Teradata (TDC) Q2 FY26 earnings call: guidance and Q&A

Given strong H1 performance and new product launches, why does the H2 guidance indicate declines, rather than accelerating growth?

Management explained that the linearity of revenue recognition under ASC 606 shifted more on-premise subscription revenue to H1, leading to less revenue to be recognized in H2. Full-year targets remain consistent, and new product upside has not yet been factored into the guidance.

“So due to the nature of ASC 606 accounting, which we talked a little bit about on the Q1 call, and And again, in our prepared remarks today, we did see more upfront revenue coming from the on-premise subscriptions over the first half of the year. That means there's a little bit less revenue to be recognized in Q3 and Q4.”

asked by Erik Woodring · answered by John Ederer

Can you elaborate on customer conversations regarding Teradata Factory, its pull-through potential, and how it differentiates against cloud-native competitors, especially for on-premise needs?

Steve highlighted Teradata Factory's differentiation for on-prem AI workloads, data sovereignty, and integrated GPU capabilities, allowing customers to run AI workloads natively on-prem. The partnership with Dell Technologies provides go-to-market access and leverages Dell's buying power, giving customers true choice between cloud and on-prem deployments.

“We certainly see Teradata Factory and our ability to execute these workloads on-prem as a really differentiating point against our competitors. Just to level set everybody, Teradata Factory is our next generation architectures. It's got GPUs built in from the ground up”

asked by Roddy Salton · answered by Unknown Speaker

Given the strong balance sheet, how does Teradata prioritize capital allocation among stock buybacks, bolt-on M&A, and R&D?

John stated the capital allocation priorities are organic R&D first, followed by the stock buyback program (targeting 50% of adjusted free cash flow), and then strategic M&A. He noted that these priorities could change in the future.

“I would stack rank the ones that you mentioned with organic R&D first, followed by our stock buyback program, and then strategic M&A.”

asked by Roddy Salton · answered by John Ederer

How do the new AI tools help customer conversion, and why does AI monetization seem to lag behind what peers are seeing?

Steve explained that the vision for an agentic and autonomous knowledge platform is resonating. AI monetization lags because customers are primarily utilizing existing Teradata platform capacity for new AI workloads, which is cost-effective for them. The company plans to monetize new products as they roll out, but the current focus is on increased utilization of the existing platform.

“But what we're really going to see is increased utilization of the existing Teradata platform. And so the lag essentially is as organizations utilize these new capabilities. in the platform. It's essentially utilizing capacity and capability that they've already bought from Teradata.”

asked by Yi-Chun Wang · answered by Unknown Speaker

Cloud ARR growth seems low given double-digit guidance. Are there shifts in customer budgets or impacts from geopolitical situations, and what's the update on stage migration?

John reiterated the focus on total ARR growth over just cloud growth, noting quarterly variability in mix. He stated that peak cloud migrations were 1-2 years ago, and less migration activity is factored into the current model. The hybrid approach continues to resonate with customers.

“As we've been saying for probably about a year now, I would say our focus is much more on total ARR growth, not just cloud growth. We are still seeing faster growth for cloud versus on-premise subscriptions, but in any given quarter, the mix of those deals may vary a little bit.”

asked by Yi-Chun Wang · answered by John Ederer

Was the sales organization's performance satisfactory in the quarter, and did the fact that Teradata Factory was not yet generally available impact results?

Steve expressed satisfaction with operational execution and the sales team's embrace of new offers. He noted that while Teradata Factory was not fully GA, it generated excitement and opened new opportunities, particularly for on-prem GPU workloads, which the sales teams are energized to pursue.

“From a go-to-market perspective, the teams have really embraced these new offers and new capabilities, are proactively taking them out to our customers. really good feedback about Teradata Factory, as we said. It's some early announcements and it's going GA. The sales teams are excited.”

asked by Patrick Walravens · answered by Unknown Speaker

What are the supply chain thoughts regarding memory, storage, and hardware pricing for H2 FY26 and CY27?

John stated that Teradata has sufficient inventory for its existing platform for FY26. For the new Teradata Factory, potential pressures from supply chain and increased pricing are being addressed by adjusting pricing to end customers to protect margins, with a focus on FY27.

“So, on the existing platform, we actually have sufficient inventory for this year. We had actually pre-bought some inventory as we finished up fiscal 25. And so we're in good shape from a supply chain standpoint on the current platform.”

asked by Matthew Hedberg · answered by John Ederer

Are there changes in customer buying behavior, such as timing of hardware purchases or rethinking cloud migration, due to elevated hardware costs in the market?

Steve confirmed that Teradata has adjusted pricing for both existing and new platforms. He stated that customers are looking for price performance, and Teradata's recurring revenue model provides an advantage. The partnership with Dell helps leverage buying power and expedite delivery, mitigating impacts from hardware costs.

“Yes, in fact, we have adjusted our pricing for both our existing platform and of course, our new Teradata factory has a new pricing model associated with that as well. But what our customers are really looking for at the end of the day is price performance.”

asked by James Wood · answered by Unknown Speaker