Good afternoon. My name is Tania and I will be your operator for today's call. At this time, I would like to welcome everyone to the Teradata Third Quarter 2021 earnings call. Our lines will be placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, hold it by the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you. I would like to hand the conference over to your host today, Christopher Lee, Senior Vice President of Investor Relations and Corporate Development. You may begin your conference.

Good afternoon, and welcome to Teradata's 2021 third quarter earnings call. Steve McMillan, Teradata's President and Chief Executive Officer, will lead our call today, followed by Claire Bramley, Teradata's Chief Financial Officer, who will discuss our financial results and our outlook. Our discussion today includes forecasts and other information that are considered forward-looking statements. While these statements reflect our current outlook, they are subject to a number of risks and uncertainties that could cause actual results to differ materially. These risk factors are described in today's earnings release and in our SEC filings, including our most recent 10-K and in the Form 10-Q for the quarter ended September 30, 2021, that is expected to be filed with the SEC tomorrow or in the next few days. These forward-looking statements are made as of today, and we undertake no duty or obligation to update our forward-looking statements. On today's call, we will be discussing certain non-GAAP financial measures which exclude such items as stock-based compensation expense and other special items described in our earnings release. We will also discuss other non-GAAP items, such as free cash flow and constant currency revenue comparisons. A reconciliation of non-GAAP to GAAP measures is included in our earnings release, which is accessible on the Investor Relations page of our website at investor.teradata.com. A replay of this conference call will be available later today on our website. And now, I will turn the call over to Steve.

Thanks, Chris. Good afternoon, everyone. Thank you for joining us today. At our Investor Day, we provided some fresh insights into our strategic direction, differentiated product and value proposition, and our financial model. We've continued our transformation journey, executing on a strategy as a cloud-first, profitable growth company. In Q3, we met expectations for revenue once again. Importantly, our recurring revenue as a percentage of total revenue increased approximately 5 percentage points versus last year and is now approaching 80%. This is meaningful because recurring revenue provides for predictable and durable streams of cash flow. In addition, both GAAP and non-GAAP EPS were above expectations. Claire will address our financial metrics and outlook in more detail. In the third quarter, our public cloud ARR was $148 million. This was a substantial 83% growth rate over Q3 of 2020. We had a handful of large deals slip out of the last day of Q3 into the fourth quarter related to customer timing. We have already completed transactions that more than cover the $7 million that we expected in Q3. And we have closed most and are confident we will close all of these transactions in the fourth quarter. We continue to build upon our execution engine, which delivered more cloud deals in Q3 than in any other quarter. Looking ahead to the fourth quarter, our pipeline is robust, and we are working on bigger cloud deals. Looking at Q3 in more depth, we have numerous proof points that our strategy is solid. We are executing and are making progress within our target market of leading enterprise accounts. Q3 was our highest quarter yet for new cloud customers. We added tens of new large enterprise accounts across all of our regions. We are determined to keep up the pace in winning new logos, in the cloud and on-prem. Our dedicated new logo sales teams are coming on board, ramping up, and are already starting to win. We are dating the world's largest companies, often with extreme scale and complexity in their data environments, to smoothly migrate to the cloud. These global enterprises depend on their mission, critical Teradata platform every single day to help them extract the greatest value from their enterprise analytics. As many of our large enterprise customers are transitioning to the cloud for the first time, managing through these types of transactions can take some time, requiring planning and coordination with multiple stakeholders across numerous functions. And migrating to the cloud requires careful consideration of the interconnectivity of all aspects of the customer's on-prem analytic ecosystem. Customers are recognizing that Teradata, with our connected multi-cloud data platform for enterprise analytics, is the best solution to overcome these challenges, and they are increasingly migrating to the cloud with Teradata Vantage. In the quarter, healthcare, transportation, and government led the pack in terms of our target verticals. Just one recent example of a seamless migration to the cloud is American Airlines. A Teradata on-prem customer for more than 14 years, American just migrated its massive Teradata EDW to Teradata on Azure. Our collective team of employees from Teradata and American Airlines executed very efficiently for a highly successful migration. The airline's Teradata platform provides virtually every department access to analytics and reporting capability and supports thousands of users for many business initiatives, including revenue management, network planning, technical operations, cargo, and marketing. The migration is part of the airline's strategy to provide greater agility, speak-to-market, and frictionless scalability to its business community. We have been told that its business users are extremely pleased with the speed and performance of the Vantage platform in Azure. Cloud growth remains front and center for us. The move to cloud is a clear direction and often a mandate for many organizations. It's an issue of when, not if. We are pleased that each of our regions saw growth in cloud customers in the quarter. Additionally, we are seeing that once customers start in the cloud, they grow with Teradata. Our quarterly trend of healthy net expansion rates in the cloud continues to be greater than 130%. As customers add more use cases, more data and workloads, and more users to their Teradata multi-cloud data platform. Here's a handful of examples where we are competing and winning in the market. The ANZ Banking Group is migrating its Teradata enterprise data platform to Vantage on Google Cloud. This multinational financial services company has been a Teradata customer for more than two decades. Its Teradata platform is core to its critical business applications, supporting more than 2,000 users for many different business initiatives, including regulatory reporting, customer analytics, product profitability, and responsible lending. The migration is part of the bank's broader cloud mandate. Here, we are partnering with a leading global SI on the customer's migration to the cloud. A leading global oil field services company is deploying Vantage on Azure to support sensor data management and advanced analytics. This new Teradata customer is committed to continual innovation using technology to improve safety, productivity, and quality of life in the oil and gas industry. This transaction is one of the large deals from Q3 that fell just over the line and closed on day one of Q4. BNSF, one of the largest freight transportation companies in North America, is migrating its Teradata data platform to Vantage on Azure Cloud as part of a long-term plan to have the majority of its analytic ecosystem in the cloud. Here, we won against cloud-native competition, and Teradata will provide analytics and reporting for finance, operations, and marketing. Teradata Consulting will be leading the migration effort with support from our partner, Microsoft. As part of this effort, Teradata will be integrated into a hybrid analytic environment with both IBM mainframe and Microsoft Azure components. Another airline, one of the world's largest and most admired, is migrating its long-standing Teradata environment to Vantage on AWS as a service. The company's modernization efforts include increasing analytics for HR, finance, loyalty, and customer care, and will leverage both Teradata and AWS services, as well as solutions from advanced analytics vendors. The ability to leverage NOS read-write capabilities to utilize AWS 3 data and make it available for richer analytics was an important factor in migrating vantage to the AWS cloud. The customer considered cloud-native competition before selecting Vantage on AWS, Accenture was a supportive partner during their evaluation and leading the migration process. Unedia, a leading tech equipment manufacturer based in Korea, is a new cloud customer, choosing Vantage on Azure as its cloud data and analytics platform. The Vantage on Azure environment will be used for development work, POCs with customers, demos, and applications testing. Our purpose, transforming how businesses work and people live through the power of data, has never been more relevant, and we are successfully supporting customers in building and driving meaningful business value in their analytic environments, whether multi-cloud, cloud-only, on-prem, or a hybrid combination of any or all. To keep Teradata's differentiated market-leading position, we continuously develop and evolve our technology, and Q3 was no different. In the quarter, we advanced our innovations on multiple fronts. We released a significant enhancement to Vantage, adding 30 new end-database functions that enable customers to use partner tools of their choice to leverage the power of end-database analytics, delivering performance at enterprise scale. We introduce Vantage Streams in the cloud, providing near real-time data, leveraging native object stores, AWS 3, Azure Blob, and Google Cloud Storage to help accelerate new business outcomes. Customers can now stream IoT data, stock data, weather, or website clickstream data to deliver new analytic use cases. This is exactly what is needed by our target market. In a recent research study by independent research firm Banson Bourne, 87% of IT decision makers felt that they must leverage these emerging technologies to remain competitive. We also delivered an update to our Bring Your Own Model capabilities that allows customers to bring their own analytic models built with third-party tools and languages into Vantage to run enterprise analytics at scale. And in keeping with our focus on customer and market drivers, we brought enhancements to our communications data model with full support of 5G network activity, including intelligent network optimization. We are furthering the transformation in our go-to-market organization to execute with greater agility and help us accelerate the move to the cloud. and build an increasingly strong partner ecosystem as well. These actions are designed to drive results for Teradata and an exceptional customer experience. We know that when our customers succeed, we succeed. We're investing to drive faster cloud execution to help our customers maximize the value of their data and get optimal results from their Teradata environment in the cloud. We are deploying senior cloud specialist sellers and cloud specialist architect teams in each region to progress and execute more quickly to close cloud deals. We are doubling down on building mutually beneficial partnerships to drive scale and strengthen capabilities and have added senior cloud expertise to our global partner organization. Strong partnerships create a flywheel effect in accelerating successes in the cloud and in data analytics here's a few new partnerships that will help propel us forward today we announced a strategic collaboration agreement with AWS we are both committed to increase product integrations and development with AWS cloud services and launch joint programs to help customers migrate modernize and de-risk the cloud adoption journey with vantage on AWS with this exciting announcement, we are working together to make it simple to use Vantage on AWS across the broad array of AWS services at enterprise scale. We are very excited about the strategic collaboration that will make it even easier for customers to get the most value from their enterprise analytics at scale in the cloud, helping us both accelerate growth. In the important and growing AI arena, we recently announced a strategic partnership with H2O AI and the integration of H2O AI's hybrid cloud platform with Vantage. This integration enables our joint customers to quickly and easily build and deploy AI solutions that inform new insights from machine learning and drive more meaningful business outcomes. We're also pleased to be deepening our partnership with Accenture. Together, we are building a global vantage cloud data migration factory to enable joint customers to easily migrate to Teradata Vantage in the cloud. The powerful combination of Accenture's recognized global capabilities and our unparalleled ability to harness data at scale will help drive smooth transitions to the cloud for our joint customers. I'm seeing the team operate with a stronger sense of urgency, accountability, and enthusiasm, and I'm pleased that we are progressing in our go-to-market organization and across the company. We are resolute in executing our growth strategy. Looking ahead, Q4 is traditionally our largest quarter for ARR growth. We have a robust pipeline for the quarter, and we are seeing trends of more cloud deals and larger cloud deals, some in the seven- and eight-digit range. Given these dynamics, you can be certain that the entire team will be focused and dedicated to closely managing the business, especially with the planning and coordination associated with closing some of these large transactions. We believe our cloud business will be approximately $200 million by the end of the year. We have paths to grow more than 100% year-on-year. However, given the timing we experienced in Q3, we believe it is prudent to lower our cloud ARR growth outlook from 100% year-over-year to approximately 90% year-over-year. We remain pleased with this very strong annualized growth rate in our cloud business, a substantial cloud business that is based on a competitive product and differentiated position in a large and growing market. At our Investor Day in September, I stated that Teradata is a profitable growth company and a large and growing market with the right technology, the right strategy, and the right people. That remains true today, and we remain incredibly dedicated to adding new customers, growing and expanding existing ones, and providing an outstanding customer experience with our connected multi-cloud data platform for enterprise analytics. Our focus is clearly on executing to keep winning and delivering shareholder value. This confidence is reflected in the new $1 billion repurchase authorization that we announced today and our strong commitment to returning capital to shareholders by a share repurchase. Now, I'll pass the call over to Claire for additional insights.

Thank you, Steve, and good afternoon, everyone. In the third fiscal quarter, Teradata delivered revenue and profit in line or better than expectations. Quarterly highlights include recurring revenue of $352 million or growth of 7% year-over-year as reported, gross profit margin of 61.3%, up 30 basis points year-over-year, operating margin of 15.4 percent up 60 basis points year over year a non-gap EPS of 43 cents in line with prior year and 11 cents above the midpoint of our previous outlook. I am pleased that these results keep us on track to achieve or beat our fiscal 2021 outlook on many of our key financial metrics. Some of our year-to-date highlights include total ARR growth of 7% versus the prior year, which is in line with our 2021 full-year outlook range of mid-to-high single-digit growth. Year-to-date recurring revenue growth of 14% versus the prior year compared to our full-year outlook range of high single to low double-digit growth. Earnings per share of $1.86 against our previous full-year outlook range of $1.92 to $1.96. and year-to-date free cash flow of $347 million compared to our full-year outlook of at least $400 million. Despite so many highlights, it is unfortunate that a handful of our transactions slipped into Q4, which impacted our cloud ARR in the third quarter by $7 million. As Steve noted, we have already covered this amount in the early days of Q4. We have a robust Q4 pipeline, the strongest we have ever seen, and we continue to successfully close deals with good economics. We therefore remain confident that our customers want and value our products. Over the last 18 months, as we have undertaken our transformation journey, Teradata has had a renewed focus on driving greater rigor, discipline, and accountability in the business. We are focused on driving improved intra-quarter linearity, increased investment in our cloud go-to-market activities globally, and we are seeing increasing benefits from stronger partnerships with CSP and SI partners to accelerate migrations to the cloud. Now let's get into the results, starting with ARR. Our customers continue to drive digital transformation activities in multi-cloud environments, and this keeps driving our growth. Total ARR increased 7% year-over-year as reported, and 6% year-over-year in constant currency. Total ARR grew by $11 million sequentially.

Subscription ARR increased 18% year-over-year and 2% sequentially.

We grew in all three regions from both existing and new enterprise customers. We added on-premises new logo customers at a faster pace than last quarter, even though our new logo acquisition efforts are emerging. These are all positive proof points that customers continue to choose Teradata for our differentiated value from a great product that provides a combination of best price and performance at scale, along with Teradata's deep industry knowledge and expertise. Public Cloud ARR grew 83% year-over-year and 6% sequentially. Growth occurred across all three geographic regions year over year and sequentially in the Americas. In both APJ and EMEA, we saw a slight sequential decline in growth resulting from transactional delays. Of the $9 million sequential growth, a little more than half resulted from customers migrating to Vantage in the cloud from on-premises perpetual and subscription licenses. and most of the remainder from expansion. We continue to experience healthy expansion rates that are in excess of 130% in the cloud, sustaining the positive trends that we outlined in our recent investor day. We also added more new logo cloud customers in the quarter, a proof point of executing against our strategy. While the deal sizes can be small at the start, we see future growth opportunities with these new customers as they try, buy, and expand. Now, turning to revenue. Total revenue was $460 million, a 1% increase year-over-year as reported and in constant currency. We continue to build on a higher base of recurring revenue, which grew 7% year-over-year and 6% in constant currency. This growth is primarily driven by a higher mix of recurring revenue. As a percentage of total revenue, recurring revenue was 77% in the third quarter. Regarding upfront revenue arrangements, in the third quarter, the net impact of upfront revenue was materially lower when compared to the first two quarters of the fiscal year. In the third quarter, there was an approximate net negative $10 million impact related to upfront recurring revenue. This was in line with our expectations. For reference, this compares to a net positive $22 million impact in the second quarter and $24 million in Q1. The negative $10 million is due to revenue pulled into the first half of the year from the third quarter, partially offset by upfront recurring revenue recognized in Q3, all related to the renewal or expansion of on-premises deals. As anticipated, both perpetual and consulting revenue will lower year over year given the strategic shifts made to a higher margin subscription model and greater collaboration with partners that drive higher adoption and consumption of Teradata. Moving to profitability. Third quarter's gross margin was 61.3%, which was approximately 30 basis points higher than last year's third quarter, primarily due to a higher mix of subscription-based recurring revenue. This was partially offset by the negative impact from upfront revenue arrangements pulled forward from the third quarter into the first half of fiscal 2021, as well as a small unfavorable impact from perpetual mix and a slightly lower consulting margin rate. Third quarter's operating margin was 15.4%, 60 basis points higher than last year's third quarter. Driven by the combination of a lower cost structure from cost discipline, partially offset by sequential investments made in activities supporting the cloud in both go-to-market and R&D. Total operating expenses were up 5% sequentially and flat year-over-year. Third quarter earnings per share of $0.43 exceeded our outlook range of $0.30 to $0.34 by $0.11 at the midpoint. of the 11 cents five cents relate to actual expenses being lower than expected four cents relate to cost delays and two cents relate to favorable recurring revenue mix turning to free cash flow and capital allocation we are on track to achieve our fiscal 2021 guidance of at least 400 million dollars in free cash flow through the end of september 2021 year-to-date free cash flow was 347 million dollars in the third quarter free cash flow generated was 23 million dollars due to the seasonality of billing our cash conversion metrics showed slight improvement quarter over quarter, driven by an increase in days payable outstanding due to the timing of invoices received. Our days sales outstanding remained strong, although it did increase by about two to three days sequentially. We continued to take advantage of our strong balance sheet, buying back stock to offset dilution. In the third quarter, we repurchased approximately 1.1 million shares, or $58 million in total. For the first nine months of the fiscal year, we spent $179 million on share repurchases, or a return of 52% of year-to-date free cash flow to shareholders. For the full year, we are on track to return at least 50% of free cash flow to shareholders via share repurchases, while continuing to make investments in the company to support our strategy for profitable growth and cloud acceleration. As noted in our earnings press release, our board authorized an additional $1 billion that can be utilized to repurchase shares. We now have a total of approximately $1.3 billion authorized under this open market share repurchase program, in effect immediately until the end of 2025. This action is consistent with the capital allocation framework and our commitment to increase shareholder value that we outlined at our investor day. Let me move to our outlook. overall we have a very healthy growth rate on a large and scaling cloud business given the strength of our products along with our robust pipeline in q4 we do see path to achieve at least 100 growth in cloud ar for the full year however it is also possible we will continue to see the timing volatility as we saw between September and October due to how difficult it is to predict the close dates of some of our very large pipeline deals. As Steve stated, our updated cloud ARR outlook is approximately 90% growth year over year or approximately $200 million. With regards to earnings per share, we are raising our non-GAAP earnings per diluted share to be in the range of $2.11 to $2.15, while still continuing to invest in the business, an increase of $0.19 from the midpoint of the previous range. For the fourth quarter, we expect non-GAAP earnings per diluted share to be in the range of $0.25 to $0.29. We anticipate the tax rate to be approximately 26% in the fourth quarter and approximately 23% for the full year. We also anticipate the weighted average shares outstanding to be approximately $113 million. We are reaffirming our fiscal 2021 outlook for the following key metrics. Total ARR growth, which is expected to be in the mid-to-high single-digit percentage range. Total recurring revenue, which is expected to grow in the high single-to-low double-digit percentage range year-over-year. Total revenue, which is anticipated to grow in the low-to-mid single-digit percentage range year-over-year. and free cash flow for the year, which is expected to be at least $400 million. Thank you very much for your time today. Let's please open the call for questions.

Certainly. We will now begin the QA. At this time, I would like to remind everyone in order to ask a question, press star, bend the number one in your telephone keypad. We'll pause for just a moment to compile the QA roster. In the interest of giving everyone an opportunity, I appreciate that you limit yourself to one question and one follow-up. The first question is from the line of Katie Herbity with Morgan Stanley. Please proceed.

Yes, thank you. Good afternoon. A couple questions from me. First, I think it would be helpful to hear more about why you think you saw deal slippage in the third quarter. And given that you've now closed most of those deals, why is there such a material impact on your cloud error outlook for for the fourth quarter hi Katie thanks for the

question and as we said in the prepared remarks it was just a few deals a handful of deals that slipped into Q4 and it was predominantly for timing reasons it was a significant seven million dollars of ARR when we looked at the quarter What we learned was, although our teams are fantastic at closing on-prem deals, as we're taking some of the biggest companies in the world to the cloud with their most complex workloads, the approval processes for our customers were a surprise to both the customer teams and the Teradata sales teams as we were closing those deals. as we look at the quality of the pipeline that we have for q4 we see good strength in that pipeline we see we've got the largest pipeline we've ever had from a cloud deal perspective we have deals of seven and eight figures for arr cloud growth but as you know we like to be transparent in our guidance we like to set guidance that we're confident in and given the learnings that we had from Q3, we wanted to set an expectation of being approximately $200 million

for cloud ARR and 90% year-on-year. Okay, thank you. And I guess connected to that, it was really encouraging, Steve, to hear your comments that in the third quarter you saw a record number of new cloud customers such that that new logo sales team is starting to execute. But how do we reconcile that record number of new logos in the quarter with the 9 million sequential cloud ARR growth, which is the lightest in recent history? Just talk about the deal sizes for new logos and how that's playing out.

Yeah, we've built an execution engine which delivered more cloud deals in Q3 than ever before. That cloud growth really remains front and center for us in terms of our execution. We do have, if you like, a barbell in terms of the shape of our cloud deals. And that means we've got a set of deals that are very large, multi-million dollar deals, and a whole set of smaller deals that we're executing on. Clearly, the large deals introduce complexity, just given the types of workloads that we're running for our customers, and when those large deals slip, given where we are from the process of scaling our cloud business, it does introduce volatility into our results. As we look at Q4, as I said in the prepared remarks, Q4 is our biggest quarter from an ARR growth perspective. We've got a great pipeline of opportunity, and the team is incented and focused on executing against that pipeline of opportunity in Q4.

Okay. And if I can just sneak one more in, how meaningful is the AWS partnership in terms of any just qualitative impact to your view of potential cloud ARR growth as you go into 2022, and do you think that, you know, was there any awareness that this AWS integration was coming such that maybe, you know, that had some disruption in the pipeline of cloud

Yeah, we're super excited with the strategic collaboration agreement with AWS, and it translates into a number of dimensions. One is in terms of joint marketing activities with AWS, joint sales execution with the AWS sales team around the world, and integration from a product development and product engineering, getting our best engineers from Teradata together with the best engineers from AWS. It's really a forward play for us. So that didn't impact the timing or execution of deals in the third quarter. that was purely driven by linearity and the timing of those deals. We are looking at the AWS partnership as something that can drive significant value and accelerate the business as we close out Q4 and enter into 2022. Thanks for the question. Great. Thank you. Thank you, Mr. Herbity.

The next question is from the line of chat, and it was Craig Helen. Please proceed.

great thanks for taking my question so steve just just following up on the migration topic and and you know the conversations that you're having right now and the pipeline you see right now i guess you know we we started last year uh extremely fast in terms of um you know converting that base and migrating that base to the cloud and got off to a good start um pretty good start you know, first half of this year also, I guess, you know, are the, you know, migration conversations or sales cycles or migration cycles, you know, are they more challenging today or just because you've done so many, it's honestly getting, you know, more, you know, it's an easier conversation and a more kind of predictable sales cycle or conversion cycle?

Hey, Chad, thanks for the question. I think what we're starting to see across the team is that execution engine in terms of having those conversations with customers really building. One of the things that we've done is investing in cloud sales specialists and Teradata sales folks that have been successful in executing those migration discussions with their customers so that they are guiding and mentoring the rest of the sales team inside Teradata to continue to accelerate those customers to the cloud. In terms of our existing customer base, we've still got a lot of opportunity from a migration perspective. We've still got a lot, and that's reflected in our Q4 pipeline. As I said, it's a significant pipeline, lots of very, very big deals, and more deals from a cloud and a migration perspective than we've seen in the past. So we believe that we are advancing our transformation in the right direction. We're continuing to see increasing interest in our cloud offerings across all three of the public cloud providers. And we're executing those deals globally, taking the most complex mission-critical workloads and migrating them successfully to the cloud. Our customers really see the value in Teradata

data in terms of executing that mission okay then maybe one for either yourself or Claire just you know you had an analyst day you know month and a half ago two months ago you gave long-term targets for the business and in specifically the cloud portion of the business I assume you still feel comfortable with those targets.

I'll go generally about...

No, you go ahead, Claire. Sorry about that, Steve.

Yeah, I was just going to say, with regard to our cloud ARR and the information we shared at Invest today, because this is a timing situation and we're still planning to close these deals, and we expect to close all of these deals in Q4, we are still very confident in our medium and long-term projections. Obviously, we'll provide a more formal update next quarter on 2022, but we anticipate no impact on our medium and long-term projections shared with you at Investor Day.

Perfect. Thank you. And then maybe one quick one, real quick. So just on the new logo, Steve, and I understand they're small deals initially, but just can you give any insight into the competitive landscape on those wins and who you saw?

Yes, and we won new logos, Chad, both on-prem and in the cloud. And we tend to see a whole range of competition from traditional competition like Oracle and IBM, who are always happy to beat, the cloud-native providers in terms of the offerings from AWS, Microsoft, and Google, and also the Snowflake Databricks of the world. And so winning these new logos definitely demonstrates the proof point and relevance of Teradata and our capabilities that we can deliver in the cloud. Really proud of the team in terms of – no, it's a star of emotion. Really proud of the team in terms of how they've taken that to market and how we're winning new logos.

Great. Thanks for the color.

Thank you, Mr. Bennett. The next question is from the line of Matt Hedberg with RBC Capital Markets.

your line is open. Oh, hey, guys. Thanks for taking my question. Steve, one for you. I mean, I think, you know, the success in new logo wins is really great to see. And I guess, you know, as you start to think about a reopening situation, obviously, I think we've all, you know, sort of thrived in a hybrid work environment. But how do you think about, you know, your reps getting out in the field to a greater extent? I mean, do you think that could have a positive impact on new business trends? Certainly, it could also help upsell, but could that help with new business

pipeline even to a greater extent? Yeah, Matt, I haven't met a salesman or spoken to a salesman that isn't really looking forward to getting out and meeting customers again, especially from a new logo perspective. One of the strengths that we have is fantastic customer relationships and our existing customer base where we know the folks and we can have those conversations to help migrate them to the cloud but in terms of executing that new logo motion being able to do that from a face-to-face perspective we really believe will enable us to accelerate that motion as we uh

move forward got it okay that's helpful and then i obviously you guys aren't much of a hardware model these days um but but i have to ask about the supply chain piece i mean you know still you know on-premise deals you know customers might be uh you know trying to procure additional hardware Did you guys notice anything from that perspective in this quarter, or have you contemplated that in your fourth quarter outlook?

Yeah, I'll let Claire talk a little bit about this. But I think the value of Teradata is really in our software, and customers using our software to get the best out of their data inside their data environments. Clearly, from a cloud perspective, our cloud growth isn't impacted by any supply chain or technology impacts at all. But, Claire, do you want to talk a little bit about the supply chain?

Thank you, Steve. Yeah, not seeing a material impact on supply chain, as Steve mentioned, not impacted due to the software nature. Anything that we would see in terms of the economic impact is already baked into our forward-looking guide.

Thank you. The next question is from the land of Lamzi Moham

Thank you for taking my questions. It's actually Ruplu filling in for WANV today. Claire, it's been a long time since recurring revenue actually declined sequentially. It was down 6% quarter over quarter. Also, margins were down 400 basis points sequentially. Were the upfront deals as you had expected, and what was the impact on margins from that pull forward revenue?

Hi, Rupu. Thank you for the question. And indeed, we are seeing that seasonality impact quarter over quarter from the upfront recognized in the first half of the fiscal and the net negative impact we saw in Q3. So just as a reminder, we had over $20 million in Q1 and Q2, and we have a net negative impact in Q3. So yes, we are seeing an impact from a revenue standpoint and a margin rate standpoint as a result of that treatment. The underlying business is performing well. I'm really pleased with the traction we're getting on our cloud margin, strong momentum both quarter over quarter and year over year.

Okay, thanks for that. Maybe one question for Steve. You've talked a lot about new logos, but in the past you've also talked about something called the boomerang customers, the customers who leave Teradata and go to competitors, and then they come back. Did you see more of that this quarter? Any flow down or uptake in that rate of customers coming back?

Yeah, I think our customers are continuing to recognize the challenges of migrating their complex and large workloads to the cloud. And they see in Teradata a partner that can help them do that and help them accelerate that transformation to the cloud. Certainly, it's something our sales team uses every day in terms of discussions with customers. And the fact that we can actually demonstrate that workload successfully migrating, as I referenced in the call, the American Airlines one was a great example of a successful migration of a very complex environment into the cloud. As we're demonstrating these proof points, I think our customers are certainly recognizing and that Teradata can give them a fantastic path to the cloud.

And if I can just sneak one more in, thanks for the details so far. I know you've said that public cloud ARR, you're taking a more conservative approach and that's why you're taking down the full year guidance to 90% year-on-year. When we look out into 2022, I think your guidance at the analyst day had called for 70% ARR growth. Is that still in the cards? Is there any change to that?

Hi, Ruklu. We're not giving a formal update this quarter. I will give a formal update next quarter. But I do want to re-emphasize that we do not anticipate any impact on the medium or long-term projections that we gave at Invest today. So that is still our best view at this point in time. As a reminder, this was timing slippage, so just shifting from one quarter to the next and just increased timing volatility as we close out the year. So we're expecting to close all of these deals and no impact on our medium or long-term projections.

Okay, thanks for all the details.

I would just add to that, I think, you know, as we look at the pipeline for Q4, the biggest pipeline in terms of cloud deals that we've seen, we've got the biggest cloud deals we've ever seen in the pipeline, and it's a real validation that we've got the right strategy, a great value proposition, a great technology solution for our customers. So we are super excited about the long-term plan for Teradata.

All right. Thank you so much.

Thank you, Mr. Mohan. The next question is from the line of Tyler Raddick with Citi.

Your line is open. Excuse me, Mr. Raddick, your line is open.

Hey, sorry about that. Can you hear me now? Hey, Tyler. Hey, Steve. First question for you. So it looks like this year we're seeing kind of one of the most back-end loaded kind of Q4s that I can recall in some time with the vast majority of net new AR kind of projected to hit net quarter. And, you know, it kind of goes somewhat counterintuitively just given that in theory cloud you should see, you know, faster and more, you know, straightforward expansions because you're not, you know, provisioning new on-prem hardware. I guess what about this year is making this such an unusual Q4 and just how are you thinking about kind of improving the linearity throughout the year going forward? So, you know, we're getting a little bit more consistent net new ARR on a quarterly basis.

Yeah, Tyler, a couple of things, and then I'll maybe ask Claire to comment as well. I think seasonally we see Q4 as always our strongest ARR growth quarter. I think that tends to be because, you know, our history of terrific success and on-prem enterprise agreements, you know, tendin' towards the fourth quarter, tendin' towards the last month, and then even the last week of the quarter. And what's really driving the cloud business is migration activity of existing customers as they migrate large and complex workloads to the cloud. Now, the point in time where we can actually, we find it beneficial to have those discussions with customers is a point of renewal of their existing contracts. So when we tend to engage with customers in a similar pattern to how we have previously sold on-prem subscription revenues and also how we are taking them forward in terms of merging their on-prem solutions and their cloud solutions so um a real focus for is is to uh continuously drive um uh you know that that steady progression of uh cloud business throughout the year as we get into those expansion motions um i think what you'll continue to see is lumpiness from is or a high degree of volatility um from a quarterly perspective but we're also working on on how do we change that intra-quarter linearity so that we can bring deals out of the last weeks of the quarter. And I think that will really help with all of our execution. Claire, did you want to make some points?

No, I'll just add that our confidence for Q4, despite being a very big quarter to your point in terms of Cloud ARR, our confidence comes from that robust Q4 pipeline that we see. As I mentioned in my prepared remarks, it is the strongest we have ever seen. So the fact that we have that pipeline gives us that confidence in our big Q4 that we're currently in. And we've had a great start to the quarter in October as well. So really focusing on that intra-quarter linearity in Q4 and beyond. And I think as we make the increased investments that we're making in cloud sales, R&D, go to market and strengthen our partnerships across CSTs and SIs that's all going to help us with regards to our acceleration in the cloud.

And Claire, maybe to follow up with you, you know, total ARR this quarter decelerated to 6% growth in constant currency. And I know the long-term financial model had an 8% to 12% CAGR for total ARR, so certainly a re-acceleration. Given what you're expecting to see here in Q4 with a bunch of these deals and a good pipeline, is 6% kind of the low point, you think, on ARR, and it just re-accelerates from here?

Yeah, so to your point, our guide for this year, we have found our guide to the mid-to-high single-digit growth. As we get the cloud acceleration and the momentum from the pipeline that we are seeing, to your point, we are expecting that to continue to accelerate into 2022 and beyond. Thank you. Thank you, Mr. Radke. The final question is from

Derek Wood with Cowan. Your line is open. Yeah, great. Thanks, guys. This is actually Nick Altman on for Derek. Thanks for taking our questions. The channel is becoming a much larger focus for you guys. And you mentioned one deal that was aided by an SI. Can you maybe just talk about like how much traction you're getting there and maybe how meaningful that can be over the next

several years? Yeah, thanks, Nick. That's a great question. This is a complete pivot for us as an organization. You know, if you think that over time Teradata had built up its consulting and services business, we have committed to our partners that we will not compete with them for work inside our joint customers. And that is getting some real traction. The investment that we've made with Accenture in terms of creating that migration factory, the work that we're doing to educate those partners on the Teradata value proposition, and frankly, how they can deliver some of these really complex projects that help transform their customer environments, we see that as a really important catalyst as we move forward. That was a great question. Thank you.

Great. Great. Thanks. And then just building on one of the earlier questions, just in regards to the deal slippage, you guys mentioned that some of those deals had closed, but lowered the public cloud ARR guidance. So I'm just wondering, did maybe some of those deals come in a little bit lighter on an ACV basis versus your expectations? Or can you just give any more colors to how to reconcile the guidance and the closed deals that slipped versus sort of your outlook?

Yeah, sure. What I would say is the deals, it was purely to do with linearity. We are keeping financial discipline on the deals that we're executing so that they're mutually beneficial for both Peridata and our customers. Our customers see a lot of value in what we're providing, and the size of deals that we see in the pipeline and the complexity of those deals are the key reasons why we see that timing of closing them as being more of a challenge. Certainly, when we compare it to our on-prem business, those cloud deals are more complex to execute. But we feel that we've learned from what happened in Q3. We've put in place a set of robust actions that can really help drive what we see currently in the pipeline, which, again, more cloud deals than we've ever seen, bigger cloud deals than we've ever seen. and it gives us confidence both for Q4 and as we move into 2022.

Thank you, Mr. Wood.

There are no further questions at this time. I will now turn the call back over to Steve McMillan for his final remarks.

Yes, thank you. Thanks, everyone, for joining us today. As I talk with customers every week, I remain convinced that we've got the right strategy, our technology is unmatched, and our people are among the best in the business. Our connected multi-cloud data platform for enterprise analytics is exactly what the world's leading enterprises are telling us they want and need, and we're going to help keep that momentum going, winning against the competition, and driving shareholder value. Thank you so much.

This concludes today's conference call. You may now disconnect.