Teradata Q4 2025 Teradata Corp Earnings Call | AllMind AI Earnings | AllMind AI
Q4 2025 Teradata Corp Earnings Call
Speaker #1: Good afternoon. My name is Victoria, and I will be your conference operator today. At this time, I would like to welcome everyone to the Teradata 2025 Fourth Quarter and Full Year Earnings Call.
Operator: Good afternoon. My name is Victoria, and I will be your conference operator today. At this time, I would like to welcome everyone to the Teradata 2025 Q4 and full year earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's 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 1 on your telephone keypad. If you would like to withdraw your question, please press star followed by 2. Thank you. I would now like to hand the conference over to your host today, Chad Bennett, Senior Vice President of Investor Relations and Corporate Development. You may now begin your conference.
Operator: Good afternoon. My name is Victoria, and I will be your conference operator today. At this time, I would like to welcome everyone to the Teradata 2025 Q4 and full year earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's 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 1 on your telephone keypad. If you would like to withdraw your question, please press star followed by 2. Thank you. I would now like to hand the conference over to your host today, Chad Bennett, Senior Vice President of Investor Relations and Corporate Development. You may now begin your conference.
Speaker #1: All lines have been placed on mute to prevent any background noise. After the speaker's 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.
Speaker #1: If you would like to withdraw your question, please press star followed by the number 2. Thank you. I would now like to hand the conference over to your host today, Chad Bennett, Senior Vice President of Investor Relations and Corporate Development.
Speaker #1: You may now begin your conference.
Speaker #2: Good afternoon, and welcome to Teradata's 4th Quarter and Full Year 2025 Earnings Call. Steve McMillan, Teradata's President and Chief Executive Officer, will lead our call today.
Chad Bennett: Good afternoon, and welcome to Teradata's fourth quarter and full year 2025 earnings call. Steve McMillan, Teradata's President and Chief Executive Officer, will lead our call today, followed by John Ederer, 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. Please note that Teradata intends to file a Form 10-K for the year ended December 31, 2025, later this month. These forward-looking statements are made as of today, and we undertake no duty or obligation to update them.
Chad Bennett: Good afternoon, and welcome to Teradata's fourth quarter and full year 2025 earnings call. Steve McMillan, Teradata's President and Chief Executive Officer, will lead our call today, followed by John Ederer, 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. Please note that Teradata intends to file a Form 10-K for the year ended December 31, 2025, later this month. These forward-looking statements are made as of today, and we undertake no duty or obligation to update them.
Speaker #2: Followed by John Ederer, 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.
Speaker #2: 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.
Speaker #2: These risk factors are described in today's earnings release and in our SEC filings. Please note that Teradata intends to file the Form 10-K for the year ended December 31, 2025, later this month.
Speaker #2: 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 discuss certain non-GAAP financial measures, which exclude such items as stock-based compensation expense, and other special items described in our earnings release.
Chad Bennett: 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 and constant currency comparisons. 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.teradata.com. A replay of this conference call will be available later today on our website. Now, I will turn the call over to Steve.
Chad Bennett: 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 and constant currency comparisons. 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.teradata.com. A replay of this conference call will be available later today on our website. Now, I will turn the call over to Steve.
Speaker #2: We will also discuss other non-GAAP items such as free cash flow and constant currency comparisons. And let's state it otherwise, all numbers and results discussed on today's call are on a non-GAAP basis.
Speaker #2: 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.teradata.com.
Speaker #2: A replay of this conference call will be available later today on our website. And now, I will turn the call over to Steve.
Speaker #3: Hi everyone, and thanks for joining us. I'm pleased to report another set of strong results for TERADATA. In the 4th Quarter, we again exceeded expectations for total revenue, recurring revenue, and free cash flow.
Steve McMillan: Hi, everyone, and thanks for joining us. I'm pleased to report another set of strong results for Teradata. In Q4, we again exceeded expectations for total revenue, recurring revenue, and free cash flow. Our strong earnings per share and continued total ARR growth reflect the actions we took to improve our operating model. 2025 was a year of revitalized execution. We stabilized the business, meaningfully improved retention, and saw customers choosing to expand their use of Teradata with a mix of both traditional and new types of workloads. Engagement with customers remained strong, and the business operated well. We believe we are solidly positioned to continue on a profitable growth path in 2026, with healthy free cash flow generation to deliver value to our shareholders.
Steve McMillan: Hi, everyone, and thanks for joining us. I'm pleased to report another set of strong results for Teradata. In Q4, we again exceeded expectations for total revenue, recurring revenue, and free cash flow. Our strong earnings per share and continued total ARR growth reflect the actions we took to improve our operating model. 2025 was a year of revitalized execution. We stabilized the business, meaningfully improved retention, and saw customers choosing to expand their use of Teradata with a mix of both traditional and new types of workloads. Engagement with customers remained strong, and the business operated well. We believe we are solidly positioned to continue on a profitable growth path in 2026, with healthy free cash flow generation to deliver value to our shareholders.
Speaker #3: Our strong earnings per share and continued total ARR growth reflect the actions we took to improve our operating model. 2025 was a year of revitalized execution.
Speaker #3: We stabilized the business, meaningfully improved retention, and saw customers choosing to expand their use of Teradata. A mix of both traditional remained strong, and the business operated well.
Speaker #3: We believe we are solidly positioned to continue on a profitable growth path in 2026 with healthy free cash flow generation to deliver value to our shareholders.
Speaker #3: As we look ahead, we believe enterprises of the future will be shaped by those who harness agentic AI systems that reason, act, and adapt autonomously 24/7.
Steve McMillan: As we look ahead, we believe enterprises of the future will be shaped by those who harness agentic AI systems that reason, act, and adapt autonomously 24/7. We remain focused on helping organizations activate the intelligence in their enterprise, ensuring AI agents have the enterprise context they need and can act on it in milliseconds to address continuous decision-making at enterprise scale. This requires a new system of intelligence, one that unifies data, analytics, enterprise context, governance, and AI agents. We believe Teradata is uniquely suited to provide all of this with our autonomous AI and knowledge platform. As we stated, throughout 2025, we saw a resurgence of interest in our hybrid model. We're seeing customers want to leverage both on-prem and cloud deployment options to meet their diverse business needs, driven by data sovereignty and increased regulatory environments around the globe.
Steve McMillan: As we look ahead, we believe enterprises of the future will be shaped by those who harness agentic AI systems that reason, act, and adapt autonomously 24/7. We remain focused on helping organizations activate the intelligence in their enterprise, ensuring AI agents have the enterprise context they need and can act on it in milliseconds to address continuous decision-making at enterprise scale. This requires a new system of intelligence, one that unifies data, analytics, enterprise context, governance, and AI agents. We believe Teradata is uniquely suited to provide all of this with our autonomous AI and knowledge platform. As we stated, throughout 2025, we saw a resurgence of interest in our hybrid model. We're seeing customers want to leverage both on-prem and cloud deployment options to meet their diverse business needs, driven by data sovereignty and increased regulatory environments around the globe.
Speaker #3: We remain focused on helping organizations activate the intelligence in their enterprise, ensuring AI agents have the enterprise context they need and can act on it in milliseconds to address continuous decision-making at enterprise scale.
Speaker #3: This requires a new system of intelligence, one that unifies data analytics, enterprise context, governance, and AI agents. We believe TERADATA is uniquely suited to provide all of this with our autonomous AI and knowledge platform.
Speaker #3: As we stated throughout 2025, we saw a resurgence of interest in our hybrid model. We're seeing customers want to leverage both on-prem and cloud deployment options to meet their diverse business needs, driven by data sovereignty and increased regulatory environments around the globe.
Speaker #3: Our platform is designed to give customers the opportunity to run agentic AI at scale wherever that data resides in their business, and we are seeing customers effectively operating across both.
Steve McMillan: Our platform is designed to give customers the opportunity to run Agentic AI at scale, wherever that data resides in their business, and we are seeing customers effectively operating across both. Over decades, we have fine-tuned our platform to address massive scale with performance, foundational factors for implementing autonomous AI. Throughout 2025, we saw customer engagement across all regions and industries shift towards AI and elastic compute as they explored AI uses and looked to reinvent their Teradata platform for autonomous knowledge capability. Our forward deployed engineers and AI services consultants executed more than 150 engagements with customers, helping them operationalize AI to address high-value use cases. In 2025, we launched a broad set of innovations as we built foundational capabilities to help customers bring AI into real-world use cases that can drive tangible business value.
Steve McMillan: Our platform is designed to give customers the opportunity to run Agentic AI at scale, wherever that data resides in their business, and we are seeing customers effectively operating across both. Over decades, we have fine-tuned our platform to address massive scale with performance, foundational factors for implementing autonomous AI. Throughout 2025, we saw customer engagement across all regions and industries shift towards AI and elastic compute as they explored AI uses and looked to reinvent their Teradata platform for autonomous knowledge capability. Our forward deployed engineers and AI services consultants executed more than 150 engagements with customers, helping them operationalize AI to address high-value use cases. In 2025, we launched a broad set of innovations as we built foundational capabilities to help customers bring AI into real-world use cases that can drive tangible business value.
Speaker #3: Over decades, we have fine-tuned our platform to address massive scale with performance, foundational factors for implementing autonomous AI. Throughout 2025, we saw customer engagement across all regions and industries shift towards AI and elastic compute as they explored AI uses and looked to reinvent their TERADATA platform for autonomous knowledge capability.
Speaker #3: Our forward-deployed engineers and AI services consultants executed more than 150 engagements with customers, helping them operationalize AI to address high-value use cases. In 2025, we launched a broad set of innovations as we built foundational capabilities to help customers bring AI into real-world use cases that can drive tangible business value.
Speaker #3: First, our enterprise vector store cost-effectively combines structured and unstructured data with the speed needed to deliver information to agents in real time. We enhanced our model ops capabilities, designed to enable models to run directly inside the Teradata ecosystem, gaining efficiency.
Steve McMillan: First, our Enterprise Vector Store cost effectively combines structured and unstructured data with the speed needed to deliver information to agents in real time. We enhanced our ModelOps capabilities, designed to enable models to run directly inside the Teradata ecosystem, gaining efficiency. An exciting announcement was our MCP Server. It connects AI systems with interactive access to the enterprise data, context, and predictive AI capabilities necessary to provide meaningful outcomes. We believe that the MCP Server and the Agentic AI solutions that utilize it will increase usage of our platform. To further speed AI adoption, we launched Teradata Agent Builder and introduced pre-built agents. This broad set of capabilities enables us to deliver autonomous customer intelligence, a set of software and services that embed Teradata agents to help improve the customer experience.
Steve McMillan: First, our Enterprise Vector Store cost effectively combines structured and unstructured data with the speed needed to deliver information to agents in real time. We enhanced our ModelOps capabilities, designed to enable models to run directly inside the Teradata ecosystem, gaining efficiency. An exciting announcement was our MCP Server. It connects AI systems with interactive access to the enterprise data, context, and predictive AI capabilities necessary to provide meaningful outcomes. We believe that the MCP Server and the Agentic AI solutions that utilize it will increase usage of our platform. To further speed AI adoption, we launched Teradata Agent Builder and introduced pre-built agents. This broad set of capabilities enables us to deliver autonomous customer intelligence, a set of software and services that embed Teradata agents to help improve the customer experience.
Speaker #3: An exciting announcement was our MCP server. It connects AI systems with interactive access to the enterprise data context and predictive AI capabilities, necessary to provide meaningful outcomes.
Speaker #3: We believe that the MCP server and the agentic AI solutions that utilize it will increase usage of our platform. To further speed AI adoption, we launched TERADATA Agent Builder, an introduced pre-built agent.
Speaker #3: This broad set of capabilities enabled us to deliver autonomous customer intelligence, a set of software and services that embed Teradata agents to help improve the customer experience.
Speaker #3: We also launched Teradata AI Factory, an exciting announcement that brought AI and machine learning capabilities to on-premise environments. It was designed for organizations in regulated industries, or with data sovereignty requirements, or that want to manage and contain their AI infrastructure costs.
Steve McMillan: We also launched Teradata AI Factory, an exciting announcement that brought AI and machine learning capabilities to on-premise environments. It was designed for organizations in regulated industries or with data sovereignty requirements, or that want to manage and contain their AI infrastructure costs. To help organizations transform their AI pilots into production-ready solutions, we introduced new AI services. This impressive set of innovations laid a very solid foundation for 2026, and we also have a fantastic set of technology announcements planned throughout this year. We believe these announcements will strengthen our portfolio in order to help our customers get AI agents into action and operationalize autonomous AI. We have kicked off a strong start to the year with a recently released Enterprise AgentStack. This comprehensive toolkit is designed to help enterprises rapidly transition from pilot AI projects to production-level autonomous agents across diverse environments.
Steve McMillan: We also launched Teradata AI Factory, an exciting announcement that brought AI and machine learning capabilities to on-premise environments. It was designed for organizations in regulated industries or with data sovereignty requirements, or that want to manage and contain their AI infrastructure costs. To help organizations transform their AI pilots into production-ready solutions, we introduced new AI services. This impressive set of innovations laid a very solid foundation for 2026, and we also have a fantastic set of technology announcements planned throughout this year. We believe these announcements will strengthen our portfolio in order to help our customers get AI agents into action and operationalize autonomous AI. We have kicked off a strong start to the year with a recently released Enterprise AgentStack. This comprehensive toolkit is designed to help enterprises rapidly transition from pilot AI projects to production-level autonomous agents across diverse environments.
Speaker #3: And to help organizations transform their AI pilots into production-ready solutions, we introduced new AI services. This impressive set of innovations laid a very solid foundation for 2026.
Speaker #3: And we also have a fantastic set of technology announcements planned throughout this year. We believe these announcements will strengthen our portfolio in order to help our customers get AI agents into action and operationalize autonomous AI.
Speaker #3: We have kicked off a strong start to the year with our recently released enterprise agent stack. This comprehensive toolkit is designed to help enterprises rapidly transition from pilot AI projects to production-level autonomous agents across diverse environments.
Speaker #3: Our agent stack integrates tools for building, deploying, and managing AI agents with security, governance, and enterprise data utilization. We believe we're delivering capabilities that set TERADATA apart from the competition, and we're delivering them across cloud and on-premises environments, supporting the hybrid goals of our customers.
Steve McMillan: Our agent stack integrates tools for building, deploying, and managing AI agents with security, governance, and enterprise data utilization. We believe we're delivering capabilities that set Teradata apart from the competition, and we're delivering them across cloud and on-premises environments, supporting the hybrid goals of our customers. As an AI and knowledge platform company, we are the core of a broad system of intelligence that will enable autonomous actions. To ensure customer choice, we maintain our commitment to building and executing partnerships that strengthen our connected ecosystem and extend our capabilities. For example, our new partnership with Unstructured.io brings automated ingestion and conversion of unstructured content, meaning documents, PDFs, and images, into analysis-ready structured data. This supports our vision of an end-to-end AI ecosystem, helping our customers turn their intelligence and their enterprise into business outcomes. We have multiple proof of concepts underway in all regions and across all industries.
Steve McMillan: Our agent stack integrates tools for building, deploying, and managing AI agents with security, governance, and enterprise data utilization. We believe we're delivering capabilities that set Teradata apart from the competition, and we're delivering them across cloud and on-premises environments, supporting the hybrid goals of our customers. As an AI and knowledge platform company, we are the core of a broad system of intelligence that will enable autonomous actions. To ensure customer choice, we maintain our commitment to building and executing partnerships that strengthen our connected ecosystem and extend our capabilities. For example, our new partnership with Unstructured.io brings automated ingestion and conversion of unstructured content, meaning documents, PDFs, and images, into analysis-ready structured data. This supports our vision of an end-to-end AI ecosystem, helping our customers turn their intelligence and their enterprise into business outcomes. We have multiple proof of concepts underway in all regions and across all industries.
Speaker #3: AI and knowledge platform. As a company, we are the core of a broad system of intelligence that will enable autonomous actions. To ensure customer choice, we maintain our commitment to building and executing partnerships that strengthen our connected ecosystem and extend our capabilities.
Speaker #3: For example, our new partnership with unstructured.io brings automated ingestion and conversion of unstructured content—meaning documents, PDFs, and images—into analysis-ready, structured data. This supports our vision of an end-to-end AI ecosystem, helping our customers turn the intelligence in their enterprise into business outcomes.
Speaker #3: We have multiple proof-of-concepts underway in all regions and across all industries. We also just announced the availability of our enterprise-grade data analyst AI agent on Google Cloud Marketplace, giving organizations a secure way to run real-time analytics and agentic AI directly within their cloud environment.
Steve McMillan: We also just announced the availability of our enterprise-grade data analyst AI Agent on Google Cloud Marketplace, giving organizations a secure way to run real-time analytics and agentic AI directly within their cloud environment. This pre-built agent reduces the cost and complexity of moving data and provides a scalable foundation for future multi-agent scenarios on Google Cloud. Now, let me take you through a handful of examples of the ways organizations are leveraging our AI and data analytics capabilities, many of which represent the early stages of our customers' long-term AI initiatives. A large US telco added a cloud instance to its Teradata estate and now runs a hybrid Teradata environment. It's running specific financial compliance workloads on Google Cloud, with its other workloads on-prem. This customer is also looking to use our open table format to seamlessly share data across its ecosystem.
Steve McMillan: We also just announced the availability of our enterprise-grade data analyst AI Agent on Google Cloud Marketplace, giving organizations a secure way to run real-time analytics and agentic AI directly within their cloud environment. This pre-built agent reduces the cost and complexity of moving data and provides a scalable foundation for future multi-agent scenarios on Google Cloud. Now, let me take you through a handful of examples of the ways organizations are leveraging our AI and data analytics capabilities, many of which represent the early stages of our customers' long-term AI initiatives. A large US telco added a cloud instance to its Teradata estate and now runs a hybrid Teradata environment. It's running specific financial compliance workloads on Google Cloud, with its other workloads on-prem. This customer is also looking to use our open table format to seamlessly share data across its ecosystem.
Speaker #3: This pre-built agent reduces the cost and complexity of moving data and provides a scalable foundation for future multi-agent scenarios on Google Cloud. Now, let me take you through a handful of examples of the ways organizations are leveraging our AI and data analytics capabilities.
Speaker #3: Many of which represent the early stages of our customers' long-term AI initiatives. A large US telco added a cloud instance to its Teradata estate and now runs a hybrid Teradata environment.
Speaker #3: It's running specific financial compliance workloads on Google Cloud, with its other workloads on-prem. This customer is also looking to use our OpenTable format to seamlessly share data across its ecosystem.
Speaker #3: At a top US airline, we modernized a high-impact pricing application by migrating it to our Elastic Compute platform. This unlocked greater scalability and agility for our program that drives significant annual revenue for the customer.
Steve McMillan: A top US airline modernized a high-impact pricing application by migrating it to our elastic compute platform. This unlocked greater scalability and agility for a program that drives significant annual revenue for the customer. A major UK bank selected Teradata to move its real-time customer experience platform to the cloud, reinforcing our strength in the highly regulated financial services sector. Using our AI-powered marketing applications, the bank expects to speed up campaign launches and simplify operations to drive a competitive advantage in today's digital-first banking market. We're supporting a high-tech manufacturer in EMEA on a strategic AI initiative, helping embed advanced AI and analytics into complex manufacturing models.... In doing so, we're enabling automated workflows that drive real-time, AI-driven production decisions, improving yield, lowering costs, and accelerating innovation.
Steve McMillan: A top US airline modernized a high-impact pricing application by migrating it to our elastic compute platform. This unlocked greater scalability and agility for a program that drives significant annual revenue for the customer. A major UK bank selected Teradata to move its real-time customer experience platform to the cloud, reinforcing our strength in the highly regulated financial services sector. Using our AI-powered marketing applications, the bank expects to speed up campaign launches and simplify operations to drive a competitive advantage in today's digital-first banking market. We're supporting a high-tech manufacturer in EMEA on a strategic AI initiative, helping embed advanced AI and analytics into complex manufacturing models.... In doing so, we're enabling automated workflows that drive real-time, AI-driven production decisions, improving yield, lowering costs, and accelerating innovation.
Speaker #3: A major UK bank, selected TERADATA to move its real-time customer experience platform to the cloud, reinforcing our strength in the highly regulated financial services sector.
Speaker #3: Using our AI-powered marketing applications, the bank expects to speed up campaign launches and simplify operations to drive a competitive advantage in today's digital-first banking market.
Speaker #3: We're supporting a high-tech manufacturer in EMEA on a strategic AI initiative, helping embed advanced AI and analytics into complex manufacturing models. In doing so, we're enabling automated workflows that drive real-time, AI-driven production decisions and improve yield, lower costs, and accelerate innovation.
Speaker #3: These examples from across numerous industries are representative of the team's strong momentum in 2025. And with our continued focus on helping customers get the most out of their AI initiatives, we intend to keep up the momentum in 2026.
Steve McMillan: These examples from across numerous industries are representative of the team's strong momentum in 2025, and with our continued focus on helping customers get the most out of their AI initiatives, we intend to keep up the momentum in 2026. As I pass the call to John, I'll summarize that we are entering 2026 on solid footing following our strong close to 2025. We believe we have capabilities no competitor offers and a cohesive open platform, and our differentiation is resonating with customers, partners, and industry analysts. We remain on a clear, profitable growth path, driving operating leverage, free cash flow growth, and delivering lasting value to our shareholders. Over to you, John, to walk us through the details.
Steve McMillan: These examples from across numerous industries are representative of the team's strong momentum in 2025, and with our continued focus on helping customers get the most out of their AI initiatives, we intend to keep up the momentum in 2026. As I pass the call to John, I'll summarize that we are entering 2026 on solid footing following our strong close to 2025. We believe we have capabilities no competitor offers and a cohesive open platform, and our differentiation is resonating with customers, partners, and industry analysts. We remain on a clear, profitable growth path, driving operating leverage, free cash flow growth, and delivering lasting value to our shareholders. Over to you, John, to walk us through the details.
Speaker #3: As I pass the call to John, I'll summarize that we are entering 2026 on solid footing, following our strong close to 2025. We believe we have capabilities no competitor offers and are cohesive, open, platform, and our differentiation is resonating with customers, partners, and industry analysts.
Speaker #3: We remain on our clear profitable growth path, driving operating leverage, free cash flow growth, and delivering lasting value to our shareholders. Over to you, John, to walk us through the details.
John Ederer: Thank you, Steve, and good afternoon, everyone. We closed out fiscal 2025 on a positive note, demonstrating operational discipline and improved quarterly consistency across our key financial metrics. During the year, we returned total ARR to positive growth of 3% on a reported basis. We continued to improve non-GAAP operating margins to 21%. We drove year-over-year improvement in free cash flow to $285 million, which exceeded the high end of our outlook, and we reestablished a track record of meeting or exceeding quarterly expectations. Our solid execution in 2025 has provided a foundation for continued improvement in 2026 and beyond. We remain committed to profitable growth in the new year, which we believe is aligned to driving shareholder value.
John Ederer: Thank you, Steve, and good afternoon, everyone. We closed out fiscal 2025 on a positive note, demonstrating operational discipline and improved quarterly consistency across our key financial metrics. During the year, we returned total ARR to positive growth of 3% on a reported basis. We continued to improve non-GAAP operating margins to 21%. We drove year-over-year improvement in free cash flow to $285 million, which exceeded the high end of our outlook, and we reestablished a track record of meeting or exceeding quarterly expectations. Our solid execution in 2025 has provided a foundation for continued improvement in 2026 and beyond. We remain committed to profitable growth in the new year, which we believe is aligned to driving shareholder value.
Speaker #2: Steve, and good afternoon, everyone. We closed out fiscal 2025 Thank you, on a positive note, demonstrating operational discipline and improved quarterly consistency across our key financial metrics.
Speaker #2: During the year, we returned total ARR to positive growth of 3% on a reported basis. We continued to improve non-GAAP operating margins to 21%.
Speaker #2: We drove year-over-year improvement in free cash flow to $285 million, which exceeded the high end of our outlook. And we reestablished a track record of meeting or exceeding quarterly expectations.
Speaker #2: Our solid execution in 2025 has provided a foundation for continued improvement in 2026 and beyond. We remain committed to profitable growth in the new year, which we believe is aligned to driving shareholder value.
Speaker #2: More specifically, we expect continued growth in total ARR, non-GAAP operating margin, and free cash flow, while at the same time investing more resources in product development to fuel future growth.
John Ederer: More specifically, we expect continued growth in total ARR, Non-GAAP operating margin, and free cash flow, while at the same time investing more resources in product development to fuel future growth. In terms of our detailed financial results for the Q4 and fiscal year, total ARR grew 3% as reported, and 1% in constant currency, which was an important milestone in stabilizing the business last year, and right in line with the expectations that we set at the beginning of 2025. Cloud ARR grew 15% as reported, and 13% in constant currency, and Cloud ARR now represents 46% of our total ARR. For the quarter, the trailing twelve-month cloud net expansion rate was 108%.
John Ederer: More specifically, we expect continued growth in total ARR, Non-GAAP operating margin, and free cash flow, while at the same time investing more resources in product development to fuel future growth. In terms of our detailed financial results for the Q4 and fiscal year, total ARR grew 3% as reported, and 1% in constant currency, which was an important milestone in stabilizing the business last year, and right in line with the expectations that we set at the beginning of 2025. Cloud ARR grew 15% as reported, and 13% in constant currency, and Cloud ARR now represents 46% of our total ARR. For the quarter, the trailing twelve-month cloud net expansion rate was 108%.
Speaker #2: In terms of our detailed financial results for the fourth quarter and fiscal year, total ARR grew 3% as reported and 1% in constant currency, which was an important milestone in stabilizing the business last year.
Speaker #2: And right in line with the expectations that we set at the beginning of 2025. Cloud ARR grew 15% as reported and 13% in constant currency, and Cloud ARR now represents 46% of our total ARR.
Speaker #2: For the quarter, the trailing 12-month Cloud Net Expansion Rate was 108%. Fourth quarter total revenue was $421 million, up 3% year-over-year as reported and 1% in constant currency, which was three points above the high end of our outlook due to higher recurring revenue.
John Ederer: Fourth quarter total revenue was $421 million, up 3% year-over-year as reported, and 1% in constant currency, which was 3 points above the high end of our outlook due to higher recurring revenue. Fourth quarter recurring revenue was $367 million, up 5% year-over-year as reported, and 3% in constant currency, which was 4 points above the high end of our outlook. The outperformance was primarily due to higher upfront revenue from term license subscriptions. Fourth quarter consulting services revenue was $53 million, down 4% year-over-year as reported, and down 6% in constant currency. For the full year, recurring revenue was at the high end of our outlook range at $1.445 billion, a decrease of 2% as reported, and 3% in constant currency.
John Ederer: Fourth quarter total revenue was $421 million, up 3% year-over-year as reported, and 1% in constant currency, which was 3 points above the high end of our outlook due to higher recurring revenue. Fourth quarter recurring revenue was $367 million, up 5% year-over-year as reported, and 3% in constant currency, which was 4 points above the high end of our outlook. The outperformance was primarily due to higher upfront revenue from term license subscriptions. Fourth quarter consulting services revenue was $53 million, down 4% year-over-year as reported, and down 6% in constant currency. For the full year, recurring revenue was at the high end of our outlook range at $1.445 billion, a decrease of 2% as reported, and 3% in constant currency.
Speaker #2: Fourth quarter recurring revenue was 367 million, up 5% year-over-year as reported and 3% in constant currency, which was four points above the high end of our outlook.
Speaker #2: This was primarily due to higher upfront revenue. The outperformance from term license subscriptions. Fourth quarter consulting services revenue was $53 million, down 4% year-over-year as reported, and down 6% in constant currency.
Speaker #2: For the full year, recurring revenue was at the high end of our outlook range at 1.445 billion, a decrease of 2% as reported and 3% in constant currency.
Speaker #2: Total revenue was also within our outlook range at 1.663 billion, down 5% as reported and down 5% in constant currency. Looking at profitability and free cash flow, please note that I will be referencing non-gap numbers for expenses and margins and a full reconciliation to gap results as provided in our press release.
John Ederer: Total revenue was also within our outlook range at $1.663 billion, down 5% as reported, and down 5% in constant currency. 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 fourth quarter, total gross margin was up to 62% versus 60.9% in Q4 last year, driven by strong improvement in consulting services margins. Recurring revenue gross margin of 68.4% was down from Q4 2023, due to the increasing mix of cloud revenue.
John Ederer: Total revenue was also within our outlook range at $1.663 billion, down 5% as reported, and down 5% in constant currency. 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 fourth quarter, total gross margin was up to 62% versus 60.9% in Q4 last year, driven by strong improvement in consulting services margins. Recurring revenue gross margin of 68.4% was down from Q4 2023, due to the increasing mix of cloud revenue.
Speaker #2: For the fourth quarter, total gross margin was up to 62% versus 60.9% in Q4 last year, driven by strong improvement in consulting services margins.
Speaker #2: Recurring revenue gross margin is 68.4%, which was down from Q4 '24 due to the increasing mix of cloud revenue. On consulting services gross margin, we made continued strong improvements following cost actions that we took in 2025, driving Q4 gross margin up to 18.9% versus 8.5% in Q3 and 9.1% in Q4 a year ago.
John Ederer: On consulting services gross margin, we made continued strong improvements following cost actions that we took in 2025, driving Q4 gross margin up to 18.9% versus 8.5% in Q3, and 9.1% in Q4 a year ago. Operating margin improved significantly in Q4, coming in at 22.8% versus 17.6% in Q4 last year. On a full year basis, we continued to demonstrate operational discipline, which has resulted in a multi-year operating margin expansion of more than 500 basis points over the last three years. Non-GAAP diluted earnings per share were $0.74, exceeding the top end of our outlook range by $0.17. The outperformance was driven by higher recurring revenue, lower expenses, and a lower effective tax rate.
John Ederer: On consulting services gross margin, we made continued strong improvements following cost actions that we took in 2025, driving Q4 gross margin up to 18.9% versus 8.5% in Q3, and 9.1% in Q4 a year ago. Operating margin improved significantly in Q4, coming in at 22.8% versus 17.6% in Q4 last year. On a full year basis, we continued to demonstrate operational discipline, which has resulted in a multi-year operating margin expansion of more than 500 basis points over the last three years. Non-GAAP diluted earnings per share were $0.74, exceeding the top end of our outlook range by $0.17. The outperformance was driven by higher recurring revenue, lower expenses, and a lower effective tax rate.
Speaker #2: Operating margin improved significantly in Q4, coming in at 22.8% versus 17.6% in Q4 last year. On a full-year basis, we continued to demonstrate operational discipline, which has resulted in a multi-year operating margin expansion of more than 500 basis points over the last three years.
Speaker #2: Non-gap diluted earnings per share were 74 cents, exceeding the top end of our outlook range by 17 cents. The outperformance was driven by higher recurring revenue, lower expenses, and a lower effective tax rate.
Speaker #2: We generated $151 million of free cash flow in the fourth quarter, and finished the year above the high end of our 2025 outlook at $285 million.
John Ederer: We generated $151 million of free cash flow in Q4 and finished the year above the high end of our 2025 outlook at $285 million. This free cash flow performance drove cash and equivalents up to $493 million at the end of the year, compared to $420 million at the end of 2024. Finally, we continued to return capital to shareholders, repurchasing approximately $38 million, or about 1.5 million shares in Q4, bringing our full-year totals to approximately $140 million, or 5.8 million shares.
John Ederer: We generated $151 million of free cash flow in Q4 and finished the year above the high end of our 2025 outlook at $285 million. This free cash flow performance drove cash and equivalents up to $493 million at the end of the year, compared to $420 million at the end of 2024. Finally, we continued to return capital to shareholders, repurchasing approximately $38 million, or about 1.5 million shares in Q4, bringing our full-year totals to approximately $140 million, or 5.8 million shares.
Speaker #2: This free cash flow performance drove cash and equivalents up to $493 million at the end of the year, compared to $420 million at the end of 2024.
Speaker #2: Finally, we continued to return capital to shareholders, repurchasing approximately $38 million, or about 1.5 million shares, in the fourth quarter, bringing our full-year totals to approximately $140 million, or 5.8 million shares.
Speaker #2: During the fourth quarter, we also announced the reauthorization of our buyback program for another 500 million dollars starting in 2026, and we will again target to use 50% of our free cash flow for share repurchases.
John Ederer: During Q4, we also announced the reauthorization of our buyback program for another $500 million, starting in 2026, and we will again target to use 50% of our free cash flow for share repurchases. Before I provide our annual financial outlook for 2026, I'd like to provide some additional context. First, to support investors from a modeling standpoint, we will be providing guidance on an as-reported basis. We will also continue to call out currency impact as we see it during the year. Second, we do expect to see our typical seasonality for total ARR and cloud ARR.
John Ederer: During Q4, we also announced the reauthorization of our buyback program for another $500 million, starting in 2026, and we will again target to use 50% of our free cash flow for share repurchases. Before I provide our annual financial outlook for 2026, I'd like to provide some additional context. First, to support investors from a modeling standpoint, we will be providing guidance on an as-reported basis. We will also continue to call out currency impact as we see it during the year. Second, we do expect to see our typical seasonality for total ARR and cloud ARR.
Speaker #2: Before I provide our annual financial outlook for 2026, I'd like to provide some additional context. First, to support investors from a modeling standpoint, we will be providing guidance on an as-reported basis.
Speaker #2: We will also continue to call out currency impact as we see it during the year. Second, we do expect to see our typical seasonality for total ARR and cloud ARR.
Speaker #2: More specifically, Q1 is typically our largest renewal and highest erosion quarter, and as such, we expect total ARR and cloud ARR to decline sequentially on a dollar-value basis in Q1, followed by stabilization and expansion over the course of the year, with the majority of that expansion to occur in the second half.
John Ederer: More specifically, Q1 is typically our largest renewal and highest erosion quarter, and as such, we expect total ARR and cloud ARR to decline sequentially on a dollar value basis in Q1, followed by stabilization and expansion over the course of the year, with the majority of that expansion to occur in the second half. Third, as noted during 2025, we continue to see customers evaluate hybrid deployment options, with some incorporating a combination of cloud and on-premise solutions. As they choose the deployment option that works for them, we have seen this cause variances in the mix between cloud and on-premise subscription ARR, which is why our primary focus is on total ARR growth. Finally, from a recurring revenue standpoint, it's important to remember that revenue recognition standards are different for cloud versus on-premise subscriptions.
John Ederer: More specifically, Q1 is typically our largest renewal and highest erosion quarter, and as such, we expect total ARR and cloud ARR to decline sequentially on a dollar value basis in Q1, followed by stabilization and expansion over the course of the year, with the majority of that expansion to occur in the second half. Third, as noted during 2025, we continue to see customers evaluate hybrid deployment options, with some incorporating a combination of cloud and on-premise solutions. As they choose the deployment option that works for them, we have seen this cause variances in the mix between cloud and on-premise subscription ARR, which is why our primary focus is on total ARR growth. Finally, from a recurring revenue standpoint, it's important to remember that revenue recognition standards are different for cloud versus on-premise subscriptions.
Speaker #2: Third, as noted during 2025, we continue to see customers evaluate hybrid deployment options, with some incorporating a combination of cloud and on-premise solutions. As they choose the deployment option that works for them, we have seen this cause variances in the mix between cloud and on-premise subscription ARR, which is why our primary focus is on total ARR growth.
Speaker #2: Finally, from a recurring revenue standpoint, it is important to remember that revenue recognition standards are different for cloud versus on-premise subscriptions. The cloud revenue follows a more consistent ratable growth pattern, whereas the on-premise subscriptions have a portion of revenue that is recognized upfront and a portion that is recognized ratably over time.
John Ederer: The cloud revenue follows a more consistent ratable growth pattern, whereas the on-premise subscriptions have a portion of revenue that is recognized upfront and a portion that is recognized ratably over time. The timing of on-premise deals may cause variability in our reported recurring revenue and corresponding growth rates. For example, we saw some benefit from upfront revenue recognition in the fourth quarter of 2025, and we expect to see this again in Q1 of 2026. Now, turning to our annual outlook for 2026, which again, is on a reported basis, total ARR is expected to be in the range of 2% to 4% growth year over year, which is an improvement versus 1% constant currency growth in FY 2025. Recurring revenue is expected to be in the range of 0% to 2% growth year over year.
John Ederer: The cloud revenue follows a more consistent ratable growth pattern, whereas the on-premise subscriptions have a portion of revenue that is recognized upfront and a portion that is recognized ratably over time. The timing of on-premise deals may cause variability in our reported recurring revenue and corresponding growth rates. For example, we saw some benefit from upfront revenue recognition in the fourth quarter of 2025, and we expect to see this again in Q1 of 2026. Now, turning to our annual outlook for 2026, which again, is on a reported basis, total ARR is expected to be in the range of 2% to 4% growth year over year, which is an improvement versus 1% constant currency growth in FY 2025. Recurring revenue is expected to be in the range of 0% to 2% growth year over year.
Speaker #2: The timing of on-premise deals may cause variability in our reported recurring revenue and corresponding growth rates. For example, we saw some benefit from upfront revenue recognition in the fourth quarter of 2025, and we expect to see this again in Q1 of 2026.
Speaker #2: Now, turning to our annual outlook for 2026, which again is on a reported basis, total ARR is expected to be in the range of 2 to 4 percent growth year over year, which is an improvement versus 1 percent constant currency growth in the range of 0 to 2 percent FY25.
Speaker #2: Recurring revenue is expected to show year-over-year growth. Total revenue is expected to be in the range of minus 2 percent to 0 percent year over year.
John Ederer: Total revenue is expected to be in the range of -2% to 0% year-over-year. Non-GAAP diluted earnings per share is expected to be in the range of $2.55 to $2.65. On operating margin, we expect approximately 100 basis points of expansion in 2026. Free cash flow is expected to be in the range of $310 million to $330 million. Regarding free cash flow linearity, we anticipate Q1 to be slightly negative. On the full year outlook, we expect the majority of the year-over-year growth to occur in Q2 and Q3.
John Ederer: Total revenue is expected to be in the range of -2% to 0% year-over-year. Non-GAAP diluted earnings per share is expected to be in the range of $2.55 to $2.65. On operating margin, we expect approximately 100 basis points of expansion in 2026. Free cash flow is expected to be in the range of $310 million to $330 million. Regarding free cash flow linearity, we anticipate Q1 to be slightly negative. On the full year outlook, we expect the majority of the year-over-year growth to occur in Q2 and Q3.
Speaker #2: Non-GAAP diluted earnings per share is expected to be in the range of $2.55 to $2.65. On operating margin, we expect approximately 100 basis points of expansion in 2026.
Speaker #2: Free cash flow is expected to be in the range of $310 million to $330 million. Regarding free cash flow linearity, we anticipate Q1 to be slightly negative.
Speaker #2: On the full-year outlook, we expect the majority of the year-over-year growth to occur in Q2 and Q3. Finally, while we are not providing formal guidance for cloud ARR in FY26 due to the potential for variances in mix between cloud and on-premise subscriptions, we are targeting growth of a low double-digit percentage for cloud ARR.
John Ederer: Finally, while we are not providing formal guidance for cloud ARR in FY 2026, due to the potential for variances in mix between cloud and on-premise subscriptions, we are targeting growth of a low double-digit percentage for cloud ARR. For Q1 2026, recurring revenue is expected to be in the range of 6% to 8% growth year-over-year. Total revenue is expected to be in the range of 1% to 3% growth year-over-year. Non-GAAP diluted earnings per share is expected to be in the range of $0.75 to $0.79. In terms of some other modeling assumptions, for the first quarter, we expect the non-GAAP tax rate to be approximately 25%, and the weighted average shares outstanding to be 96.1 million.
John Ederer: Finally, while we are not providing formal guidance for cloud ARR in FY 2026, due to the potential for variances in mix between cloud and on-premise subscriptions, we are targeting growth of a low double-digit percentage for cloud ARR. For Q1 2026, recurring revenue is expected to be in the range of 6% to 8% growth year-over-year. Total revenue is expected to be in the range of 1% to 3% growth year-over-year. Non-GAAP diluted earnings per share is expected to be in the range of $0.75 to $0.79. In terms of some other modeling assumptions, for the first quarter, we expect the non-GAAP tax rate to be approximately 25%, and the weighted average shares outstanding to be 96.1 million.
Speaker #2: For the first quarter of 2026, recurring revenue is expected to be in the range of 6 percent to 8 percent growth year-over-year.
Speaker #2: Total revenue is expected to be in the range of 1% to 3% growth year over year. Non-GAAP diluted earnings per share is expected to be in the range of $0.75 to $0.79.
Speaker #2: In terms of some other modeling assumptions, for the first quarter, we expect the non-GAAP tax rate to be approximately 25 percent, and the weighted average shares outstanding to be 96.1 million.
Speaker #2: For the full year, we expect the non-GAAP tax rate to be approximately 24 percent, which is approximately 1.5 points higher on a full-year basis due to a one-time benefit of $5 million in 2025.
John Ederer: For the full year, we expect the non-GAAP tax rate to be approximately 24%, which is approximately 1.5 points higher on a full year basis, due to a one-time benefit of $5 million in 2025. Also, we expect our weighted average shares outstanding to be 97 million for the full year. Using the currency rates at the end of December 2025, we expect a slight tailwind to our 2026 revenue outlook. However, we anticipate over 2 points of benefit to our revenue growth rate in the first quarter of 2026. On recurring revenue, we anticipate upfront revenue to provide more than 2 points of benefit to the Q1 growth rate. However, for the full year, we expect upfront revenue will be approximately a 1-point headwind to the 2026 growth rate. Also, we anticipate other expense of approximately $38 million.
John Ederer: For the full year, we expect the non-GAAP tax rate to be approximately 24%, which is approximately 1.5 points higher on a full year basis, due to a one-time benefit of $5 million in 2025. Also, we expect our weighted average shares outstanding to be 97 million for the full year. Using the currency rates at the end of December 2025, we expect a slight tailwind to our 2026 revenue outlook. However, we anticipate over 2 points of benefit to our revenue growth rate in the first quarter of 2026. On recurring revenue, we anticipate upfront revenue to provide more than 2 points of benefit to the Q1 growth rate. However, for the full year, we expect upfront revenue will be approximately a 1-point headwind to the 2026 growth rate. Also, we anticipate other expense of approximately $38 million.
Speaker #2: Also, we expect our weighted average shares outstanding to be 97 million for the full year. Using the currency rates at the end of December 2025, we expect a slight tailwind to our 2026 revenue outlook; however, we anticipate over two points of benefit to our revenue growth rate in the first quarter of 2026.
Speaker #2: On recurring revenue, we anticipate upfront revenue to provide more than two points of benefit to the Q1 growth rate. However, for the full year, we expect upfront revenue will be approximately a 1-point headwind to the 2026 growth rate.
Speaker #2: Also, we anticipate other expenses of approximately $38 million. To conclude, we took important steps to stabilize the business in 2025 and have built a solid foundation to deliver continued profitable growth.
John Ederer: To conclude, we took important steps to stabilize the business in 2025 and have built a solid foundation to deliver continued profitable growth. In 2026, we will be investing more in product development to take advantage of the substantial market opportunity in front of us, while at the same time driving incremental profitability and free cash flow. Thank you all for your time today.
John Ederer: To conclude, we took important steps to stabilize the business in 2025 and have built a solid foundation to deliver continued profitable growth. In 2026, we will be investing more in product development to take advantage of the substantial market opportunity in front of us, while at the same time driving incremental profitability and free cash flow. Thank you all for your time today.
Speaker #2: In 2026, we will be investing more in product development to take advantage of the substantial market opportunity in front of us, while at the same time driving incremental profitability and free cash flow.
Speaker #2: Thank you all for your time today.
Speaker #1: Thank you very much, John. Now, before we begin Q&A, I'd like to briefly touch on the board announcement we made this afternoon. The evolution of our board has always been a focus, and we're looking forward to having Melissa Fisher join us in the coming weeks.
Steve McMillan: Thank you very much, John. Now, before we begin Q&A, I'd like to briefly touch on the board announcement we made this afternoon. The evolution of our board has always been a focus, and we're looking forward to having Melissa Fisher join us in the coming weeks. She's got a great track record within software as an executive and board member, and we think she'll be a strong addition. We're also working through a search process to bring on a second new independent director later this year to complement some upcoming director retirements. So from a board refreshment perspective, that was our news. Now, operator, let's open the call for Q&A.
Steve McMillan: Thank you very much, John. Now, before we begin Q&A, I'd like to briefly touch on the board announcement we made this afternoon. The evolution of our board has always been a focus, and we're looking forward to having Melissa Fisher join us in the coming weeks. She's got a great track record within software as an executive and board member, and we think she'll be a strong addition. We're also working through a search process to bring on a second new independent director later this year to complement some upcoming director retirements. So from a board refreshment perspective, that was our news. Now, operator, let's open the call for Q&A.
Speaker #1: She's got a great track record within software as an executive and board member, and we think she'll be a strong addition. We're also working through a search process to bring on a second new independent director later this year to complement some upcoming director retirements.
Speaker #1: So, from a board refreshment perspective, that was our news. Now, operator, let's open the call for Q&A.
Speaker #3: Of course. At this time, I would like
John Ederer: Of course. At this time, I would like to remind everyone, in order to ask a question, please press star, then the number one on your telephone keypad. We'll pause here for just a moment to compile the Q&A roster. In the interest of giving everyone an opportunity, we appreciate that you limit yourself to one question and one follow-up.
Operator: Of course. At this time, I would like to remind everyone, in order to ask a question, please press star, then the number one on your telephone keypad. We'll pause here for just a moment to compile the Q&A roster. In the interest of giving everyone an opportunity, we appreciate that you limit yourself to one question and one follow-up.
Speaker #1: remind Like to everyone in order to ask a question , please press star . Then the telephone number one on your keypad . We'll pause here for just a moment to compile the Q&A roster .
Speaker #1: In the interest of giving everyone an opportunity, we appreciate keypad. We'll pause here for just a moment to compile the Q&A roster.
Speaker #1: In the interest of giving everyone an opportunity . We appreciate that you limit yourself to one question and one follow up . first question comes from of the line line is now Woodring with Stanley .
Operator: Our first question comes from the line of Eric Woodring with Morgan Stanley. Eric, your line is now open.
Operator: Our first question comes from the line of Eric Woodring with Morgan Stanley. Eric, your line is now open.
Erik Woodring: Great. Thank you very much for taking my questions, guys, and, and congrats on the quarter. Steve, I, I wanted you to kind of take a, a big step back and help us understand how material, you think on-premise AI is today. Meaning, you, you kind of get to see both worlds from your seat, cloud instances and non-AI-based workloads for, for large enterprises, many of which, you know, have to keep workloads on-prem. And so just wondering, you know, what percentage of your work... Of your customers are kind of in production today versus, going through some proof of concept? How are they in thinking about investing on-premise for GenAI versus the cloud? Would love just your high-level thoughts and then a quick follow-up, please. Thank you.
Erik Woodring: Great. Thank you very much for taking my questions, guys, and, and congrats on the quarter. Steve, I, I wanted you to kind of take a, a big step back and help us understand how material, you think on-premise AI is today. Meaning, you, you kind of get to see both worlds from your seat, cloud instances and non-AI-based workloads for, for large enterprises, many of which, you know, have to keep workloads on-prem. And so just wondering, you know, what percentage of your work... Of your customers are kind of in production today versus, going through some proof of concept? How are they in thinking about investing on-premise for GenAI versus the cloud? Would love just your high-level thoughts and then a quick follow-up, please. Thank you.
Speaker #1: Erik Morgan: Erik, your.
Speaker #2: Great . Thank you very much for taking my questions , congrats on quarter . Steve , the I wanted you of take to kind a big step back and help us understand how material you think on premise AI is today , meaning you get to see kind of both worlds from your seat cloud instances and non-ai based workloads for large enterprises .
Speaker #2: Many of which have to keep workloads on prem . And so just wondering what percentage of your work , of your customers are kind of in production today versus going through some proof of concept ?
Speaker #2: How are they thinking about investing on premise for AI gen versus the cloud ? Would love just your high level thoughts . And then a quick follow Thank up , please .
Steve McMillan: Yeah, thanks, Eric. We see our potential and capability in terms of delivering AI solutions on-prem as something that's gonna be a key growth driver as we move forward, and that's why our next generation of our hardware platform will actually have GPUs built right in. So, we are definitely going to see AI and AI on-prem as a growing part of our portfolio. If we look at the POC activity that we executed in 2025, we actually doubled the number of POCs as we come out, and a number of those have moved into production, on-prem, driving workload and usage of the Teradata platform. So we definitely see it as a key growth driver as we move into 2026. I also have to say, we're absolutely focused on expansion.
Steve McMillan: Yeah, thanks, Eric. We see our potential and capability in terms of delivering AI solutions on-prem as something that's gonna be a key growth driver as we move forward, and that's why our next generation of our hardware platform will actually have GPUs built right in. So, we are definitely going to see AI and AI on-prem as a growing part of our portfolio. If we look at the POC activity that we executed in 2025, we actually doubled the number of POCs as we come out, and a number of those have moved into production, on-prem, driving workload and usage of the Teradata platform. So we definitely see it as a key growth driver as we move into 2026. I also have to say, we're absolutely focused on expansion.
Speaker #2: you .
Speaker #3: Thanks , Eric . We see Yeah . our potential capability in terms of delivering AI solutions on prem as something that's going to be a key growth driver as we move forward .
Speaker #3: And that's why our next generation of our hardware platform will actually have GPUs built right in. So we are definitely going to see AI, and AI on-prem, as a growing part of our portfolio.
Speaker #3: If we look at the POC activity that we executed in 2020 . Five , actually we doubled the number of POCs as we come out and a number of those have moved into production .
Speaker #3: Prem: On driving workload and usage of the Teradata platform, we definitely see it as a key growth driver as we move into 2026.
Steve McMillan: We'll do that expansion in the cloud, or we'll do it on-prem, and again, that's one of the benefits that we have. If our customers choose to deploy in cloud, we can do that with them, and if they choose to deploy on-prem, we can also have that as an option.
Steve McMillan: We'll do that expansion in the cloud, or we'll do it on-prem, and again, that's one of the benefits that we have. If our customers choose to deploy in cloud, we can do that with them, and if they choose to deploy on-prem, we can also have that as an option.
Speaker #3: I also have say we're to absolutely focused on expansion , and we'll do that expansion in the cloud or we'll do it on prem .
Speaker #3: Again, and that's one of the benefits that we have for customers who choose to deploy in cloud. We can do that with, and if they, them.
Erik Woodring: Okay, I appreciate that color. Thank you, Steve. And then maybe just a quick follow-up for you, John. You know, I believe you're guiding to a little over 10% year-over-year free cash flow growth in 2026, if I just take the midpoint of your guide, really strong. You're effectively guiding to EPS kind of flattish year over year. Can you just walk through the puts and takes there? Why am I seeing a bit of a difference, a change in free cash flow conversion? Just what's burdening EPS, I guess, in 2026, that wouldn't burden free cash? Thank you so much, guys.
Erik Woodring: Okay, I appreciate that color. Thank you, Steve. And then maybe just a quick follow-up for you, John. You know, I believe you're guiding to a little over 10% year-over-year free cash flow growth in 2026, if I just take the midpoint of your guide, really strong. You're effectively guiding to EPS kind of flattish year over year. Can you just walk through the puts and takes there? Why am I seeing a bit of a difference, a change in free cash flow conversion? Just what's burdening EPS, I guess, in 2026, that wouldn't burden free cash? Thank you so much, guys.
Speaker #3: Deploy on choose to prem, we can also, as an, have that option.
Speaker #2: Okay . I then And appreciate that you Steve . color . Thank maybe maybe just a for you just a quick follow up John .
Speaker #2: You know , I believe you're guiding to a little over 10% year over year flow growth in 2026 . If I just take the midpoint of your guide , really strong effectively , you're guiding to EPs kind of flattish year over year .
Speaker #2: Can you just walk through the puts and takes there ? Why am I seeing a bit of a difference , a change in free cash flow conversion ?
John Ederer: Sure. Yeah, the short answer is, we had some outperformance in Q4, particularly related to a tax benefit, a one-time tax benefit, that benefited to us to the tune of about $0.05 in Q4. And so, I think if you adjust for that, you'll see a little bit better comparison in terms of the year-over-year growth rate and earnings per share. And then I would say otherwise, when we look at some of the other drivers of free cash flow, particularly around working capital and continuing to improve on collections, we'll get a little bit of tax benefit next year, in addition to the performance on the PNL side of things. All of those are drivers for the free cash flow.
John Ederer: Sure. Yeah, the short answer is, we had some outperformance in Q4, particularly related to a tax benefit, a one-time tax benefit, that benefited to us to the tune of about $0.05 in Q4. And so, I think if you adjust for that, you'll see a little bit better comparison in terms of the year-over-year growth rate and earnings per share. And then I would say otherwise, when we look at some of the other drivers of free cash flow, particularly around working capital and continuing to improve on collections, we'll get a little bit of tax benefit next year, in addition to the performance on the PNL side of things. All of those are drivers for the free cash flow.
Speaker #2: Just what's burdening EPs, I guess in '26 that wouldn't burden free cash. Thank you so much, guys.
Speaker #4: Sure . Yeah . The short answer is we had we had some outperformance in Q4 , particularly related to a tax benefit . A one time tax benefit that benefited to us to the tune of about $0.05 in Q4 .
Speaker #4: And so I think if you adjust for that, you'll see a little bit better comparison in terms of the year-over-year growth rate and earnings per share.
Speaker #4: And then I would say, otherwise, when we look at some of the other drivers of free cash flow, particularly around working capital and continuing to improve on collections, a little bit of—we'll get a tax benefit next year.
Speaker #4: In performance, on the addition to P&L side of things, all of those are drivers for the free cash flow.
Operator: Thank you for your questions, Eric. Our next question comes from the line of Radhi Felton with UBS. Your line is now open.
Operator: Thank you for your questions, Eric. Our next question comes from the line of Radhi Felton with UBS. Your line is now open.
Radi Sultan: Awesome. Awesome. Thanks, guys. Take the question, and, yeah, great to see the growth inflection here. Maybe first for Steve, can you just help us a little bit more? Like, what is going on behind the scenes here as you think about sort of this, this growth inflection? Like, can you just walk through, like, how much, you know, is a better demand backdrop here versus sort of what you've done proactively on the product and go-to-market side? Maybe just help us piece that together a little bit more.
Radi Sultan: Awesome. Awesome. Thanks, guys. Take the question, and, yeah, great to see the growth inflection here. Maybe first for Steve, can you just help us a little bit more? Like, what is going on behind the scenes here as you think about sort of this, this growth inflection? Like, can you just walk through, like, how much, you know, is a better demand backdrop here versus sort of what you've done proactively on the product and go-to-market side? Maybe just help us piece that together a little bit more.
Speaker #1: Thank you for your questions, Eric. Our next question comes from the line of Roddy Sultan with UBS. Your line is now open.
Speaker #5: Awesome , awesome . Thanks , guys . The question . Yeah , great to see the growth inflection here . Maybe first for Steve .
Speaker #5: Can you just help us a little bit more, like what is going on behind the scenes here as you think about sort of this growth inflection?
Speaker #5: Like can you just walk through like how much you know , is a better bet demand backdrop here versus sort of what you've done proactively on the product and go to market side , maybe just help us piece that together a little bit more .
Steve McMillan: Yeah, thanks, Radhi. That's a great question. I think the whole AI marketplace for us is opening up a new TAM, and that's helping us return to growth in 2025. As John has said, it was a year of stabilizing the performance of the business, and we certainly executed on that. But I think we're also capitalizing on investments that we made through the back half of 2024 and into 2025, certainly improving retention rates as we went through 2025. Our go-to-market teams are doing a great job from that perspective and really driving and returning the company to overall growth for 2025.
Steve McMillan: Yeah, thanks, Radhi. That's a great question. I think the whole AI marketplace for us is opening up a new TAM, and that's helping us return to growth in 2025. As John has said, it was a year of stabilizing the performance of the business, and we certainly executed on that. But I think we're also capitalizing on investments that we made through the back half of 2024 and into 2025, certainly improving retention rates as we went through 2025. Our go-to-market teams are doing a great job from that perspective and really driving and returning the company to overall growth for 2025.
Speaker #3: Yeah . Thanks , Randy . That's a great question . I think the whole AI marketplace for us is opening up a new Tam , and that's helping us return to growth in 2025 , it was a year of has said , as John performance stabilizing the of the business .
Speaker #3: And we certainly executed on that. But I think we're also capitalizing on investments that we made through the back half of 2024 and into 2025.
Speaker #3: Certainly improving retention rates as we went through 2025 . Our go to market teams are doing a great job from that perspective , and really driving and returning the company to overall growth for for 2025 .
Steve McMillan: I think from a product perspective, you know, we had a cascade of product announcements throughout the year, be it our Enterprise Vector Store, you know, our AI Model Ops capabilities, our Agent Builder capabilities, that are really changing the perception of Teradata and really positioning us to take advantage of this autonomous AI knowledge platform. You know, if you think about data and enterprise data, we're probably the custodians of the world's most valuable enterprise data, and that, for an AI system, is turning into enterprise memory, and we give the best way to access that enterprise memory for agents. So I think we've seen a number of different inflection points.
Steve McMillan: I think from a product perspective, you know, we had a cascade of product announcements throughout the year, be it our Enterprise Vector Store, you know, our AI Model Ops capabilities, our Agent Builder capabilities, that are really changing the perception of Teradata and really positioning us to take advantage of this autonomous AI knowledge platform. You know, if you think about data and enterprise data, we're probably the custodians of the world's most valuable enterprise data, and that, for an AI system, is turning into enterprise memory, and we give the best way to access that enterprise memory for agents. So I think we've seen a number of different inflection points.
Speaker #3: I think from a product perspective , you know , we had a cascade of product announcements throughout the year , be it our enterprise vector store or our AI model ops capabilities or Agent builder capabilities that are really changing the perception of Teradata and really positioning us to take advantage of this autonomous AI and knowledge platform .
Speaker #3: If you think about data and enterprise data, we're probably the custodians of the world's most valuable enterprise data, and that, for an AI system, is turning into enterprise memory.
Speaker #3: And we give the best access that way to enterprise memory for agents . So I think we've seen a number of different inflection points .
Steve McMillan: You know, we also took some time to retool our services business and are now positioned to deliver a whole set of AI services, which we think will drive some ARR growth as we move into 2026. So I think every aspect of the business came together to deliver growth for 2025, and obviously sets a path for us to be confident in continuing that growth in 2026.
Steve McMillan: You know, we also took some time to retool our services business and are now positioned to deliver a whole set of AI services, which we think will drive some ARR growth as we move into 2026. So I think every aspect of the business came together to deliver growth for 2025, and obviously sets a path for us to be confident in continuing that growth in 2026.
Speaker #3: You know, we also took some time to retool our services business and are now positioned to deliver a whole set of AI services, which we think will drive some IRR growth as we move into 2026.
Speaker #3: So I think every aspect of the business came together to deliver growth for 2025 . And obviously sets a path for us to be confident in continuing that growth in 2026 .
Radi Sultan: Great. And then I guess for John, quick follow-up, just on the 2026 outlook, as you think about the business mix, you know, shifting more towards expansion versus migrations, like, does that change your fundamental visibility sort of in the outlook? And maybe if you just speak to sort of what are the biggest areas within the 2026 guide that, you know, areas of uncertainty that you're handicapping there? Maybe just help us think about that.
Radi Sultan: Great. And then I guess for John, quick follow-up, just on the 2026 outlook, as you think about the business mix, you know, shifting more towards expansion versus migrations, like, does that change your fundamental visibility sort of in the outlook? And maybe if you just speak to sort of what are the biggest areas within the 2026 guide that, you know, areas of uncertainty that you're handicapping there? Maybe just help us think about that.
Speaker #5: Great . And then I guess for for John , quick follow up just on the on the 2026 outlook , as you think about the business mix shifting more towards expansion versus migration , does that change your fundamental visibility in the outlook ?
Speaker #5: And maybe you could just speak to sort of what are the biggest areas within the 26 guide that , you know , areas of uncertainty that you're handicapping there ?
John Ederer: Yeah, sure. You know, in terms of, I guess, the visibility, and you're talking specifically about migrations versus expansions, there are a few, you know, puts and takes there. But I would say in general, you know, when you look at migration activity, those tend to be bigger, more complex deals, and sometimes it's really hard to gauge the timing of those. But expansions by comparison with existing customers is a more consistent cadence. And so when you look at an average of that activity across the entire installed base, you get a little bit more consistency there. Now, I will say that our typical seasonality will be at play here in 2026. And so, and we talked about that in the prepared comments.
John Ederer: Yeah, sure. You know, in terms of, I guess, the visibility, and you're talking specifically about migrations versus expansions, there are a few, you know, puts and takes there. But I would say in general, you know, when you look at migration activity, those tend to be bigger, more complex deals, and sometimes it's really hard to gauge the timing of those. But expansions by comparison with existing customers is a more consistent cadence. And so when you look at an average of that activity across the entire installed base, you get a little bit more consistency there. Now, I will say that our typical seasonality will be at play here in 2026. And so, and we talked about that in the prepared comments.
Speaker #5: Maybe just help us think about that.
Speaker #5: .
Speaker #4: Yeah , sure . You know , in terms of , I guess , the visibility and talking specifically about migrations versus expansions , there are a few puts and takes there .
Speaker #4: But I would say in general , you know , when you look at migration activity , those tend to be bigger , more complex deals .
Speaker #4: And sometimes it's really hard to gauge the timing of those. But expansions, by comparison with existing customers, is a more consistent cadence.
Speaker #4: And so when you look at an average of that activity across the entire installed base , you get a little bit more consistency .
Speaker #4: There . Now I will say that our our typical seasonality will be at play here in 2026 . And so we talked and about that in the prepared comments .
John Ederer: We typically see more erosion activity in Q1, and then we build ARR through the year, and we have a stronger finish in Q4, and we would expect to see that same type of linearity. But otherwise, I would say between migrations and expansions, it's a little bit of a trade-off in terms of visibility overall.
John Ederer: We typically see more erosion activity in Q1, and then we build ARR through the year, and we have a stronger finish in Q4, and we would expect to see that same type of linearity. But otherwise, I would say between migrations and expansions, it's a little bit of a trade-off in terms of visibility overall.
Speaker #4: We typically see more erosion activity in Q1, and then we build IRR through the year. And we have a stronger finish in Q4.
Speaker #4: And we would expect to see that same type of linearity . But otherwise I would say between migrations and expansions , it's a little bit of a trade off in terms of visibility overall .
Chirag Ved: Awesome. Thanks, guys.
Radi Sultan: Awesome. Thanks, guys.
Steve McMillan: Thanks, Rodney.
Steve McMillan: Thanks, Rodney.
Operator: Thank you for your questions. Our next question comes from the line of Yichuan Wang with Citi. Your line is now open.
Operator: Thank you for your questions. Our next question comes from the line of Yichuan Wang with Citi. Your line is now open.
Speaker #5: Awesome . guys .
Speaker #3: Thanks , Randy .
Speaker #1: Thank questions . Our next question comes from the line of Xuan Wong with . Your line is now open .
Speaker #1: you for your
Yichuan Wang: Good evening. Thanks for taking my question. Congratulations on the strong close to the year and a solid guidance. I guess maybe start with fiscal 4Q results. It showed a, a much improved execution, with some strong large deal momentum across US telco, airlines, and India bank. Could you give us any incremental colors around the impact of this large deal in the quarter? And if there's any other updates around, like, the improvement in deal cycle or, like, erosion that you saw in the last, last year, and then going towards how AI impacting this performance?
Yitchuin Wong: Good evening. Thanks for taking my question. Congratulations on the strong close to the year and a solid guidance. I guess maybe start with fiscal 4Q results. It showed a, a much improved execution, with some strong large deal momentum across US telco, airlines, and India bank. Could you give us any incremental colors around the impact of this large deal in the quarter? And if there's any other updates around, like, the improvement in deal cycle or, like, erosion that you saw in the last, last year, and then going towards how AI impacting this performance?
Speaker #6: Good evening . Thanks for taking my question . Congratulations on a strong close to year and a solid guidance . I guess maybe start with fiscal for Q results show that it's a much improved execution with some strong , large deal momentum across US .
Speaker #6: Telco , airlines and India Bank . Could you give us any incremental color around the impact of this large deal in the quarter ?
Speaker #6: And if there's any other updates around, like the improvement in deal cycle or erosion that you saw last year, and then going towards how AI is impacting this performance?
Steve McMillan: Yeah, thanks, YC. Touched on quite a lot there. Yeah, I think we are seeing strength across industry. If we look at the pattern of our business in terms of where we're deploying some of these advanced AI solutions, especially, we've got use cases across the entire industry set. And we saw some really good geographical distribution in terms of our wins and deal set. In fact, in our international markets, we're actually seeing really good strength in our on-prem capabilities, just to give you a little bit of color there. Just from a retention perspective, you know, our team is focused on growth and expansion, and I think we've made material improvements to our retention rates as we went through 2025 compared to 2024, and we expect those improvements to continue into 2026.
Steve McMillan: Yeah, thanks, YC. Touched on quite a lot there. Yeah, I think we are seeing strength across industry. If we look at the pattern of our business in terms of where we're deploying some of these advanced AI solutions, especially, we've got use cases across the entire industry set. And we saw some really good geographical distribution in terms of our wins and deal set. In fact, in our international markets, we're actually seeing really good strength in our on-prem capabilities, just to give you a little bit of color there. Just from a retention perspective, you know, our team is focused on growth and expansion, and I think we've made material improvements to our retention rates as we went through 2025 compared to 2024, and we expect those improvements to continue into 2026.
Speaker #3: Yeah . Thanks . You touched on quite a lot there . Yeah , I think we're seeing strong strength across industry . If we look at the pattern of our of terms where deploying some of advanced these solutions AI , especially we've got use cases across the entire industry set , and we saw some really good geographical distribution in terms of our wins and deal set .
Speaker #3: And in our international markets . And we're actually seeing really good strength in our on prem capabilities . Just to give you a little bit color of there , just from a retention perspective , you know , our team is focused on growth and expansion .
Speaker #3: And I think we've made material improvements to our retention rates as we went through 2025 compared to 2024 . And we expect those improvements to continue into 2026 .
Steve McMillan: That's based on a couple of things. One, great execution by Team Teradata. I'm very proud of what they've done. But I think as well, you know, we've got a great product set that's enabling us to deploy in this world of AI, some really high-value solutions that make us more sticky and more relevant inside our customer base. And so that's what we're focused on as we execute that growth agenda for 2026.
Steve McMillan: That's based on a couple of things. One, great execution by Team Teradata. I'm very proud of what they've done. But I think as well, you know, we've got a great product set that's enabling us to deploy in this world of AI, some really high-value solutions that make us more sticky and more relevant inside our customer base. And so that's what we're focused on as we execute that growth agenda for 2026.
Speaker #3: And that's based on a couple of things . One , great execution by Team Teradata . I'm very proud of what they've done , but I think as well , you know , we've got a great product set that's enabling us to deploy in this world of AI .
Speaker #3: Some really high-value solutions that make us more sticky and more relevant to customers inside our base. And so that's what we're executing, that's what we're focused on—it's the growth agenda for 2026.
Yichuan Wang: Thanks, Steve. Maybe a quick one for John here. Looks like the services line is getting a strong improvement quarter-over-quarter, and then with Teradata ramping, I get benefit from AI services as you see more FDE approach across the market shift that you're seeing. Are you expecting this to be an incremental contributor, continue that improvement going into fiscal 2026? Thanks.
Yitchuin Wong: Thanks, Steve. Maybe a quick one for John here. Looks like the services line is getting a strong improvement quarter-over-quarter, and then with Teradata ramping, I get benefit from AI services as you see more FDE approach across the market shift that you're seeing. Are you expecting this to be an incremental contributor, continue that improvement going into fiscal 2026? Thanks.
Speaker #6: Thanks , Steve . Maybe a quick one for John here . Looks like the services line is getting a strong improvement quarter over quarter .
Speaker #6: And then with Teradata ramping up I get benefit from AI services . As you see more FTE approach across the market shift that you're seeing .
Speaker #6: Are you expecting this to be an incremental contributor ? Continue that improvement going into fiscal 26 . Thanks .
John Ederer: Sure. Yeah, no, thanks. You know, certainly, we've made a lot of improvement on the consulting services side of the business, particularly on the gross margins this year. So we started off the year in negative territory, as we had some headwinds on the revenue side, but course-corrected through the year, improved in Q3, and then really jumped up in Q4 from a gross margin standpoint to nearly 19%. And so I think we've managed through the transition of this business really well. The thing that is still there, I would say, from a macro standpoint, is that historically, what's driven that business has been a lot of migration activity.
John Ederer: Sure. Yeah, no, thanks. You know, certainly, we've made a lot of improvement on the consulting services side of the business, particularly on the gross margins this year. So we started off the year in negative territory, as we had some headwinds on the revenue side, but course-corrected through the year, improved in Q3, and then really jumped up in Q4 from a gross margin standpoint to nearly 19%. And so I think we've managed through the transition of this business really well. The thing that is still there, I would say, from a macro standpoint, is that historically, what's driven that business has been a lot of migration activity.
Speaker #4: Sure . Yeah . No thanks . I you know , certainly we've made a lot of improvement on the consulting services side of the business , particularly on the on the gross margins this year .
Speaker #4: So we we started off the year in negative territory as we had some headwinds on the revenue side . But but course corrected through the year , improved in Q3 .
Speaker #4: And then really jumped up in Q4 from a gross margin standpoint to nearly 19% . And so I think we've we've managed through the transition of this business really The thing well .
Speaker #4: that is still there , I would say from a macro standpoint , is that historically , what's driven that business has been a lot of migration activity .
John Ederer: We've seen the peak of that activity, and we're on the other side of that bell curve now, and what we expect to take the place of that is the AI services. And so we are starting to ramp that up this year, and that will help offset some of the migration activity in 2026. And so I think by and large, you know, we've stabilized that part of the business. I think we've got a good strategy for moving forward. One last thing I would say, just from a margin standpoint, I wouldn't necessarily expect that 19% in Q4 to continue at quite that high of a rate. If you look back at 2023 and 2024, I think you'll see a more normalized rate for consulting services.
John Ederer: We've seen the peak of that activity, and we're on the other side of that bell curve now, and what we expect to take the place of that is the AI services. And so we are starting to ramp that up this year, and that will help offset some of the migration activity in 2026. And so I think by and large, you know, we've stabilized that part of the business. I think we've got a good strategy for moving forward. One last thing I would say, just from a margin standpoint, I wouldn't necessarily expect that 19% in Q4 to continue at quite that high of a rate. If you look back at 2023 and 2024, I think you'll see a more normalized rate for consulting services.
Speaker #4: We're starting . We've seen the peak of that activity . We're on the other side of that bell curve now . And what we take the expect to place of that is the AI services .
Speaker #4: And so we are starting to ramp that this up year . And that will help offset some of the migration activity in 2026 .
Speaker #4: And so I think . By and large , you know , we've stabilized that part of the business . I think we've got a good strategy for moving forward .
Speaker #4: One last thing I would say , just from a margin standpoint , I wouldn't necessarily expect that 19% in Q4 to continue at quite that high of a rate .
Speaker #4: If you look back at 23 and 24 , I think you'll see a more normalized rate for consulting services .
Yichuan Wang: Great. Thank you.
Yitchuin Wong: Great. Thank you.
Operator: Thank you for your questions. Our next question comes from a line of Chirag Ved with Evercore. Your line is now open.
Operator: Thank you for your questions. Our next question comes from a line of Chirag Ved with Evercore. Your line is now open.
Speaker #6: Great . Thank you .
Speaker #1: Thank you for your questions . Our next question the line comes from of Chirag Z with Evercore . Your line is now open .
Chirag Ved: Hey, this is Chirag. Thanks for taking the question, and congratulations on the quarter. Great to see the return to positive ARR growth and operating leverage. Steve, you mentioned over 150 AI and agentic engagements. Can you talk about the typical conversion paths from these engagements into revenue, and how you think about the timeline from initial pilot to material ARR contribution? Thanks.
Chirag Ved: Hey, this is Chirag. Thanks for taking the question, and congratulations on the quarter. Great to see the return to positive ARR growth and operating leverage. Steve, you mentioned over 150 AI and agentic engagements. Can you talk about the typical conversion paths from these engagements into revenue, and how you think about the timeline from initial pilot to material ARR contribution? Thanks.
Speaker #7: Hey , this is Chirag . Thanks for taking the question . And congratulations on the quarter . Great to see the return to positive growth and operating leverage .
Speaker #7: you mentioned Steve , over 150 AI and Agentic engagements . Can you talk about the typical conversion paths from these engagements into revenue and how you think about the timeline from initial pilot to material or contribution ?
Steve McMillan: Yeah, thanks, Thanks, Chirag. It's a great question. You know, as you said, we are seeing a significant growth in AI workloads on the Teradata platform. You know, we're capturing that shift of spend inside the customer base, that's moving towards this, more sticky, more relevant, advanced set of solutions. And so that, that pivot to AI is something that we're really, benefiting from. In terms of operationalizing these workloads, that is something that we do every single day with our customer base. You know, whether it's, you know, a bank in Australia that's, utilizing their on-prem system for, you know, customer, sentiment analysis, you're running that AI workload on-prem. Whether it's, you know, a customer in Europe using cloud-based technologies for, their AI solution.
Steve McMillan: Yeah, thanks, Thanks, Chirag. It's a great question. You know, as you said, we are seeing a significant growth in AI workloads on the Teradata platform. You know, we're capturing that shift of spend inside the customer base, that's moving towards this, more sticky, more relevant, advanced set of solutions. And so that, that pivot to AI is something that we're really, benefiting from. In terms of operationalizing these workloads, that is something that we do every single day with our customer base. You know, whether it's, you know, a bank in Australia that's, utilizing their on-prem system for, you know, customer, sentiment analysis, you're running that AI workload on-prem. Whether it's, you know, a customer in Europe using cloud-based technologies for, their AI solution.
Speaker #7: Thanks .
Speaker #3: Yeah , thanks . Thanks , Sharad . It's a great question . As you said , we're seeing a significant growth in AI workloads on the Teradata platform .
Speaker #3: You know , we're capturing that shift of spend and say the customer base . That's moving towards sticky , more more relevant , advanced set of solutions .
Speaker #3: And so that pivot to AI is something that we're really benefiting from in terms of operationalizing these workloads. That's something that we do every single day with our customer base.
Speaker #3: You know , whether it's , you know , a bank in Australia that's utilizing their own prem system for , you know , customer sentiment analysis , you're running that AI workload on prem , whether it's , you know , a customer in Europe using cloud based technologies for their AI solution .
Steve McMillan: So I think, you know, we're seeing those AI solutions certainly driving capacity and usage of the Teradata platform, and our sales team is now completely focused on growth. You know, we're not as focused on, you know, capturing that headlong migration rush to the cloud. The teams are focused on growth where they can execute it, and I think this is the AI workloads are gonna be a key element of capturing that growth as we move through 2026.
Steve McMillan: So I think, you know, we're seeing those AI solutions certainly driving capacity and usage of the Teradata platform, and our sales team is now completely focused on growth. You know, we're not as focused on, you know, capturing that headlong migration rush to the cloud. The teams are focused on growth where they can execute it, and I think this is the AI workloads are gonna be a key element of capturing that growth as we move through 2026.
Speaker #3: So I think , you know , we're seeing those AI solutions certainly driving capacity and usage of the Teradata platform . And our sales team is now completely focused on growth .
Speaker #3: You know , we're not as focused on , you know , capturing that headlong migration rush to the cloud . The teams are focused on growth where they can execute it .
Speaker #3: And I think this is the AI are going workloads to be a key element of capturing that as we growth move through 2026 .
Chirag Ved: All right, thank you. Congrats again on the quarter.
Chirag Ved: All right, thank you. Congrats again on the quarter.
Steve McMillan: Thanks, Brad.
Steve McMillan: Thanks, Brad.
Operator: Thank you for your questions. Our next question comes from the line of Raimo Lenschow with Barclays. Your line is now open.
Operator: Thank you for your questions. Our next question comes from the line of Raimo Lenschow with Barclays. Your line is now open.
Speaker #7: All right . Thank you . Congrats again on the .
Speaker #3: Thanks , Ray .
Speaker #1: Thank you for your questions . Our next question comes from the line of Raimo Lenschow with Barclays . Your line is now open .
Sheldon McMeans: Hi, this is Sheldon McMeans on for Raimo. Thanks for taking the question. You certainly discussed some of the newer AI-related solutions on the call, you know, some of which that you launched during your October event. It seems like many of these are gonna be available in 2026, particularly in the back half of the year. And just when considering your positive growth outlook for the year, how much contribution are you baking in from some of these newer initiatives? Thanks.
Sheldon McMeans: Hi, this is Sheldon McMeans on for Raimo. Thanks for taking the question. You certainly discussed some of the newer AI-related solutions on the call, you know, some of which that you launched during your October event. It seems like many of these are gonna be available in 2026, particularly in the back half of the year. And just when considering your positive growth outlook for the year, how much contribution are you baking in from some of these newer initiatives? Thanks.
Speaker #8: Hi . This is Sheldon Mcmeans on for Raimo . Thanks for taking the question . You certainly discussed some of the newer AI related solutions on the call .
Speaker #8: You know , some of which that you launched during your October event . It seems like many of these are going to be available in 2026 , particularly in the back half of the year .
Speaker #8: And just when considering your positive growth outlook for the year , how much contribution are you baking in from some of these newer initiatives ?
Steve McMillan: Yeah, Sheldon, thanks very much for the question. Look, I think, as we've looked at the business and how we're executing against the business, you're absolutely right. A lot of the roadmap elements that we have start to come in at the end of Q2, and then into Q3. That's not stopping our sales teams getting out right now and talking about these capabilities with our customers. We know what the sales cycle is, we know our customer base, we know how they operate, and we're getting a lot of excitement around those capabilities just now. But from a financial perspective, we haven't factored a lot of incremental ARR from these specific capabilities.
Steve McMillan: Yeah, Sheldon, thanks very much for the question. Look, I think, as we've looked at the business and how we're executing against the business, you're absolutely right. A lot of the roadmap elements that we have start to come in at the end of Q2, and then into Q3. That's not stopping our sales teams getting out right now and talking about these capabilities with our customers. We know what the sales cycle is, we know our customer base, we know how they operate, and we're getting a lot of excitement around those capabilities just now. But from a financial perspective, we haven't factored a lot of incremental ARR from these specific capabilities.
Speaker #8: Thanks .
Speaker #3: Yeah , Sheldon , thanks very much for the for the question . Look , I think as we've looked at the business and how we're executing against the business , you're absolutely right .
Speaker #3: A lot of the roadmap elements that we have start to come in at the end of Q2 , and then into into three .
Speaker #3: That's not stopping our sales teams from getting out right now and talking about these capabilities with our customers. We know what the sales cycle is.
Speaker #3: We know our customer base . We know how they operate , and we're getting a excitement those capabilities just But from now . a financial perspective , we .
Steve McMillan: Certainly, we see it as the opportunity, and I'm certainly pushing the sales team to use that, those new products that are releasing as some upside to the output that we have currently in place.
Steve McMillan: Certainly, we see it as the opportunity, and I'm certainly pushing the sales team to use that, those new products that are releasing as some upside to the output that we have currently in place.
Speaker #3: Haven't factored a lot of incremental IRR from these specific capabilities . Certainly , we see it as the opportunity , and I'm certainly pushing the sales team to use that .
Sheldon McMeans: Understood. And a quick follow-up. Could you give a quick update on the hardware refresh and the current stage that is in, and just maybe how much work is needed? And do customers right now have enough visibility into the cost and some of the other related considerations to be able to make a decision on that today, or is there still some more work to be done before customers fully understand that? And then maybe any model impact that we should consider as the hardware refresh into... Thanks.
Sheldon McMeans: Understood. And a quick follow-up. Could you give a quick update on the hardware refresh and the current stage that is in, and just maybe how much work is needed? And do customers right now have enough visibility into the cost and some of the other related considerations to be able to make a decision on that today, or is there still some more work to be done before customers fully understand that? And then maybe any model impact that we should consider as the hardware refresh into... Thanks.
Speaker #3: Those new products that are releasing as some upside to the outlook that we have currently in place .
Speaker #8: Understood . And a quick follow up . Could you give a quick update on the hardware refresh and the current stage that is in and just maybe how much work is needed ?
Speaker #8: And do customers right now have enough visibility into the cost and some of the other related considerations to be able to make a decision on theirs still—that is today?
Speaker #8: Or some more to be done before customers understand that ? fully And then maybe any model impacts that we should consider as the hardware refresh ensues ?
Steve McMillan: Yeah. Yeah. Thanks, Sheldon. Yeah, we don't expect the new hardware platform to go GA until, you know, end of Q2 into Q3. So that refresh activity, although we talk to our customers about it in terms of how they would like to deploy and utilize these new solutions, it wouldn't really kick in until Q4 of the year, and then into 2027. But hey, doing a refresh is always an opportunity to sell more, and especially as these platforms are gonna have GPUs built in. You know, some of the announcements we've had about using the NVIDIA AI software stack that's gonna be embedded into that new platform, we are really delivering on that promise of the autonomous AI knowledge platform from an on-prem perspective.
Steve McMillan: Yeah. Yeah. Thanks, Sheldon. Yeah, we don't expect the new hardware platform to go GA until, you know, end of Q2 into Q3. So that refresh activity, although we talk to our customers about it in terms of how they would like to deploy and utilize these new solutions, it wouldn't really kick in until Q4 of the year, and then into 2027. But hey, doing a refresh is always an opportunity to sell more, and especially as these platforms are gonna have GPUs built in. You know, some of the announcements we've had about using the NVIDIA AI software stack that's gonna be embedded into that new platform, we are really delivering on that promise of the autonomous AI knowledge platform from an on-prem perspective.
Speaker #8: Thanks .
Speaker #9: Yeah , yeah .
Speaker #3: Thanks , Sheldon . Yeah , we don't expect a new hardware platform to go GA until , you know , end of second quarter into third quarter .
Speaker #3: So that refresh activity , although we talked to our customers about it in terms of how they would like to deploy and utilize these , these new solutions , it wouldn't really kick in until the last quarter of the year .
Speaker #3: And then into 2027 . But hey , doing a refresh is always an opportunity to sell more and especially as these platforms are going to have GPUs built in , you know , some of the announcements we've had about using the Nvidia AI software stack that's going to be embedded into that new platform .
Steve McMillan: I think our sales teams are super excited about what they can see and what they can deliver for their customers through 2026. But again, just from a modeling perspective, we haven't baked a lot into the second half of the year. But you know, we certainly see it as upside.
Steve McMillan: I think our sales teams are super excited about what they can see and what they can deliver for their customers through 2026. But again, just from a modeling perspective, we haven't baked a lot into the second half of the year. But you know, we certainly see it as upside.
Speaker #3: We are really delivering on that promise of the autonomous AI and knowledge platform from an on prem I think perspective . sales And teams are super excited about what they can see and what they can deliver for their customers through 2026 , but again , just from a modeling perspective , we haven't we haven't baked a lot in into the second half of the year .
Sheldon McMeans: Understood. Thanks for taking the question.
Sheldon McMeans: Understood. Thanks for taking the question.
Speaker #3: But , you know , we certainly see it as upside .
Operator: Thank you for your questions. Our next question comes from the line of Derek Wood with TD Cowen. Your line is now open.
Operator: Thank you for your questions. Our next question comes from the line of Derek Wood with TD Cowen. Your line is now open.
Speaker #8: Understood . Thanks for taking the question .
Speaker #1: Thank you for your questions . Our next question comes from the line of Derrick Wood with TD Cowan . Your line is now open .
Derrick Wood: Hi, Steve and John. This is Jared on for Derek. Thanks for taking the question. Heading into 2026, I'm curious what types of investments you're gonna be focused on from a headcount perspective. Do you intend to ramp up sales hiring as you address this AI opportunity, or maybe lean in with forward-deployed engineers? Thank you.
Derrick Wood: Hi, Steve and John. This is Jared on for Derek. Thanks for taking the question. Heading into 2026, I'm curious what types of investments you're gonna be focused on from a headcount perspective. Do you intend to ramp up sales hiring as you address this AI opportunity, or maybe lean in with forward-deployed engineers? Thank you.
Speaker #10: Hi Steve and John . This is Jared on for Derrick . Thanks for taking my thanks for question heading into 2026 . I'm curious what types of investments you're going to be focused on from a headcount perspective .
Speaker #10: Do you intend to ramp up sales hiring as you address this , AI opportunity ? Or maybe lean in forward deployed engineers ? Thank you .
Steve McMillan: Yeah, Jared, thanks. That's a great question. You know, we leaned in in 2025 in terms of restructuring the sales team and the sales force. I think the leadership team and our go-to-market team across the board have done a great job in that. And that also, we took the steps to actually refocus investment and current sales head dollars and expense towards, just to you, as your point, the forward deployed engineering model. And we see that as a very, very appropriate way to get these advanced AI solutions into our customer. You know, if we think about what we do as a business, we take that data layer for AI and then add value to it every single day. And so that's our forward deployment engineering capability.
Steve McMillan: Yeah, Jared, thanks. That's a great question. You know, we leaned in in 2025 in terms of restructuring the sales team and the sales force. I think the leadership team and our go-to-market team across the board have done a great job in that. And that also, we took the steps to actually refocus investment and current sales head dollars and expense towards, just to you, as your point, the forward deployed engineering model. And we see that as a very, very appropriate way to get these advanced AI solutions into our customer. You know, if we think about what we do as a business, we take that data layer for AI and then add value to it every single day. And so that's our forward deployment engineering capability.
Speaker #3: Yeah . Jared . Thanks . That's a great question . leaned in we in You know , 2025 in terms of restructuring the sales team and the sales force .
Speaker #3: And I think the leadership team and our go to market team board have done a across the great job in that . And that also we took the steps to actually refocus investment in current sales .
Speaker #3: Dollars and expense towards just as your point , the forward deployed engineering model and we see that as a very , very appropriate way to get these advanced AI solutions into our customer .
Speaker #3: You know, if we think about it as what we do in business, we take that data layer for AI and then add value to it every single day.
Steve McMillan: One of the things that we are investing in, and where we have carved out dollars, is to spend a little bit more on our product engineering and product development process. This is an exciting time to be in this industry as it transforms and as the importance of AI continues to accelerate. In order for us to continue to have a great product line, we've spotted some key investment areas that we can focus on, that are gonna make some tremendous differences in terms of the overall product portfolio that we have, and our new Chief Product Officer, Sumit Arora, is doing a great job in terms of marshaling that product vision, and we're looking forward to sharing more about that as we move through the year.
Steve McMillan: One of the things that we are investing in, and where we have carved out dollars, is to spend a little bit more on our product engineering and product development process. This is an exciting time to be in this industry as it transforms and as the importance of AI continues to accelerate. In order for us to continue to have a great product line, we've spotted some key investment areas that we can focus on, that are gonna make some tremendous differences in terms of the overall product portfolio that we have, and our new Chief Product Officer, Sumit Arora, is doing a great job in terms of marshaling that product vision, and we're looking forward to sharing more about that as we move through the year.
Speaker #3: And so that's our forward deployments . Engineering capability . One of the things that we are investing in and where we have carved out dollars , is to spend a little bit more on our product , engineering and product development process .
Speaker #3: This is an exciting time to be in this industry . As it transforms and as the importance of AI continues to accelerate . for us to in order continue to have a great product line , we've spotted some investment key areas that we can focus on that are going to make some tremendous differences in terms of the overall product portfolio that we have , and our new Chief Product Officer , Sumeet Arora is doing a great job in terms of marshaling that product vision .
Matthew Hedberg: Thank you very much.
Derrick Wood: Thank you very much.
Speaker #3: And we're looking forward to sharing more about that as we move through the year.
Operator: Thank you for your questions. Our next question comes from the line of Wamsi Mohan with Bank of America. Your line is now open.
Operator: Thank you for your questions. Our next question comes from the line of Wamsi Mohan with Bank of America. Your line is now open.
Speaker #10: Thank you very much .
Speaker #1: Thank you for your questions. Our next question comes from the line of Wamsi Mohan with Bank of America. Your line is now open.
Wamsi Mohan: Hi, yes, thank you so much. Maybe one for John. Can you just talk about the linearity that you're seeing for the year? You obviously gave a Q1 guide, and you mentioned sort of the step down in ARR, but do you expect normal seasonality after Q1? And also, as you think about, you know, these new initiatives that you're taking on into at the back half, and I just heard Steve say that not really baking much into it, into contribution from those in the back half of the year, should we, should we kind of not be thinking about more of an acceleration as you go into the back half of the year? And I will follow up.
Wamsi Mohan: Hi, yes, thank you so much. Maybe one for John. Can you just talk about the linearity that you're seeing for the year? You obviously gave a Q1 guide, and you mentioned sort of the step down in ARR, but do you expect normal seasonality after Q1? And also, as you think about, you know, these new initiatives that you're taking on into at the back half, and I just heard Steve say that not really baking much into it, into contribution from those in the back half of the year, should we, should we kind of not be thinking about more of an acceleration as you go into the back half of the year? And I will follow up.
Speaker #11: Yes . so Thank you much . Maybe one for John . Can you just talk about the linearity that you're for the year ?
Speaker #11: seeing You obviously gave a Q1 guide and you mentioned sort of the step down in AR , but do you expect normal seasonality after Q1 and also as you think about , you know , these new initiatives that taking on into the back half ?
Speaker #11: You're—And I just heard Steve say that really, baking, you're not much into it, into contribution from those in the back half of the year.
Speaker #11: Should we should we kind of not be thinking about more of an acceleration as you go into the back half of the year ?
John Ederer: Sure, yeah, just on the seasonality point, I guess I would make a distinction between ARR and revenue. And so from an ARR standpoint, both total ARR and cloud ARR, I would expect to see our typical linearity, and that's what we laid out in the prepared comments, where we have a bit more on the erosion side in Q1, and then we build that up over Q2, Q3, and finish with a strong Q4. And so I would expect that, like I said, very typical seasonality to exist again on the ARR side. And with, you know, I would say, you know, minimal impact from the new products that we're looking to release through the year, as Steve commented. I would distinguish that from the revenue side of the picture.
John Ederer: Sure, yeah, just on the seasonality point, I guess I would make a distinction between ARR and revenue. And so from an ARR standpoint, both total ARR and cloud ARR, I would expect to see our typical linearity, and that's what we laid out in the prepared comments, where we have a bit more on the erosion side in Q1, and then we build that up over Q2, Q3, and finish with a strong Q4. And so I would expect that, like I said, very typical seasonality to exist again on the ARR side. And with, you know, I would say, you know, minimal impact from the new products that we're looking to release through the year, as Steve commented. I would distinguish that from the revenue side of the picture.
Speaker #11: And I have a follow up ?
Speaker #4: Sure . Yeah . Just on the seasonality point , I guess I would make a distinction . Between AR and revenue . And so from an RR standpoint , both total RR and cloud RR , I would expect to see our typical linearity .
Speaker #4: And that's what out in . we laid The prepared comments where we where we have a bit more on the erosion side in Q1 .
Speaker #4: And then we build that up over Q2 , Q3 and finish with a strong Q4 . And so I would expect that , like I said , very typical seasonality to exist .
Speaker #4: Again , on the RR side . And with , you know , I would say , you know , minimal impact from the new products that we're looking to release through the year .
John Ederer: And so from a recurring revenue standpoint, we do have some anomalies this year, principally due to the timing of upfront revenue related to the on-premise portion of the business. And so we are seeing outsized growth on recurring revenue in our Q1 guidance. And we talked about we're getting a couple of points of benefit from currency, and we're getting a couple of points of benefit from upfront revenue recognition in Q1. We expect that to switch somewhat as we look at the full year. There'll be maybe a slight tailwind on the currency side for the full year, but a one-point headwind on the upfront portion of recurring revenue for the full year. And so again, we have some timing impact, principally related to the on-premise side, that impacts the recurring revenue piece versus the ARR.
John Ederer: And so from a recurring revenue standpoint, we do have some anomalies this year, principally due to the timing of upfront revenue related to the on-premise portion of the business. And so we are seeing outsized growth on recurring revenue in our Q1 guidance. And we talked about we're getting a couple of points of benefit from currency, and we're getting a couple of points of benefit from upfront revenue recognition in Q1. We expect that to switch somewhat as we look at the full year. There'll be maybe a slight tailwind on the currency side for the full year, but a one-point headwind on the upfront portion of recurring revenue for the full year. And so again, we have some timing impact, principally related to the on-premise side, that impacts the recurring revenue piece versus the ARR.
Speaker #4: As Steve commented , I would I would distinguish that from the revenue side of the picture . And so from a recurring revenue standpoint , we do have some anomalies this year , principally due to the timing of upfront revenue related to the on premise portion of the business .
Speaker #4: And so we are seeing outsized growth on recurring revenue in our Q1 guidance. And we talked about we're getting a couple of points of benefit from currency.
Speaker #4: We're getting a couple of points of benefit from upfront revenue recognition in Q1 . We expect that to switch somewhat as we look at the full year .
Speaker #4: There'll be maybe a slight tailwind on the currency side for the full year , but a one point headwind on the upfront portion of recurring revenue for the full year .
Speaker #4: And so again, we have some timing impact, principally related to the on-premise side, that impacts the recurring revenue piece versus the RR.
Wamsi Mohan: Okay. Yeah, that's helpful, John. Thank you. And then maybe for Steve. Steve, you mentioned obviously some comments in your prepared remarks about the board refreshment program. You know, you have been delivering improving results over the last few quarters. And so in some ways, as we think about the involvement here and this agreement with Lynrock Lake, to the extent that you can comment about it, what are specific areas or changes at the high level that you think that the board is going to try to implement in working with you?
Wamsi Mohan: Okay. Yeah, that's helpful, John. Thank you. And then maybe for Steve. Steve, you mentioned obviously some comments in your prepared remarks about the board refreshment program. You know, you have been delivering improving results over the last few quarters. And so in some ways, as we think about the involvement here and this agreement with Lynrock Lake, to the extent that you can comment about it, what are specific areas or changes at the high level that you think that the board is going to try to implement in working with you?
Speaker #11: Okay . Yeah . Thank That's helpful John . you . And then maybe for , Steve , you mentioned Steve obviously some comments in your prepared remarks about the board refreshment program .
Speaker #11: You know , you have been delivering improving results over the last few quarters . And so in some ways , as we think about the involvement here and this agreement with Craig , to the extent that you can about comment it , what are specific areas or changes at the high level that you think that the board is going to try to implement in working with you ?
Steve McMillan: Yeah, thanks, Wamsi. Yeah, board refreshment is something that clearly is super important to our overall governance process, and it's something that we continue to look at. And we're very happy to work with Cynthia at Lynrock Lake to identify some candidates and come to an agreement around placing this particular candidate on the board. We're really looking forward to Melissa coming on board. She's got a great skill set, and I think she'll add some great value. And then, as we continue the board refresh throughout the year, we're gonna execute a very structured process. You know, we declare very in some detail, actually, what the skill mix is of our board members, and obviously, we're gonna continue that process as we execute through that board refreshment.
Steve McMillan: Yeah, thanks, Wamsi. Yeah, board refreshment is something that clearly is super important to our overall governance process, and it's something that we continue to look at. And we're very happy to work with Cynthia at Lynrock Lake to identify some candidates and come to an agreement around placing this particular candidate on the board. We're really looking forward to Melissa coming on board. She's got a great skill set, and I think she'll add some great value. And then, as we continue the board refresh throughout the year, we're gonna execute a very structured process. You know, we declare very in some detail, actually, what the skill mix is of our board members, and obviously, we're gonna continue that process as we execute through that board refreshment.
Speaker #3: Yeah . Thanks . Yeah . Board refreshment is something that clearly is is super important to our overall governance process . And it's something that we continue to look at .
Speaker #3: And we're very happy to work with Cynthia Lake to identify some candidates, and come to an agreement around placing this particular one on the candidate board.
Speaker #3: We're really looking board . forward coming on a great She's got Melissa to skill set , and I think she'll add some great value .
Speaker #3: And then as we continue the board refresh throughout throughout the year , we're going to execute a very structured process . You know , we declare a very in some detail actually what the skill mix is of our board members .
Speaker #3: And obviously, we're going to continue that process as we execute that board refreshment.
Wamsi Mohan: Okay. Thank you, Steve.
Wamsi Mohan: Okay. Thank you, Steve.
Operator: Thank you for your questions. Our next question comes from the line of Patrick Walravens with Citizens. Your line is now open.
Operator: Thank you for your questions. Our next question comes from the line of Patrick Walravens with Citizens. Your line is now open.
Speaker #11: Okay . Thank you Steve .
Speaker #1: Thank you for your questions. Our next question comes from the line of Patrick with Walravens Citizens. Your line is now open.
Patrick Walravens: Hey, guys. This is Nick on for Pat. Thanks for taking the question, and congratulations on the quarter. Steve, one for you, then, John, I have a follow-up. So Steve, the biggest questions investors are asking right now is, what are the characteristics of a software company that's gonna make it through the AI transition? If you look back at the transition from on-prem to SaaS 20 years ago, only 40% of those top 20 companies survived. So what do you think those key characteristics are for this next transition that we're seeing from SaaS to AI?
Patrick Walravens: Hey, guys. This is Nick on for Pat. Thanks for taking the question, and congratulations on the quarter. Steve, one for you, then, John, I have a follow-up. So Steve, the biggest questions investors are asking right now is, what are the characteristics of a software company that's gonna make it through the AI transition? If you look back at the transition from on-prem to SaaS 20 years ago, only 40% of those top 20 companies survived. So what do you think those key characteristics are for this next transition that we're seeing from SaaS to AI?
Speaker #12: Hey , guys , this is Nick on for Pat . Thanks for taking the question . And congratulations on the quarter . Steve .
Speaker #12: One for you then . John , I have a follow up . So Steve , the biggest questions investors are asking right now is what are the characteristics of a software company that's going to make it through the AI transition ?
Speaker #12: If you look back from transition at the prem to SaaS 20 years ago , only of those 20 companies top 40% survived . So what do you think those key characteristics are for this next transition that we're seeing from SaaS to AI ?
Steve McMillan: Yeah, Nick, that's a great question. So you know, I think about it in terms of Teradata 1.0 to Teradata 2.0, and that was our cloud transition. You know, and getting over $700 million of our total ARR in the cloud was a key modernization step that we had to take as a company, and we achieved that, you know, over the span of 5 years, which was absolutely fantastic. We are looking forward to Teradata 3.0. That's driving this autonomous AI and knowledge platform. We're not a SaaS company. We are the data layer for AI, that system intelligence or enterprise memory.
Steve McMillan: Yeah, Nick, that's a great question. So you know, I think about it in terms of Teradata 1.0 to Teradata 2.0, and that was our cloud transition. You know, and getting over $700 million of our total ARR in the cloud was a key modernization step that we had to take as a company, and we achieved that, you know, over the span of 5 years, which was absolutely fantastic. We are looking forward to Teradata 3.0. That's driving this autonomous AI and knowledge platform. We're not a SaaS company. We are the data layer for AI, that system intelligence or enterprise memory.
Speaker #3: Yeah , that's a great question . So , you know , I think about it in terms of Teradata 1.0 to 2.0 . And that was our cloud transition , you know , and getting over $700 million of our total IRR in the cloud was a key modernization step that we had to take as a company .
Speaker #3: And we achieved that, you know, over the span of five years, which was absolutely fantastic. We are looking forward to Teradata 3.0.
Speaker #3: That's driving this autonomous AI . And knowledge platform . We're not a SaaS company . We are the data layer for AI . That system intelligence or enterprise memory .
Steve McMillan: If you look back at how Teradata works with clients, we've always built value on top of that data platform, and now we see that value is being delivered via agents, and that's why we are all about enabling these agents to utilize enterprise data at scale. And we think that that's gonna drive significant market opportunity for us into the future and help accelerate our growth as we launch these new products, which will take advantage of that and deliver on execution throughout the year. So it's a time of transition, but we believe that, you know, the capabilities that we've built up make us more relevant now in this agentic AI space.
Steve McMillan: If you look back at how Teradata works with clients, we've always built value on top of that data platform, and now we see that value is being delivered via agents, and that's why we are all about enabling these agents to utilize enterprise data at scale. And we think that that's gonna drive significant market opportunity for us into the future and help accelerate our growth as we launch these new products, which will take advantage of that and deliver on execution throughout the year. So it's a time of transition, but we believe that, you know, the capabilities that we've built up make us more relevant now in this agentic AI space.
Speaker #3: And if you look back at how Teradata works with clients, we've always built value on top of that data platform. And now we see that that value is being delivered via agents—why we are.
Speaker #3: that's And all about enabling these agents to utilize enterprise data at scale . And we that that's going to think drive significant opportunity for us into the future .
Speaker #3: And help accelerate our growth as we launch these new products , which will take advantage of that and deliver on execution throughout the year .
Speaker #3: So it's a time of transition , but we believe that , you know , the the capabilities that we've built up make us more relevant now in this .
Patrick Walravens: ... Got it. Thank you. And then as my follow-up, John, you guided to an operating margin expansion in 2026. Can you comment on what the main drivers of this expansion will be?
Patrick Walravens: ... Got it. Thank you. And then as my follow-up, John, you guided to an operating margin expansion in 2026. Can you comment on what the main drivers of this expansion will be?
Speaker #3: Agentic AI space .
Speaker #12: Got it . Thank you . And then as my follow up , John , you guided to an operating margin expansion in 2026 .
John Ederer: Yeah. At a high level, we're continuing our work on the gross margin side, although, as I described earlier, we have some offsetting elements there. And then when we look at the operating expense lines, we are looking to invest in product R&D, but continue to find efficiencies across the G&A and sales and marketing lines.
John Ederer: Yeah. At a high level, we're continuing our work on the gross margin side, although, as I described earlier, we have some offsetting elements there. And then when we look at the operating expense lines, we are looking to invest in product R&D, but continue to find efficiencies across the G&A and sales and marketing lines.
Speaker #12: Can you comment on what the main drivers of this expansion will be ?
Speaker #4: Yeah , at a high level , we're continuing our work on the on the gross margin side , although as I described earlier , we have some offsetting elements , their and then when we look at the operating expense lines , we are looking to invest in R&D product but continue to find across efficiencies the G and A and sales and marketing lines .
Patrick Walravens: Great. Thank you, guys.
Patrick Walravens: Great. Thank you, guys.
Operator: Thank you for your questions. Our next question comes from the line of Matt Hedberg with RBC Capital Markets. Your line is now open.
Operator: Thank you for your questions. Our next question comes from the line of Matt Hedberg with RBC Capital Markets. Your line is now open.
Speaker #12: Great . Thank you guys .
Speaker #1: Thank you for your questions. Our next comes from the question line of Matt with RBC Capital Markets. Your line is now open.
Matthew Hedberg: Hey, guys. This is Simran on for Matt Hedberg. Thanks for taking my question, and congrats on the quarter. Just one for me. I'm curious on how increased memory pricing is impacting the business, and if it's providing a boost to 2026 ARR. Thanks.
Simran Biswal: Hey, guys. This is Simran on for Matt Hedberg. Thanks for taking my question, and congrats on the quarter. Just one for me. I'm curious on how increased memory pricing is impacting the business, and if it's providing a boost to 2026 ARR. Thanks.
Speaker #13: Hey guys, this is Matt Hedberg. Thanks for taking my question, and congrats on the quarter. Just one from me. I'm curious on how increased memory pricing is impacting the business and if it's providing a boost to 2026.
Steve McMillan: Yeah, thank you for the question. Yes, our supply chain team has done a great job in terms of protecting us from, you know, the P&L impact in terms of increased memory prices. A lot of our contracts are, you know, committed capacity that we've contracted a number of years ago. So the actual uplift from that, that incremental memory cost is something that we're absorbing with our customers. But we're tending to... That's tending to enable us to have different expansion conversations with our customers. Instead of talking about them spending more money on something that they expect to get anyway, we can actually pivot that conversation to, you know, invest in innovation on the Teradata platform. And that's really what our sales teams are doing every day.
Steve McMillan: Yeah, thank you for the question. Yes, our supply chain team has done a great job in terms of protecting us from, you know, the P&L impact in terms of increased memory prices. A lot of our contracts are, you know, committed capacity that we've contracted a number of years ago. So the actual uplift from that, that incremental memory cost is something that we're absorbing with our customers. But we're tending to... That's tending to enable us to have different expansion conversations with our customers. Instead of talking about them spending more money on something that they expect to get anyway, we can actually pivot that conversation to, you know, invest in innovation on the Teradata platform. And that's really what our sales teams are doing every day.
Speaker #13: RR . Thanks .
Speaker #3: Yeah , thank you for the question . Yes , our supply chain team has done a great job in terms of protecting us from , you know , the the PNL impact in terms of increased memory prices .
Speaker #3: A lot of our contracts are , you know , committed capacity that we've contracted a years ago . So number of actual uplift from that incremental that , memory cost is , is something that we're absorbing with our customers .
Speaker #3: But we're tending to that's tending to enable us to have different expansion conversations with our customers . Instead of talking about them spending more money on something that they expect to get anyway , we can actually pivot that conversation to invest in innovation on the Teradata platform .
Steve McMillan: We're absolutely focused on that from a total ARR growth perspective.
Steve McMillan: We're absolutely focused on that from a total ARR growth perspective.
Speaker #3: And that's really what our sales teams are doing every day . We're absolutely focused on that from a total IRR growth perspective .
Matthew Hedberg: Thank you.
Simran Biswal: Thank you.
Operator: Thank you for your question. There are no further questions at this time. I will now turn the call back over to Steve McMillan for his final remarks.
Operator: Thank you for your question. There are no further questions at this time. I will now turn the call back over to Steve McMillan for his final remarks.
Speaker #13: Thank you .
Speaker #1: Thank you for your question. There are no further questions at this time. I will now turn the call back over to Steve McMillan for his final remarks.
Steve McMillan: Thank you, operator, and thank you everyone for joining us today. We are really proud of the progress that we've made, and we do believe that we are really very well-positioned with our AI and knowledge platform, our AI services expertise, and our growing ecosystem of partners. We're gonna continue to drive clear and compelling outcomes for our customers and lasting value for our shareholders. Thank you all very much.
Steve McMillan: Thank you, operator, and thank you everyone for joining us today. We are really proud of the progress that we've made, and we do believe that we are really very well-positioned with our AI and knowledge platform, our AI services expertise, and our growing ecosystem of partners. We're gonna continue to drive clear and compelling outcomes for our customers and lasting value for our shareholders. Thank you all very much.
Speaker #3: you . Thank Operator . And thank you , everyone for joining us today . We are really proud of the progress that we've made , and we do believe that we are really very well positioned with our AI platform .
Speaker #3: knowledge Our AI services are expertise and of ecosystem growing partners . We're going to continue to drive clear and compelling outcomes for our customers and lasting value for our shareholders .
Operator: This concludes today's conference call. You may disconnect.
Operator: This concludes today's conference call. You may disconnect.
