International Business Machines (IBM) 20 Oct 222022 Q3 Earnings call transcript

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

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

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

our Executive Thank you. welcome presentation. I’d to Chief and Murphy, here Senior Kavanaugh, Vice President is to IBM’s Patricia and Chief Chairman you IBM’s Financial earnings to time and Arvind and includes IBM will a presentation and third website Officer. be Jim with IBM’s like prepared our tomorrow. a within available the post on Krishna, today’s this This Provided replay information additional couple Officer; quarter I’m investors, We’ll by measures. non-GAAP remarks investor XXXX of certain hours,

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

provided the website. our have non-GAAP investor charts the other posted and measures end to We at for presentation, reconciliation these of which is

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

With company’s these about factors information filings. Arvind. over Additional turn in is the the to call SEC that, included I’ll

demand strong us for over continued our across in delivered third the execution you results revenue we portfolio. today. reflect Thank on of and billion our the strategy quarter the $XX of with focus to The growth joining of digital advantage source client fundamental cloud a remains transformations. Technology demand and see we for AI continued for competitive IBM double-digit capturing in Consulting, continue solutions, solid and hybrid our revenue growth

and across quarter categories Distributed growth Software in and with systems our business revenue Z Infrastructure. had performance also was high both all infrastructure another growth strong

go-to-market technology clear to inflation it’s as with strength Clients I was with When help in there’s clients to are environments. real revenue from based dealing a geographically opportunity everything today’s well. Our seize hybrid building broad bottlenecks businesses We opportunities, leverage efforts. chain are new too stronger. is supply cloud overcome a businesses helping to with offerings, talent our powerful stronger In sustainability from AI challenges hybrid today’s emerge needs continued technologies, aligned shifts our our our and our IBM our the strategy, and and revenue deploying that the through we By talk demographic have single performance expect above revenue ecosystem, of digit focus three taking cloud to for to up are year technical closely our model. streamline strong quarters, and AI XXXX and model. the in mid is and we now With line expectations clients. company invest first portfolio,

now progress me we the making of the turn to are in execution strategy. our Let

Hybrid drive architecture already enterprise recent our cloud Our most XX% point for are dominant transformational The their of different and of can have adopted with across the said Harris that clear. According for becoming technologies cloud offering the to on-premise enterprise. of across is Poll, they the cloud Hybrid view clients at about environments. a businesses multiple organizations platform two edge. by Hybrid located hybrid a clouds is cloud is AI surveyed data time. survey these or value

and by on Red based platform security Our and to includes automation capabilities. and data that allows driven has on advanced software platform optimized clients been to source software open innovation. consume run AI, our IBM Hat

accelerate transformation environment. cloud Our a expertise consultants to our digital clients journeys business with offer deep of hybrid full take to co-create and advantage and allows clients infrastructure their

of across see more hundred platform our We more a quarter. and continues in capabilities. good infrastructure strategy adding platform consuming consulting Our have software, centric portfolio momentum clients third of to couple cloud the and hybrid clients

model. hybrid Bank cloud as potential Airtel computing of Electronics of such the a clients and chosen quarter This Samsung relies IBM Bharti have full America,

few me our say Let capabilities. now words AI about a

scale bear. four automate and eager seeing extract main workflows AI to are AI to That our IBM to companies of and helping finally, capabilities such demographic to financial AI inflation, of to knowledge is processes, emerge: use at to automation and and to deploy we AI levels business chains continue automate coupled As their to insights, cases context what converse. as IT wage interact enterprise, shifts supply pressure add bring reporting. with boost modern productivity. is are and HR, economies AI to In companies the

working are industries. to these We capabilities across bring clients to all

by instance, of valuable Consulting to partnered and need. quarter, time speed This most with staffs delivery business VA of of the For pension workflows free the this up Affairs processing the in claims IBM the automate up benefits. of to Department U.S. Veterans related made veterans helps

ecosystem our Each joint with quarter to partner our do crucial the clients. we we serve to is Our strategy. of partners work a continue element expand

represent an For now and recently Dell seize Consulting on-premise. serving cloud regulated partner a environments multi-cloud aimed set containers. actions of simplifying move GSI solutions XXXX that predicts with and technology industries workloads containerized a XX% are Red We another easily our and more our to management clients in our VMware the partnership of use through with this VMware. IBM as expansion ecosystem step offerings. announced Hat at we instance, Gartner relationships for of to efforts These announced of by help organizations will the opportunity that launching to

the a new actively shape designed system. of to the a Linux thousands are and the introduce of innovation We technologies the of we generation single our recently, future. and footprint workloads of to LinuxONE support Kubernetes-based next unveiled within Most working server, platform

is helping on resiliency Citibank security, leveraging LinuxONE, its hosting carbon IBM lower platform example, Citi an footprint. the capacity, As elastic overall and MongoDB and

telco recently building alongside to GSMA’s quantum on year by for Dialexa. To progress system our capabilities observability track recently networks, of aims Complementing This This goal computing. Network joined towards Post-Quantum We our Taskforce. taskforce of continue to of XXXX. remain hybrid advance the also the security adopt innovation, industry services, our our security, make in framework Telco areas a acquisitions safe IBM data the organic approaches. and X,XXX-qubit Vodafone, We new communication we in acquired number a to to new quantum adding introduce total seven, brings cloud sustainability. like this

more on building been IBM has building of As a sustainability the economy, solutions journey. circular world progress on portfolio make help takes companies the challenge to a and of this

Research firm, in including Forbes, Suite the Intelligence Environmental HFS and we efforts. quarter, IBM highlighting This Envizi our sustainability, capabilities recognize analyst and recognition received of area software. its The both sustainability for our

by the of me last Let reminding to laying Kyndryl, held you for conclude separation and investor we briefing our prior growth. portfolio and that October priorities our out

at cash Over to pleased always quarters, year’s constant we with free with is we four And last do, the model there first have growth currency revenue more driven are mid-single solid above while digit our our flow. progress. or

today’s execution our As we remain and strategy and positioned client are we look needs. forward, in well confident feel to we address

to who will more for expectations details over balance year. it turn quarter and on provide the the now Jim me Let the our of

Through billion financial I’ll with per share in Arvind. quarter Thanks, the pre-tax margin $X Kyndryl. of from revenue, generated of Revenue start In $X we operating at over the XX%, about of up first five we of was the $X.XX. quarters billion of sales nearly operating points cash a year, delivered free the $XX.X three billion income flow. to third contribution XX% of earnings highlights. which and includes

eight dollar, of billion. the our reported mention growth strengthening our results that today with continuing we’ll While $X.X constant more currency, translation revenue points currency impacted than U.S. by at the I’ll nearly or discuss

pervasive. quarter revenue our growth was this As said, Arvind

reflecting XX% up dynamics. represent was up revenue. our up of revenue XX%, product Software XX% Infrastructure solid consulting and XX%. are our These growth was cycle over vectors and

was eight commercial points Performance gained we and driven a of and half continues EMEA AI more ecosystem is growth leveraging grow. include relationship revenue this digits a software, to approach and Infrastructure by Kyndryl, overall. results a Software and of partners. is Americas, revenue annuity the nine revenue were with respectively. based content, geography. on hybrid Asia broad about by and also up than of and of reflect From our the recurring which Pacific focused cloud share and double These more platform-centric all execution strategy broad-based

hybrid and consulting the software, revenue delivered over across over infrastructure to cloud in capabilities stack full billion. XX% year $XX last growth Our

shift our to at portfolio by up margin. was contributing toward basis operating income These and metrics, software. profit This mix points XXX led year-to-year. is Looking reflect profit value dynamics margin profit and higher our by shift pre-tax expanded

on magnitude do in expense, of programs other of don’t some Our pre-tax program the which expense. currency profit efficiency This and are talent, mitigating currency automation a our to flexibility currency. profit, innovation an to the impact talking a our of discussion our The in hedge but and have are to about spent primarily gains in the you from the rate movements a applying provides dynamics. focused good AI operations, hedging profit a profit up and with digitally continue currencies, to dynamics, the defers impacts remind We and clients, ecosystem stronger own in we reflected the points. we flow. time incremental overall eliminates because from are Like and execute reflected are operational the gross benefits base. impact revenue and currency contribution dollars. in to I’ll impacts all profit the productivity drive we income A our of days productivity cash in key investments XX sales and invest and our also amount primarily we gross spend versus inflationary includes dollar while the on of these and hedging Kyndryl. and Wrapping ago environment. transforming hedging few

is income our As performance. a pre-tax of a result, indicator better profit

significant about EPS year-to-year XX%. year-to-year. operating last to to was rate tax which a headwind operating operating net both Compared growth, and is year were tax down modestly income Our

We in the over $XXX quarters. free That’s $X.X million Turning cash flow. year-to-year. to up billion three generated first

and capital efficiencies. the on action wrapping Kyndryl XXXX related the to working payments driving separation We’re structural and

nearly July And in more divested by prudently over the XXXX of In we three form billion in $X was than From cash balance to returned of $X.X get businesses. a sheet terms ahead to acquisitions, quarters, of our dividends. from billion we proceeds uses perspective, issued offset in debt in maturities. of first we invested shareholders the which

$X.X ended but since up quarter position excess our the business. since the with year-end $X over is up We a is $X balance This billion required debt cash from liquidity of down billion strong and for in minimum December. cash nearly June of in billion. well Our

the segments. Turning to

Software’s including And billion Red the annual hybrid grew revenue performance revenue This platform revenue from transaction The hybrid our This this reflects about relationship. about contribution. XX% all-in XX%. revenue through eight revenue and XX%. Both quarter. growth now includes our was is up In of X.X $X.X platform and revenue. our Kyndryl of XX%. solutions, the last Software year, Kyndryl over commercial recurring broad-based. processing is about software up growing hybrid grew which was strong cloud solutions of base, and points contribution X%, revenue and Hat categories,

and incumbency performance grew leader and continue upsell Hat’s enterprise enterprise, Automation X%. share across Ansible well again a an fueled deals global and RHEL, open in quarter. Red to we across as large Red was by scale, Hat OpenShift in increase cross-sell As see for market With solutions. revenue source as this the technologies gains our strong

This like quarter’s year. integration, also strong reflects in wrapping and areas AIOps management continued while acquisition performance we’re adoption content last from a and

our bringing capabilities Observability this Instana revenue new and a clients In X%. Systems z up We’re cloud quarter innovation such data environment. as to AI, in hybrid was for

security fuels and of Let a fabric few secure growth this enables BXB management complex value discover of exchange Data Pak the advanced analytics. clients renewal information. with and me growth processing the up information of are resides, helps XX and the offerings in just Systems’ areas and we’re about of data timely installed wherever Guardium the deliver this Insights efforts. unlock the of we adoption The z their it platform prevent Suite clients including Brent billion up continued for X%. Intelligence highlight as flow quarter. and or Envizi Data in innovation. sustainability capacity ARR threat are Security, of Cloud in across they XX%, resonating modern Security X%, data contribution. Transaction which data prioritize And with a of clients was to security revenue management. as recognition In to hybrid importance both and continue product security, last rates was couple seeing like up now and environment. strong was solutions, revenue annual threats and helps $XX Kyndryl cloud platform recurring points management cycles Across over is hybrid increase disparate the new led Environmental growth feeds. respond revenue, and by of

base growing. transaction the processing is result, annuity now a As

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

lines revenue again Consulting Our is more points four growing pretax of grew growth. year. up margin and was revenue last than at the double-digit business consecutive quarter This broad-based strong rates with all XX%. geographies. over double-digit performance This across fifth was

X.XX. Clients their is transformation year, journeys. and book-to-bill IBM’s co-creation Over cloud our trust and throughout deep the approach last ratio digital industry expertise hybrid

over strategies, designs hybrid hybrid year. and cloud enterprise in XX%. enables That’s $X.X delivered last billion cloud Consulting up revenue IBM this business As the

meaningful Hat to Our led Since Strategic engagements to nearly contributed $X.X at Red double-digit practice as acquired to just Consulting has contributor aggregate engagements. growth, continues also three performance, a over years grow new double-digits be a billion add revenue Red in rate. X,XXX consulting continuing partnerships revenue with to over growing ago, Hat Red IBM Hat bookings. we strong

we Growth our to business. critical was to XX%. clients Once engage where with revenue clients’ IBM Turning and we data development helps architect practice, optimize happen taking of with revenue help We supply clients they double implement Application our our experience quickly. operations taken environments. enabling Red their by customers. in our operations grew up over and which AI and strategies, before optimize Working as multi-cloud mentioned, clients’ grew by dashboards, lines revenue pervasive, XX%. improve transformation by clients technology operations management transformation platforms environments they digits. look be cloud the modernization, transformations. cloud and business again, at applications of In monitor to predict different and growth reduce including and clients’ was client hybrid with the finance, problems was in partners and strong Hat consulting, XX% way transform leverage I cloud to led application scale. to help action and as costs Business their and SAP, IBM grew their help our Salesforce them like workflows driven Adobe, chain,

Moving profit. to Consulting

points quarter. the pre-tax XX% X Our down from margin is about though nearly of second year-to-year up

margin in Consulting continue quarters, is dynamics discussed the to by we’ve profile. pressure As on put the inflation. most impacted Those cost prior labor

we However, of are the quarter, third progress. seeing coming of out signs

and a going forward. as quarters our to margin two are improvement exited rates of will price are margin our the we’ve and on profile utilization path benefit improving we accretion, scaling quarter, Our margin acquisitions are that year-over-year seen

about of Moving X revenue X%, Hybrid Revenue Kyndryl content. to from Support benefit, grew grew grew XX% and respectively. including our XX Infrastructure revenue This segment. about infrastructure the and Infrastructure points includes Kyndryl incremental points XX%. X

scale, program development hybrid cyber of nearly at resilience This doubled, driven AI embedded Looking newest by hybrid zSystems adoption for zXX. combines infrastructure, continued latest and our at revenue program, cloud-native cloud security.

include quarter Recent cloud an storage growth broad-based up Infrastructure our this of flash in the innovation role important across is per storage just earlier day PowerXX platform year. zXX Kubernetes-based family system, playing hybrid environment. a an delivering was consumption. and transactions the enabled server solutions refreshes and Distributed portfolio as to And mentioned, remains revenue our clients. In energy encrypted first fact, to XX XX%. highly quantum-safe for both platform, with scalable Arvind server, reduce These industry’s expansion introduced within a throughout billion enduring clients’ we power. Linux capabilities this the newest the zSystems LinuxONE and

Looking growth up reflecting from point mix in year-to-year, zSystems. profit, at the benefits pre-tax X was margin Infrastructure

back the IBM level, let full year take the it fourth the me shift and up I’ll the focus Now quarter. to to and

the we’ve own Over changes streamline and digitally and invest go-to-market advance last transform to make and hybrid our to our AI continued year, strategy, portfolio operations. our cloud

needs. and strategy client Our aligned is more to focused portfolio

Arvind us. rates, of based And top on sales this translation growth, growth year constant in Our digit quarters, currency essentially the that. about at to that, so revenue we quarters the primarily about mid-single year revenue will On of growth be demonstrates see far above so currency for the year. behind said, for strengthen. headwind the the continues this Kyndryl our model X-point performance a first three performance spot as And first now dollar year. U.S. of mid-October to now it’s X.X in add points three revenue

mentioned as I profit earlier, As free this and flow cash impacts well.

and billion generate also from up part for free expect A comes profile. we’re at from that about Looking on year. efficiency profit operating and structural to large the capital That’s payments. growth over our wrap $XX last Kyndryl $X of the to working we continue other driving But key cash spin-related flow, improving billion the year. metric,

flow to quarter, of continue while expect Russia We cash the we headwinds, and face our U.S. free performance dollar including strong some of exit the appreciation fourth operations. external in

XXXX, view of terms our segment consistent year. of performance for all In has software been

We continue software in see And we to our with to range, expect from to range for sales margin X pre-tax plus mid-XXs the revenue line digit growth points Kyndryl. in mid-single model still XXXX. X

taking a growth Our year. to great, the for IBM up Consulting revenue has view revenue been mid-teens we’re and rate growth our

encouraging competitive the our for is previous profile year-to-year. a end some exiting about While the expect now range, We operating the to in X% at margin we’re environment, our labor pre-tax margin see low of third a in Consulting Consulting quarter. which still XX% we signs year a up point

as performance, revenue cycle dynamics. Infrastructure Our reflects always, product

launch With points that’s the of the earlier X our X will before revenue level performance Infrastructure from model this the and Kyndryl. above the strong be year, for to year, zXX sales to

We Infrastructure mid-teens. the pre-tax expect in margin

we in an at XX up And specifically spot Kyndryl. of the high quarter. at currency of translation the all-in to our range. increased to currency mid-single-digit the revenue a has Looking we’ll then from reach couple points rates, That’s X expect X X quarter, of fourth remind X-point days end constant revenue of growth At in weeks, fourth to separation ago. anniversary you, I’ll headwind growth the to the current

in sales profit around the margin the to and and expansion. we’ve contribution year-to-year our base, Kyndryl wrapped remain our essentially revenue growth to external will profit While revenue and

first our today’s out we As year forward IBM. enter we look quarter, calendar fourth to closing the of

a January. Patricia, let’s now XXXX provide quarter on Q&A. in our of report we’ll fourth during to go the always, view As earnings

Jim. you, Thank

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

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

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

line open. Your is

my is taking their is you think of in as over going And the really to means forward? perspective here. I’d question. maybe are for but for What investors it revenue Arvind, a terms for How the focusing I impressive what if does and I so the question situation going devein, among then IT especially well of from does macro there numbers, things a Thank markets what that love because in aggregate. Thanks an forward. And you look? macro portfolio love they’ve a anxiety, And about really think, there’s customers spending in how lot are challenging forward budgets from set versus IBM’s different your the guess, perspective. get Would from you, on your they hearing of you. from hearing customers far in IT trends. more your what just up growth the what a long-term could will you are shake helpful it on done going a get rate perspective? sense has be historically Consulting above environment, been to they

you for Amit, the you. and thank both comment Yes. Thank those questions.

and on And One, So the in we and in is going just as your couple answer we backwards, we you portfolio. we going pretty of how demand look growth Europe, BXB. let with about some see you let data at the contextual revenue that forward. double-digit forward? part, First, me on double-digit add growth growth demand double-digit first and a it are saw elements, do the said, strong we Americas. Asia as me feel look if color in But

of got as is but tiny. has weather business, of almost have could no We it’s there say but BXC none, little no, if BXC in the a bit it, element I which business almost

BXB. is one So

theme most productivity. is for of next just a in years, play work that portfolio that enterprises to leveraging last are mission-critical this automation, decade. Second, part AI the I out their technology Asia, very Americas, few want environment. but business. lot for And past, going to half very think largely go the decade, If They we’ve I over it’s is similar. Very least. the next enterprise head a find are the sand. I over put and full remaining the at done Europe, three robust business little months, areas, change actually to invest. I about maybe In into productivity the find areas year that Color. I In in to leveraging think around that are this that, scale our not shouldn’t going think of I we from our areas the

into I data and could doing of But mixture some with of you is in not conversations, of there as business caution the bit and not that inflation, not a we only. the to a put that albeit yet there there. creeping But are in can what Europe into we’d sense context. the be in think me that foolish all be now downturn that prepare let back energy

Europe, of saying X% you’re GDP. global a XX% a growth. still to X% says is have So I ahead a there’s to level ballpark typically X% environment get If Technology a of fine. XX%, all-in. to Western That in that’s to technology Asia, there. Americas, X% Europe, global X% GDP on impact, robust massive impact if you Even

that’s of think the of addressing I are parts with two that that. your question that the we So sort

Arvind. you, Thank

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

Thank you.

with will Bernstein. Toni Sacconaghi come question next from Our

open. is line Your

Yes. Thank you.

could ELA commensurately transaction quarter mainframe, about you cycle terms how in Europe, are you. in transaction context still think separately given is XXXX? saw given which quarter. processing was in in ago. that whether and And comfortable then put the delivering single I not comments processing? And your of also Arvind, digit saw what mid strong percentage growth And a saw Thank strong about You you strong and strength was some really in maybe you XX I’m really you in wondering anticipated days the strong ELAs

were Okay. part to wrap execute. third When of you on value But we single capitalizing confidence operating and picture growth a Arvind When the at performance, Continuing high we at play we’ve ago were played quarter, and in company. in digit is we that XXXX. strategy XXX we’re and entire with positioning cloud hybrid up portfolio getting take hybrid and focused AI very the going today’s about the focused our able pleased is the platform Jim, IBM going profit. generate question up I’ll all regards been IBM, to Arvind can to we’re AI the And we XX now leverage. is demand the clients take to days to obviously on revenue of about the of quarter to look from capitalizing that front. let’s first and Toni, have that the you points be our about falling line IBM back and out this basis in with third a ago. very cloud talked our are days dial we team accelerated which XX revenue instantiate what dollar contribution that what said bottom of

up profit’s Our XX%.

to revenue how consulting And going growth that double mainframe to points And XX X. that double growth on to mainframe Red and to to a came at points within ago. and about the was we talked innovation and about that markets change And X It based. had was way, about with we was going it growth the very to of announced said, strong we the X XX second new up April XX of IBM. across days very question Remember, business. to the of quarter X about Now that. days it how ago when your and in growth three world. guided of Hat out infrastructure, segments quarter years in infrastructure software was in all a of length that play time and we fourth X IBM, our executed in you within profile digit we which pervasive exactly all the about delivered contributed around look a digit second We points delivered across much the at first took seasonality quarter, what our basically broad mainframe, contribution, guidance growth quarter talked and third we major about by of of pretty

So our we feel pretty book of about business. good

over Arvind to turning So, you.

Thanks Yes. Jim.

we are increasing sort to flow we October will questions, each we that model of and be the have we nothing last right mid what cash that address the in over $XX single revenue set digit time. year us period. Turning going from this year about to and is at see we out billion alter that of to had for now and growth a be target talked There said $XX billion we a that

going say to I’m So stay projections that in those place.

for play that we out our with Jim we demand above pointed just and will believe model are reinforced. saying we that Jim As revenue be about then you out will talk XXXX, the and me that heard

first really so third – not much Just typically quarter, just a ELAs and quarter should than little a of and fourth ELA part, the are big more we second third. is be it’s kind the seasonality. normal

little to had bit add you and just color a strong asked start. to what said, Jim mainframe what a give has you of and So hardware

So increases. you capacity would expect that

a that kind with of months why to increases, follow the a capacity there. sometimes expect the processing you And strength into transaction our month, As you sometimes lag, that’s three portfolio. see tiny

you, Thank Okay. Toni.

please. to next go question, Let’s the

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

open. Your line is

growth maybe your talk and the And in that could think parts drivers you in, would top and that the flow the cumulative free be and helpful. that color on Any key of bridging flow you we in Thank other business transactional congrats that conversion? in help can much. I that is endorsed. cash the you the Thank results. that gap? solid Yes. line what largest the in which QX, conversion of pieces you’re if about Arvind, be guys cash Any quarter. about How the rates so just on should What pipeline? would context of would or outside are you that transactional there pipeline of the Jim particularly what seeing of up moving more the step change

remarks. On the So as next a right it in If also Jim. and look the XX points will to to we mid-single now. I are growth is digit transactional say the confidence coming Wamsi, now. But to pipeline, that prepared seeing. business, made see weeks are that model. we We to I from us then couple to yield speak revenue going can’t over his and I’m I our can speak look, opposed That XX me the see about strong indicates gave at the Jim in yield. yield across above what start software to our weeks let come hardware. pipelines strength pipeline reinforce give in The that

So strong the that that is third the think hardware captured the the demand geographies. across that infrastructure very all is and there quarter I growth reflects in business, in

pointed probably overall. like is And across right any goes strong. nine significant you, that then I’ll or before. we change. the to of where market that of to of that piece. opposed strong. as absorbed is seeing But the expect XXX months than puts year, I If will that hope in dollar first remarks at, a And I’ll business and impact that advantage we tends Would in the that the better FX the say, I are not comment. couple having there on possible. strengthening look that’s countries what on Jim impact say just growth overall is now, end biggest expect remain the are Right countries out to into yields another to seeing single a small get an the his some make as pipelines certainly, of a even tell we that based as prepared good takes there I would to this remain good particular now. So I being the I be software,

that growth has as been as converting has success to two CEO you generation. over second taken since know, cash and point, measures Chairman So of key Wamsi this a portfolio our growth and into Arvind free revenue orientation profile, flow sustainable

you billion. as it’s $XX in $XX business. all have billion we remind $X we that, normalize And said to continue out $X that to year-to-year, can about on post-separation when from So, financial of billion the I’ll we guidance first. Kyndryl-related is billion IBM’s the up And maintaining what over flexibility published invest our up baseline activity. everyone

concluded transforming this So already headwinds account. talking me, which kind account into in profit of the and being just we’ve structure One, the about, and external our wind cost this losing account days the continuance And We’ve he that Russia turned and to strengthening as taken our dollar. to of been orderly we take over been the year. XX before into business exit into of spoke is business, high about value takes the we’ve down U.S. second cash. ago, Arvind

a outlook, definitely Now three quarters but into countries we latter, over now. do currencies. I XXX are right we hedging XXX honest, We we’re outlook in the and puts the around business midterm midterm immune. robust be mean, our let’s do that pressure a have it not because program world,

we about not days talked important And of months. do we XXX% hedge ago, Very XX hedge, don’t than As point. XX a second, we out our currencies. more

is currency a cash profit So real to overall. impact in

sourcing Arvind that’s price, the have the take that the to and Now, actions time I that’s provide operational we us put cost business. strategies, within structure, that’s and initiatives productivity hedge to

midterm dollar U.S. a We’ve now, headwind the it got on it’s until in right early So outlook. stabilizes. this

We are completing be we taking are focused the appropriate on let’s but honest, XXXX. actions, all

cash front fourth We’ve We put of XX% $X a do cash big to XXXX, flow. flow, us. very quarter. or That’s from our to cash in billion that free flow free roughly better way got $X free quarter perspective, in did at by million than the of in XXXX we the have about to of of

are got right We’ve we get actions, and to completed the So, on. One, we’ve got going right what headwind/tailwind? action. of our structural Where operational that’s the that focused portfolio. we we’re set

the So the months. get next three behind tailwind continue for to we’ll and Kyndryl that’s all us,

and a And Second, quarter with in solid very third, mainframe capital to driving a the operating get going to profile, cycle that regards of cash pure expect happening working by continue our dynamics with leverage growth higher profile. revenue the our accelerated revenue business. we of operating volume we’re out driving what’s

on And is we we’re dollar’s talk focus So and where completing that’s will at. our at where about in XXXX. what January the

you, Wamsi. Thank Okay.

next the question. Let’s go to

next Stanley. Erik Morgan from question with Woodring Our come will

Your line is open.

for quarter. about business. better expected taking the the up thought thanks I quarter in I than guys, to nice margins really question. the wanted talk Hey held my in Congrats consulting here.

geography? maybe the just where pace you’ve increases, you some had maybe Thanks. on those and elaborate could how? and contracts of the success you found with click or can buy pricing Would dollar where So, buy either keeping where why on repricing Are success, – just some and challenges you strength? and market if in double you’re actions pricing that having

back cloud, Consulting. sure We and our why? hybrid upfront clients’ skills, the in Yes, has to Because part this seeing the We pleased profile we transformations, tip drags integral thesis. January. and what ecosystems, technology. plays digital of cloud let’s IBM scale quarter. you hard were and IBM to an our year all Erik, effect. demand that talking the marketplace an the accelerating compliments about talk and is platform, and remember multiplier talked that team we Well, that entire appreciate It to by demand going and worked Consulting to profile with spear. I’m were invest were question adoption ahead our pulls thank journeys the drives our appreciate driven about It hybrid I you it in about of much. extremely capabilities, dialed to acquisitions, the cloud get very the long, both I It

look But operating along the our Consulting, you said, gross with of XQ year. more environment. coupled G&A when our profiles throughout you with up on out. been pressure that and Software benefits that making streamlined playing much Kyndryl structure, at it go-to-market investment an effective more highly Now, a and post-separation seen now of much But margin are profile focused aligned growing it, model revenue our yielding at pre-tax level high margin a inflationary that look year-to-date, We’ve when with Infrastructure that’s teens. on and because we’ve a streamlined the

worth dollar XQ seeing about of contribution, basis XX at and getting year-to-date margin. we’re points We’re

I those price. around utilization, the about And throughout three year, acquisitions, said Now, quarter. exiting we core third in actions remarks, as prepared talked the we saw shoots green

acquisitions we’re they’re accretive the state where to quarter. fourth margin now, in going on Our steady right a be

of a row, margins utilizations. sign. got has improvement to Second, in That’s that a great we second seasonal from price third, sequential we three higher optimization we up in That pretty quarter. quarter And proposition your our points. the exited in XQ a led XQ quarter into by to And expect, are price quarter challenging Red by Hat, value with the offerings up. way, of always the year-to-year. a the the margins we third for really you that translates Margins expect value application modernization, then And in and in optimization sequentially that hyperscaler price have where partnerships. strategic to would back as and our fourth quarter continue

nice half a accretion quarter XXXX. and fourth margin going out seeing playing fuel to first here that’s We’re of the and that’s

Erik. Thanks,

next the to go Let’s question, please.

question next Cross comes from Credit Suisse. Our with Shannon

is line Your open.

I’m playing wondering more billion how very you think an Thank the made a I’m to and the expect on committed Red acquisition you your and you you’re interest the rate you year, does you, much for you a you do since about, to what Thank balance talked to I during you’ve are as – And basis? capital you what how how about longer-term How but you’ve small perspective, acquisition? taking how year. importantly, almost It’s higher do thinking XX look the maybe sheet for this you, might did obviously, environment about allocation, a thinking know just your you from curious, about my question. acquisitions while been larger Hat.

start let this thing. Shannon, me by

acquisitions rationale First, it’s to not for strategy. so and much understand it’s that important size. let our Number explain our fit to one, our they’ve principles because me got

And AI. our Consulting, which to ecosystem and those Our strategy growth cloud our being hybrid and in add talent.

X,XXX be to end flow. it’s there’s Whether we especially synergy that revenue consulting in be the got did acquisition. talk if and with accretive. that we have if look year, $X about to IBM. it’s that got Two, at. date be to definitely year So with mentioned that Like we to not the second synergy, had in business got and universe we book cash gotten meaning billion first would to the inception not the to done be of that accretive signings limits Jim Red the that that of Hat, about at would or what larger, it’s the going of Three, projects

then criteria, returns there those correct would the So open say is with and that be the criteria for up economic I that larger company. are those valuation would the if is if something that correct

for to we’d like are rates. rates how vehicles also to Now, point to your flex fin raise because acquisition there flex fin say impact, period, overall talked also target we into. of but we but $XX had interest to when on interest vehicles other and the cash, Certainly, the Jim? come have about attractive the billion there multiple on cash over an an raising for are are

as to been add last interest prudent. point the just you on would year, I saw no, Yes, this we’ve rate Shannon, during the environment.

issued billion I out requirements the of have most of $X.XX XXXX think basically already. July, debt. just $X be worth in to We and because in February, for pre-funded in recently we’ve lucky hindsight we now, all in market went to better and and issued part it’s always our billion opportunistic the debt a

taken about down is from So steps largest capital our XXXX maturity is pretty and we feel it think structure. $X.X billion XXXX, feel pretty so our care good tower, pretty in about that. I and that XXXX much about there which good we of,

Thanks Shannon.

question. Let’s go to next the

Keith comes Bachman next Our question with BMO. from

is Your line open.

Hi, perhaps a has I more little Thank services in bit do a many a the could in echo congratulations this think give and strategic a I the which to tougher contribution activities Arvind, unfolding for a that as revenue quarter. but see The was so affirming down was question anticipate you relates and just services. does business at for some currency wanted bit that mentioned signings thanks total look talk M&A year’s you could broader correction. about you Europe? if Jim, next economic about in And if bumpier what of climate? and quarter, particularly signings contribution growth, it to growth, you to the the if you. risk just any my the digit particularly particular, and And you what consulting pretend we mid-single then M&A associated with distinction is the that on you’re economy, the clarification, could in provide back How X% going the software. constant

year-to-year environment Hey, portfolio growth X.X our getting our one-point contribution a at to about Arvind the right and Keith, that, worth then points end XX% grew overall. services of it, and was quarter talk being overall. the take in at I’ll about contribution. currency, When of at rates, Kyndryl roughly take this IBM we X constant that the front look you of actual Really can to inorganic

Turbonomic organic And a basically acquisition. constant we’ve because our being of is Kyndryl, which organic growth So acquisitions. growth very said read of to which as way the strong Underneath software we a of rounded do X wrapped seeing that about end the I in question, well. zero, extremely by all accretion quarter, that to that we’re XX% out of on at points nice worth scale on had acquisitions. And consulting as X level again, all still consulting, kind software of our that, it’s previous of to about that One-point margin stabilized points is we still the of currency, it’s done get points about growth. acquisition, came see

excuse currency, the pretty on now a inorganic the component sustainable basis much overall. right me, is So

turn I over what let’s talk little a just see Before bit underneath Arvind, to it about we signings.

Five remember book-to-bill we year-to-date – high of trailing double-digit still believe growth First it’s maintaining in revenue in months overall. X.XX a book-to-bill. very excess we’re a that’s one of strong contribution. on a solid XX have and up On consecutive the of all, and we a quarters teens

of the really velocity Hat date business. capturing XX now before, our by we that. we’re I’ve way driven we and all up the trailing partnership times strong of all same because partnerships; Red look our translate demand, it’s are XX% application strategic signings billion, don’t alike are small they said the underneath, inception it our many to I XX% So When XX%, strategic revenue the it’s where almost think it’s the do way. $X.X signings see about momentum. but by at and to modernization, not deal months, as

and that’s volume durations row. a mean? quarter backlog yielding digit That fourth And We’re consecutive contribution our our confidence a in revenue look the commit us what down had backlog in We’ve does and deals, realization come for because small quarters the based couple seeing the of that months six it for low-double-digit double when has revenue growth gives to at that period. for we us what out that’s growth. the plays high how business

Yeah.

So thanks Jim.

model or teens, somewhere maybe that digits, use we had sort let the then opportunity midterm the which of year. we’ll we to what has year me you then of this out digits. long-term the said the X% be that talked Keith, into everybody or three-year because was up XXXX But model, high-single-digits. was get that this a of infrastructure just late done will product flat, cycle will X%, from remind grow to and flip it high side was good last So in be October. get year we single in the I we And our consulting, which as the about We had probably it said model in had not that this year about and mid-single laid in our XXXX had so think in to software consulting grow we expect had said

is essential trying all the that AWS I So the Azure of the digital of transformation, able book-to-bill are point SAP, bulk combined term business you’re on to Adobe that clients different CRM, model. us think business consulting nature just our It’s I signings our amongst but very clients will to to and that are cloud cloud, properties maintain with than in our move Look, is be consulting to confidence our it. I fairly shorter ask, not the helping gives some great we our examples. think consulting The others. think to

environment, economy take as to sign we’ve tend that’s forward. next to in properties be well, of this going advantage the as the in out these I move color As massive you course, increase but and digital productivity inflationary then to begin for the them these maybe and of chunks maybe SaaS that projects that well Even sort transformation, just And of is hybrid, tend not bit do an to wrap them help when around we named. cloud, the seen more help people of them that both and already play what even public and doing signings help expect more to year. smaller deliver come long a up stay we year

Thank you, Keith.

one last take Let’s question.

Our last come with Grossman from David will question Stifel.

open. line Your is

a in thing know quarter $XX $XXX to follow million job that, talked remembering and going I And squeezing lot you’re which the free free was covered Jim, wondering of there of guide, last think we’ve about you actions, good if think think you $XXX that the cash get I billion I though, already for I cash right, a exit reoccur. how for if I XXXX the you. summarizing, add very I flow me to year. to I’m Thanks you’ve of FX, Thank flow million ground up one think to done should highlighted from we both. need could which not and of I structural and to just Russia

items, could any to could into so However, chance better two get a baseline, next going those mention last just year? we help you

million humanitarian was profile and Russia that a revenue orderly wind profit continues our $XXX but about free goes at cash one, I Thank the and we overall. think to IBM compliments thanks a about unfortunate about profile decision, business, team April in entire back out right overall. flow really quantified take right David. this you for and have our Yes, year million earlier down When look you now, cash posture the crisis in that a $XXX

As reasons been we $XX went stated. productivity we we’ve I But year, the been taking drive that’s decision, that XXXX have been to about won’t as we’ve right to this which impact the the that billion an knowing operational why that. we yes, of and said is one down knowing taking, actions again, XXXX

be to costs million to free we one. this we number actions to said the XXXX. year. The wildcard that is in of in look overall. at not and XXXX, Point XXXX yes, that’s multiple exit a wrap going you structural us it that north what’s happen why behind linear becomes tailwind flow big the activity two, before stranded number cost, dollar. I’ve getting of times Remember point XXXX. when that’s going you have cash if that XXXX, So plus ROI will of U.S. $XXX XXXX that the on second use want rid the get to One on is That’s

to let’s us actual see over year. as this third you This Now said quarter it I little perspective in year, what’s eight a currency happened between rates. gap put point constant and

that’s $X.X As a had operationally. about EPS that you’ve impact to seen a overcome we’ve by in our and backup about in the it’s $X.XX billion charts, quarter a profit way, revenue

Now over that to the doesn’t again the will devalue dollar extent U.S. time. continue

the are measures. We appropriate taking

We’re about smooth into going We’ve got scenario business. or long models XXXX, us come the buys running talked is to to to and those earnings overcome price, sourcing from a beauty that. but path I it pieces cost now. structure. stress Each And it’s time our testing XXXX the program actions the volatility going and our of to our of are have out right hedging of

from So we we as a talk we We’ll are now XX focused XXXX and means what cash that ago for dollar go U.S. see on days the that. about more where lot forward.

about to Kyndryl, $XX good the way one, going by that thing Health, give IBM. of that very more model of at cash take our last single-digit that, by put of that That our out high $X is or all-in place driven got one delivering out want that the growth in, revenue Now, anniversary two important. come model today’s billion high quarter Watson profit predominantly is I in to offset in by all that is we so us operational billion we fourth of end a representation anniversary weeks is and basically

you portfolio is it’s see basically perspective that Kyndryl; healthy we deliver the the the X.X the contribution the to were reposition a Yes, deliver. quarter, anniversarying that expect Second, at operating fourth gives at we it points free now quarter. margin also year-to-year now flow Why we’re in that fourth leverage in of cash that operating can important? this but going investor

over that, with Patricia. So turn I’ll back to it

you business Okay. and lot I of Thanks color we going a on Q&A quarter how Jim in think think a gave cash of all Jim flow, and the these forward.

up wrap just me call. Let the

last We have our progress out good since strategy really Day laid in October. made we our Investor

again needs through XXXX clients’ forward of the of of performance our I end meet forward we in to our taking to positioned soon. well the speaking year you view are to going all fourth our look in We to quarter you January. and into and look

us to close over Gail the call. it out [ph], let turn to you back

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

may disconnect this time. You at