International Business Machines (IBM) 18 Jul 222022 Q2 Earnings call transcript

Welcome, and thank you for standing by. [Operator Instructions] Today's conference is being recorded.

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

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

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

tomorrow. the We'll a available be replay on website a IBM time today's post remarks couple within will by investor prepared of and this hours,

additional to measures. investors, presentation our non-GAAP information includes Provided our

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

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

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

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

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

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capabilities array a We & Security Automation, Data a offer our broad AWS. with This announced collaboration catalog of AWS Sustainability. AI, to and includes strategic on that software agreement span

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We been that encryption the technology quantum-safe the IBM generation next and selected of has by basis collaborators by are protocols. of as proud developed NIST our

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last a provider. this the the in the second leading years. cybersecurity, over X and quarter, X we also ReaQta of management offensive in attack on Randori, of of importance acquired the past XDR. acquisition Given recent and the It's builds of QRadar acquisitions cybersecurity launch surface and one quarter XX% This in

as that or good corporate is a focus of ESG, Another Value across citizen. just regulatory all their over requirement a CEOs also being XX% will action. to conducted see by to company's XX% believe It's accelerate sustainability poll Institute and To for the one their of a highest data companies and leverage opportunity. A sustainability shows of major growth. area improve AI stakeholders mountains accomplish and business about collect need sustainable turn of results IBM business Business isn't this, the which investments priorities, into they CEOs

responsibility They Manhattan's Corporation, use, including indicators are carbon a landlord, Realty across energy recent solution Envizi, their estate Green social SL and environmental manage using their operations, example. to office emissions IBM an extensive real largest is easy metrics. and

given ability for our our portfolio, of the saying with at yielding need deliver and in XXXX the remain expertise of actions, mid-single-digit up we're the wrap by any the confident me high that end revenue our to from strength in model. we technology Let benefits our

more quarter let over who our will Now color you and give detail hand the second for on Jim, to year. on of add our expectations performance it me the balance

get $X.X share XX.X%; I'll In earnings into $X.X we pretax and financial in the we quarter, In Arvind. generated second billion the margin billion is half revenue; delivered highlights. per of operating the the flow. of first billion a $X.XX. of $XX.X Thanks, free right operating cash income, of year, which of

Kyndryl. of X includes This XX%. nearly from up was revenue revenue incremental points Our

over of translation on As sharply the or more the points impacted mention over ago. always, at constant have would revenue That's currency $XXX by XX reported spot growth strengthening suggested we than currency. that dollar, our X million. discussed $XXX revenue the But focus million growth I'll days given rates

about software vectors profile a higher by growth IBM annual of of X/X high-value our of half growth recurring, in driven Today's with software. and is our that More than has consulting. revenue

Software up to zXX XX%. was up reflects revenue cycle, this was and past Infrastructure Consulting, which up quarter performance, good a product XX%; start our XX%.

infrastructure about the from Kyndryl. X growth and with include Software each relationship commercial of points

our and we've These aligned and in results these solutions. AI. strategic and innovation, hybrid all to ecosystem and consulting our cloud reflect areas We the hybrid cloud integrate making investments talent, deliver AI technology of to been

an clients dollar revenue only software approach partners every for generated benefits platform economic with our IBM a and consulting model but and not of also of for provides attractive platform revenue. multiple Our our

up billion of grown Our It hybrid stack our revenue infrastructure software, XX% capabilities year. from our over total revenue. $XX.X last has consulting was XX% and cloud to or full across the

at Operating profit up were our by in performance dollars P&L revenue Looking strong high-value gross our businesses. driven metrics.

pricing, Our through takes year-to-year up in addressing in gross margin consulting. time decline show to We're though reflects escalating this it labor component and profile, margin costs. especially some our

by rate of Our operating basis and basis margin net last which our pretax We is X an points about income we up, tax versus points. operating points. XX.X%, XXX expanded up expanded and had about year, income was margin operating XXX

on comment me within a few performance. our Let profit dynamics

well as for commercial we've actions separation. operations reflects incremental go-to-market pretax our taken as from model our post to profit from the and streamline profit Our simplify sales the relationship new contribution benefit

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$XXX also profit due impacted another the down, Together incremental quarter. in down to resulting business the wind announced in Russian year-to-year the our million. operations, by We charges wind loss orderly the roughly our with of Russia results

I currency. dealt that the want that hedge impact XXX% execute of I the cash programs profit mentioned we've The all movement days, cover of a of that last exposure. velocity comment but rate and currency impact the and hedge over strengthening flow. a don't fact the of results not with we and the to XX quarter to this our in the combination sharply dollar. We also on majority currency

free over Turning is half to the of $X activities from full flow. $X.X good for and with in I'll consistent cash our free first capital year the few years. health XX% average expected with cash the We billion in reflected the performance. cash you This flow flow. is our first last billion of range, cash quarter plus the half from divestiture free investing of versus proceeds generated billion remind about in working $X the

returned terms year-end. $XX in dividends. billion for nearly And up just half, same uses debt from This the is results this period. we form $X is shareholders our the in of of in $X to billion $X.X of we over over closed X invested which first of billion and down June slightly about a In billion $X billion, nearly of year, position with cash acquisitions cash the

the to segments. Turning

segment was XX%. grew last AI revenue X XX%. for capabilities. $X cloud Growth by points hybrid driven the Hybrid represents revenue up Kyndryl the the year, Software our content. software This billion from includes now cloud about and over

represents which about from support our and of our a the solid again subscription perspective, rates growing up grew points vector software. revenue commercial Platform renewal From Software XX% to category growth about were X.X Solutions This contributes Kyndryl software This relationship. of and X%. base, benefit revenue Hybrid quarter. & recurring includes this

pervasive and RHEL and expansion to again the was edge. These and Hat OpenShift revenue Automation, to and XX%. We sector fueled growth cloud as new Security. by requirements like grew both adoption public in Red drove hybrid environments Red across AI solutions Data in Hat, telecommunications, Revenue share. services, & address growth offerings all out key continue across financial take industries and of

Automation revenue up X%. was

platform, and both clients. and AIOps; automation strength in IT like Instana the of offerings our in Pak Cloud AI integration modern of Turbonomic and for in performance ops management our journeys observability; importance Solid for integration for and had Integration. demonstrates Pak Watson Cloud We the

for revenue fabric, management chain AI X%. & supply and solutions. and by demand growth data This Data was led asset data grew management

of just acquisition the Data We portfolio which expanded Fabric observability. Databand.ai, organizations with also data with helps our

X% capabilities, X and completed to quarters. management a management was as up our threat acquisitions the revenue security security in in implement and enterprises additional controls. to Trust invest We're threat the in growth Security strategy space continue over identity with few adopt identity Zero last continuing having

business up the Platform X Hybrid ARR, is billion, X%. Solution Across $XX.X our annual or areas, & nearly recurring revenue,

transaction points the vector, content. XX%, grew including to value processing, software Kyndryl XX Turning our revenue from

this in for line rates continue and with software have our to We quarter. renewal expectations this performed mission-critical strong

delivered profit. revenue commercial given leverage software relationship. We operating solid at and new Looking growth Kyndryl the

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

X.X growth clients and Revenue on as book-to-bill to business growth We X% Moving all trailing up Consulting. maintained XX-month are of trusting compared revenue on was growth ago. saw We a to year industry choosing double-digit a with lines pervasive deep co-create expertise. geographies. a XX% solid ratio IBM, with to again our across basis

our doubled Momentum hybrid exceeds strong. digital hybrid Red capture to capabilities we the the billion. $X.X transformations. which revenue We enabling XX% Hat Hat adoption billion over drive us to grew The and platform their expansion and and clients remains cloud inception our of $X ecosystems quarter our Hat Red bookings, date. with practice to year demand consulting are cloud solid skills, Consulting's of as nearly in Red our revenue behind continued last now help

Our performance Revenue Azure, these solid strategic our in from partnerships Salesforce. to led continue partnerships grow by double and SAP digits, and the contributed also quarter. to AWS

led lines our of transformation clients look transformation our SAP Growth in to Business grew on critical offerings help our transformation, was business. practices. to transformation by experience focused them workflows XX%. Its pervasive scale. to transform and Turning and IBM business customer at data

portion a strategies, modernization contributing was In and up technology quarter. consulting, modernization XX%. performance the revenue growth, in where significant on-prem strong with we led clients cloud platforms to cloud the and Cloud the also and revenue architect development of application implement

was grew by the applications in clients' we cloud required cloud business, space. management our declines Application of cloud environments. mitigated offerings, across the providing Growth In operations run hybrid are our revenue platform on-prem solid services to this and XX%. optimizing

to profit. Moving consulting

we leverage benefit operating streamlined and Our deliver expanded structure. G&A point more go-to-market X IBM's and pretax margin as from

the fuel margins making investments reflect been have revenue to and demand growth. Our we significant consulting capture our

continue We in scale partner acquisitions and our add invest ecosystem, skills. to

of up as most workforce, increase IBM's over which half bring labor the increasing Consulting, market labor impacted well and and by makes capacity. inflationary we cost is

revenue from it's pricing. taking starting to signing costs to time the see our time are the reality in higher given We realization, to margins. contract of some it capture these in our But

segment. X%, benefit, support including X points content. infrastructure X Kyndryl Infrastructure Kyndryl including X was Turning the from points Infrastructure revenue respectively. revenue about the up to Revenue XX%. XX%, about of incremental and Hybrid And grew grew

from solid building hybrid execution program, revenue on was zXX. our zXX This infrastructure, momentum XX%. reflects zSystems Within up around the

to embedded zXX development for native power mentioned, the hybrid scale, our resilient cyber brings Arvind As at cloud of cloud and AI security clients.

in seeing accelerator. AI for on-chip workloads their of detection, growth are the Clients investing cloud We and are platform demand an part Linux like fraud capabilities real-time like hybrid zSystems as new AI in essential infrastructure. leveraging

grew revenue by quarter. led and the growth by cycle both was driven to storage, high-end this infrastructure zXX XX% distributed This Distributed tied storage. storage

We good had performance high-end also in PowerXX.

infrastructure we we last expansion announced flexible cloud and week, for Just server hybrid as the deliver of environments. PowerXX our secure family

up the mix by margin from mitigated was impact growth cost at in X Looking reflecting supplier increased infrastructure profit, the component zSystems, pretax of points year-to-year, premiums. benefits and

we the over growth. is value of let We've investments Now me always level. to to taken made IBM cloud is take it more a and last do, while couple in focused, IBM there and back strategy. a company. AI execute years now up deliver hybrid and higher confident more faster-growing the to to work ability are sustainable our actions platform-centric And

Our first half results were solid.

we top the to high mid-single-digit growth X of year. continue the at from on revenue full that, points And of growth over spread currency constant the first end sales the about for expect quarters. Kyndryl model the We see of X.X

of impact currency XQ the to mentioned results. I our

us significant in movement impact will headwind of every as compared rates to growth to most for incremental year. rates, April's of $X.X of now of the the currency, spot from currency nearly dollar at billion the ahead about With half. X-point U.S. that That's a still with mid-July about second degradation a translation be the revenue

is unique dealing we're Currency one issue with.

billion exiting putting about Together, year. These these for near-term and on are of expect the now is exogenous of cash operation. issues. impact flow we The results, free the other pressure our our some are Russia $XX

our about good underlying fundamentals feel we of business. the Importantly,

full in no change through year there's segment of this the view year, our expectations. You our software. Halfway to see

range, points We line currency revenue expect with to X model our in sales growth to constant continue plus Kyndryl. mid-single-digit X from to

range remain a software We mid-XXs margin to on also XXXX. pretax track the in for

continued and our environment, Our competitive investment in consulting half This we and to been second IBM model. to of a to flow we X% now we margin we've low has consulting year-to-year. starts double-digit above growth XX%, reflects which a With the the strong, resources expect to the increase skills performance price revenue over as is labor for up revenue. is pretax improving realization growth year, point expect of added which rate in revenue continue margin X utilization and

premiums, very any of We product revenue year. X period launch supplier for planning in from This revenue increases that, see pressures top the a of platform some high-teens will about X Our for continue model in to for full infrastructure we're points for cost to the growth in had reflects Kyndryl sales strong level infrastructure Despite the dynamics. above and mid- drive revenue the our cycle infrastructure zXX we the component to margin of from second of quarter. year. the XXXX. performance On pretax to

X.X margin growth. we yield year. for operating expect and in a margin revenue rate, mid- year-to-year headwind IBM's segment And about These which high-teens to improvement point dynamics a a continue is pretax profit tax to our the to full

recall first we half/second that January, SKU. half back a You'll in expected XX-XX profit

Now the and changed, still in see XX% hasn't after full the to a year second of the year, start view half. our solid we profit

third third at range specific constant in quarter, mention growth margin. in operating revenue expect pretax single-digit we X and X-point improvement about I to the want quarter. year-to-year high in the items all currency on a the Looking

First, spot impacting headwind X-point cash. to growth, translation and at revenue current currency has rates, to reported profit revenue, our an increased about

timing, result strong about introduction the second Second, larger XX transactional in to quarter we will our This to in second years. zSystems typical third cycle, haven't impact unique a the coupled seasonality. product in start had large quarter a than with

year-to-year strong in a expect zSystems. So to be growth clear, we

to the good clients capture strategy today's fundamentals opportunities business. our we and executing as In interesting times, the closing, challenges. and we We a and help these about enterprise are navigate feel way technology our see of are

let's now on Q&A. to go Patricia, the

Thank you, Jim.

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

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

Our come Erik question will with Stanley. from Instructions] Morgan first [Operator Woodring

we here. saw Obviously, in me business. for a one a Just of bit Hat deceleration Red the

So of what with for on any to So just you're hearing it. deferred a impact you them love been the could a while? from part would that's business share that hear this and that's us

Thank you, Erik, for question. the

business, we good Hat in year about we That off start expect in Hat very last demand said late had and upper by said, that feel me we Let continuing. Red teens. strong very just we be the see to Red -- growth the

color We deferred in to expectation. are It's that add make I'll coming the heard I to to Erik, we been going the say what revenue. for Jim I the that. last difference you what rates bit and continue think That year, of accounts continue from this down on year has of to to growth bulk a let with. start and

thanks. Yes, Erik,

Just Red very XX%, Hat here with share in pre-acquisition. were way, OpenShift, building strong the on Hat overall, in XX%. very overall taking bookings OpenShift. By Hat which had were revenue a us Red our We foundation, both over now cloud up and growth Arvind X.Xx in Red the core quarter. strong what our our Red positions RHEL NRR. in Hat said, the backlog up XX% also hybrid Large bookings well but OpenShift platform-centric deals

Hat overall. about portfolio Red feel we pretty So good our

third we about the talked forward. the acquisition going but be this on And here teens. We January behind Arvind mean delivered X as couldn't And move now. small we're that. throughout there's deferred the And much into we model entering revenue, year pretty quarter, we're quarter. lessen through and I right high pretty us. that that, that year. round-up that's remember, this to is the more much by pleased we indicated, in the in some way, our was years

Daryanani next Our Amit question from with will come Evercore.

my question guide. is the guess really on cash I free flow

point, see understand? numbers it was and be cash billion to just initially. related doing on I you XX flow things there. of it at better cash just to billion I'm days $XX.X takes think, kind what free the be And that then most talk of the year the are because One helpful Revenue seems puts on right was up going maybe to look that flow would Maybe on impact to that, this $XX $XX number, was, you've thought volatile I to been the given there and than very to of cash how be folks -- the just top assuming what the always headwinds your I'm an ago, it line. the is there free explicit start flow. billion on might movement free think your But at this at event. comes FX EPS

you FX So line? on just maybe how flush the top impacting can flow and would picture what's the be below is cash out the being free That helpful.

you thank very Amit, Yes, much.

when our because through think go So a of key at it's look let's take this success. very measures moment to you X I important

this free You talked flow cash and about put place company in Arvind's growth run it. Revenue to growth.

of We now started out coming guiding $XX billion. billion at end the moved guidance first that the the through have about low to billion. it $XX $XX.X at And half, year to now we

that that growth very the $X free into the Remember, XXXX get and free That contribution, Kyndryl billion let's very back of of we're north we heart billion and the question, is and this takes have flow baseline perspective. put revenue baseline. pro strong I at to even our But post-separation of on gave a the given of IBM it's into investors. cash take either $X.X transparent against Before is your growth growing and of we the overall. flow case, year-to-year, our growing you billion all cash $XX step each forma of puts on

unfortunate humanitarian right profit, very profitable million and by a There's the that X in And pieces about that $XXX in going us, quarter. given XXXX. the made couple business way, to second -- a Number the that's in for Russia, highly in in of summary flow crisis of cash prepared and was worth cost here we to decision that the war talked exit I the the one, the remarks. business free

now, pace are what's the The and dollar that U.S. second we that to forward. been as of the right And immune with move appreciation. we rate not happening is

talk cash good off little performance look then through billion see operating here excuse headwind half. last cycle, We about do achieved bit year. volume X see That have when above talked capital our now given our to working slightly the growth. at tailwind cash got leverage continued $X.X dynamics half. out a flow. I let tax a good But start, attainment continued which the over on revenue our through the of We a or had first we years. we is we actually the management And And second first mainframe the business. and should -- me historical for January, And in go-forward as our provide about the free modest we me, the half, We've leverage.

that free So up of flow wraps kind overall. cash

question come will Bernstein. Toni Sacconaghi Our from next with

the was would that bridge whether sequentially in and you billion you could in what if free I then revenue lighter of And wondering through mentioned just you for little cash because mainframe. usual the QX be comment is? expect on XXXX a that than $XX still

$XXX million. down I million mainframe is about you're typically like think quarter. a to $XXX The $XXX million

So headwind. maybe $XXX a million it's

dimension Or are QX? So sort is factors that at about work? you're thinking other of for that there the

it and flow I'll me then by $XX first billion hand start Toni, let cash Jim. question, the free to addressing

that very are free good have signs, cash through and flow confidence our committed still We $XX cumulative see 'XX. in to over delivering we number. billion we absolutely total And 'XX

the you to to that, for hand those. that then bridge the Jim with and XQ XQ to dynamics, it said so And I'll

Yes. Thanks, Toni.

explicit we quarter. the We we've about be third to go sequentially second I in you I that here going typically said the currency what said pretty quarter. If in single overall. $X digit actually billion to constant the revenue, -- is high Toni, prepared think back at on in actually But were remarks, in given guidance we number all

So that we've gave that address currency me from to dynamic happen constant going what's revenue. total -- given your let question explicit and quarter-to-quarter to we because

had acceleration By model years constant single profit I our point is we revenue from second above acceleration you acceleration in quarter. the in the mid-teens in that operating quarter, if way, currency, and this at an that digit. quarter you second to company, of currency But growth, strongest in cash acceleration flow. free mid-teens. XXX wouldn't constant second we're So basis look points XX the By well mid-single-digit we've high way, going at make if delivered in from the look growth and -- in margin

call Let to end call asset the of bat Two I'll about right coming points the closed that care health off worth X% That's me divestiture. points XX%. at that software X our We "deceleration." from what of is June.

million quarter. versus years out a points first actually X normal up million the of $XXX X revenue dynamic for guidance about quarter $XXX second highly-seasonal X. transactional the quarter That's well. our in cycle That's second extremely mainframe We the in us seasonality. new of with quarter. We time ago, took we beat the by of a did quarter. XX is The Remember, that the remaining points XX second a in coming days

excited at into about us normal only that's it's second would X what third cost the look given a for about a now upfront the imprudent you the wrap when third quarter, a really in the at XQ year. get between fourth Now see the I very second about we I'll to in since quarter. guide cycle, to And talked half January. quarter in XX% saying our second and new which here dynamic This we're quarter the for XX% how is operating the changed hasn't that, That we that profit announced given SKU to cycle in us And the be. up Toni, in this still normal XQ cycle, environment I it and just points going announcement given to Z half. think

from America. next with Our Mohan question Bank Wamsi of comes

in could, would constant better PTI, helpful the it the Arvind, And the your change maybe on PTI unchanged It help the a sort seems left be you to know year-over-year points color guide second year? second half what but some XXX-plus versus significant in I in the quarter. is if bit tracking I can like expectations. year, get improvement you you worse Jim, of through had currency for or basis your

talking You're that that of of there quarter. of mainframe the impact. points and third much guiding -- Because is a you when timing-related? to revenue sort alluded to you in about those XXX how is catch-up PTI is Does versus basis this it the both the fourth were mean quarter? of FX Or in about

Great.

actually So currency constant balanced Wamsi, first in part across let of very had question. and We across the address me geographies your businesses. the performance different

in performance geographies, Americas, different will currency, in Pacific. the as in Now double-digit be actual well in because but performance different Asia of the as Europe

business Jim different numbers XX% in the about Those I believe. XX% at really infrastructure. talked laid currency, XX% in software, consulting, on performances. strong constant He are out performances, the in

As mid-single to we maintain, remain we you expect about in said, see forward, the we talked we'll software. digits us go and should on

We digits will double and of from which actually infrastructure up from margin, is end single-digit in our Z get towards cycle. the consulting, benefit high previous low will the

and the rest the our then across all contributes geographies, the year. confidence the very balanced So that's revenue across profile of that portfolio towards and in in, the for

Yes, Wamsi, thanks for the question.

our the high incremental guidance come of I'll We from to high year. you an then dynamics into the revenue Arvind through for the me, -- step your overall give went about Let of single-digit maintained or growth the perspective, a portfolio back that. just excuse question end and third the contribution quarter. me before Kyndryl mid-single-digit

days now to expect we went ago. points that X about X the beyond currency about XX X that strong the performance, change currency that from up impact By constant way, points

we overall up year-over-year. So seen billion. XXX $XX here expect profit and of basis But about billion. quoting free that's April. $X.X $X.X It's billion about we that revenue margins some what flow a change in billion about growth, strong cash with people $X.X said from operating I've points

When operating Remember, be well you changed really X approaching will still half that overall operating software, look still our have trajectory see model ] given segment, demand now, by to Infrastructure dynamics, now that's and high margin. that's digit. and ago, mid-single [ to think, in billion revenue [ our in around double it our $X ]. $XX points margin of product model mid-XXs. to down we We in at first operating segment, took cycle comfortable in billion we XX confident on that's teens. pretty growth haven't strong one digit And low That's took the consulting. change margins that the we then to and we're software We feel excess grow mid- margins an happening. of And days up consulting, to our segment. going X its we

margin And PTI. the our that nice play between it's second margin. seeing what to here we that absolute $X some that optimization our [ We year-over-year and margin actually for the comparison for year half we're still increase overall. taking ] on And ] will is expect longer billion $XX in full [ through price billion the will be in be accretion half, second consulting as in wrap -- easier business our to

of highly-seasonal impact. look and Now first we mainframe margin a be look that third the overall, a third transactional about our Toni's I years X. by on growth typically you how quarter-to-quarter. a out third XX time is margins And guidance coming in answered X-point at dynamics at to revenue the up on quarter, quarter, similar to When the the question quarter prudent flat you guided in operating for are then way, quarter, our

so the we'll Wamsi, question, in the the new your back at when it's mainframe by second have to entirely fourth just the introduction in dynamics. the a So you very driven look that here us And given different dynamics, to comes quarter, even so SKU quarter. more

will Brian Our from Essex with next question Sachs. come Goldman

the looks this moderated could little or if the the consulting business there. in while But thoughts operations. the a dig I you're business. stabilizing. dynamics changing think kind to little improvement like discussed. -- side, seeing inflation application I changing demand on attrition, in acceleration, side, consulting have if great -- sequentially. hiring, and is see noticed the it's to but there's supply anything On you was of I I could if at side if on you appreciate Nice look side currency transformation So both we the Jim, pricing of demand that the was supply wage wondering in comments share the there? constant from improvement see any growth bit from technology side, a we wondering I it bit could you I appreciate the you if what and

see confidence and supply demand your could walk through the business and year? to changing performance the dynamics we if in that maybe the of driving within So what's dynamics rest what's for the

Sure, Brian. Thanks for the question. Great question.

human demand So because of our of equation way capital in -- this, the to going source that a this human capital-based capture and I'm value We with it. business, to we drive our side through indicators, go continue ROI the let's demand take a the to manage cost, go here minute is the right? start

So performance overall. quarter, guidance we by the a strong the by raising continue we're and accelerated XX%, to profile, the here X% plus capturing seeing consulting in on year see way, up our and a demand last it

has the clients technology So talking industry in sustainable their are being every think in value advantage journey and accelerating that the I in and digital environment about, is Arvind by a cloud. that's competitive been of as and driven transformation what this moving

also integral platform Consulting cloud pull our tip IBM's every hybrid technology overall. talked about of drive is adoption quarter a to the the hybrid spirit cloud being scale our the I've and platform thesis. through very of part to

this. So we saw

we there. very about acquisitions capabilities, to ago, the in be I'm entering we to strategy out to back conscious dial Arvind in because explicit invest was saw expansion a were now that in a take dynamic remember, supply coming to in the you very we and of second indicators your demand skills robust going half off I the demand were a And If going year ecosystem pandemic. 'XX saw on that side growth and think different that we was

been consistent on we you out we've book-to-bill gross But think the environment another XX-month our by skill digit. second way, with with capability I impacting started the And that to half. that a that conscious good signings trailing And margins. highly-inflationary that's capacity as see enter pretty take profit even you play the and X.X, growing of that you quarter and on couple strategy incremental then the supply side double that, feel solid driving in capitalizing the been north we half, second of

to time kind year. about were the we P&L, and expect to we but through appropriate came going half optimization this talked of that go take price we as around actions get what that take our XXXX And would our we of into rolled that's that, second in the

of when process. disciplined, see comps; second And So all two, green accretion effective actually to at: our scaling of the acquisitions, easier look looking four, we utilization at look in when good demand the play very one, increase are acquisitive shoots at three, solid. the and The continue supply capacity; we with through. half, price optimization where our in side optimized we strategic been saw here of we've quarter; investment we getting some second still equation, a in,

second nice margins price we our in we play move as in So saw forward. that improvement will out the half

that hopefully, you little perspective. So gets a

next will Jefferies. McNealy question Our from with Kyle come

a So the strengthening markets. impact in nondollar-denominated destruction dollar also generally comes some translation with but demand

guidance full that, to able your the what would make some even for how to reiterated positioned your Also for might be, absorb mid-single-digit able be international end are size fluctuations? look are on year a the how if your have you connected sense to the for is customers which actually to perspective the that impact demand-related high of So range much well core you bit currency better?

take I'll you. Thank Arvind. Kyle. this, Okay,

be since and model. how the few within our and spend our it business how to really currency a theme minutes it a here manage questions impacts business Let across we me on it seems

we while especially over seen. the earlier, term, hedging currencies long and I breadth robust as have a that immune program, move the at So we're impacts, when rate, the currency indicated not magnitude we've

All this velocity seen all the we've of of we sharpest euro, a as the decade. in year-to-date, index is stats and dollar U.S. the over you been against give up against them part some June are XX% month been XX-year the of early is against the One, dollar half a XX-year hedge, double year. strengthening high And as story, yen. in of digits know. broad-based me July. over the high Let going that a the dollar down currencies you the U.S. through The we've it's here the

kind the rate, of, it's say, So breadth seen in "unprecedented" of in would I the we've magnitude. what

Now question, to Kyle. your

business that in the world. agree profile, us around The an constant to impact. would with completely. And happening with It growth Our point, even operate of dollar an from XXX journey excess your acceleration I and profile, digitization in capturing cloud. XXX we over That's transformation revenue currencies. our has to you what's makes to and of currency revenue definitely strong in the in countries absolute stronger even marketplace regards guidance

make. per important our don't to One, and viable; But hedge Number hedge XXX robust two, I'd it's hedging points we like accounting. you there's X program, currencies. economically not GAAP revenue one, can't

You can you hedge where cash countries. only have in proxies

We're important, not hedge, world XX around not this out only we only or We the we And So that multiyear about important, plus we're months don't in XX out. hedging more business. XXX also give currencies do take, if hedge in. speculative. the of

what structures. So you It model source, term. for does when price, for near is, to you not mitigates look the volatility does eliminate pools at allows cost U.S. eventually, business hedging the for address It lasting time and labor appreciation, relevance of currency. it dollar in a for your

different think portion business U.S. cost portion this a cost human structure and capital-based your of and large business, our a model. where if impacts important, in years. you dynamics because a the natural is you playing talked is it, currency. also business, about see a Now times product-based out human of in is hedge Currency I've In many structure product-based a a in this the capital-based than very over where large business different Very dollar-denominated. about business, local your it's a

and magnitude the on infrastructure. quarter high-value, software and And appreciates, the that, at it as second product-based businesses, at dollar play read our the rate has level. that gross impact saw a and So pace disproportional you margin on

the Gross up you Remember, margin, revenue the end and in hedges expense. margin see implications. our

So understand how to we currency. manage

you that We've a robust guidance. our that cost taken appropriate appropriate program the hedging in place. have We as in all with going deal see structure taken account into pricing the we forward, and and

Stifel. Grossman David with question come from Our next will

in years? that losses. are P&L, there expenses Russia that whether few the or away us any mentioned stranded remind You some just you had XXXX the or Could go in costs diminish will remain next

perhaps health years? you next that, dynamic impacts cash the there growth implies into beyond target if know You or weave your X could meaningful it next mentioned in any given And a in flow the over increase conversion more. free cash really divestiture. X, year I care software XXXX the don't that are how free fairly

strategy you to time, in with our back for And some announced very to to get thank we the quarter David, the we stranded you fourth were question. executed in Yes, actions Kyndryl core, on of you of off across divestiture out board. we've the as At the the see spin conscious remember. took additional intent now, much actually portfolio that care its closure if front At costs. try going health software assets we 'XX, and

impact still structural If billion the there's cash you $XXX million, XXXX, action at by look that take, give in way, to that's or million, about And embedded charges $XXX around overall. in million our that range $XXX will $XX about us.

out about 'XX 'XX, actually 'XX depressed in core [ your and that for that free and cash now tailwinds into to we're you ] in question because flow turns then how the 'XX think guidance. our plays of So when

our get that And again, XXXX's ROI charges we move rid forward. cash that's but getting XXXX, year-to-year in the that post-separation I'll won't the only flow. that of you, billion And stranded $X we against billion as remind we and That cash of return, free not up on $X.X depresses on over have baseline. cost also up incremental

benefit So gives of move both pieces, double a you we kind it as forward.

will Our Keith BMO. come Bachman with question from last

see direct little you to over it a look the I horizon wanted if I could. if out wanted to I? bit could you, Arvind, longer. to

'XX, years. XX, how to more broadly, is as do some see you think deep about you're I we're then economic business has I XX do to seeing more if about highly just you importantly some correlated impact. any economic could consulting have extend talked you this Some late are software in to there? how And to going into just sales if is last companies see potential for and downturns? of And consulting And to wanted more Or cycle pipelines the historically, economic a the cycles. heading of see the growth prepared just back wanted and I been 'XX wanted potential think specifically, starting comment, the

year? And Jim, some contribution just you you if if recent could You M&A quick, real mentioned in sneak thing talk is deals. for I this could just about one what the

you if Just that could update, provide be an great. would

Okay.

our pipelines, a If I our that question. are Keith, in pipelines unpack So to look lot remaining healthy. at pretty

the So our software this I point, looks seeing half. look would tell are Red Hat at half or geography. pipelines, in by what AI, right pretty that is you Data second at we and now, that first When whether mainframe consistent or we it's to the Security Automation, &

why the that me Jim peers, said bit many and the a my within also has both I, which technology, optimistic and heard a different, say often this So is I'm bit this deflationary. of board because see than of industry is as little is we more you've across

that inflationary counterbalance are environment acts clients and technology, It all demographics an our take the of all a as people the our over in all labor So of the deploy when inflation leverage facing it, to globe. consulting.

software. is on reason that So the

the on Second, of see around we the nature time economic maybe consulting of to correlated of cycle, because our much less that and this consulting.

of chain call critical cycle. clients. applications, our at back-office down a tend actually within If not. you slight optimization the worrying get in, our resilience, our of to of it, look about deploying conversion, least is Those consulting They're -- I'll at more costs lot attention it, about cash worrying a around supply applications,

do pretty Jim supply. of month, coming, you a thereabouts. in going year. kind of and certainly Look, automatic of impact clear, year quickly least XX% business a demand of lot the XX% consulting get people where tens very to be way a gives an to slow it, thousands you labor-based. side. each But scale that a the a That a the you're not because neighborhood pause you And if profit the completely your of in churn within demand the the it -- can of do tens Third, don't is to you you about supply talked to thousands some controls you but or in given because down see hit in of half at of hire control,

before I'll actually, will. say M&A, On Jim it

We is look have pretty year to was based said if X.X each consistent. model year, that points about X at our And last point that M&A. you on

mix that and should the but it's you imply and getting year, range. is expect in acquisitions, year consulting And we've that that you them If to software still over, at at acquisitions it multiples a look stay been look, the this not range. between

stay I you we that and So we'll give answer, expect think it to there.

up So the let wrap me call.

let solid are first with say, just performance. our me pleased very we So half

to you going the to of strategy, we revenue delivering And and look As execution to on second I free we of focus again forward the our look cash flow are sustained soon. all half, speaking growth. with

], Kayla let up [ me turn to call. you it wrap back to the

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

You time. may disconnect this at