Data and analytics software provider Teradata (NYSE:TDC) missed Wall Street’s revenue expectations in Q1 CY2025, with sales falling 10.1% year on year to $418 million. Next quarter’s revenue guidance of $401.1 million underwhelmed, coming in 1.4% below analysts’ estimates. Its non-GAAP profit of $0.66 per share was 16.9% above analysts’ consensus estimates.
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Teradata (TDC) Q1 CY2025 Highlights:
- Revenue: $418 million vs analyst estimates of $428.2 million (10.1% year-on-year decline, 2.4% miss)
- Adjusted EPS: $0.66 vs analyst estimates of $0.56 (16.9% beat)
- Adjusted Operating Income: $91 million vs analyst estimates of $82.07 million (21.8% margin, 10.9% beat)
- Revenue Guidance for Q2 CY2025 is $401.1 million at the midpoint, below analyst estimates of $406.7 million
- Management reiterated its full-year Adjusted EPS guidance of $2.20 at the midpoint
- Operating Margin: 15.8%, up from 10.3% in the same quarter last year
- Free Cash Flow Margin: 1.7%, down from 36.2% in the previous quarter
- Annual Recurring Revenue: $1.44 billion at quarter end, down 2.6% year on year
- Billings: $457 million at quarter end, in line with the same quarter last year
- Market Capitalization: $2.19 billion
StockStory’s Take
Teradata’s results for Q1 reflected ongoing macroeconomic pressures, with revenue declining as customer spending in discretionary services remained soft. Management attributed performance to continued growth in cloud annual recurring revenue (ARR), enhanced cost discipline, and the benefits of last year’s organizational restructuring. CEO Steve McMillan pointed to strengthening customer retention metrics and highlighted the company’s ability to support both cloud and hybrid environments, emphasizing, “our cloud and hybrid capabilities will resonate in the market.”
Looking ahead, Teradata’s leadership struck a measured tone, citing persistent uncertainty in services demand and a more prudent approach to guidance. The company reaffirmed its full-year adjusted EPS target, but CFO Charles Smotherman noted, “In light of the overall macroeconomic uncertainty, we are expanding the low end of our total revenue outlook range.” Management remains focused on improving retention rates, accelerating innovation in AI-centric data solutions, and stabilizing recurring revenue as key priorities for the remainder of the year.
Key Insights from Management’s Remarks
Teradata’s management attributed the quarter’s results to a challenging demand environment for services, stable growth in cloud ARR, and effective cost controls from recent restructuring actions. The company’s leadership discussed the impact of these factors on both top-line and profitability trends.
- Cloud ARR Growth: The company’s public cloud ARR increased 16% year over year in constant currency. Management highlighted that cloud now comprises 42% of total ARR, reflecting ongoing customer adoption of Teradata’s hybrid analytics platform.
- Hybrid and On-Premise Relevance: Hybrid deployment remains a differentiator, with many customers preferring a mix of on-premise and cloud solutions. Teradata’s hybrid capabilities are being leveraged by customers seeking data sovereignty and flexibility in uncertain market conditions.
- AI and Vector Store Launch: Management launched the Teradata Enterprise Vector Store, positioning it as a critical tool for advanced AI use cases and agentic (autonomous) AI workflows. Partnerships with NVIDIA and other cloud providers aim to bolster the platform’s relevance for next-generation analytics.
- Executive Team Changes: The appointment of John Ederer as CFO and Sumeet Arora as Chief Product Officer marks a strategic shift. Both executives bring SaaS transition and AI analytics experience, which management believes will help accelerate innovation and operational efficiency.
- Improved Retention and Cost Structure: Retention rates improved year over year, attributed to a revamped go-to-market strategy and enhanced customer success initiatives. Cost optimization measures, including restructuring, contributed to a higher operating margin and are expected to support further profitability gains.
Drivers of Future Performance
Management’s outlook for the rest of the year is centered on stabilizing recurring revenue, driving cloud adoption, and pursuing disciplined cost management amid uncertain market conditions, especially in services.
- Cloud and Hybrid Adoption: Continued growth in cloud and hybrid deployments is expected to support expansion in ARR and underpin long-term profitability.
- AI Product Integration: The rollout of AI-centric features, like the Enterprise Vector Store, is intended to attract new workloads and facilitate upsell opportunities, though management acknowledges that material revenue impact may not be immediate.
- Retention and Cost Controls: Improved customer retention and ongoing optimization of the cost base are viewed as key levers for delivering operating margin improvements and sustaining free cash flow, even if overall revenue recovers slowly.
Top Analyst Questions
- Erik Woodring (Morgan Stanley): Asked if Teradata can boost free cash flow by reducing SG&A spend and leveraging its existing customer base. CEO Steve McMillan emphasized a focus on profitable growth and ongoing optimization of investments across all functions.
- Yitchuin Wong (Citi): Queried what lessons from recent executive transitions will shape future strategy. McMillan described a new phase focused on AI and analytics-driven business outcomes, supported by new leadership in product and finance.
- Howard Ma (Guggenheim): Sought parallels between the current environment and previous periods of cloud optimization. Management said hybrid and AI offerings are resonating, but consulting and services remain sensitive to discretionary spending.
- Jared Jungjohann (TD Cowen): Asked about benefits from recent go-to-market changes. McMillan cited increased traction with AI-focused use cases and improvements in pipeline quality.
- Chirag Ved (Evercore ISI): Questioned confidence behind maintaining ARR guidance despite macro uncertainty. McMillan pointed to pragmatic planning, line of sight into execution, and removal of outlier deals from the outlook.
Catalysts in Upcoming Quarters
In the upcoming quarters, the StockStory team will be monitoring (1) the pace of recovery in recurring and cloud revenue as customers increasingly evaluate hybrid and AI solutions, (2) evidence that new executive leadership accelerates product innovation and operational efficiency, and (3) retention rate stability as a marker of customer satisfaction and expansion potential. Progress in translating AI product launches into tangible revenue will also be a key signpost.
Teradata currently trades at a forward price-to-sales ratio of 1.4×. At this valuation, is it a buy or sell post earnings? See for yourself in our free research report.
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