Teradata Corporation Q4 FY2025 earnings call

• Steve McMillan highlighted strong results in Q4, with exceeded expectations for total revenue, recurring revenue, and free cash flow. 2025 was a year of revitalized execution, stabilizing the business, improving retention, and seeing customers expand use of Teradata with AI and hybrid workloads.
• Discussed Teradata's focus on autonomous AI and knowledge platform, with innovations like enterprise Vector Store, MCP server, Teradata Agent Builder, and AI Factory. Also mentioned partnerships like with unstructured.io and availability of enterprise-grade data analyst AI agent on Google Cloud Marketplace.
• John Ederer discussed financial results, noting total ARR growth, cloud ARR growth, and improved profitability. Highlighted 2026 guidance, including expected growth in total ARR, recurring revenue, and free cash flow, while investing in product development.

In the fourth quarter, total ARR grew 3% as reported and 1% in constant currency. Cloud ARR grew 15% as reported and 13% in constant currency, now representing 46% of total ARR. Fourth quarter total revenue was $421 million, up 3% year over year as reported and 1% in constant currency. Recurring revenue in the fourth quarter was $367 million, up 5% year over year as reported and 3% in constant currency. For the full year, recurring revenue was $1.445 billion (a decrease of 2% as reported and 3% in constant currency) and total revenue was $1.663 billion (a decrease of 5% as reported and 5% in constant currency). Total gross margin in Q4 was 62%, operating margin was 22.8%. Over the last three years, operating margin has expanded by more than 500 basis points.

• 2026 total ARR expected to be in the range of 2% to 4% growth year over year, recurring revenue 0% to 2% growth, total revenue -2% to 0% growth, non-GAAP diluted EPS $2.55 to $2.65, operating margin expected to expand by approximately 100 basis points, free cash flow $310 million to $330 million.
• Anticipates typical seasonality for ARR and cloud ARR, with Q1 typically being a large renewal and high erosion quarter, followed by stabilization and expansion in the second half. Also notes impact of hybrid deployment options on cloud and on-premise subscription ARR mix.

Q: Erik Woodring asked about the percentage of customers in production vs. proof of concept for on-prem AI and how they're thinking about investing in on-prem vs. cloud for GenAI.

A: Steve McMillan said on-prem AI is a key growth driver, POC activity doubled in 2025 with many moving to production on-prem, and they're focused on expansion in both cloud and on-prem.

Q: Erik Woodring followed up on free cash flow growth and EPS.

A: John Ederer said Q4 had a one-time tax benefit, and free cash flow is driven by working capital improvements and tax benefits.

Q: Radi Sultan asked about the growth inflection and drivers.

A: Steve McMillan said the AI marketplace is opening a new TAM, investments made, retention improved, go-to-market teams effective, and product announcements drove growth.

Q: Radi Sultan followed up on 2026 outlook and uncertainty.

A: John Ederer said migrations are bigger and harder to gauge timing, expansions are more consistent, and seasonality will be a factor.

Q: Yitchuin Wong asked about 4Q results and AI impact.

A: Steve McMillan said strong strength across industries, improved retention, and AI solutions are driving growth.

Q: Yitchuin Wong followed up on services line improvement.

A: John Ederer said consulting services gross margin improved, with AI services expected to offset migration activity in 2026.

Q: Chirag Ved asked about conversion path from AI engagements to revenue.

A: Steve McMillan said AI workloads are driving usage of the Teradata platform, and sales teams are focused on growth through these solutions.

Q: Sheldon McMeans asked about contribution from new AI initiatives and hardware refresh.

A: Steve McMillan said sales teams are excited about new products but haven't factored much incremental ARR yet, and hardware refresh won't kick in until late 2026/early 2027.

Q: Jared Jungjohann asked about headcount investments.

A: Steve McMillan said they're investing in product engineering and development, with focus on forward-deployed engineering and product vision.

Q: Wamsi Mohan asked about seasonality and new initiatives.

A: John Ederer said typical seasonality for ARR, with anomalies in recurring revenue due to upfront on-prem revenue timing. Steve McMillan talked about board refreshment.

Q: Nick asked about characteristics for AI transition and operating margin expansion.

A: Steve McMillan discussed Teradata's position in the AI and knowledge platform, and John Ederer said operating margin expansion is driven by gross margin work and expense efficiencies.

Q: Simran asked about memory pricing impact.

A: Steve McMillan said supply chain has protected from P&L impact, allowing pivot to innovation conversations with customers