Teradata Corporation

Thank you. I would now like to hand the conference over to your host today, Chad Bennett, Senior Vice President of Investor Relations and Corporate Development. You may begin your conference.

Good afternoon and welcome to Teradata's fourth quarter and full year 2024 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 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. Please note that Teradata intends to file the Form 10-K for the year ended December 31st, 2024, later this month. These forward-looking statements are made as of today, and we undertake no duty or obligation to update them. On today's call, we will be discussing certain non-GAAP financial measures which exclude such items as stock-based compensation expense, other special items described in our earnings release, We will also discuss other non-GAAP items such as free cash flow, constant currency comparisons, and 2025 revenue and ARR growth outlook and constant currency. Unless stated otherwise, all numbers and results discussed on today's call are on a non-GAAP basis. 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.

Thank you, Chad. And hello everyone. Thanks for joining us today. In 2024, we delivered $609 million in cloud ARR. and $1.474 billion of total ARR as we advanced in our strategy with our hybrid cloud platform for trusted AI. As we discussed on the last call, we see that companies everywhere are exploring how to best leverage the potential of AI and Gen AI, and they are realizing the requirement for managing massive volumes of data that will grow exponentially. Before we get into the details of our results, We also announced that Claire Bramley is moving on from Teradata to take a chief financial officer position at another company outside of our industry. We have a search process underway and Charles Smotherman, our chief accounting officer, will assume the interim CFO position. Charles will continue to work closely with Claire to ensure a seamless transition until her departure on March 31st. Claire has been instrumental in supporting the company's transformation to a cloud leader. We are grateful for her operational excellence and outstanding financial leadership in driving durable profitability and free cash flow during her tenure. Claire, on behalf of everyone at Teradata, we wish you the best in your new role. Shifting back to our results, despite a challenging year, we took significant actions in 2024 that positioned us to return to total ARR growth this year. We named a new CRO restructured our go-to-market organization and executed cost actions that reduced expenses across the business. We also reoriented the organization to win with AI and introduced a sweeping set of innovations designed to strongly position us with our hybrid trusted AI platform. As we pivoted to AI, we also launched new partnerships with, for example, NVIDIA, and strengthen partnerships with the major CSPs. We are firmly focused on returning the company to growth in 2025, and execution is job number one. Our go-to-market organization has settled in from the mid-year restructuring, and we are expecting continued improvement in execution from our go-to-market teams. As an example, the financial services team we created is allowing us to pursue emerging AI-based industry use cases that we believe our technology best enables. We also have proof of concepts underway for generative AI for CX, a major gen AI use case. Additionally, we are releasing a series of customer experience AI use cases that customers can quickly implement and are designed to drive improved results around customer churn, next best action, customer journey, and hyper personalization. Our customer success team is doubling down on delivering innovation days curated to each customer's needs and helping to extend the deployment of our technology across our base. In 2025, we are expecting a meaningful improvement in retention rates over 2024 for both total and on-prem ARR. We started to see improvement in retention rates in the second half of 2024 and are looking to carry that forward this year. With these initiatives taking hold, We believe we are well positioned to execute and return to growth this year. Just as we made a pivot in 2020 to cloud first, we started the pivot in 2024 towards being the trusted hybrid AI platform at enterprise scale. Companies have data both in the cloud and on-prem and we see them becoming more sophisticated in how they think about leveraging and balancing hybrid capabilities. It's not about choosing between environments anymore. is about effectively operating across both in order to meet diverse business needs and drive faster decision making at the scale they require. Our teams are taking our hybrid cloud platform and trusted AI positioning to our customers. We believe our hybrid capabilities of cloud and on-prem along with our open and connected approach are unmatched. We are continuing our disciplined approach to managing our financial plan investing in extending our technology strengths and promoting Teradata as a leader in data analytics, trusted AI, and hybrid cloud technology while prudently managing costs. In 2025, we are adding to our strong tech stack, building upon the broad set of innovations we delivered in 2024. As more companies look to hybrid compute environments of both cloud and on-prem, increasingly adopt technologies to support AI and embrace the industry move to open table formats, we believe we are well positioned. On our last call, I talked about the innovations we introduced last quarter. Among those were new bring your own large language model capabilities designed to help customers take advantage of small or mid-sized open LLMs, including domain-specific models to deploy Gen AI use cases while minimizing expensive data movement. integration of NVIDIA's AI accelerated compute platform to accelerate AI workloads, and our customer complaint analyzer solution designed to help companies leverage AI to improve customer experiences. We introduced rapid start gen AI use cases with the integration of our Vantage Cloud platform with Amazon Bedrock. With this integration, customers gain access to more than 60 gen AI use cases that can help them deliver exceptional customer experiences, boost productivity, and streamline business processes. Additionally, KeraData was one of the early vendors with AI solutions offered in the new Microsoft Fabric workload hub. We also announced API integration with Google Cloud Gemini models, designed to take advantage of more data for better Gen AI outcomes. As we start 2025, our focus is on the future as we work to bring out significant new capabilities designed to help companies bring trusted AI to enterprise scale in the cloud and in the hybrid environments customers need. Let's look at our new enterprise vector store as one example. To get the most value out of generative AI and agentic AI applications, enterprises are looking to extract insights from both structured and unstructured data. Unstructured data has been difficult to leverage in traditional data management practices, yet is growing three times faster than other data types. Teradata supports vectors in our vantage system today for AI applications that are built on our bring your own large language model capabilities. Now we are bringing it to full enterprise scale. Our Teradata Enterprise Vector Store is in private preview this quarter, and brings a scalable and database solution that supports the full life cycle of vector data management at enterprise scale. From embedding generation and indexing to metadata management and intelligent search, all processes are seamlessly integrated within our existing Vantage environment. Here, we are also partnering with NVIDIA to provide GPU accelerated document processing or autonomous AI agent use cases. such as augmented call centers. You'll be hearing more in the coming weeks about this exciting addition that we believe will kickstart RAG and agentic AI applications. Then, coming shortly afterwards, we're planning to bring our on-prem customers new ways to accelerate AI opportunities, providing them with an easy way to enable AI ML capabilities, including large-scale AI RAG pipelines, while honoring data sovereignty requirements. We have many customers in regulated industries that have strict requirements for data security, and our new capabilities are designed to enable independent AI without impacting their EDW service levels. We believe our deep analytics, our open and connected platform, and bring your own model integrations are the foundation enterprises will demand, and we have these now. Our strong capabilities were recently recognized and the 2025 Gartner critical capabilities report for cloud database management systems for analytical use cases. We placed among the top five companies across every evaluated use case. Now I'll walk you through a few examples that illustrate how our customers are investing in Teradata to help address new AI and analytics use cases. One of the largest life insurance companies in India, signed a multi-year deal for a platform in consulting services. This new customer selected Teradata because of the comprehensive AI capabilities included in ClearScape analytics, such as model lifecycle management with ModelOps, the enterprise feature store, and in-database language models, as well as our strongly competitive pricing. A large Japanese bank has shown it can successfully reduce costs and improve processing times by replacing a legacy HPC cluster used to perform Monte Carlo simulations at huge scale with a system that relies on the native massive parallelism of our Vantage platform in conjunction with NVIDIA GPUs. A global technology leader spent significant time and millions of dollars trying to implement competitive offerings. After demonstrating our Vantage Cloud and ClearScape capabilities, this large enterprise decided to focus on a hybrid environment of cloud and on-prem. We have a fast start in 2025 to help them establish their new data and AI capabilities, including taking advantage of our GenAI capabilities. As I close, I want to emphasize that we are laser focused on returning to total ARR growth. Building upon our technology and innovation foundation in the cloud, we believe we have the trusted hybrid AI platform at the enterprise scale that the world's leading organizations require. We're excited about our capabilities in delivering AI and agentic AI solutions at scale, especially in the hybrid environments customers need now. We are seeing positive traction from our go-to-market restructuring and improvement in pipeline quality. The pace of technology innovations, both organically and with partners, has increased and we look forward to monetizing these advancements this year. In 2025, we expect to achieve cloud ARR growth of 14% to 18% and flat to 2% growth in total ARR as we build our future. Now, I'll turn the call over to Claire.

Thank you, Steve, and good afternoon, everyone. In Q4, Teradata met its guidance ranges for cloud ARR and total ARR. Cloud ARR grew 18% year-over-year, and total ARR declined 4% year-over-year, both in constant currency. The cloud net expansion rate was 117% in Q4 24. Non-GAAP earnings per share exceeded our guidance range, primarily driven by continued cost optimization efforts implemented in the second half of the year. While fiscal year 2024 presented challenges in terms of ARR growth, we continue to demonstrate the free cash flow and earnings durability of the business by exceeding our non-GAAP EPS guidance that we gave at the beginning of the year. Fiscal year 2024 free cash flow of $277 million represents a healthy 16% margin. We also returned 78% of free cash flow to investors in the form of share repurchases. As Steve mentioned, we took swift actions last year that we believe will improve execution in 2025. We see multiple drivers that can enable a return to total ARR growth this year. These include last year's go-to-market changes that are designed to bring additional rigor to our pipeline and sales cycles, giving us greater visibility into sales productivity improvements. We also expect improved full-year retention rates. Lastly, we anticipate monetizing all the innovation we introduced in 2024 and plan to deliver in 2025. As we exit 2024, cloud ARR is over 40% of total ARR and should approach close to 50% at the end of 2025. We continue to expect healthy cloud ARR growth of approximately 16% this year. We also see increasing interest in our hybrid AI differentiation, which would lead to higher on-prem expansion net of migrations. Let me now share more details on our quarterly and fiscal year financial results, starting with revenue. Fourth quarter recurring revenue was $351 million, down 6% year-over-year as reported, and down 4% year-over-year in constant currency. The year-over-year growth rate was negatively impacted by three points from upfront revenue. Recurring revenue as a percentage of total revenue was 86%, up from 81% from the prior year period. Fourth quarter total revenue was $409 million, down 11% year-over-year as reported, and 9% in constant currency. For the full year, recurring revenue exceeded the high end of our outlook range at $1,479,000,000, a decrease of 1% as reported and an increase of 1% in constant currency. Total revenue was also within our outlook range at $1,750,000,000, down 5% as reported and 3% in constant currency. Moving to profitability and free cash flow. Total gross margin for the quarter was 60.9%, down 100 basis points year over year. Operating margin was 17.6%, down 190 basis points year over year. Both gross margin and operating margin year over year changes were primarily driven by the upfront revenue impact. Non-GAAP diluted earnings per share was 53 cents, exceeding the top end of our guidance range. We generated $148 million of free cash flow in the quarter, which is a $79 million increase sequentially and a $20 million decrease on a year-over-year basis. In the fourth quarter, we repurchased approximately $29 million, or approximately a million shares. For the full year, we repurchased $215 million, or 5.8 million shares. Before I provide our annual financial outlook for 2025, I'd like to provide some additional context. In line with historical seasonality, Q1 is our largest renewal, highest erosion, and lowest growth quarter. As such, we expect both total and cloud ARR to decline sequentially in Q1 and anticipate a significant weighting of growth to the second half of 2025. In the first half, We expect the growth rate for total ARR to be below our guidance range and cloud ARR to be at the low end of our range before both accelerate in the second half. We expect to return to total ARR growth in the fourth quarter. Our 2024 total ARR growth rate is the primary driver for our 2025 recurring revenue outlook. We anticipate a 1% headwind in 2025 related to upfront recurring revenue. With respect to total revenue, we anticipate consulting revenue will decline in the high single digit range on a constant currency basis. Using the currency rates at the end of December 2024, we anticipate a negative currency impact year over year of 150 to 200 basis points to our 2025 revenue outlook. Compared to three months ago, the currency exchange rate movement created an approximately $20 million headwind on 2025 operating income. On total gross margin, we expect approximately 100 basis points decline due to currency and cloud mix, partially offset by cloud rate improvements. Regarding expenses, we remain on track with our previously announced cost actions. On operating margin, we expect to maintain our 2024 rate as we benefit from last year's cost actions and continue to optimize expenses across the company while continuing to prioritize key investments. Regarding free cash flow, our fiscal year free cash flow is being impacted by FX headwinds and total ARR exit rate in 2024. These items have negatively impacted our free cash flow by approximately $25 million since last quarter. We anticipate Q1 free cash flow to be slightly negative due to the lower Q4 24 bookings and 2025 ARR linearity. Our annual outlook for 2025, which is on a constant currency basis for ARR and revenue, is as follows. Cloud ARR is anticipated to grow year on year in the range of 14% to 18%. Total ARR is projected to grow year on year in the range of flat to 2%. Total recurring revenue is expected to be in the range of minus 3% to minus 5% year over year. Total revenue is anticipated to be in the range of minus 4% to minus 6% year over year. Non-GAAP diluted earnings per share is expected to be in the range of $2.15 to $2.25. Free cash flow is anticipated to be in the range of $250 million to $280 million. Here are some modeling assumptions for 2025. A non-GAAP tax rate of approximately 23%, weighted average shares outstanding of $97.4 million, other expense of approximately $43 million. On capital allocation, we are pleased with the progress we have made on our share repurchase program to date. Our weighted average shares outstanding is at an all-time low and our balance sheet remains solid. Our first priority for 2025 is a return to ARR growth. Based on our guidance of revenue decline, which presents a headwind to free cash flow, we plan to balance growth investments and capital return to shareholders. We are targeting a return of over 50% of free cash flow to shareholders in the form of share repurchases, which we expect will more than offset dilutions and continue to improve our net debt position in 2025. For the first quarter of 2025, we anticipate recurring revenue to be in the range of minus 4% to minus 6% year over year on a constant currency basis. We expect total revenues to be in the range of minus 6% to minus 8% year over year on a constant currency basis. We anticipate a negative currency impact year over year of approximately 200 basis points. We anticipate non-GAAP diluted earnings per share to be in the range of 55 cents to 59 cents. We project the non-GAAP tax rate to be approximately 24.3% and the weighted average shares outstanding to be 97.9 million. As I prepare to transition from my role as CFO, I want to express my heartfelt gratitude to our dedicated team loyal customers, and our supportive shareholders. It has been an honor to be part of the transformation journey over the past four years. Teradata has a strong foundation to build from, driven by the strategic initiatives we have set in motion and continued innovation. The company is well positioned to return to ARL growth in 2025 and end the year with cloud ARR approaching 50% of total ARR. I have no doubt So the upcoming year will bring new opportunities and achievements for the company. Thank you all for your time today. Now let's open the call for questions.

At this time, I would like to remind everyone in order to ask a question, press star and the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. In the interest of giving everyone an opportunity, we appreciate that you limit yourself to one question and one follow-up. The first question is from the line of Chirag Ved with Evercore ISI. Your line is now open.

Thanks for taking the question, and Claire, congratulations on the new job. It's been a pleasure partnering with you and your team over the last several quarters. Steve, maybe first for you. Are you able to comment on how your customers and prospective customers are thinking about cloud migrations at this point? Cloud growth from the hyperscalers came in a little lower than I think a lot of investors anticipated. Just wondering if you could double-click on what you're seeing internally with data platforms. Thank you.

Sure. Yeah, thanks for the question. We did see a deal elongation process for Q4 2024, along with, as you pointed out, some more stage migrations in terms of customers looking at how they balance their on-prem footprint with their cloud footprint. I think, Chirag, that plays into a real opportunity area for us from our hybrid technology capabilities. And we are starting to see the conversations about their customers change. For example, Even as I look at the portfolio today, we've got around 30 different Gen-EI POCs in place and executing today. And these customers are looking at what's the best way to take these into production. And a number of the different innovations that we delivered in Q4 of 2024 are helping our customers progress those Gen-EI projects. But they are balancing that between executing in the cloud and executing on-prem. And clearly, the Teradata technology set being consistent across all of those environments gives us what we believe is a unique capability in the marketplace.

Got it. And Claire, one for you. Can you speak to the factors that give you confidence in the ARR guide, which is stable and slightly de-selling cloud ARR growth? We've seen improved retention rates in the back half of 2024. But at the same time, Cloud ARR has deceled. So we would appreciate any clarity you can provide here. Thanks.

Yeah, absolutely, Sirag. And thank you for your kind words as well regarding my transition. It's been a pleasure on my side too. So just with regard to the Cloud ARR guidance that we gave, just let me give you a little bit of perspective about how we set the guidance in 2025 We took a slightly different approach to this time last year in the fact that because we learned from those trends and the patterns that we were seeing in 2024, so the stage migrations that Steve was just talking about, the deal timing, we factored that in. And what we've also done is limited the reliance on large eight-figure deals. So we've made sure that the fact that our guides can be met without those large eight-figure deals Because obviously once they don't happen, they're very difficult to replace. So a little bit of a different approach that gives me confidence from a cloud ARR guidance standpoint. And as you mentioned, some of the other drivers that we're seeing include an improved retention rate across both on-premise and total ARR. And also some of the changes that we made within the go-to-market organization is giving us really good visibility in terms of our pipeline, in terms of our erosions, which is significantly improved at the beginning of the year as well.

Thank you. The next question is from the line of Tyler Radke with Citi. Your line is now open.

Hi, thanks for taking the question. This is YC for Tyler here. Good luck, Claire, on your future endeavors. It's been a pleasure working with you. And I guess for Claire to start, thanks for providing all the incremental colors on the growth of 25. I guess, could you give us some finer grain details on how to help us understand the mix of the pipeline that gives you the better confidence? Is it more new logos, expansion? And if there's also any other... impacts from OpenTable formats that you're expecting?

Yeah, absolutely. So, first of all, from an expansion migration standpoint, we're anticipating approximately 50-50 approach. I think it will be more migrations at the beginning of the year with expansions coming as we progress throughout the year. With regards to new logos, we continue to see a good pipeline of new logos, but we still anticipate new logos in 2025 specifically, to be a small contributor to our overall growth. Then I think, as I mentioned in my prepared remarks, some of the innovations that we saw in 2024, again, we'll start to see the benefits of that as we progress through 2025. And maybe I'll just pass over to Steve to talk 2025 innovation.

Yeah, thanks, YC. Thanks for the question. You know, as we look at the Gen 1 for an enterprise vector store capability, a number of our partners, NVIDIA and AWS, have actually said that our capabilities from an enterprise vector store perspective are unique in the marketplace. And taking those capabilities to our customers, enabling them to have Real gen AI and AI solutions operating inside their environment would be a unique differentiation delivered by Teradata. So we're super excited about that. But as we look at the outlook for 2025, we haven't factored in a lot of that new business and new business opportunity. So we see that as potential upside as we execute through the year.

That was actually going to be my next question, so I'm good here. Thanks.

Thanks, Baipeng. Thanks for the kind words.

Thank you. The next question is from the line of Eric Woodring with Morgan Stanley. Your line is now open.

Hey, guys. Thanks so much for taking the question. And Claire, I'll echo everyone's comments. We'll greatly miss you. Good luck with everything. You know, Steve, if we take a step back, you know, I appreciate the work you and the team have done here. There's been a lot of work kind of across the stack, both from a technology go-to-market, people, personnel approach, et cetera. But for the better part of, you know, 10 years, Teradata has been in a period of transformation. And I would argue, as we look to 2025, It's nice to see some expectations for a bit of growth on the total ARR side, but recurring revenue is still down, cloud ARR growing, I think, below some expectations. And so I guess my broad question is just, does there need to be more kind of divisive action taken to accelerate this company turnaround and kind of get back to a regular cadence of growth? Just as I think about the backdrop of probably the most prolific AI spending environment that we're going to see in our lifetimes, just help me understand what needs to get done to move move on from transformation to this is the normal care data, kind of growing from this to this, et cetera. And I have a quick follow-up, thanks.

Okay, thank you. What I would say is over the last four years, we have pivoted the companies considerably. Taking the business from essentially a nice and close to zero dollar cloud business to over half a billion dollars has been the focus. That cloud-first focus has really laid the foundation of the turnaround of the company. And having that presence in the cloud and the high growth marketplace will start to, as that becomes a more and more meaningful part of our overall ARR picture, contribute more and more dollars from that perspective. But every company has to continue that transformation journey. And I think we're in the next pivot in terms of how we address the AI and gen AI opportunity that's in front of us. And I think some of the capabilities that we delivered in 2024, highlighted by their partnerships with Nvidia, our integration with AWS Bedrock, our integrations with Google Gemini, and also being native into the Microsoft Fabric from an AI perspective, really starts to set apart the Teradata technology set and gives us a foundation to build on in this new AI and Gen AI marketplace as we move forward. What we're doing is continuing to transform our sales capability and sales execution so that they can take those messages to the marketplace, capture this new TAM for Teradata and utilize technologies, either our new AI on-prem offering that we're looking to release this year or our enterprise vector store, which allows customers to manage vectors on an end-to-end basis. It's a very new market and a very new sales motion, but we believe will underpin some very strong growth as we move into the future.

Okay, I appreciate all that feedback. Thank you, Steve. And then, Claire, you know, you're guiding to free cash flow and EPS at the midpoint that that's down slightly year over year. I understand FX has become an incremental headwind, but you've also gone through a period of cost-cutting and cost-transformation. Can you maybe just help me understand why it might not be paying off as much next year, the building blocks to how you get to slight declines in those metrics, and especially if you believe you've embedded some conservatism in there, to just how we should be thinking about that. Thank you so much.

Yeah, thanks, Eric. So, yeah, with regards to both EPS and free cash flow, to your point, I think the two big headwinds that we see year over year, first of all, is the FX impact that I talked about, which is approximately $20 million, so fairly sizable year over year. And that did actually materialize in the last three months or so. The other area I would say is naturally as we finish 2024 with negative ARR, that means a decline in revenue in 2025. So that impacts from a free cash flow standpoint, obviously our billings, and from a P&L standpoint, our revenue and profitability. Now, the actions that we took last year are helping us to offset any negative headwinds coming from lower revenue. They're also helping us to offset any negative impacts from our mix, so cloud mix impacts. So we're definitely offsetting that. What we're not able to offset in our EPS guide is the full impact of the currency. And the reason that we've not decided to do that is we want to really make sure that we can reinvest some of those savings back into growth. As you mentioned, really important for us in 2025 to get total ARR back to growth. So we want to make sure that we keep that availability of investment. Naturally, we've got a lot of learnings from 2024. So, you know, we would like to think that we're being prudent as we set this guidance, but most of the reason is so that we can reinvest some of those savings back to get to total 2025 ARL growth.

Thank you. The next question is from the line of Nihao Chokshi with Northland Capital Markets. Your line is now open.

All right. Thank you. So, Claire, you mentioned that you expect ARR and cloud ARR to improve as you go through calendar 24. In order for that to happen on a bookings basis over the next two quarters, can you describe what that trajectory needs to be? Is it a similar level of acceleration that you're expecting the backpack to drive at, or is it going to have to be, you know, a significantly more quicker acceleration like that than what there are in quote AR acceleration?

Yeah, so it's in line with what we saw in 2024 and in line with kind of the historical seasonality. So it's As I mentioned in the prepared remarks, T1 is always our lowest growth, biggest renewal and highest erosion quarter. No exception, just for example in T1, about 45% of our erosions happen in Q1 for total error and about 70% in H1. That is what we tend to see historically. So it is that kind of erosion piece that does drive the linearity trend that we see. So it's not necessarily requiring a huge acceleration in additional bookings. It's just the fact that those erosions tend to drop off in the second half of the year.

I see. And then can you characterize exactly how much was on-premise erosion in calendar 24 and what's your expectation for calendar 25 in millions of dollars?

Yeah, we haven't disclosed the exact amount. What I would say there, as we mentioned, is that we do see a meaningful improvement as we exit 2024. So we saw that improvement happen in the fourth quarter of 2024, and we're expecting that improvement to continue into 2025. We're also very pleased with the visibility that we have going into the start of the year for 2025 activity.

Thank you. The next question is from the line of Matt Hedberg with RBC. Your line's now open.

Yeah, thank you. This is Matt Swanson. I'm from Matt. Steve, a little bit earlier, you mentioned 30 different gen AI proof of concepts. And I was just wondering if you could go a little bit deeper into maybe the commonalities between those and why they're choosing Teradata. You know, it sounds like maybe it's a little early for those to be driven by some of the exciting stuff coming, like the Vector Store AI on-prem. but just if there's any sort of common characteristics that you're seeing.

Yeah, thanks for the question, Matt. Yeah, these solutions are actually leveraging technologies which are in Teradata today. So, for example, bringing language models into the Teradata environment and actually running small language models like Hugging Face in the Teradata environment. We see a lot of the solutions that our customers are looking at being in the CX space. So taking customer interaction data, it may be very unstructured data, emails, it may be chat logs, and then utilizing those to essentially make next best action predictions for call center agents or proactive recommendations to drive different CX solutions. We've seen a number of different banks in the US look at this technology and the deployment of this technology And the reason that they look at Teradata is the long-standing fact that Teradata can execute some of the world's most complicated workloads in the most efficient and effective way. And if you think about that in terms of the economics of AI and Gen AI, we have a path to enable our customers to deploy Gen AI and AI solutions at enterprise scale in a very cost-efficient and cost-effective way. And that's why we're really excited with some of the new language models that are coming out that are highlighting that requirement that DeepSeat has pointed to as an example of actually reducing the cost of the enterprise scale of these kind of solutions. So it's great for us to be able to demonstrate those characteristics to our customers.

William Boschelli, Thank you. And then, Claire, I think you mentioned kind of the three pieces of return to ARR growth was the go-to-market changes last year, improved full-year retention rates, and then monetized the innovations in 2024. William Boschelli, They're obviously very interrelated, but is there a way to kind of think about how you rank those in terms of contribution to ARR next year or how you're kind of thinking about the progression to get to your guidance?

Yeah, I think to your point, they're very interrelated. So I think one of the things that we have been working on over the last six or 12 months is that visibility and improvement in our retention rate. So I think that is, you know, as I mentioned, a big impact in terms of our linearity and is a big help from a total ARR standpoint in terms of getting back to growth. So that year-over-year meaningful improvement, I would say, is one of the strongest areas. Obviously, the go-to-market teams, changes helping us in terms of improved visibility, improved visibility to that erosion, improved visibility to our pipeline. So I wouldn't say that that necessarily is a huge driver of the actual growth, but makes us feel good about the guidance that we're giving at this point in the year. And then to your point in terms of innovation, obviously anything that we can talk to our customers about with regards to the development of our products, and the different offerings that we give them ultimately is what drives growth. So that I think is very interrelated to the other areas, but obviously is a huge factor in terms of us driving cloud ARR growth at midpoint of 16% and getting back to total ARR growth in 2025.

Thank you. The next question is from the line of Derek Wood with TD Cowen. Your line is now open.

Great. Thanks, guys. This is Cole. I'm for Derek. Steve, I'll start with you. Could you just provide us with an update on OpenTable format? I know you guys have been excited about that as a TAM expander, but just any color on where customers might be in trying that out with your bring your own query engine capabilities and when we can see production workloads start to spin up?

Yeah, thanks for the question. We see Open Table Format as still a critical capability that we're going to deliver and continue to improve on in the Teradata platform. One of the key tenants that we have is to be open and connected. So we want to support both Apache Iceberg and Delta Lake. That really opens up massive swaths of data inside our customer organization. And then Thinking about the Teradata query engine and the analytical capabilities that we have within that engine, the new AI capabilities that we're bringing to bear, and putting those against these massive volumes of open table format data that we expect to become more and more common inside our customer environment is absolutely essential and critical for us. And our product, More Roadmap, continues to deliver new capabilities there to support our customers' execution. We are seeing it as early days, although every single customer, I think, is talking to us about open table format. It's really very interesting to see customers think about the data workloads and data execution, both from an enterprise data warehouse perspective, where they need a really performant storage layer, but then a lake environment where Critical performance may not be that important, but they still want to bring some fantastic analytical or gen AI or AI capabilities into that data to make it meaningful for them. And that's really what our strategy is from an execution perspective. And I think the proof of concepts that we're seeing that we're executing in terms of taking even some of the unstructured data on a different topic to OTF, And making that real and analyzable for our customers is super interesting.

Great. Very helpful. And then, Claire, one for you. The cloud NRR number, you know, downticked again. You've talked about better retention across on-prem and total that you've been seeing the last couple of months. But can you just give us a sense of, in the medium term, the shape of that?

cloud nrr and when we could maybe think about potential free acceleration there yeah absolutely so um first of all just to mention that 2024 um expansion i did finish in line with what we were expecting um so that was good so no surprises there as we look out to 2025 linked to some of the comments that i've already made in the sense of we anticipate the kind of the first half of the year to see the impact of the churn and erosion and more migrations, and the second half of the year to see more weighted expansions. Our net expansion rate with regards to cloud will reflect that as well. So it could decelerate before it then reaccelerates over time.

Thank you. The next question is from the line of Ramo Lencho with Barclays. Your line is now open.

Perfect, thank you. Claire, we will miss you, first of all. Let's start with that. And a more fundamental question to start. If you think about the OpenTable format, obviously there's a big discussion, but obviously you guys come out of the structured world. How do you see that relationship evolving between OpenTable format, which is kind of, you know, not something, but like having everything in one massive data lake, versus kind of the more structured data, kind of data warehousing that you guys grew up with. How do you think that relationship will grow out over time? And how do you think you can play this and maybe play this differently? And I have one follow up.

Yeah. Hi, Remo. Thank you for the question. Yeah, we see Open Table Formats as a fantastic opportunity to make those more performant. and to take all the benefits of Teradata technology and our massive parallel computing architectures to make OTF environments more performant, even with large swaths of data, which has always been Teradata's core business. How to get the best out of massive volumes of data, either in an EDW construct. But one of the things I think this AI and Gen AI world needs as a really enterprise-scale vector store capability. And that is something that we already have inside the Teradata technology set in terms of being able to store vectors. So taking that OTF data or taking unstructured data, doing vector analysis against that in conjunction with language models, and taking and managing the massive numbers of vectors will actually enable organizations to get the best out of data no matter where it's stored, whether it's an OTF or whether it's an unstructured data. And we're just looking at the amount of data that's stored in unstructured files as an example. And by putting Teradata's enterprise vector store next to those files, you can actually get meaningful results and meaningful insights into the world's most unstructured data which by far and away outnumbers the structured data pools that we have in the world today. So exciting times ahead.

Yes. And then, Claire, one for you. Like, obviously, we're kind of looking at the kind of the lead, and we're trying to look at leading indicators. If you think about, like, can you talk a little bit about some of the dynamics, like, billing this quarter? public cloud ARR this quarter, like, you know, to us, they came on more on the weaker side. Is there some one-off stuff that we kind of need to be aware of? And you might have answered that earlier in the call. I apologize. You kind of discussed it already.

Yeah, I think maybe what you're looking for is kind of some linearity narrative. So what I said in my prepared remarks was that we anticipate cloud ARR to be the low end of the range that I gave for the full year. So just to give you of view on that. And then from a total ARR standpoint, because of the erosion activity that happens in the first half of the year, as previously mentioned, the total ARR will actually be below the low end of the full year range that I gave. So just Cloud ARR at the low end and total ARR below. I also did give some guidance on our recurring revenue and total revenue in Q1. So that, I mean, as you would expect, recurring revenue in Q1 is closely following our exit of total ARR. So we're giving a range in constant currency of minus 4% to minus 6% for recurring and minus 6% to minus 8% total revenue. Hopefully that helps in terms of some linearity Thank you.

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

Thanks everyone for joining us today. We're building on that foundation that we built in 2024 and we're really excited about the capabilities and delivering AI and GenAI solutions for our customers. We know that we've got the trusted hybrid AI platform at enterprise scale that the world's leading organizations really need right now. And we're going to continue to innovate and deliver capabilities which can expand our TAM, both also empowering our customers with the analytics we need today. We look forward to returning Teradata to growth in 2025. Thank you very much.

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