Arvind Krishna: Thanks, Jim. So Toni, on the AI book of business, this is not all revenue in the quarter. I would just begin with that statement to set it straight. At this stage, we wanted to start looking at what is our momentum, what is the sentiment from our clients. So we went to a measure that is more reflective of, I’ll use the word signings. What is the commitment the clients are making to us? Consulting is straightforward. It is the signings. Consulting signings are anywhere from 12 to 24 months on average is how much time they play out over there. And on software, it’s what they’re committing to. And we are using SaaS ACV. So it’s a 12-month commitment, which is typical for as a service as well as, since we do offer our portfolio both ways as license or as a service, it includes the license piece as well.
Now over a long-term, let’s call it a couple of years or more, yes, the book of business should turn into an amount of revenue in a quarter, but that’s going to take a bit of time to catch up. But we felt that this gives the better indicator right now of what is our traction and what is our acceleration in that part of the business.
Operator: Our next question comes from Ben Reitzes with Melius Research.
Ben Reitzes: Yes. Great. Hey, thanks a lot. Wanted to ask about consulting. And Jim, you mentioned and disclosed high teens bookings growth in 2023 and just at 8% off a pretty difficult comp. I was wondering how that’s going to play out in terms of revenue yields in ’24 and into ’25. Does that give you more confidence that the second half of ’24 is going to have a pickup in Consulting revenue reported? And then for Arvind, if I could just sneak more on consulting. Your top competitor has much easier comps in terms of bookings and revenue over the next 12 months. Do you think you could continue to outperform them in the next year? Thanks.
Jim Kavanaugh: Thanks, Ben. Really appreciate your question [Technical Difficulty], consulting-based question. I think the team is executing extremely well in the marketplace. And as we talked about in prepared remarks, there’s real synergistic value of consulting in a hybrid cloud and AI platform-centric company. I think you’ve seen that play out. When you look at it, yes, we had a very strong year, relatively speaking, in the marketplace around consulting in 2023. Signings growth 17%, book-to-bill over 1.15, our absolute backlog is up 8%, the strongest we’ve had in quite some time, by the way, stable erosion and duration is up slightly, which we expect as clients do more and more application modernization, those are long tails.
So when you look at that profile and you look at how we enter 2024, we take a look at that backlog. We do our backlog runouts. We look at how much of that comes out of our waterfall of the backlog realization and how much actual sell and bill activity you got to do in the year, and that gives us confidence. We guided full year to 6% to 8%. We also said that we expect, just based on those backlog realization trends albeit a lot of work still to get done in ’24. But based on those backlog realization trends, we see an acceleration growth path throughout 2024. And that tailwind into 2025, we’re well in front of our skis now. And by the way, backlog, when you look at 2025, the predictor indicator is only about third of that backlog sits in ’25.
As we enter right now in ’24, about 2/3rds is backlog-driven. And that still looks pretty healthy growth compared to what our model looks like. So we feel pretty good about our book of business and the strategic partnership velocity, the Red Hat velocity. So I would leave it at that. Let me turn it over to Arvind.
Arvind Krishna: Thanks, Jim. So Ben, as opposed to trying to directly compare with 1 other or 2 other people, can I take it back to the market, if you don’t mind. The overall consulting market seems to be in the 4% to 6% range. So we benchmark there to make sure that we’re trying to take share and that we have the offerings which appeal to clients, which also allow us to keep a healthy margin in the business. So when we look at it from those 2 lenses, we are going to be absolutely focused on taking share, which is why we are guiding to a higher 6% to 8% number is where we feel it will be. Then we go back to do we have the bookings that justify that? Yes, the booking is justified. But as you all know, that is some but not all of the revenue in the year.
So we feel it’s prudent to then guide it into the 6% to 8%, not higher. So you combine it with the offerings we have, we are also very, very focused compared to many of the players out there who are much larger. We are very focused on our strategic partners, and we are very focused on digital transformation and data and AI as opposed to a much broader swath of offerings that other people have. That gives us confidence in our growth rate, as Jim pointed out, for our Consulting business.
Operator: Our next question comes from Brent Thill with Jefferies. Please state your question.
Brent Thill: Thanks. Arvind, I’m just curious if you could just give us your view of the business climate, just how things are feeling in the last quarter versus quarters before we’re continuing to hear of a defund some of these software budgets from CIOs. And I’m just curious if you’re hearing and seeing the same thing that we’re seeing in our work.
