstein. next Our

line Your is open.

Yes, question. thank the you for

You And talked you XXXX? the between a that Is to Is XXXX. for number next people a year. pulled then than flow, maybe thinking bridge and I I know think strong draw think but growth call have that from on of should lot quarter, talked about I be still just August there about about? a your performance cash transactional X% asked, something on year a can this better And any that your risk X% forward revenue expectations. the in very revenue you we

about $X.X billion. up You're

think you've quite fact be $X.X will the ex-Red that going of That that Red confident despite margins the some to said implies flat is Hat appear you seem everything up and alone in I contribute billion. businesses. Hat

also so much. well. with can just So, maybe help that bridge as you Thanks

Thanks, overall. the Appreciate questions Tony.

and of parts. piece each take to try these, me Let

of First quarter, fourth all, yes.

you seasonality a for our looking our we talked back and days achieved above in $X.X quarter business to that and dial up would sequential were XX we take about growth $X.X ago, If our billion, transactional billion that high-end. we about

beat guidance told in still revenue returned got high-end little growth. even that, be our to truth importantly Now, with but currency IBM the all quarter, the overall, back and bit better a we transparency, of most

in here we're the when would the good off underneath quarter. We Now, performance, our normal a to a had look you very start. you, cycle one, transactional mainframe, tell I

full-quarter, history. Our grown in ship highest MIPS first XX%,

kind a we've I you tell got get good less software, you normal momentum. when about of would XXXX, So, pull-forward cycle. from And that underneath that's

to and to with invest the and and optimized out I cloud-native, transaction we're Hat, quarter. software modernize platforms. think value seeing very Cloud our The here many about good IBM plus this Red Red would out, our the momentum fourth we've offerings, them in spent adoption in containerized our lot processing synergistic Hat call a area in portfolio, We and that of times, and talked OpenShift only make I play our and is Paks

that for We've run in on systems critical for did expectation. our workloads volatility quarter, than our mission value in internal better there’s And the it's when fourth IBM. for for our platform choose clients, on to commit clients, portfolio our you the And high always our long-term. we high it's to value clients actually saw

value another we but our of instantiation So, with we're the taking in the think innovative prudent marketplace a offerings that bring to overall. view of systems that's I XXXX,

that's regards So your all I'm say to would to them. of I what remember first with trying question,

two in said flow. We free said next Investor to Hat deliver well flow we the that, that accretive look over Let cash me we and cash important. $XX.X By path IBM billion, flow. and the $X.X free billion you on Hat approximately Day, during Very are and one, of be when for year free years, our the will underneath Red go yes, way, will that. cash Red

cash our dynamics of at A tailwinds. really So, of headwinds. in couple when of it's A the of buckets. different couple look flow, a couple you free

going and we're net etc., side, tailwind will accretive expense, one. be incremental of interest have the all-in, Hat contribution, to have in Red to year profit retention, going operational On we're

On headwind we are side, invest. going to the

– around your to last overall. would now, when X capital our we would in XXXX capital were Red Red the said I a driving XXXX, a headwind question in headwind efficiencies In allocation right tax and out business, also cash it revenue, we will deliver we Hat a points balanced investing in of together in take IBM CapEx and in X have our and a wrap tell will look have that August will that, And that points. driving process, you to plus Hat we you

pretty current divestitures, currency estimate on you is with in overall, at mid-single-digit is the our I at think reasonable. at It's When where Street I and the look the constant to the consensus headwind stronger currency, you in growth. at X% the dollar, Street, look add we're

current I estimates the think So, out reasonable. there are

Great, thanks. the to go next Can we question please?

Our next with Evercore question ISI. comes from Amit Daryanani

is Your line open.

calendar guiding just of XX%, EPS for the in about past, year's in wondering between you was now tax for And XX% Red benefit tax the first account on on rate on rate bit of full models, and Thanks just question, guide, people does the that XXXX rate, broadly we EPS EPS does had essentially this you again, you're how so I X% discrete with the QX I for Jim, Is and kind an that – versus little in get at I contribution could the the the a QX change when get for QX. delta talked secondly, XX% that on guess, I the out all fall the guys. fair? then if does my taking or Hat? XX% half basis. clear, touch the that look that's

take each Yes. Thanks, And appreciate of them. the let question. I Amit. me

on of On Just first first Hat go quickly, quarter, closure to first Red talk appreciates I look but Hat. the charge investors, Red little of the and really after four you just impairment as the everyone first it this EPS. you were if back at net, deferred out revenue hopefully a different, given quarters when you're the transparent we've and for And go quarter, the we our transaction, you right. how is given to color

SKU XX% to told from less million. EPS that, trajectory, the XX% about Underneath on expect is of $XXX be which is historical We we you impairment, as our Hat between basically full-year. and revenue that perspective the deferred Red

deferred So, SKU, the Hat pretty account into element. taking normal Red

quarter geographic – to currency a mix, a accelerated impact fourth between we We're small we're currency. In but at calling about growth we constant right on currency at look seeing that here first currency. half-a-point revenue, depending our level, now, to product can't constant of all quarter from see and terms predict now again, at revenue and varies of about X-point right impact

business tax X.X% much And you when That I will all-in. that, you take between to We very overall. to X% X% increased that a good charge GTS important talked competitiveness our about a trying of what the that. a marketplace. year right we a last gain what's going we're a in be XXXX, but give year and this transparency in funding does regards that to we're offset rate, had charge, cost We the actions perspective to we're very absorb expectation, note, to guided at our in of structural and include a we pretty taking look is question. printed event reposition from light unlike taking discretes return And in seeing we're as where to through with

see So, forward. we benefit go really a overall, we as don't

Great. Thanks, Amit.

question Let's go to the next please.

will we Huberty Stanley. Next, Katy hear Morgan from with

Your open. line is

you. thank questions. quick Yes, Two

type then potential outlined the as that of GTS capture? What synergies pro And X-point Red have we back that mentioned able Red about year. acceleration much you might Any you revenue in Jim, entail? in think about of you synergies captured? the post billion Thank how this you've to in revenue First, been the growth of Hat Should possibility taking signaling structural you. forma around context that August, had actions $X.XX Hat. of

about second Yes, one let so synergies. first, the take we'll me and talk

together. very Red IBM the acceleration as think best bringing XX% to up year-over-year value I overall. in see one obviously of is six when the you synergistic better here clients look all, based could in the and We're the with months first it, upfront, Hat, are on truly I our stated together, Red the instantiation. and performance way, The of we're delivering I pleased we at accelerated So, that Hat first revenue

different and the so and been gets our lot at you trying go-to-market I investors. revenue have let we're and making and how out know I've to there that we're of And the way give figure and and of been ensure billion-plus of have scale the to $X.X a many second, number which it the at The me of synergistic organic presence, our managing decisions out writing large of we you leverage technology with architecture effect. what's your of look and time drive value models forth, spent IBM's synergistic we enterprise

And And segment, at we lift our on performance for normalized to look this acceleration that at accelerated X%. software we we level, in look the growth it our growth at when looking the look at When our in business all-in we're the the an business. overall, software all-in of of basis. overall historical operational

Now, Hat. impairment true our our what demand software opinion, deferred does the this from adjusting Red demand reflect reflects year. last Then in to Hat's and out your clients, It of question? Red revenue stand-alone impact my including revenue the

in up enterprise the prepared and as deals accelerate Xx about Hat more talked you was Day, IBM more IBM Investor more we're half presence when sell about had talked million, those at So, scale what We And XX of The large over look our above sell and deals global to said overall. Red. and about I we in our clients. Red $XX great year-over-year, remarks, seeing we a sell were Red we talked Blue progress.

of I the So, we accelerating IBM, leverage IBM And more about told are around you just the instantiation revenue. seeing the software sell of side.

OpenShift network wins We around XXXX. including that and we've hundreds overall, will have engagement of and now several XG over Paks, Cloud Red services, signed design as providers Hat we out around X,XXX on play clients through go services deals cloud in

go Great, Can the question please? to thanks. we next

comes Stifel from David Our Grossman Nicolaus. with question next

is Your line open.

nine including told, issues be that is give Jim, a and the the GTS what quarters can already growth as are us in turnaround or underlies impacting year longer truth better that the really, that improve confidence your taking anticipated? little And the you should bookings afternoon. eight progresses GTS, you specific insight Good performance? into than probably given you. Thank

important our start for I very me how some question. what to then Okay. think because in much actions. context, let you thank And David, the with overall share the market seeing it's are and we that providing informs

XX experienced about market we business consistent ago proposition value remarks, of three, industry-leading the talked the in heard mission as GTS, clients client IBM for our it's scale, the share printed and X%, we footprint and our expectations of workloads has with volumes, down what days to has base you lower overall. and note, a but very As important as many we prepared one, integral global importantly has position, overall the the integrated two, role into most critical we're run

growing business where way, that's wins tell the Hat that America over we including $X.X trailing of several we network quarter, in with said wins providers, over making in playing to but had billion Banco by some and design cloud-based GTS, choices. in I book are in Red XX performance wins, out of the addition And you just the the double-digits, is you heard the months, significant see public our Broadridge, you I'll Bank about cloud, point architectural what clients in seeing David, what Sabadell, marketplace, to your we're got

which the opportunity said I ended migrate, our we aligned very in They build, pretty the we in in GBS this by And feel confident project-based XXXX the where we transformation. XXXX are out GTS. playing embarking that's earlier, and see And really as advice, around to application-led why on opportunity way, business. is the services, our

GTS if second-half the to aligned phase, this more up our look go forward. time. we And matures of it play adoption a I that's as as will phase and services you modernization at which – advisory through scale client over should and said, extend the moves application why Now, phase, managed naturally

to So, GTS aggressive are seeing in our in-light model. the going of that, we actions what we're around marketplace, take business

GBS of are reposition front and where we services and compliance growth around offerings around and and We scale to we the creating right in us, are move management, advise, manage, trust managed this a for business jointly, of hybrid integrating OpenShift. and starting course cybersecurity building skills to GTS multi-cloud cloud investing, around going see and that's build, management, services, investing

drive of we're journey to to business And you, global to that going IBM level. cost with breadth are hard. enterprise going the continuum to can in now going offerings, large the integrated going value to clients go-to-market across that early our going these are we the competitive structure and integrate move this with as second, here tell GBS in go take And we play would at improve the we're of the teams take XXXX. and actions And leverage to the integrated We're our I cloud. account addition, to

David. we go Thanks, the Can next question to please?

Suva Next, we Jim from will with Citigroup. hear

is Your open. line

off, signing’s contracts it you [jives]. there. one why on Thank the numbers. it's was larger out up? is looks talked And much. number what's one but maybe with point, just I going Kind right some because of, should probably going calculations, of question materialize and well, timing the That not or totally I'm have to that's everything very going rolling why? the you signings like like in not, number so And aware some on, be my something Everything be or else on shouldn't about if makes smartest and revert number definitely just that sense we the be features down it appears, didn't about year-over-year. looks just at there if or Are that to positive

for Sure, no, your numbers Jim. And the it. I got right. Thanks you question. appreciate

overall, we To and about last they're Why? signings delivered would were not very little more we overall, above equal, billion. $XX.X signings compare our signings So, year. your a as was they that at importantly, impact look expectations. backlog, internally, how off But always said of actually you coming vary, impact let difficult if a bit I've me I tell our before, you point, all talk they realization. how

our last new was deal it base extensions That in signings $XXX $XXX which year were of Signings deals all not you had deals, signings let X% smaller many down and million, I've as natural GTS look when about million above been of overall. and of underneath large out for than are of not $XXX XX%. XX million few to and deals large were those point my our from me greater business, the equal, here, logos. coming you are break quarters down just last use we off And where predominantly

double by I equal, point both move the businesses, way, being both GTS smaller the not Back forward. innings as less million $XXX and still quarter journey deals, but were of up Grossman's David natural the for and evolution seeing big, early the our to GBS. about signings you're is the than digits, for which across question, of think to this and half, we cloud the That's

$XXX largest by of we quarter-to-quarter. the our Now currency the without That's that that XQ interesting some thing we've posted is, worth was quite way, underneath, backlog, actually billion sequential of backlog time. had XQ $X billion over backlog and increase, one to up in with and

GBS, health net So, large deal $XXX growing the underlying less tough portfolio would than both of but compare, I focus, you, GTS, tell million. digits the substantially answer, in double

great. take let's Thanks. Sheila, Okay, last one question.

you. Thank

Instinet. comes Our last question Jeffrey with from Nomura Kvaal

open. is line Your

thanks as delta does point the if like tax much. given would the very $X.XX. out expected though and that broader you and clarify could rate, go I throw be a to on clarification on points many the once prior had us through is, then EPS works a one. Yes, of X-or-so out And again the higher tax it seem to

you. – big outlook of Thank And include bigger in that increase extent affected or and or how to could I the I've have picture, correctly. in the changes what want a tied what picture do to you of then that that's any your sure for the So, you? a much just XXXX trade think make OpEx. macroeconomic

Appreciate you, question. Thank the Jeffrey.

our to rate, tax make here On there rate X.X%. the When tax XXXX absolute XXXX, guidance, everyone. you our look is it just sure reiterate in clarity at for

X% tax said much XXXX, in pretty rate middle. the in Our to right X%, we

EPS a tax look you world. at GTS our that for going actions structural is take year-to-year have to We're tax we hybrid So, underneath going to not what in to I'm each cloud we, to you as that and When said, not year-over-year. model, are but the of own benefit. reposition operating talk – your growing rate business

is structural that for are said, flow And There at are if that few that charge. total we to when actions the the profit. I I to upfront, no at last of to through of Those be high-end you going coverage structural charge. range, actions said those years, look going

share absorb earnings XXXX and $XX.XX We still per our coming $XX.XX. off of at to going what return at are grow just the fiscal operating least in we to finished

question. the that's first So,

ago Brexit, two? bring the Was have you high there X with when today, clarity market your would least a we've other that tell to that can you I said, around Phase advantage will technology Macro innovative uncertainty clients, days a obviously always part Jeffrey, there ask me had you, at competitive areas. around and to some creates XX you to was occur. trade, I some of have on if out from environment. few value spending for regards differentiated

trying for I – is everyone deliver them productivity, a think we've I way, in CFOs marketplace that anything in spend and is you rates and by throughout are Everyone predictability don't XXXX, spend. the so change focused lock to, on move win. differentiation this forward, to If when ROI, seen but is talked mainframe brings that the of have to that the people they value, to differentiated technology actually what their are as strong like buying more

us end Hat, me let to and few year validate to for strong in comments cloud-based the good strength the to IBM. up with Paks, growth in services, call. the our we're actions the positioning year exiting the and a pleased always, year. a for position as So, the in make an wrap our The of we've important growth We taken XXXX. acceleration had Red adoption all Cloud was XXXX

to continuing look joining all you for want we So, today the thank dialog. to I and us of forward

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

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

time. You this may disconnect at