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 first quarter 2022 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. To provide additional information to our investors, our presentation 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. With that, I'll turn the call over to Arvind.

Thank you, Patricia, and thanks to all of you for joining us today. Our first quarter results reflect the changes we have made to position our business for the future. This solid start to the year reinforces our confidence in our strategy, and we now see revenue growth for 2022 at the high end of our mid-single-digit model. What we are hearing from clients is clear. Technology has become a fundamental source of competitive advantage. It is at the very center of how businesses scale and is no longer perceived primarily as a way to cut costs. This is especially true in our current environment. Harnessing the power of technologies such as hybrid cloud and AI remains essential as our clients face a number of strategic challenges and opportunities, whether it's competing for talent, supply chain issues, inflation, cybersecurity, or geopolitical instability. We continue to see a strong demand environment for both technology and consulting as we help our clients respond to these issues. Over the last two years, we have been optimizing our portfolio, expanding our ecosystem, and simplifying our go-to-market to capture this demand. This quarter, we again had double-digit revenue growth in consulting, and software growth reflects solid performance across the portfolio. Our infrastructure business, as always, reflects product cycle dynamics. Our revenue performance this quarter is a strong indication that our focus, our investments, and our actions are paying off. Before we go further, let me say a few words about the war in Ukraine. We are first and foremost focused on the safety and security of our employees. IBM is providing help, including relocation assistance and financial support to IBMers in the region and matching donations from our employees around the world to nonprofits. In terms of the business impact from Russia, Jim will quantify, but I'll say the impact is measurable but not large. Let me now turn to the progress we are making when it comes to our hybrid cloud and AI strategies. Hybrid cloud is all about providing a platform that can straddle multiple public clouds, private clouds, and on-premise properties that our clients typically have. The platform we have built is open, secure, and flexible. At its core, it is based on Red Hat, which gives clients powerful software capabilities based on open source innovation. Our software has been optimized for that platform and helps our clients apply AI, automation, and security to make their business work better. Our global team of consultants offers deep business expertise. They do this by co-creating with clients and finding ways to harness the power of technology to accelerate their digital transformation journey. Our infrastructure allows clients to take full advantage of an extended hybrid cloud environment. This platform-centric strategy is producing solid results. We have more than 4,000 hybrid cloud platform clients, including 200 added in the first quarter. This gives us two avenues of growth, from the incremental number of clients, but more importantly, it allows us to expand our software consulting and infrastructure footprint at these clients. Clients such as Charles Schwab, Discover Financial, and the U.S. Department of Education have all recently chosen IBM's hybrid cloud capabilities to digitally transform and build new and differentiated experiences and services. Clients also turn to IBM's AI capabilities to move their employees to higher-value tasks and improve their customer experiences. For instance, IBM is now working with McDonald's to pilot an automated drive-through experience with Watson orders. In addition, TD Securities is using IBM's AI-powered virtual assistant in support of their precious metals digital store. We were recently recognized in this area as a leader in a Gartner Magic Quadrant. These highlight our ability to drive innovation in natural language processing and bring these new capabilities to clients. An important element of our platform strategy is our partner ecosystem, where we continue to gain momentum. We see this in IBM Consulting, where signings with our ecosystem partners were up more than 50% to $2 billion this quarter. In the first quarter, we continued to broaden our ecosystem. We announced an expansion of our strategic partnership with SAP, serving as SAP's Rise Premium Partner to help clients move workloads to the cloud. With Adobe, we announced a significant expansion of our partnership around the use of AI-powered weather data on the Adobe Experience platform. We are collaborating with Worley and ABB to build a digitally enabled solution that will help energy companies build and operate green hydrogen facilities more efficiently and at scale. We also signed an agreement to join the UAE's network of Industry 4.0 champions, a major public-private partnership designed to accelerate the digital transformation of the country's industrial sector. Within IBM, we are making significant changes to the way we work to build a client-centric culture based on technical excellence. Our new client engagement model based on experiential selling, client engineering, and co-creation is strongly resonating among clients. Over the last few quarters, sales productivity is rising, renewal rates are increasing, and recurring revenue is growing. While we are focused on meeting the needs of clients today, we continue to shape the technologies of tomorrow. Most recently, we announced the IBM Z16 platform in early April. Z16 is designed for cloud-native development, cybersecurity resilience, and includes an on-chip AI accelerator. This allows clients to reduce fraud within real-time transactions. The Z16 exemplifies our ability to drive critical innovations to a platform that remains essential to the world's economy. At the same time, we are bullish on the immense potential that automation represents. We firmly believe that our AIOps capabilities are poised to seize this significant opportunity. In the last quarter, we announced a new AIOps solution in collaboration with Flexera that is designed to automate software license compliance. Quantum is another example of our commitment to advance the fundamental science of computing. By deploying the world's first 127 qubit processors, we are the only company to have an actual operational computer that is available on our cloud. Companies and governments around the world are taking steps to prepare for Quantum. As an example, we have recently forged new partnerships with HSBC and the government of Quebec. Delivering organic innovation remains an important and constant focus. At the same time, we continue to make acquisitions to strengthen our portfolio and add value to our clients. In line with this thinking, we completed three acquisitions in the first quarter, Envisi, New Desic, and Sentaka. Clients, partners, employees, and investors are placing a premium on ESG. As the world moves towards a more circular and sustainable economy, clients need help on their journey. That is why we recently launched the IBM Sustainability Accelerator, a social impact program that applies IBM technology and consulting to help populations that are vulnerable to environmental threats. This is just one of the many efforts we have made around ESG, which you can see in IBM Impact. our first integrated ESG report that we released last week. I will wrap up by saying the results you're seeing this quarter are a direct reflection of our ability to execute against our strategy. Each quarter, we continue to strengthen our portfolio, expand our Puerto Rico system, and drive productivity and simplification through the business. IBM is now a very different company. We have, in effect, changed our company's trajectory. And while much remains to be done, we are beginning to reap the rewards of our hard-earned efforts, and we are confident in our trajectory for the year. Now, let me hand it over to Jim, who will share the details of the quarter and our expectations with you.