Go ahead and get started. Thank you everyone for being here today at the UBS Global Technology and AI Conference. My name is Radi Sultan. I cover the SMID Cap infrastructure software stocks here at UBS. Next up we have Teradata, John Ederer, CFO, and Chad Bennett, runs IR, so first of all, thank you very much for being here today.
Absolutely. Thanks for having us. It's been a great conference for us.
Awesome. Yeah. Maybe, maybe just to kick it off, you know, let's start at a high level. I think you very recently hit your six-month mark at Teradata. The business has really stabilized. You've gotten into, you know, a good cadence of beats. So maybe just walk through your biggest learnings, the biggest takeaways, you know, in your first six months on the job.
Yeah. For sure. Oh, thanks again. I you know, the first six months are always interesting. I think every new company I've ever gone to, there's a lot to learn the first few months. And then you start to get your head up above ground again and you can start to look towards the future. And it's been great so far. You know, I think the thing that's probably impressed me the most has been the people, the team that's at Teradata, including the leadership team. We've got a relatively new leadership team. We've had some turnover there in the last year or so.
I feel like we're working together really well, and really making the right decisions for Teradata and for the future of Teradata and kind of even if it, even at the expense potentially of our own own department. So we're really coming together nicely in that way. I think that the organization has a lot of resilience. If you look at the changes in our marketplace over the last, well, gosh, nearly 40 years that that we've been at this, you know, we've weathered a lot of twists and turns in the market landscape. And so I see a lot of resilience across the organization. There's a lot of enthusiasm about what's ahead for us. And, and I, I know we'll get into a little bit of this. You know, internally we're referring to it as Teradata 3.0.
And so as we emerge from developing a cloud business and focusing a lot more on AI and what it means to be an Autonomous Knowledge Platform, we see a tremendous amount of opportunity ahead. And I think there's a lot of enthusiasm, frankly, around the company right now.
Yeah. Awesome. Maybe just, you know, drilling into the AI front. I believe AI is being attached to around a third of deals in pipeline today. So maybe just talk through, you know, where are you seeing the most traction? What are some of the biggest early AI use cases, where Teradata is getting pulled along?
Yeah. Sure. So we are starting to see, I'll call them the early indicators of AI on our business. And we've talked about a few different things. One is the influence that we're starting to see in our pipeline, and that has been growing. So we're getting more sophisticated about how we track that exactly. And then we're starting to see it show up in the pipeline and influencing our pipeline. The second big area is around the proof of concepts that we're doing with our customers. And we're on track to do 150 or so by the end of this year. And, you know, we're getting some really good traction in these conversations.
We've got a team that's embedded in our sales organization that goes in and really lays out a game plan for the customer in terms of how to use the Teradata platform in an AI setting. So we've been getting into a lot of good discussions. We've developed a wide variety of use cases, frankly. Some of the things that are a little bit more common in the, you know, financial services industry. You know, we've done some things around anti-money laundering. We've done some things around fraud detection in the retail space. We've done some things around customer experience. So there's different types of use cases that can be deployed. They all are tailor-made for the customer.
And so, you know, one of the things that I think gives us a little bit of an advantage in this regard and why we talk about a knowledge platform is that, you know, we have the core of it, which is the enterprise data warehouse, and you need to store the data somewhere, but we also have the context around that, and that comes from decades of working in these industries, developing industry data models, and so bringing those two things together, I think, gives us a unique advantage.
Awesome. And maybe when you think about the AI product portfolio today, you have Enterprise Vector Store, MCP server, Agent Builder. Like, how do you think about monetizing these offerings longer term? And maybe which of those do you see as the biggest needle-mover over the next several years?
Yeah. I think they're, I mean, all your children are important, right? So, but it's, you know, I guess to the heart of the question, how do we ultimately monetize that? There will be opportunities for traditional cross-sell activity with distinct products. But the way this will come together more is in terms of expansion and expanding use of the Teradata platform. And so again, if you think about what's happening in an agentic world, you're now having agents take the place of humans. And agents are on 24 hours a day. And so there's just gonna be a much higher level of capacity needed, workflow needed, to be able to handle that type of an environment.
And so where we benefit is by providing these tools and making Teradata a platform with which customers can build AI solutions. We benefit from that increased workflow down the line.
Got it. And a big focus on the last call was around the FDE group that you guys formed. Can you walk through a little bit of the background there where that group has been most focused, you know, the extent to which it's, you know, just AI, or is it sort of around use cases for the broader platform and maybe any early wins or traction there you could share?
Yeah. No, this is another important piece of our strategy. And so we did, just a couple of months ago at our customer conference in October, we launched what we call AI Services. And it's very analogous to what you've seen at other companies Deployed Engineering. And it's an opportunity for us to get more engaged with customers as they're trying to spin up these new tech, new types of solutions. And in a lot of ways, it's really a very natural extension of what we're doing with the Proof of Concept work. And so, the team goes in, we develop the Proof of Concept, which is essentially a roadmap, a game plan for the customer to go start attacking AI solutions. The AI Services team comes in right behind that as the natural next step and actually spins that project up.
So now that we've identified a few opportunities, a few use cases, let's spin up the project and actually get it going. And so we think that that will ultimately benefit us in terms of additional ARR down the road. 'Cause again, we get these projects going, we develop the need for additional capacity, and then we benefit from that.
I guess, you know, you, you guys already have a pretty substantial services footprint.
Mm-hmm.
You know, how much of this sort of AI services group was a repurposing of your existing services footprint and maybe helping you streamline that versus, you know, incremental?
Yeah. A lot of it is repurposing. And there'll be some upskilling along the way. But you know, if you think about that business, our consulting business, it's been going through a bit of a transition of its own. And a lot of that business was driven by cloud migration activity a few years ago. And as we've kind of hit the peak of the bell curve for migration activity, we're on the other side of that now. We're seeing that same trend in our professional services business, the consulting business. And so AI Services is a new offering, but it's an opportunity to pick up some of that slack on the consulting side. And I think it's something that'll start to help our business in 2026 and even into 2027 and beyond.
I guess maybe just zooming out, when you think about the services business more broadly going forward, like, how do you think about that business from a top line and margin perspective going forward?
Yeah. So, you know, from a top line perspective, first stage is getting it back to flat, right? I mean, it's been declining as that migration activity has come down this year. So we need to stabilize that from a revenue standpoint. I think if you zoom out and think about that business, I guess on a relative basis to the rest of our business, you know, we're in the, I think, kind of 12- 13% range in terms of total revenue today. So probably something in that 10-15% range would be the right range for us. We still think that it's important to have some consulting services, and we believe that it's very complementary to the software business.
But it doesn't need to be as big as it, as it used to be at, at Teradata. From a margin perspective, we did hit a little bit of an air pocket earlier this year. Q1 and Q2, we actually had negative gross margins on the consulting side. And again, that was a lot of that migration activity coming down. We did, we did take some corrective actions in Q2 and Q3. We brought that margin back up to positive territory in Q3, I think 8.5% in Q3. And I think there's a little bit more room to go in, in Q4. So we are looking for that business to be profitable and a, and a contributor to the bottom line for sure.
Got it. And maybe just drilling down into that cloud migration piece, around Q4 specifically, you guys called out, you know, a few large customers that were considering on-prem versus cloud and sort of that hadn't made the decision yet. So maybe you could just talk through sort of what are the key sort of decision factors in those customers and how you can ultimately, you know, still monetize those customers, whether they're on-prem or in the cloud?
Yeah. No, it's an interesting dynamic that's been going on. And so I, you know, I think if I back up maybe a couple of years ago, it was all about the cloud. How do we get to the cloud? And we were doing the same thing. We were building out our cloud business. We were working very hard to migrate customers over to the cloud. Today, the conversation has shifted a little bit. And you've all seen at this conference, everybody's talking about AI and how do I make those AI investments and what do I need to do? And maybe more importantly, where do I want to be making those investments? And so we actually have customers that are working through this in real time with us.
Since we have the capability to provide a hybrid solution, if the customer wants to go on-prem, we can go on-prem with them. If the customer wants to go to the cloud, we can go to the cloud with them. We have some customers that are literally considering both. It may vary, honestly, depending on the type of workload and what they're ultimately trying to do. I think AI has changed the conversation a little bit because some of the old traditional concerns have been brought right back to the forefront. So things like security and governance and compliance, scalability, those are all coming back to the forefront of decision-making.
I think that's where we're starting to see some of these situations where you know we literally have customers that are considering a migration, but they're also considering you know expanding on-prem.
Got it. So do you think it's sort of very specific to those, you know, handful of large customers, or do you think it's sort of a broader across your entire install bases or sort of themes that you're seeing?
Yeah. I you know, I mean, every situation is unique, of course, but I think that, well, let me put it this way. If you think about where all the focus is and everybody wants to invest in AI, how do we become this autonomous enterprise? How do we have agents everywhere, you know, doing things that humans used to do? If you want to embark on that journey, you've got two paths. One school of thought is like, okay, you're gonna move everything to the cloud first and then start to build your AI solutions on top of that. Or you can work with data where it is today, and work with the existing data estate and get started on AI projects today. And so I think everybody's gonna have different approaches to this.
I think we benefit from being able to provide that hybrid environment if somebody wants to get going today.
Got it, and maybe just as we think about sort of getting to the other side of that bell curve of cloud migrations, following up on an earlier point you made, like, is there a go-to-market change that also happens? I mean, you mentioned the services piece and how that's sort of adapting.
Yeah.
But like, is there a broader go-to-market change that also sort of comes along with that?
Yeah. There is a little bit. I mean, it's. I'll say it's more subtle than dramatic, but, you know, again, a few years ago, we used a lot of sales calories on migration activity, and so we had a lot of people focused on that. And I will tell you, not having, you know, been here a couple of years ago at this company, but having gone through SaaS transitions before, those migration deals, they almost have gravity to them. They kind of just consume everybody's time and energy and attention. And they're typically big, you know, big deals, big transactions. When you free yourself from that and you're in a much more traditional land and expand kind of motion, it can actually be very freeing for the organization.
So, you know, the team has always been focused on expansions as well as new logos. But I would say, you know, looking ahead to 2026, there'll be even more so, you know, focused on the expansion activity. How do we get adoption with some of these new AI tools that we've developed? How do we start building out use cases with customers, and really expanding their, their activity?
Yeah. You mentioned new logos. I think it's a really interesting point that kind of flies under the radar is sort of the new customers that you guys are gaining, and I think, you know, that really does speak to the product investment that you guys have made.
Mm-hmm.
So maybe you could just talk about sort of that new customer activity you're seeing. I know maybe from a revenue standpoint, but maybe how you think about that part of your business.
Yeah. No, that's, it's a great question. I would agree that it has flown under the radar a little bit. I don't feel like maybe we talk about it enough. But we are having some success with new logos. Interestingly, over the last few quarters, we've seen new logo activity on-prem. So I do think there are opportunities out there for us, particularly in highly regulated industries. We've seen some opportunities in emerging markets. I think there's some things that we'll do from a product standpoint that would open up the more traditional channels and give us an opportunity to do more there as well.
Is there any theme amongst those customers, like a vertical or sort of, you mentioned regulated industries?
Yeah.
But like, is there any sort of theme amongst those customers of how they're using the platform or, you know, theme of what vertical they're in maybe?
Yeah. If there's a theme, I would say it is, you know, coming back to, you know, folks that are in regulated industries where there's high compliance concerns, governance concerns. You know, so we've seen that with some, you know, government contracts and things of that nature. We've seen that in the financial services industry. We've seen it in some of the, you know, the more emerging markets, where an on-prem solution is preferred. And so high level, those would probably be the key things.
Got it. You mentioned government. I know we've talked about federal a lot. A question comes up quite a bit. So maybe you could just quickly speak to sort of the federal exposure you guys have today and sort of the, maybe the opportunity there 'cause that's a little bit, I think, more relevant.
Yeah. I think there is still opportunity there. And again, it comes back to that notion of security, and really wanting to control the environment versus having something in the cloud. And so I do think there's continued opportunity there. There's some work that I think we need to do, in some cases, particularly in the U.S. federal government. But I think that for some of the other emerging markets, there's definitely opportunity there for us.
Got it. Maybe just shifting gears to competition. Like, how do you see the competitive environment changing? Like, do you think win rates? I mean, I know the overall business is sort of stabilizing, but have you seen win rates from a competitive standpoint stabilized? And maybe any pockets are you having the most success from a competitive standpoint?
Yeah. I do think that stabilization is probably the right word. I think that, again, if you go back a couple of years ago, and it was all about getting to the cloud. And, you know, I think we felt like we were in a little bit of a race to migrate our customers to the cloud before somebody else did. And, you know, today, I think a lot of that activity has run its course. I mean, there will still be migrations. There's still things that we're working on. But again, I think the dialogue around AI has really changed that conversation. And so, hopefully that's something that starts to, you know, move the market back in our direction.
and if you think about how and when you're gonna be able to deploy these AI solutions, having, you know, already being a significant part of the data estate and having that security and control around it, not to mention the context of the industry data models, I think gives us, again, an advantage, as some of these conversations start to take hold.
Yeah. And maybe just like on the go-to-market side, like, how do you feel about sort of broadly speaking, the go-to-market where it is today? You know, any big change? I mean, you guys have had a lot of changes. So maybe just how do you see sort of over the next 12 months, maybe where there are still pockets of improvement or sort of areas of focus maybe over the next 12 months?
Yeah. I think that there was a lot of work done prior to my arrival, and new leadership, you know, from the top down to, you know, even the department leaders. And I think that in 2025, what we've seen, you know, on the whole is just much better execution. I think all of you have had a chance to see that in terms of our externally reported numbers and the consistency that we've been able to drive, you know, over the first three quarters of this year. And so I think that, you know, on the whole, the team is just executing better. We've been better organized. I think that, I mean, you know, I'm excited to see what can happen next year. We, you know, we'll focus more exclusively on expansion activity.
We'll also focus on getting the AI Services up and running, and really start to capitalize on some of the products that we've introduced.
Got it. And you know, you've noted you're looking more at sort of the expansion side versus the migration opportunity. I mean, when you think about maybe the product and the go-to-market, I think we touched a little bit on the go-to-market, but maybe just on the product side, like, how do you position the product portfolio and also go-to-market, right, to capture that mix shift?
Yeah. You know, I would say at a high level, it's, it's some of the themes that, that we've been talking about. And so it, what we're ultimately trying to do is, is position the Teradata platform as a place where you can do this type of activity. And we've built out the use cases. We've built out, the POCs with customers. We're now going to start to operationalize that with AI Services. The products that, that we've delivered over the course of this year, if you think about like, Enterprise Vector Store, the MCP server, the Agent Builder, all of these things are tools that help enable that type of work. And so we're putting all of these pieces together, to be able to be that platform for AI.
You know, still more work to do as always, but I think that we've started to put enough pieces in place where we can have these kinds of conversations and then back it up with the services to get these projects going.
Got it. Maybe the other side of the coin would be on the cost side. As we think about margins going forward, I mean, you mentioned the services piece of the business, but.
Yeah.
Where do you see the most room on margins going forward, and how do you sort of balance that with a product investment that, you know, you know?
Yeah. We're going through our budget cycle right now for next year and also thinking about the longer-term planning, and you know, for us, particularly for next year, our priority is gonna be on the product development side of things, so we're looking for efficiencies across other parts of the business to be able to continue to fund product innovation. I think that there's opportunity for us on the cost of revenue side. I think there's some opportunity for us on the G&A side. We've done a lot of work already on sales and marketing, and again, like I said, we wanna try and maintain investment in the product side of things.
I think the net of all of that is, you know, if you kind of think about what we are trying to do, from an overall model standpoint, we are certainly trying to drive growth and ultimately that's gotta be the thing that carries us forward, but we also wanna be able to drive incremental profit and cash flow to the bottom line. You know, even this year in 2025, where we had a year where the P&L was challenged a little bit on the top line, we did some things from an expense standpoint to make sure that we could keep margins on par and make sure that we protect free cash flow.
I think that, you know, some of the changes that we've made this year will benefit us again in 2026, and we'll continue to look for ways to drop incremental profit down. And when we think longer term about like, how would we ultimately get to become a Rule of 40 business, it's gonna be a combination of the two. We're gonna have to drive growth certainly, but we're also gonna have to continue to make margin improvements.
Got it. Yeah. I imagine the margin expansion is easier when the top line is,
For sure.
Accelerating.
It's a lot easier. But you know, look, I think it's just something that you have to be dedicated to. You know, markets ebb and flow. A few years ago, companies weren't getting "paid" to generate margins. They were getting paid for growth. You know, that ebbs and flows a little bit. Growth is still obviously very valuable, and something that we wanna drive as well. I think there's an appreciation now for also having that profitability and free cash flow.
Yeah. And how, I guess, do you think there's sort of that cost versus, you know, like, wanting to have that investment be positioned for growth, but also, you know, being able to drive margin expansion at the same time, sort of that product investment versus, you know, driving?
Yeah. Well, it's kind of as I described. I think, you know, for us, we'll focus on opportunities around cost of revenue and other parts of the business so that we can preserve that R&D spending and preserve product development. And we think that, you know, when we look at the dynamics of the market around us right now, it's important for us to continue to invest in innovation to ultimately drive growth.
Got it. And when we think about, you know, free cash flow, you guys have a very, a healthy free cash flow profile. I mean, when you think about sort of a, a buyback versus M&A, sort of other uses of free cash flow, maybe just how do you think through those options, sort of why one versus the other, and maybe just sort of the, the process around how you think about deploying free cash flow? 'Cause it is a very important lever for you guys.
Yeah. Yeah. For sure. Well, I would say, you know, historically, over the last several years, we've devoted a pretty high percentage of our free cash flow to share repurchases, and we were just talking about this in another meeting. I think our share count at one point was upwards of 180 million shares, and we're now kind of in the 95-96 million range, and so over the last five years, we've bought back a lot of stock. This year, we committed to using 50% of our free cash flow towards share repurchases. We also just announced that we've re-upped the program, so our program was set to expire in December. We re-upped for another $500 million to go towards stock buybacks.
And so we've been very committed to that and we'll continue to be committed to that as a way to return value to shareholders. I would say that we're also open to M&A activity. We, you know, in recent years, we haven't done a ton of that, but I think that we're in a position now to start looking at opportunities and looking at things that could accelerate our product roadmap. You know, I would expect, if we were to do something, it would be more of a technology tuck-in type deal, something that we could use our free cash flow to finance and really be a way to accelerate some of the things we're trying to do from a product standpoint.
Is there any particular area maybe within the product portfolio where you think you should have, you need that incremental investment or where you think that sort of the M&A bolt-on opportunity could be a little bit more, you know, accretive to the business?
I'm gonna defer that one to my colleague here who runs corporate development for us. Yeah. I mean, I'm echoing John's opinion on tech tuck-in focus and kind of financing those with cash flow and the balance sheet. I don't think I wanna go into specific areas, but you know, I think Sumeet Arora, who's our new CPO six or seven months ago, laid out a pretty aggressive AI stack and roadmap a couple months ago at Possible that John mentioned. You know, I think we're doing a lot of that organically, but I think there's some things to accelerate or gap fill in that stack, and it's a very active market, right? I think you know or everybody knows, you know, my inbox gets hit pretty routinely.
You know, we're open to that, right? I think we're focused on that. Like John said, you know, I think anything that we can do to accelerate the roadmap, fill gaps, and potentially accelerate ARR growth. That's what we're looking at.
Yeah.
Yeah. I mean, we're not looking to be a roll-up here. You know, we're looking for things that will complement our organic activity, and really accelerate some of the things we're trying to do.
Got it. Maybe just, you know, one more on the growth opportunity before we wrap it up.
Yeah.
When you think about, maybe longer term, the business does seem to be stabilizing. You haven't gotten to a good cadence here of beats. I mean, so without guiding to next year, like, can you just walk me through sort of the key puts and takes as you think about the business next year, the biggest growth drivers, where you see the most opportunity? Maybe just lay it all out for us to wrap it up.
Yeah. Yeah. No, certainly. I mean, look, you know, especially coming off of the heels of last year, you know, this year, the very important first step was stabilizing the business. And there were some critical elements to that for us. One was getting total ARR growth back to positive territory. And we were able to do that in Q2 and again in Q3, you know, albeit with a little bit of, you know, foreign exchange benefit, but still got that metric back to positive territory and our guidance has us in positive territory again for Q4. So that was an important milestone for us to hit in the turnaround of this. The second thing is that we, you know, we continued to focus on cost efficiency.
We wanted to protect margins and we wanted to protect free cash flow. And we've done those things. And I think we ultimately needed to start demonstrating some consistency in the business. And I think we've been able to do that thus far this year in terms of our, you know, first three-quarter reports. And so that was an important effort just to kind of get us back onto stable ground, put a floor out there for the stock in terms of our free cash flow and give us a solid base to build on in 2026.
We did make some comments on our Q3 call about 2026, and we felt strongly that we could continue to grow total ARR in 2026, and we should see some continued benefit from a free cash flow standpoint from some of the things that we've done this year. And so we'll continue to focus on those two elements as, you know, among others, but you know, continuing to make improvement on that would be the next leg of this journey and ultimately driving higher growth with some of the innovation that we're doing around AI and other things.
Awesome. Yeah. I know it's been great to see the business stabilize and look forward to checking back in this time next year.
Awesome.
Thank you so much, guys, for being here.
Thanks again. It's been a great conference. Appreciate it.
Thank you.