Q1 2021 Teradata Corp Earnings Call
Okay.
[music].
The risks and uncertainties that could cause actual results to differ materially.
These risk factors are described in today's earnings release and in our SEC filings, including our most recent 10-K and in the form 10-Q for the quarter ended March 31, 2021 that is expected to be filed with the SEC tomorrow.
These forward looking statements are made as of today.
And 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 as 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 Teradata 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.
Karen data is off to a very good start in fiscal 2020. One we had solid growth in revenue and free cash flow and we exceeded our quarterly outlook on public cloud <unk> growth and both GAAP and non-GAAP EPS.
You all saw that we issued a release on April 20 prospect pre announcing our first quarter 2021 results at our quarterly EPS performance was higher than the day issued during our fourth quarter 2020 earnings call.
We saw significantly higher EPS, resulting from strong performance in revenue and gross margin as well as continued solid expense discipline.
With our customer base, among the world's largest enterprises and with large transactions. We plan have non linear quarters, which is why we encourage you to focus on our full year outlook and results rather than quarterly.
During these remarks, Mark will explain in more detail now onto the quarter.
Candidate at grew in all three geographic regions growth was driven by large cloud and subscription deals from customers, making meaningful commitments to daily data, adding to our expanding their workloads on vantage, we also executed higher margin consulting and.
In our small, but growing contribution from new customers and partners.
Our focus on profitable growth is as strong as ever and we generated more profit dollars both year over year and sequentially. We are resolute and dedicated to keep that momentum going and are building upon our solid fundamentals to energize growth.
In Q1, we continued to advance our cloud transformation tightening aperture on this strategy and growing client momentum with customers prospects and partners by reinforcing our cultural ethos of inclusion and accountability, We can fund our market strength and differentiation for Karen data vantage.
Our connected multi cloud data platform for enterprise analytics.
Karen data holds a significant position in a large important and growing market as.
As enterprises continue their digital transformation opportunity inquired is significant and we are moving with speed and purpose to accelerate our possession.
Our data capabilities and delivering outcomes across multi cloud and hybrid environments, providing flexibility and lowering risk for the world's leading companies as being recognized with customers and the industry.
As our connected data platforms vantage brings an integrated set of capabilities with open extensibility, enabling partnerships with cloud service providers systems integrators and independent software vendors.
<unk> is an enterprise analytics with unparalleled scale to cost effectively address business challenges with governance and security for the largest companies in the world.
And our technology differentiation supports these large enterprises and a complex mix, what loans containing strategic and operational traditional and advanced analytics as we help customers drive business outcomes.
Our Q1 results demonstrate that our strategy is the right one and it is resonating with current and prospective customers.
With 176% year over year growth in public cloud <unk> during the first quarter customer engagement and acceptance continues to grow and become more evident customers are recognizing that our vantage product platform is a great fit for their needs under leveraged business value from enterprise analytics and today.
Multi cloud world.
Vantage offers the deployment flexibility they need vantage software is consistent across all environments, where their multi cloud public cloud or on Prem supporting fast easy and low risk migrations from the crowd.
Our flexible pricing options are also strongly resonating with customers and could you just two quarters ago customers like having choice in selecting our more predictable blended pricing.
Our usage based pay as you go auction day.
Unmatched power and scale in our vantage platform.
Combined with deployment flexibility and the pricing options. We offer are all contributing to our public cloud <unk> growth.
I just walked through a representative sample of our vantage quite a ways.
Team is running client business in all regions and with all of the leading cloud service providers, a tangible demonstration of the strength from our strategy and multi cloud data platform.
Our worldwide clothing retailer is migrating its on prem environment to vantage on azure or a customer utilizes vantage for sales and inventory analytics and reporting.
The move to vantage on Azure allows for incremental and flexible growth needed to support more users and additional customer data driving enhanced and face into buying behavior that will result in more targeted offers.
Today, the blended pricing model enabled this customer to cost effectively move away from the campaigns of on Prem architecture and easily scale compute and storage is needed.
This customer also consider snowflake and ensure synapse analytics, but ultimately chose to migrate with payments data and take advantage of the capabilities and vantage as a service, including support for native object store, New languages, like Python and R. New tools like Jupiter and our studio and advanced analytics.
In machine learning and graph engines as well.
So when you think then the leading audio entertainment company in North America with more than 150 million less knows as migrating to vantage on AWS.
Modernizing data and analytics ecosystem Harrington.
X M is connected to keep plenty of innovation using technology to understand listeners and drive more personalized communications.
Vantage on AWS with sales of mission critical foundational component to the customer's hybrid best of breed analytics ecosystem supporting increasing users.
More sophisticated analytics and an ever growing amount of data PK.
<unk> decision to migrate to the card is the ability advantage to utilize low cost data storage offered with native object store service.
Is there anything you can say that other cloud native solutions, but determined that once their multi cloud environment and carrier data offer the flexibility and support to deploy across multiple public cloud platforms.
And American based global Health services company is migrating to vantage on AWS, our analytics and data science Watson with Accenture Teradata, one next deal over competition from Snowflake and Amazon redshift.
Vantage on AWS environment will serve as the foundation for the customer to create a data super spec that will enable innovation to improve patient health and lower health care costs to drive <unk> growth.
One of Europe's leading mail and package delivery companies and migrating as on Prem environment to vantage on Google cloud.
Service is a platform for critical analytic use cases that support the company's strategic initiatives to drive an increased and its domestic parcel business, we partnered with Accenture and executed a successful proof of concept against COVID-19 native offerings.
Our teams were able to demonstrate to the customer the flexibility and scalability of vantage on Google cloud.
One of the world's largest auto manufacturers headquartered in Asia Pacific has a strategic planning to enable data analytics at scale.
Global manufacturer has added to his vantage platform on AWS to accommodate the increased volume of Iot data and additional premiums coming from business users.
And sales from connected car data will drive product innovation and operational improvements in research and development.
With this expansion the environment has become one of our largest cloud customers and a P. J.
Of 20 million total queries per day to support 80 business applications critical to running its operations.
The customer needed to scale and complex workload management that we uniquely provide support as high growth.
And our go to market transformation, we've added value capable and experienced leaders to augment our private force sales momentum and drive consistent value based customer success is senior level appointments include sales leaders in both the EMEA and Americas regions worldwide TTM strategy in opera.
<unk> had a new global leader of alliances.
Each spring and a great deal of credit experience to rapidly moving forward.
We're also going wide and deep and adding client sales experience to a scaling to use our total TTM head count our selling capacity is growing sequentially.
We're seeing our cloud pipeline up a very strong double digit percentage in our core key verticals as we have been addressing perceptions, increasing prospecting and reinforcing our strong customer relationships based on delivering lasting value.
<unk> leadership has also captured the attention on tuning our consulting organization to contribute very specifically to our efforts in increasing cloud <unk>.
We are building partnerships that will expand our reach and our TTM efforts and all regions were growing collaboration with cloud service providers and are creating joint go to market initiatives, we are seeing increasing momentum with global systems integrator Gator.
<unk> customers in their digital transformation journeys and helping them migrate teradata on prem environments to teradata and required and in emerging markets such as in <unk>. We are increasingly working with distributors to help us scale more rapidly.
In the quarter, we furthered our open partnering approach and announced alliance as a core industry verticals that have needs for cloud based data analytics.
Mentioned a couple of them.
We jointly announced new offerings with GE aviation that we believe will help airlines improved passenger experience and revenue growth. This partnership illustrates how integrated multiple data types helps organizations enable greater analytics ability.
We recently announced a partnership with accurate AI together, we will deploy the latest AI innovations to help retailers and consumer packaged goods companies optimize decision, making for demand planning assortment allocation and pricing.
We also joined the opened 95 free platform, where we will be working with other leading manufacturers to drive innovation and industrial Iot and manufacturing and automotive industry four <unk> solutions through cloud based data analytics.
Along with stronger partnerships are technology innovation engine is going strong.
Larger airline modernize the data architecture by leveraging object stores as it journey from the cloud with vantage is native object store feature and accelerate the business insights by seamlessly joining data between the banking quite a data warehouse and semi structured data on object stores on demand.
Along with AWS, Google quiet and assure.
Verified compatibility with seven private acquired S. III compatible object storage technologies.
Our support for cloud native integrations with fathered as we enable our customers to securely collaborate with their consumers and partners sharing and leveraging data across organizations to augment their analytics with vantage users Tonight published day, two and such great data from cloud native.
Data marketplaces, like AWS data exchange and Azure data share.
Demonstrating the strength of our technology garnered industry recognition in the quarter Karen data was again named a leader there.
Forrester named as a market leader in cloud data warehouse.
And this ranking we are solidly positioned as a leader along with three major cloud service provider platforms. That's endorsement validates the para data as the top choice for those that need a multi cloud data warehouse platform for their enterprise analytics.
The strength of our company and our people.
Bell that continuously strong and fiber organization, our focus on diversity equity and inclusion our day.
<unk> is moving into all that we do.
We know that we are a stronger organization when we embraced eni as it enables transparency belonging and opportunity all contributing to business practices that drive consistent profitable growth.
Last year, we connected to a met our goal of ensuring a diverse slate of candidates for all director and above positions and we remain committed to working to eliminate unconscious bias.
Our hiring processes.
Within our senior leadership ranks in the last two quarters, 60% of our appointments were diverse including 40% female day.
And I mean ongoing prioritized focus for us and we are dedicated to actively and systemically, ensuring we are driving a culture that values inclusion and supports diversity and equity of all forms.
Also in the environmental social and governance Arena. We are pleased to again be named one of the 2021 world's most ethical companies by HCR <unk>.
Operating with integrity and our core has always been our ethos and we remain committed to doing business. The right way, we were honored to be recognized for the 12th consecutive year with best meaningful designation.
Gregg our transformation, we are re imagining teradata into a more modern and relevant technology company.
As we grow we are designing a more modern future of work environment with greater flexibility for our people and greater agility for the company with more hybrid work arrangements and as the World looks ahead to emerge from the Vale of the COVID-19 pandemic, we're beginning a carefully phased reopening of our.
Offices worldwide.
Unsurprisingly, we're using data and analytics to day does to return an allocation only from safe for our employees in line with all local government and health advice and every saturation, we put our employees' health and well being first.
Teams demonstrated great resilience throughout the past year collaborating across changing work environments and remaining accountable to our customers and to each other.
Best resilience set us up to thrive despite the challenges of the pandemic.
A year ago Tomorrow, I was honored to be named as Teradata as next CEO and my passion for this company and we do have grown immensely.
Very proud to work with this talented team of professionals, who are connected to the power of data to transform how businesses work and people live and are obsessed with the success of our customers.
Even more proud of vesting is unequivocal pivot to the cloud our results customer validation and industry recognition are testimony to the focus and dedication to drive lasting business value for our customers and shareholders.
As I hand, the call to Mark to discuss our financial performance in more detail. Our Q1 results from another step in our strategy to win in the cloud and achieve annual profitable growth.
Our fiscal 2021 annual ALR and revenue outlook and range of fiscal 2021 outlook for EPS and free cash flow.
Over to you Mark.
Thank you, Steve and good afternoon, everyone.
Before I discuss our Q1 operating results I want to indicate that unless stated otherwise my comments today reflect para data as a result on a non-GAAP basis.
Which excludes items such as stock based compensation expense 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 that Taro data Dot com.
I also want to remind everyone of the financial reporting change that we made for 2021 and announced on our prior earnings call. Since it appears that some street models use numbers not reflective of the reporting change.
To reiterate beginning in fiscal 2021, we reclassified managed services related earn revenue from recurring revenue and into nonrecurring consulting revenue.
And we reclassified third party software related <unk> and revenue.
Out of recurring revenue and into nonrecurring perpetual revenue.
<unk> the year over year comparisons that I will cite in my comments are based on the reclassified amounts for the first quarter of 2020.
And the full year of 2021 outlook that I provided on our prior earnings call.
Based on a comparison to the reclassified amounts for the full year 2020.
For more information and those reclassified numbers. Please refer to our earnings discussion document for the fourth quarter of fiscal 2020 on our Investor Relations page at Investor Day, Taro data Dot com.
Let's move on to the results for the quarter.
We are off to a very solid start to the fiscal year as teradata exceeded the quarterly outlook, we provided for public cloud <unk> as well as GAAP EPS and non-GAAP EPS.
The company exceeded the outlook, we provided due to solid execution by our go to market team.
Strong product market fit for our customers.
Our teams continued focus on profitable growth and a strong focus on cash flow.
We pre announced our preliminary results two weeks ago. Once it became evident that we would materially exceed our first quarter expectations and GAAP EPS and non-GAAP EPS.
Steve noted we released this information during our normal quiet period, and we could only provide limited context as we had not completed our full analysis of the results at that time.
I will go through the drivers of the quarter, but before I do I want to remind everyone that terra data engages in large transactions with large enterprise customers.
We provided an annual outlook for fiscal 2021 ear on revenue.
Versus quarterly forecast.
Those are the reasons explained during our Q4 2020 earnings call that can create more variability in our quarterly results and made quarterly forecast more difficult.
Let's start with <unk>.
Public cloud <unk> grew sequentially by over $18 million, ending the quarter at $124 million as reported or 176% growth year over year.
We exceeded our outlook of 165% growth year over year due to continued natural momentum of our vantage multi cloud platform.
We continue to see customer demand for vantage across all three leading public clouds.
While to date, we have mostly been focused on our existing customers. We are encouraged by the potential new customer activity, we see in the cloud pipeline as we move forward into the future with our new efforts and customer acquisition.
Importantly, we are also very pleased to see continued good organic growth by our annual cloud customer cohorts.
Especially from those customers, who move to the cloud with Teradata during the first quarter.
Where we saw strong double digit growth during the quarter.
Expansion rates continue to be very healthy.
We are very pleased by the value our customers see for vantage in the cloud, which gives us confidence to reaffirm our outlook for fiscal 2021 public cloud.
Our year over year growth to be at least 100%.
Total <unk> increased to one 404 billion at March 31 2021.
From one to $5 4 billion at March 31, 2020.
Total <unk> grew 12% year over year as reported.
On a sequential basis total <unk> was down 1% as reported.
Flat in constant currency, given very strong FX headwinds consistent with prior years, our first quarter <unk> sequentially declined as it is our seasonal low point for <unk>.
In the fourth quarter is our seasonal high for a R. S.
As such we continue to see and expect growth in subscription and public cloud era. During 2021, and we reaffirm our full year 2021 total air our year over year growth of mid to high single digit percentage.
Turning to revenue.
We had strong performance in all revenue categories, which increased total revenue to $491 million as reported.
From $434 million, an increase of 13% year over year and 10% in constant currency. As a reminder, this is our first quarter reporting with our new revenue classifications, which has no impact on total revenues, but has the net impact of moving certain revenues out of.
Revenues into perpetual and consulting revenues.
I refer you to this quarter's supplemental financial schedules.
Our prior quarter's earnings discussion back in it from a proper comparisons to prior reporting periods on the Investor Relations website at Investor that Taro data at that time.
Recurring revenue as reported increased to $372 million.
From $311 million or.
A 20% increase year over year, and a 17% increase in constant currency.
There were two key drivers for this increase.
Sure.
We had a very strong Q4 2020 our growth.
Both public cloud and subscription which contributed to the foundation for the strong year over year increase in recurring revenue.
And second.
As I mentioned in our fourth quarter earnings call, we expected that given our high end enterprise customer base.
We may see many of our existing customers operate vanni John premises.
As well as in the cloud.
And that May change the revenue recognition for some existing on premises contracts to a different.
Arent ratable recognition period other than quarterly.
We experienced a few significant transactions.
Principally driven by two significant renewals.
One from a major health services company and another from a major telco company or these customers made substantial commitments to terra data and extended and expanded their arrangements with us not only on premises, but also added the ability to use vantage in the cloud.
Ultimately the terms of these arrangements resulted in components of our on premise software recurring revenue being recognized on a recurring annual basis, rather than on a recurring quarterly basis under U S. Generally accepted accounting principles, we have not changed.
Our accounting policies.
These few significant transactions resulted in approximately $24 million of 2021 recurring revenue recognized in the first quarter.
Rather than ratably across each of the four quarters of 2021.
This will not impact our full year 2021 recurring revenue associated with these transactions.
Only the timing of recognition within 2021 was impacted.
There will not be any impact of fiscal 2022 and beyond revenue.
We plan to see the same amount of recurring revenue in the first quarter each year in the future during the multiyear term of these contracts.
The variability in recurring revenue caused by these types of arrangements.
A significant reason why we stated in our prior earnings call, we were not providing quarterly recurring or total revenue outlooks, but rather encourage you to focus on our annual outlook.
The overall economics of these transactions have not changed only the timing of recognition of recurring revenue.
And importantly, these few transactions are not included and did not impact the 176% year over year growth in public cloud are we reported this quarter.
Turning to perpetual and consulting revenue perpetual revenue of 23 million as reported showed flat growth year over year that was ahead of the outlook comments, we provided at the beginning of the year.
While we are not emphasizing perpetual in our go to market model perpetual revenue performed better than we anticipated due primarily to deal mix in EMEA and third party software products.
Consulting revenue as reported decreased to $96 million from.
<unk> 100 million, a 4% decrease year over year.
As we noted in our outlook comments last quarter, we anticipated consulting revenue to decline by 15% year over year in the first quarter of 2021.
And to gradually improve throughout fiscal 2021.
Our first quarter performance was well ahead of that trajectory as we saw better execution of engagement around the world.
From both direct engagement with customers and joint engagement with partners that resulted in increased revenue in the quarter.
Turning to gross profit Q1 gross margin was 64, 2% approximately 10 percentage points greater than last year's period, and approximately five percentage points greater than last quarter.
We generated $315 million in gross profit dollars, which is $80 million higher than the same period last year.
And $24 million better than last quarter. Despite our total revenue has been unchanged sequentially.
The primary reasons were first we had a higher amount of recurring revenue at an improved gross margin rate driven by greater subscription and more cloud efficiencies versus prior year.
Second gross profit dollars benefited directly from the recurring revenue recognized annually in the quarter that I mentioned previously.
And third for.
Perpetual gross profit dollars were higher than anticipated driven by both perpetual revenue and gross margin rate higher than anticipated driven by deal mix.
And last consulting margin was higher than anticipated driven by more profitable revenue mix.
Turning to operating expenses.
Total operating expenses were down 1% year over year and 11% sequentially.
This is due primarily to lower cost base, beginning fiscal 2021 spend.
Spending less in discretionary SG&A year over year.
Less sales commission expense in Q1, 2021, when compared to our traditionally high bookings in Q4 2020.
And our focus on efficient operational execution.
As a reminder, we undertook some cost actions in Q3 2020 to drive operational efficiencies that funded reinvestment in our strategic cloud initiatives.
Turning to earnings per share earnings per share of <unk> 69 significantly exceeded our outlook range of 38 to 40 <unk> provided last quarter.
By 30, when using the midpoint to provide some context for the main drivers of this 30 differential.
<unk> 16 is attributable to the few transactions, where recurring revenue was recognized on an annual basis in the first quarter instead of on a quarterly basis throughout full year 2021.
This has no impact on full year 2021 EPS.
The remaining 2014.
It was driven by the following and will impact full year 2021 EPS.
The higher than expected perpetual revenue and related higher gross margins.
Higher than expected consulting revenue and related higher gross margins.
And better recurring revenue growth and operational efficiencies.
Turning to free cash flow we.
We had an excellent quarter of free cash flow generation, driven by strong cash collections higher operating margin and other favorable working capital dynamics free.
Free cash flow in the quarter was $105 million.
Well ahead of the pace needed to achieve the annual free cash flow outlook.
At least $250 million, we provided at the beginning of the year.
As an update the cash payments related to our Q3 2020 cost actions. We previously expected to make total cash payments of approximately $42 million during fiscal 2021.
And that 27 million was to be paid in the first quarter of fiscal 2021.
We now expect total cash payments in fiscal 2021 of $36 million.
We paid $18 million during the first quarter of fiscal 2021, and the remaining $18 million is expected to be paid during the remainder of fiscal 2021 about $14 million of the remaining $18 million is expected to be paid in the second quarter.
Turning to stock buybacks, we bought back two 6 million shares at an average price of $32 94.
Our $85 million in total as we take advantage of our strong balance sheet to buy back stock and offset dilution per shares issued this year.
Turning to our outlook.
As a reminder, the outlook we are providing is based on the financial reporting change that we made for 2021 and announced on our prior earnings call.
To reiterate beginning in fiscal 2021, we reclassified managed services related or in revenue from recurring revenue and into nonrecurring consulting revenue.
And reclassified third party software related or in revenue out of recurring revenue and into nonrecurring perpetual revenue.
Accordingly, the year over year comparisons that I will cite in my comments for the second quarter and full year 2021 outlook is based on a comparison to the reclassified amounts for the full year and second quarter of 2020.
For more information on those reclassified numbers. Please refer to our earnings discussion document for the fourth quarter of fiscal 2020 on our Investor Relations webpage at Investor Day, Teradata Dot com.
For the full year.
We are reaffirming our fiscal 2021, the outlook for <unk> and revenue.
Public cloud <unk> is expected to grow at least 100% year over year.
From $106 million at December 31, 2020.
Total <unk> is anticipated to grow in the mid to high single digit percentage range year over year from the restated balance of 142 5 billion at December 31 2020.
Total recurring revenue is expected to grow in the mid to high single digit percentage range year over year from the restated balance of $1 $3 9 billion for the year ending December 31 2020.
Total revenue is anticipated to grow in the low single digit percentage range year over year from the $183 6 billion for the year ended December 31 2020.
We are raising our full year fiscal 2021, non-GAAP EPS and free cash flow outlook non-GAAP earnings per diluted share are expected to be in the range of $1 61 to $1 67, rich at the new midpoint of $1 64.
As a 10% increase from the midpoint of the range previously provided.
As I mentioned in my comments regarding first quarter 2021 results.
<unk> is flowing through to the full year.
It is offset by <unk>.
A higher tax rate and weighted average diluted shares outstanding.
We are raising our full year EPS outlook further by <unk> at the midpoint.
Free cash flow for the year is expected to be in the range of $275 million to $300 million.
Which is an increase from the prior outlook of at least $250 million.
We expect to continue to be opportunistic in share buybacks and have approximately $352 million of share repurchase authorization.
At March 31 2021.
Similar to last quarter, we wanted to provide you with a few markers to assist you with your modeling of the second quarter of 2021.
We anticipate Q2 recurring revenue to be slightly down to Q1.
Q2 consulting revenue to be roughly flat to Q1.
In Q2 perpetual revenue to decline by about a third from the Q1 2021 amount.
We anticipate Q2 gross margins to be up approximately 40 to 50 basis points from the comparable quarter.
In the prior year and Q2 operating margins to be up approximately 250 basis points from the comparable quarter in the prior year.
We now expect our full year tax rate to be approximately 24% to 25%.
Given the rise in our stock price.
And its impact in calculating fully diluted weighted average shares outstanding for EPS purposes.
We now assume about 114 million fully diluted weighted average shares outstanding.
For both the full year and the second quarter.
With that the outlook for the second quarter for 2021 is as follows public.
Public cloud is expected to grow at least 155% year over year.
Or in the range of $15 million to $20 million sequentially.
Non-GAAP earnings per diluted share to be in the range of 47 to 49.
And with that operator, we are ready to take questions.
Thank you Sir at this time I would like to remind everyone in our day to ask the question Hi, John.
Number one on your telephone keypad.
If I go from moment to compile the <unk> roster.
Thank you Jeff.
Yes.
Let me just ask one question and one follow up.
Your first question comes from the line of Kathy Huberty from Morgan Stanley. Your line is open.
Yes. Thank you good afternoon, Mark can you talk about whether there is a pipeline of additional deals that would cause you to.
Recognize revenue on an annual versus a quarterly basis like what happened in the March quarter and if so if there is any in the pipeline what are you assuming in terms of conversion.
As in in your guidance.
Yes, great. Thanks Katy.
Right now we see a.
A few deals like this in Q2, we don't have line is I don't have line of sight in the pipeline as to what deals in Q3 or four could go that way.
And we will have to wait to see.
What happened in Q2, but I do expect we'll see a bit of it.
Given where we're seeing strong interest from our existing customers wanting to operate vantage on premises as well as in Mccloud.
So I am expecting some some impact than in Q2, but nothing in my guidance as reflected in Q3 or four at this stage.
Okay, and so that in your guidance you assumed that some of those convert and you get an.
Annual revenue recognition and then can you just provide a little bit more detail because im not as familiar with the accounting treatment.
What is the element. They are characteristic of these deals that are causing you to recognize the revenue annually instead of quarterly and could you just talk about whether in the past.
Deals like this that were that were recognized differently.
What has what has changed.
So under under revenue New recognition rules there are a variety of factors that can result in other than ratable recognition corollary, whether it goes to and the on Prem World. What is the right to use the software what is the committed amount of consumption that's involved with that.
Is there hardware involved because hardware can fall outside of the software revenue recognition. They go under.
Standard called 842.
So for US it was it was it was certainly on premise software elements.
That drove some of this annual recognition not all software component, but a certain portion of commodity because of somewhat of the interaction of what are they going to use on prem versus what do they want to use in the cloud and how does that impact what's committed to be used and so forth and so depending on how those nuances.
Play out.
Certainly can get revenue recognized on something other than ratable and that's all a couple of these few of these deals, particularly these two big renewals came down so that's what drove it given we're focused on.
We're talking to all of our existing customers because given our our strength in our cloud cohort from the momentum we see there it behooves us to get our customers.
On the cloud as quickly as possible, but we know theyre going to want to operate both vantage on prem as well as in the cloud and just depending on how that plays out.
Set on our Q4 call could drive some revenue recognition things and obviously, we experienced a few of those in Q1.
And is this the first time that <unk> had revenue recognition of deals like this yes, yes, we have really rarely had anything other than ratable in the past.
I'll cover them other than.
Other than perpetual, but this has nothing to do with perpetual.
Right. Okay. Thank you.
Okay.
Thank you. Your next question comes from the line of low.
<unk> from Bank of America. Your line is open.
Sure.
Yes. Thank you I have one for Mark and then one for Steve Mark.
I got all the adjustments that you spoke about.
So even if you take out the <unk> because of the timing of the transactions.
Roughly at a dollar and earnings on the first half.
But if I look historically.
Second half versus first half you've been taking into account some of the headwinds that you mentioned from share count and taxes. It.
It seems like the second half is much more sub seasonal.
Then what you've done historically, so any any color you could share as this EPS also reflective of revenues or is there something else that.
So im missing in that range, and then I'll follow up with Steve.
Yes, so no around Youre right. So right now given the annual recognition that flowed into Q1 and out of the remaining quarters not across Q1 to Q4. So.
Revenue is not happening on these deals in Q2, three and four.
I don't have line of sight today, and the pipeline as to what deals might go a certain direction that could drive revenue higher.
In those quarters to make up for the revenue that isn't going to naturally be recognized.
In Q3 and four.
Because it was recognized in Q1, and we may see a bit more as I mentioned on the answer <unk> question in Q2, which right now im not modeling in impacts.
Of additional things that can happen in Q3 and four so it's a conservative estimate on Q3 and four in terms of revenue and obviously, the EPS impact that I suspect.
Depending on how the rest of the year plays out we could see that those coming up but I'm not trying to model that in at this stage because I just don't have the visibility.
Okay, Alright, thanks, Mark and Steve.
$18 million in incremental sequential public cloud IRR youre guiding roughly in the same range out of Papa new of being able to drive a little bit of acceleration.
Have a little bit more.
Resources dedicated to this.
Maybe can you can you share some thoughts around what youre seeing in the pipeline I also heard you mentioned the new.
New logos may be starting to show up in the pipeline when those can start to create new incremental tailwind. Thank you yes.
Hey, Ramsey how are you doing.
We are really confident.
Annual guidance that we've issued a at least a 100% growth year over year.
We got real confidence in that because we're seeing our existing customers demand from candidate in the cloud and having interoperability between the environments.
And the new use cases that we're seeing I mentioned some of them in the prepared remarks.
<unk> Iot data data that some notes on some of the public cloud.
Quite environment.
Really opening up new ways to use teradata vantage as well as really banking as a platform.
<unk>, so we're really confident and they keep ability advantage is providing.
We are conservative in our guidance.
Just on the timing of our deals were walking about from customers in Kansas.
Saudi Quito and how do we want to use teradata in the cloud, but still got a really strong on prem business.
On the debt.
<unk> business that we're working with our customers on.
<unk> is extending our capabilities and modernizing data architectures and creating a complete data fabric in a multi cloud environment. So.
Can service.
Our annual guidance, but.
We're solid on a 100% year on year growth.
Thanks Neil.
Thank you Sir your next question comes from the line.
Tyler around P from Citi. Your line is open.
Hey, good afternoon guys.
My question for I think Mark.
Just looking at Q1.
That was flat sequentially on a constant currency basis, I think thats the key.
Terrible to what you did in Q1 last year, obviously last year was a challenging year with COVID-19, but it felt like you saw kind of much stronger.
The normal activity in Q1, I mean, Steve referenced several customers moving to the cloud it sounded like a lot of it a lot of good momentum. So I guess, just curious given all that momentum and the strength that you did see in cloud AAR sequentially like what kind of drove just the.
Sequentially flat a performance was it kind of a mix shift away from hardware just kind of customers.
During a software only product just help me understand maybe why that didn't growth sequentially.
And we're kind of in line with last year on a quarter, where you seemingly saw a lot more activity.
Yes, so thanks.
Thanks.
If you look back even in my tenure, we've had it would be flat to slightly down in Q1 and beyond not just 2021, but years prior as well clearly a big headwind.
From a sequential was FX so that was a huge impact.
This this quarter.
That was part of it second is just Q1 tends to be the lowest bookings quarter in Q4s.
John.
The largest and so it's kind of a seasonal thing that's why we've always said, we do large transactions that can fall at sort of any time and I tend to look at what's going on on an annual basis, not a quarterly basis, whether it's.
It's not what we want it or it was way over I said, well, we got to you've got a really balanced it across the full year. So we're excited about what we're seeing in the cloud clearly we have good cloud.
Momentum.
We're excited about the interest we're seeing in the change in perception, we're starting to feel in the marketplace as customers are and our prospects are.
Clearly, taking a different view of us.
That gives us a lot of confidence in why we reiterated our full year.
Our growth so I don't think there is.
Other than FX in Q1 that was really the big the big the big driver of the flat constant.
Constant currency.
Flat on a constant currency basis.
Great and a follow up for Steve.
Maybe we could talk about.
Our win rates and just overall positioning in the cloud it seem like you rattled off a lot of wins and some of them for snowflake, but how do you feel like your win rates or win rates are trending and then were there any deals that maybe you hadn't forecasted or thought you had lost that perhaps came your way at the M.
At Pilar were seeing really great interest.
And the examples I gave really had rems in retail entertainment health care distribution manufacturing.
So.
We're really happy with that.
How we are taking our message to our customers.
The other thing that's working well as well.
Our consumption based pricing models generating from real interest from their customers.
They see the benefit of having a blended pricing model.
And we are really improving the perception of vantage as a service in the cloud and the fact that carrier data and the cloud can you give a highly performing.
Offering and be a really.
Easy and low risk way to migrate from on Prem into the cloud as Kevin has a real competitive advantage.
Causing our customers to think.
About using teradata and the cloud and <unk>.
Having that multi cloud capability and a data fabric that spans across both on Prem and then to the public cloud environments.
Thank you Karen we have our next question from the lineup from Matt had Dave.
Yes.
Hi, This is a nice chunk from Matt Hedberg scheme can you hear me.
All right.
Yes.
Great. Thanks for taking my question.
Can you talk about what youre seeing specifically as it relates to the COVID-19 impacted industries.
Vaccine day inside Ics.
The consulting with better than expected this quarter would you say it was partly a function of the reopening into coffee in the <unk> industry.
Yes.
That question, yes.
Yes, I think like most technology companies, we are seeing now.
And the digital transformation programs and projects that organizations are executing.
You will have it in my prepared remarks that Tam.
We're seeing projects with some of the airline companies coming back online both components of the morphing to improve the operational effectiveness.
C.
Making sure that they are using the right technology to enable their future transformations. So we're very pleased about that.
The retail environment, we believe is starting to pick up and we're seeing some of the retailers really invest and then.
We're also seeing some of the some of the organization, but package delivery organizations.
<unk> benefited from COVID-19 carrying on with a really strong investment.
Michael.
When I mentioned.
The European Theater on Google Cloud was they really helped bolster the digital transformation.
Transformation and move to the cloud so.
Saving payment is going to be a really great new bank.
Got it thank you.
Okay.
Question comes from the line of Anthony <unk> from Cowen Your line is open.
Great. Thanks for taking my questions first one Steve.
We named a number of customers migrating from on Prem to cloud is there.
What's most common moving.
Small portion of workloads are a big portion or.
All the workloads to the cloud and then the customers start to cloud migration, how long does it typically take in and how do you kind of help your customer.
All right without having a double pack.
Yes, so we are seeing a mix in terms of.
Customers that are moving they are the ones, who moved to home system onto the cloud.
And the customers that are moving certain workloads.
We.
Continuing to invest in our own crime capabilities as well so one of the things I talked about was having access to native object stores on Prem.
And as we look at Teradata is the platform you've got a number of ways to actually deploy that you can keep data and <unk> on Prem and then Karen data systems, and new growth not that bad and then another use cases have an AWS cloud data instance that can use kribi Gregg take the mic back on claims.
Total data.
Also on Prem and so if you think about building that five weighted gives our customers an immense choice in terms of how we migrate workloads to the cloud and obviously, we are providing that.
Software capability, both on Prem and in the cloud we have a real competitive.
<unk> advantage to help the customer with that.
Double bubble costs of that migration so.
We think that's a that's a super competitive advantage for Teradata.
Thank you Sir there are no further question at this time I will now turn the call back over to Steve.
For his final remarks.
Thank you and thank you everyone for joining us today, we're off to a really great start to 2021.
Remaining absolutely focused on profitable growth.
Dedicated to delivering that value to all of our stakeholders, especially our customers shareholders and employees looking forward from a great 2021. Thank you all.
This concludes today's conference call you may now disconnect.
Okay.
Mark.
Thank you.
John.
Yes.
Yes.
[music].
Yes.
Yes.
Yes.