Teradata Corp (TDC) 2021 Q4 法說會逐字稿

Good afternoon. My name is Tia, and I will be your conference operator today. At this time, I would like to welcome everyone to the Teradata Fourth Quarter 2021 and Full Year 2021 Earnings Call. (Operator Instructions) I would like to hand over the conference 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 Fourth Quarter and Full Year 2021 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 31, 2021, later this month. 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, and good afternoon, everyone. Thanks for joining us. I'm pleased to start by sharing our strong results demonstrating Teradata is successfully executing our strategy, significantly growing our cloud customers and driving profitable growth. Our efforts are reflected in our results. Teradata closed out 2021 on a strong note, meeting or beating all of the 2021 financial outlook elements we provided.

We finished the year with our public cloud ARR business at $202 million growing more than 90% year-over-year. We grew total reported revenue in all regions. And in 2021, we achieved total revenue growth for the first time in 3 years. Our disciplined focus resulted in healthy GAAP and non-GAAP profitability with $2.43 of non-GAAP earnings per share and free cash flow of more than $430 million.

We are delivering on our commitments, and our transformation is on track. 2021 was proof of our momentum. Our clear emphasis on cloud paid off.

Let's look at our cloud momentum. In Q4, we delivered our largest quarter ever of cloud ARR growth at $54 million, more than doubling what we achieved in the prior year Q4. For the full year of 2021, we delivered nearly 70% growth in new cloud customers compared to 2020. Of course, everyone is a testament to our competitive strength in the large and growing data and analytics market. Our sellers compete well and focus on the tremendous value that our customers can achieve from using data to manage and transform their businesses.

Here's a handful of customer successes from the quarter that show the breadth of our wins. NatWest Group, a prominent bank based in the U.K., is migrating its on-prem data center to Vantage on AWS. Teradata has provided data and analytic services to NatWest for many years. But before its move to the cloud, the customer initially considered another platform. Upon further evaluation, it determined Teradata offered the lowest risk, lowest cost and fastest migration path accelerating its advanced analytics journey and their ability to adopt pervasive data science at scale quickly and efficiently.

A Fortune 500 U.S. insurance company migrated to Vantage on AWS as it modernizes its data estate. The customer utilizes Vantage to interact in real time with its insurers in areas like claim status. Its long-term goal is to develop a more personalized touch with its customers, and it will leverage AWS services like SageMaker with Vantage to extend its analytic capabilities. Primary drivers for this win were the simplicity of migrating Vantage to the cloud and our consumption pricing model, which will facilitate IT's ability to charge back to the business and result in a more cost-optimized environment.

Telefonica Spain, one of the world's largest telecommunication companies, is migrating its on-prem data analytics ecosystem to Vantage on Google Cloud. The customer's primary decision factor was Teradata's ability to offer the fastest and lowest risk path to the cloud. The customer intends to take advantage of the advanced analytics capabilities Vantage offers, including integration with Google Cloud AI applications, such as voice recognition for call centers, to speed its digital transformation journey. Teradata is working with in-country SI partners on this migration.

A large health care services company in Asia is initiating a data-driven order-to-cash excellence initiative with Vantage on Azure. This new Teradata customer will utilize Vantage to integrate data from its ERP system with data from many stand-alone on-prem systems to improve its capabilities.

TPG Telecom, one of Australia's largest telco providers, is migrating its on-prem data center to Vantage on AWS. The customer is migrating to the cloud as it plans for the consolidation of multiple data warehouses following a merger and will leverage Vantage on AWS initially for financial reporting with plans to add more analytical use cases, business functions and users going forward. TPG chose Vantage over Snowflake and Redshift.

A U.S. Fortune 500 logistics leader is migrating to Vantage on Azure. The customer will utilize QueryGrid in a hybrid environment to access and connect on-prem data and its new Vantage on Azure instance supporting both legal and international custom services.

In addition to our cloud wins, we continue to expand as well as attract new on-prem customers. A major automotive manufacturer in China and a new Teradata account selected Vantage on-prem as its analytics platform for diagnostics trouble code tracking to manage component failures. We worked jointly with a local reseller partner on this competitive win.

Our success with both new and existing customers was the result of every element of the organization doing their part in contributing to our positioning as the connected multi-cloud data platform for enterprise analytics. A critical factor in our growth and success with customers is continually advancing our market-leading technology, and our R&D teams stayed on task and delivered some outstanding innovations in the quarter.

At the end of 2021, our innovation labs run a powerful test of our emerging cloud technology, which showcased very impressive scale capabilities in line with the data and analytics demands of today and tomorrow. In this test of more than 1,000 nodes running on AWS, over 1,000 users submitted thousands of concurrent queries. The test was the largest Teradata system ever, in fact, twice the size of our largest on-prem customer today, proving Teradata's unparalleled enterprise scale in the cloud. This next-generation cloud-native architecture brings the best of Teradata with our tremendous scale and elasticity to the cloud.

This test demonstrates that the largest enterprises can be constant that with Teradata, they cannot only put their current workloads into the cloud at scale. But as their data and analytics grow, which we all know it well, Teradata can scale right along with them. Why is this important? Single system requiring no duplication of data drives down the total cost of ownership and provides the ability to get to outcomes quickly without moving data around, which is what the competition requires. Our scale of enterprise and currency is designed so that customers can have a single connected data environment with the lowest total cost of ownership in the market.

In today's hypercompetitive markets, speed of decisions can make or break a company. With this scale and analytic power, a customer can bring streaming IoT data and vast amounts of customer journey click stream data and combine these data elements with enterprise financial data for rapid decisions. Our customers can then outcompete in their industry, truly market redefining. We look forward to bringing this highly differentiated next-generation cloud maintenance technology to the market. But through years of experience, we understand what industries need to drive business outcomes, and now we've updated our manufacturing data model to include capturing environmental data and spatial referencing.

An example of how our data model helps customers get to value faster is a new logo win at a European auto manufacturer. This customer has a data strategy to address digital transformation, and it needed to connect separated data silos and prepare for massive scaling of use cases for connected car and IoT data. They realized that data needs to be integrated and organized properly to get optimal business outcomes, and our Manufacturing Data Model was a key factor in its decision to choose Teradata. Here, we won against both cloud-native and legacy vendors.

In 2022, our investment in cloud is planned to be more than 80% of our overall R&D budget, and we will keep the pace on driving innovation that our customers need to get the business outcomes they require. We also kept high energy around partnerships and an area we are continuously strengthening. I'll share a few recent ones. We just announced a global partnership with Microsoft to integrate Vantage with Azure strengthening our already strong business with Microsoft. This partnership agreement reflects both companies' commitment to help customers successfully execute their cloud strategies and modernize their data analytics workloads with security, reliability and elasticity at enterprise scale. Customers have seen double-digit improvements in migration speeds when modernizing in the cloud with Vantage on Azure.

We also deepened our technology integration with Google Cloud, integrating Vantage with Google Cloud data catalog helping users simplify data discovery and facilitate the exploration, so they can reduce their time to analytics. We expanded our native QueryGrid connector to Google BigQuery, allowing customers to combine data and Vantage with data and BigQuery. With QueryGrid, our intelligent data fabric that connects data across multi-cloud ecosystems, we ship the query engine to the data, so customers can use data, not move it.

Additionally, we strengthened our capabilities to deploy AI applications. We introduced a set of analytic integration components for DataIQ. This integration is designed to drive greater agility for analytics and machine learning initiatives, speeding time to value for joint Teradata, DataIQ customers.

Along with customer and partner momentum, the market is taking note of our capabilities. Teradata took clear cloud leadership positioning in 2 recent Gartner studies. First, Vantage was ranked the highest in categories in Gartner's critical capabilities for cloud database management systems for analytical use cases. While you may hear a lot about various cloud start-ups, let's be clear on how Teradata stacked up in the application scenarios that Gartner's described as the most important. Teradata is #1 in cloud data warehouse, #1 in cloud logical data warehouse, #1 in cloud data lake and #1 in cloud operational intelligence. We'll be glad to walk you through where our competitors fall in line behind us.

In the second report, Teradata was again named the leader in the 2021 Gartner Magic Quadrant for cloud database management systems. Gartner noted that our years of experience position Teradata to deliver on modern data fabric requirements and that our hybrid multi-cloud approach reach customers wherever they are on their cloud journey. Gartner further notes our operational reliability, high throughput, price predictability and financial governance.

This third-party recognition spotlights our ability to meet the data analytic needs for both today and tomorrow of the world's largest and most demanding customers. We're obviously pleased that our differentiation is validated. We know the unparalleled capabilities of our cloud technology, and our ability to deliver the business outcomes customers need far outshine recent noisy market entrants, and these reports back that up.

Given our bias for customer obsession, it was also great to receive recognition of the highest customer satisfaction among data warehouse vendors by the European-based analyst firm, The Information Difference. As we continue our transformation, we continuously look at opportunities to optimize our execution and accelerate, and I'm pleased to share a couple of key executive announcements.

We recently created a new integrated global customer services organization designed to drive optimal customer experiences, maximize customer value and achieve greater synergies to accelerate growth especially in the cloud. The combined new group is all about customer obsession and delivering the capabilities of a modern cloud company. It will work to exceed customer expectations every step of the way. The organization combines our prior customer success and customer support and services functions into a tightly integrated team to maximize impact and value across all customer support areas.

We appointed Mike Hutchinson as Chief Customer Officer to lead this new team. Mike brings a long history of dedication to customer service and driving outstanding customer experiences.

We also added an outstanding new CMO. We have built far-reaching brand and have brought in Jacqueline Woods, an accomplished transformational marketing leader, to modernize the brand and make it even more relevant and known to our target market. Looking ahead, we will continue to sharpen our expertise as a cloud leader and expand our marketing with partners as we continue deepening relationships with customers, adding new logos and accelerating growth.

Before I turn it over to Claire, I would like to touch on corporate citizenship part of the very fiber of Teradata and a core tenet of how we do business. Our commitment to environmental stewardship is one arena where we are stepping up. Our ambition is to have a target of net zero carbon emissions. And last year, we increased our targets on reducing greenhouse gas emissions by over 100%. It was great to again be included in the Dow Jones Sustainability Indices for both the world and North America, in fact, the 12th consecutive year for the North America Index. Teradata scored in the 96 percentile of companies in the global software industry.

Our commitment to inclusion is second to none. We truly believe you get the best outcomes from diverse perspectives, and we were really pleased that Teradata has just earned the designation as a best place to work for LGBTQ+ employees and the Corporate Equality Index of the Human Rights Foundation scoring a perfect 100 out of 100.

Our purpose is to transform how businesses work and people live through the power of data. And a recent example of our purpose in action, our talented data scientists supported the Northwestern University Transportation Center in developing an interactive dashboard of COVID-19 vaccine distribution across the U.S. The center needed a platform to ingest real-time data, allow queries and statistical summaries of [best fatal] transportation issue and Teradata met this challenge with our technology and our expertise.

We have been committed to ESG for many years, and we will continue to strengthen our efforts. We actively engage with our people in support of a culture where they bring their genuine authentic selves to work. We believe it's our responsibility to be a good steward of the environment, promote D, E and I and anti-racism, be a positive force in the communities where we live and work, and act ethically in everything we do. Being a responsible corporate citizen is a crucial part of our resource. It's the right thing to do for the world, and it makes Teradata a place where people really want to work.

I am incredibly proud of our team for transforming Teradata into the cloud leader at expanding our customer base and driving profitable growth. To get to where we are, every part of the organization contributed; and despite the seemingly endless upheavals from the pandemic, our people kept their focus and executed well.

We are carrying our momentum into fiscal 2022. We are increasing our outlook for cloud ARR growth to approximately 80%, up from the preliminary estimate of at least 70%, which we provided at our Investor Day in September 2021. And we are also raising our EPS outlook given our ability to deliver profitable growth. We are increasing a return of capital to shareholders for 2022 given our strong balance sheet and projections of cash generation.

As we look forward to 2022, our strategy is exactly what is needed by the world's leading enterprises. Our target market is large and growing. Our data analytics technology is unmatched for delivering the best business outcomes from start to enterprise scale. And we will remain customer obsessed as we acquire new logos and expand our customers. Teradata's future is bright.

Now I'll turn the call to Claire.

Thank you, Steve, and good afternoon, everyone. I'm very pleased with our strong finish to 2021. Teradata delivered on what we said we would do, executing upon our strategy to deliver profitable growth and increase shareholder value.

Some fourth quarter highlights include public cloud ARR growth above market at 91% versus prior year and 92% in constant currency; recurring revenue of $364 million, which is a growth of 5% versus prior year and 6% in constant currency; non-GAAP earnings per share of $0.57, growth of $0.19 versus prior year and $0.30 above the midpoint of our previous outlook; and free cash flow of $85 million, resulting in full year free cash flow of $432 million. As Steve mentioned, these highlights contributed to 2021 results meeting or exceeding all elements of the annual outlook we provided.

Our actions continue to demonstrate that Teradata is delivering value to shareholders combining operational execution and financial fundamentals that result in quality revenue growth, increasing GAAP and non-GAAP profitability and durable streams of free cash flow.

Let's get into the results starting with ARR. Public cloud ARR was $202 million, a $96 million increase from the prior year and a $54 million increase from the prior quarter. More than half of the cloud ARR growth in the fourth quarter came from customers migrating to Vantage in the cloud continuing the positive migration patterns seen throughout the year. Customers continue to choose Vantage for their journeys to the cloud. Teradata's enterprise reliability and price performance are clearly highlighted by industry analysts as well as supported by a net cloud customer growth rate that has accelerated each quarter throughout 2021. In addition to record cloud migration activity, our cloud net expansion rates continue to be robust and in excess of 130%.

We added more total new customer logos in the fourth quarter in both cloud and on-premises than any other quarter in several years, continuing the positive upward trend seen since the beginning of 2021. Total new customers grew in the double digits across all 3 regions and in the energy, financial services, government and health care industries to name a few key verticals.

While our company strategy is cloud first, new on-premises logos demonstrate the significant value we provide to many customers in hybrid environments and can create future opportunities for cloud migration and expansion. Total ARR was $1.492 billion at the end of 2021, representing annual reported growth of 5% and 7% in constant currency, in line with our annual outlook. Our total ARR is composed of $202 million in public cloud ARR, $898 million of subscription ARR, which is an 8% increase from last year's restated amount of $829 million.

Our on-premises subscription business continues to grow ahead of market growth rates, demonstrating that existing and new customers use Teradata for its recognized combination of unparalleled technology at scale and the best price performance in the industry.

We also saw ARR of $392 million related to maintenance and software upgrade [route], which is a decrease of 20% year-over-year and in line with our strategy as we continue to convert customers to on-premises subscription and to the cloud. Our ARR results were primarily driven by increasing partner involvement on existing customer migration and new logo accounts and eager participation by cloud specialists on account team. We are encouraged by the operational discipline and rigor demonstrated, and we intend to continue this momentum into 2022 to drive even more migrations, expansions and new logo acquisitions.

Turning to revenue. This solid execution contributed to our growing subscription-based recurring revenue. In the fourth quarter, recurring revenue grew 5% versus prior year and 6% in constant currency, driven by -- primarily by a higher mix. Recurring revenue was 77% as a percentage of total revenue.

In the fourth quarter, the net impact from upfront recurring revenue arrangement was approximately a net negative $6 million, in line with our expectations. This negative amount is due to revenue pulled into the first 3 quarters of the year, partially offset by upfront recurring revenues recognized in the fourth quarter, all related to the renewal or expansion of on-premises deals with existing customers.

For the full year, reported recurring revenue growth was 12% year-over-year and 11% in constant currency, in line with our annual outlook. There was approximately 2.5% of positive impact from the net positive $30 million of upfront revenue in 2021.

Both perpetual and consulting revenue were lower year-over-year given the strategic shift made to a higher-margin prescription model and greater collaboration with partners that drive higher adoption and consumption of Teradata. Fourth quarter total revenue was $475 million, a 3% decline year-over-year and a 2% decline in constant currency. The year-over-year decline is primarily due to the strategic shift in the consulting business. In 2021, total revenue growth year-over-year was over 4% and 3% in constant currency, in line with our annual outlook. There was approximately 1% of net positive impact from upfront revenue in 2021.

Moving to profitability. We had a strong year of profit generation, and the fourth quarter was no different. We reported $300 million in gross profit, a fourth quarter gross margin of 63.2%. The primary drivers of our healthy gross profit dollar generation continues to be a higher mix of recurring revenue as well as improved cloud margins versus the prior year. This was partially offset by the modest negative impact about 40 basis points from upfront revenue arrangements pulled forward from the fourth quarter into the first 3 quarters of 2021.

Fourth quarter's operating profit was $90 million or an operating margin of 18.9%. Operating profit was driven by the combination of a lower cost structure from prior year, continued cost discipline during 2021 and lower variable compensation, partially offset by investments in go to market and R&D. Total operating expenses were flat sequentially and down 6% year-over-year.

Fourth quarter earnings per share of $0.57 beat our outlook by $0.30 at the midpoint. Of the $0.30, approximately $0.17 relate to activities that benefited the quarter. Approximately $0.08 primarily relates to annual variable compensation adjustments and differences between planned and actual tax rate. The remaining $0.05 deliver repairing benefit to our profitability due to structural improvements.

Our strengthening business model gives us the opportunity to continue reinvesting in our business. I will share more details regarding the go-to-market and R&D investments we are planning for this year later in my remarks.

Turning to free cash flow and capital allocation. We had a strong generation of free cash flow in 2021 of $430 million, above our outlook of at least $400 million. In the fourth quarter, free cash flow was $85 million, driven by strong profitability. As expected, the increase in days sales outstanding was primarily driven by growth in deferred revenue. There was also a decrease in days payable outstanding that was primarily driven by timing.

We continue to take advantage of our strong balance sheet and are buying back stock to offset dilution. For the full year, we repurchased over 5.8 million shares or approximately $244 million in total. This equates to a return to shareholders of 56% of 2021 free cash flow, consistent with our commitment of returning at least 50%.

As I shared with you at our Investor Day this past September, we use a disciplined approach to capital allocation, investing in our business to drive innovation and scale and returning capital to shareholders. We are able to do so because we are growing revenue, increasing profitability and generating more durable free cash flow.

Given our projections for healthy cash generation, along with our strong balance sheet, we plan to meaningfully exceed our capital return target in 2022. To date, in fiscal 2022, we have already purchased $50 million of shares. And today, we intend to enter into a $250 million accelerated share repurchase program that we plan to enter into in the first quarter of the year. The ASR is a demonstration of our confidence in and commitment to our strategic road map.

With the actions I just described, and based on our current 2022 free cash flow outlook of approximately $400 million, we are expecting to be well north of our annual target of returning at least 50% of free cash flow. Additionally, we still have flexibility to buy back shares when we see opportunities to retire shares at attractive levels.

I'd like to make some comments to set context for the 2022 outlook. Regarding upfront recurring revenue and its impact on EPS, we are modeling a less positive impact in 2022 than the approximate $0.20 benefit received in 2021. We anticipate the same quarterly shape of net upfront recurring revenue as we experienced in 2021.

Regarding gross margin, we expect the following business activities to drive an approximate 200 basis points decline year-over-year, first, a lower recurring revenue gross margin rate coming from a higher mix of cloud revenue forecast in 2022 at a gross margin rate similar to 2021. In addition, we forecast less of a positive impact from upfront recurring revenue.

Second, we are investing in activities that continue to drive increased adoption and consumption advantage, including greater efficiencies with cloud service providers offset by enhancements to our consumption pricing model. Lastly, mix assumptions related to our consulting and perpetual businesses are updated from what we shared at Investor Day.

In line with our continued strategic focus on higher value work, we forecast a low double-digit decline year-over-year in 2022 consulting revenue and expect to maintain the 17% margin rate we achieved in 2021. Aligned with our strategy, perpetual revenue continues to decline, and we anticipate lower margin rates compared to 2021.

Moving to investments impacting operating margin. As we shared at Investor Day, we are accelerating on innovation. We are increasing our planned cloud R&D spend to be more than 80% of the total R&D budget versus over 70% last year. We expect our investments will extend our differentiation in areas such as intelligent multi-cloud query fabric, in-database analytics, and the most open and connected platform at enterprise scale. We are also accelerating our go-to-market investments in our cloud and customer success teams to drive growth and lifetime value with new and existing customers. Overall, we expect these investments to be an approximate $0.20 impact on 2022 earnings per share.

Regarding our outlook philosophy, beginning in 2022, the outlook for cloud ARR will only be provided annually. This better aligns with how we manage the business and more closely aligned with the company's long-term view of value creation and avoid the quarterly volatility due to the lumpiness created by the timing of the purchasing decisions of our large enterprise customers. We will continue to report out on cloud ARR each quarter and provide data and commentary that clearly demonstrates progress towards our annual outlook goals. Our outlook practices for the other metrics we share remains the same.

With that, let me provide you with the linearity we anticipate for 2022. We expect cloud and total ARR growth to accelerate sequentially throughout the year, and total revenue and recurring revenue to generally follow historical linearity patterns.

Now for an update on our 2022 annual outlook. Public cloud ARR is anticipated to grow approximately 80% year-over-year from the ending 2021 balance of $202 million. This is a higher growth rate than the estimate of a least 70% growth year-over-year provided at Investor Day. Total ARR is projected to grow in the mid- to high single-digit percentage range year-over-year. Total recurring revenue is expected to grow in the low to mid-single-digit percentage range versus 2021. Total revenue is anticipated to be flat to low single-digit percentage growth year-over-year. Non-GAAP earnings per diluted share is projected to be in the range of $1.82 to $1.92. This is a raise from the range of $1.60 to $1.70 provided at Investor Day. And free cash flow is expected to be approximately $400 million.

For the first quarter of 2022, we anticipate non-GAAP earnings per diluted share to be in the range of $0.63 to $0.67. We project the non-GAAP tax rate to be approximately 28% in the first quarter and between 23% and 24% for the full year. We also forecast the weighted average shares outstanding to be approximately 109 million shares in the fourth quarter and for the full year.

I'd like to conclude by restating that we are excited about what we achieved in 2021. We reaffirm our long-term target, and we have great conviction that we are on the path to achieve the profitable growth trajectory and shareholder value creation outlined at our Investor Day.

With that, operator, we are ready to take questions. Thank you.

(Operator Instructions) The first question is from the line of Wamsi Mohan with Bank of America.

Yes. Steve, your guide for 2022 public cloud ARR puts you back on track actually slightly ahead of your Analyst Day targets. What is giving you this confidence? And how much impact does this Gartner ranking in cloud DBMS for analytical use cases having on purchasing decisions? And if I could, Claire, I know you're not providing quarterly guidance here, but should we think that we should see the incremental cloud ARR in each quarter in 2022 to be greater than the incrementals achieved in 2021?

Wamsi, thank you for the question. We are absolutely confident in the guidance that we've given for FY '22. Wamsi, our fantastic results in Q4, both in terms of the growth of number of customers but also our cloud ARR growth being double what we did in the prior Q4, it's just a testimony that we've got the right strategy and we've got the #1 technology in the world -- thanks for mentioning that Gartner report -- and that we are growing our overall customers in the ARR and the cloud.

I think that Gartner report, I'll use the voice of Gartner here, anybody that has put out an RFP for a cloud data platform should have Teradata as a response to that RFP. And so we are extremely confident that, that is going to have a positive impact for us in the market and help to continue to grow our business. So we're delighted to up the guidance that we provided at AIM against some of our key metrics.

Yes, Wamsi. And as Steve said, we are very excited about that raised guide with regard to our cloud ARR and on track to be delivering our long-term target as we laid out at Investor Day. With regard to the quarterly seasonality, just to kind of reiterate the comments that I made in my prepared remarks in the sense that we anticipate to see an acceleration as we continue to make the most of that momentum and continue throughout 2022.

The next question is from the line of Chad Bennett with Craig-Hallum.

Great. Kudos on the quarter. Cloud ARR was phenomenal and free cash flow in generation and return to shareholders was great also. So a couple of questions for me. Maybe first one for Steve. Just want to elaborate or drill down into how you talked about, I think, around kind of the test case and single system, no duplication of data without moving data around and enterprise concurrency. Everything around -- what you've mentioned before around QueryGrid and workload management and your guys' unique data models.

I just want to kind of get your sense kind of awareness of that out in the market today maybe versus 2 to 3 quarters ago. In our checks with kind of your competitors, I would say, it's a very different value proposition. I mean a lot of the kind of value they expound on now is bringing everything into their data cloud, so to speak, and having a data marketplace to pull data around and move data around and effectively, in my words, keep that meter running and growing by moving data around. Just kind of a long-winded question. But kind of where do you think we are in the awareness of kind of query optimization and workload optimization and your real ROI pitch?

Chad, thank you very much for the question. I think Gartner made some interesting points. One of the reasons that Teradata was a leader from a strategic vision perspective in that Gartner report was because of our point of view in terms of creating data fabrics and data organizations but more importantly, creating a query fabric that sits on top of your data fabric so that you can get the best out of your data no matter where it is. And then when you combine that with the power of the test that we just executed, 1,000 nodes running in AWS, more than twice the size of our largest on-prem customer, and you know that we have the biggest customers in the world running on Teradata systems on-prem, it's just a fantastic result.

Awareness in our customer base in the marketplace, we're growing that awareness every single day. Our sales teams are really, really excited about not only what the product can do today and how we can deliver for customers today but also the fact that these new technologies and/or approach effectively opens up the target addressable market for us as we can process more data and get better outcomes for our customers. So we're really excited about the opportunity ahead.

Got it. Maybe one quick follow-up if I could for Claire or Steve. Just on the increase in the public cloud ARR guide for the year, I guess, just kind of give us a sense of what's driving that if you think about the buckets of the business. Is it accelerated migrations just in terms of confidence in Vantage of being the kind of filed solution for your base? Is it net expansion acceleration? Are you -- or is it just kind of the new logo bucket incrementally adding more? Is there any color there on what drove that upside? Then I'll hop off.

Thanks, Chad, I would say all of the above. We are exiting 2021 with strong momentum as you can see, and we are very confident about the migration and the pipeline that we see as we look forward to 2022. We still have a very robust expansion rate that we expect to continue above 130%. And as that new logo acquisition team ramp up, we're also excited about the opportunities that they will bring. So I would say lots of momentum, and that gives us that increased confidence for the cloud AI guide for 2022 and beyond.

The next question is from the line of Tyler Radke with Citi.

Clearly, really strong sequential growth in public cloud ARR. I think earlier in the year, you talked about guidance of over 100%. You came in just below that. As we think about the performance, is the right way to think about that delta being that some deals slipped into 2022? Just help us bridge kind of the original guide versus what you reported.

And then if I could sneak a follow-up in for Claire, just to understand your comments on seasonality and accelerating ARR growth, should we expect ARR growth to accelerate on a constant currency basis compared to the 7% that you reported here in Q4? Or just help us understand kind of the starting point for your acceleration comments.

Thanks, Tyler. So just with respect to 2022 guidance for cloud ARR, really pleased with Q4, $54 million, more than doubling what we achieved in the prior Q4. Fantastic execution there from the team. We are confident in the long-term targets that we set out at the Analyst Investor Day in terms of getting to over $1 billion by FY 2025.

The reason that we upped our cloud ARR growth percentage for next year is because we are really confident in the business. We're seeing fantastic traction within our customer base and in new logo acquisition. So exciting time for Teradata.

Yes. And just in terms of the quarterly seasonality there, Tyler, yes, what -- we're anticipating the -- a similar seasonality that we saw in 2021 but with an acceleration as we move forward into 2022.

(Operator Instructions) The next question is from the line of Erik Woodring with Morgan Stanley.

Congrats on the quarter. Your guidance for total recurring revenue would imply that non-cloud ARR declines again next year. So just curious, any incremental color you can share on the underlying moving pieces? Is that all software or maintenance and software rights more than offsetting subscription growth? Is there any deviation in subscription growth that we should be thinking about for the year?

With regards to non-cloud ARR -- so thanks for joining us today. Good to work with you going forward. So with regards to non-cloud ARR, we are seeing the impact of migrations as we continue to migrate over to the cloud. But to your point, we also do see the declines as per the strategy and the software and upgrade maintenance.

The next question is from the line of Derrick Wood with Cowen and Company.

Great. Nice job on a solid Q4. Claire, you had mentioned that a big driver of the on-prem to cloud migration strength was coming from more partner involvement. So I guess for one of you guys -- either one of you guys, but can you just talk about who are some of the more strategic partners that you're working with, including both SIs and hyperscalers? And I know you guys recently announced a new go-to-market agreement with AWS. Anything to highlight there in terms of early traction?

Derrick, thanks for the question. Yes, a couple of points. We're seeing fantastic traction with our partners, especially as we strategically realign the company so that working with SIs is a key part of our go-to-market motion. The recent partnership that we formalized with Accenture is a key testimony to that but also the work we're doing with Deloitte and now more recently with the likes of Kyndryl as well as some of the large [NDN] SIs are all giving us an opportunity aperture that's increasing every single day.

Really excited by the most recent partnership we announced with Microsoft. Microsoft are interested in working with Teradata because they know that we've got mountains of [vPCUs], terabytes of data that's on-prem. And all of the cloud hyperscalers want to work with us to migrate that data into their clouds and get those workloads to start to expand with Teradata. And we put the right technology and the right strategy to enable our customers or joint customers to do that. So that is really part of our strategy to continue to execute and expand our go-to-market motion as we move forward, so a really good opportunity for us.

The next question is from the line of Matt Hedberg with RBC Capital Markets.

I guess for either of you, I think, Steve, you may have mentioned 70% growth in new cloud customers versus 2020, which is great to hear. I'm wondering, is that -- that number of cloud customers continues to grow. Is that a KPI that we might start to see maybe on a quarterly or annual basis where we see the actual number of customers? Because obviously, I think historically, there wasn't a huge focus on new customers, but clearly, it seems like there's been a lot of success in that in 2020.

Yes. Thanks for the question. It's certainly a key metric in terms of how we execute. And as we add more and more customers, and it was the number of customers that I was referring to there, then we have the opportunity to continuously add more and more value to those customers and expand our use cases in the cloud. So it is a key metric. It's something that we track very, very closely in terms of operational execution, something that's very important to us.

Our new logo motion, I think we've talked about that before, really kicked off in the second half of last year. Delighted to see some of the progress with that, adding new logos, both in the cloud and on-prem. You see in that motion getting up to double digits.

I think as we look at the level of disclosures that we have, we started introducing some new metrics in terms of our net expansion rate at our Analyst/Investor Day, and we're continually evaluating how we can give more insight into our execution as we move forward. But thanks for the question.

The next question is from the line of Raimo Lenschow with Barclays.

Congrats from me as well. Going back to the Gartner report you talked quite a bit about, Steve. There seem to be -- like what are you doing in terms of closing that information gap with customers? Because you clearly -- like Teradata is #1, Oracle #2, IBM 3 and a lot of them and SAP. And then the cloud guy is much, much lower. So there seems to be a disconnect between what -- how good you are as a product versus kind of where customers are buying at the moment if I look at the numbers. Like can you talk a little bit of what you can do there? And can I have the initiatives?

Thanks, Raimo. It's a great question and something that we're continuously focused on. Enabling our sales teams on a global basis to take our cloud message and the cloud value proposition to our customers, ensuring that there our customers know that we are the fastest, least cost path to the cloud is incredibly important. I spoke in my prepared remarks about recruiting a new Chief Marketing Officer, Jacqueline Woods. We're incredibly excited to have Jacqueline on the team. She's a transformational marketing leader that we know will make a difference in terms of how we get our value proposition to the marketplace.

But to your point, we plan from an execution capability on a day-to-day basis, to get our customer success teams and our sales teams to utilize that Gartner report where, just from a data warehouse perspective, as you said, Teradata #1, Databricks is #10 and Snowflake's #11; from a data lake perspective, Teradata #1 and Databricks is #5 and Snowflake down at #12. Those are the kind of key facts that we need to get out into the marketplace, and that's exactly what we're going to do. I think the future is really bright for Teradata as we do that.

The next question is from the line of Pat Walravens with JMP Securities.

Great. And let me add my congratulations. So Steve, while you've been talking, I've had an investor say, hey, wait a minute, sometimes the hyperscalers are their partners and then I thought I heard them list the hyperscalers as competitors in some of these deals, too. So I thought it might be a good opportunity for you to drill down on that a little bit and help people understand.

thanks, Pat. Thanks very much for the question. I think coopetition is just the nature of the IT industry. What the hyperscalers are interested in at the end of the day is getting workloads and usage and data and compute resources into their clouds. And they see Teradata has been a fantastic partner to enable them to achieve that.

The Microsoft partnership that we just announced in terms of joint sales and joint marketing activities, building on the AWS strategic collaboration agreement that we have ensures that, that level of coopetition is directed to the best possible results for our customers. And so the hyperscalers and Teradata, we both believe that better together is the real answer for our customers.

But not only that, Pat. We are truly agnostic when it comes to cloud perspective. We create that intelligent multi-cloud fabric, which enables query execution across all clouds and back into on-prem. Few other providers, especially cloud native solutions, can provide that. We are the best solution for that multi-cloud data platform for enterprise analytics, and that's where we really shine from a differentiation perspective.

The next question is from the line of Phil Winslow with Credit Suisse.

Just wanted to focus in on net new ARR. If I take your Analyst Day guidance of 70% growth up 100% versus what you just reported, 91% growth and 80% growth of that, it gets maybe, call it, $364 million versus the Analyst Day guidance of $360 million for cloud ARR. But if I think of it from a net new perspective, you're obviously guiding to a step-up in your expectations for 2022 versus the Analyst Day. What's giving you the conviction in that? Is it acceleration of the shift from the on-premise space to the cloud? Or is it some of the net new logos that you talked about having success and then Q4 starting to show up even more so in '22?

I'll go and then I'll let Steve jump in also. So thanks, Phil. Yes. I mean to your point, we are on track to deliver what we laid out at our Investor Day, so very excited about that. And as I mentioned in my prepared remarks, we are reaffirming our long-term guide as well with regard to 2025 and getting to $1 billion.

We're definitely seeing the momentum, as we talked about in terms of the 70% growth in new cloud customers and the double-digit new logos, so really strong momentum there, and we are maintaining our strong expansion and migration activity. So all of that giving us a lot of momentum as we move into 2022.

Yes. I think we've seen great momentum in execution, that new logo engine. We're seeing new on-prem new logos, which, as we said at Analyst/Investor Day, we haven't actually factored that into the overall long-term model for the business. That -- as we win those new logos on-prem, it gives us the opportunity to migrate them to the cloud in the future. So lots of opportunity for execution for us as we move forward.

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

Thanks, everyone, for joining the call today. We are entering 2022 with momentum and commitment to accelerate. We are looking forward to updating you at the end of next quarter. Have a great rest of your day. Thank you very much.

That concludes today's call. Thank you, and have a great day.