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 endedDecember 31, 2020 (the "2020 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. OverviewTeradata Corporation ("we," "us," "Teradata," or the "Company") is the leading connected multi-cloud data platform for enterprise analytics at scale. Our connected multi-cloud data platform, Teradata Vantage, allows customers to integrate and simplify their multi-cloud data and analytic ecosystems, streamline access and management of their data, and use analytics to derive business value from diverse data types. Our Teradata Vantage platform is designed and built to run across on-premises, private cloud and public cloud environments. This platform is supported by business consulting, support services and partner networks that enable customers to extract insights from across a company's entire data and analytics ecosystem. Teradata's strategy is based on our differentiated value proposition for the top 10,000 largest organizations in the world. Our strategy is to provide a connected multi-cloud data platform, Teradata Vantage, that supports the needs of enterprises from start to scale. Teradata Vantage is an effective platform for driving business outcomes, with a partnering approach, embracing modern ecosystems and enabling users to build how they want. We are continuing to execute on our key priorities, including significant product expansion of our Teradata Vantage multi-cloud data platform offering, expanding our footprint with existing customers and adding new customers, driving focus on modern cloud partner ecosystems and driving operational efficiency and agility across the company. Our strategy is further supported by various people initiatives to drive a growth-oriented culture, as well as an increased focus on diversity, equity and inclusiveness, to attract and support high performing, top talent, and diverse teams. To allow for greater transparency regarding the progress we are making toward achieving our strategic objectives, we utilize the following financial and performance metrics: •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, public cloud and on-premises subscription-based transactions. •Public cloud ARR (included within total ARR) - annual contract value for all active and contractually binding term based contracts at the end of a period that are operated in a public cloud environment; and •Remaining performance obligation ("RPO")/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 Update See Part I, Item 1A. "Risk Factors" and Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the 2020 Annual Report for a discussion related to risks and impact of COVID-19 on the Company. As of the date of this Quarterly Report on Form 10-Q, we are continuing to execute our pandemic response plan, and theTeradata Pandemic Response Team is refining and executing return-to-office 19 -------------------------------------------------------------------------------- Table of Contents 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, particularly in light of the potential impact of one or more COVID-19 variants. 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. 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 2021: •At the end of the second quarter of 2021, ARR was$1.426 billion , increasing 9% as compared to the second quarter of 2020, including a 2% positive impact from foreign currency translation, as compared to the second quarter of 2020. At the end of second quarter of 2021, Public cloud ARR was$139 million , increasing 157% as compared to the second quarter of 2020, including a 4% positive impact from foreign currency fluctuations. •Total revenue was$491 million for the second quarter of 2021, a 7% increase compared to the second quarter of 2020, with an underlying 16% increase in recurring revenue. Perpetual software licenses, hardware and other revenue decreased 32%, and consulting services revenue decreased 10%. Foreign currency fluctuations had a 3% positive impact on total revenue for the quarter compared to the prior year. •Gross margin increased to 63.1% in the second quarter of 2021 from 56.0% in the second quarter of 2020, primarily due to a higher recurring revenue mix as compared to the prior period. •Operating expenses for the second quarter of 2021 decreased by 3% compared to the second quarter of 2020, primarily due to lower employee cost base resulting from the workforce reduction measures in 2020 offset by an increase in investments in cloud transformation and variable incentive compensation expense. •Operating income was$70 million in the second quarter of 2021, compared to$8 million in the second quarter of 2020. •Net income in the second quarter of 2021 was$44 million , compared to net loss of$43 million in the second quarter of 2020. •Total backlog of$2.611 billion at the end of the second quarter of 2021 was up 1% from the second quarter of the prior year. 20 -------------------------------------------------------------------------------- Table of Contents Results of Operations for the Three Months EndedJune 30, 2021 Compared to the Three Months EndedJune 30, 2020 Revenue % of % of In millions 2021 Revenue 2020 Revenue Recurring$ 376 76.5 %$ 323 70.8 % Perpetual software licenses, hardware and other 17 3.5 % 25 5.5 % Consulting services 98 20.0 % 109 23.9 % Total revenue$ 491 100.0 %$ 457 100.2 % Total revenue increased$34 million , or 7%, in second quarter of 2021 and included a 3% positive impact from foreign currency fluctuations. Recurring revenue grew 16%, including a 3% positive impact from foreign currency fluctuations. Recurring revenue increased due to a higher base of revenue driven by continued growth in public cloud and subscription ARR during 2020 and continued growth in public cloud ARR in 2021. Additionally, on-premises customer transactions involving substantive long-term commitments resulted in revenue being recognized on a recurring annual basis rather than a recurring quarterly basis and drove approximately$22 million of revenue into the second quarter from these arrangements versus ratably across four quarters. For full year 2021, we expect a mid- to high-single digit percentage increase in ARR growth. Recurring revenue is expected to grow at a high-single-digit to low-double-digit percentage compared to 2020. Public cloud ARR is expected to increase by at least 90% for the third quarter of 2021as compared to the same period in 2020 and increase by at least 100% year-over-year for full year of 2021 as compared to 2020. Taking into consideration the expected growth in recurring revenue, partially offset by anticipated reductions in perpetual software licenses, hardware and other revenue and consulting services revenue, we expect that total revenue will grow at low-single-digit to mid-single-digit percentage in 2021 as compared to 2020. Revenues from perpetual software licenses, hardware and other were down 32% in the second quarter of 2021 as customers continue to transition to subscription-based offerings, consistent with our overall strategy. Consulting services revenue decreased 10% in the second quarter of 2021, including a 4% positive impact from foreign currency fluctuations, as we are realigning and focusing our consulting resources on higher-margin engagements, both direct engagement with customers and joint engagement with partners 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 of 2020 in response to COVID-19 as well as delays and/or cancellations of consulting projects due to customers' reduced spending in light of COVID-19. As a portion of the Company's operations and revenue occur outsidethe United States , and in currencies other than theU.S. dollar, the Company is exposed to fluctuations in foreign currency exchange rates. Based on currency rates as ofJuly 31, 2021 , Teradata is expecting approximately one to two percentage points of positive impact from currency translation on our 2021 full-year total revenues. Gross Profit % of % of In millions 2021 Revenue 2020 Revenue Recurring$ 289 76.9 %$ 234 72.4 % Perpetual software licenses, hardware and other 6 35.3 % 7 28.0 % Consulting services 15 15.3 % 15 13.8 % Total gross profit$ 310 63.1 %$ 256 56.0 % The increase in recurring revenue gross profit as a percentage of revenue was primarily driven by a higher amount of recurring revenue at an improved gross margin rate driven by greater subscription and cloud efficiencies versus 21 -------------------------------------------------------------------------------- Table of Contents prior year. Upfront revenue recognition of certain renewed and expanded customer arrangements, discussed above, also had a positive impact on recurring revenue gross margin. The increase in perpetual software licenses, hardware and other gross profit as a percentage of revenue was primarily driven by deal mix. Consulting services gross profit as a percentage of revenue increased as compared to the prior year primarily due to improved resource mix utilization, increased revenue realization and our continued strategic focus on higher-value projects. Operating Expenses % of % of In millions 2021 Revenue 2020 Revenue
Selling, general and administrative expenses
79 16.2 % 83 18.3 % Total operating expenses$ 240 48.9 %$ 248 54.3 % The selling, general and administrative ("SG&A") and research and development ("R&D") expense decreases were primarily driven by a lower employee cost base resulting from the 2020 reorganization efforts and a focus on efficient operational execution. Other Expense, net In millions 2021 2020 Interest income$ 2 $ 1 Interest expense (7) (7) Other (6) (5) Other expense, net$ (11) $ (11) Other expense, net in the second quarter of 2021 and 2020 is comprised primarily of interest expense on long-term debt and finance leases as well as benefit costs on our pension and postemployment plans, partially offset by interest income earned on our cash and cash equivalents. 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. The Company expects that a majority of its foreign earnings will be repatriated to theU.S. The effective tax rates in the periods presented are largely based upon the forecasted pre-tax earnings mix between theU.S. and other foreign taxing jurisdictions where the Company conducts its business. The Company estimates its full-year effective tax rate for 2021 will be approximately 30%, which takes into consideration, among other things, the forecasted earnings mix by jurisdiction and the estimated discrete items to be recognized in 2021. The forecasted tax rate is based on the overseas profits being taxed at an overall effective tax rate of approximately 24%, as compared to theU.S. federal statutory tax rate of 21%. The effective tax rate for the three months endedJune 30, 2021 and 2020 were as follows: 2021 2020 Effective tax rate 25.4 % (1,333.3) % For the three months endedJune 30, 2021 , the Company had no material discrete tax adjustments. For the three months endedJune 30, 2020 , the Company recorded a net$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 22 -------------------------------------------------------------------------------- Table of Contents forecasted earnings. As a result, the Company recorded income tax expense of$40 million on a pre-tax net loss of$3 million for the three months endedJune 30, 2020 , resulting in an effective income tax rate of (1,333.3)%. Revenue and Gross Profit by Operating Segment Teradata manages its business under three geographic regions, which are also the Company's operating segments: (1)Americas region (North America andLatin America ); (2) EMEA region (Europe ,Middle East , andAfrica ) and (3) APJ region (Asia Pacific andJapan ). For purposes of discussing results by segment, management excludes the impact of certain items, consistent with the manner by which management evaluates the performance of each segment. This format is useful to investors because it allows analysis and comparability of operating trends. It also includes the same information that is used by Teradata management to make decisions regarding the segments and to assess financial performance. The chief operating decision maker, who is our President and Chief Executive Officer, evaluates the performance of the segments based on revenue and multiple profit measures, including segment gross profit. For management reporting purposes, assets are not allocated to the segments. Our segment results are reconciled to total company results reported under GAAP in Note 12 of Notes to Condensed Consolidated Financial Statements (Unaudited). The following table presents segment revenue and segment gross profit for the Company for the three months endedJune 30 : % of % of In millions 2021 Revenue 2020 Revenue Segment revenue Americas$ 274 55.8 %$ 259 56.7 % EMEA 128 26.1 % 118 25.8 % APJ 89 18.1 % 80 17.5 % Total segment revenue$ 491 100 %$ 457 100 % Segment gross profit Americas$ 185 67.5 %$ 161 62.2 % EMEA 80 62.5 % 67 56.8 % APJ 53 59.6 % 41 51.3 %
Total segment gross profit
Americas revenue increased 6% as compared to the prior year. Recurring revenue was up 14% and perpetual and other revenue was down 69% ($9 million ). Consulting revenue decreased 12% as compared to the prior year. Segment gross profit as a percentage of revenues was higher primarily due to an overall higher mix of recurring revenue. EMEA EMEA revenue increased 8%, which included a 9% favorable impact from foreign currency fluctuations. The overall increase in revenue included an increase of 15% in recurring revenue, a reduction of 13% in perpetual and other revenue and flat consulting revenue. Segment gross profit as a percentage of revenues was higher primarily due to a higher mix of recurring revenue. APJ APJ revenue increased 11%, which included a 7% favorable impact from foreign currency fluctuations. An increase in recurring revenue of 30% and an increase in perpetual and other revenue of 50% ($2 million ) was partially offset by a decrease in consulting revenue of 19%. Segment gross profit as a percentage of revenues was higher primarily due to a higher mix of recurring revenue. 23 -------------------------------------------------------------------------------- Table of Contents Results of Operations for the Six Months EndedJune 30, 2021 Compared to the Six Months EndedJune 30, 2020 Revenue % of % of In millions 2021 Revenue 2020 Revenue Recurring$ 748 76.2 %$ 634 71.2 % Perpetual software licenses, hardware and other 40 4.1 % 48 5.4 % Consulting services 194 19.7 % 209 23.4 % Total revenue$ 982 100.0 %$ 891 100.0 % Total revenue increased$91 million , or 10%, in the first six months of 2021 and included a 3% positive impact from foreign currency fluctuations. Recurring revenue grew 18%, and was positively impacted by a higher base of revenue driven by continued growth in public cloud and subscription ARR during 2020 and continued growth in public cloud ARR in the first six months of 2021. Additionally, on-premises customer transactions involving substantive long-term commitments resulted in revenue being recognized on a recurring annual basis rather than a recurring quarterly basis and drove revenue into the first six months of 2021 from these arrangements versus ratably across four quarters. Revenues from perpetual software licenses, hardware and other were down 17% in the first six months of 2021, as customers continue to transition to subscription-based offerings, consistent with our overall strategy. Consulting services revenue decreased 7% in the first six months of 2021, including a 4% positive impact from foreign currency fluctuations, as we are realigning and focusing our consulting resources on higher-margin engagements, both direct engagement with customers and joint engagement with partners that drive increased software consumption within our targeted customer base. Consulting revenue was also impacted by the transition to work from home and shelter-in-place orders that went in effect late in the first quarter of 2020 in response to COVID-19 as well as delays and/or cancellations of consulting projects due to customers' reduced spending in light of COVID-19. Gross Profit % of % of In millions 2021 Revenue 2020 Revenue Recurring$ 571 76.3 %$ 452 71.3 % Perpetual software licenses, hardware and other 18 45.0 % 15 31.3 % Consulting services 28 14.4 % 14 6.7 % Total gross profit$ 617 62.8 %$ 481 54.0 % The increase in recurring revenue gross profit as a percentage of revenue was primarily driven by a higher amount of recurring revenue at an improved gross margin rate driven by improved operating efficiencies of our subscription and cloud offerings partially offset by the higher mix shift to cloud. Upfront revenue recognition of certain renewed and expanded customer arrangements, discussed above, also had a positive impact on recurring revenue gross margin. The increase in perpetual software licenses, hardware and other gross profit as a percentage of revenue was primarily driven by deal mix and opportunities with lower hardware mix as compared to prior year. Consulting services gross profit as a percentage of revenue increased as compared to the prior year primarily due to improved resource mix utilization as well as increased revenue realization and our continued strategic focus to improve consulting margins by focusing on higher-value projects. The Company continues to refocus our consulting organization on Vantage-oriented offerings and reduce our footprint in non-core consulting engagements. Operating Expenses 24
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Table of Contents % of % of In millions 2021 Revenue 2020 Revenue
Selling, general and administrative expenses
156 15.9 % 156 17.5 % Total operating expenses$ 466 47.5 %$ 479 53.8 % The SG&A expense decrease was primarily driven by a lower employee cost base resulting from the workforce reduction measures in 2020, lower travel and marketing spend as compared to the prior year pre-pandemic period and continued cost discipline as compared to prior year. R&D expenses were flat for the first six months of 2021 as compared to prior year. R&D expenses were impacted by an increase in spending focused on accelerating our cloud initiatives as well as higher variable incentive compensation expense, which was offset by a lower employee cost base resulting from the workforce reduction measures initiated in 2020 and continued cost discipline as compared to prior year. Other Expense, net In millions 2021 2020 Interest income$ 3 $ 3 Interest expense (14) (14) Other (9) (8) Other expense, net$ (20) $ (19) Other expense, net in the second quarter of 2021 and 2020 is comprised primarily of interest expense on long-term debt and finance leases as well as benefit costs associated with our pension and postemployment plans, partially offset by interest income earned on our cash and cash equivalents. Provision for Income Taxes The effective tax rate for the six months endedJune 30, 2021 and 2020 were as follows: 2021 2020 Effective tax rate 26.0 % 835.3 % For the six months endedJune 30, 2021 , the Company recorded$4 million of discrete tax benefit, a majority of which related to the excess tax benefits derived from stock-based compensation vesting. For the six months endedJune 30, 2020 , the Company recorded$113 million of discrete tax benefit. The discrete tax expense of$39 million recorded in the second quarter of 2020 described above was offset by$152 million of discrete tax benefit recorded in the first quarter of 2020, a majority of which related to the transfer of intra-entity IP. As a result, the Company recorded income tax benefit of$142 million on a pre-tax loss of$17 million for the six months endedJune 30, 2020 , resulting in an effective income tax rate of 835.3%. Revenue and Gross Profit by Operating Segment 25 -------------------------------------------------------------------------------- Table of Contents The following table presents segment revenue and segment gross profit for the Company for the Six Months EndedJune 30 : % of % of In millions 2021 Revenue 2020 Revenue Segment revenue Americas$ 537 54.7 %$ 503 56.5 % EMEA 275 28.0 % 236 26.5 % APJ 170 17.3 % 152 17.1 % Total segment revenue$ 982 100 %$ 891 100 % Segment gross profit Americas$ 367 68.3 %$ 305 60.6 % EMEA 168 61.1 % 128 54.2 % APJ 98 57.6 % 71 46.7 % Total segment gross profit$ 633 64.5 %$ 504 56.6 % AmericasAmericas revenue increased 7% as compared to the prior year. Recurring revenue was up 13% and perpetual software licenses, hardware and other revenue was down 45%. Consulting revenue decreased 10% as compared to the prior year. Segment gross profit as a percentage of revenues was higher primarily due to an overall higher mix of recurring revenue. EMEA EMEA revenue increased 17%, which included a 7% favorable impact from foreign currency fluctuations. The overall increase in revenue included an increase of 26% in recurring revenue and a 1% increase in consulting revenue partially offset by a 5% decrease in perpetual software licenses, hardware and other revenue. Segment gross profit as a percentage of revenues was higher primarily due to a higher mix of recurring revenue. APJ APJ revenue increased 12%, which included a 8% favorable impact from foreign currency fluctuations. An increase in recurring revenue of 28% and perpetual software licenses, hardware and other revenue increase of 29% was partially offset by a decrease in consulting revenue of 14%. Segment gross profit as a percentage of revenues was higher primarily due to a higher mix of recurring revenue. 26 -------------------------------------------------------------------------------- Table of Contents Financial Condition, Liquidity and Capital Resources Cash provided by operating activities was$335 million , which increased by$195 million in the six months endedJune 30, 2021 compared to the six months endedJune 30, 2020 . The increase in cash provided by operating activities was primarily due to increased net income (net of non-cash items such as depreciation and amortization, stock-based compensation expense and deferred income taxes), strong cash collections and favorable working capital dynamics. Teradata used approximately$30 million of cash in the first six months of 2021 for reorganizing and restructuring its operations and go-to-market functions to align to its strategy, as compared to$21 million in the first six months of 2020. Teradata's management uses a financial measure called "free cash flow," which is not a measure defined under GAAP. We use free cash flow (which we define as net cash provided by operating activities less investing activities related to capital expenditures for property and equipment and additions to capitalized software) as one measure of assessing the financial performance of the Company, and this may differ from the definitions used by other companies. The components that are used to calculate free cash flow are GAAP measures taken directly from the Condensed Consolidated Statements of Cash Flows (Unaudited). We believe that free cash flow information is useful for investors because it relates the operating cash flow of the Company to the capital that is spent to continue and improve business operations. In particular, free cash flow indicates the amount of cash available after capital expenditures, for among other things, investments in the Company's existing businesses, strategic acquisitions and repurchases of Teradata common stock. Free cash flow does not represent the residual cash flow available for discretionary expenditures since there may be other non-discretionary expenditures that are not deducted from the measure. This non-GAAP measure should not be considered a substitute for, or superior to, cash flows from operating activities under GAAP. The table below shows net cash provided by operating activities and net cash used in investing activities related to capital expenditures, along with free cash flow, for the following periods: Six Months Ended June 30, 2021 In millions 2021 2020 Net cash provided by operating activities$ 335 $ 140 Less: Expenditures for property and equipment (9) (23) Additions to capitalized software (2) (4) Free cash flow$ 324 $ 113 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 endedJune 30, 2021 and 2020. Teradata's financing activities for the six months endedJune 30, 2021 and 2020 primarily consisted of cash outflows for share repurchases and payments on the Company's finance leases and long-term debt. AtJune 30, 2021 , the Company had no outstanding borrowings on its$400 million revolving credit facility entered into inJune 2018 (the "Credit Facility"). The Company repurchased approximately 3.4 million shares of its common stock at an average price per share of$35.31 in the six months endedJune 30, 2021 , and 3.7 million shares at an average price per share of$20.52 in the six months endedJune 30, 2020 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. OnJuly 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 ofJune 30, 2021 , the Company had$321 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. 27 -------------------------------------------------------------------------------- Table of Contents Proceeds from the ESPP and the exercise of stock options, net of tax, were$18 million for the six months endedJune 30, 2021 and$6 million for the six months endedJune 30, 2020 . 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 outsidethe United States in various foreign subsidiaries was$463 million as ofJune 30, 2021 and$342 million as ofDecember 31, 2020 . The remaining balance held inthe United States was$221 million as ofJune 30, 2021 and$191 million as ofDecember 31, 2020 . The Company considers a majority of its foreign earnings will be repatriated tothe United States . EffectiveJanuary 1, 2018 ,the United States moved to a territorial system of international taxation, and as such will generally not subject future foreign earnings toUnited 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 2020 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 2020 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 2020 Annual Report. Our commitments and contingencies 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 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 as ofJune 30, 2021 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. 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 2020 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 endedJune 30, 2021 . 28
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Table of Contents New Accounting Pronouncements See discussion in Note 2 of Notes to Condensed Consolidated Financial Statements (Unaudited) for new accounting pronouncements.
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