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, IBM's Vice President, Investor Relations. Ma'am, you may begin.

Thank you. I'd like to welcome you to IBM's second quarter 2023 earnings presentation. I'm here today 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 certain 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, 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. So with that, I'll turn the call over to Arvind.

Thank you for being here. Our second quarter results reflect continued solid execution of our hybrid cloud and AI strategy. We again had strength in our growth vectors of software and consulting and solid cash generation consistent with our financial model. Clients and partners continue to view technology as a source of competitive advantage. Clients turn to us to speed up their transformation journeys, modernize applications, and optimize their business workflows. At the same time, they continue to prioritize projects that focus on productivity and deliver quick time to value. To seize this opportunity, we are bringing new innovations to market, expanding strategic partnerships, and making investments in targeted growth markets while unlocking value through our productivity initiatives. All of this gives us confidence in our ability to achieve our full year expectations for revenue and free cash flow, which remain our two primary areas of focus. We have made progress in our strategy around hybrid cloud and AI, the two key drivers of business innovation. Hybrid cloud is the most widespread form of IT architecture. Red Hat OpenShift, our leading container platform based on open source innovations, plays a crucial role in making this possible along with IBM software and infrastructure. Our consultants use their technical and business knowledge to speed up clients' digital transformation journeys and help drive adoption of our technology platforms. Our broad ecosystem of partners amplifies our reach and ability to meet client demand. Let me highlight a few collaborations from this past quarter that take advantage of our platform-centric approach. We are helping Air Canada improve its digital footprint, including their website, mobile application, and loyalty program. Using a hybrid cloud approach helps Air Canada better connect and tap into their commercial, operational, and financial data. With Diageo, IBM Consulting embarked on a large global digital transformation to improve customer satisfaction, optimize business workflows, and enhance its financial performance reporting capabilities. We also forged a strategic partnership with Nokia, where Red Hat OpenShift becomes the preferred platform provider to Nokia's core network applications business. This past quarter, we made strategic moves to bolster our hybrid cloud and AI capabilities with the announcement of our plans to acquire Apptio, which offers a virtual command center for CEOs, CFOs, and CIOs to manage their technology investments. AppDeal's offerings, combined with IBM's IT automation software and our AI capabilities, will give clients the most comprehensive approach to optimize their IT environments. AI is a transformative technology that has the potential to unlock tremendous business value. According to a recent McKinsey study, AI could add up to $4.4 trillion annually to the global economy. Our focus is on enterprise AI designed to address these opportunities and solve business problems. The list of use cases is long and includes IT operations, code generation, improved automation, customer service, augmenting HR, predictive maintenance, financial forecasting, fraud detection, compliance monitoring, security, sales, risk management, and supply chain, amongst others. AI is being infused into our software products. We are already building products that address specific enterprise use cases, such as digital labor with Watson Orchestrate, customer service with Watson Assistant, and code generation with Watson Code Assistant. At our Think Conference in May, we announced Watson X, our enterprise-ready AI and data platform to help clients and partners capitalize on the AI opportunity. Watson X. delivers the value of foundation models to the enterprise, enabling them to be more productive. We began to roll out WatsonX a little over a week ago, and we are excited by the client response. To date, the platform has been shaped by more than 150 businesses across industries, from telco to banking. Businesses around the world are excited about tapping foundation models and machine learning in one place with their own data to accelerate generative AI workloads. For example, Samsung is exploring generative AI to deliver unprecedented innovation for clients. Citi is pursuing the potential use of large language models for connecting controls to internal processes. NatWest is embedding Watson X into its chatbot to improve customer experience. And SAP is integrating IBM Watson AI into their solutions. IBM is also working with an expanding ecosystem of partners to co-create and innovate across industries and use cases, from space to sports, including work with NASA to build the first foundation model for analyzing geospatial data, and Wimbledon, where Watson X was used to produce tennis commentary. Large language models are a step change in the evolution of AI, with more than 80% of enterprises exploring their use. We believe the opportunity for large language models for enterprises is immense, given the existing amount of business data. This includes sensor data, chemistry data, materials data, geospatial data, code, and of course, speech. Because enterprise AI draws from both public and private data, it is more effectively trained when companies adopt a hybrid cloud approach. Enterprise AI can also be based on multiple models including public, private, and open source. Our Watson X platform takes into account this reality and is differentiated in a few important ways. For instance, instead of relying on a single model, Watson X enables companies to leverage the best models to meet their needs, whether they're open source technologies, IBM's models, or those co-created with us. Another fundamental aspect of Watson X is trust. ensuring transparency and bias-free models. In addition, beyond offering companies the capability to tap into existing AI models, IBM empowers them to create their own. To help clients on this journey, we have over 20,000 data and AI consultants and recently launched our new Center of Excellence for Generative AI, already staffed with more than 1,000 consultants with specialized generative AI expertise. The investments we are making in products and skills will help us to seize the AI opportunity. Our path is clear. In the same way we built a consulting practice around Red Hat's hybrid cloud platform that is now measured in the billions of dollars, we will do the same with AI. And just like OpenShift is the technology platform at the heart of our hybrid cloud capabilities, Watson X will be the core technology platform for our AI capabilities. Watson X is just one of many new technology innovations. Shortly after previewing Watson X at our Think Conference, at the Red Hat Summit, we introduced OpenShift AI, which is a unified solution to train, serve, monitor, and manage the lifecycle of AI models and applications. We also unveiled IBM Hybrid Cloud Mesh, a SaaS solution that streamlines application-centric connectivity for edge, hybrid, and multi-cloud environments. To help clients with their sustainability agendas, we launched our AI-powered cloud-based tool that helps clients track their greenhouse gas emissions for cloud workloads. And as an example of how we continue to push the boundaries of innovation, IBM recently demonstrated using error mitigating techniques, quantum computers can produce results at a scale of 100 plus qubits. This is a significant breakthrough. that firmly puts us on a path towards building practical quantum computers that can solve hard problems in areas such as risk, finance, and materials. Let me conclude by reiterating our confidence in our strategy and execution. It is clear that the work we have done to better align IBM to the needs of our clients is paying off. The momentum in our business and continued focus on productivity position us to achieve our full year expectations and deliver sustainable revenue and free cash flow growth. With that, I would like to hand it over to Jim who will delve deeper into our performance and expectations.