Good. Perfect. Hey, welcome to our next session. Really happy to have the Teradata team here. John, if you think, Q3 seems like a very good quarter for you guys. Share price reaction was up a lot. Congratulations.
Yeah. Thank you.
To bring everyone up to speed, like, can you talk a little bit about the growth upside? Kind of describe the quarter.
Yeah. Happy to, and thanks very much for the invitation to the conference. It's been a great event for us, and really appreciate the opportunity to present here today. You know, if I look back at Q3, it was interesting. I would say you almost separate it into the fundamental side of things and then the stock reaction, and from a fundamental standpoint, I think we delivered a really solid quarter. We had Total ARR in positive territory, which was ahead of schedule for us. We had improvement on the margin side of things. We had a strong quarter from a free cash flow standpoint, from an earnings per share standpoint, so from a fundamental point of view, there was good upside to the quarter, at least relative to the consensus expectations.
Now, if I'm being honest and I look at all of that and I say, well, was that an up 30% kind of quarter? I don't know. What was that.
But, and so if you separate out the stock reaction, I think coming into the quarter, I felt like we were undervalued.
And I think if you look at our stock on a historical basis, on an even just on a free cash flow multiple basis, I think we were trading at a level that was heavily discounted, and so I think we've recouped some of that at this point. You know, with hindsight, I think we started to make a little bit of a move after the second quarter.
We had Q1 was in line or maybe a little better than expectations. Q2 was the same. I think initially we made a little bit of a move after Q2, but then we ran headfirst into a tough market for software stocks. And I think people kind of forgot until we got to Q3 and did it again.
That's nice to hear, and then we did also see, you know, like, you know, I see it in my conversation there's more excitement around Teradata.
Again, like, from the conversations you had since the quarter ended, like, how what kind of change in tone do you get from investors?
Yeah. There has been a lot more interest, f or sure. So there's been some nice follow-through on the stock, but also just we've been out on the conference circuit. I think this is our fourth conference this quarter. And there's been a lot of interest. Even if I just, you know, I've only been around for six months or so, if I compare and contrast to about 90 days ago, the level of interest today is considerably higher, and it's been good. It's been focused on the fundamentals of the story and where does Teradata sit in this overall environment for AI, and so there's been a lot of good enthusiasm, and I think the stock movement caught people's attention, and there's been good follow-through from there to get to know the story again.
We talked a little bit about the quarter, but like, from my perspective as well, the operating profit, cash flow were kind of like the really big highlights for me.
Can you talk a little bit about, like, the initiatives, that drove that? Like, what were the factors there that we should be aware of?
Yeah. For sure. We're very focused on that side of the equation.
As we sit back and think about how are we going to ultimately drive shareholder value, a very first important step is doing some of the things that I just described. One, get a little bit more consistency in the business from a quarterly standpoint, get total ARR into positive territory.
We've continued to focus on the cost side of the equation to make sure that our margins are in line and our free cash flow is in line. And ultimately at this stage, what we're trying to do is build a solid foundation for 2026 and beyond. And I think the very first important piece of that foundation is the free cash flow.
If I look at our stock and I wanna get a floor in place for supporting the value of our stock, it comes back to free cash flow. And so we're very focused on that. And we've done a number of things over the last 12 to 18 months, really.
to make sure that we're optimizing our cost structure and enabling ourselves to continue to drive margin improvement in free cash flow.
Yeah. Okay. Yeah. Makes sense. And then, like, growth is, but as you mentioned, growth is kind of going to be the main question because you can't kind of d o margins forever? Can you talk a little bit about where we are on that journey?
Sure. I would agree with you that, if I think about the stages of what Teradata needs to go through, especially after last year, the first stage was stabilize.
And I think we've demonstrated that this year. And then it's build the foundation for continued expansion. And we talked about this a little bit on our third quarter call. We feel confident that we can get back to total ARR growth this year. We did it the last couple of quarters. And we've built that foundation to continue to drive ARR, total ARR growth next year.
We're also focused on driving free cash flow growth next year. And so, that's building the foundation. We are, from an investment standpoint, we are prioritizing R&D.
And we believe that continuing to invest in product innovation will help drive the next leg of growth for us. And so I do completely agree. I mean, I think there's benefit to be had in our stock over the next, you know, one to two years just by margin improvement and demonstrating durable free cash flow. But then ultimately, as a public company, you need to demonstrate growth, and that's what we're ultimately driving towards.
Yeah, and then talk a little bit about, like, at least for me, I sensed a little bit of change in tone, like, you know, a few quarters back it was all about Cloud ARR.
And now it's more about total ARR. Kind of talk a little bit of what, what are you seeing there in the market that drives that?
Maybe it's just me, but, or like, yeah.
No, I think that's a fair observation, and I would generally agree. I think that when we look at what we're seeing from our customers, there's more discussion now about what should be on-prem versus the cloud. It's not just running to the cloud for the sake of being in the cloud.
And so I think that has influenced us a little bit in terms of even just how we're talking about the business. And I will tell you though, from a financial point of view, when I look at the rest of the model and what's gonna ultimately drive profitability and free cash flow, we need total ARR to grow.
Cloud growth is important to us. It's the highest growing piece of the business and will continue to be a key driver. But we need the total pie to grow to then drive higher recurring revenue and ultimately higher margins and cash flow.
L ike, if you think about it, like, the different things, like, in the past there was cloud, like, you know, people moved to the cloud, so I get my Cloud ARR number up, thank you very much, and it's more like a transfer from one.
Now if it's total ARR, like, how do you, what are the initiatives that you can see to kind of drive that number?
Yeah. I think for several years, the market itself was all about the cloud.
We were doing the same. Six or seven years ago, you know, we launched our cloud product. We started to migrate our customer base to the cloud. In a relatively short period of time, you know, we drove that up over $600 million in ARR. And so we demonstrated that we can be a cloud provider as well.
I still think that's important, but to your point, some of that is left pocket, right pocket. You're migrating customers from on-prem to the cloud, and that was driving some of the exponential growth we saw a few years ago. Today we're starting to reach a little bit more steady state, and in fact, if you look at our charts on our website, our IR charts.
You'll see the breakdown of our ARR between cloud and on-prem. And you'll see over the last four quarters that the on-prem piece has started to stabilize.
In fact, in Q3, the on-prem ARR actually increased, and so that piece stabilizing is really important for the whole model because it's a lot easier to grow if that piece is stable versus declining.
Right? And so for us, we're looking to drive the whole business. And we think that, in terms of some of the way customers are engaging with us, now, particularly around AI investments, I think there's an opportunity to grow both on-prem and the cloud.
Yeah. Okay. And then, if you think about it there, what's driving growth, like, if you think about the growth factors, so there's, you know, like, find new customers, there's upsell better.
There's SKU management, etc.
Like, talk a little bit about how you think about the different factors here.
Yeah. For us, I would say the primary focus is on expansions in the customer base.
We are well- embedded in the Global 1000 and some of the largest customers in the world, and we've been working with them in some cases for decades, and we're looking for opportunities to continue to grow and expand with those customers. That's not to say that we've just thrown in the towel on new logos. Y ou know, we're very interested in driving new logo activity as well, and in fact have had some success in recent quarters, even on-prem with new logos. But I would say the bigger near-term opportunity is expanding with the customer base. And we're looking at AI as a real opportunity to drive that expansion. And so with the Teradata platform today, we've started to layer in additional products, things like Agent B uilder, things like AI factory, our MCP Server, E nterprise Vector Store, tools that help get the customer up and running on AI.
We've also layered in AI services. We just recently announced this in October and at our customer conference. And this you can think of this as kind of that forward-deployed engineering group that will help enable customers to get projects up and running. We're already doing the proof of concept. This is the next logical step to get a project up and running and get them live.
I f you think about it, like, obviously there's a lot of talk about these, you know, cloud vendors in your space. But the market has been incredibly broad and has been very, you know, well each with so many different players in the market. And I'm thinking, and I'm just wondering what is the opportunity, if you think about new customers around, like, Netezza, I think IBM put it end- of- life, Vertica s till there. Like, you know, so how do you think about, like, customer growth?
Sure. There's, I mean, there's opportunities on both sides for us.
I think that, you know, in some ways, we almost compete in two adjacent markets because we can compete with the historical on-premise providers, and I think we do quite well in that world. and then we also compete on the cloud side. and then I guess we have the unique opportunity to go after customers that are looking to do both.
And so, you know, being able to provide that hybrid environment is a unique differentiator for us. And so, yeah, certainly, as we see changes in the historical on-premise part of the market, those are opportunities for us.
And then you mentioned AI already, like, and I just came out from a start-up session, where it's all about, like, you know, AI's only as good as the data.
But you always have been, like, a centerpiece of where customers kind of keep their information-rich data, clean data, which would be in theory very valuable.
Like, how do you think about your role in this world and what are you doing about it?
I couldn't agree with you more. So I think that I do think data is at the heart of it.
And so if you think about, historically what Teradata has done, to your point, we've been the place where that data gets stored, and then we make it available for the analytics and other elements that come on top of that, including now AI. And as we start to look forward and think about the opportunity, we're looking at it from really kind of two points of context. One is just, you know, being the storage for the data.
The other is providing the context around that data.
And so we have decades of operating with very large customers in every major industry, you know, whether it's financial services, retail, automotive, banking, aerospace. Like, we've been in those industries for decades.
And we've built up industry data models in those areas. And so we think providing that context in addition to the data is critically important in an agentic world.
And so, you know, I think that we play a key role in this.
Yeah. Okay. Perfect. And then is there, do you think it's going to be more like playing out in the public cloud? So it's the cloud ARR that comes back into focus, or do you think you can kind of be that player on both sides as well, on the on-premise side and on the cloud side?
I think it could potentially be in both.
Certainly cloud has been the fastest growing piece of our business. I would expect that to continue, but I think there's opportunities in both, and there's opportunities from a hybrid perspective as well. You know, it's interesting when you think about some of the historical strengths of Teradata, and really we were built for the enterprise. We were built for large enterprise, and we were built to operate at very large scale.
And to do it very efficiently. And that's exactly what you need in an agentic world. You know, our chief product officer is fond of saying, you know, agents never sleep." And it's true. You think about human interaction with the system, and maybe somebody's working eight or 10 hours a day.
You think about an agent who's literally on 24 by 7, and the capacity that's gonna be needed to handle that sort of activity.
You know, I think that actually bodes well for us because we've demonstrated through our architecture that we can operate at that kind of scale and do it very efficiently for the customer.
Okay, so if I put it together, it's like you, as a data vehicle, you're kind of really important on both, you know, cloud and on-premise, and then there's the adjacent products. Like, how do you think about productizing this now? Like, if I'm a customer and I come to you, like y ou know, how do I buy this?
Yeah. I would say continued work and evolution on that front.
Our product team is very busy as we speak. I think there'll be some things that we'll announce over the first half of 2026 that will help us in that regard also. I do think as all of us collectively, the market, dive deeper into AI, we might have to look at some creative ways to price and package t he solutions going forward. Today, it's still largely volume-dependent for us. And so we think in terms of capacity, and ultimately customer usage of the Teradata platform and things that drive additional workloads and drive the need for additional capacity result in ARR for us today.
And then with your kind of expanding role in this new AI world, like, should that show up as well? And I saw I'm the number guy here.
Sure. Sure. I can appreciate that.
Should that show up in kind of renewal rates and stuff like that as well as a platform becomes more, you know, strategic again?
Or, you know, it was always, always strategic, but you get another layer of strategic on top of it now with AI. Does that kind of then drive kind of renewal rates, different renewal rates? A nd can you start seeing that already?
Yeah. We've done better on retention rates throughout 2025.
I would expect these types of opportunities to continue to help us improve that a nd to drive overall ARR growth. And to the extent that we can make the platform relevant for these types of workloads, useful for these types of workloads. You should see that in better, you know, continued improvement on retention side, and really on the net expansion side of things.
Yeah. Okay. Perfect. Yeah. Makes sense. And then, if you think about it, like, and that's more like an operational question. If you think about Cloud ARR as a focus, that's kind of one mindset from a sales perspective. If you look at more total ARR, it's another mindset from a sales perspective.
Talk a little bit about the evolution of your go-to-market, go-to-market force. The other thing is also, like, at the moment the growth is not like, you know, not quite there where we want it.
How much can sales capacity help you out there as well?
Yeah. You know, I think of it maybe slightly differently, and so as opposed to having to sell cloud versus on-prem, in a lot of ways, that's a similar type of motion because you're ultimately selling the platform, and it's how the customer chooses to deploy it.
What I think our sales force needs to continue to do is develop those use cases around AI.
And be able to sell that kind of capacity, right? That kind of story, if you will.
And demonstrate to customers how you can use Teradata in that environment. And so I think that's the evolution that needs to take place. And I think it already is. We have a team that's been dedicated to AI and AI use cases, and they've been working directly with customers, and they're on track to do 150 proof of concepts this year.
And t hat's a very important first step. I mean, these are extensive projects that we've done with the customers to go in, really analyze everything that they're doing, and then put together a roadmap for them to follow to start to embark on this AI journey, and I mentioned the AI Services earlier.
That's the next step in this, and so now we've launched this service, which can take that proof of concept, actually spin it up into a project, and get to something tangible.
And get to something that can go live. And so we think that the combination of those two things will ultimately result in additional ARR for the company.
Yeah. Okay. And then, you as a CFO, like, what do you use then as a metrics to look out for, like, okay, more sales capacity could work here? I mean, like I don't think in the early stages because it's a lot about upselling, you know, kind of working with the existing customers. But like h ow do you think about that dynamic?
Yeah. We evaluate that pretty regularly, and so in fact, we're, you know, in our budgeting cycle right now.
And I would say for 2026, we're prioritizing more on the R&D side and product innovation. But we are also focused on sales capacity and expansion of the sales force and also developing things like AI services. And so, you know, we're placing our bets very strategically and frankly looking to optimize other parts of the business so that we can fund some of those initiatives.
Remind me, on that note, like, what's the margin framework that you gave out, like, in terms of, like, how, like, margins are evolving from here as part of the journey?
We haven't really given a framework per se, and I would admit that maybe we're overdue for something like that. I think it's been quite a while since we've had an analyst day, but what we have talked about is driving a profitable growth strategy, which i n my mind means we're doing two things. One, we are still investing for growth, and first and foremost, we have to find a way to generate incremental ARR in the business, but secondly, we wanna do that in a responsible way, and we wanna do that in a way where we can also drop incremental benefit to the bottom line.
And again, it kind of comes back to how are we gonna drive shareholder value when I look at the stages of where we are and stabilizing the business and then expanding from there. At this point, I think we still need to drive a very balanced approach. If I think about how could we get to the Rule of 40 someday, it's gonna have to be a balanced approach of both growth and incremental benefit on the bottom line, i ncremental margin. Now, if we get to the point at somewhere, you know, somewhere in the future where we're in a high growth scenario, I'll come back and reserve the right to change my answer, but today, you know, we're very focused on driving that incremental benefit on the margin side.
Yeah. Okay. And you emphasized quite a bit, like cash, cash flow, cash generation is kind of important to you.
Which kind of makes sense at this stage as well.
How do you think about the usage of cash? You know, there's buybacks, obviously.
At some point, as growth is returning, is the question, do you pull back on that one and maybe M&A becomes more important, etc.? How do you think about that?
We have been very, I would say almost aggressive in terms of share buybacks over the last s everal years.
This year, I think we're on track to use 50% of our free cash flow towards buying back our own stock. In prior years, we were closer to 70%-75%. So I think we have been very aggressive on the buyback side. We did just re-up it. And so our buyback was set to expire in December. And so the board just authorized a new buyback of $500 million, that'll kick in January 1st. And so we intend to continue to buy back stock and support shareholders in that way. I would say we're also open to other opportunities. And so, we've got a team that's actively looking at M&A opportunities again.
I think for us, it would be something that would be much more in the technology tuck-in category. We're looking for things that can accelerate our roadmap, particularly in AI.
And so, you know, we could potentially use, you know, some of our balance sheet for that. I think we've got plenty of room to, you know, to do a few things.
Yeah. Okay. Yeah. Makes sense.
And then, if you think about the evolution for you guys, there's, you know, in this new AI world, you know, there's just certain players. If you look at you from a technology perspective, you were always like actually one of the best technology companies out there, you know, like the way you kind of work with data was always kind of leading in the industry.
If you think about going back to growth as well, like now that you're in the cloud, you're well- established in the cloud, like how much of that is kind of changing momentum in the market in terms of mind share? And so, you know, you talked about R&D, but like there's also then the question is like, is it ex, is it an R&D problem or is it a, is it more sales and marketing kind of, debate?
Yeah, well, for us, I would say the focus on R&D is about capturing the opportunity that's right in front of us.
And again, if I step back, the big conversation change has been AI w ithout a doubt. A nd if you go back a couple of years ago, it was all about cloud, cloud for cloud's sake, right?
It's just like, let's just get to the cloud. You didn't really need anything more than that. And today, the conversation is a little different. And the conversation is around how do I start to develop and deploy AI solutions?
How do I become an autonomous enterprise? And that's a little bit of a different discussion. And, and I think there's a couple of different paths, a couple of different opportunities. There's one school of thought that is, hey, first you need to migrate everything.
Right?
This is kind of a little bit of déjà vu all over again, but it's the original premise of an enterprise data warehouse. First, let's migrate everything to a data warehouse, and then we'll put the analytics on top of that.
And so today, you have version two of that, which is let's migrate everything to the cloud, and then we'll do AI on top of that. That is one approach.
The other approach is that you could start your AI journey today, and you can work with the existing data landscape that you have.
Teradata is firmly entrenched in that data estate at Global 1000 customers, and so what we're doing from a product standpoint is building out that toolset and that capability so that customers can start their AI journey on top of Teradata.
Yeah. Yeah. Yeah. Okay. That makes a lot of sense. Yeah. Okay. Last question for me is like, if you think about it, from an organizational perspective, as a CFO, like you're there and not so long in the company.
So when you came in, like when you walked into the organization, what were the things where you realized, okay, this is where I can help them. This is kind of where I can make a difference?
Yeah. I think, I mean, look, in my role and my job, it's ultimately gonna come back to the numbers, and it's gonna come back to how do we drive the economic model for Teradata and how do we ultimately deliver shareholder value? And how do we do that over a longer-term period? It's not just a one-year deal.
And so we focus quite a bit on the forecast and long-range planning of the business and where are some of the key areas where we can drive incremental value. And so cost of revenue is one area that we're very focused on right now. And I think there's. We actually have already made some good headway on the professional services part of our business. We saw that in the third quarter. I think there's still more opportunity there. But we're also laser-focused on the recurring side of the business and making sure that we continue to improve margins there. That would give us more capacity, if you will, for operating expenses.
Right? And give us the opportunity to continue to invest in R&D as well as sales capacity as needed. And so we'll look for ways to optimize the G&A side, the cost of revenue side so that we can invest in the other areas.
So then, if it's slightly less cloud and more on-premise, that should help G&A though, or.
That would help a little bit.
No, not G&A, like.
That would help on the gross margin.
Gross mar gin.
Yeah. Yeah. Sure.
Yeah.
And so, yeah, I think, you know, ultimately, I think that's in large part what the CFO role is about, is helping to guide the business towards financial objectives, start to break them down into areas that people can focus on, shine some light on areas where we have opportunity and d rive value that way.
Perfect. Hey, John, that's a great closing statement. Thank you.
Thank you.
Hey, good to have you here.
Appreciate it.
Thank you.
Thank you.
Thank you.
Thank you.