Teradata 2025 Q2 Earnings Misses Targets as Net Income Plummets 75.7%

Teradata (TDC) reported its fiscal 2025 Q2 earnings on August 5, 2025, with the company delivering mixed results across key metrics. Despite outperforming revenue and EPS expectations within its guidance ranges, the overall performance reflected a challenging operating environment. Teradata reiterated its full-year outlook for Total ARR, Cloud ARR, and Free Cash Flow but guided for continued revenue declines and lower-than-expected profitability in the coming quarters.

Revenue

Total revenue declined by 6.4% to $408 million in Q2 2025, compared to $436 million in the prior year. Recurring revenue, a key segment for Teradata, came in at $354 million, a 4% decrease from $368 million a year ago. Product sales, which include perpetual software licenses and hardware, dropped 40% to $3 million, while consulting services revenue declined by 19% to $51 million. Recurring revenue constituted 87% of total revenue, up from 84% in Q2 2024. The company also reported a 6% year-over-year decline in total revenue, driven by a 5% decrease in product sales and a 20% drop in consulting services revenue in constant currency terms.

Earnings/Net Income

Earnings per share (EPS) for Q2 2025 fell sharply to $0.09 from $0.38 in the same period in 2024, a decline of 76.3%. Net income also dropped significantly, from $37 million to $9 million, a 75.7% decrease. GAAP gross margin was 56.4% compared to 60.8% in the prior year, while non-GAAP gross margin was 58.3% versus 62.2%. Operating margins also declined, with GAAP operating margin at 5.9% and non-GAAP at 16.4%, compared to 15.1% and 22.0%, respectively, in Q2 2024. The earnings shortfall highlights a significant slowdown in operating performance.

Price Action

Following the earnings release, Teradata’s stock price fell by 1.89% during the latest trading day. Over the past week, the stock tumbled 8.50%, and it has declined 12.84% month-to-date. The market’s reaction appears to reflect disappointment over the earnings and revenue declines, despite the company’s performance being above its internal guidance.

Post Earnings Price Action Review

A post-earnings trading strategy of buying Teradata shares and holding for 30 days resulted in a -30.14% return, significantly underperforming the benchmark, which recorded a 0.00% return. The Sharpe ratio for this strategy was -0.31, indicating poor risk-adjusted returns and heightened risk aversion among investors. Notably, the maximum drawdown was 0.00%, suggesting that while the strategy failed to generate returns, it did not incur significant losses during the period.

CEO Commentary

Steve McMillan, President and CEO of Teradata, highlighted the company’s strong execution in Q2, particularly in exceeding recurring revenue and EPS expectations. He emphasized Teradata’s leadership in hybrid data and analytics environments for AI, noting the importance of high-quality, governed data in driving successful outcomes. McMillan expressed confidence in Teradata’s position to support customers in building modern data platforms and remains optimistic about the company’s long-term growth trajectory.

Guidance

For Q3 2025, Teradata expects recurring revenue to decline by 4% to 6% and total revenue by 7% to 9%, both in constant currency. GAAP diluted EPS is forecasted to range from $0.24 to $0.28, while non-GAAP diluted EPS is expected between $0.51 to $0.55. For full-year 2025, the company reaffirmed public cloud ARR growth of 14% to 18% and total ARR growth of flat to 2%, while recurring revenue is expected to decline by 3% to 5%. Free cash flow guidance remains at $250 million to $280 million, with total revenue expected to fall by 5% to 7% year-over-year.

Additional News

Over the past three weeks, Teradata has maintained its strategic focus on cloud and hybrid data analytics solutions without announcing any major M&A activity or executive changes. While no new share buyback programs were introduced, the company’s cash flow performance remained consistent, with $39 million in free cash flow reported for Q2. The absence of new strategic initiatives or capital allocation announcements suggests the company is prioritizing execution over aggressive expansion or shareholder returns in the near term. Investors may await further clarity on how Teradata plans to navigate a challenging market and sustain growth in AI-driven analytics.