Q2 2019 Earnings Call
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Great. Thank you.
You're welcome.
Good afternoon, ladies and gentlemen, my name is Julie and I will be your conference operator today.
I would like to welcome everyone to the Q2 2019 Teradata earnings Conference call.
All lines have been placed on mute to prevent any background noise.
After the speakers remarks, there will be a question and answer session.
If he would like to ask a question. During this time simply press Star then the number one on your telephone keypad.
If he would like to withdraw your question you May press the pound key.
With that I would now like to turn the call over to SVP of finance and Investor Relations. The Beall Osha Shai. Please go ahead.
Good afternoon, and welcome to Teradata 2019 second quarter earnings call Oliver Ratzesberger Heritage, President and Chief Executive Officer will lead our call today, followed by Mark <unk> inherited CFO will then discuss our financial results. Our discussion today includes forecasts and other information that are considered forward looking statements. While these statements may reflect our current outlook. They are subject to a number of risks and uncertainties that could cause actual results to differ materially.
These risk factors are described in Teradata is 10-K, and 10-Q and other filings with the FCC on todays call, we will be discussing certain non-GAAP financial information, which excludes such items as stock based compensation expense and other special items described in our earnings release, including acquisition reorganization related cost asset impairments in capitalized software development costs. We will also discuss other non-GAAP items, such as free cash flow and constant currency revenue comparison.
A reconciliation of our GAAP results to our non-GAAP results and other information concerning these measures is included in our earnings release, which is accessible at Investor Day, Teradata Dot Com a replay of this conference call will be available later today on our website Teradata assumes no obligation to update or revise the information provided during this conference call whether as a result of new information or future results and now I will turn the call over to Oliver.
Good afternoon, everyone.
I'm pleased to provide an update on our business and the positive strides we are continuing to make as we execute on our strategy.
We are uniquely helping the world's leading companies achieve competitive advantage with data and analytics through our best in class advantage analytics platform for real time intelligence at scale.
Everyone is aware that to date businesses must operate in a digital environment.
Data analytics are no longer a byproduct of doing business rather they are at its foundation.
Timna is uniquely positioned to guide and enable our customers to excel in this digital environment.
Oh unmatched technology, it'd be literally multi cloud hybrid cloud and on Prem.
And our relentless focus on customer success are keys to why we win.
On today's call I will cheer three key takeaways with you and then Mark will cover our financial results.
First.
We are advancing our cloud position and seeing increased interest in our cloud offers.
The great value terms. It provides is the same powerful analytics insights and answers in the cloud as on premises and today I will provide a number of examples.
Second we're continuing our strong transformation to a software driven subscription based recurring revenue business.
Third customers are recognizing the value that comes from investing in a vantage at least ecosystem that aligns to the needs of today and tomorrow.
Going far beyond the old school data warehousing to an environment, where autonomous decision, making is an essential capability and this is our sweet spot.
Let's start with the court.
Well, both on premise and hybrid cloud remain important environments to businesses, we're seeing more and more enterprises beginning to move to the cloud.
You are all aware that we are making big investments.
Building out our cloud capabilities.
Adding cloud first talent.
And we announced new offers the E.W., yes, and as you were in the quarter.
Well, we still have work to do we are encouraged by our progress.
And what I call. It has provided companies with flexibility in managing their infrastructure.
Enterprises have also realized that trying to run their large and complex analytics environments in the cloud requires that power and scale of Teradata.
They are over the height of the cloud only startups and have realized that they require a robust engine that can deliver the performance they need.
At this scale they need and that is exactly what we deliver.
In competitive situations, we see cloud only players having to spin up multiple instances throwing cost instead of efficient capability at the problem and also creating complexity.
Yet still failing to analyze data at the speeds required in this world of digital information flows.
These cloud only players can only service small sets of users running limited numbers of queries get customers require a solution that scales to thousands of users and billions of data points, creating real time insights across the enterprise.
We see more and more instances, where the cloud only players failed to deliver on the Overhyped claims and this is where teradata strengths are validated.
We are taking to see knowledge and capability gain from providing the most efficient and scalable analytics platform.
Prudent with a largest companies and we are now delivering the same capability in the cloud.
The cloud only players are still learning how to scale, even in simply environments and are still providing only limited capability in the cloud.
I'd like to share a number of our cloud wins.
Why Pf Argentina's leading energy company has chosen teradata to be their strategic partner for advanced analytics.
But theres an advantage running on Microsoft Azure White Pf will develop a standardized steel platform, bringing together exploration development and well data for delivering centrally to management.
Predictive asset maintenance smarter, well planning and well control.
And I will tee when comes from a leading international mining company, which is investing in vantage on offshore to keep up with the scale needed to gain insights from its volumes of central data.
Pat Corp, a world class diversified gambling Entertainment group from Australia has partnered with us to vantage in the public cloud to transform its data and analytics offering.
Global Hospitality company at a tentative in the public cloud to better manage his finance and customer analytics.
After the customer set snowflake failed to deliver on its commitments the customer determined that teradata on E.W. has provided better agility and scalability than the competition.
At top North American airline is adding a new vantage path from onshore to extend its capabilities in the cloud supporting business continuity for this always on enterprise.
The second point I want to cover is our subscription business.
As customers transition more of their production environments to the cloud we continue to see strong transition to subscription based bookings.
In Q2, we achieved subscription bookings of 90%.
With customers responding positively to tear to shift and focus to a software centric business model.
In a world of recurring revenue it is ever more important to build and maintain lasting customer relationships that are the lifeblood of the business.
We have a longstanding tradition of focusing on the needs of our customers and are placing our efforts on their success and this focus will only continue to grow.
Two people our skills here in June we brought him Scott Brown as our Chief revenue Officer.
Scott's a wealth of experience in creating customer success, and maintaining lasting customer relationships aligned perfectly with our objectives.
He has led global sales and consulting teams through business transformation delivered consistent revenue growth, including via the cloud and guidance organizations to subscription based business models.
And just this week, we announced another Great addition to our leadership team as we brought on Kathy Callen coat as our chief Human Resources Officer.
She joins us from PTC, where she was responsible for guiding the cultural evolution as the company executed its successful business transformation.
I'm very excited about the outside perspectives and desktop experience, both Scott and Kathy will bring to Teradata.
Looking at the environment facing organizations today, the ever growing stream of information coming from digital transformation is not stopping.
In fact, keeping up with data and governing this is now a C suite issue.
Organizations must automate the gathering and analysis of data to drive to the answers they need at this scale they require to compete and win.
This means the world of traditional data warehousing is no longer good enough.
The large global enterprises, we work with no they need something more interesting is at the forefront of this revolution.
Unlike every other vendor in the market today with parenting advantage, we have gone beyond traditional data warehousing empowering our customers to leverage their data with prebuilt analytics across any infrastructure at this scale they require.
And we are the very best at delivering this value at scale.
We have progressed beyond the data warehousing of the likes of Snowflake Oracle and many of the cloud startups.
Here are a few examples.
The largest e-commerce and Internet company in Japan has selected Teradata vantage and our new machine learning capabilities in order to become the leading online travel agency in the Asia Pacific region.
The full vantage suite will be used to further his digital transformation and expand the customer experience with more personalized offers with the goal of increasing both sales and market share.
China Everbright bank, a long standing turn to the customer is expanding its tentative environment to help advance its digital transformation efforts.
The bank relies on turret advantage to provide an efficient high performance and scalable platform for key initiatives around improving its customer journey.
Finance and risk management and compliance regulations.
And multinational investment bank and financial services company expanded its teradata vantage footprint to support new use cases that have been migrated from a competitor in order to simplify and consolidate applications onto teradata.
These examples are just a sample from our growing vantage success, we are winning because of our unparalleled strengths in delivering the answers that businesses need to be ready to address the future.
And we provide the same capabilities with a multi cloud hybrid cloud or on premises.
This is a tremendous benefits to our global customers.
In closing I want to emphasize my key takeaways.
First turning that is steadily advancing our cloud position and we will continue to take our market, leading analytic software platform and deliver business outcomes in the cloud.
Second we are continuing our strong transition to a subscription based business model and building upon our strong heritage of customer success to drive continued adoption of our software.
Third customers are recognizing the value that comes from investing in our vantage analytics ecosystem that takes them beyond traditional data warehousing.
Both in the cloud and on Prem.
Mark will now walk us through the financial results.
Thanks, Oliver and good afternoon, everyone.
We delivered a solid quarter in Q2.
Highlighted by Aer and recurring revenue growth and solid operating margin performance.
And Oliver stayed 90% of our new and add on bookings were subscription based as we continue to make progress on our transition.
We continue to expect 70% or more of our bookings for the year to be subscription based.
In terms of our reported results.
Recurring revenue, which includes revenue from subscription based transactions and perpetual license related maintenance and upgrade rights.
It was $338 million in Q2.
Our year over year increase of 8%.
11% in constant currency.
Perpetual revenue came in at $29 million.
Which consisted predominantly of perpetual hardware purchases.
Consulting revenue, which was $111 million in Q2.
Decreased 18% from Q2 2018.
And 15% in constant currency.
As expected.
Our strategy is to focus our consulting resources on engagements that drive customer value via solutions uniquely enabled by the Teradata platform.
And we are significantly reducing the consulting engagements that are not teradata related.
HR grew $31 million from the end of Q1.
Year over year, HR increased 11% and 12% in constant currency.
As our bookings mix continues to shift to subscription.
We see our subscription related aer are growing.
And HR are related to perpetual license maintenance software upgrade rights decline.
Our backlog was approximately $2.5 billion.
Up 2% from Q1, 2019 and up 39% from Q2 of 2018.
It is important to note that our backlog growth in 2019 will be impacted by our desire for shorter deal durations versus what we added in 2018.
To help effect. This intended change we are only compensating our sales team and up to three year deals.
Versus up to five year deals in the past.
As a result.
Bookings calculated using backlog and backlog growth.
We will not be a good indicator of business trends and Tel deal durations normalize.
Likely in 2020.
Before I continue to highlight a few key elements of our Q2 operating results.
I want to make it clear that unless stated otherwise.
My comments today reflect teradata as result on a non-GAAP basis.
Which excludes items such as stock based compensation expense and other special items identified in our earnings release.
Turning to gross margin.
Gross margin of our recurring revenue was 71% versus 74% in Q2 2018.
As expected.
The lower margin year over year was due to the recurring revenue mix in Q2 2019, having more subscription based revenue.
Which carry lower margins than revenue from perpetual license related maintenance and software upgrade rights.
As a result of embedded hardware rentals in our subscription business.
We continue to expect our recurring revenue margin to be in the low seventys for the full year.
Gross margin of our perpetual software license and hardware revenue was 20.7%.
As compared to Q2 2018.
30.9%.
As expected the lower margin was due to this revenue mix, becoming primarily hardware related.
As more of our business shifts to subscription.
Particularly software sales.
In addition.
Our hardware gross margin was negatively impacted by currency swings on intercompany transactions.
In regions, where we cannot hedge currency fluctuations.
We have had these currency impacts affecting hardware gross margins in the past.
But now that our perpetual revenue has become much smaller.
And predominantly hardware related.
The impact of these currency fluctuations has an outsized impact on total perpetual gross margins.
As a result of these currency moves we now expect perpetual hardware margins to be in the mid thirtys for the full year.
And overall gross margin was 52.7% in the second quarter versus 48.9% in the second quarter of 2018.
The margin percentage expansion was the result of a higher mix of recurring revenue and improved consulting margins, which offset lower perpetual mark.
We continue to expect overall gross margin to be up 300 to 400 basis points for the year.
Turning to operating expenses.
Total operating expenses declined $20 million or 9% in Q2 versus the prior year period.
This decline was driven by our prior actions to align our go to market organization to focus on our enterprise and commercial target market.
Operating margin for the quarter was 10.7%.
Versus 8.3% in Q2 2018.
We continue to expect operating margins to expand roughly 200 basis points year over year.
Teradata is non-GAAP tax rate of 26.1% for the second quarter was higher than expected.
Due to a ninth circuit court of appeals ruling during the quarter that resulted in a discrete tax charge recorded for a tax contingency.
However, we continue to expect our full year tax rate to approximate 20% for the year.
Turning to cash flow.
Net cash provided by operating activities was $55 million in Q2 2019.
Including $17 million, an ongoing restructuring payments.
We spent 13 million on capital expenditures and additions to capitalized software.
Which resulted in total free cash flow of $42 million for the quarter.
As a reminder.
The company's transition to a subscription based model.
Impacts the timing of billings.
And cash collections, and therefore year over year comparisons may be less meaningful than in prior years.
In addition.
Comparisons to the prior year Q2.
Our skewed by a large multi year transaction cash payment.
Received in Q2 of 2018, which we discussed on last year's earnings call.
During the second quarter, we were aggressive in our stock buyback and bought $117 million of Teradata stock.
Or approximately 3.1 million shares.
Year to date, we have bought approximately 4.3 million shares for $175 million.
In addition, our board has authorized an incremental 500 main of share repurchase authorization.
We now have $620 million of share repurchase authorization.
And well continue to be opportunistic in repurchasing our shares.
Turning to guidance.
Our guidance remains unchanged from our Q1 update.
All year, a our growth in the range of 11% to 12%.
And recurring revenue to increase 10% to 11%.
Both of which include one to two percentage points of currency headwinds.
And as I previously mentioned, we continue to expect subscription based transactions will comprise 70% or more of our full year bookings.
Consistent with prior expectations.
2019, perpetual revenue is expected to decline at the high end of the $150 million to $200 million range from 2018.
And consulting revenue is expected to decline approximately 20% versus 2018 as the company realigned its consulting business to focus on higher value add consulting services.
Teradata expects 2019 full year GAAP earnings per share to be in the 42 cents to 52 cents range.
On a non-GAAP basis, which excludes stock based compensation expense and other special items. The company continues to expect earnings per share in the $1.45 to $1.55 range.
Recurring revenue in the third quarter of 2019 is expected to be in the 340 million to 344 million range.
GAAP earnings per share in the third quarter 2019 is expected to be in the 17 cents to 21 cent range.
Third quarter non-GAAP earnings per share.
Excluding stock based compensation expense and other special items.
As expected to be in the 38 cents to 42 cents range.
And finally, we continue to expect free cash flow to be in the 140 million to $160 million range, which includes the impact of cash payments related to our restructuring actions.
In closing, we had a solid Q2 and our customers continue to aggressively shift to our subscription based options and increase their consumption of teradata.
And with that operator, we are ready to take questions.
We will now begin the question and answer session as a courtesy to all participants please limit yourselves to one question and one follow up question.
If you have a question. Please press Star then the number one on your telephone keypad.
If you wish to be removed from the queue you may press the pound key.
Once again, you may pastime, followed by the number one to ask a question.
Your first question comes from one Yeah Mohan with Bank of America.
Please go ahead your line is open.
Yes. Thank you sorry, I joined the call a little late but you apologies for that.
If you already addressed this but.
Your recurring revenue guide is just slightly below our estimates for the next quarter and I know you called out some FX headwinds.
That you're facing but also you had you're going into somewhat easier comps going into next quarter. I was just wondering if you could address that in the in the overall scheme of your trajectory of recurring revenues and I have a quick follow.
Yes, Wamsi. This is mark yes, so for Q3, it's really just timing of deals.
Yes.
You know our guide for this Q4 compared to Q3.
As good but we have a we also expect acceleration in Q4, just like we saw in the prior year.
As well so it's really just due to the timing of.
When deals.
Happened and then when do they start to flow to revenue.
Okay, great. Thanks, a lot it's actually pretty impressive that you guys are maintaining in this month weaker macro environment. Your overall guide as my follow up what does the customer feedback on on vantage Oliver and can you talk a little bit given that you are sort of you've got a list price on vantage. That's higher is not translating into any SP benefits, yet or is that really translating more into.
Folks.
You know trying to trying to sort of.
Look at moving over to subscription in any faster way at all and.
What do you what do you see the most from a competitive standpoint in the quarter and what were your win rates there. Thank you.
Okay, well so.
Just to remind dry advantage part of our strategy just released October last year analytics platform really bringing together capabilities that are going beyond what data warehousing is so this is really broadening the application of data.
In the enterprise, bringing together the advanced capabilities machine learning time series Aiotv.
In various new features as previously Teradata big not half of the portfolio is also combining the feature sets of other products that we had in the past and so we see a lot of interest in vantage in fact vantage.
Continues to be the fastest adopted product release and Teradata.
In in quite some time and so that that is very positive momentum that we're seeing out there.
We have given a couple of examples today of customers that are adopting vantage to take their data and.
Do the banks are weeks with its several of the examples in today's call, we give them or in the cloud or the work customers really need to bring together traditional financial data, but also with new digital and IP.
Examples to drive digital transformation at scale and so this is where we're seeing the big interest.
We see good growth adoption as I said fastest adopted product release.
In our history in the slight uptick on pricing that we have on vantage is because of all the extra features in there and were actually not seeing in our target market customers that are questioning why we do that in fact still in showing interest off. This is a lot cheaper than going with let's say a competitor product and then having to package on two or three other products in order to get to similar capabilities in so from a PCR perspective.
Just recently had a customer compare us to some of the cloud alternatives that they happened and.
I'll turn it becomes a very favorably, but when it comes to transition to cloud.
So no change in competition and what we are seeing healthier same.
Same competitors that we saw the prior quarter of what we do see is a lot less hadoop appeared that is really really helping heart is coming across globally now and so in general more shift to the cloud a lot of interest therefore for Teradata everywhere vantage everywhere.
Good momentum.
Thanks.
Your next question comes from Derrick Wood from Cowen and company. Please go ahead. Your line is open.
Great. Thank you and nice job on the on the rebound in net new are can you just give us some color on whether you were able to close your slipped deals and how you're feeling about getting back on track with sales cycles in close rates and and Mark I thought maybe we'd see given that the net new air are more positive impact to recurring revenue. Just wondering if there was anything else to call out maybe it was due to linearity or FX, but.
Maybe why that didnt kind of come through a little bit more.
Yes, so yes, weve signed agreements with those customers from Q1 in terms of the flow through to Q2, it's just timing linearly and timing of when that starts really.
Nothing specific there.
Okay.
And maybe I'll touch on the cloud business because it definitely seems like you guys are.
There's a bit more enthusiasm in terms of what you're seeing out of the answers in the cloud what are you doing to help facilitate a more adoption through ADW asked in Azure and what are the common stepping stones, you're seeing from your from your customers is that a lepton ship that was at the existing footprint or is it more about greenfield.
It's a mix of that in general as you said, we are seeing an uptick in cloud interest in our target customer market that includes the Mega data, but also our commercial segments that we have put more focus on this year.
Aim.
The week you know the way in the past customers have moved was trying testing Def Def test systems. There is certainly more production workloads that we're seeing out there some of them are doing lift in shifts and expanding usually we see new workloads of being added to that or extra existing workloads being.
As a growing on the platforms.
In general we see a lot of emphasis on.
You know.
Security, making sure.
A lot of our customers.
I'll spend some extra time on making sure that the the move to the cloud is done in a sensible way and that they're not exposing themselves to.
To unnecessary security security risks, especially in the Mega data space that is Paramount concern in our customer base.
Bob.
This experience to that debt is certainly driving more interest in mega data and commercial to move to cloud and in park. We're also seeing an increased uptick of customers that have tested other cloud offerings out there and that are coming away quite disappointed quite honestly no seeing you know up too early.
'cause world, but also in the cloud certainly is superior and is cheaper than the competing offerings out there and that drives the combined interest from the customer base.
Right. Thanks for the color.
Your next question comes from Katy Huberty from Morgan Stanley . Please go ahead. Your line is open.
Thank you good afternoon other hardware enterprise hardware technology companies are talking about weaker demand as they went through the second quarter and.
The macro starting to impact conversations around capital spending plans for the year.
Did you see any weakness in June or or early in and in the current quarter in the month of July that would suggest that.
You wear business May may face this headwind and if not why do you think your immune.
Thanks.
No, we don't see any such headwinds or a a macro things happening to our business also you know Oh, we as we turn primarily to a software subscription company clearly that is that is somewhat separated from the hardware about no not seeing that in fact.
As well as strong interest on vantage and software and what we're doing there with with with our customer base.
That's good to hear just as a as a follow up Mark I think you said last quarter that backlog was up 43% year on year, what's the comparable figure exiting the June quarter.
[noise] from here.
From June a year ago, I think we said in I think March I think.
I think Mark I think March quarter, you said, 43% just wondering what that was exiting.
This quarter, Yeah, just year over year June 18 versus your name on 39%, but we don't look at it compared.
That you know because that that's a duration thing and we're doing less duration deal that we said in our prepared remarks.
Got it great congrats on the quarter.
Thank you thanks.
Karl Keirstead from Deutsche Bank. Please go ahead your line is open.
Thanks, two questions Mark you mentioned in an earlier question that you're expecting to see some.
Acceleration in the fourth quarter. So if I just run the math and you hit the midpoint of your Threeq guide on recurring revs to hit the high end of the 10% to 11% recurring Revs guide I think for Q needs to see an acceleration to roughly 16% growth could you just talk a little bit through <unk> through why you're seeing that is it just visibility into the deal pipeline, where maybe some threeq you stuff is spilling into Fourq you. Thanks a lot.
Yes, a lot on that Carl yes, there is.
If you go back and look at what happened in fourth quarter, a year ago, we had a.
A very large sequential increase Q4 over Q3, so yes, I'm aware that our guide also.
Implies that and based on the forecast we see deals happening.
Oh, you know earlier in Q4, like we saw a year ago.
I think for customers trying to get stuff wield in and get it done before they got to shutdown anything moving in here there.
ER before they shut down for the holidays than anything else.
Okay. That's helpful. Mark and then a follow up on the balance sheet I see that.
Long term D.R. came down fairly hard sequentially.
Excuse me is that all the.
The deal duration, you're talking about and.
Assuming it is I thought the the sales comp.
The issue that might affect that was made in late fourq used to that that really wouldn't explain the Q1 to Q decline in long term D.R. So maybe there is another duration.
Related explanation to help us a figure that went out thanks a lot.
Yeah. So a long term deferred short term deferred doesn't have anything to do with deal duration. It actually has to do did you get paid on multi years and took more than one years cash on a multiyear deal, which we have not seen.
Anything this year, where again a year ago.
You know we saw that quite a two or three different times, particularly in Q2, a year ago. We saw a very large multiyear deal all get all get paid.
From Q2 of 18, so the sequential from March to June and just kind of your normal typical where we haven't had any multiyear cash receipts. This year that are driving out. So I would expect long term deferred to continue to decline across the balance of the year.
Brad Reback with Stifel. Please go ahead your line is open.
Great. Thanks, very much Oliver switching back to the cloud commentary as customers begin to move what type of pricing flexibility providing around consumption based workload for instance, just your long term contracted opportunities there.
Yeah as I, probably said earlier this year and as we announced that last year's Universe Conference.
One of the one of the Royal said, we're doing this year is consumption based pricing.
Aim to have we have the engineering now completed on that on that task and we have several customers that have been open beta testing that with US we see we can using interest a poor choice from our customer base. They love the ability that they can all get teradata in a consumption model and its yes, it's a different price points that obviously, we said was that just like the cloud defines as hock usage and frequently the view such a different price points and we are really modeling after the after the industry norms that we see out there and that's that's that's sees a lot of interest from the customer base.
Having said so customers also like the subscription offering so it's not necessarily the customers are saying, we all want to go to a consumption model, but for certain use cases and for certain applications. Good consumption based model is something that that gives customers. The choice for you know capacity on demand and less visibility and it's being received very well in the customer base and it's going to be one of our offerings in them in the model that we have having said so not every customer wants that choice either we've also got some very very clear feedback that some customers also like the predictability of a subscription model death yesterday, Mike upgrades during the year, but they like the predictability of the financial model of a subscription model over a pure consumption model and so you will see us continue invest into this makes us easier to consume for our customer base and again.
In terms of everywhere as we started at two and a half years ago was all about choice and this is the game to give customers a choice and the reception to the customer base is very positive.
Excellent and then one quick follow up with the hiring of Scott Brown do you expect any meaningful changes in the salesforce structure or go to market in the back half of the year or do more of that modification happen next fiscal year. Thanks.
So don't expect changes in fact in fact, it's called it's all about stability of execution and it's about you know take the execution model that we have in place drive its drive it hard and he is quickly getting his feet on the ground quickly, making any impact here. So yeah. We are very encouraged to have him on board. This is not about more changes in 2019. This is about taking what we have and what we have set up and really executing hard on it.
Excellent thanks very much.
[noise], Phil Winslow from Wells Fargo. Please go ahead your line is open.
Yeah. Thanks for taking my question Oliver just wanted to follow up on some of those customer use cases, you know you talked about in your prepared remarks, I mean, when you when you talk to customers how to manage accordingly.
Mold or integration with multiple languages, not just equal, but you are in Python and also it was a little bit of formats. How is that influencing customers' views advantage and how are you thinking of advantage in that support relatively let's say that the point guys that might do you have a sequel or wherever it might actually another one sporting goods or the Oren Python for machine learning to Howard what's the feedback from customers on that.
Yes. So this is this.
Yes, there's a couple of forces out there in the markets that are really coming together and if you look at the pervasive digital that is starting to take hold in more and more companies around the world and if if they are realizing that they need to bring traditional financial marketing customer data closer together with more bio sensor aiotv and other data sources and traditionally that left them to build silo.
Systems time seriously that would go into a time series system and unstructured data would go into and unstructured data Lake and what they all are starting to realize is that that proliferation of data of silos.
He is extremely hard to operationalize or when we need to combine the different types of data. It makes it extremely hard what you're doing with vantage is really as we have put together vantage we brought to the traditional sequel at vast sequel, we brought a time series. We brought version control of data or pin portal into the system. We brought these new languages. We brought event based and past based capabilities straight into that system. What that allows these customers are doing if you heard a couple of examples even on today that allows for example, well data or same store data, where machine data or mobile data all to get to put together with all the other financial ERP customer supply chain data and for the first time. It allows companies to really get a holistic view of all the way up to the CEO of these companies and that's something that we really focus on.
It's like how do we make it as simple as possible to bring that diverse set of data together into as few instances of data. So customers can integrate you know add trial quick way and drive the analytics that they need to do in order to make the impact to the business and drive the business outcomes and so.
Pipestone and our other language is of course, the different storage formats or.
For a different types of data with a sensor or structured or relational data and all under one quote is really allowing them to quickly train people or take existing talent and setting them loose billions and trillions of data points combined with millions or hundreds of millions of customer data.
And then Thats were certainly the opportunity for vantage is what they want and where our roadmap for vantage will be for the next several years.
Great. Thanks, and then also Mark just a follow up on your gross margin comments or for the year. Thanks for those are obviously also gives them a gross margin color you at analyst day.
Maybe there's words of progression there, but those longer term targets I mean, how should we think about it from from a line item perspective.
Yeah, I mean, we expect gross margins to improve each and every year.
As we expected right I mean, more and more of the mix is shifting a recurring you get gross margin lift off of that clearly less perpetual a year on year, and you know ER, which becomes a drag and then as we've said we are improving our overall.
Our focus on what we're doing with consulting and expect improved consulting margins as well all of that's contributing to where we are for this year and how we continue to progress across Twain 21 to those totals analyst day numbers, we feel good about where we're at and where we see that going.
Great. Thanks, guys.
[noise] Rymill Lenschow from Barclays. Please go ahead your line is open.
Hey, Thank you and two quick questions.
Christians for all of them can you talk a little bit about the different clouds or when I look at the customer. Examples you gave earlier in the presentation. There was a lot of Azure in there I'm wondering if that kind of as slightly better relationship because they need to be at houses. We retrofit obviously, a competitor or is it more because the geographic footprint is broader and then I had a quick follow on question.
No. We see you know we've seen general good interests across both either so those or are you probably see a given our focus on.
Mega data company as an enterprise to see maybe some more enterprise examples on I'm sure, they're very strong in the enterprise right and Thats worth their sweet spot is and so naturally there is a little bit more of a customer might appear to be between between our customer base and we're a jury is but other than that no. This is a good partnership for both sides are aimed and we see interest oh, the various different public cloud fronts and you will you will hear more from us in that space income.
Okay perfect and then the the other question I had was on if you think about competition and you mentioned some of the cloud guys before where would you I mean in theory I would assume you see it more in the commercial part of the market. The Kers no teradata as a solution is significantly it's very very powerful so for enterprise, you're probably really need teradata and I would assume if competition is more in commercial is there is that a fair assessment can you talk to that please.
Yeah, so you'll see the competition primarily into small detail Mark space of course.
If that pans, yes, we see more of it in a commercial it's also however, very interesting now that we have launched a comet commercial sales force this year and put some extra focus on commercial we're seeing a lot more cloud opportunity also come our way because if that space that has experienced the likes of snowflake and friendship now for the last you know 12, 18 months, where some of them even longer and some of them have made therefore experiences where they say, but it's still not working even if the commercial scale for us. So a lot more a lot more deals indefinable in commercial where customers come to us and a point felt that they need something else then what the competition is to offer and so in general what we are seeing is quite a positive momentum and a little bit of a surprise on the on the on the commercial side of just how much interest we are seeing there or in the cloud spis, especially.
Especially driven by competitors falling short of their of their promises.
Perfect interesting well done thank you.
As a reminder, if you have a question. Please press star one on your telephone keypad.
Your next question comes from Tyler Radke Yu from Citi. Please go ahead. Your line is open.
Hey, Thank you Oliver I wanted to ask you about vantage and maybe just clarify for us when you're talking about the adoption being among the best in terms of product with me today are you talking about kind of the the latest version of the Teradata platform that customers are upgrading to are you talking about you know the uptake of some of the the add ons like the graph and then maybe just talk about how far through the installed bases in terms of the vantage adoption and if you're seeing any type of uplift you can quantify thank you.
So so we don't break out the numbers in particular, but yes. It is the latest versions of our software that make up vantage that is being adopted.
Vantage is is a set of capabilities that goes through various different engines and we have launched it last year as of October are seeing strong adoption in the existing customer base, but also in new customers. That's you know we talked about some of the examples vantage is certainly driving interest in the customer base as to also helping them simplify their ecosystem. Many of them are realizing that too many systems into when the technology is driven by the inability of a single platform to do that for them and so.
Uh huh.
This is various various features functions programming languages, as we said that all come together and vantage aimed and the interest in machine learning and autonomous Decisioning. Obviously is is out there in the market you hear a lot about customers, having really problems with AI deployments around the world because.
It's hard to say take a standalone software animal and flip it against and you know I'm managed data Lake and good repeatable results with vantage and the covenants that that it allows our customers to implement a diversion control and the structuring and feature extraction of data. This is where vantage really puts machine learning in to the customer's hands, but it's much more repeatable and thats, where the interest in the customer base right now is.
Great.
And then maybe a follow up either for you Oliver or Mark you know just looking at the geographic revenue, obviously, there's kind of a bag of a growth rate there I presume some of that has to do with the various stages geography is with the specialty gift and transfer for maybe just talk about how I think you said was.
I can hear you know anything to call out in those numbers were looking at.
Yes, so both both EMEA and APAC I.
Then pleasantly surprised with the movement to subscription.
This year, it's been it's been great.
You know looking at year over year, if that's what you're looking at you know we had a huge big.
Deal that came down in Q2 in a path that's what was driving the compare there.
So you know it's a in the subscription transition.
It's is what's what's impacting that so weve.
We're pleased with where we're headed there and what we're seeing and moving forward on both a APAC and EMEA.
Okay. Thank you.
[noise].
I will now turn the call back over to you, our president and CEO Oliver Ratzesberger for closing comments.
Thanks, everyone.
We are all working during an incredibly exciting time ongoing momentum at Teradata.
And we are continuing to make very positive strides.
We are advancing our cloud positioning continuing our strong transformation to a software driven subscription based recurring revenue business and developed our vantage platform to address the needs of today and tomorrow and we firmly established and continue our strong focus on driving customer success, we've aligned the entire team and our relentlessly focused on delivering ongoing value to our customers and shareholders. Thank you very much.
This concludes today's conference call you may now disconnect.