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. Ma'am, you may begin.

Thank you. This is Patricia Murphy, and I want to welcome you to IBM's third quarter 2020 earnings presentation. I'm here with Arvind Krishna, IBM's Chief Executive Officer, and Jim Cavanaugh, IBM 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 and signings growth at constant currency throughout the presentation. In addition, to provide a view consistent with our go-forward business, while we have wrapped on the majority of the impact of the divestitures in 2019, we'll continue to focus on constant currency growth, adjusting for the divested businesses for 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. Finally, consistent with our last few quarters, IBM's year-over-year revenue, profit, and earnings per share reflect the impact of purchase accounting and other transaction-related impacts associated with the acquisition of Red Hat. So with that, I'll turn the call over to Arvind.

Thanks, Patricia. I'm pleased to be speaking with you again just a week and a half after our strategic update on October 8th. Today, we'll focus on our third quarter performance, which you'll see is unchanged from the preliminary results we announced. But I want to start with a summary of our strategic discussion. We are redefining our future as a hybrid cloud platform and AI company. Over the last few years, we have built a solid foundation for hybrid cloud. With the acceleration of the Red Hat platform adoption and the changes to clients' needs for application versus infrastructure services, we are separating our managed infrastructure services into a new publicly traded company. The result is two market leaders with focused strategies and missions, and improved growth trajectories ibm is the number one hybrid cloud platform and ai company muco will become the number one managed infrastructure services company as separate businesses each can capitalize on the respective missions both will have more agility to focus on their operating and financial models both will have greater freedom to partner with others and both will align their investment and capital structure to their strategic focus areas. All of this will create value for clients and for you, the investors, with an improved financial profile of both companies. Since the announcement, we have had a comprehensive outreach to our clients. In fact, we have spoken to hundreds of our top clients, and I have personally spoken to dozens. The vast majority understand the strategy and are excited about what it means for them, whether they'll be predominantly future IBM clients or NICO clients. Our partners have also had a positive response, as they see this as an opportunity to further strengthen our go-to-market initiatives in the hybrid cloud, data, and AI spaces. For IBM, as we look forward, the case for hybrid cloud is clear. Clients see two and a half times more value in a hybrid cloud approach versus a public only. It's a tremendous opportunity valued at a trillion dollars with most of the enterprise opportunity ahead of us. Our approach is platform centric. It is differentiated by Red Hat OpenShift, which is our market leading open platform, a vast software portfolio, modernize to run cloud-native, and our GBS expertise that drives platform adoption and meets clients where they are on their cloud journeys. Over the coming months, we'll further advance our strategy by taking actions to simplify and optimize our model, increase investments in key areas, and fostering much more of a growth mindset. All of this will contribute to accelerated growth for our company in the future, and we expect to deliver sustainable mid-single-digit revenue growth upon completion of the separation of NUCO. Let me shift to some of the recent progress we have made against our hybrid cloud platform strategy from the perspective of our clients, our ecosystem, and the innovations we're bringing to market. We have great recent examples of clients making large-scale architectural commitments to our hybrid cloud platform. Schlumberger is using our platform to make their E&P environment accessible across any infrastructure that their global clients use, on-premise, private, and public clouds. They'll enable the broader energy community to leverage data analytics and AI to unleash the power of digital innovation in the oil and gas industry. We're also extending our relationship with Delta to transform their talent and modernize their IT environment using Red Hat, Cloud Packs, and leveraging GBS's expertise. They'll operate with greater speed and realize longer-term business benefits. We're continuing to expand our ecosystem. Last week, I talked about how we have added hundreds of partners to drive workloads to our platform, including best-of-breed GSIs, and ISVs. As an example, Ernst & Young is now leveraging our open hybrid cloud platform and AI solutions to help clients transform their businesses. Our teams are also providing joint consulting capabilities to drive business outcomes for clients. Late last week, we announced the expansion of our partnership with ServiceNow to bring the power of Watson AIOps to their market-leading now platform. we're also bringing new innovations to market. I'll highlight just two areas, Red Hat and Quantum. Red Hat extended its open hybrid cloud portfolio with several new technology introductions, including OpenShift virtualization, which enables clients to migrate and run their virtual machines natively within Red Hat OpenShift, and advanced cluster management for Kubernetes, which delivers the industry's most robust multi-cluster, policy-based compliance and application management system. These capabilities are furthering our clients' abilities to build once deployed anywhere with a hybrid cloud architecture. In quantum, we announced our roadmap to reach 1,000 plus qubits by 2023. The roadmap aims to take today's noisy, small-scale devices towards the million-plus qubit devices of the future. This kind of progress is essential to help industry and research organizations tackle important real-world problems that even today's most powerful classical computers cannot tackle. And in making our roadmap public, we are committing to meet a series of aggressive benchmarks that will help our company maintain its leadership in quantum computing and place our clients on the path to groundbreaking achievements. So, we've made good progress with clients, our ecosystem, and innovation. Regarding today's environment, clients continue to balance short-term challenges and opportunities for transformation. In the short term, they are focused on operational stability and cash preservation. We see this especially in our larger software license transactions and delays in some services projects. But more of my conversations with CEOs are around how they become digital businesses. How do they tap into open source innovation? How can they securely deploy and manage their data and applications across various clouds? That's what we call hybrid cloud. We see this in the continued momentum in Red Hat, and the large client engagements that enable a journey to cloud, leveraging both OpenShift and application modernization. Now, I'll turn it over to Jim Cavanaugh, who's going to take you through the results, and then we'll come back at the end for Q&A.