Q2 2023 Teradata Corp Earnings Call
Good afternoon. My name is Kate and I will be your conference operator today at this time I would like to welcome everyone to the chair of data second quarter 2023 earnings call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask you.
Question. During this time simply press star followed by the number one on your telephone keypad.
If you would like to withdraw your question. Please press the star followed by the number two on your telephone keypad. Thank you I would 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 walked into charity. It is 2023 second quarter earnings call.
Steve Macmillan deteriorate as President and Chief Executive Officer will lead our call today, followed by Claire Bramley, Terry <unk>, Chief Financial Officer, who will discuss our financial results and 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 June 32023.
As expected to be filed with the SEC within the next few days.
These forward looking statements are made as of today.
We undertake no duty or obligation to update them.
On today's call, we will be discussing certain non-GAAP financial measures, which exclude such items such 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 Dot Teradata 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, Craig and hi, everyone. Thanks for joining us today.
Carey data executed another very solid quarter in Q2 2023.
I am pleased that the organization is making progress in many key areas of the business.
And the second quarter, we accelerated total AOR growth, increasing 10% year on year.
<unk> executed well on our profitable growth strategy.
We brought in another quarter of strong growth with public cloud <unk> growing 77% year on year.
Customers migrate to the cloud with every data, we see them expanding workloads and use cases as they realize better results from our Teradata vantage cloud analytics and data platform or <unk>.
Trailing 12 month cloud net expansion rate was 121% in Q2.
From 119% with large expansion is coming from across various industry verticals with financial services healthcare and telecommunications, leading the way.
We delivered $462 million in total revenue in the second quarter, an increase of 10% year over year in constant currency.
This quarter marks the first meaningful year over year total revenue growth at <unk> data in Q2 2021.
Key milestone enabled by our growing business and its impact on total company results.
Our broad based momentum.
Across the business and our ongoing technology innovation and industry recognition as a leading cloud analytics and data platform and with our partners that's momentum paired with our financial discipline, all wed to our non-GAAP earnings per share of 48.
Beating the high end of our guidance range.
I'm really proud of the execution across the board.
We're delivering on our commitments and are confident in our strategy today I'll cover some highlights on the ongoing strides we are making and the strengthening of our decorating created technology, a purposeful and I think in sales and marketing execution are increasing partner engagement and finally, some bank commitments in the area of <unk>.
ESG.
Let's start with para data technology innovations.
Just a few weeks ago, we announced Teradata vantage cloud like on Microsoft Azure.
Cloud native architecture.
Available on Azure globally offers the enterprise scale, our customers need including end to end support for AI and ml.
We're excited that clear scape analytics, a robust analytics capabilities of vantage cold Lake.
By integration with Microsoft services, such as Azure machine learning.
Ethylene advantage quite lake on issuer is designed to dramatically increase customer's ability to deploy and manage AI and ml, including January since the AI and large language models within their businesses today.
We are well positioned and are already helping customers as we begin to explore how jennie O I can drive value and business outcomes.
As we continue to accelerate our product roadmap, we were pleased to announce the acquisition of stammer, a cloud native so we manage data catalog solution.
We're excited that the <unk> team has joined our products organization and will apply their expertise to our growth objectives.
Stamets pioneering use of AI and ml helps users discover trust and use their data and metadata more effectively.
We intend to integrate standards innovative technology and to our analytics platform to help our customers get greater value from the para data investment.
We all see that the hot topic today is AI and Jenny.
Our carrier data, we view AI as a part of the much broader strategic imperative that our platform already addresses.
Business leaders today are facing unprecedented pressures and continuously increasing data complexity.
We believe Teva data is uniquely positioned to help them take advantage of AI to solve their most complex challenges and create massive enterprise business value we.
We see the promise of AI and Jenny I, bringing in new opportunities to deliver Bryan you use cases increased productivity and innovation.
We're excited to bring a complete cloud analytics and data platform for AI to help our customers generate that value.
Let me share an example.
One of our customers are global hospitality company, serving over 1 million gas daily uses AI models again heavy data platform to predict order availability times.
The AI model takes into account new Cook teams to go and Dana and order volume third party application orders and historical information to accurately forecast each orders could teng.
That results in timely preparation and ensuring Hartford for gas, which result in a positive guest staining and to go experience.
Additionally, this customer uses an AI model for health and safety the model monitors and protects restaurant cleanliness based on a number of variables and pervades triggers tell that restaurant operators as a change in behavior if needed.
And cleaner healthier and safer dining experiences.
This is just one example of AI and use at a customer.
Well the new frontier of AI is certainly exciting we are maintaining our client leadership as well.
Early in the quarter, we received a new recognition from Forrester research acknowledging our leadership in cloud data warehouses wait.
The report noted Terry did a strong <unk> focus is on our strategy that includes AI ml at scale.
Forrester also pointed to carry that strength and database analytics.
Optimization deployment options multi regional support in a broad set of analytics use cases.
AI and ml require volumes of data and extensive use of analytics.
Longstanding decorating heaters heavy leader.
We will continue to work in support of bringing significant value to our customers.
I also mentioned, our deliberate focus on sales and marketing execution.
And the second quarter, we continued to see large transactions, including some in the seven figures and we are adding vantage cloud customers with all three of the leading hyperscale.
Vodafone a longstanding teradata customer has renewed their strategic relationship with Teva data.
EMEA based telco provider has chosen to modernize their on Prem data ecosystem and migrate to vantage cloud enterprise on Google.
And several key markets, including Germany, and the UK to support their business strategy marketing campaigns and sales commissions.
We signed a large deal with unfortunately at 30 healthcare company as it migrated and expanded in the cloud with Teradata on AWS.
Moving to the cloud possession with best customer to accommodate business intelligence requirements per month and quarter end and year end financial reporting as well as provide analytic support for the annual open enrollment for their members.
A major telco and Internet service provider in Latin America is migrating to the cloud with vantage cloud Lake only sure.
The customer is in the process of redefining as future analytical architecture.
Our team faced some heavy competition and excel demonstrates <unk> capabilities and not only meeting, but exceeding net customer scale and service level requirements.
This enterprise executed a thorough evaluation of vendors and determined that carry data not only fully complied with this requirement.
So at the lowest risk.
A world leading auto manufacturer headquartered in Japan selected Teradata vantage as its core analytics and data platform to enhance cyber security and governance.
Customer move to Terra data as it realize that competitors offering was unable to expand to meet its needs for advanced analytics and machine learning capabilities.
Cyber attacks and fraud and future.
Vantage is power will allow the customer to bring more sophisticated analytics cyber security operations enhancing overall governance with fewer resources.
An example of a customer expanding their environment with US was it one of the major U S. Airlines. We won this business because a competitor system couldnt meet the customers' needs to scale when using temporal data.
Customer groups environment by 25% as it move workloads and investments application to vantage cloud.
Customers remain at the very forefront of all we do our customer base of large global enterprises, no they need powerful analytics and data to survive and thrive in these dynamic times.
We're absolutely dedicated to being a trusted partner and note that there is none better at helping them achieve their goals than us.
We believe that partnerships are a central component to achieving customer success and we've continued to execute our strategy in this area.
Being partner first means we are challenging ourselves to deliver greater value for our customers through a stronger partner engagement.
In June we hosted two key events that focused on and energized our partner trajectory.
Our partner Advisory Board comprised of executives from the most respected companies.
With their executive team to date and bolster our partner for strategic plans.
We also hosted our Teva data partner for them, bringing more than 100 of our top partners to discover new ways. We can drive expedited until results for customers. We will continue building a strong future together with partners.
Last quarter, we announced that we had partnered with Dell to bring together, our company's best of breed technologies and integrate Teradata vantage with sales converged infrastructure.
U S Energy company is one of our first customers for this joint offering utilizing the platform to provide our clients with the best possible customer experience and resulting in a seven figure deal for Teradata.
We also made a number of partnership announcement in the quarter we.
We announced plans with analytic software company FICO to bring to market integrated advanced analytic solutions for real time payments fraud insurance claims and supply chain optimization.
Further we announced that we are strengthening integration with data IQ, bringing new theater escape analytics capabilities designed to allow customers to import and operationalized data IQ AI models, and say the vantage analytics and data platform. The collaboration between Terry data and data IQ1 of our park.
Advisory Board members and tends to solve these challenges with an all in one solution that enables users of any scale fat.
Per train and operationalize AI models at scale.
I'm also proud to share that and in the quarter, we staked our stronger position in our ESG efforts, declaring ambitious commitments to carbon neutrality and net zero emissions.
Terry data is deeply connected as a company that takes a responsible and ethical view of our impact on society and the planet.
We have resolved to be carbon neutral in scope, one and scope two emissions by the end of 2024 and net zero for scope one two and three emissions by 2050, we have made a commitment.
<unk> public and transparent as we hold ourselves accountable to our employees customers shareholders communities and other stakeholders.
So I look at the incredible progress we have made and I'm very proud we continued our transformation as a cloud analytics and data platform market leader would lead them to operate and with our partner first mindset, our sales and marketing efforts are resonating in the market and importantly customers are growing with Terry.
Peter.
As I turn the call to clear I have great confidence in our future and I am pleased to reaffirm our 2023 outlook.
Clear over to you.
Thank you, Steve and good afternoon, everyone, our second quarter with sales with many highlights including strong year over year and sequential downtick Ray.
Tycho and perfect cloud era.
We continue to see momentum and healthy customer demand for the Teradata vantage platform, resulting in public cloud are all quite a 77%.
As reported in peso AOR growth of 10%.
As reported.
On a sequential basis, we reported $26 million of public cloud earthquake and $17 million.
On Prem subscription ore grade.
Organic expansion activity was the primary driver of growth in the quarter as an increasing number of existing customers added new incremental website onto our platform drives.
Driving up our trailing 12 month cloud net expansion rate to 121%.
Strengthening IRR underpins and improving recurring revenue great performance and a healthy generation a perfect got it.
This resulted in non-GAAP diluted earnings per share of <unk> 48.
Slightly above the high end of our guidance range another highlight in the quarter.
I am pleased with the financial results, we reported in the second quarter because it continues to demonstrate the companywide execution against our cloud first profitable growth strategy.
Let me now SaaS and more details on our financial results starting with revenue.
Second quarter recurring revenue was $371 million.
8%, Yeah, Yeah, Greg as reported and 10% year over year.
In constant currency.
Growth was driven by the continued execution of our go to market team over the last several quarters' results.
Resulting in multiple large expansion deals across various industry verticals.
This dynamic contributed to healthy cloud revenue growth year over year.
Regarding revenue as a percentage of total revenue was 80%.
<unk> revenue growth was broad based with EMEA and the Americas, leading the way.
Performance in EMEA, what's termed overcoming currency headwinds and more than offsetting declines in the AEP J region, which includes our wind down in China that started earlier this year.
This quarter was the first period, where there was no impact on Grace at some ceasing operations in Russia.
That was de Minimis.
Impact from upfront recurring revenue this quarter in line with our expectations.
Second quarter total revenue was $460 million 70.
7% year, they get grade as the Cortez and 10% year over year in constant currency.
Yeah, I think he had change is primarily due to the strength in the accounting revenues and a consulting business that is stabilizing its February one rate as anticipated.
Maybe the profitability in the second quarter.
Profit dollar generation was healthy we achieved $280 million in gross profit and a gross margin of approximately 61%.
The primary drivers of our strong gross profit dollar generation in the quarter led by higher volumes, and then proving cloud and on Prem margin rate.
Yes.
Operating profit was $72 million on an operating margin of approximately 16%.
Total operating expenses were flat year to year, but.
Sequentially with modest increases in both R&D and sales and marketing expense.
We continue to make cost discipline as well as prioritize positive return generating investments.
Based on our future growth.
These activities resulted in non-GAAP diluted earnings per share of 48%.
Which includes a benefit of <unk>.
From a lower tax rate in the quarter.
Our prior guidance.
Simply a timing difference since our assumptions for the full year tax rate is unchanged.
Turning to free cash flow and capital allocation.
We generated $46 million of free cash flow this quarter, which was in line with our expectations, but different from our historical cash line. It Nancy.
This was due to the timing of invoicing and incremental cash tax payments of approximately $35 million that we mentioned on our earnings call. This past February .
We are still on track to achieve our annual free cash flow guidance, given the south pipeline that supports our 2023 financial outlook.
We continue to take advantage of our strong balance sheet to repurchase shares resulting in a return of 106% of our first half free cash flow to shareholders.
<unk> of our annual target of at least 75%.
As Steve.
The acquisition of Cymer technologies, and an opportunity to add great people and complementary technology to our platform we have.
Believe it was a great example of our disciplined capital allocation.
We remain committed to returning at least 75% of free cash flow in 2023, a share repurchase.
With regards to the 2023 that I would like to provide some context on the third quarter and the rest of the year.
We lead.
All elements of our 2023 outlet.
We continue to see the midpoint of our annual outlook and our best view of the year, given our historical fourth quarter seasonality and the macroeconomic environment.
We forecast sequential public cloud and our delegates from the second quarter to the third quarter, given the demand for our Teradata vantage cloud platform.
We continue to expect that our fourth quarter will be the strongest quarter for public cloud era, daughter Grace.
We anticipate our cloud year on year growth rate to moderate in the second half of 2023, because they face tougher comparison.
Comparisons.
The special linearity benefit 2022, well organized 80% of our 2022 public cloud iron ore grades.
In the second half.
We have one model and assumption update for 2023, which is weighted average shares outstanding of approximately $103 1 million.
The increase in our share price does that play out right.
There is no change to the non-GAAP tax rate of approximately 25% and other expense of approximately $55 million.
Our outlook for the third quarter of 2023 is as follows.
We anticipate non-GAAP diluted earnings per share to be in the range of 40% to 44%.
We forget the non-GAAP tax rate to be approximately 18% and a weighted average debt outstanding is the same estimate as proposed here.
Thank you very much for your time today.
Open up the call for questions.
Yes.
At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad, we'll pause for just a moment to compile the Q&A roster and the interest of giving everyone. An opportunity. We appreciate that you limit yourself to one question and one follow up.
The first question will be from the line of Matt Hedberg with RBC capital markets. Your line is now open.
Great. Thanks, guys for the questions.
Steve Congrats on the quarter.
I wanted to start with the cloud performance.
<unk> continued to deliver strong results, there and seeing the acceleration in cloud.
NR was grade 121.
I just wanted to double click on that and maybe get a better sense for some of the most important elements that are driving the success. There obviously I heard the comments about the second half comps, but just wanted to kind of double click on some of the successes that you saw in Q2 there.
Yeah, Hey, Matt Thanks for the question.
<unk> said in her <unk>.
Repaired remarks organic expansion was the primary driver of our growth and we saw that across all geographies and across industries.
As I said in my prepared remarks finance health care.
<unk>, leading the way in terms of some of the deals. The other great thing that we saw and that was a good range of deal sizes and deal volume. So we had a number of.
Seven figure deals and the number of six figure deals that were driving those expansion numbers.
And I think it's a testimony to how robust our business in commercial model as in terms of driving that overall level of performance.
But I think what we see is as well.
Customers continue to migrate to the quite weapons. They recognize the strength of our open and connected platform how it differentiates from the competition how they can deliver mission critical workloads in the cloud and how they can continue to expand those workloads and we saw some really interesting too.
To date through Q2, and some great successes and I think it really the feedback that we call recently from Gartner and Forrester was really demonstrate it in terms of those wins that we had with those customers. So again that net expansion rate up to $1 21 from 119 in that continuum progression.
It was great to see in the quarter and it was a whole violence of different weapons, but really based on technology innovation.
That's great to hear maybe then just as a follow up I think you went a couple of minutes.
Repaired remarks for you mentioned Gen AI, but.
Yes, it's a topic that every investor wants to hear about I think had some interesting comments there.
I'm curious do you foresee I guess the question really gets down to a monetization I mean do you foresee an opportunity to articulate.
Success, there on the monetization and attribute some.
Future growth to G&A and Jennie O initiatives, just sort of wondering on the actual monetization of that would be helpful. Thank you.
Yes, as we see them.
And at AI, particularly large language models.
Jenny.
It's a real tailwind for.
Terry data business, our cloud data and analytics platform, having that opening connected capability Lincoln and with cloud native services like Azure ml, giving.
It gives us the ability to deliver real AI outcomes for our customers today against a trusted corpus of data.
Things like ethical AI and AI that you can trust based on trusted data is something that Teradata can deliver every single day and we already we've already helped a number of different customers operationalize AI strategies to improve customer experience or employee experience in terms of.
How do we execute and one of the biggest challenges with AI is actually putting these.
AI solutions and data science projects, and two production and that's where teradata.
Surpasses the competition.
<unk> to process massive amounts of data and score that data.
Utilizing those AI models is basically unmatched by the competition. So we can help the biggest organizations on the planet operationalize AI quicker and quicker than our competition and we're seeing that as a real lift to the business.
Yes.
Thank you.
Question will be from day line of Raimo <unk> with Barclays. Your line is now open.
Hey, Thank you congrats from me as well.
Two questions one for Steve one for clear.
The first one on <unk>.
Steve.
Vantage.
As you see momentum building there.
The nature of the projects Thunder is that existing customers moving over the on premise deployment to your or do you see an expansion of workloads as well that's my first question.
Yes, I think the primary driver for growth was expansion is actually from a cloud perspective very mode, but clearly our migration activities is something that we're very happy with our <unk>.
Customers are seeing that the only way that they can move those.
Large mission critical workloads into the cloud and operate them with a level of price performance.
They've come to expect from their on Prem systems, and do that migration at the lowest possible risk is something that's been very attractive for those customers as they want to modernize their data environment and take advantage of modern CSP native services and because of that because of the way that we've re architected.
The Teradata vantage platform that level of integration with cloud Native services gives our customers the ability to utilize modern services.
Type services better than better than some of our competition. So we see both driving our overall cloud growth, but very proud of the expansion activity.
For for Q2.
Okay perfect.
Interesting and then clearly if you look at cash flow cash flow, what's the one number this quarter that we somehow or mis modeled a little bit.
Sure.
In terms of the second half that we need to be aware of in terms of parking as well or was.
Or was it just the tax a little bit of extra timing. So Q3 Q4, it's just normal then.
Yeah. Good question I say, what I would say as to your point on linearity. This year on a cash buy within the year is slightly different to last year. The main drivers of that with the cash tax payments, which was fully included into our full year guide.
Seasonality and timing of billing.
Just want to reiterate we have full confidence in our full year numbers are high confidence and the outlook that we've given for the full year. So no impact there and to your point as you model for.
So the yes, the rest of the year I would say Q3.
And you can assume a similar.
Number of free cash flow versus Q3 of last year, and then Q4 will be the remainder of today at the number to get to the full year guide.
Yeah.
Thank you.
The next question will be from the line of <unk> Mellon with Bank of America. Your line is now open.
Hi, Thank you for taking my questions as Roop Lew filling in for Onesie today I have two questions and I guess both for clear.
Clear public cloud they are.
Again saw a very strong quarter with 77% growth slightly lower than the 89% growth you had in the first quarter. So can you help us parse what drove the growth in the quarter can you help us rank quarter, the contribution from migrations versus expansions versus new logo growth.
And when you look at the second half of the year. It looks like year on year compares are tougher for <unk> versus <unk>. So should we expect year on year growth to accelerate going from <unk> to <unk> and how should we think about sequential revenue growth going from <unk> to <unk>.
Okay, I got it and lastly, let me try and cover that so to your client as I pleased with the performance that we saw in Q2 and the majority of that growth does come from expansion. So as Steve mentioned, we are seeing a strong net expansion rate in the quarter that the 121% that we all stay safe.
The point of migration to exceed expansion at the point of migration, which is not factored into that net expansion rate and that was positive in the quarter. So yes, we still migrating we still see a strong performance there, but if you want to look at.
With the contribution nice effects coming from expansion than product migration, and then a much smaller amount.
From new logos.
Look into the second half of the year you said it we have tougher compares in the second half of the year, especially in Q4, we're pleased with the fact that this year, we're managing to improve our linearity.
So that has been a focus area for us and as we look out to the rest of the year Q4 still will be our biggest growth quarter based cloud ore grades and title Ala price and as you look at Q3 from Q3 to Q2.
Can anticipate for cloud <unk>, a slight increase in dollar growth in Q3 compared to Q4, but Q4 as I mentioned will remain our biggest great quarter.
So that's the kind of the.
Story behind.
As you are looking at revenue I think 5% recurring revenue. That's obviously the biggest growth driver for us, Although we did see consulting stabilized in the quarter. So we still are likewise in the quarter from consulting this quarter, which was good but recurring revenue is the biggest driver from us.
If you look at our page one versus H, two is probably a better way to look at it so we're averaging around 4% pricing recovery.
Revenue to date and H, one and then that implies to get to the midpoint of our full year guide.
On to 7% rate in the second half, which is very similar to what we saw coming out of Q T. So on track to deliver the midpoint of our full year outlook.
Got it thanks for the details there let me ask you a follow up on gross margins. So our recurring revenue gross margins declined 300 bps sequentially to 72% what was the contribution of upfront recurring revenue on gross margins and should we expect any benefit in the remaining <unk>.
Orders in <unk>. So just your thoughts on gross margins for our recurring revenue as we go through the second half of the year.
Yeah, absolutely so as you said.
As you said, our Q2 gross margin recurring revenue is that.
A slight decline from a rate standpoint, compared to Q1 that is normal seasonality and is driven by the upfront.
Recognition seasonality, we saw this last year as well I mentioned in my prepared remarks that the upfront revenue impact in Q2 with de Minimis, if a negative $3 million, that's not a big number whereas in Q1, you will remember that it was a positive $34 million.
For the remainder of the year, we're kind of expecting.
And less of an impact as we've seen in Q2 going into Q3 and Q4. So if you look at the full year I would say the full year.
2022 upfront revenue for example that we reported was $19 million and we're expecting fiscal 'twenty three to be lower than fiscal 'twenty two.
The full year, so hopefully that helps with the Muslim.
Yeah.
Thank you the.
The next question will be from the line of Chad Bennett with Craig Hallum. Your line is now open.
Great. Thanks for taking my question, so just to follow up on.
Maybe the eighth iteration of the IRR in the second half on the call.
On cloud here just wanted to make sure I understand your clear I think youre, saying there are in dollar terms should be up.
Sequentially.
In the third quarter here, and then obviously seasonally up.
Material amount in the fourth quarter.
How about if we looked at it from a net new IRR standpoint on the cloud side do you think net new <unk> dollars grow year over year in the third quarter second half.
Cloud side.
Yes.
The second half and title.
Yes, we should be able to deliver a higher gross dollars year over year.
Okay.
Right.
And then I.
I think this is the first quarter in about a year where subscription on premise subscription are our growth went positive.
And then just considering the strength you saw in the cloud era or in the quarter to put up a positive on prem subscription <unk> growth year over year, just in terms of how to think about that on prem subscription <unk> going forward or in the second half I guess was there anything in the second quarter that was.
Unique there and how should we think about the growth rate of that on Prem subscription in the second half. Thanks.
So so yeah. There was nothing abnormal so we were pleased as you can imagine with the performance in Q2 again, we're seeing strong expansion on both on Prem and in the cloud. So that's good to see.
I think as you move forward in terms of what the.
The impact is for the full year will start to see more of a migration impacts in the second half of the year. So second half of the year, we're expecting migration to.
Outweigh expansions, but I would say probably in the first half of the year, it's been expansions outweighing migration still anticipating.
Good.
Good projection on our title ever at <unk>.
Based on our outlet that you can say, but I wouldn't necessarily anticipate.
The migrations would outweigh the expansions in the second half.
Thank you.
The next question will be from the line of Howard MA with Guggenheim Securities. Your line is now open.
Okay, great. Thank you for taking the question I have one for Steve and one for clear I'll start with clear.
Just wanted to ask about the whats implied in second half crowding out our guidance in a slightly different way.
A consideration, which you just said.
About five months left of the year, how would you describe how you feel about visibility into.
The new <unk>, that's required and specifically you just talked about.
Excuse me the migration is expected in the second half to outweigh expansions, but is there can you comment on.
Any large deals and how and how they'll ramp.
So how do you feel about migrations and expansion is relative to kind of what you.
Which you already have in the bag if you will.
Yeah, absolutely. So I think based on the pipeline that we're seeing we've got very good coverage as we look forward, which gives us high confidence in our full year outlook, we do need to do.
No.
To your point on crowded, but thats normal seasonality in the second half in particular in Q4, so as we look at our pipeline and to your point that there was that we're working through right now we have very high confidence in being able to meet the full year outlook that we've given.
Okay, great that's encouraging.
One for Steve I wanted to ask about about Lake are you still on track to move the entire base of vantage cloud enterprise customers onto lake by by year end and in a related question. As we were wondering how seamless is that migration process from from enterprise to lag and once customers.
Ron Lake do you expect higher expansion relative to enterprise due to its superior architecture or.
Or other reasons. Thank you.
Yes.
For the question. So just in terms of migration of our <unk>.
The entire vantage cloud enterprise.
And customer sat to lake.
We haven't actually nicely announced when we would migrate that customer population over what we're seeing is the adoption of vantage closed lake is really being driven by departmental and experimental use cases.
So utilizing the AI or AML models against the vantage cloud enterprise data and so it's really a great expansion play for us.
By the end of this year, we're going to have some great opportunities to start.
Essentially coalescing, our vantage cloud enterprise.
Technology with advantage quite late technology, and we're looking forward to being able to do that because as we do that because of the very nature of the ability to expand vantage quite late.
Because of its nature from a self service perspective, because it's highly dynamic because it's fully cloud native solution and we're pretty excited about how thats going to drive expansion for us into 2024.
Thank you.
The next question will be from the line of Eric Woodring with Morgan Stanley . Your line is now open.
Hey, guys. Thank you for taking my question and congrats on the quarter.
Maybe if I just start with you.
Can you maybe just share some color on how your customer conversations trended over the last 90 days in terms of desire to spend on data and analytics needs versus concerns about the macro and really not the ability or the inability of customers to potentially open their budget could that come more in 2020.
For just maybe if you juxtapose.
Maybe the caution versus desire to spend on data and analytics from your customers that would be helpful. And then I have a follow up thank you.
Yes, I think we're seeing still robust.
Demand from a data and analytics perspective in the market.
Certainly it stays in the top three priorities for our customer spend.
I think a lot of our customers are looking at and have already declared business value generation from data analytics, AI and <unk> activities.
Laurie beer from J PMC recently went out in some public remarks, and it was talking about the over $1 billion in returns from AI projects and I think that has really taken the interest of our customers and kind of putting off any macro risks that might be out there.
Other thing that I would add to that is just from a tariff perspective, we've got a strong business model, which is more insulated from macro environment, given the fact that we're not consumption.
Right.
A high degree of our revenues are already in a fixed capacity as opposed to a consumption model and so a lot of them.
Organizations are talking about quote optimization and micro environments, where the customers are trying to reduce spend and we have a very predictable.
Capability and sanitary data in terms of.
Squeezing every part of our compute and storage for our customers for some of their mission critical workloads. So we're kind of insulated from those macro environments, because every customer needs to continue to close their books.
But.
We're certainly seeing a lot of tailwind from data analytics AI large language models in terms of driving interest and demand in the market.
Great. That's really helpful. Thank you, Steve and then.
Maybe I'll just ask my second question, two sorry to beat a dead horse here at least it's not a question. It's a free cash flow question.
Just taking into account your comment on <unk> free cash flow. It does imply the strongest <unk> free cash flow kind of as far back as I can track the data.
I know you have confidence in it but that's not what I'm questioning, but maybe just give us more comfort and why <unk> is so big relative to history history understanding linearity looks different but really what comes in <unk> versus <unk>.
<unk> versus normal historical seasonality and why specifically for Q versus other quarters and that's it for me. Thank you so much.
Showing no program say, obviously, a combination if youre looking at kind of where I began we felt strength coming through on that income line, but also being a strong performance in working capital.
Particularly I would say our deferred revenue benefit is higher and also other assets and liabilities.
A different items and our cash provided from operating activities, which has given us strength now.
Giving a strength it is going to be a big Q4 to your point, but I think with that biggest impact coming through our receivables. If you look at out there.
Day sales outstanding for example of Q4 of last year.
It was.
Unseasonably.
Hi, So I think that's something that we're not anticipating it could be as high in Q4 of this year and they'll give us a big benefit from a cash flow standpoint.
Thank you.
The next question will be from the line of Tyler Radke with Citi. Your line is now open.
Thanks for taking the question wanted to ask you Steve just on the competitive landscape. So I mean your public cloud.
Growth is about double that of your.
Closest public competitor.
You talked about some wins against the competition in the quarter and clearly you are.
Your business has been executing well so could you just talk about.
Any color you could share in terms of win rates or.
What youre seeing out there and when you did talk about those customer examples.
In the quarter was that primarily from from legacy on Prem.
Customers are or sorry legacy on Prem competitors or are more modern competitors. Thank you.
Yes, Thanks, Tyler I think we haven't really seen much change in the competitive landscape.
<unk> said in the past what.
Traditional kind of on Prem.
Competitors like <unk>.
IBM and the oracles of the world that the cloud native providers from the cloud service providers and then kind of born in the cloud Snowflake data breaks.
We tend to see a whole mix pop ups in terms of competitive battles.
And what we tend to find is that as.
Customers do the due diligence.
I go through all of the benchmark and to look at price performance and look at the total cost of running the environment. They look actually at can those competitive solutions actually execute the workloads that we are executing from an on Prem perspective, and we have such great.
Differential advantage in terms of helping them move to the cloud and the least risky way and it gives us that gives us that capability I think the other point I would make is as our customers migrate to the cloud with us.
The increase their commitment to us in terms of expanding those environments as they move to the cloud and so that's given us some growth.
In terms of that migration activity from on Prem to the cloud, but it was great to see that expansion. This past quarter were the highest driver over growth and I think that just demonstrates that as customers move to the cloud weapons.
And utilize the platform they start to get incremental benefit from the platform.
New data into the platform and new use cases against the platform.
And Thats certainly our strategy as we move forward to continuously grow with that.
Yeah.
Thanks, and a follow up for Claire so.
You've delivered a couple strong quarters here to start off the year, yet you reiterated the full year guidance to two times in a row here.
Despite what seems like a.
An uptick in terms of cloud net expansion rate and just some of the timing of the deals in the first half could you maybe just talk about what what are potentially some of the offsets I mean.
There's obviously a lot of momentum in the business, but are there Seth.
Sectors or verticals that you're you're mindful of that but maybe it could be taking away from some of that momentum or just how should we frame. The the outperformance in the first half relative to kind of the unchanged full year targets. Thank you.
Yeah. Thanks, Todd I say I'm not sure. We are pleased with our performance in the second quarter and for the first half I think a lot of that is coming from improved linearity, though it.
It has been a focus for us to try and improve the linearity and take some of that growth out of the back half of the yesterday. We're pleased with the progress that we're making that I think also as we've mentioned on the call. We've got easier compares we've got much better linearity. This year I'm sorry, the composite page, while I'm much easier than H J, we still have.
A lot of price to deliver in the back half of the year, both from a title IRR standpoint.
From a cloud era standpoint so.
We do believe as a result, the midpoint of our outlook remains our best view at the full year.
And it also gives us on brain too to make sure that that's nice surprises as we as we are crazy, but yes.
The macroeconomic environment seems to be stabilizing but can still be very volatile.
Many companies continuing to scrutinize that spend closely but we think it's important to be prudent.
And we're pleased with the fact that we're improving the linearity.
Good line of sight for your outlook.
Thank you.
The next question will be from the line of Patrick <unk> with JMP Securities. Your line is now open.
Hey, Thanks for taking the question. This is overhaul so I'll get that.
So I was wondering kind of returning to the theme of the AI. If you all feel that you have enough Phd level AI talent to capitalize on the opportunities you see there.
Hello, and thanks for the thanks for the question, yes, Fortunately from a tariff perspective, you know being a global company you have 7000 employees around the world that are all focused on making sure that we get the apps our customers get the absolute best from data and analytics.
That's been our that's been our passion that's been our core for over 20 years.
And so we've built up that capability across the world.
We're very proud of our consulting.
Capability and execution capability, but also I'd point to the fact that we have a partner first strategy and we're working with the world's leading size like accenture.
To walk on our platform and work on delivering business value for our customers.
The technology platform that we have and vantage cloud.
Zane to democratize artificial.
<unk> intelligence and data science, so that.
You don't need to be a data scientist to get the best or to deploy artificial intelligence or complex models. You can utilize the tools in workbench that you that those organizations already use and so a combination of our people capability that we've got inside the company.
Our partner strategy cluster technology strategy, we believe is a winning formula to help our customers get the best from artificial intelligence large language models and what they have to deploy in the future.
Thank you.
Thank you.
The next question will be from the line of Mayhall top sheet with Northland Securities. Your line is now open.
Yes. Thank you for taking the question last quarter.
Hmm.
I want to focus on a little areas of competitive landscape, particularly in the area of data prep.
What are you guys seeing in that area.
How do you see Gen AI.
Impact in that area as well.
Yes, I think one of the reasons that we bought we bought stammer was for some of those exact reasons.
Reasons, an exact challenges if you think of it stems too.
The two challenges that addresses current customer data discovery, so actually finding the data inside the ecosystem and then ensuring that you've got data lineage on that data and when you think about trusted AI or ethical AI those capabilities are absolutely essential so, bringing the <unk> team and that capability.
They have the people with the technology that they've got a great addition to the Teradata platform in terms of the solutions that we can deliver to our customers. So it's a continuing evolution and that.
That data prep.
The feature engineering from a data perspective is something that the <unk> data platform is super strong and.
Scoring those models once there.
<unk> has been developed to put amended production.
That was super strong in and with the addition of stammer from that data discovery and data lineage perspective, it has given us even more capabilities in that area.
Well that's great.
Yeah.
For the populations that are similar.
Yeah.
I'm sorry could you ask that question again, I didn't quite catch it.
Who are the primary competitor versus of the summit acquisition.
Yes, we saw stem is pretty uniquely placed in the marketplace in terms of the offering that they're developing and capabilities as they call. It in the marketplace and we saw it as a great add.
Great add to the team that only the note and the data catalog area, but they are.
They have been a number of different capabilities. The insurers that organizations have the best possible data to feed into their analytical models and analytics platform.
Thank you.
The next question will be from the line of Derrick Wood with TD Cowen. Your line is now open.
Yeah.
Great. Thanks for taking my questions.
I wanted to ask about how youre thinking about go to market strategies between selling.
Our cloud data warehouse and data Lake if you will I mean, we've seen some.
Vendors that take approach approach of.
Selling through different platforms different buying motions different buyers different use cases, others have taken more of a single centralized approach and maybe running different underlying data stores, but all on one platform what is your.
Data lakes fairly new for you guys, but what is your kind of longer term strategic approach of addressing both these types of environments.
Yes.
Philosophy is different to our competition from this perspective, we believe that our platform can service all three of those.
<unk> and we really do look at it as a deployment choice, so whether a customer wants to deploy.
Warehouse and acquired a data lake in the cloud our data Lake House in the cloud.
Underlying technology will enable all three of those models and enable our customers to utilize data.
Stored in any one of those data deployment models and in the cloud and integrate that data together better than any of our competition can so.
The recent announcement in terms of vantage quite late which we just announced on the Microsoft platform at the start of June .
<unk> extends our capability to have that wake and lighthouse deployment and the <unk>.
Your ecosystem and obviously building on our industry, leading data quite a data warehouse capabilities the ability to integrate all those together and take away the.
Choice that our customers may have to have in terms of like a multiple multiple technologies to service that is something that we think is differentiating in the marketplace Derrick.
Okay. Thanks for that.
Im sorry, I got on late but just.
Sorry, if this has been asked but.
Sure.
I know you guys don't have the same kind of optimization dynamics and headwinds that.
We've heard from kind of pure consumption based models in the cloud, but just just.
Curious to get an update on <unk>.
Spending behavior of the macro.
How it feels like it's changed over the last three to six months.
Weather.
Generative AI discussions have started to become any.
Workload movers, yet or that's still too early.
Yes sure.
Thank you very much and tell you what we're seeing is.
Good strength in our expansion business, we mentioned that and Nicole with that.
<unk> strong performance expansion space in the cloud or on Prem and that's reflected in our net expansion rate that what they say.
Inkstone expansions at the point of migration I think that comes back to the confidence our customers have in our platform.
Not wanting to take risks that they have mission critical workloads that they want to maintain our material data vantage platform.
Happy with those dynamics and the conversations that we've been having with customers and that's what gives us the strong.
Pipeline as we look forward to the second half of the year I think that Matt from a macro standpoint, there's a little bit less volatility out there, but we're still being very prudent with sales.
Obviously watching them very very closely we continue to see that kind of higher level of scrutiny on deals, but not still not seeing deals disappear or neither way. The causes are not crazy. So that's a good sign moving forward and I think to your point with the important says Gen AI AI and now at the end.
Is that the quality of the data and the quantity of the data analytics that go in to that analytics.
It's important to have a.
<unk> platform by terminate advantage to to support that so I think that opening doors is becoming a tailwind for us as well in the gen I in that space as Steve mentioned earlier in the call.
What really gets strong conversations macro not having an impact on pipeline or deal closures at this point.
We continue to monitor it very closely.
There are no further questions at this time I will now turn the call back over to Steve Macmillan for final remarks.
Thank you and thanks, everyone for joining US today, we're really pleased with our continued innovation and progress in Q2 strong customer adoption of our vantage cloud analytics and data platform and as customers recognize its decorated sheeted benefits, we're seeing really healthy expansion rates.
Got unmatched years of experience in handling the most complex data challenges and prevailing trusted data at massive scale and we believe we are uniquely positioned to help companies take advantage of the American world of AI.
We're really confident in our strategy and our commitment to meet our year end guidance as we execute our plan and we're all looking forward to speaking again with you next quarter. Thank you so much.
That concludes today's conference call you may now disconnect.
And we're all looking forward to speaking again.