Stephen McMillan: Yes. Thanks, Chad. So I think you made some great points there. One is cloud optimization is not a trend or an impact to our business that we tend to see, given the mission-critical nature of the workloads that we execute. And both to your point, the fixed capacity nature of the contracts we have. However, all of those contracts can have the ability to have expansion and consumption ability added to them. And indeed, especially in the cloud, when we think about our net expansion rate, those expansion rates happen continuously. So we’re very much moving away from that enterprise software sales motion, where the only time you do that expansion at the point of renewal. And we’re continuously adding workloads and growing our customers as we move through the year.
And I think there’s some great capabilities that are enabled by our VantageCloud Lake product to the earlier points but also these GenAI and AI use cases are going to drive that increase in utilization, the increase in the requirement for data. But not only that, Chad, I think a really important point is that those GenAI use cases, if they are not controlled from a cost perspective, can become prohibitively expensive if they aren’t run in an environment like Teradata where we have fantastic financial governance. And so, when we think about ethical and trusted AI, we think about it in terms of the outputs that are generated from those AI solutions. But we also think about it in terms of enabling our customers to trust those AI models to operate within a financially governed environment.
And we’ll continue to see some strength from that perspective. So I think it’s going be ongoing expansions that we see across the year as we move forward.
Operator: The next question is from the line of Raimo Lenschow with Barclays. Your line is now open.
Raimo Lenschow: Congrats from me as well, another great solid quarter. Two questions. One on actually staying on AI. And Stephen, if you think about AI, like how do you see yourself in this kind of new world because you obviously clearly have the right data, you have to trust data as you said. But are you kind of also then the guy that people use to work the LLMs on? And what does it mean in terms of margins, gross margin aggregation, et cetera. Also in light of that, like, will people take your data, put it into a [indiscernible] database, or do they get fed directly into the large language model? There’s a lot of questions, obviously, at the moment because the market is evolving so quickly, but maybe you can help us there. And then one for Claire, for cash flow for the year, I like your comments about the confidence. Can you talk a little bit about or remind us about the drivers for Q4 because, obviously, it’s a big hurdle for the fourth quarter. Thank you.
Stephen McMillan: Thanks, Raimo. Yes. So these large language models generated AI models. We are developing native integrations inside the platform. So you don’t have to move data out. You can actually utilize an API to both open AI and also Azure open AI, just an example of some implementations of large language models. And you can do that in a governed environment, now we in Teradata, invested in analytics capabilities super early. I think you were there for some of that journey which is back in 2011, when we bought Aster. We’ve made significant investments in why we launched ClearScape Analytics last year was because we put all of those capabilities and database to operate at tremendous scale. So our customers cannot only utilize that ClearScape analytics capabilities, which I think we’ve got 5 things more.
One of the analysts told us we had 5x more analytic capabilities than our nearest competitor. You can utilize those in conjunction with these large language models to develop some very complex and very differentiating use cases in terms of deployment. And you can do that all natively within Teradata utilizing the links to these large language models and the most advanced large language models as the CSPs actually provide. We’re super excited about that. We think it’s a great use for future use case for us. And then Claire —
Claire Bramley: Yes, sure, I’ll take the question on free cash flow. So we are confident in landing within our free cash flow range of $320 million to $360 million. We’re currently on track to where we anticipate it to be and have good line of sight. The big drivers that are giving us that confidence is we anticipate greater income in Q4 ’23 versus the prior year and also a lower DSO. We had a very high DSO last year of 74 days. Raimo, as you probably remember, which is a bit of an anomaly. And the other thing I think that gives me confidence at this point in the quarter is that the October collections have performed better on a year-over-year basis. So that gives us good confidence for what we need to do to deliver the quarter and the full year free cash flow range.
Operator: The next question is from the line of Nehal Chokshi with Northland Capital Markets. Your line is now open.
Nehal Chokshi: Congrats on a solid results here. Steve, you’ve talked a couple of times in your prepared remarks about an improving brand amongst both existing customers and new customers. But specifically, just help quantify the new customer opportunity here. Maybe you could characterize what percent of pipeline do these prospective customers represent today versus, say, a year ago?
Stephen McMillan: Hey, Nihal. Thanks for the question. Yes, we’re continuing to see great traction from a brand perspective. recognition that the Teradata technology is a great technology to deploy with on the cloud. Things like our STI interface, which really improves ease of use for the Teradata system start to unlock new users, new use cases. So that’s super exciting to see. Our work with Accenture and the partners is starting to drive our ability to really put together some great solutions. We launched an Accenture use case for the retail industry. And these things are kind of building up to — so that we have the absolute rate capabilities to win new logos. We’ve seen traction for new logos in both on-prem and in the cloud in Q3.
