Welcome, and thank you for being here. Today's conference is being recorded. If you have any objections, you may disconnect now. I will now hand over the meeting to Olympia McNerney, IBM's Global Head of Investor Relations. Olympia, please proceed.

Thank you. I'd like to welcome you to IBM's fourth quarter 2024 earnings presentation. I'm Olympia 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 within a couple of hours, and a replay will be available by this time tomorrow. To provide additional information to our investors, our presentation includes certain non-GAAP measures. For example, all of our references to revenue and signings growth are at constant currency. We provided reconciliation charts for these and other non-GAAP financial measures at the end of the presentation, which is posted to our investor website. Finally, some comments made in this presentation may be considered forward-looking under the Private Securities Litigation Reform Act of 1995. These statements involve factors that could cause our actual results to differ materially. Additional information about these factors is included in the company's SEC filings. So with that, I'll turn the call over to Arvind.

Thank you for joining us today. Let me start by reflecting on our strong close to 2024 and performance over the mid-term model, then get into more detail on the execution of our strategy. We are pleased with the progress we made in 2024, 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. As we close out the mid-term model we laid out at the end of '21, I am proud of our achievements. We met or exceeded our target metrics for revenue growth, profitability, and free cash flow growth. 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. 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. We committed to accelerate the growth of Red Hat and we delivered double-digits for the year. Infrastructure performed in line with our model as we invested in innovation and transformed the business model. Consulting met the model for high-single-digit growth, although we acknowledge 2024 was below model. We are confident that our investment in partnerships and skills as well as our early leadership in GenAI positioned us to accelerate Consulting growth as we move forward. Overall, our technology momentum and Consulting signings bolster our confidence in our future performance. Before getting deeper into our execution, I'll make a few comments on the macroeconomic environment. 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. Geopolitical tensions, interest-rate volatility, supply-chain vulnerabilities, demographic shifts, and evolving cyber threats are creating headwinds for businesses worldwide. In this context, technology is key to driving sustainable growth. IBM's combination of advanced technology and deep consulting expertise positions us to uniquely deliver end-to-end business transformations. We entered the year intent on enhancing our portfolio. Software is now about 45% of our business with more than $15 billion of ARR, growing at double-digits. We delivered strong and accelerating revenue growth of 11% in the fourth quarter, which includes 8 points of organic growth and strength across the portfolio. This growth was led by Red Hat, up 17% in the quarter. Our early leadership in generative AI and the Consulting Advantage platform have positioned us well in today's evolving market. In infrastructure, z16 is our most successful program in history, highlighting customer adoption and continued reliance on the mainframe. We see more opportunities ahead as our Infrastructure solutions play a crucial role in helping clients bring AI workloads closer to their data and we will launch z17 in the middle of 2025. Let me now address our progress in generative AI. We continue to gain momentum with our GenAI book of business growing to over $5 billion inception-to-date, up by about $2 billion quarter-over-quarter. Approximately one-fifth of this book of business comes from software and the remaining four-fifths is Consulting. Our AI portfolio is tailored to meet the diverse needs of enterprise clients, enabling them to leverage a mix of models: IBM’s, their own, open models from Hugging Face, Meta, and Mistral. IBM's Granite models designed for specific purposes are 90% more cost-efficient than larger alternatives. Additionally, RHEL AI and OpenShift AI provide clients with a consistent and scalable AI foundation built on open-source technology. This quarter, we saw strong traction in our watsonx middleware solutions and AI assistance, including watsonx.gov, watsonx code assistant for Z, watsonx Orchestrate, as well as products embedding AI such as Concert, and consulting remains key to designing and implementing AI use cases driving watsonx deployment. Through the year, we introduced key innovations that are resonating with clients. This quarter, we launched OpenShift Virtualization Engine to meet growing virtualization demand. In Infrastructure, the Telum II processor enhances IBM Z's AI capabilities and performance. We just announced RISE with SAP on IBM Power Virtual Server, offering the fastest and easiest migration from on-premises to cloud for the 10,000 plus clients who use SAP on IBM Power. The Consulting Advantage platform is integrating our technology and industry expertise to drive business transformation. With more than 75 quantum systems deployed worldwide, our focus on emerging innovation is clear. This quarter, we announced a collaboration with the State of Illinois to establish the National Quantum Algorithm Center in Chicago. M&A remains a key enabler of our strategy. The acquisition of Neural Magic strengthens our AI solutions with advanced model optimization. Clients worldwide trust IBM to lead transformations. Notable examples this quarter include NatWest and Lockheed Martin, leveraging our Granite models for advanced AI applications. L'Oreal is partnering with IBM to use our AI, consulting, and research capabilities to develop foundation models for cosmetics formulation. We also collaborated with UFC and Ferrari, helping them tap into IBM's AI and consulting expertise to drive operational efficiency. Announced earlier this month, IBM and the U.K. Home Office will partner on the Emergency Services Network, supporting more than 300,000 emergency responders in Great Britain. Our ecosystem continues to expand as we strengthen our partnerships with leading technology providers, including AMD, Palo Alto Networks, SAP, Amazon, Microsoft, and CoreWeave. These partnerships allow us to co-innovate and deliver greater value to clients. Before I conclude, let me touch on our outlook. We see continued momentum in our business, driven by our focused strategy, enhanced portfolio, and culture of innovation. For 2025, we expect revenue growth inflecting higher to 5% plus and about $13.5 billion of free cash flow. I look forward to sharing more details at our upcoming Investor Day on February 4. I will now hand over to Jim to walk you through the details of the quarter.

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. 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. Revenue growth combined with 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. We are pleased with these results, delivering durable revenue growth in our repositioned business and exceeding our expectations on profitability, free cash flow, and earnings per share. Revenue performance for the year was led by Software, up 9%, with strength across our portfolio. We achieved Rule of 40, driven by the combination of accelerating growth and margin expansion throughout the year. Consulting revenue was up 1% and continued to be impacted by a dynamic market environment as clients reprioritized spending. While infrastructure was down 3%, reflecting product cycle dynamics, we delivered more than 120% program-to-program growth for z16, our most successful program in history. Our portfolio mix, operating leverage, and yield from productivity initiatives generated strong operating gross margin and operating profit performance. 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. These results represent our highest level of operating gross margin and operating pre-tax margin in many years. Now turning to a deeper dive on the quarter, we generated $17.6 billion of revenue, up over 2% at constant currency and ahead of our expectation. Software growth accelerated to 11% with strength across our key categories of Red Hat, Automation, Data & AI, and Transaction Processing. 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. Infrastructure was down 6%, reflecting product cycle dynamics in our 11th quarter of z16. 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 are pleased with this strong performance driven by our portfolio mix, operating leverage, and ongoing productivity initiatives, similar to the full year. This allowed for continued investments to drive innovation in our portfolio, which you can see in our higher R&D expense, up 13%. Our operating tax rate was 14%, which is flat versus last year. And our operating earnings per share of $3.92 was up 1%. For the full year, we generated $12.7 billion of free cash flow, up $1.5 billion and growing 14%. The largest driver of this growth comes from adjusted EBITDA, up about $900 million year-over-year. We realized $500 million in proceeds from the Palo Alto QRadar transaction, which was a small contribution to free cash flow given the payout of structural actions and foregone profit. We also delivered sustainable lower cash requirements through changes in our retirement plans. 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, exited 2024 with our highest free cash flow margin in reported history, and our free cash flow run rate is above our mid-term model. 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. 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. Our debt balance ended the year down $1.6 billion at $55 billion, including approximately $12 billion of debt associated with our financing business. 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, 11% for Transaction Processing, and 5% for both Data & AI and Security. We are pleased with how we finished the year, exceeding the Rule of 40 and the growth driver expectations we set back in January. Let me dive in a little deeper on each of these growth drivers. 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. This performance reflects the continued demand for our hybrid cloud solutions as clients are prioritizing application modernization on OpenShift containers and Ansible automation to optimize their IT spend and reduce operational complexity. OpenShift is now a $1.4 billion ARR business, growing about 25%, and we continue to see increased volume in OpenShift Virtualization engagements. In addition to the strength in subscriptions, we saw a recovery in the consumption-based services business. Looking forward, Red Hat's six-month revenue under contract, a reflection of the strong bookings performance mentioned, continues to grow in the mid-teens. We delivered strong results in our recurring revenue base and are seeing momentum from innovation across our portfolio. Our Hybrid Platform & Solutions ARR was $15.3 billion, up 11%. Transaction Processing delivered another strong quarter, driven by growing capacity demands, solid renewal rates, and increasing contribution from our generative AI product watsonx Code Assistant for Z. We continue to introduce new products, which are making a meaningful impact on Software's results. We have confidence in our portfolio with our market-leading businesses centered around hybrid cloud, automation, data, and transaction processing. In the quarter, about 8 points of our growth was organic, led by demand for our generative AI products like Concert and our AI assistants. We launched new products such as the next generation of watsonx Code Assistant that provides coding support for multiple languages and Guardium Quantum Safe that helps organizations monitor and manage their cryptographic security to fix vulnerabilities. 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. Our performance continues to benefit from our recent acquisitions. We are seeing growing contribution from the StreamSets and webMethods assets acquired in the second quarter. At the end of 2024, we closed the acquisition of Neural Magic, which strengthens our AI capabilities in performance engineering and model optimization. We are looking forward to the opportunities that the pending HashiCorp acquisition will bring. 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. In Consulting, revenue was down 1%. Throughout the year, we have operated in a dynamic macroeconomic environment. We continue to see clients reprioritizing their IT spending towards digital transformation and AI initiatives for cost optimization and operational efficiency as we wrap on a strong above-market performance in 2023. Our focus remains on rapidly evolving our offerings and enhancing investments in skills and capabilities to align with these priorities. Our ability to address client demands drove signings growth of 23% in the quarter, our highest fourth-quarter signings in recent history. 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. The strong signings performance takes our book-to-bill ratio up to 1.21% over the last 12 months. Our overall backlog remains healthy, up 8% year-over-year, and our backlog erosion levels remain stable. Our 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. In the quarter, strategic partnerships were a growth contributor, both in signings and revenue, with solid performance from partnerships with AWS and Azure. We are actively investing to enhance our skills and capabilities to address our clients' top priorities with acquisitions like Accelalpha, a global Oracle services provider, which closed in the fourth quarter. Earlier this month, we announced our intent to acquire Applications Technology Software, a consultancy known for driving business transformation with Oracle cloud applications. Turning to our lines of business, Business Transformation revenue grew 2%, driven by continued strength in transformational projects for data, finance, and supply chain. Both Technology Consulting and Application Operations declined in the quarter. Similar to last quarter, there was strength in cloud-based application services across modernization, development, and management. But we continue to see clients reprioritize spending away from on-prem customized services. Looking at Consulting profit, we delivered segment profit margin of nearly 12%, a sequential expansion of almost 1 point, as we continue to realize the benefits of our productivity actions. Moving to the Infrastructure segment, revenue was down 6%, reflecting product cycle dynamics. Hybrid Infrastructure was down 8% and Infrastructure Support was flat. Within Hybrid Infrastructure, IBM Z revenue is down 20% in the quarter. This is the 11th quarter of z16 availability, and the combination of resiliency, reliability, and security continues to resonate with clients. 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. IBM Z remains an enduring platform for mission-critical workloads, driving not just hardware adoption but also the related software, storage, and services. Distributed Infrastructure revenue grew 2%. This performance was fueled by double-digit growth in storage as we introduced new innovation in the quarter designed to give clients the ability to scale storage capacity to meet growing data demands to support the next generation of AI workloads and projects. For Infrastructure profit, we expanded gross profit margin nearly 2 points sequentially. Our segment profit margin was down 320 basis points in the quarter, reflecting where we are in the product cycle and continued investments in innovation. 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. As Arvind mentioned, we met or exceeded our mid-term model target metrics for revenue growth, profitability, and free cash flow growth. We have fundamentally repositioned our business to a software-led integrated platform. Let me now turn to 2025 guidance on our two key measures of success: revenue growth and free cash flow. We expect constant currency revenue growth inflecting 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. Given the continued strengthening of the dollar, we expect currency to be about a 2-point headwind to revenue growth for the year. Our revenue expectations are underpinned by accelerating growth across our businesses. In Software, given the strength of our portfolio, investment in innovation, and the contribution from acquisitions, we expect revenue growth approaching double digits. We continue to see the strength in Red Hat with mid-teens growth for the year. In Consulting, the combination of our backlog levels, record signings in the fourth quarter, and our book of business in GenAI support an acceleration in growth to low-single digits. With our new mainframe launch in mid-2025, we expect Infrastructure to contribute about a point to IBM's overall revenue growth. For the full year, we expect IBM's operating pre-tax margin to expand by over 0.5 points. Portfolio mix and ongoing productivity initiatives continue to drive margin expansion, mitigated by the impact of dilution from acquisitions. 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. For free cash flow, we expect to generate about $13.5 billion in 2025. Given the strong fundamentals of our business, we expect double-digit adjusted EBITDA growth, which is the primary driver of our free cash flow. This will be offset by cash tax headwinds and higher CapEx. Our productivity initiatives have enabled investments in innovation, skills, and go-to-market capabilities, including our ecosystem. We have accomplished this while simultaneously growing our operating profit margin and free cash flow, which in turn has increased our financial flexibility. This remains our playbook going forward, having executed on $3.5 billion of annual run rate savings exiting 2024, supporting our strong free cash flow growing in excess of revenue. Looking to the first quarter, I expect our constant currency revenue growth rate to be similar to the fourth quarter. We expect workforce rebalancing fairly consistent with prior year. We are also ramping on the $241 million gain from the divestiture of The Weather Company. Excluding the year-over-year impact of the gain, we expect about 50 basis points of operating pre-tax margin expansion. It is hard to predict discrete events. 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. In summary, we have delivered durable growth over the mid-term model and expect to drive an upward inflection. We have repositioned our business and are excited about 2025 and beyond. We look forward to discussing more details at our upcoming Investor Day on February 4. Arvind and I are now happy to take your questions.

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 multipart questions. Operator, let's please open up for questions.

Our first question comes from Amit Daryanani with Evercore ISI. Please state your question.

Thanks for taking my question. Good afternoon, everyone. I was hoping if you could just talk a little bit about when I think about the calendar '25 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 H1 versus H2 perspective, given I think some of the consulting and mainframe tailwinds could be a bit more back-half heavy. So if you could just touch on kind of first half versus second half or anything on the linearity that would be helpful as you think about '25?

Thank you for the question. We're very pleased with how we finished, as highlighted in our prepared remarks, with strong results in revenue profitability, earnings per share, and free cash flow. This gives us confidence in our guidance for 2025, which includes above Street revenue growth of over 5% at constant currency and a robust free cash flow of $13.5 billion that continues to grow. Looking at the details, we need to evaluate each segment. Our Software portfolio is performing exceptionally well. We typically see a normal progression from the first half to the second half of the year, with some seasonality between the first and second quarters compared to the third and fourth. We are committed to investing in innovation. In Consulting, we concluded the year strongly with our highest recorded signings, a 23% increase. We started the year with a backlog up 8% and a strong book-to-bill ratio at 1.21. While we are facing a dynamic environment in client spending priorities, we anticipate growth in the second half rather than the first half. In terms of Infrastructure, we performed very well at the end of our three-year cycle, particularly in mainframe, achieving a 122% delivery. We expect similar growth impacts in the first quarter, but from the second quarter onward, we anticipate growth above our model throughout the year, which supports our confidence in our guidance. Overall, while we might see slightly less revenue in the first half compared to historical trends, our free cash flow should align closely with historical performance.

Great. Operator, let's take the next question.

Your next question comes from Wamsi Mohan with Bank of America. Please state your question.

Yes, thank you so much and congrats on the really strong free cash flow performance. Arvind, would love to get your thoughts around M&A, particularly as we may enter a period of relatively low regulatory overhang. At the same time, you are delivering record cash flows. And if I could, would love to get some of your thoughts on DeepSeek and any implications that you see either for the industry broadly or for IBM in particular? Thank you.

Thanks, Wamsi. Look, we are looking forward to a regulatory environment that is a bit more rational and a bit more pro-competition. I think what that implies for us is that we think reasonable deals have a very good chance of getting through in a reasonable amount of time and not being held up for years. So with that context, that means, obviously, we are going to lean in more, which is reasonable. 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. We always look at a three-year flexibility. I think that's the best way of looking at it, Wamsi. So if you look 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 if we find targets that meet our criteria, we are going to lean in and get things done. I'm going to just finish that by saying Hashi has been waiting out there for almost a year. We certainly hope that with a friendlier environment, that gets done soon and that then begins to open up the aperture for getting more deals done. So I think hopefully that addresses both the cash flows and the regulations around M&A. Look, DeepSeek, I think, was a point of validation. We have been very vocal for about a year that smaller models and more reasonable training times are going to be essential for enterprise deployment of large language models. We have been down that journey ourselves for more than a year. We see as much as a 30 times reduction in inference costs using these approaches. As other people begin to follow that route, we think that this is incredibly good for our enterprise clients. And we will certainly take advantage of that in our business, but I believe that others will also follow that route.

Great. Operator, let's take the next question.

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

Thanks, and good afternoon. Thanks for taking my question. I was wondering if you could 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 that you're seeing. But can you maybe give us historically, the context 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 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 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 that you think are really going to be sort of standouts in the next couple of years from a Software performance perspective? Thank you.

Thank you, Jim. I'll take the first one and then Arvind can handle the second one around the products and Software overall. We take a look at it from a Consulting perspective, we've been talking about, 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 reprioritization of spending that is occurring. Clients, similar to IBM, we are cutting back on discretionary-based spend, so we can fuel investment into digital transformation and GenAI 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. Now, why have we been so maniacally focused on the GenAI ramp and 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 that. We're so maniacally focused because enterprise clients are making their strategic provider of choice decisions. 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 in the first question, is up 8% coming into 2025. Why is that important? Because 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 has less yield, it has higher durations, but we think the TAM opportunity and that multiplier effect are going to grow into each other. And that's one of a couple of components on why we have conviction of inflecting back to growth in 2025 with Consulting overall.

Thanks, Jim. So let me take the question, Jim, on the thoughts about the Software products, which I think will be standout. I got to begin with our watsonx family. Our watsonx family encapsulates our primary products that incorporate LLMs and AI technology. Our watsonx Code Assistant on how we help our clients modernize their COBOL infrastructures, our code assistance on how people leverage it for Java, and for Ansible has been absolute standouts and have been in market for almost a year. The rest of the watsonx family also, whether it's about deploying models using AI or getting the data ready and governance, have also been very strong drivers. 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 GPUs as well as what we are now going to be doing with our Neural Magic acquisition on how do you optimize and get the most effective use of the hardware using Red Hat. When you have large deployments leveraging OpenShift for AI deployment these are the final rounding out of the products. Look, to be candid, LLMs will infuse many, many other things, but the products that are called out are the ones where we count it as direct AI products and directly driving the business, and that's what is counted in the numbers that Jim laid out.

Operator, next question.

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

Thank you very much. Many of the questions have already been addressed, so I want to focus on Infrastructure and commend you on the positive shift towards Software. Specifically, I'm curious about TPP within the Software segment, which is very profitable and has grown by 11%. I would like to understand how this fits into your guidance for the year and its sustainability. I believe that the AI assistant is significantly influencing this area, possibly altering our perspective on it. Additionally, I want to discuss Infrastructure, which seems somewhat related to that segment. If you could provide more detail regarding the mainframe and the growth delta, I would appreciate understanding why you are confident this will be a successful cycle. Thank you.

Okay. Thanks, Ben. This is Jim. I'll take this. First of all, thank you for the compliments. The team has worked extremely hard. We laid out a very ambitious three-year roadmap a few years ago when we spun off Kyndryl to reposition IBM. As we talked about in the prepared remarks, the 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 TPP. First of all, you 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. This has been one of the longest programs and most consistent in terms of revenue growth that we've ever seen. I think it's an instantiation of the value of our enduring platform in a hybrid cloud and AI era overall. 120% plus prior program, 70% of the clients on mainframe are growing MIPS. That is a very different profile than where we were 10 years ago. And the installed MIPS are up 3x over the last few cycles. Now why is that important? We run mainframe, yes, mission-critical workloads for 97% of the mission-critical transactional processing around many of the different industries: banking, retail, airlines, you name it, but we run it as a stack economic platform play. TPP is a 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 to fuel investment flexibility for us to continue this engine of innovation in Software. It also provides a solid incumbency base for the multiplier effect. We grew our Transaction Processing 10% in 2024, exiting at 11%. The underlying dynamics of that, I would say about 4 points of that growth is due to the capitalization of the underlying workloads that are driving mainframe. About 3 points of that is the investment in the new innovation that we've been bringing to the mainframe platform, call that watsonx Code Assistant for Z and how we're monetizing the value of GenAI and then about 3 points of that is back to historical price optimization. If you look at 2025, our guidance, where we called software continuing to accelerate, approaching double-digit, I would say prudently right now between Arvind and I, we are looking at consistent mid-single-digit growth in TPP, and we'll see how that plays out with the new cycle of mainframe in '25.

Operator, let's take the next question.

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

Thanks. This is Bo on for Brent. Arvind, 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. What are you hearing from customers, and how are they thinking about their software budgets in 2025?

Thanks. Look, I've been quite public and quite vocal around this topic. So let's acknowledge many of the things that occupy media headlines and, as a consequence, they do occupy business leaders' heads. Geopolitical tensions may be on a better track right now, but certainly not solved. Interest rates, inflation, demographics, lack of skilled labor, supply chains; I think these issues all carry over into 2025. 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. I would tell you there is more optimism in the business climate, and there is more optimism on the growth that is possible in '25 compared to '24. We know all the reasons for that. Is it pro-innovation, is it pro-growth? Is it pro-regulation, reducing friction? All those things I believe are going to result in a better environment in 2025. That then translates into how our company is going to grow. To a person, everybody believes technology is now essential for helping them grow. How can you service customers better? How can you market better? How can you reach people more? How can you get things done in minutes instead of hours? So software is the basis for all of those capabilities. I think to a person, the budget that they will touch last, if there is ever an issue, is their software budget. So that is what is giving us confidence also, as Jim talked about approaching double-digits in Software: that software is essential to how people are going to achieve their business goals. If you can get ahead in this year, it will probably keep you ahead. So it becomes kind of a gift that keeps repeating for our clients.

Operator, let's take the next question.

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

Hi, thank you for taking my questions, and congratulations on the excellent free cash flow performance and guidance. I have a quick clarification, Jim. When considering the 2025 outlook, does it include or exclude HashiCorp? Additionally, could you provide more details on the free cash flow factors as we approach 2025, such as cash taxes, CapEx, and EBITDA growth? Any additional information would be very helpful as we refine our model. Thank you.

Thank you, Erik. I appreciate the kind words about our team around the world. It really means a lot. Regarding HashiCorp, we expect to complete the transaction in a relatively short time frame, as indicated in HashiCorp's recent filing. We are confident in our all-in revenue growth and profit margin guidance, as well as the free cash flow, which is increasing at a rate faster than revenue. Overall, we are very pleased with our results from the last few years, achieving the highest free cash flow margin in our company’s 115-year history. We ended 2024 with a free cash flow run rate that exceeds our mid-term model established three years ago, with free cash flow consistently outpacing revenue. This has strengthened our confidence in our future outlook for 2025, which also accounts for the dilution effect of the HashiCorp transaction. We estimate that HashiCorp will contribute about one percentage point to IBM's revenue growth this year, with an impact of approximately $300 million, translating to around $0.30 of dilution. Nonetheless, this remains an attractive financial model, presenting strategic fit and synergy. We anticipate adjusted EBITDA to be on a path to become accretive within 12 months, with free cash flow expected to follow suit within two years. The strong fundamentals of our free cash flow are driven by sustainable adjusted EBITDA growth that supports a durable mid-single-digit growth rate, now exceeding 5%. The operating leverage we are generating will likely lead to double-digit adjusted EBITDA growth in 2025, potentially exceeding $1.5 billion. Additionally, we plan to increase our investment in key areas, which will raise our capital expenditures by a couple hundred million dollars. Alongside that, with increased profits will come higher cash taxes, also in the range of a couple hundred million dollars. There will likely be another couple hundred million dollars related to net interest opportunity loss. When we consider these factors, we believe we have a high-quality, sustainable free cash flow generation machine positioned to deliver faster revenue growth.

Operator, next question please. Operator, can we have the next question? Operator, can we have the next question, please? Brian Essex, can you ask your question, please? All right, just please bear with us. We're having an issue with our operator. We'll be back in a minute. All right. Apologies. We're having a technical issue with our operator. So apologies that we can't finish our Q&A. We look forward to taking more questions-and-answers at our upcoming Investor Day on February 4. Let me turn it to Arvind for closing.

Thanks, Olympia. Look, we do apologize from all of us. We are looking forward to your questions, but we will get multiple hours with the team, as Olympia said, on February the 4. So I do hope that those of you who couldn't get your questions in will come that day and ask your questions. Look, just to wrap up, as we have wrapped on our midterm model, and Jim explained some of this, we executed on our strategy to deliver sustained revenue growth and cash. The changes we have made to our business over the last couple of years and our performance reinforced my confidence in this next chapter of our growth. I look forward to continuing this dialogue throughout the year.