Welcome and thank you for standing by. At this time, all participants are in a listen-only mode. Today’s conference is being recorded. If you any objections you may disconnect at this time. Now I would turn the meeting over to Ms. Patricia Murphy with IBM. Ma’am you may begin.

Thank you. This is Patricia Murphy, Vice President of Investor Relations for IBM, and I’d like to welcome you to our First Quarter Earnings Presentation. I’m here today with Jim Kavanaugh, IBM’s Senior Vice President and Chief Financial Officer. Before we get into the call I want to make you aware that the third party that host our event is having technical issue this afternoon. If you’re having trouble accessing the webcast, we provide an alternate link to the audio webcast just below as well as the PDF of the presentation that you can download and follow along with Jim’s comments. So with that I will get back to my standard opening comments. As usual, the prepared remarks will be available within a couple of hours, and a replay of the webcast will be posted by this time tomorrow. I’ll also remind you that certain comments made in this presentation may be characterized as forward-looking under the Private Securities Litigation Reform Act of 1995. Those statements involve a number of factors that could cause actual results to differ materially. Additional information concerning these factors is contained in the company’s filings with the SEC. Copies are available from the SEC, from the IBM website or from us in Investor Relations. Our presentation also includes certain non-GAAP financial measures in an effort to provide additional information to investors. All non-GAAP measures have been reconciled to the related GAAP measures in accordance with SEC rules. You’ll find the reconciliation charts at the end of the presentation and in the Form 8-K submitted to the SEC. So with that, I’ll turn the call over to Jim.

Thanks, Patricia, and thanks to all of you for joining us. As we wrapped up 2017 and in our Investor Briefing webcast in early March, we talked about the work we’ve done to reposition our business to lead in the high value segments of IT, our differentiated value proposition, and how our financial strategy and model is built to deliver value to our clients and our shareholders over the long term. We made progress in our financial performance in the second half of last year, and now our first quarter results demonstrate further progress toward our model. So, we’re clearly moving in the right direction. In the quarter, we delivered $19.1 billion of revenue, $2.3 billion of operating net income, and $2.45 of operating earnings per share. And with this start to the year, we continue to expect at least $13.80 of operating earnings per share in 2018. Our revenue in the quarter was up 5% year-to-year. Without the currency tailwind, our revenue was up modestly, though you’ll see on the chart constant currency rounds to flat. Now turning to profit, our operating gross profit was up 3%, with broad-based improvement in our year-to-year gross margin performance versus last quarter. Our operating net income was up 2% and earnings per share was up 4%. Those are inclusive of a year-to-year headwind from the actions we took in the first quarter to continue better positioning our business for the long-term. I’ll expand on this in a minute, but what you’ll see in the underlying operating dynamics is that we improved our gross margin trajectory, expanded our PTI margin and had solid growth in earnings per share. Looking at the year-to-year dynamics let me start with revenue. As I said, we’re up 5% at actual rates, with 6% growth in Cognitive Solutions,…

Thank you, Jim. Before we begin the Q&A I’d like to mention a couple of items. First, we have supplemental charts at the end of the slide deck that provide additional information on the quarter. And second, as always, I’d ask you to refrain from multi-part questions. So operator, let’s please open it up for questions.

[Operator Instructions] Our first question comes from Katy Huberty from Morgan Stanley. Your line is now open.

Jim as you noted Storage was the disappointment in the quarter, can you just talk a bit more about what drove the change in the pricing environment, your execution and some of the actions that you had to take to reposition that business. And then just more broadly can you talk about the expected pay back on the actions that you took in the quarter both in terms of the amount and timing of the return on the workforce rebalancing. Thank you.

Katy, thank you for the question. So we’ll go in two parts, let me address storage first. As I stated in the prepared remarks we were disappointed in our storage performance especially after four quarters of growth, our 1Q fell below our own expectations but I’ll tell you we have a great team with a proven track record. This is the same team that has proven that they’ve revitalized the portfolio in the past, took market share for four consecutive quarters and now we had an impact in the first quarter predominantly just due to execution of transactions at the end of the quarter. This market in storage is continued to be very competitive and very aggressive. It is a battle right now on market share, but we feel comfortable that we’ve got new portfolio offerings that are coming out later in the year, as we get through the latter half of second quarter and then to third quarter and fourth quarter and we’ve already taken significant actions on how our routes to market and our economic equation will all of our channel partners are put in place and with that great team that has executed in the past. We have all the confidence in the world that we can get our storage business back to where it needs to be as we move forward in the second half of 2018. Now let me talk about your second question because as you stated, there are lot of dynamics that have played out this quarter. Many of which we talked about 90 days ago, so let me spend a couple minutes to unpack this because I think we should spend our time on fundamental underlying business performance when you take a look at our significant items that I talked about. So…

Thanks Katy. Can we go to the next question please?

Our next question comes from Toni Sacconaghi from Bernstein.

So Jim, you had talked about growing revenues in the first quarter and you fell short of that this quarter with flat revenue growth. You highlighted storage was that really the only area of disappointment in where you thought you were 90 days ago and if we kind of look forward, I suppose critics could say, the IT spending environment is very robust, you’re benefiting from a mainframe cycle, comparisons are relatively easy, isn’t this about as good as it gets and when we look forward, should we be thinking about the high water mark for revenue growth being this quarter or what might change that?

Yes, Toni. Thanks for the question. Pretty long question I’ll try to make sure I can answer each component. First of all as you stated, we did post revenue growth $19.1 billion up 5% at actual rates up modestly at constant currency which is you saw in the chart rounds to flat. And as I stated upfront, being transparent we fell short to our own expectations and I talked about storage already and I’m not going to repeat that. We have confidence in the team, we have confidence in the portfolio and we know we’re going to get back on the field and turn that business back to growth as we get into second half, but let just play out a little of the dynamics of our first quarter in the profile of our revenue. We had strong growth and let’s start with the strategic imperatives which are the signpost, of us capturing the value in the secular shift so we can lead in the high value IT segments moving forward which are instrumental to our overall financial model. Our strategic imperatives were up 15% at actual rates and up 10% at constant currency and on a trailing 12 months we’re at $37.7 billion, 47% of IBM. That trajectory if you just play that out, says we’ll deliver our $40 billion signpost before the end of 2018. Now unpacking that strategic imperative let’s talk about the fundamental drivers of that. One, our Cloud business. Our Enterprise Cloud continues to resonate from a strategy value prop and we’re continuing to gain momentum. Over the last 12 months $17.7 billion of revenue up 22% at actual rates or as a service component underneath that, $10.7 billion that’s up $400 million on an annualized exit run rate just from three months ago and…

Okay, operator. Can we please go to the next question.

Our next question comes from Wamsi Mohan from Bank of America Merrill Lynch. Your line is now open.

Jim, you obviously had very strong revenue growth here in the quarter, but the PTI margins are really massed by the impact of these significant items you called out. Can you give us some color on – in the underlying businesses where you saw the most underlying improvement in PTI trends, if you exiled these significant items, some color and the confidence that you expect that this should improve materially from 2Q through the end of the year? And if I could just ask a clarifying question as well, what specifically were the significant items that impacted Cognitive PTI margins. It seemed that you called out the skill base trends for high value areas and Systems cost structure but not quite sure what specifically impacted Cognitive. Thank you.

Sure, thank you Wamsi and thank you for the complement. We’re pleased with our performance here in the first quarter and it’s first substantiation as we may continue progress in delivering consistency of operational performance I talked about in 2018, so let me first talk about the clarification question with regards to the significant items. As we talked about, we have repositioned our portfolio over the last couple of years, you know quite well we continue to create new offerings to address new value in the market from a client perspective and we’ll continue to adapt that overall and to compete in that light of business, we got to continuously revitalize our skill base and within parts of our cognitive solution portfolio in particular around areas of talent, collaboration and commerce we’re monitorizing [ph] our set of offerings to address shifts in client value and address shifts in consumption models. And we need to revitalize our skills to compete in that area, so in Cognitive Solutions that was predominantly a workforce remixing, we vitalizing charge that was taking to SG&A. Now let’s go to your overarching question and talk about what we see with regards to the fundamental trajectory of our business. And yes the question in terms of our pre-tax margins and how it’s distorted and that’s why I’m glad Katy asked that question upfront because I think we got to get clarity on the underlying dynamics and the fundamentals of our business existing first quarter, so let me just take a minute by each segment because I think each segment should be looked at little differently, from a gross profit margin perspective, it is very appropriate to look at your services based to businesses just given the overarching cost structure and how you drive utilization and return on…

Okay, let’s go to next question please.

Our next question comes from Steve Milunovich from UBS. Your line is now open.

I just wanted you to indicate whether you expect to see and the 16% tax rate reported the balance of the year or rather you think there will be further discretes. And similarly are we done with workforce balancing charges for the year.

Thanks Steve for the question. As we discussed 90 days ago, we said that we would expect into 2018 that our ongoing underlying operating tax rate will be in the range of 16% plus or minus two points before discrete. I would tell you that still remains today, we executed on what we disclosed 90 days ago but expected tax discrete in the first quarter. But as you know these tax discretes by definition they’re unknown in timing and in scope. And we’re continuing to drive the tax optimization as you would expect of us because it’s a critical element of our underlying operating leverage in our company and our financial strategy, but right now I would fully expect 16% plus or minus 2% and as we move forward. And one last thing consistent to what I said 90 days ago is that on a full year basis, all in, we still expect tax to be a headwind.

Okay, good. Let’s go to the next question please.

Our next question comes from Tien-tsin Huang from JPMorgan. Your line is now open.

Just wanted to dig into the Services a bit, with the signings that was encouraging. It sounds like signings were double-digit in some key areas including app [ph] and maintenance. It sounds like you mentioned price margin was also [indiscernible]. So I’m just trying to reconcile the signings commentary with the actions to reposition, the workforce rebalancing which I presume will include services headcounts. So are you going to see any negative revenue impact from the actions on the services side, again just trying to reconcile the actions and the potential revenue loss with the strong signings and what it means for the outlook? It got to make sense.

Tien-tsin, thank you very much. Yes we were definitely pleased with our signings performance in the quarter as I indicated, we delivered over $9 billion of signings up double-digits and up across each of our businesses and that has positioned our backlog now at $120 billion and that’s up 4% and I would argue 4% at actual rates is right way looking at backlog because that’s what’s going to play out as time goes on at current spot rates. So we’re pleased with that overall, but the underpinnings when you get underneath signings and backlog. In GTS, we grew signings 20% year-over-year with over 40% in cloud and in our infrastructure services our outsourcing business backlog is now about a point better than where it was a quarter ago and we improved our overarching GTS backlog quarter-to-quarter and as I talked about March 8 at the Investor Day webcast. Remember we’ve kind of held our outsourcing backlog pretty consistent over a decade and now we change and capitalize on the secular shifts and about 40% of that underlying backlog now sits in strategic imperative areas of which cloud makes up the biggest piece and the other important point around signings I will talk about is, when you look at the good growth in signings we had in the first quarter, over 40% of that was driven by cloud based signings. So we’re capitalizing or winning and we’re improving the trajectory of our business. Now let me talk a little bit about margin because I spent on the last answer. The substantial trajectory improvement we saw quarter-over-quarter 200 basis points in GBS and 150 basis points in TS & CP. The way I like to look at these margins as we spent the last two earnings calls, I look at the fundamental drivers of how you operate that business both from a human capital base perspective you got to drive scale efficiency, you got to drive mix through value and price, you got to drive productivity, your fundamental human capital and then as you get operating leverage, you should be able to get, growth through operating leverage. So [technical difficultly] work to do going forward but based on the trajectory and the actions we took to reposition our business that makes me comfortable stating that in the second half our services margins will be accretive.

Thanks Tien-tsin. Let’s go to the next question please.

Our next question comes from Amit Daryanani from RBC Capital Markets. Your line is now open.

I guess Jim if I get maths right, adjusted [indiscernible] one time items gross margin were down 30 basis points in the March quarter. could you just walk me through what do you think are the top [indiscernible] things levers that can help you grow from gross margins declining in Q1 to essentially achieving a stabilization for calendar 2018 that should have implied margins [indiscernible] go up for the next three quarters including Q3 where I think it compared to get [indiscernible]. So what are the [technical difficulty] that give you confidence margins can improve for the remainder of the year?

So let’s talk about this. So again guidance of maintaining at least the $13.80 and as we talked about, there is always many scenarios – team, we drive them like crazy here in a very sharp period of time to get ready for this call, but we look at the trajectory of our business, we look at all of your operational indices and that positions how we can triangulate around the guidance that we give externally across our financial model strategy we talked about in Investor Day. Revenue contribution that is growth mix scale and around operating leverage that is productivity and that is as we get that growth what’s that operating leverage we’re going to get on human capital. So it positions both top line and around margin, so let me just give you a perspective of what we see underpinning the $13.80 in terms of gross margin. 1Q as you talked about we printed all in down 70 basis points. If you exclude the significant items so that you can understand the underlying trajectory of our business going forward our margins were down 30 basis points, that’s coming off fourth quarter being 140, in my book that’s stabilization that’s what we guided to in first quarter and that’s what we delivered. Now with that trajectory improvement that we saw being base of a cost continuing to get scale, continue to get improvements and productivity which we miss by the way, if you remember our discussions 90 days ago and around mix, we do see that trajectory improvement to move forward, but our full year guidance only requires stabilization of margin. And the actions we took in the first quarter I will tell you positions us better than what I said here 90 days ago. On how we can…

Thanks Amit. Let’s go to the next question please.

Our next question comes from Mark Moskowitz from Barclays. Your line is now open.

Just continuing that thread in terms of trying to understand how the revenue component would help drive that margin expansion of the overall equation. Is there any – you can give us in terms of how we should think about the legacy outsourcing business that IBM almost three and five and seven-year outsourcing deals that were consummated before IBM became a bigger and better cloud vendor in the last couple of years. Is there any sort of cycle forthcoming whereas those deals unwind we could see conversion or transition to more like cloud like workloads for those customer and therefore you achieve better scale at your 58 data centers, is that since like it happened this year or it’s something more 2019 or 2020?

Thank you, Mark. I appreciate the question. I would tell you we’re seeing that already. I mean the secular shifts that have happened in the market place and are happening and will continue to happen are right in front of us and that’s why I thought it was very interesting and why we shared some of the signpost data about our outsourcing composition and our backlog and how we’ve been able to maintain it over a decade long period while continuing to capture those secular shifts in cloud. Today as we exit first quarter total backlog of $120 billion, our outsourcing backlog is somewhere around that $80 billion number and within that our shift to cloud is somewhere in the neighborhood of 25% to 30% already that is providing us tremendous scale efficiency as we leverage in the 58 and actually I think now we’re north of 60 cloud data centers around the world and we’ll continue to differentiate ourselves as we move forward. So we have been focused, I think it’s in attestation to the value of incumbency, the value of trust and we talked about the differentiators about our innovated technology, about our deep industry expertise and about the trust and security of our clients, our GTS business are managing the critical workflows and critical business processes of our clients and as they looked for efficiency in delivering a new model around cloud, we’re actually capitalizing on that as we move forward. So not only it would help our revenue, it will help at the end of the day our margin and our scale efficiencies as we go forward.

Okay, we’ve covered a lot of topics today and we’re going a little long, so I’m going to take one last question, please.

Our last question comes from David Grossman from Stifel Financial. Your line is now open.

So Jim, I’m wondering if you could just follow-up few of the earlier questions, you did a good job of explaining the dynamics by business unit that said, we have this issue of comping [ph] the mainframe cycle later this year and you just stated, we probably should count on it elongated cycle. So are the improving service metrics that you shared sufficient to give you more confidence that these businesses will be sufficiently position to offset those headwinds that will be created by the anniversary cycle whenever it may happen and then just secondly, a point of clarification. Should we expect the margin benefits from the significant items to benefit both the second half of this year and the first half of next year on a year-over-year basis?

Okay, David. Thank you very much for your question. So let me address the second one first because I think that’s a short answer. As I stated both in the prepared remarks and the Q&A we expect the annualized savings to be 2X the investment we’d get about half in the second half so obviously yes that also strategically positions us for the first half plus going forward into 2019 because remember we took these actions to better reposition our business for the long-term and what’s required to continue to generate and create client value and shareholder value as we move forward, so that’s the first question. The second, that’s why I specifically with regards to your wrap around fourth quarter mainframe etc. that’s why I specifically walked through the margin dynamics of what we see playing out throughout the year. We realize and I think it’s prudent based on what we’ve done with our guidance of at least $13.80 we know we got a mixed headwind. Now believe we got in entire mainframe team in 170 countries around the world that are driving like crazy to deliver the value to our clients to make this a secular shift versus cyclical, we’ll put that aside for right now that’s for tomorrow, as we go drive the operational execution being 17 days already into the second quarter. But we do see scaled efficiencies based on the momentum trajectory of our cloud business and as the service, we see productivity played out very nicely for us in the first quarter and with the actions we took in the first quarter, it positions us for the second half as we move forward to get our services business to accretive margins to help us overall and lastly, when you take a look at it,…

Operator, let me turn it back to you to wrap it up.