International Business Machines Corp (IBM) Presents at Morgan Stanley Technology, Media and Telecom Broker Conference Call - (Transcript)

International Business Machines Corp (NYSE:IBM) Morgan Stanley Technology, Media and Telecom Conference March 1, 2021 11:00 AM ET

Company Participants

James Whitehurst - President

Conference Call Participants

Katy Huberty - Morgan Stanley

Katy Huberty

Welcome, everyone. I'm Katy Huberty, IT hardware analyst at Morgan Stanley. And I'm really pleased to welcome Jim Whitehurst, President of IBM, previously CEO of Red Hat.

I'm particularly looking forward to this discussion because Jim represents an important growth engine at IBM, but also provides an inside view of IBM's transformation, but with a bit of an outsider's perspective, having joined the company with the Red Hat acquisition in the summer of 2019. As President, Jim heads IBM's Cloud & Cognitive Software business and is in charge of corporate strategy.

Before we begin the discussion, I just want to point you to important disclosures, which can be found at Morgan Stanley research disclosures website at www.morganstanley.com/researchdisclosures. If you have any questions, please don't hesitate to reach out to Morgan Stanley's sales representatives.

Jim, thank you so much for spending the time today. Really looking forward to the discussion, as I said.

James Whitehurst

Yes. Thanks, Katy. It's great to be here.

Question-and-Answer Session

Q - Katy Huberty

So as CEO of Red Hat, you were successful scaling that business and then ultimately, selling to IBM at a significant premium. And I think it's fair to assume that you've had many opportunities to go and repeat that success leading other companies. But you've committed to helping IBM execute the hybrid cloud strategy. So I want to just hear your perspective on why you think this is the most attractive opportunity for you.

James Whitehurst

Well, look, yes, it's kind of a continuation of what we were looking to do at Red Hat, which is once every 20 or 25 years, there's a real transformation in computing architecture, right? The last mega transformation was client server.

And so as we go to this kind of, I'll call it -- people want to call it cloud architecture and cloud is part of it, but it's also a re-architecture of the application to be stateless or call it cloud native. Whenever there's a shift like that, there's a set of winners that land platforms, Wintel and the client server era. We are in a leadership position to land that platform, and we can talk more about it as we get through this, what we mean by that platform in this next generation, which is, certainly a huge business opportunity. But also in terms of having impact on an industry, I think we're in the best shape of anyone to be able to lay that down.

And given that both we have a leadership in that hybrid cloud platform and IBM's kind of stature and kind of where it stands with clients, I think we're in the best position to win that. And if we do, it's a truly massive opportunity.

Katy Huberty

Now you took on the role of President at IBM back in April of last year, which is a relatively new role for IBM. So talk about how you and Arvind split responsibilities. And then in your role as President, what would you say are your Top 3 focus areas?

James Whitehurst

Yes, sure. So obviously, IBM is a very, very large organization, and we're in the midst of a fairly significant change in kind of strategy. And that's not -- the change has been going on for several years, but we're really accelerating into it now and the Red Hat acquisition was kind of a key inflection point to accelerate that. So there's a lot to do. There's plenty to do for both of us.

So the key things that I'm working to drive is really evangelizing, articulating and evangelizing that strategy, and I'll come back in just a second and spend another couple of minutes on that. We spent a lot of time on that. Number two is ensuring that we are executing across the business units. IBM is unique in that we have hardware, software and services. And honestly, if you don't -- if you can't generate incremental kind of synergy value across those, why are we in a portfolio? So I'm very focused on driving across that.

And then finally, related to the strategy is a set of cultural shifts that we're looking to make in the company. And some of that -- it's not trying to bring Red Hat's culture in, but experience from Red Hat, I think, is helpful in thinking about some of the cultural elements we want to drive into our strategy.

I think it's really important. People think about our strategy as hybrid cloud, because that's kind of what we're out there talking about, hybrid cloud and AI. But as an outsider, my observation kind of coming in to IBM is IBM is amazingly adaptable in terms of we're willing to fundamentally change what we do to meet current needs of enterprise clients.

And so simple way, if you kind of roll back 25 years, in the client server world, you had all this complexity of different types of hardware and then best-of-breed applications. And back then, IBM built this massive middleware portfolio with WebSphere. And at the time, CIOs or CEOs were saying IT doesn't matter, right? It's not about competitive advantage, so we're going to hand the keys to somebody, so IBM built a big managed service business. So we built ourselves back then the capabilities and the product portfolio to meet that set of needs.

If you accelerate to today, there are kind of, I'll say, 2 components. On the technology side, it's around hybrid cloud or cloud, let me say, which is how do you create a more homogenous infrastructure than innovation can happen faster on? But really importantly, innovation is coming from so many different places. There's open source. There's start-up communities. There's SaaS vendors. There's traditional vendors. There's now the services that public clouds are offering. And so when you have this like massive amount of innovation coming from so many different places, how do you think about what's the architecture that lets you land that?

So we talk about hybrid cloud in the context of what we're delivering. But I think the why in terms of how you help enterprises consume across that is important. And then the flip side of that is no one's willing to hand the keys to anybody to go run their things for them in the same way as in the past because most CEOs see technology is core to their competitive advantage.

I was talking to one CEO and said, "I'm not outsourcing my website to anybody, right? That's how I touch base with my client." So part of this transformation we're going through as well is to go from saying, "We can offer you holistic solutions. We can still do that, but to also we can co-create and collaborate with you." And that's a massive transformation. We can talk about that in our go to market, how we engage with our clients, which is part of the cultural transformation about how do we come in not as the experts to do it for you, but we're the experts who can work with you to make it happen.

And so when I say this kind of evangelizing the strategy, leveraging the portfolio and the cultural transformation, they all fit together as part of this broader transformation of where we see a unique role we can play with our clients in today's context in technology.

Katy Huberty

That's great color on the broader strategy. Let's spend a couple of minutes on Red Hat, which is clearly a growth engine for IBM. If we look at that business, before IBM made the acquisition, it was growing, call it, mid-teens. It's now accelerated to high-teens growth.

Talk about what you think is driving that acceleration. And also, what inning are you in, in terms of capturing that $2 billion of revenue synergies that were laid out at the time of the acquisition?

James Whitehurst

Yes. So well, first off, let me kind of talk a little bit about why I think we're seeing that acceleration, and then we can kind of get into innings. First off, it's -- as we are laying down this next platform that I talked about, enterprises are now leading to bet like mission-critical things on top of this, right? And look, Red Hat is successful. People in technology knew us. But when you go to like Verizon, now landing their 5G mobile kind of edge compute platform, are they really going to trust that to Red Hat, where IBM is a partner that's been here for 100 years, has been around known to do mission-critical? And so relationships like with Verizon or we did something similar with Airtel in India. We made this big announcement with Schlumberger, where people are building like big next -- their business is going forward and betting on it, IBM has a level of credibility and capability certainly to deliver in the field that just makes us a platform that's more likely to be used. So certainly, just that credibility helps.

I think secondly, certainly to sales reach. I mean tens of thousands of salespeople out there kind of talking about it, certainly helps. We also -- and this was -- going into the acquisition, one of the things that enamored me the most and that we're laying is, we're also one of the largest ISVs out there. So landing our software on the Red Hat technology stack helps us land the platform. And we can kind of come back around that. But I think those 3 things, credibility, sales breadth and then kind of the IBM Software stack on the platform have all helped to accelerate.

Just one quick example of that. There was a bank I was chatting with in the U.K. who had chosen a competing container platform, but then it decided to use IBM Cloud Pak for Data. So an IBM product that runs on OpenShift because they wanted the features of that software. Well, all of a sudden, they realized, well that's running on OpenShift. It's like, why we have another cloud platform and then decide to standardize on OpenShift?

So there's a -- there are benefits to being on kind of both sides of that. Now in terms of -- which is why we're seeing the acceleration. In terms of what inning, hard to say. And the reason I say that is, I think this is more as multiplicative. We are going to win the hybrid cloud platform or we're not, right? They're typically not multiple winners at a platform level.

And so all of these things, to me, increase the probability that we are successful winning the platform. And so it's more multiplicative than it is additive. So I think we're still in the early days on the additive piece because, for instance, this year was the first year that we've kind of been able to jointly plan it to the account level and roll out targets to get all IBM's accounts for Red Hat and kind of really kind of get that to the level of integration you would want. So I think you will see that continuing growth or benefit in revenue going forward.

But the real juice in this, to me, is less the additive synergies and more of the probability addition that we win this platform.

Katy Huberty

Okay. And so when we think about what Red Hat can achieve with IBM that it couldn't stand alone, it really comes down to accessing those mission-critical workloads at the biggest companies in the world. Is that the right way to think about it?

James Whitehurst

Well, that's one of the components, so certainly it's the workplace. Where I'd look at it is when you're landing a platform, I also say this with Red Hat Enterprise Linux, which one could argue is kind of the default Linux platform, right?

The reason everybody buys, 70-something percent of people who buy Linux by Red Hat is because everything certifies to it, hardware and software. The reason everything certifies to it is because everybody buys it. And so getting that up the S curve of adoption requires -- I mean, how do you get that started, right? This is the magic of the platform.

So to me, a big part of this is I can bring several things to the table. It can land workloads on the platform because it has workloads. It has a services organization that could build new workloads to land on the platform. And it has sales breadth to help kind of sell that.

Well, let's say that gets you 20% of the way there, but that 20% that gets you share that kind of helps you continue to move up that S curve. And so it's -- yes, it's about landing a set of applications. But most importantly, it's about helping us maintain and grow our leadership relative to others in a hybrid environment to be able to land that platform.

Katy Huberty

Right. Now one of the most often questions I get post the Red Hat acquisition is, what is OpenShift? This idea of containers is a new concept. And when I think back to Red Hat over the last couple of decades, Linux was really the disruptive platform that allowed companies to efficiently scale their computing architecture. And then with this open approach, Red Hat Enterprise Linux became the de facto OS standard, as you said.

Should we think about -- just to simplify this for investors, should we think about OpenShift is to cloud computing what Red Hat Linux was to on-premise computing? Or is there another way to describe this new opportunity within Red Hat?

James Whitehurst

Yes. I think that's said exactly right. So an operating system ran on a server, a computer, right, and so -- and there's a certain amount of value there. Now when you start getting full data centers of computers, you want to weave all those together into kind of one platform, right? Well, that platform is really containers and Kubernetes.

Now those are Linux constructs, by the way. It's -- a container is a Linux container. It's a different way to run Linux, which it's one of the reasons we have leadership and it is all based around Linux. But yes, fundamentally, every cloud runs a container platform, then applications then can run across those. And when the analogy gets really stark is the reason we're so excited about this is in the same way that there was a clear need that emerged for a common Linux, which turned out to be Red Hat Enterprise Linux RHEL, there's the same thing for container platform.

So it's great that Amazon has a container platform and Microsoft has one and Google has one. But at some point, if you're going to run a mission-critical application or you want to be able to move an application around, you got to have common infrastructure. And those container platforms are like Linux, like upstream Linux.

OpenShift is a distribution of that, that runs everywhere. So it's like Red Hat Enterprise Linux. So containers are like Linux, the open sourcing. OpenShift is like RHEL, which is a production app version that can run everywhere.

Katy Huberty

Okay. And then just extending that conversation, how should we think about the TAM for OpenShift versus the TAM for RHEL?

James Whitehurst

So I'll give you the very simple answer, and then I'll let me back up and walk through it a little bit more 10x. It's 10x is large. And the simple way to do it is the price points 10x. If you look at -- container platforms are generally sold by core, where servers are done by sockets. But if you normalize for that, OpenShift on a server is about $16,000 to $17,000 for the server, where Red Hat Enterprise Linux is $1,600 to $1,700.

So it's a 10x price point difference. Now the reason it's 10x is there's just so much more value in the platform. So a server running an operating system, the operating system allowed the applications who run on it and provide a certain set of services around it.

When you think about a broader platform, how you think about storage, networking, application performance management, that all gets embedded into the platform and replaces other kind of point solutions that used to exist in the old client server world. So there is 10x the value in it in terms of it has the majority of what you need to manage these distributed applications, we charge 10x the amount.

So backing that math up a little bit more. If you say RHEL is several billion dollars, so the platform itself would be several tens of billions of dollars, assuming we land the platform, right? That's why this -- I've talked about the multiplicative value. I mean several tens of billions of dollars of recurring revenue software is a very, very, very large opportunity, which is why I keep focusing so much on probability of ensuring that we keep a leadership and land that because if we do, it is a very, very large recurring revenue, software margin kind of business.

And then on top of that, you then start to say, well, all right, if you land the platform, your ability to say, well, what should go on top of that platform gets to be appealing. So if you look for instance -- VMware, people think of VMware as virtualization. Well, guess what, ESX, their hypervisor is free. So their platform is free. It's the management tooling that they put on top. And by landing the platform, they're in a full position to land the management tooling.

So vSphere, all be it, vSAN, all of the components they put on top. So from an IBM opportunity, if we land the platform in Red Hat OpenShift beyond visibility to help us land and think about what are the things that land on top. We made an announcement today about something called Cloud Satellite, which is how you can take other IBM services and land them more easily on-premise or on the edge. We can only do that because we have the platform and we can land the platform anywhere.

One other last analogy, and again, this is kind of rough randoms because I know a lot of people look and say, well, the cloud is at Amazon, the leader around cloud. And so how to think about that versus IBM cause I'm sitting here saying we're a leader?

The other analogy I find interesting with RHEL is, with RHEL, we started off saying, okay, there's a set of places this works. And it was kind of in the UNIX world. And so we didn't try to displace Windows. A lot of people thought of it as a Windows-Linux thing. Always kind of laughed at that because we're very focused on consolidating a whole different world, which was Linux, which we ultimately did.

Now analytics is taking share from Windows every year, but for years and years, we were focused on consolidating the Linux-UNIX world. And so when you think about that same analogy now, Amazon is more of a partner because we're trying to say, how do we consolidate the hybrid cloud world? Yes, there are going to be a lot of people who are writing websites or other applications where there's just go to Amazon, right, and go to Azure, that's great. There's not as much value in hybrid.

But we -- I would argue, at least half, if not certainly the majority of workloads in regulated industries are going to have a hybrid cloud paradigm. And if we win that, that is a massive opportunity and less worried about the individual stand-alone stove type, what can easily go on a public cloud. So we're not trying to win the whole world, we're trying to win clients and workloads that need that hybrid platform. We are clear and by far the leader in that.

And so that's why I come back to the RHEL example. Half the world's Windows, half the world's Linux/UNIX, and we're the primary share player in that. If the world ended up half the workloads on native cloud and half the workloads are hybrid and we are the dominant hybrid cloud platform, that's a very big world and one we'll feel really, really good about.

So extending that same analogy of when it fits half the world's Windows, half is Linux, where the -- so that same kind of dynamic, I would argue, is likely to exist in cloud as well.

Katy Huberty

That's a great contract to think about it. And Arvind has made it clear that the driver of the IBM's acquisition of Red Hat was really this OpenShift business. So talk about how IBM is now integrating that technology into its own portfolio. And specifically, talk about what Cloud Paks are. Because after the question about OpenShift, the second most often question I get is what are Cloud Paks? And what does it really allow customers to do that they couldn't before?

James Whitehurst

So what Cloud Paks are is we're taking our -- well, a, we're simplifying instead of having 1,000 different data products. Like you can buy one thing and get the bundle. But they are all containerized on OpenShift. And what that means is you can buy, let's say, Cloud Pak for Data, I'll pick one, which has all of our Watson and Db2. And so all of our data and AI assets kind of bundled together in that.

And you can run it wherever you want to run it. So you want to run it on Amazon, great. You want to run it on-premise, great. You want to run it on the mainframe, great, because OpenShift runs everywhere. So because we've containerized our software onto OpenShift, it will run anywhere. I was recently in a conversation with a financial services institution that is very, very publicly all in on one hyperscaler. Great conversation because they're really interested in our AI portfolio because it runs perfectly on the hyperscaler they've chosen because it's -- we've containerized it to do that.

So it helps us without thinking about -- it increases exposure where we can run our software assets. I mean our software assets have always been architected to run many places, but we've always had a strong affinity to our platforms, like AIX, mainframe. By taking a leadership position containerizing our software stack, it makes it much more relevant to cloud-native developers because they can run, call that, wherever they want to run it. So it is really helping as we think about software and where and how we can land and then expand off of that. Because as soon as it's cloud native, the ability to kind of grow and scale up over time gets to be easier. Our ability to meter it gets to be easier. So we want something called Cloud Satellite today. And it's basically, you can take Cloud Pak for Data or any of our other cloud services and plunk them down in your data center or on the edge or frankly, on Amazon instances, if you have in there.

That all exists because our cloud and our Cloud Paks are all architected on OpenShift and OpenShift runs everywhere. So now all of a sudden, we can offer managed services in a more flexible way than really anyone else can because we're the only people who have a platform that can run anywhere like that.

Katy Huberty

That's great. So we talked about this a little bit before as an advantage to the Red Hat business, but the biggest companies in the world depend on IBM to run their most important mission-critical applications. And so I think one of the questions that comes up from a very big picture around IBM for investors is how are those customers thinking about their cloud journey, particularly for these most critical applications? And I know you spend a lot of time with customers. Can you just talk about the feedback around where you think long-term those apps will run? And then what is the role that IBM plays in that future world?

James Whitehurst

Yes. So first off, I would say, I think -- and we're already seeing this. This bimodal, is it on-premise? Or is it in the cloud, is blurring a lot, right? What I mean is part of what we do with hybrid clouds, we're seeing the same platform, seeing cloud-native kind of architecture that runs in the cloud, can run on-premise, right? Or vice versa, you want us to run your Z for you, we can do that, right?

So those that kind of artificial kind of distinction or kind of these 2 poles I think is starting to blur. And so what most enterprises are saying is, "Look, I have this set of applications. I'll modernize them if that makes economic sense. I don't want to modernize and if not, what's the cheapest place to run that," right? And so what we're seeing kind of more and more is you get these kind of munge together. So I'll use an example. As you can imagine, most financial services institutions run mainframes for a lot of their transactional work, which means the data is on the mainframe. So we're seeing now because OpenShift now runs on the mainframe, people running OpenShift at night on the mainframe and taking their Python-oriented AI, machine learning applications as they've been testing on Amazon, it's like we'll rather move the data off and try to move the -- just bring the application on and run it at night. So you're starting to munge together what is cloud-native versus what is not because the platform can run anywhere.

What I think you'll see more and more is IBM will run more and more of these workloads as a service for our clients and then kind of build out from there. If you think a little bit about the analogy because they're -- just started earlier. So Amazon start off running web workloads, and then they kind of grown out from there, right? We are really good at running kind of I think it was mission-critical workloads, regulated workloads, and we're growing out from there. So for instance, our FSS clouds, or -- we've built controls into our financial services cloud, the key control framework for a bank. Well, now all of a sudden, a bank wants to run an HR application, but it wants to hit a certain set of data. While it's just as easy to say, well, because I already have my FSS work running on this cloud, I'm going to run those adjacencies also on the cloud. So our scope will be those mission critical or those regulatory workloads out in the same way Amazon started from websites out.

And so those things kind of ripple. Now again, our only -- I don't want to draw that distinction between Amazon and IBM because our hybrid cloud runs on Amazon. They're a great partner of ours. And so I think you're very likely to see our platform running with workloads that are more regulatory or have some performance characteristics that we will work with run either in our data centers or our clients' data centers and another set of workloads will run on Amazon or Azure or other places, all under a single fabric.

And that's really the direction we're going. So over time, more and more of those workloads will run in a cloud-like environment, but it's not like they're going to move to a cloud because that distinction is just getting kind of munged together.

Katy Huberty

Right. Right. So the Red Hat acquisition, in many ways, represents IBM's reenergized strategy to focus on hybrid cloud and AI, to focus on becoming a more open platform with a broader partner ecosystem. Just talk about how you've seen IBM adopt some of Red Hat's open approach as well as maybe other characteristics of Red Hat's growth mindset and culture.

James Whitehurst

Well, so a couple of things. I said earlier on that we are transitioning IBM to be effective in this new context of computing where innovation can come from so many places. So part of that is a much bigger focus on ecosystem.

And some of that was maybe some lessons learned or observations of Red Hat. Some of it is kind of a necessity. But we've got a much bigger focus on ecosystem. We've talked about the $1 billion cloud engagement fund. I talked to a number of partners who say, "Wow, in the last year, IBM has got much more easier to work with," right? They're much more willing to kind of send things our way or jointly work together.

So this embrace of ecosystem, I think is a little bit related to Red Hat and ability to kind of learn and work together. And it's also a lot related to an observation that in this future world, if you believe our role is to help enterprise this consumer innovation, and that innovation can come from so many places. Well, we need to be very good at working with those places.

So we broadly, from a cultural perspective, try to bring that in. And the same thing, as I said, it used to be, we could come and say, we can do this for you. We're the experts. Now most enterprises see technologies part of a competitive advantage, so they want to build their own capabilities.

And so the cultural change, we'll do it with you. So more technical, more, we call them garage, which is the methodology to help transfer knowledge to our clients to be able to build in a more Agile or DevOps way.

Are all components of the culture that we're driving through? Yes. I mean some of that -- one could argue you guys some lessons learned from Red Hat. But a lot of that is just a fundamental transition that IBM is on to -- because your culture manifest in a set of capabilities to enable this strategy.

And so if you say the strategy is be more co-collaborative with our clients and be able to help our clients ingest innovation for more places, by nature, you have to be more kind of open and collaborative in how you work. And so that's what we're really driving into the culture. Yes, some of that looks like Red Hat, but it's more of a stated direction of where we are going is IBM, not that we're adopting Red Hat's culture, even though there are some pieces that look a little bit that way.

Katy Huberty

Right. So just a couple of questions to wrap up the discussion. Investors are trying to figure out how do we measure and judge IBM's transformation? And Arvind has said really judge me on revenue growth and also free cash flow. And the goal here is to get the business to mid single-digit revenue growth, that compares to a flattish business constant currency before the Red Hat acquisition.

So just talk about what drives the confidence in getting to 4% to 5% revenue growth? And do you think that needs to include some element of more M&A and divestitures?

James Whitehurst

Yes. So well, two things. So we are -- I think we've really hit on, and we see this when we talk to our clients, a real need in the marketplace, right? So let's start off with that. So we are seeing real interest in hybrid cloud and hybrid cloud architectures. It was last week or maybe a week before we talked -- we announced what we're doing with Delta, which is all about how you take several thousand applications and move those to cloud over time, whether that's on-premise or on a hyperscaler, right?

So there's a clear need to do that. And as we invest in those capabilities, we're investing in areas that are growing. I think GBS, we already said we'll return to growth by the middle of this year. So feel good about that. As we modernize our software stack to be containerized and instantiated as Cloud Paks, which are easier to install, use we feel really good about the green shoots that we're seeing there.

We just did a massive go-to-market overhaul that went live January 1, where it's a much more technical orientation, much more of this collaborative approach, landing we call garages with our large clients. The issue is always, it's none of that's linear, right? You land that, and there's kind of an S curve that goes along, right? We put the people in place or redid that go-to-market in January, there'll be an S curve over a couple of quarters. So -- but I think if you look at the fact that we are in an area that is of great interest to our clients, where there's a lot of dollars being thrown and we have a leadership position around hybrid cloud, I feel really good about our ability to grow that way.

In terms of M&A, I guess what I'll answer is yes, M&A will be part of what we do. I personally don't like that. I'm going to add M&A just to mathematically add growth. I mean you buy growth and you pay for it, there's no value in that. But what -- the place -- when we did this at Red Hat over the last several years, and we will do this at IBM, which is when you're in a leadership position around the platform, you're in also in a great position to see problems emerging before others.

And so our ability to see the problems and the best solutions before they've gotten so much revenue traction, our ability to buy technologies are smaller and scale those through the platform, and that's where you can really add value because you're -- this is -- I go back the analogy would be Red Hat bought a company called Ansible, and people like, Where do you find Ansible?" There's others out there up and it's exploded.

Well, we saw it because we are day-to-day with the platform, if you're in a leadership position around the platform, you're in a better position to see things. So yes, M&A will be part of what we do, but it will be looking at okay, what are the future needs of the platform? And if we can see it before others, we should be able to buy more smartly and scale more quickly. And so M&A becomes not a, "Let's add on a couple of points of growth," and it becomes much more, "All right, how do we actually create value for M&A because of our position at the bleeding edge of this kind of next-generation hybrid cloud platform."

Katy Huberty

That's great. So I know we're running up on time, but I want to ask one last question, last couple of minutes. Transformations clearly take time. And as you and Arvind have talked about, there's work to do in 2021, improving the portfolio mix with the divestiture of managed services, improving the cost structure and then taking some of those savings and accelerating innovation and growth investments. So when should investors expect to see a financial profile and the outcome of all of this work and just more of a normalized operational and financial performance out of IBM?

James Whitehurst

So well, as you said, there's a lot going on, and I talked a little bit about whether it's the change in the go-to-market or kind of the re-architecture of some of the software assets. There's generally a couple of quarter lag in those things. So a lot we were doing in the first half of this year. So I'd certainly say, as you start looking at Q3, Q4, you should start to see some green shoots there. And then a more normalized, on an annual basis, in 2022.

That's kind of roughly from my kind of day-to-day operating perspective. I'm not the CFO, I'm not looking at the details but I think about we just put the new sales model in place, observing every day how that's going and pipeline builds and all the other components. I'd say back half of this year is when enough of that is in place, and it's been in place long enough that it actually impacts and works its way through a sales cycle to start to show it softened results.

Katy Huberty

Well, what a great place to end on a promising note. Looking forward to the back half of this year and next year. Thank you, Jim, for all of that color. It was really helpful, and I really enjoyed spending the time with you.

James Whitehurst

Yes. Great to catch up. Thank you, Katy. Thanks for having me.

Katy Huberty

Take care, everyone.