Good afternoon. My name is Stacy, and I will be your conference operator today. At this time, I would like to welcome everyone to the Teradata Q2 2020 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. Nabil Elsheshai, Corporate Development and Investor Relations. You may begin your conference.

Good afternoon, and welcome to Teradata’s 2020 second quarter earnings call. Steve McMillan, Teradata’s President and Chief Executive Officer, will lead our call today; followed by Mark Culhane, Teradata’s CFO, who will discuss our financial results. Our discussion today includes forecasts and other information that are considered forward-looking statements. These statements reflect our current outlook and 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, Teradata’s most recent 10-K filed with the SEC and in the Form 10-Q for the quarter ended June 30, 2020, expected to be filed with the SEC in the next few days. We undertake no duty or obligation to update our forward-looking statements. On today’s call, we will be discussing certain non-GAAP financial measures, which exclude such items such 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 and constant currency revenue comparisons. A reconciliation of non-GAAP to GAAP measures is included in our earnings release, which is accessible on the Investor Relations page of our website at investor.teradata.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, Nabil, and good afternoon, everyone. I’m truly honored as well as incredibly excited to join Teradata as CEO and lead this great organization that is rich with opportunities. I’ve joined at quite a unique time in history when this pandemic has caused companies to rethink and rework their business models. The crisis has made one thing very clear, the essential role Teradata plays and our customer success. Organizations need data to help them manage through these tumultuous times, as companies address rapidly changing market situations and customer needs, reengineer supply chains to source critical supplies, or pivot to remotely support all operations, we realize the need to leverage data as an important asset to make better informed business decisions. Leveraging all of the relevant data possible helps organizations have the agility they need to weather through the disruptions of today’s uncertainties. Companies of the size and reach of our customers need access to data at the scale only Teradata can address with the reliability, security and dependability they require and we deliver. Data and analytics are foundational elements to digital transformation, a transformation which will be accelerated for many by the pandemic. Organizations need to rapidly adapt to this changing landscape and to transform themselves to be leaders in the new economy. To accomplish the transformation, they need analytic insights leveraging data from all relevant sources. Teradata’s ability to deliver these enabling capabilities in both hybrid and multi-cloud is unique and presents us with a tremendous opportunity. With such market backdrop, it gives me great pleasure to open my first earnings call as CEO, delivering news of strong results in Q2. The organization executed extremely well in the quarter, despite the uncertainties caused by COVID-19. In Q2, we exceeded our expectations and Street guidance for our key metrics. With…

Thank you, Steve. I would like to publicly welcome you to Teradata. As Steve said, we had a very solid quarter with healthy results in all three regions. And I’m very proud of the way the organization has come together and executed. We generated robust ARR growth, strong free cash flow growth, healthy recurring revenue growth and solid EPS enabled by actions we took to manage expenses given the uncertain environment. We mentioned on our last call, some of the actions we took in Q1 in support of our customers, including temporary free capacity or extended payment terms, and these actions helped move transactions forward this quarter, but more importantly, it helped us to deepen our relationships with our customers. Before I continue to highlight a few key elements of our Q2 operating results, I want to make it clear that unless otherwise stated, my comments today reflect Teradata’s results on a non-GAAP basis, which excludes items such as stock-based compensation expense and other special items identified in our earnings release. Additionally, commentary on key segment trends can be found in the earnings discussion document on the IR website at investor.teradata.com. We generated $52 million in incremental ARR this quarter, $39 million in constant currency. This resulted in $358 million in recurring revenue, growing 6% reported and 8% in constant currency and was well above our guidance range. As we said last quarter, we wanted to remain conservative in our outlook, given the overall uncertainty. But as you can see, we had a very strong quarter. Consulting revenue declined 26%, 24% in constant currency. This is an area that has seen more headwinds from COVID-19, as some customers continue to manage discretionary spending. We believe consulting will continue to see headwinds in the second-half, given the ongoing uncertainty due to…

[Operator Instructions] And your first question comes from Katy Huberty, Morgan Stanley.

Thank you. Good afternoon, and congratulations on the quarter. Steve, welcome to the team. We really look forward to working with you. I wanted to first ask you a question. And that is, it sounds like cloud, in your mind, is the biggest opportunity for Teradata. So can you provide a little more detail around what it is you’re asking the team to go do around cloud? Is it entirely engineering? What features need to be added to the product? What needs to be done around go-to-market? And then how should we think about the timeline for Teradata to become incredibly competitive against a growing field in the cloud space, in particular?

Hey, Katy, thank you very much for the question, and thank you for the congratulations. I’ll accept the congratulations on behalf of the entire Teradata team. As you know, I was just appointed as CEO at the beginning of June. And you’re absolutely right. We see cloud as the substantial opportunity in the marketplace. If you reflect on the IDC numbers, we see cloud growing at just under 38% and we see on-premise workloads growing around 4%. So there is a fantastic opportunity there. The team have made some good progress in the cloud already, and you can see that from some of the wins. But the insights and the focus on cloud really does touch every single part of the company. From a product perspective, you saw some of the innovations that were delivered in Q2 from native object store, as an example, the trials capability and updated UX, which is much more closed way in terms of how it operates. But we also see the changes impacting our go-to-market motion. So looking at things like customer success, how can we work with customers that are using our products in the cloud to ensure that they are getting incremental usage. The product development focus will continue. I’m currently reviewing all of our spend from a product development perspective and ensuring that we are prioritizing the cloud and cloud development as part of our spend envelope from a product development angle. We really do feel that we are currently competitive in the cloud. But as we move forward, that we will be able to increase that overall level of competition and competitive ability by introducing new features and functions. The one thing I think that we do have to address from a Teradata perspective is, we’re not seen as a modern and relevant cloud player. And the focus from the marketing organization is really to change perceptions in the marketplace. You heard from the strength of the wins that we were having in clouds, and clearly, we can win well. And we’ve launched a recent campaign called Mythbusters, which took set to really reeducate the marketplace in terms of the misperceptions that may have been put around about Teradata and our ability to execute from a cloud perspective. So I think there’s no just one aspect to focus on cloud, it’s a total organizational transformation. I would be remiss as well if I didn’t say, it also has to do with a cultural transformation of the company in terms of acting with agility, really being conscious of speed and time to market and delivering incredibly well. So it’s great to see the product development team coming out on-time and against the commitments that they made for delivery of new features and functions and saved the cloud. [indiscernible]

No, that’s great. Mark, can I just ask one follow-up, and it’s about guidance for the September quarter. If I remember back when you guided the June quarter, you essentially said that it assumed very little in the way of new business in the remaining two months in May and June. Is that the same way that you approach September guidance? Or how would you characterize it as it relates to the degree of conservatism?

Sure. Yes, we’re taking a conservative approach. The bottom end of our guidance is very similar. On that front, clearly, with the beneficiary in Q2 of – as we said, in Q1, there were deals that didn’t happen with all the shelter in place scrambling gone around the last two weeks of March on both trying to get renewals done, as well as some of the new and add-on stuff. So that clearly benefited Q2. We didn’t have that same phenomenon experienced at the end of June. So it’s – yes, we’re taking – look, we’re taking a conservative view towards going forward.

Great. Thank you.

And your next question comes from Phil Winslow, Wells Fargo.

This is [indiscernible]. Thank you for taking my question. First of all, Steve, congratulations on the role. We’re looking forward to working with you and the rest of the team. [Actually, the questions is,] [ph] I’m wondering if you can talk a little bit about kind of building on the last question here. If you can talk about the mix of new versus the [Technical Difficulty] in the quarter. Just curious how your customer conversations are going on. Are customers expanding on any particular fronts? Or was a lot of the conversations that you’ve been having and given the recent [Technical Difficulty] on maintaining [Technical Difficulty]. Thanks.

Okay. Thank you so much for the question. You had cranked up a little bit, but I think the essence of the question is around, are we seeing expansion? Are we seeing new use cases? How are we doing in terms of our existing customer base and attracting new customers? So let me just touch on a few of those points. Expansion is a key driver for us. One of the really interesting things and items that I found out during my initial pain is that our customers only came to use about 20% of the features and capabilities of the product. And as they expand the use of those capabilities, it really gives us the opportunity to deliver new use cases for the customer and Teradata on a growth trajectory and saved their existing customer base. And obviously, our focus on our customer success function really looks to drive that. The other thing I would say, that’s been a real eye-opener for me is the expertise and innovation of our people in terms of how they utilize Teradata to drive new and innovative use cases for our customers. You’ve heard about some of that in the prepared remarks in terms of working with companies around IoT, working with companies with predictive maintenance. But some of the fantastic innovations are also incredibly relevant to what we do today. So, as an example, we developed a dashboard, which allows us to process information from external data sources for a company and internal data sources. They can provide executive management and save the company, an idea of when we should reopen offices, or stores, or their overall business in terms of this COVID-19 environment. So it’s incredibly exciting to see some of those existing use cases. It’s really nice to see that happening in the cloud. But I want to stress that, we are truly a hybrid and multi-cloud player. And so we see those use cases being deployed, both on-premise and in cloud. So I think the opportunity is there to continue to expand the customer base, and we’re seeing some really nice wins and some really nice growth in our cloud business.

Okay, thanks. And I guess, I’m wondering what you’re hearing in terms of events [Technical Difficulty] in recent months, given the backdrop. And you mentioned a little bit about GCP and [Technical Difficulty]. I’m just wondering how that other [Technical Difficulty] have changed now just given the backdrop? Thanks.

Yes. We – we’re really excited that – in third quarter, we’ll be announcing Vantage on GCP. And we really believe, given the success that the Google Cloud Platform is having in the marketplace, we really think that, that will expand and open up a whole new set of customers for us. We’ve already got some pilots going on with our existing customer base in terms of utilizing Vantage on Google Cloud Platform that are really driving some interest in use cases. What we’re finding is that, winning in the cloud is very much around helping customers reduce their risk in that transformation. And then we went into cloud, because Teradata has got the scale and the performance where provide security and reliability were truly the safe choice for customers that are moving from an on-premise environment and moving towards the cloud. And obviously, our Native Object Store technology that we launched will enable us to access exponentially larger amounts of data in the cloud and really open up brand-new use cases for our customers and how we deploy.

Thank you.

And your next question comes from [indiscernible], Barclays.

Hey, thank you for taking my question and welcome to the team, Steve. I wanted to ask you first, you said you had a win on the – based on the consumption pricing model in the cloud. I was hoping you could kind of expand on what the consumption pricing model is for Teradata and how it’s different against cloud vendors?

I think [indiscernible], thanks very much for the welcome and thank you for the question. No, not surprisingly, our consumption pricing model enables our customers just to pay for what is being used. So it’s very much in line with what you’d expect from a cloud-based delivery model. And I think where we set ourselves apart is the fact that Teradata allows you to utilize those capabilities at performance and scale. So not only is it about paying just for what you use, but you also get the benefits of or – what we find to be a lower-cost pre-lease [ph] when you utilize Teradata technologies compared to some of the other cloud providers. And that consumption-based pricing is something that gives us the flexibility to deploy in a real hybrid and multi-cloud environment in a consistent way. So it gives consistency for our customers as we deploy workloads across lots of different environments. So I think that’s really the differentiation in Teradata is – comes about when we combine that consumption P for what you use pricing model with all of the benefits of Teradata in terms of low-cost for pre-lease and scaling that across, both on-premise and public cloud environments. Hopefully, that answered the question for you, [indiscernible].

Thank you. And just a quick question on – for Q2, recurring revenue growth of 19% in EMEA, it seem like an extremely strong number. I was hoping to get a little bit more color on what drove the strength there?

Yes. It’s – I mean, strong quarter. Clearly had some things that came out of Q1 that didn’t close at close early. So helped from a linearity perspective and they’ve shifted very well from perpetual to subscription, which is helping much more so than they did across 2019 and 2018. So that’s a big piece of it. The U.S. was the first to make the ship. Now we’re seeing really good ship in both our other reasons in both APJ as well as EMEA.

Hey, Mark, I think it’s well – it was a fantastic quarter and one of the key – and it wasn’t the only reason for growth in EMEA. They executed well across lots of different countries and lots of deal sizes and deals. But I’m – the – I’d like just to point everybody to the fantastic one at Vodafone, which was referenced in the prepared remarks, that really drove fantastic when it – it’s really core to Vodafone strategy in terms of how they are running and managing their network and how they want to be a telco and a service provider in the future. And so there’s some really fantastic wins for EMEA. So [indiscernible], thanks for supporting that.

All right. Thank you, both.

There are no further questions at this time. I would now like to turn the call over to Steve McMillan for final comments.

Thank you so much. And I’d just like to iterate again, it’s an absolute pleasure for me to have joined Teradata as the CEO. I’d like to thank publicly the Teradata team for their execution and 2Q resilience that they’ve shown through the pandemic and the focus that they’ve had in terms of delivering to our customers. The pandemic is a challenging time for all of us. And we very much think that we’re going to have some success as we move forward through the second-half of the year. And there it’s clear that Teradata is essential and helping the largest organizations in the world, leverage data to get the answers that they need, or execution, we really do expect that to continue and we’re going to move forward with a balanced view of growth in returns, whilst keeping our customers at the center of all that we do. So thank you very much and thank you for listening in to this earnings call.

Thank you for joining today’s conference call. You may now disconnect.