Teradata Corporation

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 star followed by 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 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 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, 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 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 review 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.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.

Thanks, Chris. And hi, everyone. Thanks for joining us today. Teradata delivered another solid quarter in Q3. We continue to steadily advance in our transformation as a leading cloud analytics and data platform. I'm pleased with our market momentum and the team's consistent execution, and I'm grateful for the trust placed in us by our customers and partners. In the quarter, total ARR grew 11% year on year. Sequential total ARR dollar growth was $14 million in constant currency, with positive contributions from both cloud and on-prem subscriptions. Customer demand increased as enterprises continued to utilize our modern platform and helping them drive business critical insights. We grew cloud ARR 63% year on year against a very strong Q3 last year. We grew cloud ARR in all regions through a balance of migrations and expansions. Cloud ARR is now 30% of total ARR. up 10 percentage points year over year. Our cloud net expansion rate was 123%. We are seeing continued strong interest and pipeline growth in Vantage Cloud-like. With execution across the organization, our continued market momentum and disciplined cost management, we delivered non-gap earnings per share of 42 cents. which grew 38% year over year. I am proud of the team's performance and I'm very pleased with our innovation that positioned Teradata to lead in AI and particularly trusted AI. I'll start there. At Teradata, we believe people thrive when empowered with better information. Our analytics perform with speed to deliver better insights that drive more confident decisions. While interest in AI is accelerating, a key to AI success is being able to trust in the data, which is what Teradata has always provided. We strongly believe that our best-in-class cloud analytics and data platform delivers harmonized data, trusted AI, and faster innovation for better decision making. This convection data does in our recent acquisition of Stema, which adds AI-enhanced data search and exploration designed to bring greater value to our analytics by making data easier to find, use, and trust. We expect that these capabilities will help Teradata deliver an enhanced user experience and advance a roadmap in data lineage, governance, and compliance. with semantic mapping to help users understand the context behind the data. Our industry-recognized strength in analytics and complex data management is driving our momentum, and we are seeing high interest in our AI, ML, and advanced analytics capabilities. Enterprises everywhere are investing in AI, and potentially generative, or GenAI, which will create massive enterprise value. As companies look to benefit from GenAI, we are seeing them explore use cases that are well aligned to our core value proposition and that we are already addressing today. These include improved business performance with democratized insights from across the organization. Knowledge workers can more quickly sift through mountains of data and make better decisions by asking questions in plain language without the need to code. Hyper-contextualize customer experiences as organizations use analytics to better anticipate customer needs, develop more relevant recommendation engines, and create more authentic interactions to improve engagement and loyalty. And also delivering faster product innovation as technology teams can automatically generate code, thereby accelerating innovation and reducing operational expenses. In collaboration with IDC, we recently conducted a survey of enterprise executives that validates the opportunity with AI. This survey revealed that more than half of the 900 respondents feel a high or significant pressure to integrate Gen AI within their organizations in the next six to 12 months. However, only 30% feel adequately prepared to leverage Gen AI today indicating a significant gap that needs to be bridged. With years of expertise in the AI domain as the trusted data platform for the world's largest and most complex organizations, Teradata stands as a go-to platform for AI enablement, which we believe provides one of the most cost-effective solutions Proven performance and flexibility to innovate faster enriches customer experiences and delivers greater value. Our technologies are designed to not only facilitate the AI journey, but also accelerate the realization of value. We are in an outstanding position to help enterprises maximize their AI opportunity. From our cloud native Vantage Cloud Lake with its exceptional data management capability and workload efficiency to clear-scape analytics or robust analytics capabilities in Vantage Cloud, which make it easy for businesses to put more AI models into production faster and to rapidly scale the usage of those models across an organization. At the beginning of Q3, we announced Teradata Vantage Cloud Lake on Microsoft Azure. As I mentioned on our last call, our cloud-native architecture is now available on both AWS and Azure globally and offers the enterprise scale our customers need, including end-to-end support for AI and ML. We are already helping customers deploy trusted AI solutions intended to drive business outcomes An exciting announcement in the quarter was their introduction of Teradata Ask AI, our new Gen AI capability for Vantage Cloud Lake. This Gen AI interface is designed to allow anyone with approved access to ask natural language questions and receive instant responses from Vantage Cloud Lake. By reducing the need for complex coding and querying, Teradata Ask AI can dramatically increase productivity, speed, and efficiency for both technical and now non-technical users as well. We announced new Model Ops capabilities in ClearScape Analytics, which also helps accelerate AI initiatives. These no-code capabilities enable customers to quickly scale AI and advanced analytics with enterprise governance, including bring your own model now with no code capabilities, allowing our users to deploy their own machine learning kit models without writing any code, thereby simplifying their deployment. Advanced model governance capabilities and robust explainability controls to ensure trusted AI and automatic monitoring of model performance and data drift with zero configuration alerts. Additionally, we recently introduced powerful API integration between OpenAI and Azure OpenAI. With these LLM capabilities and ClearScape analytics, customers with large volumes of text data, such as product reviews, hand scripts from call centers, or medical interactions, are enabled to transform that data into analytic outcomes This can lead to improving the customer experience, reducing churn and risk, or preventing fraud, to name a few. These new integrations highlight our commitment to help customers unlock future value from the data by leveraging their full analytic ecosystem, including GenAI and large language models. We showcased these innovations in the quarter as we executed a series of customer and partner events in all regions. I was extremely pleased with the input from customers as they shared how they are running their business on Teradata. Along with the customer presentations and conversations at our event, it was also great to meet and speak with many prospective customers. Each event had a strong mix of prospective accounts demonstrating Teradata's increasing market traction and interest. We also had hundreds of Alliance partners join us and sponsor from Accenture to Microsoft, AWS, Dell, and more. Attendees said they were energized by how trusted AI and harmonized data can accelerate business value and power innovation throughout their organizations. During this global event series, we met with a number of external analysts. It is great that the broader community is seeing Teradata as increasingly relevant and well positioned versus the competition. Many analysts noted that customers are telling them our platform and innovation roadmap are differentiated and supports their needs, whether cloud, multi-cloud or hybrid. I was also pleased to receive the positive feedback on the transformation of our brand. Our marketing organization leaned in and introduced our modern, customer-centric and innovative brand that represents the trusted value we bring to the world's leading organizations we're going to keep up the pace to ensure that our differentiated position is clear to the market. As I stated, we had very good growth in the quarter. Let's look at a few customer examples. A multinational manufacturing company based in Europe is a new Vantage Cloud customer. This customer spoke at our London Possible event and shared that they selected Teradata Analytics to improve decision-making through AI. as it works to offer more safe and sustainable products every day. It has invested with us to implement innovative AI projects that accelerate time to value for its customers. A world-leading banking group has renewed its confidence in Teradata with its first step to the public cloud, adding Vantage Cloud Lake on AWS for its retail banks for sales monitoring, customer segmentation, risk management, and financial reporting. This customer also added Vantage Cloud Enterprise on AWS for finance and risk regulatory purposes. This win was in partnership with Accenture. We gained a new logo at a government regulator in India to support its compliance reporting requirements. This is our first converged infrastructure customer win in Asia Pacific through our strategic partnership with Dell. Our track record of reliability, performance, and competitive pricing led to this win. And a leading global financial services group based in Japan is using Vantage and Clearscape Analytics to execute large-scale AI models. This long-term customer's data science team relies upon Clearscape Analytics functionality for its many applications running on our platform. Along with bringing tangible business value to our customers, our partner-first momentum accelerated across our partner ecosystem in the quarter. A spotlight of our strong collaboration was educating hundreds of Accenture employees on our joint offerings to help our mutual customers exploit AI. And parallel with our global motions, we have grown our partner ecosystem by 20% year-to-date. adding new vertical ISVs and regional SIs aligned to Teradata's industry use cases. We are aligning our investment envelope to our strategic initiatives and continuing our progress as a cloud-first profitable growth company. We will continue to take actions like winding down our direct operations in China that will accelerate our growth trajectory and advance our innovation engine. We're on track to achieve our 2023 outlook. We're looking ahead to 2024 with optimism and are firmly on track to achieve our target of more than $1 billion of cloud ARR by the end of 2025. Now, I will pass the call to Claire.