International Business Machines Corporation

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. Patricia Murphy with IBM. Now you may begin.

Thank you. This is Patricia Murphy, Vice President of Investor Relations for IBM, and I want to welcome you to our first quarter 2020 earnings presentation. I'm here with Arvind Krishna, IBM's Chief Executive Officer, and Jim Cavanaugh, IBM's Senior Vice President and Chief Financial Officer. We'll post today's prepared remarks on the IBM Investor website within a couple of hours, and a replay will be available by this time tomorrow. Some comments made in this presentation may be considered forward-looking under the Private Securities Litigation Reform Act of 1995. These statements involve factors that could cause our actual results to differ materially. Additional information about these factors is included in the company's SEC filings. Our presentation also includes non-GAAP measures to provide additional information to investors. For example, we present revenue growth at constant currency throughout the presentation. In addition, to provide a view consistent with our go-forward business, we'll focus on constant currency growth, adjusting for the divested businesses to the impacted lines of total revenue, cloud, and our geographic performance. We have provided reconciliation charts for these and other non-GAAP measures at the end of the presentation and in the 8K submitted to the SEC. I'd like to make two other comments regarding this quarter's presentation. First, consistent with our last two quarters, IBM's revenue, profit, and earnings per share reflect the impact of purchase accounting and other transaction-related adjustments associated with the acquisition of Red Hat. These adjustments and charges are primarily non-cash. Second, our segment structure for 2020 remains consistent with 2019. So at the beginning of this year, we realigned a couple of offerings between segments, resulting in very modest adjustments. Our results reflect this realignment, and we're providing a view of first quarter 2019 on that recast basis in today's supplemental slides, and two years of historical recast data on our website. So with that, I'll turn the call over to Arvind.

Hello, everyone. As you all know, we are in the midst of an unprecedented global public health crisis. I'd like to pause for a moment and say that my heart goes out to all those dealing with COVID-19. One of the first commitments I made was to be transparent and open, not just with our employees and our clients and partners, but with our investment community as well. In that spirit, I will participate, not just today, but in earnings calls from now on. There are a few topics I'd like to cover with you today. First, I'll revisit areas I've talked about. Second, I'll tell you about what we've accomplished in the last two weeks. And finally, I'll tell you about areas I intend to focus on in the near future, and then I'll quickly touch upon our Q1 results. Let's start with the areas I've talked about. I have told our teams it is essential that we deepen our understanding of our clients' journey to hybrid cloud and AI, which will result in hybrid cloud as the fourth platform. We remain obsessed with continually delighting clients, and we further establish IBM as the gold standard for good tech. All these are underpinned by a culture that forces growth and an entrepreneurial mindset. I see these as our collective priorities. I'll move on to what's been done in the last few weeks. Despite the challenges we are facing as a result of the global crisis, we have remained steadfast in our commitment to employees, clients, and society at large. More than 95% of our 350,000 IBMers are working remotely now. In addition, about 8,000 of them remain at essential sites to carry out mission critical work. As our clients adjust to this new normal, they need a partner they can trust. IBM is that partner. This isn't just about helping our clients navigate the crisis, but to ensure that they emerge stronger and more resilient. To that end, we have taken concrete steps to bundle existing offerings to address the shifting needs of clients, such as leveraging hybrid cloud, using AI for automation, and enabling remote work. Another area we've been focusing on has been to mobilize IBM and IBMers to help with the global battle against COVID-19. Here are some examples. The computing power. over 360 paraflops that we have helped convene for researchers, the Weather Channel's COVID-19 county-by-county map, which saw more than 40 million visits in the first week of launch, the AI assistance that can answer citizens' questions about COVID-19, 21 of them live today and nearly 90 being rolled out, and the educational resources available to anyone, anywhere. We are doing great work helping the city of New York and are delivering 300,000 tablets with educational software and free cellular data connections that can help students learn remotely. When we add this all up, we have done the math. In just a few weeks, we have already committed over $200 million in terms of contribution and volunteer time. I'm extremely proud of IBM's response to COVID-19. Now I want to tell you about some areas of focus for the near future. I want to be clear, the ultimate outcome that I am absolutely committed to is growth for our company as we emerge from the pandemic. A key area of focus is to ensure that IBM leads in the two major transformational journeys our clients are on, cloud and AI. IBM has already built three enduring platforms, mainframe, services, and middleware. The fourth one is hybrid cloud. Clients, however, need more than a platform. They need a deep industry expertise. This is why the services that clients rely on to build and manage the hybrid cloud platform is a massive opportunity for IBM. It's nearly half of the $1.2 trillion hybrid cloud opportunity. IBM together with Red Hat, have unique sources of competitive advantage we can leverage to win the architectural battle for cloud. These are open source and security leadership, our deep expertise and trust, but also the fact that we give clients the unique ability to build mission-critical applications once and run them anywhere. Together with Red Hat, we are establishing Linux, containers, and Kubernetes as the new standard. This is winning the architectural battle for hybrid plugs. Let's talk a little bit on how we take this to clients. I want IBMers to lead with a more technical approach. I want our teams to showcase the value of our solutions as early as possible. Likewise, there must be a relentless focus on quality. Our products must speak for themselves in terms of user experience, design, and ease of use. My approach is straightforward. I am going to focus on growing the value of the company. This includes better aligning our portfolio around hybrid data and AI to meet the evolving needs of the market. We will continue investing, including acquisitions. As you have seen, we have divested parts of software and services that did not align with our focus areas. This will continue. The past few weeks have catapulted us into the world of virtual selling and remote delivery. These entail new ways of working. This is a reminder we should always be asking ourselves, is there a better way to do this? If you don't question why you're doing things, you'll never evolve into something better. What's clear is our confidence in our strategy and our portfolio, which is focused on hybrid cloud and AI. Before turning to Jim, I want to comment on our results. In the first quarter, we had modest revenue growth. That's net of currency and divestitures. We entered the quarter in a good position with momentum from the end of last year. However, in the last few weeks, we faced a shift in client priorities towards the preservation of capital. This impacted software disproportionately, and Jim will comment more on this later. The other parts of our business maintained modest momentum. We're entering this challenging environment from a relative position of strength. Our clients are enterprises that run the most essential processes of the world. Our balance sheet is strong, and Jim is going to take you through that. I believe that what we are going through today with the shift to remote work, automation, application modernization, will accelerate our client shift to hybrid cloud. This gives me immense confidence in our future. So, I will turn it over to Jim to take you through the quarter, and then we'll come back at the end for Q&A.