Teradata Corporation

Ladies and gentlemen, today's conference is scheduled to begin shortly. Please continue to stand by. Thank you for your patience. THE END THE END Oh, my God. Ladies and gentlemen, thank you for standing by and welcome to Teradata's fourth quarter and full year 2020 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Christopher Lee, Senior Vice President, Investor Relations and Corporate Development. Thank you. Please go ahead.

Good afternoon. And welcome to Teradata's 2020 fourth quarter and full year 2020 earnings call. Steve McMillan, Teradata's president and chief executive officer, will lead our call today, followed by Mark Colhane, Teradata's chief financial officer, 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 Form 10-K and Form 10-Q filed with the SEC. And in the Form 10-K, for the year ended December 31st, 2020, that is expected to be filed with the SEC later in February. 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 comparison. 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 will turn the call over to Steve.

Good afternoon, everyone, and thanks for joining us today. I'm very pleased to lead off our call by sharing that Teradata delivered another solid quarter in Q4, culminating in a strong finish to 2020. We exceeded expectations in the fourth quarter on recurring revenue, EPS, and free cash flow. And we also exceeded expectations for the full year on ARR growth, EPS, and free cash flow. I'm incredibly proud of our team's performance and strong execution, particularly given the impacts of the global pandemic. We have effectively completed our transition to a subscription model that generates recurring revenue and are vigorously executing our transformation to a cloud-first company. The team drove another quarter of solid year over year and sequential growth in total ARR. This was especially true for public cloud ARR, which exceeded $100 million. The growth we are seeing demonstrates that our cloud-first positioning is resonating with the market. More importantly, it shows that customers are increasingly seeing the value advantage in the public cloud, powering effective analytics at scale and delivering meaningful business returns. Public cloud ARR of $106 million at the end of 2020 was a 165% increase from the prior year. Cloud first is overarchingly important to our strategic focus. As such, we are now disclosing our public cloud ARR in our earnings release and intend to continue providing this metric going forward. To provide some color on our momentum, I'd like to highlight a handful of our public cloud wins. One of the world's largest airlines committed to Teradata on Azure for its next generation analytics in the cloud. We were chosen ahead of Snowflake because of our low cost price performance and our best fit technology, allowing this customer to meet its advanced analytics goals. This one is a great demonstration of the essential role Teradata serves for our customers. Leveraging all relevant data to help our customers navigate through tumultuous times is crucial, and no one does that better than we do. We signed a long-term agreement at a Fortune 100 insurer as it modernizes its IT infrastructure This competitive win against several cloud native vendors came after the customer recognized that Teradata provides significantly higher value and quality at significantly lower cost than others. One of the largest nonprofit healthcare systems in the US chose Vantage on Azure for its patient experience and the data analytics capabilities enabled by our data platform. They conducted an extensive evaluation of Vantage on Azure versus cloud-only competitors. Our customer selected Teradata for unsurpassed workload management capabilities, platform mobility, and an ability to reliably and securely execute the company's more than 26 million queries per day. Teradata is partnering with Capgemini, one of our global consulting partners, on best customers' migration to the cloud and its future growth opportunities. A North American-based global e-commerce marketplace, we committed to Teradata to modernize its analytic environment after it tested a cloud-native offering. Experiencing technical challenges and extended migration delays brought the customer to the realization that it would not achieve the business value it expected from its intended move to Snowflake. Selecting Vantage on AWS offered a seamless transition to the cloud, ensures its mission-critical production workload is maintained, and allows its people to focus on creating goal-forward business value. A Fortune 50 healthcare company selected Teradata on AWS to continue to run its business intelligence reporting and analytics for claims, case management, and provider efficiency. This too was a competitive win against multiple cloud native vendors with Teradata's ability to scale and handle very high workload volumes as the main differentiators for this growing customer. and we are helping a leading retailer in APJ transition to the cloud with Vantage on Azure. This customer chose our consumption pricing model to provide the elasticity to quickly scale and address the changing retail market environment. These are just a few examples that illustrate how well our teams kept their focus and executed to drive success in a year of global upheaval caused by the pandemic. Beyond the excellent efforts of our sales organization, who is proving every day the reliability, performance, and value of our offerings and capabilities to customers, the company's resolute cloud-first focus and commitment came to the forefront throughout 2020 and was manifested across the entire business. Some of our advances from the last few months include launching our Vantage trial programs, This trial program places the power of Teradata directly in the hands of customers. They help companies quickly, easily, and at no cost experience the capabilities of Vantage in the cloud. This free trial is preloaded with ready-to-use examples to get customers started. Users can also upload their own data to see how Vantage Advanced analytic functions enable faster evaluation and accelerated time to value. And as with every Teradata environment, there is no limit to the number or complexity of queries that may be submitted. Only Vantage enables analytics across multi-cloud, on-prem, and hybrid environments. and to offer maximum flexibility and choice for our customers, Vantage is available across the top public cloud vendors, Google Cloud, AWS, and Microsoft Azure. We also recently announced that Teradata Vantage is now available in AWS, Azure, and Google Cloud marketplaces. These new purchasing channels offer another means to make it easy for customers to purchase and use Vantage. With full multi-cloud support, their software is consistent across all of these environments, making processes easier, reducing risk, and delivering faster time to value. And all with the scale, security, availability, and performance customers rely on from Teradata. This is a tremendous benefit to our customers, as many have multi-cloud strategies and roadmaps. With Vantage, companies can leverage all of the data, all of the time, and at the scale they need to achieve breakthrough business results from their analytics. Our support of multi-cloud environments combined with our new flexible pricing options make it easy for customers to benefit from data analytics in the cloud as they unlock the value in the data asset. Additionally, with the latest release of Teradata Query Grid, we are making it easier for customers to connect to data sources regardless of where the data resides in the cloud and multiple clouds or on-prem. This is important as organizations increasingly transition to the cloud and need to be able to access and combine information from all of the data environments at the same time and at scale. Our R&D team is relentlessly working to ensure that Vantage is the fastest, lowest risk, highest performing, and most cost effective path to the cloud. This focused organization has delivered more cloud capabilities in 2020 than ever before. It's a driving force behind our cloud growth and will continue to accelerate as we architect our software for the cloud. I am confident in our accelerating cloud roadmap, our rapid cloud migration work, and the growth it will deliver. Our development efforts remain centered on driving complete and compelling cloud offerings at scale, and the team is bringing forth cloud native integrations at record pace. Companies must take advantage of all of the data that is available to them to succeed. and we will remain steadfast in providing the enterprise scale and flexibility they need with our cloud data warehouse and the analytic capabilities we enable as a platform. As I referenced last quarter, we undertook a careful review of our operations to align our costs to better support our cloud growth objectives. we will be investing 75% of all R&D spend or over $200 million in fiscal 2021 in our cloud initiatives. We are making these investments while also planning to improve operating margins and increase free cash flow. Looking ahead, as we begin 2021, we anticipate significant year-over-year growth in public cloud ARR. Additionally, we expect year-over-year growth in total revenue, profitability, and free cash flow. Going forward, a majority of our revenue will be recurring, and we expect total revenue growth for the first time since 2018, as the shift to a subscription model is no longer a headwind for our reported results. Mark will talk more about this in his comments, along with financial reporting changes we anticipate making in 2021 as a result of the way I am looking at and operating the business. We are a cloud software platform company, and our future lies in bringing enterprise data warehousing and analytic software to the world's leading organizations. Consulting services and third-party software sales don't equate to high-quality recurring product revenue. Therefore, we believe the changes Mark will describe will aid you in seeing our true progress. We have taken clear actions to prepare for growth in 2021. One of the ways we strengthened our execution during 2020 was focusing on driving awareness and demand for our cloud offerings. We have made meaningful headway and are stepping up our efforts to further focus our marketing and sales teams on driving growth in the cloud. Importantly, we have refined our sales compensation program and are incenting our salespeople to grow cloud while protecting our base. We have also simplified and aligned our marketing message to cloud first and are taking the message to the market to drive awareness and demand for Teradata Vantage on public cloud within our target markets and customers. Additionally, we received a significant industry endorsement of Teradata's emerging strength as a leading cloud-first data platform, as Teradata was named a leader in Gartner's cloud database management magic quadrant. The report noted that our move to the cloud and new pricing models make our price performance more apparent. And furthermore, the report encourages customers to run a proof of concept to understand how competitive Teradata's price performance is. Teradata garnered the highest scores in three out of four use cases in Gartner's report on critical capabilities for cloud database management systems for analytical use cases. This evaluation clearly demonstrates Teradata's ability to meet the largest and most demanding customers' data analytics needs from all industries. We are continuing to add strong leadership to our executive ranks. I am very pleased that we named Todd Sione as Chief Revenue Officer. Todd brings to Teradata more than 25 years of experience in global sales, marketing, channel, and operations at large multinational technology organizations, including most recently at Apple and previously with Oracle, Rackspace, and Microsoft. He drives for results, has a track record of delivering predictable and profitable growth, and has successfully led organizations through cloud-based transformations. With an intense focus on delivering lasting value for customers, Todd has already hit the ground running and is deeply engaged with our go-to-market teams. Before I turn the call over to Mark, I would like to highlight the recognition Teradata recently received regarding our ongoing environmental, social, and governance, or ESG, efforts. I am pleased to share that Teradata was named in the Dow Jones North American Sustainability Index for the 11th consecutive year, and we have also been included in the Corporate Equality Index for the first time. We believe social responsibility, sustainable business practices and responsible governance are good for our world and right for our business. We will continue to build on our commitment to sustainable corporate citizenship that leads to long-term value creation for all of Teradata's stakeholders. We look forward to share more on our corporate strategy, including ESG at an analyst day later this year. In closing, I would like to reinforce that I am incredibly proud of the progress we've made and our execution against our goals. With the ever increasing volume of data and the dynamically changing business environment, companies need Teradata's multi-cloud technology, which lets them scale simultaneously across all critical dimensions. whether that be data volume, the number or complexity of queries, response times, or managing SLAs of different business needs. This is where Teradata technology excels, and a rapidly growing cloud ARR shows that customers are recognizing this value from Teradata. And with that, I'll turn the call to Mark for more details on our results.