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TERADATA CORP /DE/ (TDC)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 delivered a clean headline beat: non-GAAP EPS $0.47 vs S&P Global consensus $0.40*, revenue $408M vs $400M*, with results at the top end of revenue guidance and EPS above expectations; recurring revenue and total revenue declined YoY as services remained a headwind . Values retrieved from S&P Global.*
  • Management reiterated full-year Cloud ARR growth (14–18% cc), Total ARR (flat to +2% cc) and FCF ($250–$280M) and tightened FY25 total revenue to -5% to -7% cc; GAAP EPS to $1.04–$1.12 and non-GAAP EPS to $2.17–$2.25 .
  • Mix continues to shift toward recurring (87% of revenue) and cloud (Cloud ARR +17% YoY to $634M; cloud net expansion rate 112%), while services pressure weighed on gross margin; cost actions aim to restore positive services gross margin in 2H25 .
  • Near-term setup: management flagged ARR linearity (pulled-forward deals) which implies a softer Q3 ARR before re-accelerating in Q4; however, ARR/FCF outlooks were reaffirmed, while the FY revenue range was lowered on services bookings softness—key stock catalysts balance EPS beat/AI momentum vs. cautious revenue/linearity commentary .

What Went Well and What Went Wrong

What Went Well

  • EPS and revenue execution: “finished above the high-end of our recurring revenue outlook range, at the top end of our total revenue range, and EPS outperformed our expectations” (CEO) ; non-GAAP EPS $0.47 vs $0.40* estimate; revenue $408M vs $400M* . Values retrieved from S&P Global.*
  • Cloud momentum and retention: Cloud ARR reached $634M (+17% YoY as reported; +15% cc); cloud NER 112%, driven by balanced migrations and expansions (~50/50) .
  • Hybrid/AI product cadence: Newly launched AI Factory (on‑prem with NVIDIA), MCP Server for agentic AI, and expanded LLM Ops/ModelOps underpin the hybrid AI thesis and new workloads cited across banks, logistics, and financial services (prepared remarks) .

What Went Wrong

  • Topline/margins under pressure YoY: Total revenue down 6% YoY; non-GAAP gross margin 58.3% vs 62.2% last year; services revenue -19% YoY and negative services gross profit dragged consolidated gross margin lower .
  • Services mix headwind: CFO highlighted services as a clear headwind to revenue and margins; cost actions taken to return services gross margin to positive in 2025 .
  • Linearity creates near-term air pocket: Pulled-forward deals improved Q2, but management expects Q3 cloud ARR below the annual target range and a modest sequential decline in total ARR dollars in Q3 before a step-up in Q4 .

Financial Results

Headline P&L vs prior periods and S&P Global consensus

MetricQ4 2024Q1 2025Q2 2025
Total Revenue ($M)$409 $418 $408
Recurring Revenue ($M)$351 $358 $354
GAAP EPS ($)$0.26 $0.45 $0.09
Non-GAAP EPS ($)$0.53 $0.66 $0.47
Non-GAAP Gross Margin (%)60.9% 60.3% 58.3%
Non-GAAP Operating Margin (%)17.6% 21.8% 16.4%
Cash from Ops ($M)$156 $8 $43
Free Cash Flow ($M)$148 $7 $39

Q2 actuals vs S&P Global consensus

MetricQ2 2024Q1 2025Q2 2025
Revenue Actual ($M)$436 $418 $408
Revenue Consensus ($M)$447.33*$423.18*$399.66*
EPS Actual (non-GAAP, $)$0.64 $0.66 $0.47
EPS Consensus ($)$0.479*$0.562*$0.402*

Values retrieved from S&P Global.*

  • Beat/miss: Q2 revenue beat by ~$8.3M and non-GAAP EPS beat by ~$0.07; Q1 revenue modest miss with EPS beat; Q2’24 missed revenue/beat EPS versus that period’s consensus baseline*. Values retrieved from S&P Global.*

Segment breakdown (Q2 YoY)

SegmentQ2 2024Q2 2025YoY
Product Sales Revenue ($M)$373 $357 -4%
Consulting Services Revenue ($M)$63 $51 -19%
Product Sales Segment GP ($M)$262 $239 n/a
Consulting Services Segment GP ($M)$9 -$1 n/a

KPIs and Mix

KPIQ4 2024Q1 2025Q2 2025
Total ARR ($B)$1.474 $1.442 $1.489
Public Cloud ARR ($M)$609 $606 $634
Cloud Net Expansion Rate (%)n/an/a112%
Recurring % of Revenue86% 86% 87%

Guidance Changes

MetricPeriodPrevious Guidance (as of Q1’25)Current Guidance (Q2’25)Change
Recurring Revenue YoY (cc)Q3 2025n/a-4% to -6% New
Total Revenue YoY (cc)Q3 2025n/a-7% to -9% New
GAAP EPS ($)Q3 2025n/a$0.24–$0.28 New
Non-GAAP EPS ($)Q3 2025n/a$0.51–$0.55 New
Public Cloud ARR YoY (cc)FY 2025+14% to +18% +14% to +18% Maintained
Total ARR YoY (cc)FY 2025Flat to +2% Flat to +2% Maintained
Recurring Revenue YoY (cc)FY 2025-3% to -5% -3% to -5% Maintained
Total Revenue YoY (cc)FY 2025-4% to -7% -5% to -7% Lowered
GAAP EPS ($)FY 2025$1.06–$1.16 $1.04–$1.12 Lowered
Non-GAAP EPS ($)FY 2025$2.15–$2.25 $2.17–$2.25 Raised low end
CFOps ($M)FY 2025$270–$300 $270–$300 Maintained
FCF ($M)FY 2025$250–$280 $250–$280 Maintained
Non-GAAP Tax RateFY 2025n/a~23.1% New detail
Wtd Avg Diluted Shares (M)FY 2025n/a~96.5 New detail

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4’24, Q1’25)Current Period (Q2’25)Trend
AI/Technology initiatives2024 delivered AI tech incl. OTF support, BYO‑LLM, GPU compute; affirmed 2025 innovation roadmap . Q1 reiterated hybrid AI relevance .Launched AI Factory (on‑prem with NVIDIA), open-source MCP Server, expanded LLM Ops/ModelOps; examples across banks/logistics/FSI .Accelerating product cadence; broader AI workloads
Hybrid strategy (on‑prem + cloud)Hybrid relevancy in uncertainty .Emphasis on hybrid as AI workloads require data sovereignty; on‑prem stabilizing with new logos; balanced cloud growth .Positive, supports ARR mix
Macro/tariffs10‑K risk language; general macro caution .Mgmt notes improved macro confidence; cloud more immune to tariffs; consulting pressured earlier in year .Improving sentiment; services still soft
Product performance/marginsFY24 non‑GAAP GM 61.7%, OM 20.3% .Services headwind to GM; cost actions to restore positive services GM in 2025; OM 16.4% .Margin pressure near term; self-help underway
Retention/ARR linearityTotal ARR -6% YoY at FY24; guided to flat to +2% in FY25 .Retention improved; pulled-forward deals boost Q2 ARR; expect Q3 ARR dip then Q4 step-up .Improving retention; near-term linearity dip
Partnerships/ecosystem—New integrations with ServiceNow, Salesforce Agent Exchange, Fivetran .Expanding GTM leverage

Management Commentary

  • “We finished above the high-end of our recurring revenue outlook range, at the top end of our total revenue range, and EPS outperformed our expectations” – Steve McMillan, CEO .
  • “Cloud ARR growth rate was 17% reported and 15% in constant currency, and our cloud net expansion rate was 112%…balanced mix of migrations and expansions” – John Ederer, CFO .
  • “We were able to pull in a few deals early and extend other customers…we anticipate that Q3 cloud ARR will dip below our target range…but still reaffirming our full year target” – CFO .
  • “AI Factory…brings AI and machine learning capabilities on prem…with NVIDIA’s AI Enterprise…private AI with security, governance, and cost control” – CEO .
  • “We introduced a number of innovation advancements…MCP Server…LLM Ops…designed to accelerate time to market for AI/ML initiatives” – CEO .

Q&A Highlights

  • Operating leverage/FCF: Mgmt sees opportunity for greater operating leverage and durable FCF as cost envelope is optimized; FY25 actions set up for improved profitability into FY26 .
  • ARR linearity and guidance: Q2 benefited from pulled-forward deals; expect flatter Q3 and step-up in Q4 for Cloud ARR; modest sequential decline in total ARR in Q3 but FY Cloud ARR/Total ARR reaffirmed .
  • Hybrid migrations and AI: Customers increasingly pursue hybrid deployments; reduced pure “cost-only” cloud migrations; AI workloads driving both on‑prem and cloud usage .
  • Margins/costs: Services headwind to gross margin; SG&A down YoY with reinvestment in R&D; focus on restoring services margin while maintaining innovation .
  • Large deals/OTF traction: Outlook de-risked for 8‑figure deals; OTF strategy (Iceberg, Delta) seen as tailwind for platform usage, with competitive wins vs Databricks cited .

Estimates Context

  • Q2 2025 beats: Revenue $408M vs $399.7M*; non-GAAP EPS $0.47 vs $0.40*; drivers were higher revenue and pulled-forward deals; recurring revenue at high end of outlook . Values retrieved from S&P Global.*
  • Trajectory: FY25 non-GAAP EPS guide $2.17–$2.25 below FY25 consensus $2.40*, implying potential modest downward estimate revisions despite Q2 beat; FY25 revenue consensus ~$1.64B* broadly consistent with company’s -5% to -7% cc outlook vs $1.75B FY24 base . Values retrieved from S&P Global.*
  • Forward years: FY26 revenue consensus ~$1.64B* implies muted growth; investor focus likely on execution of AI/Hybrid catalysts to re-accelerate ARR and margins*. Values retrieved from S&P Global.*

Values retrieved from S&P Global.*

Key Takeaways for Investors

  • Quality print with clean beats on revenue and EPS against consensus, aided by early deal closures; ARR/FCF guidance reaffirmed even as the FY revenue range narrowed lower on services softness . Values retrieved from S&P Global.*
  • Short-term: Expect Q3 ARR softness from linearity, then re-acceleration in Q4; watch services margin inflection from cost actions and recurring mix progression .
  • Medium-term thesis: AI Factory, MCP Server, and LLM Ops/ModelOps deepen Teradata’s hybrid AI differentiation where sovereignty and governance matter, supporting cloud growth and stabilizing on‑prem workloads .
  • Mix shift is constructive: Recurring now 87% of revenue; Cloud ARR +17% YoY with 112% net expansion—structurally supportive for durable FCF and operating leverage as services headwinds abate .
  • Valuation/estimates setup: FY25 non-GAAP EPS guide below consensus suggests potential estimate drift lower absent upside from services or accelerated ARR; monitor execution vs Q3/Q4 linearity path and FY EPS range . Values retrieved from S&P Global.*
  • Catalysts: Continued AI/customer wins, services margin improvement, ARR inflection by Q4, and confirmation of hybrid deployment wins should drive narrative; any step-up in cloud NER or large-deal visibility would be additive .

Appendix: Additional Data and Definitions

  • ARR and Cloud ARR definitions per company disclosures; currency impacts noted; recurring revenue/total revenue constant currency methodology provided by the company .
  • Non-GAAP reconciliations and adjustments include stock-based compensation, reorganization and other costs, and income tax adjustments; non-GAAP tax rate ~23.1% for FY25 .