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'd like to welcome you to IBM's fourth quarter 2021 earnings presentation. I'm here with Arvind Krishna, IBM's Chairman and 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. I'll remind you the separation of our Managed Infrastructure Services business, Kendrel, was completed on November the 3rd. As a result, our income statement is presented on a continuing operations basis. Our results also reflect the incremental revenue from the new commercial relationship with Kendrel. Because this provides a one-time lift to our growth, we will provide the contribution to our revenue growth for the next year. In the spirit of providing additional information to investors, our presentation also includes non-GAAP measures. For example, all of our references to revenue and signings growth are at constant currency. 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, 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. So with that, I'll turn the call over to Arvind.

Thank you, Patricia, and thanks to all of you for joining us today. Our fourth quarter results reinforce our confidence in our strategy and model. With solid revenue growth, we are on track to the mid single digit trajectory we had laid out in our investor briefing last October. The trend we see is clear. Across industries, clients see technology as a major source of competitive advantage. They realize that powerful technologies embedded at the heart of their business can lead to seismic shifts in the way they create value. This reality of technology being about a lot more than cost will persist and explains why clients are eager to leverage hybrid cloud and artificial intelligence to move their business forward. Our fourth quarter results illustrate the strong client demand we see in the marketplace for our technology and consulting. IBM Consulting again had double-digit revenue growth as our ecosystem play continues to gain momentum. Software revenue growth reflects strength in Red Hat and our automation offerings. Infrastructure had a good quarter, especially with regards to IBM Z and storage. Over the last year and a half, we have taken a series of actions to execute our hybrid cloud and AI strategy and improve our revenue profile, optimizing our portfolio, increasing investments, expanding our ecosystem and simplifying our go-to-market. As we start to yield benefits from these actions, our constant currency performance improved through 2021. Our most significant portfolio action was the separation of Kindrel. You'll remember we had initially expected the spin by the end of the year and we completed it in early November. As we discuss our results, we'll focus on the new basis and structure that encompasses today's IBM. As we look to 2022, we expect mid single digit revenue growth before Kindle and currency and 10 to 10 and a half billion dollars of free cash flow for the year. Both of these are consistent with our medium term model. Let me now spend a few minutes on what we are seeing in the market, how we address it and the progress we are making. We are seeing high demand for our capabilities in several areas. Clients are eager to automate as many business tasks as possible, especially given the new employee demographics. This dynamic is likely to play out over the long term. They are also using AI and predictive capabilities to mitigate friction in their supply chains. Cybersecurity remains a major area of concern as the cost of cybercrime already in the billions of dollars, rises each year. As clients deal with these challenges and opportunities, they're looking for a partner they can trust and who has a proven track record in bringing about strategic transformation projects. This is why our strategy is focused on helping our clients leverage the power of hybrid cloud and AI. Hybrid cloud is about providing a platform that can straddle multiple public clouds, private clouds, and as a service properties that our clients typically have. Our approach is platform-centric, and the platform we have built is open, secure, and flexible. And it provides a solid base for the multiplier effect across software and services for IBM and our ecosystem partners. It starts with Red Hat, which offers clients unique software capabilities based on open source innovation. Our software, which has been optimized for that platform, helps our clients apply AI, automation, and security to transform and improve their business workflows. Our consultants deliver deep business expertise and they co-create with our clients to advance their digital transformation journeys. And our infrastructure allows clients to take full advantage of an extended hybrid cloud environment. This strategy along with the differentiated capabilities you bring to bear to our clients, have led to an increase in platform adoption and new business opportunities across the stack. We now have more than 3,800 hybrid cloud platform clients, which is up 1,000 clients from this time last year. IBM Consulting continues to help drive platform adoption with about 700 Red Hat engagements for the year. Clients like Dun & Bradstreet, National Grid, AIB, and Volkswagen have all recently chosen IBM's broad hybrid cloud and AI capabilities to transform their processes and move their business forward. As I look back on the year, we had good success in broadening our ecosystem to drive platform adoption and to better respond to client needs. During our investor briefing, we talked about strategic partnerships that will yield billion-dollar businesses within IBM Consulting. As we move towards that, we had more than 50% revenue growth this year in partnerships with AWS, Azure, and Salesforce. This adds to the strong strategic partnerships we have with others such as SAP, Oracle, and Adobe. We're continuing to broaden our ecosystem reach. In the fourth quarter, we announced an expansion of our strategic partnership with Salesforce to run MuleSoft integration software on Red Hat OpenShift. We also created a host of new consulting services with SAP to help clients accelerate their journey to S4 HANA. Together with Deloitte, we announced Dapper, an AI-enabled managed analytics solution. And we have expanded our partnership with EY to help organizations leverage hybrid cloud, AI, and automation capabilities to transform HR operations. We have also recently announced a host of new strategic partnerships with Cisco, Palo Alto Networks, and TELUS, all focused on the deployment of 5G edge and network automation capabilities. During 2021, we have been making changes to increase our focus and agility. and build a stronger client-centric culture. This includes putting experiential selling, client engineering, and co-creation at the heart of our client engagement model. We have completed thousands of IBM Garage engagements, and today we have nearly 3,000 active engagements. We've invested in hundreds of customer success managers to help clients capture more value from our solutions. And we have upgraded our skills with fewer generalists and more technical specialists. This is resonating well with our clients and is starting to contribute to our performance. The most important metric, of course, is revenue growth. But we are also pleased to see our client renewal rates increasing and our recurring revenue base growing. We are starting to see signs of sales productivity improvements with average productivity per technology seller increasing from the first to the second half. At the same time, innovations that matter to our clients remain a constant focus, and our teams have worked hard to deliver a series of important innovations in the past quarter. Starting with AI, we added new natural language processing enhancements to Watson Discovery. We're also combining and integrating products, such as Turbonomic, Instana, and Watson AIOps, to offer a complete set of AI-powered automation software to address the significant demand. This quarter, Red Hat announced that the Ansible automation platform is now available on Microsoft Azure, bringing more flexibility to clients in how they adopt automation. In partnership with Samsung Electronics, IBM announced a breakthrough that reorients how transistors are built upon the surface of a chip to enable tremendous increases in energy density. In quantum, we unveiled Eagle, a 127 qubit quantum processor. This is the first quantum chip that breaks the 100 qubit barrier and represents a key milestone on our path towards building 1,000 qubit processor in 2023. While organic innovations are important, we continue to acquire companies that complement and strengthen our portfolio. We made five acquisitions in the fourth quarter and a total of 15 acquisitions in 2021. Two weeks ago, we announced the acquisition of Envisi. Many consumers are willing to pay more for products that are made by companies that are more environmentally sustainable. As the world continues to move towards a more circular economy, what clients need is the ability to manage and measure their progress. Envizi's capabilities complement our own and help us respond to that client demand. Sustainability is important across a number of stakeholder groups, including clients, employees, and investors. We're continuing to make good progress and are particularly proud of our diversity and inclusion goals and our ability to attract and retain talent. Our efforts were recently recognized by Just Capital who named IBM as one of America's most just companies. Let me now close by emphasizing, once again, how our fourth quarter results strengthen the conviction that we have in our ability to deliver our model of mid-single-digit revenue growth. Jim will take you through the fourth quarter and then provide more color in 2022. Jim, over to you.