Good afternoon. My name is Erin, and I will be your conference operator today. At this time, I would like to welcome everyone to the Teradata First Quarter 2022 Earnings 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]. I would now like to pass the conference over to your host today, Christopher Lee, Senior Vice President of Investor Relations and Corporate Development. Thank you. You may begin your conference.

Good afternoon, and welcome to Teradata's 2022 first quarter earnings call. Steve McMillan, Teradata's President and Chief Executive Officer, will lead our call today; followed by Claire Bramley, Teradata's Chief Financial Officer, who will discuss our financial results and our outlook. Our discussion today includes forecasts and other information that are considered forward-looking statements. While these statements reflect our current outlook, they are subject to a number of risks and uncertainties that could cause actual results to differ materially. These risk factors are described in today's earnings release and in our SEC filings, including our most recent Form 10-K and in the Form 10-Q for the quarter ended March 31, 2022 that is expected to be filed with the SEC within the next few days. These forward-looking statements are made as of today and we undertake no duty or obligation to update our forward-looking statements. On today's call, we will be discussing certain non-GAAP financial measures, which exclude such items as stock-based compensation expense and other special items described in our earnings release. We will also discuss other non-GAAP items such as free cash flow 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 Web site at investor.teradata.com. A replay of this conference call will be available later today on our Web site. And now, I will turn the call over to Steve.

Thanks, Chris, and thanks, everyone, for joining us today. In our first quarter of 2022, we are pleased to report ongoing momentum in cloud growth that affirms our strategic direction. Q1 was another quarter of strong profitable growth and free cash flow generation. As you are all aware, the starting quarter of the year has traditionally lower seasonality overall than the other quarters, and this year was no different. I am proud of these results in light of the turbulent and uncertain macro environment. Our focus steadfastly remains on accelerating public cloud growth. Our public cloud ARR grew 69% year-over-year in Q1, a healthy growth rate. We are pleased to see customers expand their Teradata cloud environments as they recognize the value and efficiency of enterprise analytics in the cloud, and the enterprise price performance of Teradata. Additionally, we grew total recurring revenue and total revenue over the same quarter in the prior year. Our combination of strategic investments with cost discipline also resulted in non-GAAP EPS of $0.65, in line with the outlook we provided. I am pleased with our continuing progress against our transformation goals as we advanced our positioning as the connected multi-cloud data platform for enterprise analytics. Our Teradata business spans the globe, and we saw cloud ARR growth across all three regions, both year-over-year and sequentially. This growth demonstrates the value in the balance of our geographically diverse global base, and that our customers, the world’s leading companies, are gaining meaningful business outcomes from the data analytics Teradata provides. Let me take a moment to address the devastation in Ukraine. We are firmly opposed to the brutal Russian attacks on Ukraine and quickly took decisive actions in support of the sanctions opposing the attacks. We are a data company. Our purpose is to transform how…

Thank you, Steve, and good afternoon, everyone. Teradata delivered revenue and profit in-line with expectations during the first quarter of fiscal 2022. Financial highlights in the quarter include total revenue of $496 million, up 1% year-over-year as reported and up 4% year-over-year in constant currency; recurring revenue of $386 million or year-over-year growth of 4% as reported and 6% in constant currency; operating margin of 23.2%, down 20 basis points year-over-year in line with expectations; non-GAAP EPS of $0.65 at the midpoint of our previously provided range; and free cash flow of $150 million, up from $105 million in the same period last year. As Steve mentioned, we achieved these positive results despite ceasing our business operations in Russia which were small, but healthy and profitable. As a management team, we fully support the sanctions imposed internationally and our thoughts are with all of those who are affected by this horrendous situation. Russia's invasion of Ukraine occurred after we provided our 2022 outlook on February 7. Upon deciding to cease operations in Russia during the first quarter, we removed anticipated contributions for the partial period from our Q1 results and the projections for Q2 through Q4 from our 2022 outlook. Ceasing our operations in Russia resulted in a minimal impact to cloud ARR due to the on-premises nature of our Russian portfolio. In 2022, we had anticipated total ARR from Russia of $55 million or approximately 4% of the total ARR reported in 2021. The related total revenue for the full year 2022 was $60 million or approximately 3% of reported 2021 total revenue. Of the $60 million, approximately $10 million was removed in the first quarter, and the remaining $50 million will be removed in approximately equal amounts for the remaining three quarters. Profitability of our Russian operations was…

[Operator Instructions]. In the interest of giving everyone an opportunity, we appreciate that you limit yourself to one question and one follow up. Your first question comes from the line of Wamsi Mohan with Bank of America. Thank you. You may proceed.

Yes, thank you. Claire, your Russia adjustment or 60 million in revenues and $0.29 in EPS implies that there's about 30 million or so stranded costs that's driving a lot more negative leverage than I would have thought. So any color there on why the fall through is so high? And it sounded like you got about $0.08 impact in the next three quarters. Why doesn't that get worked down, if I interpreted that right? And can you bridge the first quarter to second quarter EPS as well? It feels like some of the impact is coming from the upfront revenues. That's probably about $0.10 or so. Russia is some $0.08 sequentially. So what are the other moving pieces that get to that 2Q guide on earnings? Thank you.

Hi, Wamsi. Thanks for the questions. And I'll jump straight in. So first of all, let me take the quarter-over-quarter question that you had on our EPS. So we are seeing a couple of headwinds, as you mentioned, with regards to upfront. We saw a benefit in the first quarter that we are anticipating and less of an impact for the rest of the year for Q2, Q3, Q4 we saw in 2021. Indeed, the reduction of Russia was also partial in the first quarter. So we're seeing a bigger impact of that in Q2 and Q3 and Q4. And also we are seeing additional headwinds from currency. So as you hopefully heard in our prepared remarks, we have updated our guide to reflect the most recent currency rates as at the end of April. And we are seeing additional headwinds of up to 200 basis points, which is also giving us headwinds as we move from Q1 to Q2 and the rest of the year. With regards to the overall Russia impact, as I mentioned, Q1 was a partial impact that we saw. We have very profitable business in Russia. As I mentioned, the gross margin was at approximately 75%, which is in line with our recurring revenue margin across the company. So when that drops through for that $60 million of revenue, we do have some offsets, as you would have seen in my bridge, in terms of offsets within the Russia cost, but also offset in total. So just to go back to that high level bridge, the midpoint of our previous guide was $1.87. We're seeing a $0.24 headwind for Russia. We're seeing a $0.08 to $0.10 headwind from currency, and then we're offsetting approximately $0.06 to get to the midpoint of the new full year guide of $1.60.

Okay. Thanks, Claire. And Steve for you, I wanted to just touch on the fact that you are reiterating your guide ex these changes from FX and Russia. Are you not seeing any impact to deals on your -- in your pipeline? It feels like the world is more worried about a recession, and just curious to see what you're seeing in your pipeline. Any color there would be great. Thank you.

Hi, Wamsi. Thanks for the question. In fact, we are continuing to see an increase in the quality and size of our pipeline for the full year. As you know, we work on large complex deals, taking the largest customers data and workloads to the cloud. And these large deals means that we've got variability from quarter-to-quarter. At the other end of the scale, we're starting to see an increase in smaller deal volume. Both of these are starting to promote the pipe. We've got really strong confidence that we've got a good pipeline of opportunity that supports our 80% year-on-year growth in the cloud, and that pipeline is weighted towards second half. One of the examples I gave in the prepared remarks was an Australian bank moving its dev system to the cloud. Clearly, that starts off small. But as we work with that bank, as their production system moves, that's clearly going to be a much bigger deal, which will be in the pipe for later in the year. So lots of dynamics going on there. But the pace is looking really good. We are really pleased with how the transformation is progressing and the capabilities that it will bring into our customers to support our outlook.

Okay. Thank you, Steve.

The next question comes from Chad Bennett with Craig-Hallum. Your line is open.

Great. Thanks for taking my question. So Claire, maybe just a follow up or a little more detail on the upfront revenue in the quarter, benefit in the quarter. I think the thinking going in, at least from my standpoint, was the first half of last year you had quite a bit of benefit from upfront revenue rec I think related to term license arrangements on the subscription side of the business. I guess is that effectively what happened again to even more of a benefit this quarter? Because I was under the assumption that we were really no longer offering those deals if that was the case.

Yes, let me just talk about that. So to your point, this is -- as you mentioned, Chad, this is our on-premises business. So as they renew and expand their business with us, we have that benefit of upfront revenue that then gets removed from the remaining three quarters. We saw the benefit in 2021. We obviously saw the renewal of those in Q1, but we did see some incremental benefit as well. It actually was in line with our expectations. So we were expecting Q1 to be in line with what we saw, which was the $29 million benefit. But we do expect that to reduce as we go through the rest of the year. So not a surprise for us. It is very similar to what we saw Q1 last year. We had a $24 million benefit in Q1 of last year. And we saw a slight increase of that in the Q1 of this year.

Okay. Thanks for the color. And then maybe for Steve, just in terms of the public cloud, ARR growth and visibility and reiteration, which is all good to see. I guess can you give us a little more color? It was great to hear kind of the deals you cited and migrations and new logos, but just kind of the progress on the new logo side with the team there with another quarter under their belt, what you're seeing in terms of activity, deal size, and so forth? And maybe kind of what the expectation qualitatively is, at least, for new logo generation, as we go through the year here as much as you can share?

Yes. Thanks, Chad. The company has come a long way in a short time; significant growth through 2020, significant growth in 2021, and set to grow our cloud ARR by 80% in 2022. That growth estimate is supported by that really strong pipeline. We see a lot of really large deals with some of our biggest customers. And we're starting to see really great increasing traction from the new logo sales team. We talked a little bit in Q4 about new logo wins. We're continuing to see really good progress there. And I think what is really demonstrating, Chad, is that overall, we've got the right strategy, the right technology and the right people to execute. And our strategy is really resonating in the market.

Great. Thank you for taking my questions.

The next question comes from Erik Woodring with Morgan Stanley. Your line is open.

Hi, guys. Good afternoon. Thank you for taking the question. Maybe Claire, I'll start off with you, really nice gross margin this quarter despite the pressures that I'd imagine coming from inflation and obviously FX. So maybe can you just walk us through some of the puts and takes that you saw this quarter that got you to land where you did? And then maybe as we move through the year, any expectations that we should think about on a quarterly basis when it comes to FX and other cost pressures that are clearly existing in the world today?

Thank you, Erik, for the question. Absolutely, I'd be happy to do so. As you said, flat total gross margin in Q1 compared to fiscal Q4 of '21, which we were very happy with. There are a few puts and takes in that. We have some headwinds coming in. So currency continues to be a headwind, as we mentioned. And that increases as we go through to the rest of the year. We also have the headwind of cloud. So the good news is our cloud revenue and volumes are continuing to grow. But that is a headwind as our cloud margins are still trailing our average recurring revenue gross margin. But that was a -- but to take a little bit coming from the upfront revenue as well, as I mentioned, in Q1, which would have been a benefit quarter-over-quarter. If I look to the rest of the year, Erik, as I mentioned, we have got incremental headwinds coming from Russia. So I tried to call that out clearly that compared to our previous outlook, that's an incremental $0.08 per quarter, so a total of $0.24. FX is a headwind. The rates have been moving a lot recently. So we made sure to include our outlook at the end of April. And that's given us, for the rest of the year, an extra $0.08 to $0.10 of headwind. And again, as our cloud revenue continues to grow, that creates a headwind for us as well. So a number of different puts and takes there. I think the underlying recurring revenue and margin is strong. We're pleased with the performance that we've seen in Q1, and the outlook that we have, because once you do adjust for currency and for Russia, we're in line with what we were saying back in February, both on the top line and from an EPS standpoint.

Okay.

Erick, I think just from an ethos perspective, we want to be very transparent and set goals and guidance that we are confident that we will be able to achieve. And so that's why we've been very transparent about the impact of Russia and the impact of the most recent FX headwinds that we're seeing. But as Claire said, the fundamentals of the company are incredibly strong.

No, that's perfect. Thank you for the color, Steve. Maybe I'll follow up with you just to build on the other question. I just want to clarify, make sure I understood, a lot of really nice customer success examples. But can you just clarify, were those -- was that a combination of migration, expansion, and completely new customers? Just want to kind of break down how to think about each of those factors, when you talk about some of those customer success stories? Thanks.

Yes. In my prepared remarks, we actually had all three of those examples. We had an example of some expansions, an example of migrations and then a net new customer in India. So when I give examples, I like trying to paint the picture of how we're succeeding in each of these three areas. The fact that our technology set is really differentiated and enables us to win new customers and also give our existing customers the best possible path to the cloud. I think the other thing is, as I talked about the analytics capabilities and the AI and ML capabilities of the Teradata platform, that really points to expanding our TAM and expanding our TAM beyond what our competition can deliver, because nobody else has those kind of deep performance capabilities inside their platform. Doing that 375,000 modeling example, nobody else can perform at that scale. So we give examples which kind of spanned new logo, expansion and migration. Thanks for the question, Erik.

No, thank you.

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

Hi, guys. Thanks for taking my questions. Maybe Steve or Claire, but can you talk about how your renewal portfolio looks this year versus past years? And what the conversations are like for customers looking to move more workloads to the cloud? And maybe remind us, I know that when you get to the cloud, expansion rates strengthen. But what's the kind of initial revenue conversion when you do see a customer make a workload shift from on-prem to cloud?

Yes, thanks for the question. A couple of parts that we saw good renewal rates in Q1, happy with how our renewals are going and a really good call out. When we see customers initially moved to the cloud, we actually do see really good expansion. Because they're not just doing a like-for-like, they're usually doing some form of transformation or incremental workload. We're really excited as well with the launch of our new backup and recovery capabilities in the cloud. That means that we can go to each of the customers that are currently operating with us in the cloud and give them a range of backup and recovery options, which will lead to incremental expansion for our existing customer base. So good renewals and good expansion rates when we moved those customers initially to the cloud.

Great. And Claire, I'm not sure if I caught it. But how much did Russia impact total ARR in Q1? I'm just trying to get a sense as to what the ARR constant currency growth would have been, excluding the Russia impact.

Yes, absolutely. So the majority of the $55 million came out in Q1. So that's giving us a headwind of 4 points on our total ARR.

Okay. Thank you.

You're welcome.

The next question comes from Tyler Radke with Citi. Your line is open.

Hi. Thank you for taking my question. I wanted to ask you about what you saw in terms of expansions on the cloud business in Q1. It looked like the sequential growth in cloud ARR was the smallest we've seen in a while. And Claire, you talked about I believe seeing near 130% expansion rate where I think in the past year you've talked to in excess of 130. So just wanted to see if that may be down-ticked a little bit. And obviously you're guiding to kind of a reacceleration for the full year. So just kind of what underpins your confidence there? Thank you.

Hi, Tyler. I'll start off. Our Q1 is traditionally and seasonally our lowest quarter, especially moving from Q4, which is seasonally our highest quarter in terms of sales execution. So we saw a little bit of that moving from Q4 to Q1 in terms of the overall results. So we did anticipate a sequential deceleration, given that Q4 is our seasonal high and Q1 is our seasonal low. In terms of expansion rate, it did round up to 130%. We're still confident about the overall expansion rate and see the business for cloud. And as we work both for this year and for long term, so the guidance that we gave from a 2025 perspective of being over $1 billion dollars of ARR in the cloud, we're still very confident that we can achieve both the 80% for this year and over $1 billion of ARR in the cloud by 2025.

Thanks for the color there. I wanted to talk about the AWS partnership, which I know has been a recent focus for the company. Can you just talk about your pipeline there in terms of joint deals and kind of how you expect that to play out and potentially grow over this year in terms of the partnership? Thanks.

Yes. Thanks, Tyler. We're seeing good traction across all three cloud providers. AWS is our largest partner, really good growth with Azure though and continuing growth with GCP. In terms of the partnership with AWS, we actually ran a joint engineering session with AWS recently, which I think underpins how deep our partnership is with AWS in terms of having joint engineering teams working out what the real integrations are going to look like. And that really lays the foundation at that technical foundation to take that to our joint customers to deliver some really significant value. So we're continuing to see that partnership develop, we're continuing to see that partnership expand. Very excited by all of the traction across all of the cloud providers, but AWS and Azure especially.

Thank you.

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

Thank you. Steve, if you're looking out in industry, there's obviously a fair amount of momentum for a lot of players out there. What do you see in terms of where your solution is playing particularly well? I'm thinking verticals or regions in terms of where people have like very complex deployments with a lot of reports running, so it's really difficult. So you're a much, much better option to kind of move into the cloud. Can you speak to that a little bit? And then the second question was when you build momentum, like how much of a need do you have for partners' SIs to help people migrating to the cloud? And is that something that you need to work on or can work on? Thank you.

Raimo, thank you very much for the question. Yes, I said in the prepared remarks, we've seen good growth across all three geographies and across all three cloud service providers. In terms of an industry focus, strategically as we laid out at our AIM session, we focus in seven key verticals, incredibly deep industry capabilities inside those seven verticals. We saw a lot of good traction over the last 12 months with financial services, firms, retailers and manufacturing moving to the cloud and clearly some healthcare organizations as they are looking to address the challenges inside their industry. Our analytics capabilities make us really attractive from a retail perspective, running those models that I outlined in the prepared remarks. I think it's also interesting that the market is seeing the importance of hybrid capabilities now. Some of the most recent announcements are really kind of cementing the strategy that we've had in place for some time now. Just as an example, Vantage has had the capability to access on-premise, native object stores from providers like Dell for the last 12 months now, over 12 months. And being able to run that workload in a hybrid fashion, a lot of our customers are deployed in a hybrid manner, gives us the ability to deliver the best possible experience across private and public clouds. One of the banks I referred to in my prepared remarks actually illustrates the creation of that hybrid cloud environment where they have data gravity on-prem, and they're also utilizing new services delivered by CSPs integrating to Teradata and then tying it all together with our QueryGrid technology. This demonstrates that we can provide that real hybrid environment today with real solutions. So we're really happy. I think we're getting selected in those kind of use cases because of our total cost of ownership. And that's why we're winning in the marketplace. So really excited about how we're seeing the market expand and the opportunity that's set out in front of us and gives us some real confidence for the future. Thanks for the question, Raimo.

Thank you.

The next question comes from Pat Walravens with JMP Securities. Your line is open.

Thank you so much. This is Joe [ph] on for Pat. I'm curious, how are you feeling about your ability to attract and retain talent, especially in this environment? And then on the cloud specialist sales organization, what does a typical rep profile actually look like there? Thank you so much.

Thanks for the question. So, yes, we're having some great talent with great success recruiting talent at all levels in the organization. We just brought in a new highly experienced leader for our EMEA region. Super excited to see what Richard is going to deliver for us. But not only that, I mentioned in my prepared remarks that we're growing cloud engineering talent across all of our geographies actually and attracting, I've referred to them as cloud native digital experts, and to our product engineering organization. We've seen good retention and site organization and the ability to really get the best out of our engineers as we're developing leading edge solutions. So I think inside Teradata, we provide a great culture where people want to come and work and bring their genuine, authentic selves to work. And they also get an opportunity to work on leading-edge technologies, delivering business outcomes that nobody else can. So I think very happy from a talent perspective. From a sales specialist and cloud sales specialists' point of view, we've taken some of our best sellers from across all of the regions and put them into our cloud specialist sales unit to support our account executives in terms of driving cloud deals inside their accounts, and that's working incredibly well. We've seeing some good strength from that. And that's helped growing that pipeline. The list has reaffirmed the outlook for 80% year-on-year cloud growth in this year.

There are no further questions at this time. I will now turn the call back over to Steve McMillan for his final remarks.

Thank you, operator, and thanks for everyone joining us today. We remain on track with our strategy. It's absolutely right for our market of enterprise customers who are always striving for optimum business outcomes at the scale they require. We're adding new logos and expanding in existing accounts as companies realize great value from the Teradata platform. And we all remain absolutely committed to accelerating our cloud growth and continuing our recognized technology leadership to help our customers get amazing business results. Thank you very much all, and look forward to talking to you next quarter.

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