Teradata Corporation

Good afternoon. My name is Donyell, and I will be your conference operator today. At this time, I would like to welcome everyone to the Teradata third quarter 2022 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 the pound key. Thank you. I would now like to hand the conference over to your host today, Christopher Lee, Senior Vice President of Investor Relations and Corporate Development. You may begin your conference.

Good afternoon and welcome to Teradata's 2022 third 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 and our outlook. 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 Form 10-K and in the Form 10-Q for the quarter ended September 30, 2022, that is expected to be filed with the SEC within the next few days. 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. Unless stated otherwise, all numbers and results discussed on today's call are on a non-GAAP basis. 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. A replay of this conference call will be available later today on our website. And now I will turn the call over to Steve.

Thanks, Chris, and good afternoon, everyone. Thank you for joining us today. In Q3 2022, we accelerated our cloud momentum and delivered profitability at the top end of our Outlook range. I am pleased with our ongoing progress as we delivered our second largest cloud quarter ever. Cloud ARR was $279 million, growing nearly 100% year over year in constant currency. We achieved cloud ARR growth in all geographic regions year over year, driven by improving win rates. As we accelerate our cloud ARR, we are also increasing the volume of cloud transactions we are executing. nearly doubling the amount year to date. We continue to build and maintain long-term relationships with our customers as they move to the cloud with us and realize the value that comes when unlocking insights from all of their data. In the quarter, we signed a number of large deals, including an eight-figure cloud migration, as well as an eight-figure expansion with a cloud customer that has been with us for less than 12 months. These large transactions were in addition to a number of smaller migrations and expansions. It is encouraging that we continue to see a balanced portfolio of transaction sizes. As customers often start small, they discover that Teradata is the fastest path to the cloud with the least risk and lowest cost and can scale easily as they achieve breakthrough results from their data. Our strong cloud growth demonstrates that our customers recognize the value in Teradata's mission-critical capabilities as we deliver the best cloud analytics and data platform in the market to navigate through the macroeconomic pressures and recessionary concerns that exist today. Our total ARR was flat in constant currency and declined by 4% as reported. As we've discussed before, this was primarily due to continued currency headwinds and the effects of ceasing our operations in Russia. To put these results into context, I'd like to take a moment and remind everyone where we are on our transformation journey. When I joined just two years ago, we advanced our strategy and pivoted our business to cloud first. Our third quarter's achievements reflect another step on that journey. Our strategy is designed for continued rapid cloud growth balanced with delivering profits and return of capital to our shareholders. If our sellers are faced with the option to sell a small on-prem expansion or wait and subsequently help our customers migrate to the cloud with Teradata, they lead with the cloud. As a result, we are helping our customers effectively achieve their ambitions in the cloud while securing Teradata's place in the customer's future architecture. We now have hundreds of our existing customer base realizing value from the Teradata cloud environment. We've also built out a set of sales plays that drive sticky analytic workloads based on our recently announced ClearScape analytics capabilities. And we've invested in our long-term customer success team, ensuring we keep our lens on account health and driving outstanding cloud experiences that set us up for ongoing expansions and future migrations. We've been relentlessly focused on executing against our cloud strategy and assertively moving forward in the market. Cloud growth is exactly the goal we set out to achieve and our sales teams have embraced it and are performing strongly. With our top priority on selling cloud, there is a natural give and take with on-prem ARR expansion. Q4 is seasonally our strongest quarter and gives us conviction to reaffirm our 2022 financial outlook Claire will cover more details in her remarks, but I want to touch on our 2022 ARR guidance. While we did not accelerate total growth on a reported basis, we are committed to growing faster next year and beyond, especially as our cloud business becomes a greater portion of our mix. And we are pleased with the rapid and sustainable growth in the cloud that is leading to stickier and longer lasting economics. Our eyes remain firmly on the growth horizon as we look to the full year and beyond. We know that companies need the best insights possible, and that is what we deliver. We enable our customers to extract value from all of their data, empower users, and drive smarter, faster innovation at scale at a highly competitive cost point. We remain committed to our strategy and are confident in our ability to deliver on it as a profitable multi-cloud analytics and data platform leader. In the third quarter, we took major steps forward in our technology innovations, announcing our most significant offerings in years. We proudly launched Teradata Vantage Cloud Lake, our first product built on an all-new, next-generation cloud-native architecture. Vantage Cloud Lake is designed to be automatically elastic and leverage low-cost object storage at its core. yet with the power that Teradata is known for, and it's easy to use and expand as needed. As a result, we expect Lake to provide faster access, better governance, and more powerful analytics at massive scale, all at a lower total cost of ownership. Vantage Cloud Lake extends our technology beyond mission critical enterprise needs and expands the reach of our differentiated capabilities to departmental, exploratory, and ad hoc use cases without moving the data. We believe these advances open up entirely new markets and opportunities for our customers. More importantly, it empowers our customers to drive more innovation. We also introduced ClearScape Analytics, expanding the high-performing analytics that Teradata is known for. With ClearScape Analytics, customers can take advantage of the most in-database analytic functions anywhere in the market along with critical AI ML model management tools to meet growing analytic demands and solve their organization's most complex problems. We took our analytics capabilities even further by introducing more than 50 new end database, time series and ML functions and integrated model ops that are designed to rapidly operationalize AI and ML initiatives. These game changing announcements are the result of two years of great engineering with a laser focus on cloud. I believe we are fundamentally changing the ethos of our industry, moving the query engine to the data as we bring forth cloud first and an entirely new model that enables powerful open and connected analytics at scale, massive flexibility and faster access with governance and lower total cost of ownership. We believe that we have the best cloud analytics and data platform, period. With a fully cloud-native deployment and our expanded ClearScape analytics capabilities, we're meeting the full spectrum of our customers' needs with our best-in-class lake, lake house, or data warehouse. I am incredibly proud that with Vantage Cloud, we enable all of these design patterns at enormous scale with better economics. Immediately following our announcements, we took our message on the road, meeting with more than 1,000 customers, prospects, and partners, and helping them discover strategies to generate value and accelerate their business through analytics and data. It has been great meeting live with customers from around the world and seeing their enthusiastic response for generating increased interest that contributes towards ongoing pipeline growth. The game-changing capabilities of our newly announced Teradata Vantage Cloud Lake are opening the door to incremental market opportunities. A Fortune 500 insurance customer is an early adopter of Vantage Cloud Lake. This customer runs actuarial analytics and closes its financials on its Teradata environment today. Our new Lake product will enable it to easily spin up compute clusters for exploratory analytics without impacting any of their production workloads. I'd like to share a few more examples of our momentum in the cloud. A package and delivery industry leader and one of our long-standing customers chose to modernize in the cloud with Vantage Cloud on Azure. A successful initial migration gave the customer the confidence to commit further to Teradata and migrate its remaining workload to the cloud. It expanded its business continuity and disaster recovery workloads in the process. Teradata on Azure provides the flexibility, elasticity, and industry-leading price performance this business demanded to continue to use data as a strategic asset and drive value. One of the world's leading financial services institutions has selected Teradata Vantage Cloud on AWS as its cloud-based enterprise data and analytics platforms. This customer will migrate existing on-prem Teradata workloads to the cloud while evaluating opportunities to expand the use of Vantage across additional business segments. Vantage Cloud on AWS will enable the bank to continue to innovate and lead in its industry. One of Chile's largest retail and commercial banks migrated to Vantage Cloud on Microsoft Azure to achieve its digital transformation goals and enable richer customer experiences With Teradata, this customer is arming its decision makers with data-driven insights that will help them innovate faster and reduce time to market for new financial products and services. In the quarter, we were honored to again be recognized as an industry leader in IDC's FinTech Top 100 rankings. Teradata was named a fast-track FinTech, recognizing the role we play in helping financial institutions drive digital transformation by leveraging the full power of analytics and data. As we've been strengthening our reputation and prowess as a cloud market leader, we've also been strengthening our partner ecosystem to extend our reach and bring incremental value options for our customers. We now see SI involvement in a meaningful portion of our pipeline. We also recently announced a new strategic global SI relationship with Kindrel, By bringing together our unmatched analytic capabilities with Kindrel's experienced consulting teams, we will enable our joint customers to leverage advanced analytics, AI, and ML, accelerate business outcomes, and speed time to value. As we move forward, we are also advancing our commitment to strong ESG practices. We were pleased to be recognized recently by EcoVadis for our commitment to sustainable and ethical business practices We are proud of this designation as many of our enterprise customers rely on EcoVadis to assess their suppliers across a number of sustainability dimensions, including environmental, labor and human rights, ethics and sustainable procurement. Companies around the world are increasingly reviewing the sustainability of the cloud environment and challenging their supply chain partners to reduce emissions and improve their carbon footprint. We are committed to doing our part in addressing the devastating effects of climate change as we develop our platforms. We are pleased to note that in an analyst firm's comparison of cloud data platforms, our Vantage Cloud had the lowest cost and generated the lowest carbon footprint for the enterprise workload use case, our sweet spot. You can be assured that we will keep sustainability at the front and center of our efforts. You've heard us say that we've built a resilient business model that provides stability during times of volatility. We cultivate strong customer relationships and consistently deliver mission-critical workloads for our customers' needs at scale. As our customers look to move to the cloud to take advantage of the innovation and the efficiencies of cloud solutions, we are at their side. These success factors position us well to execute on our cloud guidance for the remainder of the year. I am very excited about our new offerings and the new capabilities and value they bring to our customers, along with the incremental value they will bring to us. As we prepare to enter 2023, we know our strategy is right. Customers are moving to the cloud with Teradata, and the market is recognizing our differentiated positioning as a leader in cloud analytics and data. We compete in a dynamic growth market, and like all great companies committed to profitable revenue growth, we continuously evaluate and adjust to optimize our cost structure while focusing on our employees, customers, and stakeholders. We are operating with conviction to keep our momentum, remain customer driven, and be a profitable growth company. we will refine and adjust as needed to keep a sharp focus and align our investments with our priorities to continue to accelerate our growth. As I turn the call over to Claire, we remain convinced that our technology can continue to unlock even more of our total addressable market opportunity, reinforcing our confidence about achieving our goal of over $1 billion of cloud ARR in 2025. Thanks, everyone. I'll now turn the call to Claire.