Log in
E-mail
Password
Remember
Forgot password ?
Become a member for free
Sign up
Sign up
New member
Sign up for FREE
New customer
Discover our services
Settings
Settings
Dynamic quotes 
OFFON

MarketScreener Homepage  >  Equities  >  Nyse  >  Teradata Corporation    TDC

TERADATA CORPORATION

(TDC)
  Report
SummaryQuotesChartsNewsRatingsCalendarCompanyFinancialsConsensusRevisions 
SummaryAll NewsPress ReleasesOfficial PublicationsSector news

TERADATA : DE/ Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A"). (form 10-Q)

share with twitter share with LinkedIn share with facebook
08/10/2020 | 10:56am EDT
You should read the following discussion in conjunction with the Condensed
Consolidated Financial Statements and the notes to those statements included
elsewhere in this Quarterly Report on Form 10-Q. This Quarterly Report on Form
10-Q contains certain statements that are forward-looking within the meaning of
the Private Securities Litigation Reform Act of 1995. Certain statements
contained in the MD&A are forward-looking statements that involve risks and
uncertainties. The forward-looking statements are not historical facts, but
rather are based on current expectations, estimates, assumptions and projections
about our industry, business and future financial results. Our actual results
could differ materially from the results contemplated by these forward-looking
statements due to a number of factors, including those discussed in other
sections of this Quarterly Report on Form 10-Q and in our Annual Report on Form
10-K for the fiscal year ended December 31, 2019 (the "2019 Annual Report"). The
Company does not undertake any obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise, except as required by law.
Overview
Teradata Corporation ("we," "us," "Teradata," or the "Company") is a leading
hybrid cloud data and analytics software platform provider focused on helping
companies leverage all of their data across an enterprise to uncover real-time
intelligence, at scale. In doing so, we enable them to find answers to their
toughest challenges. Our solutions enable customers to integrate and simplify
their analytics ecosystem, access and manage data, and use analytics to extract
answers and derive business value from data. Our solutions are composed of
software, hardware, and related business consulting and support services to
deliver analytics across a company's entire analytic ecosystem.
Teradata's strategy is based on our mission of transforming how businesses work
and people live through the power of data. Our target market is made up of
companies that we believe are the world's most demanding, large-scale users of
data. These companies face significant challenges including siloed data and
conflicting and duplicative solutions that typically result in considerable
expense to maintain and difficulty to manage the complexity. Our strategy is to
provide a differentiated set of offerings to our target market through an
extensible data and analytic platform. Teradata Vantage™ is an extremely
scalable, secure, highly concurrent and resilient analytics platform that solves
the most complex data challenges at scale faced by our targeted customer set. By
offering customers full integration of their datasets, tools, analytics
languages, functions, and engines in one analytical platform, Vantage reduces
customers' complexity, risk, and costs. Our Vantage platform embraces leading
commercial and open source analytics technologies and is available in the cloud
and on-premises.
All subscription-based Teradata software licenses enable portability of the
software license between cloud and on-premises deployment options; this
flexibility is designed to reduce risk associated with customers' buying
decisions. Customer buying behavior has shifted from predominantly
capital-intensive purchases to subscription-based purchasing options. In the
near term, the movement to subscription-based transactions is negatively
impacting the timing of our reported revenue and our cash flows because revenue
and cash related to subscription-based transactions are recognized and received
over time versus upfront as was the case with the capital purchase model. The
transition to a subscription-based model is expected to increase our recurring
revenue, create more predictable operating results and improve cash flow
generation over time. Near-term impacts, however, can fluctuate based on the
pace of customer adoption, which can be difficult to predict. In the longer
term, we expect our reported operating results and cash flow to normalize and
increase as customers increasingly transition to these subscription-based
offerings.
We are continuing to execute on our key priorities, including development and
expansion of our cloud-based offerings, enhancements to our market-leading
Vantage platform, consulting, partner solutions and operational excellence.
To allow for greater transparency regarding the progress we are making toward
achieving our strategic objectives, we utilize the following financial and
performance metrics:
                                       19
--------------------------------------------------------------------------------
  Table of Contents
•Annual Recurring Revenue ("ARR") - annual contract value for all active and
contractually binding term-based contracts at the end of a period. ARR includes
maintenance, software upgrade rights, subscription-based transactions and
managed services.
•Backlog - the price of firm orders for which work has not been performed or
goods have not been delivered and the Company is contractually required to
perform.
COVID-19
During the six months ended June 30, 2020, the effects of the coronavirus
disease 2019 ("COVID-19") pandemic and the related actions by governments around
the world to attempt to contain the spread of the virus have impacted our
business globally, and we expect our business will continue to be impacted for
the foreseeable future. In particular, the outbreak and related preventive
measures taken to contain COVID-19 beginning late in the first quarter of 2020
negatively impacted our ability to close transactions with customers and timely
collect receivables in certain instances. We experienced a more favorable trend
in the second quarter with meaningful ARR growth, strong cash flows and
recurring revenue growth generated in the quarter, although we continued to see
COVID-19 negatively impact our consulting business as described below.
We also took the necessary actions to manage expenses and costs appropriately in
light of the uncertainty COVID-19 created, which helped improve second quarter
operating performance. We are keeping a watchful eye on COVID-19 impacts and
have undertaken additional second half expense management and cost initiatives
to further drive our operating performance and provide agility in the event of
an unforeseen reduction in demand should it occur. During the first six months
of 2020, we also experienced increased volatility in foreign currency exchange
rates, in part related to the uncertainty from COVID-19, as well as actions
taken by governments and central banks in response to COVID-19. Certain foreign
currency rates have depreciated significantly against the U.S. dollar during the
period. We expect continued volatility in foreign currency exchange rates during
the remainder of 2020, though we cannot reasonably estimate the duration or
extent of that volatility.
As of the date of this filing, our supply chain has been relatively stable with
respect to manufacturing and distribution capabilities; however, our supply
chain is susceptible to volatility due to ongoing uncertainty as a result of
ongoing international and domestic pandemic response and recovery efforts.
Operationally, we have been able to run our business without significant
interruptions, with the vast majority of employees having shifted quickly as of
mid-March 2020 to a work-from-home model, which remains in effect. However, our
consulting business has been negatively impacted during the transition to work
from home and shelter-in-place orders, and customers' efforts to reduce
discretionary spending in light of COVID-19 uncertainties and impacts, with
consulting projects being delayed or suspended by our customers. The Company
also developed and continues to refine numerous engagement and communication
programs to support employees both from a health and well-being perspective as
well as to enhance their productivity during the pandemic.
In general, our priorities in formulating and implementing our response to the
COVID-19 pandemic and business disruption include the following:
•People - protecting the health and well-being of our employees,
•Customers - proactively connecting with our customers to support their needs
and meet our service level commitments,
•Supply Chain - proactively working to monitor existing inventory, supplier
availability and securing inventory for future quarters,
•Financial - responsibly managing expenses and costs to provide financial
agility during the extended period of global economic uncertainty,
•Global Community - making our technology available to customers, partners and
communities, particularly in healthcare and government, where collectively we
can positively impact efforts in combating COVID-19, and
•Future of Work - planning to best position the Company to emerge as strong as
possible when this crisis ends.
                                       20
--------------------------------------------------------------------------------
  Table of Contents
As of the date of this Quarterly Report on Form 10-Q, we are continuing to
execute our pandemic response plan and the Teradata Pandemic Response Team is
refining and executing return-to-office plans with "safety first"
considerations. Customer-facing teams are also proactively working to identify
ways to assist customers, meet service level commitments, and engage with
customers via virtual events.
Despite these efforts, there remains a fair degree of uncertainty regarding the
potential impact of the pandemic on our business, from both a financial and
operational perspective, and the scope and costs associated with additional
measures that may be necessary in response to the pandemic going forward. We
will continue our diligent efforts to monitor and respond as appropriate to the
impacts of the pandemic on our business, including the status of our workforce,
supply chain, customers, suppliers, and vendors, based on the priorities
described above. Our actions will continue to be informed by the
requirements and recommendations of the federal, state or local authorities. We
will remain agile and have contingency plans in place to appropriately respond
to conditions as they unfold. For more information, see "Risk Factors" under
Part II, Item 1A of this Quarterly Report on Form 10-Q.

Second Quarter Financial Overview


As more fully discussed in later sections of this MD&A, the following were
significant financial items for the second quarter of 2020:
•Total revenue was $457 million for the second quarter of 2020, a 4% decrease
compared to the second quarter of 2019, with an underlying 6% increase in
recurring revenue. The Company's business has shifted to subscription-based
transactions driving increased recurring revenue, which was offset by a 41%
decrease in perpetual software licenses and hardware revenue as transactions
move to subscription and a 26% decrease in consulting services revenue in
alignment with our strategy as well as the impact of COVID-19 as discussed
above. Foreign currency fluctuations had a 1% negative impact on total revenue
for the quarter compared to the prior year.
•Gross margin increased to 56.0% in the second quarter of 2020 from 49.4% in the
second quarter of 2019, primarily due to a higher recurring revenue mix as
compared to the prior period.
•Operating expenses for the second quarter of 2020 increased by 10% compared to
the second quarter of 2019, primarily due to an increase in equity compensation
expense.
•Operating income was $8 million in the second quarter of 2020, compared to $10
million in the second quarter 2019.
•Net loss in the second quarter of 2020 was $43 million, compared to a net loss
of $1 million in the second quarter of 2019. The increase in net loss was
primarily due to the higher operating expenses and discrete tax items during the
quarter.
                                       21
--------------------------------------------------------------------------------
  Table of Contents
Results of Operations for the Three Months Ended June 30, 2020
Compared to the Three Months Ended June 30, 2019
Revenue
                                                           % of                     % of
In millions                                    2020       Revenue       2019       Revenue
Recurring                                    $ 358         78.4  %    $ 338         70.7  %
Perpetual software licenses and hardware        17          3.7  %       29          6.1  %
Consulting services                             82         17.9  %      111         23.2  %
Total revenue                                $ 457        100.0  %    $ 478        100.0  %


Total revenue decreased $21 million, or 4%, in second quarter of 2020 and
included a 1% negative impact from foreign currency fluctuations. Recurring
revenue grew 6%, which included a 2% negative impact from foreign currency
fluctuations. This increase in recurring revenue was driven by our movement to
subscription-based transactions from perpetual software licenses and hardware
transactions, which is consistent with our strategy. Under subscription models,
we recognize revenue over time as opposed to the upfront recognition under the
perpetual model. For 2020, we expect ARR growth and recurring revenue growth.
Taking into consideration the growth in recurring revenue offset by reduced
perpetual software licenses and hardware revenue and reduced consulting services
revenue, we expect that total revenues will decrease in 2020, although the
amount of decline is difficult to predict due to the uncertain global
environment caused by COVID-19.
Revenues from perpetual software licenses and hardware decreased 41%, including
a 1% negative impact from foreign currency fluctuations. We expect perpetual
revenues to continue to decline as customers switch to our subscription-based
offerings. However, some customers continue to purchase on a perpetual basis,
and COVID-19 impacts might result in some additional customers preferring this
option. Perpetual revenue is primarily hardware-related, as software is
generally being sold on subscription. We expect that perpetual revenue will
continue to decline in 2020 and will continue to be predominantly
hardware-related.
Consulting services revenue decreased 26%, including a 2% negative impact from
foreign currency fluctuations, as we are realigning and focusing our consulting
resources on higher-margin engagements that drive increased software consumption
within our targeted customer base. Consulting revenue was also impacted by the
transition to work from home and shelter-in-place orders that went in effect
late in the first quarter in response to COVID-19. In the second quarter, we
made progress towards our strategy of refocusing our consulting organization on
Vantage-oriented offerings and de-emphasizing non-core consulting engagements.
We expect consulting revenue to decline longer term as we build a deepening
partner ecosystem and our product simplification efforts reduce our customers'
need for consulting services while creating greater total value for our
customers. We also expect consulting revenue to continue to be impacted by
COVID-19, as we anticipate delays and/or cancellation of new projects.
As a portion of the Company's operations and revenue occur outside the United
States, and in currencies other than the U.S. dollar, the Company is exposed to
fluctuations in foreign currency exchange rates. Based on currency rates as of
July 31, 2020, Teradata is expecting less than one percentage point of negative
impact from currency translation on our 2020 full-year projected revenue growth
rate.
Included below are financial and performance growth metrics for 2020:
•At the end of the second quarter of 2020, ARR was $1.454 billion, an 8%
increase from the second quarter of 2019, including a 1% negative impact from
foreign currency translation, as compared to the second quarter of 2019.
•Total backlog was $2.595 billion at the end of the second quarter of 2020, up
3% from the prior year.
                                       22
--------------------------------------------------------------------------------
  Table of Contents
Gross Profit
                                                           % of                     % of
In millions                                    2020       Revenue       2019       Revenue

Recurring                                    $ 242         67.6  %    $ 231         68.3  %
Perpetual software licenses and hardware         6         35.3  %        3         10.3  %
Consulting services                              8          9.8  %        2          1.8  %
Total gross profit                           $ 256         56.0  %    $ 236         49.4  %



The decrease in recurring revenue gross profit as a percentage of revenue was
driven by a higher mix of subscription-based revenue that includes hardware and
lower margin cloud, as compared to the prior-year period. Subscription-based
transactions carry lower margins than revenue from perpetual-related maintenance
and software upgrade rights as a result of embedded hardware rentals and cloud
offerings in our subscription business.
The increase in perpetual software licenses and hardware gross profit as a
percentage of revenue was driven by deal mix compared to the same period a year
ago.
Consulting services gross profit as a percentage of revenue increased as
compared to the prior-year period, due to improved utilization as well as
increased price realization and our continued strategic focus to improve
consulting margins. As indicated above, the consulting business was negatively
impacted due to the COVID-19 pandemic; however, performance is expected to
normalize in the second half of the year. We expect consulting gross margins to
be in the low double digits for the year.
Operating Expenses
                                                                           % of                                 % of
In millions                                             2020             Revenue             2019             Revenue

Selling, general and administrative expenses          $  165                 36.1  %       $  145                 30.3  %
Research and development expenses                         83                 18.3  %           81                 16.8  %

Total operating expenses                              $  248                 54.3  %       $  226                 47.3  %


The selling, general and administrative ("SG&A") expense increase was primarily
driven by an increase in equity compensation expense, amortization of
capitalized sales compensation, as well as additional investments in our
go-to-market and customer success teams. The Company took several actions to
manage operating expenses, including limiting travel and other discretionary
spend. For the full year, we will continue to look for areas to optimize our
cost structure while investing in our key strategic initiatives in cloud and
transforming our go-to-market organization to support our recurring revenue
model and expand our opportunities in the market. As a result of the actions we
have taken in the first half, we now expect full year operating expenses to be
flat year over year.
Research and development ("R&D") expenses increased due to spending focused on
accelerating our cloud initiatives. For the full year, we expect R&D expense to
be flat to slightly up as we reallocate spending to accelerate our cloud
initiatives.
Other Expense, net
In millions            2020       2019

Interest income      $   1$  6
Interest expense        (7)        (8)
Other                   (5)        (3)
Other expense, net   $ (11)$ (5)


Other expense, net in the second quarter of 2020 and 2019 is comprised primarily
of interest expense on long-term debt and finance leases, partially offset by
interest income earned on our cash and cash equivalents. Other expense, net
increased compared to the prior year primarily due to lower interest income on
lower cash and cash equivalents.
                                       23
--------------------------------------------------------------------------------
  Table of Contents
Provision for Income Taxes
Income tax provisions for interim periods are based on estimated annual income
tax rates, adjusted to reflect the effects of any significant infrequent or
unusual items which are required to be discretely recognized within the current
interim period.
As a result of the 2017 Tax Act, the Company changed its indefinite reversal
assertion related to its foreign subsidiary undistributed earnings and no longer
considers a majority of its foreign earnings permanently reinvested outside of
the U.S. The effective tax rates in the periods presented are largely based upon
the forecasted pre-tax earnings mix between the U.S. and other foreign taxing
jurisdictions where the Company conducts its business. The Company estimates its
full-year effective tax rate for 2020 to be approximately 1,000.0%, which takes
into consideration, among other things, the forecasted earnings mix by
jurisdiction and the estimated discrete items to be recognized in 2020, which
includes a $157 million one-time discrete tax benefit recognized in the first
quarter of 2020 related to an intra-entity asset transfer of certain of the
Company's intellectual property ("IP") to one of its Irish subsidiaries, which
occurred on January 1, 2020. The forecasted tax rate is based on the overseas
profits being taxed at an overall effective tax rate of approximately 47%, as
compared to the U.S. federal statutory tax rate of 21%.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act
("CARES Act") was enacted in response to the COVID-19 pandemic. The CARES Act,
among other things, permits net operating loss ("NOL") carryovers and carry
backs to offset 100% of taxable income for taxable years beginning before 2021.
In addition, the CARES Act allows NOL's incurred in 2018, 2019, and 2020 to be
carried back to each of the five preceding taxable years to generate a refund of
previously paid income taxes. It also allows deferral of certain payroll tax
payments to 2021 and 2022. We are currently evaluating the impact of the CARES
Act, but at present do not expect that the NOL carry back provision of the CARES
Act would result in a cash benefit to us. Deferred payroll taxes as of June 30,
2020 were approximately $6 million.

The effective tax rate for the three months ended June 30, 2020 and 2019 were as
follows:
                         2020          2019
Effective tax rate    (1,333.3) %     120.0  %



For the three months ended June 30, 2020, the Company recorded $39 million of
discrete tax expense, a majority of which related to the true-up of the marginal
tax rate from the first quarter based on revised full-year forecasted earnings.
As a result, the Company recorded income tax expense of $40 million on a pre-tax
net loss of $3 million for the three months ended June 30, 2020, resulting in an
effective income tax rate of (1,333.3)%.
For the three months ended June 30, 2019, the Company recorded $5 million of
discrete tax expense, of which $4 million related to an uncertain tax position
resulting from the reversal of the United States Tax Court's decision in the
Altera Corp. v. Commissioner case (the "Altera Case") by the Ninth Circuit Court
of Appeals in June 2019. The Altera Case focused on whether current U.S.
Treasury Regulations requiring the inclusion of stock-based compensation expense
in a taxpayer's cost-sharing calculations are valid. As a result, the Company
recorded income tax expense of $6 million on a pre-tax income of $5 million for
the three months ended June 30, 2019, resulting in an effective income tax rate
of 120.0%.
Revenue and Gross Profit by Operating Segment
Teradata manages its business under three geographic regions, which are also the
Company's operating segments: (1) Americas region (North America and Latin
America); (2) EMEA region (Europe, Middle East, and Africa) and (3) APJ region
(Asia Pacific and Japan). For purposes of discussing results by segment,
management excludes the impact of certain items, consistent with the manner by
which management evaluates the performance of each segment. This format is
useful to investors because it allows analysis and comparability of operating
trends. It also includes the same information that is used by Teradata
management to make decisions regarding the segments and to assess financial
performance. The chief operating decision maker, who is our President and Chief
Executive Officer, evaluates the performance of the segments based on revenue
and multiple profit measures, including segment gross profit. For management
reporting purposes, assets are not allocated to the segments. Our segment
                                       24
--------------------------------------------------------------------------------
  Table of Contents
results are reconciled to total company results reported under GAAP in Note 12
of Notes to Condensed Consolidated Financial Statements (Unaudited).
The following table presents segment revenue and segment gross profit for the
Company for the three months ended June 30:
                                            % of                     % of
In millions                     2020       Revenue       2019       Revenue
Segment revenue
Americas                      $ 259         56.7  %    $ 269         56.3  %
EMEA                            118         25.8  %      122         25.5  %
APJ                              80         17.5  %       87         18.2  %
Total segment revenue         $ 457          100  %    $ 478          100  %
Segment gross profit
Americas                      $ 161         62.2  %    $ 158         58.7  %
EMEA                             67         56.8  %       57         46.7  %
APJ                              41         51.3  %       37         42.5  %

Total segment gross profit $ 269 58.9 % $ 252 52.7 %

Americas

Americas revenue decreased 4%, which included a decrease in perpetual software
licenses and hardware revenue of 17% and a 30% decrease in consulting revenue.
Segment gross profit as a percentage of revenues was higher primarily due to an
overall higher mix of recurring revenue.
EMEA
EMEA revenue decreased 3%, which included a 2% unfavorable impact from foreign
currency fluctuations. An increase of 16% in recurring revenue was offset by a
decrease of 60% in perpetual software licenses and hardware revenue and a
decrease in consulting revenue of 27%. Segment gross profit as a percentage of
revenues was higher primarily due to a higher mix of recurring revenue.
APJ
APJ revenue decreased 8%, which included a 1% unfavorable impact from foreign
currency fluctuations. An increase in recurring revenue of 9% was offset by a
decrease of 57% in perpetual software licenses and hardware revenue and a
decrease in consulting revenue of 21%. Segment gross profit as a percentage of
revenues was higher primarily due to a higher mix of recurring revenue.
Results of Operations for the Six Months Ended June 30, 2020
Compared to the Six Months Ended June 30, 2019
Revenue
                                                           % of                     % of
In millions                                    2020       Revenue       2019       Revenue
Recurring                                    $ 703           78  %    $ 669           71  %
Perpetual software licenses and hardware        31            4  %       60            6  %
Consulting services                            157           18  %      217           23  %
Total revenue                                $ 891          100  %    $ 946          100  %


Total revenue decreased $55 million, or 6%, for the six months ended June 30,
2020 compared to the prior period and included a 2% negative impact from foreign
currency fluctuations. Recurring revenue increased 5%, which included a 2%
negative impact from foreign currency fluctuations. This increase in recurring
revenue was driven by our movement to subscription-based transactions from
perpetual software licenses and hardware transactions, which is consistent with
our strategy.
                                       25
--------------------------------------------------------------------------------
  Table of Contents
Revenues from perpetual software licenses and hardware decreased 48% as
customers continue to switch to subscription-based offerings.
Consulting services revenue decreased 28%, including a 2% negative impact from
foreign currency fluctuations, as we are realigning and focusing our consulting
resources on higher-margin engagements that drive increased software consumption
within our targeted customer base. Consulting revenue was also impacted by the
transition to work from home and shelter-in-place orders that went in effect
late in the first quarter in response to COVID-19.
Gross Profit
                                                           % of                     % of
In millions                                    2020       Revenue       2019       Revenue

Recurring                                    $ 467         66.4  %    $ 456         68.2  %
Perpetual software licenses and hardware        11         35.5  %        9         15.0  %
Consulting services                              3          1.9  %       (5)        (2.3) %
Total gross profit                           $ 481         54.0  %    $ 460         48.6  %


The decrease in recurring revenue gross profit as a percentage of revenue was
driven by a higher mix of subscription-based revenue as compared to the
prior-year period. Subscription-based transactions are typically lower margin as
compared to the recurring revenue from legacy software maintenance and software
upgrade rights, due to the higher mix of rental hardware included in
subscription-based transactions.
The increase in perpetual software licenses and hardware gross profit as a
percentage of revenue was driven by deal mix compared to the same period a year
ago.
Consulting services gross profit as a percentage of revenue increased as
compared to the prior-year period due to improved utilization as well as
increased price realization and our continued strategic focus to improve
consulting margins. The Company continues to refocus our consulting organization
on Vantage-oriented offerings and reduce our footprint in non-core consulting
engagements.
Operating Expenses
                                                                           % of                                 % of
In millions                                             2020             Revenue             2019             Revenue
Operating expenses
Selling, general and administrative expenses          $  323                 36.3  %       $  296                 30.3  %
Research and development expenses                        156                 17.5  %          159                 16.8  %
Total operating expenses                              $  479                 53.8  %       $  455                 47.3  %


The SG&A expense increase was primarily driven by an increase in equity
compensation expense, amortization of capitalized sales compensation, as well as
additional investments in our go-to-market and customer success teams.
R&D expenses decreased due to a re-prioritization of our R&D organization on
strategic initiatives and reduced spending on de-prioritized initiatives.
Other Expense, net
In millions            2020        2019

Interest income      $   3$  12
Interest expense       (14)        (17)
Other                   (8)         (5)
Other expense, net   $ (19)$ (10)

Other expense, net in the first six months of 2020 and 2019 is comprised primarily of interest expense on long-term debt and finance leases, partially offset by interest income earned on our cash and cash equivalents. Other expense, net increased compared to the prior year primarily due to lower interest income on lower cash and cash equivalents.

                                       26
--------------------------------------------------------------------------------
  Table of Contents
Provision for Income Taxes
The effective tax rate for the six months ended June 30, 2020 and 2019 were as
follows:
                       2020          2019
Effective tax rate    835.3  %     (120.0) %



For the six months ended June 30, 2020, the Company recorded $113 million of
discrete tax benefit. The discrete tax expense of $39 million recorded in the
second quarter described above was offset by $152 million of discrete tax
benefit recorded in the first quarter, a majority of which related to the
intra-entity IP transfer described above. As a result, the Company recorded
income tax benefit of $142 million on a pre-tax loss of $17 million for the six
months ended June 30, 2020, resulting in an effective income tax rate of 835.3%.
For the six months ended June 30, 2019, the Company recorded $7 million of
discrete tax expense, a majority of which related to the uncertain tax position
resulting from the reversal of the Tax Court's decision in the Altera Case. As a
result, the Company recorded income tax expense of $6 million on a pre-tax net
loss of $5 million for the six months ended June 30, 2019, resulting in an
effective income tax rate of (120.0)%.
Revenue and Gross Profit by Operating Segment
The following table presents segment revenue and segment gross profit for the
Company for the six months ended June 30:
                                            % of                     % of
In millions                     2020       Revenue       2019       Revenue
Segment revenue
Americas                      $ 503         56.5  %    $ 538         56.9  %
EMEA                            236         26.5  %      235         24.8  %
APJ                             152         17.1  %      173         18.3  %
Total segment revenue         $ 891          100  %    $ 946          100  %
Segment gross profit
Americas                      $ 305         60.6  %    $ 315         58.6  %
EMEA                            128         54.2  %      107         45.5  %
APJ                              71         46.7  %       71         41.0  %
Total segment gross profit    $ 504         56.6  %    $ 493         52.1  %


Americas
Americas revenue decreased 7%, which included a 2% unfavorable impact from
foreign currency fluctuations. An increase of 1% in recurring revenue was offset
by a decrease in perpetual software licenses and hardware revenue of 55% and a
30% decrease in consulting revenue. Segment gross profit as a percentage of
revenues was higher primarily due to an overall higher mix of recurring revenue.
EMEA
EMEA revenue was flat and included a 3% unfavorable impact from foreign currency
fluctuations. An increase of 16% in recurring revenue was offset by a decrease
of 24% in perpetual software licenses and hardware revenue as well as a decrease
in consulting revenue of 26%. Segment gross profit as a percentage of revenues
was higher primarily due to a higher mix of recurring revenue.
APJ
APJ revenue decreased 12%, which included a 2% unfavorable impact from foreign
currency fluctuations. An increase in recurring revenue of 7% was offset by a
decrease of 67% in perpetual software licenses and hardware revenue and a
decrease in consulting revenue of 27%. Segment gross profit as a percentage of
revenues was higher primarily due to a higher mix of recurring revenue.
                                       27
--------------------------------------------------------------------------------
  Table of Contents
Financial Condition, Liquidity and Capital Resources
Cash provided by operating activities increased by $36 million in the six months
ended June 30, 2020 compared to the six months ended June 30, 2019. Teradata
used approximately $21 million of cash in the first six months of 2020 for
reorganizing and restructuring its operations and go-to-market functions to
align to its strategy, as compared to $46 million in the first six months of
2019. The increase in cash provided by operating activities was primarily due to
improved management of working capital. Although the COVID-19 pandemic did not
have a significant adverse impact on our financial results for the second
quarter of 2020, we have reviewed our capital projects to ensure that we are
only spending on projects that are deemed to be essential in the current
environment. We have taken steps to manage spending on travel, third-party
services and other operating expenses, and we continue to focus on cash flow
generation. Terms of payments have been extended for certain customers in
impacted industries; however, the majority of these extensions do not go beyond
the end of the fiscal year. We do not expect the pandemic to have a significant
adverse effect on our liquidity, as we believe that operating cash flows and
available liquidity are sufficient to support operational needs for at least the
next 12 months.
Teradata's management uses a non-GAAP measure called "free cash flow," which is
not a measure defined under GAAP. We use free cash flow (which we define as net
cash provided by operating activities less capital expenditures for property and
equipment and additions to capitalized software) as one measure of assessing the
financial performance of the Company, and this may differ from the definitions
used by other companies. The components that are used to calculate free cash
flow are GAAP measures taken directly from the Condensed Consolidated Statements
of Cash Flows (Unaudited). We believe that free cash flow information is useful
for investors because it relates the operating cash flow of the Company to the
capital that is spent to continue and improve business operations. In
particular, free cash flow indicates the amount of cash available after capital
expenditures, for among other things, investments in the Company's existing
businesses, strategic acquisitions and repurchases of Teradata common stock.
Free cash flow does not represent the residual cash flow available for
discretionary expenditures since there may be other non-discretionary
expenditures that are not deducted from the measure. This non-GAAP measure
should not be considered a substitute for, or superior to, cash flows from
operating activities under GAAP.
The table below shows net cash provided by operating activities and capital
expenditures, along with free cash flow, for the following periods:
                                                                         Six Months Ended June 30, 2020
In millions                                                                   2020                 2019
Net cash provided by operating activities                              $         140            $   104

Less:

Expenditures for property and equipment                                          (23)               (27)
Additions to capitalized software                                                 (4)                (2)
Free cash flow                                                         $         113            $    75


Financing activities and certain other investing activities are not included in
our calculation of free cash flow. There were no other investing activities for
the six months ended June 30, 2020 and 2019.
                                       28
--------------------------------------------------------------------------------
  Table of Contents
Teradata's financing activities for the six months ended June 30, 2020 and 2019
primarily consisted of cash outflows for share repurchases and payments on the
Company's finance leases, and long-term debt. At June 30, 2020, the Company had
no outstanding borrowings on its $400 million revolving credit facility entered
into in June 2018 (the "Credit Facility"). The Company purchased approximately
3.7 million shares of its common stock at an average price per share of $20.52
in the six months ended June 30, 2020, and 4.3 million shares at an average
price per share of $40.52 in the six months ended June 30, 2019 under the two
share repurchase programs that were authorized by our Board of Directors. The
first program (the "dilution offset program") allows the Company to repurchase
Teradata common stock to the extent of cash received from the exercise of stock
options and the Teradata Employee Stock Purchase Plan ("ESPP") to offset
dilution from shares issued pursuant to these plans. On July 28, 2019,
Teradata's Board of Directors authorized an additional $500 million to be
utilized to repurchase Teradata common stock under the Company's second share
repurchase program (the "general share repurchase program"). As of June 30,
2020, the Company had $432 million of authorization remaining under this program
to repurchase outstanding shares of Teradata common stock. Share repurchases
made by the Company are reported on a trade date basis. Our share repurchase
activity depends on factors such as our working capital needs, our cash
requirements for capital investments, our stock price, and economic and market
conditions. As a precautionary measure, due to the uncertainty of the impact of
COVID-19 on our business, in the second quarter of 2020, the Company suspended
repurchases under its share repurchase programs and currently does not
anticipate any share repurchases for the remainder of 2020.
Proceeds from the ESPP and the exercise of stock options, net of tax, were $6
million for the six months ended June 30, 2020 and $37 million for the six
months ended June 30, 2019. These proceeds are included in other financing
activities, net in the Condensed Consolidated Statements of Cash Flows
(Unaudited).
Our total cash and cash equivalents held outside the United States in various
foreign subsidiaries was $339 million as of June 30, 2020 and $344 million as of
December 31, 2019. The remaining balance held in the United States was $156
million as of June 30, 2020 and $150 million as of December 31, 2019. Prior to
the enactment of the 2017 Tax Act, the Company either reinvested or intended to
reinvest its earnings outside of the United States. As a result of the 2017 Tax
Act, the Company has changed its indefinite reinvestment assertion related to
foreign earnings that have been taxed in the United States and now considers a
majority of these earnings no longer indefinitely reinvested. Effective January
1, 2018, the United States moved to a territorial system of international
taxation, and as such will generally not subject future foreign earnings to
United States taxation upon repatriation in future years.
Management believes current cash, cash generated from operations and the $400
million available under the Credit Facility will be sufficient to satisfy future
working capital, research and development activities, capital expenditures,
pension contributions, and other financing requirements for at least the next
twelve months. The Company principally holds its cash and cash equivalents in
bank deposits and highly-rated money market funds.
The Company's ability to generate positive cash flows from operations is
dependent on general economic conditions, competitive pressures, and other
business and risk factors described in the 2019 Annual Report and elsewhere in
this Quarterly Report on Form 10-Q. If the Company is unable to generate
sufficient cash flows from operations, or otherwise comply with the terms of the
Credit Facility or its term loan agreement, the Company may be required to seek
additional financing alternatives.
Long-term Debt. There has been no significant change in our long-term debt as
described in the 2019 Annual Report. Our long-term debt is discussed in Note 10
of Notes to Condensed Consolidated Financial Statements (Unaudited).
Contractual and Other Commercial Commitments. There has been no significant
change in our contractual and other commercial commitments as described in the
2019 Annual Report. Our guarantees and product warranties are discussed in Note
8 of Notes to Condensed Consolidated Financial Statements (Unaudited).
Critical Accounting Policies and Estimates
Our financial statements are prepared in accordance with GAAP. In connection
with the preparation of these financial statements, we are required to make
assumptions, estimates and judgments that affect the reported amounts of assets,
liabilities, revenues, expenses and the related disclosure of contingent
liabilities. These assumptions, estimates and judgments are based on historical
experience and assumptions that are believed to be reasonable at the time.
However, because future events and their effects cannot be determined with
certainty, the determination of
                                       29
--------------------------------------------------------------------------------
  Table of Contents
estimates requires the exercise of judgment. Our critical accounting policies
are those that require assumptions to be made about matters that are highly
uncertain. Different estimates could have a material impact on our financial
results. Judgments and uncertainties affecting the application of these policies
and estimates may result in materially different amounts being reported under
different conditions or circumstances. Our management periodically reviews these
estimates and assumptions to ensure that our financial statements are presented
fairly and are materially correct. We assessed certain accounting matters that
generally require consideration of forecasted financial information in context
with the information reasonably available to us and the unknown future impacts
of COVID-19 as of June 30, 2020 and through the date of this report. The
accounting matters assessed included, but were not limited to, our allowance for
doubtful accounts, stock-based compensation, the carrying value of our goodwill
and other long-lived assets, financial assets, valuation allowances for tax
assets and revenue recognition. While there was not a material impact to our
consolidated financial statements as of and for the six months ended June 30,
2020, resulting from our assessments, our future assessment of our current
expectations at that time of the magnitude and duration of COVID-19, as well as
other factors, could result in material impacts to our consolidated financial
statements in future reporting periods.
In many cases, the accounting treatment of a particular transaction is
specifically dictated by GAAP and does not require significant management
judgment in its application. There are also areas in which management's judgment
in selecting among available alternatives would not produce a materially
different result. The significant accounting policies and estimates that we
believe are the most critical to aid in fully understanding and evaluating our
reported financial results are discussed in the 2019 Annual Report. Teradata's
senior management has reviewed these critical accounting policies and related
disclosures and determined that there were no significant changes in our
critical accounting policies in the six months ended June 30, 2020.
New Accounting Pronouncements
See discussion in Note 2 of Notes to Condensed Consolidated Financial Statements
(Unaudited) for new accounting pronouncements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
There have not been any material changes to the market risk factors previously
disclosed in Part II, Item 7A of the 2019 Annual Report.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Teradata maintains a system of disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the
"Exchange Act")) that are designed to provide reasonable assurance that
information required to be disclosed in its reports filed or submitted under the
Exchange Act is recorded, processed, summarized and reported, within the time
periods specified in the SEC's rules and forms, and that such information is
accumulated and communicated to management, including, as appropriate, the Chief
Executive Officer and the Chief Financial Officer, to allow timely decisions
regarding required disclosures. In designing and evaluating the disclosure
controls and procedures, management recognizes that any controls and procedures,
no matter how well designed and operated, can provide only reasonable assurance
of achieving the desired control objectives.
Based on their evaluation, our Chief Executive Officer and Chief Financial
Officer concluded that, as of June 30, 2020, our disclosure controls and
procedures were effective to provide reasonable assurance that the information
we are required to disclose in reports that we file or submit under the Exchange
Act is recorded, processed, summarized, and reported within the time periods
specified in SEC rules and forms, and that such information is accumulated and
communicated to our management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure.
                                       30

--------------------------------------------------------------------------------

  Table of Contents
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting that
occurred during the fiscal quarter ended June 30, 2020 that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting. We have not experienced any material adverse impact to
our internal controls over financial reporting as a result of most of our
employees working remotely due to the COVID-19 pandemic. We are continually
monitoring and assessing the COVID-19 situation on our internal controls to
minimize the impact on their design and operating effectiveness.

© Edgar Online, source Glimpses

share with twitter share with LinkedIn share with facebook
All news about TERADATA CORPORATION
09/10TERADATA : Expands Vantage Support for Data Science
AQ
09/09TERADATA : Expands Vantage Support for Data Science
BU
09/08TERADATA : 's Hillary Ashton Named Chief Product Officer; Tapped to Lead Cloud I..
BU
08/26TERADATA : University for Academics Expands Data and Analytic Training; Offers H..
BU
08/10TERADATA : DE/ Management's Discussion and Analysis of Financial Condition and R..
AQ
08/06TERADATA : 2Q Earnings Snapshot
AQ
08/06TERADATA CORP /DE/ : Results of Operations and Financial Condition (form 8-K)
AQ
08/06TERADATA : Reports Second Quarter 2020 Financial Results
BU
07/23TERADATA : Supports Volkswagen Industrial Cloud as Partner
BU
07/16TERADATA : Announces 2020 Second Quarter Earnings Release Date
BU
More news