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Barclays Global Technology Conference

Dec 7, 2023

Raimo Lenschow
Managing Director, Barclays

When you guys are reporting the work cycle, it was like, oh my God, now the opposite, you guys are reporting, everyone said, "Yeah, we're covering, everything is great again," which kind of might not be fully true. But to get everyone back on the same page, just maybe talk a little bit about the highlights of Q3, and then we'll take it from there.

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

Yeah, Q3 was a strong quarter for us. We saw 11% total ARR growth, so double-digit total growth. We saw 63% cloud ARR growth. We saw our net expansion rate increase 160%.

Raimo Lenschow
Managing Director, Barclays

Mm.

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

And we also repurchased $140 million of shares. So it was a strong financial quarter for us. In addition, though, to the financials, we had a great quarter from an innovation standpoint. So we completed our acquisition of Stemma, which is all about data lineage, data catalog, which is a component to our existing product. So that was very exciting to have the team from Stemma join us at Teradata. We also launched two new products - well, one new product called AI Unlimited in private preview.

Raimo Lenschow
Managing Director, Barclays

Mm.

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

And that kind of celebrates this is our serverless solution in private preview now with a view to general availability in 2024. So we're showing the continued innovation and the continued investments that we're making to be able to enhance our offerings and our product. And another one also that was launched in Q3 was our Ask.AI.

Raimo Lenschow
Managing Director, Barclays

Mm.

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

And that's very much about people that are using our products can use the ask.ai functionality. It can be used for writing code, it can be used for giving you results. So very much kind of focused on the ease of use standpoint, which is something that we've been focusing on as well, to, to really make it easier for, you know, to, to use a product, and then to get information and, and insight from it. So it was a pretty busy quarter-

Raimo Lenschow
Managing Director, Barclays

Yeah.

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

strong from a financial standpoint, but also a lot going on from an innovation technology standpoint, which is exciting.

Raimo Lenschow
Managing Director, Barclays

How do you see... Like, if you think about it, like, we're in tough times, but you kind of kept delivering the numbers. Like, if you think about, like, how the quarter played out or what you've seen so far this year, like, what were your observations?

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

Yeah. So we are seeing, I think one of the things that we continue to see is that, you know, customers are making a commitment to Teradata-

Raimo Lenschow
Managing Director, Barclays

Mm

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

... which is great. We have good pipeline, good coverage. I think we do continue to see deals potentially elongating in their life cycles. So, that's something that definitely we're watching very closely and watching as we move into Q4, which I'm sure we'll come on to-

Raimo Lenschow
Managing Director, Barclays

Yeah

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

... shortly. But I think that the range of pipeline that we see in terms of the range of different deals, some being very large, some being very small, but kind of barbell of different sized deals, strong pipeline, strong coverage, across our, key vertical, key industries. And it's very mixed. It's across those, like, seven key industries that we play, which is, which is great to see. So, and it is a good mix between migration deals and expansion deals.

Raimo Lenschow
Managing Director, Barclays

Yeah.

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

So as we've moved through the year, I think we've seen that, you know, strong demand, strong commitment to Teradata, but just I talked a little bit about this at earnings, that the deal life cycle is potentially elongating slightly. But that doesn't mean that you're losing the deals, it just means that the decision-making-

Raimo Lenschow
Managing Director, Barclays

Mm

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

That's happening at the customer is a little bit longer.

Raimo Lenschow
Managing Director, Barclays

Yeah. And is there, like, I don't know, did you—I can't remember, did you comment when you kind of reported the earnings in October, did you comment a little bit what you're seeing in what you saw in October or in the current quarter?

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

Yeah. So for, so for the current quarter, we did have a strong October, actually, both from a linearity standpoint, so cloud, total ARR and free cash flow.

Raimo Lenschow
Managing Director, Barclays

Yeah.

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

What we get updated, as you'd expect, and actually new information that we've had in the last 24-36 hours is that, some of... As I mentioned about elongation of deals, we've got one particular deal that potentially could be pushed out to Q4. We always have pluses and minuses-

Raimo Lenschow
Managing Director, Barclays

Yeah

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

... so we and normally we have coverage in our guide. At Q3 earnings, I talked about, due to currency impact, we towards the low end of our range. I think we've got one, I would say, a large deal, which is a kind of eight-figure deal.

Raimo Lenschow
Managing Director, Barclays

Wow!

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

So, it's one of the low end of eight figures-

Raimo Lenschow
Managing Director, Barclays

Yeah

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

... but an eight-figure deal that potentially the timing of that could get pushed out.

Raimo Lenschow
Managing Director, Barclays

Yeah.

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

And it's mainly, again, not competitive pressure, not issues with fit, but they, as the customer, are seeing corporate development action type activity. So from a timing standpoint, they're just looking for new timing. So that, I'll be honest, that could put us towards the low end or slightly below-

Raimo Lenschow
Managing Director, Barclays

Yeah

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

... the range for Cloud ARR that we previously gave. But the good news is that it's not a lost deal.

Raimo Lenschow
Managing Director, Barclays

Yeah.

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

It just rolls over into 2024, and we're still on track for our 2025 goals.

Raimo Lenschow
Managing Director, Barclays

Yeah

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

... which is a $1 billion, as well. So that's good news in the sense of it's just the timing, but, you know, potentially an impact to,

Raimo Lenschow
Managing Director, Barclays

Yeah

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

... to our Q4 range that we gave. Other than that, the usual pluses and minuses that go through the quarter, and it doesn't... I'm not seeing any issues with Free Cash Flow, revenue, profitability, or anything like that.

Raimo Lenschow
Managing Director, Barclays

Yeah.

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

So, a pretty isolated incident, but something that we are seeing at the moment.

Raimo Lenschow
Managing Director, Barclays

And part of that is also, I... When you joined, you probably saw that as well, the, I guess, like, it's a blessing and a curse for a vendor that kind of has it in the name of your deal sizes.

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

Oh, huge. Yeah.

Raimo Lenschow
Managing Director, Barclays

You know, like an eight figure is like-

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

Yeah

Raimo Lenschow
Managing Director, Barclays

the most of all the software vendors that sign eight-figure deals.

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

Yeah, and that's the ARR number. Imagine this from a TCV standpoint, you know-

Raimo Lenschow
Managing Director, Barclays

Yeah

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

... but these are big deals. But yes, absolutely. It's a, it's a blessing and a curse. We have been looking at, as I said, we do have a good pipeline and a good range of deals, but if the deals are smaller, it's much easier to cover. Some are thin, some are thick.

Raimo Lenschow
Managing Director, Barclays

Yeah, yeah.

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

It's very easy to cover. If you get a couple of these very large deals, to your point, then eight-figure deal. It's a very large deal, and at this point, getting this information at this point in the quarter-

Raimo Lenschow
Managing Director, Barclays

Right.

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

You know, it's not much time.

Raimo Lenschow
Managing Director, Barclays

Yeah, yeah

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

... to be able to work, unfortunately. But as it's timing, it, which is 24-

Raimo Lenschow
Managing Director, Barclays

Yeah

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

... which from that standpoint is good.

Raimo Lenschow
Managing Director, Barclays

It's 24 figure. Yeah. I just wanted to move away a little bit from current-

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

Sure.

Raimo Lenschow
Managing Director, Barclays

To, like, more kind of what happened at Teradata over the last few years, which are, you know, especially the cloud journey, like, has been on. Can you talk a little bit about, like, you know, when you joined, you know, like before, and, you know, the evolution of Teradata to be, like, a cloud first and, you know, a little bit what it meant from a product perspective, but also for you as CFO, like, you know, things need to change on the operation side, I guess.

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

Yeah. No, it's been an exciting journey, actually, and a big transformation. A lot has changed at Teradata-

Raimo Lenschow
Managing Director, Barclays

Yeah

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

-in the last, you know, three plus years. It instigated, obviously, when the new CEO came on board in 2020. And he fundamentally changed the strategy and the vision, and to be cloud first-

Raimo Lenschow
Managing Director, Barclays

Mm-hmm

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

... and focus on partners, which we never did previously. So we were very much only focused on direct selling, but now we're focused on partners as well. And, he made us cloud first, and, and the biggest change that we've made, and that we're seeing the benefits of that from an innovation and technology standpoint, is that we shifted our R&D investment towards the cloud.

Raimo Lenschow
Managing Director, Barclays

Right.

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

So to start with, it's about 70% of our R&D investment. Now, it's 80% of our R&D investments-

Raimo Lenschow
Managing Director, Barclays

Right

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

-go towards our cloud product, cloud development. Now, you can still leverage across on-prem cloud, and we still invest 20% on our on-prem products, but a lot of our investment goes into the cloud. And I think a lot of people ask me, you know, oh, you know, are you being cloud invested? Are you being, you know, by-

Raimo Lenschow
Managing Director, Barclays

Yeah, yeah.

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

You know, whether it's the SPs or some of the other companies. And I think the way to think about it is, you know, the part of our business that we are spending the majority of our money on is much smaller.

Raimo Lenschow
Managing Director, Barclays

Mm-hmm.

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

If you look at our R&D investment, our go-to-market, go-to-market investment, as a percentage of our cloud business, it's significantly higher. So because, you know, the majority of our underlying business is on-prem-

Raimo Lenschow
Managing Director, Barclays

Yeah

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

which was we need to spend less on

Raimo Lenschow
Managing Director, Barclays

Yeah

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

Sort of thing. So when you look at it as a total company, it's kind of, well, you know, your investment is lower as a percentage of revenue. But actually, if you break it out and say, well, you've got the cloud business, and you've got the on-prem business, you look at how much we're spending just on that cloud business, growth in the cloud business, it's a much higher number. So I think that's how I would encourage people to look at, look at it. And that investment has been driving technology changes.

Raimo Lenschow
Managing Director, Barclays

Yeah.

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

We first brought out our Enterprise products, and that was kind of leveraging our performance of scale, leveraging our total cost of ownership, leveraging our analytics capabilities that were all built into on-prem. We were able to launch an Enterprise at that time. And then since then, we've released Lake products-

Raimo Lenschow
Managing Director, Barclays

Mm-hmm

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

... Lake product, which is kind of negative.

Raimo Lenschow
Managing Director, Barclays

Yeah.

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

So that has that real-time, you know, scale up, scale out, functionality. And so all of these investments have been happening in the last 2.5 years, it all comes through, you know, the new products that we released, in technology and in innovation. And I think we just saw actually this last year, around the kind of possible events, you know, with customers or partners, and the feedback that we're getting is this is the most innovation that we've seen, you know, from Teradata-

Raimo Lenschow
Managing Director, Barclays

Yeah.

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

... for tens of years, you know, 10, 20, 30 years. It's the most innovation in technology. And I think that kind of is representative of the new Teradata-

Raimo Lenschow
Managing Director, Barclays

Yeah

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

moving forward.

Raimo Lenschow
Managing Director, Barclays

How does that translate into numbers, like for you as the CFO? Because if I'm moving from, like, you know, you used to sell boxes.

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

Yeah.

Raimo Lenschow
Managing Director, Barclays

Sorry, that was before your time, I think. And now it's cloud, but it does have an impact on numbers, you know, like the accounting, et cetera, as well. Can you speak to that, like, and then how you had to change as a CFO side?

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

Yeah. So I mean, we had already done the transition from perpetual to subscription.

Raimo Lenschow
Managing Director, Barclays

Yeah.

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

That helped. So that was kind of done before we made this particular change-

Raimo Lenschow
Managing Director, Barclays

Yeah

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

... which is a big transformation for a couple, for all companies, companies within there. So we've already kind of moved to that subscription. So there wasn't, when I came on board, there wasn't a significant additional change, you know, in terms of subscription. What we are doing, though, is obviously really focusing our investments to make sure we're getting the ROI, really planning out, profitability. So at Teradata, we always talk about profitable growth.

Raimo Lenschow
Managing Director, Barclays

Yeah.

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

So we have this business, that I talked about in the cloud business, that is growing very strongly. I mentioned the Q3 results, being 63%.

Raimo Lenschow
Managing Director, Barclays

Mm-hmm.

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

You know, really strong growth business, but right now the margins are by using the overall Teradata business. So we have a big margin expansion opportunity as we scale that business.

Raimo Lenschow
Managing Director, Barclays

Yeah.

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

So it's, you know, as a CFO, what I'm trying to do is make sure that we've got the right balance in terms of we're investing in the areas that are gonna drive future growth, but at the same time, being true to our nature and the fact that we are gonna keep profitable growth from cash flow generation. So it's very much, yeah, a performance-based approach by really making sure that we're getting the volume and scale benefits from cloud so that we can expand the margins. And that's what is gonna be able to take us to our. We have a goal for 2025. I mentioned the $1 billion in the cloud with our operating margin as well. We are anticipating to uncertain 20%.

If you take it where we are today, I know that clearly is a margin expansion. We're able to accelerate our growth over the next couple of years as we increase the mix of cloud, and we're able to expand our margins as we scale that business.

Raimo Lenschow
Managing Director, Barclays

Yeah.

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

Which is a great position to be, and all of that obviously drives from-

Raimo Lenschow
Managing Director, Barclays

Where are the customers, their understanding of your application of your cloud journey? I mean, I have to feel like, you know, at some of the industry events, kind of meet them, and there's definitely a big expectation, kind of a willingness to really engage with Teradata. It's gonna help you on rental. What do you see in the climate field?

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

Yeah, I think, it's definitely changed, and it's continuing to change.

Raimo Lenschow
Managing Director, Barclays

Yeah.

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

Still got more work to do, absolutely. But if I look at when I joined Teradata two and a half years ago, so you're talking about your cloud product strategy, everybody kind of seemed surprised and hadn't heard the story-

Raimo Lenschow
Managing Director, Barclays

Yeah.

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

or had, wasn't aware of it. But now, two and a half years later, everyone is aware of the story, everybody is familiar with the strategy, and actually much more knowledgeable on the product.

Raimo Lenschow
Managing Director, Barclays

Mm.

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

What the different products are, you know, whether it's VantageCloud Enterprise, VantageCloud Lake. Even now, we've just launched our product, like I mentioned, ask.ai and AI Unlimited, and customers have heard about it.

Raimo Lenschow
Managing Director, Barclays

Yeah.

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

They're hearing about it, you know. So I think our coverage and out in the market is much stronger and much bigger than it was before. You know, we continue to work on that, and that's one of the reasons people, Chief Marketing Officer-

Raimo Lenschow
Managing Director, Barclays

Yeah.

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

while we're doing, you know, a lot more customer partner type events throughout the year. But yes, even this year versus last year, I think that knowledge and appreciation of what we offer has increased. That's an area that we continue to focus on.

Raimo Lenschow
Managing Director, Barclays

And then if you look at the important, there's obviously, like, you guys have to change, you know, then we need to change the awareness of the client, which is what you're working on, and then the clients have to move, you know. Where are we in terms of that, the client base kind of moving towards the new cloud world? It's not like an English person and a German person talking about kind of the wrong thing. Where are we on that journey here?

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

I would say that we, I don't know for sure whether I'm gonna put it in terms, but I would definitely say that we're past half time.

Raimo Lenschow
Managing Director, Barclays

Yeah.

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

That's where we are. So we're definitely past half time, but we're not towards the end of the game.

Raimo Lenschow
Managing Director, Barclays

Yeah.

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

So we have more work to do. I think we've come a very long way. It was really important for us, as a leadership team and for the company, to lead with technology.

Raimo Lenschow
Managing Director, Barclays

Yeah.

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

Lead with technology, lead with innovation. I think that's what we've seen a lot over the last 12 months-

Raimo Lenschow
Managing Director, Barclays

Yeah

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

... and will continue to see over the next 12 months. And then we've been setting up our sales team to be successful. We've really invested to support customer success, to really make sure that, you know, the existing customers see the value that we bring. And then, obviously, then, you know, having a voice out there in the market, making sure people have heard of what we're doing and, and understand-

Raimo Lenschow
Managing Director, Barclays

Yeah

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

... what we're doing. We've come a long way.

Raimo Lenschow
Managing Director, Barclays

Yeah.

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

We've come an extremely long way from where we were a couple of years ago. But I would say that, yeah, we're through the half time-

Raimo Lenschow
Managing Director, Barclays

Yeah

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

-phase, but we still probably got at least another quarter of the game to go.

Raimo Lenschow
Managing Director, Barclays

And when you say that, is that on customers that have moved already or more customer appreciation? Because, like, people like-

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

Customer appreciation.

Raimo Lenschow
Managing Director, Barclays

Yeah.

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

Yeah, I'd say customer appreciation.

Raimo Lenschow
Managing Director, Barclays

Yeah, yeah.

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

If you look at the customer-

Raimo Lenschow
Managing Director, Barclays

Moving, most customers, particularly in terms of them moving forward.

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

Yeah, then also the moving, I think what we see from them moving is more than 50% of our user base are in the cloud.

Raimo Lenschow
Managing Director, Barclays

Yeah.

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

More than 50% of our customers are in the cloud.

Raimo Lenschow
Managing Director, Barclays

Yeah.

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

They still have that on-premises.

Raimo Lenschow
Managing Director, Barclays

Yeah.

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

Not more than, not more than 50% of our ARR is not in the cloud-

Raimo Lenschow
Managing Director, Barclays

Yeah

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

... as you can see from our numbers.

Raimo Lenschow
Managing Director, Barclays

Yeah.

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

I mean, it's in the 30% range, but more than, more than 50% of us. I think that's a good, a good indication, you know, and it's, it's around 50%, actually. 50% of our customers are in the cloud with us, but less than 50% of our ARR is in, is in the cloud. So that's a sign that people are going through this journey, to be-- to continue to migrate. Some customers will, will keep some on-premise.

Raimo Lenschow
Managing Director, Barclays

Yeah.

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

You know, some customers are not looking to be 100% in the cloud.

Raimo Lenschow
Managing Director, Barclays

Yeah.

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

Which is why when we talk about our 2025 goals, we talk about, you know, we expect to be around 50% or more than 50% of our ARR being in the cloud, but we're not talking about 80% or 90%.

Raimo Lenschow
Managing Director, Barclays

Yeah, yeah.

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

Because we still anticipate some of our customers staying on-prem. If they're staying with us on-prem, that's great, too.

Raimo Lenschow
Managing Director, Barclays

Yeah.

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

I mean, we have customers that are expanding with us on-prem. We have new logos on-prem. I think it's interesting that not all of our customers are ready for or anticipate planning to move everything to the cloud.

Raimo Lenschow
Managing Director, Barclays

Yeah.

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

We definitely have a range of customers who don't want everything in the cloud, just want to focus on certain workloads or on-prem.

Raimo Lenschow
Managing Director, Barclays

And then, what are you seeing in terms of the competitive field? Like, you know, like a few years ago, you know, you were in that camp of like, Oh, it's Teradata, and they don't get cloud. Now, it's changed a lot. Like, how did that kind of change the competitive for you?

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

Yeah. So, I think to your point, we were in a few, you know, no one even anticipated that thing.

Raimo Lenschow
Managing Director, Barclays

Yeah.

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

So I think now we are seen as a strong competitor.

Raimo Lenschow
Managing Director, Barclays

Sure.

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

I think it's much easier to migrate with Teradata-

Raimo Lenschow
Managing Director, Barclays

To the cloud, yeah.

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

... to the cloud, you know-

Raimo Lenschow
Managing Director, Barclays

Yeah

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

... than it is to go to a new object, to a new company.

Raimo Lenschow
Managing Director, Barclays

Yeah.

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

We have a very strong installer to be able to work with to do that.

Raimo Lenschow
Managing Director, Barclays

Yeah.

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

So I think, where we are, we are definitely seen as a strong competition. We get a lot of people's earnings calls, et cetera. So that's a good - I see that as a good sign because they see us as a competitor.

Raimo Lenschow
Managing Director, Barclays

Yeah, yeah.

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

Whereas previously, I think three or four years ago, no one, absolutely no one expected us to be where we are today.

Raimo Lenschow
Managing Director, Barclays

Yeah, yeah.

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

As I mentioned, we've come a long way, but we've still got more work to do. I think all of the innovation and technology, and I keep coming back to that, is because we lead with that.

Raimo Lenschow
Managing Director, Barclays

Yeah.

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

You know, it's really important that Teradata, because that's why, why we were strong on-prem, and that's why we think it's important to be strong on the cloud, that we have the, you know, the best product, the best total cost of ownership, the lowest cost and the best analytical capabilities with our ClearScape Analytics.

Raimo Lenschow
Managing Director, Barclays

Yeah.

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

So that's the bit that we're really pushing ourselves ensuring, you know, and with all of the AI, you know, the development of AI and the expansion of people moving to AI, so for us, that means more users, more data. So that's a big opportunity-

Raimo Lenschow
Managing Director, Barclays

Yeah.

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

For us as well, and we believe that we can enable that in the best, you know, cost perspective, but also best performance as well.

Raimo Lenschow
Managing Director, Barclays

And then now that you sort of through and a lot of your customers are in the cloud already, how do you think about that carrot versus stick approach? Because, you know, at some point, as you mentioned, it does help you on R&D because you can be more focused if you just cloud R&D, et cetera. Where are you on that decision-making? Like, okay, I'm most of my customers need to be in the cloud, and I'm selling you cloud only versus like, I have a big portfolio that is on-premise, so I need to kind of be more accommodating. Like, how do you think about that dynamic?

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

Yeah, I think it shifts. I think always when we work with our customers, it needs to be a carrot approach.

Raimo Lenschow
Managing Director, Barclays

Right.

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

I mean, maybe in the past, the stick approach worked, but I think it has to be a carrot approach. But there are so many reasons why it makes sense, not just from a Teradata standpoint, but from the customer standpoint. Let me talk through some of those. So if customers can move to the cloud, especially if they want to focus on AI, having that true scale, scale out, you know, capability. On-prem, you have fixed capacity, as everybody knows. You know, so a fixed capacity, if you want to then expand the capacity to more users, more data, more queries, you have to then invest in another large on-prem business. In cloud, it's instant, can be instantaneous.

Raimo Lenschow
Managing Director, Barclays

Yeah.

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

So I think there is a lot of reasons, you know, for why this makes sense, not just for us, because it's an expansion and an expansion rate, but for our customers, give them the... If we can offer it to them at, you know, a competitive cost so that it doesn't have a total cost of ownership increase.

Raimo Lenschow
Managing Director, Barclays

Yeah

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

... and give them that flexibility. And I think the difference with Teradata, too, is we give them the controls as well. So we have a kind of a governance operations dashboard, so they can see and manage, you know, where are they using, you know, computational queries, how much they're using, how much they're spending. And a lot of our customers actually choose to have fixed pricing. So they have fixed pricing, but then they have consumption on top of that because they want that flexibility in terms of how much to spend-

Raimo Lenschow
Managing Director, Barclays

Yeah.

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

you know, how much it costs. And so we've worked with our customers on that. So I think when they see all of these reasons, then it's a carrot approach-

Raimo Lenschow
Managing Director, Barclays

Yeah

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

... to sell that value proposition and show them why it brings value to them. But it can also bring value to us because it, you know, helps us on the expansion rate. And we definitely see a higher net rate on cloud than we do on-

Raimo Lenschow
Managing Director, Barclays

Yeah.

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

That's the advantage for us.

Raimo Lenschow
Managing Director, Barclays

Yeah.

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

Even at a lower margin right now, it's still beneficial for us-

Raimo Lenschow
Managing Director, Barclays

Yeah

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

... quite simply, because then we see that margin expansion opportunity.

Raimo Lenschow
Managing Director, Barclays

Jumping to my next question, like, you do have a mixed effect on revenue and, and revenue growth because you have cloud business coming in at a higher growth rate that's taking, you know, it's getting a bigger part of the total, which kind of creates then the whole goal.

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

Yeah.

Raimo Lenschow
Managing Director, Barclays

In a way, like, how excited are you as a CFO about that?

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

Yes, that's absolutely. I mean, like I said, we all want to grow.

Raimo Lenschow
Managing Director, Barclays

Yeah.

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

You know, we wanna, we wanna grow faster. To your point, the cloud, the cloud mix helps us. From cloud, we're growing much faster as it comes with the mix. That means that the total company rate will be clear. And as long as we're doing it profitably-

Raimo Lenschow
Managing Director, Barclays

Yeah.

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

You know, and we're generating strong Free Cash Flow through good profitability, then that is a very exciting proposition. And I think if you look at where Teradata was several years ago and where we are now, from a growth standpoint, from a profitability standpoint, you know, and just from a consistency and innovation standpoint, it's, it's been a huge transformation. So, yes, very excited about increasing our total-

Raimo Lenschow
Managing Director, Barclays

Yeah.

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

total growth as a company, at the same time as being committed to, you know, bringing value back to shareholders, whether it's through share purchasing or in stronger customers.

Raimo Lenschow
Managing Director, Barclays

You mentioned already one part of that is obviously that as the cloud, you guys carry the cost of the, you know, running the instance in AWS or Azure or wherever you do. So that kind of gives you initially a gross margin, you know, at wind.

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

Mm-hmm.

Raimo Lenschow
Managing Director, Barclays

Can you talk a little bit about how you see that evolving?

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

Yeah.

Raimo Lenschow
Managing Director, Barclays

You know, is there, like, more scale, you get better terms, so that helps you? Like, how do you think about that on that forward time?

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

Yeah, absolutely. So, one of our biggest costs for providing cloud is the cloud service provider cost. As we get bigger and as we have more volume going through the different cloud service providers, we're absolutely in a better position to negotiate better costs. So that is, as we scale, we can definitely improve our margin rate for cloud. But there are other things we can do as well. You know, we're looking at ways to, you know, automate and be able to bring down our kind of underlying costs as well. But the biggest one is cloud service providers.

Raimo Lenschow
Managing Director, Barclays

Yeah.

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

And we're already seeing some benefit from that. So I'm really, as a CFO, very happy with the margin expansion in cloud year-over-year. It's grown significantly compared to where 12 months ago.

Raimo Lenschow
Managing Director, Barclays

Yeah.

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

You know, forecast as we look forward, continued margin expansion. So that makes me very excited to be able to get the benefit through scale, but also through automation, and efficiency.

Raimo Lenschow
Managing Director, Barclays

Do you benchmark? Like, obviously, there are guys that started before you on that cloud journey and they report gross margins. Do you benchmark yourself against it? You don't have to, like, you-

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

Yeah

Raimo Lenschow
Managing Director, Barclays

... benchmark yourself against it and then look at their scale, the way you do?

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

... I mean, we absolutely benchmark, and we believe over time, you know, we need a few more years, because to your point, we're several years behind some of our peers. But yes, I do have a path if, for example.

Raimo Lenschow
Managing Director, Barclays

Yeah.

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

And I look at it as where they are today, where we are today, but I also look at it where they were historically, and are we on par with that? So, yeah, we do a lot of benchmarking, and we hold ourselves next to the highest level of performance. And I do see a good path over the next kind of two, three, four years-

Raimo Lenschow
Managing Director, Barclays

Yeah

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

... to be able to, to significantly, increase, and we've already seen that. If I even if I just look at the last two years, the margin expansion has been significant.

Raimo Lenschow
Managing Director, Barclays

Yeah.

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

So that gives me the confidence in future margin expansion as well.

Raimo Lenschow
Managing Director, Barclays

Last couple of minutes, I wanted to talk a little bit about cash, because that was one of the, I don't know if you take all the credit, but like, the last few years, the cash situation at Teradata, and then, well, the cash flow generation has a lot. Can you talk a little bit about the, you know, what drove that? What actions you take, maybe worse kind of some of the effects that are playing out? And then I have a follow-on on Q4.

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

Yeah, I think historically, the way that Teradata cash flow generation was kind of more of a reactive approach, you know, it was, it was gonna be what it was gonna be.

Raimo Lenschow
Managing Director, Barclays

Yeah.

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

So I think the difference that that I brought in, and I came from HP, so they manage cash really well. You know, they have a strong, strong focus on cash flow forecasting, cash flow management. So I kind of brought that experience to Teradata, and we have spent a lot of time in terms of ensuring that we're proactively managing our cash flow, that we're focused on, you know, the cash conversion cycle, specifically DSOs, that's the biggest one for us. So yeah, we're much more proactive with managing. We've got much better at forecasting and influencing the cash flow. So, but I think, at the end of the day, it, you know, it all comes from the, you know, profitability comes from the revenue.

But yeah, we have taken a much more proactive approach when it comes to managing cash flow generation, and it's much more predictable.

Raimo Lenschow
Managing Director, Barclays

Yeah.

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

Now, we are a little bit back-ended loaded this year, but we have good confidence in that. You know, just due to if you look at last year, what we did in the last quarter of last year, it's slightly more this year, but actually, but last year, we had a DSO of four days.

Raimo Lenschow
Managing Director, Barclays

Yeah.

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

This year, I'm anticipating it to be lower. So just that difference in the DSO days give me that confidence.

Raimo Lenschow
Managing Director, Barclays

Yeah, yeah.

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

Our cash generation, well, and then continued acceleration for cash flow generation as we get out to the $450-$500-

Raimo Lenschow
Managing Director, Barclays

Yeah

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

... 2025.

Raimo Lenschow
Managing Director, Barclays

But you, you mentioned like that, that large deal earlier, did that have impact on cash or no?

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

No.

Raimo Lenschow
Managing Director, Barclays

So that's not gonna be-

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

No.

Raimo Lenschow
Managing Director, Barclays

The cash flow number is-

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

Yeah.

Raimo Lenschow
Managing Director, Barclays

Yeah. Okay.

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

Yeah, yeah. There's no impact on our revenues-

Raimo Lenschow
Managing Director, Barclays

Yeah

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

... just a bit cash flow.

Raimo Lenschow
Managing Director, Barclays

Okay. That's just really clear. And then, last question for me is on profitability. Like, that's the other thing that we're obviously, like, how do you think about this coming out again, on, you know, more cloud or coming out, but it's like having more cloud in the mix, et cetera. How will that impact profitability?

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

Yeah. So as I mentioned, the cloud is dilutive to our margin. As we accelerate our growth, gives us other scale opportunities-

Raimo Lenschow
Managing Director, Barclays

Yeah

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

... and we're seeing cloud margin expand-

Raimo Lenschow
Managing Director, Barclays

Yeah

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

... over time. So I have good confidence. We finished 2022 with 16% operating margin. We had the goal in 2025 to be in the low 20s, and still get on track for that. So, I'm confident about the combination of growing and scaling and margin expansion in cloud to be able to, help us expand our operating margins.

Raimo Lenschow
Managing Director, Barclays

Is there the conflict you think of gross margin dollars rather than gross margins, and then more gross margin dollars kind of cover, like, you know, the OpEx, which is more fixed as a cost, and how the operating margin should go higher-

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

Exactly.

Raimo Lenschow
Managing Director, Barclays

With... Okay.

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

Exactly.

Raimo Lenschow
Managing Director, Barclays

Seeing the dynamic, everyone else.

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

Yeah.

Raimo Lenschow
Managing Director, Barclays

Yeah.

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

And then that's the advantage of growing. To your point, you think as a CFO, you're excited about total growth. Absolutely.

Raimo Lenschow
Managing Director, Barclays

Yeah.

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

Because it gives you opportunities to be able to drive up your margins.

Raimo Lenschow
Managing Director, Barclays

Yeah.

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

You know, you can still invest the same or slightly more in dollars, but if you're not increasing your overall costs, you know, there's fixed costs in our margin, there's fixed costs within our overall operating expenses.

Raimo Lenschow
Managing Director, Barclays

Yeah.

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

The fixed costs are not growing, and the top line's growing, you're gonna get that scale benefit.

Raimo Lenschow
Managing Director, Barclays

Yeah, yeah, yeah. Okay.

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

Which is, which is great. So that's a big advantage to being able to grow.

Raimo Lenschow
Managing Director, Barclays

Yeah. Okay. And then last question, and then, and then I'll let you go, is how do you think about use of cash? You know, like now, cash generation is really coming up nicely. Like, how do you think about that going forward?

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

Yeah. So, our capital allocation strategy is very much about reinvesting back in the business, about share repurchases, and small plug in M&A.

Raimo Lenschow
Managing Director, Barclays

Yeah.

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

We did one, as I mentioned, previously this year, and we are continuing to kind of look at the landscape to see if there's any out there that we want to continue to focus on. So small plug in M&A. Our biggest commitment from a capital allocation standpoint is 75% of share repurchase, 75% of the cash flow that we will do through share repurchases.

Raimo Lenschow
Managing Director, Barclays

Yeah.

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

I think that's right now, I believe, because of our valuation, because of where we are, is the best return to shareholders. But we continue to look at what is the best return to shareholders, what is the best use of our cash, and they're the three that we look at is reinvesting, share repurchases and, you know, M&A, but more from a tuck-in technology M&A standpoint.

Raimo Lenschow
Managing Director, Barclays

Yeah. Okay. Perfect. That's a good summary. Thanks for joining us again.

Chad Bennett
SVP of Investor Relations and Corporate Development, Teradata

Thank you very much.

Raimo Lenschow
Managing Director, Barclays

Thank you. Good-

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