Teradata’s third quarter saw a positive market response, with management attributing the upside to progress in annual recurring revenue and improved operating efficiency. CEO Stephen McMillan emphasized the company’s acceleration in total ARR growth, citing strong customer adoption of Teradata’s AI and hybrid cloud offerings. The company’s focus on enterprise AI workloads and hybrid deployment flexibility resonated with clients across industries, while cost controls and a shift in the services business contributed to margin expansion. Management also noted the successful execution of AI services and the continued transition from migration projects to higher-value consulting.
Is now the time to buy TDC? Find out in our full research report (it’s free for active Edge members).
Teradata (TDC) Q3 CY2025 Highlights:
- Revenue: $416 million vs analyst estimates of $406.1 million (5.5% year-on-year decline, 2.4% beat)
- Adjusted EPS: $0.72 vs analyst estimates of $0.54 (34.3% beat)
- Adjusted Operating Income: $98 million vs analyst estimates of $80.2 million (23.6% margin, 22.2% beat)
- Revenue Guidance for Q4 CY2025 is $396.7 million at the midpoint, below analyst estimates of $404 million
- Management raised its full-year Adjusted EPS guidance to $2.40 at the midpoint, a 8.6% increase
- Operating Margin: 14.7%, up from 12.7% in the same quarter last year
- Annual Recurring Revenue: $1.49 billion vs analyst estimates of $1.47 billion (flat year on year, 1.6% beat)
- Billings: $422 million at quarter end, up 6.6% year on year
- Market Capitalization: $2.60 billion
While we enjoy listening to the management's commentary, our favorite part of earnings calls are the analyst questions. Those are unscripted and can often highlight topics that management teams would rather avoid or topics where the answer is complicated. Here is what has caught our attention.
Our Top 5 Analyst Questions From Teradata’s Q3 Earnings Call
- Erik Woodring (Morgan Stanley) asked about the sequential dip in cloud ARR and potential free cash flow growth. CEO Stephen McMillan and CFO John Ederer explained that hybrid deployment trends and cost actions are supporting overall ARR growth and increased cash flow confidence.
- Radi Sultan (UBS) inquired about the AI-influenced pipeline and competitive positioning. McMillan pointed to rapid innovation cycles, investments in AI tools, and the company’s hybrid architecture as key differentiators.
- Yitchuin Wong (Citi) questioned the durability of Teradata’s advantage amid competition from hyperscalers. McMillan emphasized technology patents, hybrid flexibility, and domain expertise built over decades as core strengths.
- Chirag Ved (Evercore) asked about the balance between cloud and on-premise growth and the outlook for services revenue. McMillan and Ederer highlighted stabilization in on-premise, expansion in cloud, and a pivot in consulting toward AI service delivery.
- James Wood (TD Cowen) pressed for clarification on recurring revenue linearity and cloud expansion rates. Ederer explained that deal timing and migration activity drive variability, but expansion rates are expected to stabilize.
Catalysts in Upcoming Quarters
In upcoming quarters, the StockStory team will monitor (1) customer adoption rates for new AI services and AgentBuilder, (2) continued momentum in hybrid cloud deployments and the resulting impact on annual recurring revenue growth, and (3) the sustainability of margin improvements achieved through cost discipline. Additional focus will be on the success of key partnerships and the ability of Teradata’s consulting arm to drive enterprise-scale AI implementations.
Teradata currently trades at $27.95, up from $20.73 just before the earnings. In the wake of this quarter, is it a buy or sell? Find out in our full research report (it’s free for active Edge members).
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