Teradata Corp Q3 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Matthew Hedberg - RBC Capital Markets - Analyst : Maybe one for Steve and then one for Claire. You noted sort of at the top of your mark, there was a change in how customers are thinking about cloud migration. I'm curious if you could just maybe double-click on that a bit more. Is this an industry-wide thing? Do you think it's something that's sort of unique maybe to your base? And I'm just sort of curious, has it changed sort of the medium-term outlook on cloud mix and kind of overall growth when obviously that cloud mix is part of a big part of sort of the total company acceleration?

Question: Matthew Hedberg - RBC Capital Markets - Analyst : Got it. That's super helpful, Steve. And then maybe sort of a related question for Claire. To me, it feels like there's a bit more higher priority on Q4 on-premise spending within your base. And I guess I'm wondering -- I think a lot of us are wondering, do we see maybe a bit more of a December budget flush this year? And I'm wondering, did your guidance contemplate maybe a bit more of that given that historically budget flush, I think, tends to impact more on-prem than cloud? And then when you think about sort of cloud growth and maybe even reacceleration, what are the building blocks of that essentially? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 04, 2024 / 9:30PM, TDC.N - Q3 2024 Teradata Corp Earnings Call

Question: Chirag Ved - Evercore ISI - Analyst : Steve, if you think about the business over the next couple of quarters, given the mix change and customer approach to cloud, does this change how much you're indexing on cloud versus on-prem in terms of your approach to innovation, contracts, renewals at this point? And what are you seeing to support and guide that decision-making process?

Question: Chirag Ved - Evercore ISI - Analyst : Great. And then, Claire, maybe one for you. Recurring revenue came in ahead of where the street was at for Q3, and you maintain the full-year guide. Can you talk through what happened in Q3 and what you're expecting in Q4 from the recurring revenue point of view? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 04, 2024 / 9:30PM, TDC.N - Q3 2024 Teradata Corp Earnings Call

Question: Tyler Radke - Citi - Analyst : Steve, I wanted to go back to the commentary you made around the staged migrations that you're seeing with customers in terms of moving the cloud I guess why do you think this is happening? And why now? I mean, is this a macro budgetary-driven decision? I mean it would seem like budgets have been tight for a while. So what's kind of your theory on why this is happening and why now? And just to clarify, is this only customers that you saw in Q3? What makes you think that this was just a function of the sample size versus a broader trend that extends into next year?

Question: Tyler Radke - Citi - Analyst : Very helpful. And a follow-up on that for Claire. So last quarter, you talked about seeing similar cloud growth as your prior guide in 2025 is 2024, which I think was around 30% and $1 billion in cloud in 2026. Do you still expect $1 billion in 2026? Or does this sort of change the trajectory of that cloud business ramping to $1 billion?

Question: Erik Woodring - Morgan Stanley - Analyst : Steve, maybe I'll start with you just it feels like Teradata has faced a bit of a perfect storm of headwinds this year between some on-prem erosion, some deal elongation, and now some cloud migration timing dynamics. And I'm just wondering how can you be sure that the headwinds that you have encountered this year have nothing to do with competitive pressures. For example, elongating sale cycles are taking longer to migrate to the cloud, is there a sign that there's a risk that those customers are potentially evaluating maybe other cloud-native platforms? Just help us gain some comfort that this isn't competitive risk and this is more just related to timing

Question: Erik Woodring - Morgan Stanley - Analyst : Okay. That's really helpful. And then maybe my follow-up is for you, Claire, which is, can you maybe just talk a little bit more about the change in growth gross margin profile of your recurring revenue base, given some of these mix shifting dynamics and what -- and really when you expect that recurring revenue gross margin to kind of bottom and stabilize and start to expand? Has that timeline changed as you've now kind of thought about the different underlying mix between on-prem and cloud and your business?

Question: Howard Ma - Guggenheim Securities LLC - Analyst : Steve, I want to -- I understand you already gave a pretty thorough explanation of the stage migrations. But what can you point to further? I mean, maybe -- so I just -- I was just brainstorming. I was thinking maybe it's its verbal customer commits around the timing of migration expansions, even if it's not contractual, maybe you can share some data on conversations or maybe it's telemetry data on that support the stickiness on Teradata. Or maybe you have a pronounced on-premise renewal base next year. So really anything more concrete that could instill confidence that that slower cloud migrations or what you're calling stage migrations won't translate into future competitive losses.

Question: Howard Ma - Guggenheim Securities LLC - Analyst : Got it. And for Claire, speaking of 2025, I respect that you're not giving any discrete guidance so far, but you're making some pretty big initiatives. I mean there's product initiatives at your recent customer conference, your go-to-market reorg is underway. Can you just paint a picture for us and help us understand when these initiatives will kick in. I mean, we're in November already, right? So as we look around the quarter to next year, how would they kick in into the numbers? And on the back of that, why should we not expect significant acceleration next year?

Question: Nehal Chokshi - Northland Securities - Analyst : Help us understand what it means in terms of change in year-end total workloads on Teradata given takedown cloud ARR but no change in total ARR.

Question: Nehal Chokshi - Northland Securities - Analyst : So the reason why I asked that question is because I thought that on an on-premise customer converts or in their on-premise estate to cloud, there's an expansion associated with that. So if we have a slowdown in the cloud migrations, you would actually have less total ARR. Is that not correct?

Question: Nehal Chokshi - Northland Securities - Analyst : I see. Understood. Okay. And then of the $50 million takedown for cloud ARR for 2024. Is there a significant concentration within that $50 million to like just a couple of customers? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 04, 2024 / 9:30PM, TDC.N - Q3 2024 Teradata Corp Earnings Call

Question: Nehal Chokshi - Northland Securities - Analyst : Got it. And then if I can sneak one more in. Steve, you cited a few customer within the quarter boomeranging back to Teradata. Teradata or Snowflake, what's the frequency of this type of customer case? And any change in that frequency that you're seeing relative to a quarter or a year ago?

Question: Wamsi Mohan - BofA Global Research - Analyst : Steve, can you perhaps just address the broader macro trends as well, where are you seeing maybe just in terms of expectations of spend going into '25? And large deal cadence, are you seeing any changes in the way those are progressing, not just in these cloud migrations that you've spoken about, but just in the base business as well? And I have a follow-up.

Question: Wamsi Mohan - BofA Global Research - Analyst : Okay. And I guess just to follow up on your point around AI also. You said 20% of your pipeline includes active AI sales engagement. How would you think about the rate and pace of this business? Is this something that's got pretty long proof of life, proof of concept like timing? Or do you think that you have something that's that will translate much faster and this 20% pipeline will significantly grow a quarter from now?

Question: Derrick Wood - TD Cowen - Analyst : Great. My first question, Steve, there's a lot of talk about growing adoption of iceberg in the broader data analytics ecosystem. What are you guys seeing from your customers? And do you think this changing cloud migration behavior has anything to do with companies contemplating data storage movements to iceberg?

Question: Patrick Walravens - JMP Securities - Analyst : So Steve, I think you mentioned in your remarks that Hillary is going to be moving on and you're looking for a new Chief Product Officer. What are sort of the top characteristics that you're looking for in that individual?

Question: Raimo Lenschow - Barclays - Analyst : Perfect. Two quick questions. Claire, on the cash flow side, you outperformed this quarter, but less the full year unchanged anything around timing of things that came in, in Q3, et cetera, that you want to point out? And then I have one follow-up for Steve.

Question: Austin Dietz - UBS - Analyst : Steve, Claire, I know we've spent a lot of time on migrations and they're more stage nature on the call so far. But the cloud net expansion rate this quarter, it seemed to slow several percentage points. And I believe it's a trailing 12-month metric toward that the in-quarter piece would have slowed by more than that. So do you mind just unpacking what you saw from a net expansion perspective this quarter? And then how should we think about that cloud net expansion rate over the near to medium term? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 04, 2024 / 9:30PM, TDC.N - Q3 2024 Teradata Corp Earnings Call