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

Thank you. This is Patricia Murphy, Vice President Investor Relations for IBM. I'm here today with Martin Schroeter, IBM's Senior Vice President and Chief Financial Officer. I'd like to welcome you to our first quarter earnings presentation. 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 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 their related GAAP measures in accordance with SEC rules. You'll find reconciliation charts at the end of the presentation and in the form 8-K submitted to the SEC. Before turning the call over to Martin, I want to remind you that at our investor briefing in late February we discussed a number of changes to our management system and our organizational structure. As a result our segment reporting structure has been updated to reflect our business structure. We provided two years of historical financial information by quarter on these segments a few weeks ago, this can be found in our investor website. Today we'll be discussing first-quarter results in this new segment structure. In addition you'll see that we've updated our earnings presentation slides not only to address the new segment structure but also to provide additional disclosure on our strategic imperatives and to provide more commentary on the business drivers. So with that, I'll turn the call to Martin Schroeter.

Thanks, Patricia. Again, this quarter, we've made a lot of progress in transforming our business, and we got done what we set out to do to start the year. We delivered $18.7 billion in revenue, $2.3 billion in net income and operating earnings per share of $2.35. Importantly, we also made significant investments and took significant actions to accelerate our transformation and move our business into new areas. Our enterprise clients are looking to get greater value from their data and IT environment. They're not just focused on reducing cost and driving efficiency but using data to improve decision-making and outcomes. They're looking to become digital enterprises that are differentiated by Cognitive. Our strategy is based on the point of view it this requires a solutions-focused industry expertise and innovative technology, all supported by leading-edge skills. And so to move our clients into the future, we've been making significant changes to our business. We're not only transforming our existing businesses but building new markets and addressing new opportunity areas. We're creating Cognitive Solutions that marry digital business with digital intelligence. We're bringing our industry expertise together with these cognitive solutions and we're building it all on cloud platforms. And because we're running our clients' most critical business processes today, we're in a unique position to move them to the future. We've been shifting investments and, resources and as we move our business forward we've also changed the way we run our business to be more aligned with these opportunity areas. We have proof points that we're making progress. This quarter, we continued our pattern of strong double-digit growth in our strategic imperatives. This revenue was up 17% at constant currency, which is consistent with our performance on the fourth quarter and continues to be substantially faster than the markets growth.…

Thank you, Martin. 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. These too have been updated to reflect the new segment structure and additional information provided. And second, I'd ask you to refrain from multi-part questions. Operator, let's please open it up for questions.

Thank you. At this time, we will begin the question-and-answer session of the conference. One moment, please, for the first question. First question is from Tien-tsin Huang from JPMorgan. You may ask your question.

Hey. Thanks, Martin, for all the detail. Just to build on your closing comment on the original 15% from last quarter, timing-wise, what shifted from what you expected? Or is there some conservatism to consider? Because I guess with what you reported, it looks like actual could be around 17.5% of the full-year guidance.

Yeah. Thanks, Tien-tsin. So, you're right. If we were just to line up the math of where we finished relative to the at least $13.50 at that base level, we'd be about 17%. So the first quarter, I would say I'd characterize a couple of ways. One, on the top line, we got done what we wanted to get done and, in fact, the signposts that we've given to our investor community around driving double-digit growth while we continue to invest in those areas played out pretty much as we expected. And we are growing our revenue in those strategic imperatives faster than the marketplace, which we think is an important element as we transform the business. On the profit side, the first quarter played out kind of the way we said we would get done what we would in February, which was we were going to get a tax benefit and that we were going to accelerate the transformation. So we put of all of that together and while – because we had some of the restructuring already in the run rate, if you will, we did better, if you will, than what the original guidance implied. So the math you're doing is kind of spot on relative to that $13.50. We are seeing the dynamics in the revenue lines that we had expected and we're seeing the profit equation come together as we kind of expected, again, given that nuance that we had some of the restructuring in the run rate. The other thing I'd point out, what's not in yet is obviously some of the newer acquisition content. We closed on Truven about a week and a half ago. We closed on The Weather Company's digital assets during the quarter, so not a full quarter. Those come also with our intent to grow the spending in those to create new solutions. So when they come in, at whatever profitability they were, we build our business cases around substantial investment in those two. So we'll get the revenue but the profit impact, as we said in the prepared remarks, will last for a couple of quarters.

Thanks, Tien-tsin. Can we go to the next question, please?

Thank you. Our next question is from Toni Sacconaghi from Bernstein. You may ask your question. Toni Sacconaghi - Sanford C. Bernstein & Co. LLC: Yes. Thank you. I just wanted to clarify something, just because you said it very quickly at the end of the call, and then I have a real question. So you're guiding for 38% to 39% of earnings in the first half, which I think implies $2.85 in EPS for Q2. That's about $0.60 below consensus, and only about a 21% increase sequentially. Historically I think you're at 30% or 35%. So I just want to be sure I did the math right on that. That's the clarification. And my real question is, it's really just where you think you are in the transformation. We continue to see really good growth on the strategic imperatives. But revenue growth at constant currency was minus 2 and I think on an organic basis was probably about minus 3. And that's kind of at the low end of what you've done over the last eight quarters or so. So maybe you could help us understand, is it just the combination of the transformation still requiring time? Or is there something about the move to an as-a-service model? But why aren't we seeing some gradual improvement in revenue on a constant currency basis? And can you help us understand, is there something that you either anniversary or overlap, or when investors should think about seeing that inflection point in terms of improving revenues?

Sure. Thanks, Toni. So first, on your clarifying non-question, I think the way you described it is what we said. We said we'd get 38% to 39% of the first half done, and your math was right on. The one thing, though, I think it's important to remember, and I know you know this, but I think we ought to bear in mind the business looks fundamentally different as we transform it. And so, using first-half averages from days gone by when currency was different and the level of transformation and the pace of transformation was different and the levels of investment were different, I would caution our investors to make sure they understand the underpinnings of that. And so that's why we laid out, if you will, within my prepared remarks – that's why we laid out what we saw happening in this quarter from first to second. So again, your math was right, we said 38% to 39%. But again, there is a lot more going on within the transformation than just the statistics. And I think it's important to understand the componentry. In terms of where we are in the transformation, I think I'd make a few comments. One, continued growth in the strategic imperatives – as you said, good growth and we're pleased with the double-digit growth. It's a big part of how we're measuring our progress. The other element that we're measuring, and we talked about this at Investor Day and it holds true as well in the first is, are the spaces we're going to, are they generating higher value than the spaces we're moving from? And as we showed at Investor Day, our gross margins in those new areas continue to be higher, and they were higher again in the first. So that's…

Thanks, Toni. Rowena, can we go to the next question, please?

Yes, thank you. Our next question is from Katy Huberty with Morgan Stanley. You may ask your question. Kathryn Lynn Huberty - Morgan Stanley & Co. LLC: Yes. Thanks, Martin. The software and the GBS businesses have the highest strategic content, and both of those declines improved from what you outlined happened in 2015 at the Analyst Day. At the same time, deferred revenue grew for the first time in almost two years, which is tied to at least the software portion of the business. So, just curious if you isolate those two segments where you've had some big headwinds. Do you feel like you're moving beyond that and you've seen a sustainable turn in those businesses? Or is there something about annuity versus transactional mix in the first quarter where we shouldn't assume that those businesses continue to get better? Thank you.

Sure, Katy. So, a couple of things. First, on software, we did talk about in January that we would we'd get an improved trajectory in our software business just from the mix of transactional annuity, and we did get that. So we did see an improvement from the mix in lower transactional content in the first, then in the fourth that drove some improvement. Secondly, we also got a benefit from the acquisition content that closed. That added about 2 points as well to the software performance. So with the annuity component of our software business continuing to grow, with the acquisition content coming in, I do feel okay about our software business going forward and the acquisitions that we've completed more recently will also help support that software business. So from a revenue perspective I feel okay about the investments we've made and the future of the software business. Now, on the profit side, those take spending to create the kinds of solutions that we think will create new markets, so we'll continue to invest heavily, but the improvement we got from the mix was what we said we would get in the first and then we got the benefit of acquisitions as well.

Very good...

Oh, sorry. I'm sorry, Katy. You also asked about GBS. So on GBS, we did see a sequential improvement from fourth to first, and we saw that in our consulting business as well. Now, in the GBS business, the strategic imperatives content continues to do fine in the GBS business, and we'll continue to shift our labor pools and our expertise into those. And you saw that we made some acquisitions in that digital channel to create – again, to keep our lead, I should say, in being the world's largest digital agency. What you also saw us do over the last few months now in GBS is we moved – we continued to move our business to where we see the greatest consulting opportunities. And quite frankly, we stayed in these big ERP implementations a bit too long. And so now, what you saw us buy a few months ago was a company called Meteorix, which is really built around helping companies move into workday solutions. And then you saw us recently announced the acquisition of a company called Bluewolf, which works on sales force implementations. And so as the world moves into what we've always said it would, which is that the shift to cloud creates consulting opportunities because companies have to fundamentally change workflow, we did, quite frankly, move a little bit late, so we're playing a little bit of catch-up in that part of the business. But with these two acquisitions, we'll drive growth in what are two pretty hot market opportunities and we'll continue then to pull resources away from that commoditizing content and drive more the shift into the strategic imperatives.

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

Yes, Ma'am. Thank you. Next question is from David Grossman with Stifel Financial. You may ask your question. David M. Grossman - Stifel, Nicolaus & Co., Inc.: Hi. Thanks. So, Martin, can I just quickly follow up on your software comment? So based on current visibility, can growth stay on this trajectory in the more seasonally difficult second quarter, and will acquisitions actually contribute more in the June quarter given the first quarter activity?

Yeah. So the simple answer is that acquisitions that we've gotten done now will add again to the growth rate in the second quarter. If I looked at – if we look at just the Cognitive Solutions segment as an example, part of that business, our transaction processing system business – that's a very high value business. It declined 5% in the quarter, but it's in a declining market opportunity space. And so we're providing very high value to our clients. We run their most important transaction systems. We'll continue to do that. We'll continue to refresh those products that delivers the new capability, but quite frankly, that is an opportunity that will decline over time. But again, we'll decline with it. We won't lose share. When we look at the software solutions part of that Cognitive segment, you saw that we got back to low single-digit growth in the first, and with the acquisition content we see that continuing to accelerate even in the second already. So that acquisition content will help bolster the software results as we go through the rest of the year.

Thanks, David. Can we take the next question please? Rowena? We can't hear anything from our side, Rowena?

Yes. Hello? Yes. Hello. Our next question is from Louis Miscioscia from CLSA. You may ask your question.

Okay. Thank you. So going back to GBS again, you have strategic imperatives there at $3.1 billion, and that the total category is $4.1 billion. So when we look at the revenue, should we assume that that $1 billion that's not in the strategic imperative that's not growing is what's basically got a wind-down? And maybe you could give us an idea of how quickly you think you can transfer that over, or maybe I just couldn't (52:45) do the math on the percent decline, if that's accurate?

Yeah. I guess the way to think about it is that within the Global Business Services, that the areas we're moving out of have a lot of price pressure. So implementing these large-scale ERP implementations, we see a lot of price pressure in there. And the areas we're moving into are continuing to grow pretty well, but we're building those. By the way, they're going to take a while to build. Some of them are brand-new practices. So as an example, we just announced the creation last year, at the end of last year, of a cognitive practice. That doesn't exist anywhere. It's the world's first. We are building skills there. So within the GBS segment, again, this shift we've been working on, we were a little bit late in some parts of it and moving more into – if you will, moving more into the consulting side of this. But we have the total of strategic imperatives is within that segment is about $2 billion of the $4.1 billion. The chart that you may be looking at is not additive, right? The strategic imperatives are $2 billion. The cloud element is $600 million; that's within the $2 billion. And then the as-a-service is $0.5 billion; that's within that as well. So it's not additive, it's not three – one of the four; it's two of the four with those two as the components.

Thanks, Lou. Can we go to the next question, please?

Thank you. Our next question is from Steven Milunovich from UBS. You may ask your question.

Okay. Thank you. A couple of quick ones. Number one, the currency impact last quarter, you said, would be $1.10 hit to earnings this year. With currency now improved, what is that number likely to be? Number two, free cash flow. You said $11 billion to $12 billion; now, at the high end. Is the only difference the $1.2 billion that you received in the tax rebate, or has anything else changed in your underlying view? And then third, do you expect any more restructuring charges this year? Are those in your guidance at all?

Okay. Steve, thank you for the non-multipart – no, it's okay Steve. As you said, they are quick. They're good questions because it's all important data. So first, on constant currency, we said that in total, the currency impact would be over $1 billion for us in the year. Now, bear in mind that a big part of that, the bulk of that, almost all of it, was because of the hedges we had last year which we're not going to get this year. So we had to work our way through that. Now, at current rates, obviously we see – we still see the same size impact from the hedges because those were there last year. At current rates we would get a bit of a translation benefit, but I think it's really important to recognize that while as much as we like to think this is uniform on both sides of a dollar move, and we do believe that a weaker dollar on balance helps us, a weaker dollar also drives renegotiation in price and other things that come into the equation. So the impact at this point, the hedge impact on the currency rates today is obviously exactly the same. We'd do a little bit better at this point in profit if we were able to keep it; we'd do a little bit better there for the rest of the year. On free cash flow, I'd say it really is – I wouldn't attribute it all to the tax that we got back. I would attribute it to we're through 90 days, we've have $100-plus billion balance sheet, and when we look at the ins and outs and the efficiency of the balance sheet, we feel incrementally more positive about the realization for the year. And then…

Thank you, Steve. Can we take the next question, please?

Yes, thank you. Next question is from James Schneider from Goldman Sachs. You may ask your question. James Schneider - Goldman Sachs & Co.: Thanks. Good afternoon. I wanted to ask about the services business, what you're seeing there specifically as it relates to your customers' discretionary spending outlook for services. You had a very strong signing quarter last quarter, but that was not so strong this quarter. I think it was down 17% year-over-year. Understanding that that can be very lumpy, does it say anything about the discretionary outlook for services among your clients? And can you maybe just address when we might expect to see that margin inflection in GBS?

Sure. So, a couple things. On services, in terms of signings, as you said, they tend to be lumpy. Maybe not the most elegant of words to describe it, but it is an accurate description of what happens in any 90-day period. Quite frankly, when you look at the kinds of relationships we're building with our clients, neither the IBM teams involved that are building these nor our clients are thinking about these on a 90-day cycle. These are pretty big, transformative partnerships that we build, and they're running and trusting us to run their most important and most critical systems. So it's completely understandable why a 90-day reporting cycle may not work. We also have looked, and we've told our investors over time to look at the backlog. So when you look, for instance, within the GTS business, our backlog, even with the signings performance in the quarter, but because we've had strong signings last year we grew the backlog 1%. And I think that's indicative of the kind of demand profile we see for those kinds of services. Remember, within that business there is certainly an element of productivity, i.e. our clients are asking us to do and manage that for them in a way that gets them to a sustainable economic model, which means we need to deliver productivity quite regularly. And then it also includes a lot of what they want in terms of moving into hybrid cloud environments and taking advantage of the investments they've already made in their own systems plus getting the agility from us running their cloud. So that services business, again, the demand profile I'd say looks more like that low single-digit kind of growth rate, which is evident in the backlog. And then we'll – again, given the transformative nature of some these deals, we'll sign them when they're ready and when they're complete. In terms of margin on GBS, we've talked a fair bit about what we're going through with GBS. The only thing I'd add to the comments we've made is, again, we continue to see that the areas and the spaces we're moving to are more valuable as measured by gross profit margin, if you will. They're more valuable than where we're coming from, and so we see certainly a bright future. Now, it's just a matter of getting that weighting right and working our way through the transition and transformation of that, where we have a bit of a productivity impact as well.

Thanks, Jim. Rowena, can we take the next question?

Yes ma'am, thank you. Our next question is from Amit Daryanani from RBC Capital Markets. You may ask your question.

Thanks. Good afternoon, guys. Could you just talk about the workforce transformation that you guys are implementing right now? What sort of gross savings are you guys targeting to get? I realize the net number may be fairly modest, but – just what sort of gross savings you think you can get, when does that start? And then the M&A contribution, can you just talk about what total revenues and strategic growth looks like on a organic basis, ex currency, ex M&A?

Sure, Amit. A couple of things. So on savings, if you will, and as you've pointed out, we're going to – we expect that we'll reinvest a lot of the savings as we start to realize them and as we start to achieve the savings. So in the prepared remarks and in the charts we've distributed, we've actually laid out quarter-by-quarter when we would expect to get about that $500 million or so of savings this year. And then we've also identified on a full year basis, that this frees up – for our spend rate, it frees up about $2 billion that we will now look to shift into these new areas. That's how we think about it. Again, this is not about capacity reduction; it's actually about moving into these new areas where we see new opportunities. And then from a revenue perspective, as I covered in the prepared remarks, in the first quarter, the contribution from acquisitions in terms of revenue growth was under a point. Now, we've since closed Truven in April and we didn't have The Weather Company, for instance, in the full quarter, so we'll get a bit over a point as we go into the second. But we don't see – it's not adding 3 or 4 or 5 points here. It really is a point to 2 points as we go into the second in terms of acquisition contribution to revenue growth.

Thanks, Amit. Can we take the next question please?

Yes ma'am, thank you. Our next question is from Jim Suva from Citigroup. You may ask your question.

Thanks very much. I was taking a look at your supplemental information on slide 20, and you discuss the signings down 17% year-over-year. And I understand that they're kind of lumpy. Could you address the service backlog, which was down 1% year-over-year, and help us understand how mathematically that number is adjusted for acquisitions that are coming in the year? Thank you.

Sure. So, the first one or the second part of that, the acquisitions we're making are in things like software businesses. They are in as-a-service businesses. There's nothing in the backlog from acquisitions. So in the back-up information – and first, Jim, I do want to say, since we put so much time into all these backup charts, I do appreciate that someone's looking at them all, so thank you for that. In the services backlog of down 1%, there are really two components. One is, as I mentioned a couple of questions ago, the GTS component of that continues to grow about 1%, so think of it as low single-digit. And I think that's a good reflection of the demand environment for the kinds of services integrators that our GTS business is becoming. The other piece of that is the GBS backlog, which is down 5%. So that down 1% is up 1% for GTS down 5%. And that's a reflection of our shift out of these large ERP implementations and the need for us to build some of these new businesses like Cognitive. So there's not a lot of, obviously, Cognitive signings in that backlog yet because we've created the practice within the last six months, and we're building the skill base and we're building the relationships with our clients. It's really those two dynamics. It's pretty good, stable growth – stable but growing in GTS and a decline in GBS as we shift into those new areas.

Okay, Rowena. Why don't we take one last question, please?

Thank you. Last question is from Wamsi Mohan from Bank of America Merrill Lynch. You may ask your question.

Yes, thank you. Martin, you took the opportunity to invest at a higher rate given the tax refund to accelerate your transformation. How should investors think about that acceleration? Will you get to your goals and strategic imperatives revenue faster than 2018 because you're now investing at a higher pace and acquiring these skill sets, or perhaps throw off higher cash flow faster? And if accelerating the transformation is the right move, then why not like increase leverage and reinvest more aggressively for the remainder of the year as well instead of sort of waiting for the tax refund?

Well, a couple of things, Wamsi. So, we are investing quite aggressively here. And I run the deal committee. We have pretty active discussions still on what else we should acquire in order to build, again, new businesses, to extend the lead that we have in a business. So we'll keep doing that and we'll think prudently about where we deploy our capital. Now, in terms of spend rates, as I mentioned, investments are shifting our workforce, if you will, investing are changing the way we operate. It's changing the way we engage with one another. So if the world created 5,000 cognitive experts, we would hire 5,000 cognitive experts. We already have, by the way, the largest private math department in the world, and so we are absorbing, if you will, the skills that we need for our business in order to drive these. But there is a rate at which it doesn't make sense for us to keep putting money into these because the world doesn't create them any more. It's not a problem that can be solved by spending more money. It's a problem that is constrained by the kinds of skills the world's creating. So we have a global search on for talent. People come to IBM and we got about 1.2 million applications – applicants I should say. We've got more applications, but 1.2 million applicants. They come here in order to work with the leaders in their fields. What we find is that skills have gravity and highly skilled people want to work with others in their fields who are also highly skilled. So they come here to work with our unique data sets, with our unique technologies, with our unique industry expertise, in order to change the way the world works in order to change the way industries operate, in order to change professions. And we'll do that as fast as we can, but you can get a sense – I think we talked earlier, not in this call but in prior calls, that we hired 70,000 people last year out of the 1.2 million applicants. It takes a while to find the right people, so we'll invest as fast as the world creates the skills we need.

So let me wrap up the call because we got a lot done in the quarter, and quite frankly I think we're pretty well positioned for the future. The new structure that we have been talking about which reflects our management system, we expect that it will facilitate our move to a cognitive solutions and cloud platform company, and it will also help our investors understand where we're making investments and where we seeing returns. We introduced the structure just in February. We provided the history back in March as we said we would, and now it's the first quarter that we're reporting. So hopefully, with what we've done in this transition to this new reporting structure, you found all the information helpful and helped contextualize the results you're looking at and hopefully getting some insight into the businesses as we move through the transformation. So thank you for joining the call, and we'll talk to you again in July.

Rowena, can I turn it back to you to wrap it up?