Teradata Corporation

Good afternoon. My name is Kate, and I will be your conference operator today. At this time, I would like to welcome everyone to the Teradata second 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, please press the star followed by the number two on your telephone keypad. 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. You may begin your conference.

Good afternoon, and welcome to Teradata's 2023 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 and 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 June 30, 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 them. On today's call, we will be discussing certain non-GAAP financial measures which exclude such items such 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 hi, everyone. Thanks for joining us today. Teradata executed another very solid quarter in Q2 2023. I am pleased that the organization is making progress in many key areas of the business. In the second quarter, we accelerated total ARR growth, increasing 10% year on year, as the team executed well on a profitable growth cloud strategy. We brought in another quarter of strong growth with public cloud ARR growing 77% year-on-year. As customers migrate to the cloud with Teradata, we see them expanding workloads and use cases as they realize business results from our Teradata Vantage cloud analytics and data platform. Our trailing 12-month cloud net expansion rate was 121% in Q2, up from 119%. with large expansions coming from across various industry verticals with financial services, healthcare and telecommunications leading the way. We delivered $482 million in total revenue in the second quarter, an increase of 10% year-over-year in constant currency. This quarter marks the first meaningful year-over-year total revenue growth at Teradata since Q2 2021. a key milestone enabled by our growing cloud business and its impact on total company results. Our broad-based momentum across the business and our ongoing technology innovation and industry recognition as a leading cloud analytics and data platform and with our partners. This momentum, paired with our financial discipline, all led to an on-gap earnings per share of 48 cents. beating the high end of our guidance range. I'm really proud of the execution across the board. We're delivering on our commitments and are confident in our strategy. Today, I'll cover some highlights on the ongoing strides we are making in the strengthening of our differentiated technology, our purposeful and effective sales and marketing execution, our increasing partner engagement, and finally, some big commitments in the area of ESG. Let's start with Teradata's technology innovations. Just a few weeks ago, we announced Teradata Vantage Cloud Lake on Microsoft Azure. Our cloud-native architecture, now available on Azure globally, offers the enterprise scale our customers need, including end-to-end support for AI and ML. We're excited that ClearScape Analytics, a robust analytics capability for Vantage Cloud Lake, is enhanced by integration with Microsoft services such as Azure Machine Learning. This means Vantage Cloud Lake on Azure is designed to dramatically increase customers' ability to deploy and manage AI and ML, including generative AI and large language models within their businesses today. We are well positioned and are already helping customers as they begin to explore how Gen AI can drive value and business outcomes. As we continue to accelerate our product roadmap, we are pleased to announce the acquisition of Stema, a cloud native, fully managed data catalog solution. We're excited that the Stema team has joined our products organization and will apply their expertise to our growth objectives. Stema's pioneering use of AI and ML helps users discover, trust, and use their data and metadata more effectively. We intend to integrate STEM as innovative technology into our analytics platform to help our customers get greater value from their Teradata investments. We all see that the hot topic today is AI and Gen AI. At Teradata, we view AI as a part of the much broader strategic imperative that our platform already addresses. Business leaders today are facing unprecedented pressures in continuously increasing data complexity. We believe Teradata is uniquely positioned to help you take advantage of AI to solve the most complex challenges and create massive enterprise business value. We see the promise of AI and GenAI as bringing in new opportunities to deliver brand new use cases, increase productivity and innovation. we're excited to bring our complete cloud analytics and data platform for AI to help our customers generate that value. Let me share an example. One of our customers, a global hospitality company, serving over 1 million guests daily, uses AI models against the Teradata platform to predict order availability times. The AI model takes into account meal cook times to go and dine in order volume third-party application orders, and historical information to accurately forecast each order's cook time. This results in timely preparation and ensuring hot food for guests, which results in a positive guest dining and to-go experience. Additionally, this customer uses an AI model for health and safety. The model monitors and predicts restaurant cleanliness based on a number of variables and provides triggers to alert restaurant operators if a change in behavior is needed. This results in cleaner, healthier, and safer dining experiences. This is just one example of AI in use at a customer. While the new frontier of AI is certainly exciting, we are maintaining our cloud leadership as well. Early in the quarter, we received a new recognition from Forrester Research acknowledging our cloud leadership and its cloud data warehouse way. The report noted Teradata's strong vision focuses on a strategy that includes AI, ML at scale. Forrester also pointed out Teradata's strengths in in-database analytics, scale-out optimization, deployment options, multi-regional support, and a broad set of analytics use cases. AI and ML require volumes of data and extensive use of analytics both long-standing differentiators of Teradata. We'll continue to work in support of bringing significant value to our customers. I also mentioned our deliberate focus on sales and marketing execution. In the second quarter, we continue to see large transactions, including some in the seven figures, and we are adding Vantage Cloud customers with all three of the leading hyperscalers. Vodafone, a long-standing Teradata customer, has renewed their strategic relationship with Teradata. The EMEA-based telco provider has chosen to modernize their on-prem data ecosystem and migrate to Vantage Cloud Enterprise on Google and several key markets, including Germany and the UK, to support their business strategy, marketing campaigns, and sales commissions. We signed a large deal with a Fortune US 30 healthcare company as it migrated and expanded in the cloud with Teradata on AWS. Moving to the cloud positions this customer to accommodate business intelligence requirements for month end, quarter end, and year end financial reporting, as well as provide analytic support for the annual open enrollment for their members. A major telco and internet service provider in Latin America, is migrating to the cloud with Vantage Cloud Lake on Azure. The customer is in the process of redefining its future analytical architecture. Our team faced some heavy competition and excelled, demonstrating our capabilities in not only meeting but exceeding this customer's scale and service level requirements. This enterprise executed a thorough evaluation of vendors and determined that Teradata not only fully complied with its requirements, but did so at the lowest risk. A world-leading auto manufacturer headquartered in Japan selected Teradata Vantage as its core analytics and data platform to enhance cybersecurity and governance. The customer moved to Teradata as it realized the competitor's offering was unable to expand to meet its needs for advanced analytics and machine learning capabilities to prevent cyber attacks and fraud in the future. Vantage's power will allow the customer to bring more sophisticated analytics to cybersecurity operations, enhancing overall governance with fewer resources. An example of a customer expanding their environment with us was at one of the major US airlines. We won this business because a competitor's system couldn't meet the customer's needs to scale when using temporal data. This customer grew its environment by 25% as it moved workloads and business applications to Vantage Cloud. Customers remain at the very forefront of all we do. Our customer base of large global enterprises know they need powerful analytics and data to survive and thrive in these dynamic times. We are absolutely dedicated to being a trusted partner and know that there is none better at helping them achieve their goals than us. We believe that partnerships are a central component to achieving customer success, and we've continued to execute our strategy in this area. Being partner first means we are challenging ourselves to deliver greater value for our customers through stronger partner engagement. In June, we hosted two key events that focused on and energized our partner trajectory. Our partner advisory board, comprised of executives from the most respective IT companies, met with our executive team to guide and bolster our partner-first strategic plans. We also hosted our Teradata Partner Forum, bringing more than 100 of our top partners to discover new ways we can drive exponential results for customers. we will continue building a strong future together with partners. Last quarter, we announced that we had partnered with Dell to bring together our company's best-of-breed technologies and integrate Teradata Vantage with Dell's converged infrastructure. A US energy company is one of our first customers for this joint offering, utilizing the platform to provide their clients with the best possible customer experience and resulting in a seven-figure deal for Teradata. We also made a number of partnership announcements in the quarter. We announced plans with analytics software company FICO to bring to market integrated advanced analytics solutions for real-time payments fraud, insurance claims, and supply chain optimization. Further, we announced that we are strengthening integration with DataIQ, bringing new Fearscape analytics capabilities designed to allow customers to import and operationalize DataIQ AI models inside the Vantage analytics and data platform. The collaboration between Teradata and DataIQ, one of our partner advisory board members, intends to solve these challenges with an all-in-one solution that enables users of any skill set to prepare, train, and operationalize AI models at scale. I'm also proud to share that in the quarter, we state a stronger position in our ESG efforts, declaring ambitious commitments to carbon neutrality and net zero emissions. Teradata is deeply committed as a company that takes a responsible and ethical view of our impact on society and the planet. We have resolved to be carbon neutral in scope one and scope two emissions by the end of 2024, and net zero for scope one, two, and three emissions by 2050. We've made our commitment public and transparent as we hold ourselves accountable to our employees, customers, shareholders, communities, and other stakeholders. So I look at the incredible progress we have made, and I'm very proud. We continued our transformation as a cloud analytics and data platform market leader. We've leaned into operating with a partner-first mindset, Our sales and marketing efforts are resonating in the market, and importantly, customers are growing with Teradata. As I turn the call to Claire, I have great confidence in our future and I'm pleased to reaffirm our 2023 outlook. Claire, over to you.