Teradata(TDC)2024-08-05 23:59Financial Data and Key Metrics - Cloud ARR grew by 32% year-over-year in constant currency, with a cloud net expansion rate of 123% [4][20] - Total ARR declined by 3% year-over-year, driven by on-prem erosions and lower expansion activity [4][20] - Non-GAAP earnings per share was 39 million, an 436 million, down 6% year-over-year as reported, and down 3% in constant currency [22] - Recurring revenue was 19 million sequentially in constant currency [20] - The company closed an eight-figure deal that had slipped from 2023 [20] Market Performance - EMEA region outperformed other regions under the new Chief Revenue Officer's leadership [5] - The pipeline of large eight-figure ARR deals increased to three times what it was in Q2 of last year [6] - New logo pipeline momentum is strong, with ARR from new logos expected to double in the second half of 2024 compared to the prior year [6] Company Strategy and Industry Competition - The company is focusing on cost reduction, including a 9% to 10% reduction in headcount, to improve profitability and free cash flow [8][24] - Teradata is investing in cloud growth and maintaining its competitive position in the data and analytics market [19] - The company is embracing open table formats like Apache Iceberg and Delta Lake to enable broader AI access to data [12] - Teradata AI Unlimited, an on-demand AI/ML engine, is now integrated into Microsoft Fabric and available in public preview on AWS and Microsoft marketplaces [13][14] Management Commentary on Operating Environment and Future Outlook - The company is experiencing longer customer decision cycles, which are impacting deal closures and cloud ARR growth [5][6][21] - Management expects deal elongation to continue, with a more pronounced back-end weighting in 2024 [21] - The revised outlook for 2024 includes a total ARR decline of 2% to 4%, cloud ARR growth of 28% to 32%, and free cash flow of 290 million [25] - For 2025, the company anticipates low- to mid-single-digit year-over-year growth in total ARR, operating margin in the low 20% range, and free cash flow of 370 million [28] Other Important Information - Teradata was recognized as a Customers' Choice for Cloud DBMS in Gartner's Peer Insights Voice of the Customer report [16] - The company expanded its Strategic Collaboration Agreement with AWS to help customers modernize their data analytic ecosystems and maximize AI opportunities [18] - Teradata unveiled VantageCloud Lake on Google Cloud, making its data lake solution available on all three major CSP platforms: AWS, Google Cloud, and Microsoft Azure [11] Q&A Session Summary Question: What is driving the shortfall in cloud ARR growth despite strong net expansion rates? [29] - Answer: The shortfall is primarily due to deal elongation, with customers delaying decisions to migrate to the cloud. The pipeline remains strong, but deals are taking longer to close [30][31] Question: What gives the company confidence in its 2025 outlook given the volatility in 2024? [32] - Answer: The company has thoroughly reviewed its pipeline, applied heavily discounted assumptions, and is focusing on cost reductions and reinvestments to drive growth. Cloud ARR growth and improved retention rates are expected to support 2025 performance [33][34] Question: How is the restructuring impacting the company's go-to-market strategy? [42] - Answer: The restructuring has streamlined the go-to-market organization, reducing management layers and focusing on industry and geographic alignment. The company is confident in its ability to close large deals despite the restructuring [42][43] Question: What steps is the company taking to mitigate future erosion and retain customers? [47] - Answer: The company is executing a cloud-first strategy, enhancing customer success management, and offering commercial incentives to encourage cloud migration. Most customers who move to the cloud with Teradata also expand their usage [48][49][50] Question: How is the competitive environment evolving, and how is Teradata positioned? [51] - Answer: The competitive environment remains consistent, with Teradata well-positioned due to its hybrid cloud platform and new technologies like VantageCloud Lake on Google Cloud and Teradata AI Unlimited integrated with Microsoft Fabric [51] Question: What is the expected impact of the restructuring on free cash flow and EBIT? [39][67] - Answer: The restructuring is expected to save 80 million annually, with 20 million benefiting 2024 EBIT. The company anticipates incremental EBIT benefits in 2025, with free cash flow improving due to lower severance payments and cost reductions [40][67][68] Question: How is the company addressing the shift towards open table formats like Iceberg? [81] - Answer: Teradata is embracing open table formats and supporting multiple OTS to provide flexibility and dynamic solutions for customers. The company believes the battle for the best query engine will be key in the future [82][83]