Breaking Down Teradata Corporation (TDC) Financial Health: Key Insights for Investors

You're looking at Teradata Corporation (TDC) and seeing a classic transition story: strong cloud growth fighting against a decline in legacy revenue. Honestly, the key takeaway from the Q3 2025 results is that the pivot is still a grind, but the profitability is defintely there. While total revenue for Q3 came in at $416 million, a 5% year-over-year drop, the strategic shift is showing up in the Annual Recurring Revenue (ARR) numbers. Public cloud ARR hit $633 million, an 11% jump, and management is guiding for full-year cloud ARR growth between 14% and 18%, which is the real engine here. Plus, the company is translating that into cash, raising its full-year non-GAAP diluted Earnings Per Share (EPS) guidance to a tight range of $2.38 to $2.42 and projecting Free Cash Flow (FCF) of $260 million to $280 million. So, the question isn't about survival-it's about whether the cloud momentum can outrun the drag from the on-premise business fast enough to justify the current valuation, especially when total ARR is only inching up to $1.490 billion.

Revenue Analysis

You're looking at Teradata Corporation (TDC) and seeing a top-line revenue decline, but you need to understand the 'why' behind the numbers. The direct takeaway is that while total revenue is shrinking, this is a planned, transitional effect of their strategic shift from selling one-time software licenses and hardware to a cloud-first, subscription-based model. It's a short-term headwind for a long-term structural gain.

For the nine months ended September 30, 2025, Teradata's total revenue was $1.242 billion, compared to $1.341 billion in the same period a year ago. More recently, in the third quarter (Q3) of 2025, total revenue came in at $416 million, which was a year-over-year decline of about 5%. Here's the quick math: the company is purposefully trading lower, lumpier perpetual license revenue for higher-quality, predictable recurring revenue (ARR). It's defintely a trade-off worth making.

The Core Revenue Streams: A Segment Breakdown

Teradata's revenue is now overwhelmingly dominated by recurring revenue (subscription fees), which is the intended outcome of their cloud transformation. This segment is the stability anchor. In Q3 2025, recurring revenue was $366 million, which made up a substantial 88% of the total revenue, up from 85% in the year-ago period. The other segments are in a managed decline, which is what you want to see as they push clients to the cloud platform.

To be fair, the decline in the legacy segments is sharp. Consulting services revenue dropped by 23% year-over-year to $47 million in Q3 2025, and the perpetual software licenses and hardware revenue segment plummeted by 57.1% to just $3 million. This segment breakdown shows the old business model is being actively phased out, which is a good sign of strategic execution.

The Cloud Migration Engine: ARR Growth

The true measure of Teradata's success right now is its Annual Recurring Revenue (ARR), especially its Public Cloud ARR. This is the future growth engine. As of Q3 2025, Public Cloud ARR reached $633 million, a solid 11% increase year-over-year. The company is forecasting this public cloud growth to accelerate, projecting a full-year 2025 increase between 14% and 18%.

This growth is fueled by their focus on hybrid AI solutions and their Mission Statement, Vision, & Core Values of Teradata Corporation (TDC)., which centers on high-performance data analytics. The overall Total ARR is also holding up, reaching $1.490 billion in Q3 2025, which is essentially flat-to-slightly-up from the prior year. What this estimate hides is the impact of customers migrating their existing on-premise subscriptions to the cloud, which can temporarily mask the underlying cloud growth rate.

• Public Cloud ARR is the key metric.
• Full-year 2025 Total Revenue is expected to decline between 5% and 7% in constant currency.
• Total ARR is projected to be in the range of flat to 2% growth for the full year 2025.

The near-term risk is that the decline in legacy revenue outpaces the growth in new cloud subscriptions, but the strong Public Cloud ARR growth suggests the transition is on track. Finance: monitor the Public Cloud ARR growth rate against the 14% to 18% target range quarterly.

Profitability Metrics

You want to know if Teradata Corporation (TDC) is actually making money, especially as they push hard into the cloud. The direct takeaway is this: Teradata is showing strong operating leverage, meaning their profit margins are expanding, even while total revenue faces near-term headwinds from the transition away from their legacy business. This is defintely a good sign for long-term health.

For the third quarter of 2025, Teradata posted a total revenue of $416 million. This isn't a high-growth number-it was down 5% year-over-year-but the real story is what they kept. Their non-GAAP gross margin improved to a solid 62.3%, and the non-GAAP operating margin hit 23.6%. These margins show management's focus on cost control is working, which is crucial in a competitive market.

Margin Trends and Operational Efficiency

The trend in profitability is one of margin expansion driven by aggressive cost management and a favorable mix shift toward higher-margin recurring revenue. Teradata's operational efficiency is clearly visible in the numbers. Management has emphasized that cost efficiency actions and organizational streamlining are the main drivers behind the margin improvements.

Here's the quick math on their core profitability metrics, using the most recent 2025 data and full-year analyst estimates:

The non-GAAP operating margin of 23.6% in Q3 2025 was up 720 basis points sequentially, a massive jump that shows the impact of these cost-cutting measures. They are generating more profit from each dollar of revenue. This is pure operating leverage.

• Gross margin improved sequentially, driven by recurring and services gross margins.
• Net profit margins hit 6.6%, nearly doubling from the prior year's 3.5%.
• Full-year non-GAAP diluted EPS guidance was raised to a range of $2.38 to $2.42, reflecting higher confidence in execution and cost savings.

Industry Comparison and Outlook

When you compare Teradata Corporation (TDC) to the broader cloud data analytics sector, their profitability picture is mixed but improving. The enterprise data warehousing market is projected to see a massive Compound Annual Growth Rate (CAGR) of 28.5% between 2025 and 2035. Teradata is positioned to benefit, especially with their focus on hybrid cloud and AI workloads. You can read more about their strategic focus in their Mission Statement, Vision, & Core Values of Teradata Corporation (TDC).

While a direct, apples-to-apples industry average for operating margin is hard to pin down, we can look at valuation. Teradata's stock trades at a much lower forward Price-to-Earnings (P/E) ratio of approximately 22.2x for 2025, which is well below the industry average that analysts place above 35x. This suggests the market is discounting Teradata's stock due to slow revenue growth expectations, even though their profitability-the quality of their earnings-is demonstrably improving. They are a profitable company in a high-growth market, but their top-line growth needs to accelerate to close that valuation gap.

Debt vs. Equity Structure

Teradata Corporation (TDC) runs with a high degree of financial leverage (Debt-to-Equity), which is typical for a mature technology company transitioning its business model, but it's important to see that this debt is well-managed. While the reported Debt-to-Equity ratio was high at 3.31 as of the second quarter of 2025, the company's strong cash flow and earnings coverage ratios suggest this is a calculated risk, not a crisis.

You need to look past the headline ratio. In the third quarter of the 2025 fiscal year, Teradata Corporation's balance sheet showed a total debt load that is manageable relative to its operating cash flow. The total debt-including long-term and short-term obligations-was approximately $462 million.

Here's the quick math: The Debt-to-Equity ratio of 3.31 (based on Q2 2025 data of $583 million in total debt and $176 million in equity) is significantly higher than the median for the Software-Infrastructure industry, which often hovers closer to 1.0 to 1.5. A high ratio like this means Teradata Corporation is defintely relying heavily on debt financing (leverage) over shareholder equity to fund its operations and strategic cloud transition. Still, a more recent market-reported figure is closer to 2.21, which is an improvement and shows the balance sheet is somewhat stabilizing.

The company balances debt financing and equity funding by using debt for its capital structure while maintaining very strong debt service coverage. They're not issuing new equity to avoid dilution, but they are clearly comfortable with a high debt load because their earnings can cover the interest payments easily. This is the key metric to watch.

• Interest Coverage: Teradata Corporation's Earnings Before Interest and Taxes (EBIT) covers its interest payments by a factor of 10.9x.
• Net Debt Position: The Net Debt to EBITDA ratio was a low 0.34 in Q1 2025, showing the company's net debt is small compared to its annual earnings power.

We haven't seen any major new debt issuances or large-scale refinancing announcements in 2025, which is a good sign-it means they are managing their current structure without needing to tap the market at potentially higher interest rates. Their focus is on generating cash flow from operations, which is projected to be between $280 million and $300 million for the full year 2025, to service their existing obligations. This approach signals a preference for internal cash generation and operational efficiency to fund growth, rather than taking on more leverage. For a deeper look at who is buying into this strategy, check out Exploring Teradata Corporation (TDC) Investor Profile: Who's Buying and Why?

Liquidity and Solvency

You need to know if Teradata Corporation (TDC) has enough quick cash to cover its near-term bills. The short answer is: its traditional liquidity ratios are below the 1.0 benchmark, but its strong cash flow generation and substantial cash balance provide a critical safety net. This is a common pattern for subscription-based technology companies with high deferred revenue.

Assessing Teradata Corporation (TDC)'s Liquidity

As of the third quarter of 2025, Teradata Corporation (TDC)'s liquidity position shows a tight squeeze when viewed through the classic lens of current and quick ratios. The Current Ratio-which measures current assets against current liabilities-stood at approximately 0.90. The Quick Ratio (or Acid-Test Ratio), which is even more stringent as it excludes inventories, was slightly lower at 0.89. Anything below 1.0 suggests that current assets alone can't cover all current liabilities, which is a red flag for many firms, but not necessarily a crisis here. The quick math is that for every dollar of short-term debt, Teradata Corporation (TDC) has only $0.90 in short-term assets to pay it.

Here's the quick math on the Q3 2025 liquidity position (in millions of USD):

• Current Assets: $811 million
• Current Liabilities: $906 million
• Inventories: $5 million

Working Capital and Deferred Revenue Trends

This sub-1.0 ratio translates directly into a negative working capital position-current liabilities exceed current assets by $95 million (calculated as $906M - $811M). What this estimate hides is the nature of a significant portion of Teradata Corporation (TDC)'s current liabilities: Deferred Revenue. At $527 million as of September 30, 2025, deferred revenue is the largest component of current liabilities. This isn't a bill to a supplier; it's cash already collected from customers for services yet to be delivered. This is defintely a strength, not a weakness, as it signals strong subscription-based business momentum and future revenue certainty. The working capital trend is negative, but the underlying quality of the liabilities is high.

Cash Flow Statements Overview

The cash flow statement for the nine months ended September 30, 2025, paints a much healthier picture of internal financial strength. The company is a solid cash generator, which is the ultimate measure of liquidity. Exploring Teradata Corporation (TDC) Investor Profile: Who's Buying and Why?

The key cash flow trends (in millions of USD) for the first nine months of 2025 are:

• Operating Cash Flow (CFO): Net cash provided by operating activities was $145 million. This is the core engine of the business, showing significant cash generation.
• Investing Cash Flow (CFI): Net cash used in investing activities was a modest $12 million. This low figure reflects minimal capital expenditures for property and equipment ($10 million) and capitalized software ($1 million).
• Financing Cash Flow (CFF): Net cash used in financing activities totaled $102 million. The bulk of this outflow-$102 million-was for repurchases of Company common stock, essentially returning capital to shareholders.

The full-year 2025 outlook for Cash Flow from Operations is projected to be between $280 million and $300 million, with Free Cash Flow expected to land between $260 million and $280 million. That's a strong forecast, and it's what matters most.

Liquidity Strengths and Actions

The primary liquidity strength for Teradata Corporation (TDC) is its cash balance and cash generation. As of Q3 2025, the company held $406 million in cash and cash equivalents. This cash pile is more than enough to cover any immediate operational needs, despite the negative working capital. The consistent positive operating cash flow provides the flexibility to fund its cloud transition and share repurchase program without relying on new debt. The risk is low on day-to-day operations.

Action: Monitor the full-year 2025 CFO guidance closely; a miss below the $280 million floor would signal a slowdown in the core business's cash conversion cycle.

Valuation Analysis

You're looking to cut through the noise on Teradata Corporation (TDC) and figure out if the stock's current price is justified. The direct takeaway is this: Teradata is currently trading at a valuation that suggests it is fairly valued with a 'Hold' consensus from analysts, reflecting its ongoing transition to a cloud-based subscription model. The stock is not a screaming buy, but it's defintely not a clear short either.

As of November 2025, the stock price sits around the $26.60 to $27.20 mark, which is squarely in the middle of its recent range. Over the last 12 months, the stock has fallen by about 11.24%, which maps the market's caution around their shift from perpetual licenses to the cloud. The 52-week range tells a story of volatility, with a high of $33.20 and a low of $18.43. That's a huge swing.

Here's the quick math on the key valuation multiples for the 2025 fiscal year, which help us benchmark Teradata against its peers in the software and data analytics space:

• Price-to-Earnings (P/E) Ratio: At approximately 22.15, Teradata is valued below the typical Software industry average, which is often much higher. This suggests investors see less explosive growth than in pure-play cloud competitors, but it's a reasonable multiple for a company with a projected 2025 EPS of around $2.35.
• Price-to-Book (P/B) Ratio: The P/B is quite high at 11.54. This high number is common for technology companies, as their main assets are intangible (software, intellectual property), but it still indicates that the market is placing a significant premium on the company's net assets.
• Enterprise Value-to-EBITDA (EV/EBITDA) Ratio: This ratio, which accounts for debt and cash, is approximately 9.37. This is a healthy number, suggesting the company's operating profitability is being valued reasonably by the market, especially compared to its historical five-year average.

What this estimate hides is the market's focus on Annual Recurring Revenue (ARR) growth, which has been a recent challenge for the company despite meeting consensus estimates. The shift to a subscription model initially depresses near-term revenue, but improves long-term predictability. The market is still waiting for the full payoff.

The analyst community is split, resulting in a consensus of Hold as of November 2025. Out of the analysts covering the stock, the ratings breakdown is mixed: 4 recommend a Buy, 9 suggest a Hold, and 1 advises a Sell. The average price target is set at $28.11 to $29.43, which is only a modest upside from the current price. This lack of a strong 'Buy' signal confirms the 'wait-and-see' approach. Also, you should know that Teradata Corporation does not pay a dividend, with both the dividend yield and payout ratio standing at 0.00% for 2025.

For a deeper dive into the company's operational health, you can read the full post: Breaking Down Teradata Corporation (TDC) Financial Health: Key Insights for Investors

Your next step should be to track the company's cloud Annual Recurring Revenue (ARR) growth in the next two quarters; that's the real indicator of the cloud transition's success, not the legacy P/E ratio.

Risk Factors

You need to look past the strong profitability metrics, like the Q3 2025 non-GAAP operating margin of 23.6%, and focus on the fundamental revenue risks. Teradata Corporation (TDC) is still navigating a complex transition, and the primary risk is that the cloud growth-while solid-isn't offsetting the decline in the legacy business quickly enough.

The core challenge is a competitive and operational one: the industry competition from cloud-native rivals like Snowflake is fierce, and it's making the migration process for Teradata's large enterprise customers slower than anticipated. This translates directly into delayed cloud migrations and deal elongations, which management highlighted as a key challenge for large transformational deals.

Operational and Financial Headwinds

The cloud transition creates a significant mix risk. Customers are still assessing whether to deploy in the cloud or keep their systems on-premise, which pressures the linearity of Cloud Annual Recurring Revenue (ARR). This indecision means that for the full fiscal year 2025, Teradata is guiding for total revenue to decline in the range of -5% to -7% year-over-year in constant currency, with recurring revenue also expected to drop by -3% to -5%. That's a serious top-line headwind.

Also, don't forget the external financial pressures. Foreign exchange (FX) headwinds have been a factor, estimated to have a negative effect of about $25 million on free cash flow and operating income earlier in 2025. Still, the company's full-year Free Cash Flow guidance is robust, narrowed to the high end of their initial outlook at $260 million-$280 million.

• Cloud ARR growth relies too much on existing customer migrations.
• New cloud customer wins are the defintely the critical catalyst.

Mitigation and Strategic Shift

Teradata is actively using its hybrid architecture as a mitigation strategy, positioning itself as a leader in enterprise-grade Trusted AI solutions. The launch of products like the Enterprise Vector Store and enhancements to ClearScape Analytics are designed to drive higher-value workloads and accelerate the monetization of AI capabilities. This strategic push aims to make their platform indispensable for complex, hybrid environments, which is a key differentiator. You can read more about their focus here: Mission Statement, Vision, & Core Values of Teradata Corporation (TDC).

The management team has also focused on internal controls. They've been effective at cost optimization, which helped raise the full-year 2025 Non-GAAP diluted EPS guidance to between $2.38 and $2.42. For example, they took actions to align costs with revenue, swinging the services gross margin from -2% in Q2 2025 to a positive +8.5% in Q3 2025. Here's the quick math: improving a margin by over 10 points in a quarter shows serious operational discipline.

To signal confidence and manage capital, the board approved a new $500 million stock repurchase program, set to start in January 2026, replacing the existing one. This is a strong capital return signal, but it doesn't solve the need for faster top-line growth. The company is projecting Public Cloud ARR growth of 14% to 18% for the full year 2025, which is the number to watch.

The next step is clear: Investors should track the Cloud Net Expansion Rate and the volume of net-new cloud customer logos reported in the Q4 2025 earnings call.

Growth Opportunities

You're looking at Teradata Corporation (TDC) and wondering where the real money is made next. The direct takeaway is this: Teradata's growth hinges on its unique hybrid cloud architecture and a sharp, timely pivot to monetizing Agentic AI workloads, which is driving a significant jump in their earnings outlook for 2025.

Honestly, the company's total revenue picture is still in transition, with full-year 2025 total revenue projected to be in the range of $1.6 billion to $1.7 billion. But the real story is in the profit and the cloud. Teradata raised its full-year 2025 non-GAAP diluted Earnings Per Share (EPS) guidance to a range of $2.38 to $2.42, a strong signal of cost control and high-margin cloud adoption that significantly beats the prior consensus. That's a defintely positive sign for investors.

Here's the quick math on their cloud transition, which is the core growth driver:

• Public Cloud Annual Recurring Revenue (ARR) is projected to grow 14% to 18% year-over-year in 2025.
• Total ARR is expected to be flat to up 2% for the full year 2025, with growth accelerating in the second half.
• The company anticipates generating $260 million to $280 million in Free Cash Flow (FCF) for 2025, which gives them capital for share buybacks and R&D.

AI-Driven Product Innovations

Teradata's biggest near-term opportunity is its focus on Artificial Intelligence (AI) and its ability to handle the massive, complex data demands of new AI applications. They've been rolling out a suite of products designed to handle these workloads, which can use 50x to 100x the compute resources of previous analytic tasks.

The core of this strategy is the new Enterprise Vector Store, which became generally available in July 2025. This product creates a unified, cost-efficient repository for both structured and unstructured data, which is crucial for Retrieval-Augmented Generation (RAG) applications. Plus, they've introduced Agentic AI offerings like AgentBuilder and Autonomous Customer Intelligence, directly targeting the high-value, mission-critical AI use cases their large enterprise clients are now pursuing.

To be fair, this AI push is heavily supported by strategic partnerships. The company's work with NVIDIA, for example, integrates NVIDIA's NeMo Retriever microservices to enhance compute capabilities for these complex AI tasks. They also have partnerships with major cloud providers like Google Cloud and AWS to support generative AI initiatives for customers who need a multi-cloud approach.

Competitive Edge in Hybrid Cloud

The company's competitive advantage isn't a single feature; it's the hybrid analytics architecture. Unlike some cloud-only competitors, Teradata VantageCloud is built to run consistently across on-premises, private cloud, and public cloud environments. This flexibility is a huge win for large, regulated enterprises in sectors like finance and telecommunications who must manage data sovereignty requirements and latency-sensitive workloads.

Their platform delivers stronger performance on the most complex, high-concurrency workloads-the kind that underpin mission-critical business processes. This is why customers like VodafoneThree and Sicredi are using their platform, with Sicredi, for instance, achieving a 25x performance improvement in a key credit risk model by leveraging Teradata's ClearScape Analytics. This is a big deal because it allows them to run their business-critical analytics where it makes the most sense for performance, governance, and cost.

This hybrid approach is what positions them to capture a larger share of the enterprise data warehousing market. If you want to dive deeper into their long-term vision, you can check out their Mission Statement, Vision, & Core Values of Teradata Corporation (TDC).

Finance: Track the Public Cloud ARR growth rate in Q4 2025 to confirm the 14%-18% target is met, as this is the best indicator of their strategic success.