Teradata Corporation Q3 FY2025 earnings call

• Q3 was a quarter of solid execution with beating revenue and recurring revenue guidance, non-GAAP EPS of $0.72, and free cash flow ahead of expectations. - Return to total ARR growth ahead of schedule, with confidence in durable growth path continuing in 2026. - Shift to autonomous AI and knowledge platform, with resurgence of hybrid environments. - Product innovations: Enterprise Vector Store, MCP Server, AgentBuilder, Autonomous Customer Intelligence, new AI services. - Customer wins across industries, participation in Possible event, and partner collaboration. - Focus on AI/ML talent deployment and cost efficiencies.

Total ARR grew 1% as reported and flat in constant currency, marking the second consecutive quarter of return to growth, driven by better retention and expansions. Cloud ARR grew 11% as-reported and constant currency with a net expansion rate of 109%. Total revenue was $416 million, down 5% year-over-year as reported and 6% in constant currency, with recurring revenue at $366 million, down 2% year-over-year as reported and 3% in constant currency, representing 88% of total revenue. Services revenue was $47 million. Total gross margin was 62.3%, up 70 basis points year-over-year, with recurring revenue gross margin at 68.9% and services gross margin improving to positive 8.5%. Non-GAAP diluted earnings per share were $0.72, and free cash flow was $88 million for the quarter.

For Q4 2025: Recurring revenue expected -1% to -3% constant currency, total revenue -2% to -4% constant currency, non-GAAP diluted EPS $0.53 to $0.57. Full year 2025: Reiterate total ARR growth and cloud ARR growth range, free cash flow $260M to $280M, raise non-GAAP EPS guidance to $2.38 to $2.42. Anticipate 1-2 points of revenue benefit in Q4 '25 from foreign exchange rates, no material currency impact full year.

Q: Erik Woodring asked about cloud ARR sequential dip, net expansion rate bottom, and Q4 derisking.

A: Stephen McMillan said cloud performed to expectations, net expansion rate starting to consolidate, total ARR growth ahead of schedule. John Ederer added cost actions and ARR growth supporting free cash flow improvement.

Q: Radi Sultan asked about AI pipeline track and AI impact on competitive win rates.

A: Stephen McMillan said AI influence pipeline increased, innovation releases supporting deployment of Agentic AI workloads, Teradata technology platform built for AI workloads.

Q: Yitchuin Wong asked about AI portfolio impact and service gross margin actions.

A: Stephen McMillan talked about AI pipeline increase and innovation releases. John Ederer mentioned rightsizing services business and AI internal initiatives.

Q: Chirag Ved asked about cloud vs on-prem trajectory and consulting revenue shift.

A: Stephen McMillan said on-prem stabilizing, cloud expansion rates picking up, consulting services pivoting to AI services as competitive differentiator.

Q: Michael Richards asked about customer deployment assessment and hardware refresh.

A: Stephen McMillan said customers choosing deployment based on hybrid environment, not related to hardware refresh.

Q: Raimo Lenschow asked about AI data source trajectory.

A: Stephen McMillan said QueryGrid enables combining data from various sources for trusted AI solutions.

Q: Derrick Wood asked about Q4 recurring revenue guidance change and cloud ARR net expansion rate.

A: John Ederer said recurring revenue guidance variability from upfront on-prem subscriptions, net expansion rate consolidating with migration and existing customer expansions.

Q: Wamsi Mohan asked about OpEx trajectory and government shutdown impact.

A: Stephen McMillan said no government shutdown impact, OpEx restructuring benefiting free cash flow into 2026.

Q: Patrick Walravens asked about free cash flow margin.

A: John Ederer said operational and cost efficiency measures set up well for margin and cash flow next year.