Gregg Swearingen - Teradata Corp. Victor L. Lund - Teradata Corp. Stephen Mark Scheppmann - Teradata Corp. Oliver Ratzesberger - Teradata Corp..

Raimo Lenschow - Barclays Capital, Inc. Brad Reback - Stifel, Nicolaus & Co., Inc. Ed Maguire - CLSA Americas LLC Kathryn Lynn Huberty - Morgan Stanley & Co. LLC Philip Alan Winslow - Credit Suisse Securities (USA) LLC (Broker) Wamsi Mohan - Bank of America Merrill Lynch Fatima Aslam Boolani - UBS Securities LLC Karl E.

Keirstead - Deutsche Bank Securities, Inc. Abhey R. Lamba - Mizuho Securities USA, Inc..

Good morning. My name is Erica, and I will be your conference operator today. At this time, I would like to welcome everyone to the Q1 2016 Teradata Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Thank you.

I would now like to turn the call over to Gregg Swearingen..

Good morning, and thanks for joining us for our 2016 first quarter earnings call.

Before we get started, I want to make sure everyone has seen the press release we issued this morning, announcing that Teradata's board of directors have decided that it's the right time to change the leadership of the company, and Mike Koehler has stepped down as Teradata's CEO. Stepping in as CEO from Teradata's board of directors is Victor Lund.

Before we discuss Teradata's first quarter results, Victor will offer a few thoughts on the leadership change, as well as Teradata's future. Steve Scheppmann, Teradata's CFO will then discuss our Q1 financial performance and our transformational initiatives.

Also joining our call today is Oliver Ratzesberger, President of Teradata Labs who will provide more detail on some of our R&D advances. 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 vary materially. These risk factors are described in Teradata's 10-K, 10-Q and other filings with the SEC.

On today's call, we will also be discussing certain non-GAAP financial information, which excludes such items as stock-based compensation expense, asset impairments, acquisition and reorganization costs, the results of the marketing applications business, and other special items.

As well as other non-GAAP items such as free cash flow, and constant currency revenue comparisons. A reconciliation of our non-GAAP results to our reported GAAP results and other information concerning these measures is included in our earnings release and on the Investor page of Teradata's website.

A replay of this conference call will also be available later today on our website. Teradata assumes no obligation to update or revise the information included in this conference call, whether as a result of new information or future results. I will now turn the call over to Teradata's new CEO, Victor Lund..

Thank you, Gregg, and good morning, everyone. Before Steve discusses our first quarter results, I want to take a few minutes to talk about today's announcement regarding my election as President and Chief Executive Officer of Teradata.

The board felt that now is the right time for a change in leadership as we transform Teradata for long-term growth and shareholder value creation. I'm honored that the board has chosen me for this role.

As you may know, I have been a member of Teradata's board since 2007, and during that time, I have gained an intimate knowledge of Teradata and how we will win in the marketplace. Throughout the course of my career, I have been involved in many successful organizations, and I plan to bring that experience to bear with me in this new role.

Over the years, I've also developed a deep understanding of leadership, teambuilding, business transformation and the importance of team commitment and success. Given my age, it's clear that I'm not going to be the CEO of Teradata over the long run, but I want to assure you that I have no intention of being a caretaker either.

I plan to focus on the following key areas during my time here. First, we're going to continue and accelerate our transformation efforts. We are off to a great start, but I believe that our team is anxious to focus their efforts and to move faster. This will be my job to make sure that they get what they need to make this happen.

Second, with our management team, I intend to focus on areas to improve our current operations. My belief is that we can maintain a proper cost focus but we need to ensure that that is not coming at the expense of profitable revenue growth.

Further, as important as Teradata's transformation is to our long-term strategy, our current success is driven by who we are today, and we have to get that right. I will also focus on the change in our culture to instill a sense of urgency and accountability. We have great people and we need to unleash their full potential.

And finally and very importantly, I will lead the effort, on behalf of the board of directors, to ensure a strong leadership team. I expect to be fully engaged in this as soon as I, along with the board, can properly assess the skills, personality and experience required to lead the company forward.

While I don't have an exact timeframe, I hope to give the board an initial assessment at our next meeting which will happen in about 90 days. I'm highly energized because I believe the steps that Teradata has taken affirm that the transformation, our technology, and the talent that our team has are right to move us forward.

We need to focus the process to ensure timely and positive results. By leveraging Teradata's clear and continued technology leadership and the support of our talented team, we will evolve and optimize our go-to-market strategy to align the changes in how our customers are purchasing and deploying technology.

We will create a hard-charging culture, and there is no time to waste. All actions are intended to provide a better value to our customers which will naturally lead to increased shareholder value.

Teradata has an obligation to do everything that we can to deliver greater returns to our shareholders, and that is both near term and long term as well, and we intend to do just that. I look forward to speaking to as many of you as possible in the coming weeks and months ahead.

With that, we're here to talk about the first quarter earnings, so I'm going to turn the call back over to Steve for that discussion..

our cloud-based analytical ecosystem and our analytics solution initiatives. With our cloud initiative, we are delivering a hybrid analytical ecosystem building on our strengths in on-premise analytical technology and consulting. And we are taking these superior capabilities into the cloud.

This addresses customers' increasing requirements for a computing environment that spans on-premise, managed cloud and public cloud solutions.

Our overall objective with this initiative is to allow seamless integration across environments and to provide the expertise to help customers successfully architect, implement, and manage their high-grade cloud analytical ecosystems. We believe this broadens our market opportunities. This cloud initiative is well underway. We have the vision.

We are hiring strong cloud talent, and we continue to broaden our portfolio of cloud solutions. Concurrently, we are refining our go-to-market strategy especially for the public cloud. Turning to our analytics solutions initiative. Here, we truly distinguish Teradata and become a dramatically different company in the eyes of our customers.

Teradata is well known for helping our customers derive significant value from their data. Our analytics solutions initiative will accelerate that value by providing a broader range of business users with pre-packaged solutions to leverage data and analytics to address their most pressing challenges.

Through a more consulting-led approach, we are elevating our intellectual property into a more productized and repeatable solutions. By combining multi-genre analytics with integrated data at scale, our solutions will focus on delivering new levels of business insights.

For example, our new Communication Compliance Analytic Solution, developed in collaboration with a leading financial institution, we combined best practice compliance models and advanced analytics into an end-to end solution that automatically detects suspect material in digital communications.

Communications and compliance is extremely important for financial services institutions, healthcare providers and government organizations. Our analytics solutions will broaden our market opportunity by more directly addressing the needs of our business users.

Now, I will turn the call over to Oliver who will highlight progress from an R&D perspective..

Good morning, everyone. Before I get into some of the great progress we've made this year, I would like to talk about how we are approaching our technology innovation. We work closely with our leading customers, top executives and their teams both on the IT and business sides.

Through these relationships, we understand their business opportunities, the challenges they are facing and the key technologies they are exploring.

By leveraging and expanding our top talent with relevant expertise in these technology areas and employing agile development methodologies, we deliver the right solutions to meet the needs of our customers.

We have been able to and we'll continue to accelerate these solutions through increased focus in key investment areas as part of our transformation. Now, I would like to highlight three major milestones in the last quarter. First, cloud. Second, IntelliFlex. And third Big Data services. First, let's talk about cloud.

We delivered on our commitment to make Teradata available on AWS by the end of Q1. The initial offering includes the Teradata database and associated tools. We also released a portfolio of public cloud consulting and managed services.

The response has been very positive especially when we demonstrated that using equivalent configurations, Teradata on AWS has 145 times the throughput for mixed workload compared to the main competing cloud database.

As another example, a product affinity query runs in 12 minutes on Teradata on AWS versus more than 24 hours for the alternative which is a 123 times improvement. Customers love that Teradata on AWS is not a slimmed down version for the cloud. It is the same powerful Teradata database that is available on all platforms.

This is a core element of our cloud differentiation. The solutions built on Teradata are fully portable across the entire range of architectural environments, public cloud, managed cloud and on-premises. Our Teradata on AWS launch is just the tip of the iceberg.

We have accelerated our planned delivery of the MPP scale out version of Teradata on pubic cloud, now targeted for year-end. Turning to our managed cloud offering, we are building upon our success in the Americas and we recently announced European availability in the second half of the year, bringing greater choice to more customers worldwide.

Next, I'd like to talk about our recent announcements of Teradata IntelliFlex, our next generation platform for on-premises data warehousing. In the on-premises environment, just like in the cloud, customers are looking for more flexibility in how they can seamlessly grow their Teradata environments while maintaining mission-critical availability.

IntelliFlex allows customers to add storage and processing power independently so they can scale their systems in smaller increments which makes Teradata easier to purchase, in line with business needs. Important new features include up to three times more memory and the ability to double the size in just one hour with a simple database restart.

Early customer interest for IntelliFlex is strong, and it will be available for shipping in Q3. Finally, I'd like to talk about our new Big Data consulting announcements. To expand the ways we support our customers' analytical ecosystem environments, we announced new consulting services from Think Big for enterprise data link design and deployment.

These new services help customers accelerate time to value and remove risks from their data link implementations. Additionally, many organizations are experimenting to leverage Spark as an engine for product recommendations, predictive analytics, sensor data analysis and graph analytics amongst others.

To address this, we have introduced new consulting services to help customers incorporate Apache Spark into their Big Data environments. Let me wrap up by saying I'm truly excited by the progress we have made.

With our renewed focus sharpened by our transformation and at the accelerated pace, we will rapidly advance Teradata's leadership position and the exceptional business value we bring to our customers. And now, I'll turn the call back to Steve..

Thanks, Oliver. In closing, I want to emphasize that everyone at Teradata is focused on transforming Teradata to better align with the evolving market and with the way the customers are buying and deploying data and analytics technology. We have outstanding technology and world-class sales and services teams.

Our customers are resoundingly supportive of our products and solutions and are enthusiastic about our product roadmap and future directions. Our culture is a foundation upon which we will build.

And we will be more agile in our development and work with the leading technologies, significantly improving our internal processes, and even more responsive to our customer needs. We are making great progress against our transformation. And we're excited by what is yet to come.

The world is changing, Teradata is changing with it, and we are confident about our future. And now, operator, we're ready to take questions..

Thank you. Your first question comes from the line of Raimo Lenschow from Barclays. Your line is open..

Thanks for taking my questions. And a great start to the year. And, Victor, welcome on board in a different role. First question for you actually.

So, if you look at the portfolio that Teradata is offering and you see all the new initiatives, how do you feel about the need for further change? Do you think the things that you are working on that Oliver just lined out is enough or do you envision – and I don't want you to come up nail (26:51) down on new initiatives already, but do you think there's more that you want to kind of do to kind of change the setup for the company in the long run? And then I have one follow-up for Stephen if that's allowed..

Raimo, thank you. This is Vic. And I go by Vic, actually. But I put Victor because if I don't, I end up a Richard or Dick or something like that. That is a very good question. So, the first thing I would say to all of you that I've been here nine hours. And actually a little longer, I've been on the board for a long time.

So, the details of exactly what we're going to do, I haven't settled in on. But there is a lot of effort that's going to be put into the question you asked. I wouldn't say that at this point in time, I think we have a need for a change in strategy. But I do think we have a need for a couple of things and that one would be that we got to move faster.

As a board, we are enthusiastic about what our transformational process has brought to bear. But one of the things that we've learned in that is that we have a lot of siloed businesses. So, for instance, we've got Think Big, and then we've got Teradata Labs and we're going with it (28:00).

We need to focus everything we learned from that to make sure we have a laser focus on what our customers want, how we can deliver it and make sure that the customer knows that there is one Teradata and not five.

So, I think the things that we have to work on are clearly we have to be more focused and more – and we have to have a lot more speed on our strategy. And I'm thrilled with the people we've got. I'm thrilled with their enthusiasm.

And so, I think building momentum for the team, giving them some leadership, tell them we're going to move fast and go forward is going to be my primary objective. Now, if we find something in that process, we are certainly going to change. But I have an old saying. I worked for a colonel in Vietnam who was a great guy.

And he had a saying, if you want it bad, that's mostly how you get it. And we have to be thoughtful and careful about how we go about this, but we do not have to be slow. Those two things don't necessarily go together. And so, we will update you as time goes forward, I will be open and honest with you guys about what we see.

But right now, I'm not here because we think we're on a crash course. I'm here because we want to get focused and we want get faster. We have a great team here, and I'm enthusiastic about it. So, I guess that would be the best way I could answer that. We are, as a board, probably you should know how we got here.

We've been through this process – as you all know, a board has two primary responsibilities. One is to ensure proper leadership of a corporation. And the second one is to create shareholder value. And our board is totally focused on those things. We have been about this in the process.

I think we have been a bit of a pusher and a shover in this transformational effort to see we get there. So, I think the board is up to speed and tuned in. We want to make sure that the process on leadership is thoughtful and careful.

As I said in my opening remarks, I'm going to take 90 days and figure that out and then we'll start working down that process. It is going to take a bit of time to get that done. I can't tell you exactly how long, but we will get it done and we will drive our transformation forward.

I think it's important for you to know that I am not going to be a caretaker, I'm not a 68-year-old guy who is going to sit here and look at the world go by. We're going to get after some stuff. I'm enthusiastic and passionate about where we are and I have great confidence in the team at Teradata and what we're doing.

So hopefully that's an answer to your question..

Perfect. Thank you, Vic, and good luck. I'm looking forward to working with you on that..

Thank you..

And just maybe one last question if I can. Excuse me..

Yes, Raimo, go ahead..

If we look at the – you had the changes in the sales organization in the U.S. Do I think about that like a normal sales org, so everyone got new territories, et cetera? So, it probably takes like Q2 and then maybe a bit of Q3 and by the end of the year we should be settled.

Is that the right way to think about that?.

Yeah, Raimo. I'm looking at for and this is an Americas' conversation when we went through that restructuring, that reorganization. That yes, in the short term here, Q1 definitely impacted us as we realigned our talent, our resources, got closer to the customer. And that created some short-term disruption.

What I'm seeing here is that we should be through that by mid-year and then start coming out of it in the second half of the year.

So I'm still looking for that -- and you could see it in the numbers that I shared for Q2 on the revenue side between $550 million and $560 million -- still looking at some of that constructive disruption in there as we continue to work through, but then coming out stronger in that second half of the year..

Perfect. Thank you. Good luck..

Your next question comes from the line of Brad Reback from Stifel. Your line is open..

Great. Thanks very much. Maybe a quick one for Vic. Vic, since you've been on the board here for awhile, maybe you can help us understand why having the company remain public during this transition is the best strategy..

Well, thank you, Brad. I think real simple, right? One of the key obligations of a board of directors is to understand the creation of shareholder value. And in this process, we, as a board, are totally committed to seeing that we create value here. I've thought a lot about this. I knew this question was going to be asked.

We have talked about it as a board. But we think there's a lot of opportunity here that can be generated near term and long term. And part of the question is always every situation is unique, right? But to a certain degree, to think that you have to be private to do what you need to do means that, one, you either don't understand your issues.

You're afraid to take them on. Or you don't think you can create value for your shareholders. (32:56) And I think where we are today, we believe we can do all of those things as a public company. So, I guess the best answer is the board at the current time feels this is the best way to generate shareholder value. I'm enthusiastic about that.

I believe we can do that. And so that's the best way I can answer that question. The board believes this is the best way to create shareholder value over the appropriate period of time for our shareholders. Obviously, I'm not entrenched. I'm not going to be here. I'm not trying to hold a job for 15 years. I'm not looking after self-interest.

But I want you to know that I really believe that we can create long-term and near-term shareholder value as we're going today..

Great. Thanks very much..

Your next question comes from the line of Ed Maguire from CLSA. Your line is open..

Hi. Good morning, Vic, and congratulations on the new role. I had a question about what you see as the major forces or the major dynamics in the market and in technology that you see as most urgent for Teradata to address, and how you've thought about the changes ahead of you to respond to those forces..

Well, so, I'll respond just a little bit, and then, Oliver's going to help me on some of that, too. So, I think just as we look at what are the key issues we've got, obviously, you all are up to speed, and it would be a waste of your time for me to talk to you about cloud and software-as-a-service and all of that kind of stuff.

So, we clearly have to address that, and Oliver will talk about that in one second, all the things we're doing in those areas. And I think we're doing some great things, and he's making great progress. So, I'll let him respond to that.

But second, I think as we think about this and what do we have to do as a company – and I tried to say that in the one comment I made -- I think we have a lot of talent, we have a lot of knowledge of our customers.

So, near term, for me, the number one issue is to make sure that our customer focus, with all of the offerings we have, are more carefully coordinated and directed, and that we bring all of the strength and talent we have in Teradata to bear on our customers so they know everything we have to offer and they think about calling us instead of us calling them.

You know what I mean. I think that that is our number one objective, to start driving near-term revenue. That's my number one focus first. But now, Oliver, if you want to talk about..

Yeah. I mean a great question. There's obviously a lot of shifts going on in (35:40-36:00) the technology industry, right? The big underpinning is cloud. Cloud and the consumption models that cloud enables us to build on, right? And this is something that it's not new to us, right. We've been on it for the last several quarters.

With cloud, we have the ability to bring technology to use cases within minutes. What used to take days and weeks and months can now be done in minutes, right? You can stand up entire infrastructures in less than 30 minutes on cloud, and that really enables businesses to do things very differently.

And having our technology, a Teradata database, the whole UDA ecosystem as we call it available in the cloud, I think is a great enabler. And the executives around the world, the CXOs that I talk to, they just, they all are excited about what that does to their business. And then there are themes like sensorizing everything, right.

IoT is obviously a big topic. And more and more data is being generated by devices around the world.

And when you combine that with cloud and with scale-out models that cloud enables us, there are very new ways of how industries are being reshaped, right? There is new business models are coming out based on data, and I think we are at the center of what's happening there.

And our focus really on cloud and these technologies is core to our success going forward..

Thank you..

Your next question comes from the line of Katy Huberty from Morgan Stanley. Your line is open..

Thank you. Vic, welcome to the team. Look forward to working with you. A question on cloud. Does the company have the right sales force? It just seems like the person who's been selling $5 million CapEx orders may not be the right person to pitch an off-premise cloud offering, and then I have a follow-up. Thanks..

Yeah. Katy, as we continue to evaluate our talents and our expertise on the sales force, yeah, we're looking at cloud as being another delivery platform on that. And our sales people are very well in line with the capabilities.

It's a different approach, but the capabilities are there to really recognize that hybrid solution, that integrated solution that assesses the on-premise all the way through to the cloud opportunity. So, it's a fully-integrated hybrid solution.

And Oliver, I'll ask you – I mean, I feel very comfortable with the sales peoples' talents and capabilities of being able to deliver with that platform.

Yeah. And, Katy, this is Vic. And then I'll let Oliver respond. I think that's an excellent question, I really do. And I think it is a key issue we have to address. I would say that we have great people capable of doing that and a little bit of a question I got too before, but I am not convinced.

I'm hoping to be convinced here that we have done everything we can to focus our sales effort and understand our sales effort going forward and that is the number one thing I'm going to work on.

So, I think we have great people, but I think it requires a laser-sharp focus about what you're doing and making sure that your sales force understands it so that they can communicate that to your customers. And that is the number thing I'm going to work on. So, now I'll let Oliver..

Yeah. I mean, cloud is different. I mean, if you yourself go to the Amazon marketplace right now and look up Teradata, right? I mean, all it takes is a credit card, you see the price right there. You don't need a proposal.

You don't need to go through an approval process, right? Cloud enables very different consumption models, right? And that is something that obviously we, as a company, need to incorporate into our structure, into our sales processes and what not. It's a topic for us. We're driving this with focus and are getting laser sharp on that.

So, yes, absolutely. Big topic..

Okay. Good to hear. Steve, deferred revenue grew 3%. Is that fruits of the transition to as a service in cloud or is that customers paying more to maintain the installed base versus upgrading? Just talk about the dynamics..

Katy not yet on the transformation. It's really more business as usual. The maintenance revenue increase low-single digits in Q1. So, it's more business as normal. Nothing really driven by the transformation or the conversion to a subscription or any type of services model at this point in time. Nothing material..

Okay. Okay. Thank you..

Your next question comes from the line of Philip Winslow from Credit Suisse. Your line is open..

Hi. Thanks, guys for taking my question. You made some comments about just deal sizes and particularly some commentary about Q1 and then sort of the outlook for Q2. I'm just wondering if you could give some more color there. Obviously you said big ticket items are still hard to come by but you referenced a couple of decent-sized deals.

Just sort of what are you seeing what was that sort of those Q2 kind of deals that you're referring to. In fact like if you thought they would slip out if that's what you meant. Just kind of some more color on just deal size and particularly those deals you talked about for Q2..

Yeah. Phil, we continued to see pressure on large CapEx transactions particularly in the Americas where we – as you know we are more dependent upon those and we were on the international side.

So, we continue to see again this is not unique to Teradata but on a broader scale that customers still want to consume Teradata but they're very open to the other type of offerings that we have with respect to – on a smaller scale purchases or even on the subscription type of models on the rental type of models or term type of models.

But saying that, we still see that large capital transactions have a very difficult time getting through an organization. Now, the ones that we saw in Q1 that deferred, rolled over into Q2, we anticipate that those will close in Q2.

Now, we're also being very sensitive on the larger transactions that we have in Q2, and maybe the possibility of them rolling or deferring into outside of Q2. So, again, we're still being very – we're still very sensitive within our business model, particularly on our revenue with respect to large transactions.

That phenomenon – that new normal continues. But what I'm encouraged about is that these larger customers that drive these larger transactions continue to buy and the larger transactions continue to funnel up or bubble up into the funnel..

Got it. Thanks, guys..

Your next question comes from the line of Wamsi Mohan from Bank of America Merrill Lynch. Your line is open..

Yes. Thank you, Vic. Congrats on the role. Look, you've been on the board for a while.

So, in retrospect, over the past several years, what would you say were maybe some of the largest strategic missteps that happened at Teradata? And what gives you the confidence that the company is not too late in its portfolio transformation, where other companies could be gaining scale increasingly, particularly in the cloud. Thanks..

Well – so, I think the roles that a board has is one of oversight. And I, as a board, I guess you guys can find out, I'm just open as I can be. I mean, if you want to talk about missteps, we just announced the sale of one of them. We got into that business. We got into it late. We didn't focus it. And so in terms of missteps, that was clearly one.

I wouldn't call it a misstep, but has the board – have we shoved and pushed fast enough to move to the new frontier of data? Probably not. But I think we're on course to do that. We are totally committed. We're here. We're going to get it done. Transformational effort is leading us to where we need to be.

And actually, in that – and I'm going to tell you a bunch about that right now. But we believe, and I absolutely believe to the bottom of my soul with this, that we have the right people and there is a niche for Teradata in the future world of technology. And I think it's something we can fill that no one else can. And we have great relationships.

We are looked as a trusted advisor. We've added it gets back a little what I've talked about. We've added a lot of talent to this business. We have just operated them as separate silos. What need to be is Teradata where we bring all the smart people together, put our offerings together, give our customers what they're telling us they want.

So, I wouldn't call that a misstep. I might call it being a little late. But I guess that's the best way I can answer your question..

Thanks, Vic. Good luck in the new role..

Thank you..

Your next question comes from the line of Brent Thill from UBS. Your line is open..

Good morning. I'll add my congratulations to Vic, welcome to the team. This is Fatima Boolani on for Brent Thill. Vic, a question for you. You cited focusing cost as a big priority on your agenda this year.

I'm wondering if you can help us understand the largest areas of efficiencies in the company and perhaps how that reconciles with the investments and in the focus to support cloud offerings. And a follow up for Steve if I may..

I'll give just one quick, and then Steve is going to take the bulk of that, okay, because for me to act like I've been involved with the day-to-day cost wouldn't be fair to you.

But I did say in my opening comments and I think this is a really important thing is that we've made a commitment to the Street about what we're going to do and we understand that and we're going to stand behind that.

What I think we need to do is to stand back just a little bit and see, have we properly focused that? We are going to live with our cost commitments, so it's important. But more important is making sure that we haven't deprived our organization of what it needs to drive revenue growth. And so we're going to be working on that.

But as to the details, I think Steve can give you some of that..

Yeah. Just to echo what Vic said, yes, we are very committed to that $70 million threshold that we put out for 2016 and committed to that total overall operating expense before incentive compensation of merit of that $80 million to $100 million. So that commitment is still very much alive and being driven through the organization.

With that, if you – we continue to look at where we need to invest to drive our transformational opportunities. So, as Vic emphasized there, we do not want to shortchange our opportunities for revenue growth in the short term and the long term.

So, what we've been doing is working throughout the organization with all the business units and identify the activities, the drivers of our cost and looking at where we add value with those costs throughout the organization. And the costs are not just challenged within the silo.

The cost reduction activities are all brought up to the leadership level. So, we understand the puts and the takes. We understand what could be at risk if we take these reductions or make these, take these actions.

So, we're constantly balancing to drive the overall comment that Vic is making there, make sure we have the right structure, processes, activities to continue to drive short-term and long-term revenue particularly being led (48:24) by a product.

So, we continue to look at internally how we're going to take out additional cost to fund more investments in those transformational roadmaps. So, again, we're committed to what we said publicly, but we're also driving more internally to fund those strong – those key initiatives that drive current and future revenue growth..

Steve, just a clarifying question on the guidance. So, the full-year guidance moved up from down 8% to down 6% to down 5% to down 2%.

Are we to understand that that delta is entirely ascribed to the easing and normalizing FX environment or is there anything else that we should consider in there?.

No, the guidance that we initially gave was down 2% to 4% excluding the Marketing Applications business that we initially gave. In there, that's excluding the marketing apps. In there, there was a 200 basis points assumption on FX when we gave that guidance that first week of February.

What we're now guiding is down minus 2% to down minus 5% in that range to be sensitive to the rolling deferrals that we saw in Q1. But now, we're anticipating no FX impact for 2016. So, just to clarify, that guidance is minus 2% to minus 5%, excluding TMA to be reflective of the rolling deferrals with no assumption of any FX impact for 2016..

That's very helpful. Thank you for taking the question..

Thank you..

Your next question comes from the line of Karl Keirstead from Deutsche Bank. Your line is open..

Hi. Thanks. I've got two demand-related questions. One is, Steve, you mentioned that customers want to consume Teradata products in a different fashion. One way obviously is more subscription term.

Could you just remind us what portion of your business today is priced that way, and what that might look like in three years' time to get a sense for how that demand change might impact Teradata? And then my second question is, just on these macro pressures, deal delays, et cetera, Teradata has obviously got a large bank financial services exposure.

Were those Q1 quote macro budget pressures more acute in that banking vertical or not really? Thank you..

All right. Now, let me answer the latter first. No, it was not more acute in the financial services vertical. It was basically across the board in Q1. So, nothing specific into that vertical, Karl.

And what we're seeing is on the term models, what our – it's a very small portion of our business from a product side is in what I would say a pure term subscription model at this point.

What I see that growing over the next three years is as we go more towards cloud and we go more towards these analytical solutions, these are two good stronger growth areas in our business.

So, those would be predominantly, from my perspective, predominantly as we even go software-as-a-service or software-only will be more predominantly in that services model. But we'll still have a very strong, solid, on-premise perpetual model.

So, yes, what we're looking at doing is to provide you more clarity, more transparency in that model as we go and bring an Analyst Day to you guys to really give you clarity or transparency, Karl, into where we think that that model will be in three years.

But we're not looking for a significant revolution from the adoption of the subscription model where you see some companies have gone out within two and a half years and converted entirely to subscription. I do not see that in the Teradata model.

I see it more coming from the new product offerings that we have in cloud and software-only and the analytical solutions..

Got it. Super helpful, Steve. Thanks..

Thanks, Karl..

Your next question comes from the line of Abhey Lamba from Mizuho Securities. Your line is open..

Yeah. Thank you. Vic, you mentioned a few times that you're not here for a long time.

What specific milestones do you want to hit before you look for someone else to take the business over from you?.

Well, here's the way the process is going to work. I'm going to take 90 days and kind of figure out the organization here and then we'll have a board meeting and we will start that process. Hopefully at that point in time, it'll take however long it takes to get that going. We're going to look inside and outside; obviously we do that.

As it relates to my actual milestones, I've got a couple things. And some are absolutely we can put numbers on and some we can't. But just in a few days I've been around here and doing stuff, my number one priority and hope and I believe that it's going to be true, is I want to energize our base.

Organizations, one of the things I've learned over my life and when I was younger it took me a while to believe this, but organization love to be led, they love to have clarity and they love to have focus. And I think that unleashes more than anyone can imagine.

And so, the first thing I want to do is to energize the base, make sure that they all realize how great this company is. And that they're pushing forward, they're supportive of where we're going, and they have a belief in our future. So that is the number one thing I'm going to do.

Number two, I want to get our sales effort very focused in the near term. I want to make sure that we are organized with the right people in the right place to drive our near-term revenue. As great as our transformation is and we want to look at that as you're seeing everywhere. You can look at IBM. You can look at SAP. You can look at Oracle.

When you undertake changes and you have – you've been around a while, it takes a while to transform your revenue base. And so, as important as our transformation is to us, our near-term success and future for our shareholders is based on who we are today and I've got to make sure that's right and I will make sure that's right.

And so, those are the two primary things I'm going to work on there. And then the third thing is just to make sure that we really truly assess what does is organization need as a leader going forward, I mean, what amount of tech, what amount of leadership skills, what amount of customer in face, how important are all of those things going forward.

So, as you all know, maybe you don't know, but as a board member you get a perspective of an organization primarily from the chief executive officer, right? And that's their view. We all have our biases. We have what we have.

But my role here will be coming in and to try and gain a fresh look at that and help our board understand what that looks like so that we can go forward.

So, if I can accomplish those three things in the time – and make sure that our transformation gets the funding that it wants, that it needs, and that the people that are leading the transformation know how important they are, and that they have license to get on and get it done. Those are the things I'm going to focus on.

And I – they're all big issues, but I got a lot of energy. I'm enthused about this. I believe in it. And so that's what I'm going to be focusing on. And I – next quarter, I will give you an update on all four of those things. I'll be honest with you about where we're going and how I feel about that. But those are the things I'm going to be focused on.

The organization is going to be focused on all the things that Steve's been talking to you about. Those are all important. We have a lot of good people running this business. And they don't need me to be down day-to-day mucking around in what they're doing. But we will move forward.

And actually, I think you will find that Teradata will actually become a tech company. We'll start acting like one, behaving like one. We'll have the speed of a tech company. We need to do all those things. And so that's what I'm going to be focusing on..

Thanks, Vic. That makes a lot of sense. Oliver – just a quick one for Oliver.

As people are evaluating your cloud offerings, are you seeing cannibalization of your other products or is that bringing in new customers? And on a total cost of ownership basis, how do your cloud offerings compare with Hadoop or other Big Data provider solutions? That's it from me..

A great question. We do not see cannibalization of that.

In fact, a lot of executives are very excited about the extra opportunities that cloud deployment models give them, right? Because a lot of executives around the world are facing new business challenges and need to react very quick and very in agile steps, right? And cloud gives them the ability to spin up new sandboxes, new capabilities very, very quickly even though they're not convinced in the long run that they want to use them, right? And so cloud takes that area away and allows companies to act in much more agile, smaller steps doing that.

So, it's very much a complementary thing that we are seeing. I think it broadens our customer base.

It broadens our appeal to companies who want to use our technology, right? And, in fact, we're seeing actually the inverse, right? We're seeing companies that have accelerated some of their on-premises investments because we now have cloud and software options for them available because, again, it makes it much more ubiquitous as an offering within these companies.

And in regards to pricing, again, I challenge you. I mean we have now Teradata pricing on AWS is public out there on the marketplaces. It is priced right in line where we feel that the market is with that.

I told you a little bit about the performance differentiation that we have that ultimately blows total cost of ownership totally out of the ballpark, I think, for something like Teradata. And that's – so we'll focus on our core strengths. We will deliver performances, capability, concurrency at – even on cloud platforms.

And we see it as a great complement to our on-premises offerings..

Okay. Before we conclude our call this morning, I'd like to thank all of you for your interest in Teradata, and I look forward to meeting with all of you and having you follow our success. We got a lot of work to do here. I think I've said that. We have a team that's up to the challenge, and I'm really excited going forward.

On the next call in 90 days, I will be able to be a little more specific with all of you about exactly what we've found and what we're doing and I will do that. And hopefully that will give you some more comfort and some more knowledge about why we, here, are so excited about the future at Teradata. Thank you all very much for joining us..

And this concludes today's conference call, you may now disconnect..