International Business Machines (IBM) 22 Jan 212020 Q4 Earnings call transcript

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

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

made in the factors results comments These Act this Some actual considered presentation materially. involve forward-looking Private of may under that statements Reform our differ be 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 the focus we’ll the In consistent addition, on divested lines adjusting and to geographic impacted businesses cloud of growth constant provide go-forward with revenue, our for our business, for view currency performance. total

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

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

the joining everyone. be with Hello I’m investment pleased community for and speaking again. to Thank today, you

we taken the many good of spite progress out up journeys important appointed I was we XXXX, focusing is made CEO challenges two clients. have In platform the have bulk the our as strategy. I’ll talk provide the time you as with straightforward: quarter, us our transformational usual company, Kavanaugh I’ll call. where will I’d environment we spirit our in In focus Services also longer XXXX, slightly recently Jim the separation on you if with investments. With of to for progress. being I the in bear a named experiencing detail that results. cover XX to because and than nine the the where capabilities, significantly of our and see comments we our color in cloud take that said, two is Managed of showing the our with it’s future just we a I for company the as operating business. that our XXXX Martin next then align results. believe a and to actions to as we and in then on to the the company. this moment. CEO efforts, of Over increase minutes will few are to to April, series make value a approach in next In business. additional laid of strategy ask begin most clients how growing redefine will we the current with will are my more speak possible, our important to expectations your going and are will difficult we since on questions. execution on hybrid go our stand Schroeter AI The and not process Then, will remains on for then, please give environment our us join you XXXX, conclude passed. transparent our about Jim we I we and the can quarter the cloud expectations, months in We the of this be Jim I’ve as a running the and perspective straight of This at know AI line. years. asked necessarily the what hybrid which Infrastructure see When

for investments. seasonality, which Our it’s revenue is important, as in the was typical we cash free flow, but slightly fuel behind strong finished

with the project additional the in transactions pressure deal Our performance quarter, pandemic of macro continue This broader and uncertainty and reflects software the effects this fact larger delays the put clients services of on some to that environment. our engagements.

cycle their to midst and the challenges. bodes compare we That XXXX. dynamics, inside in and these need grow us said, believe now well market clients business Our in of all we of revenue Notwithstanding I’m growth by to plans this headwinds also was have over IBM-specific focus ever-greater long-term. the from seeing be very in the short-term our place and impacted to able this, of for an transformations, product accelerate and the the digital

in trillion you cloud workloads As before, the see hybrid with fact moved in at I’ve having told than opportunity the the enormous, far. less of to a cloud AI dollars, opportunity we is and so cloud hybrid XX%

with and approach of cloud Containers the our along provides platform hybrid is product is centric. of foundation that Hat the platform, OpenShift all Kubernetes, this more. and Linux, core Red and captures Our

journeys. complex is plays as cloud a clients unique Red cloud highly also successfully our is to are run consumption and in approach and by own portfolio expertise, foundation a hybrid hundreds platform major differentiated GBS which we of hybrid regulated address a hybrid flexible, currently role need: With key clients Our secure. software is place, their cloud-native and helping modernized a on platform leveraging what Hat that driving vast and cloud to in this open, our global,

front deploy build allows to to approach workloads, to office connect data and various modernize clouds. apps, manage back across and applications their cloudnative to and mission-critical to clients cloud office; hybrid their Our securely

IBM. the right for for confident strategy we and that are We our clients have

AI Let proof our platform have we months me few comment the and execute over cloud on points the of we last on seen strategy. some hybrid as

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our beginning why of model through our substantially are billions address look dollars To unlock roadmap decade. clients quietly at the way model by of also We October. of on of they business. are us to decisive to clients. computers to we opportunities, will quantum since to mid-single October. being and a growth, we potential investing have now most we end our operating working different doing requires is and computing. strategy which portfolio, a of the of And, making revenue greater reshaped. are on to focus this digit know This to aimed company, post As of announced changes the has our such needs significant just Managed all on qubits of of hundreds are XXXX-plus that of XXXX our a portfolio, of build creating by we as we forward, help is a a the today. develop quantum our take deliver separation. I for a separation our on future moves spend as clients couple and fundamentally These expanded the business fleet value platform-centric focus series minutes greater opportunity, quantum but hold, our in they have our computer value seize sustainable Services the operating want drive To market Infrastructure Quantum the we

month new understanding just its CEO. has unique I the of Schroeter clients. company’s As Martin X,XXX as Martin mentioned, appointed talent global this this business, a base and we

him to from to Though shortly. hear remains track the we are complete spin year. of the by You’ll end the on be much done,

renewing We while new are deals. a and clients also closely working business ensure are with smooth we signing to transition

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platform, elevating software and focused AI. hybrid organic and Our we and of cloud and be in adding of investments hundreds new of hybrid cloud to vendors will software our major sharply consumption are third-party our our partnerships by partners. the partners ecosystem accelerate in To role also both and continue system independent integrators, inorganic also people, expanding global with on rapidly growth,

ecosystem needs our investing much billion bigger that in play of many clients. the our We’re fulfilling a in our partners so role $X can

the and recently in IBM’s based UK for together To we to blockchain simplify earlier National and using health teamed fight such COVID-XX. their solution key a with also this chain as to and model. transform up help and tracing Salesforce with supply our joined Health new we a vaccine go-to-market challenges Sterling contact example, way an strategic Salesforce month have clients, deliver address against IBM Management capabilities. digital management them As to forces Salesforce announced we engage platform Vaccine Service CRM new pass the

unlock aspect The segmentation, with first sales us deal clients work will is simplified our to model great easier consistent and for single which make by of adopting a a that we’ve it productivity.

in the investment more providing our a and is allow our approach, addition, experiential our fully that areas. process. with with growth technical toward earlier we sales In us garages are clients co-create incentivized organization we pre-sale with sales And clients to ensuring are in strategic

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footprint us As to XXXX. growth. I’m that all company begin we open deepen the a running are avenues client allow changes differently these we convinced up our new for as will and result,

for Now, to next two the our expectations let years. me speak

flow revenue through normalized an the strong to this? designed has do contributor growth post achieve on revenue Hat, we First, drive larger mid-single basis to the growth of in deliver sustainable strong and Red How growth, separation, XX% expect even will cash to we of performance. I’ve with free post-separation. digit are All a taken actions which XXXX growth continued grown be and

we middle in improvement year. with Services the pre-pandemic growth of the Business Global by GBS to its trajectory, expect Second, the rate return to

our of investments separation. XX in and the we on. see generate our growth will stand how expanded billion software we’ll $XX organic will to of operational of different growth, further are to expect goal. we inorganic. contribute operate to sharpen ecosystem from toward to better as post flow. in expect we and And our the are to is the take current to you year, the the our challenges revenues Over step making our GBS results the look end In we This reflect of the revenue we course, working hold. we second These particularly At leveraging software. contribute rates, And product free with half dynamics. grow trends – have the begin But spin-off, more trajectory well. also detail. in of half. we both year These these we’re at all to will Jim finally are as these where XXXX, by the the will start digit first we Infrastructure mid-single and is made of half business, to be the Third, both of changes with benefit some high cloud all on the also to level, an to will first the company to expect focus. of continue cover performance between will and to today headwinds will cycle year, measures the a And with to significant improving separation adjusted The this focus achieve spot as the at hybrid changes Managed first billion Jim. focused AI in long-term to well XXXX, than dissipate. but Services. on This not execution current our achieving In all cash the and

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of move a where level macroeconomic IBM software tended toward we uncertainty, the duration the engagements, did our revenue. clients But at impacting cycle. performance to Z Given product in shorter have good to relative we are more

now We have and our support hybrid we cloud driving mentioned our also using offerings transformations, hybrid adoption X,XXX continue we’re strong that platform. cloud good Arvind see clients’ demand to of clients platform. our in digital

than to Hat thousand GBS growth. to billion Red slightly since quarter services platform rate, time. from $X over Global the model, we Cloud the subscription drive for OpenShift backlog discussed and of bookings its Xx and performance Xx platform year. anywhere Hat we of Hat driven accelerated adoption That’s engagements the Business and multiple revenue is Services with the IBM for than normalized more using XXX to with by the a of and XXXX clients growth, of subscription over a that’s of XX%. with Strong technology, perspective, economics contributed the backlog strong course Red XX% engagements We’ve the growth third For Red software Red continues first new Paks, the the revenue continued revenue. Hat. acquired over number enterprise higher

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of profit less model, reflects our simplify This the pre-tax we for or in to countries, few billion government quarter quarter, by over quarter our is than to on and $X about what structural $X fourth in operating employment a Our did $XXX growth. $X.XX flow, on billion over also charge savings and of in actions impact driven current year. and million, environment. back restrictions discussed actions with EPS charge accelerate flow of the This the for cash and reinvest October, cash we $XX.X not free primarily the billion a generated Europe, have fourth much in optimize certain charge

and capital cash offset interest. performance Red infrastructure, from related cloud in our by previous rebalancing scale XXXX net was free actions. This net expenditures from to in and payments of flow driven contribution was workforce capital improvements Our working Hat, increases by

well was $X.X with was our billion, a which down over fourth above cash have cash balance with We up We flow the billion billion, $X.X debt as is ended the high billion XXX% debt of $XX.X $X year maturities in while which quarter. continued expected. of realization, to free

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application and During company. the monitoring Instana, an quarter, performance observability acquired we

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market business to some uncertainty, remains cloud. by leveraging built reinventions their accelerate there looking digital on clients services are While hybrid transformation

with Our underlying AI results. focus a clear see offerings infrastructures hybrid are high-value in aligned to reimagining and the cloud. GBS through workflows on this using application this modernizing opportunity We our

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we improved which have delivery resulted capabilities, Finally, made are quality, promoter in margin in innovative the our have delivery investments expansion. reflected our such model, as our in delivery our scores and gross dynamic net

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at mentioned, separate of we the Arvind public as October a of business now. referring the announced Managed into NewCo which spinoff our Services Infrastructure beginning for company, we’re As to

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role, and Thank and you, a due briefly be me who When me yes, with and am to this. name. part to the I on speak wanted began became CEO delighted to of NewCo, working diligence, talking are he on clear I very about earnings let on Arvind you a it, I absolutely the I today honored teams this speaking it IBM's all of my as did call Jim. that and with we be as are working

the in every about With could the nature future NewCo's excited for NewCo, of will industry, business. NewCo mandate outstanding the that companies of the and in have, talent leading freedom of be action work the more or the I this not

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Now to I'll back Jim. turn it

Martin. Thanks

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enhance financial have and our balance actions sheet in taken liquidity, resulting stronger to position. We also a

We have business exited focused Financing OEM Commercial receivables. We've Financing to agreement and on cloud hybrid IBM's offerings. our AI captive financing IBM and an entered into have sell our Commercial

last have debt our years, result, reducing to needs. billion from over two $XX external As receivables $XX a our declined the financing billion

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XXXX our was we're it in path XXXX, we improving said, qualified all returns expected of and the feel into of throughout status well an Arvind as moving ahead funded about we returns profile and together, consistent year. the year. with overall Bringing good on last the Our were expect worldwide plans financial

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cash of the cash the this the to flow business. of Looking about be $XX clear, cash billion of adjusted billion to flow impact XXXX. with at cash This tax does a headwind flows, adjusted reflects we transaction spin-off $X billion. of the But or actions our structural $XX costs not Services in free associated year-to-year cash Managed include expect free Infrastructure our

to XXXX. For billion perspective, these the items about billion XX we for months, $X at over with pay $X this in next point about expect

As $XX XXXX. the of position in free comment range hand. build adjusted cash flow on cash we we on billion in on to $XX a enter want of as I sheet balance our liquidity expect strong this, also We're over with XXXX, with we look to to billion to billion. $XX

debt when to single plan further balance since year the we'll aligned we to give debt progress company our our throughout profile. to reduction Red expect reducing mid-XXXX. operating with have de-lever. de-leverage continue so in a as focus In Our the us continue and AI confidence while with hybrid XXXX, and business, acquisition sum, with financed cloud a we to we financial Hat scheduled our an debt leading our is peak expect progress in financing continue to rating, in A maturities, in credit we the together This, actions at improving

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

Thank you.

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

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

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

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

is line open. Your

to assets realizing the on specifically was Thank you you to, and we obstacle And get grow – processing, done as that on what Yes. transaction to this the had XXXX? click might able had in bit compare growth cash growth are Jim, still $XX.X cash $X you. free XXXX if the $XX turnaround, flow the Arvind, to a hoping turn will comments line. that is software flow an hit the maybe in in and just like versus I that's drive margin. there, billion you incremental billion could the business you flow, And very around tough seems billion be which billion? high to into being there? bridge I incremental What the cash cognitive revenues could, rate a double your billion seems $X on to $X if mid-single-digit you It $XX billion versus

could so that you much. you if bridge? So Thank clarify

Hi, Look, question. year, XXXX in the through the Wamsi. for into software we and XXXX. improving expect headed both to see Thanks performance

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We expect to growth our packs. see continued cloud from

data a We expect as IBM on across cloud of changes have the and portfolio, focus we AI part applications. greater growth made to the and this on salesforce much the platform continued in drive both

some and security IoT as the larger just they within that We the also expect applications compensate more larger of may the other And the remember not inorganic the the to big, see because will pieces organic and assets other growth us with the actions. than to we for there, as become than Jim is there. compounding going mentioned that of so are lastly, all actions, be doing law also get

because helped both Instana You acquire saw the of not last months portfolio, drive couple acquisitions and StackRox entire future will pieces. the Jim? announced growth other us and in just they also and these

back investors it's the to to company; have Arvind, of profile of I But for why? generation been that XXXX. me we of because going thanks important important Thanks, cash Okay. growth that think flow our flow a for the fuel it's realization. It's as flow off billion, coming be the many $XX.X and take understand the committed XXXX, investments this a here free finish let in Very free asking cash because question. engine delivering on cash strong in a Wamsi us free about to step XXX%

First, to we billion accelerate then $XX to that to to $XX adjusted then how billion billion billion continue bridge go XXXX $XX how flow? you'll does that And to $XX free think I overall. at of cash see

going to growth remarks, prepared revenue we So first the is which be as here. said essential in

eight you've I in gross think expansions, think row. of the years, to we quarters productivity couple XX and about with business our I have over this margin driven and out the for seen operating last Second this now a of leverage

quarter. the operating we're our So and not third expense leverage, to around significant revenue a deliver accretion Hat to Red only of get flow free coupled being contribution to are achieved we already going in interest as turn we cash growth, that's amount accretive with net operating profit, now going a going of to to

happening get profit, from got operating XXXX? XXXX. to headwind going cash what's we've XXXX tax We're substantial big but in a to Now

growth from of roughly billion already for So billion to while you $XX.X headwind. billion, $XX $XX nice we're billion see tax a to overcompensating cash $X

to going a have we're more has next profit give at XXXX, us same which operating two much to cash in that for in diminimous get that the headwind you very guidance years. leverage, but makes level tax get of when ability our XXXX, to Now, levels we contribution good those confident

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

ISI. with Daryanani Our comes from Amit question Evercore next

Your open. line is

spin The the publicly going calls X% for disseminated? to Thanks just the taking up the nice is sort decline revenue me, line GTS Martin, on I great? on of the is trend the trajectory the as does your for really or few to are done hearing my XX or drop do see they're was That'd Form from X% And done on. mean, remind competition this driving customers? what to till hear question Martin. when GTS, the quarters. the I NewCo, dynamic perhaps in could as think pausing I'll question, reflection you look voice X% you of your or be and there? is side perhaps last from you versus when if understand notable, that spin decision then this Arvind Jim, in the the what's Love a understand picking from the your get

Okay. Hi, Amit.

clients high important of overall So Martin economy. we're said they are most these client industries and the both very clients. treatment talks for really a of in do touch going lot as that to had for feedback all we clients our us important the are Jim in terms of important These

and are what'll of to and of we As of feedback of positive description and the access have quite from guarantee over service XX% large assured technical the the from both all them terms satisfied company their time. we gotten clients, happen our resources, to over they'll us by both have the of very in new with from talked get contracts, IBM

and We are plays that it about, it very we they score measurement, mentioned, on we think call touched down. net clients do see gone Jim measure have not our seeing those that briefly. As promoter up, as so through, how we that

it. So will we that feel comfortable go clients the through

maybe certain clients said own to on going project business. elements that a few all their are Now, given pause

because that so bonds But or these on little that the allowed based GTS dial bit in say of of is you the volumes some contracts. see given directions, – their economy, that through in a that a law overall and are to in into little what's the down own bit both up is business, built the And performance happening in play that.

The improving other gives side going trajectory at that new logo an be of into which should it, confidence is performance the the XXXX. us

more he So said on add just Form to the with that, we bit little about there. to, of give it to financials a color Jim, And both repeat what sort XX? the

Yes. Thanks, Arvin, and thanks Amit for question. the

X.X X% to was in or at currency, Just up though $X.X X.X% at seven it actual to in billion constant it the GTS quarter, quarter-to-quarter. here perspective, down put your give

saw normal by GTS. XQ would what be in we XQ pretty nice way, So seasonality and to consistent our the with

took, on is what given the and prepared this actually said, that on value the rating, October spinoff in financial the profile said proactive we quarters in which your As are some took been targeting financial for what for client-based sheet based balance addition prepare flow managed be we value on last actions spin, business and contracts of is NewCo. cash and We our terms with with the as restructure to what again, to we've through focus to which free an a overall. double-digits, should dividend investor had profit margin, profile we get is? the to solid our remarks, approaching in about ready And yield attractive actions lower spend a so we And we of to NewCo, these environment post to grade improved in business to going of leading as is cash. strong both I or infrastructure value EBITDA and question yield fundamentals my getting create that services talked dealing investment volumes. the a optimize that's focus talked four second with improve Arvin in IBM economic Now, X, about, with in business the what external for

on to as the that period. I you end we lot the regards carve-out X, very the well of about Form-XX renewal legal achieve our about day. Form regulatory you what done. work think think with transition, your second we with Arvind where we're being the new and on and a the the The Now, XX, client the work question I should I and to see rates. But the year prepared is we're track learn that's of think, addressed logo right each of with very the October financial, going talked strong in set every on fall now, pleased sometime this complexity remarks, which signings if in and

Thank Arvind. you,

to please the go next Ivey. question, Let's

Our next Sacconaghi question from comes Bernstein. Toni from

is Your open. line

Yes, If QX. movement very your just quarter, the little this and three that off thank you. last from of $X.X was the years QX average. results billion. of I $X.X revenues That's kind typically stand from back average of your This there's are to up billion year

in to sounds the slightly growth maybe in XXXX. constant flattish in well, at seems my It change, around afoot like I is, eyes, maybe some your here be address that that in but in sinister migration to be And looks to do guess end accelerated room IBM an assurances is particularly which cloud there there here. that is you confidence understand issues I And the I you might around cognitive – your and you trend and the worse. in and something not, Or single think least ultimately not of were being comps, the this software year-over-year know is is are below and transaction more at how as not some you I what's question your sequential is reflected participating cloud understand current that hear mid as why or digit So the isn't can spending processing, to currency, notably IBM significantly directly environment. elephant a in? down as Arvind, are offerings competitive the XXXX? guess that's there I going it

improvement, like much IBM the huge How do basis expect really, notable? what on really drives is So which you company organic? XXX of to a be point you. that in Thank

things. investors One, why the that as at $X.X mainframe ago to know is Okay, revenue to you a Toni, and last been CGR of and question product question and five-year major very I with you the cycle I'll frontend couple quite address then that deferred about think the that when is has distorted acquisition, neighborhood three know, a I average regards are I sequential about part a two much. sequential asked Toni, Red me, days the Toni's you overall, business normal But billion. you of specific on Arvind, $X.X many when thank correct you piece billion. to our the could talk very our of years topline, and the look I well answered of the in it's think you well two XX quite of and Hat you billion, and know it which seasonality by trajectory was $X second

expectation said, we your transparent and point I that $X.X we And software. think specifically we fell short against in with to that Now that delivered open billion. and fell short been we've

XX% end. above we year shortfall, last balance at and the the And on we of the about, from ELAs were pretty the confluence talked look of the much well profile year. If software of was the to given portfolio, finish mainframe peak our you a is combination within wrap of as which the that the slightly of some business, revenue strong our remaining

which overall. XX% ELA revenue has had our XX% We XXXX. average, in grew value underpinning software You, equation. our to our to We tremendous in cycle of that year I off close cycles. three that. think, that about value cycle, all tremendous volume to And understand the and those XQ was are peak up financial clients software On to transactional

were and We So knew trough going about quarter that. to been was quarter we most long be we've fourth talking all challenging a year. the year in

later. your knew came you're we we second Now, our that the shifts growing the And of we confluence good hybrid seeing our continued software think, acceleration way, there But cloud volumes Yes. yes. of XX%, But it's the in got is that's platform part in what $XX Hat, performance wrap to moving very confluence which talk the of that with and could about the to in we've Red really happened capitalizing question uncertainty a what the reluctant deal expected. really the of long-term on that And peak to you are size. are billion what deals. environment, by call what which clients given is AUR really value Is in got or cloud-based much an our, pretty commit to hurt about because duration we're I business, We've cycle that. one would cloud?

Now, one, which there's got Arvind will I'm Number some get positives we've shorter to that, sure term durations now. into.

organic which quarter-to-quarter have we've out seen a deferred in rate to our that we renewal two, years. software had stripping record even deferred strongest core much in ELA rates, XX Red income pool So in overall and fact and Number very balance, a the $XX.X Hat, billion strong we record had a higher we XXXX. income renewal business led in

our overall. I think software instantiation that's committing of our of value a the portfolio to clients great

it over me to Arvind. So with turn let that,

dress second piece. the can You

of asked Thanks, single growth Jim. but mid I'll Toni, some the address And about question the in you the XXXX. pieces, software digit

high just to total. Toni, continues Hat bit. maybe teens gets strong to growth it to bigger bigger me and let a try bigger Red So and little and very the performance, that's it contributor have mid as deconstruct a

mid-year is to that big tailwinds pulling by GBS software. we're as are small I headwinds actually we In making. big, dynamics going and both both growth ecosystem into absolute partners are product XXXX not as it both better They GBS going into accelerate benefit going that XXXX, numbers know, by see and you services to pre-pandemic there. software. not cycle our there, from but the as return that investments with work mean, albeit and as we were And see and the so to we'll to levels we see systems, expect Second from you ecosystem,

see, or Salesforce to all we example, Workday, services when of So our or for a tend ServiceNow, they pull work. Adobe or lot

Amazon, with We both pull tends Microsoft clouds, also and hyperscaling partner GBS other the a lot to that and way work. of the by

they tend On other to of and smaller partnering a vendors side, with with our lot of a we software the along are lot pull also software it.

there. is that So

business included I'll in the and Now organic. you as asked call usual digit the organic my about inorganic it is mid in assessment. single

So what we do. by as usual, just business it's

would now, included the and this we software. example, be three seen did StackRox for the like Instana deals and last that, that for us quarters You've do and

services. we flat two, That growth me three Now, we in going confidence we there. very but business. they did not vectors, all that five large, tend what overall growth us going this, a one got others XXXX. get And about pull of gives the is one, They're to and as into overall the through gives vector confidence that of what is do kind

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

Our Morgan next question Katy comes from with Huberty Stanley.

Your line is open.

revenue provided then well reported growth expect specific EPS. Thank you basis you. Good as didn't a the pretty XXXX cash trajectory commentary And flow, as free growth this afternoon. revenue on Can normalized but you you constant whether you and around revenue speak year? clarify just to for currency at

there So year? less that what just can into earnings be tailwinds EPS you this broadly about reason some of year? on the is headwinds visibility a talk there is And the line and this would

Yes.

start the company on I details I will on. we been clear. then why I I'm free the focused question. cash most on other sort get Jim I've on growth to growth. metric revenue that gave while on Katy, of parts your Look So Revenue and think the into want guidance flow important the is measure on revenue and of the

year, next talked year which revenue we both for for so, and unusual this growth And is the for about us.

growth, driven order in be by flow, Investments do free get revenue able we flow. investments. are And free to part number. cash it's need second on to clean a to The very cash

So talked to internally be that will we let we're on about have what grow our to why and from that is it XXXX then also people measure as to will investors what also see transparency XXXX. our you we're what can both that going on know complete measuring it is That's on. what going with and

can that's you, to we those. So you focused hold two that's why driving, then the that numbers focused on we're us are so accountable those the are giving on numbers Jim?

revenue Okay. And Katy, let's profile. talk a bit the little about

just to measures to the tell flipped system. many could the we fuel flow overall. which investment I I drive I the revenue by the we a should Arvind lot two unanimous think quarter on of what But you is an answered way, talk investors sustainability milestones the our fundamental Arvind the on revenue. the whole be, signposts, operating deliver way, we metrics. he And operational two the of actions management model two let's changes, feedback taken on by objectives, free has Arvind after spent cash how to time operating those about and did and extensive third which of about outreach got and those

So, talked we growth at about current spot rates.

weakened. velocity objective us XXXX, into half. growth, digit an mid-single is is. our And at around where acceleration earlier to underneath which for somewhere I full a for Pretty we Right say would of overall, across two what been last we tailwind You we've see now, first and IBM an rates, improve that expect the has overall. we for question, rates expect that dollar be you going that supplemental on tell XX having path see segments But a the RemainCo year, to did points credible where to to position a our current at expect charts; unique both position the important the years. half the second that spot trajectory fundamentals of is currency. around business to actual grow we at you to constant U.S. because to in has exit get

should overall should right a end we go trajectory forward. you bat that off perspective give So the about where

yield to set deliver Underneath to that acquired profile our as Arvind are strong balance GBS. year, we software growth, earlier, profit, already the cash, we imagine fundamentals we exited ended has of the And backlog you can Red margin, backlog. the Red we EBITDA engines, NewCo, being cashflow $X and what investment a by our yield as growth than talked in by billion acquisition. getting improving way, and billion on we that the And again, about, strong the see replenished them accelerating talked focused not deferred and of of an two of growth see about, by both revenue and we trends, back that to business, given throughout software grown pre $X free where sheet absorb more $X.X driven mid-XXs. dividend Hat, over up billion said way, backlog, we of it Hat. we because but grade I overall. with

off XX%, plus accelerate up. coming should acceleration we up the XX% we move continue third and the So, then through. as And our trough backlog we just is that exited, quarter to posted GBS,

small out a that time. deals been it's gives we to were nicely from fourth rope in was that can long to X.X, strongest revenue a XQ, got early us period nice acquisitions quarter confidence And of which we're run we've going back as pre-pandemic signings get in of got and XXXX Our the backlog exiting, up mid-year. XQ acceleration, that shows book-to-bill to we scale, to accelerated continue our the as

could you please Ivey you, next Katy. take Thank question? Okay. the

Cabral Credit comes question next from Our with Suisse. Matt

line open. Your is

those a I versus apps GBS more. the compare thank bit just It little was an around easier and despite little looks drag, still want a on comments Yes, third build quarter. you. management to of bit like major dig last the

what And Just you of think about and related wondering re-platform back modernize some the potential on-prem if to apps it legacy forward, like there? just is And pull that through like picture how looks on growth some going just from path the bigger what's here. a Hat management would could you for apps? unpack work, going and Red underneath from

application Yes. overall our Matt. services take integral part thesis. question I'll your management overall cloud platform hybrid of To Thanks is this an one.

component, $X from there, components. shift enterprise participate scale we shift. Well, we year get business. book that services, every year went, this as We And equation discretionary for GBS’ to multiplier they you for know is spend with overall. is even We secular a of a look clients talk that's what flip journey has of finished and year. we overall few cloud happening an our But with that quarters. the you months, platform, into in and XX%. speaking to transformation that's And their six about are of on-prem prioritizing applications of all even that chart, let's digits software, about has a And the platform the the last $X application environment, up it, last accelerating clients and We've a to almost dollar to up stability And and also. there's over talked Arvind exited accelerating where at which accelerated reduced both about about side and that IBM As the $X return $X billion AMS. There we ecosystem this know underneath talked the exactly that definitely been economic the partnerships already up we that we've we the double XX%. get prepared We AMS cloud. in a throughout shift we a shared business almost $X effect. are get

that play. cloud to that work. part participate that big in Number is Consulting move to our full back signings is driving predominantly a shift we quarter. as to we return manage. in services continues, is Underneath total with business, where what's front that application capitalizing, AMS few as of come AMS as it and secular That's cloud that journey we'll to up advice, of book and to of But growth in are our just the The points very build, XX%. data backlog build it's nicely cloud component and end AMS consulting-based said, of X% a from spectrum transformation a for is advice essential one, hybrid platform. from So, modernization the I back. that in start And we seeing cloud, a up the total you.

placements, quarter-to-quarter. points are your to of And and Cloud XX% Red heart five our improved backlog Pak Hat question, AMS incumbency enterprise the Our clients. of

overall, we our in which value is think is it cloud essential have to that for hybrid proposition differentiated So, why leveraging value tremendous has platform. a

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

from JP is Huang Next from Tien-tsin question Morgan.

is open. line Your

Thanks. for the extending here. Thanks call for us

for on lot in of on not said know I But not I hit again just XXXX, I but you first about million answer, anyway. half COVID you're EPS the $XXX I sure cadence guidance, know asked a fiscal if thinking but are giving your if seasonality? you revenue beyond XXXX, side, about, about heard formal world in revenue, I at I'm fiscal Katy growth think call-outs the revenue charges revenue on versus you've and any changed. half talked ask in growth know and course looking I'd second enormous EPS. I but thought the

in from So about this asking heard how this of for outlook different year last were conviction? your and I terms year just really drivers visibility. growth time of some the your has here conviction

Tien-tsin. Hi

me start let about maybe So the on conviction growth. revenue

So, guidance the is saw year. in We in was economy, look what we or not is guidance last we back XXXX better there see rather suddenly provide did while to April. can from compared which feel we year, than that what it why pulled last uncertainty, we

these we more going anything worse because anything, be as we demand, forward. look better the as don't talked to being So compared get If expect And underneath, we about that we to projects see last are because is half and expect to second Red through, that type people Hat go not also to also there and year. modernization, we had bell and around their so There's up for can you need long modernization they Matt move about are businesses also. the to only can come that bigger on you that because question out. see bigger signing projects to going

tightening, next six So somewhere getting past think, in belt better the their are months. they we

talk spot for So from growth rates there talked why be and going to both currency. going Jim heard have is is constant into lot first of that and he the we half about company, more conviction. increasing remaining XXXX And color at trajectory at you forward the that why that an second is half, a about to and

look our we So parts pipelines business, in those the at of profiles look the conviction. When that Jim? hence our look have we we when the is and at growth. why across at conviction the underlying backlogs, revenue demand we

how this aligned strategy as defined I the Thank operating you would Yes, just change a mindset the focused, want is to portfolio, for We've Again, talked, our Aravind the our we aligned model. add that all in to company. question. on operate Tien-tsin.

Now going about flow, free it's cash about is growth that which that to it's operating investment. and driving fuel

talked trajectory that, around we that So about overall.

in that chart, a It's have three we supplemental – spot points mean I you the quickly first business of underlying in discussion. you improve overall, to the tailwind them about see as see that second in expected have all, why to of at that's mentioned should predominantly dissipates current revenue rates, first First of is the four half And I said although and growth the can the half through the half we segment which fundamentals by we improve. as to year. move will

question. underpinning, thing you it's I The tell other will fair a

to As credibility leverage few last years this we the over drive we've I think built the that within stated, how business. know operating I

XXXX. ask up change that mix impact our in we what rate. and underneath is From we XXX world, product me be geographic finished countries the XX.X% we'll can grew by dramatically And audits, just to that year. operating tax while given the to to basis our rate, this expect business, at and going rate, the to few this one margins So you fourth last quarter of an gross XXX think that drive year, said second, way basis And about to third expect, around go we're operating leverage the what can XX.X%. et pretty going can think points can consistent tax I I our always I transparent talk quarter, it perspective, and margin it. on on earlier, other structures, continue that booked from consistent the headwind have you variable a tax in we're a we expansion we operate have tax we the fourth in And XX quarter I tax in expect cetera, points, pretty cash points from plus about, try you our taxes. and would very rates

again, more little we're trying underneath operating a you gives it leverage your And to change and mindset just So profile, the tax. bit revenue the here. color

Tien-tsin. you. Thank

Let's go to the please. next question,

Grossman comes Nicolaus. Stifel, David question next from Our from

Your line open. is

the and which seeing Thank and most the about if any Jim, whether what but for it be receivables. from XXXX re-org the structure, perhaps sorry tailwind little identify the to And precipitated or could sales you. change what you could IGF cash you maybe and how why? the you two-part there's be question, legacy Thanks. XXXX in in Arvind, in marketing much, and seeing specific changes expect you're more reflect were perhaps on and free XXXX impactful a

this deeply, David. deeply is passionate Hi, Look about. something I'm

time So to and I'm every model Look evolve. happy about time its it's to has talk this. then

sort segments, time. operate reaction a in to evolving our of it all homogeneous across of all clients are a it and needs, We we’d more that kind client long I went would for call which model our

So we buy a There IBM. of set I'll are do doing? clients to who what of it a call tend lot is

they value them need of the call Let's integrated IBM.

the that calling segment. first We’re

we extra also segment, to client, are who term able first the experience using go technically, side-by-side right have and We'd we people being make now. IBM so the while in to work are this investments garages. then there virtually in and So going with

deployment a on As lot on of able pay we'll focus deployment, not well being as on to the people selling. have and

with is extra segment going have testing. first to this attention So that

see our to see should our they positive. ready. to segment of and out is going managers. And is largely a Then there So garages be which deployment growth channel expect lot of we coming a

buy from end these two parts is don't the put set of talked money quite after about the spectrums. of them but rather channel that. two with That's Jim to do the a more get, So spectrum. we need is They other there other one of go the clients, Then to call mostly work let's it or and operational there tend people. capable, IBM. leverage, channel as into between we The

the generalists the need don't who value but they deeply covering they So specialists, were them.

said into So pour we that as then specialists more who those it take I are clients. cover can to money going and

clients. resellers, drive believe which structure of is specialists, the does So much and the large. think by the is part, us ecosystem-led, a We where distributors, et is integrated way, system a top can by going And and first have. integrators, which a sales And There outcome the technology-led a, be are that being all second this ensure a large that lot there of for be which for then to segment is this value. you is going to to also going more cetera. half parts more as is going we of to there simplicity our them that is segment IBM have the

growth. IBM, all. of parts slightly it's different So revenue of consistent This segmentations. unlocks not that a clients how different believe we but It's across completely few points

months So growth that this me through few probably let six a will said to it you I unlock expect flow revenue takes albeit that points system. acknowledge impactful, of the

let overall. around David, business the IGF and question tailwinds good your me address the

step taking just back. First to a

cloud commercial to XXXX, we AI disciplined portfolio selling overall overall. the financing as this prioritized IBM OEM actually one, early portfolio risk be part our in approach our of are part captive measures IGF, as winding and financing and our announced prudent in liquidity the our XXXX our that financial a mitigation, we austerity strategy we take platform in a am focusing aligned to directly started us we down heard I both consistent as business. Then around management liquidity, saying, fourth of management. our part you've And cash and quarter, and Within aligned seen with receivables strategy, hybrid you practices. financing of What

So and this overall that all I refinancing better we've needed in requirements back debt very focused be to healthier going with that together, portfolio more now think not level much let are these me a bring overall. a and taken actions have because resulted financing

$X around leveraging I similar assume and strategy about would focusing probably to very in free that We you of that about $XX billion sheet, overall. of adjusted $X strengthening cash of look about about XXXX, exiting flow. something billion $XX.X we our position cash to sheet. billion We $XX liquidity And our billion at billion got talked IGF. on if XXXX the So talked the balance balance to

run tell cash, take you when the buckets, company. to you $XX of of should which billion we need the three So those about power that Xx I level operating this is

cash and excess generation $X $X the cash the billion strong So let's there, of the to free actions billion it. IGF flow call

firepower. got You about of billion $XX

source a that's view. cash of Now

cash the know? of be I What the the cash to Now we on use talked we cash One, transaction. all do about $X view. and the regards which billion, door out based will and actions the know structural with taxes

And normal than X X maturities secured billion that's continue Second, our year. about and we policy, to we are this our less are billion. very third, committed plan then little de-lever dividend growing bit modestly to a to and

up, about You billion $XX plus. you're add those

gives So to our we've leverage invest dividend. targeted flexibility de-lever got to ratios secured to back firepower also and modestly get business, that continue that here and to the growing us support our in financial

comment So Arvind, just we've to gone want pretty quick you wrap long to don't it – just here. make up? we a Why do

Pat. thanks Yes,

we So today. got a lot

a So quick let of just this really me make to up. couple comments wrap

in will accelerate confident that with are digging We our actions change. this the strategy

Thank an at And with dialogue everyone. of today. We through expect to grow forward different year. this in that, look continuing with you. to creep I end all we you improving the XXXX look of do with XXXX than the project will we

to close it call, please. I’m going to the turn back out you to Ivey,

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

time. at this disconnect may You