Q3 2022 Teradata Corp Earnings Call
[music].
Yeah.
Good afternoon. My name is Danielle and I will be your conference operator today at this time I would like to welcome everyone to be Terra data third quarter 2022 earnings call.
All lines have been placed on mute to prevent any background noise. After.
After the Speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad.
If you would like to withdraw your question press the pound key.
<unk>.
I would now like to hand, the conference over to your host today, Christopher Lee Senior Vice President of Investor Relations and corporate development.
You may begin your conference.
Good afternoon, and welcome to <unk> 2022 third quarter earnings call.
Steve Macmillan, Terry Davis, President and Chief Executive Officer will lead our call today, followed by clear Bramley, Terry <unk>, Chief Financial Officer, who will discuss our financial results and our outlook.
Our discussion today includes forecasts and other information that are considered forward looking statements.
While these statements reflect our current outlook they are subject to a number of risks and uncertainties that could cause actual results to differ materially.
These risk factors are described in today's earnings release and in our SEC filings, including our most recent Form 10-K and in the Form 10-Q for the quarter ended September 32022 that is expected to be filed with the SEC within the next few days. These forward looking.
Shipments 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.
Unless stated otherwise all numbers and results discussed on today's call are on a non-GAAP basis.
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 Natera 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.
Thanks, Chris and good afternoon, everyone. Thank you for joining US today in Q3, 2022, we accelerated our cloud momentum and delivered profitability at the top end of our range.
I am pleased with the ongoing progress as we delivered our second largest quarter ever.
<unk> was $279 million growing nearly 100% year over year in constant currency.
We achieved cloud IRR growth in all geographic regions year over year, driven by improving win rate as we accelerate our <unk>.
We are also increasing the volume of cloud transactions, we are executing nearly doubling the amount year to date.
Continue to build and maintain long term relationships with our customers as they move to the cloud with us and realize the value that comes from unlocking insights from all of their data.
In the quarter, we signed a number of large deals included an eight figure cloud migration as well as an eight figure expansion with a cloud customer that has been with us for less than 12 months.
These large transactions, where in addition to a number of smaller migrations and expansions at.
It is encouraging that we continue to see a balanced portfolio of transaction sizes as customers often start small we discovered that carry data is the fastest path to the cloud.
These risks and lowest cost and can scale easily as they achieve breakthrough results from their data.
Our strong cloud growth demonstrates that our customers recognize the value inherent data as mission critical capabilities as we deliver the best cloud analytics and data platform in the market to navigate through the macroeconomic pressures and recessionary concerns that exists today our total.
<unk> was flat in constant currency and declined by 4% as reported as we've discussed before this is primarily due to continued currency headwinds and the effects of ceasing our operations in Russia to put these results into context I'd like to take a moment and remained everyone where we are on our transformation journey.
When I joined just two years ago, we advanced our strategy in perpetuity or business to cloud first our third quarter's achievements reflect another step on that journey. Our strategy is designed for continued rapid cloud growth balanced with delevering profits and return of capital to our shareholders.
For sellers are faced with the option to sell a small on prem expansion.
Wait and subsequently help our customers migrate to the cloud with carrier data they lead with the cloud.
As a result, we are helping our customers effectively achieve their ambitions in the cloud while securing parity this place and the customer's future architecture. We now have hundreds of our existing customer base realizing value from the Teradata cloud environment.
We've also built out a set of sales place that drives sticky analytic workloads based on our recently announced clear escape analytics capabilities and we've invested in our long term customer success team, ensuring we keep our lens on account health and driving outstanding code experiences that set us up for ongoing expansion.
And future migrations.
We've been relentlessly focused on executing against our cloud strategy and assertively moving forward in the market place.
<unk> growth is exactly the goal we set out to achieve and our sales teams have embraced it and are performing strongly with our top priority on selling cloud through the natural Gavin take with on Prem <unk> expansion.
Q4 is seasonally our strongest quarter and gives us conviction to reaffirm our 2022 financial outlook clear will cover more details in our remarks, but I wanted to touch on our 2022 <unk> cadence.
While we did not accelerate total growth on a reported basis, we are committed to growing faster next year and beyond especially as our cloud business becomes a greater portion of our mix and we are pleased with the rapid and sustainable growth in the cloud that is leading to stickier and longer lasting economics are.
Our eyes remain firmly on the growth horizon as we look to the full year and beyond we know that companies need the best <unk> possible and that is what we deliver we enable our customers to extract value from all of their data and power users and drive smarter faster innovation at scale at a highly competitive.
<unk> Cross point.
We remain committed to our strategy and are confident in our ability to deliver on it is a profitable multi cloud analytics and data platform leader.
In the third quarter, we took major steps forward in our technology innovations announcing our most significant offerings in years.
Proudly launched Teradata vantage cloud Lake our first product built on an all new next generation cloud Native architecture Vantage closed Lake is designed to be automatically elastic and leverage low cost object store at its core yet with the powers that carry data is known for and it's easy to use.
And expand as needed as a result, we expect lake to provide faster access better governance and more powerful analytics at massive scale all at a lower total cost of ownership.
Vantage quite late extends our technology beyond mission critical enterprise needs and expands the reach of our differentiated capabilities to departmental exploratory and AD hoc use cases without moving the data. We believe these advances open up entirely new markets and opportunities for our customers more importantly it.
Empowers our customers to drive more innovation, we also introduced clear scape analytics expanding the high performing analytics that Teradata is known for with clear escape analytics customers can take advantage of the most and database analytic functions anywhere in the market along with critical AI ml.
Modal management tools to meet growing analytic demands and sold their organizations. Most complex problems, we took our analytics capabilities, even further by introducing more than 50, new and database <unk> and AML functions and integrated model ops that are designed to rapidly opera.
<unk> AI and ml initiatives.
These game changing announcement are the result of two years of great engineering with a laser focus on cloud.
I believe we are fundamentally changing the ethos of our industry moving the query engine to the data as we bring forth cloud first in an entirely new model that enables powerful open and connected analytics at scale massive flexibility and faster access west governance.
And lower total cost of ownership.
We believe that we have the best cloud analytics and data platform period.
With a fully cloud native deployment under expanded clear escape analytics capabilities. We're meeting the full spectrum of our customers' needs with our best in class like Lake House or data warehouse.
I'm incredibly proud that with vantage cloud, we enable all of these design patterns at enormous scale with better economics.
Immediately following our announcements we took our message on the road meeting with more than 1000 customers prospects and partners and helping them discover strategies to generate value and accelerate their business through analytics and data and it's been great meeting live with customers from around the world and seeing their enthusiastic response.
Generating increased interest that contributes towards ongoing pipeline growth.
The game changing capabilities of our newly announced Teradata Vantage code Lake are opening the door to incremental market opportunities.
A fortune 500 insurance customer as an early adopter of vantage closed late this customer runs actuarial analytics and closes its financials on its teradata environment to date, our new late product will enable it to easily spin up compute clusters for exploratory analytics without <unk>.
<unk> any of their production workloads.
I'd like to share a few more examples of our momentum in the cloud.
Package and delivery and discrete leader and one of our longstanding customers chose to modernize and cloud with vantage cloud on Azure a successful initial migration gave the customer the confidence to commit further to Terry data and migrate as remaining workload to the cloud and expanded its business continuity and does that.
Extra recovery workloads in the process.
<unk> data on Azure provides the flexibility elasticity and industry, leading price performance test business demanded to continue to use data as a strategic asset and drive value.
One of the world's leading financial services institutions has selected Teradata vantage cloud on AWS as its cloud based enterprise data and analytics platform. This customer will migrate existing on Prem candidate of workloads to the cloud while evaluating opportunities to expand the use of vantage across.
Additional business segments vantage cloud on AWS will enable the bank to continue to innovate and lead in its industry.
One of Chiles largest retail and commercial banks migrated to vantage cloud on Microsoft Azure to achieve is digital transformation goals and enable retro customer experiences with.
West carry data this customer is arming decision makers with data driven insights that will help them innovate faster and reduce time to market for new financial products and services.
In the quarter, we were honored to again be recognized as an industry leader in Idc's <unk> top 100 rankings Terra data was named a fast track and cake recognizing the role we play in helping financial institutions drive digital transformation by leveraging the full power of analytics.
And data.
As we've been strengthening our reputation and <unk> the cloud market leader.
Also been strengthening our partner ecosystem to extend our reach and bring incremental value options for our customers. We noticed the si involvement and a meaningful portion of our pipeline. We also recently announced a new strategic global Si relationship with Kendall by bringing together unmatched analytic.
Leds with tendrils experienced consulting teams, we will enable our joint customers to leverage advanced analytics, AI and ml accelerate business outcomes and speed tend to value.
As we move forward. We are also advancing our commitment to strong ESG practices. We were pleased to be recognized recently by E provide us for our commitment through sustainable and ethical business practices. We are proud of this designation as many of our enterprise customers rely on <unk> to assess their suppliers across a number of.
Sustainability dimensions, including environmental Labor and human rights ethics, and sustainable procurement companies around the world are increasingly reviewing the sustainability of the cloud environment and challenging their supply chain partners to reduce emissions and improve their carbon footprint. We are committed to doing our part.
And addressing the devastating effects of climate change as we develop our platforms. We are pleased to note that in an analyst firms comparison of cloud data platforms. Our vantage cloud had the lowest cost and generate the lowest carbon footprint for the enterprise workload use case are sweet spot you can be assured that we will.
Keep sustainability at the front and center of our efforts.
You've heard us say that we've built a resilient business model that provides stability during times of volatility.
We cultivate strong customer relationships and consistently deliver mission critical workloads for our customers' needs at scale.
As our customers look to move to the cloud to take advantage of the innovation and the efficiencies of cloud solutions. We are at their site. These success factors position us well to execute on our cloud gateways for the remainder of the year I am very excited about our new offerings and the new capabilities and <unk>.
They bring to our customers along with the incremental value they will bring to us.
As we prepare to enter 2023, we know our strategy is right.
Customers are moving to the cloud with carrier data and the market is recognizing our desk <unk> positioning as a leader in cloud analytics and data.
We compete in a dynamic growth market and like all great companies committed to profitable revenue growth, we continuously evaluate and adjust to optimize our cost structure, while focusing on our employees customers and stakeholders.
We are operating with conviction to keep our momentum remained customer driven and be a profitable growth company, we will refine and adjust as needed to keep a sharp focus and align our investments with our priorities to continue to accelerate our growth.
As I turn the call over to clear we remain convinced that our technology can continue to unlock even more of our total addressable market opportunity.
Reinforcing our confidence about achieving our goal of over $1 billion of cloud IRR and 2025.
Thanks, everyone I will now turn the call to clear.
Thank you, Steve and good afternoon, everyone.
I am pleased with Paradise and execution in the third quarter, especially considering the volatile macro.
Economic environment.
Key highlights in the quarter inquiries.
$35 million of reported sequential cloud analog way.
A $15 million in constant currency that result in a growth rate nearly doubling year over year.
We also delivered non-GAAP earnings per share. Thank you Juan.
At the high end of our outlook range and demonstrating the company's continued focus.
On profitability.
We remain on track to achieve all elements of our fiscal 2022 outlet.
Doing what we said we would do and I continue to be excited about the opportunities ahead of us.
We are making progress on our multiyear transformation as a differentiator cloud analytics and data leader.
We still have work to date and we remain relentlessly focused on driving future revenue growth.
Let's get into the quarterly results.
<unk> with Ara.
Casual ALR $1.374 billion, which is flat year over year in constant currency and a decrease of 4% as reported.
Persistent currency headwinds continue to build scale underlying sequential growth in our business.
On a reported basis total ALLL declined sequentially by approximately $16 million.
Of that amount there was an approximate $28 million currency headwind in the third quarter.
The resulting positive $12 million represents sequential growth in constant currency, which was primarily driven by increases in cloud <unk> and <unk>.
All of our geographic regions as well as on Prem expansions in EMEA.
Yes, again currency had an approximate 4% negative impact and the reported growth rate I'd say in a quarterly earnings presentation on page six.
This is in addition to the four percentage point negative impact that was associated with placing business operations in Russia that we shared with you at the helm.
In cloud.
99% year over year constant currency and 89% year over year as reported.
Faced with a strong performance demonstrating.
Demonstrating progress against our cloud first strategy and keeping us on track to achieve our long term goals and the cloud.
Customers continue to make meaningful commitments to us as they unlock.
Hi, Anna.
Significant business outcomes from that environment.
With ongoing customer success model without any more resilient and durable cloud subscriptions.
Have a place in the third quarter was driven primarily by migration.
In addition to the eight figure cloud deal that Steve mentioned, we also had a number of seven figure cloud migration.
These commitments came from an increasing number of existing on premises customers that are new to the cloud So paradise.
Expansion activity in the quarter was also solid.
Our net expansion rate was 117% consistent with last quarter.
The rate was supported by an increasing number of existing cloud customers without adding new incremental websites to the cloud.
I just wanted to like I said year over year faster than historical seasonality and with a weighting towards the comps.
We added new customers in the financial services healthcare and government sectors to name a few.
Moving to revenue.
Total revenue was $417 million.
A 4% decrease in constant currency and a 9% decrease year over year as reported.
Recurring revenue was $331 million.
A 10% decrease in constant currency and a 6% decrease year over year as reported.
As a percentage of total revenue with having revenue was 79% in the third quarter.
Our second quarter earnings presentation that was a negative year over year impact.
Impacting the reported growth rate of approximately 9% perpetual revenue and approximately 6% for recurring revenue.
But as far as that case by thinking of operations in Russia, and the continued strength of the U S dollar.
Context more than 40% of our total revenues outside the United States.
Now to add additional color to this quarter's revenue.
That was an approximate $16 million of title revenue believed from our results due to exiting Russia.
As it relates to upfront revenue that was a net negative $11 million.
In line with that assumption for the quarter.
Restaurant. This compares to a net negative $10 million impact in the third quarter of 2021.
The net impact.
Yes.
Regarding the decline in perpetual and consulting revenue, we continued to execute against our strategy.
Moving to a higher margin subscription revenue model and collaborating more with partners.
Higher adoption greater consumption of Teradata.
Do you think the profitability.
Para data as reported third quarter gross margin rate was 62, 6%.
Gross margin dollars were $261 million.
The year over year decrease of $21 million in gross margin.
It was primarily due to currency headwinds and sustain our business operations in Russia.
Cloud gross margin dollars are higher year over year and sequentially as we continue to scale our cloud revenue.
Operating profit margin as reported was 12, 9% in the quarter.
The year over year decline in operating profit margin was primarily due to lower revenue.
We continue to invest in cloud.
Marketing and R&D, while also demonstrating cost discipline. This resulted in non-GAAP earnings per diluted share of <unk> one.
It was at the high end of the outlook range previously provided.
Turning to free cash flow and capital allocation.
Free cash flow generated in the quarter was $31 million.
Creasing year over year, driven by efficient cash conversion.
We continue to sustain a positive operational trends of cash collections over the last six quarters.
We also saw the benefit of efficient inventory management with our continued transformation of being a cloud SaaS company.
In the third quarter, we repurchased approximately 1 million shares of <unk>.
The $1 million and tasteful I can't believe SaaS are significantly undervalued.
Under the current market conditions, we will continue to be opportunistic in the fourth quarter.
Yesterday.
2020, we have returned 123% of our year to date free cash flow to shareholders.
Significantly ahead of our 50% annual target.
We remain committed to capital allocation.
Shareholder return.
Moving to our outlook.
Reaffirm all of our 2022 outlets element.
Sales increased approximately 18% growth year over year and cloud era as.
As reported and in constant currency I'm.
Free cash flow of approximately 400 million Donald.
We now raise our range for non-GAAP earnings per diluted share.
$1 58 to $1 62.
Maintaining the midpoint at $1 67.
Our complete 2022 outlet can be found in our third quarter earnings press release and presentation.
I'd like to make a couple of comments to help frame our 2022 full year outlook.
We know that fourth quarter is seasonally our highest quarter from a sales perspective.
And our current sales pipeline give us confidence that total IRR and cloud direct way, we'll accelerate sequentially.
We have absorbed the incremental quarter over quarter currency headwinds of approximately 50 basis points and our full year outlook.
If currency headwinds.
Great.
Maybe towards the lower end of our outlook ranges.
We are planning various actions to continue optimizing our cost structure.
We do not anticipate any impact from restructuring to 2022 non-GAAP EPS.
Only an immaterial impact to 2020 free cash flow.
We will provide details of the 2023 impact on the next quarter's earnings call in conjunction with our 2023 financial outlet.
Before we move to questions here are some modeling considerations for the rest of the year.
For the fourth quarter of 2000, 2010, we anticipate non-GAAP earnings per diluted share to be in the range of 28.
<unk>.
We project non-GAAP tax rate to be approximately 27% in the fourth quarter and approximately 25% for the full year, we forecast a weighted average diluted shares outstanding to be approximately 104 million shares in the fourth quarter and approximately 106 million shares for the full.
Yes.
Thank you very much for your time today, let's please open the call for questions.
At this time I would like to remind everyone in order to ask a question.
Chris.
Star then the number one on your telephone keypad.
For just a moment to compile the Q&A roster.
In the interest of everyone in.
And the opportunity. We appreciate that you limit yourself to one question and one follow up.
Your first question comes from the line of Eric Woodring with Morgan Stanley . Please proceed.
Hey, guys. Thank you for taking my questions Tonight, Congrats on the congrats on the results.
Steve I'd like to direct my first question to you and then just a fairly simple one and that is in your prepared remarks, you didn't you didn't make a number that many comments on the macro environment. So I'd love to just get your kind of download on how how you see the macro evolving meaning how have your conversations with customers.
Evolve did anything change in <unk> relative to <unk> is macro starting to have an impact on your customers' businesses.
Any any color in terms of lengthening of sales cycles or downsizing of deals at any commentary that you could share there would be super helpful. And then I have a follow up thanks.
Yes, Thanks, Eric Yeah, we're continuously assessing the impact to our customers and their spend patterns.
Got it very regularly.
<unk> discipline around that.
Not seeing any significant changes to our customer behavior patterns at this time.
We also don't see any significant deal delays that are as the ordinary.
What I would say is I think we've talked about the strength of the <unk> business model. The types of workloads that we execute and tailor customer environments tend to be absolutely mission critical.
Commitment that they have with us tend to be longer term.
And we're really proud of the buying patterns in terms of the continued interest in our cloud capabilities that we have.
New product launch with.
Vantage clients like I think cash cement than to advance technology architectures and cellular customers and so we see them taking advantage of the capabilities to take teradata to the cloud and I think that's what's enabled us to have that second highest ever code quarter from a Q3 perspective.
But we are we are we do take it very seriously and tend to look at the macroeconomic environment.
And making sure that we've got the right responses throughout the organization.
Okay. That's really helpful. Thank you, Steve and then Claire maybe I'll direct one for you obviously, you've held onto your annual cloud IRR growth targets since first introducing it.
Earlier this year. Despite some of these emerging headwinds we have been seeing exiting Russia stronger U S dollar.
I believe your at least your expectations for FX headwinds for the full year and for <unk>.
I'll kick this quarter. So can you just help us kind of want to understand what's giving you the confidence in reaching your year end growth target for cloud IRR and then two how youre able to offset what is now a larger FX headwinds than you thought 90 days ago and that's it for me. Thanks.
Thanks, Eric Great question, and yes, we are very happy of if he could be able to maintain all elements of our outlook for the full year.
<unk>, our cloud our growth target of approximately 80%.
Seeing currency headwinds, we are expecting that to be a delta between our quoted on a constant currency numbers for the full year, but we think that that gap will narrow specifically for <unk> air opposite the mix of the deal mix in the U S. I will slightly increase in Q4, but even factoring that in.
In two accounts given the good pipeline coverage that we see and as Steve mentioned, not seeing any significantly different behavior on out from our customer behavior.
Very confident to be able to reinforce that number.
And approximately 80% based on a reported basis and in constant currency.
Yeah.
Great. Thank you so much.
Thank you.
Your next question comes from the line of Derrick Wood.
Of Cowen and co.
Please proceed thanks, Alex yes. Thank.
Thank you and I'll Echo my congratulations on a really strong cloud quarter.
You guys I don't know if this is for Steve required maybe clear, but you guys talked about.
<unk> seen bigger whips and chips when companies decide to make the cloud migration move is that still a pattern youre seeing in Q3 or is that changed at all I mean, if this is a trend you expect to continue where do you think the kind of cloud net revenue retention rate should level off at.
So I'll take the first part of that question Derrick So.
Just from a pattern yet our sales team I think I mentioned, that's my prepared remarks as well our sales teams are certainly focusing on those large scale migrations moving the customer to the cloud.
We still obviously.
A lot of hybrid deployments, where our customers are in the cloud and on Prem.
But the focus for the sales teams are those larger deals we did have a good portfolio of deal sizes across.
Across the sales teams. So we're not overly dependent on those on those mega deals.
Certainly have lots of opportunity to move some of these huge customers and major workloads into the cloud and the sales teams are definitely focused on that I think if anything it probably if they have the choice of doing an oil <unk> expansion or pushing that deal out could focus on the cloud.
Ration their incentive to really go for the cloud migration and I think that's what we're seeing in terms of the behavior of our sales teams.
But I'll hand to clear to talk about bad debt net expansion rate.
Yeah, absolutely thanks, Dane and thanks for the question so as I mentioned.
We saw a 117%.
The Q3 results and that was actually consistent quarter over quarter. So I think that's a good stable rate at this point and as Steve mentioned, we're seeing great strength in our migrations were seeing that expansion at the time of conversion and we're very confident in.
Our full year.
<unk> AOR growth at that level of expansion rate.
Got it. Thanks helpful. One follow up here I guess, Steve you mentioned that.
Youll continue to refine and adjust operations as needed.
In light of FX headwinds in light of tougher macro.
<unk>.
It's been a lot of companies, having a kind of pause head count growth, maybe even prune head count.
When youre looking at the kind of growth versus profitability trade off and maybe having to adjust to the environment.
How are you thinking about head count growth or changing discretionary spend are things that you have and control that can.
Kind of manage operational costs.
Yes.
Derek My commitment has always been that Terry data will be a profitable revenue growth.
And so we continuously assess our overall cost and expense structure to make sure that it's optimized in the right way clearly, we're taking advantage of a lot of organizations.
Organizations are optimizing our real estate footprint as an example.
So we've taken some great actions from that perspective.
We continuously assess where we're spending money to make sure that we're investing in the right areas of the business to make sure that we are.
We're investing in cloud growth, especially in the.
Our new product engineering.
Launching a new product launch from our engineering team really demonstrates how we optimize our investments to deliver something in the marketplace and we'll continue to do that and we will continue to have that operational regularly as we move forward to deliver on the commitments that we've made.
Got it thanks, congrats on a solid quarter.
Thanks, Thanks, Sir.
Your next question comes from the line of Tyler Radke of Citi.
Please proceed.
Thank you good afternoon I wanted to ask you about the comments you made around next year for 2023, just wanted to confirm that with you.
Reference.
Improving AOR growth.
I would assume that means accelerating <unk> growth, maybe just unpack that a little bit is that a.
Constant currency ex Russia number so if we think about kind of a 4%.
<unk> growth this quarter ex those issues is an acceleration from that and then just give us a sense on what drives that confidence is it kind of the expansions in cloud.
Just help us understand what gives you that.
Thank you.
Thanks, Tyler I'll start and then maybe hand over to Claire for some of the more technical financials. Our sales teams are executing on our strategy and we are.
I'm going to get back to total growth as well as cloud growth.
We are getting those long term commitments from our customers as you move to the cloud run inspect key mission critical workloads I think that as an advantage for us in this challenging macroeconomic environment.
But I think youll see us continue to accelerate total IRR as more of our IRR mixes in the cloud and the elastic environment of the acquired that.
We have growth is much easier. We've also got plans for lots of sales plays in motion to drive expansion with more sticky what loads and analytic use cases.
We've invested in our customer success team, but also I'm very excited about the work that we're doing with F&I partners to help customers transform their environments and that transformation in the teams.
Turbulent macroeconomic our customers still have that desire whether its to optimize the supply chain.
Utilizing data and analytics to do that optimizing their operations. So I think we are seeing in the cloud and data analytics market space.
Continuing good opportunity as we move forward, but I am clear I'll, let you answer maybe on the FX points and so forth.
Yeah, absolutely so first of all Jeff.
We're not giving any guidance update for 2023 at this time.
We will provide an update on that at our next quarterly earnings call. Clearly we have had significant headwinds in 2022 based on 30 thing.
<unk> in Russia, and currency and so it.
We will be factoring that in as we give final guidance at our next earnings.
I don't want to pretend I can predict what currency is going to happen next but as always we monitor this on an ongoing basis, we always in place the very latest at rates and situation into our outlets. So we were pleased that the fact that despite for example, there are additional headwinds between Q3 and Q4 for example, we were able to absorb that.
Full year outlook.
Great. Thanks for the color and just coming back to some of those large deals you referenced in the quarter I think a number of eight figure deals which.
Very impressive to see in this environment I guess help us understand a couple of things first.
Did any of those close early maybe stuff that got pulled in from Q4 I know typically Q4 is when you tend to close them.
Plus figure.
Transactions and then secondly for those deals that were cloud deals that sounded like cloud conversions give us a sense on how much those contracts expanded relative to what they were.
Spending on premise. Thank you.
So yes.
Yes, both of those deals had.
Expansion in terms of from what we were spending on premise towards their spending in the cloud.
We were really excited clearly about.
Doing those doing those very large deals with our customers. It certainly represents a great commitment in terms of forward execution.
I think we didn't see a significant level of pull forward from Q4 to Q3.
I would also say our Q4 pipeline as Clare mentioned in the prepared remarks is looking healthy.
So.
Everything is pointing to the fact that we maintain our outlook on approximately 80% year over year for quite a day our growth by the end of 2022 so.
Right execution by those sales teams.
There are clearly.
They are selling the advantages of tariff data in the cloud.
Thanks, so much.
Hi, Tayo.
Thank you. The next question comes from Raimo <unk> of Barclays. Please proceed.
Hey, Thank you and congrats from me as well.
Stephen the.
One thing that surprised me at the launch of your Lake were slightly positive news flow from some of the existing customers.
Really like the separation of compute and storage, but also like kind of like how vantage gives them a really nice clear path into into the cloud can you speak to what you've seen since the launch.
So of like customer.
Customer feedback that you have received so far and how thats, helping build pipeline.
Yes, no absolutely.
<unk> took that message on the road as you know after that initial launch and met with thousands of customers around the world.
It's great getting out and meeting those customers in person and getting real feedback from them in terms of their evaluation of the technology and how were taken.
Cloud first strategy and making it real for them.
Getting a loss and loss of interest I think we've already got customers up and running and using cloud Lake, which is great, but I think as well launch in a new instrument around clear escape analytics and pointing to the end database analytic capabilities that are now available.
As part of the platform, but drives immensely complex inspection workload gens.
Gives our customers the opportunity to deploy some really interesting use cases on the terra data platform.
That the cloud weights announcements to your point.
<unk> us to have an offering where we can provide as we always have done the very best enterprise data warehouse, but now we can provide.
A data Lake data lighthouse.
You can do it on on Prem and in the cloud in terms of those deployment auctions, which a lot of our competition isn't able to do we utilize native object store storage right in the core of the technology So that we.
We can get an optimized cost for our customers as they deploy our technology. So it is an exciting play we're getting some great feedback.
Yeah, perfect and then.
If you kind of I'm sure you looked at the numbers and the <unk>.
AWS numbers and you can see like a little a little bit of a deceleration there and people are optimizing cloud spend it seems different with you and you touched on mission critical and getting value out of that and being kind of ultra early in the lifecycle of going to the cloud there like what are you seeing in terms of customer.
Willingness to engage with you and just kind of uncertain times like what are you kind of following the cloud guys is it slightly different like how should we think about that.
Well I think we've mentioned about the strength of our business model before in terms of how we construct.
Long term agreements and contracts with our customers utilizing blended pricing models that have a fixed capacity built and.
And our customers actually utilize that capacity to have.
To have the best in the industry financial governance of their data and analytics environment, and our customers see that as a real strength.
Because we have the patents around what load management and query optimization, our customers can run.
More work load and play that fixed capacity in an optimized way compared to how our competition does it our analytics capability enables customers.
Optimize.
That so that they can reduce dependency on maybe one off analytic providers and say their environment and utilize the capabilities and sanitary data. So I think our sales teams are using the microeconomic environment.
Some good reasons why Terry data is better in the cloud and some of the cloud native solutions that don't have those patented capability triangle.
Yeah, Okay perfect mix total sense, Thank you and good luck.
Thank you.
Your next question comes from the line.
Chad Bennett.
Craig Hallum.
Please proceed.
Great.
Thanks for fitting me in so just clear or Steve just a caution on the on Prem subscription business.
Just in terms of it seems like a lifetime since anybody's analyst day and targets. If they did them late last year or mid last year, but just in terms of how youre thinking about that business over the next.
12 to 24 months or over your target timeframe.
From a from a growth standpoint, I think you were talking about even net of migrations being able to grow your on Prem subscription business is that still the case and then maybe any insight into gross churn around that on Prem subscription business. This year that would be.
Great.
Yeah, so from an on Prem perspective.
I think I look at it as kind of flat.
In terms of our overall economics.
And certainly the microeconomic environment would say that it's not going to be it's not going to be a growth engine for us. So.
From a churn perspective.
We experienced churn levels, but the best way to prevent that churn is actually to move them to the cloud.
And so we can we look at the overall business.
We're not seeing any surprises there.
When we move that customer to the cloud.
A long term commitment.
10 weapons.
That's really the growth vector that we're looking at.
Okay, and then maybe one follow up just if you look at kind of where you are year to date and cloud <unk> growth, which has been great.
You guys are an outlier in terms of hitting your target and growing at the rate you are at some decent scale now also but if you look at kind of the components of where we are today or at the end of the third quarter, Steve whether it's migrations or net expansion.
New logos.
Is it has it played out the way you thought it would or have there been any variations in terms of nobody has a crystal ball, but in terms of kind of how you got to where you are today.
Yes, I think what we're seeing is more.
Increased IRR on migration.
Whereas the pattern that we had seen was we might sales teams migrated some of the customer's environment and then expanded that subsequently I think the sales teams are now going to the big deal right out of the box right. So if I think about it that's certainly.
Certainly a difference to our initial planning but.
As we model that through and look at the expansion rate that we're currently seeing it still gives us the.
It gives us the number of getting to the approximately 80% year on year <unk> growth.
So I think broadly we're in line with what we said Investor day that made that slight change in mix, new logos new logos in Q3.
We are pleased with the momentum that we've got from that perspective as.
As more challenging be absolutely clear, what you're is more challenging to win new logos in the microeconomic environment.
But the credit quality of the workloads that we deliver the value propositions that we've got for our customers continue to set that we've got great.
Great growth potential and the data and analytics marketplace is a great marketplace to be up.
Got it thanks, so much nice job on the quarter.
Thanks, Jeff.
Your next question comes from the line of Matthew Hedberg of RBC capital markets. Please.
Please proceed.
Hello. This is Damon on for Matt Hedberg. Thanks for taking my question and congrats on the quarter.
My question is that the customer feedback we spoke about with the vantage cloud.
Platforms seems great.
Digging a little bit more on a traditional customer journey and then any insights you can provide on how.
This platform could pave the way to hire new logo adds in 2023 2024 versus <unk> as well as any new market opportunities that you're particularly excited about thank you.
Yes sure. Thank you for the question So enterprise edition.
As that is the bulk of the business that we did in Q3.
What we're seeing is that.
Our customers are.
<unk> taken the vantage platform on Prem straight to the cloud and lending that on vantage cloud enterprise today, that's where we're getting the bulk and the bulk of the business in those big deals.
Have a good component of vantage quite enterprise.
Vantage cloud Lake.
As the opportunity to start small with customers see the value and then grow.
And the price point, the initial price point advantage quite late.
Put in.
Attractive for those customers to start using it because we believe that the U S. But that's enabled by that technology will drive big.
Good growth into the future as we look at our gateways for FY 'twenty two.
We didn't.
We did not have a large assumption around cloud right or.
Fundamentally changing the trajectory of our business most of the best growth that we will do in Q4 late Q3 will be on vantage cloud enterprise. So.
We looked at cloud Lake is an opportunity to get into that rent that different workloads experimental asphalt.
What would benefit our customers.
And it's gonna be up future catalysts driving growth as we move forward.
Great. Thanks for the color.
Your next question comes from the line of.
One was in Mohan.
Bank of America.
Please proceed yes.
Yes. Thank you.
Steve just going back to the on Prem side of the business.
One of the Hyperscale or seems to have created a displacement of a longtime on prem customer are you seeing anything change in the pipeline do you view that as sort of a one off or are you seeing.
The on Prem pipeline is changing in some some competitive way with the hyperscale or at all and I will follow up.
Yes, I think what we're seeing there one is.
We have major customers moving to alternative technology that tend to it tends to be a decision in an activity that started.
Started in planned and executed on based on a decision that was made years back before we had the quiet capabilities that we've got to do we've got to today I think now what we're seeing with the progress that we've made over the last two years.
Customers re combating twos based on the technology architecture of the product announcements that we've made recently the fact that we can take them to the cloud in a very effective way.
It's of great interest to them.
We work in partnership with the Hyperscale. It is clearly because we are available on all of three of the Hyperscale.
But we're not frightened to compete either.
We do have the best data and analytics platform.
When our customers experienced that and get to use it in the cloud they realize that they can.
Right.
Loads from on Prem and pay them to the cloud and the most effective least cost way and so we're seeing a lot of a lot of execution from that and once they are in the acquired weapons, we become part of their future technology architecture.
I have.
The best way that we will.
So can you engage with all of these customers and the future is to get them, the best possible data and analytics capabilities, where they need it on prem or in the cloud and a lot of these really large organizations are realizing that they can optimize their environment by having both an on prem compel.
And the cloud component and we can we can execute in both of those deployment models.
Okay. Thank you save that's that's very helpful and clear maybe as we think about the trajectory from this 400 million to your longer term target on free cash flow.
How should we think about how linear progression should be and I know youre not guiding 2023, but any any large puts and takes that we should be thinking about in terms of free cash flow looking into 2023. Thank you.
Yeah. Thanks.
Thanks for the question as you mentioned not planning to guide at this adding for 2023 that we are really happy with.
The efficient cash conversion cycle that we've seen on a continuous basis.
2020 cases that is a continued opportunity meaningful in 2023, and obviously as I talked about you know looking for that momentum in terms of growth as we come out of the headwinds that we've seen in 2022 from Russia and currency.
Nothing out of the ordinary.
I would say that just the fact that we've seen consistent cash conversion cycles at multiple quarters now.
Right and we think that that vary.
Very easy to extend and and continues to perform from an efficiency standpoint on pathway into our fiscal 2023.
Okay. Thank you Sir.
Thank you.
There are no further questions at this time I will now turn the call back over to Steve Newlin for his final remarks.
Yes. Thank you operator, thanks, everyone for joining us today, we're really pleased with the ongoing momentum in our accelerated cloud growth.
Absolutely committed to our strategy and are confident in driving differentiated value for our customers and returns for our shareholders as we reaffirm our 2022 financial outlook.
We hope you all have a happy and healthy year end. Thank you very much.
Yeah.
This concludes today's conference call you may now disconnect.