10-K: Teradata's 2025 Report: AI Growth Amid Revenue Dip

Teradata reports a 5% revenue decrease in 2025, driven by a strategic shift to recurring revenue and growth in Public Cloud ARR, alongside a significant legal settlement.

Summary

• Total revenues reached $1.663 billion in 2025, marking a 5% decrease compared to 2024.
• Recurring revenue declined by 2% in 2025, primarily due to a decrease in on-premises solutions, partially offset by growth in Public Cloud revenue.
• Revenue from perpetual software licenses, hardware, and other categories decreased by 26% as the company continues its strategic shift towards recurring revenue models.
• Consulting Services revenue saw a 19% decrease, attributed to a strategic focus on higher-margin engagements and the development of a partner ecosystem.
• Gross profit as a percentage of revenue was 59.4% in 2025, a decrease from 60.5% in 2024, mainly due to a higher mix of Public Cloud revenue, despite improving Public Cloud margins.
• Operating expenses decreased by 8% in 2025, driven by continued cost discipline initiatives, particularly within selling, general, and administrative (SG&A) expenses.
• Net income increased to $130 million in 2025 from $114 million in 2024, primarily due to lower expenses from foreign currency exchange rate fluctuations and interest expense.
• Diluted net earnings per share rose to $1.35 in 2025, up from $1.16 in 2024.
• Total Annual Recurring Revenue (ARR) increased 3% to $1.522 billion in 2025, with Public Cloud ARR growing 15% to $701 million.
• A legal settlement with SAP on February 19, 2026, will result in a gross payment of $480 million, with an estimated net cash benefit of $355-$362 million before taxes.
• The company repurchased approximately 5.8 million shares of common stock at an average price of $24.34 in 2025.
• A new stock repurchase program authorizing up to $500 million was approved, effective January 1, 2026.

Sentiment

Score: 6

Explanation: StockSavvy.ai views this as a mixed report. While the company achieved significant progress in its strategic transformation towards AI and cloud, evidenced by Public Cloud ARR growth and a major legal settlement, the overall revenue decline and decreased gross profit margin indicate ongoing challenges in the transition.

Positives

• Net income increased to $130 million in 2025 from $114 million in 2024, driven by lower foreign currency losses and interest expense.
• Diluted net earnings per share increased to $1.35 in 2025 from $1.16 in 2024.
• Total Annual Recurring Revenue (ARR) increased 3% to $1.522 billion in 2025, reflecting improved customer retention.
• Public Cloud ARR grew 15% to $701 million in 2025, primarily due to a net expansion rate of 108% and migrations from on-premises solutions.
• Operating expenses decreased by 8% in 2025, demonstrating effective cost discipline initiatives.
• A significant legal settlement with SAP was reached on February 19, 2026, for a gross payment of $480 million, providing an estimated net cash benefit of $355-$362 million before taxes.
• Cash and cash equivalents increased by $73 million to $493 million at December 31, 2025.
• Free cash flow increased to $285 million in 2025 from $277 million in 2024.
• A new stock repurchase program of up to $500 million was approved, effective January 1, 2026, indicating confidence in future cash generation.
• The company successfully completed the deployment of its new global cloud enterprise resource planning (ERP) system in 2025.
• No material cybersecurity incidents were experienced in the last several fiscal years, indicating robust security measures.

Negatives

• Total revenue decreased by 5% to $1.663 billion in 2025 compared to $1.750 billion in 2024.
• Recurring revenue declined by 2% in 2025, primarily due to a decrease in revenue from on-premises solutions.
• Perpetual software licenses, hardware, and other revenue decreased significantly by 26% in 2025.
• Consulting Services revenue decreased by 19% in 2025.
• Gross profit as a percentage of revenue decreased to 59.4% in 2025 from 60.5% in 2024, mainly due to a higher mix of Public Cloud revenue.
• The Cloud Net Expansion rate decreased to 108% in 2025 from 117% in 2024.
• Subscription ARR decreased 4% in 2025 from the prior year, primarily due to migrations from on-premises to Public Cloud.
• Maintenance and Software Upgrade Rights ARR declined 13% compared to 2024.
• Overall headcount decreased during fiscal 2025 as part of talent optimization efforts.

Risks

• Failure to successfully execute strategy and realize anticipated benefits of business transformation, including R&D investments, could have a material adverse effect on the business.
• Shortened product life cycles driven by rapid technological change, competitive pressures, and evolving customer expectations require continuous innovation.
• Increased difficulty and complexity associated with producing new offerings with enhanced capacity, delivery, and performance capabilities may increase the likelihood of reliability, quality, operability, and/or security issues.
• Unanticipated delays or accelerations in sales cycles make accurate estimation of Total Annual Recurring Revenue (ARR), Public Cloud ARR, and revenues difficult, potentially leading to significant fluctuations in quarterly operating results.
• A cybersecurity incident, disruption, or failure of information systems or those of third-party providers could adversely impact reputation, business, and financial results.
• The offering of cloudand hybrid-based platforms has increased exposure to information security risks due to joint responsibility with customers and third-party cloud providers.
• Existing customers may fail to renew, or cancel their subscription license arrangements or support agreements, or not renew on terms favorable to the company.
• Future results depend in part on relationships with strategic partners and key suppliers; failure to maintain these or if vendors cease to be going concerns could result in interruptions in the supply of offerings.
• Demand for offerings and services could decline if the company fails to maintain positive brand perception and recognition.
• Increases in the cost, or reduced availability, of components used in products, and/or increases in other costs of doing business, could adversely affect profit margins.
• Challenges with the new enterprise resource planning (ERP) system during stabilization and optimization efforts could adversely impact business and operations.
• Any disruption, including as a result of natural disasters or climate change, at or near facilities or other operations or those of customers, vendors, data warehouses, distribution channels, and public cloud service providers could adversely affect the business.
• Failure to successfully complete reorganization activities in connection with transformation activities or otherwise could negatively affect operations.
• Business is affected by global economies in which the company operates and the economic climate of the industries served, including inflationary and recessionary pressures.
• Generating substantial revenues from international operations poses several risks, including cultural challenges, governmental controls, geopolitical environments, longer payment cycles, foreign currency fluctuations, and trade restrictions.
• Offerings are subject to United States export controls and local country import controls, with changes potentially creating delays or preventing exports/imports.
• Inadequate internal control over financial reporting and accounting practices could lead to errors, adversely impacting timely and accurate financial reporting.
• Increased scrutiny from governments, investors, rating agencies, customers, and other stakeholders regarding environmental, social, and governance (ESG) practices could impose additional costs, expose to new risks, or negatively impact reputation.
• The platform and service offerings incorporate AI/ML capabilities, which exposes the company to an emerging and uncertain regulatory environment and rapidly changing technology.
• The IT industry, particularly for data analytics and AI solutions, is intensely competitive and evolving, and competitive pressures could adversely affect pricing practices or demand for offerings and services.
• Current and evolving privacy laws and regulations, cross-border data transfer restrictions, and other aspects of data privacy may impact the use and adoption of solutions and services.
• Dependence on key employees and facing competition in hiring and retaining qualified employees.
• Uncertainties regarding legal proceedings, complex and changing laws and regulations, and other related matters.
• Gaps in protection of intellectual property or unlicensed use of third-party intellectual property could impact business and financial condition.
• A change in the effective tax rate can have a significant adverse impact on the business.
• Indebtedness could adversely affect financial condition and limit financial flexibility.
• Fluctuations in foreign currency exchange rates have affected operating results and could continue to impact revenue and net earnings.

Future Outlook

The company anticipates a 0.25%-0.75% positive impact from currency translation on its 2026 full-year total revenues. Expansion is expected to be the primary contributor for Total ARR growth in 2026, with expansion and conversion driving Public Cloud ARR growth. A slight negative impact is expected from annual upfront software subscription revenue associated with on-premises recurring revenue in 2026. The company intends to continue investing significantly in R&D areas that are anticipated to generate growth, particularly in technologies supporting AI/ML, including for on-premises environments. Approximately $2 million is expected to be contributed to international pension plans in 2026.

Management Comments

• We are focused on helping organizations activate the intelligence in their enterprise and turn the insights from across their organization into outcomes.
• We believe that we have architected our platform for autonomous AI operations and organizations toughest data and analytics challenges, particularly as enterprises are evaluating how to cost effectively deploy agentic AI.
• We also saw a resurgence of hybrid environments that reflected a growing understanding of how enterprises can best leverage both on-premises and cloud deployment options to meet their diverse business needs.
• Our overall Total ARR increase reflects meaningful improvement in customer retention as compared to the prior year.
• We intend to continue investing in R&D areas that we anticipate will generate growth, such as technologies that support AI/ML, including for on-premises environments.
• Teradata is currently evaluating the appropriate use of the Net Proceeds [from SAP settlement] and will provide an update on its 2026 first quarter earnings call.

Industry Context

StockSavvy.ai notes that Teradata's strategic shift towards an AI and knowledge platform, coupled with its focus on hybrid cloud environments, aligns with broader industry trends of increasing AI adoption and the need for flexible data management solutions. The competitive landscape, including major cloud providers like AWS, Microsoft Azure, and Google Cloud, along with specialized data analytics and AI firms, underscores the importance of Teradata's differentiated offerings in price performance and workload management for enterprise-grade challenges. The legal settlement with SAP removes a significant overhang, potentially allowing for increased focus on innovation and market expansion in the rapidly evolving data analytics and AI sector.

Comparison to Industry Standards

• Teradata competes in the intensely competitive IT industry for data analytics and AI solutions, facing established companies like AWS, Databricks, Google Cloud, Microsoft Azure, and Snowflake, as well as traditional legacy competitors.
• The company emphasizes its differentiated approach in providing hybrid deployment options across top public clouds (AWS, Microsoft Azure, Google Cloud), private cloud, and on-premises environments, aiming for best-in-class price performance.
• Teradata AI Factory integrates with Nvidia NIM Services and GPUs, indicating a commitment to leveraging leading hardware and AI infrastructure, comparable to industry leaders in AI/ML development.
• The Cloud Net Expansion Rate of 108% in 2025, while a decrease from 117% in 2024, still indicates growth from existing cloud customers, a key metric for cloud-based businesses, though it may trail some hyper-growth cloud peers.

Management Changes

Corporate Governance

Legal Proceedings

• A lawsuit (TD-SAP 1) was filed against SAP SE on June 19, 2018, alleging misappropriation of trade secrets and anticompetitive practices.
• SAP filed patent infringement counterclaims in July 2019.
• A second lawsuit (TD-SAP 2) was filed against SAP on August 31, 2020, alleging infringement of Teradata's patents.
• SAP filed additional patent infringement counterclaims and a lawsuit in Germany (TD-SAP 3) on February 16, 2021.
• In November 2021, the district court dismissed Teradata's antitrust claims and most trade secret claims in TD-SAP 1.
• The Ninth Circuit Court of Appeals overturned the district court's summary judgment decision on December 19, 2024, remanding the antitrust and trade secret claims in TD-SAP 1 for further proceedings.
• SAP's petition to the Supreme Court challenging the Ninth Circuit's reasoning was denied on October 6, 2025.
• A Settlement Agreement was reached with SAP on February 19, 2026, resolving all past and pending litigation, including TD-SAP 1, TD-SAP 2, and TD-SAP 3. Teradata will receive a gross payment of $480 million, with an estimated net cash benefit of $355-$362 million before taxes.
• A putative securities class action lawsuit (Ostrander v. Teradata Corporation) was filed on June 14, 2024, alleging violations of federal securities laws related to business statements and 2023 financial outlook. The court granted Teradata's motion to dismiss on September 26, 2025, and entered final judgment in Teradata's favor on January 6, 2026.
• Two pending shareholder derivative actions (Brennan v. McMillan, et al.; Lipshutz v. McMillan, et al.) adopt similar allegations as the securities class action and are currently stayed.

Stakeholder Impact

• Shareholders are impacted by the 5% decrease in total revenue, but also by the increase in net income and diluted EPS. The significant legal settlement with SAP and the new $500 million share repurchase program are likely to positively influence shareholder value. However, the stock has underperformed the S&P 500 and S&P Information Technology Index in 2024 and 2025.
• Employees experienced a decrease in overall headcount during fiscal 2025 due to global restructuring and cost optimization initiatives. The company continues to offer competitive pay, comprehensive health and wellness benefits, and a flexible work environment, including parental leave.
• Customers benefit from the company's continued innovation in its AI and knowledge platform, hybrid deployment flexibility across public and private clouds, and an expanded partner ecosystem. The strategic shift aims to provide better solutions for complex data and analytics challenges.
• Suppliers, particularly key hardware component providers like Flex Ltd., Dell Technologies Inc., NetApp, Inc., and NVIDIA, face concentration risk due to the company's reliance on preferred supplier relationships. Disruptions in the supply chain could impact the company's operations.
• Regulatory authorities continue to scrutinize the company's compliance with diverse and complex global laws and regulations, including those related to AI/ML, data privacy, environmental protection, and ESG reporting. The amendment to the Credit Agreement with ESG targets reflects increased regulatory and stakeholder focus on these areas.

Next Steps

• Evaluate the appropriate use of the net proceeds from the SAP settlement.
• Provide an update on the use of net proceeds during the 2026 first quarter earnings call.
• The trial for the TD-SAP 1 lawsuit is set to begin with jury selection on March 30, 2026.
• Continue investing in R&D areas anticipated to generate growth, such as technologies supporting AI/ML, including for on-premises environments.
• Contribute approximately $2 million to international pension plans in 2026.
• Complete remaining actions related to the global restructuring and cost reduction initiatives by early 2026.

Key Dates

Recommendation

Teradata is in a transitional phase, strategically pivoting towards an AI and knowledge platform with a strong emphasis on hybrid cloud solutions. While this direction is promising and aligns with market trends, the 2025 financial results show a 5% decline in total revenue and a 2% drop in recurring revenue, indicating ongoing challenges in this transformation. The 15% growth in Public Cloud ARR is a positive sign of traction in key strategic areas, and the $480 million legal settlement with SAP provides a substantial cash infusion and removes a significant litigation overhang. However, the decrease in the Cloud Net Expansion Rate from 117% to 108% suggests a slight slowdown in existing customer growth within the cloud segment. Given the mixed financial performance, the strategic potential of AI and hybrid cloud, and the recent positive legal resolution, a 'hold' recommendation is appropriate. Investors should monitor the execution of the AI strategy, the utilization of the settlement proceeds, and the trajectory of recurring revenue growth in the coming quarters to assess if the transformation can translate into consistent top-line expansion and improved profitability.

Keywords

Teradata, AI, Artificial Intelligence, Data Analytics, Cloud Platform, Hybrid Cloud, Enterprise Software, SEC Filing, 10-K, Financial Report, Recurring Revenue, Public Cloud ARR, Corporate Governance, Risk Management, Legal Settlement, Share Repurchase, ERP System, Cybersecurity, Financial Services, Healthcare, Retail, Telecommunications