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

Good afternoon, and welcome to Teradata's 2022 Third 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 September 30, 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. Unless stated otherwise, all numbers and results discussed on today's call are on a non-GAAP basis. 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, Chris, and good afternoon, everyone. Thank you for joining us today. In Q3, 2022, we accelerated our cloud momentum and delivered profitability at the top end of our outlook range. I am pleased with our ongoing progress, as we delivered our second largest cloud quarter ever. Cloud ARR was $279 million, growing nearly 100% year-over-year in constant currency. We achieved cloud ARR growth in all geographic regions year-over-year, driven by improving win rates. As we accelerate our cloud ARR, we are also increasing the volume of cloud transactions we are executing, nearly doubling the amount year-to-date. We continue to build and maintain long-term relationships with our customers as they move to the cloud with us and realize the value that comes when unlocking insights from all of their data. In the quarter, we signed a number of large deals including an eight-figure cloud migration, as well as an eight-figure expansion, with a cloud customer that has been with us for less than 12 months. These large transactions were in addition to a number of smaller migrations and expansions. It is encouraging that, we continue to see a balanced portfolio of transaction sizes, as customers often start small they discover that Teradata is the fastest path to the cloud, with the least risk and lowest cost and can scale easily as they achieve breakthrough results from their data. Our strong cloud growth demonstrates that our customers recognize the value in Teradata's mission-critical capabilities, as we deliver the best cloud analytics and data platform in the market to navigate through the macroeconomic pressures and recessionary concerns that exist today. Our total ARR was flat in constant currency and declined by 4% as reported. As we have discussed before, this was primarily due to continued currency headwinds and the effects of ceasing…

Thank you, Steve and good afternoon, everyone. I am pleased with Teradata's execution in the third quarter, especially considering the volatile macroeconomic environment. Two key highlights in the quarter include: $45 million of reported sequential cloud ARR growth, or $50 million increase in currency that results in a growth rate nearly doubling year-over-year. We also delivered non-GAAP earnings per share of $0.31, at the high end of our outlook range and demonstrating the company's continued focus on profitability. We remain on track to achieve all elements of our fiscal 2022 outlook. We are doing what we said we would do and I continue to be excited about the opportunities ahead of us. We are making progress on our multiyear transformation, as a differentiated cloud analytics and data leader, but we still have work to do and we remain relentlessly focused on driving future ARR and revenue growth. Let's get into the quarterly results, starting with ARR. Total ARR was $1.374 billion, which is flat year-over-year in constant currency and a decrease of 4% as reported. Persistent currency headwinds continue to obscure the underlying sequential growth in our business. On a reported basis, total ARR declined sequentially by approximately $16 million. Of that amount, there was an approximate $28 million currency headwind in the third quarter. The resulting positive $12 million represents sequential growth in constant currency, which was primarily driven by increases in cloud ARR dollars in all of our geographic regions, as well as on-prem expansions in EMEA. Year-over-year currency had an approximate 4% negative impact in the reported growth rate, as shown in our quarterly earnings presentation on Page 6. This is in addition, to the four percentage point negative impact that was associated with ceasing business operations in Russia that we shared with you earlier this year.…

[Operator Instructions] Your first question comes from the line of Erik Woodring of Morgan Stanley. Please proceed.

Hey, guys. Thank you for taking my questions tonight. Congrats on the results. Steve, I'd like to direct my first question to you and then it's a fairly simple one. And that is, in your prepared remarks, you didn't make a number or that many comments on the macro environment. So I'd love to just get your, kind of, download on how you see the macro evolving? Meaning how have your conversations with customers evolved? Did anything change in 3Q relative to 2Q? Is macro starting to have an impact on your customers' businesses? Any color in terms of lengthening of sales cycles or downsizing of deals? Any commentary that you could share there would be super helpful. And then I have a follow-up. Thanks.

Yes. Thanks, Erik. Yes, we are continuously assessing the impact to our customers and their spend patterns. We've got a very rigorous operational discipline around that. We're not seeing any significant changes to our customer behavior patterns at this time. We also don't see any significant deal delays that are out of the ordinary. What I would say is, I think, we've talked about the strength of the Teradata business model, the types of workloads that we execute and say our customer environments tend to be absolutely mission critical. The commitments that they have with us tend to be longer term. And we're really proud of the buying patterns in terms of the continued interest in the cloud capabilities that we have. Our new product launch with VantageCloud Lake, I think, cements us into advanced technology architectures inside our customers. And so, we see them taking advantage of the capabilities to take Teradata to the cloud. And I think that's what enabled us to have that second highest ever cloud quarter from a Q3 perspective. But we are -- we do take it very seriously in terms of looking at the macroeconomic environment and making sure that we've got the right responses throughout the organization.

Okay. That's really helpful. Thank you, Steve. And then, Claire, maybe I'll direct one for you. Obviously, you've held on to your annual cloud ARR growth target since first introducing it earlier this year. Despite some of these emerging headwinds we've been seeing, exiting Russia, a stronger US dollar. I believe your -- at least your expectations for FX headwinds for the full year and for 4Q uptick this quarter. So can you just help us kind of, one, understand what's giving you the confidence in reaching your year-end growth target for cloud ARR? And then two, how you're able to offset what is now a larger FX headwind than you thought 90 days ago? And that’s it for me. Thanks.

Thanks, Erik. Yes, great question. And, yes, we're very happy, obviously, to be able to maintain all elements of our outlook for the full year, especially, our cloud ARR growth target of approximately 80%. We are seeing our currency headwinds. We are expecting there to be a delta between our reported and our constant currency numbers for the full year but we think that that gap will narrow specifically for cloud ARR, because the mix of the deal mix in the US will slightly increase in Q4. But even factoring that into account, given the good pipeline coverage that we see, as Steve mentioned, not seeing any significantly different behavior on our -- from our customer behavior, we are very confident to be able to reinforce that number of approximately 80%, both on a reported basis and in constant currency.

Great. Thank you, so much.

Thank you.

Your next question comes from the line of Derrick Wood of Cowen & Co. Please, proceed.

Thanks. And I’ll let -- thank you and I'll echo my congratulations on a really strong cloud quarter. You got - I don't know if this is for Steve or Claire, maybe Claire, but you guys talked about kind of seeing bigger whips and shifts when companies decide to make the cloud migration move. Is that still a pattern you're seeing in Q3, or has that changed at all? And I mean if this is a trend you expect to continue where do you think the kind of cloud net revenue retention rate should level off at?

So I'll take the first part of that question, Derrick. So just from a pattern, yes, our sales team I think I mentioned this in my prepared remarks as well. Our sales teams are certainly focusing on those large-scale migrations moving the customer to the cloud. We still obviously have a lot of hybrid deployments where our customers are in the cloud and on-prem. But the focus for the sales teams as are those larger deals. We do have a good portfolio of deal sizes across the sales team. So we're not overly dependent on those mega deals. We certainly have lots of opportunity to move some of these huge customers and major workloads into the cloud and the sales teams are definitely focused on that. I think if that did anything it probably -- if they have the choice of doing an on-prem expansion or pushing that deal out to focus on the cloud migration they are incented to really go for the cloud migration. And I think that's what we're seeing in terms of the behavior of our sales teams. But I'll hand to Claire to talk a lot about the net expansion rate.

Yes, certainly. Thanks, Steve and thanks for the question. So as I mentioned, we saw 17% in the Q3 results and that was actually consistent quarter-over-quarter. But I think that's a good stable rate at this point. And as Steve mentioned, we're seeing great strength in our migrations. We're seeing that expansion at the time of conversion and we're very confident in our full year cloud ARR growth at that level of expansion rate.

Got it. Thanks. That's helpful. One follow-up here. I guess Steve you mentioned that you'll continue to refine and adjust operations as needed. In light of FX headwinds, in light of tougher macro any -- a lot of companies having to kind of pause headcount growth maybe even prune headcount. Just when you're looking at the kind of growth versus profitability trade-off and maybe having to adjust to the environment how are you thinking about headcount growth or changing discretionary spend or things that you have in control that can kind of manage operational costs?

Yes. And you know, Derrick my commitment has always been that Teradata will be a profitable revenue growth company. And so we continuously assess our overall cost and expense structure to make sure that it's optimized in the right way. Clearly, we're taking advantage of -- as a lot of organizations are optimizing our real estate footprint as an example. So we've taken some great actions from that perspective. We continuously assess where we're spending money to make sure that we're investing in the right areas of the business, to make sure that we're investing in cloud growth especially our new product engineering launch or new product launch from our engineering team really demonstrates how we optimize our investments to deliver something in the marketplace. And we'll continue to do that and we'll continue to have that operational regular as we move forward to deliver on the commitments that we've made.

Got it. Thanks. Congrats on a solid quarter.

Thanks. Thanks, Derrick.

Your next question comes from the line of Tyler Radke of Citi. Please proceed.

Thank you. Good afternoon. I wanted to ask you about the comments you made around next year for 2023. Just wanted to confirm that you referenced improving ARR growth. So I would assume that means accelerating ARR growth. Maybe just unpack that a little bit. Is that a constant currency ex-Russia numbers? If we think about 4% ARR growth this quarter ex those issues, is it an acceleration from that? And then just give us a sense on what drives that confidence? Is it the expansions in cloud? Just help us understand what gives you that confidence? Thank you.

Thanks Tyler. I'll start and then maybe hand over to Claire for some of the more technical financials. Our sales teams are executing on our strategy and we are going to get back to total growth as well as cloud growth. We are getting those long-term commitments from our customers as they move to the cloud running sticky meshing critical workloads. I think that is an advantage for us in this challenging macroeconomic environment. But I think you'll see us continue to accelerate total ARR as more of our ARR mixes in the cloud and the elastic environment of the cloud that -- where growth is much easier. We've also got plans for lots of sales plays in motion to drive expansion with more sticky workloads and analytic use cases. We've invested in our customer success team, but also I'm very excited about the work that we're doing with the SI Partners to help customers transform their environments. And that transformation and the times of turbulent macroeconomic, our customers still have that desire whether it's to optimize the supply chain, utilizing data and analytics to do that, optimizing their operations. So I think we are seeing in the cloud and data analytics market space continuing good opportunity as we move forward. But Claire I'll let you answer maybe on the FX points and so forth.

Yeah, absolutely. So first of all just to confirm Tyler, we're not giving any guidance or update for 2023 at this time. So we will provide an update on that at our next quarterly earnings call. Clearly we've had significant headwinds in 2022 both from the ceasing of operations in Russia and currency. So we'll be factoring that in as we give final guidance at our next earnings. I don't want to pretend I can predict what currency is going to happen next. But as always, we monitor this on an ongoing basis. We always include the very latest rates and situation into our outlook. So we were pleased with the fact that despite for example there are additional headwinds between Q3 and Q4 for example, we were able to build that in our full year outlook.

Great. Thanks for the color. And just going back to some of those large deals you referenced in the quarter, I think a number of eight-figure deals, which is very impressive to see in this environment. I guess help us understand a couple of things. First, was -- did any of those close early maybe stuff that got pulled in from Q4? I know typically Q4 is when you tend to close those eight-plus figure transactions. And then secondly for those deals that were cloud deals, it sounded like cloud conversions, give us a sense on how much those contracts expanded relative to what they were spending on premise? Thank you.

So yes, both of those deals had expansion in terms of from what they were spending on-premise to what they're spending in the cloud. We're really excited clearly about doing those very large deals for their customers. It certainly represents a great commitment in terms of forward execution. I think we didn't see a significant level of pull forward from Q4 to Q3. I would also say our Q4 pipeline as Claire mentioned in the prepared remarks is looking healthy. So everything is pointing to the fact that we maintain our outlook on approximately 80% year-over-year for cloud ARR growth by the end of 2022. So great execution by those sales teams. They are clearly out there selling the advantages of Teradata in the cloud.

Thanks so much.

Thanks, Tyler.

Thank you. The next question comes from Raimo Lenschow of Barclays. Please proceed.

Hey, thank you and congrats from me as well. Stephen the one thing that surprised me at the launch of your Lake was like the positive news from some of the existing customers that kind of really like the separation of compute and storage but also like kind of like how Vantage gives them a really nice clear path into the cloud. Can you speak to what you've seen since the launch in terms of like customer feedback that you have received so far and how that's helping the pipeline?

Yes. No absolutely Raimo. We took that message on the road as you know after that initial launch and met with thousands of customers around the world. And it's great getting out and meeting those customers in person and getting the real feedback from them in terms of their evaluation of the technology and how we're taking the cloud-first strategy and making it real for them. We're getting lots and lots of interest. I think we've already got customers up and running and using Cloud Lake, which is great. But I think as well, our launch and announcement around ClearScape Analytics and pointing to the in-database analytic capabilities that are now available as part of the platform that drives immensely complex and sticky workload, gives our customers the opportunity to deploy some really interesting use cases on the Teradata platform. The Cloud Lake announcement to your point, it enables us to have an offering where we can provide as we always have done the very best enterprise data warehouse but now we can provide a data lake, a data lake house. We can do it on-prem and in the cloud in terms of those deployment options, which a lot of our competition isn't able to do. We utilized native object storage right in the core of the technology so that we can get an optimized cost for our customers as they deploy our technology. So it's an exciting time. We're getting some great feedback.

Yes. Perfect. And then I don't know if you kind of – I'm sure you looked at the Azure numbers and the AWS numbers and you can see like a little bit of a deceleration there and people are optimizing cloud spend. It seems different with you and you touched on mission-critical and getting value out of that and being kind of also early in the life cycle going to cloud there. Like, what do you see in terms of customer willingness to engage with you in this kind of uncertain times? Like, are you kind of following the cloud guys? Is it slightly different? Like, how should we think about that?

Well, I think we've mentioned about the strength of our business model before in terms of, how we construct our long-term agreements and contracts with our customers, utilizing blended pricing models that have a fixed capacity built in. And our customers actually utilize that fixed capacity to have the best in the industry financial governance of their data and analytics environment. And our customers see that as a real strength. Because we have the patents around, workload management and query optimization, our customers can run more workload and play that fixed capacity in an optimized way compared to how our competition does it. Our analytics capabilities enable customers optimize -- so that they can reduce dependency on maybe one-off analytic providers inside their environment and utilize the capabilities and say, Teradata. So I think our sales teams are using the macroeconomic environment as some good reasons why Teradata is better in the cloud than some of the cloud-native solutions that don't have those patented capabilities Raimo.

Yeah. Okay. Perfect. It makes total sense. Thank you and good luck.

Thank you.

Your next question comes from the line of Chad Bennett of Craig-Hallum. Please proceed.

Great. Thanks for fitting me in. So, just Claire or Steve just a question on the on-prem subscription business and just in terms of it seems like a lifetime since anybody's Analyst Day and targets if they did them late-last year or mid-last year. But just in terms of how you're thinking about that business over the next 12 to 24 months or over your target time frame. From a growth standpoint I think you were talking about even net of migrations being able to grow your on-prem subscription business. Is that still the case? And then maybe any insights into gross churn around that on-prem subscription business this year? That would be great.

Yeah. So from an on-prem perspective, I think, I look at it as kind of flat in terms of our overall economics. And certainly the macroeconomic environment would say that it's not going to be a growth engine for us. Yeah. So from a churn perspective, we experienced churn levels, but the best way to prevent that churn is actually to move them to the cloud. Yeah. And so we -- when we look at the overall business, we're not seeing any surprises there. And certainly when we move that customer to the cloud, we get a long-term commitment so that they're locked in with us. So that's really the growth vector that we're looking at.

Okay. And then maybe one follow-up, just if you look at kind of where you are year-to-date in cloud ARR growth which has been great, obviously, you guys are an outlier in terms of hitting your target and growing at the rate you are at some decent scale now also. But if you look at kind of the components of where we are today or at the end of the third quarter Steve, whether its migrations or net expansion or new logos, has it played out the way you thought it would, or have there been any variations in terms of -- nobody has a crystal ball, but in terms of kind of how you got to where you are today?

Yes. I think what we're seeing is more increased ARR on migration whereas the pattern that we had seen was we might -- sales teams migrated some of the customers' environment and then expanded that out subsequently. I think the sales teams are now going to the big deal right out the box, right. So if I think about it that's certainly a difference to our initial planning. But as we model that through and look at the expansion rate that we're currently seeing, it still gives us the number of getting to the approximately 80% year-on-year for cloud ARR growth. So I think, broadly we're in line with what we said at Investor Day to make that slight change in mix. New logos, we did new logos in Q3. We are pleased with the momentum that we've got from that perspective. It is more challenging. To be absolutely clear with you, it's more challenging to win new logos in the macroeconomic environment. But the criticality of the workloads that we deliver, the value propositions that we've got for our customers continue to say that we've got great growth potential, and the data and analytics marketplace is a great marketplace to be

Got it. Thanks much. Nice job on the quarter.

Thanks Chad.

Your next question comes from the line of Matthew Hedberg of RBC Capital Markets. Please proceed.

This is Tim Karman [ph] on for Matt Hedberg. Thanks for taking our question and congrats on the quarter. My question is that the customer feedback you spoke about with the VantageCloud platform seems great. Can you dig in a little bit more on a traditional customer journey? And then any insights you can provide on how this platform could pave the way to hire new logo adds in 2023, 2024 versus this year as well as any new market opportunities that you're particularly excited about? Thank you.

Yes, sure. Thank you for the question. So enterprise addition is the bulk of the business that we did in Q3. What we're seeing is that our customers are taking their Vantage platform on-prem straight to the cloud and landing that on VantageCloud Enterprise today. That's where we're getting the bulk of the business and those big deals have a good component of VantageCloud Enterprise. VantageCloud Lake gives us the opportunity to start small with customers see the value and then grow. And the price point – the initial price point of VantageCloud Lake, we've put in through this attractive for those customers to start using it, because we believe that the elasticity that's enabled by that technology will drive good growth into the future. As we look at our guidance for FY 2022, we didn't have a large assumption around cloud lake or that fundamentally changing the trajectory of our business. Most of the business that we will do in Q4, like Q3 will be on VantageCloud Enterprise. So, we look at cloud lake as an opportunity to get into different workloads experimental ad hoc workload inside our customers, and it's going to be a future catalyst of driving growth as we move forward.

Great. Thanks for the color.

Your next question comes from the line of Wamsi Mohan of Bank of America. Please proceed.

Yes. Thanks. Yes. Thank you. Steve, just going back to the on-prem side of the business. One of the hyperscalers seems to have created a displacement of a long-time on-prem customer. Are you seeing anything change in that pipeline? Do you view that as sort of a one-off, or are you seeing that the on-prem pipeline is changing in some competitive way with the hyperscalers at all? And I have a follow-up.

Yeah. I think what we're seeing there Wamsi is, if we have major customers move into alternative technology that tends to be a decision and an activity that they started and planned and executed on based on a decision that was made years back, before we had the cloud capabilities that we've got to today. I think now what we're seeing with the progress that we've made over the last two years, its customers recommitting to is based on the technology architecture, the product announcements that we've made recently, the fact that, we can take them to the cloud in a very effective way is of great interest to them. We work in partnership with the hyperscalers clearly, because we are available on all three of the hyperscalers, but we're not frightened to compete either. We do have the best data and analytics platform. When our customers experience it and get to use it in the cloud, they realize that they can take workloads from on-prem and take them to the cloud in the most effective least cost way. And so we're seeing a lot of execution from that. And once they're in the cloud whether it's we become part of their future technology architecture, the best way that we will continue to engage with all of these customers in the future is to give them the best possible data and analytics capabilities where they need it, be it on-prem or in the cloud. And a lot of these really large organizations are realizing that they can optimize their environment by having both an on-prem component and the cloud component and we can execute on both of those deployment models.

Okay. Thank you, Steve. That's very helpful. And Claire, maybe as we think about the trajectory from this $400 million to your longer-term target on free cash flow, how should we think about how linear the progression should be? And I know you're not guiding 2023 but, any large puts and takes that we should be thinking about in terms of free cash flow looking into 2023? Thank you.

Yes Wamsi, thanks for the question. And as you mentioned, not planning to guide at this earnings call for 2023 but we are really happy with the efficient cash conversion cycle that we've seen on a continuous basis throughout fiscal 2022. So, that is a continuous opportunity moving forward in 2023. And obviously, as we talked about looking for that momentum in terms of growth as we come out of the headwinds that we've seen in 2022 from Russia and currency. So, nothing out of the ordinary that I would say but just the fact that we've seen consistent cash conversion cycles for multiple quarters now in a row and we think that that's very easy to extend and continue to perform from an efficiency standpoint on cash flow into fiscal 2023.

Yes. Thanks, Claire.

Thank you.

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

Yes, thank you, operator. Thanks everyone for joining us today. We are really pleased with our ongoing momentum and our accelerated cloud growth. We are absolutely committed to our strategy and are confident in driving differentiated value for our customers and returns for our shareholders as we reaffirm our 2022 financial outlook. We hope you all have a happy and healthy year-end. Thank you very much

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