Teradata Corporation

Good afternoon. My name is Matt, and I will be your conference operator today. At this time, I would like to welcome everyone to the TerraData second quarter 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, press star followed by the number two. Thank you. I would like to hand the conference over to your host today, Chad Bennett. Senior Vice President of Investor Relations and Corporate Development. You may begin your conference.

Good afternoon and welcome to Teradata's 2024 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 our SEC filings, including our most recent Form 10-K, and in the form 10-Q for the quarter ended June 30, 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, 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 in 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 relation 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 everyone for joining us today. As we get started, I'd like to welcome Chad Bennett to the Teradata team. Chad joins us after years of covering software and fast companies at Craig Hallam Capital. We're excited to have Chad adding his expertise to Teradata and keeping you up to date on our company. Our Q2 results demonstrate our ongoing strong performance in cloud, with cloud ARR growth of 32% in cost and currency. This reflects the increasing interest in our differentiated hybrid cloud capabilities. Also, when customers choose Teradata in the cloud, they are expanding with us as they see the value. Our cloud net expansion rate remains strong at 123%, and we have doubled the number of eight-figure cloud ARR customers year over year. Despite the cloud ARR growth, total ARR declined by 3% year over year. Additionally, we generated non-GAAP earnings per share of 64 cents and delivered $39 million of free cash flow. Looking at our results overall, our performance continues to be challenged by the industry macro environment and longer customer decision cycles. We fully recognize we need to improve our execution. We have undergone a comprehensive review and are taking actions to improve our results, including bringing an increased focus on cost reduction. This has led to a reset of our financial outlook for the rest of this year and into 2025. Let's start with actions in our go-to-market organization. Last quarter, I introduced Rich Petley, our new Chief Revenue Officer. Rich has worked with Speed and has brought new management discipline to the global team, building upon the results he generated from EMEA, which meaningfully outperformed the other regions during his tenure. The sales function has been realigned to drive increased effectiveness, leverage best practices that resonate globally, while also creating structural and cost efficiencies. In the pipeline review, we are encouraged about the large deal opportunities for the second half of 2024. Our pipeline of large eight-figure ARR deals has also increased to three times what it was in Q2 of last year. In our new local pipeline, we continue to see momentum. In the second half, we anticipate ARR for new logos doubling over the prior year. However, we continue to see longer decision-making cycles, and we believe this is consistent with what others are experiencing in the industry. As I've noted in prior calls, with the strategic nature of our analytics, we are seeing more decision-makers involved in deals and from across multiple business units. This compound decision environment moves Teradata beyond IT and affords us the opportunity to help more departments understand what is possible with our hybrid cloud platform and best-in-class analytics. Yet, it does lengthen deal cycles. We expect deal elongation to continue, and just one example, in Q2, we closed the eight-figure transaction that slipped out of Q4 2023. Following our thorough review of the business, with the additional discipline and rigor applied from the realigned go-to-market organization, we have decided to reduce our outlook. A revised outlook reflects the uncertain macro environment, our additional scrutiny of the pipeline, and as well it accounts for the risks we see with longer deal cycles and less on-prem expansions. As we move ahead, We are addressing vectors that we believe will accelerate growth and deliver increased value for customers. We're taking proactive measures to reduce operating expenses across all aspects of the business. We're focusing on reducing expenses in non-revenue generating areas, including a reduction in headcount of approximately 9% to 10%. We remain committed to protecting earnings and free cash flow, and we will continue to invest in areas where we can accelerate revenue growth. Claire will cover the revised outlook and our financial results in more detail. As we look ahead, we remain confident in our opportunity. With AI and Gen-AI as catalysts for innovation in all industries, Teradata has been trusted by leading companies for years to provide secure, trusted, and well-governed data. The enterprise of the future will be built on trusted data and trusted AI, ensuring that accountability, transparency, and oversight every business needs to empower faster decision-making, improve their customers' experience, and continuously create value. Our expertise and technology are what the market needs now. We've surveyed a broad range of C-suite executives and AI decision makers, and an area where they are looking for support is in successfully navigating new AI initiatives. We're confident that our hybrid cloud platform is ideal to help companies align their AI goals to their business strategy and help them lead in their industries with trusted data and trusted AI. In Q2, we advanced our open and connected approach that is designed to allow enterprises to employ modern data strategies and deliver value from trusted AI at scale. Furthering our innovations, we unveiled Teradata Vantage Cloud Lake on Google Cloud. Together, we are combining the advanced data and analytics capabilities of Vantage Cloud Lake with the scalability and flexibility of Google Cloud. This launch is expected to enable enterprises that rely on Google Cloud to efficiently scale their AI initiatives and power new generative AI use cases. One of our first customers for this lake offering is OiSA, a leading Brazilian telephone operator. It will leverage Vantage Cloud Lake on Google Cloud for revenue assurance. With this release, our powerful beta lake solution is now on all three major CSP platforms, Amazon Web Services, Google Cloud, and Microsoft Azure. Teradata will continue to innovate on our open and connected ecosystem by embracing open table formats with first party support for Apache Iceberg and Delta Lake, driving new analytic workloads and enabling broader AI access to data. Our open table format support is designed to enable customers to both access and store data in an open and standard way that's easily shared across different analytic engines and tools. This allows us to capture more compute power and provide more comprehensive analytics solutions to our customers, solidifying our position as a leader in data and analytics. In the quarter, We also announced that Teradata AI Unlimited, our first on-demand AI ML engine in the cloud, is integrated into Microsoft Fabric and OneLake, Fabric's unified multi-cloud data lake. Teradata AI Unlimited in Microsoft Fabric can extend user freedom to innovate with frictionless on-demand access to clear Skype analytics. It is designed to enable developers, data scientists, and engineers to maximize their performance by providing access to vast amounts of data and unlimited flexibility to explore, create, and experiment. They can seamlessly explore data, conduct experiments, and operationalize AI use cases without risk to mission-critical production environments. For example, a data scientist might use AI Unlimited to experiment with advanced geospatial functions to address route delivery and improve the supply chain. Alternatively, an analyst might explore innovative churn models using AI Unlimited's advanced analysis capabilities, coupled with fabric-native data and business intelligence tools. Multiple life science companies could even collaborate together on disease research, leveraging gradient boosting capabilities of AI Unlimited against data sets and Fabric One Light. The opportunities are exciting, both for our customers and for us. AI Unlimited is now in public preview in both AWS and Microsoft marketplaces. Now I will share a few more examples of wins from the quarter. A US-based multinational healthcare company is expanding its Teradata hybrid ecosystem to include Vantage Cloud Lite on AWS. This is expected to accelerate the development of healthcare innovation and new services to improve customer health outcomes and healthcare affordability. As this longstanding cloud customer is expanding, it becomes one of our top five cloud accounts. We're also pleased that Teradata is now the official cloud analytics partner of the LA Clippers and Intuit Dome, the Clippers' new home. And this new logo win, the team and arena will leverage Vantage Cloud Lite with its AI technologies among the suite of services provided. In addition, Joyo Bank in Japan will leverage Vantage Cloud on Azure as its analytics and data platform for digital transformation, integrating customer and marketing data and using advanced analytics such as AI to maximize its value to customers. As customers select Teradata, we were recognized by Gartner as a customer's choice for Cloud DBMS, and it's Pierce Insight's voice of the customer report. Teradata was one of only five vendors leading the way as a customer's choice. This Voice of the Customer report evaluates companies based on verified users' experiences in implementing and operating cloud solutions. Along with our advances in our technology and with customers, we made strides with partnerships in the quarter. We announced that we are bringing open source support for trusted AI innovation in partnership with Anaconda. The integration of ClearScape Analytics and Anaconda's Python and R packages is expected to help enterprises deploy large-scale data science, AI ML, and Gen AI use cases. We also recently announced new integration of DataRobot's AI platform with ClearScape Analytics and Vantage Cloud. This integration provides enterprises the ability to import and operationalize DataRobot's AI models at scale inside our platform. This functionality is available through Clearscape's analytics, bring your own model capability and is designed to enable customers to unlock data and results faster and accelerate AI innovation. Also in the quarter, we expanded our strategic collaboration agreement with AWS to help customers accelerate modernizing their data analytics ecosystems, further support them as they migrate to the cloud and maximize the value of AI opportunities with improved data-driven insights. As I hand the call to Claire, we are taking actions and are committed to executing. We remain confident in delivering solid cloud growth and in maintaining our enduring commitment as a trusted partner to our customers. With trusted data and trusted AI rapidly becoming table stakes, our technology is in the sweet spot of opportunity. Our attention will remain on delivering innovations that keep Teradata at the forefront of data and analytics. We are equally dedicated to maintaining our momentum on strong partnerships that drive value for customers, and we remain steadfast in protecting profitability and free cash flow. Now let's pass the call to Claire.