Executive Summary

Q3 delivered upside versus guidance and consensus: revenue $416M vs $406M consensus and non-GAAP EPS $0.72 vs $0.54 consensus, with gross/operating margins improving sequentially; Total ARR returned to growth (+1% YoY) ahead of plan while Cloud ARR grew 11% YoY . EPS/revenue consensus from S&P Global; see Estimates Context.
Execution drivers: higher recurring revenue, improved services gross margin after cost actions, and lower opex; non-GAAP operating margin rose to 23.6% (up 720 bps QoQ) and FCF rose to $88M (up 28% YoY) .
FY25 guidance raised on EPS and tightened upward on FCF; revenue/ARR outlooks reaffirmed; Q4 guide implies modest YoY declines in revenue/recurring revenue in CC, reflecting deal timing and deployment mix (cloud vs on-prem) .
Narrative/catalyst: management leaned into “agentic AI” with new AgentBuilder, AI Services and Autonomous Customer Intelligence, positioning TDC’s hybrid (cloud + on-prem) “knowledge platform” as a unique fit for always‑on, high‑query workloads; CFO telegraphed “meaningful” FCF growth into 2026 given cost actions and ARR trajectory .

What Went Well and What Went Wrong

What Went Well
- Outperformance vs guidance and consensus: Q3 total revenue $416M and non-GAAP EPS $0.72 exceeded guidance ranges; recurring revenue and FCF also ahead of expectations . CEO: “we beat our revenue and recurring revenue guidance ranges… non-GAAP EPS and free cash flow ahead of expectations” .
- Margin and cash flow inflection: non-GAAP GM 62.3% (+70 bps YoY, +400 bps QoQ), operating margin 23.6% (+110 bps YoY, +720 bps QoQ), FCF $88M (+28% YoY); services gross margin swung from -2% in Q2 to +8.5% in Q3 after cost actions .
- Strategic AI momentum: launched AgentBuilder and AI Services; CEO emphasized TDC’s hybrid knowledge platform for agentic AI with “always-on… massive… query volumes” and customers choosing cloud/on‑prem flexibly .
What Went Wrong
- Top-line still down YoY: total revenue fell 5% YoY; recurring revenue fell 2% YoY; consulting revenue -23% YoY as services transition continues .
- Cloud ARR growth moderating intra-year: Cloud ARR +11% YoY (below FY guide range due to Q2 pull-forward); cloud net expansion rate 109% vs 112% in Q2 .
- Q4 outlook implies another YoY decline: Q4 CC revenue -2% to -4% and recurring revenue -1% to -3% guide underscores near-term growth headwinds and customer deployment mix decisions (cloud vs on‑prem) .

Financial Results

Income statement and margins (older → newer)

Metric	Q1 2025	Q2 2025	Q3 2025
Total Revenue ($M)	$418	$408	$416
Recurring Revenue ($M)	$358	$354	$366
GAAP Gross Margin %	59.3%	56.4%	60.8%
Non-GAAP Gross Margin %	60.3%	58.3%	62.3%
GAAP Operating Margin %	15.8%	5.9%	14.7%
Non-GAAP Operating Margin %	21.8%	16.4%	23.6%
GAAP Diluted EPS ($)	$0.45	$0.09	$0.42
Non-GAAP Diluted EPS ($)	$0.66	$0.47	$0.72
Consensus Revenue ($M)	$423.18*	$399.66*	$406.30*
Consensus EPS ($)	$0.56*	$0.40*	$0.54*

Consensus estimates retrieved from S&P Global. Actuals cited from company disclosures.

ARR, mix, and cash flow KPIs (older → newer)

Metric	Q1 2025	Q2 2025	Q3 2025
Total ARR ($B)	$1.442	$1.489	$1.490
Public Cloud ARR ($M)	$606	$634	$633
Recurring Revenue % of Total	86%	87%	88%
Cash from Operations ($M)	$8	$43	$94
Free Cash Flow ($M)	$7	$39	$88
Cloud Net Expansion Rate (%)	—	112%	109%

Segment breakdown (mix and trajectory)

Segment Revenue ($M)	Q3 2024	Q2 2025	Q3 2025
Product Sales (Recurring + Perpetual/HW/Other)	$379	$357	$369
Consulting Services	$61	$51	$47
Total	$440	$408	$416

Non-GAAP adjustments (Q3 2025): EPS bridge includes $0.30 stock-based comp, $0.07 reorg costs, and $(0.07) income tax adjustments; non-GAAP tax rate ~23.3% .

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
GAAP EPS	FY 2025	$1.04–$1.12	$1.22–$1.26	Raised
Non-GAAP EPS	FY 2025	$2.17–$2.25	$2.38–$2.42	Raised
Cash from Operations ($M)	FY 2025	$270–$300	$280–$300	Raised/narrowed up
Free Cash Flow ($M)	FY 2025	$250–$280	$260–$280	Raised/narrowed to top end
Public Cloud ARR Growth (CC)	FY 2025	+14% to +18%	+14% to +18%	Maintained
Total ARR Growth (CC)	FY 2025	0% to +2%	0% to +2%	Maintained
Recurring Revenue Growth (CC)	FY 2025	-3% to -5%	-3% to -5%	Maintained
Total Revenue Growth (CC)	FY 2025	-5% to -7%	-5% to -7%	Maintained
GAAP EPS	Q4 2025	N/A	$0.26–$0.30	New
Non-GAAP EPS	Q4 2025	N/A	$0.53–$0.57	New
Recurring Revenue YoY (CC)	Q4 2025	N/A	-1% to -3%	New
Total Revenue YoY (CC)	Q4 2025	N/A	-2% to -4%	New

Additional color: FX expected to add 1–2 pts to Q4 revenue; full-year FX impact “not material”; non-GAAP tax rate ~23.1% and FY weighted shares ~96.1M .

Earnings Call Themes & Trends

Topic	Previous Mentions (Q1 & Q2)	Current Period (Q3)	Trend
AI/technology (agentic AI, knowledge platform)	Q1: “trusted AI and hybrid platform” relevance; strong margins . Q2: AI Factory (on‑prem with NVIDIA), Enterprise Vector Store GA, MCP Server, LLM Ops; partner integrations (ServiceNow, Salesforce Agent Exchange, Fivetran) .	Unveiled AgentBuilder; emphasized platform fit for “always‑on” agentic workloads; ~150 AI engagements in 2025; Possible event showcased customer AI wins .	Strengthening
Hybrid cloud/on‑prem mix	Q2: rising hybrid deployments; on‑prem interest for data sovereignty; goal is workload-first choice .	“Resurgence of hybrid”; on‑prem stabilizing with retention/expansion; customer choice on deployment .	Hybrid tilt
Services pivot/margins	Q2: services headwind; cost actions to restore margins .	Services GM improved from -2% (Q2) to +8.5% (Q3); pivot to AI Services offering .	Improving
ARR linearity and Cloud NER	Q2: pulled deals into Q2; expected Q3 Cloud ARR below FY range; Cloud NER 112% .	Cloud ARR +11% YoY (below guide due to Q2 pull-forward); Cloud NER 109%; Total ARR back to growth ahead of schedule .	Mixed
Macro/regulatory (tariffs, FX)	Q2: FX to add 100–200 bps to Q4 ARR growth vs CC; services bookings softer .	FX +1–2 pts benefit to Q4 revenue; FY FX not material; no revenue impact from U.S. federal shutdown .	Neutral

Management Commentary

CEO: “We beat our revenue and recurring revenue guidance ranges… delivered non-GAAP EPS and free cash flow ahead of expectations. We are affirming our outlook for 2025… [Our] knowledge platform is ideal for today’s agentic AI workloads… customers… can rely on Teradata to run those workloads where they choose — the cloud or on‑prem, or both.”
CEO on AI differentiation: agentic AI can “increase workloads… by up to 25x and use 50x–100x the compute resources… Teradata is uniquely built to handle these mixed workloads and high volumes of tactical queries” .
CFO: “Total ARR growth was ahead of expectations… We exceeded the top end of our total revenue and recurring revenue guidance… total gross margin up 400 bps sequentially… services gross margin from -2% in Q2 to +8.5% in Q3… We generated $88M of Free Cash Flow” .
CFO on outlook: “We are raising our non-GAAP EPS guidance to $2.38–$2.42… narrowing FCF to $260–$280M… we anticipate one to two points of [FX] benefit to our Q4 revenue” .

Q&A Highlights

Cloud ARR trajectory: Cloud ARR +11% YoY in Q3 (below FY range due to Q2 pull-forward); Cloud NER 109%; management reiterated confidence in Total ARR trajectory and 2026 FCF growth drivers (ARR + cost actions) .
Deployment mix: more nuanced workload-first decisions; hybrid deployments rising; on‑prem stabilizing with data sovereignty and data gravity considerations .
Services profitability: cost alignment drove a sharp services gross margin rebound; ongoing opportunity in Q4; pivot to AI Services to support production use cases .
Q4 revenue/recurring revenue guide: implies low single-digit CC declines; linearity and upfront on‑prem subscription mix can affect quarterly cadence .
Partners and product: strong ecosystem momentum (e.g., ServiceNow workflows + Teradata analytics); emphasis that “there is no AI without context” and TDC’s domain models confer advantage .

Estimates Context

Q3 2025 vs S&P Global consensus: revenue $416.0M vs $406.3M*; non-GAAP EPS $0.72 vs $0.54* — both beats .
Trend: Q2 beat on both (rev $408.0M vs $399.7M*; EPS $0.47 vs $0.40*). Q1 missed on revenue ($418.0M vs $423.2M*) but beat on EPS ($0.66 vs $0.56*) .
Coverage: Q3 EPS (10 ests), revenue (8 ests); Q2 EPS (10), revenue (8); Q1 EPS (9), revenue (7).
Values retrieved from S&P Global.

Key Takeaways for Investors

Quality beat and cleaner execution: stronger recurring revenue, margin expansion, and FCF support a rerating narrative toward durable cash generation despite YoY revenue declines .
AI/hybrid positioning is differentiating: AgentBuilder, AI Services, and Autonomous Customer Intelligence reinforce TDC’s “knowledge platform” edge for agentic AI at enterprise scale, especially in hybrid deployments .
Watch Cloud ARR linearity: Q2 pull-forward reduced Q3 growth; Cloud NER eased to 109% — monitor reacceleration in Q4 and conversion of AI-influenced pipeline to ARR .
FY25 risk/reward: EPS/FCF raised; revenue/ARR maintained; Q4 CC revenue decline suggests near-term top-line pressure but improving mix/margins and cost discipline cushion EPS/FCF .
2026 setup: management explicitly flagged “meaningful” FCF growth driven by ARR growth and full-year benefit of 2025 cost actions — a medium-term catalyst if execution persists .
Services pivot reduces drag: services margins inflected positive; AI Services adds strategic pull-through for ARR while leveraging partner capacity .
Sensitivities: customer deployment choices (cloud vs on‑prem), consulting demand, and FX (minor) remain the key near-term variables .

Supporting Documents Referenced

Q3 2025 8‑K / Press Release with results and outlook .
Q3 2025 earnings call (prepared remarks and Q&A) .
Q2 2025 press release and earnings call (for sequential/trend analysis) .
Q1 2025 press release (baseline/trend) .
AI Services and Autonomous Customer Intelligence press releases (Q3 strategic context) .

Appendix: Consensus detail by quarter (S&P Global)

EPS consensus: Q1 $0.562*, Q2 $0.402*, Q3 $0.536*; Revenue consensus: Q1 $423.184M*, Q2 $399.663M*, Q3 $406.296M*.
Values retrieved from S&P Global.

TERADATA CORP /DE/ (TDC)·Q3 2025 Earnings Summary