Teradata's Q2 2025 Results: Cloud ARR Growth Amidst Legacy Declines

Teradata (TDC) Q2 Cloud ARR Jumps 17%

Teradata (TDC 7.86%), the enterprise data analytics company known for its hybrid cloud and artificial intelligence (AI) solutions, reported second-quarter results for fiscal 2025 (period ended June 30, 2025) on August 5, 2025. The release showed mixed results: the company's transition to cloud revenue continued with growth in public cloud annual recurring revenue (ARR), which increased 17% year over year as reported to $634 million, while overall revenue and profitability contracted. Revenue reached $408 million, topping analyst estimates of $399.65 million. Non-GAAP earnings per share came in at $0.47, surpassing the consensus non-GAAP EPS estimate of $0.40. However, both revenue and earnings (GAAP and non-GAAP) fell compared to the same period in fiscal 2024, with particular weakness in the consulting and legacy software segments. The quarter reflected ongoing shifts in the business as Teradata pivots toward the cloud, but margin pressures and service declines continue to challenge overall performance. Source: Analyst estimates provided by FactSet. Management expectations based on management's guidance, as provided in Q1 2025 earnings report. Business overview and key focus areas Teradata delivers data analytics platforms for large enterprises, helping organizations manage data across both cloud and on-premises systems. Its main offering, VantageCloud, is a cloud-based analytics platform that enables companies to leverage analytics and artificial intelligence to gain insights from large volumes of data. The platform also supports machine learning and integrates with major public cloud providers such as Amazon Web Services, Microsoft Azure, and Google Cloud. The company's recent strategy focuses on accelerating the shift to cloud-based recurring revenue. Areas critical to its success include further adoption of its hybrid cloud and artificial intelligence capabilities, expanding strategic partnerships, investing in research and development, and offering flexible pricing. Consulting services and strong customer support also remain important for customer retention and satisfaction. Quarter in review: Growth in cloud ARR and ongoing legacy declines The most notable story was continued momentum in public cloud annual recurring revenue, which increased by 17% as reported compared to the prior year period. Public cloud ARR grew to $634 million, up from $542 million a year ago. Public cloud ARR now makes up roughly 42.6% of total ARR. Total ARR, which measures the recurring revenue expected from subscriptions and ongoing contracts, reached $1.49 billion, a 2% increase as reported compared to the prior-year period. Despite the beat in revenue and non-GAAP earnings per share versus analyst expectations, most year-on-year metrics pointed to contraction. The revenue figure declined 6% year over year compared to the same quarter last year. Recurring revenue dropped 4%, and consulting services saw a 19% decrease, sliding to $51 million from $63 million. These results reflect a shrinking legacy software and hardware business. Operating efficiency and profitability took a hit. Non-GAAP operating margin dropped to 16.4%, down from 22.0% in the prior-year period. Gross margin fell to 56.4%, compared to 60.8% in the prior-year period. Non-GAAP net income and diluted EPS also dropped sharply compared to the same period last year. Management continues to highlight expense discipline, as seen in the consistency of free cash flow (non-GAAP), which remained flat at $39 million. The company made several operational moves to build out its cloud and AI/machine learning platforms. Investment in research and development rose to $71 million, up from $68 million in the prior-year quarter. On the product front, Teradata invested in extending VantageCloud's support for vector data through the new Enterprise Vector Store, aimed at advancing large-scale AI and "Agentic AI" use cases. Partnerships with technology providers such as Nvidia and Anaconda were also expanded, helping strengthen Teradata's position in the evolving AI and data ecosystem and adding new technical capabilities to its core analytics offerings. Looking forward: Outlook, guidance, and what to watch For the third quarter and for fiscal 2025 (period ending December 31, 2025), management reaffirmed existing guidance on key metrics. Recurring revenue is expected to decline between 4% and 6% year over year in constant currency compared to the prior-year quarter, with total revenue expected to be down 7% to 9% year over year in constant currency. For fiscal 2025, management expects total revenue (in constant currency) to decline by 5% to 7%. Total ARR is expected to be flat to up 2% year over year in constant currency. Free cash flow (non-GAAP) is projected to be in the range of $250 million to $280 million for the full year. Public cloud ARR is projected to increase between 14% and 18% year over year in constant currency for fiscal 2025. Despite recent outperformance relative to estimates, management held guidance steady rather than raising it. Investors and analysts are likely to watch whether cloud ARR growth can meaningfully offset ongoing declines in legacy consulting and on-premises software and hardware, as evidenced by results showing public cloud ARR increased to $634 million (up 17% as reported) while consulting services revenue declined 19% year over year. Consulting services will remain an area to monitor, as further declines could prolong margin pressure. No explicit new customer retention or cohort figures were provided by management, though improvement was cited on the earnings call. Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.

Teradata outlines 14%-18% cloud ARR growth target for FY25 as hybrid AI strategy gains traction (NYSE:TDC)

CEO Stephen McMillan stated that "Teradata delivered well in Q2, as we continue to see improved execution across the company. We delivered total ARR of $1.49 billion in Q2, up 2% year-over-year as reported." He attributed these Seeking Alpha's Disclaimer: The earnings call insights are compilations of earnings call transcripts and other content available on the Seeking Alpha website. The insights are generated by an AI tool and have not been curated or reviewed by editors. Due to inherent limitations in using AI-based tools, the accuracy, completeness, or timeliness of the earnings call insights cannot be guaranteed. Please see full earnings call transcripts here. The earnings call insights are intended for informational purposes only. Seeking Alpha does not take account of your objectives or your financial situation and does not offer any personalized investment advice. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank.