Q4 2024 International Business Machines Corp Earnings Call

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 Olympian Mcnerney and I'm here today with Arvind Krishna Ibm's, Chairman, President and Chief Executive Officer, and Jim Kavanaugh, Ibm's Senior Vice President and Chief Financial Officer, We'll post today's prepared remarks on the IBM website, but within a couple.

All 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've provided reconciliation charts for these and other non-GAAP financial measures at the end of the presentation, which is posted to our <unk>.

Your 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.

Arvind Krishna: Over to Arvind.

Arvind Krishna: Thank you for joining us today.

Arvind Krishna: Let me start by reflecting on a strong close to 2024 and performance over the mid term model then get into more detail on the execution of our strategy.

Arvind Krishna: We're pleased with the progress we made in 2020 for 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.

Arvind Krishna: As we close out the mid term model, we laid out at the end of 'twenty, one I am proud of our achievements, we met or exceeded our target metrics for revenue growth profitability and free cash flow growth.

Arvind Krishna: 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.

Foster 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.

Arvind Krishna: 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 with.

Arvind Krishna: We committed to accelerate the growth of Red hat, and we delivered double digit for the year.

Arvind: All over to Arvind.

Arvind: Thank you for joining us today.

Arvind: Let me start by reflecting on a strong close to 2024 and performance over the midterm model then get into more detail on the execution of our strategy.

Arvind Krishna: Infrastructure performed in line with our model as we invested in innovation and transform the business model.

Arvind Krishna: <unk> met the model for high single digit growth, although we acknowledge 'twenty 'twenty four was below our model.

Arvind: We are pleased with the progress we've made in 'twenty 'twenty four 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.

Arvind Krishna: We are confident that our investment in partnerships and skills as well as our early leadership in Gen AI.

Arvind Krishna: <unk> us to accelerate consulting growth as we move forward.

Arvind Krishna: Overall, our technology momentum in consulting signings bolster our confidence in our future performance.

Arvind: As you close out the mid term model, we laid out at the end of 'twenty, one I am proud of our achievements, we met or exceeded our target metrics for revenue growth profitability and free cash flow growth.

Arvind Krishna: Before getting deeper into our execution and make a few comments on the macroeconomic environment.

Arvind Krishna: 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 GOP.

Arvind: 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.

Arvind: All of our segments delivered revenue growth in line with our model over the last three years.

Arvind Krishna: <unk> political attention interest rate volatility supply chain vulnerabilities demographic shifts evolving cyber threats.

Arvind: Software grew ahead of our goal of mid single digits and this momentum continued with 9% growth in 'twenty 'twenty four.

Arvind Krishna: Fading headwind for businesses worldwide.

Arvind Krishna: This contract technology is key to drive sustainable growth.

Arvind: We committed to accelerate the growth of Red hat, and we delivered double digits for the year.

Speaker Change: Ibm's combination of advanced technology, and deep consulting expertise positions us to uniquely deliver end to end business transformations.

Arvind: Infrastructure performed in line with our model as we invested in innovation and transform the business model.

Arvind: Insulting met the model for high single digit growth, although we acknowledge 'twenty 'twenty four was below model.

Arvind Krishna: We ended the year intent on enhancing our portfolio.

Arvind Krishna: Software is now about 45% of our business with more than $15 billion of IRR growing at double digits.

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.

Arvind Krishna: We delivered strong and accelerating revenue growth of 11% in the fourth quarter.

Arvind Krishna: Which includes eight point of organic growth and strength across the portfolio.

Arvind: Overall, our technology momentum in consulting signings bolster our confidence in our future performance.

Arvind Krishna: This growth was led by Red hat up 17% in the quarter.

Arvind: Before getting deeper into our execution and make a few comments on the macroeconomic environment.

Arvind Krishna: Our early leadership in generative AI and the consulting advantage platform have positioned us well in today's evolving market.

Arvind: As we look at the broader environment Ibm's mission to help businesses leverage technology to both scale revenue and grew up profitably is more critical than ever GOP.

Arvind Krishna: In infrastructure <unk> is our most successful program in history, highlighting customer adoption and continued reliance on the mainframe.

Arvind: <unk> political tensions interest rate volatility supply chain vulnerabilities demographic shifts evolving cyber threats, all creating headwinds for our businesses worldwide.

Arvind Krishna: We see more opportunities ahead, as our infrastructure solutions play a crucial role in helping clients bring AI workloads closer to the data.

Arvind: This context technology is key to drive sustainable growth.

Arvind Krishna: And we will launch <unk> 17 in the middle of 2025.

Arvind: Ibm's combination of advanced technology, and deep consulting expertise positions us to uniquely deliver end to end business transformations.

Arvind Krishna: Let me now address our progress in generative AI.

Arvind Krishna: 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.

Arvind: We ended the year intent on enhancing our portfolio.

Arvind: Software is now about 45% of our business with more than $15 billion of Ey are are growing at double digits.

Arvind Krishna: Approximately 1% of this book of business comes from software and the remaining for purchase consulting.

Arvind: We delivered strong and accelerating revenue growth of 11% in the fourth quarter.

Our AI portfolio is tailored to meet the diverse needs of enterprise clients, enabling them to leverage a mix of models Ibms. They're all open models from hugging faced meta and Mistral.

Arvind: Which includes eight points of organic growth and strength across the portfolio.

Arvind: This growth was led by Red hat up 17% in the quarter.

Arvind Krishna: Ibm's granite models designed for specific purposes, a 90% more cost efficient that larger alternatives.

Arvind: Our early leadership in generative AI and the consulting advantaged platform have positioned us well in today's evolving market.

Arvind Krishna: Additionally, well AI and open shift AI for what turned to the consistent and scalable AI Foundation built on open source technology.

Arvind: In infrastructure <unk> is our most successful program in history, highlighting customer adoption and continued reliance on the mainframe V.

This quarter, we saw strong traction in our water next middleware solutions and AI assistance, including what's the net dot Gov Watson X Dot AI, what's the next quarter assistant for Z. What's the next orchestrate as well as products embedding AI such as content.

Arvind: We see more opportunities ahead, as our infrastructure solutions play a crucial role in helping clients bring AI workloads closer to their data.

Arvind: And we will launch <unk> 17 in the middle of 2025.

Arvind: Let me now address our progress and generate of AI.

Arvind: 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.

Arvind Krishna: And consulting remains key to designing and implementing AI use cases, driving what's the next deployment.

Arvind Krishna: Through the year, we introduced key innovations that are resonating with clients.

Arvind: Approximately one fifth of this book of business comes from software and the remaining 40 <unk> consulting.

Arvind Krishna: This quarter, we launched open shift virtualization engine to meet growing virtualization demand in.

Arvind: Our AI portfolio is tailored to meet the diverse needs of enterprise clients, enabling them to leverage a mix of models ibms their own open models from hugging faced meta and Mistral.

Arvind Krishna: In infrastructure <unk>, two processor enhances ibm's these AI capabilities and performance.

Arvind Krishna: We just announced rise with S&P on IBM power virtual server offering the fastest and easiest migration from on premises to cloud for the 10000, plus clients, who use S&P on IBM power.

Arvind: Ibm's granite models designed for specific purposes, a 90% more cost efficient that larger alternatives.

Arvind: Additionally, rally and open shift AI provide clients with a consistent and scalable AI Foundation built on open source technology.

Arvind Krishna: The consulting advantaged platform integrating our technology and industry expertise to drive business transformation.

Arvind: This quarter, we saw strong traction in our Watson next middleware solutions and AI assistance <unk>.

Arvind Krishna: With more than 75 quantum systems deployed worldwide are focused on emerging innovation is clear.

Arvind: Including what's the next dot Gov, what's the next Dot AI, what's the next court assistant for Z. What's the next orchestrate as well as products embedding AI such as concert.

Arvind Krishna: This quarter, we announced a collaboration with the state of Illinois to establish a national quantum algorithm center in Chicago.

Arvind Krishna: M&A remains a key enabler of our strategy.

Arvind: And consulting remains key to designing and implementing AI use cases, driving what's the next deployment.

The acquisition of Neuro Magic strengthens our air solutions with advanced model optimization.

Arvind: Through the year, we introduced key innovations that are resonating with clients.

Arvind Krishna: Clients worldwide Cross IBM to lead transformations.

Arvind: This quarter, we launched open shift virtualization engine to meet growing virtualization demand in.

Arvind Krishna: Notable examples this quarter include Natwest, and Lockheed Martin leveraging our granite models for advanced AI applications.

Arvind: In infrastructure, the talent to processor enhances ibm's AI capabilities and performance.

Arvind Krishna: L'oreal is partnering with IBM to use our AI consulting and research capabilities to develop foundation models for cosmetic formulation.

Arvind: We just announced rise with S&P on IV empower virtual server offering the fastest and easiest migration from on premises to cloud for the 10000, plus clients, who use S&P on IBM power.

Arvind Krishna: We also collaborated with UFC and Ferrari, helping them tap into Ibm's, AI and consulting expertise to drive operational efficiency.

Arvind: The consulting advantaged platform is integrating our technology and industry expertise to drive business transformation.

Announced earlier this month IBM in the UK home office, we'll partner on the emergency services network supporting more than 300000 emergency responders in Great Britain.

Arvind: With more than 75 quantum systems deployed worldwide are focused on emerging innovation is clear.

Arvind Krishna: Our ecosystem continues to expand as we strengthen our partnerships with leading technology providers.

Arvind: This quarter, we announced a collaboration with the state of Illinois to establish a national quantum algorithm center in Chicago.

Arvind Krishna: <unk> AMD, Palo Alto networks, S&P, Amazon, Microsoft and core reef. These.

Arvind: M&A remains a key enabler of our strategy.

Arvind Krishna: These partnerships allow us to co innovate and deliver greater value to clients.

Arvind: The acquisition of Neuro Magic strengthens our air solutions with advanced model optimization.

Arvind Krishna: Before I conclude let me touch on our outlook.

Arvind: Clients worldwide Cross IBM to lead transformations.

Arvind Krishna: We see continued momentum in our business driven by our focused strategy enhanced portfolio and culture of innovation.

Arvind: Notable examples this quarter include Natwest, and Lockheed Martin leveraging our granite models for advanced AI applications.

Arvind Krishna: For 2025, we expect revenue growth conflicting higher to 5% plus at about $13 5 billion of free cash flow.

Arvind: L'oreal is partnering with IBM to use our AI consulting and research capabilities to develop foundation models for cosmetics formulation.

Arvind Krishna: Look forward to sharing more details at our upcoming Investor day on February four I will now hand over to Jim to walk you through the details of the quarter Jim over to you.

Arvind: We also collaborated with UFC and Ferrari, helping them tap into Ibm's, AI and consulting expertise to drive operational efficiency.

Jim Kavanaugh: Thanks, Arvind for the full year, we delivered about $63 billion in revenue $11 $2 billion of operating pre tax income and operating earnings per share of $10 33.

Arvind: Announced earlier this month IBM in the UK home office, we'll partner on the emergency services network supporting more than 300000 emergency responders in Great Britain.

Arvind: Our ecosystem continues to expand as we strengthen our partnerships with leading technology providers.

Jim Kavanaugh: And we generated $12 7 billion of free cash flow, our strongest level of free cash flow generation in many years and our highest reported free cash flow margin in history.

Arvind: <unk> AMD, Palo Alto networks, S&P, Amazon, Microsoft and core reef. These.

Arvind: These partnerships allow us to co innovate and deliver greater value to clients.

Jim Kavanaugh: Revenue growth combined with a 120 basis points of operating pre tax margin expansion drove 9% operating pre tax profit growth, 14% free cash flow growth and 7% operating diluted earnings per share growth.

Arvind: Before I conclude let me touch on our outlook.

Arvind: We see continued momentum in our business driven by our focused strategy enhanced portfolio and culture of innovation.

Arvind: For 2025, we expect revenue growth conflicting higher to 5% plus at about $13 5 billion of free cash flow.

Jim Kavanaugh: We are pleased with these results delivering durable revenue growth and our reposition business and exceeding our expectations on profitability free cash flow and earnings per share.

Arvind: Look forward to sharing more details at our upcoming Investor day on February 4th.

Jim Kavanaugh: Revenue performance for the year was led by software up 9% with strength across our portfolio. We achieved the rule of 40, driven by the combination of accelerating growth and margin expansion throughout the year.

Arvind: I'll hand over to Jim to walk you through the details of the quarter Jim over to you.

Jim: Thanks, Arvind for the full year, we delivered about $63 billion in revenue $11 $2 billion of operating pre tax income and operating earnings per share of $10.33.

Jim Kavanaugh: Consulting revenue was up 1% and continued to be impacted by a dynamic market environment as clients re prioritize spending.

Arvind: And we generated $12 $7 billion of free cash flow, our strongest level of free cash flow generation in many years and our highest reported free cash flow margin in history.

Jim Kavanaugh: While infrastructure was down 3%, reflecting product cycle dynamics, we deliver more than 120% program that program growth for <unk> 16 are most successful program in history.

Revenue growth combined with a 120 basis points of operating pre tax margin expansion drove 9% operating pre tax profit growth, 14% free cash flow growth and 7% operating diluted earnings per share growth.

Jim Kavanaugh: Our portfolio mix operating leverage and yield from productivity initiatives generated strong operating gross margin and operating profit performance.

Jim Kavanaugh: For the full year, we expanded operating gross profit margin by 130 basis points, our operating pre tax margin expanded by 120 basis points ahead of our expectations and well above our model.

Arvind: We are pleased with these results delivering durable revenue growth and our reposition business and exceeding our expectations on profitability free cash flow and earnings per share.

Arvind: Revenue performance for the year was led by software up 9% with strength across our portfolio. We achieved the rule of 40, driven by the combination of accelerating growth and margin expansion throughout the year.

Jim Kavanaugh: These results represent our highest level of operating gross margin and operating pre tax margin in many years.

Jim Kavanaugh: Now turning to a deeper dive on the quarter, we generated $17 $6 billion of revenue.

Arvind: Consulting revenue was up 1% and continued to be impacted by a dynamic market environment as clients re prioritize spending.

Jim Kavanaugh: Over 2% at constant currency and ahead of our expectation.

Jim Kavanaugh: Software growth accelerated to 11% with strength across our key categories of Red hat automation data and AI and transaction processing.

Arvind: While infrastructure was down 3%, reflecting product cycle dynamics, we delivered more than 120% program that program growth for <unk> 16 are most successful program in history.

Jim Kavanaugh: Consulting was down 1% this quarter, we achieved record levels of signings and strong sequential growth in our generative AI book of business, reflecting our early leadership in the areas our clients are prioritizing.

Arvind: Our portfolio mix operating leverage and yield from productivity initiatives generated strong operating gross margin and operating profit performance.

Jim Kavanaugh: Infrastructure was down 6%, reflecting product cycle dynamics, and our 11th quarter of <unk> 16.

Arvind: For the full year, we expanded operating gross profit margin by 130 basis points, our operating pre tax margin expanded by 120 basis points ahead of our expectations and well above our model.

Jim Kavanaugh: Looking at our profit metrics in the fourth quarter, we expanded operating gross margin by 50 basis points and operating pre tax margin by 40 basis points.

Arvind: These results represent our highest level of operating gross margin and operating pre tax margin in many years.

We are pleased with this strong performance driven by our portfolio mix operating leverage and ongoing productivity initiatives similar to the full year.

Arvind: Now turning to a deeper dive on the quarter, we generated $17 $6 billion of revenue.

Jim Kavanaugh: This allowed for continued investments to drive innovation in our portfolio, which you can see in our higher R&D expense up 13%.

Arvind: Up over 2% at constant currency and ahead of our expectation.

Arvind: Software growth accelerated to 11% with strength across our key categories of Red hat automation data and AI and transaction processing.

Jim Kavanaugh: Our operating tax rate was 14%, which is flat versus last year and our operating earnings per share of $3.92 was up 1%.

Arvind: Consulting was down 1% this quarter, we achieved record levels of signings and strong sequential growth in our generative AI book of business, reflecting our early leadership in the areas our clients are prioritizing.

Jim Kavanaugh: For the full year, we generated $12 $7 billion of free cash flow up $1 $5 billion and growing 14%.

Jim Kavanaugh: The largest driver of this growth comes from adjusted EBITDA up about $900 million year over year.

Arvind: Infrastructure was down 6%, reflecting product cycle dynamics, and our 11th quarter of <unk> 16.

Jim Kavanaugh: We realized $500 million in proceeds from the Palo Alto Q radar transaction, which was a small contribution to free cash flow given the payout of structural actions and foregone profit.

Arvind: Looking at our profit metrics in the fourth quarter, we expanded operating gross margin by 50 basis points and operating pre tax margin by 40 basis points we.

Arvind: We are pleased with this strong performance driven by our portfolio mix operating leverage and ongoing productivity initiatives similar to the full year.

We also delivered sustainable lower cash requirements through changes in our retirement plans.

Jim Kavanaugh: As we close out the mid term model, we introduced in 2021, we've grown free cash flow faster than revenue in each of the last three years have exited 2024 with our highest free cash flow margin and reported history and our free cash flow run rate is above our mid term model.

Arvind: This allowed for continued investments to drive innovation in our portfolio, which you can see in our higher R&D expense up 13%.

Arvind: Our operating tax rate was 14%, which is flat versus last year.

Jim Kavanaugh: In terms of cash uses for the year, we invested over $3 billion on acquisitions, and we returned just over $6 billion to shareholders in the form of dividends.

Arvind: And our operating earnings per share of $3.92 was up 1%.

Arvind: For the full year, we generated $12 $7 billion of free cash flow up $1 $5 billion and growing 14%.

Jim Kavanaugh: Looking at the balance sheet, we ended the year with a strong liquidity position with cash of $14 $8 billion, which is up $1 $3 billion year over year.

Arvind: The largest driver of this growth comes from adjusted EBITDA.

Arvind: Up about $900 million year over year.

Arvind: We realized $500 million in proceeds from the Palo Alto Q radar transaction, which was a small contribution to free cash flow given the payout of structural actions and foregone profit.

Jim Kavanaugh: Our debt balance ended the year down $1 $6 billion at $55 billion, including approximately $12 billion of debt associated with our financing business.

Jim Kavanaugh: Turning to the segments software revenue growth accelerated to 11% in the fourth quarter driven by strength across the portfolio with growth of 17% for red at 16% for automation.

Arvind: We also delivered sustainable lower cash requirements through changes in our retirement plans.

Arvind: As we close out the mid term model, we introduced in 2021, we've grown free cash flow faster than revenue in each of the last three years have exited 2024 with our highest free cash flow margin and reported history and our free cash flow run rate is above our mid term model.

Jim Kavanaugh: 11% for transaction processing, and 5% for both data and AI and security.

Jim Kavanaugh: We are pleased with how we finished the year exceeding the rule of 40 and the growth driver our expectations, we set back in January.

Arvind: In terms of cash uses for the year, we invested over $3 billion in acquisitions, and we returned just over $6 billion to shareholders in the form of dividends.

Jim Kavanaugh: Let me dive in a little deeper on each of these growth drivers.

Jim Kavanaugh: We continue to see momentum in Red hat with fourth quarter revenue growth of 17% fueled by six consecutive quarters of double digit bookings growth.

Arvind: Looking at the balance sheet, we ended the year with a strong liquidity position with cash of $14 $8 billion, which is up $1.3 billion year over year.

Jim Kavanaugh: This performance reflects the continued demand for our hybrid cloud solutions as clients are prioritizing application modernization and open shift containers and ansible automation to optimize their spend and reduce operational complexity.

Arvind: Our debt balance ended the year down $1 $6 billion at $55 billion, including approximately $12 billion of debt associated with our financing business.

Jim Kavanaugh: Open shift is now $1 $4 billion business growing about 25% and we continue to see increased volume and open shift virtualization engagements.

Arvind: Turning to the segments software revenue growth accelerated to 11% in the fourth quarter driven by strength across the portfolio with growth of 17% for Red hat, 16% for automation and 11% for transaction processing and 5% for both data and AI and.

Jim Kavanaugh: In addition to the strength in subscriptions, we saw a recovery in the consumption based services business.

Jim Kavanaugh: Looking forward Red hat six month revenue under contract a reflection of the strong bookings performance mentioned continues to grow in the mid teens.

Arvind: Security.

Arvind: We are pleased with how we finished the year exceeding the rule of 40 and the growth driver our expectations, we set back in January.

Jim Kavanaugh: We delivered strong results in our recurring revenue base and are seeing momentum from innovation across our portfolio.

Arvind: Let me dive in a little deeper on each of these growth drivers.

Arvind: We continue to see momentum in Red hat with fourth quarter revenue growth of 17% fueled by six consecutive quarters of double digit bookings growth.

Jim Kavanaugh: Our hybrid platform and solutions <unk> was $15 $3 billion up 11%.

Jim Kavanaugh: Transaction processing delivered another strong quarter, driven by growing capacity demands solid renewal rates and increasing contribution from our generative AI product, what's the next quota system for Z.

Arvind: This performance reflects the continued demand for our hybrid cloud solutions as clients are prioritizing application modernization and open shift containers and ansible automation to optimize their spend and reduce operational complexity.

Jim Kavanaugh: We continue to introduce new products, which are making a meaningful impact on software as the results we have confidence in our portfolio with our market leading businesses centered around hybrid cloud automation data and transaction processing in.

Arvind: Open shift is now $1 $4 billion business growing about 25% and we continue to see increased volume and open shift virtualization engagements.

Arvind: In addition to the strength in subscriptions, we saw a recovery in the consumption based services business.

Jim Kavanaugh: In the quarter about eight points of our growth was organic led by demand for our generative AI products like cancer and our AI assistance.

Arvind: Looking forward Red hat six month revenue under contract a reflection of the strong bookings performance mentioned continues to grow in the mid teens.

Jim Kavanaugh: We launched new products such as next generation of Watson ex coda system that provides coding support for multiple languages and Guardian quantum safe that helps organization monitor and manage their cryptographic security to fix vulnerabilities.

Arvind: We delivered strong results in our recurring revenue base and are seeing momentum from innovation across our portfolio.

Arvind: Our hybrid platform and solutions <unk> was $15 $3 billion up 11% transaction.

Jim Kavanaugh: And these investments in generative AI are paying off with the software AI book of business, reaching about $1 billion inception to date in the fourth quarter.

Arvind: <unk> processing delivered another strong quarter, driven by growing capacity demands solid renewal rates and increasing contribution from our generative AI product, what's the next quota system for Z.

Jim Kavanaugh: Our performance continues to benefit from our recent acquisitions.

Jim Kavanaugh: We are seeing growing contribution from the stream sets and web methods assets acquired in the second quarter.

Arvind: We continue to introduce new products, which are making a meaningful impact on software as results, we have confidence in our portfolio with our market leading businesses centered around hybrid cloud automation data and transaction processing.

Jim Kavanaugh: And at the end of 2024, we closed the acquisition of neuro Magic, which strengthens our AI capabilities and performance engineering and model optimization.

Jim Kavanaugh: And we are looking forward to the opportunities that depending Hashi Corp acquisition will bring.

Arvind: In the quarter about eight points of our growth was organic led by demand for our generative AI products like cancer and our AI assistance.

Jim Kavanaugh: Looking at software profit for the quarter gross margin expanded and segment profit was up over 220 basis points year to year, reflecting operating leverage driven by our revenue performance.

Arvind: We launched new products such as next generation of what's the next quota system that provides coding support for multiple languages and Guardian quantum safe that helps organization monitor and manage their cryptographic security to fix vulnerabilities.

Jim Kavanaugh: In consulting revenue was down 1%.

Jim Kavanaugh: Throughout the year, we have operated in the dynamic macroeconomic environment.

Jim Kavanaugh: We continue to see clients re prioritizing their spending towards digital transformation and AI initiatives for cost optimization and operational efficiency as we wrap on a strong above market performance in 2023.

Arvind: And these investments in generative AI are paying off with the software AI book of business, reaching about $1 billion inception to date in the fourth quarter.

Arvind: Our performance continues to benefit from our recent acquisitions.

Arvind: We are seeing growing contribution from the stream sets and web methods assets acquired in the second quarter.

Jim Kavanaugh: Our focus remains on rapidly evolving our offerings and enhancing investments in skills and capabilities to align with these priorities.

Arvind: And at the end of 2024, we closed the acquisition of neuro Magic, which strengthens our AI capabilities and performance engineering and motto optimization and we are looking forward to the opportunities that depending Hashi Corp acquisition will bring.

Jim Kavanaugh: Our ability to address client demands drove signings growth of 23% in the quarter.

Jim Kavanaugh: Our highest fourth quarter signings in recent history.

Jim Kavanaugh: Generative AI contributed about $1 $5 billion of new bookings in the quarter as clients see the value our extensive industry and enterprise AI expertise can bring to accelerating their digital transformations.

Arvind: Looking at software profit for the quarter gross margin expanded and segment profit was up over 220 basis points year to year, reflecting operating leverage driven by our revenue performance.

Jim Kavanaugh: The strong signings performance takes our book to Bill ratio up to one to one over the last 12 months, our overall backlog remains healthy up 8% year over year, and our backlog erosion levels remain stable.

Arvind: In consulting revenue was down 1%.

Arvind: Throughout the year, we have operated in the dynamic macroeconomic environment.

Arvind: We continue to see clients re prioritizing their spending towards digital transformation and AI initiatives for cost optimization and operational efficiency as we wrap on a strong above market performance in 2023.

Jim Kavanaugh: A red hat practice delivered another record breaking quarter of signings and double digit revenue growth and we now have an annual revenue of nearly $3 billion.

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Jim Kavanaugh: In the quarter strategic partnerships, where our growth contributor both in signings and revenue with solid performance from partnerships with AWS and Azure.

Arvind: Our focus remains on rapidly evolving our offerings and enhancing investments in skills and capabilities to align with these priorities.

Arvind: Our ability to address client demands drove signings growth of 23% in the quarter.

Jim Kavanaugh: We are actively investing to enhance our skills and capabilities to address our clients' top priorities with acquisitions like <unk> Alfa a global Oracle services provider, which closed in the fourth quarter and earlier this month, we announced our intent to acquire applications technology.

Arvind: Our highest fourth quarter signings in recent history.

Arvind: Generative AI contributed about $1.5 billion of new bookings in the quarter as clients see the value our extensive industry and enterprise AI expertise can bring to accelerating their digital transformations.

Jim Kavanaugh: <unk> software a consultancy known for driving business transformation with Oracle cloud applications.

Arvind: This strong signings performance takes our book to Bill ratio up to one point to one over the last 12 months, our overall backlog remains healthy up 8% year over year, and our backlog erosion levels remain stable.

Jim Kavanaugh: Turning to our lines of business business transformation revenue grew 2% driven by continued strength in transformational projects for data finance and supply chain.

Jim Kavanaugh: Both technology consulting and application operations declined in the quarter.

Arvind: A red hat practice delivered another record breaking quarter of signings and double digit revenue growth and we now have an annual revenue of nearly $3 billion.

Jim Kavanaugh: Similar to last quarter, there was strength in cloud based application services across modernization development and management.

Arvind: In the quarter strategic partnerships, where our growth contributor both in signings and revenue with solid performance from partnerships with AWS and Azure.

Jim Kavanaugh: But we continue to see clients re prioritize spending away from on Prem customized services.

Jim Kavanaugh: Looking at consulting profit, we delivered segment profit margin of nearly 12%.

Arvind: We are actively investing to enhance our skills and capabilities to address our clients' top priorities with acquisitions like excel Alpha a global Oracle services provider, which closed in the fourth quarter and earlier this month, we announced our intent to acquire applications technology.

Jim Kavanaugh: Sequential expansion of almost one point as we continue to realize the benefits of our productivity actions.

Jim Kavanaugh: Moving to the infrastructure segment revenue was down 6%, reflecting product cycle dynamics.

Hybrid infrastructure was down 8% and infrastructure support was flat.

Arvind: <unk> software a consultancy known for driving business transformation with Oracle cloud applications.

Jim Kavanaugh: Within the hybrid infrastructure IBM Z revenue is down 20% in the quarter.

Arvind: Turning to our lines of business.

Arvind: Is this transformation revenue grew 2% driven by continued strength in transformational projects for data finance and supply chain.

Jim Kavanaugh: This is the 11th quarter of Z <unk> availability and the combination of resiliency reliability and security continues to resonate with clients.

Arvind: Both technology consulting and application operations declined in the quarter.

Jim Kavanaugh: Nearly three years in this product cycle has outpaced prior cycles and program to date installed Mips have increased over 30% as clients capacity needs continue to grow.

Arvind: Similar to last quarter, there was strength in cloud based application services across modernization development and management.

Jim Kavanaugh: <unk> remains an enduring platform for mission critical workloads driving not just hardware adoption, but also the related software storage and services.

Arvind: But we continue to see clients re prioritize spending away from on Prem customized services.

Arvind: Looking at consulting profit, we delivered segment profit margin of nearly 12% a sequential expansion of almost one point as we continue to realize the benefits of our productivity actions.

Jim Kavanaugh: Distributed infrastructure revenue grew 2%. This performance was fueled by double digit growth in storage as we introduce new innovation in quarter designed to give clients the ability to scale storage capacity to meet growing data demands to support the next generation of AI.

Arvind: Moving to the infrastructure segment revenue was down 6%, reflecting product cycle dynamics.

Arvind: Hybrid infrastructure was down 8% and infrastructure support was flat.

Jim Kavanaugh: Our closed end projects.

Jim Kavanaugh: For infrastructure profit, we expanded gross profit margin nearly two points sequentially.

Arvind: Within hybrid infrastructure IBM Z revenue is down 20% in the quarter.

Jim Kavanaugh: Our segment profit margin was down 320 basis points in the quarter.

Arvind: This is the 11th quarter of Z 16 availability and the combination of resiliency reliability and security continues to resonate with clients.

Jim Kavanaugh: Reflecting where we are in the product cycle and continued investments in innovation for.

Arvind: Nearly three years in this product cycle has outpaced prior cycles and program to date installed Mips have increased over 30% as clients capacity needs continue to grow.

Jim Kavanaugh: For the full year, our segment profit margin was 17, 5%.

Jim Kavanaugh: Now, let me bring it back up to the IBM level to wrap up.

Arvind Krishna: As Arvind mentioned, we met or exceeded our midterm model target metrics for revenue growth profitability and free cash flow growth and we have fundamentally reposition our business to a software led integrated platform.

Arvind: IBM Z remains an enduring platform for mission critical workloads driving not just hardware adoption, but also the related software storage and services.

Arvind: Distributed infrastructure revenue grew 2%. This performance was fueled by double digit growth in storage as we introduce new innovation in quarter designed to give clients the ability to scale storage capacity to meet growing data demands to support the next generation of AI.

Arvind Krishna: Let me now turn to 2025 guidance on our two key measures of success revenue growth and free cash flow.

Arvind Krishna: We expect constant currency revenue growth inflicting higher to 5% plus and we expect to grow free cash flow faster than revenue growth was about $13 5 billion of free cash flow.

Arvind: Work loads and projects.

Arvind: For infrastructure profit, we expanded gross profit margin nearly two points sequentially.

Arvind Krishna: Given the continued strengthening of the dollar we expect currency to be about a two point headwind to revenue growth for the year are.

Arvind: Our segment profit margin was down 320 basis points in the quarter.

Arvind Krishna: Our revenue expectations are underpinned by accelerating growth across our businesses.

Arvind: Reflecting where we are in the product cycle and continued investments in innovation for.

And software given the strength of our portfolio investment in innovation and the contribution from acquisitions, we expect revenue growth approaching double digits.

Arvind: For the full year, our segment profit margin was 17, 5%.

Now, let me bring it back up to the IBM level to wrap up.

Arvind Krishna: We continue to see the strength in red hat with mid teens growth for the year.

Arvind: As Arvind mentioned, we met or exceeded our midterm model target metrics for revenue growth profitability and free cash flow growth and we have fundamentally reposition our business to a software led integrated platform.

Speaker Change: In consulting that <unk>.

Speaker Change: Combination of our backlog levels record signings in the fourth quarter and our book of business in Gen. AI support an acceleration in growth to low single digits.

Arvind: Let me now turn to 2025 guidance on our two key measures of success revenue growth and free cash flow.

Speaker Change: With our new mainframe launch in mid 2025, we expect infrastructure to be about one point contribution to Ibm's overall revenue growth.

Arvind: We expect constant currency revenue growth inflicting higher to 5% plus and we expect to grow free cash flow faster than revenue growth with about $13 $5 billion of free cash flow.

Speaker Change: For the full year, we expect Ibm's operating pre tax margin to expand by over half a point.

Speaker Change: Portfolio mix and ongoing productivity initiatives continue to drive margin expansion mitigated by the impact of dilution from acquisitions.

Arvind: Given the continued strengthening of the dollar we expect currency to be about a two point headwind to revenue growth for the year are.

Arvind: Our revenue expectations are underpinned by accelerating growth across our businesses.

Speaker Change: Our tax rate for the year should be in the mid teens and as always the timing of discrete items can cause the rate to vary within the year.

Arvind: In software given the strength of our portfolio investment in innovation and the contribution from acquisitions, we expect revenue growth approaching double digits.

Speaker Change: For free cash flow, we expect to generate about $13 5 billion in.

Speaker Change: In 2025 given.

Arvind: We continue to see the strength in red hat with mid teens growth for the year.

Speaker Change: Given the strong fundamentals of our business, we expect double digit adjusted EBITDA growth, which is the primary driver of our free cash flow.

Arvind: In consulting the combination of our backlog levels record signings in the fourth quarter and our book of business in Gen. AI support an acceleration in growth to low single digits.

Speaker Change: This will be offset by cash tax headwinds and higher capex.

Speaker Change: Our productivity initiatives have enabled investments in innovation skills and go to market capabilities, including our ecosystem.

Arvind: And with our new mainframe launch in mid 2025, we expect infrastructure to be about one point contribution to Ibm's overall revenue growth.

Speaker Change: We have accomplished this while simultaneously growing our operating profit margin and free cash flow, which in turn has increased our financial flexibility.

Arvind: For the full year, we expect Ibm's operating pre tax margin to expand by over a half a point.

Speaker Change: This remains our playbook going forward, having executed on $3 $5 billion of annual run rate savings exiting 2020 for supporting our strong free cash flow growing in excess of revenue.

Arvind: Portfolio mix and ongoing productivity initiatives continue to drive margin expansion.

Arvind: Mitigated by the impact of dilution from acquisitions.

Arvind: Our tax rate for the year should be in the mid teens and as always the timing of discrete items can cause the rate to vary within the year.

Speaker Change: Looking to the first quarter I expect our constant currency revenue growth rate to be similar to the fourth quarter.

Speaker Change: We expect workforce rebalancing fairly consistent with prior year. We are also wrapping on the $241 million gain from the divestiture of the weather company <unk>.

Arvind: For free cash flow, we expect to generate about $13 $5 billion in 2025.

Arvind: Given the strong fundamentals of our business, we expect double digit adjusted EBITDA growth, which is the primary driver of our free cash flow.

Speaker Change: Excluding the year over year impact of the gain we expect about 50 basis points of operating pre tax margin expansion.

Arvind: This will be offset by cash tax headwind and higher capex.

Speaker Change: It is hard to predict discrete events.

Arvind: Our productivity initiatives have enabled investments in innovation skills and go to market capabilities, including our ecosystem.

Speaker Change: But our best view is that the first quarter tax rate could be a few points lower than the full year rate, but still a headwind over last year.

Arvind: We have accomplished this while simultaneously growing our operating profit margin and free cash flow, which in turn has increased our financial flexibility.

Speaker Change: In summary.

Speaker Change: We have delivered durable growth over the mid term model and expect to drive an upwards inflection.

We have repositioned our business and are excited about 2025 and beyond.

Arvind: This remains our playbook going forward.

Arvind: <unk> executed on $3 $5 billion of annual run rate savings exiting 2020 for supporting our strong free cash flow growing in excess of revenue.

Speaker Change: We look forward to discussing more details at our upcoming Investor day on February 4th.

Arvind Krishna: Arvind and I are now happy to take your questions Olympia, let's get started.

Arvind: Looking to the first quarter I expect our constant currency revenue growth rate to be similar to the fourth quarter. We.

Arvind Krishna: Thank you Jim before we begin the Q&A I'd like to mention a couple of items first supplemental information is provided at the end of the presentation and then second as always I'd ask you to refrain from multi part questions. Operator, Please open up for questions.

Arvind: We expect workforce rebalancing fairly consistent with prior year. We are also wrapping and the $241 million gain from the divestiture of the weather company.

Arvind Krishna: Thank you.

Arvind: Excluding the year over year impact of the gain we expect about 50 basis points of operating pre tax margin expansion.

Arvind Krishna: And at this time, we will begin the question and answer session of the conference. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that Youre line is in the question queue.

Arvind: It is hard to predict discrete events.

Arvind: But our best view is that the first quarter tax rate could be a few points lower than the full year rate, but still a headwind over last year.

Arvind Krishna: You May press Star two if you would like to remove your question from the queue for.

Arvind Krishna: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Arvind: In summary.

Arvind: We have delivered durable growth over the mid term model and expect to drive an upward inflection.

Speaker Change: And our first question comes from Amit <unk> with Evercore ISI. Please state your question.

Arvind: We have repositioned our business and are excited about 2025 and beyond.

Arvind: We look forward to discussing more details at our upcoming Investor day on February four.

Speaker Change: Thanks for taking my question and good afternoon, everyone.

Speaker Change: Thank you I'm, hoping you can just talk a little bit about when I think about the calendar 'twenty Guide you provided if you could just provide some context around linearity and how that could play out maybe you can talk about each one versus 82 perspective, given I think some of the consulting and made some tailwind could be a bit more back half way because if you just touch on kind of well established second half when you're doing the linearity there.

Arvind: Arvind and I are now happy to take your questions Olympia, let's get started.

Speaker Change: Thank you Jim before we begin the Q&A I'd like to mention a couple of items first supplemental information is provided at the end of the presentation and then second as always I'd ask you to refrain from multi part questions. Operator, Please open up for questions.

Speaker Change: Would be helpful. As you think about 25.

Speaker Change: Okay. Thank you very much and I appreciate the question overall.

Arvind: Thank you.

Speaker Change: And at this time, we'll begin the question and answer session of the conference. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is in the question queue.

Speaker Change: Obviously, we're very pleased as we talked about in the prepared remarks about how we finished on a strong note.

Speaker Change: Over delivering on revenue profitability earnings per share free cash flow that gives us the conviction and confidence as we guided in 2025 with above street revenue growth at 5% plus at constant currency.

Speaker Change: You May press Star two if you would like to remove your question from the queue for.

Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Speaker Change: In a very strong free cash flow engine of $13 $5 billion.

Moderator: And our first question comes from Amit <unk> with Evercore ISI. Please state your question.

Speaker Change: Growing nicely and continuing to grow that free cash flow margin, but if you look underneath it linearity and linearity when you get to that point, yes first half I would tell you got answered this by segment.

Amit: Thanks for taking my question good afternoon, everyone.

Amit: Thank you I'm, hoping you can just talk a little bit about you know when I think about the calendar 'twenty Guide you folks just provided if you could just provide some context around linearity and how that could play out maybe you can talk about each one versus 82 perspective, given I think some of the consulting and maintenance tailwind could be a bit more back half can you just touch on kind of post that with the second half where do you see on the linearity of that.

Speaker Change: Got a very strong portfolio, which is executing extremely well on software, we see a pretty normal history as we move through our first half second half. Obviously, you do have seasonality between <unk> and <unk> versus third quarter and fourth but that is we got a very hot hand and where.

Amit: Be helpful. As you think about 25.

Amit: Okay. Thank you very much I appreciate the question overall.

Speaker Change: Continuing to invest in innovation.

Amit: Obviously, we're very pleased as we talked about in the prepared remarks about how we finished on a strong note.

Speaker Change: Second on consulting we feel pretty good about how we concluded the year with our highest recorded ever signings quarter up 23%. We entered the year with a backlog of plus 8% a strong book to Bill of one <unk> to one we're still dealing with a very dynamic environment around cloud.

Amit: Over delivering on revenue profitability earnings per share of free cash flow that gives us the conviction and the confidence as we guided in 2025 with above street revenue growth at 5% plus at constant currency.

Speaker Change: Prioritizing spend and I think it's prudent for US right now, although we call low single digit for the year to see that accelerate as we move through the year. So I would see more of a second half play than a first half play and then you get to infrastructure.

Amit: And a very strong free cash flow engine of $13 $5 billion.

Amit: Growing nicely and continuing to grow that free cash flow margin, but if you look underneath it linearity linearity when you get to that point, yes first half I would tell you you got to answer this by segment.

Speaker Change: We did extremely well at the end of a three year cycle or most.

Amit: We've got a very strong portfolio, which is executing extremely well on software, we see a pretty normal history as we move through our first half second half. Obviously, you do have seasonality between <unk> and the <unk> third quarter and fourth but that is we got a very hot.

Speaker Change: Promising program and mainframe I think ever overall delivering 122%.

Speaker Change: Yes first quarter, we expect about again about a similar point impact ibm's growth, but second quarter on we're back to growth above our model through the year and Thats what gives us confidence in.

Amit: And we're going to continue to invest in innovation.

Speaker Change: In the guide that we called for the year, so a little bit of a.

Amit: On consulting we feel pretty good about how we concluded the year with our highest recorded ever signings quarter up 23%. We entered the year with a backlog of plus 8% a strong book to bill at one that two one we're still dealing with a very dynamic environment around client.

Speaker Change: Mix shift.

Speaker Change: Definitely strength in software, which is going to drive this business being 45% IBM, but when you bring it all together, maybe it's a point less first half on revenue versus history versus second half, but from a free cash flow perspective were pretty similar to history overall.

Amit: Prioritizing spend and I think it's prudent for US right now, although we called low single digit for the year to see that accelerate as we move through the year. So I would see more of a second half play than a first half play and then you get to infrastructure, we did extremely well at the edge.

Speaker Change: Okay, operator, let's take the next question.

Speaker Change: Your next question comes from <unk> Mohan with Bank of America. Please state your question.

Mohan: Yes. Thank you so much and congrats on the really strong free cash flow performance.

Speaker Change: Irwin.

Irwin: To get your thoughts around M&A, particularly as we've maybe enter a period of relatively low regulatory overhang at the same time you are delivering a record cash flows.

Amit: And have a three year cycle.

Amit: Our most.

Amit: Promising program and mainframe I think ever overall, delivering 122%, yes first quarter, we expect about again about a similar point impact to ibm's growth, but second quarter on we're back to growth.

Irwin: And if I could I would love to get some of your thoughts on deep seek and any implications that you see either for the industry broadly are for IBM in particular, thank you.

Ramzi: Thanks Ramzi.

Amit: Both of our model through the year and Thats, what gives us confidence.

Irwin: Look.

We are looking forward to a regulatory environment that is a bit more rational and a bit more competition.

Amit: In the guide that we called for the year, so a little bit of a mix shift.

Amit: Definitely strength in software, which is going to drive this business being 45% IBM, but when you bring it altogether, maybe it's a point less first half on revenue versus history versus second half, but from a free cash flow perspective were pretty similar to history overall.

Irwin: So I think what that implies for us is that we think reasonable deals.

Irwin: Very good chance of getting through and a reasonable amount of time and not being held up for years.

Irwin: With that context that means obviously, we're going to lean in more which is reasonable.

Amit: Great operator, let's take the next question.

Irwin: Look at our free cash flow and you look at what we are setting out for the year and could leave as much as $7 billion or a bit more than that during the year after accounting for the dividend.

Speaker Change: Your next question comes from one of the wellhead with Bank of America. Please state your question.

Speaker Change: Yes. Thank you so much and congrats on the really strong free cash flow performance.

Irwin: We always look at a three year flexibility I think that's the best way of looking at it <unk> looked at a three year flexibility you can kind of Aurora ahead, but we do kind of want to live within what we can afford.

Speaker Change: Erwin would love to get your thoughts around M&A, particularly as we maybe after a period of relatively low regulatory overhang at the same time you are delivering a record cash flows.

And if we find targets that meet our criteria, we are going to lean in and get things done.

Speaker Change: And if I could would love to get some of your thoughts on deep seek and any implications that you see either for the industry broadly are for IBM in particular, thank you.

Irwin: I'm going to just finish that I say.

Irwin: She has been waiting out there for almost a year, we certainly hope that with.

Speaker Change: Thanks Ramzi.

Speaker Change: Look.

Speaker Change: We are looking forward to a regulatory environment that is a bit more rational.

Irwin: With a friendlier.

Irwin: Environment that gets done soon and that then begins to open up the aperture if we're getting more deals done.

Speaker Change: Bit more brutal competition.

Irwin: Hopefully that address both the cash flows and the regulations around M&A.

So I think what that implies for US is that we think reasonable deals have a very good chance of getting through and a reasonable amount of time and not being held up for years. So with that context that means obviously, we're going to lean in more which is reasonable.

Speaker Change: <unk>, Inc.

Irwin: Or the point of validation.

Irwin: We have been very vocal for about a year that smaller models and more reasonable creating times are going to be essential.

Speaker Change: If you look at our free cash flow and you look at what we are setting out for the year that could leave as much as $7 billion or a bit more than that during the year after accounting for the dividend.

Irwin: Enterprise deployment of large language models, we've been down that journey ourselves for more than a year.

Irwin: As much as 30 times reduction in insurance costs using these approaches.

Speaker Change: We always look at a three year flexibility I think that's the best way of looking at it <unk> looked at a three year flexibility you can kind of borrow ahead, but we do kind of want to live within sort of what we can afford and.

Irwin: As other.

Irwin: Other people begin to follow that route we think that this is incredibly good for all of our enterprise clients and we will certainly take advantage of that in our business, but I believe that others will also follow that route.

Speaker Change: And if we find targets that meet our criteria, we are going to lean in and get things done.

Speaker Change: I'm going to just finish that.

Speaker Change: Okay, operator, let's take the next question.

Speaker Change:

Speaker Change: Hershey has been waiting out there for almost a year, we certainly hope that with.

Speaker Change: Your next question comes from Jim Schneider with Goldman Sachs. Please state your question.

Friendlier.

Jim Schneider: Thanks, and good afternoon. Thanks for taking my question I was wondering if you can maybe.

Speaker Change: Environment that gets done soon and that then begins to open up the aperture forgetting.

Jim Schneider: Highlight two topics one on consulting and one on the AI software side on the consulting side of things, it's good to see the bookings.

Speaker Change: More deals done so I think hopefully that address both the cash flows and the regulations around M&A.

Speaker Change: Seeing but can you maybe give us historically the context is IBM tends to lag the consulting business relative to some of your peers.

Speaker Change: Deep seek I think.

Speaker Change: It was a point of validation we have been very vocal for about a year that smaller models and more reasonable trading times are going to be essential for.

Speaker Change: Does the level of confidence you have in the revenue yield and revenue recovery you talked about for the back half of the year and how how do you feel about the sort of revenue yield today versus say a year ago and then secondly on the AI software side, you mentioned the $1 billion book of business.

Speaker Change: For enterprise deployment.

Speaker Change: <unk> language models, we've been down that journey ourselves for more than a year, we see as much as 30 times reduction in insurance costs using these approaches.

Speaker Change: Purely within software, that's pretty substantial and while there has been some moving parts in terms of which products have gotten traction.

Speaker Change: <unk>.

Speaker Change: Other people begin to follow that route we think that this is incredibly good for our enterprise clients.

Speaker Change: Are the products of the ones. You mentioned do you think are really going to be sort of a standout for the next couple of years from a software performance perspective. Thank you.

Speaker Change: And we will certainly take advantage of that in our business, but I believe that others will also follow that route.

Speaker Change: Okay. Thank you Jim I'll take the first one and then Arvind can handle the second one around the products and software overall.

Speaker Change: Great operator, let's take the next question.

Speaker Change: Your next question comes from Jim Schneider with Goldman Sachs. Please state your question.

Arvind Krishna: We take a look at it from a consulting perspective, we've been talking about.

Arvind Krishna: We have been operating along with every other consulting company in a very dynamic macroeconomic environment as with any technological shift there are going to be re prioritization of spending that is occurring clients similar to IBM. We are cutting back on discretionary based spend.

Jim Schneider: Thanks, and good afternoon. Thanks for taking my question I was wondering if you can maybe highlight two topics one on consulting and one on the AI software side on the consulting side of things, it's good to see the bookings.

Jim Schneider: You're seeing but can you maybe give us historically.

Jim Schneider: Non text is IBM tends to lag the consulting business relative to some of your peers, but what is the level of confidence you have in the revenue yield and revenue recovery you talked about for the back half of the year and how how do you feel about the sort of revenue yield today versus say a year ago and then secondly on the AI software side you mentioned.

So we can fuel investment into digital transformation and Jen AI overall, we've been seeing that play out throughout 2024 by the way.

Arvind Krishna: Top of above market performance and gaining significant share over the last six quarters starting in 2023.

Jim Schneider: The $1 billion book of business.

Arvind Krishna: Now why have we been so maniacally focused on the Gen III ramp.

Jim Schneider: Purely within software, that's pretty substantial and while there's been some moving parts in terms of which products have gotten traction which are the products of the ones. You mentioned do you think are really going to be sort of stand out in the next couple of years from a software performance perspective. Thank you.

Arvind Krishna: Our greater than $4 billion book of business right now coming out six quarters in which we believe by the way we're in a very early leadership position around it or so maniacally focused because enterprise clients are making their strategic provider of choice decisions.

Speaker Change: Okay. Thank you Jim I'll take the first one and then Arvind can handle the second one around the products and software overall.

Speaker Change: We take a look at it from a consulting perspective, we've been talking about.

Arvind Krishna: And we are feeling very good about that greater than $4 billion book of business, which by the way is already north of 5% of our total backlog, which is as I told Amit and the first question is up 8% coming into 2025 why is that important because.

We have been operating along with every other consulting company in a very dynamic macroeconomic environment as with any technological shift there are going to be re prioritization of spending that is occurring clients similar to IBM. We are cutting back on discretionary based spend.

Arvind Krishna: That is going to be a long term future vector of growth for consulting for us to win that has a multiplier effect that will drag our software component of our business going forward. So we feel pretty good while right now early in the cycle. It is less yield.

Speaker Change: So we can fuel investment into digital transformation and Jen AI overall, we've been seeing that play out throughout 2024 by the way on top of above market performance and gaining significant share over the last six quarters starting in 2023.

Arvind Krishna: It has higher durations, but we think that Tam opportunity and that multiplier effect are going to grow into each other and thats. One of a couple of components and why we have conviction of instructing back to growth in 2025 with consulting overall.

Speaker Change: Now why have we been so maniacally focused on the Gen AI ramp and are greater than $4 billion book of business right now coming out six quarters in which we believe by the way we're in a very early leadership position around that we're so maniacally focused because enterprise clients.

Jim: Thanks, Jim.

Speaker Change: Let me take the question on the <unk>.

Speaker Change: Are making their strategic provider of choice decisions.

Speaker Change: Talks about the software products, which I think will be standouts I got to begin with or what the next family or what's the next family encapsulates our primary products that incorporate LMS.

Speaker Change: And we are feeling very good about that greater than $4 billion book of business, which by the way is already north of 5% of our total backlog, which is as I told Amit and the first question is up 8% coming into 2025 why is that important because.

Speaker Change: <unk> AI technology.

Speaker Change: So next quarter systems on all we help our clients modernize their cobalt infrastructures are quota assistance on how people leverage it for Java or ansible absolute standout on have been in market for almost a year.

Speaker Change: That is going to be a long term future vector of growth for consulting for us to win that has a multiplier effect that will drag our software component of our business going forward. So we feel pretty good while right now early in the cycle. It is less yield.

Speaker Change: Rest of the what's the next family also whether it's about deploying models using AI or getting the data already and governance have also been very strong drivers and the piece that most people have not been paying attention to I want to point out is in the Red hat family, both Red hat for getting models deployed on a single server.

Speaker Change: It has higher durations, but we think the Tam opportunity and that multiplier effect are going to grow into each other and thats. One of a couple of components and why we have conviction of inflicting back to growth in 2025 with consulting overall.

Speaker Change: Gpus as well as what we are now going to be doing with our neuro <unk> acquisition on how to optimize and get the most effective use of the hardware using red hat and then when you have large deployment leveraging open share for AI deployment.

Speaker Change: Thanks, Jim So let me take the question Jim on the <unk>.

Speaker Change: The final rounding out of the products.

Speaker Change: It's about the software products, which I think will be standouts I got to begin with our Watson X family, Our Watson X family encapsulates, our primary products that incorporate LMS.

Speaker Change: To be candid llm's really infused many many other things, but the products are called out are the ones, where we counted as direct AI products and directly driving the business and Thats why it is counted in the numbers that Jim laid out.

Speaker Change: <unk> AI technology.

What's the next cohort assistance on all we help our clients modernize their cobalt infrastructures are CT assistance on how people leverage it for Java for ansible absolute standout and have been in market for almost a year.

Speaker Change: Operator next question.

Speaker Change: Your next question comes from Ben Reitzes with Melius Research. Please state your question.

Ben Reitzes: Yes, Thanks, a lot a lot of the couple of the questions were asked so I'm going to ask about.

Speaker Change: Rest of the Watson X family also whether it's about deploying modeled using AI or getting the data already and governance have also been very strong drivers and the piece that most people have not been paying attention to I want to point out is in the Red hat family, both Red hat for getting models deployed on a single server with.

Speaker Change: Infrastructure and I also wanted to congratulate you guys here.

Ben Reitzes: Your mix shift towards software is really resonating.

Speaker Change: But I'm going to ask about infrastructure.

Speaker Change: Two aspects one is tied to it within software is TPP.

Speaker Change: It's super profitable and growing 11% and just wanted.

Speaker Change: Gpus as well as what we are now going to be doing with our neuro <unk> acquisition on how do you optimize and get the most effective use of the hardware using red hat and then when you have large deployments leveraging open share for AI deployment.

Speaker Change: I wanted to see where that fit in in terms of your guidance for the year and how sustainable that is and I think that the.

Speaker Change: The AI assistant is having a big impact on that.

Speaker Change: And so changing the way we may be thinking on that and then with regard to infrastructure, which is a little bit tied to that segment, maybe I'm wrong.

Speaker Change: Final rounding out of the products.

Speaker Change: To be candid Llm's will infuse many many other things, but the products are called out are the ones, where we counted as direct AI products and directly driving the business and Thats what is counted in the numbers that Jim laid out.

Speaker Change: In terms of the mainframe and the Delta in growth if you could just be a little more prescriptive there.

Speaker Change: Talk about why you have confidence that this will be a well receive cycle really appreciate it. Thank you.

Speaker Change: Operator next question.

Speaker Change: Okay. Thanks, Ben This is Jim I'll take this first of all thank you for the compliments.

Speaker Change: Your next question comes from Ben Reitzes with Melius Research. Please state your question.

Speaker Change: Team has worked extremely hard we laid out a very ambitious.

Ben Reitzes: Yes, Thanks, a lot a lot of the couple of the questions were asked so I'm going to ask about.

Speaker Change: Three year roadmap, a few years ago, when we spun off Ken drove the reposition IBM and as we talked about in prepared remarks team has executed and met or exceeded every single one of those targets that we put out to the street. So a lot of hard work here, but the <unk>.

Ben Reitzes: Infrastructure and I also wanted to congratulate you guys here.

Ben Reitzes: Your mix shift towards software is really resonating.

Ben Reitzes: But I'm going to ask about infrastructure.

Ben Reitzes: And two aspects one is tied to it within software is TPP.

Speaker Change: Beauty is we got a lot more to go which we're extremely excited about and we'll talk about that next week at Investor day, but let's talk about TPP first of all I can't talk about TPP to the heart of your question without talking about the.

Ben Reitzes: It's super profitable and growing 11% just.

Ben Reitzes: I wanted to see where that fit in in terms of your guidance for the year and how sustainable that is and I think that the.

Speaker Change: Absolute tremendous execution of what's been happening with our mainframe cycle.

Ben Reitzes: The AI assistant is having a big impact on that.

Ben Reitzes: And so changing the way we may be thinking on that and then with regard to infrastructure, which is a little bit tied to that segment, maybe I'm wrong.

Speaker Change: This has been one of the longest programs and most consistent in terms of revenue growth that we've ever seen and I think it's in the saturation of the value of our enduring platform and our hybrid cloud and AI area era overall 120 plus percent prior program, 70% of the clients on mainframe.

Speaker Change: In terms of the mainframe and the Delta in growth. If you could just be a little more prescriptive there and talk about why you have confidence that this will be a well received cycle really appreciate it. Thank you.

Speaker Change: Okay. Thanks, Ben This is Jim I'll take this first of all thank you for the compliments.

Speaker Change: Our growing Mips.

Speaker Change: As a very different profile than where we were 10 years ago.

Speaker Change: <unk> has worked extremely hard we laid out a very ambitious.

Speaker Change: And the installed Mips are up three X over the last few cycles now why is that important we run mainframe, yes mission critical workloads for what 97% of the mission critical transactional processing around all of many of the different industries banking.

Three year roadmap, a few years ago, when we spun off Ken drove the reposition IBM.

And as we talked about in prepared remarks team has executed and met or exceeded every single one of those targets that we put out to the street. So a lot of hard work here, but the beauty is we got a lot more to go which we're extremely excited about and we'll talk about that next week at Investor day, but let's talk about <unk>.

Speaker Change: Retail Airlines you name it, but we run it as a stack economic platform play TP as the mission critical software on top of that as a key growth contributor capitalizing on those mainframe stack economics high source of revenue high source of profit.

Speaker Change: <unk> first of all I can't talk about TPP to the heart of your question without talking about the absolute tremendous execution of what's been happening with our mainframe cycle.

Speaker Change: Fuel investment flexibility of US continuing this engine of innovation in software and it also provides a solid incumbency base for the multiplier effect, we grew our transaction processing, 10% in 2024 exiting out of 11.

Speaker Change: This has been one of the longest programs and most consistent in terms of revenue growth that we've ever seen and I think it's in the saturation of the value of our enduring platform and our hybrid cloud and AI area era overall 120 plus percent prior program, 70% of the clients on.

Speaker Change: The underlying dynamics of that I would say about four points of that growth is due to the capitalization of the underlying workloads that are driving mainframe.

Frame are growing Mips.

Speaker Change: It's a very different profile of them, where we were 10 years ago.

Speaker Change: And the installed Mips are up three X over the last few cycles now why is that important we run mainframe, yes mission critical workloads for what 97% of the mission critical transactional processing around all of many of the different industries banking.

Three points of that is the investment in the new innovation that we've been bringing to the mainframe platform called that Watson coda system for Z and how we're monetizing value of journey II and then about three points of that is back to historical price optimization.

Speaker Change: If you look at 2025, our guidance, where we called software continuing to accelerate approaching double digit I would say prudently right now between RV and ni.

Speaker Change: Retail Airlines you name it, but we run it as a stack economic platform play TP as the mission critical software on top of that it's a key growth contributor capitalizing on those mainframe stack economics high source of revenue high source of profit.

Speaker Change: Consistent mid single digit growth in GP, and we will see how that plays out with the new cycle of mainframe and 25.

Speaker Change: Operator, let's take the next question.

Speaker Change: <unk> investment flexibility of US continuing this engine of innovation in software and it also provides a solid incumbency based sort of multiplier effect, we grew our transaction processing, 10% in 2024 exiting at 11.

Speaker Change: Our next question comes from Brent Thill with Jefferies. Please state your question.

Speaker Change: Thanks. This is <unk> on for Greg.

Speaker Change: It would be great.

Speaker Change: The business climate more specifically on the software side, but also more generally across all business segments.

Speaker Change: The underlying dynamics of that I would say about four points of that growth is due to the capitalization of the underlying workloads that are driving mainframe above.

Speaker Change: What are you hearing from customers then alright, it thinking about their software budget in 2025.

Luke: Thanks Luke.

Speaker Change: I've been quite public and quite vocal around this topic, but let's acknowledge many of the things that occupy media headlines and then as a consequence of the <unk> business data is heads geopolitical tensions maybe on a better rock right now, but certainly not solved interest rates inflation demographics lack of skilled labor.

Speaker Change: About three points of that is the investment in the new innovation that we've been bringing to the mainframe platform called that Watson quota system for Z and how we're monetizing value of journey II and then about three points of that is back to historical price optimization. If you look at 2025 our guidance.

Jane: Hi, Jane.

Jane: These issues or carry over into 2025.

Speaker Change: Where we called software continuing to accelerate approaching double digit I would say prudently right now between RV and ni a consistent mid single digit growth in TP and we'll see how that plays out with the new cycle of mainframe and 25.

Jane: That said.

Speaker Change: I did spend last week in Davos, where you get to meet a few hundred of your colleagues from around the world.

Speaker Change: I'll tell you that is more optimism in the business climate and there is more optimism on the growth that is possible in 2005 compared to 24, and we know all the reasons for that is it through innovation is a pro growth pro regulation, reducing friction all of those things I believe are going to result in a better environment.

Speaker Change: Operator, let's take the next question.

Speaker Change: Your next question comes from Brent Thill with Jefferies. Please state your question.

Speaker Change: Thanks. This is <unk> on for Brett Arvin, It would be great to get your view of the business climate more specifically on the software side, but also more generally across business segments.

Speaker Change: And <unk> 95.

Speaker Change: That then translates into how our company is going to grow.

Speaker Change: What are you hearing from customers and how are they thinking about their software bucket in 2025.

Speaker Change: To a person everybody believes technology is essential for helping them grow.

Speaker Change: Yes.

Speaker Change: Thanks Luke.

Speaker Change: I've been quite public and quite walk around this topic. So let's acknowledge many of the things that occupy a media headlines and then as a consequence. They do work if our business data is heads geopolitical tensions maybe on a better track right now, but certainly not solved interest rates inflation demographics lack of skilled labor supply.

Speaker Change: How could you service customers better Arcadia market better how can we reach people more how can you get things done in minutes instead of all of us.

Speaker Change: Software is the basis all of those capabilities.

Speaker Change: To a person the budget that they will start to last because it is evident issue is this software budget. So.

Speaker Change: Jane.

Speaker Change: I think these issues all carry over into 2025.

Speaker Change: That is what is giving us confidence also as Jim talked about approaching double digits. In software is that software is essential to help people achieve their business goals and if you can get ahead in this year. It will probably keep you ahead. So it becomes kind of a gift that keeps repeating borrower.

Speaker Change: That said and I did spend last week in Davos, where you get to meet a few hundred of your colleagues from around the world.

Speaker Change: I would tell you there is more optimism in the business climate and there is more optimism on the growth that is possible and 25 compared to 24, and we know all the reasons for that is it through innovation is it pro growth pro regulation, reducing friction all of those things I believe are going to result in a better environment.

Speaker Change: Lions.

Speaker Change: Operator, let's take the next question.

Speaker Change: Your next question comes from Erik Woodring with Morgan Stanley. Please state your question.

Erik Woodring: Hey, guys. Thank you so much for taking my questions and congrats on a really strong free cash flow performance and guide.

Speaker Change: <unk> and <unk> 95.

Speaker Change: That then translates into how our company is going to grow too.

Speaker Change: One clarification quickly was just.

Speaker Change: To a person everybody believes technology is essential for helping them grow.

Speaker Change: Jim just wanted to make sure when we think about the 2025 outlook is that inclusive or excluding.

Speaker Change: How can you service customers better Arcadia market better how can we reach people more how can you get things done in minutes instead of all of us.

Speaker Change: <unk>.

Speaker Change: And then my broader question again for you. Jim is just if you could walk through and quantify a bit more detail some of the free cash flow puts and takes as we as we go into 2025, just between the cash taxes or capex to EBITDA growth any more detail would be super helpful. Just as we think about our model. Thanks, so much.

Speaker Change: Software is the basis all of those capabilities I think to a person.

Speaker Change: Budget that they will touch last if there is ever an issue is this software budget.

Speaker Change: Thanks, Eric and again, thanks for the compliments to the team here collectively around the world.

Speaker Change: That is what is giving us confidence also as Jim talked about approaching double digits. In software is that software is essential to help people achieve their business goals and if you can get ahead in this year. It will probably keep your head. So it becomes kind of a gift that keeps repeating.

Speaker Change: It means a lot.

Speaker Change: Yes short answer on how sheet.

Speaker Change: As always we guide all in.

Speaker Change: So we fully expect to close the <unk> transaction and a relatively soon period of time as we saw in the <unk>.

Speaker Change: And our clients.

Speaker Change: Hey that was issued by Hershey Corp. Overall, we fully expect that in this new administration environment. So all in revenue growth profit margin guidance that we gave and free cash flow.

Speaker Change: Operator, let's take the next question.

Your next question comes from Erik Woodring with Morgan Stanley. Please state your question.

Erik Woodring: Hey, guys. Thank you so much for taking my questions and congrats on a really strong free cash flow performance and guide.

Speaker Change: By the way is growing faster than revenue when you take a look underneath.

Speaker Change: One clarification quickly was just.

Speaker Change: We're extremely pleased.

Speaker Change: Jim just wanted to make sure when we think about the 2025 outlook is that inclusive or excluding <unk>.

Speaker Change: How we finished the last couple of years overall highest free cash flow margin in the history of our great company for 115 years and Oh by the way, we exited 2024 with a free cash flow run rate above our mid term model of what we laid out three years.

Speaker Change: And then my broader question again for you. Jim is just if you could walk through and quantify a bit more detail some of the free cash flow puts and takes as we as we go into 2025.

Speaker Change: Between the cash taxes or capex to EBITDA growth any more detail would be super helpful. Just as we think about our model. Thanks, so much.

Speaker Change: <unk> consistently growing free cash flow well in excess of revenue overall, so that's what gives us the confidence and the conviction that all of the tough work on our portfolio optimization that has shifted much more to a software centric led hybrid cloud platform.

Speaker Change: Thanks, Eric and again, thanks for the compliments to the team here collectively around the world.

Speaker Change: Thanks, a lot.

Speaker Change: Yes short answer on how she is always we guide all in so.

Speaker Change: So we fully expect to close the <unk> transaction and a relatively soon period of time as we saw in the <unk>.

Speaker Change: <unk> company.

Speaker Change: Productivity, which by the way.

Speaker Change: Executing north of $3 $5 billion exit run rate, we got out in front of that I would call that discipline I would call that execution of our company gives us the conviction and confidence in our guide.

Speaker Change: <unk> that was issued by Hershey Corp. Overall, we fully expect that in this new administration environment. So all in revenue growth profit margin guidance that we gave and free cash flow, which by the way is growing faster than revenue when you take a look underneath.

Speaker Change: In 2025 that takes into account that dilution effect.

Speaker Change: We're extremely pleased.

Speaker Change: And of itself, it's probably about a point of revenue growth to IBM in the year.

Speaker Change: How we finished the last couple of years overall highest free cash flow margin in the history of our great company for 115 years.

Speaker Change: It's probably many of you have done the math.

Speaker Change: 330, <unk> give or take of dilution by the way still a very attractive financial model, coupled with the strategic fit and synergy because we do believe adjusted EBITDA, we are well on our path of.

Speaker Change: And Oh by the way, we exited 2024 with a free cash flow run rate above our mid term model of what we laid out three years ago consistently growing free cash flow well in excess of revenue overall, so that's what gives us the confidence in that conviction.

Speaker Change: Within 12 months accretive and free cash flow within two years accretive overall, if you've been following <unk> results, but the underlying dynamics of our free cash flow drive over 100% of it is going to be delivered by high quality sustainable adjusted EBITDA growth.

Speaker Change: That all of the tough work on our portfolio optimization that has shifted much more to a software centric led hybrid cloud platform company, the productivity, which by the way.

Speaker Change: That is driving this company.

Speaker Change: Executing north of $3 $5 billion exit run rate, we got out in front of that I would call that discipline I would call that execution of our company gives us the conviction and confidence in our guide and in 2025 that takes into account that dilution effect.

Speaker Change: To a sustainable durable mid single digit growth now five plus percent the underlying operating leverage we continue to generate in this business, we will drive double digit adjusted EBITDA growth in 2025 that just to put some dollar amounts around it.

Speaker Change: <unk> itself, it's probably about a point of revenue growth to IBM in the year and its probably many of you have done the math.

Speaker Change: That's probably over 1 billion $5 in of itself.

Speaker Change: Now mitigating some of that one we're going to continue to invest in this business and that Capex number is going to go up a couple of hundred million dollars as we invest in our software our journey II. Our next generation mainframe et cetera quantum by the way we continue to invest in too.

$300 million 30, <unk> give or take of dilution by the way still a very attractive financial model, coupled with the strategic fit and synergy.

Speaker Change: We do believe adjusted EBITDA, we're well on our path of within 12 months accretive and free cash flow within two years accretive overall, if you've been following <unk> results, but the underlying dynamics of our free cash flow drive over 100% of it is going to deliver.

Speaker Change: That incremental profit dollar were going to pay more cash tax that's a couple hundred million more of there and three to the heart of your question.

Speaker Change: Net interest opportunity loss overall will probably be another.

Speaker Change: Up $100 million overall, so when you put those pieces together the way I would kind of qualify.

Speaker Change: <unk> by high quality sustainable adjusted EBITDA growth that is driving this company to a sustainable durable mid single digit growth now five plus percent the underlying operating leverage we continue to generate in this business will drive double digit.

Speaker Change: Qualify it.

Speaker Change: High quality sustainable free cash flow generation engine, that's going to deliver faster than revenue growth.

Speaker Change: Thanks Olympia.

Speaker Change: Look we do apologize for all of US we are looking forward to your questions, but we will get multiple hours with the theme is Olympia said on February the fourth so I do hope that those of you can get your questions and will come that day and ask your questions.

Speaker Change: <unk> adjusted EBITDA growth in 2025 that just to put some dollar amounts around it that's probably over a $1 billion $5 and if itself now mitigating some of that one we're going to continue to invest in this business and that Capex number is going to go up a couple of hundred million dollars as we.

Speaker Change: Look just to wrap up.

Speaker Change: As we wrapped on Amit model and Jim explained some of it we executed on our strategy to deliver sustained revenue growth and cash the.

Speaker Change: The changes we have made to our business over the last couple of years.

Speaker Change: Invest in our software our journey II, our next generation mainframe et cetera quantum by the way we continue to invest in to with that incremental profit dollar were going to pay more cash tax. That's a couple hundred million more of there and three to the heart of your question.

Speaker Change: Our performance reinforces my confidence in this next chapter of our growth I look forward to continuing the dialogue and through the year.

Speaker Change: The net interest opportunity loss overall will probably be another couple hundred million dollars. Overall, so when you put those pieces together the way I would kind of qualify at high.

Speaker Change: High quality sustainable free cash flow generation engine, that's going to deliver faster than revenue growth.

Speaker Change: Operator next question please.

Speaker Change: Operator can we have the next question.

Speaker Change: Operator can we take that.

Speaker Change: Next question.

Speaker Change: Operator can we have the next question please.

Speaker Change: Right.

Speaker Change: Thanks can you ask your question please.

Speaker Change: Alright.

Speaker Change: Please bear with US, we're having an issue with our operator will be back in a minute.

Speaker Change: Alright, I apologize, we're having a technical issue with our operator.

Speaker Change: So apologize that we can't finish our Q&A and we look forward to taking more questions than answers at our upcoming Investor Day on February 4th Let me turn it to Arvind for closing thanks Olympia.

Speaker Change: Look we do apologize for all of US we are looking forward to your questions, but we will get multiple hours that the team is Olympia said on February the fourth so I do hope that those of you can get to your questions and will come that day and ask your questions.

Speaker Change: Look just to wrap up.

Speaker Change: As we have wrapped on Amit model and Jim explained some of this we executed on our strategy to deliver sustained revenue growth and cash that.

Speaker Change: The changes we have made to our business over the last couple of years.

Speaker Change: And our performance reinforce my confidence in this next chapter of our growth I look forward to continuing this dialogue and through the year.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Hello.

Speaker Change: [music].

Speaker Change: Uh huh.

Speaker Change: [music].

Speaker Change: Mhm.

Speaker Change: [music].

Speaker Change: Yes.

Speaker Change: Sure.

Speaker Change: Sure.