Good morning. My name is Angel, and I'll be your conference operator today. At this time, I would like to welcome, everyone, to the Teradata Second Quarter 2015 Earnings Conference 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. Thank you. Gregg Swearingen, you may begin your conference.

Good morning, and thanks for joining us for our 2015 second quarter earnings call. Mike Koehler, Teradata's CEO, will begin today by summarizing Teradata's results. Steve Scheppmann, Teradata's CFO, will then provide more details regarding our financial performance. 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 vary materially. These risk factors are described in Teradata's 10-K and other filings with the SEC. On today's call, we will also be discussing certain non-GAAP financial information, which excludes such items as stock-based compensation expense and other special items, as well as other non-GAAP items, such as free cash flow and constant-currency revenue comparisons. A reconciliation of our non-GAAP results to our reported GAAP results and other information concerning these measures is included in our earnings release and on the Investor page of Teradata's website. A replay of this conference call will also be available later today on that site. Teradata assumes no obligation to update or revise the information included in this conference call whether as a result of new information or future results. I'll now turn the call over to Mike.

Thanks, Gregg, and good morning, everyone. Teradata finished Q2 with revenue of $623 million, which was lower than what we were expecting. Revenue decreased 8% as reported from prior year, and was down 2% in constant-currency. Product and services margins improved sequentially from Q1 to Q2, and helped to provide a good non-GAAP earnings per share yield of $0.53 on the smaller-than-expected revenue. Services revenue grew 5% on a constant-currency basis during the quarter, with maintenance revenue growing 6%. We were particularly pleased to see consulting services revenue increase 4% in constant-currency, following a decline in Q1. And we expect to see similar growth in the second half. Product revenue declined 9% in constant-currency. Although we closed the major data warehouse opportunities in the U.S. that slipped out of Q1 into Q2, we once again experienced deferrals in the second quarter. The environment in the U.S. has not changed regarding the continued pressure on large CapEx transactions, along with the longer sales cycles, deferrals and the smaller deal sizes. This was a key factor in our decision to lower our 2015 guidance. However our activity in the U.S. is up significantly from last year. This is reflected in the Americas third quarter funnel. The number of opportunities have increased more than 30%, but the dollar amount is roughly flat. That said we are expecting the return to constant-currency revenue growth in the second half, and we continue to believe that mid-single-digits revenue growth is a reasonable target for 2016. In addition we have a number of actions in progress to potentially position ourselves better as we exit 2015, which I will talk about later. Turning to our segment results for Q2. The Data and Analytics division revenue declined 8% as reported, and was down 1% in constant-currency. Within those results…

Thanks, Mike. Before I discuss our quarterly results, I'd like to address the $340 million non-cash goodwill impairment charge we took in the quarter related to our Marketing Applications business. We performed a goodwill evaluation during the quarter, which requires an assessment of the business unit's estimated fair value. As a result of this valuation, we determined that the carrying value of the recently created Marketing Applications business segment was higher than its fair value, which resulted in a write-down of the goodwill. We remain committed to the improved performance of our Marketing Applications business segment, and we believe its solutions will play an important role in our growth strategy over the long term. Now, I'll turn to the quarterly results. And as usual, except where otherwise noted, I'll be addressing margins and expenses on a non-GAAP basis, which excludes stock-based compensation and other special items identified in our earnings release, including the impairment of goodwill I just described. Product gross margin rebounded from the abnormally low margin in Q1. In the second quarter, product gross margin was 65.6%, basically in line with the second quarter of 2014 as mix normalized from the adverse mix in Q1. Adjusting for currency, Q2 product gross margin would've been higher than the prior year. FAS 86 amortization is still expected to increase approximately $6 million, or $0.03 of EPS for 2015 versus 2014. Q2 declined approximately $1 million, and we expect an increase of approximately $2 million in Q3, and $4 million in Q4. As a reminder, FAS 86 amortization impacts product gross margin. Services gross margin in the quarter was 46.3%, down from a strong 48.1% in Q2 2014. Services margin was impacted by a lower professional services rate as a result of increased work in process, as well as investments we…

Your first question comes from the line of Wamsi Mohan from Bank of America. Your line is open.

Yes. Thank you. Good morning. Mike, you mentioned many different initiatives that you're looking at over here. I'm curious how you're thinking about the relative pricing of these offerings, whether it'd be software-only as a service or in the cloud? And do you foresee challenges in implementing this with your sales force that it's typically being used to selling very large deals?

Wamsi, regarding pricing, these are things we already have in flight. So in other words, the cloud exist today, we've done subscription models on a custom basis and it already exist today. So, the third piece of this, the software-only piece, although we have not priced it, it's basically offering Teradata without the hardware. And what you get there is less revenue because you don't get the hardware revenue and you get a higher margin rate. And we think most of the opportunity for software-only would be incremental. So, basically, the market will price it with what the hardware component goes for and the software piece will be that part of it that what we saw today in integrated data warehouse. But that piece of it, Wamsi, this won't be in production till we get to 2017. That piece of it's going to evolve over time and we can provide you more details as we get into it.

Thanks, Mike. And as you see today, why do you think that the current sort of non-software-only models that you've offered have not become a larger piece of the business relative to the traditional way that you sold the core database business. Thank you.

Wamsi, could you repeat that question? I'm not sure I got the context right.

I'm just trying to understand sort of you mentioned that other than the software-only implementation, you have the other two models already in flight. And I'm just wondering why do you think those will accelerate overtime, or why aren't they already showing more traction than what you're seeing right now relative to sort of an on-premise deployment?

Okay. Yeah. Thanks for the clarification, Wamsi. Regarding the Teradata Cloud, think of it this way, we've been maturing it and working with it, and learning from it over the last three years or four years. And quite frankly, there isn't a lot of demand out there in the marketplace to go take an on-premise large scale data warehouse and put it in the cloud. We have done it, okay? So it's not a technology thing. There's other factors around sensitivity, around certain strategic things customers are doing in the data that resides there and everything else. But what we're seeing is this thing has progressed, as we're seeing more demand for certain workloads. So it might be a specific data mart that's not strategic to run in the cloud, it might be test and development, it might be disaster recovery, or it might be grabbing capacity to do sandbox types of analytics. On the subscription model, there, we've been maturing it as well. If you think about it, we've been doing it over time, and it's getting the more of a standardized type of offer and then – it'll go more broadly in the market. But here again, demand isn't huge but we do think there's an opportunity to make it easier to do business with Teradata as it relates to the data warehousing. But I think you got to look further down the road and further down the road, there'll be more and more data warehousing in the cloud, and with our software-only, we can go address the market opportunity in the public cloud for customers who want to do it that way. And in the subscription model, over time, this can be a much bigger thing as well. I think if I net it all out, we're just trying to uncover and do every little thing we can that'll help our core Data Warehouse business and its adoption in the market.

Thanks, Mike.

Your next question comes from the line of Bhavan Suri with William Blair. Your line is open. David A. Griffin - William Blair & Co. LLC: Hey. Good morning, guys. David Griffin in for Bhavan. Thanks for taking our questions. Just a couple. First, I was hoping to get a little bit more color on some of the deals that pushed. Were those mostly 6000 Series deals or was there some 2000 Series and Big Data components in there as well? And when do you kind of anticipate those deals to close? It feels like maybe a few of those are pushed into 2016.

David, the deals that we had slipped out of the quarter were 6000s Series and they're larger, if you will, larger CapEx kinds of transactions. So, the ones in Q1 closed in Q2, then we had more in Q2 now deferred down into Q3. And basically, when we're looking at the amount of opportunities we have in our funnel, we have a very – we're looking at a very good second half, but we're now assuming we're going to have deferrals from Q3 into Q4, Q4 into Q1. And it's kind of the way life is right at the moment. So, we did have a couple of significant ones run right out of the quarter, and it is what it is. The Americas had constant-currency growth of a percent, and we were looking at a much bigger number there in the Americas in the U.S., but this is the environment we're in and we got to deal with it. David A. Griffin - William Blair & Co. LLC: Sure. So, it seems like you're taking a little bit more conservative approach assuming that some of the deals might push in the back half of the year. With that said, can you kind of just give us an update on what the top 50 in the Americas is saying, and talk a little bit about visibility and what gives you confidence in your ability to achieve the revised guidance range?

Yeah. After what we've seen in the first quarter and second quarter, we're taking a more conservative approach. Your question – first question was around the top 50 in the Americas? So, in the first half, it was only down slightly, it was down like 1%. And when we look at the second half, and once again, we're taking a conservative approach to it, we see a similar full-year result as we had last year, which was I think around 4% or 5% decline in the top 50. So that's kind of how we've put that together. The second part of your question dealt with the second half for the guidance? David A. Griffin - William Blair & Co. LLC: Correct.

Okay. The second half for the guidance, the key drivers there are services revenue, we're looking at 6% constant-currency growth in the second half. And this is predictable revenue. It includes our maintenance revenue, and then our consulting services, professional services that operates with the backlog, so we feel pretty good about getting 5% to 6% there. The other thing is our international region in the TDA, Teradata Data and Analytics unit, our international region had close to 10% constant-currency growth in 2014. And in the first half of the year, we knew we were going to run into a buzz saw with some of the prior year comparable, especially in the second half, and international had a decline in the second quarter. And we felt that. Now, when we look at the second half, international's on a pretty good trajectory for high-single-digit constant-currency growth. So, we've got international coming back in the second half. We feel good about our services revenue component, which is a little under 60% of total revenue. And it leaves what happens here in the Americas, in the U.S., and we've kind of risk-adjusted what we're seeing there, which is a higher amount than kind of what we have in our guidance. I hope that answers the question. David A. Griffin - William Blair & Co. LLC: Very helpful. Thanks for taking our questions.

Thank you.

Your next question comes from the line of Derrick Wood from Susquehanna Financial. Your line is open.

Thank you. Mike, you mentioned in the press release that you continue to evaluate new initiatives that could enhance shareholder value. I guess given that stock price continues to fall, I think it's down near 2010 levels. Can you share some of those initiatives that are on the table right now? I mean you did mention that you've hired third-party consultants. Is that to evaluate the strategic alternatives, capital allocation? Can you give a little color there?

What we're referring to is the initiatives I just walked you through, Derrick, in my prepared remarks. So, we're exploring everything and we don't want to leave any rocks unturned as far as, in particular, our core Data Warehouse business around how do we grow it. And how do we get the adoption broader in the marketplace and everything else. So, our initiatives are around that. We want to execute and we are executing, getting our cost structure in line with our revenue growth. And in the other areas, the big data we're executing well, the Teradata cloud is moving good. These are revenue growth opportunities that we're executing on. And in Marketing Applications, we – given our products and what we should be capable of, we're in a very good market and we should be getting good growth there. So, as far as engaging third-party consultants, we want to make sure we get an outside view, an external view, an external lens around what are all the things we are doing and can be doing and get an objective assessment, just to make sure we're not missing anything that can drive a better performance for Teradata and in turn drive shareholder value.

So, this is more about growth investments and costs structure as opposed to looking at the capital structure of the company?

Yes. We're very much focused on the performance of Teradata.

Okay. And then, I mean – so, you mentioned Europe expecting a stronger second half. Why is it that Europe has been able to continue to see strong growth, while the U.S. has these more structural issues that's hurting growth? Is it the maturity of the customer base? I mean, what gives you the confidence that Europe can continue to grow?

I think we touched on a couple. The maturity of customers in international, as well as technology adoption broadly in the IT industry trails the U.S. So, there is a maturity piece of this, and there is a lot of opportunities we have in international in a lot of these fast-growing marketplaces with fast-growing GDPs, and with those markets maturing in terms of their capabilities. So, we do have a very robust opportunity in international. That said, we have a good opportunity here in the U.S., and we're working it.

Okay. I'll leave it there. Thanks.

Thanks.

Your next question comes from the line of Ed Maguire with CLSA. Your line is open.

Hi. Yes. Good morning and thanks for taking my question. I noticed that with a lot more deals in the pipeline, there certainly is the – maybe the need to adjust some of your sales strategies. How are you thinking about the channel and go-to market? I mean if you do move to an environment where customers are buying less – or actually they're buying more deals, more smaller deals, do you rethink the direct approach and potentially expand some of your channel relationships?

You're making a good point, Ed. When you look at demand in the Americas and the number of opportunities are up 30%, the deals are smaller and the go-to-market and the cost structure has to go fit that. So that's kind of the way the world is today. So what we are doing, I didn't mention this in my prepared remarks, but we're looking at how do we make software in the company easy to consume, downloadable and basically customer can implement it. And in effect we're trying to do the same thing with the cloud, where it makes it easier to go do exploratory analytics without a customer doing anything. And you don't need a lot of selling expense in the middle of it and consulting. So to answer your question we are evolving our go-to-market model across the company, but it will be in sync with the products that we have available. So there's a product piece of it as well.

Okay. Great. Thank you.

Your next question comes from the line of Joe Wittine from Longbow Research. Your line is open.

Hi. Thanks. Mike, like you just said, U.S. customers are buying in smaller amounts, maybe not surprising given the weakness in on-prem that we've seen throughout hardware. So the question is, should investors still eventually expect larger "floor sweeps?" Or is this kind of this new buying environment, the new normal? And most or all customers will be able to get by, by kind of taking smaller bites? Thanks.

Well the way we are operating and the initiatives we have in place, and as we look at 2016 is all based on on-premise core Data Warehouse is not going to be growing, obviously, like what we saw in 2010, 2011 and 2012. We are counting on it to get better, but we should not expect, at this point in time, that we're going to have the core Data Warehouse on-premise growing 10%, 15% and even more like we did in our good run. Now that said we have all kinds of opportunity to make it better, the core Data Warehouse business, but to also do everything else we're talking about. And we just need to get the – like in the major customers here in the U.S. and getting the Americas growing around the Data Warehouse business, we can get ourselves to a good number longer term, and it starts with the second half. We got to get after the second half. It starts with 2016. And then I think we're positioned where we can get ourselves above the mid-single digits growth collectively as a company with all of our growth platforms that we'll be executing on.

Okay. I'll keep it to one. Thanks.

Your next question comes from the line of Keith Bachman from Bank of Montreal. Your line is open.

Hi, guys. Thank you for taking my question. Mike, your product – well, the market for the size of terabits of growth – terabits of storage is still growing. Analytics, the importance has certainly increased over the last number of years. Yet if I look at your product revenues, you will have product revenues declining in 2013, 2014, and now 2015 in a fairly meaningful way. I know you're hopeful that you get some bounce back in 2016 and yet if you take the backdrop of the comments that I made, where are the analytic dollars going if they're not flowing to Teradata? And based on that supposition, what makes you think that it does turn around?

Keith, first of all, you can see the acceleration of data analytics and the demand in our big data analytics business, all right? So it's doubling, it's growing at a big rate. And it's becoming a meaningful amount of business.

Right.

The core on-premise Data Warehouse business, if you take a look at that, we're seeing a deceleration occur in major customers in the U.S. And there it will hit a baseline eventually, and then we will grow from there. So once we get settled here on the core business, it's not like the on-premise data warehouses are moving to the clouds or things like that, very little bit of that. We will hit a baseline. We've already had a couple customers in the first half that hit the wall, if you will, and refreshed their ADWs with two floor sweeps in the top 50. We have a very, very old, aging base in particular in the U.S. So, there are some underpinnings here that can point towards a bottoming out in the on-premise data warehouse environment where it'll return to growth. And we're talking about the U.S., International has been growing.

Right.

And the big hit has been in these major customers. Add a little more information, at the same time, if we can't grow the data warehouses, the customers that put down the clamps on the spending on the EDW and then eventually have to refresh it, if that data warehouse isn't going to grow, we're replacing it with something that cost less money and has less maintenance than what they originally purchased it for. Okay?

Right.

Because you have the impact of Moore's law. But what's going on is we're starting to have some of the workloads that aren't on Teradata coming back to Teradata. I would like to say and give a specific number where this thing is headed, but all I can say is when you collectively look at it and add it all up, I think the core Data Warehouse business on-premise in the U.S., is going to hit an inflection point. And in the first quarter, it was down – or first half, I'm sorry, top 50 is down 1%.

Okay. And your expectation is that looks like you anticipate hitting that inflection point in 2016, you think?

Yeah, that's what we're pointing towards.

Okay.

That's what we're pointing towards.

All right. Many thanks...

But we want to cover our flanks, and we got a lot of things in flight as well.

Okay. Good luck, gentlemen. Thank you for taking my question.

Thank you.

Your next question comes from the line of Brent Bracelin from Pacific Crest Securities. Your line is open.

Thank you for taking the question here. Two related questions, if I could. If I back out the Big Data business that doubled in the quarter, good growth there. It does look like, though, the core Data Warehouse business declined double-digits. So I guess the question here is, are you seeing kind of internal cannibalization of workloads at customers onto your Big Data platforms? And if so, why won't this continue? And then two, as you look at kind of this optimism of returning to growth next year, as I look at the potential headwinds to growth, you're coming out with cloud versions, software-only versions, subscription models, these are all new ways that customers can buy Teradata, but potentially will reduce the upfront revenue you'd collect. And so what gives you confidence that you can return to growth if you're successful with cloud, software-only and subscription as well?

Brent, you asked a lot questions. Your first one was you did a calculation of what our core Data Warehouse business did in which quarter – or for Q2 or the first half?

For Q2, yeah. Double-digit decline? Is that the right math?

The core Data Warehouse double-digit decline, I'm getting nos here in the second quarter.

Low-single-digits.

Low-single digits...

Negative, Negative.

Negative, decline.

Low-single digits...

Decline of low-single-digits. In the second quarter, we had a very significant data warehouse transaction in the prior year in international, extremely large, and that's the biggest piece of what happened to the core data warehouse. Can you walk me through the rest of the question?

Yeah. The second question would really just be around this return to growth. What gives you confidence you can return to growth? And the rationale is as I think about a cloud version of Teradata, subscription versions of Teradata, software-only versions of Teradata. If you're successful with these models, there's going to be a negative impact on the amount of revenue you collect upfront versus selling an on-prem Teradata system. So, if you're successful with these new versions, wouldn't that be a continuation of a drag on growth next year?

Well, software-only won't be in production until 2017. But my earlier comments, we see this mostly incremental. We're not going to have the same performance in SLAs in an open software running on anything like you have with our integrated data warehouses. Okay. And it should open doors and be incremental as far as running in public clouds for companies who want to go in that direction. So, there, not much of a headwind. It should be a tailwind when we get to 2017. The Teradata Cloud, it will present some of a headwind on revenue, of course, the way revenue is recognized. But we don't see – we see workloads, some new workloads and some new customers going to the Teradata Cloud, we don't see a meaningful impact when we look at 2016 and our goal to get the 5% mid-single-digit revenue growth. On the subscription model, once again, that won't be a headwind, but I think we have to – the way revenue is recognized. But I think we have to look at how it positions us with customers that may want to be in that model. We don't have a lot of demand from customers saying they would like to get to that model, but we do think it's our advantage, if we have customers that want to go to a subscription model, because it makes it easier for them to expand their data warehouses. So, even though we don't have a lot of customers in a customized subscription model, what we see is it's much, much easier to expand. It doesn't require a large CapEx transaction. It doesn't require the levels of approval and everything else you get in a license model. So, subscription model, yeah, that could provide some headwind. But in terms of us gaining share of customer spending and everything else in this new environment, we think it's an opportunity, a good guide.

Clearly, a lot of headwind – or clearly a lot of moving parts here. I really appreciate the color and taking my question. Thank you.

Yeah. Thank you. Yeah. That's something – we want to talk about on the next earning calls and will be giving updates. There's a lot of moving parts here and how these all comes together into a more crisp model with metrics, if you will. I think we have time for one more question.

Your next question comes from the line of Phil Winslow with Credit Suisse. Your line is open. Philip Alan Winslow - Credit Suisse Securities (USA) LLC (Broker): Hey, guys. Can you hear me?

Yes. Philip Alan Winslow - Credit Suisse Securities (USA) LLC (Broker): All right. Great. Just have two follow-up questions to a couple of questions asked earlier. First, I guess you talked about continued OpEx growth next year, but if you start to come to the conclusion of, let's say, just the core Data Warehousing business. Essentially, there's at least gross profit dollars cannot grow. I mean, how do you think about then the cost structure, capital structure, et cetera, of this business? And then, you talked about bringing consultants to evaluate if you're doing the right things sort of across the different divisions. But just looking at the marketing revenue numbers this quarter and the past several quarters, I guess one question, too, is that, yes, I think we all agree that you need the analytics to do marketing – automation and marketing in campaign management effectively. But do you necessarily have to buy that marketing software from your data platform vendor? Just any sort of insights on those two would be great.

Okay. Regarding our OpEx and cost structure, we'll always be optimizing it for the revenue and for the margins we're producing. So, that's an ongoing for every company. You got to match cost with revenue, which we have not done the past year. So, regarding the marketing business and analytics, yeah, historically, we've always done a lot of analytics, regardless of having a marketing application. We've done a lot of analytics with marketing organizations around the world. Our campaign management solution that we've had since 1999 has been very successful. And multichannel campaign management is very, very closely tied with analytics, very, very closely tied. As is digital marketing and the explosion of information coming from new channels like social and so forth. With our marketing applications business, there's some goodness in it. Number one is we know the market is growing. There's no confusion there. It's going in the right direction. We have strong assets within our marketing applications and we have a very strong team of people and a lot of them have come with acquisitions and they're still here. That have founded companies, started companies are in the space. We see a great opportunity for us. We haven't delivered on the opportunity. And I'm confident that – well, we're showing signs of going in the right direction this year. And you'll see it as we get through the third quarter and into the fourth quarter. Philip Alan Winslow - Credit Suisse Securities (USA) LLC (Broker): Got it. Thanks, guys.

Okay. Thanks, everyone. Yeah. So, basically, I want to emphasize, we are working hard on these initiatives to improve the Teradata performance, as well as the second half. And we have to deliver on the second half and we've got to work on these initiatives to make Teradata easier to implement, easier to buy with multiple options of where to deploy it and everything else. So, we look forward to giving you an update on our progress next quarter and have a good day. Thank you, everyone.

This concludes today's conference call. You may now disconnect.