Q3 2023 Teradata Corp Earnings Call
Good afternoon, My name is Matt and I'll be your conference operator today at this time I would like to welcome everyone to the Terra data third 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'd like to ask a question.
This time simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question. Please press star followed by two.
Yeah.
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> 2023 third quarter earnings call.
Steve Macmillan, Terry Davis, 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 our Form 10-Q for the quarter ended September 32023.
That is expected to be filed with the SEC within the next few days.
These forward looking statements are made as of today and we undertake no duty or obligation to update that.
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 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 delivered another solid quarter in Q3, we continued to steadily advance in our transformation as a leading cloud analytics and data platform I am pleased with our market momentum and the teams consistent execution and I'm grateful for the trust placed in us by our customers and partners.
And the quarter total IRR grew 11% year on year sequential total <unk> growth was $14 million in constant currency with positive contributions from both cloud and on premise subscriptions.
Customer demand increased as enterprises continue to utilize our modern platform and helping them drive business critical insight.
We grew cloud <unk>, 63% year on year against a very strong Q3 last year.
<unk> and <unk> through the balance of migrations and expansions.
<unk> is now 30% of total.
<unk>.
10 percentage points year over year.
Net expansion rate was 123%.
We are seeing continued strong interest and pipeline growth and vantage quite like.
With execution across the organization, our continued market momentum and disciplined cost management, we delivered non-GAAP earnings per share of <unk>, 42 cents, which grew 38% year over year.
I am proud of the team's performance and I'm very pleased with our innovation that possession, Terry data to lead in AI, and particularly trusted AI I'll start there.
I carry data, we believe people thrive when empowered with better information or analytics or form with speed to deliver better and face that drive more confident decisions.
While interest in AI is accelerating our key to AI success is being able to trust in the data which is heavy data has always provided we strongly believe that our best in class.
I'll, let <unk> and data platform, the levers harmonize data trusted AI and fastener innovation for better decision, making.
Net conviction data does and our recent acquisition of stammer, which adds the AI enhanced data search and exploration is aimed to bring greater value to our analytic by making data easier to paying us and trust.
We expect that these capabilities will help carry data deliver an enhanced user experience and advance our roadmap and data lineage governance and compliance with semantic mapping to help users understand the context behind the data.
Our industry recognized strength and analytic and complex data management is driving our momentum and we are seeing high interest in our AI ml and advanced analytics capability.
Enterprises everywhere are investing in AI and potentially January because our journey, II, which will create massive enterprise value at.
As companies look to benefit from Jan AI, we are seeing them explore use cases that are well aligned to our core value proposition and that we are already addressing today. These include improved business performance with the <unk> and fate from across the organization. The ollie's workers can more quickly.
Through the mountains of data and make better decisions by asking questions in plain language without the need to code.
Hyper contextualized customer experiences as organizations that use analytics to better anticipate customer needs develop more relevant recommendation engine and create more authentic interaction to improve engagement and loyalty.
Also delivering faster product innovation.
<unk> can automatically generate code, thereby accelerating innovation and reducing operational expenses.
In collaboration with IDC recently conducted a survey of enterprise executives that validates the opportunity with AI.
That survey revealed that more than half of the 900 respondents feel a high or significant pressure to integrate gen AI within their organization in the next six to 12 months.
However, only 30%.
Definitely prepared to leverage Gen AI today, indicating a significant gap that needs to be bridged.
With years of expertise in the AI domain as the trusted data platform for the world's largest and most complex organizations.
Currently that stands as a go to platform for AI enablement, which we believe provides one of the most cost effective solutions program performance and flexibility to innovate faster and wrenches customer experiences and de levers greater value.
Our technologies are there things to not only facilitate the AI journey, but also accelerate the realization of value.
We are in an outstanding position to help enterprises maximize their AI opportunity.
From a cloud native vantage quite light with its exceptional data management capability and what load efficiency.
Scape analytics.
The analytics capabilities, and vantage cloud, which make it easy for businesses to get more AI models and to production faster and to rapidly scale. The usage of those models across an organization.
At the beginning of Q3, we announced Teradata vantage cloud like on Microsoft Azure as I mentioned on our last call. Our cloud Native architecture is now available on both AWS and Azure globally and offers the enterprise scale our customers need <unk>.
<unk> end to end support for AI and ml.
We're already helping customers deploy trusted AI solution intended to drive business outcomes.
An exciting announcement in the quarter was their introduction of carrier data ask AI are huge and AI capability for vantage Clay Lake Nexgen AI interface Zanesville out anyone with improved access to natural language questions and receive instant response.
It is from vantage clay Lake by.
By reducing the need for complex coding and querying heavy data ask AI can dramatically increased productivity speed and efficiency for both technical and now non technical users as well.
We announced new model Arps capabilities, and clear scape analytics, which also helps accelerate AI initiatives.
<unk> capabilities enable customers to quickly scale, AI and advanced analytics with enterprise governance, including <unk>.
Bring your own model with no code capabilities, allowing our users to deploy their own machine learning models without writing any code, thereby simplifying their deployment.
Advanced model governance capabilities and robust explain ability controls to ensure trusted AI.
And automatic monitoring of modal performance and data dressed with zero configuration alerts.
Additionally, we recently introduced powerful API integration between open AI and Azure open AI.
With these <unk> capabilities and clear escape analytics customers with large volumes of text data such as product reviews and spreads from KOL centers or medical interactions are enabled to transform that data and analytic outcomes.
That can lead to improving the customer experience, reducing churn and rack are preventing fraud.
In a few.
These new integrations highlight our commitment to help customers unlock future value from their data by leveraging the analytic ecosystem, including Gen AI and large language models.
We showcase these innovations in the quarter as we executed a series of customer and partner events in all regions I was extremely pleased with the MTA from customers as the shared how they are running their business on <unk> data.
Along with the customer presentations and conversations that are event.
Also great to meet and speak with many perspective customers.
Each event had a strong mix of prospective accounts demonstrate with carrier data is increasing market traction and interest.
We also had hundreds of alliance partners join us and sponsor from Accenture to Microsoft AWS, Dell and more.
Attendees that they were energized by how trusted ally and harmonize data and accelerate business value and power innovation throughout their organizations.
During this global event series, we met with a number of external analysts.
Great that the broader community is seeing para data is increasingly relevant and well positioned versus the competition Manny.
Many analysts noted that customers are telling them our platform and the innovation roadmap are differentiated and supports their needs by the cloud multi cloud or hybrid.
I was also pleased to receive positive feedback on the transformation of our brand our marketing organization leaned and introduced our modern customer centric and innovative brand that represents the trusted value we bring to the world's leading organizations.
We're going to keep up the pace to ensure that our differentiated possession is clear to the market.
As I stated we had very good growth in the quarter, let's look at a few customer examples.
A multinational manufacturing company based in Europe, as a new vantage cloud customer that customer spoke at our London possible event and shared selected Teradata analytics.
Prudent decision, making through AI as it works to offer more safe and sustainable products everyday it is invested with us to implement innovative AI projects that accelerate time to value for its customers.
Our world, leading banking with renewed confidence and Terry data with its first step to the public cloud, adding vantage quite late on AWS for its retail banks for sales monitoring customer segmentation risk management and financial reporting that.
This customer also added vantage cloud enterprise on AWS for finance and regulatory purposes.
When was in partnership with Accenture.
We gained a new logo at the government regulator in India to support his compliance reporting with requirement.
First converged infrastructure customer win in Asia Pacific through our strategic partnership with Dell.
Our track record of reliability performance and competitive pricing led to this win.
And a leading global financial services group based in Japan.
Using vantage and clear escape analytics to execute large scale AI models that long tail customers data science team relies upon CLIA escape analytics functionality for its many applications running on our platform.
Along with bringing tangible business value to our customers our partners first momentum accelerated across our partner ecosystem in the quarter, a spotlight of strong collaboration with educating hundreds of accenture employees on a joint offerings to help our mutual customers exploit.
AI.
In parallel with our global motions, we have grown our partner ecosystem by 20% year to date.
Adding new vertical Isps and regional <unk> Alain to Teradata as industry use cases.
We are aligning our investment envelope to our strategic initiatives and continuing our progress as a cloud first profitable growth company. We will continue to take actions like winding down our direct operations in China that will accelerate our growth trajectory and advance our innovation engine.
We're on track to achieve our 2023 outlook. We're looking ahead to 2024 with optimism and are firmly on track to achieve our target of more than $1 billion of cloud <unk>.
By the end of 2025.
Now I will pass the call to Claire.
Thank you and good afternoon, everyone I would like to reinforce Dave's comment on our continued momentum and consistent execution that ensure what do we think about that.
Now that caused that Scott had talked about.
A notable highlight in the quarter was our cloud net expansion rate of 123% a sequential increase of 200 basis points.
We have sustained and increased our cloud momentum as a result of greater market awareness and customer demand.
Migrations and expansion have equally contributed to the reported $14 million sequential cloud AI Logway slightly ahead of our expectations, resulting in an increase of 63%.
Yeah.
Another highlight was the repurchase of approximately $141 million of stock, resulting in a year to date with Hana free cash flow of 161%.
Took advantage of a strong balance sheet and cash flow generation to repurchase $2 9 million Chad.
We believe this was a prudent allocation of capital and exceed our commitment to return at least 75% of free cash flow to shareholders in 2023.
As we enter our seasonally strongest quarter, we remain on track to achieve the outlook ranges. We previously provided the 2023 by.
Mental unplanned currency headwinds, we now anticipate in the fourth quarter I will cover more on our annual outlook shortly.
We remain steadfast on executing against our cloud fast profitable growth strategy with the goal of continuously increasing shareholder value.
Let me now share more details on our financial results starting with revenue.
Third quarter with having revenue was $316 million.
9% great.
As reported and 10% growth year over year in.
In constant currency.
Yes, I think we have recurring revenue growth was led by a strong increase in cloud revenue.
Continuous go to market execution resulted in all three regions experiencing strong cloud revenue growth.
Yes.
But having revenue as a percentage of total revenue with 82%.
There was no impact.
Impact from upfront recurring revenue this quarter as the quarterly net impact was a negative $11 million in line with our expectations and consistent with the amount in the same period last year.
We anticipate the amount of upfront recurring revenue in the fourth quarter to be a smaller net negative number in this quarter.
Third quarter total revenue was $438 million, 5% growth year over year as reported and 6% growth year over year in constant currency.
The year over year change is primarily due to cloud revenue, which continues to become more impactful driver of our revenue growth.
Moving to profitability and free cash right.
<unk> reported third quarter total gross margin dollars were 264 million.
The slight increase was primarily due to the higher amount of cloud and subscription gross margin dollars that were generated by both greater volume and rate expansion.
Operating profit was $63 million and operating margin was 14, 4%.
Revenue leverage and continued cost discipline contributed to operating margin expansion of approximately 150 basis points.
Yes.
As we maintained cost discipline, we also continue to invest in the business.
Client capital on projects that generate attractive returns and drive future growth.
These activities resulted in non-GAAP diluted earnings per share of 42 at the.
The midpoint of our outlook range.
Fortunately <unk> include a benefit of <unk> from a lower tax rate in the quarter fastest alkali outlook.
I think currency and other income and expense headwinds in the quarter.
The lower tax rate resulted from favorable true ups to our tax provision and a change in assumptions both of which will reduce the full year tax rate to 23%.
We generated $36 million of free cash flow this quarter, which was in line with our expectations and our historical cash flow linearity we.
We are still on track to land within our 2023 free cash flow outlook, given our anticipated fourth quarter sales bookings.
Moving to our 2023 full year outlook.
We are raising our non-GAAP earnings per diluted share.
The new annual outlook range at $2.01.
The $2 five.
This raises the midpoint by <unk> <unk> at the $1 98 that was the midpoint of our previous outlook.
<unk> benefit from a change in our tax rate assumption all of which drops to the bottom line.
In preparation for 2024, we have taken various actions to continue optimizing our cost structure.
This ensures we have the ability to invest in areas of the business that have a higher growth profile without increasing ivo budgeted costs.
This impacts our GAAP earnings per share.
A new annual outlook range for GAAP earnings per diluted share is 59 to 63.
This range accounts for the cost reduction measures as well as foreign currency exchange action related to Argentina that was taken during the fourth quarter.
We know that our fourth quarter is seasonally our highest quarter given our progress to date in the quarter and the current pipeline. We are confident that title and cloud era, daughter, Grace will increase sequentially and it will be within our annual outlook ranges.
The continued strength of the U S. Dollar has resulted in incremental currency headwinds in the fourth quarter of approximately 150 basis points to Ara and 200 basis points to revenue, but I think that prior currency forecast provided last quarter.
Despite these unplanned currency headwinds our forecasts indicate we will land within our 2020 outlook ranges for revenue and free cash flow.
Our complete 2023 outlook can be found in our third quarter earnings press release and presentation.
These materials along with the foreign currency schedule can be found on our Investor Relations website.
Before we open up the call for questions asking modeling considerations for the rest of the year.
For the fourth quarter of 2023, we anticipate non-GAAP earnings per diluted share to be in the range of 50 to 60 folks that.
We project the non-GAAP tax rate to be approximately 26% in the fourth quarter and approximately 23% for the full yet.
We forecast the weighted average diluted shares outstanding to be approximately 101 million shares in the fourth quarter and approximately $102 5 million shares for the full year.
In summary, we are on track to achieve our 2023 outlook beyond 2023, we continue to remain on track and confident on the path to achieve our financial goals for 2025.
We plan to provide our 2024 outlook during our fourth quarter earnings call.
Thank you very much for your time today.
Please open the call for questions.
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.
For just a moment to compile the Q&A roster.
Interest, giving everyone an opportunity. We appreciate that you limit yourself to one question and one follow up.
Your first question comes from the line of Howard Your line is now open.
Great. Thank you.
Great to see the consistent execution execution throughout the year and as well as the cloud and our acceleration.
Q3, quite outperformance, which lowers I believe be the hurdle in Q4, but given that Q4 is your bigger biggest quarter. So certainly don't walk in the park I was hoping I guess either for Steve or for clear I was hoping you could give us any insight looking to plan migrations in Q4, and perhaps 2024 as well.
And I guess I have a few interrelated questions. It's typically how far in advance do these migration conversations typically begin.
Is the risk of falling through and.
And as you look ahead are you are you expecting any increase in the size of these planned migration. Thank you.
Hey, Howard quite a lot to unpack there, but thank you so much for the question, yes. It was a great quarter in Q3, good execution across the entire business in a really good balance of migration and expansion activity. In Q3, we expect that to continue in terms of that balance between migration expansion activities in Q4.
Sure.
To your point, we have very good line of sight into execution for Q4.
And our pipeline of deals that supports that 2023 outlook driven by both migrations and expansions as you can imagine the migrations tend to be larger deals within that pipeline and we've got a number of seven figure and a bigger deals in the Q4 pipeline.
And we do have good visibility and visibility over time into those deals.
What we do when we construct those deals for our customers and make it commercially compelling so that that migration to the cloud even though at that point of migration they usually expand their overall.
Ms with Terra data.
It's actually a commercially compelling value proposition to move to the cloud. So we've got great insight into that we're confident in the guidance that we've given for Q4 and are confident in the continued execution of the team.
Thank you for your question next question is from the line of Erik Woodring with Morgan Stanley. Your line is now open.
Awesome. Thank you very much for taking my question and congrats on a really consistent work you guys have been putting up this year I'm not sure. If this is a question for Steve or clear. So I'll just kind of closer to both of you guys.
We're seeing really strong performance in the.
Net expansion rate.
Maybe it's really I think is.
Help us think about where that metric to go over time, meaning yes.
At peak here at 123% could you see it go to 125 could it go to $1 15, what factors would you expect to be the primary driver of your IRR really hitting each of those extremes.
We'd love to get some context on how you think about 123 versus where that could actually go and then I have a follow up thank you.
Yeah, Eric I'll I'll start by talking about.
Expansions and in General and then maybe Claire can talk a lot about it in terms of from a modeling perspective, and how to look at it over the long term clearly.
We're really happy with the expansion that we're driving just know kind of out there and the best in class for SaaS businesses overall in terms of our cloud business is the reason that we like taking that on Prem business to the cloud because once we get our customers in the cloud, we starting to see that that growth rate.
We're seeing that growth in terms of those expansions coming from increased data, but also increased werent loads and increased.
Use cases that are executing on the teradata platform once it moves to the cloud things like our integration with cloud Native services when I mentioned in the conference call was.
As your open AI is a great example of a generative AI integration, we're starting to see that as a catalyst in the marketplace. So happy with the expansions elect clear told to longer term guidance.
Yeah, absolutely so.
We are happy with the 123 net expansion rate.
I would say all right. We are still modeling approximately 120%. So we're not modeling do we does need to be higher than the approximately 120% for us can exceed the $1 billion in power in 2025 for example.
At this point.
Third <unk> at around that Mark is what we're continuing to model.
Continuing to plan for 'twenty, and 'twenty, five and that actually keeps us on track for a long time it goes under $1 billion in 2025.
Okay. That's very very clear. Thank you and then maybe my follow up for you bit of a nitpicky question, but we just wanted to make sure I'm thinking about this right you kept most of your guidance range is unchanged except for EPS, but you did talk to a more significant FX headwind and so.
Should we think about for the full year are you would you characterize.
After three Q your performance is outperforming and therefore still possible to hit the mid <unk> the midpoint of that guide or with the new FX headwind for <unk> should we think should we be thinking about full year results towards the lower end of the guide just wanted to kind of parse that out and that's it for me. Thanks, so much.
Yes, Thanks Alright.
You said and as I said in my prepared remarks, we plan to be within the previously guided ranges.
<unk> and constant currency, so that means we're absorbing incremental currency headwinds of approximately 150 to 200 basis points across aon.
And title revenue what that means is I would anticipate to be around the midpoint and a constant currency standpoint on our ranges and between the mid and towards the lower end on a reported basis, just because of the incremental quarter over quarter headwinds that we're seeing from that from a currency standpoint.
Thank you for your question. The next question is from the line of Ramsey Mohammed with Bank of America. Your line is now.
Okay.
Yes. Thank you so much.
Steve I was curious if youre seeing more use cases for gen AI and cloud or on Prem and how would you compare the relative adoption across those four are targeted at a a follow up.
Hey, Ramsey, Yes, we're super excited about the the journey I opportunity I spoke a little bit about that in the prepared remarks, we are already seeing our existing customers utilize and deploy.
Large language models.
Jenny I AI advanced analytics solution set and on top of the Teradata enterprise, whereas one of the things that I spoke about it in the call is we are the trusted custodians of some of the most valuable data in the world and utilizing that data to give trusted results to these that journey.
Systems, and large language models as part of the core value proposition that Terry data brings to the table. So you can actually execute and our customers are actually executing some of these models.
That was sitting right on top of the platform without moving data into other ecosystems, they're utilizing their trusted enterprise data to get trusted results to improve their interactions with customers or improve their supply chain.
In terms of <unk>.
<unk> impact.
I think it's something that we'll continue to monitor in terms of how it's driving the overall expansion activities for us, but we're very bullish on it and clearly.
Thinking about HERA data known as a.
Monolithic software architecture, but an open platform, where we can integrate and some of these advanced services is going to drive more load as we move into the future.
Okay, Thanks, Steve and if I could one for Claire.
Where are you focusing on further cost takeout that you called out and what does that mean for the Opex profile in terms of SG&A and R&D R&D has been ticking up sequentially through the year and do you still expect to repurchase shares in <unk> as you already exceeded your stated target for.
The year. Thank you.
Sure. So let me just take that question on the cost actions we took.
Trying to do here is.
Look at areas, where we can reinvest to be able to get a higher return on investment and really focus on the best return and drive profitable growth. So we're not anticipating as HIFU.
Cost structure has to come down because we're using in some areas and then reinvesting and otherwise we think that's going to set us up well.
But the fact that we are.
Making those actions now mean that in 2024.
And just to get some revenue leverage as we move forward as well. So that's what we're doing from a cost action standpoint with regard.
To your second second question, which has.
Write downs that maybe you can remind me.
Ramsey what your second question Mark.
<unk> clear on just on buybacks just given the already exceeded.
Two years.
75.
Yeah, and I said, what's the plan for share repurchases.
Ah.
We are not planning to be filled in Q4 in the market and as we were in Q3, obviously.
And I wouldn't be xiaomi.
Sami taxes of $141 million in Q3 that was a big quarter for Aspen and it was very opportunistic given where our price.
Platforms during the quarter Q4, we will continue to be opportunistic, but we definitely not anticipating the same level of.
Xiaomi in Q4, but we will maintain the kind of opportunistic approach, depending on where our share.
Sand prices, we do really well.
Is a good use of our capital.
And good value and return to shareholders.
Okay. Thank you so much.
Thank you for your question.
Next question is from the line of <unk> with Evercore ISI. Your line is now open.
Alright, Thanks for taking my question and congratulations on the quarter.
So net new cloud era was strong and with these results in mind, when you speak with your customers and prospective customers.
Are you getting the impression that customers today are more willing to modernize their data states and migrate to cloud now versus perhaps six months or a year ago or do you still see some of the broader hesitation, that's perhaps existed in the market for the better part of the past year that could be pushing timelines out to 2024.
Okay.
So I'll take that just from a what we're seeing from a customer perspective is just the increased confidence in the <unk> technology platform and the ability for us to pick the most complex won't loads.
And in the world to the cloud in a very successful way Terry data gives them a path to execute on our path to migrate to the cloud that no other technology can provide to them. So.
We continue to see that that strength in demand and strengthen the pipeline I mentioned in answer to the first question that we got in terms of we see that that pipeline continuing into Q4 for us to execute again.
In terms of.
Customer interest from a client perspective, we still see that as one of the toll buying or investment point that customers are making.
I was talking to one of the large banks a couple of weeks ago and they look at utilizing cloud technologies as an absolute essential capability in order for them to take advantage of all of the research and development organizations like Terra data and Microsoft execute from providing these services in the acquired.
They can have a differentiating capability into the future.
As well as we promote teradata perspective put together.
<unk> commercial proposition so that they are motivated to move required weapons.
That enables us to get them to a point, where we can expand with them and the cloud as we take advantage of these services available and that modern environment.
Thank you for your question. The next question is from the line of Chad Bennett with Craig Hallum. Your line is now open.
Great. Thanks for taking my questions.
So maybe Steve or clear just in terms of vantage and cloud Lake and clear escape.
Now that were I think close to annualized or a year and a market with these and I understand you are on AWS and recently.
Just just.
Sure at the beginning of this quarter, but just how should we think about the contribution of those those two products or platforms to whether it's fourth quarter cloud bookings or IRR or maybe a better indication is is into next year.
Are they are you expecting those to be material to the <unk>.
While there are growth at some point in the next.
Three or four quarters.
Hey, Chad it's Steve Thanks, very much for the question I think a couple of points I think we've said in the past that we during 2023 most of our cloud business has been driven on vantage cloud enterprise, where we.
We're seeing that as you pointed out acceleration of interest and deployment of new workloads on vantage quite late.
Most tend to be smaller and grow rapidly overtime. So we would expect vantage quite late to become more and more important from a revenue and AOR perspective, as we move through 2024.
What I would say is.
Where we are.
Our marketing event possible and Orlando.
Had a major customer signed up on stage and talk about going live in moving their on Prem system.
Directly to vantage quite late.
So I think the traction that we're getting in the marketplace. It's super exciting both in terms of helping with that migration opportunity, but also help them with expansion and as I said that will become more and more relevant as we move into 2024.
Got it and then maybe one quick follow up just on <unk>.
A couple of the Hyperscale in their announcements recently quarterly announcements.
Still mentioned kind of the headwinds from cloud customers asking for workload optimizations in the cloud.
I think a couple of them were able to stabilize their year over year growth or increase your year over year growth because they are starting to see.
Data usage around AI and <unk>.
In the last three months or in the quarter I know you've talked about it in this call more than I've heard.
I think the majority of your customers are on fixed contracts, but.
If we think about kind of the workload or or data usage coming from AI or is that something that you can tangibly see.
In your base.
I don't know if it necessarily help you from a net expansion standpoint, now, but maybe upon renewal or someone getting to their caps quicker on a fixed contract is there any early indications of that thanks.
Yeah. Thanks, John So I think you made some great points there one is cloud optimization.
Trend or an impact to our business that we tend to see given the mission critical nature of the workloads that we execute.
And then both to your point the fixed capacity nature of the contracts. We have however, all of those contracts can have the ability to have expansion and consumption.
<unk> added to them.
Especially in the cloud when we think about our net expansion rate those expansion rates happen continuously so.
Very much moving away from that.
Enterprise. So we're sales motion. We are you just you're the only time you do that expansion at the point of renewal and we're continuously adding workloads and growing our customers as we move through the year and I think thats. The some great capabilities that are enabled by our vantage quite a lot.
<unk> product to the earlier points, but also these Jenny I and AI use cases are going to drive that increase in utilization to increase in the requirement for data, but not only that Chad I think a really important point is that those journey our use cases.
Not controlled from a cost perspective can become prohibitively expensive if they arent run in an environment like parrot data, where we have fantastic financial governance, and so when we think about ethical and trusted AI, we think about it in terms of the outlook.
That are generated from those AI solutions, but we also think about it in terms of enabling our customers to trust those AI models to operate within financial financially governed environment and we will continue to see some strength from that perspective. So I think it's going to be ongoing expansions that we see.
Across the year and as we move forward.
Great color, thanks, nice job on the quarter.
Thank you for your question. The next question is from the line of Raimo <unk> with Barclays. Your line is now open.
Yes.
Thank you and congrats from me as well and have a great solid quarter.
Two questions one on actually staying on.
Steven.
If you think about it.
How do you see yourself in this kind of new world because you're obviously clearly have the right data you have to trust data.
As you said.
You kind of also then the guy that people use to walk the LLS I'm just wondering what does it mean in terms of margins gross margin degradation et cetera.
Also in light of that like.
People take your data put it into a database or do they get fit directly into the last languished photo theres a lot of questions. Obviously at the moment because the market is evolving so quickly, but maybe you can help us there and then one for clearer for cash flow for the year.
To your comments about the confidence can you talk a little bit about or remind us about the drivers for Q4, because obviously, it's a big hurdle for the fourth quarter. Thank you.
Thanks, Raimo, yes. So these are large language models generative AI models.
We are.
Developing native integrations inside the platform. So you don't have to move data out.
You can actually utilize.
And API too.
<unk> open AI and also assure open AI.
As an example of some.
In patients with large language models.
And you can do that in the government environment.
And Terry data.
<unk> and analytic capabilities Super early I think you are there for some of that journey with us back in 2011, when we bought Aster. We've made significant investments in why we launched clear scape analytics last year was because we could all of those capabilities and database to operate a tremendous scale.
Our customers can not only utilize that clear scape analytics capabilities, which I think we've got five teams more of one of the analysts told US we had five times more analytic capabilities than are.
Nearest competitor.
You can utilize those in conjunction with the large language models to develop some very complex and very differentiating use cases in terms of deployment and you can do that all natively within Terry data utilizing the links to these large language models.
And the most advanced large language models of the CSP actually provide so we're super excited about that we think it's a great use future use case for us.
And then clear Frito lay them out.
Yes, I'll take the question on free cash flow, we are confident in landing within our free cash flow range of 320 $360 million. We're currently on track with where we anticipated and have good line of sight to seek drivers that are giving us that confidence is that.
We anticipate greater income in Q4 23 versus prior year and also allow at DSA, We had a very high DSA last year of 74 days and.
As you probably remember what it was a bit of an anomaly.
And the other thing I think that gives me confidence at this point as the quarter.
Teva collections actually has performed better on a year over year basis, and that gives us good confidence for what we need to do to deliver the quarter and our full year free cash day range.
Thank you for your question. The next question is from the line of narrow chunks, you with Northland capital markets. Your line is now open.
Yeah, great. Thanks for the question and congrats on solid results here.
Dave you've talked a couple of times in your prepared remarks about improving brand.
Amongst both existing customers and new customers, but.
So is this really just help quantify the new customer opportunity here, maybe you could characterize what percent of pipeline to these prospective customers represent today versus say a year ago.
Hey, thanks.
Thanks for the question Yeah, we're continuing to see great traction from a brand perspective recognition that the parity that technology is a great technology to deploy within the acquired things.
Things like or ICI interface, which really improves ease of use for the teradata system.
I'm sorry, the unwelcome.
Users who use cases.
So that's super exciting to see our work with Accenture and the partners has done to drive our ability to.
Really put together some great solutions and we launched an adventure.
Use case for the retail industry.
These things are kind of building up too so that we have the absolute right capabilities to win new logos, we've seen traction for new logos in both on Prem and in the cloud in Q3, we're continuing to see that grow from a materiality perspective.
These deals are smaller in size, we've always kind of characterize them as being smaller in size start small and grow quickly and we see that pattern continue and we're.
We're not overly dependent on new logos for execution and to get to a Q4 number.
We've got the pipeline and visibility to the pipeline for execution for Q4.
Certainly its our objective to continue to grow with new logos as we go through 2024.
Comes more and more meaningful in terms of the overall result.
The company.
Thank you for your question. The next question is from the line of Matt Hedberg with RBC capital markets. Your line is now open.
Great. Thanks for taking my questions Steve.
You, maybe just stepping back a little bit you've talked a lot about.
Your leg strategy and obviously from a warehouse perspective as well can you talk about sort of fast forward. Several years, how do you kind of see the whole debate on warehouse versus lake shaking out kind of over the medium to longer term.
Hey, Derik, we love that question, because our technology set.
It's going to enable us to deploy.
The best Enterprise data warehouse.
Lake and the best <unk> solution for our customers. So we see that as a convergence.
Overtime so.
Super exciting to see that manifest in the marketplace. We're also really interested in seeing how open table format is going to.
Continue to.
To enable that so I think.
And so no some pain in the marketplace and as we look at it in the future I think a lot of convergence between those deployment options. So Matt. Thank you. Thanks very much for the question.
Sure maybe Clare for you could you just.
You addressed this but maybe just a little bit more color on kind of the impact of upfront recurring revenue on your revenue outlook targets for for 2023.
Yes.
Yeah absolutely.
From a year over year standpoint, it was flat with last year with a net gain of $11 million.
And that is actually if you think about where we are quarter over quarter as an $8 million incremental net negative quarter over quarter as you can see that kind of.
Great great.
The impact as you look at it quarter over quarter.
Think about Q4 and the rest of the year I am expecting it still to be a net negative impact in Q format, but slightly less than what we saw slightly less than the $11 million and keeps me, which would mean that the full year is still positive.
Lower positive.
And then we saw.
Fiscal 2020.
Thank you for your question. The next question is from the line of Derrick Wood with TD Cowen. Your line is now open.
Great. Thanks, maybe Steve just would be helpful to get an update on your newer partner efforts how those are tracking.
Where you see kind of new channels developing through over the next 12 to 18 months, whether it's size or hyperscale or is there anything to call out.
Yeah. Thanks, Eric I think we're really happy with how our partner ecosystem is continuing to develop I mentioned in my.
Shared remarks prepared remarks that we saw great growth in that partner ecosystem.
Both from.
A consulting and Si partner, but also for from an ISP perspective, but also regional partners are starting to come into play as well and then it's great that our strategic partnerships with the likes of Dell are starting to dry.
Business for us as well new logo business has been driven from an on Prem perspective that enables us to offer a true hybrid cloud capability.
We had lots of partners join us at our marketing possible events.
During Q3.
Great attendance and great interest in terms of the solutions that are being deployed on top of the Teradata system and all of those partners are clearly interested in utilizing that.
Wealth of data, which is then the teradata ecosystem to fuel all of these new analytic use cases in the AI use cases as we move forward. So I think.
We're very very happy with that and had the partner ecosystem continues to evolve.
Great, Thanks, and either for Steve or Claire.
This was hoping to touch on the kind of performance by Geos I know there's <unk>.
Dynamics with cloud and on Prem and migration shifting but Americas up 11% EMEA three APAC down eight how would you just kind of characterize the puts and takes across the major geos this quarter.
Yes.
I'll start and then I'll, let Steve.
<unk> comment if he has anything to add to your clients.
We saw in constant currency.
Strong growth in the Americas.
In the quarter EMEA.
EMEA region is doing well, we're seeing good traction in EMEA.
Especially on the cloud area.
We saw 3% growth in constant currency in the quarter ATK did decline.
As we've mentioned before we have been winding data operations in China, and so as the owner of that magazine gross impact is being driven by China. If you look at it without China. They were actually flat in constant currency in the quarter.
Being a little bit less traction from a cost standpoint, and from Asia country for areas like Australia, and some of those countries.
Doing particularly well so we are very pleased with the mix that we've got across all of the three regions. However, we are seeing an impact.
Impact from China.
In the quarter and in fiscal 2023, it's not material. We don't have a title company just shows up when we look at the IP gateway.
And without.
Maybe if you just want to add anything else in terms of.
Regional trends.
Yes, I think good consistent execution across all of the geographies and across all industries.
Adding on to that point from a China perspective, we've taken all of the actions there is factored in over guidance. So.
We've taken those tactical decisions.
It enables us to focus on those strategic cloud based revenue streams and.
Those markets as we move forward.
Got a great leadership team in place from an international perspective, and we're seeing really good execution across both the Americas.
And internationally from an execution perspective.
Thank you for your question.
The next question is from the line of Tyler Radke with Citi. Your line is now open.
Yes, thanks for taking the question.
Steve just starting off on the <unk>.
Performance in the quarter.
I guess, the sequential growth of $1 million quarter over quarter.
How much was incremental currency headwind to the reported number relative to your last guidance and then secondly, it did look like.
A pretty steep decline in maintenance and software up grid rates as well as subscription did tick down so is it fair to say that the bulk of the.
The cloud sequential growth came from migrations from those basis. Thanks.
Yes Hello.
Thanks very much for your question, so I feel fine on a quarter over quarter standpoint, we did actually see.
<unk> seen many until that negative impact.
Currency.
See you Brian It looks like we have any group tighter IRR by $1 and that was about a $14 million in terms of constant currency and some of that headwind because IRR is down from a currency standpoint at the end of <unk>.
And kind of the ending rate, we did see a sequential impact on currency and that's what we're seeing as we go into Q4 as well we are actually pleased with the mix as Steve mentioned earlier with that the mix between migrations on expansions that we're gonna still in line with what we expected and Dakota GOP line, we are seeing.
Upgrade rates and maintenance declined but that's in line with what we were expecting and we see some of that and a lot of that being either.
Biogen's, two subscription or comparison straight into a into the cloud.
We didn't get any surprises in Q3, and we're happy with how it looks in Q4, but we are seeing those currency headwinds.
At the end.
At the end of Q3, and even into Q4 from an Aon standpoint.
Okay Super clear and.
Sounds like you're expressing a lot of confidence in 2025 targets, which is great to see I guess, just how should we think about kind of the linde.
Linearity or.
The path to 2025 from 2023 is it should it kind of follow a straight line path in terms of <unk>.
Cloud growth in <unk>.
Free cash flow or anything to call out just in terms of.
Incremental.
2024 versus 2025.
So yes, we do.
You have good confidence in the calls that we previously laid out by 2025.
We're not in a position to give guidance for 2020. So at this point that by definition, we will seek ways. Since you guys are in 'twenty three 'twenty four 'twenty five and say yes.
We can modeling price naturally in 2020 full but we're not giving guidance at this point and I'll come back to you next quarter with obviously all of the details on that but I think I'd just reiterate I think good confidence in the goals that we set for 2025.
Thank you for your question there are no further questions at this time I will now turn the call back over to Steve Macmillan for his final remarks.
Thank you and thanks, everyone for joining US today, we're really pleased with the ongoing momentum and our cloud growth. We remain committed to our strategy and are confident in driving that differentiated value for our customers and a return to our shareholders. We look forward to speaking again after Q.
Four and hope you all have a great year and thank you very much.
This concludes today's conference call you may now disconnect your lines.