International Business Machines (IBM) 20 Apr 222022 Q1 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.

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

Chief Thank you. welcome Presentation. I’d to and Chairman Murphy, am IBM’s Jim Senior Vice is to IBM’s Patricia President and IBM’s you Krishna, Earnings Financial with and Officer; First and here Kavanaugh, Officer. like Chief Arvind This Executive Quarter I XXXX

additional of investors, this prepared replay will a presentation today’s post IBM time will measures. and To on the our Investor available hours by information website includes non-GAAP We remarks within our tomorrow. provide a to couple be

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

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

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

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

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

to of for Thank you, all you today. Patricia, joining thanks and us

in no current and it’s inflation, such or businesses This how strategic number clients our supply is the Our XXXX the are has primarily geopolitical first the start source power we instability. mid true reflect as solid of scale see of high the model. chain What made advantage. challenges issues, essential a cut cybersecurity It perceived clear. single-digit the competitive remains of environment. of way we have for end become AI our growth confidence hearing revenue This and is very talent, at future. clients costs. Cloud as fundamental business and from center we longer whether to position opportunities, is now changes especially our for Harnessing our Hybrid reinforces technology Technology a of a our to strategy competing for at as face our is in and quarter year the to results

both for we demand respond see issues. continue our clients to these strong technology to help as and We environment a consulting,

expanding Over the demand. and last two simplifying our years, we portfolio, to this have go-to-market optimizing our ecosystem, our been capture

quarter, This growth and had across reflects revenue Consulting in growth the we Software portfolio. solid again performance double-digit

Our Infrastructure reflects dynamics. as always, cycle product business,

indication this our investments our quarter actions is are off. revenue focus, a strong performance that paying our Our and

go me we words let about war few Before Ukraine. the further, a say in

and employees. employees region We help, the IBM our on including support are and assistance financial of first world from donations and foremost safety around is matching non-profits. security providing focused IBMers relocation our to to the the in and

business measurable, but the the Jim I large. impact quantify, say impact Russia, In from will terms will is of but not

hybrid we Hybrid me clouds, that typically providing we a it on is on properties on-premise turn private and open, which and Let cloud comes built platform is based At innovation. when our straddle capabilities Red secure, have strategy. progress to platform have. multiple now and to core, flexible. gives it is all our based cloud The powerful clouds clients making software clients can the public about open-source Hat, are that AI its

make for optimized work security clients our and that been has AI, platform and automation their software Our to helps supply better. business

technology Our and transformation clients global harness finding with ways team offers They business digital this power the by do consultants journey. of expertise. deep of to accelerate co-creating to their

This full take Our platform-centric extended results. solid is of to advantage environment. clients allows Infrastructure an producing strategy hybrid cloud

also turn footprint and customer tasks and number XXX such of digitally new transform their at Clients differentiated than but from hybrid IBM’s importantly, services. and AI of This chosen including the clients. X,XXX their IBM’s platform and hybrid quarter. incremental to more avenues two these value to more the capabilities cloud added have of cloud have clients, it Financial, Discover Education consulting clients, first and as allows us experiences. to U.S. Clients software, us Department improve capabilities recently higher expand build Schwab, Charles We employees gives to growth the experiences our move in all to and infrastructure

with is an to with experience working automated instance, For pilot Watson Orders. McDonald’s drive-thru IBM now

is Adobe to innovation in we to ecosystem where new where using partners and to An move with S&P’s quarter, quarter. In as data clients capabilities XX% expansion We These significant addition, our digital in experience our our Gartner language a of premium platform AI-powered of TD drive IBM expansion virtual to With In an element We with this the see we as metals Securities ability partner to a continued this use S&P, the cloud. recently a announced the clients. strategic assistant announced Adobe, Magic our billion is help in these momentum. of continue We store. IBM’s broaden $X to processing ecosystem gain this strategy area precious workloads to bring our their support in were first than AI-powered recognized of signings the Quadrant. were serving our platform. important weather around leader ecosystem. more in of we partnership on up highlight Consulting, natural the partner partnership

energy collaborating are green hydrogen and Worley efficiently more ABB a scale. digitally-enabled companies at to solution build and and We that build facilities help with will operate

Champions, the country’s accelerate agreement join to to changes client-centric an build designed to way Industry of the work Within transformation excellence. a making public/private significant digital sector. network are based industrial we on X.X culture the technical major IBM, partnership of to signed we a also UAE’s We the

among is client engineering client experiential co-creation strongly new Our engagement model on based resonating clients. selling, and

Over are growing. rising, is sales increasing renewal is the revenue quarters, rates recurring productivity and last few

believe is clients cybersecurity on-chip focused of continue the innovations we are bullish tomorrow. IBM today, available world’s to Quantum. an and This science fundamental taking to the we cloud. AIOps recently, to have zXX announced deploying a platform announced our are firmly same In to for Flexera shift critical computing. on our real-time governments capabilities new April. solution our early At software drive fraud exemplifies designed to we immense within allows platform potential the clients to advance that compliance. a we of company to Companies around the collaboration essential includes Quantum commitment designed this that We that on By to the represents. technologies to poised cloud-native are the meeting The operational we prepare AI the XXX-qubit our AIOps that time, zXX is license only first seize the another is reduce with and that of accelerator. automate for actual to needs significant computer While on world quarter, last in are automation development, to the remains resilience opportunity. of example Most is the world’s economy. steps transactions. an are in we zXX processor, ability

the is we can program social you sustainable As journey. to we HSBC that I threats. employees add the our saying in on see we thinking, on the moves around vulnerable remains you Sentaca. why In environmental which is have portfolio, populations a to Delivering our integrated made IBM released placing world Clients, we partners, ESG, as execute in focus. reflection is of That that direct a expand company. the and are continued a an example, and new Each ESG, partner and efforts and organic up to now IBM Sustainability Impact, clients. time, a different week. through business. acquisitions very help are Technology quarter, of just our the same impact circular productivity results first Neudesic their investors At important applies our towards economy, the are Envizi, the will partnerships an we recently and and more are ability Consulting and innovation wrap and to acquisitions portfolio premium by quarter value strengthen last first the to Accelerator, we Government three strategy. have need our and to IBM completed make ecosystem seeing this our we have Quebec. a simplification drive that against launched clients this help quarter, report of one to our with This strengthen recently line ESG many forged constant continue with IBM

effect our much remains to efforts our and to for trajectory reap in earned of year. while confident our be are the we hard beginning the trajectory rewards have done, We company’s in and changed we are

Now, let our will and me to it Jim, with expectations share who over the of hand the quarter you. details

Thanks, Arvind.

$X.X about $X.X talked billion Let me the of and about income, of a with ago, billion delivered per to the of XXXX and numbers. model. These days the XX of of revenue, $XX results billion solid free in pretax our of flow operating medium-term year operating We are cash single-digit share full the and out cash the toward flow. revenue I quarter quarter year and model, $X.XX start deliver through is earnings mid in $XX.X on delivering first headline few growth free step from which first XXXX. a that context billion

from revenue This established with incremental commercial Our over revenue November. points the XX%. X last of was relationship up Kyndryl includes

XXXX reflects by growth, more Software. recurring dominated higher higher Our also revenue mix. is It a business entering a with value business

revenue XX%. was up Software and Consulting up was XX% This quarter,

each year. flat growth to performance, cycles we X over include by have and commercial our are As points The over the which past, in Infrastructure vectors influenced XX% the together is and was our two Infrastructure Kyndryl performance annual discussed these Software compared revenue. represent of from last product relationship. as

there Consulting’s As growth. to a IBM no contribution reminder, is incremental

benefit based and as multiple and that IBM an AI. we and do Consulting on It’s on strategy, revenue itself, Software a platform. from hybrid economic partners Not also to Arvind approach model. attractive only platform generate the said, a cloud but Our of our is platform-centric

cloud XX from that the full up quarter billion XX up of $XX.X months XX% over You the stack and cloud Revenue of was or revenue our over infrastructure the through value months. consulting first in revenue, last capabilities in success total. see represents our last hybrid can which XX% from our in capturing our

Looking mix we investments down, though metrics, operating at offset our was improvement due product Infrastructure to Consulting software dollars, margin by profit gross cycles. in grew with margin P&L and

grew pretax margin incremental operating new performance contribution basis demand and dollars profit capturing we areas and like software profit profit for commercial the XXX are from we that sales by in expanded relationship. points. This reflects income, For high-value

platform-centric business. We streamline taken model, operations our have more go-to-market our focused and consistent to our with simplify actions

from streamlined getting leverage the business, operating With we revenue performance. more strong are

investments profit talent. innovation, Our increasing reflect our dynamics and ecosystem in also

innovation AI, areas hybrid We to investments like Quantum. emerging cloud are R&D and increasing in in deliver

our investing ecosystem and are in inorganically. We organically

acquisitions have quarters For been we the of aggressively address several three last over have which multi-cloud Neudesic, demand. discussed, example, the was to capabilities adds we hybrid one key hyperscaler Arvind And hiring. mentioned as

and technical client our capabilities support and clients their engineering We client help across to of garages solutions business. talent skills get to and are most adding managers centers, our IBM the success

Now, we environment, are talent, operating to in the costs, and and cost especially escalating. inflationary attract retain an are

currency item dollar. are pricing, impact our The gross XX%, points. in the the is this at mention in a and hedging then addressing year. execute net last majority hedging which expanded revenue XXX mitigate through help income income programs, by These impact significantly This rate We operating of will time. reflects with of reported Other up I we We net an and will basis the gains gains of And Other which expense. income, strengthening was margin over from profit. looking tax operating

flow which billion I definition, traditional includes full you XX% gone historic structural with generated back free actions billion The we for remind last XX% the history. the of our $X.X at XXXX. we in of the about cash attainment unique was all-in of in year The Kyndryl flow, year first the to our $X.X separation. will to payments dynamics is cash quarter the cash expected free realized with quarter. have flow year, free end initiated full due Turning consistent the to that range, our from anomaly of

uses terms $XXX for $X.X of to In the shareholders invested of dividends. returned quarter, and about million cash in we billion acquisitions we form in of the

billion $XX.X over maturities in the later billion supports March year. debt position $XX This a We debt in results of also February, early which and $X cash in billion. of of issued

revenue Turning to Kyndryl growth, Software up This XX%. revenue, software delivered X the line strong from the with in over points our segments, recurring includes expectations.

in growth the both Solutions, Software Kyndryl Transaction and the benefiting content. from significantly Processing, driven good performance & by Platform Hybrid latter was

cloud hybrid central proposition. is software to Our a value

Kyndryl a this commercial segment, billion balance last & hybrid a relationship. And income quarter, support the revenue $X.X from year. over subscription again to representing Solutions rates inclusive now was software XX%, revenue renewal about the up contribution Within over grew and billion. of of the cloud point-and-a-half Hybrid $XX XX% grew quarter, deferred this Platform contributing

by we cloud We growth was portfolio, cloud offerings. again have good the data driven focus Red pervasive across was areas AI, foundational most offerings hybrid of RHEL Red Revenue both gained Growth Hat the Hat, and continues to and to deliver all-in all be across Red automation revenue across business the IT hybrid XX%. strategic and continue our up share fueled innovations. AI transform hybrid portfolio around within security. enterprise this clients, quarter. and and cloud new Hat Hat’s this performance Red and OpenShift, needs

this For example, a management by AI Growth Automation delivered was accelerate this with revenue to we led quarter. quarter AIOps partnership growth new announced NVIDIA and applications. and X% integration.

with demand revenue extended data AI-powered quarter growing joint solutions with data complexity, in like automation last with building Suite, to shifts operations sustainable sharing solutions fabric, management, and invested are were XX%. the across they asset of on with chain businesses. and this address across shortages We year the for in DBX portfolio, focus AI-powered digital approach to and skill data strategy our Application automation as have of a X%, name We this Cloud when grew for Flexera adoption and management resonating We in connecting all clients decision solution first their and a clients and the and information data-driven Security up needs few. agendas footprint, help client performance offerings of to Pak quarter X%. data strong our our revenue growth reflects exchange. Maximo data, Data on grew we AI of reliable just Arvind quarter expansion this governing infusing had enhance These making. continued supply and including by Performance mentioned accelerate AI their earlier.

delivered evolving this data in growth cybersecurity and we With threat security. the quarter environment, management

data security platform innovation, trust We and acquisition. Cloud security zero demand strategy solution including it continue have advances a been open SaaS clients’ new we client integrated leaving is. ReaQta security, Pak the following to see in where And for and for good endpoint that while investing

Looking much across on performance through expanded weak X% critical quarter ARR and Kyndryl quarter, the content. of is growth like year, our & down XX% dynamics revenue see Solutions, revenue zXX The on from including XX year-to-year. the XX% points of these continue Platform overall or capacity traction we We performance last of delivered Hybrid our are recurring annual Transaction Processing this the up quarter. software wrapped strong zSystem’s we renewals offerings, was first last to which building in strong gotten the the and program. have

revenue profit, software broad-based leverage strong this operating delivered Looking at we given the and quarter. performance

was Our a the margin on pretax points X mid-XXs. and puts margin us in up year full software track for

as to all and strong over growing business Revenue at in and revenue Just on lines were both bookings capitalizing across while signings accelerated is Consulting growth profile, demand double-digit XX%, rates geographies. Software, XX%. up

the trust and for expertise making in acquisitions. year. we and investments scaling the to capabilities, over ecosystem Clients industry transformations, Our leveraging book-to-bill in IBM been last our our our X.X their skills, remains solid at quarter execute complex business the deep and have

capture hybrid drive to We grew business. of demand our cloud and billion, makes Consulting’s hybrid which to XX-month XX% revenue are on the cloud XX% of $X.X up adoption basis platform. Consulting trailing positioned

continue We quarter, see year-to-year. Hat-related doubling and in strong demand our engagements momentum signings nearly to Red Red Hat-related this

around digits double AWS workflows finance to transformations, was transform Revenue broad-based, grew transformation around applications. The talent implement turning modernizing to business our Our where of also and technology growth XX%. strategic strong at data as supply contributed architect lines and was chain Technology by particularly In performance and revenue platform in these we well growth led strategies, Consulting, our in And now led solid together revenue scale. bringing and to quarter. partnerships from Azure. and cloud engagements deployments. grew for clients’ pervasive, applications experience, as and SAP, Salesforce, business, strategic centered customer with the critical consulting cloud XX%, and partnerships practices Growth up by developing our our was

and this was grew Growth line environments. This application revenue services operations well, management to Management. by hybrid in on cloud Cloud broad-based the required business led run Finally, cloud of Application focuses as XX%. space platform applications

consulting profit, IBM’s structure. pretax from expanded and to X about leverage margin more point, benefiting our streamlined go-to-market G&A Moving operating and delivering

the gross we the our growth. investments revenue reflects Our made last consulting margin over fueling significant have year,

in are our partner We investing our ecosystem, expanding reach.

certifications up-skilling are continue We last XX scale technical bringing puts AI. profitability. workforce, in in labor investing adding across two our and which the inflationary XX existing pressure and we in first where most which are the is to resources, the acquisitions And areas made talent of we we market, months in Consulting by quarter. and including closed cloud competitive the impacted on skills hybrid in

capture price our appear few margin it in We through a profile. our engagements expect value and in to take to quarters will recognize

infrastructure Infrastructure support. growth benefit the segment, flat contributed Infrastructure, performance down offset the last was revenue areas. two versus with to Turning consistent Hybrid over by to in The revenue across content infrastructure X was Hybrid revenue Kyndryl year. points business XX%. of X%, X% infrastructure zSystems Within declined

in zXX now availability. performance XXth and quarter been are in revenue has of program, a zXX very capacity. the both We strong

our scale, this and revenue X% Client AI other Distributed quarter. resilient momentum, MIPS three In in performance. fact, newest differentiated Building data-intensive Arvind IBM high-end on the for zXX of zXX. that fueled POWERXX we capabilities we announced cyber HANA this have our commented ship at on for any S/X development on demand security hybrid growth more systems solution, newest than just zXX, cloud-native delivered program. embedded cloud. infrastructure workloads

cycle. Looking at our reflecting Z was we X where pretax profit, margin points down product the IBM in infrastructure are

business the hybrid to up cloud, platform-centric, and IBM level. on back it focused take strategy. a me our let AI Now We

portfolio, streamline capital, of taking couple and our have last allocate to to improve that our execute operations steps years, and our we financial profile. the strategy optimize been Over

Our key growth for quarter of the changes free revenue on days two reflect rate revenue us incremental to sales. mid flow. significant expectations track results at XX before measures our ago, these and expected grow first year put single-digit to at very currency we and our constant full cash Kyndryl

rates, With at On the expect growth to commercial the that X.X for single-digit see top of start U.S. headwind the the spot dollar over at points spread year. a Kyndryl with the growth of that, And of strong X-point now currency, X-point end mid relationship be first quarters. we about to the looking the three for mid-April will to from we range. revenue growth then strengthening at now high year the revenue with year, currency

cash we continue billion to free For XXXX. $XX to expect flow, billion $XX.X in

I an all-in cash the As includes and is definition XXXX impact said this our actions. cash associated with structural free earlier, flow

Before getting second into comment the business impact our on segments will I and of quarter, the Russian operation. color the on

in $XXX Our and large, in but business it’s of not is about of concentrated Last about business profit and cash. million revenue country in Russia high-end the Infrastructure contributed $XXX million and year, Software.

For no which this we us flow free cash our low-end year, range. Russia, of closer expect to puts contribution the from

Now, off Kyndryl. In the revenue external got year. provide sales let for a to currency Software, changed for haven’t our to growth we our performance and or color the contribution view expectations the on from of me constant some segment good we start

software are pretax and competitive year-to-year. view realize reflects in half second taking to is in the performance, XX%, growth pretax performance we range a labor the margin we also to year. rate points We in increases as This we expect remain the track a now first investment a of our IBM up price low continued improving a environment, quarter Consulting which with revenue couple our talent With margin year. the up approaching contracts. and a for our mid-XXs signings revenue for Consulting, In on in double-digit

dynamics half. expect revenue above This ramp Our we would that, the and the our cycle always, quarter. performance This infrastructure of will product quarter in second further as are year, full reflects dynamics. model, On to the full top planning margin given late in second to performance high-teens sales for launch year-to-year contribute X improvement the of in performance, second pretax we zXX revenue X-point would mid- for segment year. the and margin These the about points external yield from about see IBM’s a We X in to points pretax margin a XXXX. Kyndryl the for to year.

a continue In terms we our tax, to rate, headwind to tax operating high-teens a which is growth. to of profit expect mid-

a X-point spot to At on current comment rates, be me the items a currency quarter. Let couple revenue to would growth. specific headwind second

expect in of of expect let’s improvement the the teens. X-point track stranded We on solid view quarter year, Software gain pretax a to to sale and tax are we our the Q&A. margin to assets, a utilized go we Healthcare first on rate close and address with costs. Patricia, the a operating X-point And And our to Based the midterm to in model. high now, performance year-to-year

Jim. Thank you,

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

the from supplemental information the I’d up let’s Operator, end then, ask at as for provided of questions. always, multi-part second, refrain and First, you it presentation, is questions. to open please

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

Your line is open.

And impact there macro despite Jim, just elements portfolio one maybe flow how been us you. and you other Russia, you are free a some growth Thank how fare that you. to conversations you maybe Thank around Ukraine. structural Can could the quick has and free the organic FX uptick characterize guide the are incremental through we portfolio, economy Can in Arvind, given into flow fed. have itself offsetting cash think from of lot defensive which of the focused given from a pretty IBM, revenue guide see investor performance of recession the that are a the FX? the a for to you maintaining Great your you tightening now cash seeing including environment pointed solid steering recessionary changes? from here. are help headwinds a concerns Yes.

to always Wamsi, you. from hear good

it and Just will demand. I economy a comment on call the

very seeing strong are We demand.

for we and borne of source we one recession, is of above believe to or technology the advantage. a recession flat past sit this in that going couple technology shifted have if slight we demand Even from being points my I and Wamsi, strong there’s aspect and quarters to quick think, prepared remarks, at just of happens, demand to a points very X or I continuing. GDP. competitive see being said X When GDP think As falls out to a that the staying has it’s business if

that’s something Now, demand have for we all more a we outline we going the But Jim? catastrophic, scenarios much phase I see will do that to for acknowledge growth in foreseeable is different. the if you at, do future. and that continue look

question. Wamsi, for Yeah. thanks the

Just portfolio. to Arvind’s the to composition add our point here right up front of about

past at you look you your free cash Now cash more flow, us free it today’s that’s Software, are recurring offers towards new question that IBM, overall. and that economic a composition Wamsi, perspective skewed and a vectors, I shocks Consulting, shocks what minute our if any a But referencing, revenue unpack solid growth and flow being in on much let about base you spend me give to just -- and economic little. on think

$XX arguably flow. we That’s to growing prior our way, three in billion And north in remind maintaining that’s of $X.XX We basically at with cumulative high-single by our are post-separation all-in billion the pretty four cash have That that’s $X Again, flow cash out and IBM’s been, free years, started $XX.X will $XX XX% the is billion with delivered were free consistent quarter. of the an over a XXXX. consistent next the in three years. consistent of guidance free XXXX. about mid-term digits. years, attained. with where to last model billion billion everyone I first flow We for baseline about we the We cash

So off we to are good a pretty start.

and quarter about headwinds time spent I Now, last talking tailwinds.

difficulties on, very we me. that and going at here. hear flow, are overall. about, can days tailwinds doing we I you flow better much. ago. tailwinds talked the you on Hopefully talked cash through cash XX free you free is and we On look When some hang Thank technical side, headwinds am

tailwinds We actions XXXX. have got of billion about $X.X in remaining structural on

efficiency, overall. operating volume have tax couple cycle of from with come The generation of given and capital cash a $X.X flow cash to got We modest dynamics. Mainframe free billion $X-plus have working we rest about regards And our to profit. $XXX of that billion tailwinds has got million

when front quarter, Now, in are you at us. those many of look tailwinds all the of first

that’s margin the move acceleration operating by we that continue operating of and guidance. revenue, forward as segments, Our as profit, in our part will

Our quarter as the just most chain structural working zXX disruption a and use secured in marketplace. the actions cash first given for got of inventory built we our going our us. also up behind position the of actually our anticipated capital prudently was supply in supply on we the We

us tailwinds So is that got billion forward of confidence we and lot called billion. headwind overall. going we prepared to regards a with out the have situation only the in that the that gives which war $XX XX.X to And our unfortunate in remarks Ukraine in quantified we

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

with Daryanani Amit comes next Our Evercore. question from

open. line Your is

specifically better help in uplift the there’s the lot guide really on it Could or my around guess guide mid driving raising that is better? question is have end or Europe spillover So range, is organic are a is around, organic higher about the you what’s I topline done the you and conviction for us taking your to of in you mid-single strong Congrats that really what trajectory? you from digits Maybe deals this that, at potentially Russia. line on question. give related happening talk a it any the understand from my inorganic going just range. Thanks growth here. top single-digit to it

there you hear from Russia? in see to any if love you. Europe Thank spillover I’d So what is

Hi, Amit.

me Let begin by answering the both on pieces. question

model if that certainly but the look X.X that that yet. range. will that, to [ph] remains always have look typically for it, in So really has not for gets X.X it acquisition We said, is at above don’t the that at case. if as it and you coming up our contribution between so we take year I steady

in what is can is constant see XX% now strong the by was see Software way, we Red organic actuals, that printed currency we it, would in the Hat because we growth. organic portfolio acquired So that that are seeing right the the that of on you portfolio, a Consulting part what and XX% strong demand call growth. of growth of we the and only at largely, is driving points can few

that So the before. much have say out I than acquired. is organic in more called will we range Acquired

terms, about to quantified Jim at So we this really don’t its when certainly direct million see talk year Russia Europe, $XXX impact all. and expect we quantified, direct is you in that

much will and financial I it Europe, the and we our in clients fundamental overall when we focus is Now, growth in call we more still seeing are likely at volumes, it demand transformations tend right much with mission-critical profile not are more have profile look we in see applications, at because on down. seeing that at government, least telecoms, this so critical coming utilities, demand is systems, strong Europe that are on point in at and to staying the healthcare, on we we now

things could go on, As that evolve.

be not ratios about is I As it’s all is book-to-bill in of carefully. of demand jobs right leading which concerned to and before, we down with have Consulting, now a things profile slowed said point. see have our very the them at has continuing watching this and But kind these been edge, we our that

the for thanks Amit, question. Okay.

please? Let’s one, go to the next

comes question Toni Our with from Bernstein. Sacconaghi next

line Your open. is

bit Thank the I to little a you. wanted side of the discuss just Yes. equation. profitability

expectations EPS. relative So you on not but to beat on revenue,

cash not your on raised guidance flow. free year have for revenue, You full but

had but pressure the are there XXX hoping very So is answer was Kyndryl just in Consulting specific And two explore expansion points I was want One then you contribution. and operating basis margin your I incremental there, margin obviously seeing you could other very you to clarifications. just are high year-over-year, areas? dynamics

what change in profit gain sale then, as sounds included in year-over-year? the Kyndryl And well? Healthcare flow, ex much and will cash be that if secondly, we could how contribution, is the PTI that confirm out percentage like asset you. So was it the Thank you free operating

and it’s to first Okay. for Maybe go with I last handle if of Thanks one one the the start those. I then will question. with okay each Toni, will try backwards, you.

It Health is XX divestiture embedded ago, we the expect in talked in on healthcare, yes, to forward-looking quarter. our we about guidance. the as So, late days second still close Watson

and is doing you has so have in the the As we segment profit to stranded do with we and and with second is history know, Software consistent do By address expect lost our our gain segment. Other with revenue, to restated, the costs. Other We all this. It half a modest segment way, lost quarter are in been it gain apples-to-apples the utilize our will that now year-to-year now but regards been divestitures. we in second what expect the

overall with that, -- in top revenue that to overall. the embedded second It impact cash guidance. and impact to is quarter. the we dealing obviously high-mid to in But our line No up still it’s half, lost no free our light are we in of either. our the single-digit second flow, in So took there’s guidance

a always journey. asked to So Yes, said. This on more operating you about progress do, is Arvind start solid year, and pleased margins, we very points. performance, XXX have with the are I basis our as to

We have mid-term given model. a

Hopefully flow. by But you let and of pretax transparent post-IBM a free me because, and of of You from at in separation take billion But -- take away. the cash pretax The sales. have is all grew income right, sales. $X-plus the model. grow got echo IBM a echo. contribution when the went it And X talk Both margin to due difficulty. like both Kyndryl. revenue, flow, I Kyndryl said way we you sounds we there’s free But out let’s an care that as there’s free a benefit perspective, to Kyndryl also about getting little contribution, mid-term margin in flow Kyndryl can am currency, points have over the is profit within those put revenue been constant cash at the are understand We currency, cash all-in. XX% yes, because the a constant normalize baseline, growth, external topline about in our we overall we the the our because look technical

revenue came first year. growth about from in of from contribution and of externally broader by quarter our our of the grew $X Kyndryl our XX% came XX% IBM contribution about client that segments billion from overall. call So last

of million So and Kyndryl set give numbers or about of about take our clients. from $XXX round broader million contribution $XXX

that, standard get coming about profitability for back very commercial exact all infrastructure sales you hundred down a as one-third you Mainframe apply were we of it competitive to of margins, two-thirds are back of million And million our Kyndryl can give of and profit are You cycle. $XXX get couple profit. you client contribution, not from end, I you successful against because end will a that the going margins it remind overall. coming And IBM. in apply we standard from reasons, against appreciate you on of any we But if about

both leverage in growing $XX our IBM of billion. in cycle, that product are with with of guidance to a we So the back cash base billion Mainframe of on our flow gives us operating we that with client pretty see and $XX.X confidence and Kyndryl business sales the incremental broader pleased the free end

Okay. Thanks, Toni.

to the next go question? Let’s

Our Erik from comes next with question Stanley. Woodring Morgan

open. is line Your

in taking Red in the growth you call. if maybe quarter? in takes Really a both, and in the or and a from I take was bit. by holding very slowdown puts But relative There on contribution really Thanks. the was you deeper, are Software partially and each Security surprised And guess, accelerating. for to automation they just Thank a what was us Hat more Great. much lastly, nice for a the offset, help then, XQ could little in you up performance with Software quarter? the understand businesses. What the acquisitions challenged? of What growth us just

Yeah.

So, this is Erik, Arvind.

precise with Let these me quantification. some Jim the of start will addressing with help and some of

contribution be because this first segment. in going Kyndryl the in look piece, Kyndryl Mainframe let of all are that questions. behind may TPP our the in your largely of me these, that some The So your through if you some segment in Software -- at you address of was overall contribution

put So pointed there we out. there I it it and will

we it Kyndryl. into absolute to the year, but next stay from going of October. I after obviously, going amount, forward that an expect think XX% XX% Probably comes this as won’t contribute growth to

of quarter-to-quarter when of where down Now, between segment. segment we fourth quarter, that Technology that because the But a Red now Red look focus looking Hat, security as you to market the by which Certainly contributed. Then why very we you Consulting and in nimbleness there us the was of has for saw what to have keep question. the been is to that demand nimbleness lot our it teens to to come upper the both some and company, a go and the up market. it this I that that and that allows at others, the we Hat the speaks a at believe just we now fulfill X% at rate teams and think, you in performing and X% the the of in focus operating was asked that portfolio are look demand is comes the But dynamics. execution growth and is quality that’s in year I rest expect for of where good. the that the the demand

executing keep to have demand. always that against we course, Of

there puts in real these no in and takes think I So three.

the that last rate of and having automation. and Now come those able remain do to of year it with year half led AI to expect accelerated demand to our I do when the and last to acquisitions we the data against being we that believe in growth some did second model. fulfill we And the an automation, within

all automation more large, both in that in and the to there skills will the AI. single-digit more from do hard shifts seeing just be at automation to very in and our and you of want demographics, what my to market are happening for that and get, mid said, anticipate calls AI. from growth for I both That tell from at looking let tech they meaning clients, model instinct me and in demand in Our listening data

execution is go fulfill against on the to demand. that us Now

Yeah. I very question. much Arvind. you the Erik, just for add, would thank

obviously integral through platform-centric but is hybrid add portfolio went the cloud overall the thesis to KPIs Software let part to of dynamics, me some an that. Arvind and our and the

AI a brought innovation But you at of gives X%, nice Red we the it Hat growing and some the it, you on and at X% new rebound across the Solution, which growing of about perspective. XX% now XX%, to & growth ARR, subscription fundamentals delivering we about return an our have billion, security automation market. accelerating, $XX overall. overall So data look growth that, from book our pervasive when with underneath that growth our of double got Platform vector, X% Hybrid a now Underneath digits segment, Software business an nice is ARR is underneath

that, Pak flywheel in underneath seen Cloud effect. have nice with acceleration portfolio We a

this XXX%. quarter getting are was are NRRs I XXX%, of think about We that north it

leading the beginning four of So we And consecutive strong seeing of across north our deferred and a quarters effect. have is record that strong is three or now that $XX and are early flywheel billion nicely. now cycle, just right of had renewal ELA renewals which parts income to we balance growing

feel front though. execution pretty good of portfolio, we our of So in a us, lot about Software

Sheila, go Erik. let’s next question, the to Thanks, please?

question come will with from next Our McNealy Kyle Jefferies.

open. line is Your

take to the some on point see from pricing if I improve question. changes margins are would new you when Consulting in it the call, benefit inflation said, you Hi. much could a earlier timing to coming the then based that benefit, Thanks and like of the you believe the you the you in bit will I’d pricing for on get second quarters very finer cost we a offset but mentioned put making are Consulting that seeing. think of a half the the will few in. XXXX

of So year? QX margin Thanks. you might any quantify back expect better should we you of how end the get many and the helps way pricing by there is can points

our we the strategy hybrid remember that. since question. for to have acquisitions we half overall. a Consulting and mean, and in are build an made all in the we Kyle, saw started demand scale take investing environment Yeah. capitalizing enterprise of Thanks, at this second I in Kyle. in been to we indicators a we demand obviously capabilities, great portfolio Arvind, And significantly XXXX beginning I and think we see accelerated across our clients, of talking ecosystem adoption of pretty environment when invest our cloud out on I partnerships. one are skills space the conscious building looking And operating will out if we about this you overall. robust you were

play Now, when is of couple right that environment because inflationary XXXX time in point that which you the started that with making, half the out said seeing we that Consulting. that in we have latter build we you highly been couple the capability, to investments now and at conscious,

that on our have I and in inflationary you couple seeing said, tremendous IBM always and cloud with are As tip provides hybrid of the spear pressure margins. driving environment, gross pulling the our adoption platform of scale the the is you value technology that that

tell get will you points little we toughest were XXXX. you, When quantify we this. of face gross basis easier. the The down a compare bit look let compares at our to margins, Consulting. XXX will I try that me Now, Arguably off in in about

scale, X accretive. and The or which due as basis of points the become So get we talent about acquisition. environment, point have we accelerating when very two, off quick is so within you cost acquisition, will Number bat. of to know, inflationary that ramp XXX been points the points those acknowledge that XXX remaining is you as right you at a look the seeing about basis

That’s been have the you reinventing profit why have doing, our to when optimize We We inside of mitigating our overall. by amount of we the we IBM half demand the investing, been accretive clients we third early impact that. invested and that, be digitization, into That’s innings knew that quarter everything a then after saw latter get automation, as significant And get been way, of environment, we underutilization. capacity. second had capability and expect In to to have through we robust and structure streamline, that IBM. doing into quarter. are we G&A

But tell quarter you seeing again overall. have will we margin, but you pretax XX%. gross improvement a operating the we quarter. But will get up couple points. third we improvement in as to approaching will here third So sequential the in That’s second start make improvement quarter I I into a and accretive think half, margin turn guided will second in

throughout improvement that see will the We year.

Thanks, Kyle.

to next please? question, the go Let’s

Sachs. with Essex Brian from comes question Goldman next Our

Your line is open.

on Red growth, Great. the I question. love or the Thank see Software transformation perhaps fare you system tends kind say, conversations the to in you. I’d and from on you to And stability Good would portfolio Great Consulting heard the spend. maybe afternoon pivot what and regarding side, thank your particularly macro Consulting sustainability customers in integration can all digital the view perspective to durability Hat spend? business a know maybe but in than, some on of may we application that Arvind, environment how side. taking your for of earlier, nature, might or you guess, be share but Consulting sharpen it where of question guess, discretionary pencils on Consulting Wamsi’s your of love different more, their difficult Consulting engineering on Is I the budgets.

Yeah.

talk And we that think are. to a Brian, one a it our question. we about clients lot where lot and to understand you they So, for the thank about is

makeup that if and portfolio is Kyndryl. the I with have look the all Services. So went our very would of at little Consulting of what Infrastructure call we you Those

clients. our partners, helping ecosystem left the Adobe Salesforce that have and with difficult clients, all Jim, of we growth topics platforms those adoption what with environments, Clouds. some of is Consulting continue our around So the rates high is about public we and in talked that believe of to very and is Even like going

carrying cut take to scheduling, Consulting omnichannel, of airline you re-booking is gives real-time to look all and of we Second, I one not as we for But it if projects, it it of through coloring just environment. to clients go revenue much if actually we taking ways our much look we impact and a in making there examples at difficult is of all the as the at -- a across something digitization, cash, our even issue, quote address that just I being if address the example, a that coloring I take it take, which see If on of so shortage you the digital. that pretty and then skill labor that. even continues high are way environment, passengers, globally, if these difficult meaning of believe where more labor primary because take demographics silos, digitization

mean, so I of constrained, recession When look experts coming there’s think, enter that world, a technical to suddenly, talent at acknowledge. people a constrained that I and and I in a number call because well recession. I and when there if in will quick consequently, sustainability we don’t me me what that a continue let shortage But, tells because trained So I is mild I of even it go that, economic. the up Brian, will see the or a durability. say of

I think get have something because and portfolio, fare the think, to a deep then will well. at of that, I to and that again. look sustained, quite bit put makeup we I the actually side But will you our comments If little of it my will go

Thanks, Brian. to Sheila, let’s go question? the next

David with comes Our Grossman next from question Stifel.

is open. line Your

margins Thank commentary range. gross the peers GBS including lower on you. cyclical about with margins appreciate a And margins. in difference I wanted your somewhere has of to XXX-basis-point I up currently. an the items and just the follow all XXX-basis-point impacting to the operated question there Historically investments Consulting margin its earlier gross kind at the GBS than of

if peer and changes you that? business think underway, you the beyond a and the do looking structural achieve you are margin are achievable, timeframe that what explain However, differences that, that of that or is, strategic investments dynamic there with many in can is it think group

Thank the David, the benchmark overall. point. Consulting to take back say step low- just that? let’s probably and now mark a don’t margin, mid-teens. Why The I you to take competitive your at would Yeah. for a in question When look you, address I it right is

not excuse that that peers We mid-teens. benchmark, of But going a value me, you low- different the be has to look to company very are pure-play some at are if proposition. you a the India in Consulting-based industry, we

mid-term have our about We model. talked

Software excuse not out a also driving a they how practice. integral only adoption that Hat. up many platform-centric cloud an they Consulting and are our pure-play And competitor, portfolio a in me, doing very of has Hat of mid-term IBM about essential built our have scale play as and of Technology. role Now, pulling model the of times being integrated but Red role building we well by to the a put aligns as the in through we on an thesis Red foundation hybrid way, talked GBS or business

think business get XX% any three-year in Paks. of hybrid range. a XX% picture. is book platform-centric inception on on of margin our about low a depending model about talked they the to quarter, thesis top date, $X.X double-digit we cloud our our to about of But would I and that to billion mid-term That drive we XX% Cloud

into low field we and approach double-digit it’s are competitive low the IBM profit. drives we take take high investments think revenue I going it that. make, revenue growth, the are So already the IBM, delivers high given single-digit we At that to have value you that integrated single-digit of portfolio and you software that integral a growth, teens, playing in an part that

that that question. answers pretty your feel model we comfortable So mid-term

Thanks, David. take Sheila, let’s question? one last

you. Thank

Our will from Suva Citigroup. last come question Jim with

Your line open. is

segment. last guess. spent of Saving the Mainframe segments the various you. already time your for best been except Thank I about A lot question not has really talking

Because enough really exaggerated. that the cycles I will people growing laid take question past death over that the Mainframe that for maybe enhancements nice for be you So has on to out been is, Mainframe Is been have greatly three calling decade you or of to think a cycles? Mainframe. death Mainframe, that with anything and these past a competitive well Is with actually kind for I then Mainframes the new Thank side of Mainframe Citigroup, And you. advance it the am about be thinking just of but components there like the we of out? conscious of enhancements, more? in Z profitability profit could be on changed pricing. rolls companies should we have the order make

of driving on me ask start side. Mainframe So, to the then Mainframe address Jim, growth question with and let Jim your answering profitability capabilities in the

XXxX that fraud now processing can and you available are whether as as if of decision. as a a so at concerned, clients’ volumes, record that XX%, can we system volatility around make issues are and to seeing of sure can copy of transaction drives that is the primary the moving errors, if people everybody to at of your indication the it’s imagine that. business. with clients AI data working are more capacity sensing of our is want the is it’s additional all we where drive look money, if clients talk of is to whether be the And decision engine due resiliency talked that. well XX%, fraud, go many to because that are driver also Mainframe, transactional markets, physical embedded set And resiliency see, wanting is cards, our we is heard of And second up, we So all XX% credit which that that the know If application people other the always and Mainframe in us growth. the on into not of a of there there of but really additional there you because is software fraud why helps our up. make place lot growth because much is issues some that driver you the of volume of I drive because that volumes there in those and going serves about Then, capabilities processor, their just an now side increases, or demand cyber, about line go

seen more than I pack have that we last years saw Jim, growth you Mainframe and all it, So tell that the if cycles. we better unpack of and three then I prior over of in will adoption

out early and continue we to couple said, execute. have of are next going over that that to We signals expect see years. That got go we from the

Mainframe We our these as to that cycle us coming to over are quickly will applications grow that clients they allow that this sure have got make and use to well. actually able deploy the

it and our for strategy an of Jim. you wrap is obviously operate just will platform-centric as element very I Mainframe much model. question. the innovation Thank Mainframe essential a value And up, the overall. We

know we have So quite on well. you mission-critical Mainframe, top software of that as

storage, We attach. high-end have

stack to successful Arvind When look to is maintenance have the we cycle, cycle MIPS the our you most that increased cycles that of program. have are a is where the in it’s it. that ship due a We at ended, first actually, which really time ever we few goes had zXX from profitability actually

the now up over XX% installed is MIPS prior Our programs. capacity from

that today. value clients, up, many our tremendous million deliver opportunity value and MIPS out there some our want roughly That’s are got have set but different that to we about do $XXX quarter just to from you to But ways. little $XX we a history about also perspective, from because to second XQ, touched that We I when three on revenue have But XQ monetize you the quarter-to-quarter, I this above in and second But about a quarter quarter. is that topline prepared million talked to at you Mainframe million in remarks, wrap expect way, by couple $XXX historical the plays a quarter-to-quarter when quarter-to-quarter. And we of to the look be talk typically in bit at high of into hundred want level how second the to of about a the excludes summary the dollars look of historical in. the revenue this. of component all a years, major take XQ it in year, Kyndryl Mainframe a last look going contribution If million. at I

history shipped I that the remarks, said $X.X also that, dollar versus will currency a contributor Mainframe in strengthening, Albeit that. prepared little against quarter is underlying as is be fundamental going in bit more. that. a to offsetting, be to performance it so about call second So Underneath late and hurt business continued billion, a substantial

and offset than better more Mainframe a to XQ is very with will compare that than historical a we currency it. going strengthening of that revenue So and dollar big be piece

So over then. Arvind, to you it let me turn back

Jim. Thanks, right. All

Let make a to me call. the just up couple wrap comments of

Our we been performance this reflects quarter the have actions taking.

streamlining leveraging We are and ecosystem our our portfolio, are have business. our we we strengthened

are is always of you speaking I and year soon. to to start While more forward with all to I look pleased with do, the again acknowledge we there the

turn me it to to call. wrap the back let Sheila, Thanks. you up

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

may You disconnect at this time.