Teradata(TDC) - 2025 Q2 - Quarterly Report

PART I—FINANCIAL INFORMATION This section presents the company's unaudited financial statements, notes, and management's discussion and analysis of financial condition and results of operations Item 1. Financial Statements Teradata's financial performance declined in the second quarter and first half of 2025 compared to the same periods in 2024, with total revenue, gross profit, operating income, and net income all decreasing year-over-year, primarily driven by lower recurring and consulting services revenue Note 3. Revenue from Contracts with Customers Total revenue declined in both the US and International markets for the three and six months ended June 30, 2025, with remaining unsatisfied performance obligations of $1.841 billion, of which $1.233 billion is expected to be recognized within the next year Disaggregation of Revenue (in millions) | Region | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | United States | $201 | $221 | $415 | $469 | | International | $207 | $215 | $411 | $432 | | Total Revenue | $408 | $436 | $826 | $901 | - As of June 30, 2025, the company had $1.841 billion in remaining unsatisfied performance obligations, with $1.233 billion expected to be recognized in the next year and $608 million thereafter[25] - Revenue recognized during the first six months of 2025 from deferred revenue at the beginning of the period was $344 million[24] Note 6. Income Taxes The effective tax rate for the first six months of 2025 was 25.4%, a significant decrease from 34.5% in the same period of 2024, with the full-year 2025 effective tax rate estimated at approximately 27.5% Effective Tax Rate | Period | 2025 | 2024 | | :--- | :--- | :--- | | Three Months Ended June 30 | 30.8% | 32.7% | | Six Months Ended June 30 | 25.4% | 34.5% | - The estimated annual effective tax rate for 2025 is approximately 27.5%, considering the forecasted earnings mix by jurisdiction and discrete tax items[35] - The company does not expect the Pillar Two global minimum tax rules to have a material impact on its annual effective tax rate[34] Note 8. Commitments and Contingencies The company is involved in significant litigation, including an ongoing lawsuit against SAP where a favorable appeals court ruling has remanded antitrust and trade secret claims back to the district court, and new putative securities class action and shareholder derivative lawsuits - In the lawsuit against SAP, the Ninth Circuit overturned a lower court's summary judgment, reviving Teradata's antitrust and trade secret claims, with a trial scheduled for April 13, 2026[46] - A securities class action lawsuit was filed on June 14, 2024, alleging violations of federal securities laws related to the company's 2023 financial outlook for Total ARR and Public Cloud ARR[47] - A shareholder derivative lawsuit was filed on May 2, 2025, based on similar allegations as the securities class action, asserting claims for breach of fiduciary duty and unjust enrichment against the Board of Directors and former CFO[48] Note 12. Segment and Other Supplemental Information Effective August 5, 2024, Teradata realigned its business into two operating segments: Product Sales and Consulting Services, with Product Sales generating $492 million in gross profit for the first half of 2025, while Consulting Services reported a gross loss of $2 million - The company now manages its business under two new operating segments: (1) Product Sales and (2) Consulting Services[64] Segment Gross Profit (Six Months Ended June 30, in millions) | Segment | 2025 | 2024 | | :--- | :--- | :--- | | Product Sales | $492 | $540 | | Consulting Services | $(2) | $20 | | Total segment gross profit | $490 | $560 | Note 13. Reorganization and Business Transformation The company initiated a global restructuring plan in August 2024 to optimize operations, expecting to incur total charges of $20 million to $25 million, and recognized $7 million in restructuring-related expenses for the first six months of 2025 - A global restructuring was initiated on August 5, 2024, to optimize operations and reduce expenses, with actions expected to be completed by the end of 2025[67] - Total expected charges for the restructuring are approximately $20 million to $25 million, with total cash expenditures estimated at $45 million to $50 million[68] - In the first six months of 2025, the company recognized $7 million in restructuring costs ($2 million in COGS, $5 million in SG&A) and paid $11 million in cash related to these actions[69][70] Condensed Consolidated Statements of Income (Unaudited) | In millions, except per share amounts | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Total revenue | $408 | $436 | $826 | $901 | | Gross profit | $230 | $265 | $478 | $549 | | Income from operations | $24 | $66 | $90 | $114 | | Net income | $9 | $37 | $53 | $57 | | Diluted EPS | $0.09 | $0.38 | $0.55 | $0.58 | Condensed Consolidated Balance Sheets (Unaudited) | In millions | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total current assets | $757 | $749 | | Total assets | $1,737 | $1,704 | | Total current liabilities | $898 | $930 | | Total liabilities | $1,561 | $1,571 | | Total stockholders' equity | $176 | $133 | Condensed Consolidated Statements of Cash Flows (Unaudited) | In millions | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $51 | $70 | | Net cash used in investing activities | $(6) | $(13) | | Net cash used in financing activities | $(119) | $(220) | | Decrease in cash, cash equivalents and restricted cash | $(51) | $(185) | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's strategic focus on its hybrid cloud platform, Teradata Vantage, and AI capabilities, highlighting a 17% increase in Public Cloud ARR but a 6% decrease in total Q2 revenue year-over-year, attributed to elongated deal cycles and lower consulting demand Overview and Financial Metrics Teradata is focused on its hybrid cloud analytics and data platform, Teradata Vantage, to address complex data challenges and AI, with Public Cloud ARR growing 17% to $634 million in Q2 2025 and a Cloud Net Expansion Rate of 112% - The company's strategic priorities include migrating customers to the cloud, accelerating innovation in its hybrid platform and ClearScape Analytics, and delivering new AI capabilities[76] Key Performance Metrics (as of June 30) | Metric | 2025 | 2024 | | :--- | :--- | :--- | | Total ARR | $1,489 million | $1,465 million | | Public Cloud ARR | $634 million | $542 million | | Subscription ARR | $756 million | $802 million | | Cloud Net Expansion Rate | 112% | 123% | Results of Operations For Q2 2025, total revenue fell 6% to $408 million, driven by a 4% drop in recurring revenue and a 19% drop in consulting services, while gross margin declined from 60.8% to 56.4% due to a higher mix of public cloud revenue and lower consulting margins - Q2 2025 total revenue decreased by 6% year-over-year, with recurring revenue down 4% and consulting services revenue down 19%[81] - Q2 2025 gross margin decreased to 56.4% from 60.8% in Q2 2024, primarily due to a higher mix of Public Cloud revenues and lower consulting services margins[80][86] - For the first six months of 2025, SG&A expenses decreased 14% and R&D expenses decreased 4% compared to the prior year, primarily due to cost discipline[103][104] Financial Condition, Liquidity and Capital Resources Cash from operations was $51 million for the first six months of 2025, down from $70 million in the prior year, with the company repurchasing 2.9 million shares for $72 million and maintaining $400 million available under its revolving credit facility Free Cash Flow (Six Months Ended June 30, in millions) | Component | 2025 | 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $51 | $70 | | Less: Expenditures for property and equipment | $(5) | $(9) | | Less: Additions to capitalized software | $— | $(1) | | Free cash flow | $46 | $60 | - In the first six months of 2025, the company repurchased approximately 2.9 million shares of common stock for $72 million[113][14] - As of June 30, 2025, the company had $469 million principal outstanding on its Term Loan and no borrowings under its $400 million Revolving Facility[119][62] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company reports that there have been no material changes to the market risk factors previously disclosed in its 2024 Annual Report on Form 10-K - There have not been any material changes to the market risk factors previously disclosed in the 2024 Annual Report[125] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that as of June 30, 2025, the company's disclosure controls and procedures were effective, with a new global cloud ERP system implemented through Q1 2025 to enhance internal controls over financial reporting - The CEO and CFO concluded that as of June 30, 2025, the company's disclosure controls and procedures were effective at a reasonable assurance level[127] - A new global cloud ERP system was implemented in phases through Q1 2025 to modernize financial processes and enhance internal controls, with ongoing evaluation of these control changes throughout 2025[128] PART II—OTHER INFORMATION This section provides details on legal proceedings, risk factors, equity transactions, and other required disclosures Item 1. Legal Proceedings The company incorporates by reference the information from Note 8 of the financial statements, which details ongoing litigation, including a significant lawsuit against SAP and newly filed securities class action and shareholder derivative lawsuits - Information regarding legal proceedings is incorporated by reference from Note 8, which discusses litigation with SAP and recent class action lawsuits[131][46][47] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the company's 2024 Annual Report on Form 10-K - No material changes to the risk factors disclosed in the 2024 Annual Report have occurred[132] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. During the first six months of 2025, Teradata repurchased approximately 2.9 million shares, with $285.2 million remaining available for future repurchases under the open market share repurchase program expiring on December 31, 2025 Share Repurchases for the Six Months Ended June 30, 2025 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | First Quarter 2025 | 1,563,247 | $27.92 | | Second Quarter 2025 | 1,297,308 | $21.74 | - As of June 30, 2025, a maximum of $285.2 million may yet be purchased under the open market share repurchase program[134] Item 5. Other Information During the second quarter of 2025, no director or officer of Teradata adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement - No director or officer adopted or terminated a Rule 10b5-1 trading arrangement during the three months ended June 30, 2025[136] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including corporate governance documents, new offer letters for executives, stock incentive plans, and required certifications - Exhibits filed include offer letters for executives Sumeet Arora, John Ederer, and Scot Rogers, as well as details on the 2023 Stock Incentive Plan and the 2025 New Employee Stock Inducement Plan[137]