Teradata Corporation

Good afternoon, my name is Stacey and I will be your conference operator today. At this time, I would like to welcome everyone to the Teradata Q2 2020 Earnings Conference Call. Our lines will be placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you. Nabil Elshershai, Corporate Development, and Investor Relations. You may begin your conference.

Good afternoon and welcome to Teradata's 2020 second quarter earnings call. Steve McMillan, Teradata's president and chief executive officer, will lead our call today, followed by Mark Culhane, Teradata's CFO, who will discuss our financial results. Our discussion today includes forecasts and other information that are considered forward-looking statements. These statements reflect our current outlook and they are subject to a number of risks and uncertainties that could cause actual results to differ materially. These risk factors are described in today's earnings release, carried out as most recent 10-K filed with the SEC, and in the Form 10-Q for the quarter ended June 30, 2020, expected to be filed with the SEC in the next few days. We undertake no duty or obligation to update our forward-looking statements. On today's call, we will be discussing certain non-GAAP financial measures which exclude such items as stock-based compensation expense and other special items described in our earnings release. We will also discuss other non-GAAP items such as free cash flow and constant currency revenue comparisons. A reconciliation of non-GAAP to GAAP measures is included in our earnings release, which is accessible on the investor relations page of our website at investor.teradata.com. A replay of this conference call will be available later today on our website, and now I'll turn the call over to Steve.

Thanks, Nabil, and good afternoon, everyone. I'm truly honored as well as incredibly excited to join Teradata as CEO and lead this great organization that is rich with opportunities. I've joined at quite a unique time in history when this pandemic has caused companies to rethink and rework their business models. The crisis has made one thing very clear, the essential role Teradata plays in our customer success. Organizations need data to help them manage through these tumultuous times. As companies address rapidly changing market situations and customer needs, re-engineer supply chains to source critical supplies, or pivot to remotely support all operations, they realize the need to leverage data as an important asset to make better informed business decisions. Leveraging all of the relevant data possible helps organizations have the agility they need to weather through the disruptions of today's uncertainties. Companies of the size and reach of our customers need access to data at the scale only Teradata can address with the reliability, security, and dependability they require and we deliver. Data and analytics are foundational elements to digital transformation. A transformation which will be accelerated for many by the pandemic. Organizations need to rapidly adapt to this changing landscape and to transform themselves to be leaders in the new economy. To accomplish the transformation, they need analytic insights leveraging data from all relevant sources. Teradata's ability to deliver these enabling capabilities in both hybrid and multi-cloud is unique and presents us with a tremendous opportunity. With this market backdrop, it gives me great pleasure to open my first earnings call as CEO delivering news of strong results in Q2. The organization executed extremely well in the quarter despite the uncertainties posed by COVID-19. In Q2, We exceeded our expectations and street guidance for our key metrics. With strong sales execution and good cost discipline, we generated robust ARR growth, significant free cash flow, strong recurring revenue growth, and solid earnings per share. Mark will cover our financial results in greater detail as usual, and today I will speak to three areas important for Deridata's success. First, our ongoing technology innovation. Second, a resilient execution during these unprecedented times. And third, our continued customer success. And then I will close with a few personal comments as Teradata's new CEO. I want to start with our technology innovations, particularly in the cloud. As I've spent time learning about the company, I was pleased to see the robust body of work from our products organization as they develop and engineer new data and analytics technologies for both hybrid and multi-cloud environments. We are pleased that Vantage with Native Object Store, or NOS, support has become generally available in the cloud on AWS and Azure. And we will be delivering Vantage on GCP very soon as well. With NOS, analytic models can take advantage of exponentially greater amounts of data stored in public cloud environments, massively improving the scope and accuracy of the resulting insights. NOS support also reduces the friction in using data in a cloud object store with data already in Vantage. This new release of Vantage continues our focus on driving innovation in our software so that customers can apply analytic insights to data wherever it resides in an on-premise appliance, external data store, or cloud storage environment. Because Vantage software is consistent from one environment to the next, risk is reduced and the process is greatly simplified bringing faster time to value with the scale, security, availability and analytics performance customers rely on from Teradata. Vantage with North support was developed with direct input from our customers and partners about the real world use cases. One early access customer leveraged Vantage and IoT sensor data stored in AWS 3.0 to perform predictive maintenance on more than 650,000 pieces of equipment. Keeping the fleet running drives more consistent and predictable operations for them and increases customer satisfaction. We're also bringing a 30-day trial of Vantage in the cloud for customers to directly access and experience the power of Vantage and test out advanced analytics on our leading platform in the cloud. Starting in Q2, this global program is available by invitation and brings faster evaluations as well as reduced time to value for our customers. The trial offers in-database analytics and NOS support and includes access to preloaded datasets so that customers can easily explore various business outcomes from advanced analytics. The trial also showcases our completely modernized UX for Vantage. which makes it easier for business users to take advantage of our platform. While I am still evaluating the business, I am pleased to see the strength of innovation at Teradata. However, we can improve our execution in this arena and accelerate our cloud efforts and momentum. Coming to our execution during the COVID-19 crisis, the Teradata team demonstrated great resiliency and pivoted quickly and smoothly to remote work environments We've focused on supporting our employees through the challenges posed by the pandemic, as well as being there to support our customers, regardless of physical constraints. To further support our customers during the pandemic, we enabled customers to extend their knowledge of how to leverage data and its insights by offering their training for free. And a great showing of the demand for Teradata expertise, we saw more than 14,000 people take advantage of this learning opportunity. Further, we reimagined all of our events into 100% virtual experiences and our teams collaborated remotely with hundreds of customers and prospective customers explaining how companies can leverage Teradata to get the insights they need. Last quarter we talked about developing virtual executive briefing centers to advance our sales motions while the world needed to work remotely. We've had tremendous response from customers as well as superb contributions from Teradata employees to these high quality virtual interactions. Our virtual engagements have and are continuing to develop into opportunities for us. As we move through Q3, our virtual engagements continue and our offices remain closed. Our goal is the safety of our employees globally in the face of this highly dynamic situation. We plan to reopen offices only when we believe there will be safe environments for our employees and guests. In the meantime, we will continue to operate remotely and I am pleased with how our teams have demonstrated their ability to adapt and keep advancing the business. Our strong relationships with our stable customer base, combined with our deeply rooted dedication to delivering business value for our customers, are serving us well during these uncertain times. As we continue to support our customers in their digital transformation, we are modernizing our go-to-market notions. In Q2, we continued the rollout of our customer success program, where our teams are working to ensure our customers are maximizing the business value from their investment in Teradata technology. Our customer success program also focuses on increasing customer satisfaction. We are seeing very positive response from customers with this program and believe it will drive significant expansion opportunities over time. The work on building our modern sales capabilities remains underway as we enter Q3. Simultaneously, our marketing programs are pivoting to focus on customer use cases and deeper digital experiences. We are assertively taking back the narrative on Teradata's capabilities in the cloud, with an integrated campaign addressing the misperceptions that others have proliferated. It's great to see us on the fence. Just one example is an outstanding webinar we recently held with independent analysts William McKnight and Brinker International, one of the world's leading casual dining restaurant companies with brands Chili's and Maggiano's Little Italy. This webinar centers on Brinker's journey to the cloud with Teradata and why Brinker chose Vantage on AWS to drive advanced analytics, machine learning, and data science across its organization. With Vantage delivered as a service in the cloud, Brinker can now apply advanced analytics and predictive modeling to its business to improve demand and traffic forecasting, team member management, and recommendation engines for customers and more. You're welcome to listen to this great example of how our customers migrate to the cloud. It's available from our website. So, we are advancing on many fronts, all to support and grow our customer base. We have a broad number of wins in the quarter and I'd like to walk through a small sample of our recent cloud wins. Vodafone extended its strategic partnership with Teradata with a new multi-year, multi-million dollar commitment utilizing Vantage to improve network intelligence, digital customer experience, IoT, and finance. We look forward to continuing to work with Vodafone to help drive its vision for the telco of the future. A major US supermarket chain is migrating to Vantage on AWS and here we won over cloud only vendors. This is the first step in growing Teradata's value proposition and expanding into new use cases including expanded store information, shrink loss prevention, HR analytics and more. A European energy company migrated to the cloud with Vantage on AWS. Here we won against competition from cloud-only providers. Based on our unmatched capabilities to scale and the flexibility in our pay-for-what-you-use consumption model, the customer has an extensive set of use cases, including expanding its 360-degree view of its 11 million B2C customers, improving the customer journey, and defining new customer segments based on advanced analytics. One of the world's largest gaming and hospitality companies select advantage on Azure versus a cloud only technology. The firm utilizes Teradata to drive its loyalty rewards program and nine out of every $10 of revenue flows through applications run on Vantage. As the company continues to modernize and transform its business, it is working with Teradata to simplify the way its stakeholders analyze data to make better and more timely decisions across the entire enterprise with a consistent data set. Teradata will be collaborating with global integrator Cognizant on this project. A leading US wholesaler is migrating two on-prem systems to Vantage on AWS. Despite competition from cloud-only providers, Teradata's new consumption model won the deal. The customer is beginning a multi-phase deployment that will ultimately replace redundant data marks running on other databases throughout its ecosystem. Teradata is collaborating with AWS and a major global systems integrator to expand usage advantage and drive business value for this customer. A large Canadian retailer is migrating key applications to the cloud as part of its cloud first mandate. Teradata and Microsoft work together to provide a compelling offer that involves replicating data on a near real-time basis from the customer's on-prem system to Vantage on Azure. This allows it to seamlessly transition key business reporting initiatives in the case of a disaster with minimal disruption. This customer has a long history of working with Teradata and knew that with the volume of queries processed daily, they couldn't seriously consider a cloud-only solution they cannot scale to meet its price performance requirements. We will continue to work to accelerate our cloud efforts and drive high-quality wins, foster lasting relationships based on business value in our differentiated technology and services. Before I pass the call to Mark, I would like to take a little time to talk to you about why I joined Teradata, what I see as our opportunity, and how I see our business. Teradata's market position and opportunity are tremendous. As I previously stated, data and analytics are the foundation of a company's digital future and Teradata provides the best technology in the world to enable companies to leverage their data, apply analytics to solve mission-critical problems and compete in the market. This is why companies build their future on Teradata and the incredibly knowledgeable people we have bring truly unmatched expertise to help companies get great value out of the data. I've only been at Teradata for two months, so now is not the time for new strategy statements. But rest assured, we are tirelessly working on driving our cloud transformation and improving financial returns. A primary focus of mine is to create a strategic context and operating plans for the company, which we will share in the coming quarters. For now, I want to address a few foundational elements crucial to our future. We will win in the cloud and will continue to offer choice in cloud deployment options to meet our customers' needs. That part of the strategy will not change and I will make sure we are focused on accelerating our move to the cloud. In addition, I believe great technology companies focus on platform and not product and there's a huge opportunity as we transform Teradata to be the leading analytics platform for a hybrid and multi-cloud world. We will continue to leverage our differentiated expertise in consulting and services to enable our customers and our partners to achieve the best analytic outcomes. And finally, we will aim to grow profitability with a balanced focus on growth and returns, optimizing and streamlining our operations where needed without impacting our customers. We will operate with a sense of urgency and productive paranoia as we move Teradata into the future. As we grow, our ethos will continue to be one that values inclusion and diversity. Our entire leadership team recently stood together and pledged to all employees to take a set of actions ensuring that Teradata cultivates a workplace where equality, inclusion, diversity and openness are a company-wide priority. and relying with our deep commitment to social responsibility, we have begun holding dialogues on some of the challenges facing the world today as open conversation and knowledge are key to driving change. While we have more work to do and it will take some time to get to where we should be, we are starting from a strong foundation. We have the technology built for a hybrid and multi-cloud world. We have outstanding people and a very strong customer base. We have a vibrant and strong culture and the passion I see to help customers get the greatest value from the data assets is absolutely energizing. I'm confident that I made the right decision in joining Teradata. With the ongoing pandemic, the second half remains uncertain for many organizations and no one knows when everything will return to a more normal, predictable environment. Despite uncertainties, we are listening to the market and our customers. We are committed to responding with speed and agility and ensuring we are providing value for our customers, supporting our people, and delivering on our expectations. I look forward to providing updates as we progress. With that, I'll pass the call to Mark.