Teradata Corporation

Good afternoon. My name is Charlie and I will be your conference operator today. At this time, I would like to welcome everyone to the Teradata second quarter 2021 earnings call. All lines have been 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 star followed by the number two. Thank you. I would like to hand the conference over to your host today, Christopher Lee, Senior Vice President of Investor Relations and Corporate Development. Thank you. Please go ahead.

Christopher Lee Good afternoon and welcome to Teradata's 2021 Second Quarter Earnings Call. Steve McMillan, Teradata's President and Chief Executive Officer, will lead our call today, followed by Claire Bramley, 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 and in our SEC filings, including our most recent 10-K and in the Form 10-Q for the quarter ended June 30, 2021, that is expected to be filed with the SEC tomorrow. These forward-looking statements are made as of today, and 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. The discussion on today's call reflects Teradata's results on a non-GAAP basis, unless indicated otherwise. 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.terradata.com. Additional commentary on key metrics and segment trends can be found in the earnings discussion document on our investor relations webpage at investor.terradata.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. Thanks for joining us today. I'm pleased to report Teradata delivered a solid second quarter. Our worldwide sales and operational execution as well as our continued cost discipline resulted in year-over-year growth and outperformance in key financial and operational metrics, including 157% growth in public cloud ARR. as well as growth in recurring revenue, non-GAAP EPS, and free cash flow. We will maintain our executional focus and with this ongoing attention, we expect to drive sustained revenue growth, margin expansion, and an increased stream of free cash flows. I am also pleased to report our cloud business continues its upward growth trajectory. Our large enterprise-scale customers are accelerating their digital transformation agendas to address the ongoing challenges of the global macro environment. Organizations need data and analytics to provide the business insights that will help them manage through these changing environments. They need access to all relevant data as they address new customer buying behaviors and remote work models stemming from the pandemic, as well as ever-increasing volumes of data coming from AI, machine learning, 5G, and IoT. Teradata has proven that we can help customers get real insights from their data regardless of where it resides, whether in public cloud or in on-prem environments. We are competing and winning in a large and growing market. There is not a day that goes by with less data than the previous one. The technologies we deploy help customers get the most value from their data environment at enterprise scale and with outstanding price performance giving us an advantage in this hyper-growth enterprise market. Our purpose, to transform how businesses work and people live through the power of data, gave the alignment of our entire team, and the team executed quite well in Q2. Customers increasingly see Teradata as being uniquely able to support their multi-cloud strategies through our ability to seamlessly support multiple cloud environments on-prem or a hybrid combination. We have a 40-plus year track record providing unparalleled expertise and helping customers with the largest data environments leverage their volumes of data to get great insights and achieve breakthrough business results. This is certainly a differentiator for us. Our expertise, combined with our powerful Vantage-connected multi-cloud platform, is driving cloud growth across our targeted verticals around the globe and with each of the leading cloud service providers. A robust growth in the cloud is coming from both new customers and existing accounts. Since June of 2020, we've experienced more than 50% growth in cloud customers, and we are adding new logos in each of our three geographic regions. While starting numbers are small, the trend is clear, as companies realize they receive tangible business results from Vantage in the cloud, just as they do with their on-prem environments. They continue to expand their Teradera cloud environment. Our top 10 customers in terms of cloud ARR at the end of June last year grew significantly year on year, and these types of ongoing success and ease of scalability are helped driving growth. We further saw broad-based subscription ARR growth in every region and across many of our target industries, including financial services, healthcare, and government, as our customers realize the enterprise scale and price performance advantage. Let's look at a few examples of our wins from the quarter. One of the world's largest automakers based in Europe is a new cloud customer. It chose Teradata to help optimize production as part of its strategic cloud plan. Vantage on AWS will manage significant volumes of IoT data captured from robots on the plant floor to boost quality across its smart manufacturing initiative. One of Europe's top financial services groups and a long-standing Teradata customer is migrating to Vantage on Google Cloud as part of its public cloud transformation strategy. This customer was an early cloud adopter with Vantage on AWS and considered adding a BigQuery environment. However, our multi-cloud capability demonstrated that Vantage in the cloud would be the best in helping this institution comply with governmental regulations to support its operations in the event of a stressed exit. Teradata and Accenture are collaborating closely to help this customer continue to grow with Vantage, and now in a multi-cloud environment. This customer is a great example of companies realizing the value of Teradata Vantage as the fastest, lowest risk, and most cost-effective path to a modern cloud deployment. We are taking this financial use case forward to other institutions facing the same compliance mandate. Tobii Steel, a major manufacturer in Japan, is another one of our new cloud accounts. Its select advantage on AWS to improve analytics and its research division gaining greater understanding of the properties produced and its manufacturing processes. As this industrial giant proceeds with digital transformation for all aspects of its business, it plans to add IoT data at the machine and factory level. Banco et al., the largest financial institution in Latin America, is migrating its on-prem teradata environment to Vantage on AWS. Vantage supports most of the bank's major applications, including cost, purchasing, and regulatory reporting. Here we are positioned as a key partner for the bank well into the future, establishing Vantage as the customer's preferred cloud data warehouse platform and paving the way to deliver increased business value through new use cases. Consumption-based pricing was really important to this customer, enabling it to pay for exactly what it needs and uses. Many of our large customers now operate in a hybrid cloud environment of connected on-prem and cloud ecosystems. Customers also continue to have substantial data environments on-prem. This portion of our business remains healthy. The enterprise-scale customers we serve realize that to win in this new era, they must leverage all of the data possible, all of the time, irrespective of deployment option, and often in blended environments. I'd like to share one hybrid and one on-prem one. A large US-based healthcare services company has chosen Vantage on Azure as it revamps its analytical environment to scale and support aggressive agile development and deployment processes. This customer chose Vantage on Azure as its first step towards implementing a hybrid cloud strategy leveraging a flexible and transparent consumption pricing model, along with the inherent advantages provided by a cloud infrastructure provisioning. A Middle Eastern tax authority joined the ranks of Teradata customers in Q2 to liken Vantage on-prem to help it develop analytical use cases, including risk mitigation, fraud prevention, taxpayer segmentation, and behavioral analytics. Working in concert with a local SI, we replaced Oracle and beat a cadre of legacy vendors. Winning factors included our deep expertise in helping tax authorities around the world, our focus on tangible outcomes for the agency, and showing how Teradata provides the fastest and most reliable path to the cloud when this entity is ready to migrate. This sampling of wins from Q2 are great examples of the differentiated position we hold and our ability to deliver in whatever environment the customer has, connecting a suite of multi-cloud ecosystems or connecting cloud and on-prem as the customer moves through digital transformation. This is where Teradata excels and is a key reason we have significant momentum across the market. We are continually innovating in the quarter We brought out enhancements to Query Grid, our patented technology that enables a data fabric across multi-cloud ecosystems and multiple data platforms. Query Grid allows customers to federate queries without requiring unnecessary data movement. This functionality optimizes SLAs and costs in hybrid and multi-cloud environments, delighting business users who can now seamlessly get access to the data. Here's one recent example. A world leading manufacturer of consumer electronics is using Query Grid to enable business agility throughout its extended data ecosystem. With new functionality and enhancements to Query Grid, performance was improved by orders of magnitude from 10 to 15 hours to just over three minutes. The performance boost improves the tech leaders ability to rapidly share data between lines of business and make better informed decisions across its federated enterprise. Our lower-class industry data models are another facet of our technology that helps customers get to value faster. And in the quarter, we brought out enhancements to our media and entertainment data model. These models are the backbone for modern data management and provide high-value business information to support customers in their vertical industry. We have also been strengthening our partnerships with leading SIs and ISVs as we grow. In the quarter, we announced a joint initiative with Deloitte to help customers easily and efficiently migrate from on-prem to vantage in the cloud. We're collaborating with Deloitte to take the complexity out of data migration and equip organizations for a modern cloud future. While customers are recognizing the value in our multi-cloud solutions, so is the industry. In July, Teradata again garnered recognition of our strength in the cloud. in Gartner's new solution comparison for cloud data warehouse platforms. Gartner noted that cloud data warehouses are central to organizations and compared a number of vendors. Teradata scored exceedingly well, receiving the highest score possible and more attributes than any other vendor. We intend to keep earning these types of recognition. We also remain dedicated to being a socially responsible corporate citizen And just recently, we issued our annual Environmental, Social and Governance Report. You can find the full report on our website, but I'd like to share a couple of highlights. Our report notes are pledged to the UN Global Compact Principles of Ethical Behaviour and Human Rights, the careful monitoring and reduction of greenhouse gas emissions, and specifically the reduction of total Scope 1 and Scope 2 emissions of about 40% since 2018. Our strength lies in our people, and our report notes the various actions we took in support of diversity, equity, and inclusion to ensure an inclusive workplace and to reinforce our commitment to creating a culture of belonging. In 2020, the company participated in the Corporate Equality Index of the Human Rights Campaign Foundation, demonstrating allyship to our LGBTQ employees. The company scored 90 out of 100 and we are using the inputs and learning how to better support our LGBTQ colleagues. Furthermore, we were recently recognised by Sustainalytics for our conscientious management of ESG issues. The solid performance in the quarter came from across the organisation, reflecting our focus and operational rigour. In our go-to-market organisation, our transformation is accelerating. We have added seasoned sales talent in our regions and have further strengthened our customer success in renewals organization. Complementing our go-to-market efforts and to accelerate our momentum, we have added highly experienced cloud leadership and talent dedicated to driving growth across the leading cloud providers. I am particularly pleased to welcome Claire Bramley as our new CFO. Claire joined us in mid-June from HP, and she has already proven to be a great addition to the management team. Claire's extensive senior leadership experience in corporate finance and accounting, as well as her deep knowledge of the technology industry, is a perfect fit for us. Claire's appointment continues our commitment to building the strongest team possible to execute our strategy and accelerate possible growth. And I know she is looking forward to spending time with all of you. As I turn the call over to Claire, I want to reiterate that we are committed to capitalizing upon our differentiated possession as the connected multi-cloud data platform for enterprise analytics. We remain relentlessly dedicated to meet and exceed customers' expectations and achieve outstanding business outcomes from their data. Our capabilities across multi-cloud, on-prem, and hybrid are what customers need today and into the foreseeable future, and we will continue to innovate to address tomorrow's needs as well. We have an incredibly talented team who keeps the customer at the center of all we do. These are the healthy fundamentals of our company, ones that we believe will deliver significant shareholder value. Claire, over to you for a more in-depth look at our financial results and our 2021 outlook.