Teradata Corporation (TDC) Earnings

Management highlights

Steve McMillan noted Teradata is off to strong start in 2026 with solid execution and pivot to AI-led value. Recurring revenue, total revenue, and non-GAAP earnings per share exceeded expectations. Customer interest in hybrid capabilities and AI Factory drive growth. Product organization focused on strong execution engine. Announced MCP Server, Agent Stack, added capabilities to enterprise vector store, and Analyst Agent on Microsoft Marketplace. Participated in Google Distributed Cloud Air Gap Center launch. AI services momentum growing. Third-party validation shows 100% of organizations actively pursuing AI, 99% facing pilot to production challenges. John Ederer discussed financial results, SAP settlement impact, and outlook. Total ARR, revenue, recurring revenue, and earnings per share exceeded guidance. Operating margin improved. Free cash flow strong. Anticipates operating margin expansion in 2026.

Guidance

Reaffirm ranges for total ARR, total revenue, recurring revenue, and non-GAAP earnings per share. Anticipate non-GAAP earnings per share at higher end of $2.55 to $2.65 range. Adjusted free cash flow expected to be in $320 million to $340 million range. For remainder of year, refer to adjusted free cash flow excluding SAP settlement impact. Expect non-GAAP tax rate of approximately 24% in Q2 and weighted average shares outstanding of 96.3 million. Minimal impact to full-year revenue growth rate from currency rates at end of March 2026. FY 2026 other expenses expected to be approximately $22 million.

Segment performance

Recurring revenue grew 12% year-over-year. Total revenue grew 6% year-over-year. Non-GAAP earnings per share was $0.88, up over 30% vs Q1 2025. Total ARR grew 3% reported and 2% constant currency. Cloud ARR grew 13% reported and 12% constant currency. First quarter total revenue was $444 million, up 6% reported and 4% constant currency. First quarter recurring revenue was $400 million, up 12% reported and 9% constant currency. First quarter consulting services revenue was $43 million, down 14% reported and 15% constant currency. Total gross margin was 63.7%, up 340 basis points year-over-year. Recurring revenue gross margin was 70%, flat with Q1 last year but up sequentially from Q4 FY 2025. Consulting services gross margin was 4.7%, down from recent high but up over 600 basis points year-over-year. Operating margin was 27.3%, up from 21.8% in Q1 last year. Generated $390 million of free cash flow in first quarter, including $359 million benefit from SAP settlement. Adjusted free cash flow was $31 million. End of Q1 had $816 million of cash and cash equivalents, returning to positive net cash position of $269 million.

Analyst Q&A

• Q: For Steve, just now that the business is skewing more heavily towards expansions versus cloud migrations, can you walk through how you position the business, both product and go-to-market, to reflect that? And maybe just how do you expect that to impact overall sales productivity throughout 2026?

  A: Steve McMillan said strong interest in AI launched last year and upcoming product launch drives expansion. Focus sales force on total ARR growth from on-prem or cloud. Hybrid environment strength is differentiator. Sales productivity to improve as sales teams have more to sell.

• Q: For John, I know it is early with AI services and the forward-deployed engineering practice. Just as you think about the P&L impact from both a top line and margin perspective, in both the near and long term from that growing services practice on the AI side.

  A: John Ederer said AI services impact on P&L in 2026 is pretty minimal, ramping up this year. Longer term could contribute more, complementary to software side.

• Q: Historically, uncertainty elongated enterprise IT cycles, but enthusiasm for agentic AI and recent product announcements. Are you finding the strategic urgency to deploy AI capabilities is overriding the localized macro caution, and what are you seeing around those cost screens and on your deal cycle in the quarter?

  A: Steve McMillan said AI in every strategic conversation, pipeline has growing proportion with AI. Customers see Teradata platform as enabling AI into production. Services organization helps move pilots to production.

• Q: The quarter sounded like hybrid continued to be a bigger driver, especially with sovereign AI. Memory prices have ramped, could you walk through any incremental impact expecting, especially going into next year?

  A: John Ederer said monitoring memory pricing closely, more financial impact in FY 2027. Focus on protecting margin when going to market with new products.

• Q: Are we at the start of an improving recurring revenue gross margin trajectory?

  A: Steve McMillan said ARR growth returned in 2025 and expected to continue. John Ederer said Q1 recurring gross margin spike due to upfront revenue, expect more consistent later, with progress on cloud gross margins.

• Q: Could you help us better understand demand and sales linearity in the quarter, and maybe how the Middle East conflict is impacting sales cycles?

  A: Steve McMillan said solid demand environment, Middle East conflict not substantially impacting business. Demand patterns reinforce value of investment, survey shows 99% having pilot to production issues.

• Q: Is there a way to determine actual ARR benefit from AI workloads in base?

  A: Steve McMillan said helping customers cross pilot to production chasm drives usage of Teradata platform, shift from standard BI to agentic-type workloads.

• Q: Any balancing factors motivating to maintain full-year ARR guide?

  A: John Ederer said Q1 total ARR 3% is in line with full-year guide of 2% to 4%, seeing decent demand across product lines.

• Q: Could you drill down on what gets in the way of moving to production from pilot?

  A: Steve McMillan said goes to workload and data platform characteristics, competitors solve complexity with incremental compute, Teradata with great software. Regulatory challenges and need for context also factors.

• Q: Other than financial aspect of SAP settlement, what was the dispute about and fundamental benefit of resolving?

  A: Steve McMillan said clears deck legally, gives strategic optionality, solidifies balance sheet and increases return to shareholders.

• Q: Comment on domestic and international revenue in the quarter and drivers?

  A: John Ederer said differences in domestic vs international in past, improving trends in international markets, hybrid story resonates more there.

• Q: Talk about trends in regulated base vs nonregulated base?

  A: Steve McMillan said regulated industries like governments, financial services, health care are highly regulated, providing competitive moat. Unique in enabling agentic AI workloads across environments, over 50% of cloud customers also use on-prem Teradata systems.