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Teradata(TDC) - 2024 Q2 - Quarterly Report

PART I—FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements for Teradata Corporation for the three and six months ended June 30, 2024, and 2023 Condensed Consolidated Statements of Income The company's total revenue decreased in both the three and six-month periods ending June 30, 2024, compared to 2023, while income from operations and net income significantly improved in Q2 Consolidated Statements of Income Highlights (in millions, except per share amounts) | Metric | Q2 2024 | Q2 2023 | Change | H1 2024 | H1 2023 | Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $436 | $462 | -5.6% | $901 | $938 | -4.0% | | Gross Profit | $265 | $276 | -4.0% | $549 | $578 | -5.0% | | Income from Operations | $66 | $33 | +100.0% | $114 | $112 | +1.8% | | Net Income | $37 | $17 | +117.6% | $57 | $57 | 0.0% | | Diluted EPS | $0.38 | $0.17 | +123.5% | $0.58 | $0.55 | +5.5% | Condensed Consolidated Balance Sheets As of June 30, 2024, total assets and stockholders' equity decreased compared to December 31, 2023, primarily due to reduced cash and cash equivalents Balance Sheet Highlights (in millions) | Account | June 30, 2024 | Dec 31, 2023 | Change | | :--- | :--- | :--- | :--- | | Cash and cash equivalents | $301 | $486 | -38.1% | | Total current assets | $665 | $869 | -23.5% | | Total Assets | $1,622 | $1,873 | -13.4% | | Total current liabilities | $889 | $996 | -10.7% | | Long-term debt | $467 | $480 | -2.7% | | Total Liabilities | $1,547 | $1,738 | -11.0% | | Total Stockholders' Equity | $75 | $135 | -44.4% | Condensed Consolidated Statements of Cash Flows Net cash provided by operating activities significantly decreased in the first half of 2024, with continued cash usage for financing activities, leading to an overall decrease in cash Cash Flow Summary for Six Months Ended June 30 (in millions) | Cash Flow Activity | 2024 | 2023 | Change | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $70 | $158 | -$88 | | Net cash used in investing activities | ($13) | ($7) | -$6 | | Net cash used in financing activities | ($220) | ($196) | -$24 | | Decrease in cash, cash equivalents | ($185) | ($65) | -$120 | Notes to Condensed Consolidated Financial Statements The notes provide detailed information supporting the financial statements, covering revenue recognition, segment performance, legal contingencies, debt, and a significant subsequent event regarding a global restructuring plan - Revenue is disaggregated by geographic region (Americas, EMEA, APJ) and revenue type (Recurring, Perpetual, Consulting), with the Americas region remaining the largest contributor to total revenue25 - A putative securities class action lawsuit was filed against the company on June 14, 2024, concerning its 2023 financial outlook, which the company intends to defend vigorously47 - On August 5, 2024, the company announced a global restructuring plan expected to reduce its workforce by approximately 9% to 10%, anticipating total charges of $20 to $25 million related to this restructuring62 Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses the company's financial performance for the second quarter and first half of 2024, highlighting strong growth in Public Cloud ARR, offset by declines in other revenue streams Second Quarter Financial Overview In Q2 2024, Public Cloud ARR increased by 31% year-over-year, despite a 4% decrease in Total ARR and a 6% decline in total revenue, while operating and net income more than doubled Q2 2024 Key Performance Metrics vs. Q2 2023 | Metric | Q2 2024 | Q2 2023 | Change | | :--- | :--- | :--- | :--- | | Public Cloud ARR | $542M | $414M | +31% | | Total ARR | $1,465M | $1,523M | -4% | | Total Revenue | $436M | $462M | -6% | | Operating Income | $66M | $33M | +100% | | Net Income | $37M | $17M | +118% | | Cloud Net Expansion Rate | 123% | 121% | +2 p.p. | Results of Operations For Q2 2024, total revenue decreased by 6% due to declines in perpetual licenses and consulting services, which offset strong growth in Public Cloud revenue, while operating expenses fell 18% leading to a significant increase in operating income - The decrease in Total ARR was driven by customer migrations to Public Cloud, on-premises erosions, elongated deal closing cycles, and lower on-premises expansion activity75 - Selling, general and administrative (SG&A) expenses decreased in Q2 2024 due to continued cost discipline, lower variable incentive compensation, and reduced stock-based compensation expense79 Revenue by Type - Q2 2024 vs Q2 2023 (in millions) | Revenue Type | Q2 2024 | Q2 2023 | % Change | | :--- | :--- | :--- | :--- | | Recurring | $368 | $371 | -1% | | Perpetual software licenses, hardware and other | $5 | $13 | -62% | | Consulting services | $63 | $78 | -19% | | Total Revenue | $436 | $462 | -6% | Financial Condition, Liquidity and Capital Resources The company's cash from operations decreased significantly in the first six months of 2024, with continued share repurchases, while the $400 million revolving credit facility remained undrawn Free Cash Flow for Six Months Ended June 30 (in millions) | Component | 2024 | 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $70 | $158 | | Less: Expenditures for property and equipment | ($9) | ($6) | | Less: Additions to capitalized software | ($1) | ($1) | | Free Cash Flow | $60 | $151 | - The company repurchased approximately 4.4 million shares of common stock for $171 million in the first six months of 2024106109 - As of June 30, 2024, the company held $281 million of its cash and cash equivalents outside the United States109 Quantitative and Qualitative Disclosures About Market Risk This section states that there have been no material changes to the market risk factors previously disclosed in the company's 2023 Annual Report on Form 10-K - There have not been any material changes to the market risk factors previously disclosed in the 2023 Annual Report116 Controls and Procedures Management, including the CEO and CFO, concluded that as of June 30, 2024, the company's disclosure controls and procedures were effective, with a new global cloud ERP system implementation underway to enhance internal controls - The CEO and CFO concluded that as of June 30, 2024, the company's disclosure controls and procedures were effective at a reasonable assurance level119 - The company is implementing a new global cloud ERP system in phases throughout 2024, which is expected to enhance internal controls over financial reporting, but has not materially affected them to date120121 PART II—OTHER INFORMATION Legal Proceedings This section refers to Note 8 of the financial statements for information regarding legal proceedings, detailing a new securities class action lawsuit and an update on ongoing litigation with SAP - Information on legal proceedings is incorporated by reference from Note 8 of the Notes to Condensed Consolidated Financial Statements122 Risk Factors This section indicates that there have been no material changes to the risk factors that were previously disclosed in the company's 2023 Annual Report on Form 10-K - There have been no material changes to the risk factors previously disclosed in the 2023 Annual Report123 Unregistered Sales of Equity Securities and Use of Proceeds This section provides details on the company's common stock repurchases for the six months ended June 30, 2024, totaling approximately 4.4 million shares through its publicly announced programs Share Repurchases for Six Months Ended June 30, 2024 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Q1 2024 | 3,169,262 | $40.57 | | Q2 2024 | 1,186,097 | $35.66 | | H1 2024 Total | 4,355,359 | $39.24 (approx.) | - As of June 30, 2024, approximately $392 million remained under the open market share repurchase program, which expires on December 31, 2025108124