We'll get started here. It's 8:35. Good morning, everyone. My name is Erik Woodring. I lead the hardware research team here at Morgan Stanley. I'm delighted to have Steve McMillan with us today, CEO of Teradata. Had a lovely dinner last night. Steve's been around a number of different technology companies, F5, Oracle, IBM, but we're delighted to have you here representing Teradata. Welcome, obviously. Thank you. It's great to be here. Again, I think, you know, last time we talked about kind of a company that has gone through a transition, so to speak. You joined in the middle of a pandemic, in the middle of kind of this period where the company was shifting towards the cloud. You know, maybe just to level set for everyone, kind of, you know, what drew you to the opportunity, and what are some of the biggest changes that you've made, you know, since taking the seat up to where we are today? We'll go from there. Yeah. Joined Teradata in June of 2020, so three months into the pandemic. A virtual CEO introduction. I'd been in the IT industry for over 30 years. Really three things drew me to Teradata. One, if you look at the technology marketplace, there's no more exciting marketplace than data and analytics. Teradata has a long history in terms of data and analytics. You could say Teradata invented the enterprise data warehousing space. Teradata is a 40-year-old company who created that category of technology. The second reason was the technology itself. When I did research around Teradata before joining the company, I spoke to a number of customers, and they basically described Teradata as the 1,000-pound gorilla from a technology perspective. The Teradata technology does things for our customers that no other technology could do. A lot of that technology is very highly patented. That gives us a unique position in the market, and that technology and the potential of that technology to transform and modernize that into a cloud context. Mm-hmm. was very interesting from my perspective. If you look back through my career, it's always been around helping companies transform and become a cloud-first company. Mm-hmm. I saw that opportunity with Teradata. The third thing is really about the culture of the company and the people inside the company. As I spoke to customers about Teradata, those customers described the people and the employees of Teradata as partners, as people that were really woven into their environments and their ecosystems. That level of customer engagement, customer understanding, gives a phenomenal base for an organization to operate from. I think about it, those are probably the three key reasons. Okay. Those kinda added up to a potential. Yeah. When I joined the company, our cloud business was fairly nascent. Yeah. You know, if I look at the results and acceleration of the move to the cloud, it's been tremendous over that period. Again, I've worked for a lot of organizations, IBM, Oracle, and we would declare, you know, "We're gonna be cloud first. Mm-hmm. We're gonna be a cloud-oriented organization. Nothing would really change. What we did from a Teradata perspective is we actually put wood behind the arrow of becoming a cloud-first organization. We inverted our research and development envelope that was 70% dedicated towards on-prem and 30% in the cloud. We moved that to 70% in the cloud and 30% on-prem. That transformational opportunity was there to drive a completely different performance curve for the company. Perfect. Great start. A lot to cover in there. Maybe let's address maybe one of the bigger debates that we hear about is just competition. I wanna frame it with Teradata in mind. How is Teradata differentiated? What differentiates Teradata relative to other cloud-native data warehousing and analytics offerings? You know, what from a technology standpoint really drives that differentiation? Maybe if you just kind of, again, frame it from a cost perspective, I think that's helpful. Yeah. A couple of differentiation points. We are truly a multi-cloud data and analytics platform. Our cloud solution runs natively in all of the CSPs, so across AWS, Azure, and Google, and actually runs on-prem as well. That multi-cloud capability is unique when we compare to certain segments of competition, like the CSPs themselves or some of the cloud-native providers that don't have an on-prem capability. When I think about it in terms of the commercial value proposition that we offer to our customers, there's a couple of dimensions that enable Teradata to be very competitive. One is that our overall cost of running Teradata and cost per query is a fraction of our competition's. We highlighted some of that data in our last analyst and investor meeting. The way that we do that is by utilizing some of the patents and capabilities that we have from an on-prem perspective, where you're running in a very fixed capacity or limited capacity environment, and you have to get the absolute most out of all of the compute and storage in that environment. When you take that to a cloud value proposition, it means that you can have tight financial governance across the cost of your data warehouse. Mm-hmm. Our cost of execution in the cloud is very optimal. When we combine that with the highest performance technology engine for executing the world's most complex queries, we have a unique ability to take the world's most complex workloads to the cloud. A good example of that would be American Airlines. We took the entire American Airlines data warehousing capability, which runs mission-critical flight operations, you know, passenger ops, and we've moved that to the cloud in conjunction with Microsoft, landed it in Azure, and took all of their query capability in an incredibly successful project in a very short period of time to actually run that workload in the cloud. We are the fastest time to value, we would say, in terms of being able to move workloads from on-prem to the cloud. If you think about, the cloud service providers, their key objective is to move as much from on-prem data centers to their cloud before another cloud service provider can grab that workload. Working with a company like Teradata, those CSPs see a real opportunity for moving workloads from on-prem into their cloud solution. Perfect. Another kind of key topic these days is just the macro, right? Obviously last year grew Cloud ARR, 80%. There were some FX and Russia headwinds obviously that were, that were well spoke to. We talked about this, I spoke to Claire about this a year ago today. You know, there have been some companies that have pointed to enterprise spending weakness, elongated deal cycles. Just are you seeing any of this? Maybe talk through some of your customer conversations, what you're hearing from that side. Yeah, no doubt there's increased scrutiny in terms of enterprise deals, and enterprise deal execution. I think we've got a number of benefits in terms of our conversations with customers. One is that when I talk about a strength of Teradata being the people, we are very much ingrained in some of the largest organizations in the world. We know what their workloads are, how they operate, and even in a macroeconomy where there is challenges, customers still want to take advantage of the modern capabilities of the cloud service providers. We give them the optimal way to move their on-prem spend to the cloud- Mm-hmm ... a commercial construct which is very attractive because the CSPs will essentially give credits towards that migration and execution. From a cost perspective, we give an opportunity for customers to take advantage of new cloud capabilities and shift spend from on-prem to the cloud and increase the capabilities of their overall environment. Because we know and understand the customer base, we can put together very compelling value propositions that help our customers optimize their overall spend. A lot of these customers have made commitments to the cloud service providers in terms of, you know, tens of millions or hundreds of millions of dollars, and they can offset that spend commitment to those CSPs by moving Teradata to that to that CSP's environment. There's a number of different factors that enable us to work with customers to give them, even in challenging, financial times, an economic value proposition for them to move that workload to the cloud and get all the benefits of Teradata in the cloud that they were having on-prem. Perfect. Let's talk about Cloud ARR. Grew 80% last year. You're guiding to 53%-57% growth this year. You still think this is a billion-dollar business by 2025. Talk to me about in 2023, what are the factors that's driving that growth, migration, expansion, new logos, and then maybe again, as we get further out closer to 2025, how the drivers might actually change? In 2023, the reason we have confidence in terms of our 2023 guidance is because a lot of our cloud growth is actually gonna be funded from that migration from on-prem to the cloud. We have that tight integration with our customers so that we know what their plans are for that workload and how they plan to move that spend from on-prem to a cloud environment. A lot of our business in 2023 is gonna be driven by migration. What we've continued to see as we've moved customers from on-prem, where customer spend in the market overall is kind of flat, if I can generalize in terms of that overall market shape. The on-prem market is flat. The cloud, the data growth is really happening in the cloud. As we move that Teradata ecosystem from on-prem to the cloud, we start to get the benefit of that cloud growth, which is why you see a net expansion rate of about 120% for our Cloud ARR. As cloud becomes a more and more meaningful part of our overall P&L, you know, $360 million- Mm-hmm. ... or so when we exited 2022, as that becomes more and more a part of our overall recurring revenues, the growth associated to that will power our overall growth. Finally, you know, before I joined the company, Teradata had a strategy of essentially executing against the existing customer base. Over the last 18 months or so, we've introduced a new logo engine into the business. Mm-hmm. The impact of that new logo engine is not a material part of our guidance for FY 2023. But we've started to see a continuing increase in take-up of new logos as we went through 2021 and 2022. Now we will start to see that accelerate. As we move out, you know, I think we were one of the few technology companies that, you know, put out a 2023 guidance, but then recommitted-. Mm-hmm. to some key metrics for 2025. Mm-hmm. The reason that we felt confident in terms of recommitting to those metrics for 2025 is because our 2023 guidance set a glide path essentially to achieving that 2025 number in terms of having over $1 billion of Cloud ARR. As we move forward, as the cloud business grows, our expansions in the cloud and our new logos become more meaningful in terms of our growth trajectory. The macroeconomic environment, I think just now is causing a few things for technology companies. Technology companies that are entirely based around consumption- Mm-hmm. I think are gonna have a challenging year this year. Mm-hmm. One of the benefits from a Teradata perspective is a lot of our contracts are actually fixed capacity contracts in the cloud with consumption on top. The reason our customers do that is because when they look at their on-prem systems, their on-prem systems are running at an incredibly high rate of utilization, so 99%. When they move to the cloud, they want to contract for all of that in the fixed capacity bucket... Mm-hmm. ... because the unit cost in that fixed capacity bucket is less than the unit cost of consumption. That gives us, both, revenue stability at the customer- level, but when we cumulate that up, we've got incredible revenue stability, in terms of the overall business. Mm-hmm. In times of macroeconomic challenge, we're less impacted by, you know, customers reducing discretionary spend because of that fixed capacity- Okay. Commitment that they've made to us in the cloud. Cool. Okay. Very good. Very good. You know, a point of pushback that I get, I'd love to just kind of get your response to this, is that, you know, Teradata is essentially taking one bucket of revenue, you know, your historical on-premise bucket of revenue, and just moving it into a different bucket, right? Cloud ARR. Collectively, you're not actually growing as a company. You're just repurposing from on-prem to cloud. Kind of what's your, what's your response to that? What's your pushback to that pushback? Yeah. No, we hear that too. But I think if you just looked sequentially from Q3 to Q4 from a last year in execution perspective, we grew our total ARR by $100 million sequentially from Q3 to Q4. If you took out the impacts of Russia as we exited the Russia marketplace and currency, our on-prem business was fairly stable. We saw really good growth from the cloud side of our business. That 80% growth in 2022 gaining to 55% growth in 2023 for the cloud business. As the cloud business becomes a more meaningful part of our overall ARR- Mm-hmm. we're gonna benefit from those highly accelerated cloud market growth numbers. You can see that in terms of the 120% net expansion rate in terms of our cloud business. What also happens when we look at our customers and they migrate from on-prem to the cloud, they usually increase capacity as they move from on-prem to the cloud because they know that, well, one, they want to get the benefit of the negotiation in terms of that initial contract in the cloud, and they want to have that incremental capacity as they, as they land in the cloud. We see a number of different growth factors that are gonna positively impact the business. Mm-hmm. ... and grow our total ARR for 2023. We've set a guidance for 2023 that we're confident in terms of delivery. Okay. Okay. It's, I think, it's a well-balanced viewpoint from a growth perspective for 2023. Okay. Maybe following up on that and thinking longer term is, you know, you still do have $850 million of on-prem ARR. I would imagine that from your perspective, that doesn't go to zero, right? Your customers are so big and complex and have multi-cloud environments. How should we think about the trajectory of that on-prem business longer term? You know, is there a point where it stabilizes and then grows? Just help us think about maybe what that curve could look like over a multi-year period, maybe. Yeah. From an on-prem perspective, I think you can see that as if you model that as kind of flat. Mm-hmm. Right? That's kind of the market. We, we think that we can probably grow one to two points from an on-prem perspective, but modeling it kind of flat is probably the right thing to do, especially in this environment in terms of looking at customer spend. It's a very stable base. The other point I would make is, if I look at our customer base, about 60% of the customers that are in the cloud with us are operating in a hybrid environment, so they've got both on-prem and capability in the cloud. Again, that is a unique position in terms of being very sticky in our customer environments. As we're running mission-critical workload, our competition can't really span from on-prem to the cloud as well as Teradata can. A good example of that is some of, some of the banks in the U.K. The U.K. government has a condition called stressed exit, where the banks have to be able to demonstrate that they can move away from a single cloud service provider into another cloud service provider or back into on-prem. Teradata is actually uniquely positioned, I think, to be able to offer that value proposition to some of the largest financial institutions in the world. Let's pivot slightly. You launched VantageCloud Lake last August, I believe it was. I remember at the New York Stock Exchange. It's cloud native, it's consumption. How is it complementary to your, you know, your kind of pure enterprise Vantage platform? You know, just talk to us in terms of, What type of customers is this offering for? Is this new? Is this existing? A mix of both? Help us understand that. Yeah. We're really proud of the product launch at the end of August. It's the culmination of hundreds of millions of dollars of investment from a research and development perspective. It is a complete re-engineering of the Teradata technology that was on-prem into a true cloud-native capability. You know, if you look at the most recent Gartner reports, even without VantageCloud Lake, you know, they ranked Teradata, you know, the best data lake, the best data warehouse, the best logical data warehouse, the best analytical capability. The VantageCloud Lake and ClearScape Analytics actually provides a whole new set of capabilities for our customers to be able to execute experimental workloads, to deploy a massively scalable and high-performance data lake solution inside their environment. It enables investigatory or experimental workloads so that customers can utilize AI/ ML capabilities in a highly dynamic environment. That new launch and that new architecture, which we launched on AWS at the end of August, we're coming out in Azure at the end of second quarter. Mm-hmm. ...is a capability that a lot of our customers have been waiting for and waiting to take advantage of, and it really opens up a whole new set of use cases, both in terms of our existing customers, but it gives us the ability to go from start to scale for organizations of all sizes. Our target market segment is always gonna be the G10000 because our value proposition in terms of high performance and scalability resonates incredibly well with the G10000. It enables our new logo sales team to actually go in and get a small footprint inside a customer and utilize that from start to scale in terms of a true enterprise solution. Okay. It's pretty exciting in terms of what that's gonna open up. You know, I was talking to one of the large banks recently who've made a significant commitment to us in third quarter. One of the reasons that they did that was because they saw that our Cloud Lake capability was the most scalable lake solution to address their performance requirements in the cloud. Given that path for our customers to the future, to have a future point of view around data warehousing technology and data lakes in the cloud, was a real reason that they committed to us to move to the cloud with Teradata. Got it. it. Good. Again, maybe pivoting a little, let's talk kind of go-to-market. In 4Q, you talked about, I think it was 75% of your largest cloud deals were won with partners. You've obviously rethought about the mix of consulting versus enabling the SI. Maybe just help us understand, you know, talk about these relationships, why are they so important to your sales engine, how you've changed things, and why that means, you know, success going forward. Yeah. This was a real 180- degree pivot in terms of company strategy. If you looked at Teradata had actually grown its consulting and services business to, you know, $800 million or so, and the SI community actually saw Teradata consulting and services as competition. When I came on board, one of the commitments that I made to the head partner in Deloitte for Data & Analytics and the head partner in Accenture for Data & Analytics, is that Teradata would not compete for consulting... Mm-hmm. ...and SI work, because it wouldn't surprise you if you actually compete with a Deloitte or an Accenture for SI work, they don't recommend you as the technology platform for their customer. We pivoted the entire company to be partner- first in terms of our execution in the market. That was a big pivot for our sales force to go through, a big investment that Todd Cione, our Chief Revenue Officer, executed through on. That number is something that we're incredibly proud of in terms of, you know, 75% of our major transactions had an SI working alongside of it to actually get the best solution for their customer- base. It's a real pivot for the company. Mm-hmm. I think it's gonna open up more market opportunity as we move forward. Cool. Definitely a pivot. Let's talk kind of financials. One that I think is very important, we're just talking about free cash flow. You know, by 2025, you've guided to, call it $450 million of free cash flow. Now to be fair, Teradata hasn't done that for almost a decade now. Obviously, it's a very different company than it was a decade ago. Help us understand maybe from like a revenue or a margin or working capital perspective, what we need to see to... or what you need to see for Teradata to get to generating that level of free cash flow. Yeah. Just from a Teradata perspective, and there's not many data and analytics companies that would say this to you, we are a profitable growth company. We are not growth at any cost. We look at our profitability and generating profitability in that growth envelope, and making sure that we are investing our cost and expense envelope in the right way to drive the right kind of profitable growth for the company. The free cash flow generation, I'm incredibly proud of the free cash flow generation that we've executed, you know, around $400 million or so of free cash flow in 2022. Mm-hmm. And we see that path and roadmap to getting to that $450 million by 2025. It's gonna be driven both by top line growth- Mm-hmm. ...which we've already guided to for 2023, but also continuing margin improvements. As we scale out our cloud business, we continue to improve the gross margin of our cloud business as we move forward. As that revenue stream becomes more and more, and the profitability starts to increase, it will generate more free cash flow. Okay. You know, if you think about that from a shareholder perspective, you know, we committed last year that we would return at least 50% of our cash flow to our shareholders. We actually returned more than 90%. Mm-hmm. ... at the end of the day. There wasn't much from a merger and acquisition perspective to utilize our cash, and that seemed like an attractive buy. as you saw the valuations across the industry go through the roof in 2022. you know, I think we ended up returning more than 90% of our free cash flow to our shareholders in 2022. We actually, as we looked at 2023, we've committed to return more than 75% of our free cash flow to our shareholders in our capital allocation strategy for 2023. We're super excited about that. We believe that that gives our shareholders the ability to participate in the success of the company as we move forward. You basically answered my next question. I'm still gonna ask you the same question, but slightly different now is, you've raised your shareholder return targets. Maybe just help us understand, as we think about capital allocation, what is the priority? If you kind of just touch on each of the different pieces, as we think. How is that different from 2021, if at all, when you had the NLSS? Yeah, I think, you know, I think what you see in terms of our overall business is the confidence that we have in the fundamental financials of Teradata. The fact that, you know, we can set these guides in terms of what we plan to do from a shareholder return perspective. That confidence really is based on the confidence that we have in the top line because of the commitments, the contractual commitments that we have for our customers. You know, the lack of dependence on a consumption model. Mm-hmm. As an example, the demonstration that we've had in terms of how we manage cost and expense, the outlook we have in terms of, you know, how our CSP spend is gonna move into the future. From a capital allocation perspective, you know, it was a very natural thing for us to do. Now, if there's a great M&A opportunity or an acquisition, which we believe will be incremental to the value for, from a Teradata perspective, you know, we will reserve the right to invest our cash in that way. Mm-hmm. We wanted to give our shareholders an indication of what we were planning from a capital allocation perspective for 2023. Just quickly, when you talk about M&A, are there specific targets? Is it technology? Like, just help us understand, What are you looking at? I know it's probably a wide range, but just help us give us an idea of maybe if you were to approach that path, is there anything you have in mind? Again, not company specific, but just. I think what we'd be looking for is things that are tangential to the value proposition from a Teradata perspective, that help with that exploitation of the lake environments inside our customers, analytics environments inside our customers. You know, we had a big launch around ClearScape Analytics, which really drives an AI and ML capabilities inside our customers. So that, there's a lot of interest in that in the marketplace just now, and I think, if there was a tuck-in technology capability that was interesting, then that would be something that we would look at. We continuously scan the marketplace for those kind of opportunities. We've got a lot of capability that we're releasing through this year, Mm-hmm. in terms of our organic growth, which we think will power organic growth. We're always on the lookout for a great investment. Good. We have about a minute and a half. I'm sure you could, we could spend the whole time talking about this, but I wanted to save this for last. AI is the talk of the conference, at least so far. Has anything changed from your perspective? Obviously, you've been on the forefront of this topic for a number of years now, but how is the landscape changing? Is it accelerating your value proposition? just help us understand how the recent hype is translating into any changes from your perspective. I think AI and ML, in order for it to be meaningful and relevant for our customers, has to be based on great data. Teradata has always been the custodian of trusted data for the largest enterprises in the world. I think I said on the last earnings call, you know, artificial intelligence without great data is just artificial. It's really how do we enable our customers to operate artificial intelligence and machine learning at a tremendous scale against trusted data to give them the outcomes that they are looking for? The Teradata platform enables execution of MLOps and ModelOps better than any platform in the world, and our open integration to lots of technologies like R and Python, AWS SageMaker, Dataiku, H2O.ai, enables us to really provide a complete capability for our customer set. Perfect. You ended exactly on time. Thank you very much. Thanks. Thank you, guys, for attending. Thank you very much. Thanks. Awesome.