Teradata Corporation

ladies and gentlemen thank you for standing by and welcome to the q3 2020 teradata earnings conference call at this time all participants are in a listen-only mode after the speaker's presentation there will be a question and answer session to ask a question during the session you will need to press star 1 on your telephone keypad if you require any further assistance please press star 0. Thank you. I would now like to turn the conference over to your speaker today, Matt Garvey, Senior Manager of Investor Relations. Please go ahead, sir.

Good afternoon, and welcome to Teradata's 2020 Third 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. While these statements reflect our current outlook, 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, Teradata's most recent 10-K filed with the SEC, and in the Form 10-Q for the quarter ended September 30, 2020, expected to be filed with the SEC in the next few days. 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. 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 with that, I will turn the call over to Steve.

Good afternoon, everyone. Thanks for joining us today. I'm pleased to report that Teradata executed extremely well in Q3 and delivered good results for our shareholders. We exceeded our expectations and guidance for all key metrics, including ARR, recurring revenue, free cash flow, and non-GAAP earnings per share. This strong performance comes as a result of concentrated efforts from across the organization. The team delivered very well, delivered solid sales execution in all regions, provided ongoing support for our customers to help them obtain the greatest value from their data assets, and significantly advanced their technology for the cloud. We also stepped up and directly addressed outdated market perceptions with clear market messages and implemented focused cost discipline as well. As a testament to our growing momentum in the cloud, I will start today's remarks by sharing examples of our cloud-first success with customers. We're starting from a great base and a well-established, strong commitment to helping customers leverage their data assets and solve their complex data challenges at scale. We're therefore seeing substantial growth in our cloud business across regions, industries, and public cloud platforms. Loblaws, a large Canadian retailer, is migrating key applications and database technologies to the cloud with Teradata. This customer is a great example of our ability to operate in a hybrid multi-cloud model as Loblaws now runs Teradata Vantage on more than one public cloud platform. A leading truck manufacturer in Asia has selected Vantage on AWS as its cloud data analytics platform. The customer will leverage Vantage in the cloud for real-time analysis of vehicle data to provide insights on vehicle functionality and performance, drive predictive maintenance, and determine value-added services to offer its customers. On this one, we are partnering with a regional provider of integration services. A global Fortune 500 CPG company headquartered in Europe committed to Teradata Vantage on Azure in the quarter. This significant competitive win was the result of our team's ability to prove its credentials in migrating the customer's large and complex workloads to the Azure cloud. Our customer will leverage the advanced analytical capabilities of Vantage on Azure to drive rapid innovation and expedite the delivery of new high-value business outcomes for its global finance, supply chain, sales, marketing, and HR functions. A large American retailer and long-standing Teradata customer is migrating its Teradata environment to Azure. Its scale of production analytics is enormous, with millions of queries run weekly. It reviewed alternative cloud data warehouse solutions and selected Vantage on Azure. Vantage offers unmatched performance and reliability. our customer will continue to support a myriad of business-critical functions, including merchandising and assortment planning, finance, supply chain, and demand forecasting, as well as digital marketing, price management, and its growing data science operations. And finally, we brought in a significant advantage on Azure Win, this Fortune 100 CPG company. When this customer completes its migration to the cloud, it will be our largest advantage on Azure deployment. The customer is leveraging its data assets for analytic use by all major divisions of its worldwide business. It relies upon Vantage across its entire organization to democratize analytics and finance in HR, drive down the cost of inventory and supply chain, while increasing revenues from sales, marketing, and e-commerce. I've just run through a small selection of the cloud winds we are seeing, but I wanted to commence my remarks highlighting our strong positive momentum and significant increases in cloud ARR. Now, I'll provide an update on four areas that are propelling us forward and fueling this momentum. First, our technology innovations. Second, our ongoing progress in execution and efficiency. Third, an update on how we are strengthening our executive leadership to gauge our future and profitable growth. And finally, I'll wrap up by providing a status on our transformation efforts. Let's start with the advancements we've made in the quarter with our Cloud First technology. We hit a great milestone with the general availability of Teradata Vantage on Google Cloud, and our first Google Cloud customer wins. Teradata is now the only data analytics platform provider with hybrid multi-cloud offerings across all three of the top public clouds, providing the utmost deployment flexibility for our customers. It's important to our customers that Vantage software is consistent across all environments. whether multi-cloud, hybrid, or on-prem. This flexibility makes migration to the cloud environments easier, faster, and lower risk, while providing the scale they need without compromise. To make it easy for customers to benefit from data analytics in the cloud, we introduced new flexible cloud pricing options Our blended pricing option is ideally suited for enterprise-class usage and provides predictability in billing while delivering the lowest cost at scale. Our cloud consumption pricing option is an affordable, pay-as-you-go, usage-based offer. Businesses leveraging our consumption pricing model may never worry about utilization, system sizing, or resource status since we manage these on their behalf. We further make it risk-free to get started with Teradata Vantage in the cloud with our zero-down consumption pricing option. Long-time Teradata customer, True Value Company, one of the world's leading hardware wholesalers, is one customer now taking advantage of the company's new cloud consumption pricing model. We introduced a new cloud cost calculator on our website to help people understand the cost for Vantage in the cloud designed to help change the inaccurate cost perceptions of the Teradata. By answering five simple questions, visitors will see a cost estimate for using Vantage in the cloud, including the recommended consumption model, either blended or consumption. Visitors can get a customized cost report based on their inputs. Many organizations are surprised when they consider cloud-only options and realize how fast the cost escalates when they try to scale. As customers scale workloads in the cloud, Teradata has the lowest cost per query in the cloud because of our industry-leading query optimization and workload management. As we accelerate our vantage roadmap on the cloud, integrations with cloud-native services continue to remain a top priority. We recently released connections to manage Hive and Spark on the big three cloud platforms. This extends our hybrid cloud and multi-cloud capabilities as customers move workloads to the cloud. We further extended cloud-native vantage integrations with AWS AppFlow and Azure Data Factory. As an example, our customers can combine data advantage with customer sentiment data from social media and opportunity information in Salesforce, as well as support and call logs through ServiceNow to build a complete customer 360 profile that can help them and their customers increase sales and reaches churn. So, overall, a great quarter of advancing our cloud-based data analytics platform technology. You can be assured that we will keep up the pace here as going forward, we will be allocating approximately three quarters of our research and development spend to cloud-first initiatives. This is a significant redirection from just a year ago, and we believe it will fuel our growth and movement to the cloud. At Teradata, we firmly believe that businesses will continue to increase their need to leverage massive amounts of data as they build their enterprises of the future. Data is proliferating and organizations need partners who will help them leverage their data in the cloud without rapidly escalating consumption costs. This leads to a tremendous growth opportunity for Teradata. As enterprises test multiple cloud solutions and commit or recommit to Teradata, we look forward to continuing our leadership role in this exciting market. We believe and we prove to customers every day that Teradata has the best technology and expertise to help them leverage data cost-effectively and at massive scale to unlock real business value. While we are building our cloud momentum, we are also seeing customers add to their Vantage on-prem solutions. Texas Health Resources, a regional healthcare provider, expanded its Teradata environment And here we worked in partnership with Celebris. The customer is capturing, cleansing, and orchestrating patient data using predictive decision models to drive virtualized care options to the right patients in real time, particularly important now during COVID-19. There's a great article that our IR team will be happy to share on how this customer is using predictive analytics to improve patient care. Cloudy Telecom Company. a telco leader in the Middle East, as well as being an industry leader in the adoption of analytics, continues to expand its Teradata platform. The expansion will address both its strategic direction and digital transformation, as well as key programs around customer value management and support the Saudi National Initiative to help government and healthcare with COVID-19 analytics. Saudi Telecom continues to drive success with its Teradata platform and has tripled its capacity for analytics with Teradata over the last 18 months. Complementing our progress in technology innovations, we correspondingly made advancements in our execution during the quarter. In Q3, we expanded our partner ecosystem and Teradata became a partner of the Volkswagen Industrial Cloud. We will support Volkswagen on this open IoT platform by providing cloud-based data analytics to optimize production processes and drive productivity increases in Volkswagen's plants. Also, we have actively stepped up our marketing to increase market awareness of our cloud-first positionings. We are proud of our hybrid multi-cloud differentiation and are committed to building awareness of our leadership in helping businesses unlock value as we turn data into a strategic asset. We will remain vigilant and publicly address misperceptions in the market as we declare our differentiated positioning. Our organization also continues to prove its resilience with remote work arrangements to keep our people and our customers safe during the pandemic. And I'm very proud of our team and their persistence and dedication in this unprecedented time. We're executing customer engagements and executive briefings virtually around the globe. And these focus sessions are leading to great opportunities. We're seeing much greater engagement with customers at the executive level on our cloud-first offerings. Teradata has received some outstanding industry recognition as the firms who follow technology are acknowledging the ever-increasing importance of data-driven decisions and are taking note of our strength as a cloud data analytics platform. We were named by IDC in its FinTech Top 100 ranking as number 34. Inclusion in this list recognizes our compelling value proposition as a leading supplier of technology to the financial services industry. As you know, financial services remain an important vertical for us, and we remain steadfast in our commitment to providing best-in-class data analytics to support this dynamic industry. IDC also named Teradata in its Asia-specific MarketScape recognition of major vendors for cloud data analytics platforms. In this research, IDC noted that Teradata is a good match for companies that need hybrid cloud flexibility and prioritise security and performance for their analytics workloads. The research further pointed out that Gen D workers in large enterprises concerned with operations and governance often look to Teradata solutions. These recent industry analyst recognitions follow a strong score in the Forrester wave on data management for analytics from earlier this year. In fact, Teradata received the highest score in the current offering category. The report noted that Teradata remained a prominent choice, especially for hybrid deployments, where scalability and availability are critical. Now, I'll turn to how we are strengthening our executive ranks as we accelerate our drive to the cloud and an increasing rate of profitable growth. We brought in Nicholas Chapman as our Chief Strategy Officer to ensure we have a well-defined strategic and operational plan as we accelerate our transformation to our cloud-first company. Teradata has made solid progress on this front, and Nicholas will help build on our success and momentum. Nicholas has a proven track record in driving organizational performance through cohesive strategy planning and execution and joins us from Imperva and McKinsey. Additionally, we appointed Hilary Ashton as our Chief Product Officer and brought together all aspects of our technology innovation into one organization dedicated to ensuring delivery differentiated value to our customers and an extraordinary customer experience from our cloud-first technology. Hilary joined us from PTC just under a year ago and has accelerated our innovation cadence while keeping a customer-centered approach. I'm also very pleased that we have appointed Molly Treist as our Chief Legal Officer. Succeeding Laura Nyquist, who recently retired as a former general counsel, we'd like to thank Laura for her 34 years of dedicated service to Teradata as we congratulate Molly on her promotion to this critical role in our company. Molly is a seasoned leader with outstanding judgment and deep knowledge of Teradata and will help guide us forward. Further, we've named Erica Hauser, As our Chief Information Officer, Erica will lead Teradata's IT and security organizations and will drive the ongoing use of our own data analytics technology to advance our business objectives. Of course, we too are using data to drive our business. Erica joins us from 3D Systems and Hewlett Packard Enterprise. It's very gratifying to have these incredibly capable executives in our leadership ranks. These appointments reflect our commitment to advancing diversity and inclusion throughout our culture as we hire the best talent to help us move the company forward into our next chapter of market success. I do want to recognize Scott Brown, our Chief Revenue Officer, who just departed the company as he becomes the President and CEO of Financial Force. We wish him the best in this great career opportunity. The improvements begun in our go-to-market organization contributed to our Q3 success, and I have great confidence in our GTM team to execute their plans and ensure a seamless continuation of our sales efforts going forward. We have an active executive search in progress for a new CRO. Before I pass the call to Mark, I would like to provide an update on our transformation efforts. and the work we have been undertaking to better align our investments to our cloud-first initiatives. In Q3, every organization in the company has reviewed their operations and is working to adjust costs to better position the corporations for a move to the cloud and the continuation of profitable growth. This encompasses non-revenue generating programs, real estate rationalization, and select headcount reductions, including a voluntary separation programme and a more recent involuntary reduction programme that will result in lowering headcount and therefore costs. Our efforts should result in a more optimised business model for financially healthy footing as we enter 2021. We'll hear more from Mark on the actions to realign our cost structure and our investments to accelerate our business and strengthen our bottom line. As we near the end of such a tumultuous year resulting from the global pandemic, it has become abundantly clear that enterprises of the future need to be able to adapt with agility and speed to unpredictable situations. To do that, they need data, and there is no better data analytics platform than ours. Teradata's hybrid multi-cloud architecture gives businesses the flexibility and portability to manage through dynamically changing environments. Our platform is built for today's hybrid, multi-clade world, and we are going to keep our momentum going strong. And with that, I'll turn the call to Mark.