Teradata Corporation (TDC) Earnings Call Transcript & Summary

Great. Why don't we go ahead and get started? So look, we're just delighted to have Chris and Hillary from Teradata. Hillary has been there 3 years as the Chief Product Officer, has a really interesting background. So we'll spend some time getting to know her. And then just to start us off because I always ask and I want to know, Chris, how's business, what would you say?

Pat, thanks again for the opportunity to be here with all of you today. Pat, business is great. As you saw from our February call, we had a very strong quarter to finish off the '22 fiscal year. We're carrying that momentum into 2023. We've had a strong period in light of a pretty turbulent and volatile macro, which we've been relatively resilient to. And I think those characteristics are going to carry us forward. It's strengthening our pipeline. We're running production mission-critical workload for our customers. We have less volatility because we're not as exposed to consumption pricing. So all of these are very strong factors in Teradata's favor. And again, we're going to look to carry that momentum.

Awesome. Okay. Hillary, where are you from?

I'm from San Diego now [indiscernible] I live there and move there for the job.

No, where are you from original?

Boston.

From Boston...

Yes.

And so you're not going to go the way back to the beginning, but you were at SAS for a little over a decade, right?

Yes, that's right.

2003 to 2014. What is SAS? It is an interesting company, right...

SAS Is an interesting company based in North Carolina, founder-owned and operated...

This is Goodnight, something like that -- Goodnight.

Jim Goodnight, yes. very analytics focused. They do analytics for some of the largest customers on the planet. And it's actually where I first bumped into Teradata, understanding that what Teradata could do with analytics at scale was absolutely incredible even at that time, kind of best in the market.

And I don't know the right way to describe. So when you were there, how dominant were they in the market? And what was the market they were in?

Yes. So SAS was incredibly dominant at the time, largest financial services, telco, retail providers on the planet were using SAS for analytics and model development and deploying on, amongst other things, Teradata to get that at scale. And I was really focused on the Customer 360 marketing technology side of the business. That's where I cut my teeth on analytics like next best offer and next best action, really understanding the analytics and data behind analytic outcomes.

Okay. So I didn't understand that. So it would have run on top of [ Teradata ] I would like to say.

That's right. Yes.

What else would it run on top of?

So they had their own proprietary data environment, but also ran on Oracle, DB2, going back a little bit, yes, AIX.

Okay. And then so we roll around 2014. And what do you think and how come...

Yes, sure. So I'll just walk through, we'll make it super painful for you. So I joined a startup based in Bangalore, India, really focused on retail analytics, prepackaged retail analytics, saw a huge opportunity in the market. Analytics is hard. It requires large teams of data scientists, Retail is traditionally less well-funded compared to banks ability to do that. So I joined a company based out of Bangalore, led their Americas operations, including product but largely focused on go-to-market opportunities there to really take prepackaged analytics across customer journey and also merchandise assortment to the Americas market.

What does it mean merchandise assortment?

So retailers do assortment planning. So if you're a target or a grocery chain, you want to figure out what should I have on hand, how many red scarves should I have on hand during Christmas time, that kind of thing. And so it's a little bit more complicated than that. But you do some analytics build to understand what you should have in a particular store based on who shops at store, seasonality and local trends on the soft goods market, which would be the clothing market. And there's hard goods like grocery.

So is it the same as demand planning?

It is. As assortment and demand is sort of hand in glove, if you will. So assortment will be...

Company [ I2 ].

Yes I2, yes...

[indiscernible] I2 got Nike's demand plan absolutely dead wrong one quarter.

That's [indiscernible].

And they fired on the earnings call. The Nike CEO blamed their miss on I2, right. Those stuff is really important for retail, right.

Yes.

And what happened to Manthan?

They were acquired, they're still out there.

[indiscernible]

I have to go back and look. I left before they were acquired. And then I joined PTC, I ran their augmented reality business unit, working for Jim Heppelmann, so ran product, marketing, sales for augmented reality.

I know nothing about it. So why did they even have it?

Gosh, we could spend the next 19 and 13 seconds talking about that. But I think the real focus there is, so PTC does manufacturing software primarily tied to things like CAD, product lifecycle management. And so being able to visualize through augmented reality, how those systems come together, how to do break fix, how to do maintenance, how to understand, how to repair some of those machines with augmented reality as an emerging area of interest in the IoT space...

And so you're still in Boston at this point?

Yes, I was there...

So the phone rings... What gets you to TDC... who is following? Is it a recruiter? Is it someone...

I did happen to know a couple of folks here. But yes, I mean, I've known about Teradata since I was very young. They've been on for a long time. And I was really excited about the opportunity at Teradata knowing what especially from my SAS days, what they were capable of from a performance perspective but I kind of missed the cloud bus, if I'm being honest, and I felt like being able to bring at PTC, I help them get to a Software-as-a-Service business model with augmented reality and really being able to take the notion of Platform as a Service or Software as a Service, I prefer Software as a Service as a moniker because I think it's actually more impactful to what we want to do from an engineering and product value perspective. And so I thought that there was tremendous opportunity to help transform Teradata from where they were to where we could be in the market.

Yes, because when you were working with them at SAS, I mean, it was just an appliance, right?

That's right, yes.

And so you have these huge companies that have tons of these appliances...

Huge companies. And you couldn't replace Teradata if you tried. They got so much rich domain expertise of what the customer was trying to do, the stickiness was just enormous. and that continues today.

I have a friend, he's doing something else now, but he was a salesperson at Oracle, and so he would try to replace Teradata, and I would call him up and I go, I hear that whatever company is planning to replace Teradata, right? And he go, all right. Every company has a 5-year plan to replace Teradata and they keep buying more. And again, that was pre-cloud, but to keep buying more, every company has a 5-year plan to replace Teradata and they keep buying more.

It's incredibly sticky.

Yes. Okay. So you kind of, as soon as the phone ring, you like this should be interesting? Or did you have to...

But it had been a while since I really understood where Teradata was. And so yes, I spent some time really understanding what we were looking at doing both the opportunity and the challenges. I think the product was underdeveloped from a cloud perspective. And I think the business at the time didn't have the vision that we have today. We brought on Steve McMillan shortly after I joined...

Let's go through it. So you joined in 2020? And what did you find?

Yes. So I joined November of '19.

November '19, okay.

I found that I had a new boss, the CEO changed the day that I joined, which was very exciting.

Steve came in the same day?

No, Oliver left the same day.

Okay.

And so it was a very turbulent time, right? There's a lot of change going on. I think there was an opportunity to really form a strategic objective focused on the cloud. And Steve bought it and did that for us. And he joined what about 6 months I say...

June 2020.

Yes. And we then set upon a cloud-first journey. And it's been amazing ever since Steve brought on some other excellent executive leadership members. Claire, Chris's boss as our CFO, has been awesome. And really, I would say we have been extremely aligned about what our mission is with our customers and the cloud.

So Steve comes in. I don't want to go too fast. Steve comes in and he is like, okay, we were 70% clients, 30% cloud, now we're going to go, if I'm remembering right, it's been a while, now where 70% of our energy is going to be on the cloud. So you head the products, you're in charge. What do you do... like... So you're giving that marching order, what do you do? How do you affect that kind of change?

Yes. So the first thing is you lead with data and voice of customer, right, back to the engineering organization is, and you can take a tops-down approach to that, but really what you need are missionaries who are going to go out and really understand the mission that we have and what our customers want. Our team of experts cares passionately about our customers and delighting them. And so it was really educating them with what our customers want to do now and where they're going in the future, which is a cloud world, right? It's a multi-cloud hybrid world. So we say cloud-first, not cloud-only. And then we went through and line by line understood who was working on what and did a pool. So there's a little stick a little carrot, really focused on making sure that we made a successful transformation. We inverted our R&D spend from 30% cloud to 70% cloud and now we're at 80% cloud, and we measure that on a monthly basis and make sure that we're focused in the right places.

Right. And all the engineers come up to you too?

They do.

They do. Okay. So yes, you literally have to go through team by team.

I went through team by team, major everyone had...

Did you have the right skill sets?

In many cases, we did. In some cases, we did not. So we've had some good rock tumbling and team tumbling to make sure that we brought in the right leadership and the right hands to keyboard folks to make sure that we got to the cloud successfully. But man, we have some brilliant people who've been at the company for a very long time and really understand from an engineering perspective, how to meet a price performance model no matter where we're deployed. And so that has been really our calling card in the cloud is lowest cost performance at scale to be able to really deliver what the competition struggles to deliver, which is you can start small and at Teradata as you spend more and as you grow more, that cost per query is the lowest in the business today.

Okay. So 2020, you got to get a bunch of customer stories. You got to get a bunch of data, you got to go through the entire team, make sure everyone's working on the right thing. What was the first sort of big deliverable on the...

So in 2020, we were already in AWS and Azure. In 2020, we rounded out our offers and deployed on Google Cloud, which was exciting to sort of be there from a multi-cloud perspective, and then from there, we continued to create new value opportunities for our customers and for our sellers in the analytics space.

So what was the next big release after you joined?

It was Vantage on Google Cloud, it would have been the big release there.

Right since 2020.

That's a stupid question. But why is that a lot of work...

Why is that a lot of work...

Yes, why can't you use the same version of Vantage on AWS and Azure and Google Cloud?

So the underlying tech stack is largely the same, but you want to make sure that you're integrated into the cloud-native capabilities within Google, AWS and Azure to make sure that from a performance perspective that we hit the SLAs that our customers are looking for in any cloud that they're out there with. And then we have an exciting product, which we've actually really doubled down on called QueryGrid, which is being able to make sure that you can get to data wherever it is. And so making sure that, that performed at the right levels and Google Cloud was important to us as well.

Yes. And do you have the same sort of fundamental architecture as Snowflake does where they are using the native storage over the hyperscalers?

Yes. So back in 2020, the answer...

Not, right? Okay. Yes, that's what I'm trying to get to.

Yes. So last year...

What do we call that old architecture?

Teradata Vantage Enterprise.

Okay.

Yes. And it's actually been incredibly successful, I'll just say, like for customers who are looking to migrate to the cloud quickly, they want to shut down their data centers, they want to get to the cloud quickly. Teradata Vantage Enterprise has been very performant, very easy move to the cloud. You're talking about maybe a couple of months to migrate, more often, it might be 3 or 4 months, but we've got lots of examples where it's a couple of months to move to the cloud, and that's virtually impossible with anybody else. So that's an exciting aspect. But to your point, there were some opportunities that we saw. We saw some opportunities in full separation of compute and storage. We saw some opportunities and full support at a native level of object storage. So S3, for example, AWS [indiscernible] Azure. And so we started a journey in that direction as well.

Okay. And to interject what Hillary was just talking about with the Vantage Cloud Enterprise product really help to catalyze our growth in the cloud by sixfold from the time that Steve started until our last reported earnings, which was this past February. So growing from about $50 million to almost $300 million was a primary driver was enterprise.

Yes. Is it too simplistic to think about it as effectively hosting? Well, like what [ FMC ] is doing with S4, right, so a whole bunch of Dow Chemicals, not on some multi-user right, multi-tenant thing. It is basically S4 for Dow Chemical that happens to be at Amazon where they are buying.

Yes. So it's actually that's a common misunderstanding, so when we move to the enterprise and the cloud product offer, we, from day 1, took advantage of commodity available hardware in the cloud providers. And so we didn't move one of our appliances into the cloud, never, we took advantage. And this is when you asked about why is it so hard? Or why is that a big deal? It's because we're taking advantage of the different configurations that the CSPs provide. And that's important to our customers, so you can contract in the marketplace, and it's what makes it not just a hosted environment, but it makes it truly a cloud offer.

Like someone recently explained to me what Oracle Cloud customer is, I go what does it go what we have a cage in our data center that's red. I go come on and their people come in services and they charge us on a monthly basis. I go, but it's still in your data center... That's not cloud...

We didn't do that. We don't consider that cloud when we report out to the street. We don't count those dollars...

In their defense, he did say, it's funny, though, because it's getting us there, right? Now they own it, and now they want to put it into another data center, they want to keep serving us and they take the... I don't know who do it. Okay. So whatever it was, 2 things you said were super interesting. You said...

Separation of compute and storage and separation of product and...

[indiscernible] let's talk about them. It's really important, right? Let's talk about them. Why are they so important?

Yes. So historically, from our perspective, our customers have been limited to a fixed environment. And they know what they can get out of a fixed environment, how many queries they can do and what kind of SLAs they can hit, but it's hard to grow. To grow, you would have needed to do a migration into a new environment, right, think of physical servers. And even in the cloud, if you have a constrained environment, which arguably enterprise is and was, it's difficult to grow through a consumption model. And so we've done some really exciting and interesting things. One is with Vantage Cloud Lake, which we just launched in August, went GA at the beginning of this year, we have full separation of compute and storage. And so that means that you can scale up compute separately than your storage. So storage, I don't know how many folks in the room totally understand separation of compute and storage?

Plain English.

Let me break it down, just for second, it's always good to understand. So if you think on your laptop, right, you've got compute and storage and it's kind of fixed capacity. If you need to store more photos on your laptop, you're going to have to buy like an external drive for that. And if you suddenly want to open up a bajillion different Excel spreadsheets and do a bunch of really like you guys do have fancy math, right? You want to do a bunch of fancy math, you're going to have to get a new laptop with better compute in it. In the cloud, right, you have the ability to separate those things. So I want some really high-end compute to able to do some really exciting analytic work. I want some maybe less performant compute in order to do some more standard things. And then I know if I'm a retailer, for example, I'm going to spike in Q4, and I need to do a lot of compute during the time that getting a lot of transactions. Separately, you have storage of all of your data. And we have always had hot and cold storage or storage that is like, oh, I'm going to need it right away and then maybe more archival storage concept. And now with our ability to separate those things, you can store a lot more data separately, and then you can spike on your consumption with compute. So that means that if you want to spin up a new data science team and you want to give them maybe a fixed amount of dollars that they can go and spend, you can do that with Teradata today with our Vantage Cloud Lake software. Historically, you would have to argue with IT to go and get some of that capacity. What does that mean for our customer base? That means that in a fixed capacity environment, they can now add some new use cases using the data that we already have and new data sources that they're bringing to Teradata and be able to, in a more elastic way. So that's the technology side, more elastic scale up, scale down. But from a value perspective, IT is no longer worried about hitting their service level agreements with their reporting that they're doing, or their analytics that they're doing. They can run these new exploratory use cases outside of the SLA-driven workload. So if you're a bank, if you're a retailer, if you're a telco provider, you can say, I know I can close my book successfully. I know that my e-commerce site is not going to go down. I know my reservation system isn't going to go down all of those things running with Teradata today. And I can afford to go and do some experimentation with the separate compute that I'll pay for on a consumptive basis and go and understand my customer journey mapping and what my next best offer should be to this customer. That is super exciting for us and really exciting for our customers. And so when we launched this new product, and we went out and talked to customers, it was literally like I can't believe we didn't have this a year ago. We're so excited that we can do that with you today. And so for us, that means that we have 2 price models. One is fixed capacity. So I know I'm going to spend only $5 million a quarter with you. And then we also have a more flexible price model that's consumptive in nature. And that gives us great flexibility in terms of how we sell. And also in this market economy, means that our customers can sleep well at night knowing that they're not going to run a bunch of work and spend all of their Q1 budget at one time.

Yes. So IT is no longer worried about hitting their...

SLA, service level agreements. So if you're IT, if you're a bank, you say, great, every Monday morning, you're going to get a report or if you're a store manager, every Tuesday morning, you're going to get a report. And so those reports have service levels. So your boss will [indiscernible] where is my report. You're like, oh, sorry, some data Jackie did something dumb on the system and now you're kind of in trouble. That's not going to happen.

Yes. And this is a real thing, right? Like at the end of the month, you couldn't have finance closing the books and...

And marketing doing some experiments... Right... So we've fixed that for our customers.

When is this generally available...

At the beginning of this year.

Is it out, is it generally available yet?

It's GA now.

By February, January...

January 1.

January... Okay.

So just to translate what Hillary framed into the financial profile of the company, certainly, with the 2 products, Enterprise and Lake, which are complementary to one another. This helps to inform our confidence level with regard to reaching the over $1 billion target of cloud ARR in fiscal '25, driven primarily by migration and expansion activity, but also with net new logos entering the company, the products will help inform and grow wallet share potentially at existing customers, but also be in a tractor to that net new technology that we're offering. It's the same Teradata technology that you had in our heritage, but we brought it all to the cloud with the performance of the cloud.

Okay. And just so I get a good sound bite. So how is the launch of Vantage Lake on so far?

Yes. Look, I think the traction has been pretty positive. We've had some very notable customers who sign up in beta. The interest from both direct sales force and leads as well as the indirect channel largely through the growing of our partner ecosystem and the SIs are helping to promote the idea and build a real book of business around it gives us a lot of encouragement.

Yes. And the fact so with this offer with Vantage Cloud Lake, we are now able to offer our customer a $5,000 a month offer, which means that if you are a large bank or a retailer and you want to spin up a small environment, you can do that at a price point that previously would have been impossible with Teradata. So we see that expansion, as Chris was just talking about, this expansive opportunity as well as new logo opportunity to be really exciting when it comes to Vantage Cloud Lake, really quick as the analytics piece is so important to us. We also launched ClearScape analytics, and so ClearScape Analytics was taking a lot of the goodness that we had in the analytics space and adding even more analytic capabilities through model ops and additional time series forecast capabilities. This is a huge differentiator for us in the market. Gartner just came out with a report that said we are #1 in all 4 analytic use cases. And this, combined with the separation of compute and storage really allows our analytic customers to go out and do even more AI and ML at scale with Teradata.

Sounds pretty good, right? So where is the stock?

USD 40 to USD 42 somewhere...

$72 target. Sounds pretty good to me. All right. Thanks very much.

Thank you so much.