Teradata Corp Q3 2025 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Erik Woodring - Morgan Stanley - Analyst : Great. Really nice to see the earnings and free cash flow upside this quarter. I think this is the first time since you began disclosing cloud ARR that we've seen sequentials be negative intra calendar year for cloud ARR. I know you mentioned that it would dip below the target LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies. NOVEMBER 04, 2025 / 9:30PM, TDC.N - Q3 2025 Teradata Corp Earnings Call range this quarter, but I guess I'd look at the 11% and say it felt a bit below maybe where you would have expected sequentials. But maybe you could just elaborate on how the quarter transpired for Cloud ARR, when and where we see that net expansion rate bottom. And maybe why we just aren't derisking 4Q a bit, just given some of your commentary around customers assessing where they're going to be deploying with Teradata? And then a quick follow-up.

Question: Erik Woodring - Morgan Stanley - Analyst : Okay. And then just a quick follow-up. Your comment on -- I think you used the term meaningful free cash flow growth into 2026 as to me was the most confident I've heard you sound on free cash flow looking forward in a while. Can you maybe just unpack where this confidence comes from? I'm sure it has to do with ARR growth and some of your OpEx initiatives. But just -- I know you're not going to guide to 2026, but any way you can help us think about when you talk about meaningful free cash flow growth, kind of what you're trying to tell us between the lines.

Question: Radi Sultan - UBS AG - Analyst : First for Steve, last quarter, we talked about -- I think it was roughly a third of pipeline, including an AI component. So I guess, first, like how did that track this quarter? You mentioned the agent offerings, MCP server, like is there any area in particular within the AI portfolio moving the needle? And any way to think about how these AI discussions more broadly are impacting competitive win rates?

Question: Radi Sultan - UBS AG - Analyst : Awesome. And then second for John, you've been in the seat a couple of quarters now strung together a couple of nice quarters. I guess is it fair to think that your approach to guidance being relatively consistent into join? And maybe are there any leading indicators or KPIs that you're looking at that give you confidence in the outlook, especially around Q4?

Question: Yitchuin Wong - Citi - Analyst : Steve, maybe I'll start with you, great to see everyone. I want to just follow on what Radi was asking, like around the competitive age, like the agentic AI strategy with autonomous out as possible and then agent builders like 3D position Teradata like directly against some of this road map of your larger hyperscaler platform and then even compared to the Databricks and Snowflake. Can you kind of help us understand what is really the longer-term durability competitive advantage that you see that Teradata can compete in the space? And is it more the hybrid cloud environment that you've been talking about and then the small enterprise side the IP within your decades of experience, maybe we can start there?

Question: Yitchuin Wong - Citi - Analyst : Understood. Maybe one for John here. You talked about like the much improved service gross margin to positive have during the quarter. It's great to see an inflection there. Could you kind of help us double quick on some of these actions? I know we heard talk about use the team is starting to leverage more FTE or maybe even AI FTE here within the sales motion, especially with these new AI use cases. Is this something that expected to go forward that could help drive better margin here or even efficiency driving like AI, leveraging AI within the company that you touched on a little bit during possible as well?

Question: Yitchuin Wong - Citi - Analyst : Yes. Hopefully, the traction continues.

Question: Michael Richards - Rbc Capital Markets - Analyst : This is Mike Richards on for Matt. Maybe just double clicking on that dynamic where customers are assessing the deployment often. Just curious, is that a result of the announcement of the hardware refresh next year, where maybe some customers are seeing the transformation you're bringing to the on-prem offering and now it's a bigger decision of whether or not to stay or move to the cloud and then just any early feedback you've gotten on that decision to have the big refresh? LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies. NOVEMBER 04, 2025 / 9:30PM, TDC.N - Q3 2025 Teradata Corp Earnings Call

Question: Raimo Lenschow - Barclays Services Corp - Analyst : Congrats from me as well on a great quarter. The quick question, Steve, more for you. If you think about the debate of where AI gets that data from there is kind of a big debate kind of is it coming out of the operational data stores and Oracle, et cetera, is making no more out of like the data warehouses like you guys or more out of the data lakes. Can you speak to that, how you see that playing out? Or is that different use cases will have like a different data foundation?

Question: James Wood - TD Cowen - Analyst : This is for you, John. You guys had nice outperformance on recurring revenue in Q3. But now for Q4, we had been kind of assuming low

Question: Wamsi Mohan - Bofa Merrill Lynch Asset Holdings Inc - Analyst : Yes. I think, Steve, you mentioned sort of cost takeout helping free cash flow into next year. Can you help us maybe think about just the absolute sort of OpEx trajectory going from here into '26, how are you thinking about the route of progression from here? And if I could, just I know federal is not really very large for you guys, but are you seeing any impact at all from the government shutdown?

Question: Patrick Walravens - Citizens JMP Securities LLC - Analyst : Great. John, this ones for you, too. And I know this was a good quarter, but divide your free cash flow by the revenue, you get like 21%. Not putting a time frame on it, I think where can net free cash flow margins go.