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 fourth 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 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 reflecting on our strong close to 2024 and performance over the midterm model, then get into more detail on the execution of our strategy. We are pleased with the progress we made in 2024, delivering revenue growth of 3% and $12.7 billion of free cash flow. We saw continued acceleration in software and our highest level of cash flow generation in many years. As we close out the midterm model we laid out at the end of 21, I am proud of our achievements. We met or exceeded our target metrics for revenue growth, profitability, and free cash flow growth. We set out a plan for mid-single-digit growth, and we delivered on it, growing our revenue by a 6% CAGR over this period. All of our segments delivered revenue growth in line with our model over the last three years. Software grew ahead of our goal of mid-single digits, and this momentum continued with 9% growth in 2024. We committed to accelerate the growth of Red Hat, and we delivered double digits for the year. Infrastructure performed in line with our model as we invested in innovation and transformed the business model. Consulting met the model for high single-digit growth, although we acknowledged 2024 was below model. We are confident that our investment in partnerships and skills, as well as our early leadership in Gen AI, position us to accelerate consulting growth as we move forward. Overall, our technology momentum and consulting signings bolster our confidence in our future performance. Before getting deeper into our execution, I'll make a few comments on the macroeconomic environment. As we look at the broader environment, IBM's mission to help businesses leverage technology to both scale revenue and grow profitably is more critical than ever. Geopolitical tensions, interest rate volatility, supply chain vulnerabilities, demographic shifts, evolving cyber threats are creating headwinds for businesses worldwide. In this context, technology is key to drive sustainable growth. IBM's combination of advanced technology and deep consulting expertise positions us to uniquely deliver end-to-end business transformations. We entered the year intent on enhancing our portfolio. Software is now about 45% of our business, with more than $15 billion of ARR growing at double digits. We delivered strong and accelerating revenue growth of 11% in the fourth quarter, which includes eight points of organic growth and strength across the portfolio. This growth was led by Red Hat, up 17% in the quarter. Our early leadership in generative AI and the consulting advantage platform have positioned us well in today's evolving market. In infrastructure, Z16 is our most successful program in history, highlighting customer adoption and continued reliance on the mainframe. We see more opportunities ahead as our infrastructure solutions play a crucial role in helping clients bring AI workloads closer to their data, and we will launch Z17 in the middle of 2025. Let me now address our progress in generative AI. We continue to gain momentum with our Gen AI book of business growing to over $5 billion inception to date, up by about $2 billion quarter over quarter. Approximately one-fifth of this book of business comes from software, and the remaining four-fifths is consulting. Our AI portfolio is tailored to meet the diverse needs of enterprise clients, enabling them to leverage a mix of models, IBM's, their own, open models from Hugging Face, Meta, and Mistral. IBM's Granite models, designed for specific purposes, are 90% more cost-efficient than larger alternatives. Additionally, REL AI and OpenShift AI provide clients with a consistent and scalable AI foundation built on open source technology. This quarter, we saw strong traction in our WatsonX middleware solutions and AI assistance, including WatsonX.gov, WatsonX.ai, WatsonX Code Assistant for Z, WatsonX Orchestrate, as well as products embedding AI, such as Concert. and consulting remains key to designing and implementing AI use cases, driving what's the next deployment. Through the year, we introduce key innovations that are resonating with clients. This quarter, we launched OpenShift Virtualization Engine to meet growing virtualization demand. In infrastructure, the Telem 2 processor enhances IBM Z's AI capabilities and performance. We just announced Rise with SAP on IBM Power Virtual Server, offering the fastest and easiest migration from on-premises to cloud for the 10,000 plus clients who use SAP on IBM Power. The consulting advantage platform is integrating our technology and industry expertise to drive business transformation. With more than 75 quantum systems deployed worldwide, our focus on emerging innovation is clear. This quarter, we announced a collaboration with the state of Illinois to establish the National Quantum Algorithm Center in Chicago. M&A remains a key enabler of our strategy. The acquisition of neural magic strengthens our AI solutions with advanced model optimization. Clients worldwide trust IBM to lead transformations. Notable examples this quarter include NatQuest and Lockheed Martin, leveraging our Granite models for advanced AI applications. L'Oreal is partnering with IBM to use our AI consulting and research capabilities to develop foundation models for cosmetic formulation. We also collaborated with UFC and Ferrari, helping them tap into IBM's AI and consulting expertise to drive operational efficiency. Announced earlier this month, IBM and the UK Home Office will partner on the Emergency Services Network supporting more than 300,000 emergency responders in Great Britain. Our ecosystem continues to expand as we strengthen our partnerships with leading technology providers, including AMD, Palo Alto Networks, SAP, Amazon, Microsoft, and CoreWeave. These partnerships allow us to co-innovate and deliver greater value to clients. Before I conclude, let me touch on our outlook. We see continued momentum in our business, driven by our focused strategy, enhanced portfolio, and culture of innovation. For 2025, we expect revenue growth inflicting higher to 5% plus and about $13.5 billion of free cash flow. I look forward to sharing more details at our upcoming Investor Day on February 4th. I will now hand over to Jim to walk you through the details of the quarter. Jim, over to you.