Good afternoon. My name is Rob, and I will be your conference operator today. At this time, I would like to welcome everyone to the Teradata Second Quarter 2018 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Thank you. Mr. Gregg Swearingen, Vice President of Investor Relations, you may begin your conference.

Good afternoon, and thanks for joining us for our 2018 second quarter earnings call. Vic Lund, Teradata's CEO, will lead our call today. Oliver Ratzesberger, our Chief Operating Officer, who is joining the call from Europe, will then provide an update on our strategy and customer activity. Then CFO, Mark Culhane, will discuss our financial results and guidance. Our discussion today includes forecast 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 Teradata's 10-K, 10-Q and other filings with the SEC. On today's call, we will be discussing certain non-GAAP financial information, which excludes such items as stock-based compensation expense and other special items described in our earnings release, including acquisition, reorganization, and transformation related costs, asset impairments, and capitalized software development costs. We will also discuss other non-GAAP items such as free cash flow and constant currency revenue comparisons. A reconciliation of our GAAP results to our non-GAAP results and other information concerning these measures is included in our earnings release and on the Investor page at teradata.com. A replay of this conference call will be available later today on our website. Teradata assumes no obligation to update or revise the information provided during this conference call, whether as a result of new information or future results. And now, I will turn the call over to Vic.

Good afternoon, everyone. First, I'd like to express my thanks to the entire Teradata team for another outstanding quarter. Our results this quarter again demonstrate that our strategy is working and is being well received by our customers. We saw a year-over-year revenue growth from both regions and a continued increase in our pipeline. As noted in our earnings release, we are adjusting our guidance. Mark will provide greater detail, but I want to highlight the adjustments were driven by three factors. First, as we have previously stated, customers are moving to subscription license faster than anticipated. In fact, in the first half of 2018, roughly two-thirds of our new business transactions are on subscription. And we continue to see subscriptions trend above our previous guidance. The accelerating conversion from one-time perpetual license to subscription revenues is great news for us, as it reflects our customers' acceptance of our new flexible pricing and deployment options, and sets us on course for a more dependable and predictable revenue stream. Second is the strengthening U.S. dollar and I know you've already heard about this from others. This has a double impact on us, however. Our revenues when converted to U.S. dollars are reduced, but since our products are primarily produced in the U.S. we don't get a corresponding reduction in our cost of goods sold. My perspective on this is straightforward. Don't panic when the dollar strengthens, and don't celebrate when it moves in your favor. Third, our perpetual upfront revenue is weighted towards lower-margin hardware as customers are primarily purchasing our software on subscription. While the impact of these hardware sales is positive on the revenue, it reduces margin rate because as we all know hardware margins are lower than software. As I mentioned earlier, you will hear more specifics from…

Thanks, Vic, and good afternoon, everyone. It is my pleasure to provide an update on great progress we are making in our strategic transformation. On today's call, I will emphasize three key takeaways. First, our strategy is on point and addressing market needs as enterprises around the world take on digital transformation. Second, our strategy is resonating with our customers. I will share some new customer use cases that are propelling increased adoption of our Teradata Everywhere strategic offering, including our Teradata Analytics Platform and IntelliCloud-as-a-service offering. And third, we have real-world proof of Teradata's differentiated value. These three takeaways confirmed why we at Teradata are very confident in our strategy and direction. And our Q2 revenue growth both in our Americas and International regions validates our momentum. The digital transformation continues. Companies worldwide are acquiring digital capabilities throughout their organizations to improve efficiency, enhance customer value, build new business models, and drive growth. The large global enterprises we serve recognize that analytics is mission critical to address the digital transformation and is key to competitive advantage. Our strategy of helping customers achieve high-impact business outcomes through enterprise analytics at scale directly addresses this market need. We are meeting the needs of our customers and driving increased consumption of our software through our Teradata Everywhere strategic offering. Our four key tenets of Teradata Everywhere help customers leverage analytics to analyze anything, deploy anywhere, buy any way and to move anytime. With our flexible deployment and the pricing options and the powerful technology, our extensive Teradata Everywhere strategy remains unmatched in the industry. No other company provides the breadth of analytics leadership. Another indication of our momentum with Teradata Everywhere is that we are increasingly seeing customers move Teradata to the cloud as they realize that Teradata offers the fastest path…

Thanks, Oliver, and good afternoon, everyone. Our strong momentum continued this past quarter and I'm pleased to once again report better than expected quarterly results, not only in terms of revenue, non-GAAP EPS, and free cash flow, but even more importantly, two-thirds of our new and add-on bookings were subscription-based, exceeding the revised expectations given on our last earnings call of 50% to 60% of our bookings mix for the full year to be subscription-based. Since, we are seeing our bookings mix increasingly shift to subscription-based transactions, we are increasing our expectation for our bookings mix to be 65% to 70% subscription-based for the full year. In terms of our reported results, total Q2 revenue was $544 million, which was above our guidance range of $520 million to $530 million. Recurring revenue, which includes revenue from subscription-based transactions, perpetual license-related maintenance and upgrade rights was $312 million in Q2, a year-over-year increase of 11%, 10% in constant currency. Perpetual software license and hardware revenue, which is revenue from on-premise perpetual transactions, was $97 million. We had a governmental customer purchase via perpetual versus our forecast as a subscription due to their year-end budgetary opportunity, which resulted in a perpetual revenue higher than our expectations and drove total revenue ahead of our expectation. We continue to expect that perpetual revenue will decline year-over-year in the second half of the year as our bookings mix shifts more towards subscription-based transaction. If customers are choosing to buy upfront on a perpetual license, it is predominantly hardware related. In consulting revenue which was $135 million in Q2 decreased 4% from Q2 2017 as we have shifted our strategy to focus on the top 500 analytical opportunities, as well as business consulting, we are doing less lower margin implementation related services. AR growth was $26…

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

Yes, thank you. Good afternoon. Can you address what assumptions you're making specifically in the second half for the lowered guide? It looks like FX is a net maybe $15 million or so hurt in the back half, and your overachievement in 2Q, and I know it's driven by this unique deal and from the government. When you put that together with the slightly tight (33:45) for 3Q, it implies that for 4Q revenue is quite a bit sharply lower organic by maybe $30 million or so. How much of that would you attribute Mark due to the shift to subscription or is it changes in demand?

Well, so thanks. Yeah. Thanks, Wamsi. There is no shift in demand here or reduction in demand. It is all due to the movement to subscription. We are expecting in the back half of the year a significant decline in our perpetual revenue year-over-year. That is the biggest impact of why total year revenue is down from what we thought 90 days ago, given the significant move upward to subscription given our customers' strong interest in our strategy.

Okay. Thank you. And if I could, Oliver, you mentioned customers Azure, but we also heard of other moves to AWS. Could you give us some sense or examples that customers willing to Teradata on AWS? Give us some sense of what sort of applications are being run there? Thank you.

Yeah. Thank you, Wamsi. In general, we are seeing our Teradata Everywhere strategy being adopted by a lot of customers and that includes the public cloud. What we see with our customers is simply their ability to choose the form of deployment and de-risk their decisions in terms of what type of cloud or hybrid cloud deployment they can go to. These are in part existing applications that are moving into the public cloud. In part, these are internal use cases where customers are testing new use cases against new types of data. And we think it's both on AWS, as well as on Azure, and the two callouts that we had in today's call were significant customers that went to Azure on public cloud.

Thank you.

And your next question comes from the line of Katy Huberty from Morgan Stanley. Your line is open. Kathryn Lynn Huberty - Morgan Stanley & Co. LLC: Thank you. Good afternoon. Two questions from my end. The first is given the expected move to subscriptions, which is really great to see, could we now have a setup for free cash flow to actually stabilize in 2019? I think, we've talked about when we get to about three-quarters of bookings from subscriptions that, that could potentially happen. Just curious whether you think that, that's a possibility next year? And then secondly, hardware lumpiness is a bit of a distraction to the successful transition to subscription. And so, just a bigger-picture question, is it necessary that Teradata delivers its software on branded ware, or could we see the company move towards a software-only model over the long term, some other hardware companies have done successfully in the recent past? Thank you.

Sure, Katy. This is Mark. I'll take the first one and then I'll have Oliver talk a bit about the second one. So, yes, the faster move to subscription given the customers' interest in – strong interest in our strategy is clearly moving that. And yes, it is possible that free cash flow stabilizes, come out of this year and grows into next year. We'll see where we end up through the full year but that's definitely a possibility.

On the second part of that Katy, regarding hardware versus software. The first part of – and I think we discussed that last time already around – a big important part of our Teradata Everywhere strategy is the separation of software and hardware, and the fact that we offer customer choice for them to deploy in the way they feel most relevant or that is most appropriate to their business model. We see this actually as a unique differentiator and a big plus of our strategy because customers are telling us that this really gives them increased flexibility, and then having a hardware option available for that is something that many of the top 500 customers that we are targeting are really valuing as an option. This is not to say that other options aren't as important, but that portfolio of options in Teradata Everywhere, be deploy everywhere, it move any time portions of that strategy are absolutely critical and it gives our customers the choice to pick between their own data centers, their own hardware, the public cloud, specialized cloud. And so for the foreseeable future we see this as part of our strategy. Of course, our focus has shifted to software and that's what we're driving but ultimately giving our customers the choice of picking where they want to deploy, we believe is a big part of a hybrid cloud strategy. Kathryn Lynn Huberty - Morgan Stanley & Co. LLC: Thank you.

Your next question comes from the line of Brad Reback from Stifel. Your line is open. Brad Robert Reback - Stifel, Nicolaus & Co., Inc.: Great. Thanks very much. From a higher-level perspective, Vic or Oliver, if you think about gross profit per query to Teradata, how does it look when someone deploys an Azure or AWS versus previously on-prem? Thanks.

So, just to understand your questions better, you would like to understand if the profit per query a customer runs is different in the public cloud compared to on-prem deployments? Brad Robert Reback - Stifel, Nicolaus & Co., Inc.: Exactly.

So... Brad Robert Reback - Stifel, Nicolaus & Co., Inc.: I mean, if that is same amount of money or less?

So, the first thing is we – obviously we don't necessarily calculate profit by query or queries. This is why TCore is an important metric for us to normalize deployments between different options, deployment options within our Teradata Everywhere strategy. In general, what we're seeing is that the performance is similar across the different platforms, and the profit potential or the profit that we're seeing from software is similar across these deployment options. But other than that, I can't really go into cost per query or profit per query because that's highly dependent on a customer's workload. In general, what we're seeing, the top 500s are demanding very, very high query workloads. As you know from us, we do tens of millions of queries a day, often billions of queries a month on these platforms. We know that we can deliver these at fractions of pennies at all deployment options that we have. And that's really a core part of our Teradata Everywhere strategy. So for us, we believe that the choice of deployment ultimately derisks our customers' decisions. And for us from a business model, we like the deployment of every single one of these deployment options. Brad Robert Reback - Stifel, Nicolaus & Co., Inc.: Great. Thanks very much.

Your next question comes from the line of Raimo Lenschow from Barclays. Your line is open.

Hey. Thanks. Hey, Oliver. If people go to subscription, can you kind of handle or kind of help to drive the software only to subscription or is it a customer choice? I'm just trying to understand like the comments earlier around hardwares toward more perpetual. I'm just wondering. I mean, in theory, it's almost good for you because you just get on with it. Like can you help me? It's like – is that a dynamic that you can influence or is it just full customer choice there? And I have one quick follow-up.

Yeah. Raimo, a great question. We absolutely are influencing this through multiple ways. First of all, the complete Teradata Everywhere portfolio, including the Move Anytime, our customers can only get if they're on subscription. That was the first step that we introduced last year. As we are deploying new, new capabilities, we are offering them on a subscription-based model, and so incenting customers to really go for the subscription choice. We've also told you earlier this year that for the first time in the history of Teradata, we have incentives go to market and sales to sell subscription over perpetual. And in part what you're seeing is all these factors are coming together, that's why the percentage of our subscription mix is increasing rapidly as these incentives are coming together and our goal is absolutely to sell subscriptions to every new customer in the future. Having said so, we also understand that there are certain customers like government agencies and others that have fixed budgets that they want to spend at a given point in time and we will be flexible with our customer base to make sure that in the top 500 for those customers that we target on that we have the best possible solution and flexibility as they need.

Okay. And then quick question, a follow-up for Mark. Mark, the – I get your – the higher percentage of subscription in the bookings, but obviously we only see that in the recurring revenue line. But there are other moving parts in there obviously as well. At what point do you think that pure subscription is getting big enough to kind of start moving the needle? Is that already like towards in the back of the year or is that more 2019?

Yeah, we haven't broken that out. We'll take a look at that. It's not the back half of this year, it will be in – we'll evaluate it in 2019 and see where we see that heading as we update our three-year model in our Analyst Day later this year.

Okay.

But clearly growing fast and faster. Yeah. At – with the traditional perpetual license, related maintenance upgrade rates decline because we're focused largely on our install base.

Yeah. Okay, perfect. Thank you. That would be nice to hear. Thank you.

Your next question comes from the line of Derrick Wood from Cowen & Company. Your line is open. J. Derrick Wood - Cowen & Co. LLC: Great. Thanks. We saw the strongest growth in the Americas in over four years, I think. And obviously the perpetual deal probably helped it, but it's really converged and caught up with international growth and now it's potentially outpacing. Just wondering if you could flesh that out, is it demand, is it sales productivity, is it maturity of the model? And then, compare that to what you're seeing internationally. And then I have a quick follow-up.

Yeah. This is Vic. We are seeing strengthening in the U.S. and I think part of that was driven around we had more when we came in disruption in our field teams in the Americas than we had internationally at the time we made the change in strategy. And I think that was part of it, and it's starting to come around a little better. I think that's probably the primary driving thing behind it. But we are starting to see a lot more interest globally. And particularly in the last six months, I would say, the interest in the U.S., the engagement we're getting is at a higher level in the organization and I think that's starting to pay off as well.

And just one comment as well, Derrick, this is Mark. The perpetual transaction that we referenced was an international transaction, not an Americas' transaction. J. Derrick Wood - Cowen & Co. LLC: Okay. And then, Mark, obviously there's a big perpetual and you said 66% of bookings was ratable and perpetuals in that bookings number. So that suggests you had a pretty strong overall bookings number. You also called out 55% growth in backlog. Is there a way to quantify like what growth was on a perpetual equivalent or an ACB basis, or at least give us some directional color?

Yeah, I mean, we don't calculate things based on perpetual equivalent sort of any longer, but we clearly had an extremely robust subscription bookings quarter. And as I've said, I expect over the back half of the year, our perpetual bookings to decline significantly year-over-year given what we see in the forecast across Q3, Q4 on a subscription basis. J. Derrick Wood - Cowen & Co. LLC: Okay. That's helpful. Thanks.

Your next question comes from the line of Jesse Hulsing from Goldman Sachs. Your line is open. Jesse Hulsing - Goldman Sachs & Co. LLC: Hey guys. Thanks for taking my question. I have two. The first one is just a housekeeping question. Mark, I think you said ARR growth increased 7% in constant currency. But what was the absolute dollar number? Was it $1.226 billion or something like that because I think you added $26 million quarter-over-quarter?

Yeah, we said it was 7% after FX year-over-year and the total number is a bit over $1.2 billion, that I made in the comments on ARR. Jesse Hulsing - Goldman Sachs & Co. LLC: Got you. And then, a question for Oliver. I guess if you look at the customers that have started to move to the cloud, you called out those are your customer, but there's some other releases around customers that have looked at cloud options. Are these for existing Teradata workloads that are migrating? So just moving to a different set of infrastructure essentially, or are you starting to see traction with newer use cases in these early cloud customers? Thank you.

Yeah. Jesse, thanks. It's really a mix of both that we're seeing there. Yes, there's obviously existing use cases moving to cloud and customers like the flexibility that they're getting with this. But it's also new use cases and we gave some examples of the advanced analytical functions that are being started to be utilized by these customers. And especially when we look at sensor data and new types of data forms that in part originated in the cloud for some of our customers. Moving Teradata to the cloud or instantiating it into the cloud is a choice that we are seeing customers are making. And it's clearly also a validation of what we have seen early on when we announced the Teradata Analytics Platform on top of Teradata Everywhere and the interest we are getting from a lot of customers around the world that tell us that their existing infrastructure, their existing systems have gotten too complicated, too many different moving parts, too many systems, too much technology that's hard to integrate and that they're looking for a single platform like the Teradata Analytics Platform. And so, as we have rolled out new capabilities towards that new analytical functions, new integrations, customers are adopting that and some of those use cases are absolutely in the public cloud in addition to other Teradata Everywhere deployment choices. Jesse Hulsing - Goldman Sachs & Co. LLC: Thanks, Oliver. That's super. And one quick clarification question, Mark. If the 7% was at constant currency, what was the reported growth rate of ARR?

Yeah, you're right. It was 7% in constant currency, a bit higher in reported. Jesse Hulsing - Goldman Sachs & Co. LLC: Thank you.

Your next question comes from the line of Srini Nandury from Summit Insights Group. Your line is open.

All right. Thank you for taking my question. Oliver, a big picture question for you, if I may. Can you please talk about the competition in general and how do your competition compete with you and what do they use to talk about you guys?

Well, yes, competition is a topic for us. Competition has always been a topic for us. Teradata in market – having said so, a couple of things here. First of all, our go-to-market and our strategy are fairly uniquely positioned compared to our competition. The Teradata Everywhere strategy is unique compared to the competition that we are seeing out there, the choice of multiple public cloud options, the private cloud options, the – running on their own hardware, running on our hardware stack is unique in the industry for analytics. Our target of top 500, the largest enterprises in the world and the fact that they run billions of analytical queries every month on these platforms further differentiate us, and there is currently no other platform out there that can match us at that scale. Having said so, yes, there's competition out there, small use cases, departmental use cases, no concurrency, simple queries have always been the hallmark of some of the competitors and they're often advertised as big wins. In reality, when it comes to the complex workloads, to the high concurrency, to the billions of queries that need to be run, and especially now as we are extending into the Teradata Analytics Platform with new advanced machine learning, deep learning models built straight into that platform, we know we are further differentiating us from the competition out there in the field. And so, we are watching competition very closely. We are seeing obviously various startups and companies out there trying very hard to win business out there. But overall, we are seeing a very strong interest for Teradata. And as I said earlier, one of the big things that we see with customer is over the last couple of years, the complexities of infrastructures have really grown and has made it very difficult for many companies to operate their systems at scale, in part because they've brought in so many different solutions and they've tried so many departmental solutions that they are facing a lot of silos. And in part, what you're seeing is customers realizing that they need to consolidate some of that technology silos that they have out there and Teradata is the unique platform out there at scale that can do that.

Thank you.

We have enough time for one more caller. Your last question comes from the line of Phil Winslow from Wells Fargo. Your line is open.

Hey, guys. Thanks for taking my question. Obviously, you called out some pretty sizable wins here both for you and the cloud and on-premise. I mean, are we starting to see more of sort of what we used to talk about? Floor sweeps kind of coming through your business again, and I guess, maybe you also call them cloud sweeps now, sweeping the data center into the cloud. But how do you kind of think about just sort of like size of the transaction? Are you seeing that sort of that floor sweep impacting this or are there other dynamics also happening here?

So, interesting that you call them cloud sweeps. First of all, we – no, we don't believe that it's a floor sweep or cloud sweep dynamic that we are seeing here. What we're seeing is there's pent-up demand from our customers for integrated SQL platforms that make it easier for them to operate and answer the business questions that they run every day. In particular, operating the results of their data scientists and integrating them into what they are doing with the business and that requires the latest technologies, that requires the latest versions. And we have made a lot of improvements over the last two years in our overall technology stack of Teradata Everywhere, and it's really driving a lot of customers to look at how do we get to the forefront of that technology because they want to adopt all of these capabilities of Teradata Everywhere because it's ultimately de-risking their platform decisions, and that has started to drive the demand and the increase of customer interest for Teradata Everywhere as a technology stack, Teradata Analytics Platform that we have several customers already deployed and have some phenomenal results that they're seeing out there. And so this is starting to make – to create demand and it leads to, yes, of course, some floor sweeps or cloud sweets, but it's ultimately the wish of our customers to be at the forefront of these technologies and the ability to leverage the elasticity, the flexibility of the Teradata Everywhere Platform and our analytical capabilities.

Yeah, if you want to use cloud (56:30). All right. Thanks a lot.

All right. Everyone, thank you so much for joining our call today. We're excited about where we're going, getting nice traction across big customers. And I think our strategy and our customer base are well aligned. Thank you for your interest and we look forward to answering your questions 90 days from now.

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