Q2 2024 Teradata Corp Earnings Call
Matt: Good afternoon. My name is Matt and I will be your conference operator today.
Operator: At this time, I would like to welcome everyone to the Teradata Second Quarter 2024 earnings call. All lines have been placed on mute to prevent any background noise.
Operator: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star followed by the number two.
Matt: At this time, I would like to welcome everyone to the Teradata second quarter 2024 earnings call.
Matt: All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, press star followed by the number 2. Thank you.
Operator: Thank you. I would like to hand the conference over to your host today, Chad Bennett, Senior Vice President of Investor Relations and Corporate Development. You may begin your presentation. Good afternoon, and welcome to Teradata.
Matt: I would like to hand the conference over to your host today, Chad Bennett, Senior Vice President of Investor Relations and Corporate Development. You may begin your conference.
Operator: 2024 Second Quarter Earnings Talk. Steve McMillan, Teradata's President and Chief Executive Officer, will lead our call today, followed by Claire Bramley, Teradata's Chief Financial Officer, who will discuss our financial results and outlook.
Operator: Our discussion today includes forecasts and other information that are considered forward-looking statements. While these statements reflect our
Chad Bennett: Good afternoon and welcome to Teradata's 2024 Second Quarter Earnings Tall.
Speaker Change: Steve McMillan, Teradata's President and Chief Executive Officer, will lead our call today, followed by Claire Bramley, Teradata's Chief Financial Officer, who will discuss our financial results and outlook.
Operator: 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 FEC filings, including our most recent Form 10-K and the Form 10-Q for the quarter ended June 30, 2024, that is expected to be filed with the FEC within the next few days.
Speaker Change: Our discussion today includes forecasts and other information that are considered forward-looking statements.
Speaker Change: 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.
Speaker Change: These risk factors are described in today's earnings release and our SEC filings, including our most recent Form 10-K .
Speaker Change: and in the Form 10-Q for the quarter ended June 30, 2024, that is expected to be filed with the FCC within the next few days. These forward-looking statements are made as of today, and we undertake no duty or obligation to update them.
Operator: These forward-looking statements are made as of today, and 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 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 comparison.
Speaker Change: On today's call, we will be discussing certain non-GAAP financial measures which exclude such items as stock-based compensation expense, other special items described in our earnings release,
Speaker Change: We will also discuss other non-GAAP items such as Free Cash Flow, Constant Currency Comparisons, and 2024 Revenue and ARR Growth Outlook in Constant Currency.
Operator: & Parsons, and 2024 Revenue and ARR Growth Outlook in Cost and Currency. Unless stated otherwise, all numbers and results discussed in 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.gov.
Speaker Change: Unless stated otherwise, all numbers and results discussed in today's call are on a non-GAAP basis.
Speaker Change: A reconciliation of non-GAAP to GAAP measures is included in our earnings release, which is accessible on the Investor Relations page of our website at investor.teradata.com.
Operator: Teradata.com A replay of this conference call will be available.
Operator: This conference call will be available later today on our website. And now, I will turn the call over to
Speaker Change: A replay of this conference call will be available later today on our website. And now, I will turn the call over to Steve.
Stephen McMillan: Thanks, everyone, for joining us today. As we get started, I'd like to welcome Chad Bennett to the Teradata team. Chad joins us after years of covering software and SaaS companies at Craig Hallam Capital. We're excited to have Chad adding his expertise to Teradata and keeping you up to date on our company. Our Q2 results demonstrate our ongoing strong performance in cloud, with cloud ARR growth of 32% in cost and currency. This reflects the increasing interest in a differentiated hybrid cloud capability.
Steve: Thanks, everyone, for joining us today. As we get started, I'd like to welcome Chad Bennett to the Teradata team.
Steve: Chad joins us after years of covering software and SaaS companies at Craig Hallam Capital. We're excited to have Chad adding his expertise to Teradata and keeping you up to date on our company.
Speaker Change: Our Q2 results demonstrate our ongoing strong performance in cloud, with cloud ARR growth of 32% in cost and currency.
Speaker Change: This reflects the increasing interest in our differentiated hybrid cloud capabilities.
Stephen McMillan: Also, when customers choose Teradata in the cloud, they are expanding with us as they see the value. Our cloud net expansion rate remains strong at 123%, and we have doubled the number of eight-figure cloud ARR customers year over year. However, despite the cloud AR growth, total ARR declined by 3% year over year.
Speaker Change: Also, when customers choose Teradata in the cloud, they are expanding with us as they see the value. Our cloud net expansion rate remains strong at 123%, and we have doubled the number of 8-figure cloud ARR customers year-over-year.
Speaker Change: Despite the cloud AR growth, total ARR declined by 3% year over year. Additionally, we generated non-GAAP earnings per share of $0.64 and delivered $39 million of free cash flow.
Stephen McMillan: Additionally, we generated non-GAAP earnings per share of $0.64 and delivered $39 million of free cash flow. Looking at our results overall, our performance continues to be challenged by the industry macro environment and longer customer decision cycles. We fully recognize we need to improve our execution. We have undergone a comprehensive review and are taking actions to improve the results, including bringing an increased focus on cost reduction. This has led to a reset of our financial outlook for the rest of this year and into 2025. Let's start with actions in a go-to-market organization. Last quarter, I introduced Rich Pentley, our new Chief Revenue Officer.
Speaker Change: Looking at our results overall, our performance continues to be challenged by the industry macro environment and longer customer decision cycles.
Speaker Change: We fully recognize we need to improve our execution. We have undergone a comprehensive review and are taking actions to improve our results, including bringing an increased focus on cost reduction.
Speaker Change: This has led to a reset of our financial outlook for the rest of this year and into 2025.
Speaker Change: Let's start with actions in a go-to-market organization.
Speaker Change: Last quarter, I introduced Rich Petley, our new Chief Revenue Officer. Rich has worked with speed and has brought new management discipline to the global team, building upon the results he generated from EMEA, which meaningfully outperformed the other regions during his tenure.
Stephen McMillan: Rich has worked with speed and has brought new management discipline to the global team, building upon the results he generated from EMEA, which meaningfully outperformed the other regions during his tenure. The sales function has been realigned to drive increased effectiveness, leverage best practices that resonate globally, while also creating structural and cost efficiency. In the pipeline review, we are encouraged about the large deal opportunities for the second half of 2024. Our pipeline of large eight-figure ARR deals has also increased to three times what it was in Q2 of last year, and with our new logo pipeline, we continue to see momentum. In the second half, we anticipate ARR for new logos doubling over the prior year.
Speaker Change: The sales function has been realigned to drive increased effectiveness, leverage best practices that resonate globally, while also creating structural and cost efficiencies.
Speaker Change: In the pipeline review, we are encouraged about the large deal opportunities for the second half of 2024.
Speaker Change: Our pipeline of large eight-figure ARR deals has also increased to three times what it was in Q2 of last year.
Speaker Change: In our new logo pipeline, we continue to see momentum. In the second half, we anticipate ARR for new logos doubling over the prior year.
Stephen McMillan: However, we continue to see longer decision-making cycles, and we believe that is consistent with what others are experiencing in the industry. As I've noted in prior calls, with the strategic nature of our analytics, we are seeing more decision makers involved in deals and from across multiple business units. This compound decision environment moves Teradata beyond IT and affords us the opportunity to help more departments understand what is possible with our hybrid cloud platform and best-in-class analytics. Yes, it does lengthen deal cycles.
Speaker Change: However, we continue to see longer decision-making cycles, and we believe this is consistent with what others are experiencing in the industry.
Speaker Change: As I've noted in prior calls, with the strategic nature of our analytics, we are seeing more decision makers involved in deals, and from across multiple business units.
Speaker Change: This compound decision environment moves Teradata beyond IT and affords us the opportunity to help more departments understand what is possible with our hybrid cloud platform and best-in-class analytics. Yet, it does lengthen deal cycles.
Stephen McMillan: We expect deal elongation to continue. As just one example, in Q2, we closed an eight-figure transaction that slipped out of Q4 2023. Following our thorough review of the business, with the additional discipline and rigor applied from the realigned go-to-market organization, we have decided to reduce our outlook. The revised outlook reflects the uncertain macro environment, our additional scrutiny of the pipeline, and as well as accounts for the risks we see with longer deal cycles and less on-prem expansions.
Speaker Change: We expect deal elongation to continue, and just one example, in Q2, we closed the 8-figure transaction that slipped out of Q4 2023.
Speaker Change: Following our thorough review of the business, with the additional discipline and rigour applied from the realigned go-to-market organisation, we have decided to reduce our outlook.
Speaker Change: A revised outlook reflects the uncertain macro environment, our additional scrutiny of the pipeline, and as well it accounts for the risks we see with longer deal cycles and less on-prem expansions.
Stephen McMillan: As we move ahead, we're addressing vectors that we believe will accelerate growth and deliver increased value for customers. We're taking proactive measures to reduce operating expenses across all aspects of the business. We're focusing on reducing expenses in non-revenue generating areas, including a reduction in headcount of approximately 9 to 10 percent.
Speaker Change: As we move ahead, we are addressing vectors that we believe will accelerate growth and deliver increased value for customers.
Speaker Change: We're taking proactive measures to reduce operating expenses across all aspects of the business.
Speaker Change: We're focusing on reducing expenses in non-revenue generating areas, including a reduction in headcount of approximately 9-10%.
Stephen McMillan: We remain committed to protecting earnings and free cash flow, and we will continue to invest in areas where we can accelerate revenue growth. Claire will cover the revised outlook and our financial results in more detail. As we look ahead, we remain confident in our opportunity with AI and Gen AI's catalysts for innovation in all industries. Teradata has been trusted by leading companies for years to provide secure, trusted, and well-governed data. The enterprise of the future will be built on trusted data and trusted AI, ensuring the accountability, transparency, and oversight every business needs to empower faster decision-making, improve their customers' experience, and continuously create value. Our expertise and technology are what the market needs now.
Speaker Change: We remain committed to protecting earnings and free cash flow, and we will continue to invest in areas where we can accelerate revenue growth.
Speaker Change: Claire will cover the revised outlook and our financial results in more detail.
Claire: As we look ahead, we remain confident in our opportunity, with AI and Gen AI as catalysts for innovation in all industries,
Claire: Teradata has been trusted by leading companies for years to provide secure, trusted, and well-governed data.
Speaker Change: The enterprise of the future will be built on trusted data and trusted AI, ensuring the accountability, transparency, and oversight every business needs to empower faster decision-making, improve their customers' experience, and continuously create value.
Stephen McMillan: We've surveyed a broad range of C-suite executives and AI decision makers, and an area where they are looking for support is in successfully navigating new AI initiatives. We're confident that a hybrid cloud platform is ideal to help companies align their AI goals to their business strategy and help them lead in their industries with trusted data and trusted AI. In Q2, we advanced our open and connected approach that is designed to allow enterprises to employ modern data strategies and deliver value from trusted AI at scale.
Speaker Change: Our expertise and technology are what the market needs now. We've surveyed a broad range of C-suite executives and AI decision makers, and an area where they are looking for support is in successfully navigating new AI initiatives.
Speaker Change: We're confident that our hybrid cloud platform is ideal to help companies align their AI goals to their business strategy and help them lead in their industries with trusted data and trusted AI.
Speaker Change: In Q2, we advanced our open and connected approach that is designed to allow enterprises to employ modern data strategies and deliver value from trusted AI at scale.
Stephen McMillan: Furthering our innovations, we unveiled Teradata Vantage Cloud Lake on Google Cloud. Together, we are combining the advanced data and analytics capabilities of Vantage Cloud Lite with the scalability and flexibility of Google Cloud. This launch is expected to enable enterprises that rely on Google Cloud to efficiently scale their AI initiatives and power new generative AI use cases. One of our first customers for this lake offering is OYSA, a leading Brazilian telephone operator.
Speaker Change: Furthering our innovations, we unveiled Teradata Vantage Cloud Lake on Google Cloud.
Speaker Change: Together, we are combining the advanced data and analytics capabilities of Vantage Cloud Lite with the scalability and flexibility of Google Cloud.
Speaker Change: This launch is expected to enable enterprises that rely on Google Cloud to efficiently scale their AI initiatives and power new generative AI use cases.
Speaker Change: One of our first customers for this lake offering is OYSA, a leading Brazilian telephone operator. It will leverage Vantage Cloud Lake on Google Cloud for revenue assurance.
Stephen McMillan: It will leverage Vantage Cloud Lake on Google Cloud for revenue assurance. With this release, our powerful data lake solution is now on all three major CSP platforms, Amazon Web Services, Google Cloud, and Microsoft Azure. Teradata will continue to innovate in our open and connected ecosystem by embracing the open table format, with first-party support for Apache Iceberg and Delta Lake, driving new analytic workloads and enabling broader AI access to data. Our open table format support is designed to enable customers to both access and store data in an open and standard way that's easily shared across different analytic engines and tools.
Speaker Change: With this release, our powerful beta lake solution is now on all three major CSP platforms, Amazon Web Services, Google Cloud, and Microsoft Azure.
Speaker Change: Teradata will continue to innovate on our open and connected ecosystem by embracing OpenTable formats.
Speaker Change: with first-party support for Apache Iceberg and Delta Lake, driving new analytic workloads and enabling broader AI access to data.
Speaker Change: Our Open Table Format support is designed to enable customers to both access and store data in an open and standard way that's easily shared across different analytic engines and tools.
Stephen McMillan: This allows us to capture more compute power and provide more comprehensive analytics solutions to our customers, solidifying their position as a leader in data and analytics. In the quarter, we also announced that Teradata AI Unlimited, our first on-demand AI ML engine in the cloud, is integrated into Microsoft Fabric and OneLake, Fabric's unified multi-cloud data lake. Teradata AI Unlimited and Microsoft Fabric can extend user freedom to any site with frictionless on-demand access to ClearScape Analytics.
Speaker Change: This allows us to capture more compute power and provide more comprehensive analytics solutions to our customers, solidifying our position as a leader in data and analytics.
Speaker Change: In the quarter, we also announced that Teradata AI Unlimited, our first on-demand AI ML engine in the cloud, is integrated into Microsoft Fabric and OneLake, Fabric's unified multi-cloud data lake.
Speaker Change: Teradata AI Unlimited and Microsoft Fabric can extend user freedom to any site with frictionless on-demand access to Clearscape Analytics.
Stephen McMillan: It is designed to enable developers, data scientists, and engineers to maximize their performance by providing access to vast amounts of data and unlimited flexibility to explore, create, and experiment. They can seamlessly explore data, conduct experiments, and operationalize AI use cases without risking mission-critical production environments. For example, a data scientist may use AI Unlimited to experiment with advanced geospatial functions to address route delivery and improve the supply chain. Alternatively, an analyst might explore innovative churn models using AI Unlimited's advanced analysis capabilities, coupled with fabric-native data and business intelligence tools. Multiple life science companies could even collaborate together on disease research, leveraging the gradient-boosting capabilities of AI Unlimited against side effects in Fabric 1 Light.
Speaker Change: It is designed to enable developers, data scientists, and engineers to maximize their performance by providing access to vast amounts of data and unlimited flexibility to explore, create, and experiment.
Speaker Change: They can seamlessly explore data, conduct experiments, and operationalize AI use cases without risk to mission-critical production environments.
Speaker Change: For example, a data scientist may use AI Unlimited to experiment with advanced geospatial functions to address route delivery and improve the supply chain.
Speaker Change: Alternatively, an analyst may explore innovative churn models using AI Unlimited's advanced analysis capabilities, coupled with fabric-native data and business intelligence tools.
Speaker Change: Multiple life science companies could even collaborate together on disease research, leveraging gradient-boosting capabilities of AI Unlimited against data sets and Fabric 1-like.
Stephen McMillan: The opportunities are exciting, both for our customers and for us. AI Unlimited is now in public preview in both the AWS and Microsoft marketplaces. Now, I will share a few more examples of wins from the quarter.
Speaker Change: The opportunities are exciting, both for our customers and for us. AI Unlimited is now in public preview in both AWS and Microsoft marketplaces.
Speaker Change: Now I will share a few more examples of wins from the quarter.
Stephen McMillan: A U.S.-based multinational health care company is expanding its Teradata hybrid ecosystem to include Vantage Cloud Lake on AWS. This is expected to accelerate the development of health care innovation and new services to improve customer health outcomes and health care affordability. As this long-standing cloud customer is expanding, it has become one of our top five cloud accounts. We're also pleased that Teradata is now the official cloud analytics partner of the LA Clippers and the Intuit Dome, the Clippers' new home.
Speaker Change: A U.S.-based multinational healthcare company is expanding its Teradata Hybrid Ecosystem to include Vantage Cloud Lake on AWS.
Speaker Change: This is expected to accelerate the development of healthcare innovation and new services to improve customer health outcomes and healthcare affordability. As this long-standing cloud customer is expanding, it becomes one of our top five cloud accounts.
Speaker Change: We're also pleased that Teradata is now the official cloud analytics partner of the LA Clippers and the Intuit Dome, the Clippers' new home.
Stephen McMillan: With this new logo win, the team and arena will leverage Vantage Cloud Lite with its AI technologies among the suite of services provided. In addition, Joyo Bank in Japan will leverage Vantage Cloud on Azure as its analytics and data platform for digital transformation, integrating customer and marketing data and using advanced analytics such as AI to maximize its value to customers. As customers select Teradata, we were recognized by Gartner as a customer's choice for Cloud DBMS and its pure insight Voice of the customer report. Teradata was one of only five vendors leading the way as a customer's choice, that's a voice of the customer report, evaluate companies based on verified users' experiences and implement and operate cloud solutions.
Speaker Change: And this new logo win, the team and arena will leverage Vantage Cloud Lake with its AI technologies among the suite of services provided.
Speaker Change: In addition, Joyo Bank in Japan will leverage Vantage Cloud on Azure as its analytics and data platform for digital transformation.
Speaker Change: integrating customer and marketing data and using advanced analytics such as AI to maximize its value to customers.
Speaker Change: As customers select Teradata, we were recognized by Gartner as a customer's choice for Cloud DBMS and its pure insight voice of the customer report. Teradata was one of only five vendors leading the way as a customer's choice.
Speaker Change: The voice of the customer report evaluates companies based on verified users' experiences in implementing and operating cloud solutions.
Stephen McMillan: Along with our advances in our technology and with customers, we made strides with partnerships in the quarter. We announced that we are bringing open source support for trusted AI innovation in partnership with Anaconda. The integration of Clearscape Analytics and Anaconda's Python and R packages is expected to help enterprises deploy large-scale data science, AI ML, and Gen AI use cases. We also recently announced new integration of DataRobot's AI platform with Clearscape Analytics and Vantage Cloud.
Speaker Change: Along with our advances in our technology and with customers, we made strides with partnerships in the quarter.
Speaker Change: We announce that we are bringing open source support for trusted AI innovation in partnership with Anaconda.
Speaker Change: The integration of ClearScape Analytics and Anaconda's Python and R packages is expected to help enterprises deploy large-scale data science, AI ML, and Gen AI use cases.
Speaker Change: We also recently announced new integration of DataRobot's AI platform with Clearscape Analytics and Vantage Cloud.
Stephen McMillan: This integration provides enterprises the ability to import and operationalize data robots AI models at scale inside our platform. This functionality is available through ClearScape's analytics bring your own model capability and is designed to enable customers to unlock data and results faster and accelerate AI innovation.
Speaker Change: This integration provides enterprises the ability to import and operationalize Data Robots AI models at scale inside our platform.
Speaker Change: This functionality is available through ClearScape's analytics, bring-your-own-model capability, and is designed to enable customers to unlock data and results faster and accelerate AI innovation.
Claire Bramley: Also in the quarter, we expanded our strategic collaboration agreement with AWS to help customers accelerate modernizing their data analytics ecosystems, further support them as they migrate to the cloud, and maximize the value of AI opportunities with improved data-driven insights. As I hand the call to Claire, we are taking action and are committed to executing. We remain confident in delivering solid cloud growth and in maintaining our enduring commitment as a trusted partner to our customers.
Speaker Change: Also in the quarter, we expanded our strategic collaboration agreement with AWS.
Speaker Change: to help customers accelerate modernizing their data analytic ecosystems, further support them as they migrate to the cloud, and maximize the value of AI opportunities with improved data-driven insights.
Speaker Change: As I hand the call to Claire, we are taking actions and are committed to executing. We remain confident in delivering solid cloud growth and in maintaining our enduring commitment as a trusted partner to our customers.
Claire Bramley: With trusted data and trusted AI rapidly becoming table stakes, our technology is in a sweet spot of opportunity. Our attention will remain on delivering innovations that keep Teradata at the forefront of data and analytics. We are equally dedicated to maintaining our momentum on strong partnerships that drive value for customers. And we remain steadfast in protecting profitability and free cash flow. Now, let's pass the call to Claire.
Claire: With trusted data and trusted AI rapidly becoming table stakes, our technology is in a sweet spot of opportunity. Our attention will remain on delivering innovations that keep Teradata at the forefront of data and analytics.
Claire: We are equally dedicated to maintaining our momentum on strong partnerships that drive value for customers.
Claire: And we remain steadfast in protecting profitability and free cash flow.
Claire Bramley: Thank you, Steve, and good afternoon everyone. In the second quarter, cloud AOR growth remained healthy at 32% year-over-year in constant currency, supported by a cloud net expansion rate of 123% due to cloud ARR growth through $19 million sequentially in constant currency. And we closed the eight-figure deal that had slipped from 2023. However, total ARR declined year over year, driven by previously disclosed large on-prem erosions and lower expansion activity. We believe this will be the last quarter of impact from these erosions, and we continue to view the first half of 2024 as an outlier when compared to our forward-looking retention rates.
Claire: Now let's pass the call to Claire.
Claire: Thank you Steve, and good afternoon everyone. In the second quarter, cloud AOR growth remained healthy at 32% year-over-year in constant currency, supported by a cloud net expansion rate of a hundred and twenty three percent.
Speaker Change: due to cloud ARR through $19 million sequentially in constant currency. And we closed the eight-figure deal that had slipped from 2023.
Speaker Change: Total ARR declined year over year, driven by previously disclosed large on-prem erosions and lower expansion activity.
Speaker Change: We believe this will be the last quarter of impact from these erosions, and we continue to view the first half of 2024 as an outlier when compared to our forward-looking retention rates.
Claire Bramley: While our pipeline and large deal activity remains strong, we continue to experience elongated deal cycles driven by higher levels of strategic engagement with our customers. We are seeing expansion activity being pushed out, which leads to an even more pronounced back-end waiting in 2024.
Speaker Change: While our pipeline and large deal activity remains strong, we continue to experience elongated deal cycles driven by higher levels of strategic engagement with our customers.
Speaker Change: We are seeing expansion activity being pushed out, which leads to an even more pronounced back-end waiting in 2024.
Claire Bramley: To reflect a more prudent stance on the timing of large field closures and conversion of our pipeline, we are lowering the outlook. As Steve mentioned, we are taking proactive measures to reduce non-revenue-generating costs and improve go-to-market productivity and efficiency. I will quantify these measures later in my remarks.
Speaker Change: To reflect a more prudent stance on timing of large-scale closures and conversion of our pipeline, we are lowering the outlook.
Speaker Change: As Steve mentioned, we are taking proactive measures to reduce non-revenue generating costs and improve go-to-market productivity and efficiency.
Claire Bramley: Let me now share more details on our quarterly financial results, starting with revenue. Second quarter recurring revenue was $368 million, down 1% year-over-year as reported, and 2% growth year-over-year in constant currency. We saw strong growth in cloud revenue and a small positive impact from upfront revenue offset by the anticipated on-prem erosions and currency. Net out front revenue was a positive $5 million.
Steve: I will quantify these measures later in my remarks.
Speaker Change: Let me now share more details on our quarterly financial results, starting with revenue.
Speaker Change: Second quarter recurring revenue was $368 million, down 1% year-over-year as reported, and 2% growth year-over-year in constant currency.
Speaker Change: We saw strong growth in cloud revenue and a small positive impact from upfront revenue offset by the anticipated on-prem erosions and currency.
Speaker Change: Net upfront revenue was a positive $5 million.
Speaker Change: Returning revenue as a percentage of total revenue was 84%, up from 80% from the prior year period.
Claire Bramley: Returning revenue as a percentage of total revenue was 84%, up from 80% from the prior year period. Second quarter total revenue was $436 million, down 6% year-over-year as reported and down 3% in constant currency. The year-over-year change is primarily due to lower perpetual and consulting revenue. Moving to profitability and free cash flow, we continue to be pleased with our profitability.
Speaker Change: Second quarter total revenue was $436 million, down 6% year-over-year as reported, and down 3% in constant currency.
Speaker Change: The year-over-year change is primarily due to lower perpetual and consulting revenues.
Speaker Change: Moving to profitability and free cash flow.
Claire Bramley: Total gross margin was 62.2% at 160 basis points year over year, driven by a strong expansion in cloud-based margins and lower perpetual and consulting revenues. Operating margin was 22%, up 640 basis points year over year. Non-GAAP Diluted Earnings Per Share was $0.64, exceeding the top end of our guidance range. In addition to gross margin strength, we benefited in the quarter from lower operating expenses due to reduced headcount and variable compensation. We generated $39 million of free cash flow in the quarter, which is an $18 million increase sequentially. The year-over-year decline is driven by the linearity of ARL.
Speaker Change: We continue to be pleased with our profitability.
Speaker Change: Total gross margin was 62.2% at 160 basis points year-over-year, driven by a strong expansion in cloud gross margins and lower perpetual and consulting revenues.
Speaker Change: Operating margin was 22%, up 640 basis points year-over-year.
Speaker Change: non-GAAP diluted earnings per share was $0.64, exceeding the top end of our guidance range.
Speaker Change: In addition to gross margin strength, we benefited in the quarter from lower operating expenses due to reduced headcount and variable compensation.
Speaker Change: We generated $39 million of free cash flow in the quarter, which is an $18 million increase sequentially.
Claire Bramley: In the second quarter, we repurchased approximately $47 million, or 1.2 million shares. We remain committed to returning at least 75% of free cash flow to shareholders in the form of share repurchases. Before turning to the outlet, let me cover the cost-reduction actions that we are implementing over the next 6 to 12 months. In total, we anticipate reducing operating expenses by approximately $75 million to $80 million on an annualized run rate basis. While some of the savings will drop to the bottom line, we also plan to invest a portion of this amount back into revenue-generating growth areas.
Speaker Change: The year-over-year decline is driven by the linearity of ARL.
Speaker Change: In the second quarter, we repurchased approximately $47 million, or 1.2 million shares.
Speaker Change: We remain committed to returning at least 75% of free cash flow to shareholders in the form of share repurchases.
Claire Bramley: The total cash impact from associated severance payments is anticipated to be $45 to $50 million, of which approximately $30 to $35 million is expected to be paid in 2024. We estimate $15 to $20 million of non-GAAP operating profit benefit in 2024 from these cost reductions. Moving to our full-year 2024 outlook. As a reminder, our outlet ranges are in constant currency for the ARR and revenue metrics.
Speaker Change: Before turning to the outlet, let me cover the cost reduction actions that we are implementing over the next 6-12 months.
Speaker Change: In total, we anticipate reducing operating expenses by approximately $75-$80 million on an annualized run rate basis.
Speaker Change: While some of the savings will drop to the bottom line, we also plan to invest a portion of this amount back into revenue-generating growth areas.
Speaker Change: The total cash impact from associated severance payments is anticipated to be $45-$50 million, of which approximately $30-$35 million is expected to be paid in 2024.
Speaker Change: We estimate $15-$20 million of non-GAAP operating profit benefit in 2024 from these cost reductions.
Speaker Change: Moving to our full year 2024 outlook.
Speaker Change: As a reminder, our outlet ranges are in constant currency for the ARR and revenue metrics.
Claire Bramley: Our revised full year 2024 outlook is as follows: total ARR to decline 2-4%, and cloud AOR growth of 28% to 32%. Total revenue to the prime, 2% to 4%. Repairing revenue to be flat to down 2%. Pre-cash flow of $270 million to $290 million; Non-Gas Earnings Per Share of $2.20 to $2.26. A breakdown of the 700 basis point change to total ARR is as follows: approximately 100 basis points from churn or erosion activity.
Speaker Change: Our revised full year 2024 outlook is as follows.
Speaker Change: Total ALR has declined 2 to 4 percent.
Speaker Change: cloud AOR growth of 28 to 32 percent
Speaker Change: Total revenue to decline 2-4%.
Speaker Change: Repairing revenue to be flat to down 2%.
Speaker Change: with a cash flow of $270 million to $290 million.
Speaker Change: Non-GAAP earnings per share of $2.20 to $2.26.
Speaker Change: A breakdown of the 700 basic point change to total ARR is as follows.
Claire Bramley: Approximately 350 basis points, largely from lower expected on-prem expansions, and approximately 250 basis points impact due to deal timing. Regarding the free cash flow revision, the primary drivers are lower billings due to the ARR reduction and second half severance payments, which are partially offset by lower operating expenses. Additional four-year outlook exemptions include: For currency, using the end of June currency rates, we anticipate year-over-year headwinds of approximately 210 basis points on revenue, 125 basis points on total ARR, and 170 basis points on cloud ARR.
Speaker Change: Approximately 100 basis points from churn or erosion activity.
Speaker Change: Approximately 350 basis points largely from lower expected on-prem expansion.
Speaker Change: Approximately 250 basis points impact due to deal timing.
Speaker Change: Regarding the free cash flow revision, the primary drivers are lower billings due to ARR reduction, second half severance payments, which are partially offset by lower operating expenses.
Speaker Change: Additional full year outlook exemptions include
Speaker Change: For currency, using the end of June currency rate, we anticipate year-over-year headwinds of approximately 210 basis points on revenue, 125 basis points on total ARR, and 170 basis points on cloud ARR.
Claire Bramley: Weighted average shares outstanding of approximately $98.4 million, are the expense of approximately $50 million. We project a non-GAAP tax rate of approximately 24.5%, based on our outlook for the third quarter of 2024. We anticipate non-GAAP diluted earnings per share to be in the range of 54 to 58 cents.
Speaker Change: Weighted average shares outstanding of approximately $98.4 million
Speaker Change: Other expense of approximately $50 million. We project a non-GAAP tax rate of approximately 24.5%.
Speaker Change: Regarding our outlook for the third quarter of 2024, we anticipate non-GAAP diluted earnings per share to be in the range of $0.54 to $0.58.
Claire Bramley: We predict the non-GAAP tax rate to be approximately 23% and the weighted average shares outstanding to be $97.8 million. We expect total ARR to be flat sequentially in Q3. We anticipate sequential acceleration of cloud ARR dollar growth in Q3. We expect the fourth quarter to be the strongest quarter of the year and deliver 60% or more of annual cloud growth, supported by the strength of our large-scale pipeline, which is three times larger than this time last year with regard to 2025.
Speaker Change: We predict the non-GAAP tax rate to be approximately 23% and the weighted average shares outstanding of $97.8 million.
Speaker Change: We expect total ARR to be flat sequentially in Q3.
Speaker Change: We anticipate sequential acceleration of cloud ARR dollar growth in Q3.
Speaker Change: We expect the fourth quarter to be the strongest quarter of the year and deliver 60% or more of the annual cloud growth, supported by the strength of our large-scale pipeline, which is three times larger than this time last year.
Claire Bramley: While we remain confident in the opportunity we have in front of us, given the changes to our 2024 Cloud AOL Outlook, our 2025 target of $1 billion will push into 2026. We continue to anticipate our cloud AOR break rate in 2025 will be similar to 2024. The proactive measures we have taken should result in low to mid-single-digit year-over-year growth in total ARR, operating margin in the low 20% range, and free cash flow of approximately $320 to $370 million.
Speaker Change: With regards to 2025.
Speaker Change: While we remain confident in the opportunity we have in front of us, given the changes to our 2024 Cloud AOL Outlook, our 2025 target of $1 billion will push into 2026.
Speaker Change: We continue to anticipate our cloud AOL growth rate in 2025 will be similar to 2024.
Speaker Change: The proactive measures we have taken should result in low to mid-single-digit year-over-year growth in total ARR.
Speaker Change: Operating margin in the low 20% range and free cash flow of approximately $320-$370 million.
Claire Bramley: In closing, we continue to see strong growth in our cloud business, both in migrations and expansion. The adjustments to our outlet reflect deals taking longer to close and a more prudent stance on the conversion of our pipeline, which remains strong, and no change in our competitive position. Thank you very much for your time today. Let's please open the call to questions.
Speaker Change: In closing, we continue to see strong growth in our cloud business, both in migrations and expansion.
Speaker Change: The adjustments to our outlet reflect deals taking longer to close, and a more prudent stance on the conversion of our pipeline, which remains strong, and no change in our competitive position.
Speaker Change: Thank you very much for your time today. Let's please open the call for questions.
Operator: At this time, I would like to remind everyone that in order to ask a question, press start and the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. In the interest of giving everyone an opportunity, we appreciate that you limit yourself to one question and one follow-up. The first question comes from the line of Erik Woodring with Morgan Stanley. Your line is now open.
Speaker Change: At this time, I would like to remind everyone in order to ask a question, press start and the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. In the interest of giving everyone an opportunity, we appreciate that you limit yourself to one question and one follow-up.
Speaker Change: First question comes from the line of Erik Woodring with Morgan Stanley . Your line is now open.
Erik Woodring: Great guys, thank you so much for taking my question. You know, Steve, maybe I'll start with you.
Stephen McMillan: I know your Cloud ARR growth forecasts are within that new model, 120% net expansion rate. You're obviously outperforming that at, call it 123, 124% the last handful of quarters, but you are falling short on Cloud ARR, which means, you know, either net migrations, expansions at the point of migrations, or new logos are underperforming. So, last quarter you did talk about strong on-prem to Cloud migrations, but can you maybe just help us understand across each of those three categories, what's happening under the hood, what's the biggest headwind as we think about outside of net expansion, where you might be falling short on Cloud ARR, and how deal elongation is impacting those three categories? And then I have a follow-up, please. Thank you.
Eric Woodring: Great, guys. Thank you so much for taking my question. You know, Steve, maybe I'll start with you. I know your cloud ARR growth forecast, or within that, you model 120% net expansion rate. You're obviously outperforming that at, call it, 123%, 124%, the last handful of quarters. But you are falling short on cloud ARR, which means…
Speaker Change: You know, either net migrations, expansions at the point of migrations, or new logos are underperforming. So, last quarter you did talk about strong on-prem to cloud migrations, but can you maybe just help us understand across each of those three kind of categories?
Speaker Change: What's happening under the hood? What's the biggest headwind as we think about outside of net expansion, where you might be falling short on ARR and how deal elongation is impacting those three categories? And then I have a follow-up, please. Thank you.
Stephen McMillan: Yeah, thanks for the question, Erik. Yeah, you're absolutely right.
Speaker Change: Yeah, thanks for the question, Erik. Yeah, you're absolutely right. On CloudAR, on a sequential basis, we did grow by $19 million in constant currency in Q2, but we did see some of those deals push into second half, and that was clearly below our expectations.
Speaker Change: We're not losing deals in the pipeline. The pipeline has remained strong, but we are seeing that change in customer buying behavior where they are holding off on making that decision to migrate to the cloud.
Stephen McMillan: On Cloudera, on a sequential basis, we did grow by $19 million in constant currency in Q2. But we did see some of those deals push into the second half, and that was clearly below our expectation.
Stephen McMillan: We're not losing deals in the pipeline. The pipeline has remained strong, but we are seeing that change in customer buying behavior where customers are holding off on making that decision to migrate to the cloud. So in terms of our migration pipeline, we are seeing some of those deals push out, and deal elongation continues. And I think our observation would be that it's exacerbated during the second quarter, and that is leading us to be more prudent as we set our overall cloud ARR guidance for the year.
Speaker Change: So in terms of a migration pipeline, we are seeing some of those deals push out and deal elongation continues.
Speaker Change: And I think our observation would be that it exacerbated during second quarter, and that is leading us to be more prudent as we set our overall cloud ARR guidance for the year.
Stephen McMillan: From an expansion perspective, as you said, we're doing really well. Our cohort of customers that we had 12 months ago expanded by 123%. And as we look at the business, we think about having at least a 120% expansion rate as we move forward.
Speaker Change: From an expansion perspective, as you said, we're doing really well. Our cohort of customers that we had 12 months ago expanded at 123%. And as we look at the business, we think about having at least a 120% expansion rate as we move forward.
Stephen McMillan: New logos. I mentioned new logos in the earnings call last quarter in terms of the strength of the new logo pipeline. We won new logos both on-prem and in the cloud in the second quarter, which was, there were some really great wins in there. I mentioned some in the prepared remarks.
Speaker Change: New logos. I mentioned new logos in the earnings call last quarter in terms of the strength of the new logo pipeline. We won new logos both on-prem and in the cloud in second quarter.
Speaker Change: which was, there was some really great ones in there, I mentioned some in the prepared remarks. And as we look to the second half of the year, we believe that our new logo in second half will be about double the new logo activity that we had in second half last year.
Speaker Change: So, as we look at it, we are seeing that fuel elongation, it's putting a pressure on our cloud ARR, and that's why we have altered our full gear guidance accordingly.
Speaker Change: Okay, thank you for that detail, Steve. Maybe Claire, if I follow up with you, obviously it's been a very volatile year, macro is very challenging and uneven. I'm just curious, as you think about, you know, not only guiding to 2024, but providing some of the commentary you provided in 2025,
Speaker Change: After some of the performance this year, which was unforeseen, you know, three, six, nine months ago, what gives you the confidence to give us some of those metrics for 2025? And really give those metrics with confidence, understanding that, you know, you can't really, you can't undershoot those. Where does that confidence stem from? Again, given a lot of the volatility in performance, deal elongation, etc. Thanks so much.
Stephen McMillan: Thanks, Erik. Yeah, so let me start with 2024. So what gives us confidence in our current outlook is that we've thoroughly reviewed all of the large deals, like one by one, and heavily discounted our closed assumptions against those deals. And then for the non-large deals, the rest of the deal pipeline, we are using the low end of our historical conversion rates on that deal pipeline. And we're attaching senior leadership and executive sponsorship on all of our large deals.
Speaker Change: Thanks Erik. So let me start with 2024. So what gives us confidence in our current outlook is we've thoroughly reviewed all of the large deals, like one by one, and heavily discounted our closed assumptions against those deals.
Speaker Change: And then for the non-large deals, the rest of the deal pipeline, we are using the low end of our historical conversion rate.
Speaker Change: On that deal pipeline. And we're attaching senior leadership, you know, an executive sponsorship on all of our large deals. There's a number of things that we've done in 2024. As Steve said, we do see that change in customer behavior as we've gone through Q2. We've factored that in to the outlet. And because we are using...
Claire Bramley: So there are a number of things that we've done in 2024. As Steve said, we do see that change in customer behavior as we go through Q2. We've factored that in to the outlook, and because we are using heavily discounted closed assumptions and the low end of our conversion deal pipeline assumptions, that's what gives us the confidence in our 2024. As we look out to 2025, some of the things that we have as a tailwind as we move into 2025. Clearly, the cloud business is still growing strongly.
Steve: of our Conversion Deal Pipeline Assumptions, that's what gives us the confidence in our 2024.
Speaker Change: As we look out to 2025, some of the things that we have as a
Speaker Change: tailwinds as we move into 2025. Clearly, the cloud business is still growing strongly. Even with our new outlet, the midpoint of our guide is a 30% cloud AOR growth in the year. And as we continue to grow cloud and we continue to maintain the approximate 120% net expansion rate, that mixed benefit helps us as we move into 2025.
Claire Bramley: Even with our new outlook, the midpoint of our guide is a 30% cloud AOR growth in the year. And as we continue to grow cloud, and we continue to maintain the approximate 120% net expansion rate, that mixed benefit helps us as we move into 2025. The other headwind that we have going into 2025...
Speaker Change: The other headwind that we have going into 2025 is the improvement in our attention rate.
Speaker Change: So we have seen a lower retention rate in the first half of 2024 due to the large on-prem erosions that we saw. We're seeing that improve as we go through the year, and as we exit H2 of 2024, we're anticipating that retention rate to continue to improve in 2025. So that's another headwind.
Speaker Change: As we mentioned in our prepared remarks, we are taking a number of cost reduction activities. We anticipate to reinvest some of those cost savings back into reinvestments to help accelerate growth in certain areas.
Tyler Radke: Thank you for your question. The next question is from the line of Tyler Radke with Citi. Your line is now open.
Speaker Change: Thank you for your question. The next question is from the line of Tyler Radke with Citi. Your line is now open.
Tyler Radke: Yeah. Hey, Steve. Hey, Claire.
Tyler Radke: Thanks for taking the question. So we've been talking about, you know, the tough macro environment for Teradata for a few quarters now. And I guess with this latest push out of some of the targets, I'm curious, like, what is different now?
Tyler Radke: Yeah. Hey, Steve. Hey, Claire. Thanks for taking the question.
Tyler Radke: We've been talking about, you know, the tough macro environment for Teradata for a few quarters now, and I guess with this
Speaker Change: latest push out of some of the targets.
Tyler Radke: , Matthew Hedberg, Nehal Chokshi, Patrick Walravens, Chirag Bedirnan, Simran Biswal, Oliver Crookenden, Teradata Corp., Cole Erskine, Mike DiLoreti, Oliver Crookenden, Teradata
Tyler Radke: I'm curious, like, what is different now about the deal elongation conversations?
Speaker Change: that you're having now versus three to six months ago.
Speaker Change: And how much is sort of the conversation, you know, involving kind of future architecture shifts as it relates to iceberg tables? If you could just comment on that piece, obviously that's been very topical in the space.
Tyler Radke: Iceberg Tables. If you could just comment on that piece, obviously, that's been very topical in the space.
Tyler Radke: and very topical in the space to whether that's holding up decisions here at all. Thank you.
Stephen McMillan: Yeah, thanks, Tyler, for the question. Yeah, we definitely are seeing that exacerbated change in customer buying behavior as they're scrubbing budgets and making sure that they're making the right decision from a spend perspective. Again, we're not seeing a really big change in terms of the competitive environment that we're working in, and we're not seeing major losses in terms of our opportunities. In fact, one of the things we said in our prepared remarks was that we've got a really strong pipeline of eight-figure deals. It's three times the size of what we had in Q2 of last year.
Speaker Change: to whether that's holding up decisions here at all. Thank you.
Speaker Change: Yeah, thanks, Tyler, for the question. Yeah, we definitely are seeing that exacerbated change in customer buying behavior as they're scrubbing budgets and making sure that they're making the right decision from a spend perspective. Again, we're not seeing a really big change in terms of the competitive environment that we're working in, and we're not seeing major losses in terms of our opportunities. In fact, one of the things we said in our prepared remarks was we've got a really strong tight line of eight-figure deals.
Speaker Change: It's three times the size of what we had in Q2 of last year.
Speaker Change: But those big deals, as you can imagine, inside these large corporations are coming under a lot of scrutiny from an execution perspective.
Stephen McMillan: But those big deals, as you can imagine, inside these large corporations are coming under a lot of scrutiny from an execution perspective. And so I think that those are combining together to impact that from a closed perspective. Thanks for asking the question about OpenTable formats. We've been doing a lot of work to embrace OpenTable standards. Our open and connected data platform supports multiple OTFs. We do not believe that the war has been fought or won from an OpenTable format.
Speaker Change: And so I think that those are combining together to impact that from a closed perspective.
Speaker Change: Thanks for asking the question around Open Table Formats. We've been doing a lot of work to embrace Open Table Formats. Our open and connected data platform supports multiple OTFs.
Speaker Change: We do not believe that the war has been fought or won from an open table format.
Stephen McMillan: And our strategy from a Teradata technology perspective is to support multiple OTFs on the native object store to enable our customers to have the most flexible and dynamic solution from a data and analytics platform perspective. We're applying the same kind of technology approach to large language models, AI models, and Gen AI models, where our customers can bring their own models into the Teradata ecosystem so that they can use the data that they trust inside the enterprise to get trusted outputs.
Speaker Change: And our strategy from a Teradata technology perspective is to support multiple OTFs on native objects to enable our customers to have the most flexible and dynamic solution from a data and analytics platform perspective.
Speaker Change: We're applying the same kind of technology approach.
Speaker Change: to large language models, EI models, and GenEI models.
Speaker Change: where our customers can bring their own models into the Teradata ecosystem.
Stephen McMillan: And we all know that trusted AI is one of the biggest themes in the industry today, and we believe that we're super well placed in terms of winning that business with an open and connected data and analytics platform. Great, thanks for the color.
Speaker Change: so that they can use the data that they trust and save the enterprise.
Speaker Change: to get trusted outputs, and we all know that trusted AI is one of the biggest themes in the industry today.
Claire Bramley: Maybe a follow-up for Claire, just on the restructuring here, you know; pretty significant, I think.
Speaker Change: Great, thanks for the color and then...
Speaker Change: Maybe a follow-up for Claire, just on the restructuring here.
Claire Bramley: 10% of the workforce. If I just take 10% of your operating expenses, that gets you to about $70 million in savings. I guess is that the right way to think about it?
Claire: you know pretty pretty significant I think about 10% of the
Claire: The Workforce.
Speaker Change: If I just take 10% of your operating expenses, that gets you to about $70 million of savings. I guess, is that the right way to think about...
Operator: https://www.youtube.com
Claire Bramley: This year's free cash flow guide and next year's just help us understand the moving pieces there.
Speaker Change: The savings from this, and is that sort of the right way to bridge the difference between this year's free cash flow guide and next year's? Just help us understand the moving pieces there on the cash flow as it relates to restructuring. Thank you.
Claire Bramley: The moving pieces there are on the cash flow as it relates to restructuring. Thank you.
Claire Bramley: Yes, of course, Tyler. So, absolutely.
Speaker Change: Yes, of course, Tyler. So, absolutely, so our total annualized run rate savings expected from the headcount reductions is $75 to $80 million.
Claire Bramley: So, our total annualized run rate savings expected from the headcount reductions is $75 to $80 million, of which $15 to $20 million is expected in 2024. As I mentioned, some of this is going to happen over the next 6 to 12 months, so not all of these actions will take place in 2024. So, I would assume that of that $75 to $80 million of annualized run rate savings, prior to reinvestment, 75% of that will flow into fiscal 2025.
Speaker Change: of which $15-$20 million is expected in 2024. As I mentioned, some of this is going to happen over the next 6-12 months, so not all of these actions will take place in 2024. So I would assume of that $75-$80 million of annualized run rate savings,
Speaker Change: But prior to reinvestment, 75% of that will flow into fiscal 25.
Claire Bramley: With regard to the cash impact, we are anticipating a $30 to $35 million cash impact from severance payments in fiscal 2024. In total, we're anticipating a cash payment of $45 to $50 million, which means approximately $15 to $20 million will be cash paid in fiscal 2025.
Speaker Change: With regards to the cash impact, we are anticipating a $30 to $35 million.
Speaker Change: cash impact and severance payments in fiscal 2024.
Speaker Change: In total, we're anticipating a cash payment of $45 to $50 million, which means approximately $15 to $20 million will be cash paid in fiscal 2025.
Howard Ma: Thank you for your question. The next question is from the line of Howard Ma with Guggenheim. Your line is now open.
Speaker Change: Thank you for your question. Next question is from the line of Howard Ma with Guggenheim. Your line is now open.
Howard Ma: Thanks. Maybe to dovetail off of Tyler's question on restructuring, one for Steve, and I have a follow-up for Claire. So, Steve, what is the impact of the restructuring efforts on account?
Howard Mawood-Guggenheim: Thanks. Maybe to dovetail off of Tyler's question on restructuring, one for Steve and I have a follow-up for Claire.
Stephen McMillan: And just given the more pronounced back-end weighting, what gives you the confidence that you've taken the appropriate measures to close the deal that you need to close in Q4 to achieve the guys?
Howard Mawood-Guggenheim: So Steve, what is the impact of the restructuring efforts on account coverage, and just given the more pronounced back-end waiting, what gives you the confidence that you've taken the appropriate measures to close the deal that you need to close in Q4 to achieve guidance?
Stephen McMillan: Yeah, thanks for the question. From a go-to-market perspective, our new Chief Revenue Officer has taken the time to review the overall organization. We actually took the opportunity to reduce a layer of management, and I think that has enabled us all to be closer to the customer. We've also streamlined that global go-to-market organization, taking out a regional structure and having a more industry and geographical basis around that. We've taken the opportunity as well to promote some top talent into key leadership positions in the company, and Rich's new team is a group of pros and leaders inside Teradata who have got a great track record of delivering on their commitments.
Speaker Change: Thanks for the question. From a go-to-market perspective, our new Chief Revenue Officer has taken the time to review the overall organization.
Speaker Change: We actually took the opportunity to reduce a layer of management and
Speaker Change: I think that has enabled us all to be closer to the customer. We've also streamlined that global go-to-market organization, taking out a regional structure and having a more industry and geographical basis around that.
Speaker Change: We've taken the opportunity as well to promote some top talent into those key leadership positions in the company. And Rich's new team is a set of pros and leaders inside Teradata who have got great track records of delivering on their commitments.
Stephen McMillan: We continue to see traction and momentum in our largest customers. I mentioned the eight-figure deals in the pipeline. Those deals are more difficult to close, but we've got the right team and the right talent focused on that. In terms of the restructuring activity, all of that restructuring from a go-to-market perspective and putting that new structure in place have already been executed. The deal ownership is incredibly clear from an execution perspective. As we look at further restructuring inside the company, we're going to focus on our non-revenue generating areas, but whilst maintaining a balance to make sure that we are continuing to invest in the growth areas that
Speaker Change: We continue to see that traction and momentum in our largest customers. I mentioned the eight-figure deals in the pipeline. Those deals are more difficult to close.
Speaker Change: but we've got the right team and the right talent focused on that.
Speaker Change: In terms of the restructuring activity, all of that restructuring from a go-to-market perspective and putting that new structure in place has been executed already. The deal ownership is incredibly clear from an execution perspective.
Speaker Change: As we look at further restructuring inside the company, we're going to focus on our non-revenue generating areas, but whilst maintaining a balance to make sure that we are continuing to invest in the growth areas of the business.
Claire Bramley: Okay, thank you, Steve. And for Claire, it sounds like there may have been additional unexpected...
Claire: Okay, thank you, Steve. And for Claire...
Operator: https://www.youtube.com
Speaker Change: It sounds like there may have been additional unexpected large customer churn in Q2. Is that factored into the, you called out the 100 basis points as part of the guidance reduction, or could there be more?
Claire Bramley: You called out the 100 basis points as part of the guidance reduction, but could there be more large customer insurance similar to what happened in Q1 to come for the balance of the year? Thank you.
Claire Bramley: for the balance of the year. Thank you.
Speaker Change: More large customer insurance similar to what happened in Q1 to come for the balance of the year. Thank you.
Claire Bramley: Now, we didn't see any unexpected churn in Q2. But we were still seeing the final impact of those large on-prem erosions that we talked about back at the end of 2023. So some of the impact there hit in Q2, as expected. To your point, we have updated our churn assumptions for the full year and are expecting an additional 100 basis points of churn in fiscal 24. That actually is a customer that we have highlighted as a risk customer, a couple of customers, high risk, and the timing of that activity has been accelerated into 2024. So, no surprises in Q2, but we have, as you mentioned, updated our full-year assumptions by 100 basis points.
Speaker Change: Now, we didn't see any unexpected churn in Q2. We were still seeing the final impact of those large on-prem erosions that we talked about back at the end of 2023. So some of the impact there hit in Q2 as expected. To your point, we have updated our churn assumptions for the full year and are expecting an additional 100 basis points of churn in fiscal 24. That actually is a customer that we have highlighted as a risk customer, a couple of customers.
Speaker Change: High Risk, and the timing of that activity has been accelerated into 2024. So, no surprises in Q2, but we have, as you mentioned, updated our four-year assumptions by 100 basis points.
Chirag Ved: Thank you for your question. The next question is from the line of Chirag Ved with Evercore ISI. Your line is now open.
Speaker Change: Thank you for your question. Next question is from the line of Chirag Ved with Evercore ISI. Your line is now open.
Chirag Ved: Hi, thank you for taking the question. So just on the erosion front, what are some of the steps that you're taking to mitigate potential future erosion and incentivize existing customers to leverage Vantage Cloud as opposed to potentially migrating? Credits, Incentives, Partner Support. How are you thinking about this opportunity? And are you seeing incremental success in customer retention quarter over quarter? Thank you.
Chirag Ved: Hi, thank you for taking the question. So just on the erosion front, what are some of the steps that you're taking to mitigate potential future erosion and incentivize existing customers to leverage Vantage Cloud as opposed to potentially migrating?
Speaker Change: Credits, incentives, partner support. How are you thinking about this opportunity? And are you seeing incremental success in customer retention quarter over quarter? Thank you.
Stephen McMillan: Thanks, Chirag. Thanks for the question. Yeah, you're absolutely right.
Stephen McMillan: We've got a whole host of activities going on in terms of our customer success motion. Just taking a little step back, we did know and have known that 2024 was going to be an outlier from an erosion perspective in terms of us having more on-prem erosion than other years. And we are expecting that, as Claire said earlier, to normalize as we move back into 2025 to a more normalized erosion rate.
Speaker Change: Thank you.
Speaker Change: Thanks Chirag, thanks for the question. Yeah, you're absolutely right, we've got a whole host of activities undergoing in terms of our customer success motion. Just taking a little step back, we did know and have known that 2024 was going to be an outlier from an erosion perspective in terms of us having more on-prem erosion.
Speaker Change: than other years and we are expecting that as Claire said earlier to normalize as we move back into 2025 to a more normalized erosion rate.
Stephen McMillan: And just reflecting back, if you think about the erosion pattern that we have from a Teradata perspective, it's usually customers that have made the decision to migrate off Teradata many years ago, so four plus years ago when we did not have the cloud offering that we have in place today. So the key strategy for us in terms of ensuring that we are remaining relevant inside our customer base is to execute our cloud-first strategy, that is, to get our cloud platform deployed inside of these. And we've had some great success with that.
Speaker Change: And just reflecting back, if you think about the erosion pattern that we have from a Teradata perspective, it's usually customers that have made the decision to migrate off Teradata many years ago, so four plus years ago, when we did not have the cloud offering that we have in place today.
Speaker Change: So the key strategy for us in terms of ensuring that we are remaining relevant inside our customer base is to execute our cloud-first strategy. That's to get our cloud platform deployed inside of these customers.
Stephen McMillan: You know, our cloud business getting up to 37% of our total ARR at the end of Q2 is a significant indication that many, many of our customers are committing to us and committing to their future from a Teradata perspective. Over the last couple of years, we've grown a very successful customer success management function with some great leadership around the company to ensure that we understand what's going on inside our customers, that we have proactive safety plans in place, and that we are continuously demonstrating the value of the new technology developments that we're deploying.
Speaker Change: And we've had some great success at that. Our cloud business getting up to being 37% of our total ARR at the end of Q2 is a significant indication that many, many of our customers are committing to us and committing to their future from a Teradata perspective.
Speaker Change: Over the last couple of years, we've grown a very successful customer success management function with some great leadership around the company to ensure that we understand what's going on inside your customers, that we have proactive safe plans in place.
Stephen McMillan: And in some cases, that would also include some commercial motivation for our customers to move to the cloud with us. We see, however, that our cloud business has been super successful. Most of our customers, when they move to the cloud with us, also throw with us. And that's a great testimony to taking the customer from that on-prem base into the cloud. So a number of different actions are in place around the organization, and we're confident in terms of the customer base that we have and the visibility that we've got into that base as we move forward.
Speaker Change: that we are continuously demonstrating the value of the new technology developments that we're deploying. And in some cases, that would also include some commercial motivation for our customers to move to the cloud with it.
Speaker Change: We see, however, that our cloud business is being super successful. Most of our customers, when they move to the cloud with us, also grow with us.
Speaker Change: and that's a great testimony to taking the customer from that on-prem base into the cloud. So a number of different actions in place around the organization and we're confident in terms of the customer base that we have and the visibility that we've got into that base as we move forward.
Chirag Ved: Maybe just one more quick one on my end. Have you seen any changes in the competitive environment, or has it remained pretty consistent over the course of the last few?
Speaker Change: Maybe just one more quick one on my end. Have you seen any changes in the competitive environment or has it remained pretty consistent over the course of the last few quarters?
Stephen McMillan: Yeah, we've seen the competitive environment to be fairly consistent. And we were super delighted from a Teradata perspective now that we've got our new Vantage Cloud Lake launched on the Google platform, that's going to enable us to start addressing, with our most modern technologies, all of our customers that utilize the GCP platform as their cloud provider. And also, from a new product release, our Teradata AI Unlimited product, integrated into Microsoft Fabric, enables us to partner at a very close level with Microsoft in terms of their most advanced technologies and their new technology announcements.
Speaker Change: Yeah, we've seen the competitive environment to be fairly consistent.
Speaker Change: We are super delighted from a Teradata perspective now that we've got our new Vantage Cloud Lake launched on the Google platform. That's going to enable us to start addressing with our most modern technologies all of our customers that utilize the GCP.
Speaker Change: platform is their cloud provider.
Stephen McMillan: So at the macro level, we don't see any major changes in the competitive environment. But certainly, from a Teradata perspective, we're putting new technologies out there that enable us to compete more and more effectively as we move forward.
Speaker Change: Also, from a new product release, our Teradata AI Unlimited product integrated into Microsoft Fabric.
Speaker Change: It enables us to partner at a very close level with Microsoft in terms of their most advanced technologies.
Speaker Change: and their new technology announcements. So at the micro level, we don't see any major changes in the competitive environment, but certainly from a Teradata perspective, we're putting new technologies out there which enable us to compete more and more effectively as we move forward.
Nehal Chokshi: Thank you for your question. The next question is from the line of Nehal Chokshi with Northland Capital Markets.
Speaker Change: Thank you for your question. Next question is from the line of Nehal Chokshi with Northland Capital Markets. Your line is now open.
Nehal Chokshi: All right, thank you. Two questions for Claire. First, calendar 24-free cash flow. Looks like about $40 million of the $80 million free cash flow reduction is due to reduced billing, and that would equate to about a 2% reduction in your billing expectations. Is that correct?
Nehal Chokshi: All right, thank you.
Nehal Chokshi: Two questions for Claire. First question, calendar 24 free cash flow. Looks like about $40 million of the $80 million free cash flow reduction is due to reduced billing. And that would equate to about a 2% reduction in your billing expectations. Is that correct?
Claire Bramley: Yes, that's right, Nehal. You need to take, to your point, a lower billings assumption from lower ARR and revenues in the year. Also, remember that we are guided to the low end, so the reduction is from $340 million down to a midpoint of $280 million. So one of the main drivers is lower ARR and revenue, which impacts both 24 and 25. The other impact, obviously, is that higher cash payments that we're making on severance, partially offset by cost reduction.
Claire: Yes, that's right, Nehal. You need to take, to your point, a lower billing assumption from lower ARR and revenues.
Speaker Change: Also remember, we are guided to the low end, so the reduction is from $340 million down to a midpoint of $280 million.
Speaker Change: So one of the main drivers is lower ARR and revenue, which impacts both 24 and 25. The other impact, obviously, is that higher cash payments that we're making on severance, partially offset by cost reduction.
Nehal Chokshi: Okay, and then you're also providing some initial thoughts on calendar 25 on the free cash flow, and you're projecting it to increase $65 million year-over-year. So $40 million is due to no additional restructuring payments, presumably, and then the other $25 million would be basically from the projected overall ARR and billing scope that you're projecting. Yeah, so...
Speaker Change: Okay, and then you're also providing some initial thoughts on calendar 25.
Speaker Change: on the free cash flow, and you're projecting to increase $65 million year-over-year. So $40 million is due to no additional restructuring payments, presumably. And then the other $25 million would be basically from the projected overall ARR and billings growth that you're projecting.
Claire Bramley: Yeah, actually, there will be $15 to $20 million in severance payments expected in 2025. So we do see a benefit from lower severance payments, but those severance payments of $45 to $50 million are split, with $30 to $35 being in fiscal 2024 and $15 to $20 in 2025. So we see a benefit, but we do still have some severance payments being paid in 2025. To your point, we are also expecting to see a benefit from cost reductions, and we also anticipate improvement in ARR gross bidding, which is what you mentioned.
Speaker Change: Yeah, so actually there will be $15 to $20 million expected of severance payments in 2025. So we do see a benefit from lower severance payments, but those severance payments of $45 to $50 million are split with $30 to $35 being in fiscal 2024 and $15 to $20 in 2025. So we see a benefit, but we do still have some severance payments being paid in 2025.
Speaker Change: To your point, we are anticipating to also see a benefit from cost reduction, and we also anticipate improvement in ARR gross bidding, which is what you mentioned.
Matt Hedberg: Thank you for your question. The next question is from the line of Matt Hedberg with RBC. Can you allow us to open?
Speaker Change: Okay, thank you.
Speaker Change: Thank you for your question.
Matt Hedberg: Great, thanks for taking my questions. Steve, one for you, can you talk about the linearity in the quarter? I'm curious, did things deteriorate as the quarter went up?
Speaker Change: Next question is from the line of Matt Hedberg with RBC. Your line is now open.
Matt Hedberg: Great. Thanks for taking my questions. Steve, one for you. Can you talk about the linearity in the quarter? I'm curious, did things deteriorate as the quarter went on or was it kind of consistent throughout Q2?
Stephen McMillan: Did it deteriorate as the quarter went on, or was it kind of consistent throughout Q2?
Stephen McMillan: Yeah, Matt, thanks for the question. We tend, as many enterprise software companies are, to be kind of back-end loaded towards the end of a particular quarter. And so, as we look at execution, a lot of our linearity always skews to the back end of the back end of the quarter. So it doesn't give us a lot of visibility as we go through the quarter of what's actually happening. And we clearly were getting messages from our customer base about the decisions we were making around the spend patterns. And, you know, we saw that impact in terms of our overall results from a Q2 perspective.
Steve: Yeah Matt, thanks for the question. We tend, as many enterprise software companies are, to be kind of back-end loaded towards the end of a particular quarter.
Steve: And so as we look at execution, a lot of our linearity always skews to the back end of the back end of the quarter. So it doesn't give us a lot of visibility as we go through the quarter of what's actually happening. We clearly were getting messages from our customer base about the decisions we were making around the spend patterns. And, you know, we saw that impact in terms of our overall results from a Q2 perspective.
Matt Hedberg: Got it. Okay, thank you. And then Claire, you know, on the
Matt Hedberg: 10% reduction in hood count. I think in the prepared remarks you said you're reducing it. I think expenses across all areas of the business. I think you also noted a focus, maybe, on some non-revenue, net-revenue generating areas. I guess, you know, maybe a little bit more detail on where some of these reductions are coming from. And secondarily, it sounds like you're planning to reinvest some of that savings. I guess it is there...
Steve: Got it. Okay. Thank you. And then, Claire, you know, on the 9 to 10 percent reduction in the head count, I think, in the prior remarks, you said you're reducing.
Claire: I think expenses across all areas of the business, I think you noted also a focus maybe on some non-revenue, net revenue generating areas.
Speaker Change: I guess, you know, maybe a little bit more detail on where some of these reductions are coming, and then secondarily, it sounds like you're planning to reinvest some of that savings. I guess, is there a way to think about, like, net of the reductions and the rehiring, what, like, the total targeted headcount would be on a net basis?
Matt Hedberg: Think about, like, the net...
Claire Bramley: Of the reductions and the rehiring, what the total targeted headcount would be on a net basis? Yeah, so to your point.
Claire Bramley: Yeah, so to your point, we've made some changes and done a reorganization of the go-to-market teams, as Steve said, so taking out additional layers of management, focusing more on geographic and industry verticals, rather than the regional setup we had previously. So there have been a number of changes in the go-to-market organization. We have tried to prioritize non-revenue-generating activities, but we are looking across the board to ensure that we have prioritized our investments everywhere, so including products, including marketing, go-to-market, and non-revenue-generating activities, but obviously, we are trying to maximize the savings in the non-revenue-generating areas over the next 6 to 12 months.
Speaker Change: Yeah, so to your point, we've made some changes and done a reorganization in the go-to-market teams, as Steve said, so taking out additional layers of management, focusing more on geographic and industry verticals rather than the regional.
Speaker Change: The regional setup we had previously. So there have been a number of changes in the go-to-market organization.
Speaker Change: We have tried to prioritize non-revenue-generating activities, but we are looking across the board to ensure that we have prioritized our investments across everywhere, so including products, including marketing, go-to-market, and non-revenue-generating. But obviously, we are trying to maximize the savings in the non-revenue-generating area.
Speaker Change: When it comes to reinvestment, we are still finalizing our plans with regards to the exact number of reinvestments, because this will be over the next 6 to 12 months. So we'll give further details on that as we give a guide on 2025 at the end of the year. But what we do anticipate is, will be where we see areas that can help us accelerate our growth in 2025 and beyond. We do see the opportunity to be able to reinvest.
Speaker Change: Some of those savings that we're taking out over the next six to 12 months.
Patrick Walravens: The next question is from the line of Patrick Walravens with Citizens GMP.
Speaker Change: Got it. Thank you.
Speaker Change: Thank you for your question.
Patrick Walravens: Oh, great. Thank you.
Speaker Change: Next question is from the line of Patrick Walravens with Citizens GMP. Your line is now open.
Patrick Walravens: I guess what I would start with is... Do you see that Fortune 500 companies, in general, as they're determining their data strategy, are anchoring that on selecting a primary or single data warehouse vendor? Hi, Pat, thanks very much for the question.
Patrick Wall-Ravens: I guess what I would start with is...
Patrick Wall-Ravens: Do you see the Fortune 500 companies in general as they're determining their data strategy?
Patrick Wall-Ravens: Are anchoring that on selecting a primary or single data warehouse vendor?
Stephen McMillan: Look, I think as we look at the market, we certainly see there's lots of room for lots of different players in the marketplace. From our perspective, we know that we are the best path to the cloud for the world's largest organizations that are executing complex mixed workloads at scale. And we can deliver that solution to them in the most cost-effective, cost-efficient way. And then as we're looking at the new capabilities that we're bringing out in terms of having the platform support, not just an enterprise data warehouse and being able to compete in the enterprise data warehouse perspective, but also being able to compete in the form of deployments like Lake or Lake House and also compete from an end database analytics for high-performance analytics, which really plays well with AI and Gen AI solutions.
Speaker Change: Hi Pat, thanks very much for the question. Look, I think as we look at the market, we certainly see there's like lots of room for lots of different players in the marketplace.
Speaker Change: From our perspective, we know that we are the best path to the cloud.
Speaker Change: for the world's largest organizations that are executing complex mixed workloads at scale.
Speaker Change: and we can deliver that solution to them in the most cost-effective, most cost-efficient way.
Speaker Change: And then as we're looking at the new capabilities that we're bringing out in terms of having the platform support, not just an enterprise data warehouse and being able to compete in the enterprise data warehouse perspective, but also being able to compete in the form deployments like Lake or Lake House.
Speaker Change: and also compete from end database analytics for high-performance analytics which really plays well into AI and Gen AI solutions.
Stephen McMillan: I think many customers, many of our customers are looking at multiple solutions across that entire solution set. It's our objective in Teradata to provide the best possible engine to address each one of those workloads and patterns that we see inside our customers.
Speaker Change: I think many customers, many of our customers are looking at multiple solutions across that entire solution set. It's our objective in Teradata to provide the best possible engine to address each one of those workloads and patterns that we see inside our customers.
Patrick Walravens: Okay, I mean, you know, everyone on this call, and you guys as well, have heard that example of
Speaker Change: Okay, I mean, you know, everyone on this call, and you guys as well, have heard that example of the bank and AsiaPAC that, um,
Patrick Walravens: decided to go Databricks and list it for everyone else that they're replacing in the process.
Patrick Walravens: You were one of several other vendors.
Speaker Change: decided to go Databricks and list it to everyone else that they're...
Patrick Walravens: and other data warehouse vendors. So I'm just wondering how common this is.
Speaker Change: replacing in the process, you're one of several other vendors, other data warehouse vendors. So I'm just wondering, how common is that Steve?
Stephen McMillan: Is that something that most large organizations are designed to do, pick one and replace the others, or is that not it? Todd, I would say that vendor walk-in is never a good thing for any customer. But what we look at from a Teradata perspective is that we know what our customers are doing. We've got a great conversation with them. You know, in some cases, if they're running a very old version of the Teradata ecosystem on premises, and they made decisions before we had the advanced cloud technologies available that we now have, then they tend to make decisions to move away from Teradata.
Speaker Change: Is that, you know, is that something that...
Speaker Change: that most large organizations are designed to do, pick one and replace the others, or is it not that common?
Steve: I would say that vendor walk-in is never a good thing for any customer.
Steve: What we look at from a Teradata perspective is, we know what our customers are doing, we've got a great conversation with them.
Steve: In some cases, if they're running a very old version of the Teradata ecosystem on-premise,
Steve: And they've made decisions before we had the advanced cloud technologies available that we now have, then they tend to make decisions...
Stephen McMillan: What we see in the marketplace now is that we have a key place in our customers' ecosystems to address some of their most mission-critical workloads, especially at enterprise scale. And our massively parallel computing architecture that's been with us, that's been the core of our systems for years, is absolutely fantastic at running AI and Gen-AI workloads in a parallel structure. So we are really well-placed to compete for the right workloads inside our customers.
Steve: to move away from Teradata.
Steve: key place in our customers' ecosystems.
Steve: to address some of their most mission-critical workloads, especially at enterprise scale, and our massively parallel computing architecture that's been with us, that's been the core of our systems for years.
Steve: is absolutely fantastic at running AI and Gen AI workloads in a parallel structure.
Stephen McMillan: And I think most customers are going to start looking at what are the best engines to address their workload requirements as we move into the future. What do they need from a storage perspective? Do they need high-performance block storage? Or can they run the workload in a lower-cost open table format or native object store? Our objective inside Teradata is to be able to address all of those patterns.
Steve: So we are really well-placed to compete for the right workloads inside our customers, and I think most customers are going to start looking at what are the best engines to address their workload requirements as we move into the future.
Speaker Change: What do they need from a storage perspective? Do they need high-performance block storage? Or can they run the workload in a lower-cost open table format or native object store? Our objective inside Teradata is to be able to address all of those patterns.
Patrick Walravens: Okay, great. Thank you for the perspective.
Wamsi Mohan: Next question is from the line of Wamsi Mohan with Bank of America.
Speaker Change: Okay, great. Thank you for the perspective.
Speaker Change: Thank you for your question. Next question is from the line of Wamsi Mohan with Bank of America. Your line is now open.
Wamsi Mohan: Yes, thank you so much. So Claire, on the restructuring benefit of $15 to $20 million net benefit in 2024 on EBIT, is there an incremental EBIT benefit?
Claire Bramley: Yes, Wamsi, so to your point, we are anticipating a total annualized run rate of $75 to $80 million, so prior to reinvestment, about 75% of that to hit fiscal 2025. So we will see an incremental benefit. As we mentioned, we are looking at where we want to reinvest, you know, looking at opportunities that will ultimately drive long-term growth. So there should be a benefit in fiscal 2025, but we're still finalizing the modeling of how much to reinvest based on, obviously,
Wamsi Mohan: Yes, Wamsi, so to your point, we are anticipating a total annualized run rate of $75 to $80 million. So assuming about prior to reinvestment, about 75% of that to hit fiscal 25, so we will see an incremental benefit. As we mentioned, we are looking at where we want to reinvest, you know, looking at opportunities that will ultimately drive long-term growth.
Wamsi Mohan: So there should be benefit in fiscal 25, but we're still finalizing the modeling of how much do we invest based on, obviously, our high governance of return on investment approach.
Wamsi Mohan: So, Claire, I guess, like, the question is really that, is there going to be an organic EBIT increase going into next year? Because if you are looking at sort of your preliminary thoughts on 2025 with a low single-digit top line and 20% EBIT margin, that's about 50 basis points of margin expansion. Is that contemplating a... Net level of investment that supersedes some of this, um... uh... cost savings, or is the organic e-bet actually declining, and how would you bridge that with cash flow if the organic e-bet is declining, uh... for the north of fifty million improvement year on year?
Wamsi Mohan: So, Claire, I guess, like, the question is really that, is there going to be an organic EBIT increase?
Claire: going into next year, because if you are...
Speaker Change: Looking at sort of your preliminary thoughts on 2025 with low single-digit top line and 20% even margin to 50 basis points of margin expansion, is that contemplating a
Speaker Change: Net level of investment that supersedes some of this.
Speaker Change: Cost savings or is the organic EBIT actually declining and how would you bridge that with cash flow then if organic EBIT is declining for the north of $50 million improvement year-on-year?
Claire Bramley: Yeah, so that's a good question, Wamsi. Thank you.
Speaker Change: Yeah, so, good question Wamsi, thank you. So, as we look out in terms of our low 20% range...
Claire Bramley: So as we look out in terms of our low 20% range, and when we look at it from a dollar standpoint, because we are continuing to be able to expand our cloud gross margin, and we are taking these proactive measures from a cost reduction standpoint, we do anticipate growing in dollars year over year from 24 to 25. And that's factored in to your point in terms of our fiscal 25 cash flow assumptions, where we'll see top line growth and growth in billing, plus benefit from the EBIT offset by, and also an improvement, sorry, from lower severance.
Speaker Change: And when we look at it from a dollar standpoint, because we are continuing to be able to expand our cloud gross margin, and we are taking these proactive measures from a cost reduction, we do anticipate to grow in dollars year over year from 24 into 25. And that's factored in, to your point, in terms of our fiscal 25 cash flow assumptions, where we'll see top-line growth and growth in billing.
Speaker Change: benefit on the eBay.
Speaker Change: We have factored some of that in, but we anticipate that's how we get to that low 20% operating margin and anticipate to see dollar growth.
Claire Bramley: So that's what's driving the year over year benefit from the cash impact. So we have factored some of that in, but we anticipate that's how we get to that low 20% operating margin and expect to see dollar growth as we move into 2025.
Wamsi Mohan: Okay. Okay. Thanks a lot, Claire.
Speaker Change: and we move into 2025.
Speaker Change: Okay. Okay. Thanks a lot, Claire.
Derek Wood: The next question is from the line of Derek Wood with TD County. Your line is now open.
Speaker Change: Thank you. Thank you for your question.
Derek Wood: Great. Thanks. I guess for Steve or Claire, just in terms of
Speaker Change: Next question is from the line of Derek Wood with TD County. Your line is now open.
Derek Wood: In terms of the reduction in the ARR outlook, can you explain how much of this is coming from what you're seeing?
Derek Wood: Great, thanks. I guess for Steve or Claire, just in terms of the reduction in the ARR outlook, can you couch how much of this is coming from what you're seeing in your pipeline and sales cycles today?
Derek Wood: coming from what you're seeing in your pipeline at sales cycles today versus how much of this is from anticipated disruption from the restructuring. Just wondering whether you're anticipating much disruption from go-to-market activities due to the reorg.
Derek Wood: versus how much of this is from anticipated disruption from the restructuring. Just wondering whether you're anticipating much disruption from go-to-market motions due to the reorg.
Stephen McMillan: No, thanks for the question, Derek. We don't anticipate any disruption in terms of go-to-market execution. As you know, we've got a great pipeline of vape private deals. It's got some of our best sales folks on it. I have absolute faith in the leadership team that we've put into the go-to-market organization. They've taken up that drumbeat without missing a beat. What we do, though, see, as I pointed out, is the continuing elongation of the deal cycle. We have seen that exacerbated in Q2 in terms of customer decision-making cycles, especially for these really large deals.
Speaker Change: Thanks for the question, Derek. We don't anticipate any disruption in terms of go-to-market execution. As you said, we've got a great pipeline of eight private deals. It's got some of our best sales folks on it. The leadership team that we've put into the go-to-market organization I have absolute faith in. They've taken up that drumbeat without missing a beat.
Speaker Change: What we do, though, see, as I pointed to, is by continuing elongation of the deal cycle, we have seen that exacerbated in Q2 in terms of customer decision-making cycles, especially for these really large deals.
Derek Wood: Got it. Understood.
Stephen McMillan: In your prepared remarks, you mentioned you're seeing less on-prem expansions. You had been kind of running in a framework of flat to slightly positive growth and on-prem, excluding migrations. I guess, how does this framework change in light of your updated guidance and just what you're seeing on expansion activity?
Derek Wood: Got it, understood. And in your prepared remarks, you mentioned you're seeing less on-prem expansions. I think...
Speaker Change: You had been kind of running in a framework of flat to slightly positive growth and on-prem excluding migrations. I guess, how does this framework change in light of your updated guidance and just what you're seeing on expansion activity?
Stephen McMillan: Yeah, I'll just take the first part of that question and let Claire comment on what we're seeing is, as customers are examining their budgets and they're also thinking about that shift to the cloud, they are delaying on-prem expansion. There's no point in expanding the on-prem footprint and then moving it to the cloud and then expanding in the cloud. So as those cloud migrations are being considered, and some of them are shifting to the right, that does have an impact on our total ARR, both in terms of the expansions we typically see at the point of migration from on-premises to the cloud, but customers are pushing out those on-premises expansions as they consider their future strategy in terms of moving to the cloud with us.
Speaker Change: Yeah, I'll just take the first part of that question and let Claire comment in terms of what we're seeing is as customers are examining their budget, and they're also thinking about that shift to the cloud.
Claire: They are delaying on-prem expansion. There's no point in expanding the on-prem footprint and then moving it to the cloud and then expanding in the cloud.
Claire: So as those cloud migrations are being considered, and some of them are shifting to the right, that does have an impact on our total ARR, both in terms of the expansions we typically see as a point of migration from on-prem to the cloud,
Claire: But also, customers are pushing out those on-prem expansions as they consider their future strategy in terms of moving to the cloud with us.
Stephen McMillan: And I've just re-echoed the point that we talked about before. We're not seeing these opportunities lost to competition. We're seeing the commitment to the Teradata technology and technology set. This is deal elongation and slippage of these deals into subsequent quarters. Yeah, and I'll just jump in.
Claire: And I've just re-echoed the point that we talked about before. We're not seeing these opportunities lost to competition. We're seeing the commitment to the Teradata technology and technology set. This is a deal elongation and slippage of these deals into subsequent quarters.
Claire Bramley: Yeah, and I'll just jump in. To your point, because of the reduction in on-prem expansions, we now would not anticipate growth to be flat or slightly up, excluding migrations. We'd actually expect that to decline. But we do believe that that's an opportunity, as Steve mentioned, over time as we move these large accounts to the cloud. And then we tend to see larger expansions with us once they migrate to the cloud.
Speaker Change: And I'll just jump in. To your point, because of the reduction in on-prem expansions, we now would not anticipate to grow to be flat or slightly up, excluding migrations. We'd actually expect that to decline. But we do believe that that's an opportunity, as Steve mentioned, over time as we move these large accounts to the cloud, and then we tend to see larger expansions with us once they migrate to the cloud.
Raimo Lenschow: Thank you for your question. The next question is from the line of Raimo Lenschow with Barclays.
Speaker Change: Okay, thank you.
Speaker Change: Thank you for your question. Next question is from the line of Raimo Lenschow with Barclays. Your line is now open.
Raimo Lenschow: Hey, thanks for squeezing me in. The pipeline that you talked about, like the double new logo pipeline for the second half versus the second half of 2023, and then three times the pipeline of the eight-figure deals, where are these, especially on the new logo side? Where are they coming from? Like, you know, they're obviously clearly must be kind of participating more in the market again, like what are the people looking for? What's the size, or what's the typical profile of the customer? Thank you.
Ramo Lindshaw: Hey, thanks for squeezing me in. The pipeline that you talked about, like the double new logo pipeline for the second half, or the second half of 2023, and then the three-times-the-pipeline of the eight-figure deal,
Ramo Lindshaw: Where are these, especially on the new logo side, where are they coming in, like, you know, they're, obviously, they clearly must be kind of participating more in the market again. Like, what are the people looking for? What's the size or what's the typical profile of the customer? Thank you.
Stephen McMillan: Yeah, thanks, Raimo. I think we're seeing a very balanced view in terms of seeing new logos across all of the geographies and across all industries. So most of the new logos are buying a use case. I mentioned banks in Japan, as an example, who are using Vantage Cloud Lake for revenue assurance. So it's really interesting, because we have that whole history of industry experience in, say, Teradata, and how the biggest enterprises in the world use data and advanced analytics for business value, we can actually take those use cases, adapt new technology, and take those to new customers.
Speaker Change: Yeah, thanks, Raimo. I think we're seeing a very balanced view in terms of we're seeing new logos across all of the geographies and across all industries. So, most of the new logos are buying a use case. I mentioned banks in Japan, as an example, who are using Vantage Cloud Late for revenue assurance.
Speaker Change: So it's really interesting, because we've got that whole history of industry experience in, say, Teradata, and how the biggest enterprises in the world use data and advanced analytics for business value, we can actually take those use cases
Stephen McMillan: The other thing I would point out, Raimo, is the strength of our hybrid platform. So we're seeing new logos both from an on-premises perspective and in the cloud. So it's very balanced across different deployment models, different use cases, different industries, and different geographies. And I think that gives us a breadth of operation to actually execute and generate that new logo success, which we think in the second half is going to be double what we did in the second half of last year from a new logo results perspective. Perfect.
Speaker Change: Honour new technology and take those to new customers.
Speaker Change: The other thing I would point out, Raimo, is the strength of our hybrid platform. So we're seeing new logos both from an on-prem perspective and in the cloud. So it's very balanced across different deployment models, different use cases, different industries, and different geographies.
Speaker Change: And I think that gives us a breadth of operation to actually execute and generate that new logo success, which we think in second half is going to be double what we did in second half last year from a new logo results perspective.
Raimo Lenschow: Perfect. Hey, I'm looking forward to that. Thank you.
Austin Dietz: The next question is from the line of Austin Dietz with UBS.
Speaker Change: Perfect. Hey, looking forward to that. Thank you.
Austin Dietz: Hey, Steve, nice to connect. I'm looking for your views on where the data analytics industry is headed over the next few years. From your response earlier to Tyler's question, you know, changing architectures don't appear to be impacting deal cycles yet. But there seems to be real adoption around open table formats like Iceberg and a shift towards a more open architecture in the industry. So, I guess. How do you see the data analytics market evolving over the next few years?
Speaker Change: Thank you for your question. Next question is from the line of Austin Deetz with UBS. Your line is now open.
Austin Deetz: Hey Steve, nice to connect. I'd love to get your views on where the data analytics industry is headed in the next few years.
Speaker Change #100: From your response earlier to Tyler's question, changing architectures don't appear to be impacting deal cycles yet.
Speaker Change #101: But there seems to be just real adoption around open table formats like Iceberg and shifting towards a more open architecture.
Speaker Change #102: in the industry. So, yeah, I guess, how do you see the data analytics market evolving in the next few years? You know, how do you think OpenTable Formats changes the competitive landscape in the data analytics market? You know, does it become about query performance on iceberg tables at some point? We'd just love your thoughts on where the data analytics industry is headed in the next few years.
Austin Dietz: You know, how do you think open table formats will change the competitive landscape in the data analytics market? Do we become about query performance on Iceberg tables at some point? We'd just love your thoughts on where the data analytics industry is headed over the next few years.
Speaker Change #103: Yeah, thanks for the question. I think we covered some of those points, so I think from an open table format, I don't think the battle is complete there. So our approach is to have an open and connected ecosystem that supports multiple open table formats.
Stephen McMillan: Yeah, thanks for the question. I think we covered some of those points.
Speaker Change #104: And as those technologies advance, we enable our customers to take advantage of those.
Stephen McMillan: So I think from an open table format. I don't think the battle is complete there. So our approach is to have an open and connected ecosystem that supports multiple open table formats. And as those technologies advance, we enable our customers to take advantage of those open table formats that are here today but also new ones that are coming out in the future. I think that as we look forward, our customers are going to want to deploy workloads on the most appropriate storage tier, which may be in the cloud on an elastic block, high-performance storage for super complex, super mission-critical real-time solutions, and less performance storage for workloads which are less mission-critical.
Speaker Change #104: OpenTable formats that are here today, but also the new ones that are coming out in the future. I think that as we look forward, our customers are going to want to deploy workloads on the most appropriate storage tier. That might be in the cloud on an elastic block, high-performance storage.
Speaker Change #105: for super complex, super mission-critical, real-time solutions, and use less performance storage for workloads which are less mission-critical. The battles will be, to your point, in the query engine. Who's got the best query engine? And it's great from our perspective to see, I mean, we release Teradata AI Unlimited. It's got all of our analytic capabilities built right into the database. It's a high-performance, we've got a high-performance query engine that we deploy in Advanced Cloud Lite that enables us to address lots of different use cases. So, that open and connected approach to make sure that our customers can take advantage of the most
Stephen McMillan: And the battles will be, to your point, in the query engine. Who's got the best query engine? And it's great from our perspective to see we release Teradata AI Unlimited. It's got all of our analytic capability built right into the database. It's high performance. We've got a high performance query engine that we deploy in advanced clouds like that enable us to address lots of different use cases. So this open and connected approach to make sure that our customers can take advantage of the most advanced analytic capability, be it Gen AI or AI and analytic models.
Speaker Change #105: Advanced Analytic Capability, be it Gen AI or AI and analytic models, is something that we are absolutely focused on.
Stephen McMillan: Thank you for your question. Okay. Thank you. There are no further questions at this time. I'll now turn the call back over to Stephen McMillan.
Speaker Change #106: Thank you for your question. Okay, thank you. If there are no further questions at this time, I'll now turn the call back over to Steve McMillan for his final remarks.
Stephen McMillan: Thank you everybody for joining us today. Look, as we end the call, I'd like to emphasize that we are confident that we've got a fantastic market opportunity in front of us, we've got great technology, and we've got the team to win. We've got our plans in place for execution, and we are absolutely committed to moving forward successfully.
Stephen McMillan: Thank you, everybody, for joining us today. Look, as we end the call, I'd like to emphasize that we are confident that we've got a fantastic market opportunity in front of us, we've got a great technology, and we've got the team to win. We've got our plans in place for execution, and we are absolutely committed to moving forward successfully.
Operator: This concludes today's conference call. You may now disconnect your line.
Speaker Change #108: This concludes today's conference call. You may now disconnect your lines.