Teradata Corporation

Good afternoon, my name is Frances and I will be your conference operator today. At this time, I would like to welcome everyone to the Teradata first quarter 2023 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 two. 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 2023 first quarter earnings call. Steve McMillan, Teradata's President and Chief Executive Officer, will lead our call today followed by Claire Bramley, Terriata'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 March 31st, 2023, 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.

Thank you, Chris, and welcome, everyone. Thanks for joining us today. Teradata is off to a great start in 2023, building on our market momentum. We achieved another quarter of robust cloud growth, driven primarily by expansion activities. Our cloud ARR was up 89% year on year in constant currency, and we also experienced solid sequential dollar growth. We delivered on key financial metrics in the quarter, and we continued to strengthen our position as a cloud leader. We also accelerated our growth in total ARR to $1.506 billion, growing both sequentially and year over year. we experienced our highest sequential growth in Q1 in more than five years. In addition to driving total ARR growth, we also delivered healthy profits. Recurring revenue grew by 4% in constant currency, which contributed to generating more than $300 million in gross profit and over $100 million in free cash flow. I am very proud of the team's execution across the board in the quarter, a clear indication that our transformation is moving full steam ahead. Our differentiated position in cloud analytics and data is recognized and growing, and we are advancing our market reputation and driving our pipeline. Organizations everywhere are investing in advanced analytics, including generative AI and machine learning, to drive automation and agile decision-making. To enable a future of AI-driven business, enterprises will require trust in data and the ability to massively scale with price performance. Teradata's deep data management capabilities, proven stewardship of the most trusted data in an enterprise, and high performing AI and ML at scale are fundamental requirements for organizations as they move into this new world. Let me share a recent example where we helped a customer deliver its retailer of the future model with advanced personalization in store by training a generative AI, think ChatGPT, large language model in AWS SageMaker and running that model at scale in Vantage Cloud to provide real-time retail product recommendations to its shoppers. Building upon this example, we recently announced our integration with Google Vertex AI, rounding out our cloud service provider ML integrations, thereby extending analytics capabilities for customer use cases. We also announced the integration of Vantage Cloud with Microsoft Azure Machine Learning. We are combining the scalability and openness of Teradata Vantage Cloud and Clearscape Analytics with Azure ML's ability to simplify and accelerate the ML lifecycle. Together, we are providing a platform designed to ensure that customers can execute complex analytics and AI ML on massive datasets and incorporate the preferred data science tools, including Azure ML. This helps customers unlock the potential of their AI ML investments as they deploy sophisticated models, including generative models and production faster and with confidence. In addition to these customer benefits, we also delivered new visualizations that provide consumption transparency for Vantage Cloud Lake, our new product built on our next gen cloud native architecture. We're continuing to see adoption of Vantage Cloud Lake and are already bringing out enhancements. Customers can now see their consumption actually against plans across all of their environments. They can see their consumption patterns on an hourly, weekly, monthly, and quarterly basis. This transparency helps our customers avoid end of quarter surprises, which is critical to enterprise customers. In times of financial uncertainty, having this type of financial governance is a major driver of value for our customers and a major differentiator against our competition. We further strengthened our open approach and integrated with DBT to enhance our developer experience and enable more use cases for the important developer community. We are adding integration to this modern tool set that is popular with data engineers and is part of the modern data stack. It saves engineers and analysts valuable time while allowing them to focus on high value pursuits and accelerate time to outcomes with advanced analytics. A real win-win. In another win-win, I'm particularly pleased with our continued customer momentum in the quarter. We've added or expanded customers across industries, geographies, and use cases. I meet with many customers and they are relying on analytics grounded in the trusted data we provide to help them remain resilient during pains like the current economic environment. Let's walk through a few representative examples. We closed one of the largest deals measured by total contract value in Teradata's history at a US-based healthcare service provider. This deal was won with one of our valued partners and included an eight-figure cloud expansion and quarter. Our customer signed a strategic multi-year cloud agreement to lighten Teradata on AWS and ClearScape analytics to support areas such as customer engagement, Medicare, Medicaid services, and most importantly, cost of care. as it serves its 100 million plus members. These analytics will be instrumental in continuing to drive the cost of healthcare down by providers and increase the level of care to consumers. One of the largest integrated financial technology solution providers in the US, supporting the success of more than 2,400 financial institutions and representing more than 7.7 billion transactions annually, selected Vantage Cloud on AWS and a multi-phase modernization program that includes our consulting services. It will now have the ability to scale on demand and perform macro level analytics on aggregated data to drive the most value within areas including marketing, predictive insights, and member insights. An investment in commercial bank in the Middle East is a new logo for us. This customer is working to build small business solutions to serve specific departmental needs. The ability to tailor our world-class analytics to fit each specific use case was a key to success in fulfilling the customer needs for the future. I mentioned that expansion activity was a key driver of growth in the quarter. I'm pleased to note that our CloudNet expansion rate was 119% ahead of Q4's rate and customers who migrated to the cloud from just last year are already expanding on our platform in Q1 of this year. Additionally, we're seeing customers expand at the point of migration, adding incremental workloads and use cases. This is a manifestation of customers realizing the value and our ability to provide best-in-class hybrid cloud environments, meeting them wherever they are on their journey to cloud. A key tenet of our transformation is building strong and lasting relationships with partners. They are a force multiplier for our business. In Q1, we saw growth with the hyperscalers, capitalizing on our win-win relationships with AWS and Microsoft Azure. In the quarter, we also deepened our relationship with Dell Technologies. Teradata and Dell have committed to jointly offer private cloud solutions that give the flexibility of the cloud with the control and security of on-prem. We have co-engineered and are bringing together our best of breed technologies, integrating Teradata Vantage with Dell's converged infrastructure. These solutions are ideal for companies wanting hybrid cloud analytic environments that include an on-prem element of the ecosystem such as regulatory compliance. This is one more example of meeting customers where they are with what they need today and offering a seamless path to the future. With customer adoption already underway, I'm excited about the market opportunity for both of our companies. In the ESG arena, we are exceptionally proud that Teradata was named one of 2023 World's Most Ethical Companies by Ethisphere for the 14th consecutive year. This designation is a testament to our fundamental ethos of operating with the highest integrity and commitment to doing business the right way every day. As we turn the call to Claire, I want to underscore that we are incredibly pleased with our strong start to 2023. Our resilience and growth this quarter gives us confidence in the market need for our connected multi-cloud analytics and data solutions. With our Vantage Cloud platform, we are strongly positioned across all data formats and deployments in the cloud, multi-cloud, hybrid, and on-prem. You've heard me say we meet customers where they are and help them seamlessly get to a better, more efficient, and more competitive place. Our results reflect the market need and open and connected approach. Our teams are demonstrating the ability to be relevant and remain resilient in driving total ARR and cloud ARR growth at scale in the uncertain economic environment. Our technology continues to garner kudos as it outpaces the competition and our customers are building and growing their analytic futures on Teradata. Our Q1 performance gives us significant confidence in the year ahead. We are committed to our outlook for 2023, and we remain on track to achieve our fiscal 2025 target of more than $1 billion in cloud ARR. And now I'll pass the call to Claire.