Q2 2025 Teradata Corp Earnings Call
Good afternoon. My name is Ba, and I will be your conference operator today.
At this time, I would like to welcome everyone. To the Terra dotta second quarter 2025 earnings call.
All lines have been placed on mute to prevent any background noise. And after the speakers remarks, there will be a question and answer session.
If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad,
Star then 2. Thank you.
I would like to hand the conference over to your host today, Chad Bennett, Senior Vice President of Investor Relations and Corporate Development. You may begin your conference.
Good afternoon and welcome to Paradise. This is the 2025 second quarter earnings call. Stephen McMillan, President and Chief Executive Officer, will lead our call today, followed by John Eader, Teradata's Chief Financial Officer, who will discuss our financial results and outlook.
Our discussion today includes forecasts and other information that are considered forward-looking statements. While these statements reflect our current outlook, they are subject to a number of risks and uncertainties that could cause actual results to differ materially. These risk factors are described in today's earnings release and in our SEC filings, including our most recent Form 10-K and in the Form 10-Q for the quarter ended June 30, 2025.
That is expected to be filed with the FCC within the next few days. These forward-looking statements are made as of today and we undertake no Duty or obligation to update them.
On today's call, we will be discussing certain non-gaap Financial measures which exclude such items as stock-based, compensation expense, and other special items described in our earnings release.
We will also discuss other non-gaap items such as free. Cash flow constant currency comparisons and 2025 revenue and ARR growth Outlook and constant currency unless stated otherwise all numbers and results discussed on today's call are on a non-gaap basis.
A Reconciliation of non-gaap to gaap measures is included in our earnings release, which is accessible on the investor relations page of our website at investor.net cam.
A replay of this conference call will be available later today on our website. And now I will turn the call over to Steve.
Thanks, Chad, and hello, everyone. We have a date delivered. Well, in Q2, as we continue to see improved execution across the company, we delivered total ARR of $1.49 billion in Q2, up 2% year-over-year as reported. This gives us additional confidence in our ability to achieve our fiscal targets. We are seeing improvements in linearity in both expansions and renewals, resulting from the go-to-market actions that started in the middle of 2024 to improve our sales execution.
We experience better deal execution in Q2 with some deals closing in the quarter that had been expected in. Q3, we see customers recognizing the importance of and the value of strong data management capabilities to underpin their Ai and genei initiatives.
we meaningfully improved overall retention rates again in Q2 and we expect this to continue for the full year 2025
Thanks to the team's positive Air Force and managing ongoing contracts with customers. We were able to extend some contracts into the back half of the Year. From a cloud perspective. We delivered ARR of 634 million as we see continued migrations and expansions
The solid 15% constant currency Cloud ARR growth is in line with our full-year guidance range of 14% to 18%.
I'll start the quarterly update with the new executive leadership members. We recently brought on.
During our last earnings update. We introduced to meet Aurora, our new Chief product officer and I'm pleased to have John ederer our new CFO on the call today.
And in the quarter, we also announced Scott Rogers as our new Chief Administrative Officer, as we streamlined our people and law functions.
These veteran executives are here to help our ongoing strategic execution as we position the company to accelerate growth and deliver ongoing durable free cash flow.
They have proven track records, and have acted with urgency to make important marks on the business in a short period of time as we work to return to growth and drive long-term returns for our investors.
Additionally, we realigned our marketing function into our GTM and product organizations.
Integrating these functions is designed to gain operational efficiency and increase agility and speed and execution.
As we unify our approach to developing our pipeline and serving our customers,
This restructure and support our growth objectives. While removing costs to optimize our operating margin.
The pervasive interest in EI and Jenni is leading to growth across the industry and increasingly in a hybrid environment, we see companies incorporating the deployment option that works best for each need whether cloud on-prem or a hybrid approach, we are building on our Cloud growth and leveraging our strengths in on-prem to provide customers with a hybrid data and analytics environments. They need
We believe that customers investments in high-quality trusted data will pay dividends and high quality, trusted AI outcomes.
Our differentiated capabilities are designed to deliver consistent world-class data and analytics across an open and connected ecosystem.
We help customers incorporate worlds, right for their business, regardless of the deployment option, they choose.
Agentic AI is the now industry topic, and we introduced a number of innovation advancements that we believe are keeping us ahead of the curve.
With a recent, Terra dotta AI Factory announcement. We're bringing Ai and machine learning capabilities on Prem
Integrated with nvidia's, AI Enterprise companies in regulated Industries, are those that have data sovereignty requirements or want more control over their AI. Deployments can now have private AI with the security governance and cost control of on-prem.
Enterprise Vector store that we announced last quarter is now generally available. It is going to cost effectively combine structured and unstructured data with the speed needed to get value. Out of complex. Business challenges. This is a crucial infrastructure component for building trusted and efficient AI systems. It is designed to help customers, move Beyond basic geni. Implementations towards sophisticated, agentic, AI use cases, like customer complaint, analyzer, and augmented call center.
We also, recently announced our open-source mCP model context protocol server. MCP is the industry standard technology that enables AI agents to interact with back-end data platforms to get the context needed to make smart decisions and developing. Agentic AI initiatives. The challenge is not just about building smarter models. It's about giving those models access to the right context.
With this technology, we expect to enable our customers' AI agents to connect to the Terra Data Systems and leverage Clearscape Analytics to both report on and build predictions around business processes and operations. Ultimately, this will significantly increase the usage of the Vantage platform.
This is designed to be enabled through trusted, Enterprise data cost effectively and at any scale.
This combination can Empower organizations to move Beyond isolated, AI experiments, and deploy, intelligent context, aware agents that drive real business, outcomes and value.
We also introduced llm Ops enabling Enterprises to accelerate how they deploy manage and monitor language models.
Llm Ops is a capability and Tara data model Ops 8.1.
It is designed to support the rapid deployment of Nvidia inference microservices and enable users to select from over 80 models and deploy them directly into GPU environments.
We believe that this technology supports rapid deployment of geni applications including write pipelines and it is designed to accelerate time to market for AI ml initiatives.
We have expanded support for Terra dotta OTF with access to Aber and Delta Lake tables across AWS Azure and Google Cloud.
This enables Vantage Cloud, Enterprise customers to begin OTF testing and application development as the build Future, Ready, Enterprises.
Of course, we deliver these Innovations in support of 1 goal, helping our customers, achieve massive value from the data and analytics, which in turn. Helps us continue to grow.
A walk through a few examples.
We're helping 1 of the largest banks in the world and a long-standing customer to build an anti-money laundering analytics capability for its Financial crimes, division here, our customer focused Innovation days helped co-develop. This analytics platform to the customer's needs
This is an example of how we are leveraging, Ai and clear, Escape analytics to enhance sales to our base.
A multinational Bank in apj is using geni with Terror data to improve, its customer experience.
Processing, 50,000 interactive text conversations a week on complex data.
This helps rapidly identify friction points with customers to improve customer satisfaction and unlock significant value for the bank.
We're helping a large European logistics company deliver on its strategic initiative to drive digital transformation across its broad, set of operations by integrating relevant data to accelerate an innovative business.
A US financial services company established a new on-prem Advantage. Ecosystem in their new private cloud data center to modernize current platforms with growth from increased workloads, driven by operationalizing AI with Terror data, clearscape analytics.
And finally, a Middle Eastern financial institution has been added. Terra Dotta is replacing a long-standing competitor to improve its customers' experience.
We're also gearing up for our annual customer event, The Trusted AI and Data Conference.
We'll have a robust tweet of speakers from many Fantastic customers, as well as leading partner companies and Industry experts, we will be hosting this event in LA on October 6th through the 8th. There are many more details on our website.
We remain focused on accelerating Innovation and value for our customers across an open and connected ecosystem. As they Implement AI initiatives. We do this with a Global Network of industry-leading Partners and Q2 was a great quarter of partner collaborations.
In may we announced a new data integration with service Nows. Workflow data fabric, this integration is designed to connect understand and activate customer data on the service. Now ai platform to fuel, AI agents, autonomous workflows and analytics at scale.
Teradata also participated in the Salesforce announcement expanding its AI agent ecosystem. Agent Exchange, agents built an agent force, can easily discover and connect to our mCP server through Agent Exchange.
This is designed to provide the Enterprise context that powers trusted decisioning. For instance, an agent could request the next best recommendation based on customer history sentiment and or behavior in order to deliver a relevant offer to our customers in real time.
And Q2, we also announced a new partnership with 5r to transform data pipelines for Rapid. AI insights
Together. We expect to simplify data integration for our customers by automating data movement, from hundreds of sources across the Enterprise into Terror data.
With this integration Terra dotta and Fiverr can Empower customers to leverage all of their data for complex. Ai workloads and drive. Trusted AI at scale. Reducing engineering overhead. So teams can focus on insights, not Pipelines.
We will continue to invest in Innovations and Partnerships that make it easy for our customers to build and Achieve value from their agentic AI Solutions with Terra dotta.
As I turn the call to John, I'll summarize Q2 as a quarter of progress on many fronts.
As we have restructured, the company and executed, we built a solid foundation for longer term. Durable free, cash flow growth for the company. Our deep data and analytics capabilities position as well to address. The secular drivers in technology. Resulting from AI.
After solid execution, in the first half of the year, we have increased confidence and we are reiterating our outlook for ARR and free cash flow metrics for the year.
As we look ahead, we see the opportunity for greater operating leverage and free cash. Flow growth from our ongoing work to optimize our expense envelope and now I'll pass the call to John.
Thank you, Steve and good afternoon everyone. In the second quarter, we finished above the high end of our recurring Revenue Outlook range at the top end of our total revenue range and earnings per share. Outperformed our expectations
Total ARR grew 2% year-over-year on a reported basis and was flat from a constant currency perspective.
Our Cloud ARR growth rate was 17% reported in 15% in constant currency and our Cloud. Net expansion rate was 112% performing in line with expectations
We continue to see a balanced mix of migrations and expansions driving our Cloud ARR.
From a retention perspective.
The timing of these deals will have some impact on our Q3 metrics, but we continue to believe that we are on track to achieve total ARR growth in Q4 on a constant currency basis, and we are reiterating our FY25 outlook for total ARR, Cloud ARR, and free cash flow.
In terms of our detailed Financial results for the second quarter, total revenue was 48 million down 6%. Year-over-year as reported and 7% in constant currency, which was at the high end of our Outlook. Recurring Revenue was 354 million down, 4% year-over-year as reported, and in constant currency which was 1 point above the high end of our Outlook.
Upfront, recurring revenue had a negligible impact on the growth rate.
Recurring Revenue as a percentage of total revenue was 87% up from 84% in Q2 last year.
Services Revenue was 51 million down, 19% year-over-year as reported and 20% in constant currency while the services business has been a headwind this year, for total revenue growth. We expect that a higher mix of recurring Revenue will ultimately provide a stronger business model and better margins.
Looking at profitability and free cash flow please. Note that I will be referencing non-gaap numbers for expenses and margins and a full reconciliation to. Gaap results is provided in our press release for the second quarter. Total gross. Margin was 58.3% which was down year-over-year primarily due to the headwinds in our services business.
In line with our ongoing focused, proactively managed productivity, we've taken cost actions in Q2 to enable us to return to positive service gross margin in the second half of 2025. We will continue to optimize costs as we manage the business.
Recurring gross margin was also impacted by year-over-year Revenue, primarily due to headwinds stemming from our ARR performance last year and increasing Cloud. Mix
operating margin for Q2 was 16.4% which was impacted by lower revenue, and gross margins looking specifically at operating expenses, the actions that we took last year, resulted in lower sgna expense and dollar terms. That was partially offset by investments in R&D, non-gaap diluted earnings per share was 47 cents. Exceeding the top end of our Outlook range. The outperformance is primarily from higher Revenue.
We generated 39 million of free cash flow in the quarter, which is flat on a year-over-year basis. And finally, in the second quarter, we purchased approximately 28 million of our stock or 1.3 million shares. And we continue to expect to return, at least 50% of our free cash flow to shareholders in the form of share repurchases.
Turning to our outlook for the remainder of the year. For the third quarter of 2025, we expect, recurring Revenue to be in the range of -4 to -6 year-over-year on a constant currency basis.
We expect total revenue to be in the range of -7 to -9% year-over-year on a constant currency basis.
And we expect non-gaap diluted earnings per share to be in the range of 51 to 55 cents.
But we do not typically provide quarterly guidance on total ARR and Cloud. Are I did want to point out a shift in linearity that we are seeing in the business.
As noted we were able to pull in some deals into Q2 and extend some other customers which resulted in Q2 total ARR and Cloud are coming in above our expectations.
However, due to this shift, we anticipate that Q3 Cloud ARR will dip below our target range for the year, but we are still reaffirming our full year target for total. We anticipate a modest sequential decline in dollars from Q2 to Q3.
For FY. 25, we reaffirm our guidance for cloud ARR. Total ARR recurring revenue and cash flow. And these ranges can be found in our Q2 press release.
We are tightening the ranges for the full year on the following metrics.
For total revenue. We are updating the range to minus 5% to minus 7% year-over-year in constant currency due to lower Services, bookings and anticipated Revenue.
For earnings per share, our updated outlook for gaap. EPS is a dollar for to a dollar 12 and for non-gaap EPS is 27 to 225
Based on FX rates. At the end of July are reported. Total ARR and Cloud ARR growth rates, should be approximately 100 to 200 basis points above our constant currency growth rates in Q4 2525 for Revenue. We do not anticipate any currency impact to our full year outlook.
$0.5 million for the full year.
Again, please refer to our Q2 earnings presentation on our Investor Relations website for a complete list of our 2025 outlook ranges.
In closing, I'm very excited to join the company at a time when our hybrid, trusted, AI. Platform is becoming increasingly important. In the market, I look forward to working with Steve and the rest of the team as we continue to transform Terra dotta and drive a profitable growth strategy.
I believe we are taking the necessary steps to set ourselves up for improved profitability and durable free cash flow growth, which should, in turn, drive shareholder value.
Thank you all for your time today. Now, let's open the call up for questions.
Hi, I would like to remind everyone in order to ask a question.
Press star. The number 1 on your telephone keypad.
We'll pause for a moment to compile the Q&A oyster.
In the interest of giving everyone the opportunity, we appreciate that. You limit yourself to one question and one follow-up.
The first question we have on the line comes from Chad Bennett.
Eric woodwind with Morgan Stanley, Eric, your line is open.
Great. Thanks so much for taking my question guys. Um and and John uh welcome aboard. Um officially now. So um you know Steve I wanted to Circle back um with you. You made a comment right before you passed it to John, that I thought was interesting and you said, um, you know, we see an opportunity for greater operating leverage and free cash flow. Uh looking forward, as you optimize your Opex envelope, can you maybe just unpackage that comment a bit for us just to kind of help us understand what you mean. Either from a, a size, a texture, or even a timing perspective, and then I have a follow-up, please. Thank you.
Yeah, thanks for the question. Eric and maybe
Optimized or uh cost and expense envelope. So we're going to continue doing that as we go through the the rest of the year. The key driver for is though and something that we're pretty confident, and given our execution in first half is clearly returning the company to growth and the execution that we've had in the first half of the year has given us some assurity, in terms of our Outlook to returning to Total ARR growth in the FY 255. And so from an operating perspective, I think we've built the foundations for durable, free, cash flow growth and that is then being compounded by our ARR or out.
To grow our ARR and the whole year. And as those, uh, reflect both reflect into our Outlook, uh, for FY 26, we see that durable free cash flow growth is a real opportunity for us to drive forward into the future John. I don't know if you want to add anything. No, I think that that's very well said. I I I wouldn't add much in terms of uh, specific numbers for FY 26. But I would say that I I think we are laying the foundation this year. Uh we're taking the actions that we need to uh, we talked about some of the things specifically in the second quarter. But we're really setting ourselves up to have a strong finish to this year and then, uh, look out to next year as well.
Okay, thanks and, and maybe I should have asked these questions in reverse order because, um, you know, see if I wanted to get after kind of what you alluded to, which is, um, from a kind of Topline, uh, in in demand perspective and client engagement. Uh, perspective, what's next? Alright, you know, you highlight solid execution, in the first half of the Year, obviously, a couple of moving pieces, uh, between 2 q and 3 Q. Um, but solid execution is what you need to do today. But but what's next how are you playing? Uh, kind of offense from here, help us understand. Um, you know, help us kind of dream, the dream so to speak of of where this model in. This story can go as you think about the changes, you've made over the last 12 months and the dividends that they could pay out over the next 12 months so to speak. Thank you.
Right. Nate and very well in the marketplace and very well with our customers. And I think the the age of AI and a genetic AI is really powering that um, as well. So I think that is setting us up to address a a new Target address for Marketplace from an AI workload perspective. And our most recent announcements with AI Factory, which is an on-prem solution to deliver AI solutions for our customers and and their most trusted environment behind the firewall as well as having those capabilities extend out into the cloud gives us some real opportunity to drive growth and workload usage on the Terra data platform. Both in the cloud and on-prem, and those 2 factors together will enable us to drive forward. In addition, we've done a really good job over the last 4 to 5 years growing, our Cloud business to, you know, over 630 million dollars now still, but really good growth rates from a cloud perspective, you know, we reported, uh, 15,
Points, uh, year-on-year growth in Q2. So, really solid growth there. And we do see the AI workloads from an on-prem perspective, helping stabilize and actually get some growth in the on-prem, uh, Marketplace. So these together actually set us up for good subsequent future growth.
Thanks so much, Steve. Good luck.
Your next question comes from.
Tyler radek would City. Your line is open. Tyler
Yeah, thank you for taking the question. Um Steve Mary, first 1 for you, the uh encouraging to hear some, you know uh outperformance on on are in the quarter. Sounds like a lot of it was was timing related pulling in some deals from Q3 but was just curious was there. Um,
You know, was this sort of driven by the customer was this more just better execution in terms of, you know, managing the, the sales Pipeline and and did you did you see these deals like come in stronger than you expected as well? Just in terms of the expansion potential, I assumed there was these were Cloud deals because the cloud, uh, sequential growth was pretty strong but just anything you could, uh, expand upon in terms of the deals, uh, that came in. And then, you know, if you're, if you're expecting now, like any type of headwind, in terms of sequential growth into into Q3, thank you.
Yeah, thanks, Tyler. Um, yeah, we're really happy with the team's performance in Q2. Um, feel execution was clearly ahead of the pace and obviously whenever the sales team can, they will close the deal as early as we can. You know, the, the team's been doing a lot of work on Lenny arity and making sure that uh, we improve.
Use linearity and therefore, our execution in the first half and in Q2 in particular, has given us, um, a lot of confidence in terms of execution for the full year and getting back to Total error growth for the full year, um, the the Dynamics that we see is actually our customers want to take advantage of the teradata platform, um, and they want to do that both on Prem and in the cloud. And we saw good growth in the quarter, both in both of those facets both um, behind the firewall and also in the cloud, the hybrid capabilities of our platform, and how we're positioning that platform and our customers environments. In terms of, you know, being The Trusted custodians of some of the customers most valuable data making that available to AI, um uh Solutions inside the customer environment. I think it's really driving some interesting workload for us, um, and it's given the sales teams and opportunity to take a really powerful value proposition to our customers.
Customers, especially, when we combine that with the, the, the offers and capabilities that we've got again. What I would say is as we execute through and look at the second half of the year, it has given us um, some uh, faith in terms of returning, the company to that totally are our growth in FY. 25,
Steps and and, and unlocks could be, thank you.
Yeah, sure. This is John. I'll I'll
stab at that 1.
On managing expenses, um, you know, up and down the p&l. If you look at some of the red, the revenue headwinds that we have this year that are implied from our guidance uh to be able to be tracking towards an operating margin percentage. That's that's on par with last year. Is is no small feat and so I think the team has done a great job of of managing this along the way. Um and in terms of some of the specific operating expenses uh, on the sgna side, Steve mentioned. Some of the actions that that we took last year that actually resulted in a year-over-year, decline, in terms of dollars spent on sgna. Uh, we did reinvest some of that back on the R&D side of things. And so we're going to continue to invest in Innovation that will support our profitable growth strategy. But overall, I think we're doing a good job of managing expenses and and like we said, earlier, laying the foundation for durable, free cash flow growth.
Thank you. Thank you.
Your next question comes from the line of radi sultan with UBS.
You may proceed.
You uh, maybe first for Steve, as you think about the uh, second half of the year just curious. What, what, what do you see as the biggest Catalyst behind migrations to Vantage? And then, is there any way to think about what portion of those migrations are related to a gen AI, use case,
Yeah, thanks for that question. I think
No, in terms of our customer conversations that we're having the first 1 is, you know, we're starting to track a significant pipeline of AI influence growth for the Terra data platform. Um and that we're seeing these workloads being deployed both on Prem and in the cloud and that's really playing to our strengths of having a hybrid platform, having a platform that can run these workloads um, on Prem and give uh, customers real capabilities around AI with trusted data and great data management on Prem. And then a lot of our customers that migrate and deploy in the cloud, which is retain a hybrid model, and that's something that really differentiates us from an execution perspective.
And I think the second shift in terms of cloud migrations is we are, we are seeing a reduction in the number of what I would call a pure play Cloud migrations where the customer is looking to migrate to the cloud to generate some form of, uh, cost optimization. I think a lot of customers are realizing the value of the cloud comes from the flexibility and Agility in the services that are available in the cloud, rather than a cosplay. And so, I think our customers are being more, um, uh, sensitive to where they are, migrating their data, to make sure that they, they get the best value out of that. Um, we've talked in the past about some stage migrations, um, that is, uh, really manifesting now in a use of Terror data is hybrid capabilities. There's a a bank in Australia, which is deployed across the cloud and on-prem, you utilizing query grid to link all of its data together across, um, you know, a fairly common
Complex environment. And I think we're seeing our customers start to take advantage of those hybrid capabilities, that only Terror data can bring to the marketplace. So I think these these together, uh, those Market shifts together are are helping us deliver that cloud growth of 15% in Q2. And also the point is in the right direction, for totally our, our growth for this year,
Awesome. Super clear. And then follow up for uh for John given this is your first quarter as a CFO just curious. Like what did you see in your first few months that carried it that gave you confidence in underwriting the current guidance framework. You know, especially those linearity comments around uh Q3 and Q4
You're from an erosion perspective. We've actually had quite a bit of improvement this year. Uh, and so when you think about that from a modeling standpoint that really helps in terms of the overall visibility. So I think as we sit here at the Midway Point, uh, we feel good about the execution. We've had over the first half and that gives us a better sense for how, well, we can do over the course of the year. The last couple of things I would point to is, is just the, the new products, uh, are really starting to generate some interest, especially Ai. And so, Steve just talked through all of those, but we're, we're starting to see those coming into the opportunities, uh, that the sales team is working on. And so I think all of those factors come together to help support the second half Outlook, obviously, we need to still go out and execute, but the opportunity is there,
Awesome. Super quick. Thank you guys.
Yep.
Your next question comes from chag. Vet with everco isi.
Your line is open track.
Hi, thanks for taking the question. Um Steve what are you noticing about? How companies are thinking about on-prem versus cloud? Deployments in this AI World especially when it comes to modernizing their data Estates and how this might be similar or different, from what you might have seen or heard over the past year?
Thanks.
Yeah. Thanks sh. I think this the the world of a genti um is really powered by access to uh data across environments. And I think we're seeing a lot of a lot of our customers, especially the very large customers and the across the world thinking about how their data is deployed. And then working out what the modern access and management uh capabilities that they want to put in place to actually execute um AI workloads against those data. So the, the great thing about the Terra data platform is that, um, we can preserve, uh, data gravity. We give customers the choice of deploying either on-prem or in the cloud, um, and get the same capabilities and the same great function, and, uh, features and functions, both behind the firewall and in the cloud and operating in that hybrid environment, and I think we're, we're tending to
See an increase in uh, the interest in terms of our on-prem platform. Indeed, we're seeing some new logo activities where we're selling, uh, net new systems on Prem um, especially in uh, regions and markets where David sovereignty is incredibly important. And so having um having a capability that enables customers to take advantage of the most recent AI uh models be a large language model.
Um operating on Prem um uh and uh executing that with a trusted data management and governance uh capability which Terra dotta supplies is is really driving. Some customers decisions about where they Place their data, and how they get access to those AI applications.
Thanks Steve and maybe 1 quick 1 for John. It looks like Cloud. Net retention rates, drop sequentially. Do you see Cloud growth in fiscal year 25?
Customers and net new migration or by stabilization and or expansions in the metric. Thanks so much.
Sure, no, thanks for the question. Um then I would say it's probably more the latter and so we've we've continued to see pretty consistent um results in terms of the the drivers of growth and so we've got roughly 50% of our Cloud ARR growth coming from migrations in about 50% coming from expansions. Now that can vary a little bit by quarter but in general, that's the trend line that we see and that's what we would expect to see for the rest of this year.
All right, thank you so much.
Yep.
Thank you. We now have match head bug with RBC Capital markets. Please go ahead.
Great, thanks for taking my questions. Uh Steve, you started the preparator marks uh talking about a gentic.
Ai and you know how you're thinking a lot about it from a from a to data perspective. I'm curious.
Yeah, how would you expect to monitor usage or success from a customer based in there because it seems obviously it's a topical conversation among customers and you know, how do, how would you, you know, define success there?
Um, critical in terms of um, executing this AI world and so the 2 examples I gave were a service. Now in Salesforce, we're super excited about the partnership that we have with service now and service, now are excited about the partnership with Terror data because they see the opportunity to, uh, utilize analyze and for Terry data to develop the signals out of, um, customer the customer data is an example that we have in the Terra data platform and then to trigger workflows in the service now platform or trigger workflows in the Salesforce platform to actually get some some form of execution. So I think 1 of the dimensions is the work that we're doing with Partners. In terms of uh Leading Edge use cases in the development and Leading Edge use cases.
The second is um the proof of Concepts that we're doing with customers. So early customer engagement in terms of the Advanced Technologies that we've got. So, some of the work that we're doing in terms of customer complaint, analyzer, uh, taking some of our Vector capabilities and utilizing Vector, um uh capabilities, as well as running language models both um insight to Terra dotta environment but also setting next to the Terra dotta environment and I gave some examples in the prepared remarks of a bank in Australia that's doing just that in terms of conveying and structured um SQL based uh
Uh, insights from a data perspective with um um some language model, uh, capabilities to look at how they impact their overall customer satisfaction is a great use case. And then, the third dimension is really looking at our opportunity pipeline. We started, um, measuring and managing the opportunity pipeline in terms of, uh, opportunities that are being influenced by AI workloads inside, um, or customers. And that's really driving utilization for the Terra data platform inside our customers. So, as we look at, uh, holistic execution, in this Ai and authenticity, I Marketplace. We're really a rapidly advanced in some of the capabilities that we need. For example, we recently announced our new um nmcp server that will enable us to work in the agentic space and that was as a direct result of some of the work that we're doing with our customers and the deployments that we're getting engaged.
In. So it's super excited. About really an incremental uh Target addressable Marketplace for us, from an AI perspective.
Great, thanks for that. And then Don, uh, for you, uh, curious. If you, you know how what, what sort of the thought process on the recent R&D,
Tax changes. Uh, you know, do do you think that might have an impact to you guys next year? Any way to kind of think about the potential benefit of that?
Yeah. Uh, I I
Could be some, uh, impact from that and it'll probably show up on the cash flow side of things. Um, it's a little too early for me, to, to give you specifics on that, but it's definitely something that we're taking a close look at. And it's something that that could impact, uh, uh, positively impact cash flow this year, as well as next year.
Great. Thanks guys.
Thank you. Your next question comes from Ramsey and Mayan with Bank of America, please go ahead.
Uh yes, thank you so much. Um, see you on the terror data, AI Factory. How, how do you see the revenue their evolving?
And how much revenue uplift could you see from this over time? Curious, if you could share maybe any caller on on the pipeline, the type of customers. Um, because investors have generally been waiting for some Traction in Enterprise AI at options. So giving you a comments about that putting in on-prem, uh, how how do you think that evolves? And I have a follow-up.
Dedicated Terror data entrance, um, run in our capabilities, um, from the AI Factory perspective, leveraging, that GPU instance to run real AI workload on Prem with trusted data for our customers. So early days from a revenue perspective and our perspective certainly seen a lot of interest in that in the marketplace. And we're excited about how that's going to drive in the short term usage of the Terra data platform. But then longer term dedicated Terra dotta instances both in the cloud and on Prem to deliver these workloads.
Okay, thanks Steve, and maybe 1 for John. Um, I'm sorry if I missed this, okay? Talk about the magnitude of what you think, or deals that got pulled forward from from Q3 to Q2, um, clearly obviously you you highlighted some, uh, in on the public Cloud side. But in overall terms, how would you quantify that that magnitude and um, would should we expect to see some of that?
Behavior or persist given some of the broader macro uncertainty around tariffs and other things like that. Thank you.
Yeah, sure. Um, we, we did not quantify the the magnitude and and I and I won't give you a specific number here, but I I will describe kind of the the shape of what we're talking about. And and I think this was an earlier question. My apologies I neglected to come back to it. So, you know, in terms of cloud ARR, uh, you know, we actually made great progress in Q2 and and and we were a little ahead of schedule as we were able to pull in a few of these deals early and extend some other customers.
Um, you know, and I think the company had previously commented that we expected the first half of the year to be toward the bottom end of our annual guidance range for cloud ARR growth. And so we came in a little bit better than anticipated in Q2. Uh, but with some of that timing, uh We've effectively changed the slope of the curve for cloud are this year and so at the beginning of the year where we are expecting a more linear path from Q2 to Q3 to Q4, um,
We've now had a bigger Step Up in Q2 will be a little flatter in Q3, and then we'll step up again in Q4. And so, uh, I think that's probably the best that I can quantify it for you here. We, we don't typically provide, uh,
Quarterly guidance on these metrics but we did want to give you all the heads up in terms of this change in dynamic.
Okay, thank you so much.
Your next question comes from Derek wood with TV Cowen. Your line is open.
Hi, Tim. This is Jared John Johan on for Derek wood. Thanks for taking my questions.
So um understanding that 8 figure deals have been excluded and guidance can you talk to what you've been seeing with these larger engagements?
Yeah, thanks for the question. Jerry I think.
From an 8 figure deal uh perspective. Um the good news is um that from an exit sales execution, our go to market, team has a number of paths to get to um, our outlook for the year, both from a cloud perspective and a total error perspective. Our absolute Focus though is to um Drive uh growth in total ARR because that's really going to give us the profitable Revenue growth. Um, into next year for in terms of growing or recurring Revenue stream. Uh, the profitability of a recurring revenue streams is certainly the most profitable segments that we have, and that will obviously lay the groundwork for some durable, free cash flow growth as we, uh, as we move forward, the execution that we've seen in the first half of the year in terms of uh both uh retention perspective and getting meaningful Improvement in retention.
Against that outlier from a retention perspective. In 2024 has said is in good stead in terms of that execution. Um, and then in terms of just taking advantage of the market opportunity that is in front of us, the hybrid opportunities. I've seen that on Prem has some real strength in terms of being able to deliver meaningful growth. And then just the fact that we've now got that big cloud business, we've got over 630 million dollars. And as we grow that, um,
At, uh, you know, Med double digit, uh, Med teams in terms of growth for, uh, this year that has some meaningful growth impact to, um, our numbers as well. So a number of different paths to execute, um, in terms of both, uh, 8 figure deals and some smaller deals as well. So, um, we're pretty confident about the execution as we move into second half and the sales teams doing a great job.
Okay, I I appreciate that caller and then 1 more for me. Um I believe you guys started introduced Open Table formats in the early 2024. So now that we're a little bit along with those, um, efforts can you just talk to for the customers that have adopted these? How have those companies acvs been trending? Thank you.
Thanks been to support both um Apache Aber and Delta Lake um without walking, any of our customers into uh into 1 structure or another and so given them that real choice of deployment. Um, I've always, um, stated that I believe that Open Table format would actually be a Tailwind for us, in terms of the more data that you make available to the Terra data platform, and the Terra dotta engines, um, the more, uh, usage of the platform that we'll get and therefore, the that incremental usage, Drive in bigger Terror Data Systems and execution, and certainly as we've continued to increase our analytics capability and portfolio. Um,
I talked about, you know, the ability to bring your own language models, into the Terra dotta environment, and conveying in that and opening it up as much data as possible. In say, the customer environment really does give us a Tailwind from an execution perspective. So I think it's our customers are looking at Open Table format, and they open table formats that they've got inside their environment. They're working out.
How to use the Terra data platform to execute that analytics, uh, strategy and all of the analytics functions. We've got inside the Vantage platform against that data source. And, um, just as an example, um, of doing that, we've got a, a customer and Latin America who actually, um, replace the data bricks analytics solution with, uh, using Vantage analytics, um, to actually run highly performing, uh, um, analytic capabilities at a fraction of the cost and um, incremental Improvement in performance. So we see the opportunity to help customers modernize their data and analytic environments. And I and Open Table formats continues to be a Tailwind for it.
Thank you.
We now have rainbow lens show with Barclays. We like to open
Hi. This is Sheldon McMahon for rho. Um, thanks for taking our question, uh, first for Steve. Uh, can you help further contextualize the improvements and retention rates, you discussed, um, in your prepared remarks? And maybe how how should we think about the drivers of that between better sales execution, maybe some of the AI related solutions that you've come out with that shows you know your your future proof.
Road map and, and then just general Improvement in the macro um, environment. Because it does seem like we're past kind of the, the peak uncertainty on the terror front. Thanks.
For your attention perspective. And as we said all along, we did know that 2024 was going to be an outlier, from an erosion perspective, particularly in our on-prem business. Um, and looking back, we actually started to see those improvements in the second half of 2024. Um, we saw that Improvement continued and uh, 2025 and um, as we've said all along as we looked at the, the guidance that we gave for a full year at the start of the year, we're going to see that and we expect to see that meaningful Improvement to our retention rates for fy2 overall. Um, I think you're absolutely right from a tariff and a macro perspective, and
We've done an assessment, uh, as our Cloud business grows that is um, a little bit more immune from a tariff perspective. And then, from a macroeconomic environment, I think there has been some scrutiny on discretionary, spend, that's impacted the, our Consulting Billings at the start of the year as we've spoken to already. But I think, um, we are starting to see a little bit more confidence from a macroeconomic, uh, perspective. And we're expecting good execution to, uh, continue and dry us deliver as a, a good school year 2025 results.
Understood. Thanks for that. And I believe in the prepared remarks, um, included commentary about, uh, a quarter of a quarter decline in our are expected, in Q3. Um, would love to hear, you know, what are some of the driving factors of that, as I would think that the pull forward from Q3 into Q2 would be relatively neutral, as that would still be in the Q3 balance there.
Are expecting to see a, a change in the, in the slope if you will for this year. So where we had expected to see a more gradual, uh, climb a particularly in Cloud ARR through the year.
Where we saw a bigger Step Up in Q2 a little flatter and Q3, and then we expect to see it step up again in Q4, you know, in terms of, uh, total ARR. Um, we're actually tracking the little ahead of the of the plan. Uh, we were, we were hoping to get back to positive territory by the end of the year. Uh, we actually got to positive growth of this quarter now with a little bit of help from currency. But even on a constant currency basis, it's got back to Flat this quarter. Um, and so I think we're tracking pretty well. Uh, we may see a slight decline in total are in Q3. I feel like we're very much on track for the full year.
Got it, thanks.
Thank you.
We now have Patrick Wool, Ravens, with Citizens Bank. Iran is from Patrick.
Hi guys. Thank you for taking the question. This is Nick on for Pat Steve. Uh, 1 for you to start Nvidia. Recently published a research paper highlighting the efficiency of slms for handling more routine. Agentic tasks is this consistent with what you're seeing across your customer base and are you noticing increased interest or adoption of slms for Enterprise identity? I workloads.
Yeah, yeah, that's a great. That's a great question. In fact, um, we are seeing customers deploy small language models like hugging face, um, to, um, you know, give specialized results so it could be, um, in terms of looking at customer feedback or, uh, call center interactions. So instead of putting that through, uh, you know, a large language model using a really specialized small language model. The really exciting thing for us is, you know, our massively parallel architecture that we deploy um on-prem. And in the cloud is really well suited to um running these small language models. So actually in some tests with uh, 1 of the banks in the US. We actually ran uh the hugging face model on or see parallel CPU architecture and it actually ran better than uh running it on an Nvidia GPU. Uh, so this was clearly very exciting for our customer in terms of
Utilizing a small language model um in uh in the Terra dotta environment, very effectively and efficiently to get some really great um business outcomes. So yeah, we absolutely see. Um the small language models has been a good opportunity for us and it really emphasizes. The words I used were open and connected. We don't want to be locked into any 1 particular, language model. As some of our competitors have done, we want to be able to enable or
Customers to have a full deployment choice and to use the language models in the right place, whether that's behind the firewall or in the cloud, and they can choose which language model to use both in terms of size, but also in terms of what brand to use. Yeah. So, uh, that's the great thing about having that opening connected, uh, ecosystem,
Fantastic. That's super interesting. The 1 follow up, uh, John, for you, it's been around 3 months since your appointed as CFO. What is 1 thing? That's gone better than you expected. And 1 thing that's been more challenging than you expected.
Sure. The uh,
Well, I'll start on the, on the, on the positive side of things. And I, and I think that, uh, you know, you look at the, the Q2 results and and uh, we obviously started off with a solid quarter. So that makes my job a little bit easier, uh, coming in, um, you know, on the other side of the coin, it's it's just a matter of getting to know a new business. And so there's a, there's a lot to learn when you come into any new company. And I do think there are some complexities to uh, what we do here at Terror data, both from a technology standpoint, as well, as from a business model standpoint. So getting up to speed on all of those elements, um, is something that I've been very focused on in the last few months.
Great. Thank you guys so much.
Thank you. Thank you.
I can't confirm that does conclude the Q&A session and I would like to hand it back to Steve McMillan for his final remarks.
Opportunity for us. We're looking forward to executing. Thanks again to all for joining us today.
Thank you. This concludes today's conference call. You may now disconnect.