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01/11 05:24
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call summary indicates mixed signals: while there is confidence in ARR growth and operational improvements, revenue is expected to decline, and guidance lacks specifics. The Q&A reveals optimism in AI and cloud strategies, but also highlights concerns about revenue growth and vague management responses. The company's market cap suggests moderate volatility, leading to a neutral prediction for stock price movement.
Non-GAAP Earnings Per Share (EPS) $0.72, which is $0.17 above the top end of the outlook range. This outperformance was driven by higher recurring revenue and lower expenses.
Free Cash Flow (FCF) $88 million, up 28% year-over-year. This increase was attributed to improved operational efficiency and cost management.
Total Annual Recurring Revenue (ARR) Grew 1% as reported and flat in constant currency. This growth was driven by better retention and expansions in the quarter.
Cloud ARR Grew 11% on an as-reported and constant currency basis. The growth was slightly below expectations due to the pull forward of a few deals in the previous quarter.
Total Revenue $416 million, down 5% year-over-year as reported and 6% in constant currency. The decline was offset by higher recurring revenue.
Recurring Revenue $366 million, down 2% year-over-year as reported and 3% in constant currency. Recurring revenue as a percentage of total revenue increased to 88% from 85% in the prior year.
Services Revenue $47 million, consistent with recent performance. The transition from migration projects to AI services is expected to improve performance next year.
Total Gross Margin 62.3%, up 70 basis points year-over-year and 400 basis points sequentially. This improvement was driven by better recurring and services gross margins.
Recurring Revenue Gross Margin 68.9%, up 140 basis points sequentially. This was due to cost efficiency actions.
Services Gross Margin Improved from negative 2% in Q2 to positive 8.5% in Q3, attributed to cost alignment with current revenue.
Operating Margin 23.6%, up 110 basis points year-over-year and 720 basis points sequentially. This improvement was due to cost efficiency measures.
Agentic AI and Knowledge Platform: Teradata is shifting its business focus from classic EDW to the autonomous AI and knowledge platform, emphasizing its ability to handle mixed workloads and high volumes of tactical queries for AI systems.
Enterprise Vector Store: Introduced earlier this year, it enables organizations to include unstructured data in their integrated knowledge foundation.
ClearScape Analytics Enhancements: Unified ModelOps capabilities were added, supporting open-source models and CSP model APIs.
Teradata AgentBuilder: A suite of capabilities for developing and deploying autonomous AI agents, currently in private preview.
Autonomous Customer Intelligence: A software and services offering embedding Teradata agents across the customer experience journey.
AI Services Expansion: Teradata launched new AI services to help customers transition from AI pilots to enterprise-scale deployments, completing over 150 AI engagements this year.
Customer Wins: Key wins include a multinational automotive manufacturer expanding its Teradata Cloud platform on AWS, a U.S. healthcare provider scaling its cloud deployment on Azure, and a Japanese heavy industry manufacturer adopting Teradata for on-prem data platform.
Recognition and Awards: VodafoneThree, Ooredoo, and Sicredi were recognized for their innovative use of Teradata's AI and knowledge platform.
ARR Growth: Total ARR grew 1% as reported, marking the second consecutive quarter of positive growth, ahead of the initial Q4 target.
Cloud ARR Growth: Cloud ARR grew 11% year-over-year, with a net expansion rate of 109%.
Cost Efficiency Measures: Improved gross margins and operating margins due to cost-saving actions initiated last year.
Hybrid Environment Focus: Teradata emphasizes hybrid environments, allowing customers to operate across on-prem and cloud capabilities.
Partnerships: Collaborations with partners like ServiceNow to integrate enterprise-grade analytics with workflow engines for autonomous operations.
Market Conditions: The company faces challenges in cloud ARR growth due to customers assessing deployment options between cloud and on-premise solutions, which could impact the mix and growth trajectory.
Competitive Pressures: Teradata operates in a highly competitive market for AI and data analytics platforms, which requires continuous innovation and investment to maintain its leadership position.
Regulatory Hurdles: The company must navigate stringent data sovereignty and compliance requirements, particularly in regions like Central Europe and Brazil, which could impact operations and customer retention.
Economic Uncertainties: Economic conditions could affect customer budgets and decision-making, potentially delaying or reducing investments in AI and data analytics solutions.
Strategic Execution Risks: The transition from migration projects to delivering AI services poses execution risks, as the company must ensure successful implementation and customer satisfaction to drive future growth.
Supply Chain Disruptions: No explicit mention of supply chain disruptions was noted in the transcript.
ARR Growth: Teradata expects continued ARR growth in 2026, driven by positive ARR growth and cost savings measures. The company has returned to positive ARR growth ahead of schedule and anticipates durable growth in this area.
AI Workloads: Teradata is positioning itself as a leader in AI workloads, emphasizing its ability to handle massive workloads and complex queries required for AI systems. The company expects AI workloads to increase significantly, with Agentic AI potentially increasing workloads by up to 25x and compute resources by 50x to 100x.
Cloud and On-Premise Deployment: The company anticipates variability in ARR mix as customers evaluate deployment options between cloud and on-premise for AI workloads. Teradata is confident in its ability to support both deployment options effectively.
Free Cash Flow: Teradata expects meaningful free cash flow growth in 2026, supported by positive ARR growth and productivity measures.
Q4 2025 Guidance: For Q4 2025, Teradata expects recurring revenue to decline by 1% to 3% year-over-year in constant currency, total revenue to decline by 2% to 4% year-over-year in constant currency, and non-GAAP diluted EPS to range between $0.53 and $0.57.
Fiscal 2025 Guidance: Teradata reiterates its guidance for total ARR growth and cloud ARR growth for fiscal 2025. The company expects free cash flow to be in the range of $260 million to $280 million and non-GAAP EPS to range between $2.38 and $2.42.
Share Repurchase: In the third quarter, we repurchased approximately $30 million of our stock or 1.4 million shares. We continue to target returning 50% of our free cash flow to shareholders in the form of share repurchases this year.
The earnings call summary indicates mixed signals: while there is confidence in ARR growth and operational improvements, revenue is expected to decline, and guidance lacks specifics. The Q&A reveals optimism in AI and cloud strategies, but also highlights concerns about revenue growth and vague management responses. The company's market cap suggests moderate volatility, leading to a neutral prediction for stock price movement.
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