Good afternoon. My name is Mariama and I will be your conference operator today. At this time, I would like to welcome everyone to the Q1 Teradata 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. [Operator Instructions] Thank you. I would now like to turn the call over to Gregg Swearingen, VP of Investor Relations. You may begin your conference.

Good afternoon and welcome to Teradata's 2019 first quarter earnings call. Oliver Ratzesberger, Teradata's President and Chief Executive Officer will lead our call today; followed by Mark Culhane, Teradata's CFO who will then discuss our financial results. 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 Teradata's 10-K, 10-Q, 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 described in our earnings release including acquisition reorganization related cost, asset impairments, and capitalized software development cost. 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 which is accessible at investor.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'll turn the call over to Oliver.

Good afternoon everyone. Since my appointment as CEO, I've spent significant time with our customers and internal teams in all regions of the globe and these interactions have been truly energizing. In numerous meetings with senior executives and our megadata customers, they understand that addressing the complexities and challenges of today's analytics landscape is critically important. As they are recognizing that Teradata can uniquely bring the power of pervasive data intelligence so that they can integrate and leverage their organization's data regardless of scale, volume, or complexity. This provides an excellent starting point for today's conversation. As it is clear we have the right strategy and are executing to win. In Q1, we grew recurring revenue by 13% in constant currency grew ARR by 12% in constant currency and exceeded guidance for EPS. We also remain very pleased with the rapid rate that customers are continuing to adopt our subscription model. Mark will cover these and other financial results in more detail in a few minutes. Today, I will highlight four key takeaways for you. First, we have made significant progress in executing our strategy. Second, strong demand continues for our Teradata Vantage platform and we are increasing our competitive position because of this powerful solution. Third, we have introduced new asset serving offerings for Vantage to help customers apply their focus to getting the answers they need rather than managing their infrastructure. And finally, I will share some of the outstanding recognition our technology is receiving from leading industry analysts. As we get started, it is important to note that we have made significant progress in executing our strategy and realigning our go-to-market model. We focused on and completed the alignment of our sales teams to provide differentiated coverage of our target megadata customers. As a reminder these megadata…

Thanks, Oliver and good afternoon, everyone. We continue to see good customer activity in Q1, building on the strong momentum we generated in Q4. Customers are very interested and engaged learning about how Teradata Vantage, our Analytics Platform helps them integrate and consolidate their analytic workflows under one platform, while reducing their overall IT spend. Our strategy is clearly working and our first quarter performance was highlighted by 72% of our bookings being subscription based, which was in line with our annual guidance of 70% or higher. ARR grew over 12% in constant currency or 9% as reported. During the first quarter, we increased ARR by $12 million in constant currency or $11 million as reported. For a total ARR balance of $1.319 billion at the end of the first quarter. We saw a few sizable subscription transactions in the Americas push into early Q2, which would have more than doubled the Q1 reported ARR, and would have also contributed to recurring revenue for Q1. We have closed or in the process of closing these transactions. Our backlog at the end of the first quarter was approximately $2.5 billion, an increase of 43% year-over-year. Recurring revenue was $331 million and increased year-over-year 13% in constant currency, or 10% as reported. Perpetual software license and hardware revenue was $31 million, a year-over-year decrease of 55%. As I discussed at our Analyst Day last December, we expect to eventually stop selling on a perpetual basis. As we continue our transition, we are seeing less interest from customers purchasing on a perpetual basis than we expected. And therefore, we continue to expect declines year-over-year in perpetual revenue as a result. The perpetual revenue, we do report is almost all hardware related, which obviously carries lower margins than software, and materially affects perpetual revenue…

[Operator Instructions] Your first question comes from Brad Reback with Stifel. Your line is open.

Great. Thanks very much. Oliver, if you think about the competitive wins this quarter, especially against the cloud vendors and Snowflake. How much do you think of that had to do with the new tech stack versus some of the new compensation plans that you've put out there for the sales force? Thanks.

I think -- just two parts to the competitive wins. First of all, Vantage as a technology stack is clearly superior compared to what we've seen from some of these cloud vendors. And the second thing is we are seeing customers as I said before who have tried out technologies like they have done in the past with Greenplum and with Netezza. And they are just finding a lot of shortcomings. So just coming together in – is allowing us to really enable our customers with Vantage, to deliver the business results that they need that they cannot get out of solutions like Snowflake.

Great. Thank you very much.

Your next question comes from Derrick Wood with Cowen and Company. Your line is open.

Great. Thanks. Mark, I want to clarify the comments you made on the two large deals that slipped. And you mentioned that ARR I think would've been double. I suspect you're talking about growth rates and I mean – and it sounds like you're insinuating one has closed one is it still in the process. Just – can you flush out some more detail around those slipped deals?

Sure. Yes, Derrick. So yes, we had a few deals push out to Q1 and maybe either closed or in the process of closing. Had those occurred in March like we originally anticipated the reported ARR the $12 million constant currency $11 million as reported would've been more than double that. These were sizable transactions that, like I said have either already closed or in the process of closing.

Okay. And – I mean, you guys made a number of structural changes at the beginning of the year. You've got an external transition around a new head of sales. You've changed the go-to-market to ARR more dedicated focus on megadata customers. Can you just touch on how it's gone so far? And kind of now that you're into it little bit more what you expect the dividends to be as you – over the next several quarters?

Yeah. Derrick, this is Oliver. First of all, we made some very good progress in the first quarter doing this restructuring. We are now behind they are done, right? As you said, we are also looking for a New Chief Revenue Officer to really help us take that software subscription business to the next level and are making good progress there. So we feel the hard work that we have to do beginning of the year is done. And it sets us up within optimized structure worldwide to drive the amount of subscription, software sales and increase in ARR and recurring revenue that we said, we will be driving.

Yeah. And that's why Derrick, we said we're very comfortable with growing ARR 11% to 12% for the year. We feel really good about where we sit.

Got it. Okay. Thanks.

Your next question comes from Wamsi Mohan with Bank of America. Your line is open.

Yeah. Thank you. Mark just to clarify on this prior question around deal push outs. As you are closing those deals there in Q2, why is that not leading to a stronger guide in that recurring revenue growth in the second quarter? And just to clarify is that also tied to the business environment in EMEA? I mean, it looks like the business declined a lot more in that region versus other regions. And I have a follow-up for Oliver.

Yeah. So to your first question these deals – they've closed or in the process of closing. So we're not going to get a full quarters of revenue recognition amortization in Q2. Secondly, we've had further FX headwinds now that that are impacting one to two on a full year but it's two to three points in Q2 up from where we were before. So that's had some impact. These were not related to EMEA. EMEA's revenue year-over-year is down because of a significant decline in perpetual. That's what's driving that.

Okay. Thanks for that. And then Oliver, you mentioned winning against Snowflake in some instances can you talk a little bit about the scale of the installation? Where you guys have won these head on? And what sort of workloads the customers were targeting? Thank you.

Yeah. We have seen Snowflake primarily at the low end of scale. Data mart like applications in – what we are seeing is that when customers have tried to take workload to that that they have ended up with multiple instances of Snowflake that they required. In addition to that, pretty much all of them are also telling us they had to supplement it with other technologies and other databases, in order to get the workloads to run. In general, we see Snowflake primarily at the very low end of our smaller customers. And even there we are hearing that the scale and the complexity problems are outweighing the benefits that they first thought they would get with it. And so that's a big part of that shift in momentum.

Thank you.

Your next question comes from Katy Huberty with Morgan Stanley. Your line is open.

Thank you. Just from a high level what should we make of the fact that perpetual is falling off faster than you expected, but you're not seeing a coincident upside in ARR and recurring revenue? Then I have a follow-up.

Yes. Katy, this is Mark. So we still feel really good about full year guide on ARR. So we expect that we're on track. But yes, perpetual is going to be at the higher end of that $150 million to $200 million decline. Clearly our comp plan is being excluded and we're seeing that in our international markets where we thought maybe it wouldn't move as fast. But it is.

When -- just as a follow-up to that question. Just in Europe where you said that you saw big drop off in perpetual. Are all of those customers planning or in the process of moving to a subscription model that will build into your recurring revenue as we go through this year?

Yes.

And then just as a follow-up on free cash flow. Mark, three months ago you knew you were going to do the restructuring and reorg, but you're taking down free cash flow today. It sounds like on the back of those costs, just I mean, what changed over the past quarter in terms of the outlook around free cash flow?

Okay. So first of all, I'm not taking down free cash flow. There's not been a change. I said excluding the reorg charges we're $200 million to $250 million. And we didn't have a great range of what the reorg charges were going be, because we were executing through that at the time of the Q4 call in early February and now we have a better feel for what that is. The $60 million to $80 million, which is still in that $200 million, just call it $240 million because we said it could be as much as $90 million in payments. We don't think that now probably closer to $80 million. And so what I said is if you include those then it's $140 million to $160 million, excluding those we're $200 million to $240 million which is where we said we thought we would be on the Q4 call.

Okay. Thank you.

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

Hey, question for Oliver. As you talk with guys about Vantage, can you see where they are in terms of taking that as a overall concept in terms of like on-premise deployments and cloud deployments versus actually already going to the cloud? Where are we in that life cycle? Thank you.

Raimo thank you. And by the way first of all thank you to Barclays for investing significantly into Vantage here recently. We see Vantage adoption throughout the hybrid cloud. Clearly, there's existing customers that implement Vantage on-premises and are supplementing it with cloud instances, as I've given you also examples today several new customers are deploying Vantage as a service in the cloud in the various forms of cloud that we offer. So it's a mix. We have Vantage available both in hybrid and in multi cloud. And we see that mix going forward. Our megadata companies right now are predominantly in the on-premises world but a lot of new business that is coming in is in the cloud and this is where Vantage it really differentiates itself against other cloud providers.

Perfect. Well done. Thank you.

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

Hi, guys. Thanks guys for taking my question. I'm just curious we used to talk about floor sweeps in terms of refreshing your old product. I know obviously things are shifting towards software online and cloud. But just for the legacy customers that still have those box on-premise. I mean, any sort of color that you could give on sort of your sort of big floor sweeps big upgrades. I've been seeing whether it'd be this quarter or maybe last couple of quarters or what do you see in the pipelines? Sort of more color there and maybe kind of how people are buying if that's still the way they are thinking about it et cetera that would be helpful.

Yes. I think in terms of what we are seeing is that the vast majority of growth that we are seeing in adoption is new workloads. Yes, existing customers sometimes do that as part of floor sweeping existing technology into this. And by the way, the fact that Vantage is fully backward compatible with prior Teradata offerings makes that easy for customers to execute on. But the majority of growth in the ARR that we see and as we see in the funnel is really about adoption of new capabilities and Vantage. And it's what's driving our confidence.

Great. Thanks guys.

I will now turn the call back over to Oliver Ratzesberger for final comments.

Okay. Thanks everyone. We remain exceedingly confident in our strategy and our direction. Our customers are validating they need to leverage their data in service of their business and are rapidly adopting Teradata Vantage to provide the answers they need most. And we are winning against competition in the market. Our people are amongst the best in the business and remain enthusiastically focused on and committed to delivering value to customers and shareholders. We look forward to updating you next quarter. Thank you. Bye.

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