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 Olympia McNerney, IBM's Global Head of Investor Relations. Olympia, you may begin.

Thank you. I'd like to welcome you to IBM's third quarter 2024 earnings presentation. I'm Olympia McNerney, and I'm here today with Arvind Krishna, IBM's Chairman, President, 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 provided reconciliation charts for these and other non-GAAP financial 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 joining us today. Let me start by discussing the quarter before I get into more detail on the execution of our strategy. We delivered double-digit revenue growth in software with a re-acceleration in Red Hat and continued strength in transaction processing. Infrastructure reflects product cycle dynamics with Z16 well ahead of prior cycles, highlighting customer adoption and continued reliance on the mainframe. In consulting, we continue to navigate an uncertain macro environment with results at the lower end of our expectations. We generated strong operating profitability and the highest levels of first nine months cash generation in many years, while overall revenue performance was mixed. We continue to reposition our portfolio towards a higher growth, higher margin business that is well positioned to address client needs around hybrid cloud and artificial intelligence. I'll start with a few thoughts on the macroeconomic environment. Technology spending remains strong. Businesses view technology as a source of competitive advantage, allowing them to scale operations, improve productivity, and drive growth. However, a pause in discretionary spending is impacting our consulting business. This is due to economic uncertainty, which stems from several temporary factors, including geopolitical issues, upcoming elections, and the changing landscape of interest rates and inflation levels. The consulting market remains dynamic with significant opportunity as clients prepare for AI. Overall, we are confident in our business and our ability to capture these opportunities. Now turning to our performance. Software is nearly 45% of our total revenue, up from the high 20s in 2018, a testament to our focus on organic innovation and repositioning our portfolio. You can see this in our quarterly results as we delivered strong and accelerating software revenue growth of 10%, including Red Hat at 14%, seven points of organic growth, and strength across our key platforms. Software segment profit margin was about 30%. Our recurring revenue base, which is about 80% of annual software revenue, continues to deliver strong growth. ARR for hybrid platform and solutions now stands at $14.9 billion, up 11% year-over-year. This quarter marks the five-year anniversary of our acquisition of Red Hat, and I am proud of our accomplishments together. Since IBM announced the acquisition, Red Hat revenue has grown to approximately $6.5 billion, doubling in size and delivering a mid-teens CAGR. OpenShift scaled from about $100 million in ARR to 1.3 billion, expanding more than 10 times. Red Hat has also continued to diversify its global footprint, expanding into many new countries since acquisition. We continue to drive innovation, announcing new capabilities, including Ansible 2.5, RHEL AI, and OpenShift AI. Red Hat was also named a leader for the second consecutive year in the 2024 Gartner Magic Quadrant for Container Management. We continue to gain traction in enterprise AI. Our book of business related to generative AI is now over $3 billion inception to date, up more than $1 billion quarter over quarter. The mix is roughly 1 5th software and 4 5th consulting signings. This performance has placed us in an early leadership position, which is crucial at the onset of any technology shift. The AI portfolio we have built is designed to give clients a comprehensive set of tools to deploy AI within their enterprise. REL AI and OpenShift AI allow clients to build a consistent AI foundation based on open source technology, while Watson X provides an AI middleware platform. Our assistants are designed to help clients becoming more productive using AI across a variety of business processes, from code to HR, customer service, and more. Consulting is helping clients design and execute AI strategies. We also continue to see our infrastructure segment play a larger role as clients bring AI to their data. Choosing the right AI model is top of mind for our clients. IBM's granite family of AI models are fit for purpose. Earlier this year, we released code models with 8 to 34 billion parameters. This month, We updated Granite models, making them approximately 90% more cost-efficient than larger models. These models can be trained in weeks instead of months and are easier to fine-tune for specific tasks. Granite models are available in Watson X and Red Hat and are also integrated into offerings from partners like AWS, Salesforce, Qualcomm, and SAP. Globally, clients are turning to IBM to transform their operations with technology. This quarter, we announced new collaborations with NatWest, Telefonica, Samsung SDS, Toyota Systems, and many others. At the U.S. Open, IBM delivered AI-generated match report summaries, and we are collaborating with ESPN to enhance their sports coverage through advanced AI insights. We also continue to deepen our relationships with key technology partners, including Dell, Intel, Microsoft, Oracle, Salesforce, SAP, and ServiceNow. We remain focused on delivering innovations to the market. For example, this quarter we announced Dell M2, IBM's next-generation processor for Z, and the Spire accelerator, which will significantly enhance IBM Z's AI capabilities and processing power for enterprise-scale applications. Investment in emerging technologies also remains the focus for IBM. Earlier this month, we opened Europe's first IBM Quantum Data Center. This is the second IBM Quantum Data Center deployed globally, which will greatly advance our goal of expanding access to the world's most performant quantum computers. Before I conclude, let me touch on our outlook. The momentum in our software strategy can be seen in our year to date results. Our revenue guidance for the fourth quarter reflects this progress, balanced by macro dynamics in consulting and infrastructure product cycle dynamics. We remain confident in our free cash flow guidance, which we raised in July, driven by continued strength in our operating margin performance. Overall, Our portfolio is well positioned to deliver an upward inflection in growth in 2025. I am excited about the opportunities ahead of us and will share more details with you in January. I will now hand over to Jim to walk you through the details of the quarter. Jim, over to you.