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 third quarter 2022 earnings presentation. I'm here with Arvind Krishna. IBM's Chairman and 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. To provide additional information to our investors, our presentation includes certain non-GAAP measures. For example, all of our references to revenue growth are at constant currency. We have provided reconciliation charts for these and other non-GAAP measures at the end of the presentation, which is posted to our investor website. 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 for joining us today. The results we delivered in the third quarter reflect a continued focus on the execution of our strategy with over $14 billion of revenue and strong growth across the portfolio. Technology remains a fundamental source of competitive advantage, and we continue to see solid demand for our hybrid cloud and AI solutions. Continued double-digit revenue growth in IBM Consulting, capturing client demand for digital transformations. Software revenue performance was also strong with growth across all categories. And our infrastructure business had another high growth quarter in both Z-systems and distributed infrastructure. Our revenue strength was broad-based geographically as well. When I talk with clients, It's clear there's a real opportunity to help businesses leverage technology in today's environments. Clients are dealing with everything from inflation to demographic shifts, from supply chain bottlenecks to sustainability efforts. By deploying powerful hybrid cloud and AI technologies, IBM is helping businesses seize new opportunities, overcome today's challenges, and emerge stronger. We too are building a stronger company that is closely aligned to the needs of our clients. In line with our hybrid cloud and AI strategy, we have continued to focus our portfolio, invest in our offerings, technical talent, and ecosystem, and streamline our go-to-market model. With strong performance through the first three quarters, we are taking up our revenue expectations for the year and now expect 2022 revenue above our mid-single-digit model. Let me now turn to the progress we are making in the execution of our strategy. Our point of view is clear. Hybrid cloud and AI are the two most transformational enterprise technologies of our time. Hybrid cloud is already becoming the dominant architecture for enterprise. According to a recent survey by the Harris Poll, 77% of businesses surveyed said they have adopted hybrid cloud for their organizations. with data located across multiple clouds on premise or at the edge. Hybrid cloud is about offering clients a platform that can drive value across these different environments. Our platform, based on Red Hat, allows our clients to consume software driven by open source innovation. IBM's software has been optimized to run on that platform and includes advanced data and AI, automation, and security capabilities. Our consultants offer deep business expertise and co-create with clients to accelerate their digital transformation journeys. And our infrastructure allows clients to take full advantage of a hybrid cloud environment. Our platform-centric strategy continues to have good momentum, adding a couple of hundred hybrid cloud platform clients in the third quarter. We see more and more clients consuming across our portfolio of software, consulting, and infrastructure capabilities. This quarter, clients such as Bank of America, Arti Airtel, and Samsung Electronics have chosen IBM to realize the full potential of a hybrid cloud computing model. Let me now say a few words about our AI capabilities. As demographic shifts continue to add pressure to modern economies, coupled with wage inflation, companies are eager to deploy AI and automation capabilities at scale to boost their levels of productivity. That is what IBM is helping companies bring to bear. In the context of enterprise, we are seeing four main use cases emerge. AI to interact and converse, AI to automate IT processes, AI to extract knowledge and insights, and finally AI to automate business workflows such as HR, supply chains, and financial reporting. We are working to bring these capabilities to clients across all industries. For instance, this quarter, IBM Consulting partnered with the U.S. Department of Veterans Affairs to automate business workflows related to the delivery of pension benefits. This helps free up valuable time of VA staff and speed up the processing of claims made by the veterans most in need. Our partner ecosystem is a crucial element of our strategy. Each quarter, we continue to expand the work we do with partners to serve our joint clients. For instance, we recently announced an expansion of our partnership with VMware to help clients in regulated industries more easily move workloads to the cloud, with IBM Consulting now serving as a GSI partner for VMware. We announced that Red Hat and Dell are launching a set of containerized solutions aimed at simplifying the management of multi-cloud environments on-premise. Gartner predicts that by 2026, 90% of organizations will use containers. These actions represent another step in our efforts to seize this opportunity through ecosystem relationships and our technology offerings. We are actively working to introduce new innovations and shape the technologies of the future. Most recently, we unveiled the next generation of our Linux One server. a Linux and Kubernetes-based platform designed to support thousands of workloads within the footprint of a single system. As an example, Citibank is hosting MongoDB on IBM Linux One, leveraging the platform's security, resiliency, and elastic capacity, and helping Citi lower its overall carbon footprint. We also continue to make progress in quantum computing, We remain on track towards our goal of building a 1,000-cubic system by 2023. To advance the security of our communication networks, IBM, alongside Vodafone, recently joined the GSMA's Post-Quantum Telco Network Task Force. This task force aims to introduce a framework for the telco industry to adopt new quantum-safe approaches. Complementing our organic innovation, we recently acquired Dialexa, This brings our total number of acquisitions this year to seven, adding new capabilities in areas like hybrid cloud services, security, data observability, and sustainability. As the world takes on the challenge of sustainability and building a more circular economy, IBM has been building a portfolio of solutions to help companies make progress on this journey. This quarter, we received recognition highlighting our sustainability efforts. The analyst firm HFS Research and Forbes both recognize IBM for its capabilities in the area of sustainability, including Envisi and our environmental intelligence suite software. Let me conclude by reminding you that last October and just prior to the separation of Kindrel, we held our investor briefing, laying out priorities for our portfolio and growth. Over the last four quarters, we have driven constant currency revenue growth at or above our mid-single-digit model with solid free cash flow. And while there is always more to do, we are pleased with our first year's progress. As we look forward, we remain confident in our strategy and execution and feel we are well positioned to address today's client needs. Let me now turn it over to Jim, who will provide more details on the quarter and and our expectations for the balance of the year. Thanks, Arvind.