Q2 2022 Teradata Corp Earnings Call
Tayo economic times and these results are driven by our solid business model. The critically important what we do for customers and our cloud momentum.
Our strategy is right and our business fundamentals are solid.
And the second quarter, we delivered public cloud.
<unk> of $234 million growing 75% year over year in constant currency.
Our cloud <unk> dollar growth accelerated as more customers connected to carrier data in the cloud both year over year and sequentially and they committed more substantially as well.
Recurring revenue is now 80% of our total revenue, which not only demonstrate a machine critical value we provide to our enterprise customer base, but also underpins the healthy generation of durable free cash flows.
We also generated more than $100 million of free cash flow in the quarter.
And we exceeded the high end of our quarterly outlook for non-GAAP earnings per share.
On both metrics, we are past, 60% of our annual outlook.
Our ongoing execution reflects our clear focus on our strategy as a profitable multi cloud data and analytics platform leader and gives us conviction that we are reaffirming our annual outlook, including an expanded range for total.
There are clear.
Clear will share more in her remarks.
We are intent on keeping our momentum doing what we said we would do even in the current challenging macro environment.
Our strategic customer focus is a leading global enterprises diversified across many industries. Our customers are strong stable businesses that require the best data and analytics to succeed.
And when they place their trust in carrier data they make multiyear commitments.
As a result, our business model is resilient with predictable revenue.
We all know that every day the amount of data growth and right along with it grows to meet to capitalize on that data extract the greatest value from it and make the best business decisions faster.
Our platform is designed to deliver a unique advantage that enables cost effective growth.
West target data companies can access and use the data with 32 application or data movement.
We take the query and analytics engine to the data there is no need to coffee and move it to get value.
As a result, the carry data platform provides efficiencies over others competitors cost increase disproportionately higher and faster than the growth in analytics use it don't move it is a differentiator for us and a real benefit for our customers.
Using data where it is.
<unk> allows businesses to create advanced analytics with the entire universe of available data and not waste money moving in duplicating it.
West Vantage that foundation for game changing analytics is already in place. It is a simple and very efficient effort to add data elements to bring better insights and greater value.
Just one example, as a company is doing a forecast model for any future needs. During the holiday at May need a subset of weather data to build a more accurate model and make more informed decisions.
Competitors' platforms. The company would have to copy all of that data and move it into their system.
During the time series full testing would require additional data movement, which always means more pain and more cost to the customer.
But with Terra data all of that can be done without moving the data are much smarter and more efficient solutions that only we delever and one that drives more consumption for carrier data.
Particularly now companies need enphase provided by the powerful data and analytics carrier data provides.
Studies are pointing at the C suite leaders and notably Cio's are planning for technology enabled growth and efficiency during unpredictable pains of challenge and uncertainty.
These new data at enterprise scale to review rethink and rapidly adjust to changing market conditions.
We have seen the secular drivers.
During the uncertainties of the pandemic and the need for data and analytics as and is likely to remain a C suite imperative.
High priority areas are directly in our sweet spot, including cloud data and analytics.
Each quarter, we provide updates on our technology, demonstrating our continued growth as a cloud leader.
Im very excited about our announcement that is just around the corner as we take the next step with our cloud data and analytics platform. Later this month, we will make our most significant cloud capabilities announcement, yet, bringing our industry, leading enterprise data and analytics platform best in class workload manner.
Michigan and patented analytics capabilities into their next generation. So that companies can scale small deck and has a faster and grow stronger in the cloud.
Organization support the largest and most complex workloads with outstanding cost efficiencies and enterprise price performance with Terry data today, and we are taking our capabilities even further.
Be enabled to accelerate their highest value opportunities.
<unk> data through our flexible and scalable platform and activate their analytics through more data driven decision making.
Ultimately to solve mission critical challenges and generate returns.
We will share more at the payment of our launch but rest assured we will do better than anyone else.
Pulling her announcement, we will be taking our message on the road coming to all of our regions around the globe with our event series entitled possible.
Marketing team is accelerating to drive greater awareness of clarity to differentiated capabilities.
Throughout the global series, we will showcase protein approach is to create value from data and analytics and accelerated results, even and dynamic business environment.
Actually what our customers need now.
To help customers address their analytics needs, we're ensuring they know of our capabilities, we have driven ongoing expansion in our pipeline of opportunities in the cloud through the first half of 2022.
We have actively worked on expanding the pipeline with a number of drivers, including greater awareness of the differentiated capabilities of our platform and brand.
E connected multi cloud data platform for enterprise analytics.
Greater experience in selling cloud first and and selling with partners.
Our results are clearly showing the strength of our efforts to grow through migrations to the cloud by continuing to expand hybrid environments as customers maintained their on prem environment, while adding new incremental workloads in the cloud with para data.
And winning new logos, both in the cloud and on Prem.
We expect customer successes to continue as we look ahead to the second half of the year.
Let's walk through a few examples.
A fortune 500 insurance company is migrating its entire advantage on Prem environment development production and disaster recovery systems to vantage on AWS.
The customer chose private data because of the ease of migration, we offer our programs scalability to manage increasing analytical workloads and a roadmap that aligns perfectly with our long term strategy for data and analytics.
Petzel Rio the largest independent oil and gas company in Brazil has chosen vantage on AWS as an enterprise data and analytics platform.
As a new clarity to customer Petro Rio is relying on prior data to build a logical and flexible environment. It can leverage for business analytics.
One of the largest boutique health care labs in the U S has chosen vantage as a foundation for data and analytics strategy.
This new tire data customer is integrating desperate data from several legacy databases, and homegrown systems and to a hybrid vantage environment.
<unk>, which will primarily be deployed on prem to start and I'll.
Ultimately migrate to vantage on AWS.
Best customer leverage vantage to improve its personalized services and develop unique therapies to treat cancer.
American Airlines, one of our longstanding customers migrated to the cloud with vantage and Microsoft.
Vantage on issue of pervade, the flexibility elasticity and industry, leading price performance, that's airline Titan needs for its business critical operations I encourage you to watch the videos on our website that outlined the successful migration and the results achieved from data and analytics running on vantage.
I am very proud of how our team performed and drove wins in the quarter. We did not see anything unexpected as we executed our strategy in a competitive market and challenging macro environment. There were no surprises our deal delays in the quarter.
I am really enthusiastic about the strength of our pipeline as we enter the second half of the year I mentioned wins and pipeline growth with partners at the <unk>.
Data platform leader, we are steadily enabling partners to extend our reach and drive adoption and consumption of Teradata. We have recently made some great partnership announcements that address an important and emerging needs.
We recently announced the integration of our vantage platform with Amazon stage nature with the enterprise scale advantage, we empower easily the largest organizations to execute complex analytics on massive datasets, while using their favorite data science tools and languages light states.
Baker West.
West vantage and the machine learning capabilities of Sage meet there.
AI and ml projects are able to move and to wait scale production in weeks instead of months, so that our joint customers can rapidly accelerate their AI ml projects and get to value faster.
Also just announced a new collaboration between GE digital Microsoft and carry data we are working together to support the imperative of addressing the devastating effects of climate change.
Gather we will develop an offering designed to help provide aircraft to operators.
And reduce carbon emissions and teradata vantage will be the underlying data and analytics platform to support that environmental sustainability initiatives.
Operating sustainably is a core element of ESG and ESG as a core element of all aspects of our business.
Annual ESG report has just been released and outlines the depth of our increased attention and focus as well as the actions we have taken and the progress we have made as a responsible corporate citizen.
I invite you to read through it on our website.
Another significant element of ESG is governance, and we've just added new strength to our board of directors I'm incredibly pleased that toward Mcelhatton joined our board in the second quarter and I'm excited that carry data, we'll be able to benefit from his deep financial experience and proven track.
Record successful transformation to the cloud.
Canada continues to be recognized as an ESG leader and has been named and assessed effecting women on boards gender diversity directory.
Diversity equity and inclusion are cornerstones of our company and I am proud that we are walking the walk.
As I turn the call over to Claire I remain very confident in our future. We are growing in cloud we are.
<unk> powerful technology that keeps on getting better all that increases our total addressable market.
Market that is large and organically growing from the never ending need for data and analytics.
I'm enthusiastic about accelerating in the second half of the year driving profitability generating free cash flows and returning shareholder value now.
Turn the call to clear.
Thank you, Steve and good afternoon, everyone in the second quarter, we have a perfect $25 million in sequential cloud ALR quake or $30 million in constant currency.
All sorts of levers, adding Pasha <unk> above the high end of the previously provided range and generated another course huh.
<unk> healthy free cash spring.
This quarter was in line and consistent with the forecast that underpin our fiscal 2022 outlet.
Our forecast is driven by our cloud fax.
Vertical growth strategy.
Solid financial fundamentals.
Despite the current challenging economic environment and persistent currency headwinds, we are doing exactly the date and we remain on track to achieve our fiscal 2022 outlets.
Let's get into the quarterly results starting with IRR.
Total <unk> increased by approximately 3%.
As reported and grew 1% year over year in constant currency.
On a year over year basis that was approximately 4% negative impact from the reported growth rate associated with exiting Russia I shared with you last quarter.
On a sequential basis total ore declined by approximately $7 million with approximately $32 million related to currency headwinds.
Cloud <unk>.
68% year over year, as reported and 75% year over year in constant currency.
Cloud era, and all three geographic regions, both year over year and sequentially.
Continuing the momentum we have seen throughout the year.
Cloud ore grades in the second quarter was driven primarily by migrations and creating a number of seven figure deals.
This migration activity came from a healthy number of existing on premise customers to the cloud with Paradise him.
<unk> for the quarter and the like that would take it.
This amount grew sequentially and year over year.
And historical seasonality.
Typhoon New library included both on Prem and cloud customers.
Presenting the financial services government and transportation industry to name a few.
This new.
Momentum is a proof point of executing our strategy.
Regarding cloud expansions on net expansion rate was approximately 120%.
This is below our contract, but we are still on track to deliver our outlook of approximately 80% year over year and cloud era as reported and in constant currency.
In the quarter, we had more customers expanding versus the same period last year.
These enterprises are starting their expansion on the <unk> cloud platform, it's smaller test and development work right with the potential for even greater growth ahead.
In addition, we see two other trends that are not in the net expansion rate calculation.
50 check right.
First customers are expanding more than one for one at the point of migration that we originally modeled.
Second we have a new incremental cloud workplace from existing on premise customers are expanding their hybrid environment.
These trends along with our seasonally stronger second half and excellent cloud pipeline give us confidence in our ability to achieve best in class IRR target.
With regard to non cloud components of Tyco IRR.
Subscription IRR decreased 3% year over year as reported.
And maintenance and software upgrade rights Irma decreased 24% year over year as reported.
Both were driven primarily by customers shifting the paradigm to spend to Pam or class description.
Also impacted by currency headwinds and the ceasing of Russia operation, which was in last year's numbers.
Moving to revenue.
Total revenue was $413 million.
12% decrease year over year as reported and in <unk>.
8% decrease in constant currency.
Recurring revenue was $345 million, an 8% decrease year over year as reported and a 5% decrease in constant currency.
As a percentage of total revenue recurring revenue was 80% in the second quarter, a new high for Teradyne com.
There was a negative impact on the reported growth rate of approximately 15% of total revenue and approximately 14% recurring revenue.
First were affected by the ceasing of operations in Russia.
Impact of upfront no carrying revenue.
The currency headwinds.
We have provided a slide in this quarters earnings presentation that shows the impact by quarter to Ara and revenue.
<unk> clearly demonstrates the underlying business is growing as expected.
To add additional color on this quarter's revenue.
That was approximately $12 million of recurring revenue that was mainly from Africa Cheetah exiting Russia.
That was also last year over year benefit from upfront recurring revenue engagements.
The impact was a negative $6 million versus a small net positive amount we had expected in the quarter.
For reference this compares to a positive $22 million impact in the second quarter of 2021.
Looking ahead, we see a change in our quarterly shape net outcome recurring revenue in the second half of 2022.
We continue to expect a net negative amount in the first quarter, but now anticipate a net positive.
Fourth quarter.
As a result, we now anticipate a net 20 cents benefit to earnings per share related to upfront recurring revenue similar to last year.
Regarding perpetual and consulting revenue, we continued to execute against our strategy leading to a higher margin prescription revenue model and collaborating more with partners that drive higher adoption and greater consumption of Teradata.
Moving to profitability.
<unk> second quarter gross margin was 61, 2%.
Gross margin dollars were $263 million.
The year over year decline in gross margin.
It's primarily to use and negative currency impact.
Our business operations in Russia, and the negative impacts from upfront revenue base grew in the quarter.
<unk> gross margins are.
Improving as we continue to scale our cloud revenue.
Operating profit margin was 12, 8% in the quarter and the year I think you had a decline in operating profit margin was primarily attributable to lower revenue.
We continue to invest in cloud go to market and R&D to drive greater adoption and consumption of our platform.
We're also continuing solid cost discipline.
Second quarter earnings per diluted share, 30% exceeded the high end of the previously provided outlook range, especially even after accounting for a 2% benefit from the more favorable tax rate.
Turning to free cash flow and capital allocation.
Free cash flow generated in the quarter with $102 million driven primarily by efficient cash conversion sustaining a positive operational trends are cash collections over the last five quarters.
In the second quarter, we repurchased approximately $2 1 million chats, a $67 million in pesos.
I'll stick to around 50 million related to the completion of the ASR transaction, we entered into in February and $17 million related to incremental shares repurchased during the quarter and we believe our shares are undervalued.
We will continue to be opportunistic during the second half of the year.
For the first half of 2022, we have returned 126% of our year to date free cash rate to shareholders.
As a reminder, from our Investor day, we committed to an annual 50% return target.
We remain committed to capital allocation that drive shareholder returns.
That increased share repurchases, but also continued investment in the company.
Our strategy of cloud acceleration unprofitable Greg.
On our capital structure, we upsized and extended the maturities of our debt facilities. This past June .
Securing better pricing and increased flexibility for the company.
In conjunction we also entered into new interest rate and cross currency swaps to reduce interest expense and minimize risk.
With regard to 2022 outlook I would like to provide some context on the third quarter and the rest of the year.
We continue to have confidence of cloud are gonna cry when accelerate sequentially throughout the year.
We know that our fourth quarter is seasonally our highest quarter from a sales perspective, and we expect a similar pattern from total IRR and cloud era grades in 2022.
The strength of our weighted pipeline continue to improve.
As Steve mentioned customers continue to connect more substantially to tower data in the cloud.
We see that in our increasing win rate.
Despite the current economic environment, we still have strong conviction in our cloud era.
We are building and conservatism and widening the outlet range for total IRR to account for on Prem deal timing, given the macro economic environment.
We have reviewed our 2020 financial forecast against the end of July currency exchange rates.
Spike the continued strengthening of the U S dollar since April 2022.
We are pleased to reaffirm our outlook for all other elements in constant currency and on a reported basis.
Could be towards the lower end about ranges if currency headwinds continued to worsen.
We will continue to focus on the fundamentals.
Drive healthy profitability and durable free cash flow generation.
Yeah.
With that we reaffirm our 2020 financial outlook.
Increased approximately 80% growth year over year, and cloud era as reported and in constant currency.
Free cash flow of approximately $400 million.
non-GAAP earnings per diluted share to be in the range of $1 55.
Two one dollar and 65.
Potential IRR, we are widening the outlook range to a decline in the low single digit to make single digit percentage range year I think as reported.
And the light single digit decline in the low single digit percentage range year over year in constant currency.
Our complete 2020 to your outlook can be found in our second quarter earnings press release and presentation.
For the third quarter of 2022, we anticipate non-GAAP earnings per diluted share to be in the range of 27.
In one sentence.
We project the non-GAAP tax rate to be approximately 21% in the first quarter and approximately 25% for the full year.
We all say forecast the weighted average diluted shares outstanding to be approximately 106 million shares in the third quarter and approximately 107 million shares for the full game.
Thank you very much for your time today, let's please open the call for questions.
Okay.
At this time I would like to remind everyone in order to ask a question press star one on your telephone keypad.
We'll pause for just a moment to compile the Q&A roster.
In the interest of giving everyone an opportunity. We appreciate that you limit yourself to one question and one follow up.
Your first question comes from the line of Chad Bennett with Craig Hallum.
Okay.
Great. Thanks for taking my questions. So just on the cloud public cloud <unk>.
In the quarter last quarter.
We really despite the FX impacts on the rest of the business revenues in <unk>.
We didn't get a call out for FX impact on public cloud era.
What what kind of change this quarter and I guess I was under the impression that the majority of our public cloud business was being priced in U S dollars.
Hi, Pat Yeah. This is Glenn Thanks for your question. So yes, we did see an impact as you say between the 68% year over year and 75% year over year between reported and constant currency. You may have 19th we did keep our full year guide of approximately 80%.
In reported and constant currency. So he took the mix that we're seeing in the current quarter.
For Q2 that has a bigger impact on the currency impact for the full year. The mix is unchanged and in line with what we laid out to you previously.
So so do we.
Expect a headwind in the second half of the year from FX to public cloud I know, you reiterated reported and constant currency, but.
Is the Delta we seen in the quarter something we should expect.
No I think I can move towards there may be a small impact in Q3, but if you looked at how we're going to finish in Q4 that makes is more weighted to Ukraine and contracts in U S dollars.
Second half will not see a significant headwind with regards to currency.
And maybe one quick follow up for me if I could just on a net expansion.
<unk> or Steve for that matter, just the 120, plus and I understand kind of the kind of development and test use cases initially and.
And kind of the language around that.
But just.
Trailing 12 month metric so you.
How do we think about from a cohort standpoint, and I know, we don't have years and years and years of coral hearts necessarily but maybe.
Maybe.
24 months back or 12 month cohort.
Aging those cohorts and how they've kind of how expansion has played out if you can provide any detail there.
Yes, Chad.
I'll start off thanks very much for the question, it's really interesting when we look at the cohorts I think was actually playing out with our migration of our customer base to the cloud.
Sales team are executing exactly on strategy and our incentive to maximize their cloud IRR and the start of the migration. So we're seeing incremental quite.
<unk> compared to on Prem.
The point of migration and so they're actually capturing more expansion on that first point of migration.
And for those cohorts that's been impacting the subsequent net expansion rate, but overall.
It actually means that we are still very solid in terms of the models that we have to achieve a cloudy or both and for the guidance for the.
Fiscal year and also for the goals that we've set out for 2025. So <unk> said were seeing more expansion on migration.
And that is subsequently reducing the expansion through the life of that cohort reached sites, we expect to see that.
Continue to improve as we move through time.
Okay.
Your next question comes from the line of Tyler Radke with Citi.
Okay.
Hey, good afternoon, thanks for taking the question.
Could you just help us.
I understand some of the assumptions that are going into the wider range on total air or I guess first on the macro side are you embedding any more.
Conservatism in terms of close rates deal timing and then secondly, just because you are seeing more cloud expansions and it does feel like you feel pretty good about the cloud there are number I guess, if you do more cloud.
Conversions does that help or hurt total air or just in terms of the economics between on Prem and cloud just help us understand those moving pieces as we think about the wider range. Thank you.
Yes. Thank you Todd I think CRT question pass a festival with regards to the extended range on total IRR and absolutely we are adding in some conservatism there as we look towards the end of the year.
And that expansion is really to take into account potential on prem deal timing impacts that we may add nicely in Q4, given the current macro volatility and also knowing that Q4 is seasonally our highest quarter architectural arrow Greg.
With regards to your second question in terms of it actually is good.
Good economics for US are what we see is as they are converting more at the point of migration. We may then see a little bit less expansion. The expansion overtime is very strong and continues to.
To be to continue to be strong because that's what gives us that confidence not just in the full year 2022 guide of approximately 80%.
Thanks, too to what we're doing today, we're on track Oh, sorry for the long term estimate of approximately $1 billion in 2025, so very happy with where we are today based on what we see and I would say that the coverage and the wins the customer wins that we're seeing today and the benefit that we.
We'll continue to see in the second half of this year and as we get to Isogradient dollars for 2025.
Okay.
And Claire just on free cash flow. So obviously, maintaining the guide for the full year. Despite some currency headwinds is impressive but it does look like if we look at the second half implied free cash flow the seasonality or mix of free cash flow is a bit higher than we saw last year, maybe just help us understand.
Kind of the levers at your disposal, how youre able to offset this currency headwind and why seasonality might be a little bit different than last year. Thank you.
Okay.
Yeah, absolutely. So as you said very happy with the guide of approximately $400 million of free cash flow.
And the fact actually that in the current macroeconomic environment, we are maintaining this quarter.
Our full year guide on EPS compared to our guide last quarter, I'd say very happy with that and with regards to.
Cash flow generation, our biggest opportunity is in working capital we've seen some great strength.
Our cash collections for example, and a generation of working capital as we move.
We've done that again in Q2, as you've seen with over $100 million of free cash flow generation. So we're confident that we can keep that healthy balance sheet and strong working capital and cash conversion cycle as we continue through the year.
Okay. Thank you.
Okay.
Your next question comes from the line of Rumsey Mohan with Bank of America.
Yes. Thank you.
If we look at your total IRR at constant currency. Your initial outlook at the beginning of the year was high single digit growth in today.
The point that it's flat Leno four points of that is Russia, which will compel anticipated, but given your more mission critical enterprise workloads. It would seem that you should be relatively more resilient to a macro downturn in Steve you noted some of that resiliency in your prepared comments you also noted us.
Strong pipeline. So can you just helps clear the change in your constant currency total IRR from sort of the beginning of the year from now through that lens of as possible and I will follow up.
So the.
As you said one of the biggest impacts are totally are clearly.
Russia and and currency yeah.
What we see in the business and you hit it right on the head.
Our workloads that we run and saved our customers are absolutely mission critical.
Unlike many of our competitors, we don't run discretionary workloads around marketing campaigns of our sales campaigns. We are helping these organizations operate close their books.
Run their supply chains run their critical operations of the business and that means that our IRR.
It's very sticky and solid and our customer base.
Our pipeline.
Our cloud pipeline for the second half of the year continues to strengthen in both quantity and quality quality as we progress those opportunities.
So again the biggest delta from.
From a Russia and and FX perspective.
Okay. Thanks, Dave and clear your gross margins are recurring revenues were at the lowest level in a while and can you just talk about the moving pieces here how much of that is relative to change in upfront payments how much of that is maybe FX and on Upfronts I think.
Called out sort of a delta versus expectations in the second quarter and now maybe more upfront in the fourth quarter can you can you talk about what is the underlying cause that's actually driving that change. Thank you.
Absolutely.
To your point with regard to recurring revenue margin to factors that we see both quarter over quarter Ams year over year first of all we have a full quarter in recurring revenue of the impact of Russia. So.
And impacts that we also obviously see the currency impact and the upfront impact and just in case people Havent seen it on page eight of our earnings presentation, we have actually made out there.
The impact across our total revenue and recurring revenue by.
By cortex, all phase III headwinds that we're seeing some upfront revenue FX in Russia, and as I believe everyone will remember from last earnings Russia wasn't accretive business for us so okay.
Have a drop to the bottom line, how does FX and the upfront revenue.
Year over year decline that we're seeing in Q2. So just as a reminder, I said in my prepared remarks, we saw a negative impact of $6 million in the current quarter compared to a positive 22 to your point wildly on timing and so just as a reminder, that is purely driven by that kind of a new and expansion of our on premise.
It has always been difficult to predict.
It's why we tend to give high level estimate study there was a slight difference with what we were expecting in Q2 as you said slight negative that there's a small net positive and it's just the deal timing and that's the same as well as we look out to a hedge gain.
Yeah.
Thank you.
Thank you very much.
Your next question comes from the line of Erik Woodring with Morgan Stanley .
Hi, This is sabrina on for Erik Woodring. Thank you for taking the question I guess first as you beat Q2 EPS out your outlook by five since the midpoint, but kept our full year EPS guide unchanged, which implies second half is coming down slightly can you talk about why that is given your revenue outlook hasn't changed and then I have a follow up.
Yeah, absolutely so I'm actually the key.
<unk> for the <unk>.
<unk> be above the programs or the range without cheap and favorable taxes. So that's not a.
Knock on benefit and tax rate for the year is unchanged. It's just the seasonality about tax rate.
Marina.
And so SME and also with.
With the additional currency headwinds, we have seen a slight I look forward to the second half of the year, we have seen a slight deterioration in the currency rates by approximately 25 basis point say, we're absorbing that into our full year EPS as well so to the other kind of big drivers from an EPS standpoint.
I missed your follow up question sorry.
Yeah, and just the follow up is can you talk about how your customer conversations have evolved since the end of the quarter have there been any changes by geography deal size or the pace of customer decision, making given the macro environment.
Yeah.
So Brian this is Steve. Thanks for your question, we're not seeing we're not seeing the delta is from that perspective again.
We were very solid in our existing customer base, we understand what those customers are doing we've got long term relationships with our existing customer organizations, we haven't seen any demand signal weakness for them.
<unk> offers or for what the customers are buying either in this past quarter or for the rest of the year and as I mentioned earlier, we're actually seeing a quite pipelines. We continue to increase so that gives us some good.
Demand signals from a client perspective that that point that we are mission critical inside our customer base means that.
That message and those multiyear agreements with me explained weapons.
Some stability around our business model and financial results.
Okay.
Perfect. Thank you.
Yeah.
Your next question comes from the line of Matt Hedberg with RBC capital markets.
Hi, This is <unk> for Matt Hedberg. Thanks for taking my questions here, maybe to start with could you talk about how youre thinking about the pace of hiring in the remainder of 2022, given the inflationary environment and what will be the key areas of investment.
Hi, Thank you for the question.
Yes, we are.
We're going to continue hiring critical Thailand, especially cloud talent, even in the past quarter or so we recruited a new head of our EMEA organization. We are looking very prudently across all of our investments.
R R.
Our focus is to make sure that we maintain profitable growth. We will continue to invest in the business in key areas, where we think that growth will be driven from especially from a cloud perspective.
Cloud skills capabilities and continuing to advance our strategy.
We haven't seen any challenges from a recruitment perspective.
Think that one of the real strengths of Paris data is actually the culture of the company our.
People love coming to work for carrier data.
They can bring their genuine authentic selves, and I think that culture and the environment that we create creates a really positive place for people who want to stay with US we want to demonstrate great results, but also enables us to attract and retain the talent, but again from an investment perspective, we are going to be prudent on our investments to ensure.
Sure that we have that profitable growth.
Got it and then.
You know in the current environment as enterprises increasingly prioritize Ottawa Muslims could you talk about the durability of Teradata platform in a recessionary scenario and in addition to the functionality harder.
Does better price performance than competitors serve other benefit in landing new logos.
Yes, absolutely.
The price performance of the enterprise price performance as a key way one that when new logos. It also increases the stickiness of our platform.
Are the workloads that we run for our customers are absolutely machine critical so the durability of the platform is incredibly strong I'm actually grew what kind of from an AI and ml and analytics perspective, our customers tend to only use about 20% of the capabilities of the platform. So we see that as a key.
Opportunity for us and for our customers to utilize those capabilities, perhaps reduced spend on other.
Other platforms that we have inside their technology stack unused para data capabilities that they're already paying for and they are already and the teradata platform. So that as well it gives us the opportunity and also enables us to.
I guess is there.
Very stable inside a customer environments.
Thank you.
Your next question comes from the line of Raimo <unk> with Barclays.
Hi, This is sheldon on for Raimo, Thanks for taking my question.
We are certainly hearing different perspectives on the challenging macro environment by region in the quarter It looks like the Americas segment.
Revenue declined 8% in constant currency versus a strong double digit growth last quarter.
This is <unk>.
Surprising, giving the installation from Russia, and FX and the mission critical nature.
Was that a surprise to you and is there any moving parts there to consider or would it be the less upfront recognition in the quarter. Thank you.
Yeah, Hi, Sam from your Cat has absolutely at towards the end that you hit it on the head as you saw we're actually growing in constant currency Americas for the first half and specifically in Q2 as you said, we are declining and the big impact that in constant currency from the upfront revenue recognition, so if that seasonality impact.
Between Q2 of this year versus Q2 of last year to create room for the hub, we are seeing constant currency growth in the Americas.
Very clear and then a quick follow up if I may.
What's the reception been from customers on the blended pricing with both the capacity based piece and the consumption element and how did the consumption element specifically performed versus your expectations in the quarter.
Thanks again.
Yes. So we are seeing some of our customers take advantage of that blended pricing model.
By far and away the bulk of our revenue is actually in fixed capacity agreements, which gives us that again financial assure really render business model and results for the year.
We are starting to see our customers utilize those consumption agreements.
First in the world.
We think as well as a great way to win new logos.
So that customers can start small with us and then grow them.
But even in those agreements what we see as our customers really want to get the best of a blended model because we can contract what does that a reduced rate for fixed capacity and then just first for what unique that gives us a real insight into the financials over.
<unk> of our business as we move forward so it's a.
Or the type of model there.
Our customers are taking advantage of but by far and away is a small part of our existing recurring revenue streams.
Thank you.
Yes.
Your next question comes from the line of Derrick Wood with Cowen.
Hey, guys.
That way.
But from what I've heard so far it sounds like you're you're not seeing a material impact from the macro you remain confident in the demand and pipeline around cloud, but perhaps.
There was some delay in.
On Prem renewals and I wanted to touch on that.
Look at the on Prem IRR.
Come up with about 6% decline in constant currency, which was.
Down versus a 3% decline last quarter, maybe flat in Q4.
Was that an area that was a little weaker and with.
With respect to your guidance for total IRR are you expecting that to make that up in terms of.
Stronger renewal of that business in the second half or do you assume perhaps that some.
Some of those renewals slip.
Hey, Joe Yeah, Let me just start.
The impacts that we're seeing on title era. So you may have missed it but we have added a new disclosure on page eight of our earnings presentation, which breaks down the impacts that we're seeing across caito era revenue total revenue and recurring revenue and what you'll see that it's a cross currency and Russia, yeah behavior.
We think 8% impact year to year, it's a combination of currency and Russia being a significant headwind actually that increases too.
If you include upfront revenue and the timing and seasonality we were talking about that 15% impact from title revenue in 14 per cent impact on recurring revenue year over year.
Once you look at that and have a look at that additional just like a hopefully that clarifies that actually the underlying business is growing as expected and I'll just positive to talk about that Chris.
Yeah from a macro perspective Derek.
As you know we are rock solid and our customers executing mission critical workloads that gives me a lot of stability in the revenue.
Platform.
In addition to that our business model being now 80% recurring revenue gets great revenue stability as we move through the rest of the year.
The commitments and multiyear commitments already fixed capacity that we have for our customers also gives us confidence in our second half.
Second half financial performance so.
From a macro perspective.
Clearly there are impacts, but we have a very very strong financial model.
Okay.
That's helpful.
Back on the <unk>.
Clarity around free cash flow and you guys have done a great job.
While the FX headwinds, Russia, and really kept that.
Health of the free cash flow this year are there.
Guide beyond that are there were there one time impacts this year that you were able to pull levers on that could be tough to be repeatable going into next year or.
Is that just.
Cash conversion focus something that can be durable.
So I believe they are cash conversion.
<unk> is durable either absolutely with a great consistent performance.
Performance, absolutely cash conversion cycle it is durable.
Gabe <unk> at tax refund benefit, which I talked about in Q1.
Which is a benefit in the quarter, but I do have absolute confidence in our long term generation of geography cash raise and.
As we lap them laid out at Investor Day last year, you know, we still have good line of sight.
Approximately $550 million by 2025.
Okay. Thanks for taking my questions.
Okay.
There are no further questions at this time I will now turn the call back over to Steve Macmillan for his final remarks.
Thank you Lisa.
As we say off a great confidence in our future our strategy in the company is absolutely right. We are growing in the cloud and we're driving a strong pipeline for the second half of the year to accelerate that momentum.
Our vantage data and analytics platform remains mission critical for enterprises, all over the world and I'm incredibly excited about our upcoming announcement it takes our industry leading capabilities and to the next generation. So that companies can scale smarter and faster and grow stronger in the cloud.
We remain really focused on delivering shareholder value.
For joining us today.
This concludes today's conference call you may now disconnect.