Teradata Corporation

At this time, I would like to welcome everyone to the Teradata third 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 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, press the pound key. I would now like to hand the conference over to your host today, Chad Bennett, Senior Vice President of Investor Relations and Corporate Development at You may begin your conference.

Good afternoon and welcome to Teradata's 2024 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, 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 and 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 our 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, Chad, and thanks everyone for joining us today. In Q3, Teradata grew our cloud business, delivered enhanced technology innovations that strengthen our hybrid trusted AI position, and added to our partner ecosystem all core elements of our strategic plan. Cloud ARR grew 26% year over year, as reported in Q3, with a solid cloud net expansion rate of 120%. and we have already closed one eight-figure cloud deal in the fourth quarter. Despite strong growth in cloud ARR, we have recently seen a change in our large transformational deals. Customers are planning to migrate workloads to the cloud in a more staged process. The total customer spend with Teradata is unchanged, and there is no impact on our total ARR. However, this shift results in a reduction to our cloud ARR and we are therefore lowering our 2024 outlook to 18 to 22% for the full year. We see an ongoing healthy growth in our cloud business and continued migrations, which we anticipate is going to help us increase the mix of clouds in the future and help drive total ARR growth in 2025. The strength and the fundamentals of our business is clear, serving customers needs across both our cloud and our on-prem businesses. We are increasingly seeing customers leverage our hybrid capabilities as they look to transform and commit to Teradata technology for the long term. As we have shared, we see that Teradata is increasingly becoming more strategic. The very large organizations we work with have both data in the cloud and on-prem, and we believe we are uniquely positioned to address their needs with our differentiated hybrid platform. We remain comfortable in closing deals over time, as evidenced by the eight-figure deal I mentioned. We're seeing signs of greater engagement with both customers and prospects and improvement in renewal rates. These are primarily the result of our go-to-market restructuring. We're in the early stages of our go-to-market reorganization and expect to see improving execution as we move into 2025. Our teams are taking AI to our customers. and more than 20% of our pipeline includes an active AI sales engagement. In the third quarter, we continue to add new logos and grow our new logo pipeline. Teams are actively working on closing the large deals in the pipeline. Teradata remains true to being customer and market driven, and we have adjusted the timing of deals to align with our customers' extended decision making on these strategic opportunities. Teradata remained highly profitable in the third quarter. Profitability increased with non-GAAP earnings per share of 69 cents versus 42 cents in Q3 of 2023 and free cash flow of $69 million compared to $36 million in Q3 of 2023. We will uphold our commitment to maintain margins, protect and grow free cash flow, and return capital to shareholders. When we look ahead, we see opportunity. As companies embrace AI, they need data at scale. Data at scale is the foundation of GenAI applications, and data at scale has always been at the core of Teradata. We've made great strides advancing our perception and our innovations, as I'll now explain. I'll start with recognition received for our market position in trusted AI. Fintana Research rated Teradata as an overall leader and a top rated analytic data platform company and is one of the best in meeting product and customer experience requirements. Fintana also ranked Teradata as exemplary in Fintana's AI and MLOps platform gains. We're also very pleased with the response from our recent possible events in London and Los Angeles. where we receive positive feedback from customers, prospects, partners, and analysts. We heard consistent comments on our clear strategy, differentiation on trusted AI, and on partnerships that strengthen our open and connected ecosystem approach that customers want. Across the board, we heard from attendees that they were impressed with the breadth of customers who shared their insights into the value Teradata brings to their organizations. One analyst noted that customers and partners alike continue to view Teradata as their strategic vendor around analytics and called out the potential we bring to help them with Gen-EI workloads. Another noted our strong pace of innovation, our differentiated hybrid capabilities and our superior pricing economics for customers. It was from these customer events that we announced a sweeping set of innovations that support and advance our differentiated possession and trusted AI. Starting with enhancements to ClearScape Analytics, our analytics engine for AI innovation. These enhancements are designed to enable organizations to maximize the return on investment of their AI and ML investments. They are also intended to boost data science productivity to achieve business outcomes faster and more efficiently. We have brought Spark to ClearScape Analytics. Data scientists are now able to easily convert PySpark code to Teradata machine learning, eliminating the need for re-engineering or data movement. This significantly reduces complexity and costs. Customers can leverage Vantage Cloud's enterprise-grade workload management, security, and data integration that is designed to operationalize trusted AI at scale. In one example, a large Latin American bank recently trialed a migration of some Databricks workloads to Vantage Cloud using this capability. The workloads were to perform daily data analytics for 16 million credit card records and 75 million consumer transaction records, the results were dramatic. 56% faster processing with Vantage Cloud and 47% cost savings with Vantage Cloud compared to Databricks, all without moving data in and out of their data warehouse. In October, we announced our new bring your own or BYO LLM capability designed to enable customers to simply and cost effectively deploy Gen AI use cases at scale. Organizations are recognizing that larger language models aren't best suited for every use case and can be cost prohibitive. Bring your own language model allows companies to choose the best model for their specific business needs, including small or medium domain specific language models. from open source providers like Hugging Face. Many models are free to use, inexpensive to run, and can be tailored to industry and horizontal use cases for real world value. For customers with more complex generative AI needs, including training or fine tuning, ClearScape now also provides them with the flexibility to strategically leverage either GPUs or CPUs depending on the complexity and size of the large language model. Teradata's ability to leverage GPUs can allow customers to develop and operate LLMs for purpose-built Gen-AI business applications and not be constrained to siloed AI tools that require complex workflows or large amounts of data movement. In addition to these models being easier to deploy and more cost-effective overall, we bring the language models to the data so that organizations can also minimize the expense of data movement and maximize security, privacy, and trust. With these ClearScape announcements, we are continuing to deliver what we see as the most powerful, open, and connected AI and ML capabilities in the market today. All Vantage Cloud customers have access to ClearScape analytics with these new features. Our focus on driving innovation has never been stronger and I'm pleased to report that we have appointed Lewis Landry as our chief technology officer. I'm excited that Lewis will bring his expertise in advanced engineering and emerging technologies to help accelerate the pace of innovation at Teradata. Lewis has led our technology and innovation office and his knowledge of Teradata technologies, deep engineering, and years of experience leading technology innovations at larger enterprises make him an excellent CTO for Teradata. Hilary Ashton, our Chief Product Officer, will be leaving Teradata at the end of the year and will facilitate a smooth transition out of her role. As we build on our innovations and strengthen our open and connected ecosystem, our focus on partnerships remains front and center. We recently announced integration of NVIDIA's AI accelerated computing platform with our Vantage platform for the development and deployment of GenAI applications to accelerate trusted AI workloads, both large and small. Vantage Cloud Lake's integration with NVIDIA's platform is designed to enable our customers to more affordably deploy everyday GenAI use cases faster and in their environment of choice for immediate return on investment. We also announced that the Teradata platform is now integrated with dbtCloud, We bring our ability to manage complex, large-scale data sets with enterprise-grade reliability, robust security and governance, and combine that with DBT's transformation tools to turn raw data into actionable insights. Together, we believe that we can enable unparalleled data management and agile analytics, empowering engineering teams to transform data at scale with less manual effort. all in service of helping organizations accelerate their AI and ML initiatives. Finally, we introduced a generative AI-driven customer complaint analyzer solution built on Vantage Cloud Lake in concert with Edge Solutions and Consulting. Customer Complaint Analyzer is designed to continuously capture data signals in order to identify, address, and prevent customer complaints. The powerful solution is designed to help companies improve their customers' experience and reduce churn. And we already have a healthy opportunity pipeline for this new AI use case. We've had great customer reaction to our announcements. For example, our team demonstrated how we can help companies more effectively integrate signals from customers into their workflows and quickly act on them. We used hugging face models leveraging the Bring Your Own Model feature in ClearScape Analytics to analyze and summarize customer calls or classifying the output and automating treatment of next best action, all in a single integrated analytic workflow without moving data. This AI-driven solution provides faster responses to customers, and we demonstrated how an entity could analyze and address 300,000 calls a day up from 30,000 a day with our manual process. We are seeing great interest as the benefits can be far reaching, including cost savings, improving customer satisfaction, and increasing the lifetime value of the customer. These announcements and our customer engagement events are executed with one goal, help our customers achieve massive value with trusted data and trusted AI. I'll wrap up with a sampling of some of our recent wins that should illustrate this goal in action. A US insurance company and member of the S&P 500 migrated to the cloud with Vantage Cloud Lake on AWS. The account had implemented a cloud strategy and migrated its Hadoop data lake to Snowflake years ago before we had a cloud offering. Our team introduced Vantage Cloud Lake, and demonstrated that Teradata was the best and most cost-effective solution for the company's complex workloads, and we won this business back. Our late offering on AWS will support the customer's business insurance division and more. We're collaborating with Cognizant on the migration. We also had a significant win with one of the largest banks in Asia Pacific. In this competitive win, the bank chose Teradata on AWS to achieve the robust performance and reliability needs. It runs risk compliance and regulatory reporting on Teradata. We will also integrate Vantage Cloud Lake as an innovation platform so that the bank can develop AI ML use cases without the constraints of working with production data. This move marks a significant evolution to enhance their agility and innovation capabilities. And finally, a Fortune 500 insurance giant added Vantage Cloud Lake on AWS to run additional analytic workloads for its finance department. As I close, I'll reiterate that we remain committed to accelerating growth and innovation. We see strong market opportunity that aligns to our strengths, and we are delivering AI innovations and value for customers. We have proven that Teradata can and does evolve with changing market dynamics as we've grown our cloud ARR business to more than half a billion dollars in under four years while aggressively returning capital to shareholders. We believe we are well-positioned with a hybrid, trusted AI platform as enterprises begin to commercialize AI uses. We have been and will continue to take actions to improve growth. We have made meaningful leadership changes in products and go-to-market. With Rich now in the CRO role for two quarters, we have made material changes in our go-to-market organization designed to improve execution. We believe we are taking the right actions to return us to growth. And while it's still early in seeing the results from those changes, we firmly believe in our differentiated technology, our people, and in our future. Now I'll pass the call to Claire.