International Business Machines (IBM) 20 Apr 202020 Q1 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,

Thank you. Relations you President Investor Murphy, our is IBM, and Patricia presentation. for earnings welcome quarter Vice I first of XXXX This want to to

will Vice time Chief with here and IBM’s and Financial remarks today’s Arvind hours, We’ll IBM’s on tomorrow. Investor replay President I’m a Executive the couple Chief and of be IBM Krishna, Jim this Officer; Kavanaugh, post available prepared by Officer. Senior website a within

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

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

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

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

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

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

make I’d presentation. this quarter’s comments regarding to two other like

last of our adjustments charges with other impact are adjustments profit non-cash. and IBM’s the purchase quarters, share These reflect consistent First, the and earnings of with associated transaction-related Red accounting revenue, Hat. acquisition per two primarily and

remains Second, with our XXXX. structure for consistent segment XXXX

in So, with resulting of modest very the segments, beginning of between adjustments. this year, couple we realigned offerings a

on quarter our two reflect providing recast this years first on recast view XXXX in that historical website. data results today’s Our realignment, we’re slides of and basis of supplemental and a

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

Hello, everyone.

to that all heart dealing public unprecedented the in moment goes out and know, COVID-XX. health say As midst my we are a you crisis. with like I’d for an global pause those to of all

earnings investment just cover with first the topics was spirit, as with be you not not commitments today, but I There will in our In open, like from few and partners, and are just now today. employees of to calls on. and participate, clients I with but a community to our well. our One transparent that made I’d

I’ve you intend First, I’ll finally, the last tell I’ll focus QX areas you areas and near results. I two on our what I’ll have revisit in future; talked in quickly touch we second, the weeks; about and to I’ll accomplished about; tell about upon then,

further tech. about. obsessed Let’s start I’ve move gold understanding deepen underpinned with hybrid our and fourth weeks. IBM that we that to the growth an our told which collective delighting team, been in on result our for culture the journey the few AI, essential with in clients’ established areas it continually have talked is cloud our I what’s to cloud as priorities. mindset. We the And remain I’ll standard of and last as will done good platform. see hybrid as clients. are I by All entrepreneurial these fosters these our we

the XX% Despite a result society working XXX,XXX remotely a More of and as commitment steadfast employees, our IBMers remained now. large. at clients, we’ve our of in global crisis, challenges than to are we’re facing

carry to sites mission-critical essential at out remain them of X,XXX about work. addition, In

they As this the navigate IBM our hybrid automation, for they but bundle needs need as normal, clients we that stronger ensure our is crisis, to of cloud, address partner existing AI they leveraging to using This helping and clients, offerings work. enabling remote resilient. such taken clients steps shifting just adjust and more that end, To to new that concrete a to about have the isn’t can partner. that trust. emerge

against COVID-XX. focusing help area has global we’ve Another and been been to with the mobilize to on IBM IBMers battle

can about out; that million have anyone over county power, assistants being XX the anywhere. COVID-XX, COVID-XX visits live researchers; map, which more educational to examples: county XXX some helped petaflops for we saw are first and by channel, of than that convene the and them in Here XX citizens’ available computing The rolled questions the today, week resources XX launch; AI answer nearly of weather

of with data helping connections are We’re educational York delivering the free doing help remotely. XXX,XXX cellular tablets and New city software that learn and students great work, can

When we up, time. and of add just In terms have all we weeks done the IBM’s this extremely math. in over COVID-XX. of have $XXX proud to contributions a already committed response we volunteer few million I’m

already I we of want tell absolutely committed AI. IBM ultimate emerge that cloud I focus trillion a hybrid clear. to on built to some manage more about the opportunity. enduring The our services and a in two area has $X.X on, massive nearly The the is hybrid cloud one near rely A build cloud middleware. that the you for This need to opportunity a pandemic. clients three the industry want are They of the and transformational need to deep is from fourth growth our outcome and journeys focus platform, platforms, cloud. key Company platform. I however to of Now, that as leads services hybrid is IBM. why is IBM the clients for am mainframe, is areas It’s be than Clients future. major half for expertise. ensure

leverage our unique ability them we the cloud. unique new security also with architectural the build but architectural are critical run Containers expertise have once open our leadership, that advantage IBM, This the Kubernetes as that for anywhere. standard. and together to Red for is deep the competitive and with clients give There’s hybrid Hat, Together win mission trust, Linux, winning and of establishing battle battle applications can Red to sources cloud. fact and source Hat, we we

bit value take technical IBMers early focus a want approach. to there how lead little be want a we possible. showcase clients. relentless Let’s to I on this with as more teams on of talk as to solution a our our I must quality. Likewise, the

products terms use. themselves design in Our must for of user and experience, speak of ease

the our cloud hybrid to around market. the and better of going am I of forward. straight focus Company. includes value the to AI evolving is on needs meet portfolio aligning growing approach This the My

We will continue acquisitions. investing including

our services did continue. not parts that align As we This software have of you with focus seen, have areas. and will divested

why The past us entail virtual be reminder hybrid weeks to world things, you’ll ways working. ourselves, always These clear there focused do new portfolio, What’s is don’t this? a our confidence our and in strategy and If you of and we few never of should is you’re the catapulted question into is AI. way a doing asking better. on into delivery. remote cloud which something This is have evolve our better selling

we revenue growth. want and our modest We That’s on I with a Jim, comment first of entered last the currency results. position net to turning from Before to end quarter, year. quarter divestitures. of momentum in In the the had good

few on Other faced business preservation of priorities, a last the comment this momentum. of However, parts impacted software This will we shift client our maintained in towards later. Jim in capital. more disproportionately, weeks the modest and

We challenging relative are position a entering environment this from of strength.

most the Our enterprises essential processes of that clients are the world. run

and sheet going to Jim balance that. is is Our through you take strong,

gives work, what the accelerate going shift that clients’ believe our future. I application cloud. remote we hybrid in with to our are immense automation, confidence me This through shift will modernization today to

take for to will at I to come So, Jim end quarter over back Q&A. it through and you the will turn the then

who want deep have incredible health all deal gratitude our crisis been crisis, have you, the Arvind. and frontline. who with by world by to expressing been people and I Thank IBM, impacted on those out my the to start the to this sympathy clients those this helping to especially

of currency of of with divestitures. and Now, $XX.X good delivered modest and $X.XX had free growth turning net expansion, per billion solid to share our cash revenue first gross continued margin quarter. earnings We We flow. operating

get provide to a areas. some into the current perspective I back and of the light quarter, the Before on a of I specifics step environment, want take in few

our to to we you’ll provides on financial own our the what and with portfolio saw at First, the to add we’re business of comments our end address what profile, quarter; base, current on our and the our finally, stability business; client doing on some then see Arvind’s environment. which second,

concentrated and always has the in space IBM business on enterprises. large is enterprise within our more that, focused

decades, our most and comes clients like and government healthcare. chains, including in run banking supply public processing. the telecom industry services, From financial our core an critical client’s revenue For and claims sector, from perspective, of majority have we processes, systems, the

clients We the financing form relationships multiyear in have of with these services arrangements. streams and long-term software contracts, recurring

at you when look annual XX% result, businesses. of business recurring our mix, our revenue a As about is in

provides this level and some immune content While our cash base stability, challenging we’re in profile also revenue, transactional through these in not reductions, profit as the but volume client environment we our to only annuity manage times. and not in of disruptions in and

expectations. first quarter, in through line roughly February, the we at were our Looking tracking with

March, into resulting situation social became distancing more got we and the As widespread. health

most clients saw pressing there two change we effectively With in in was their dealt understandably expect, the most business, last weeks majority of with a pause a would As you software This transactions the closed priorities. our of pronounced client the as typically in quarter. was vast that, noticeable where needs.

the clients moved securing where and very was a at of the cash. spending running operations and mission-critical addressed For in ahead of engage needs, preservation that quarter, of the with focus end including to change and there those workforce. shifted They remote a priorities did noticeable that quickly stability immediate essential their processes

States, from no connect functions businesses the increased Italy U.S. just and last new Australia to digital two to have AI XX,XXX employees at unprecedented only doctors services their countries are the to absolutely At weeks we and Singapore. Spain Brazil, in for and core developed telemedicine. for And a banking to their United company, we clients of critical need time, for helped to work example, at reinventions. capacity we insurance capabilities same remote, they infrastructure meet reinforced For weeks the work-at-home patients modernize a on few week world, the when had single earlier. and to and a ranging to the via platform cloud and the major In demands banks

guide cloud hybrid example and in their running positioned their AI is environment. reinvention Anthem company critical today’s With on great expertise together ideally we’re in a with clients journeys. accelerating digital a COVID-XX to our platforms, processes, of our

million operate leveraging enhance agility service, We’re and helping their deep data provide XX with of to greater and to members. by them experience more the of quality insights

this run We Hat platform the open secure, on a Red IBM Cloud. are and on doing

operate better to stronger. IBM actions in Now business we’ve this within own in our emerge taken and environment help parallel,

we competitiveness example, investments We offering and business, our of are Technology actions took to ways Global new For Services improve across mentioned. enable our structural areas the working to Arvind aligning of key operations. the

actions deliver billion. $X gross annualized nearly will savings of Our

our our to technologies IoT ramping from drive up suppliers. transformation we our demand our accelerating in decisions We sales chain, blockchain and digital own faster digital to supply with and capability. AI, are are generation And further leveraging smarter

our maintain caps supply to We health also sites and customers’ our measures make meet few last flexible operations capacity needs. enhanced lot at off This and the more safety resilient. of required manufacturing a years our our at to over work chain to

clients and refinancing also While $X We needs. position. we’re sheet our improving early the billion accessed strength supporting taking $X.X reducing IBM’s a debt in competitive flexibility are liquidity our billion enhance actions February, to the while we market of with current position and XXXX and balance operations, issuance, of and

addition, We billion our In rely CP with and ended funding to commercial we advantage increased which $X.X of market. do to our on cash needs, debt we while balances. prudent commercial was quarter our thought both paper not access take paper, the it of for the

up balance a is of As billion ended $XX from $X billion, year-end. a result, cash which we with March

Our billion credit of services, of IBM billion is total products debt, has $XX support which and in of and stable financing portfolio. $XX a global debt includes

XXXX, funded plans plans we of worldwide pension Finally, our as well end January, at qualified were with at in funded XXX%. discussed the

year, a overall see While do say plan status was during we change XXXX. our we our pension year-end, typically funded provide don’t a consistent that expected in to status fairly the contributions with in March I and can not

single these I’ll in continue Bottom capital you also line, and a the And ratio. fully required of opportunistic available the mid-to-high within credit committed suspended billion we credit ample Hat our uncertain invest We’ll to facilities. facilities, have unused have over since our remaining in remind on our acquisition, and to and business. And targeted leverage position while to are committed while levels. fully to the to dividend. shareholder program debt comfortable available markets, a covenants payout our times and they and A cash as credit backup well we strong our at have rating be liquidity, no are share with we overall the level draw the during repurchase Red $XX our support remain we remains plans

up So, help the journeys By cloud before XX cloud in We highlights has had me technology again cloud, cloud last to revenue with bringing focus that as quarter, accelerate a segments. backdrop, clients into $XX with on our our performance the this quarter, months. strong let revenue and to few our getting billion together the to expertise grown their over XX%.

Ansible. bookings and in double-digits. was Arvind and proved hybrid growth. quarter, Containers and was growth this the talked continued RHEL revenue again quarter, Linux, with cloud. of up and and about momentum in the Kubernetes, XX%, of winning Hat to this this backlog nearly integration many Infrastructure up XX% normalized cloud for Application of particularly environment, mission-critical acquisition driven architecture has and and emerging position be OpenShift bolsters Hat revenue Development our customers, Red Red strong by and technologies

large up the largest Hat emerged great the from last based Red signed engagements the value now of and as Red history, its in of proof IBM’s over as This Red services deals deals up client together. using on Hat in see have technologies, point year. over leading Hat Hat pipeline to a XX% deep X,XXX, We relationships. number This container solutions. IBM IBM the Red of platform. quarter, in number larger and and of about was the clients and Red Red two the IBM’s leveraging deals, container it grown Red and in is fourth Hat The has IBM of Hat the Hat’s

in together strong Hat, operating points our margin expansion. our of Red businesses services to contributed performance with margin basis of XXX contribution gross The

of The by a tax charges the structural competitiveness to were offset charges our $XXX discrete these reflects income to actions more GTS, cognitive non-cash and for pre-tax primarily nearly Our our million for than improve actions benefits. in shift enterprise. accelerate

call the January, structural benefits so mentioned and and You’ll in had for time. recall discrete both our been the planned back these tax I actions on some

are flow. strength sheet balance fueled by cash and healthy free cash Our

This quarter a financing is lot free is we cash cash of the we flow, and free which seasonality and our cash our excluding of last operations, generated billion GAAP generated about from $X.X year There $XX.X $X.X flow, billion, both net over billion XXX% of of receivables. in income.

net be the by on the comment strong cash we cash interest of in Red Red With to to expense, performance, contribution quarters, free after we’ve When that And our a year. final Hat’s three July, Hat’s back Red closed to free Hat flow. first accretive we of now expected flow Red achieved Hat, end milestone.

which the had Now, results, Cognitive let segment X% grew We IoT and starting me security in Software, with turn services. AI, to & our Data performance in quarter. & and Hat, strong this Cloud Red

as start dynamics Just as I’ll overall quarter. IBM, a did we for with through moved I of software view the

pipeline, Platforms, In for led transformational those many software. cash together stalled in overnight, clients robust and We we CapEx double-digit in realizing We and clients clients entered Platforms, the to this given IBM industry. Hat most by by have elected large perpetual efforts. than were paused, retail Cognitive environment, Hat synergies the More to Cloud offering in solid the Data and where transactions license These revenue typically concerns, defer sales And traded shifted purchases, through to play and late the deals saw Transaction nearly growth that, especially and we’re offsetting engagements, OpEx. dynamics notably quarter. a in Applications, good impacting portfolio as their continue in off Red bringing Red February. are we focus in growth with and our software our Processing out year resiliency had March,

of a we’ve parts we business, seen quarter. are demands second the software the on of heading into number in focused shifting the initiatives some Given

on We’re doubling on security other and the areas QRadar cloud, for to Cloud including Red facilitate offerings, operational Paks platform Hat shift and down that Cloud and threats. cloud data for efficiency

and Our shifts critical into channels. our we’re go-to-market digital their to partner are reach to our teams expand industries ecosystem accelerating leveraging And now markets.

sum a hybrid which cloud digital to We’ve cloud aligned on AI in Cognitive the on optimized to To cloud. Cloud hybrid our cloud portfolio to provides compelling opportunity. journeys and modernized up, for software clients and OpenShift, native platform is their our & Software it be

transactions, in new AI expect our While on innovation we for we and strategy. hybrid pressure near-term and to development invest cloud continue

entered in expansion of had accelerate We GBS performance Business our the with profit GBS gross revenue the and growing confidence as Turning performance margin points. us signings, from Services. and profit to momentum quarter, Global would in first solid X%, good XXX backlog growth progressed. in We to to year the that gross with growth. revenue gave of basis This revenue the and revenue, returned expected and we it, backlog yield year

grew intelligence with Our by and application led as their and digital inject and processes revenue that reengineer AI and speed, clients to better processes. leverage X%, enable cloud to business help to These their environments offerings business serve IT end-users. flexibility, offerings such into offerings advisory Consulting efficiency that for modernization, reinventions clients their

on our modernization Red practice. world’s OpenShift, We cloud have Hat offerings built consulting the and standardized application largest

We are Anthem, Santander, clients Healthcare, on such Red Hat name over & as now Gamble, technologies, USAA, working few. with Procter and just XXX a to Horizon

remote our resiliency. aligning delivery engaging like and go-to-market next-generation the quarter also modernizing first workforce, of of cloud, the offerings to to enterprise cybersecurity clients applications. deprioritize the and IT in began like COVID-XX the near-term the good March, intensified growth virtually, many are as applications to opportunity, a migrating we environment, But this these impact in of we customers and projects. challenges In and resources In addressing had some transformational empowering

remotely, delivery GBS we engagement Internally, a XXX to clients. now support model one, working predominantly face-to-face percent from productively working virtual resources almost shifted not to our a but our have only of with

to in support we’ve working last from had tell lockdown. the ability weeks investors remotely our on you XX countries. practitioners I hours that some given we XX% few clients questions shutdown in India, the can our over of gotten Over of within

solid of the forward, a customers though business near to look continue have backlog, and projects. we base to we replan As in and some delay term, we a growing expect

more prudently backlog practices, we’re business pace ready are model, new we’re and skills balanced normal global manage rate and the by demand the resource variable levels, to We continue to as ensure with continue going is deals. to going to And of our to and build the utilization it. that address to and returns leveraging to so consumption delivery

Turning to Services. Technology Global

decline with XX performance, fairly margin we and points. profit revenue consistent last expanded of was Our gross quarter’s X% by basis

said managing are I’ve past, contribution. As cash the we in and business this margin for

quarter, cost Last our of actions the about market to I talked to segments competitiveness. the the accelerate higher shift improve and value

So, a on start let quick update progress. me with our

the of addressed first A actions as further structural our In significant the future impacted are actions this portion cost competitiveness quarter. improves This environment, in the to of to going take but GTS. required. evaluate first we’ll and portfolio, our PTI continue the quarter’s this for position dynamic we

and We GBS. advanced capabilities go-to-market also our joint offerings with

the As are clients integration for across stack. looking cloud, shift and mission-critical the workloads application infrastructure they to their

we’re By GTS, a and solution. more providing GBS differentiated tightly integrating

the XX% our double-digit represents significant backlog. are and signings to see backlog, quarter. which stages flat signings a contributed signings, While our Both early signings this fuels over in was Anthem. rate. now of our grew Caixabank GTS that, and This total progress quarter. initial This this year-to-year. cloud at includes at cloud we indications which now our this improved cloud outsourcing in of of Within engagements is an Strong work, XX% up we some Services roughly revenue, total

IT cost and for risks, solutions, new are their and on enterprises environment, address environments agility. resiliency reconfigure current business the efficiency continuity, cybersecurity infrastructure business and In enhance which focused IT

and support offerings continuity our these on workloads virtualization delivery unified to resources without remote time, and to resiliency, management models system prioritizing alternative continue the communications, adopting like opportunities, business and as focusing same are interruption. are service our At enabling We working. workplace we we mission-critical

are in working remotely. In global our now delivery GTS centers of employees fact, almost XXX% our

hybrid multi-cloud lower workloads a this shift our this in industry, be process And on in due to this we open Hat an While volumes, opportunity. cloud. business some standards. IBM will business mission-critical to of environment to Services lead the our ultimately expertise of have to built the impact will incumbency, to regulatory environment, capture will I’ve this said, as expect Red leverage course and and acceleration

reflects expanded where value well was new And now so X% product the high-end as it by recently, and are revenue end cycle mainframe. IBM behavior this in end up multi-cloud storage of of with And an up storage basis as hardware this quarter, and XXX more operations, shifted segment supports and zXX which Z environment We client mission-critical points. for hybrid over our portfolio simplified dynamics. at distributed This importance at XXXX, the in and is looking introduced Systems, a innovation. margin deployments. In see high-end Storage, at client held the These we systems, quarter, the gross see high-end in that new driven and the portfolio, the of well. DSXXXX

enterprise the a backbone operations, and secure, stable, platform. scalable In of of proved a second crucial the quarter full providing to zXX availability, be

quarter, clients of services we touching mission-critical which the with unprecedented capacity a the especially physical scale to able is meet banking infrastructure. market workloads. mainframe, high-end in integrated had And good their without financial their in tightly demands Our in storage, volatility support up significant to spikes from were

reflects Power. The more by decline partly were in offset impacted growth well cycle, where we product smaller enterprises, a dynamics more was the which by skewed in that are and fact as our as in to This the Z storage in is March. Power

clients meet especially operations of continuing adapt effectively, to environment. in We’re to changing this most our the needs

for We’re Power sales the digital And channel to and proactively Storage leveraging business. diversified supply we’re both our the technology manage globally expanding chain.

back IBM it this about and talk to forward. going what means bring to level want I segments, up the through going after Now the

is priorities. our focused months from we’ve in seen the these two and last waiver foremost, have confidence on portfolio, and and First AI. cloud hybrid us we over our causes Nothing strategy which to

obviously to there facing us. dislocation believe well fact, for in their said transitions That as Arvind In are speed some digital. near challenges is term. the But clients will we the bodes today upfront,

Since and and improve position, crisis of we’ve focus emerge taken various environment, to our running a been stronger. further manage actions number this liquidity based scenarios and our stress In on quick model, testing the assumptions. we’ve to opportunities prudent our expense, began, cost and on

and Given rate recovery, of level are for for. is of around of of assign to pace the But and duration the economic wide there unprecedented the crisis, these uncertainty we assumptions to times isn’t health valuable. a just the prepared which the range probabilities outcomes the during year,

it result, liquidity will prudent various to year free flow XXXX, and second have of a we is dividend. As to withdraw clear, our secure we business under the expectations for support the Though and our our ran, be scenarios at quarter. end to ample full cash the and reassess we

Before turning entering perspective to Arvind, want on quarter. the how I second provide to we’re back some

in last transactional XX% the software to years, few quarter revenue. Over is the second XX% content our about software our of

same on We pipeline. how that behavior, deals, buying continue we have it’s software quarter performance to challenging. the our pipeline see against but will expect the yield depend will second be more in we a of If end, the client to solid reasonable

all is hardware Systems essentially transactional.

storage. in have we pipeline too, a Here Z good IBM and

While in of storage, and purchases given an the essential I impact additional closure the current expected less requirements, industries. expect certain nature is impact to and especially would Z rates, capacity the of the environment to

GTS flat essentially GTS real made for in the versus with in up last while, we’ve services, and In the the year, that’s a quarter first services GBS backlog, backlog XX% from time we and progress in with ended of in opening historically backlog, XX% the revenue GBS businesses. the flexible down clients’ of contracts revenue a and quarter come our for our volumes though the adjust About modestly. has

our working close our of earlier, people centers service are remotely. delivery XXX% mentioned in to As

closely and structural we’re at new the on efficient savings second and operating. ways Looking to our capitalizing from expense, The and start half. in of yield spending will our cost managing actions

management. from actions We working focused robust including remind driving we flow perspective positioned are I’ll liquidity the cash our and capital remain additional in second to likely a on are that take you free well quarter.

position portfolio strong, our business about pension This our environment. For these and years, into in this we’ve and high-value that and been coming well is model, naturally our is liquidity really like talking plan funded why times matters. is

position, this value strong So, we’re buying have a prepared this and compelling client economic in for by financial be performance influenced ultimately clients, environment. but our for environment, will patterns near-term propositions

Arvind, I’ll to turn you. over it back

Thank you, Jim.

But quarter have that it transparency the so this tough was are is unprecedented guidance. not it to a time and does analysts. importance these taken we investors not declare benefit and that not the you clarity, We of withdraw have us, times, as and decision to and seriously, does benefit

and And flow share With in support the have business term. over cash our please quarter. dividend. secure per of end ample free revenue ability will business number, economic the to and update recovery, our an liquidity to longer on at provide confidence there’s predict we a the and the second better clarity confidence earnings But different our I in the near-term business. Under difference scenarios, know accurately a between we the or have

entering this from position of environment a strength. are We

So, Q&A. over the to for Patricia

Arvind. you, Thank

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

longer we now to presented end The supplemental from information is notice in of charts slide information, included I’d at finally, mainline streamline which no updated webcast. the to the multi-part during you’ll content presented the our First, ask questions. refrain is chart you deck. the And the in as our format always,

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

will from question [Operator Daryanani Thank Instructions] with come Our Evercore. Amit you. first

You may go ahead.

And lot congrats you on Thanks the have Arvind, Q&A the nice opportunity. guys the on to a session. and spot, for

to of And inorganic? do talking you kind discussion, a do how about potentially your needs understand, spent you forward. you to divest further sheet? are and going focus side flip when way think are skew do? that areas the that organic on you go you help where I you the of opportunities want on; the of of the put on which as just Company time coin, are there investments, you fair Arvind, things amount things about wanted versus -- to guys maybe about you go aside to think balance the to you COVID investments as forward. to there to focus You the want less And And go how to maybe

Thanks, Okay. Amit.

with talking about your the on portfolio questions Let me start and investment.

So, all But, do which the portfolio and put look, is immediate deeply. and I priority I our evaluate we on our supporting We time continuously. clients. got want is do to now, and obviously the period, right employees caution something that it in focus the to

talk organic AI investment our we we investments will to us forward. fit business middleware on the Red both that properties an as of been are of that our We’ve and quick put give hybrid strategy. OpenShift OpenShift. our both surrounding all attractive But, focus just I’ll the had Linux clear reflection acquisitions. acquire And or We when encompasses had or find about on And Hat. you inorganic, Now, We are a both, going that encompasses is it cloud when we core, hybrid it. all-in. cloud, and

we’ll We Cloud have those the leveraging OpenShift to And both Paks hundreds also of GBS make clients. projects services our eventually and find application then already modernization. applications running for modernized

collect, data value my way cloud out where that as of and definition of in many, find should be that’ll the to get data. AI, hybrid are that in internal the external and properties ditto AI You’ll data broader upon that there people fit both -- their many the on looked

small. Now, Size want also being or big I thoughtful to not a priority. about on strategic. comment don’t and It’s is

back gets Jim? we that few should as to over that over acquisitive get so, expect time, time will next it an the meaning you past And months, just strategy.

with is talked that good remarks access shareholder hasn’t capital to the prepared market, to to about that ample flow which us we changed. of and part that while acquisition And allocation in in also dividend hybrid to about gives cash thing we’ve and your and that in is that grade, important Yes. a our fire free capital have is a Arvind The strategy to we would sheet, there solid allocation data point support the the power to only enough strategy around generation, solid design obviously flow that business our talked business securing upfront. our very To strong cloud, regards balance flexibility AI, chosen. cash investment we value component got portfolio and add I a strategy, business, invest big returning our free

could go the Sheila to question, we next please?

Yes.

Mohan will Wamsi question America. of come Bank next Our with from

line Your open. is

could leading in changes at this if more prepared can And you bit. explicit not bent. technical go-to-market to has your recast Company in the perhaps tailwind You the that prepared headwind, address of but context again. had responding as I comments takes preserving can mentioned elaborate puts if things you those and mentioned alluded Jim, the as pandemic your in last point. the maybe appreciate providing But a in there call a you and to well, I flows? the just of you cash levers cash in to some You guidance maybe and several remarks, wonder you’re flows wondering few

on, it’s more we a approach accelerated or in With crisis on are elements. respect journey I’ll to to us catapulted effect selling, been what have three we current actually And a touch technical but the sort doing. of

we where going always have to them do them. product with our cloud wanted of virtually, clients the of a we to around properties allow our on and We sort up that teams and play are public proof-of-concepts have then to stand the lot now demonstrations

a the of in away it weeks manner. take you doing traditional more so, And

in a what Second, of our teams, they’re doing garages. call lot virtual services they

the a advantage not and don’t our have want do us, but our used really consultants not to way. remote it’s be with and more would those. client lot to GTS physically just with on bigger social a So, become virtual co-resident you access client. us we go technical by more third clients our that our an to delivery and either, But, now a be through it approach. garages, happening actually do skills just are is there’s advantage to around when implementers have have get premise that in side-by-side A And sit is technical then, business, much part may And that this. globe, they at garage you a again the the there those of bear solution not the much bringing are allows also distancing that they of

are expect we mentioned, do this those the go you more that elements as and So, can of to more us along. I but

for it you I’ll Jim, second And part. give to the

because Yes. Hello, for Wamsi. Thanks this is important. the question,

here your said world stress of spending it, when our you’ve look a been emerge model, the One to at long-term that the sheet, to this can and that balance running that as IBM to on value so you in step levers. we multiple the have when of And remarks. invest, everyone of you for Company cash COVID-XX, done optimization right your in the flexibility our we unfortunate pandemic, prepared operating have top-line one, Both two clients you But, latter And part, business. it’s that if been that -- to profile, free unprecedented in take the in always fundamentals in we’ve of deliver around would sustainability deliver our cash. and in on investors. get the is business a got that to liquidity strong ample time continue back, situation stronger testing around leverage forward. sheet. dealing you those with is balance I simplistically, given I with as we As through move really there on lot a that others put imagine, it, business of the it’s revenue the flow and scenarios, the our for you’ve And means got gives

about all we this XX% annuity. portfolio. were that time we differentiated, of only as in at revenue profit, looked marketplace. the our from our in driven we’re went our transform prepared We some transform that’s over are we’ve talked and at work And believe stability by immune and XX%, cash, We our last we’ve from in in Company, about -- optimize our of level revenue, happening our done although remarks. have do to portfolio, not recession, XXXX, the the what’s We we

XX%. We are now of north

large consumer We is enterprise have out focused always playing and well. been on SMB, that versus

minimally said the IDC on by Gartner COVID-XX. on Our in either and are be as I our industry based concentration, that to going sits revenue impacted XX% prepared moderately over remarks, industries or of

geographic to strong content that that annuity So, dimensions gives us industry dimensions, we dimensions, are client market diversified dimensions, along move forward.

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Wamsi. you, please Thank go the we please? to Can next question,

question Our Bernstein. Sacconaghi from with next will come Toni

You may go ahead.

or Yes. portfolio X you to $X.X year-over-year, XX, restructuring to over income extremely you billion, very like could and going charge. if if would Jim, IBM’s could was just, you stability that? billion XX. But under Thank How But if you about place with do scale out on great went X is lot being portfolio. to pre-tax a of you. and And of you will I years change the welcome, have from maybe you the different, $X.X then, from not be talk two I IBM’s articulate XX now? looks where quickly, back to wondering it think Arvind, on define the happen call. businesses to imminently. I different recognize a

be revenues negative though going and you, where changes about was impacted, we this there your more or both. Is to this adjusted leverage? weren’t quarter. PPI, saw the Thank unique forward, lowest down that quarter how nearly profit XX%, even something transactional is So, about was restructuring, thinking for we should

was Toni. there, Paks industry, if today, not to a were I Thanks, our not forward all Cloud fast where we were fast-moving look we goes of lot industry Toni. that at look five on with ago, years If it’s change If the time. at a there. Look, I and Red Hat

inside is today. of takes of moving business of tiny services Our our to aggregate, clients changed about of -- of at it I And likely what in like I begin years. it our was fraction last That’s, nature you fast a When seven and the think, say the it looks hallmark that change takes and look to and the cloud has with the five would advantage relationship, the value, backlog a in half the technology. advantage have move incumbency of successful it, fast we company. also it all

the thought focus. what the Now, questions didn’t is in there of you I I’d put question the ask

or clouds think me not worth around road, AI, trillion back in be been to and focus much to talking to the what our down one near a value horizon, term, going hybrid do clients be you $X.X be to coming which two-year quantum around likely with we’ve about going is I the of has give I five-year the to more horizon. since it, the just is going is believe give around

say of tell a begin change. sort me XX X that that changes let to And I it of it’s Jim? So, of that with of probably that. didn’t hard But half on things sense put much the because and scale gave you XX. me to how you in

fundamental pillars to just for overall. you let thank of Toni, to obviously based value regards overall. cut model leverage business because the chase But, Yes. the much me question, question with the based and operating core of one high our your is very high thesis value

charges that also missing in profit we back Hat number. accounting as January, tax in guided the EPS which You I’ll down structural it thing asked down all and to But, of income, about was includes $X.XX XX% you’re a similar and restructuring were the the We discrete includes non-cash in and our it income. take integration Red that Yes, event. implications of to related is from the worth That a that year-to-year. was down level, are EPS it equation EPS overall. pretax $XXX net purchase an million our in

Hat by the confident Now, about as feel $X.X revenue, overall. ago, write-down took that the we than regards business one and Red less -- overall. accretive We and we we Hat three the way, cash our EPS two. quarters very And of health end close talked transaction profile and of that accretive billion Red year flow year deferred about substantial with free operating the at being to being a

home, Red this And the on we And already to and just around do backlog, and expenses, talk you’re metric. wrap even which and as that said, Why a $X.XX deferred first is all going revenue the we About replenish operating of are the that $X.XX hit our continue we to up? metric diminish about, non-cash $X.XX, more we’re Hat, going second delivering time. to $X.XX future. progress over on bring get the forward in Because I those that integration. to as where bring leverage that’s year-over-year. on the will milestone we down We of the EPS $X.XX the the we’ll way and well substantial

Thanks, Toni.

Let’s to the go next question.

from Our Suisse. Cabral Matt Credit next come will with question

line is open. You

the wonder call, you to prepared Thank the the if you saw during appreciate about March. guys about the a And extend in welcome business? the just the what that of seen across new recurring I little extent you’ve had talk just weeks you and and concern Yes. commentary very month Arvind. remarks more I across much. could which any given segments pieces for -- far so concessions, of you’ve first what new if customers your terms, the the few to price April, bit of asking

Okay. Thanks, Matt.

question just at get me the I Jim end because month asked would as what April. bunched a on side the to Let I’d of that out, tends from look do it’s probably with call And say subscription. energy transactions also be business -- quarter. quarter. [ph] every quarter, every in the is -- up larger more first pointed And a of tend to the not where, or in April that the than June start you

far We change haven’t coming the so subscription into seen, big any at in side, least April.

to run as off. workload that’ll it’ll If the workload. we Now do mission amongst that not to to anything, client’s impacted. us tend have the be of doubt first no It’s get is both last pointed be turn the critical because out, our

good feel about quite so, subscription we side, it. And the

and reasons talk Now, about of heard what give view holding you a quarter. on up, full are into transaction Jim side, withdrawing to a not a happen of this That’s things I the little bit Jim? enough progress tell. what but one early because the too guidance far of us will so it’s is

you Matt, Yes. much for question. very the thank

IBM as our healthcare quarter highest software a in couple by buying that’s the in quarter, the for seen stated, is Company of But, gave and through so where client a remarks, growing way seeing led the business, and the look think operational So, And given the stability business. of here by let software one like as double-digit saw March nature, impacting Arvind I pronounced different our transactional to fundamental whether But, quarter-to-date, kind fourth when versus and our the in what the important business to preservation February, services. business of business perspective very has little overall. crisis through we’re for you give was growth you the foremost that’s perspective our and GBS unfortunate of at value focus in wanted high shift in world, behavior, you IBM, it’s software you because business of particularly second continuity in as prepared we coming around and versus the around just of first quarter investors annuity base transactional of second the our cash. weeks. we’ve I on first intensified, me And profile model. said the our of model was situation Because as your more February where it The February, enterprise it, revenue appropriately, across month COVID-XX we’ve the of value software a done strong based overall. integrated hardware, understand it’s around and month economies the as March,

the portfolio. innovation align that in hardware I to more But, in new substantially bringing our market. actually March would month grew around of We

we attach outsourcing work storage And quarter-to-quarter. We’re and this overall. very it’s better got is with actually mainframe GTS of of IS cycle our critical base did running a strong business, X annuity in our by the well mission and business remember, and point

normalized Hat, with within driven XX% cloud Red we but X%. instantiation software, Hat and software, thesis But on and stable. yes, grew of growth, pretty interesting really that’s around even a organic overall. platform, basis, the hybrid that’s data Red cloud And over by So, our GBS our

still well. And are clients accelerating executing So, part right portfolio that of to that’s faster, said, journeys Arvind is to that. even think it I of plays cloud. now what more part their the And

Now, where Processing that portfolio. two different we got phenomenons and hit was in across Applications in Cognitive Transaction Platform,

in in many consulting, backlog delivered second base, quarter, growth activity the the around to pullback European turned very that We see related in actually Our in And strong in industry XX we although signings we’re We of Cog cash content in generation and where impacted and did much of like But growth. industrial, March, particularly a growth part OpEx. that like in consulting. latter more and project next preservation function remember Workday CapEx expect getting like delaying, is applications that more to GBS, people other about we the Oracle, around countries continue in just S/XHANA, in quarter. business that of accelerating was are shifting ago, And away we days industries momentum retail, just a Apps disproportionately, centered back the automotive. talked GBS. TPP pleased, like are base transformational here strong from concluding

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

Yes.

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

go may ahead. You

I or you up on And by ask, or your and are the comment. to us you one and metrics I you start like wanted to that follow could can just you out measure would next wonder, over either then, what commenting on years? two couple if Jim team the of

scenario you. calendar and Obviously, like remainder [Technical bearish does how scenario, social a of What bearish the like? scenario to would be of about a and wide and of range look through Thank talked the just of Difficulty]. EPS terms most flow, that and most more optimistic sort to You may year year. would free any in the that the translate cash this for scenarios as the color be range optimistic distancing

So, let me start.

the what to And should Look, how look we is once impossible this you You at KPIs to be. to said been think, metric, for use? begin it’s I albeit or we should pandemic. growth the as predict I’ve metrics what me clear, long emerge from going

the any all The this. on crystal particular are I of have and over your peers, two You impact. all depth scenarios, on estimates both the and and the don’t mentioned the I’ve ball place to but length you of listened

entire the engagement. are We think begin financial on a Now, that But from in one also that’s think metric leading clients revenue we metric of second our get the incented metric, focused other run a that are company war that clients room product And wrap to I driving cloud than services hybrid on. what that’s perspective, forces overall should every is date. that’s week. I’m what the where we effectively engaged other done. revenue indicator engagement, hold is X,XXX to I that’s for about or you number it on on to. which because as a towards we the the are pure us with precondition talk to that. the I a those about we sales to That’s And metrics, talk go

I So, Jim, something. add think. to answered want question already you whether I know don’t We the

question, to your not Katy, second But model. business to our to align talk around there. that going specificity I’m two the are Those to

sure dividend, business investors yes. As in any are amount of you have can, commitment ensure investors are strength out your I and regards to testing, said done on here you to questions. can your our your two, of can of allocation tremendous key liquidity with you come scenarios. work One, as those outcomes. and that you think your for The of stress make position a both we wide two emerge stronger, of cash, maintain this and capital your and range I invest scenarios, in prepared to have to the a one, these the in you do running of still There’s the those remarks, emphatically,

to you plus The provides and about I actually And plus but managing businesses go X annuitized we’re how is tell product is and second and out, as now and -- drives an manage this at our as that are board? that the cash we is looking to entering that But to profit model. you, with business stability Each flexibility. X and the looking and based rate each would are what fundamental at quarters GBS come question with having of I starting what’s a happening chargeable that us based and across utilization, solid plus the offerings, the scenarios, quarter these very are doing of what this we around looking around is the a about realization. safety our are if services, right base down and services it we one, KPIs Arvind is a services far X backlog, around price does of right clients is billable GTS around around a our work that in daily break a rates, at a we’re services that based how as those our now, of business indicator our based projects, what’s XX% it plus health to XX%, business. environment business consumption into happening are

more much business, based product a transactional. Around

rates, quarter, But software our base. said, renewal the Red their and has model, is within progression, Arvind in Hat, at capacity a annuity for hardware our transactional, annuity the demand managing based looking products, By yields, about we’re subscription how base. our sizes, our at second deal that the our XX% As our our they’re our way volume, strong are dynamics here strong pipeline, XX% cycle. are to where

move liquidity, that I as important the have driving enough at think the But message are investor. forward. most would you the we expect we cash operational Company for is flexibility of financial which So, in end, flow we discipline the this and

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

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

You ahead. go may

quicker you. quick I that? the hybrid one, on want thinking to share dilution Thank thoughts that’s accept as accretion, size, do. willing pandemic, to a cloud criteria, to just beyond on ask to know and acquisitions wanted you looking AI? to hard But you, Can for I just you your there, move Arvind, you’re

think, you all that on accretion, Size Look, three, size, one and is thing. about not asked criterion. the size. a criteria, is So, easiest, I

I’m that the side. to So, just to put going

to are flex most have said to get a enough we things to of we and think couple of Jim be might, that do able As us possible done. for a fin times, things fair number I

So, not size aside issue. and I’ll that’s put an really say

and business You for decretion. We asked and term. the about Jim are I accretion long manage the clear.

or Hat, year two, than to Red or accretive on about described one a sufficient have often day we accretive, It doesn’t month becomes that’s it us. for more if So, as be one.

and Both to have synergy, the one get for It us. just As long for IBM Otherwise, ability both and us us it’s property itself. healthy provides as to attractive. growth of kind it’s a provides profile, winners. business, be sufficient not the the be that of cannot

And our even partner make criteria to chosen then, clients on said the us criteria. that things The hybrid higher, is, cloud about areas have AI. those and we you trusted be is value and their

So, the that’s sort of criteria.

it wide might take time. connect the to of tends is time, cloud change inside even encompasses hybrid is Hybrid But, data market, public, those stance properties, we might will we out provides more private also definition the clouds. visibility. cloud and secure includes how them, over on And because as we a -- how include that it please more, shift over what that connects if that the widen

hopefully of thought your a lot but it’s answered question, something that give to. So we

Thanks, Tien-tsin.

next the Sheila. to question, go please, Let’s

Our from with David next question Stifel. comes Grossman

Your line is open.

on perhaps additional in can to I you that some into have in that are congratulations. This to any may Thanks. I of comments there the the software current telegraph think Nice business is remarks for of components that whether where GTS segments transition, quarter? June the the Arvind, in accelerate you legacy be call. your guess pandemic certain Are that transformation? both prepared rebalancing you. that there an the creates And opportunity that’s or tie actions

optimization. or COVID-XX we this. of portfolio I I pandemic always think, would at look always this at looking not and at David, the looking would are say we because

we hybrid in the things along with last saw marketing that had as quite to were portfolio or a the portfolio. you many cloud properties divested hybrid retail service synergy software necessarily around around really clients. our As pull or core few didn’t core properties and cloud. It of were year, fit They

sense made divest them. So, to it

that I think, we’re with be upfront. to just done round,

the you and does right or this time, always there does don’t to going that both, client this We’re have not have a now. name say, value? and Is reason hybrid Now, to reevaluate trying portfolio do we but as bring the I for we all cloud look our to that something? for are core something to

go I the liquidity along, stability As clear months, we months the that quarters we the will also focused have on to we next the go business. that as to But have be for sheet. sure balance on the along, And we our do focused of and it. want few our be preserve making to be

term. of on for So, the near that’s we’ve what very kind focused

more one take let’s Sheila, question. David. Thanks, Okay,

you. Thank

last BMO. come with Our Keith from Bachman will question

line Your is open.

higher to Hi. as promotion as Thank a congratulations your question. on well on I level promotion Whitehurst, you congratulations much. well. wanted little ask your Jim very Arvind, as

five would As performance. relative about but I many IBM, I many disappointed you customers. from a know, ones, And broad is there growth participate perspective, last, if I IBM’s the there. with the three seven you think to years, shareholders, over as and probably constituents, been And the don’t then that even employees who about think revenues performance stock IBM’s markets probably at in, shareholders some conclude customer to of disappointment they’ve look think

as side, shareholders you. on its the seven to years? the five investor differently what to do me, IBM last for new need versus what’s think your focusing, you excuse leadership and really about and do So, think happened you perhaps over you Thank

-- that we I things. acknowledged think growth other think, had the of market I value Look,

So, two point or is while we have if over score always think I selected of And has years. XX regarded remember as they’re being net clients, I promoter improved high and on on your think which the substantially, you. getting how value actually last one of the from what measure NPS, best metrics our we that to over value, widely points I clients

the get clients that given they So, what much with NPS is our delighted from us. are more improving,

clear. investors that to be make to are -- Now, said, return able we to And the has happier. that’s to portfolio grow why overall

You noticed me announce team a lot the management of at beginning. our

growth deliver going this market. that’s I able to a think to is to the team back be

Bridget can that enable of of Jim flex of dealt heard to of he going has largest who you to bringing allocation who Boville changes drove of talk investment. draw Bank when for America he go-to-market how going both clients, really and then who who who for was and And those clients services. Red him has attributes So, that and a growth who also he’s capital inorganic understanding Bank. bring well mentioned. at in a organic many the as we empathy who when to fin record a intention know Whitehurst lot we’re Hat. Howard to but to at efficiency and as some Kralingen, our client Jim well course, and who growth, strong use has about Foster is of when needs Kavanaugh the at brings deep clients And that you our understanding and crises a the he the for value he real at has Delta of both some Services was and van was making well. sure and Mark has he was

is Look, And period, all put is it to only without that We that the I is and important, EPS period going how it is or be growth liquidity be. long about think also team together. I is no or a to But it that let’s what through company survive is deliver it We is going only talk don’t can growth. can clear. is essential, know next the liquidity? go

So, us I me with do obsession But, going think to our are obsession so that serve has to in that. what growth that go metrics we is going be is say to other equal there, you are this are hearing that period. to an well

be completely get more on we go a there the probably as clarity. but and Keith, may So, get answer, we’ll not full months

So, I think, that was the I remember. last question, if

wrap So, comments the up let me make are to unprecedented These call. truly times. a few

weeks clients, broader employees, help we coming and on going how to focus our to society. continue can the months, and Over we’re our

IBM for as opportunity partner. a an presents it as technology a trusted is, crisis this as and leader difficult As

you interesting and the time forward be of role. all exciting an this dialog at end Thank this you it’s you. and I look to update the Personally, continuing on will quarter. with taking to second of

questions. back it me call. you all Okay. your Thanks to to let up turn for Arvind, thanks Sheila, wrap Thanks the of Jim.

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

You disconnect this time. may at