TERADATA CORP /DE/ Q3 FY2024 earnings call

• Cloud business grew with cloud ARR up 26% YOY in Q3 and a 120% cloud net expansion rate. - Delivered technology innovations in trusted AI, including enhancements to ClearScape Analytics, BYO LLM capability, and partnerships with NVIDIA and dbt Cloud. - Introduced a generative AI-driven customer complaint analyzer solution. - Had recent customer wins, including a U.S. insurance company and a large Asian bank migrating to Teradata's cloud platform. - Go-to-market restructuring underway with expectation of improving execution in 2025.

In Q3, cloud ARR grew 26% year-over-year with a 120% cloud net expansion rate. Recurring revenue was $372 million, up 3% year-over-year (5% in constant currency). Cloud ARR made up 38% of total ARR, an increase from 30% the previous year. Recurring revenue as a percentage of total revenue was 85%, up from 82% in the prior year period. Total revenue for the third quarter was $440 million, flat year-over-year (up 2% in constant currency).

• Lowered 2024 cloud ARR growth outlook to 18%-22% due to staged cloud migrations. - Reaffirmed full-year total ARR guidance. - Increased non-GAAP earnings per share outlook to $2.30-$2.34. - Anticipates Q4 non-GAAP diluted EPS in the range of $0.40-$0.44. - Will provide update on 2025 outlook during Q4 earnings call in February.

• Risk of customer migration timing changes affecting cloud ARR growth. - Potential competitive pressures impacting deal conversions. - Macroeconomic factors possibly influencing budget timing and spend patterns.

Q: Matt Hedberg asked about the change in customer cloud migration approach and its impact on medium-term outlook.

A: Steve McMillan stated customers are staging cloud migrations, leveraging hybrid platform, but total commitment remains unchanged, and full-year 2024 total ARR guidance is reiterated.

Q: Matt Hedberg then asked about Q4 on-premise spending and cloud growth building blocks.

A: Claire Bramley said no budget flush uplift factored, and cloud growth in 2025 relies on continued pipeline and strategic focus.

Q: Chirag Ved inquired about innovation approach and cloud mix impact.

A: Steve McMillan reaffirmed cloud-first strategy, with innovations enabling both cloud and on-prem, and strong cloud pipeline remains intact.

Q: Tyler Radke asked about reason for staged migrations and cloud growth trajectory.

A: Steve McMillan said customers are taking less risk with transformational programs, and Claire Bramley noted still a path to $1 billion cloud ARR by 2026.

Q: Erik Woodring asked about competitive pressures and gross margin profile.

A: Steve McMillan cited competitive wins and Claire Bramley discussed stable gross margin despite mix shifts.

Q: Howard Ma asked about concrete data on customer stickiness.

A: Steve McMillan stated strong pipeline and improved renewal rates in H2 2024.

Q: Nehal Chokshi asked about total workloads and cloud ARR takedown.

A: Steve McMillan and Claire Bramley explained total ARR remains unchanged despite cloud migration timing changes.

Q: Wamsi Mohan asked about AI pipeline and pace.

A: Steve McMillan said AI projects often fail in proof-of-concept, but Teradata can operationalize at scale.

Q: Derrick Wood asked about Iceberg adoption and cloud migration.

A: Steve McMillan said Teradata supports open table formats like Iceberg as an opportunity to expand TAM.

Q: Patrick Walravens asked about Chief Product Officer characteristics.

A: Steve McMillan mentioned leveraging internal bench strength and elevating product focus.

Q: Raimo Lenschow asked about cash flow and Steve McMillan about CPO.

A: Claire Bramley discussed cash flow linearity and Steve McMillan talked about CTO appointment and product focus.

Q: Austin Dietz asked about cloud net expansion rate.

A: Claire Bramley explained deceleration in net expansion rate due to healthcare vertical and European business impacts, and future monitoring of stage migrations.