Q4 2019 Earnings Call
[music].
Ladies and gentlemen, thank you for standing by and welcome to the Q4 2019 Teradata earnings Conference call. At this time, all participants' lines are in a listen only mode. After the.
This presentation that will be a question and answer session to ask a question. During the session you would need to press star one on your telephone. Please be advised that todays conference is being recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today, No Bill ill she said.
Thank you. Please go ahead Sir.
Turning to enter our president and Chief Executive Officer will lead our call today, followed by Scott Brown, Chairman and Chief revenue Officer, Mark call and turn CFO.
Cast and other information that are considered forward looking statements. While these statements reflect our current outlook that are subject to a number of risks uncertainties that could cause actual results to differ materially.
Risk factors are discussed in terms of 10-K 10-Q at other filings with the FCC on todays call.
We will be discussing certain non-GAAP financial information, which exclude items such as stock based compensation expense and other items described in our earnings release, putting acquisition reorganization related costs asset impairments and capitalized software development costs. We will also discuss other non-GAAP items such as.
As free cash flow on constant currency revenue comparisons a reconciliation of our GAAP results to our non-GAAP results and other information concerning these measures is included in our earnings release, which is accessible at Investor day, Teradata Dot com.
A replay of this conference call will be available later.
Today on our website arid assumes no obligation to update or revise information provided during this conference call whether as a result of new information or future results now I will turn the call over to Vic.
Good afternoon, everyone since our last call we have spent a significant.
Against the amount of time reviewing our operations our efforts have confirmed that while we were making progress in several areas. Our execution was not up to an acceptable standard.
We have taken decisive actions to not only implement focused operational practices, but also to ensure our entire.
As a nation knows what car priorities are and where they sit in.
The other key takeaway from our efforts is that our strategy remains solid.
We need to adjust our efforts to make sure. We are focused on the most important things first.
But they are properly staffed and fund.
Our main.
Our focus will be accelerating the improvements in our cloud offering.
This will ensure that teradata continues to be a leader in a rapidly growing demand around solving the analytic solutions required by our customers.
We are confident that our efforts position us for a solid two.
And then 20 and believe that we will also accelerate our growth and support our path to higher profitability.
While 2019 was not the year, we had hoped for we did have some key wins.
The adoption of our cloud offerings resulted in an outstanding growth for that portion.
One of our business you will hear more about this from Mark.
We strengthened our flagship vantage platform maturing its capabilities both in the cloud and on premise to address our customers' needs for a highly performing and massively scale hybrid analytic offerings.
We saw solid adoption advantage as customers continue to rely on teradata to help them get the answers from all their data regardless of where they are on their cloud journey.
Also we largely completed our business model transition to subscription now nearly 90%.
Our bookings are recurring and I am proud of how quickly we have moved to this model.
Finally, we brought in some exceptional many leaders throughout our product and go to market organizations.
As important as it was to advance our hybrid cloud technology. It was equally important to strengthen our.
Our executive ranks to purposely lead the organization for work, we are blending with new talent with folks that built Teradata and the result is an extremely strong team.
So with 2019 behind US we firmly believe we made the right calls at the right time to.
RSR challenges in execution and now all of our focus efforts are underway bring a solid 2020.
In 2020, we will be riveted on three key areas first.
Accelerating our transition to the cloud we know our customers among the.
Its largest will remain in hybrid analytic environments for the foreseeable future.
Something teradata is uniquely suited to address.
As they move into more cloud deployments, we will be right there with them.
Second driving consumption advantage.
Third.
And our market opportunities.
And of course, we will continue to drive operational excellence improving efficiencies throughout the organization.
Scott and Mark will cover these focus areas in more detail, but I want to be clear that we have taken a thorough assessment on where we are a.
Dress.
Needed adjustments and are focused on a stronger future.
Teradata has been and remains unique in our ability to help the world's leading enterprises harvest the ever growing volume of data and get the answers they need at the scale and speed they require.
We do that better than any other company on the planet and we intend to maintain acquisition, while delivering for our customers the tools they need and our shareholders the returns they deserve.
As I hand, the call off Scott to address some of the key actions, we're taking <unk>.
I would like to provide a quick update our CEO search the board's independence search committee is taking a thorough expeditious approach working with the executive search firm to that and review candidates. The process is well underway and we feel good about our ability to fine.
As outstanding permanent CEO for Teradata.
Also in preparation of the on boarding with a new CEO the board determined to adopt the corporate governance practice of separating the see all and chairmans role by making an independent director, Mike Genone as chairman of the.
Sure.
Mike has served as lead independent director as well as heading the CEO search Committee I will remain as interim CEO until the new CEO was selected at which time I will continue to serve the company in my position as a member of the board of Directors now, let's hear from Scott.
Thank you Nick I'm pleased to join everyone on today's call.
As many of you know I have two quarters in a cure Dana leading our global go to market organization.
I don't want to add my confidence in the entire Teradata team to deliver outstanding business results for our customers and value for shareholders.
Yes.
Today, I will address what we're doing to expand our market opportunities. All we are strengthening the bond we have with our customers and helping to drive greater consumption of our advantage software.
Then I'll provide some examples of where we don't really in the market.
When I joined Teradata last summer I was immediately impressed with the caliber of customers we serve.
The top needs in some of the largest industries globally running mission critical and complex workloads on Teradata vantage.
And as I travel is low and not with our customers.
I've heard from them about the game changer results they achieved using our solutions.
These type of results our customers see gives me great confidence in our ability to expand our reach and are taking action to bring the power of teradata to help more organizations get the answers they need and bring meaningful.
Full value to their company.
Today I will cover three ways, we are expanding our market reach.
First you will see a strengthen our partner ecosystem.
We know that companies of the size and scale of our customers have complex analytic environments.
And they work with various advisors on optimizing their infrastructure.
And we know that by going together with other trusted advisors. We can go further.
And we're stepping up our commitment to partnering with leading anytime and eyes fees and our.
Hi, regional partnership teams and engaging in joint account planning showing the partners how carrier data can enable their breakthrough initiatives.
Currently we are building better information sharing training and knowledge exchange practices for our partners.
The second action we.
We are taking it to expand our market reach by applying incremental focus in select verticals.
Teradata has held and continues to hold strong presence in large verticals.
And we are taking the IP, we have developed from working with the world's leading organizations packaging and <unk>.
Offering it to more companies.
This is much like we did in the past when we're building our deep presence in financial services retail and telcos.
We have proven analytic solutions for health care oil and gas and government agencies dealing with compliance and regulatory.
The site.
And we're going to ensure that we offer teradata advantage to more organization in these verticals.
In addition to the work we're doing to expand our market presence that third area, where we are taking action is another one I'm personally passionate about we are deepening our focus on.
Customer success.
Function that becomes even more important in a subscription business model.
Nurturing longstanding and mutually beneficial customer relationships is the very bedrock of teradata.
In lockstep with our commitment to best in class data and analytics.
Technology.
The strength in our purpose in this arena, we have added teams dedicated to helping our customers realize increasing value from their investment in teradata.
This in turn naturally drives greater consumption of our vantage software.
Speaking advantage.
Our market, leading hybrid cloud platform continues to mature.
And we are driving investments in the numerous areas, where we are differentiated.
Extending from interrogated heritage consistent technology innovation remains at the forefront of our efforts.
Vantage remains the best.
Yes, integrating and connecting data at scale.
Combined with unmatched workload management and near real time analytics, our competitive advantage remains second to none.
We won't stop driving innovation to the unbeatable and our target markets.
I'd like.
To provide just a couple of examples of emerging growth opportunities.
As Fiveg begins to roll out in the telco industry. It brings with it enormous increases in data volumes and the need for speed.
LCOS needs and analytics infrastructure that can both handle this massive and low latency.
China and allow them to apply advanced analytics and AI on that data in order to create new business opportunities for their customers as well as new consumer experiences.
Guaranteed advantage provides telcos with the analytics infrastructure that allow them to leverage.
And monetize their investments in Fiveg networks.
In addition, we are seeing merging Io t. opportunities in other industries, including.
Oil and gas manufacturing insurance and more.
Where do you connected devices will improve efficiency and drive.
New growth avenues in situations that require high availability high reliability and very low latency.
Enterprises, leveraging teradata advantage will have the speed and scale needed to offer seamless personalized and immersive experiences and dramatically.
Grew service.
Possibilities are endless and exciting.
These new use cases will drive data and new types of analytics and they require the integration workload management and scale, where vantage excels just great opportunity for us.
The bottom line is that we're seeing good customer adoption advantage, both on premise and in the cloud across all three of our regions.
I'd like to walk through a few examples.
A leading global lifestyle sports and fashion manufacturer is modernizing its enterprise data warehouse.
And moving to the cloud on consumption based pricing model.
Teradata, one over several cloud only technologies based on our ability to meet mission critical reliability and security requirement, while also delivery and overall lower.
Hello.
A global oil and gas operator headquartered in Europe has chosen vantage on Microsoft resort to support Aiotv analytics involving sensor data and real time asset performance.
From will also strengthened cross domain integration within.
End to end business view.
A major retailer in the U.S. and long standing Teradata customer has invested in data recovery as a service running in a hybrid environment, including Teradata on premise and Microsoft as Youre to ensure business continuity for its customers.
And meet their risk and compliance needs.
A leading commercial bank in Asia that is also a longstanding teradata customer has invested in teradata advantage to further improve his customer experience and drive their digitization efforts forward.
A fortune 500 insurance company.
Is moving to the cloud with Teradata on ADW us on a full consumption based model.
The customer groups environment to enable several dozen applications across its marketing pricing product.
Agency and digital TV.
It also.
As our new graph and machine learning capabilities as well.
Your again Teradata beat cloud only providers based on our ability to provide a seamless path to the club.
We partnered with a lean ice fee and a major financial institution and and.
And it's an investment Teradata and is building a new cloud based marketing analytics platform with advantage to improve his customer experience driving real time decisions based on recent activity and deepening customer relationships across multiple brands and channels.
These are just a handful of the successes the team achieved as we rounded out 29 team.
And they attest to the strength of vantage and delivery answers to customers toughest business questions, whether on premise in the cloud or a hybrid environment.
As I turn the call Tomorrow.
Mark I want to reemphasize that our go to market organization is laser focused on executing and delivering an exceptional experience for our customers driving growth for teradata and value for shareholders, Let me hand, it over to Mark.
Thank you Scott and good afternoon.
The new and everyone.
Today, I will talk about our progress in the cloud.
Operational improvements made in 2019 and conclude with our financial results, including our Twentytwenty outlook.
Starting with the cloud as Dick mentioned.
Our public cloud customers more than doubled in 2019, and we nearly doubled our cloud a RR.
We saw increasing momentum as the year went along including several big competitive wins in Q4, a few of which Scott just.
Just highlighted.
Cloud is a huge opportunity for teradata as we are the only option that scale for a true high bread and multi cloud environment.
Given our growing momentum we are investing heavily in this area while driving them.
Proved efficiency and other areas of R&D.
To help customers experienced the power of Teradata advantage in the cloud, we recently launched new capabilities that will make it significantly easier to demonstrate what is possible with van age and further strengthen our competitive.
Position.
This new trial environment will be a great enabler and driving the expanded go to market focus that Scott spoke about and over time should help support new logo growth at Teradata.
While 2019 didn't turn out as well as we would've liked.
Right.
As we exited the year, we made significant progress in addressing operational issues and we had several successes that set us up in a much stronger position entering twentytwenty.
First as Dick mentioned, we largely completed our business model transition.
Mission and we are expecting little to no perpetual revenue in 2020.
In addition, we realigned our go to market organization around enterprise and commercial markets.
Driving significant cost savings and a much more effective model to serve our key markets.
Segments.
Some of those savings will be used to reinvest in the organizational infrastructure that Scott discussed previously.
Finally in 2019, we refocused our consulting organization on vantage oriented offerings and we dramatically.
To start footprint in non core consulting engagements.
By the end of 2020, we should be through this part of the consulting transformation.
While this reduction Didnt result in the margin improvements we expected in 2019, we are better positioned for profitable.
Consulting growth longer term.
This dynamic should improve meaningfully in twentytwenty, allowing our reported margins to improve significantly.
Longer term, we continue to expect a deepening partner ecosystem and product simplification to allow us to.
Focus Teradata is consulting organization on more strategic engagements engagements, while creating greater total value for our customers.
Now turning to the financials.
As a reminder, we have placed an earnings discussion documents on the IR website.
With that walks through the dynamics in various segments of our financial statements.
I will discuss some of the key dynamics driving our growth in margins, including an update on our consulting transformation and then discuss our outlook for Twentytwenty.
Our Q4 results were.
Finally in line to slightly better than our expectations.
For 2019 total ARR growth ended at 9% year over year.
Our Aer our is composed of three main categories.
Subscription and cloud related A.R.R.
Hey are related to our legacy perpetual maintenance and software upgrade rates.
And a are related to subscription based managed services.
At the end of 2019.
Our a our our makeup consisted of.
700 million.
One of subscription and cloud related a are up 42%.
615 million of perpetual license maintenance and software upgrade rights related A.R.R.
Down 14%.
And managed services related A.R.R.
Our of 112 million, which grew 13%.
Importantly.
Subscription and cloud related Aer are now comprise 49% or nearly half of our total A.R.R.
Which is.
It is nearing an important inflection point in our transformation.
They are slower rate of decline in our maintenance and software upgrade related A.R.R. compared to 2018 is by design.
And results from changes in compensation that.
Moved incentives to merely convert existing perpetual licenses to subscription without also growing subscription licenses.
Overtime, we continue to expect our subscription business to continue to show healthy growth.
While maintenance and.
We're upgrade rights related 80, or our is likely to decline low double digits.
For Q4, 89% of our bookings were subscription based.
For the full year subscription bookings were 88% of the total well ahead of our in.
Digital expectations of 70% or more.
The rate of our transition to a recurring revenue model has been significantly faster than expected.
And it is reflective of the value our customers see and our subscription model and cloud offerings.
As we mentioned last quarter, we will no longer be providing the bookings mix as a key metric because we expect little to no perpetual revenue in twentytwenty.
While we have a long tail of customers currently on maintenance converting to subscription based deals over.
They are dramatic declines in perpetual revenue and the resulting headwinds it creates for total revenue peaked in 2019 and will largely be behind us after twentytwenty.
Deferred revenue came in at 533 million, which was.
Down 10% year over year.
However, there are couple of key dynamics to be aware of in our deferred revenue when comparing year over year.
Our long term deferred revenue came down as expected as we amortized to revenue a few large.
Multi year prepay deals from 2017 in 2018.
Which we have discussed on prior earnings calls.
And we didnt have any similar multi year prepaid deals in 2019.
We expect this trend to continue as those.
Sales were outliers.
And we expect nearly all our billing terms to be annual or less going forward.
And the decline in short term deferred was driven by the planned reduction in consulting revenues.
Consistent with moving our focus away.
From non core consulting engagements.
We will not be providing this preferred this deferred break down going forward, but we understand many investors look at deferred and billings growth in analyzing subscription companies.
And wanted to make sure investors understand the key.
Turning to driving near term headwinds to our total deferred balance.
Total backlog grew 7% year over year, despite significantly shorter overall contract durations compared to 2018.
We believe this shows the strength.
And commitment of our customer relationships and continued adoption of our core product platform.
As a reminder, in 2019, we changed our compensation structure to only compensate on deals up to three years.
Versus five years in Twoq.
2018.
This drove a meaningful reduction in our contract durations from well over four years in 2018 to closer to three years in 2019.
We expect deal durations to remain stable in 2020.
Before I continue I want to make it clear that unless stated otherwise.
My comments today reflect teradata has results on a non-GAAP basis.
Which excludes items such as stock based compensation expense and other special items identified in our earnings release.
Lease.
For the year non-GAAP gross margins expanded 270 basis points.
Just below our target range of margin expansion.
Revenue mix shift from lower margin consulting and perpetual revenue to higher margin.
During revenue drove this margin expansion and we expect this dynamic to continue in 2020.
In 2020 recurring gross margins will roughly be in line with 2019 as our cloud recurring revenue currently have lower gross margins than overall recurring revenue gross.
Margin.
We believe most of our cloud businesses incremental and we are more than happy to see a short term margin headwind. Since we believe this will drive significant incremental value to teradata and our customers over time.
Considering these.
Overall business dynamics, we expect total gross margins will expand another 200 300 basis points in 20 Twond.
Total operating expenses declined 6% in 2019, as we worked hard to drive operational efficiency.
Across all functions in the organization.
Despite this decline total operating margins were largely flat year over year.
And as total revenue decline driven by our model transition to subscription and the Rightsizing of the consulting organization offset.
Efficiency gains.
This more streamlined footprint will allow us to invest aggressively in cloud and expanded go to market areas and twentytwenty and still deliver operating margin improvement moving forward.
As a result.
We expect operating margins to extend roughly 100 basis points in Twentytwenty.
Now turning to the rest of our outlook.
We are confident in our long term growth prospects going forward and we'll make the key investments in cloud van change.
And expanding go to market to take advantage of our opportunities.
We believe we are entering twentytwenty in a much stronger operational and product position than in 2019 with stronger leadership.
Stable sales organization.
And maturing vantage and cloud offerings.
For Twentytwenty, we expect a our growth of at least 8%.
And recurring revenue to grow at least 8% as well.
Taking into consideration with growth in.
Occurring revenue.
Reduce perpetual revenue given we expect little to no perpetual revenue in 2020 and reduce consulting revenues of mid single digits.
We believe total revenues will be essentially flat to down slightly for the full year.
We expect non-GAAP EPS in a range of $1.18 to $1.22 based on an assumption a 112.2 million weighted average shares outstanding.
We also expect free cash flow at at least 150 million 20 Twond.
While the magnitude of our restructuring charges was will be significantly lower in 2020 versus 2019.
We still expect roughly 20 million in restructuring, which is baked into our free cash flow guide.
For Q1, we expect.
Recurring revenue of 353 to 355 million.
And non-GAAP EPS of 20 to 24 cents.
With 112 million weighted average shares outstanding.
And with that operator, we would like to take questions.
Thank you as a reminder, tenants in question you need to press Star one on your telephone to had strong your question press the pound key please standby when we compile the culinary roster.
And your first question comes from when the Mohan with Bank of America.
Yes. Thank you I was I have a quick clarification first or do you have any embedded FX assumptions in the guidance for the quarter or the Guy then or is this all at a constant currency and I've a follow up.
Yeah, we don't have this not embedded into the guide.
Okay. Thank you Mark and then can you just talk about cash flow expectations. In 2020, I know you just gave a number I can you give us like what the bridges are you said lower restructuring what are the other drivers that you see in bridging that Pony 19 to 2020 cash flows and also on the on the.
Oh threed in recurring revenues.
There's a slight bit of deceleration in that so what is baked in your guidance. There what do you what do you interpreting and what's what's actually driving that a deceleration into 2020, I think though expectation few quarters. The goal is to what's to be able to drive.
Well digits in 2020, so just curious what will the changes or.
Sure. So let's start with the first part of your question on free cash flow. So two things, obviously lower net restructuring payments.
Than what we experienced across 19 versus what we experienced across 20.
And then clearly growth in our a our balance et cetera that cash that'll start to come through from a cash collections perspective as well.
Driving that forward.
In a meaningful way.
As it relates to the.
Recurring revenue.
Et cetera, you know, we're focusing on delivering on what we say right. So there's clearly that.
Clearly we've had some of the uncertainty created by you know not having CEO that impacted some sales cycle as we expected which was why.
We guided Q4 were added were.
You know awful, that's reflective and where are we see a 2020 at the moment, but again, it's all about.
Delivering on on what we're saying we're going to do.
Okay. Thanks much.
[noise].
Your next question comes from the line of Katie.
You Bertie with Morgan Stanley.
Thank you good afternoon, I'm trying to work through the margin dynamics and in 2020, if I remove perpetual from the business in 2019, that's about 150 basis point to.
Gross margin.
If you've doubled consulting margins. This year, that's about 150 basis points to total margin and then just a mix shift to subscription should add another hundred or 150 basis points. So you kind of gets four to 450 basis points gross margin expansion.
Those factors what.
What am I missing in terms of offsets that that land deal at the two to 300 basis point expansion then I bought out. So we had great question. Katie recurring revenue margin was set are going to be were relatively consistent with where they were in 19, and that's a combination of our momentum in the cloud which.
Carries lower gross margins, which puts some near term.
Margin, there, which kind of keeps that flat.
And then yes, we do expect our consulting margins to improve meaningfully.
Et cetera, and then yes little to no perpetual revenue means you know we don't we.
We we don't have that sort of margin impact going there, but I think it's really in your recurring revenue margin assumption of that being up 100 plus basis points.
But even with with recurring flat you have increased mix and subscription that has a higher than corporate average. So there is some benefit from.
Subscription even if the actual gross margin is flat in that segment that we can talk about it worked fine.
Sure the.
The follow up it is about that cloud business, it's clearly more of a focus across the team on on driving cloud adoption can you give any metrics around the percentage of <unk>.
Our our today, that's cloud just what the penetration looks like and then when you have a cloud deal. It sounds like margins are low I'd be curious why that is and then what are the deal sizes in a in a cloud transaction versus an on Prem transaction. Just so that we can understand what the dynamics might be in the business as you as you move in that direction.
Thanks.
So yeah I'll I'll address the first part of the question in terms of cloud, we don't breakout how much air as cloud versus the rest of the subscription but.
You know are of the vast majority of our 700 million of subscription A.R.R. is tied to our on premises business today versus cloud, although the growth.
Most of what's going on in cloud is impacting you know is growing nicely.
As it relates to the second part of your question in terms of part of his scale in terms of margins in the cloud a deal sizes. The is they're not the size of of the transactions we have.
On premises and I'll have Scott you have his color.
On this phenomenon as well because our on premise has been customers are run an enterprise class workloads in a major way, which is very different than what you'd see run in a cloud environment and clearly running things that scale in the cloud.
Is more expensive than running it on premises Scott I'm with you want to add something to that yeah. You know the cloud revenues that were seeing our first of all their growing at a rapid pace, which is great. The other thing is there mostly incremental for us so the core of our customer base certainly as an on.
Environment and the on premise environment is highly optimized you know the resources. That's the customer has at their disposal CPQ Io State does memory are 100% utilized and obviously, that's a very different architectural modeled on the club and the quality of it over subscription.
Model and it's not really purpose built for our kind of data analytics and are kind of workloads. So it tends to be a little bit less efficient soften more expensive for the customer, but the edge workloads those that aren't just complex smaller amounts of data and people want to do them Opportunistically spin them off to analysis and then.
Now we are seeing a lot of activity there and a lot of customers are beginning to on a consumption base basis by in the cloud and we feel lot of incremental business coming there. So we expect in the year ahead of that to continue I'm very rapid growth trajectory for us and you know, they're very different onsite to use cases.
As for our customers.
Thank you for the color.
Thanks for question.
Your next question comes from the line of Raimo Lynch Hill with Barclays.
Hey, Thanks for taking my question two quick ones of the mechanical one.
Just if I don't feel perpetual and then I'm pushing dual skies into.
Into like a recurring in few read that should help me on my fear our growth rate in recurring growth rate. So I'm just kind of thinking is there some missing pieces that I'm missing there and just to kind of going back.
To your earlier Coleman to them had one follow up.
Yeah. So clearly a you know the impacts of conversion here in 2020 versus the prior year is much much less so the growth is coming up dramatically from more consumption, which is growing and less is coming from.
Version, so that's really the phenomenon there and again, you know where focus we said at least 8% and we're focused on delivering.
Okay perfect. Okay, I'll get them if it's okay. Thank you and then one quick one for Scott if I look at your cloud business, how do I have to think about it typically customer is that Eau de doing.
Like the dumb arms data months' kinda with separate data sets or are these kind of.
Kind of overflow Oh, what flows to on premise theater, the data warehouses well, what's the nature of what's going on an account for you.
Yes, that's good question remote Oh, we look at it today.
Those edge workloads, you're absolutely right or more of a data Mart type of application, where folks are doing independent analysis. It tends to be smaller datasets less complex analytics and it tends to be departmentally focused and often with the business users. So in the future we expect to see more large.
Well, it's beginning to move to the club, but today the cloud first from an expense standpoint, secondly, architecturally can support the kind of workloads that we support on Prem. So clearly today absolutely at the date of March in the future, we expect that to scale up.
Okay perfect. Thank you thanks, many extra information.
Sure.
Yeah.
Your next question comes from a line of Tyler Radke with Citi.
Great. Thank you very much Vicki you you mentioned that you spent some time reviewing actions and kind of trying to adjust efforts to improve.
Execution, maybe just you could go into more detail on on a somebody adjustments that you took was it was there you know adjustments need in terms of Rightsizing. The Salesforce, just kind of walk us through a specifically what the adjustments were and what gives you confidence that back in.
Drive and.
Are you seeing growth.
Well I can show I said at the last time that we had to be focused on execution right and so when I got it and I found exactly what I expect that we've had a lack of focus and we had some cultural issues around how we were dealing with folks right.
And it was exactly where expected so weve gotten got more focus so what does focus mean and from going for first thing is you got to have everybody in the organization knowing what your priorities are where they fit in and how they can drive up and we work in the middle of that right now so that's coming along well and then creating a culture of.
Oh belief in your people and that they can do what they think they can do things rise and their organizations is one I know that sounds a bit you know.
Like you know fairyland, but it has made a huge difference in our organization for them to rise up so we are focused on having.
People are being a part of the organization understanding where they go and where we're going to go we are doing more in fewer areas to make sure that we can complete those and drive product to the trucks or field can sell them.
And I guess the final thing that I think is really important here as we're rationalizing our spend in the way that we make sure that we're putting.
Thing or dollars behind the things that matter most.
We're not looking at cutting people or anything like that we're just looking at making our people effective for delivering solutions that our customers are ready to use today.
Great and maybe a question for a market obviously you've had some.
Okay. That's out there for 2021 for some time, but it would just be curious if.
You can comment on Ah on those targets and you know it if we're just thinking about kind of the trajectory of of a our our you know obviously you've seen a subscription transition.
Faster than you'd expected, but maybe just help us to bridge the gap why we haven't seen that air our growth continue to accelerate kind of relative to when you are less gave us the targets. Thank you.
Yeah. So a couple of things I mean, obviously, we're focused on delivering across 2020, that's where our focus is.
You know, we said at least 8% plus.
Ah you know we're still got is you know little bit of uncertainty.
You know impacted sales cycles, and so forth. So that's that's built into you know where were initially guiding at this stage.
We still believe in the long term.
All that were clearly a bit behind schedule and we'll update you guys. When we get a CEO and here. So we can hold in analyst day, and so forth and give you our our thoughts you know how the longer term.
Thanks.
Your next question comes from.
Thing Schrom with Bernstein research.
Hi, Thanks for taking my question, so you've talked about consumption, increasing and that is great in terms of usage, but it's not really a meaningful metric in terms of assessing the revenue potential. So I'm wondering if you could give us a sense of either.
What retention rates on a dollar basis, our or customer expansion or the the commonly use SASSA subscription metrics net dollar subscription rate could you definitively say that the net dollar subscription rate for your existing customer base is over 100%.
Yes, it is way yet, yes, because the.
The retention rates are very similar you know over though over the last couple of years at least since I've been here. So.
That's that's true.
And that's that's on a dollar basis not just customers.
Yeah, the dollar basis, not customer count basis.
Okay, great. Thanks very much.
And as a reminder, if you will that task and question. Please press star one way or telephone once again that star one on your telephone.
Your next question comes from Derrick Wood with Cowen.
Yeah, Hey, guys. This is Nick altmann on for Derek Thanks for taking the questions.
[noise], just you know roughly into a roughly a year and to some of the sales force comp changes.
Incentivizing.
You know short duration deals and Comping reps on A.R.R. can you kind of give us a better sense of how you know how productive that span and what's the general take away.
I'm now that you're a year into that and then just looking into 2020. Other you know any any significant tweaks that you need to make there.
Yeah, and it's all take this you know.
What I would say is 29 team was the first year, where we need a move to in Asia or based.
Compensation strategy from a TCV based compensation strategy and you know the first year of making that kind of move is always going to be a challenging one because you're trying to make sure your air or baselines are good and that you make sure that you pay or people well and I think we've done a excellent job of getting.
In our air or baselines always down to the customer insight level really shook out so that the field teams know exactly what baseline we're working against you never growing against that we.
We put 'em about 70% of the average sales reps compensation into air or growth in about 30% a went into it.
CV bucket last year. This year, we've actually hit it did that based on some learnings. So it's still 70% a our our but the 30% is now made up of nonrecurring product and services and the reason for that was we found that we didn't have enough focus in our compensation plan.
I'm consulting in consulting is very important part of delivering our solution to our customers and we needed to make sure that our sales organization had sufficient reason to go out there from a condition standpoint, and drive consulting which is about 85% of that variable 30% of their pay.
So really the second year here is the compensation strategy is working hi, it's definitely driving the right behaviors in terms of subscription any our growth. We think the tweak that we've made in that 30% variable to be principally driven by consulting will help us on the performance of our consulting business.
And overall I would say you know given we got a good year behind us of learnings.
That I think 2020 will be a you know a change in evolution, but a good one that's incremental to help us drive ultimately success for our customer.
Got it no that's helpful.
And.
You know last quarter, you guys took a little bit more of a conservative approach to guidance are you guys noted that was largely due to perhaps some more uncertainty around you know the I T spending environment. So can you just give us an update there and then you know when you look at your 2020 guidance does it kind.
It does imply the same level of conservativism as a Uganda for Q.
Yeah, I think in terms of the Q4 it wasn't macro related it was really more the uncertainty on the leadership change.
That drove that and that's what we see coming into Q1.
Got it thank you.
Once again, if you want to ask a question. Please press star one way or telephone.
Our next question comes from Pat Walravens with JMP Securities.
Hi, This is Joe and for pad that you've taken our question I can just give us an update on the competitive landscape.
Thank you.
Yeah, I'll take that question so.
Got it landscape I would say is we're seeing a lot less to do a the head you tend to basically Foley and our customers are coming to us looking for options.
They have tremendous amount of data just kind of bison petabytes of data.
It any average customer that they're trying to figure out with the long term strategy is.
Because they do for them as Ben.
Unfortunately, a failure and you know we're seeing a lot less competition. There are traditional competitors. It's about the same I would say it's been very similar to what we've seen in previous quarters, we're definitely seeing.
And more activity among the cloud vendors on that's really at the edge as I mentioned before and those core workloads that we do that are high complexity, hi month of data. Those generally are sitting on Prem and we're having a lot of success. There we're seeing more activity at the edge.
And we need to obviously continue to grow our cloud offerings and capabilities there ought to be competitive and I think we're seeing really good success. There. So left to do pretty much the same in our traditional competitors and then you know more competition happening you from a pure cloud play and from.
Standpoint, you know being a hybrid offer for our customer where we can offer them on prem hybrid and cloud is very appealing for the largest customers because many of them have extreme workloads, where they're doing millions and millions of carries a day and the economics is going to cloud with those.
The workloads is just not there it would be incredibly expensive for them. So they appreciate the fact that you know we in the marketplace actually are able to deliver on Prem hybrid cloud, which is very different than those cloud competitor. So that's what we're seeing I wouldn't consider to be any big shift from what we've seen.
Traditionally the marketplace, but hopefully that gives you the perspective you were looking for.
Thank you.
You bet.
Your next question comes from the line of zinc shrine with Bernstein research.
Hi, Thanks for getting me and again I wanted to go back and that's the follow up to <unk>.
Ramos question on the air our it looks like a sequentially from Q3 to Q4, you added 38 million in net new air our and that's down about 44% from the 68 million you added in Q4 last year.
No surprises there was such a big decline in net new air are given the a the simultaneous.
The almost 70% declining perpetual and hardware.
With any I mean, when I'm looking at this with any type of reasonable conversion factor between a or are in perpetual it looks like the new business being booked is still down about 50, 50% give or take year over year as far as little as booked in Q4 can you help me reconcile.
It's going on there are why they are saying I think he got to do a couple things here first you gotta look across the second half because our Q3 was significantly larger this year versus last year. So some of its timing and then the impacts to Q4 were largely driven by the uncertainty that created and Atlanta and hit some of our sales cycles, which is why we guided where are we.
We did because we felt that potentially customers right Mike try to use that took advantage and they tried and we said no. So.
That's really the phenomenon here and so like sort of looking at across the back half versus the back half a year ago.
Right, but even on a full year basis net new a ARR was.
Down about 4% nothing I get there were some FX fluctuation in there, but I'm surprised that net new a ARR for the full year was down of when the when you had such a dramatic decline in perpetual.
Oh, yeah. So when we set you know we didn't have as good a years, we anticipated you know and that's the.
They experienced across Q4 or.
<unk> impacted that in some of the execution as well that we've been talking about so yes, we were surprised it was down year over year as well.
Okay, and as far as vantage moving the needle and helping to maybe re accelerate there or how much new business your.
Booking is is that something you're seeing it is a big driver.
At this point or is there some point in the future where you would expect that to become a big in a portion of the business moves the needle.
Yeah, I'll I'll take that went on so we actually are seeing really strong progress with our.
Customer base on the evolution to advantage in fact, we are now over 40% of our customer base is now on vantage and that's just up dramatically during the year. So the common to the customers are there seem a lot of new use cases, a as a result of the functionality.
That we brought out with vantage a lot of news capabilities that they are beginning to exercise or actually we believe that a drive new workloads in the future and new consumption. We've had very good feedback from them on the things that we've been able to do to help them you know drives business results the kind of.
This is cases that they measure in our tens of millions or hundreds of millions to billions in savings or efficiencies. So the good news is a we launched his journey for vantage a we didn't know how quickly it would go.
It's gone quicker than we expected given over 40% of our bases nowadays.
Antigen that continues to grow and the new use cases that they're getting and the new workloads that we're beginning to generate as a result is that additional functionality and capability is very encouraging. So we certainly have plenty more work to do to get the rest of the base advantage, but good progress I would say in 29 team, which should help us in 2020.
And the only thing I would probably had seen so that is we only self managed today. So it's a question of moving the existing installed base to the vantage platform, but any by anybody buying anything additional from us the only thing we sell to manage right now.
That's incredibly helpful. Thank you very much and best wishes for 2020.
Thank you appreciate it.
Your last question comes from the line of Phil Winslow with Wells Fargo [noise].
Great. Thanks for taking my question just a question on on pricing, obviously, you talked about some of the near the unit growth in terms of capacity to your shipments are just a bit but you saw this.
Is your whenever you're just talking about Oh, just a pricing environment or anything but sort of a unit economics, where those sort of two you're right expert expectations that it was just sort of a capacity.
Short fall for the year or was there anything different on on the pricing side.
[noise], Yeah, I'll take that one Phil but I would say is the pricing has been very.
Very stable, what we've seen in the marketplace, whether it's a in cloud consumption on Prem and all the different form factors our pricing has been very stable in the marketplace. As Mark mentioned, we did have some customer situations with the uncertainty as a result, not having the CEO in.
As for folks expected that we would make some price concessions, but we did not a we believe in the value that we delivered to our customers and we expect that revenue to come over time, so from our standpoint, no big changes in terms of the pricing dynamic in the market no big changes in what we've seen in Arkansas.
Editors, it's been a pretty stable market and our pricing has been stable as a result.
Got it alright, thanks, guys.
And there are no further questions I'll turn the call, but too thick Lund for final comments.
Thank you everyone.
Joining our call. Thank you for the good questions as we close the call today I want you to know that Teradata team is working together and we're really focused on driving a solid year.
We've taken great actions to improve our execution across the business and we are entering 2020 with a more stable go to market team and growing.
Well Matt.
We are accelerating transition your cloud driving forward with increased consumption advantage and expanding our market opportunities and further we are committed to delivering to you true what honest expectations that we haven't you could expect for US can this year to deliver what we say.
Looking forward.
Getting your next quarter with another performance that will be aligned with what we've told you we're going to do so thank you again very much for joining us today.
Ladies and gentlemen, this concludes todays conference call. Thank you for participating you may now disconnect.
Oh.