International Business Machines (IBM) 19 Oct 202020 Q3 Earnings call transcript

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

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

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

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

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

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

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

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

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

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

acquisition quarters, Red Finally, of share the reflect profit Hat. impacts purchase transaction-related IBM’s consistent the accounting last of with and our few with associated impact revenue, year-over-year earnings per and other

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

I our you’ll summary start Xth. discussion. you we’ll see which speaking to the strategic to with pleased a a our third update I’m Patricia. strategic with announced. of results Thanks our we from unchanged quarter focus after Today, just a October But preliminary week be want again is and on on performance, half

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

a built hybrid last foundation have for the few years, cloud. we solid Over

and a new acceleration is Managed hybrid changes company. services publicly infrastructure clients’ into the trajectories. separating Infrastructure market is for missions cloud we strategies two our are and Hat the the platform and company. and leaders The to improved result the adoption one platform application Services With AI Red growth focused number of needs versus traded with IBM

NewCo become Managed the Infrastructure will number Services company. one

each agility Both focus on respective on capital missions. As their their to and others, their separate will freedom financial their with areas. more align will models. investments have have operating will capitalize strategic focus can and and businesses, to partner structure to both greater Both

had create clients. the the will All this value Since an for profile with improved announcement, of we and a investors have financial companies. outreach clients comprehensive to you, of both our for

In understand personally fact, IBM means for we strategy have clients. clients, NewCo spoken and The have clients them, to be top the vast dozens. to predominantly majority about excited what hundreds are or of they’ll and our future it whether spoken I

they response, Our initiatives the an also partners data as as had hybrid have to our go-to-market positive opportunity see this and in a spaces. further AI cloud, strengthen

tremendous a of For hybrid is times IBM, for valued opportunity clear. versus in the dollars hybrid a two-and-a-half ahead is a the look with Clients see at trillion approach a opportunity public-only. case as more enterprise of cloud most cloud forward, us. we value It

clients portfolio drives platform which It on cloud vast that OpenShift, and their expertise run “where by journeys. a Our Hat GBS are” differentiated modernized market-leading our open is is our they and platform, is approach Red cloud-native software adoption platform-centric. meets to

much areas we’ll and by investments advance fostering in to Over our more model, key the growth taking and further months, mindset. actions a of our optimize coming simplify increase strategy

completion mid-single-digit expect of growth All future NewCo. upon revenue to deliver of of to growth separation will the this company contribute our the accelerated we in sustainable for and

our strategy from ecosystem of against and market. our our clients, we Let bringing innovations hybrid have we recent perspective progress some platform to are made the cloud me of to shift the

We clouds. our leverage to unleash their and the their have broader is to our commitments cloud data and private energy hybrid E&P clients make platform. enable on-premise, large-scale using AI Schlumberger recent that They’ll great any the platform digital global to infrastructure examples making environment architectural of accessible to gas and community public analytics the power in innovation industry. use, clients oil of across

and their extending using environment and expertise. operate to term leveraging talent with greater GBS’ realize Paks, also Delta are their We benefits. relationship business Hat, with IT Cloud our transform Red and speed They’ll longer- modernize

expand We’re how GSIs to about platform, we best-of-breed continuing workloads partners and have drive hundreds including ISVs. Last talked our I to our to week added ecosystem. of

platform Ernst our businesses. now & As help to solutions an Young and leveraging clients is cloud example, AI their open hybrid transform

capabilities drive market Our of we to with last consulting outcomes their also week, teams to partnership providing Now Late clients. bring of leading for announced our power business Watson to the joint ServiceNow expansion AIOps Platform. the are

important to are cannot to its organizations to towards our noisy, classical reach of the maintain our the that and public, Hat benchmarks Hat architecture. committing progress of and roadmap aims making a cloud and run natively quantum most our once, Quantum. series is groundbreaking hybrid announced in qubits aggressive technology path devices robust real-world which essential company a by clients take open Cluster policy-based This small-scale are the kind to abilities help These we Red to in and The hybrid to delivers achievements. which several extended we problems anywhere" two OpenShift computing Hat virtual and will that just roadmap today’s multi-cluster, clients' clients cloud are new We XXXX. future. devices In industry’s and compliance the of to our deploy roadmap our help today’s And most within system. highlight also Quantum, qubit meet Advanced OpenShift research million-plus "build tackle even portfolio migrate machines X,XXX-plus leadership on Management computers bringing Red Kubernetes, tackle. Red to place furthering market. innovations their new introductions, areas, capabilities application industry for management including its with powerful Virtualization, I’ll with enables

innovation. clients, we So ecosystem, good our made have progress and with

and across clients operational balance journey to enables How especially cloud, license in opportunities transformation. and short-term they larger to this and we digital projects. client large around delays challenges Red into the short-term securely continue in application they CEOs environment, with focused how OpenShift How my We in transactions and That’s In source this and their stability see in today’s services our some Hat innovation? and momentum deploy what they both become Regarding We But do tap are applications call they cash clouds? software on conversations in preservation. and are hybrid data of the for more leveraging see open cloud. continued manage the various modernization. a engagements that can businesses.

Q&A. turn at to we’ll over for the then I’ll end and come who Now Kavanaugh, is Jim going it results, back the take to through you

Thanks Arvind. reported I’ll with while share overall earnings cash of of expanded $X.XX and performance. per increasing billion free start and solid $XX.X our pre-tax generated a We margins, delivered revenue, operating view gross of investments. flow,

remains ample Our liquidity. and strong balance continue to we have sheet

consistent in quarter the client profit gross revenue and and was environment demand. Our fairly reflects macroeconomic and change with second little the performance

some revenue, our discussed, provide broad stability previously and our and cash mix to profit and we’ve geographic client portfolio As flow. footprint,

some and over flexibility As cash and deferrals, Arvind delays CapEx. and to licenses operational near-term resulting continue and which OpEx in is preservation, mentioned, clients’ favor in which see This services. based project we just priorities include stability, perpetual purchase tends project-oriented software to volume-

these well early engagements leverages Red global incumbency. only delivers last their July total time, quarter value the deals of again months. but services, size our Within Systems platform- higher technology and added to and Our the is of these growth and succeed of At also centric signings productivity XX an in modernize optionality model this of grow in economics. compelling We XX%. last our at and with dynamics period Red revenue approximately seven with This platform transformations the In our months as platform anniversaried delivered are the to clear IBM’s X,XXX normalized large also model leading Hat strong more very now account large continued the to to need these third the it container businesses our acceleration our quarter Cloud XXX increasing transactional The the and solutions. delivers this over the Hat this with of business. services that Not innovation, of open, AI client performance our normal. increasing, reflects XX%. cloud-related of transformations. in were clients and is same quarter, cycle clients. new about number have Red results deals the using strategic over are we center made digital greater Hat product doubling Hat up to GBS acquisition utilizing in Red the reach companies in adoption clients

$XX over drove months, XX of which XX%. capabilities up full-stack billion over revenue Our the cloud is last

are broader in flexibility hybrid XXXX, We Automation adoption capabilities to ecosystem and Spanugo structural acquisitions, capabilities, Hat’s will AI to additional in hybrid drive cloud in hybrid workflows, OpenShift These our GBS accelerate and our cloud of IBM cloud drive given outs cloud skills expand in on including to adoption, go-to-market cloud centered and and our investing in Red intelligent the WDG software our build capital for and MZR actions. capabilities. from in investments the

operating contribution headwind software gross our basis point focus expansion portfolio With operating of points our operating XX XXX a productivity, mix margin quarter, income net flat. together points. and margin expansion rate, in was This our pre-tax tax on drove our essentially strong basis with of XXX margin with year-to-year

remain $X flow. down fueled in free the and billion Our $X.X flow billion strong positions over cash generated year-to-date, by cash is of which billion and cash $X.X liquidity year-to-year. quarter our We

working related strong were and interest. expenditures have These to of contribution payments. capital by continue performance net net Red higher and We workforce rebalancing Hat, offset capital from

balance our remind $X.X year, of billion of last taking issued billion XXX% end, $XX.X caution Over cash income. debt market ended of we up earlier net $X.X you I’ll We dynamics. the we September with attractive this an is billion. of debt cash advantage is since year, abundance billion, of generated which GAAP flow, which a of $XX.X up was while and year out free

billion in quarter. We with are maturities the end to $X including billion shape year. the fourth fund upcoming $X debt for down in good We’ll to XXXX our

and on performance, Cloud driven segment X% from I’ll Hat headwind Cognitive acquisition with despite Cloud July. This is beginning Software. turn in the performance the a the early up platforms. wrap sequential improvement by Red to was and a the Revenue Data four-point Now, year-to-year in

the Software smaller quarter. has a us. transactional transactional environment, base this In a benefited third in seasonally challenging

Hat led both multi-cloud Infrastructure was across recognized technologies. and growth Application with Red A growth. XX% in Platforms a the scale and report. of Forrester’s Our our double-digit revenue by Cloud and platforms Wave leader the use secure software This Data operations Red to this across emerging Paks powered container as OpenShift variety clients with was Leveraging delivered weeks strong platform, and performance ease provide container couple AI- latest Hat’s and development ago, Development in Cloud environments. of of ability

the now ecosystems and and IBM Red Cloud IBM We leveraging expanding Hat Paks. XXX selling over are partners with

revenue good services operations. our and good Supply year seeing In a versus our Applications of added as we number strength year-to-year Security and flat led penetration than in and clients trajectory Paks Cognitive XXX We’re tripled We’ve clients had clients the quarter. Threat accounts. software our Management Security, transform in now the in nearly ago improved their container by to more platforms for third and manage security large demand to Chain. adopting Cloud

adoption CloudPak clients helping transformations. we’re Identity our and and for had services Cloud on secure QRadar performance and good We Security of digital with also are their as driving Trust

an and Managed as named Services just integrated our product our IDC based capabilities. and industry Forrester Security on leader, services

which in also scalable our great clients Management shift had and value to a the software. the during good Chain prop channels, Chain more Supply is We performance pandemic. enables flexible Order to our Supply digital

Hat Looking had this profit driven at and profit we for primarily strong contribution. the Red segment, by margin performance

with Business Global last X%, consistent Services, revenue to Turning declined quarter.

environment revenue GBS more has and prior recall, our to the and you’ll GBS needs, quarter, client growth these cloud growth. was Since economic discretionary revenue to our and demand priorities the and driven and project data the client application in reflected leading a growing signings. change to returned This as we transform by offerings backlog in its pandemic, less workflows. offerings. As third was But strategy, development delays, March, pivot address to AI delivery signings and modernization and to use double-digit posted that and for offerings

revenue greater I As than with large $XXX which up our earlier, over value cloud a were yield mentioned signed over will million, GBS time. number signings transformational total XX%.We a contracts of

small the growth but geography, the pandemic Our deal performance generally quarter. for curve to followed by overall returned

through through public to our IBM client’s knowledge at and capabilities application across expertise IBM’s guide digital in and us transformations incumbency, a facilitate to all GBS scale particular clients on-prem, with trust modernization set decisions process the of hybrid private, cloud their platform expertise drives cloud and gateway them of wider application management a With gained and adoption bring to is journey. environments. enable a architectural the

example, Espana. from and GBS added Arvind also of Canada, revenue Telefonica Florida For Pak Airlines, we Ergo, with Hat another Bank Light engagements clients IT results this Cloud and one-third Delta XX Royal such of engagements about Red but which as and, client mentioned earlier, quarter, Power

business As position we our clients are our for GBS transforming, to in also future. the investing growth in are

offerings and resources, continuing are We skills, invest to ecosystems. in

all pace more active and learnings from are to technical establish new with engagement methods remote integrates virtual a AI quality. and our shift delivery productivity, to and delivery nearly virtually. of initial implemented model. Garage the have paid to model And, engagements our automation practices, with delivering we and X,XXX foundations are Delivery enhanced than Dynamic drive taking We a sales virtualized

remotely, apply we increasing quarter the across services Promoter principles more delivered than base, while our client we Score. of As and third the quality XX% in Net maintaining Delivery stable Dynamic our

to business infrastructure experience focus in to signings volume with agreement next-generation to and with Managed resiliency view Coca-Cola Services longer-term but at business margin pandemic. economically quarter. operational client-based delivery their turn revenue is fairly operational reduce offerings, eight taking reflects many by looking discipline, sensitive automation. signed leverage agility and continuing cycles IT customers. quarter, more industries efficiency. TSS Global Services, to Infrastructure and value and our impacts continues GBS create But deep a are down them Looking Infrastructure due multi-year recently hardware to performance to In modernize Technology the increase basis over to strong points. profit operational date we enhanced X% bring in Partners was volumes They European high the journey. product and clients to and their example. capabilities Services lower dynamics, a its AI GTS’ are quarter. on were XXX the greater consistent with X%, to XX% their last expanded gross its GTS’ We’ll service up with AI managing We deliver mission-critical service infused and expenses, this down $XXX to for expertise infrastructures and a and XX insights deals year accelerate including help this great million, modernization productivity

In to in renewals by improving addition has from contract we with deliver This clients backlog the of value. beginning continue make to the resulted year. two significant commitments new new trajectory year-to-year approximately long-term the points work, as

was GTS in high by margin. are roughly the to a impacts gross points. driven which basis making come Turning profit, and investments we margin declined public This the volume XX cloud at by

driven has unprecedented impacted playing helping At financial platform the third up our our and market industry. We’ve XX%, across down capacity cloud our to end pandemic same by the and this revenue IBM in to remotely many is was both like them cloud Z which time, record-setting Z Linux cycle Red Ansible clients out We and IBM and IBM XX%. of revenue has zXX Hat countries rapidly of primarily as native respond seeing areas Z hybrid and offerings. the dynamics. by dev of is volatility. toward adoption support year. was the down launched leverage on and quarter journeys. in widespread Systems, zXX clients proved dynamics, LinuxONE ops OpenShift, clients’ markets, last to banking industries Turning product invaluable volumes had This cycle historical differently scale

in I’ll impacted third As we zXX performance a remind of by were prior be lengthen in when we fourth said, client fairly end industries, on will the quarter cycle. up this by curve the very pandemic. result, performance year dichotomy of to focused these That cash within remain other of wrapping clients our zXX on during driven preservation with quarter, many from cycle. behaviors and buying cycle accelerated their this But consistent impacted with clients performance the adoption in adoption the This well our revenue storage you, be this have cycles. in These last dynamics the as cycle, declines strong high-end opportunity an XX%. we’ll storage. in

the before IBM level. Now, the as always, to up it bring I’ll back Q&A,

digital businesses. help We our to become are clients seeing opportunity tremendous

Our deep to growth, in technology-centric Red continued to The our momentum modernization platform, by provide our IBM’s cloud revenue in quarter in we transformations. and now clients drive And in GBS are and enabling cloud evident accelerate industry cloud growing is signings growth. value future investments expertise focus platform driven hybrid cloud hybrid strategy this these our and ecosystem accelerating strong increased offerings. are and with Hat, application we us

of we the the NewCo the hybrid separation our In levels. strategy is We sustainable are our the quarter streamline and these be overall reinvested hybrid areas we starting have to of taking earlier complete. increased as and our emerging like not a in technologies. a growth seen after drive shift fundamental results we security, actions business AI, The of focused expect platform and investments recovery as now, to billion. discussed expect month, and savings will operating this $X.X about consequence, mid-single-digit charge data remains and rate to and cloud in a structural cloud, actions uncertain pace fourth near-term, from we demand With and simplify

remind will high operating quarter in hardware value historical is and uncertainty, we per the share from software terms you, of going revenue of seasonally direction quarter and and earnings to our not our transactions. are due this I year, But Given provide fourth with for this perspective, guidance. strongest consistent most to our an

Looking a when zXX Hat our Red strong performance, contribution. dynamics first on had end software at our strong of and wrapping XXXX, year-to-year a XXXX, very fourth of of are of quarter availability at the full quarter we we quarter full first our

lot this have hybrid course a and Services investments into detailed our our always, business. work separate going work the of be we’ll focusing our So, and quarter, starting AI cloud do. to quarter, Infrastructure of fourth in we as Managed to we’re transactional It’s largest

turn future. in confident are and of what you. for and We our to means me direction the business back focus our let over Arvind, it it

am thought one Jim. to Q&A. final before Thanks going add the just I

for long-term. the managing are We

We are business strategic and better taking to a Patricia, investments on sustainable let’s our decisions, increasing making actions basis. growth, position and our top-line today the go Q&A. to accelerate

Thank Arvind. you,

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

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

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

Matt question Credit first from Cabral Our Suisse. comes with

Your line is open.

wondering Thank portfolio. world little if seeing you of your I remarks. during could you bit IT you and Arvind, this you seeing the are a very you delays areas in on was the more mentioned couple within briefly you health of the the expand landscape much. on touched prepared wider are around a spending

Just starting and you think takes wondering coming puts XXXX. into when are those deals about particularly they the start through, think to heading will

right. All

the So question, Matt. first, thanks for

also few areas, projects. you ask large as ask on ask So, are geographies. deals, about first seeing – client you as varies. from clients a well we about But you about all also services and it comments And because portfolio

said Jim just add I bit and our remarks. of me to in prepared a what reiterate, Let color but little

people and but we in it’s both also some seeing it’s seeing kind frantic, software parts While very are of – pause. are healthy we of growth systems,

it’s tend see do come those their a because Now into because that we geography that. first don’t that we We the to a decline maybe third forever. quarter or believe mode, second, of some back because a of deals We saw they cash or second it’s the to cetera. from et the conservation believe pause. and to We are industry of they pausing think are

that’s one part. a So,

are we a also that healthy. healthy. We have we is clients in, there should see are their seeing think pause About XX% there a Now, not that tend temporary about airlines, the retail, that we not call, see any be talked brick you we you XX% and of see I are about of that industries businesses we a are not softness this as anybody surprise think some those. about that surprise and about to think it’s mortar hospitality, in and some do think about to maybe

Now, be to clients. larger we with also tend

have So a come we issue It tend don’t believe they by large. will sustainability that to and back.

it. under Matt, begin So I That’s hard But the fourth really I forward, quarter. asking to Jim it’s pausing guidance that’s out that to giving of the why you predict here. on as question look because also, are flavor are and then

Red not forget cloud in look it’s also in data these at our to they SIs there we somewhat Jim portfolio, necessarily that to is Services of We and and you through areas. tend whether tend I’ll cloud that more as yet processing do transaction and let’s both find they but software and of parts transformation when those And Hat through Business platform in we and software it whether alignment. pull alignment technologies the projects, packs there security people an those our see, chain essential, interested However as find supply capacity find not back. and mentioned, go the platform Global It’s therein. which is increases data inclusive mainframe it’s other will TPP to all our cloud the come other a identical as then, call some or aligned platform

you of of client and sort sort give Matt. the I’ll So, color of across portfolio, the parts across the across that industries set, different

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

Absolutely.

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

line Your open. is

Hi. Thank hirings you much. looks little back services bit so nicely It bounce did here. like

here, before given I makes Thank and services but that if quarter separation quarter GTS maybe What taken transition the going bookings short-term Can you. just just the don’t signings with the about again. mind changeover and the were transition fourth this understanding, from but trying think back. to you weaken integration GBS sense. tighter coming I see we transactions in larger am some like and first up sounds it So, good results this now. maybe know to the of

that Jim. is this take one. Tien-tsin, Yes, I’ll

regards little Let’s just what to about talk signings. with we services bit a finished the in quarter

We’re signings, given that’s very now executed overall up We the continued and got we right down $XXX pace macroeconomic The large progress X%. at your billion deals. environment well, backlog flat actual constant pleased billion currency. to at actually the $X.X point, teams pretty uncertainty. rate rates, the very saw and and X% of transformational a good in And

think excess XX% in I $XXX rate that which that value renewal Manage million to and our of and while the talks client the quarter year we XX%. the third that in of eight year-to-date, set you, overall last and off that said they think of very remarks, XX up we Services Infrastructure led quarter grew to was strong a remind in prepared those GTS in of I’ll our business has GTS innovation to saw bring I signings a

and a GBS testament improvement up in almost of cloud. January. in are history the journey was of clients’ revenue since we largest our modernization third our inflection what both digital while our to large signings point some transformation overall around with and small backlog and there really deals I it in of think our a that know application to provider our being of kind choice change and signings was consistent quarter two were to have business that’s capability for we demand seen GTS and double-digits, XQ, is GBS. And you pleased our led pretty a But and out marked played really So signs

deals given about make we are very a that. So, stability It’s that with time clients ten ensure we good client we in forward. feel a disruption, the days transformational spending to and trends. pretty our announcement of ago, We fourth going sure our early lot quarter here of minimize nice value pipeline good and again, got provide

you, Tien-tsin. Thank

go next question. the Let’s to

from Our Bernstein. Toni comes Sacconaghi next with question

Your open. line is

you. of that not if maybe guidance, can I might number dividend capital normal flow $X changing, if demand thank just up then, are about is is in year commenting billion it. we seasonality a been Your assume think a right free down any $X to the wondering about last for on shouldn’t a revenue be framework? and but the Arvind, you really I seasonality comment know basically debt. Yes, you billion going paid cash tell And why how – am is could us It’s Typical not you QX kind XXX% you year. haven’t forward? or year-to-date allocation on

done without taking incremental year. You on debt haven’t any deals this

if be So the why managing the wouldn’t growth aggressive you. allocating priority, a are you considering is, going really And long-term forward? growth is cash the for you the are dividend suspending Thank it if or business or safe? is lowering more dividend in and more to you

multi-part. if the and can I But as some Toni, color handle handle about the operational piece me then, prepared the have of around I let cash Jim. overall. quarters, priorities no is to see take question, around, the uncertain. the and color. talked numbers recovery is this we consistent strategy give Thanks for first quarter still the that around real you the me discussion let remarks, we see fourth indicated led rate and But and But, to allocation stability Arvind around first, in prior guidance. in with buying preservation, can of fundamental change has us the is give client and around capital pace you there some And not

Transformation off Red over playing First, that with solutions, in though about last the out TPP, had results accelerating, we The our cloud that that Paks see and our we business very at Hat that very and Hat and strong our in Apps quarters are in in few onsite in remarks hybrid committed few And Security. accelerated when given by in the our We to cloud, first the preservation, has our growth healthy and going Cloud business. we in similar environment our a and that at and in particular quarter, the is in the growth focus cycle cloud those we and AI this mainframe good data platform. we around only a led $X.X the clients healthy backlog XXXX fourth about pipelines we on momentum the platform quarters two back pretty talked to headwinds. and it’s continued our talked second to look fourth and actual called things you first that last prepared see our And quarter and up Red XX% up of to Cognitive we very the journey within clients’ significant XX%. see cash pretty transformation coming portion digital half. pipelines coming at modernization, Services GBS, And be our see the billion year out of business last the App don’t Cloud COVID-XX and cloud is with

you to in XQ XQ, look I there regards be skew yes, to overall, quarter, no mean, revenue. to at with reason will expect normal when not the fourth So a skew

the Some in piece. software our TPP hardware offset slight portfolio we’ll improvement on and wrap by

operating sure cash We continue can Now the up up invest Operating confident our XXX in very strength points, XXX feel our strong of off in margin business. liquidity margins XQ. terms EPS, basis quarter of and very you basis pretax of the position that our saw we to balance make sheet, to strong points. in coming third gross fundamentals in

in around the billion here skills, that play charge. see are in out technology, structural and around around starting immediately that $X.X We addition around to quarter fourth you’ll innovation, capabilities,

numbers, well as EPS, you as I do. you know So, all when look the at

I of substantial XX than last has Over XQ the x our to billion do a little $X.X been think that, maybe nice pre – growth that. the better but charge a bit about XQ of don’t anything mid-XXs. about should We number years,

over Arvind, see dynamics. pretty you. we similar to So,

Toni, strategy asking of really question. thank you growth our important And allocation Jim. going Thanks, A capital the for forward. piece

points couple we when a Hat, for of there our one, to acquired and closed repurchase we ratios have of and deleveraged gotten So share on context; back target until pausing commit we debt-to-EBITDA. Red to did

will we by on do and there said that. are to we fully intend we track to had do that We So get XXXX. that

one. So that’s part

two, you’ll are see get sheet And growing us down purpose paying balance to so the are begin part and cash will you a be down to that but those pay you to ratios, stable used in one. the that said see you of Part because we committed that, towards not towards some dividend.

we that keep our that and else much given upon stable much you and prudent everything dividend. up is means, the they long-term. for for to for feedback, intend dividend That about how and that managing a have how is depend growing investors heard to Our what

about we are grow organically we in going both to going so, in I expenses And investments, in areas Xth increase but the and be and we to was increased clear, order to be also in have are on talk GBS, quite that to we both able out. when acquisitive software October called

hybrid We Quantum. data will be as also in acquisitive security we AI, the such and be acquisitive will around GBS areas cloud, emerging software in and in technologies

that, you think us asking. I to when what going do see exactly we So, are be are you doing

We will growth going be allocating more forward. cash to

simple the think yes, to therein. no I with is, that answer qualifications

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

you. Thank

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

line open. Your is

Yes. Thank you.

in productivity you how view some you. of please? and the associated actions second margin come come the help And as give saw just the in Thank that you Can the with strong can savings to through announced was The to yet last the week, with half much us you a the uplift some you deliver from productivity reinvestment third quarter. going on us talk benefit is more about fourth of that we quarter? reinvestment actions segment

Yes.

much So, question for overall. Wamsi, thank you very the

we about XXXX, move a remember we we entered this structural forward. January, look to as our businesses If the reposition you going we pre-COVID on lot at actions as how we were talked took in

actually and were gross roughly basis gross quarter in are that points basis out in margin third at we came at points up I are at the just up our the level operating see results. You XXX second off level, margins margins points quarter our level. up playing basis that the mean, XXX XXX and in that pretax margins

driving the So, and the I COVID-XX environment. to fundamental given implications of adapting running business now way are economic the actually change seeing think and and and are you that the onset the we productivity the

creating can if remember fourth independent company business, is our talked look about around of Services companies Managed separating going you out said of overall, charge. $X.X in was and you and an actions If billion strategic at you think publicly at ago one-third to what this take action be a about that kind quarter And traded Infrastructure the a and time buckets. ten creating two the around market-leading we I the days

The EBITDA to first the separation trajectory that profile. post achieve is going of NewCo a about third is EBITDA growth on in our to business growth of a double-digit to to go improve profile be help

market inefficiency with we of or are addressing in to $X any ecosystems investments The cloud additional around just stranded was, centered opportunity and is making piece in overall. also innovation, to charge. skills, bucket significant second out, we when for separate second as you the hybrid is, be committed going to XXXX you third inorganic create and That third be used then going the to cost and Arvind and are flex. And to on bucket that are place is business the capitalize technology, fin capability, people, answered, trillion third this around that going

that to Arvind, I’ll one? you and do take one the second want So, take then

Yes.

So, when we order going segments in we straightaway one, we you that in that so this get four be the in seeing at are is look skills Number outlined. areas in, are in the GBS increasing the that to more had investments we demand. to areas Wamsi, different are

Adobe partners, just that. ecosystem we are we investments before large be but our a ecosystems of week, and increasing are we that couple to ServiceNow months Second, announced going announced last in

Salesforce, You’ve with seen us you’ve us with seen others.

platform, properties that to our to the cloud But we working we the invest also growth not there just do road So in and bucket. are hybrid so increasing those. we work drive large one piece. our on investments that of hundreds ones, with are second it’s in cloud ecosystem in order going on how them ISVs, are in get put I’ll also a our we down very how is to be the

of prepared innovations to also increasing Red and my to of you terms in different cloud those in of AI, going Third, areas forget, investments software data to on be our are terms in there. are and that in NewCo driving but the others, itself addition all investments remarks partners. be is to areas infrastructure core the drive innovation also put in into that around we we increased And we together, looking automation, seeing technologies, Hat around are as going the in and not hybrid going security you let’s some in the cloud against modernization saw platform

in much it you identical now all think we I’ll because growth, pretty segments, IBM’s the of call segments want it’s but be be, when R&D, four to to growth and those of we think Wamsi, contributing of we buckets, so terms there areas across to of it lot of where goes you driving of certain with working to be So organic got demand. about in all is it, if wanted terms not balance, a

add different M&A, get moment eventually So as but you in the course, of directly as got to skills in will segments. there added expense of acquisition and that’s also expenses these money, buckets you an the to quite we complete these add while from not M&A

Wamsi. you, Thank

Let’s to next the question go please.

with Huberty from Stanley. Next Morgan Katy will hear we

Your proceed. may

and cloud business, thoughts Red just basis macro-driven? pro given hitting you. looking how was closed a growing software declining for pro those cognitive it’s forma Would the with rate. mid-single-digits. And business. before is important not you that a software and acquisition, to stronger growth on Is target? that Arvind, a it are mid-single-digit on the Hat Red whether forma business we Hat growth Today, back at on longer-term Thank your getting it growth love seeing entirely the timeline why to steps

towards And getting you a a Katy. correct. us got part is it Thanks, of target. It critical mid-single-digit growth

essential. is that So,

license last and it some go indeed before at think ground. and it I the is are is in terms transactions the the piece there. TPP alignment we that look as is the would People is begin pausing driven macro software mainframe to there which that under said and software perhaps segment of tell in to but as is inside wrong which word, then of that’s environment few the months, it I two I’ve for is capacity in more the you large the there certain as you of So, maximally elements the

at we I in or do So that we see I to see do healthy that quarter the look good when data saw to some platform, Applications and that cloud as quarter Cognitive third expect tied we in see but we year, time. look fourth and think I our saw that continue last expect to to begin slowdown for this you within and But year that, continue. there, we very the – growth growth at of see

those expect added begin then accelerate, to and any at in increasing we quarters, to give we in give I well as be parts offset do as than multiple do to in teens, that, we by those Katy, ecosystem, out. investment in weakness the would able as into more invest acquisitions, I’ll fence of more was more we’ll we And and well in the growth in time it mid-to-high in see play quicker, I just are into growth able spin, our the to return offset look and invest how are that those enough that portfolio continue it we that whole of and multiple of TPP. see got in we Red we is going as we the fully anything to there I portfolio while a next it would get quarters turn to to and expect that as at but internal Hat, as happens that as itself, acknowledge complete elements. sense see you growth to it Hat As you and than take more but will expect should through that then to able that Red that, as when the various should wish to our across TPP the R&D the year, those you should be same that be

you, Thank the question next Sheila, can Katy. take we please?

Absolutely.

Daryanani Our next question Amit with comes Evercore. from

open. is line Your

from applies you’ve for your question. the ten just as the hear over that to the I or love of days spend gotten pretty so feedback announcement deals the could term Thanks I signing of longer am kind defense done would Arvind, growth. that - customers and what is is pause the it post perhaps and about my last taking I get guess, thinking in spin

be over feedback there any would just helpful. So,

Yes, great question, Amit.

think So, and imagine, We out. the can perfect, clients concerned think might this topic. internally, the To that level in but estimations only of I about about very, which I hundreds. knew exactly say that in sense, I a is I of something our sort reaction, mentioned our based the obsessive also the we something lists give of is very good as we we use client, you this I spoken is, correct you had that are concerns. you feel of can wouldn’t not already we were are We XXX% be this we we we word that tell what but to on

SPINCO give some spoken – some that is our we base who we they it head be back that that up is is the sides the be be just bring satisfaction going color also and deals and there table. the they put the to could to that the revenue that’s days majority two least the permission very have from are in Then ten there, or both deep technical be you do both enough to top there they that of can place, a great over that’s ground gives in, the XX% clear. very but Both trust to where the the out there to corporate of good is skills concerns. is corridor And and is and really because client service terms They clients of clear Who bring high concerns should are think So back are believe the we service. of a the very but have have will on strong now same we’ll runs their And where team with true. person gotten or that kind already team do and with concerned. team that them to some from to on be $XX, they it’s come to team on is three on we’ve around, not very that not going which between day provide, but intersection going the those I’ll providing we of hundred why a that on clients we at the that on management the one is it. be ground service have SPINCO ground, Yes, in who does and play. whose on upturn excellence in structure heavy

said, as clients I comfort be see other XX%, can level couple that as them So, concern. be to we when together, of get them happening going a I the have majority many what we less of I to there is there them they of reduce. servicing on is can But there is the also going to that one is think or to put a for anxiety I all naturally of was the begin make team of and that, they clients just sure and dozen over understood that where the tell who on

why three you going for or get to your are months. the to something benefit and business for go most that that defer deals to We larger are three if the you to want complete a from in point of to they benefit to deals. would months, your Now, don’t do going unless six on are they this environment benefit. pause Look clients’ our six

have luckily sort on both as each both then month understand other the in a So, of quarter what and to find to side, enough time those things team sort to of there go our done. I think they deals they is get still drives

see I But quarter of not. to will whether we’ll to can are the am a right be most we actually everything satisfactory us progress or confident that the conclusion. So, tell deals based I on see, able

Thank you, Amit.

question Let’s go to next the please.

Grossman with comes Our question David from Stifel. next

Your line is open.

you. Thank

business? as quickly that’s this longer-term us you calibrating have end-markets associated for a growth harder understand challenges with your it I at analysis and business. cash QX, growth it the the reposition longer-term you any continues means give the totally Can really what generate for modest how of time think into that And are cash that decline or I So, know I that the run to about insight thinking and prospects it of shifted that something rate mean different? a to Does having the I does mean am simply flow?

going participate to market. That we are a you them also that make fully many to it’s we is that, spin. IDC things game. where place many from can and a has more what we see, told much shows in up pretty $XXX start to us. them grow is what a we couple can complete what our Within market well weighted market share. going we consultants speak clients balance is more of probably ability where the way We that sheet. to allow a Two, and opposed Look, and That’s partnerships allow is as I think always team that IX the find the form there. targeted can’t off But definitely to a third-party if in as heavily investment-grade it. market post a gain total us, market as of our for from both with standalone to David. acquisitions we scale that have all is management more the as waited today, A And XX% and other of that as consistently in that Hi, billion portfolio should to are appropriate. about

as restructuring offerings for which in And and to to in the excellence that the in clients. to service and well going automation three, is as higher third EBITDA of allow invest new spin cloud much is mentioned the them charge modernization, them profile to of areas a going also offerings security and resilience as compliance delivery also also in company. even Jim allow so, of two, aspects improving is their That added more such deliver to

doing dilutive for but but look independent the accretive going I it do, we And be with those, but some in road, to of not maybe them terms up the when do opportunity offerings So it’s the wholeheartedly which that’s the down company, two an as is time. might to new margin because possibly not other towards who across there. be freeing M&A partnerships to maybe companies might all us, as deals not leveraging three, they would and company. new And it, with certainly

please. And Great. go the next David. let’s Thank you, question to

Our next Montreal. with of comes Keith from question Bachman Bank

Your may proceed.

for to Hi. congratulations Red and wanted question, on of Many ongoing come billion to I in M&A. success you and this just previous calls, more Arvind, $X be thanks $XX to talking resources $XX clarification, question, I a the about room previous and it payment, M&A, now a aggressive you just taking typically the between about on dividend of for and cash IBM question sure Hat. that doesn’t generate not of am the I financial M&A billion flow per Jim. you in free wanted that to on lot seem leave have have and be calls M&A actually back to clarification billion a ask if

message say growth you and and ask been we not in impactful global away how math before we am management application of So you just is get where not next to I I Yet work talked that had the then, I business think can economic get sure Jim, confident when investment-grade pandemic have consulting look rating? Jim, improve, are to particularly process through challenges into am may if could. and you an I’ll make – certainly better there. the you hit year how just and growth cycles. question I – GBS as the presumably my XXXX. fact to – about from

on two were And frankly are think the those thanks. for little about so, want just you roughly a the businesses. to pretty organic I that challenged GBS before That’s pandemic? your expectations What half growth it. about an hear basis Many when revenues

Okay, take Keith. if me Arvind, you let both. Actually, mind, don’t

composition, COVID-XX XX% segmentation, $X.X you investment large IBM coupled heart what quarters with, that with on value part its and free equation. think well, of content you’ve cash one, well of got question a already enterprise client flow perspective revenue, you to always from comes fourth But stability business annuity the at gets organically the our is our to both cash and with first high first, of year-to-date in model to geographic over free of the its in question, albeit the a its natural be a do onset piece strategic the cash flow provides a allocation inorganically. want quarter. about more mathematical I think, know all been in billion talked delivered the I both we profile And answered its how high flow our in your value software, overall, around this seasonality high regards composition focus capital this industry to of services we profit recognize in as Keith, environment two and there free hardware and quite As of value ago business diversification, That, we cash. platform hedge

Xx an significant on repositioning made just in number plays cash Xth already profile COVID-XX, confident around two see understand even market-leading is Board been companies. trajectory-wise confident a will of free market-leading scale the to year. as are lead we’ve fact team fourth decision is business EBITDA this be strong is less that quarter in with two, our We’ll Arvind infrastructure flow all very entire the services IBM and the and business you of an over how in portfolio, the economics margin IBM our in business. given within competitor growth that that very next challenges around billion business and then driving going quite and yes, accelerated years October out. Now, the well, we couple in But more last that economic due of light One to that a the $XX cash and generate

hit operates this and cash growth a ratios in flow our those we inorganically shareholder our aspect, financial we targeted better think secure dividend disciplined our to and capital and and policy gets look to free to at that leverage flex, fin I that ample return sustainable business when comfortable with from our flex policy So, overall. program maintain that organically only you allocation dividend also invest company on, to our got and fin very delever with feel

first the question. that’s So

talked half second the and ago, in month see XX as talked we in second Second the GBS, growth question, you if about quarter about, quarter when days remember the of at of I you first some look improvement did third and nice and of of we second June signs half quarter the June. we here demand saw in

global to on environment this workflows. cloud. to they services where in in themselves clients’ growth now way, was third but While digitally the application growth pretty deals where run journey our in signings it and pervasive. consulting, That our the that clients process That capitalize Keith, around services good into around drag then by quarter continued reinventing are how listed that large intelligent overall by double-digit their companies transformational was led was

as our revenue move To is your look when seeing our are current demand more we we backlog we now. long-term out. question, But So that inflection that at current and play pre-COVID for improvement that of runout see is we all backlog sub-segments. the GBS and big across to mid-year back GBS getting rates our by growth XXXX, a business, in chunk three

you, last let’s one question Sheila, Keith. Thank take please.

you. Thank

Our with last Research. Citigroup Suva question will Investment Jim come from

Your line is open.

Thank compared it of out get debt you but company shareholder EPS stock has by it’s it dividend priorities maybe paying the to believe mostly is that or of the all feature strengths we less on lot high that flow question well to stock about then returns. generating and here perhaps and growth buyback A highlighted and the cash you’ve focus I been investment-grade IBM’s as buyback spin much. buyback, closer get a to M&A and of very talked of history significant pretty think is, Board seems easy the is driven Post being stock that a the clear the positioned. and past think and the the and down like of isn’t should IBM management view

towards to kind we way the heard half through So the of last Is more they’d that M&A. be read hour the shifting Q&A?

This Jim. Yes, is Jim.

could overall. Let me that I Arvind up then and take it with wrap

business reinvest As announced. Xth. focused over you the know on back the and talked Had we focuses how we laid organically we process we laid acquisition foundation allocation which first in on quite of a years, that October with strategic We bold well, move are our that Red We couple foundation disciplined and now both capital last our move. the foremost instantiated the and in was inorganically

We have growth. accelerating and that been building

Now we cloud trillion that want capitalize to $X hybrid on opportunity.

have targeted given just going now priority are excess with allocating cash, capital shareholders. own to our ratios, repurchase. our as mix, our we that point we Now policy get now. growth return time that outside to talking that right about reevaluate That investment when But there our need and that investor and right business, sustainable we share back in is to said, leverage dividend of and we’ll is at secure no back to

reiterate, Thanks, growth. about to Look, just have talked Okay. we Jim.

just about on wrap the for cloud let the AI of the a me of growth to obsession up as maniacal couple talked have But hybrid and a We company. make comments discussion. engines

our focused this times. platform, our expertise. and our to incumbency, And uncertain future We transformation technology fourth in hybrid And I starting their are look our quarter and with are focus direction accelerate dialogue even cloud our the you. helping digital certain leveraging we clients our laser now on these the continuing growth forward taking will with enhance our actions we and in are on

you can to Sheila, it to we close out call turn please? back the

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

at disconnect may You this time.