Q4 2020 Teradata Corp Earnings Call
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Ladies and gentlemen, thank you for standing by and welcome to chair of Data's fourth quarter and full year 2020 earnings conference call.
At this time all participants are in a listen only mode. After the speaker's presentation will be a question answer session.
Ask a question during the session you will need to press star one on your telephone. Please be advised that today's conference is being reported.
You're requiring further assistance. Please press star zero I would like at the conference over to your Speaker today, Christopher Lee Senior Vice President of Investor Relations and corporate development. Thank you. Please go ahead.
Yes.
Good afternoon, and welcome to Teradata, 'twenty, 'twenty fourth quarter and full year 2020 earnings.
Steve Macmillan Perry Davis, President and Chief Executive Officer will lead our call today, followed by Mark Culhane, Perry Davis, Chief Financial Officer, who will discuss our financial results.
Our discussion today includes forecasts and other information that are considered forward looking statements.
While these statements reflect the current outlook they are subject to a number of risks and uncertainties that could cause actual results to differ materially.
These risk factors are described in today's earnings release Teradata is the most recent form 10-K and form 10-Q filed with the SEC and.
And in the form 10-K for the year ended December 31, 2020 that is expected to be filed with the SEC later in February.
We undertake no duty or obligation to update our forward looking statements.
On today's call, we will be discussing certain non-GAAP financial measures, which exclude such items the stock based compensation expense and other special items described in our earnings release.
We will also discuss other non-GAAP items, such as free cash flow and constant currency revenue comparisons.
A reconciliation of non-GAAP to GAAP measures is included in our earnings release, which is accessible on the Investor Relations page of our website at Investor Dot para data Dot com.
A replay of this conference call will be available later today on our website.
And now I will turn the call over to Steve.
Good afternoon, everyone and thanks for joining us today.
We pleased to lead off on call by sharing of tariff data delivered another solid quarter in Q4, culminating in a strong finish to 2020.
We exceeded the expectations in the fourth quarter on recurring revenue.
And free cash flow and we also exceeded the expectations for the full year on AOR growth EPS and free cash flow.
I'm incredibly proud of our team's performance and strong execution, particularly given the impacts of the global pandemic.
Think of we completed our transaction to the subscription model generates recurring revenue and are vigorously executing on transformation to a cloud first company.
The team drove another quarter of solid year over year and sequential growth in total of <unk>.
This was essentially true for public cloud, <unk>, which exceeded $100 million.
The growth we are seeing demonstrates that our client cash positioning is resonating with the market.
More importantly, it shows that customers are increasingly seeing the value of the fine teaching the public cloud powering I think of the analytics at scale and de levering the meaningful business returns.
Public cloud <unk>.
$106 million at the end of 2020 was of 165% increase from the prior year.
The <unk> first is overarching really important to our strategic focus.
As such we are now disclosing our public cloud <unk>.
And of our earnings release and intend to continue providing next metric going forward.
And provide some color on the order momentum I'd like to highlight a handful of our public cloud wins.
One of the world's largest airlines committed to teradata on issuer for its next generation analytics in the cloud we were chosen the head of snowflake because of our low cost price performance and our bank debt technology.
The net customer to meet its advanced analytics goals.
This win is a great demonstration of the essential role every day to satisfy our customers.
Imaging all relevant data to help our customers navigate through tumultuous pains is crucial and no one does that balance and we do.
We signed a long term agreement on a fortune 100 insurer as it modernizes its it infrastructure.
Net competitive win against sample quite of native vendors came after the customer recognized the current data provide significantly higher value and quality of significantly lower cost than others.
One of the largest nonprofit health care systems in the U S chose vantage on issuer of course for us.
Patient experience and the data analytics capabilities enabled by our data platform.
The conducted an extensive evaluation of vantage on issuer, especially it's quite of the only competitors.
Our customers selected current data for our unsurpassed wealth management capabilities platform mobility, and then ability to reliably and securely execute the company has more than 20 spectrum not only increase per day.
Current data is partnering with cap Gemini one of our global consulting partners on the net customers' migration to the cloud and its future growth opportunities.
Our North American based global E Commerce marketplace, we committed to Terry of data to modernize and analytic environment. After it tested the cloud native offerings experiencing technical challenges and extended migration delays brought the customer to the realization that it would not achieve.
The business value day expecting from its intended move to snowflake selecting vantage on AWS offered the seamless transition to the cloud and shoes. Its mission critical production of workload is maintained and all of its people to focus on creating go forward business value.
A fortune 50 healthcare company to like could carry of data on AWS to continue to run its business intelligence reporting and analytics for claims case management and provider of efficiency next to where the competitive win against multiple cloud native vendors with tariff data of the bell.
The scale and handle very high what load volume is the main differentiators for the best growing customer.
And we are helping a leading retailer and a P. J transition to the cloud with vantage on Azure. This customer chose our consumption pricing model probate, the elasticity to quickly scale and address the changing retail market environment.
These are just a few examples that illustrate how well our teams kept the focus and executed to drive success and a year of global upheaval caused by the pandemic.
Beyond the excellent efforts of our sales organization, whose proving every day, the reliability performance and value of our offerings and capabilities to customers. The companies Resolute cloud first focus and commitment came to the forefront throughout 2020 and was manifested across the entire base.
<unk>.
Some of her advances from the last few months included.
Launching of each trial program.
That's the trial program places the power of current data directly in the hands of customers to help companies quickly easily and at no cost experienced the capability of vantage in the cloud the free trial is preloaded with ready to use the examples to get customers started.
Users can also upload their own data because he has vantage advanced analytic functions enabled faster evaluation and accelerated tank of value.
As with every pair of data environment. There is no limit to the number of complexity of Queens that may be submitted.
Only vantage enables the analytics across multi cloud on prem and hybrid environments.
And to offer maximum flexibility and choice for our customers' fantasy vantages the available across the top of public cloud vendors, Google Cloud AWS and Microsoft Azure.
We also recently announced that Teradata vantage is now available in AWS Azure.
And Google Cloud marketplaces the.
These new purchasing channels over another means to make it easy for customers to parts.
And use vantage.
With Phil multi cloud support their software is consistent across all of these environments, making processes easier, reducing risk and de levering faster time to value and.
And all with the scale security availability and performance customers rely on from Teradata.
This is of tremendous benefit to our customers as many have multi cloud strategies and roadmaps.
With vantage companies can leverage all of the data all of the pain and at the scale they need to achieve break through the business results from their analytics are support of multi cloud environment combined with our new flexible pricing options.
Easy for customers to benefit from data analytics in the cloud as the unlock the value of the data asset.
Additionally, with the latest release of current data query grid.
We are making it easier for customers to connect the data sources, regardless of where the data resides in the cloud and multiple clouds are on Prem.
This is important as organizations increasingly transition to the cloud and need to be able to access and conveying information from all of the data environments at the same pain and at scale.
Okay.
Our R&D team is relentlessly working to ensure that vantage is the fastest lowest risk highest performing and most cost effective path because of the cloud.
The focus the organization has delivered more cloud capabilities in 2020 than ever before it is a driving force behind our cloud growth and will continue to accelerate as we architect of our software for the cloud.
I am confident and are accelerating quite a roadmap of <unk>.
Rapid cloud migration, Mark and the growth that will deliver our development efforts remain centered on driving the complete and compelling cloud offerings at scale and the team is bringing forth cloud native integrations at record pace.
Companies must take advantage of all of the data that is available to them to succeed and we will remain steadfast in providing the enterprise scale and flexibility they need with our cloud data warehouse and the analytic capabilities, we enable as a platform.
As I referenced last quarter, we undertook a careful review of our operations to align our costs to better support our cloud growth objectives.
We will be investing 75% of all R&D spend over $200 million in fiscal 2021, and our cloud initiatives. We are making these investments while also planning to improve operating margins and increase free cash flow.
Looking ahead as.
As we begin 2021, we anticipate significant year over year of growth and public cloud <unk>. Additionally, we expect year over year of growth in total revenue profitability and free cash flow.
Going forward on majority of our revenue will be recurring.
And we expect total revenue growth for the first time since 2018 as the shift to a subscription model is no longer a headwind for our reported results.
Mark will talk more about the asking his comments along with financial reporting changes, we anticipate making in 2021 as the result of the way I am looking at and operating the business.
We are of cloud software platform company on our future lies in bringing enterprise data warehousing and analytics software to the world's leading organizations consulting services and third party software sales don't equate to high quality recurring product revenue.
Therefore, we believe the change in Mark will describe will aid you in singing of true progress.
We have taken clear actions to prepare for growth in 2021 one.
One of the ways, we strengthened our execution during 2020 was focusing on driving awareness and demand for our cloud offerings. We have made meaningful headway and are stepping up our efforts to further focus our marketing and sales teams on driving growth in the cloud importing.
<unk>, we have refined our sales compensation program and our incentive our sales people to grow cloud filed protecting our base.
We have also simplified and aligned our marketing message to cloud first and are taking the message to the market to drive awareness and demand for Teradata vantage on public cloud within our target markets and customers.
Additionally, we received a significant industry endorsement of carrier data as the emerging strength at the leading cloud data platform as Tara data was named a leader in Gothenburg Cloud database management Magic quadrant there.
Report noted that our move to the cloud our new pricing models make our price performance more of acquiring and Furthermore, the report encourages customers to run of proof of concept to understand had competitive Teradata is price performance has.
Current data garnered the highest scores in three out of four use cases, and Gartner report on critical capabilities for cloud database management systems. Our analytical use cases, that's at valuation clearly demonstrates teradata is the ability to meet the largest and most demanding.
Customers data analytics needs from all industries.
We are continuing to add strong leadership to executive ranks I am very pleased that we named <unk> as Chief revenue Officer, Todd brings to Terry of data more than 25 years of experience in global sales marketing channel and operations at large multinational.
Technology organizations, including most recently at Apple and previously with Oracle right space and Microsoft <unk>.
Drive for results has a track record of Delevering of predictable and profitable growth and of successfully led organizations through cloud based transformation.
With an intense focus on delivering lasting value for customers toward has already hit the ground running and is deeply engaged with our go to market teams.
Before I turn the call over to Mark I would like to highlight the recognition of Terra data recently received regarding our ongoing environmental social and governance or ESG efforts.
I am pleased to share the Terra day. It was named in the Dow Jones, North American sustainability index for the 11th consecutive of linear and we have also been included in the corporate equality index of the force team.
We believe social responsibility sustainable business practices and responsible governance are good for the world and right for our business.
We'll continue to build on our commitment to sustainable corporate citizenship that leads to long term value creation for all of Terra day to stakeholders.
We look forward to share more on our corporate strategy, including ESG at an analyst day later this year.
In closing I would like to reinforce that I am incredibly proud of the progress we've made on the alright execution against our goals with the ever increasing volume of theater in the dynamically changing business environment companies need carrier dated multi cloud technology, which led the MCA.
Simultaneously across all critical dimensions.
Whether that be data volume the number of our complexity of queries response teams are managing sla's of different business needs that.
We our current data technology sales and our rapidly growing cloud with the <unk> shows that customers are recognizing that value from teradata.
With that I'll turn the call to Mark for more details on our results.
Thank you, Steve and good afternoon, everyone before I discuss our Q4 operating results I want to indicate that unless stated otherwise my comments today reflect teradata as a result on a non-GAAP basis.
Which excludes items such as the stock stock based compensation expense and.
And other special items identified in our earnings release.
Additional commentary on key metrics and segment trends can be found in the earnings discussion document on our Investor Relations webpage at Investor Dot Taro data Dot com.
I assure of Steve's view of that tier data had a strong finish to 2020 and a global environment impacted by the pandemic.
I'm pleased to report that the company delivered another quarter with better than expected recurring revenue earnings per share on free cash flow.
Effectively completing our pivot from a perpetual license model to a subscription license model.
We also exceeded our original guidance for the full year for air our growth earnings per share and pre cash flow.
And by the impact of COVID-19.
We ended the year with 1.5 dollars 87 billion in <unk>.
Which was 11% growth year over year and beat guidance of 8% error of growth given at the beginning of the year.
We delivered $86 million and incremental <unk> in the fourth quarter.
The 1.5 $87 billion of air or breaks down as follows.
$960 million represents subscription and cloud R.
As Steve noted in his introductory remarks.
To give investors better insight into our cloud business and momentum.
We are disclosing our public cloud.
For the first time.
Public cloud.
Our total of $106 million at the end of 2020.
Which was a 165% increase.
From the end of 2019.
Public cloud related <unk> is comprised of Teradata vantage running on the public cloud.
WNS.
Sure and Google Cloud.
And does not include private cloud, which continues to be included in subscription.
<unk>.
We are not including private cloud is on.
Our cloud first strategic focus is on public cloud.
The remaining subscription amount of $854 million represents on premises and private cloud subscriptions and grew 30% year over year.
The remaining balance of $627 million represents maintenance software upgrade rights and other ear are down 14% year over year and reflects our strategic move to subscription and the cloud.
Moving to recurring revenue.
Q4, we generated $383 million in recurring revenue, which was above our guidance range of 371 to 373 million and represented 9% growth year over year.
Better than expected <unk> growth.
And consistent sales execution throughout the quarter.
All of positively contributed to the increase in recurring revenue.
Moving on to consulting revenue.
Consulting revenue declined 27% year over year as expected.
As we continue to refocus our consulting business on higher margin engagements that also drive increased software consumption within our customer base.
In addition, we experienced the impact from the ongoing COVID-19 pandemic as some customers canceled or delayed certain projects as they continue to manage their discretionary spending.
Especially for on site consulting engagements.
We expect consulting revenue to start to stabilize during 2021 and expect consulting revenue to decline at a significantly lower rate than we have experienced over the last few years.
Turning to gross margin.
Gross margin came in at 59, 3% up 610 basis points of year over year.
The improvement was driven by the continued favorable revenue mix shift.
That's all and consulting revenues.
Recurring revenue and perpetual revenue gross margin.
Cost savings of about.
$6 million from the.
2020 earnings call.
In the fourth quarter and will also benefit our gross margin debt.
In 2021.
Recurring revenue gross margins was 75% up 190 basis points from the fourth quarter of 2019.
10 basis points sequentially.
The year over year increase in recurring revenue gross margin was due to cost improvements primarily in our subscription and cloud business.
As you May recall, we had the expected recurring revenue gross margin to decline sequentially in Q4 from Q3, however, the greater than expected recurring revenue dollars and our cost saving actions both drove the better than expected recurring revenue gross margin.
Consulting gross margin was eight 4% versus 14, 9% in the fourth quarter of 2019.
Consulting margins declined year over year and sequentially as revenue decreases outpaced cost reductions.
As part of our restructuring actions, we have moved to a more variable consulting cost structure, starting in 2021 to improve the future profitability of our consulting business.
And enable more consulting with third party partners.
Turning to operating expenses.
Total operating expenses were up 4% year over year. The primary driver of this increase were additional incentive plan expenses, given our strong Q4 performance.
Excluding incentive plan expenses total operating expenses decreased slightly year over year.
On our Q3 earnings call, we disclosed that the restructuring efforts, we announced were expected to result in expense reductions between $80 million to $90 million on an annualized basis.
We expected to invest a portion of these savings into chronic first and related go to market initiatives and the return the remainder to investors through increased earnings as an update the.
The actions taken resulted in approximately $80 million of total cost savings.
Of this amount of approximately $12 million benefited operating income in the fourth quarter.
We will discuss the impact on 2021, when I get to guidance shortly.
Turning to earnings per share earnings per share of <unk> 38 exceeded our guidance range of 23 to 25 provided last quarter, we cleanly beat expectations as we generated about nine.
<unk> from better than expected revenue growth and about <unk> of EPS.
On the cost actions discussed on the Q3 earnings call, partially offset by the primarily lower consulting margin and higher incentive planning fences as previously mentioned.
Turning to free cash flow, we had another solid quarter of free cash flow generation driven by higher operating margin strong cash collections and other favorable working capital timing differences.
Free cash flow in the fourth quarter was $45 million.
Which contributed to full year free cash flow of $216 million.
Well ahead of the annual free cash flow guidance of $150 million, we provided at the beginning of the year.
As a reminder, we expect it to make cash payments of approximately $75 million related to the restructuring actions that we discussed during our Q3 earnings call.
Which of approximately 50 50 million were expected in the fourth quarter.
Our current forecast for total cash usage is now approximately $65 million down $10 million from the prior estimate of the 65 million $23 million was paid in the fourth quarter. The remaining 42 of them and is expected to be paid during two.
2021, however, even after taking the restructuring cash payments into account our Q4 free cash flow was still better than we expected.
Turning to guidance.
Underpinning our 2021 outlook.
I would like to inform you of our financial reporting change.
Starting in Q1 'twenty one.
You mentioned in his introductory remarks.
To better align our financial reporting with housing.
So Steve is managing the business going forward.
We will be reclassifying managed services related.
<unk> and revenue.
<unk> of recurring revenue and into nonrecurring consulting revenue.
As these services are principally consulting delivered services.
In addition, we will be reclassifying third party software related <unk> and revenue out of recurring revenue and into other non recurring revenue.
Selling and renewing third party software will not be of focus for us, but rather will be driven directly to the third party software partner.
The reporting change will result in no change to previously reported total revenue or.
Our total gross profit or gross margin percentage.
We are making this change to better reflect and disclose the important revenue and margin metrics that Stephen our company are focused on driving moving forward.
See the earnings discussion document on the or on the Investor Relations webpage for more information regarding the revenue and gross margin component impacts of.
This change.
I would like to provide you the reclassified amounts of <unk> at December 31, 2020 by category.
<unk> these changes.
After the reclassifying managed services and third party.
Software.
Our total <unk> was 142 5 billion at the end of 2020, which still grew over 11% year over year.
And of consisted of the following $917 million of subscription and cloud related <unk>.
Our.
Which increased 38% from the end of the prior year with public cloud <unk> of $106 million of this total.
And $508 million of maintenance and software upgrade rights related <unk>, which decreased 17% as.
As expected due to our shift to a subscription model.
Second.
We look to continue our growth in the cloud as we accelerate our product roadmap focused on go to market to grow cloud, while protecting our base.
Drive awareness and demand for our platform amidst the ongoing pandemic.
Given our cloud momentum and the purchasing behavior of our high end enterprise customer base.
As more of them move to vantage in the cloud, we expect that we will contract differently with our customer base versus what we have historically done on premises.
We anticipate that some or many of our customers may choose to purchase or used committed volumes of cloud instances of <unk>.
Correct Lee from the public cloud providers rather than through us.
This could create variability.
And our total IRR.
And recurring revenue in subsequent quarters.
As early the <unk>.
Our and recurring revenue associated with our <unk> software will flow through our P&L.
Rather than debt plus the cloud infrastructure.
However, we are happy to take that trade off of.
Of that recurring revenue has a higher gross margin per tier of data and it is easier for our customers to elastically consume teradata in the public cloud versus on premises.
Additionally, as more customers on workloads move to the cloud it is likely more of our business will be consumption based and will not necessarily be recognized ratably.
Creating more variability in the recurring revenue we reported by quarter.
Furthermore, many of our customers will operate vantage on premises.
As well as in the cloud and thus we expect that May change our on premises contracts with customers, which could result in on premises revenue recognized other than ratably.
Which also may create more variability in the recurring revenue we report by quarter.
As a result.
We anticipate it becoming more difficult the.
<unk> forecast on a recurring revenue, especially on a quarterly basis.
Therefore, we will not be providing guidance for recurring revenue by quarter.
With that said, our 2021 annual guidance, which considers the Reclassifications I recently mentioned is as follows.
Public cloud.
<unk> is expected to grow at least 100% year over year.
Total <unk> is anticipated to grow in the mid to high single digit percentage range year over year.
We expect total recurring revenue to grow in the mid to high single digit percentage range year over year.
We expect total revenue growth for the first time since 2018.
We anticipate total revenue to grow in the low single digit percentage range year over year.
Non-GAAP earnings per share are expected to be in the range of $1 50 to $1 58.
Which would be about 18% year over year of growth at the midpoint.
We expect free cash flow of at least $250 million.
Now I'd like to provide some color on 2021 to help you understand our business, which again considers the reclassification I recently mentioned.
We expect public clouds are to become a more meaningful part of total AAR.
Within the total revenue guidance, we provided we anticipate mid single digit percentage reduction in consulting revenue year over year, and a continued reduction of perpetual and other revenue by at least half and 2021 versus 2020.
We expect our total gross margin rate in 2021 to be approximately the same as in 2020, given our significant movement to the cloud.
And we also expect recurring revenue gross margins to be in the low 70% range.
Perpetual and other gross margin is expected to be in the mid 20% range and consulting gross margin to be in the low teens percentage range.
We expect to improve operating margins by 100 to 150 basis points as we continued to drive efficiencies in our operating model to drive profitable growth, while increasing our investment in cloud sales and R&D capabilities.
As previously discussed the majority of the $80 million of expected annual run rate cost savings are being reinvested back into R&D and go to market cloud initiatives. However, on a net basis, we anticipate five to 10 cents on benefit to 2021 EPS lift.
On top of the benefit recognized in EPS for the fourth quarter of 2020.
Non-GAAP earnings per share includes the cost savings I just mentioned.
The free cash flow guide I mentioned reflection is reduced by the $42 million of restructuring cash payments previously discussed we anticipate approximately $27 million of the $42 million being paid during the first quarter.
We expect our non-GAAP effective tax rate to be approximately 23% for.
For the full year and assume a 112 million fully diluted shares outstanding.
We plan to be opportunistic about share buybacks during 2021.
While we are focused on executing against our full year guidance.
We wanted to provide you with a few markers to assist you with your modeling of Q1, 2021, which again consider the Reclassifications I previously mentioned.
Public cloud <unk> is expected to grow 165% or more from the $44 million in Q1, 'twenty public cloud <unk>.
Or about $10 million to $15 million increase sequentially from the end of 2020.
Total revenue in the first quarter is expected to be higher year over year, but lower sequentially, which is consistent with the historical seasonal pattern. However, we anticipate the decline rate for total revenue from Q4, <unk> to Q1, 'twenty one to be less than it was.
From prior years.
While we expect consulting revenue to stabilize during the course of 2021, we expect approximately of 15% decline year over year.
And we expect non-GAAP EPS in the range of 38 to 40.
With the 112 million fully diluted shares outstanding.
And with that operator, we are ready to take questions.
As a reminder to ask a question you will need to press star one on your telephone.
To withdraw your question press, the pound or cash key please standby, while we compile the Q&A roster.
Your first question comes from Lindsay Mohan from Bank of America.
Yes.
Hi, yes, thank you and thanks for breaking of the public cloud and congrats on crossing the $100 million Mark here.
Can you talk about your public cloud IRR guidance of at least 100% growth.
Youre clearly now available across a much broader set of platforms.
Just wondering and that at least 100% whats your assumption around the mix of revenue that's going to be just software Bob through the public cloud marketplaces versus.
The revenue were customers of Bang for infrastructure from you as well.
Yeah, Hey, one day. Thanks, yes, so clearly we're seeing lots of momentum in our public cloud interest of vantage on the cloud.
The time will tell how much comes at the jet software only versus are they going to procure the infrastructure through us clearly, we don't think our biggest customers.
To do that.
Given what we know today. So that's why we are saying at least of 100% we would hope that that would be higher but the net and want to see how the year plays out.
Of that moves to determine whether is it all coming to us or just the software portion only.
Okay, Thanks, Hey, John.
Yes, Hey, one day.
Steve Thanks for the question.
Also say on.
The customers buying the infrastructure true realized.
We see that as a key differentiator of being able to operate at Teradata vantage and inside the customers.
And bottoming.
Something that differentiates us and the interest rates.
Out of the cloud business that we have done today.
To date and a significant portion of our $106 million, we actually provide the total site from infrastructure through the application stack. So.
We're offering a full range of deployment options on the quiet, but we think is really differentiating.
No that's great. Thanks, Thanks for the clarification.
If I could just ask on on the sales comp changes that you've mentioned to incentivize more growth on the cloud of any more color you can share there and what are you seeing at your public cloud customers in terms of.
Pricing choices as it going more towards blended pricing on consumption based pricing. Thank you.
Yeah, one thing I'll take that as well at the.
Great question so.
<unk> designed our compensation schemes for the next year, so that our sales teams.
Get accelerated compensation when the sale.
On the results the boats and the customer account and the existing.
Customer and we get a multiplier on that.
Of that growth includes growth on the cloud.
So we can think of the compensation scheme of but we believe protects both the base and encourage use of the sales team to execute.
Growth.
And the cloud the other thing I would say is we.
We're encouraging our sales teams.
Prospect, we believe that as you pointed out our consumption based pricing model enables us to go after new customers and a very effective way so.
We will not just focus in on our existing base, we're going on I think we prospect on our new sales leader towards cone is looking at deploying out of Hunter based sales model to go after new logos. So we're incredibly excited about that.
We see the blended pricing model has been very popular in terms of when our customers look at.
Look it.
How did the wanted to operate and the quiet because it gave some of it.
It gives them some benefits to nationally if the nodes of the ft know theyre going to execute on a certain volume of transactions and the wanted to be able to spike.
According to different workloads.
Blended pricing model is really exciting for us.
For customers that are just starting with us that consumption model is really exciting so I think we'll see.
Both models being the plenty successfully uptake from the from the customer base.
Thanks, Thanks, a lot from the congrats on the strong execution.
Thanks Randy.
Your next question comes from Tyler Radke from Citi.
Hey, Thanks, a lot of potential.
Taking my question Steve.
Steve you talked a lot about.
Several kind of Fortune 100, Fortune 500 public cloud wins.
I'd say in the past this hasn't been something that you've seen.
On a ton.
Of in terms of the wins and obviously the strong growth in cloud <unk> I guess from a product or execution perspective is there anything that you could identify that you think has kind of changed your momentum there and then a follow up for.
For you or for Mark is just in these cloud wins, maybe help us understand how much uplift you are seeing.
From customers from a from a dollar basis as they move to the cloud.
They're either expanding capacity or you just see of natural uplift from taking on that infrastructure. Thank you.
Yes, Thanks, Tyler I'll take the first part of the question then I'll, let mark talk a little bit about the expansion that we see equinox existing customers do take quite I think Tim the excitement around our cloud products of really accelerated as we went through the year.
We've been through the year, we shifted our research and development investment.
To be predominantly on the client.
Just roughly.
The 30% of our investment prior to your changes in 2020 went to cloud the 70% went to on Prem we swapped out around 70% of R&D investment is now dedicated to the quite of budget.
About $200 million of significant investment in building up our credit capabilities.
And.
We've been able to do is really bad.
Our integrations across all of the cloud platforms AWS issuer on of 19, Google paid also the.
<unk> now has to be able to extract value from data and the module.
And the ecosystem, so introducing native object store and being able to use native object stores on the public cloud environments is really attractive to our customers.
And as we look forward only 2021.
More of <unk>.
No one just now to be great at the lever in that performance and scale on the acquired and 2021, we're going to get even better we're adding third party application ecosystem integration in the cloud we've got more cloud native integrations with third party applications in the cloud you can bring you will not on though.
We are integrating with cloud native services. This is a complete modernization of Teradata vantage and the quiet environment, and we think of our customers of seeing that in the.
The one to use that technology to get the best banking results as we possibly can so loss of investment there Mark do you want to talk a little bit about expansion, yes, sure. So to date, it's largely been our existing customers moving some or all of what they are running with us on premises to the cloud and the <unk>.
<unk> can vary it depends on.
Procure on the infrastructure for us or not because of they're not you could see.
Minimum or some less air are moving importantly for us.
We've experienced as everyone for the growth we experienced across 2020.
The customers who are already in the cloud with us they grew over 50% with us during 2020 and those that move.
Something of from on premises to the cloud with us while it may have been neutral or up slightly when they moved or potentially slightly down we saw that once they move of the cloud we saw almost approximately a 40% growth.
And from where they started with us on the cloud, which is obviously very important for us.
Which is why make that made the comment on our prepared remarks that if we see customers that want to.
Procure the incidence of the software to date, we haven't seen it but our bigger customers.
May.
Go that direction. It may seem like an initial decline in <unk>, but once we have them. There we see the growth that that can occur and as I mentioned thats, a tradeoff with gladly make obviously the margin profile of the software only coming to the cloud versus the income.
During the infrastructure cost is better as well and so those would be tradeoffs.
We would gladly make because we all know.
We want our customer base to move to the cloud with us.
The advantage of income the cloud. So we're excited about the trends we've seen across 2020 and the growth we've seen there and we're also very.
Excited about what we've seen in the pipeline and the momentum building.
Our existing customer base.
<unk>.
In the cloud.
The perception of us and the marketplace is now starting to rapidly change.
Net front.
Great. Thanks, so much.
As a reminder to ask a question press star one and on.
Order to allow everyone time for questions. We ask that you. Please limit your questions to one.
The next question comes from Katy Huberty from Morgan Stanley.
Thank you good afternoon, and congrats on a really strong quarter I wanted to ask Mark if you could talk a little bit about the.
The margins in your cloud revenue today versus subscription Mark.
<unk> overall and then when do you expect the two to converge and then I have a follow up.
Sure well clearly Katy as we've mentioned the margins we experienced in the cloud are lower than what we the.
We experienced on Prem because we're at $106 million.
In the cloud today, we're not at scale.
So we would expect over time that we view, 70% as sort of the the bench Mark you've got a hit and exceed in the public cloud.
We're going on.
The revenue threshold to get US there is clearly beyond the $106 million.
Is it three $300 million of 500 main time will tell.
But we clearly expect those to converge.
On that front for sure.
Okay. That's great and then just also Mark just looking at your earnings guidance 38 cents in the March quarter, and then if I just divide your annual annual guidance by four that would also suggest.
A similar sort of 38 39 run rate through the year should we expect that now that you've transitioned to subscription that EPS is going to be quite stable and we won't see historical seasonality or are you ramping investments through 2021, and Thats why youre not seeing EPS expansion of the <unk>.
Mark space.
Yes.
As you probably know.
Experienced seasonality historically I think we still experienced some of that here.
In 2021 as well despite the completion of perpetual to subscription because now we are in the next phase of that on Prem subscription moving to cloud and does that largely go consumption based or not because of the gold consumption based we recognize revenue based on whats consumed not a ratable spread.
<unk> of what they signed up for.
Do you do that each and every month, which could create some variability in terms of recurring revenue on what's happening and then we will see what happens with the portion of the of our customers that have done something with the cloud but.
Maintain something with us.
On Prem that May change the way contractually that falls to our revenue, which could create some potential.
The seasonality as well so I don't expect it to be sort of stable 38 range across the quarters.
Throughout the sequential part of the year, there is still going to be some seasonality here.
Okay. Thank you.
Your next question comes from Derrick Wood from Cowen.
Yeah, Great. This is actually in the Goldman on for Derik, Thanks for taking our questions.
For my first one can you guys, maybe talk about customers, who have shifted to the consumption based pricing model and maybe touch on how the expansion motions are flying out there.
Hey, Nick I'll talk about it at a high level and then.
Mark can you comment a little bit more of what we've seen from customers who have moved from an on Prem motion too.
As the subscription and the acquired using consumption.
It's actually debt.
The overall level of IRR and.
And many of those customers has increased and thats the as the new workloads too.
The quiet.
So obviously when youre walking on an on Prem environment, you have a constraint.
I can screen physical infrastructure of footprint and when we move customers to the cloud they kind of unleashes the ability to expand our use cases and deployment and interest anything.
Our response to Covid and when we are helping some of our customers respond to Covid, we gave them some capacity on demand and to the.
Infrastructure.
And the immediately use that capacity on demand, we're seeing a very similar catch on in Tianjin of ads our customers' needs.
From on Prem to the cloud they can take advantage of those elastic environments and it's getting the great opportunity to talk to them on some of the more advanced analytic use cases that you wanted to deploy and incremental loans since the complete on current data so as debt.
Good evening.
Great and then can you guys just give us a sense of how the installed base has trended just in terms of willingness to buy or expand mainly as it pertains to the macro environment.
How much improvement have you guys seen theyre sort of as the year progressed and then looking ahead are you starting to see more projects.
From distressed verticals come back online or is it a bit too early to tell there.
So we.
We are really really happy with our execution in Q3 and Q4 from.
On the IRR growth perspective, and then I'll refer you to one of the customer examples of the game and my prepared remarks, which was one of the airlines connecting to Terry data in the acquired net clearly of distress.
Distressed debt industry.
But what we're seeing is that customers who are in an industry, which has challenges.
Do you have the basin to utilize data to get better business results and business outcomes. They can use that data to optimize their operations at a rapid pace to ensure that they can adequately respond to the challenges that are on.
On the front of them. So I gave the example, one example in the airline another couple of examples around health care, where it is.
Such a critical critically important for these organizations to be able to respond to the challenges that are in front of the so we're starting we're seeing even the industry that you make use of the distressed.
Using the power of data can really respond to the environmental challenges that they have great question, though Derek thanks.
Got it thank you.
Your next question comes from pre guidance from Barclays.
Hey, everyone congrats on the great quarter.
If I look through the math for how there are in total they are our guidance.
Just on those.
All of the new <unk>.
Of that you're adding is coming from the cloud.
On the base case assumption that there will be no on premise expansions.
During this year.
Great. Thanks, yet no we will see our on Prem.
Business expand.
But clearly we're seeing movement from on premise of the cloud in a major way so.
We would expect.
The.
The cloud that we said is going to grow at least the 100%.
At the same time, we're still going to have customers that are going to be on prem that havent done things to the cloud on we expect.
From some of that some.
Some of as well overall subscription of our on Prem subscription, we would expect would be lower by the end of of.
This year compared.
Potentially comparative in total might.
It might be but right now we're expecting.
Subscription to grow but not at the same rate that we have seen it grow in the past because it's moving to the cloud so the VAT.
The best.
The majority of the overall subscription growth.
As commented on the call, but at the end of the day total <unk> growing on Prem subscription.
<unk> is growing but the growth is being driven by what's going on in the cloud.
Got it ex migrations on premises Gram range.
Yes.
As far as where the cloud product is right now can you give us an idea of how much of the.
Of the product itself.
Native versus.
Just the existing Teradata product that's been posted on the cloud.
Hey, Cory I'll take that one so we're really happy with the advances that we've made from our.
From a product.
The day.
We have.
Completely redesigned stay on the elements of the <unk>.
Product and we continue to transform the underpinnings of the product what on.
The answer is that.
We've really improved our cloud native integrations on AWS, we integrate with the 17 of they are quite a bit of services. We've got the same level of integration with AWS and Google horsepower to the services that clearly makes us the equity partner for the cloud service providers.
The thing I want to point out, though as some of our key differentiation and the reason that we are winning in the cloud because of the technology the carrier data technology that.
Customers are used to the level of performance of the level of scalability.
And said the Levered and the quite successfully.
Cross all of the dimension of that customers want to stress the.
On enterprise data warehouse and analytics capability, either the volume of data.
The current <unk> the complexity of those queries.
The scale of ability the <unk>.
All of those capabilities that our customers are used to from the Teradata platform, we deliver insight the climate environment I mentioned, the little bit earlier.
Ill turn the range of investment.
To hover around.
Around $200 million of investment in terms of developed on a cloud product is just going to get better and better over time.
Quickly.
We thought of our R&D team so that we are.
Moving to much more regular and frequent releases of quite of based technologies and capability. So it's a great transformation story, it's great to see that technology coming on line for our customers.
On our last question comes from seeing train from Bernstein Research. Please go ahead.
Hi, Thanks for fitting me in I wanted to ask about the the eto processing migration with customers moving to the newer cloud the subscription offerings one of the pieces of feedback we heard from the early adopters of customers of couple of years ago that move from on premise Itw's two subscription or.
It started in the public cloud or managed cloud was that the process of migration and rebuilding the ETS pipelines, what's more labor intensive and clunky than they had expected. So I'm kind of curious what you've done in the last year or two to simplify maybe automate the process of data migration and rebuilding the ECL for data in growth.
And then separately are actually possibly related can you talk about what youre doing to capture the growing opportunity in streaming analytics for data and motion, whether it's integrating with something like data flow on Google or Apache beam et cetera. Thank you.
Yeah.
Thanks Shane.
I'll take a stab at those so yes, I think Tim.
Integration with quite May of services has really helped some of that.
Migration effort as well as some of the tools and techniques that we've.
We've developed to help the migration.
As we look to compare.
Moving on.
On the existing customer on current data to the cloud we have been able to demonstrate to those customers that Kevin on knowledge of their environments given the debt.
The way that we have available that we can do it much more effectively.
Fortunately.
Really reducing the time to value of running.
The data in the cloud and getting the best in the value that they want from their data delivered to them as quickly as possible one of the wins I referred to actually in our prepared remarks was the customer that was experiencing that challenge in terms of that data migration and they came back and a pair of data.
Instead of them moving to cloud native products.
We want to meet current data in the quiet, we see that as the much easier on migration and we know that you and your consulting team can help us at the level of that so.
I think we.
We've got a much better value proposition in terms of that the integration with the cloud Native services allows us to integrate with those modern.
<unk> capabilities on that also applies to streaming.
We're seeing a lot more interest in terms of real time data analytics, especially the <unk> and Iot use cases, and our streaming capabilities.
We have the streaming capabilities on the product just now, but we're also investing to develop more streaming capabilities as we go through 2021.
I would say an easy the streaming opportunity of being something you will focus on the organic development for it sounds like maybe more so than partnering with the open source of third party vendors is that the right way to think about it.
Look I think what we're thinking about as we think of it in Teradata vantage, we're really thinking about it as a platform.
And so we are building some.
Capabilities and the products to help of the core streaming, but we're also integrating with the the cloud service providers first party services around the screening to be able to address that so.
I think on leveraging those cloud native capabilities is going to be incredibly important and something our customers really want from us that part of the the one.
The focus on that.
As our platform on the we just excel at and they can use some of the first party services from the cloud providers to do some of the streaming type activity. So.
It's a nice blend of activity.
That's great to hear it sounds like a solid strategy and the congrats on a really nice quarter. It seems like getting the right capital for the ship is getting it back on track sort of forgot.
Thank you Zane thanks very much.
No.
I'd like to close out the call today I'd like to thank you all for joining us and thank you for the questions on income.
Credibly proud of our progress and I'm really confident in the future. Our continued solid results, particularly in these challenging the cadence are a testimony to the hard work of everybody at 10 of the data and I, just really want to thank and congratulate the team on a great Q4, great 2020, and looking forward to a great 2021.
We remain staunchly focused on our cloud transformation and ensuring that we execute and deliver the best multi cloud data platform to gain customers and gaining the greatest advantage from the data assets. Thank you very much.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
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