• Cloud ARR Growth: 26% year over year in Q3.
• Cloud Net Expansion Rate: 120% in Q3.
• Non-GAAP Earnings Per Share: $0.69 in Q3 2024, up from $0.42 in Q3 2023.
• Free Cash Flow: $69 million in Q3 2024, compared to $36 million in Q3 2023.
• Recurring Revenue: $372 million in Q3, up 3% year over year as reported and 5% in constant currency.
• Total Revenue: $440 million in Q3, flat year over year as reported, up 2% in constant currency.
• Total Gross Margin: 61.6%, up 130 basis points year over year.
• Operating Margin: 22.5%, up over 800 basis points year over year.
• Cloud ARR as Percentage of Total ARR: 38%, up from 30% last year.
• Recurring Revenue as Percentage of Total Revenue: 85%, up from 82% in the prior-year period.
• Full-Year Non-GAAP EPS Outlook: Increased to $2.30 to $2.34.
• Full-Year Cloud ARR Growth Outlook: Adjusted to 18% to 22%.

• Warning! GuruFocus has detected 3 Warning Sign with TDC.

Release Date: November 04, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Teradata Corp (NYSE:TDC) reported a 26% year-over-year growth in cloud ARR for Q3, with a solid cloud net expansion rate of 120%.
• The company achieved a significant increase in profitability, with non-GAAP earnings per share rising to $0.69 from $0.42 in Q3 2023.
• Free cash flow nearly doubled year-over-year, reaching $69 million compared to $36 million in Q3 2023.
• Teradata Corp (NYSE:TDC) received recognition from Ventana Research as a leader in trusted AI and top-rated analytic data platform company.
• The company announced several innovations, including enhancements to ClearScape Analytics and integration with NVIDIA's AI-accelerated computing platform, aimed at boosting AI and ML capabilities.

Negative Points

• Teradata Corp (NYSE:TDC) lowered its 2024 cloud ARR growth outlook to 18% to 22% due to a shift in customer cloud migration strategies.
• The company is experiencing a change in customer behavior, with large transformational deals being broken down into smaller, staged migrations.
• There is a noted deceleration in the cloud net expansion rate, particularly impacted by the healthcare vertical and European business.
• The company is facing challenges with elongated sales cycles and cloud migration timing dynamics, which could impact future growth.
• Teradata Corp (NYSE:TDC) anticipates further deceleration in the cloud net expansion rate into Q4, influenced by the mix of migrations versus expansions.

Q & A Highlights

Q: You noted a change in how customers are thinking about cloud migration. Is this an industry-wide trend or unique to your base? How does it affect your medium-term outlook on cloud mix and overall growth? A: We are seeing a shift in customer behavior towards more staged cloud migrations, leveraging our hybrid platform. This change affects the mix between cloud and on-prem commitments but does not alter the total customer spend or opportunity. We expect to return to total ARR growth in 2025. - Stephen Mcmillan, CEO

Q: Given the mix change and customer approach to cloud, does this alter your focus on cloud versus on-prem innovation and contracts? A: We remain committed to our cloud-first strategy, which enhances our relevance in the market. Our innovations in cloud also benefit on-prem capabilities, supporting a hybrid approach. The strength of our cloud pipeline remains intact, and we continue to see Teradata as the least risky path for large organizations migrating to the cloud. - Stephen Mcmillan, CEO

Q: Can you explain the change in recurring revenue growth and what you expect in Q4? A: The change is primarily due to linearity in modeling, with a slight benefit from upfront revenue. We expect no significant change in recurring revenue expectations, just a shift between Q3 and Q4, maintaining our full-year guidance. - Claire Bramley, CFO

Q: How can you be sure that the headwinds faced this year are not due to competitive pressures? A: We are confident in converting pipeline opportunities, with customers committing to both on-prem and cloud. Our competitive position is strong, evidenced by winning back customers from competitors like Snowflake and Databricks, and we continue to offer the lowest cost per query. - Stephen Mcmillan, CEO

Q: What are the main drivers for total ARR growth in 2025? A: We anticipate robust cloud growth, improved retention rates, and on-prem expansion. These factors will drive total ARR growth in 2025, marking a significant improvement over 2024. - Claire Bramley, CFO

For the complete transcript of the earnings call, please refer to the full earnings call transcript.