Teradata Corporation

Good afternoon. My name is Joel, and I will be your conference operator today. At this time, I would like to welcome everyone to the Teradata fourth quarter and full year 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 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 fourth quarter and full year 2023 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. Please note that Teradata intends to file the Form 10-K for the year ended December 31, 2023, later this month. 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, constant currency comparisons, and 2024 revenue growth outlook in constant currency. 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 thanks, everyone, for joining us today. We're continuing to execute on our long-term strategy to build the leading hybrid multi-cloud analytics and data platform company for trusted AI. At the core of that strategy is our strong focus on helping our customers, many of the world's industry leaders, succeed by improving business performance, enriching customer experiences, and integrating data across the entire enterprise. We innovate and deliver trusted solutions for their toughest data and analytics challenges. We believe our strategy and customer focus is winning in the marketplace as we see more and more companies putting their trust in Teradata to help create value from the data and navigate the evolving analytics landscape, particularly with the rise of AI. Underpinning our strategy is a disciplined financial plan which seeks to balance growth and ARR with profitability. and reinvestment in the business with capital return to shareholders. We closed 2023 with $528 million of cloud ARR and $1.57 billion of total ARR representing growth of 48% and 6% respectively. We generated $74 million of cloud ARR growth in the fourth quarter. Cloud ARR now accounts for more than one third of our total ARR, a significant milestone in our cloud journey. Additionally, all regions grew cloud ARR both sequentially and year on year, driven primarily by migration activity. Our cloud net expansion rate was 124% and more than 75% of our cloud customers now operate in a hybrid environment. These statistics validate that our Vantage Cloud platform is delivering breakthrough business performance across a hybrid environment. We delivered 2023 revenue growth within our Outlook range. We exceeded full-year non-GAAP earnings per share expectations, and we generated more than $350 million of free cash flow, all demonstrating our ongoing dedication to our cloud-first profitable growth strategy. Despite a year of solid progress on our strategic and financial milestones, we ended the year below our 2023 outlook for cloud and total ARR. This was primarily due to deal timing issues. Let me explain. We're seeing that Teradata is becoming even more strategic to corporations and touching all levels of our customers' organizations. For example, we have historically dealt primarily with IT. Over time, we have moved beyond IT with multiple business units now relying on Teradata. This brings in more executive decision makers, including the board, in order to close the deal. These dynamics caused a number of transactions to move into 2024. Of these, there were a handful of large deals that slipped out of December, and each were worth $2 million or more of cloud ARR growth. This includes the low eight-figure deal Claire mentioned at an investor conference in December. We are already taking actions to address the miss in the ARR expectations we had set. We have reviewed the root causes of each slip. Our teams are executing plans to address each unique customer situation and are diligently working to close the majority of these deals in 2024. To be clear, we had uncertainty in timing, not uncertainty in demand. In our remarks, Clear will speak more to the actions we are taking. As we look ahead, we see the AI-enabled future. Just about every organization everywhere is looking at AI and particularly generative AI. This means the entire world is looking at data. Data and analytics are what we know and do best and where we innovate. Our people have the knowledge and expertise to help companies trust in and get massive business value from their data. This becomes even more important as AI comes of age. We see AI as a catalyst for growth, particularly over the long term. As AI uses grow, so does the need to trust in the information. This ties directly to our belief that people thrive when empowered with trusted information. That's why we built Vantage Cloud. a complete cloud analytics and data platform. It is the engine companies need as they explore AI as we provide an open, multi-cloud approach to leveraging the language models they want. GenAI is trained on large language models that require extensive amounts of data. With Clearscape Analytics, our engine for launching end-to-end AI and ML pipelines, we can deliver highly optimized analytic functions and expand the high-performing analytics Teradata is known for. Given the global reach of our enterprise customers, we believe that we serve as custodians of much of the world's most trusted and well-governed data. As I mentioned, data is the critical factor to success with GenAI. The data must be well-managed, it must be trusted, ethical, and sustainable. And companies need to leverage all of their data at extreme scale to innovate and win with AI. Our proven record and ability to get customers to trust they need in the data to innovate and make impactful business decisions is a real differentiator for Teradata. We are confident that we are better positioned than any other company to help organizations take advantage of AI. We believe that we have the best cloud analytics and data platform, period. By delivering harmonized data, trusted AI, and faster innovation, we can empower our customers and our customers' customers to make better, more confident decisions at every level of the enterprise. We are seeing this at customers now. Teradata is becoming even more strategic to corporations. More lines of business are trusting in Teradata and relying on our analytics and data platform as data is democratized and trusted. we are continuing our strong innovation. Our technology innovation engine was in high gear in Q4 as we maintain our focus on speeding the releases of new analytic offerings that help customers take advantage of AI. After nearly a year in development, we launched Teradata AI Unlimited, our AI and ML engine in the cloud that delivers a completely self-service and serverless experience to help those who want to explore AI. AI Unlimited can enable customers to drive faster, easier and cost-effective AI innovation. It is designed to provide access to vast amounts of data as well as extreme flexibility to securely explore, experiment and operationalize new AI use cases at scale. Further, Teradata was one of a small set of companies selected by Microsoft to have our product, AI Unlimited, be natively integrated with Microsoft Fabric to help data innovators operate at their best and find new patterns of innovation. AI Unlimited users will be able to access data in one lake, Microsoft's open table format service offering. AI Unlimited also supports other open file formats, which enable users to leverage their language and tools of choice. For example, data scientists, data engineers, and developers can leverage native integration with Python to call analytic functions, execute Python code, and import Python models directly into Teradata AI Unlimited. AI Unlimited is available on both Microsoft and AWS marketplaces and is consistent with our commitment to an open and connected ecosystem. Since its launch in November, we're receiving strong, positive feedback on AI Unlimited. We already have customers from transportation, retail, and healthcare exploring use cases with this new AI engine, and more are on the horizon. Our open and connected platform meets the full spectrum of customers' needs, where they are today, and where they want to go with our best-in-class cloud lake, lake house, data warehouse, or a hybrid combination. With wins in the quarter at Audi, HCA, HSBC, and more, let's walk through a few examples that cover the breadth of our offerings. In an eight-figure cloud deal, one of Australia's leading banks is migrating its analytic ecosystem to the cloud with us. This banking powerhouse relies on peridata across many business units and is moving to Vantage Cloud on AWS in a competitive win for us. The bank's data science community has also been exploring AI use cases with us in support of its modernization plan. We partnered with Kendrel on a sizable new logo win. One of the largest daily manufacturers in APJ has committed to Vantage Cloud Lake on AWS to improve its business operations. Another eight-figure deal was an on-prem expansion with a Fortune 50 US company. This giant utilizes Teradata in areas of finance and health plan administration and is working with us to add AI models to improve predictive medical treatment. These AI models are designed to help improve quality and value-based care for tens of millions of potential patients. One of the leading healthcare services providers in the US is moving critical operational data and analytic workloads to Teradata on Google Cloud as part of its cloud modernization initiative. This continues our history of helping the customer innovate with analytics and data. One of our recent new logo wins was with one of the largest banks in the Middle East. In this highly competitive win, the bank chose Teradata to help it deliver an outstanding customer experience and improve its campaign management efforts. These examples illustrate that customers are placing their trust in Teradata across all of our deployment options, including Lake. Q4 of 2023 was our highest quarter yet of adding Vantage Cloud Lake customers, and we continue to see strong interest. We also saw an acceleration of wins with partners, another important element of our profitable growth strategy. We do see, however, some headwinds this year, as we expect a few large on-prem erosion to negatively impact total ARR in the first half of 2024. They are related to customer decisions that were made more than three years ago before we introduced our Cloud First strategy and Vantage Cloud platform. While we have known that these erosions were contemplated for some time, we've improved our visibility into the timing and are now able to factor these actions into our 2024 outlook. Due to these few on-prem decisions, we view our 2024 erosion rate as an outlier, and they have always been factored into our 2025 goals. We will continue to work every day to deliver breakthrough business value for our customers, and we are receiving industry acknowledgement of our strength in driving innovation. Vantage Cloud again received the highest score in logical data warehouse and traditional data warehouse use cases, from Gartner and its critical capabilities report for cloud database management systems for analytical use cases. Gartner also recognized our cloud vision and execution and its magic quadrant for cloud database management systems. Gartner noted our strengths in technology innovations with our optimized ecosystem through Teradata query grid, our deep and robust analytic capabilities through ClearScape analytics including AI and ML integration, and he noted that we have the strongest workload management offering in the industry. We were also honored to learn that customer ratings earned Teradata the top spot in the Trust Radius Best Of Awards in all three categories in data warehousing. Number one in best value for price, number one in best feature set, and number one in best relationships. Software marketplace G2 also recognized Teradata for excellence in the leader, enterprise, and momentum categories in its winter 2024 report. We value these types of recognition as they are wholly determined by customer reviews. All of these distinctions reinforce our commitment to innovation and value while keeping customers at the forefront. While we are always pleased to earn recognition for our technology, we're equally pleased when our strong culture is acknowledged. In November, Teradata again earned the highest score of 100 on the Human Rights Campaign Foundation's 2023 Corporate Equality Index, demonstrating our ongoing support of LGBTQ plus workplace equality. We are proud of this tribute of our core principles in action. In closing, I want to emphasize that everyone at Teradata is relentlessly focused on winning as the complete cloud analytics and data platform company for AI. Since we moved to our cloud-first strategy, we have delivered ten-fold cloud growth in less than four years. Our cloud growth in 2023 was far ahead of the market. In addition, the team has made solid progress around our technology innovations and partnerships. We will continue to build on our profitable growth strategy. And as we do, we are firmly focused on operational excellence as we strengthen our processes and capabilities. We remain on the path to achieve over $1 billion of cloud ARR by year-end 2025. Now, let's turn the call to Claire to go through more details.