Teradata Corporation

2024 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'd like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you'd like to withdraw your question, please press star followed by the number two. Thank you. I would now like to hand the conference over to your host today, Mike Diloretti, Vice President of Investor Relations and Corporate Development. You may begin your conference.

Good afternoon and welcome to Teradata's 2024 first 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 March 31, 2024, 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, constant currency comparisons, and 2024 revenue and ARR growth outlook in constant currency. Unless stated otherwise, all numbers and results discussed on today's call or 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, Mike, and thanks, everyone, for joining us. Today, I will start with some comments on our quarterly results, recent changes to our leadership team, new growth initiatives, and examples of customer success. Claire will conclude with her detailed financial results and an update on our outlook. Total ARR was $1.48 billion in Q1, down 1% in constant currency. While this is within the constant currency range we provided, we're not satisfied with this result. In Q1, Teradata achieved $525 million of cloud ARR, up 36% year over year in constant currency. Teradata started out the year firmly focused on improving execution across the business and taking actions to improve performance, and we are continuing our work to drive better execution. When customers move to the cloud with us, they see value and are expanding. Our cloud net expansion rate remains strong at 123% and we continue to see approximately 75% of our cloud customers operating in a hybrid environment. We believe our hybrid multi-cloud platform is differentiated and what our customers among the world's largest enterprise companies need in today's dynamic environment. As we indicated last quarter, Some customer decision-making cycles have been elongated. In setting our 2024 outlook, we factored the impact of these longer deal cycles continuing throughout the year. That said, in the first quarter, we closed one of the large split deals from 2023, and we remain on track to close the majority of them this year, as we previously stated. The on-prem erosion activity we discussed last quarter occurred in line with expectations. We continue to view the first part of 2024 as an outlier, and we do expect our total net expansion rate to remain positive for the year. In a moment, I'll address more about the customer success actions we are taking that will maintain long-term customer relationships. Finally, we generated non-GAAP earnings per share of 57 cents at the top end of our quarterly range. While we ended Q1 as we had indicated, This is not the overall growth level we expect going forward, and we are acting with urgency to improve our growth trajectory. To that end, we recently appointed Rich Petley as our Chief Revenue Officer. Rich is a standout and experienced sales leader with a proven track record of enterprise sales success, growing customers, and pipeline. We have been intentional in our talent management planning, and two years ago, we recruited Rich as the Head of Sales of our EMEA region. The growth of that region gave us confidence in expanding his responsibilities last year to include all international sales. Under Rich's leadership over the past two years, these sales organizations have delivered results meaningfully ahead of our overall growth rate. Rich has consistently shown improvements in driving predictability, adoption of partners, and growing new logos. He's a deep understanding of our customers, technologies, and business, and will bring greater discipline and deal management to help Teradata scale our value and drive profitable growth. Rich is the right person for the job now, and we expect to see a positive impact as he takes over our sales organization. We have also been steadily building out our customer success capabilities. and the organization has developed a more disciplined process and more thorough and objective assessment of account health, enabling active engagement to maintain and grow customers. Our customer success team has also instituted AI Innovation Days, where we are bringing together our customers and prospects with our subject matter experts to promote deeper understanding of our AI and data-like capabilities, how customers can improve their growth through analytics, and realize increased value from their Teradata investments. We're hosting these sessions around the globe and are seeing high interest and engagement from customers. As an example, we recently had over 100 representatives from one of our banking customers participate with us in building their strategy for AI. Additionally, we've sharpened our focus on key operational success levers, including driving new logos and improving sales enablement. Through a dedicated cross-functional effort of targeted demand generation, we are seeing positive momentum. Over the last few months, we've seen well over 100 new logos added to our pipeline, and our teams are focusing on moving these opportunities through the funnel. Ultimately, it's our technology that customers rely on to achieve success. Today, businesses everywhere are exploring how AI can help them be more productive, more innovative, and deliver better experiences for their customers, and are looking at which technology can best support them. Teradata is well positioned to help companies bridge the gap between the possible and the actual with respect to AI. But impactful results are only possible through the ability to manage analytics and models at massive scale. At Teradata, this is a core strength. And we believe our technology is fundamental to what companies need today and will continue to innovate here. For example, a global investment bank that has been a customer for years tells us that Teradata is a business critical system running many of the most important and complex workloads in wealth management and corporate finance. We've earned their trust. Our hybrid capabilities and our AI analytics roadmap enable us to continue to build for the future together. We've architected our technology to grow and expand as and when customers need. When a leading European telco adopted a cloud-first direction, this customer was able to easily migrate their on-prem environment to Teradata on Azure. We helped them harmonize digital customer interaction data so they could execute high-quality customer experiences. Following the successful cloud migration, the customer expanded and is now leveraging ClearScape Analytics to perform exploratory AI use cases. A U.S. healthcare company was a decade-long on-prem customer and became an early adopter of Teradata on Azure to deliver digital health solutions to its clinicians and patients. Their Python AI models run in database using ClearScape analytics to identify risk and predict patient population for remote patient monitoring. As a result, this customer has seen a 520% increase in patient engagement, aligning to care programs, and leading to better health outcomes. These are just a few examples of customers improving their business with our foundational Teradata technology. We remain committed to investing in innovation that broadens our ability to drive value for our customers and for us. An example from the first quarter is with a major financial institution that operates in over 30 countries. They select Advantage Cloud for the fastest, least risk, and lowest cost transition to the cloud, as well as our hybrid capabilities that support their regulatory compliance needs. They value ClearScape analytics, our query grid functionality, and our ability to accelerate their analytics and data mesh goals. We recently held a briefing with C-level execs and we walked away excited about our roadmap and are looking forward to partnering with us to deliver on their highest priority business outcomes, leveraging Clearscape's ability to scale their AI needs. We recently made announcements that strengthen our foundation for trusted AI, including AI Unlimited, our on-demand and cloud native AI and ML engine that we announced in Q4. This technology is moving into public preview in both AWS and Microsoft marketplaces. AI Unlimited is designed to enable developers, data scientists, and engineers to seamlessly explore data, conduct experiments, and operationalize AI use cases without risk to mission-critical production environments. Along with AI Unlimited, we announced support for open-table formats Apache Iceberg and Linux Foundation Delta Lake as we work to deliver the most open and connected ecosystem for trusted AI. We see OTF as the next round of industry disruption, this time at the storage layer. Companies are looking at OTF to allow them to store all their data in a single location at the lowest possible cost and apply the best engine for the job to the data. We believe we have the best platform with Vantage Cloud Lake and AI Unlimited. Our strength is in high performance with optimized and parallel processing of shared data, and we believe we are offering customers unparalleled choice in data management. With this announcement, we are confident that we offer the most open and connected ecosystem for OTF integration. From the private preview uses, we are already seeing AI Unlimited add in value. And one example, a major airline is exploring how AI Unlimited, coupled with ClearScape Analytics, enhances the robustness and predictive power of their models. In another, a major healthcare provider is leveraging AI Unlimited to experiment with different data sets in order to gain a better understanding of customer behavior and quality of experience. Because AI Unlimited is on demand, users can freely experiment and explore new use cases without affecting their production systems. and this sets up the opportunity for new workloads on Vantage Cloud. These announcements highlight our commitment to a fully open and connected approach that allows enterprises to employ modern data strategies to execute trusted AI at scale. Our technology leadership also continues to be acknowledged in the market. Forrester recently named us the leader in its report on enterprise data fabric. The report notes that Teradata excels in data fabric and highlights our superior roadmap, which focuses on AI and large language models. It additionally acknowledges our strong partnership ecosystem that supports large, complex fabric deployments. Forrester also noted how ClearScape analytics help a customer achieve an impressive ROI of nearly 250%. and a new total economic impact study, Forrester found that Clearscape Analytics has enabled the organization to increase data scientist productivity and time to market as it builds ML models, thereby quickly activating, scaling, and driving results from trusted AI. We're also pleased that Teradata was named Tech Partner of the Year by FICO, recognizing that our joint customers can quickly operationalize analytic models including for AI, FICO also noted our jointly designed banking fraud solution that focuses on real-time payments to help stop the rise in payment fraud. I'm also proud of Teradata being named by Episphere as one of the world's most ethical companies for the 15th year in a row. This designation is important as it recognizes our dedication to ethical business practices in all aspects of our operations. Our technology is well positioned to benefit from the big secular growth drivers in enterprise data and analytics, AI and machine learning, cloud adoption, real-time streaming and embedded analytics, and data governance and security at scale. Over time, we firmly believe in our ability to expand our customer base in the cloud, to migrate non-cloud customers, and to attract new logos. In the near term, we expect cloud ARR and total ARR growth to re-accelerate as we progress through this year. As Claire will describe in more detail, our growth outlook for 2024 remains within the ranges we provided. Importantly, as shareholders expect, we are focused not only on the top line, but also on profitability, protecting and growing our free cash flow and on return of capital. We will continue to invest our technology differentiation, and we are equally committed to achieving our margin, free cash flow, and capital return targets. I will now turn the call over to Claire.