Teradata Corporation (TDC) Earnings

Management highlights

### Strategic Positioning for the Agentic AI Era - Global enterprises are under pressure to move AI into production, with 90% of surveyed senior tech leaders planning to increase agentic AI investment in the next year, but 67% have only seen small or emerging positive returns to date - 40% of AI pilots fail to reach production due to inadequate supporting infrastructure, and 77% of executives report less than 20% of enterprise data is sufficiently described for reliable agent use - Teradata launched its Teradata 3.0 strategic vision anchored by the new Teradata Autonomous Knowledge Platform, built to support agentic AI deployment while retaining customer control, governance, and performance; core platform components reached general availability in early Q3 2026, just one quarter after announcement - Teradata is a founding participant in the Agentic AI Foundation to shape open industry standards that support hybrid, on-prem, and sovereign AI deployments ### New Product Launches and Innovations - **Teradata Cloud**: Purpose-built for the unique computing demands of AI agents, with separate active and elastic compute to support always-on critical workloads and on-demand AI capacity - **Teradata Factory**: Co-developed with Dell Technologies, it delivers integrated CPU/GPU infrastructure for on-prem private AI deployments to meet data sovereignty requirements, with general availability planned for H2 2026 - **Teradata AI Studio**: Unifies analytics, models, agents, and vector services in a single environment, supported by Teradata's AI consulting services to accelerate moving AI projects from concept to production - **Terra**: Teradata's natural language agentic coworker that provides governed access to enterprise data for all user types, with built-in support for data analysis, coding, and multi-agent orchestration - Additional Q2 innovations include an enterprise data analyst agent available via AWS Marketplace and expanded native support for open table formats to query distributed data without movement or duplication ### Commercial Execution and Customer Wins - Multiple early customer wins across industries and regions include a South Asian telecommunications provider selecting Teradata Factory for AI modernization, a major Japanese banking group selecting Teradata Cloud for cloud modernization, and expansions with an Asia Pacific federal tax authority, a large North American financial institution, and a major U.S. healthcare company - Teradata was named a Visionary in Gartner's 2026 Magic Quadrant for AI Platforms for Data Science and Machine Learning in its first year of participation, an recognition that did not include the newest platform announcements - The sales organization is energized by new offerings, with strong customer interest and positive market feedback; the company is seeing new logo wins, existing relationship expansions, and workload growth across both cloud and on-prem environments ### Financial and Balance Sheet Highlights - Non-GAAP operating margin hit 21.5% in Q2, up 510 basis points year-over-year, with year-to-date operating margin at 24.5% up 540 basis points from H1 2025 - Adjusted free cash flow was $127 million in Q2, driving a $528 million year-over-year increase in net cash position to $323 million at quarter-end - Teradata repaid the full remaining $450 million term loan balance and repurchased $40 million of shares in Q2, maintaining its target of allocating 50% of adjusted free cash flow (excluding the SAP settlement benefit) to share repurchases

Guidance

- Management reaffirms full-year 2026 guidance ranges for total ARR, total revenue, and recurring revenue - Full-year 2026 non-GAAP earnings per share guidance is revised upward to a range of $2.65 to $2.73 - Full-year 2026 adjusted free cash flow guidance is revised upward to a range of $330 million to $350 million, driven by strong first-half performance, improved recurring revenue linearity, and the payoff of outstanding debt - Modest sequential dollar total ARR growth is expected from Q2 to Q3 2026, with the majority of full-year ARR growth expected to occur in Q4, consistent with historical seasonal selling patterns - Q3 2026 recurring revenue is expected to decline 2% to 4% year-over-year, while total revenue is expected to decline 4% to 6% year-over-year, due to higher upfront on-premise revenue recognition in H1 2026 under ASC 606 accounting rules - Q3 2026 non-GAAP diluted earnings per share is guided to a range of 55 cents to 59 cents, with a projected non-GAAP tax rate of 23% and weighted average shares outstanding of 96.7 million - Management expects lower cloud migration activity in 2026 compared to prior years, which has already been factored into full-year guidance; cloud ARR is still expected to trend toward low double-digit annual growth over the long term, with normal quarterly variability in cloud-on-prem mix

Segment performance

Teradata reports results across core recurring revenue and consulting services segments, in addition to annual recurring revenue (ARR) broken out by cloud and on-premise: 1. Total ARR: Grew 1% year-over-year as reported, 2% in constant currency. 2. Cloud ARR: Grew 8% year-over-year as reported, 9% in constant currency, representing approximately 25% of total ARR based on growth trends. 3. Total revenue: Q2 2026 total revenue was $410 million, flat year-over-year both as reported and in constant currency. 4. Recurring revenue segment: Q2 2026 revenue of $363 million, up 3% year-over-year as reported (2% in constant currency), contributing 88.5% of total Q2 revenue. Recurring revenue gross margin hit 67.8%, up 30 basis points year-over-year, driven by improving cloud gross margin. 5. Consulting services segment: Q2 2026 revenue of $39 million, down 24% year-over-year as reported (23% in constant currency), contributing 9.5% of total Q2 revenue. Gross margin was flat year-over-year, with lower-than-expected revenue impacting quarterly margin performance.

Risks & headwinds

- Product adoption of the new Teradata Autonomous Knowledge Platform and Teradata Factory will follow a typical launch cycle, with broad monetization expected to occur gradually rather than immediately in 2026 - Teradata Factory relies on third-party hardware, and ongoing global hardware supply chain constraints and elevated memory/storage prices could impact delivery timelines and margins for the new offering in 2027 - Most early AI capability adoption occurs on existing Teradata platforms purchased by customers, creating a near-term lag in ARR growth monetization compared to some cloud-native AI competitors - All forward-looking statements are subject to inherent risks and uncertainties that could cause actual results to differ materially from current projections, as detailed in Teradata's SEC filings and earnings release

Analyst Q&A

• Q: Why is full-year 2026 guidance shaped for higher first-half growth and expected second-half sequential declines, given the strong demand environment and new product launches? /

  A: Management confirms strong customer demand for the new AI offerings, but the revenue shape is driven entirely by accounting timing under ASC 606. More upfront on-premise subscription revenue was recognized in the first half of the year than initially projected, leaving less revenue to be recognized in the second half. Full-year total ARR and total revenue guidance remains on track, and the majority of full-year growth is still expected in Q4 as normal; new product upside has not been included in the current guide. A Q2 earnings beat that outpaced the full-year EPS upward revision is also due to this same timing shift of revenue recognition to the first half. (319 words)

• Q: How does Teradata Factory create competitive differentiation and pull-through for the rest of the business, and what is Teradata's priority ranking for capital allocation now that the balance sheet is strong post debt payoff? /

  A: Teradata Factory is a next-generation on-prem architecture with integrated GPUs from Dell Technologies that enables customers to run AI workloads natively next to their data, which is highly attractive for customers requiring data sovereignty. The Dell partnership also expands Teradata's go-to-market reach, and the offering already has early orders despite launching in H2 2026. For capital allocation, management ranks organic R&D investment as the top priority, followed by the existing share repurchase program (targeting 50% of adjusted free cash flow), and finally strategic bolt-on M&A. (212 words)

• Q: Why is AI monetization lagging the acceleration seen at peer companies, and what is the outlook for cloud ARR growth and customer migration activity? /

  A: The monetization lag stems from the fact that most early AI adoption on Teradata's platform leverages existing customer capacity that has already been purchased, rather than requiring immediate incremental ARR. Management's primary focus is on total ARR growth rather than just cloud ARR growth; the long-term target for low double-digit cloud ARR growth remains intact, with quarterly variability in cloud-on-prem deal mix expected. Peak cloud migration activity occurred 1-2 years ago, and management has already factored lower migration volumes into the 2026 forecast, consistent with current market trends. (209 words)

• Q: Are elevated hardware prices and supply chain constraints impacting customer buying behavior for on-prem offerings? /

  A: Teradata has already adjusted pricing for existing platforms, and Teradata Factory has a new pricing model built to reflect current hardware costs, to protect operating margins. The company pre-bought sufficient inventory for existing platforms in 2026, so there is no material impact on full-year 2026 results. Supply chain pressure is only expected to potentially impact Teradata Factory in 2027, which management is already monitoring closely. There has been no meaningful change in customer buying behavior; the Dell partnership has helped expedite delivery timelines for customers, and Teradata's recurring revenue commercial model avoids large upfront CapEx requirements for clients. (201 words)