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 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 with a replay of today's webcast on the IBM Investor website within a couple of hours. The earnings presentation is already available. To provide additional information to our investors, our presentation includes certain non-GAAP 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 our 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 performance in 2025 and the execution of our investor day model, then get into more detail on the quarter. We are excited about the progress we made in 2025, delivering 6% revenue growth, our highest level of revenue growth in many years, and $14.7 billion of free cash flow, our highest level of cash generation in over a decade. As we laid out our investor day in February 2025, we are executing on our strategy to advance IBM as a software-led hybrid cloud and AI platform company. We entered 2025 intently focused on investing in innovation and productivity initiatives to accelerate our shift towards durable, higher growth end markets in software with expanding margins and strong free cash flow. Today's software represents approximately 45% of our business, up from about 25% in 2018. Software grew 9%. our highest annual growth rate in history, with three of our four software subsegments delivering double-digit growth rates. Innovation value can also be seen in our IBM Z performance, up 48% this year, achieving the highest annual revenue for Z in about 20 years. I am proud of our achievements in 2025 as we exceeded all of our target metrics for revenue growth, profitability, and free cash flow that we laid out at our investor day. Our flywheel for growth is underpinned by client trust, flexible and open platforms, sustained innovation, deep domain expertise, and a broad ecosystem, and that's exactly what played out for the year. Let me now touch on the macro. We continue to operate in a dynamic environment, but one where client demand remains resilient in the categories that matter most to IBM. Enterprises are prioritizing technology investments that drive productivity, resilience, and flexibility, particularly in hybrid cloud, AI, and mission-critical infrastructure. These technologies are no longer viewed as incremental tools but as platforms that fundamentally change how businesses scale, compete, and operate. As clients modernize core systems, redesign workflows, and seek to extract more value from growing volumes of data, expectations for integration, security, and performance continue to rise. These trends are structural, and they align closely with IBM's strategy and strengths. Now turning to our execution in the fourth quarter. We deliver total revenue growth of 9%, our highest level in over three years. Software growth accelerated to 11% in the fourth quarter, driven by the strength of our diversified portfolio. Both data and automation are gaining strong momentum with clients, growing 19% and 14% respectively in the quarter. As AI adoption accelerates, enterprise clients are increasingly focused on how to keep operations running smoothly in a more complex and hybrid environment, fueled by a surge of new applications. Our end-to-end portfolio of leading automation and data solutions help clients manage and optimize operations, automate infrastructure and workflows, build resiliency, secure and govern data, and drive cost efficiency. Consulting continued to grow, up 1%, reflecting increased demand for AI services as clients need help designing, deploying, and governing AI at scale. And infrastructure delivered another robust quarter, growing 17%, driven by strength in Z17, which has been outpacing Z16 performance. A key contributor to this momentum is the innovation value we are delivering, with Z17 processing 50% more AI-influencing operations per day than Z16, and bringing real-time inferencing capabilities inside IBM Z. The breadth of our AI offerings is another key differentiator, combining an innovative technology stack with consulting at scale and our client zero journey. Our cumulative gen AI book of business now stands at over $12.5 billion, of which software is more than $2 billion and consulting is more than $10.5 billion, with both seeing the largest quarterly increase to date. As we look at the evolution of AI, our opportunity is to make it easy for clients to build AI that is specific to their data, their processes, and their competitive needs, including the effective use of smaller, more efficient models where they make sense. That is why IBM's approach spans consulting, Watson X, or agentic platform orchestrate, and Red Hat AI. Our announced acquisition of Confluent is another pillar in this strategy, helping unify our hybrid cloud and automation solutions through a smart data platform. Confluent has the most capable technology to unlock the real-time value of data across applications, clouds, APIs, and as AI agents enter the enterprise, they will need access to that data in real time. Confluent is a great way to deliver that in a controlled, secured, and governed manner. Our hybrid approach to models also enables clients to use the best option for each use case. IBM's Granite models, third-party models, or open models from Hugging Face, Meta, and Mistral. In addition to being a demand driver, AI is also a powerful productivity driver for IBM. contributing to our strong financial performance. In 2023, we set out on a goal to achieve $2 billion of productivity savings exiting 2024. And today we are well ahead of that, exiting 2025 with $4.5 billion of annual run rate savings. We have been accelerating our productivity initiatives to enable investment in innovation, and highly strategic acquisitions like HashiCorp and Confluent while continuing to deliver strong margin expansion and free cash flow growth. HashiCorp continues to accelerate within IBM, benefiting from our go-to-market distribution and joint product innovation. We see a similar opportunity with the announced acquisition of Confluent, leveraging IBM's global go-to-market reach to accelerate growth and discipline G&A structure. Accelerating organic innovation is a core focus for IBM. Project Bob is IBM's next generation AI-based software development system designed to transform developer productivity. Bob introduces intelligent orchestration between industry-leading frontier models such as Anthropic, Claude, and Mistral, small language models including IBM Granite, and custom models such all optimized for cost and performance. We have more than 20,000 IBMers that are using Project Bob, reporting productivity gains averaging 45%, a powerful client zero use case. We are also advancing innovation through deep M&A product synergies. For example, we recently developed Hashi InfraGraph, a real-time graph of infrastructure and application configuration. By fusing InfraGraph's insights with IBM automation products like Concert, we unlock true root cause analysis and proactive prevention for clients. All this leads to real tangible value for our clients. Companies like Morgan Stanley and FedEx are leveraging our technology solutions and infusing our GenAI products into core workflows. And MasterCard is leveraging our technology solutions, including data management platforms, software platforms, and Gen AI products and solutions. In infrastructure, clients such as CVS are turning to Z17's AI capabilities for enhanced management of mainframe application workloads and increased resiliency. We also announced new or deepened strategic partnerships through the year with AMD, Anthropic, AWS, Microsoft, OpenAI, and Oracle. Recently, we announced a partnership between Red Hat and NVIDIA that aligns our hybrid AI solutions and NVIDIA's AI stack. This collaboration allows enterprises to deploy AI accelerated applications across any environment from the data center, to the public cloud using a unified automated infrastructure. It represents a significant step forward in making high performance AI more accessible and scalable for the hybrid enterprise. Innovation combined with our strategic partnerships across consulting with key hyperscaler and ISV relationships and software with key data providers drive a multiplier effect that fuels our flywheel for growth. we continue to make steady progress in quantum computing. Over the past quarter, we advanced our development roadmap, improved error correction capabilities, and expanded ecosystem partnerships. Our collaboration with organizations such as Cisco and participation in government initiatives like the U.S. Department of Energy's Genesis mission and DARPA's quantum benchmarking initiative reflect growing confidence in IBM's approach to building scalable, fault-tolerant quantum systems. Quantum Advantage will require high-performing hardware, and in December, we deployed our first 120-qubit IBM Quantum Nighthawk-based system for use by our clients. Back in 2024, we predicted that we'd see Quantum Advantage by the end of 2026, and with the help of IBM hardware, software, and rapid cycles of learning, Our partners in the scientific computing community are starting to make the first credible advantage claims. We remain on track to deliver the first large scale fault tolerant quantum computer by 2029. To conclude, we finished the year with strong execution and continued progress against our strategy. IBM has long been known for innovation. What matters most is how that innovation is used. to help clients operate better, grow faster, and compete more effectively. We made a clear set of strategic choices over the last several years to help our clients do exactly that, and it is playing out in our results today and going forward. We enter 2026 with momentum and confidence in our ability to sustain 5% plus revenue growth and grow free cash flow by about $1 billion. With that, let me hand it over to Jim to go through the financials.