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 second quarter 2025 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. In the second quarter, we delivered solid results across revenue, profit, and cash, exceeding our expectations. Our performance this quarter was led by software and infrastructure as demand remains high for technology that improves productivity, reduces costs, and fuels innovation. While the operating environment remains dynamic, these results reflect the strength of our portfolio and the resiliency of our business model. Before I get deeper into the results, let me touch on the broader economic backdrop. I'll start by saying that we appreciate the administration's priority on economic growth and focused regulation, which will strengthen the U.S. competitive position. We believe this will result in long-term value creation and enable technology to contribute to economic growth. Technology continues to serve as a key competitive advantage, allowing businesses to scale, drive efficiencies, and fuel growth, and we saw this play out in the quarter. While not a major factor overall, geopolitical tensions are prompting a few clients to move cautiously. U.S. federal spending was also somewhat constrained in the first half, but we do not expect it to create long-term headwinds. Let me now turn to our execution in the quarter. Our strategy remains focused, hybrid cloud and artificial intelligence. This strategy is built on five reinforcing elements, client trust, flexible and open platforms, sustained innovation, deep domain expertise, and a broad ecosystem. Together, they form a flywheel for growth, which again played out this quarter. In software, we continue to see momentum, including 14% growth in Red Hat. HashiCorp is also off to a great start, accelerating performance in our first full quarter since closing and seeing early wins with joint Ansible and Terraform product synergies. Infrastructure was up 11%, driven by a very strong start to Z17. The new IBM Z is an embodiment of the hybrid cloud and AI capabilities we bring to clients. IBM Z continues to deliver on its core strengths, AI, security, and scalable capacity, driving its enduring nature with clients. These results were balanced by consulting performance, which continues to be impacted by the demand environment. AI remains a powerful driver of transformation for our clients and for IBM. We are transforming our enterprise operations using technology and embedding AI across more than 70 workflows, leveraging our own IBM software solutions across hybrid cloud automation and AI to drive competitive advantage. What differentiates IBM is the breadth of our AI offerings with an innovative technology stack and consulting business at scale and our client zero lens. Our GenAI book of business now stands at over $7.5 billion, inception to date, with momentum accelerating quarter over quarter. We are seeing strong demand for our AI agents and assistants, RHEL AI, Granite Models, as well as an accelerating need for our consulting services to deploy AI. Just last week, IBM was recognized as an emerging leader in the first ever Gartner Emerging Market Quadrant for Gen AI consulting and implementation services. Our client zero experience has resonated with companies like UPS, Verizon, Mizuho, and Nestle, who are using our AI tools to unlock data, drive automation, and reduce operational friction. As clients focus on scaling AI and delivering ROI, our progress and internal productivity is fueling and accelerating our client engagements. We're also expanding our partner ecosystem to deliver AI at scale. This quarter, we announced new or deepened collaborations with Oracle, Vox, AWS, Salesforce, Microsoft, EY, Finastra, and WPP. Each is aimed at embedding WatsonX into core business workflows. At Think 2025, we introduced new capabilities across our portfolio. We launched new features for WatsonX Orchestrate, which allows users to build custom AI agents in minutes with no coding required. There are now more than 150 pre-built domain-specific agents in our catalog spanning HR, sales, procurement, and IT. Our partners are building on this as well, integrating agents from Oracle, Salesforce, AWS, and others. And Orchestrate supports the full agent lifecycle, from building to managing and governing agents across business functions, regardless of which AI models they are built with. We expanded WatsonX.data to enable our enterprise clients to get easy access and drive value from their trusted, unstructured data. and our web methods hybrid integration simplifies how clients connect workflows, APIs, and data across hybrid environments. As Agentech AI matures, we believe it will power over a billion new applications and a massive expansion in code, driving a critical need for automation. Our automation portfolio is uniquely positioned to deliver these solutions to clients across hybrid cloud. SAP plans to deploy our high-value automation portfolio, including Red Hat Ansible Automation Platform and HashiCorp Terraform and Vault, highlighting the opportunity we have in product synergies. Innovation also extends to infrastructure. This quarter we launched Z17, our most advanced mainframe yet. It features the new Telem 2 processor, delivering more than 450 billion AI inference operations per day with millisecond latency. That means AI models can run directly on transactional workloads with no external servers needed. The Spire accelerator, which will be available in the fourth quarter, will enable WatsonX Code Assistant for Z and WatsonX Assistant for Z to run natively on Z17. As more than 70% of IBM Z clients continue to expand or maintain capacity, our software stack is bringing even more innovation to IBM Z, including Watson X Code Assistant for Z, Watson X Data, Concert, and HashiCorp Vault. In July, we introduced Power 11 to deliver the performance, resiliency, and scalability enterprises need to run mission-critical data-intensive workloads across hybrid environments. and we have announced rise with SAP on Power 11. In quantum, we achieved a major milestone with the deployment of IBM Quantum System 2 in Japan in partnership with RIKEN. This marks the first installation outside the United States and underscores our commitment to global leadership in quantum computing. To complement our organic innovation, M&A remains important. We closed the acquisition of DataStax this quarter adding real-time scalable data capabilities to support AI-driven applications. In closing, we remain focused on consistent execution and long-term growth. While the environment remains dynamic, we have a disciplined strategy and a durable business model. Given our first-half performance, we continue to expect accelerating revenue growth to 5% plus, and are raising our expectations for free cash flow to above $13.5 billion for the year. We are confident in our ability to deliver sustainable, profitable growth. Jim, over to you.