Earnings Call Transcript - TDC Q3 2020

Operator, Operator

Ladies and gentlemen, thank you for standing by. And welcome to the Q3 2020 Teradata Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Thank you. I would now like to turn the conference over to your speaker today, Matt Garvie, Senior Manager of Investor Relations. Please go ahead, sir.

Matt Garvie, Senior Manager of Investor Relations

Good afternoon. And welcome to Teradata's 2020 third quarter earnings call. Steve McMillan, Teradata's President and Chief Executive Officer will lead our call today. Followed by Mark Culhane, Teradata's CFO, who will discuss our financial results. 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, Teradata's most recent 10-K filed with the SEC and in the Form 10-Q for the quarter ended September 30, 2020, expected to be filed with the SEC in the next few days. 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 such 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. 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 with that, I will turn the call over to Steve.

Steve McMillan, CEO

Good afternoon, everyone. Thanks for joining us today. I'm pleased to report that Teradata executed extremely well in Q3 and delivered good results for our shareholders. We exceeded our expectations and guidance for all key metrics, including ARR, recurring revenue, free cash flow and non-GAAP earnings per share. The strong performance comes as a result of concentrated efforts from across the organization. The team delivered solid sales execution in all regions, provided ongoing support for our customers to help them obtain the greatest value from the data assets and significantly advanced the technology for the cloud. We also stepped up and directly addressed outdated market perceptions with clear market messages and implemented focused cost discipline as well. As a testament to our growing momentum in the cloud, I will start today's remarks by sharing examples of our code-first success with customers. We are starting from a strong base and have a well-established commitment to helping customers leverage their data assets and solve their complex data challenges at scale. We are therefore seeing substantial growth in our cloud business across regions, industries, and public cloud platforms. Loblaw's, a large Canadian retailer, is migrating key applications and database technologies to the cloud with Teradata. This customer is a great example of our ability to operate in a hybrid multi-cloud model, and Loblaw's now runs Teradata Vantage in more than one public cloud platform. A leading truck manufacturer in Asia has selected Vantage on AWS for its cloud data analytics platform. The customer will leverage Vantage in the cloud for real-time analysis of vehicle data to reveal insights from vehicle functionality and performance, drive predictive maintenance, and determine value-added services to offer its customers. Next, we are partnering with a regional provider of Integration Services. A global Fortune 500 CPG company headquartered in Europe connected to Teradata Vantage on Azure in the quarter. This significant competitive win was the result of our team's ability to prove its credentials in migrating the customer's large and complex workloads to the Azure cloud. Our customer will leverage the advanced analytical capabilities of Vantage on Azure to drive rapid innovation and expedite the delivery of new, high-value business outcomes for its global finance, supply chain, sales, marketing, and HR functions. A large American retailer and longstanding Teradata customer is migrating its Teradata environment to Azure. The scale of production analytics is enormous, with millions of queries run weekly. This customer reviewed alternative Cloud Data Warehouse Solutions and selected Vantage on Azure, which offers unmatched performance and reliability. Our customer will continue to support a myriad of business-critical functions, including merchandising and assortment planning, finance, supply chain and demand forecasting, as well as digital marketing, price management, and its growing data science operations. Finally, we brought in a significant Vantage on Azure win with a Fortune 100 CPG company. When this customer completes its migration to the cloud, that will be our largest Vantage on Azure deployment. The customer is leveraging its data assets for analytic use by all major divisions of its worldwide business and relies upon Vantage across its entire organization to democratize analytics, drive down the cost of inventory and supply chain, while increasing revenues from sales, marketing, and e-commerce. I just ran through a small selection of the code wins we are seeing, but I wanted to commence my remarks highlighting strong positive momentum and significant increases in cloud ARR. Now, I'll provide an update on four areas that are propelling us forward and fueling that momentum: first, our technology innovations; second, our ongoing progress and execution and efficiency; third, an update on how we are strengthening our executive leadership to guide our future profitable growth; and finally, I'll wrap up by providing a status on our transformation efforts. Let's start with the advancements we've made in the quarter with our code-first technology. We had a great milestone with the general availability of Teradata Vantage on Google Cloud, and of course, Google Cloud customer wins. Teradata is now the only data analytics platform provider with hybrid multi-cloud offerings across all three of the top public clouds, providing utmost deployment flexibility for our customers. It's important for our customers that Vantage software is consistent across all environments, whether multi-cloud, hybrid, or on-premises. This flexibility makes migration to cloud environments easier, faster, and lower risk while providing the scale they need without compromise. It enhances the customers' ability to benefit from data analytics in the cloud. We introduced new flexible code pricing options. Our blended pricing option is ideally suited for enterprise-class usage and provides predictability while delivering the lowest cost of scale. Our cloud consumption pricing option is an affordable pay-as-you-go usage-based offer. Businesses leveraging our consumption pricing model never have to worry about utilization, system sizing, or resource status, since we manage these on their behalf. We also make it risk-free to get started with Teradata Vantage in the cloud with a zero-down consumption pricing option. Long-time Teradata customer True Value Company, one of the world's leading hardware wholesalers, is now taking advantage of the company's new cloud consumption pricing model. We introduced a cloud cost calculator on our website to help people understand the cost advantages of the cloud. By answering five simple questions, visitors will receive a cost estimate for using Vantage in the cloud, including the recommended consumption model, either blended or consumption. Visitors can get a customized cost report based on their inputs. Many organizations are surprised when they consider a code-only option and realize how fast costs escalate when they try to scale. As customers scale what goes into the cloud, Teradata has the lowest cost per query in the cloud because of our industry-leading query optimization and workload management. As we accelerate our Vantage roadmap on the cloud, integrations with cloud-native services continue to remain a top priority. We recently released connections to manage Hive and Spark on the base three cloud platforms that extend their hybrid cloud and multi-cloud capabilities as customers move workloads to the cloud. We further extended cloud-native Vantage integrations with AWS AppFlow and Azure Data Factory. As an example, our customers can combine data in Vantage with customer sentiment data from social media and opportunity information in Salesforce, as well as support and call logs from ServiceNow to build a complete customer 360 profile that can help them and their customers increase sales and reduce churn. Overall, it was a great quarter for advancing our cloud-based data analytics platform technology. You can be assured that we will keep up the pace going forward, as we will be allocating approximately three-quarters of our research and development to cloud initiatives. This is a significant redirection from just a year ago, and we believe it will fuel our growth and movement to the cloud. At Teradata, we firmly believe that businesses will continue to increase their need to leverage massive amounts of data and develop their enterprise for the future. Data is proliferating, and organizations need partners who will help them leverage their data in the cloud without rapidly escalating consumption costs. This leads to a tremendous growth opportunity for Teradata. As enterprises test multiple cloud solutions and connect or reconnect to Teradata, we look forward to continuing our leadership role in that exciting market. We believe, and we prove to customers every day that Teradata has the best technology and expertise to help them leverage data cost-effectively and at massive scale to unlock real business value. While we are building our cloud momentum, we are also seeing customers add to their Vantage on-prem solutions. Texas Health Resources, our regional healthcare provider, expanded the Teradata environment. We work in partnership with TelBru. The customer is capturing, cleansing, and orchestrating patient data, using predictive decision models to drive virtualized care options to the right patients in real-time, particularly important now during COVID-19. There's a great article that our IR team will be happy to share about how this customer is using predictive analytics to improve patient care. Now the telecom company, a telco leader in the Middle East, as well as being an industry leader in the adoption of analytics, continues to expand its Teradata platform. The expansion will address both the strategic direction in digital transformation and key programs in their own customer value management while supporting the Saudi National initiative to help government and healthcare with COVID-19 analytics. Saudi Telecom continues to drive success with its Teradata platform and has tripled its capacity for analytics to Teradata over the last 18 months. Complementing our progress in technology innovations, we made advancements in execution during the quarter. In Q3, we expanded our partner ecosystem, and Teradata became a partner of the Volkswagen Industrial Cloud. We will support Volkswagen on this open IoT platform by providing cloud-based data analytics to optimize production processes and drive productivity increases in Volkswagen's plants. Also, we have actively stepped up our marketing to increase market awareness of our cloud offerings. We are proud of our hybrid multi-cloud differentiation and are committed to building awareness around leadership and helping businesses unlock value as they turn data into a strategic asset while remaining vigilant and publicly addressing misperceptions in the market, as we declare our differentiated position. Our organization also continues to prove its resilience with remote work arrangements to keep our people and our customers safe during the pandemic. I am very proud of our team's persistence and dedication during this unprecedented time. We're executing customer engagements and executive briefings virtually around the globe. These focus sessions are leading to great opportunities. We're seeing much greater engagement with customers at the executive level on our cloud-first offerings. Teradata has received outstanding industry recognition, as firms that follow technology are acknowledging the ever-increasing importance of data-driven decisions, and taking note of our strength in the cloud data analytics platform. We were named by IDC in the FinTech Top 100 Rankings as number 34, recognizing our compelling value proposition as the leading supplier of technology to the financial services industry. Financial services remain an important vertical for us, and we remain steadfast in our commitment to providing best-in-class data analytics to support this dynamic industry. IDC also named Teradata in its Asia Pacific MarketScape recognition of major vendors for cloud data analytics platforms. In this research, IDC noted that Teradata is a good match for companies that need hybrid cloud flexibility and prioritize security and performance for their analytics workloads. Furthermore, it pointed out that Gen Z workers in large enterprises concerned with operations and governance often look to Teradata solutions. These recent industry analyst recognitions follow a strong score in the Forrester Wave on data management for analytics from earlier this year. Teradata received the highest score in the current offering category. The report noted that Teradata remains a prominent choice, especially for hybrid deployments, where scalability and availability are critical. Now, I'll turn to our efforts in strengthening our executive ranks as we accelerate our drive to the cloud and increase our rate of profitable growth. We brought in Nicolas Chapman as the Chief Strategy Officer to ensure we have a well-defined strategic and operational plan as we accelerate our transformation to a cloud-first company. Teradata has made solid progress on this front, and Nicolas will help build on our success momentum. Nicolas has a proven track record of driving organizational performance through cohesive strategy planning and execution and joins us from Imperva and McKenzie. Additionally, we appointed Hillary Ashton as our Chief Product Officer and brought together all aspects of our technology innovation into one organization dedicated to ensuring the delivery of differentiated value to our customers and an extraordinary customer experience from a cloud-first technology. Hillary joined us from PTC just under a year ago and has accelerated her innovation cadence, keeping a customer-centered approach. I'm also very pleased that we have appointed Molly Treese as our Chief Legal Officer, succeeding Laura Nyquist, who recently retired as a former General Counsel. We would like to thank Laura for 34 years of dedicated service to Teradata, as we congratulate Molly on her promotion to this critical role in our company. Molly is a seasoned leader with outstanding judgment and deep knowledge of Teradata and will help guide us forward. Further, we've named Erica Hausheer as our Chief Information Officer. Erica will lead Teradata's IT and Security organizations and drive the ongoing use of our own data analytics technology to advance our business objectives. Of course, we are also using data to drive our business. Erica joins us from 3D Systems and Hewlett-Packard Enterprise. It's gratifying to have these incredibly capable executives in our leadership ranks. They definitely reflect our commitment to enhancing diversity and inclusion through our culture as we hire the best talent to help us move the company forward into our next chapter of market success. I do want to recognize Scott Brown, our Chief Revenue Officer, who just departed the company as he becomes the President and CEO of FinancialForce. We wish him the best in this great career opportunity. Improvements began in our go-to-market organization contributing to our Q3 success, and I have great confidence in our GTM team to execute their plans and ensure a seamless continuation of our sales efforts going forward. We have an active executive search in progress for a new CRO. Before I pass the call to Mark, I would like to provide an update on our transformation efforts and what we have undertaken to better align our investments through code-first initiatives. In Q3, every organization in the company has reviewed their operations and is working to adjust costs to better position the corporation for the move to the cloud and the continuation of profitable growth. This encompasses non-revenue-generating programs, real estate rationalization, headcount reductions, including a voluntary separation program and a recent involuntary reduction program that will result in a more optimized business model for financially healthy footing as we enter 2021. You'll hear more from Mark on the actions to realign our cost structure under investment to accelerate our business and strengthen our bottom line. As we near the end of a tumultuous year resulting from the global pandemic, it has become abundantly clear that enterprises of the future need to be able to adapt with agility and speed to unpredictable situations. To do that, they need data. And there is no better data analytics platform than ours. Teradata's hybrid, multi-cloud architecture gives businesses the flexibility and portability to manage through dynamically changing environments. Our platform is built for today's hybrid, multi-cloud world, and we are going to keep the momentum going strong. And with that, I'll turn the call to Mark.

Mark Culhane, CFO

Thank you, Steve. And good afternoon, everyone. I am pleased to report that the company delivered a strong quarter with better than expected recurring revenue, ARR growth, non-GAAP earnings per share, and free cash flow generation. We accomplished these strong financial results while making further progress in realigning our R&D and product management organization and investing to support our cloud-first initiatives, as well as taking actions to reduce and streamline our overall cost structure. Before I continue to highlight a few key elements of our Q3 operating results, I want to make it clear that unless stated otherwise, my comments today reflect Teradata's results on a non-GAAP basis, which excludes items such as stock-based compensation expense and other special items identified in our earnings release. Additional commentary on key metrics and segment trends can be found in the earnings discussion document on the IR website at investor.teradata.com. We delivered $365 million in recurring revenue, which was above our guidance range and was a 6% growth year-over-year. We generated $47 million in incremental ARR this quarter and exited the quarter with a total ARR balance of $1.501 billion, an 8% increase over Q3 of 2019. We were particularly pleased with the strength we saw in our EMEA and APJ regions, which helped drive recurring revenue and ARR ahead of our expectations. Perpetual revenue came in as expected at $17 million, slightly up from the prior year. Although the mix of deals varied from expectations, it drove better than expected gross margins. Consulting revenue declined by 28% as expected, as we continue to refocus our consulting business on higher-margin engagements to drive increased software consumption within our customer base. Additionally, we continued to feel the impact of the ongoing COVID-19 pandemic, as some customers canceled certain projects while continuing to manage their discretionary spending, especially for on-site consulting engagements. We expect to see a continued year-over-year decline in consulting revenue in the fourth quarter, given our overall strategy and the ongoing uncertainty around COVID-19. Turning to gross margins, recurring revenue gross margin was 70.4%, up 70 basis points from the third quarter of 2019 and up 60 basis points sequentially from Q2. We benefited from a couple of one-time items in Q3, including favorable FX revaluation, which we don't expect to carry over into Q4. In addition, we are expecting our increased cloud momentum to be a headwind to our Q4 recurring revenue gross margin and expect recurring revenue gross margin on an annual basis to be flat year-over-year. As we have previously stated, we are more than happy to incur short-term recurring revenue gross margin impact from accelerating cloud ARR momentum. Perpetual revenue gross margins came in well ahead of our expectations at 58.8%, driven by a large US customer purchasing hardware on a perpetual basis. We expect Q4 perpetual revenue gross margin to be similar to prior year Q4 levels. Consulting margin was 13.9% versus 9% in the third quarter of 2019, as improved utilization, improved cost management, and better price realization helped drive significant improvement over last year. We continue to expect consulting margins to increase sequentially in the fourth quarter and to be in the low double digits for the year. Total gross margin came in at 61%, up 500 basis points year-over-year and ahead of our expectation. The improvement was driven by better-than-expected gross margins in each revenue category, as well as the continued favorable revenue mix shift to higher margin, recurring revenues away from perpetual and lower margin consulting revenues. We expect Q4 gross margins to sequentially decline and be approximately 400 basis points higher than Q4 of the prior year. Turning to operating expenses. Total operating expenses were down 2% year-over-year and came in lower than expectations, primarily due to certain expenses shifting to Q4, as well as our focus on expense management. We continue to reallocate spend towards our cloud initiatives and offers, modernizing our go-to-market sales motions, and redirecting our marketing focus to virtual events and other higher ROI areas during COVID. We expect our fourth quarter operating expenses to be up sequentially, primarily driven by higher sales commissions, as well as sales and marketing investments in our cloud initiatives and modernizing our go-to-market motions. We are continually evaluating opportunities to optimize our cost structure while investing in our cloud-first initiatives and transforming our go-to-market organization to accelerate our recurring revenue growth and expand our opportunities in the market, particularly in the cloud. We had an exceptionally strong free cash flow quarter, driven by our shift in subscription model, as well as excellent execution by our collection organization. Free cash flow in the third quarter was $58 million, which contributed to year-to-date free cash flow of $171 million, well ahead of the prior year's actual full year free cash flow of $89 million and our beginning of the year expectations of $150 million. As Steve mentioned, we took an initiative to realign the company to be cloud-first, more agile, and position Teradata for increased growth and profitability and to capitalize on our long-term opportunities. The first action we took was to offer a voluntary separation program for certain employees, which gave us more flexibility to realign the company, as well as reduce our expense level. The second program was an involuntary reduction in force action that will enable us to realign our investments and operating expenses to accelerate our move to the cloud, add new talent to support our cloud-first initiative, and reduce our overall expense structure. In addition, we are rationalizing our real estate footprint around the world, especially given that working virtually is likely to become more commonplace in the future. We will provide more commentary on this topic in the future, but it is another opportunity to operate more efficiently and realign additional investment dollars to our cloud initiatives. From these actions, we expect to incur restructuring charges of approximately $70 million to $80 million, of which approximately $28 million was recorded in Q3 and the remaining balance to be recognized in Q4 and 2021, with the vast majority of it in Q4 of 2020. Cash usage for these restructuring actions is expected to be approximately $75 million, of which approximately $50 million is expected to be used in the fourth quarter of 2020. We currently estimate these actions will reduce annual expenses by approximately $80 million to $90 million before considering any reinvestment towards our strategic initiatives for 2021 and beyond, as well as any further cost reduction considerations, both of which are currently being evaluated. We will provide more commentary on these topics on our Q4 call in early 2021. As a result of our strong free cash flow quarter in Q3 and our expectation for another strong cash flow generation quarter in Q4, we expect our Q4 free cash flow after including the aforementioned Q4 restructuring cash payments to be breakeven to slightly positive. This will lead to our full year free cash flow to be approximately $170 million to slightly higher for the full year, which is a significant increase over the prior year's free cash flow of $89 million. Although COVID-19 has disrupted operations for our customers and employees, we are quite pleased with how our team has adapted and supported our customers, as well as realigning the company to be cloud-first. Turning to guidance. We came into the year set up for a strong year and remain optimistic based on the pipeline we see for the fourth quarter. For Q4, we expect recurring revenue in the range of $371 million to $373 million. We expect a higher mix of cloud ARR and recurring revenue in Q4, which is fantastic; however, it does come at lower margin. But we are happy to take the short-term gross margin impact for the favorable shift to the cloud. In addition, we will see higher operating expenses in Q4 compared to Q3, driven by higher sales commission expenses and sales and marketing expenses related to our cloud initiatives and modernizing our go-to-market motion. Lastly, the benefits from our restructuring activities will predominantly impact 2021 and will not be a tailwind to expenses and margins in Q4. We continue to expect our full-year tax rate to be approximately 23% and our full-year share count of approximately 111 million weighted average shares. Taking all this into account, we expect non-GAAP EPS in the range of $0.23 to $0.25. In terms of ARR, we expect another quarter of strong incremental ARR growth and expect ARR to grow 8% or higher for the full year. As in prior years, we anticipate providing guidance and commentary for 2021 when we report the results at the end of the year. And with that, operator, we are ready to take questions.

Operator, Operator

Thank you. Your first question comes from Katy Huberty from Morgan Stanley. Your line is open.

Katy Huberty, Analyst

Yes, thank you. Good afternoon. Mark, can you help us reconcile the really strong third quarter results? Steve's bullish comments on Vantage cloud adoption, your comments about accelerating cloud adoption in the fourth quarter with the guidance that doesn't necessarily imply sort of normal fourth quarter, you know, strong seasonality? Is there anything in terms of timing of when deals are closing that's impacting the recurring revenue guidance for the fourth quarter? And then I have a quick follow-up.

Mark Culhane, CFO

Yeah, well, first of all, we're taking a conservative approach just as we did in Q2 and Q3 when we laid it out, not expecting much in terms of contribution from whatever business we close in Q4. Not all the ARR that exists at the end of Q3 starts to flow to revenue on October 1, the start dates can be out further. Clearly, we're seeing lots of momentum in the cloud, and we're seeing interest in our consumption model in the cloud. With consumption deals, you don't take revenue ratably; you take it as it's consumed, and that can vary as well. So overall, it's a conservative posture we're taking and we are bullish about what we see in our business for Q4.

Katy Huberty, Analyst

And Mark, coming into this year, you view 2020 as the year of inflection for really all financial metrics. And we certainly saw it in free cash flow, which has been incredibly strong this year. But when you think about revenue, EPS and free cash flow growth, do you think we could see the trifecta in 2021? Obviously, understanding that you're not guiding to specific numbers yet?

Mark Culhane, CFO

Yeah, well, you know, we've said all along that we thought 2019 becomes the bottom across a lot of our metrics, certainly for free cash flow and EPS. Given the midpoint of our Q4 guide, that puts our full year at $1.19, well ahead of the prior $5. That includes probably $0.06 to $0.07 cents of FX headwinds compared to the $5 in the prior year even at that dollar $19. So, yes, we believe we're focused on profitable growth, growing the top line as well as growing the margin profile of the business. We'll lay that out on our Q4 call.

Katy Huberty, Analyst

Thank you, and congrats on the quarter.

Mark Culhane, CFO

Yes. Thank you.

Operator, Operator

Your next question comes from an unidentified analyst from Bank of America. Your line is open.

Unidentified Analyst, Analyst

Yes, thank you. Mark, your EPS guide for the fourth quarter suggests maybe about $10 million or so more expense than what we talked about previously. And you alluded to some of the things, including incremental marketing efforts that Steve mentioned, to address misperceptions about cloud performance and cost. Is this something that you view as a one-time expense that we should be analyzing into calendar '21? I know you also said that there was $80 million to $90 million in savings that should come through. So just trying to think through the moving pieces whether or not this incremental sales and marketing expense is going to continue into 2021? And I have a follow-up?

Mark Culhane, CFO

Yeah, so a couple of things. As I mentioned in my prepared remarks, Q3 EPS came in much higher than we anticipated. Some of that was a shift out of expenses out of Q3 to Q4. Clearly, some things that we were thinking were going to happen in Q3 have now been sort of scheduled into Q4, and that's having an impact on the EPS delta. Better than expected gross margins are also reflected in why the EPS guide is where it is. Notably, we do not expect that the Q4 number annualized will be the run rate going forward. Clearly, there are some one-time things that we're doing in Q4 that will persist across next year. But, and we'll weigh all that out when we get to our Q4 call.

Unidentified Analyst, Analyst

Okay. Thanks, Mark. And Steve, these increased investments for cloud-first, how will you be measuring the success of these investments? And should investors expect incremental disclosure on what's happening in terms of new customer ads, in terms of maybe cloud-specific ARR or any other metrics or GCP or some sort of metrics that you might be able to share down the road here?

Steve McMillan, CEO

Hey, thank you, Vonzi. We are looking at Teradata’s investments, focusing on accelerating our existing customers' adoption of cloud while also giving them the capability to introduce net new workloads in the cloud with our customer base. That's going to manifest itself in strong cloud recurring revenue growth. That's really the key metric that we're looking at. Mark and I are in discussions about incremental disclosures about our cloud business. We don't have anything planned in the short term, but I think you should stay with us, and as we go through next year, we will certainly consider that.

Unidentified Analyst, Analyst

Okay, thanks a lot. Good luck.

Steve McMillan, CEO

Thank you.

Operator, Operator

And your last question comes from Reynold Vancho from Barclays. Your line is open.

Unidentified Analyst, Analyst

Hey, this is a follow-up. Congrats on the quarter first off. You know, with cloud being a little bit more of a focus going forward, with cloud in focus, I feel like it muddles the ARR number, the bookings numbers, and billings. So what's the best way to view how Teradata is doing going forward, like a normalized metric?

Mark Culhane, CFO

Well, I'll take the first part of it, and then Steve can add to it. We are clearly looking at how much of ARR is moving and shifting to the cloud, whether that's from existing customers moving workloads to the cloud or through net new customers. This will manifest itself in our ARR metric, which we already discuss every quarter. At the end of the year, we will break down the components of our ARR balance across subscription, managed services, maintenance, upgrade rates, etc. As Steve alluded to, we will consider whether we start augmenting some of those metrics with specific cloud metrics at some point in 2021. We are seeing strong momentum from our customer base and prospects regarding our capabilities in the cloud versus native-only providers. We are excited about how things are lining up. Stay tuned, and we’ll work our way through Q4.

Unidentified Analyst, Analyst

Alright, great. Yeah, I look forward to seeing those cloud metrics. I guess staying on the cloud topic. If you could give us a little more color on what type of customers you're seeing moving to the cloud, and how the consumption model, you know, might be changing the way customers are using Teradata? And, you know, are you picking up new customers that you never would have before? Or is this mainly on-premise targeted customers that are shifting some workloads to the cloud as well?

Steve McMillan, CEO

I'll take that. We are seeing all of the elements you just outlined. In my opening comments, you saw that we're enjoying tremendous success with our existing customers. Our cloud wins are a mix of on-prem migrations, as well as net new workloads. We're being really aggressive on the migration front because we want to ensure we take customers on this cloud journey. Our consumption pricing model is giving us a lot less friction and moving clouds - moving customers to the cloud. We see the opportunity of both our technology advances and our commercial models as providing chances for both existing and new customers to really try out Teradata in the cloud. That helps them experience our differentiated capabilities in terms of performance and delivering real business advantage. One of the things Teradata excels at, whether on-prem or in the cloud, is our query optimization and workload management. This means that our customers using Teradata in public cloud environments or on-prem can ensure that their critical workloads are executing at the most effective and efficient cost point. The consumption pricing option offers a really affordable pay-as-you-go, usage-based capability, which does give us that incremental ability to attract new customers. As you heard from my prepared remarks, we have some good examples of customers taking advantage of that.

Unidentified Analyst, Analyst

Thank you.

Operator, Operator

There are no further questions at this time. I turn the call back over to Steve McMillan.

Steve McMillan, CEO

Thank you very much, operator. And thank you for all the questions. I'm really proud of the Teradata team for delivering a strong financial performance in the quarter and a solid execution across the company. Customers are increasingly adopting our cloud data analytics platform and we're going to keep up the momentum there. We made good progress in our transformation and in optimizing our business model for ongoing future success. We all plan to stay focused on the task at hand and finish the year on a strong note. So thanks, everyone.

Operator, Operator

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.