Form 10-K TERADATA CORP /DE/ For: Dec 31
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
|ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934|
For the fiscal year ended
December 31, 2020
|TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934|
For the transition period from to
Commission File Number
(Exact name of registrant as specified in its charter)
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incorporation or organization)
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
|Title of each class:||Trading Symbol||Name of Each Exchange on which Registered:|
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ý No ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15 (d) of the Act. Yes ¨
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
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Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
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Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
|Non-accelerated filer||¨||Smaller reporting company|
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ¨
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
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The aggregate market value of voting stock held by non-affiliates of the registrant as of June 30, 2020, was approximately $
At January 31, 2021, there were
109.0 million shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
|Part III:||Portions of the registrant’s Notice of Annual Meeting of Stockholders and Proxy Statement, to be filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after registrant’s fiscal year end of December 31, 2020 are incorporated herein by reference.|
TABLE OF CONTENTS
This report contains trademarks, service marks, and registered marks of Teradata Corporation and its subsidiaries, and other companies, as indicated.
Forward-looking statements in our public filings or other public statements are subject to known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements or other public statements. These forward-looking statements were based on various facts and were derived utilizing numerous important assumptions and other important factors, and changes in such facts, assumptions or factors could cause actual results to differ materially from those in the forward-looking statements. Forward-looking statements include the information concerning our future financial performance, business strategy, projected plans and objectives. Statements preceded by, followed by or that otherwise include the words "believes," "expects," "anticipates," "intends," "projects," "estimates," "plans," "may increase," "may fluctuate," and similar expressions or future or conditional verbs such as "will," "should," "would," "may" and "could" are generally forward-looking in nature and not historical facts. You should understand that the factors described under "Risk Factors" and the following important factors could affect our future results and could cause actual results to differ materially from those expressed in such forward-looking statements:
•Our ability to timely and effectively execute our strategy, including our initiatives to provide and enhance our offerings for cloud environments;
•Our ability to rapidly and successfully develop and introduce new solutions that include highly advanced technology, and the increased difficulty and complexity associated with producing new offerings with greater capacity, delivery and performance capabilities, which may increase the likelihood of reliability, quality and operability issues;
•The rapidly changing and intensely competitive nature of the information technology ("IT") industry and the analytic data platform business, including the ongoing consolidation activity, new and emerging analytic data technologies and competitors, and pressure on achieving continued price/performance gains for analytic data solutions;
•Fluctuations in our operating results, timing of transactions, customer cancellations or non-renewals of subscription arrangements or support services, unanticipated delays or accelerations in our sales cycles and the difficulty of accurately estimating revenues;
•The impact of global economic fluctuations on the markets in general or on the ability of our suppliers and customers to meet their commitments to us, or the timing of purchases by our current and potential customers, including the potential impacts of the COVID-19 pandemic on global economies; and
•Risks inherent in operating in foreign countries, including the impact of foreign currency fluctuations, economic, political, legal, regulatory, compliance, cultural, public health, and other conditions abroad.
Other factors not identified above, including the risk factors described in the section entitled "Risk Factors" included elsewhere in this Annual Report on Form 10-K ("Annual Report"), may also cause actual results to differ materially from those projected by our forward-looking statements. Most of these factors are difficult to anticipate and are generally beyond our reasonable control. We undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events.
Item 1. BUSINESS
Overview. Teradata Corporation ("we," "us," "Teradata," or the "Company") is a multi-cloud enterprise data warehouse platform provider focused on helping companies leverage all their data across an enterprise to uncover real-time intelligence, at scale. In doing so, we help companies to find answers to their toughest business challenges. All efforts we perform are in support of our purpose of transforming how businesses work and people live through the power of data.
Teradata has broadened its market opportunity by evolving from an on-premises only, enterprise data warehouse company to a multi-cloud, enterprise data warehouse platform provider. We help our customers integrate and simplify their data and analytics ecosystem, streamline access and management of data, and use analytics to derive business value from diverse data types. Our target market focuses on organizations that are the world's most demanding, large-scale users of data.
The largest companies in the world have spent decades building mission-critical, complex, and large-scale on-premises data environments. However, these companies face significant challenges from ecosystems that have grown over time, including siloed data and conflicting and duplicative solutions, resulting in environments that are highly complex and expensive to maintain and manage. Despite these companies investing heavily in technology, people, and infrastructure, their employees are unable to effectively access the data they need to efficiently run their businesses or activate data to make intelligent and innovative business decisions. In addition, most of these organizations are also experiencing a dramatic increase in data volumes and complexity due to digital transformation.
As companies seek greater agility and flexibility demanded by today’s digitalized and highly disruptive economy, they are turning to cloud infrastructures. By accessing a data warehouse platform integrated within a cloud-based ecosystem, companies can flexibly access and pay for capabilities on demand integrated with the elasticity of cloud. This provides companies the ability to deploy projects and initiatives, with agility and as needed. Given the petabytes of data and the millions of queries executed daily on-premises, we know that the journey to cloud will be a significant endeavor for our customers leading to ecosystems spanning on-premises and cloud for the foreseeable future. With companies pivoting to invest in the cloud, we believe it is essential for these businesses to be able to integrate ecosystems across on-premises and across multi-cloud environments, simplify access to data wherever it resides and accommodate analytics at massive scale and speed. As a result, we believe that the market for our solutions and services is large and growing.
Our solution, Teradata Vantage™, is our data warehouse platform that allows companies to leverage all of their data across an enterprise, whether in public or private clouds, on-premises, or in a multi-cloud environment. It connects multiple sources of data to drive ecosystem simplification, delivers multi-dimensional scale and integration, and it supports customers on their journey to cloud through an integrated migration. Teradata is a leader in enabling the migration of a company's data to a cloud based ecosystem by running the same software platform in all deployments (on-premises or public cloud), providing software license portability, data and workload automation tools, as well as associated services.
Teradata Vantage also contains a secure, highly concurrent and resilient analytics engine that addresses the scalability demands of our target market, the largest companies in the world. Vantage is an open platform offering full integration of datasets, tools, analytical languages and functions within one platform, including leading commercial and open source technologies. Teradata has also made it easier for customers to purchase our solution via subscription offerings, and flexible, "pay for what you use" consumption pricing. These combined capabilities enable companies to reduce complexity, risk, and cost, while leveraging data as an asset in solving their business challenges and driving business outcomes, which can include, among other things:
•Improving customer experience and profitability,
•Improving operational efficiency,
•Driving financial transformation with accurate and timely data,
•Creating a single integrated view of customers across digital and physical channels, and
•Creating more efficient utilization of assets through machine learning of sensor data.
Our business consulting services include a broad range of offerings, including support for organizations to establish a data and analytics vision, enable a multi-cloud ecosystem architecture and identify and operationalize analytical opportunities to ensure their ecosystem investments deliver significant value. In addition, we offer robust support and maintenance services for our offerings.
Teradata operates from numerous locations within the United States with the primary locations being San Diego, California, and Atlanta, Georgia. In addition, we have sales, services, research and development, and administrative offices located in 35 countries.
For the calendar year ended December 31, 2020, we had total revenues of $1.836 billion, of which approximately 56% was derived from the Americas region (North America and Latin America) and 44% from the International regions (Europe, Middle East, Africa, Asia Pacific and Japan). For financial information about our segments and geographic information, see "Note 14-Segment, Other Supplemental Information and Concentrations" in the Notes to Consolidated Financial Statements elsewhere in this Annual Report.
History. Teradata originated as a startup in a garage in Brentwood, California, and was incorporated in 1979 as a Delaware corporation, driven by the need for robust computing power to harness the value of aggregated data. In 1991, Teradata was acquired and operated as a division until it was spun off as an independent, publicly-traded company named Teradata Corporation (NYSE: TDC) on September 30, 2007.
Industry and Market Opportunity. Our view is that data and analytics continue to be a management priority for industry-leading companies. We believe that companies are facing significant ongoing increases in data volumes and proliferation of data silos. Furthermore, the agility provided by cloud-based technologies provides significant benefit, but also creates additional complexity, with the rise of and ecosystems that must span multiple cloud and on-premises environments. These factors all contribute to the increased complexity, cost, and risk associated with managing data and analytic environments. This is particularly true for our target market of global enterprise companies, and we believe that these companies require tightly integrated solutions that can accommodate significant scale and speed. We are focused on both new customer acquisition as well as growth of software consumption within our large and established customer base.
We believe Teradata’s strategy positions us to address this large market opportunity within the growing multi-billion dollar data management and analytics markets. We believe our multi-cloud data warehouse software solution will lead to reduced risk and cost for enterprise companies while enabling data insights and outcomes driving meaningful business value. We also believe our experience positions us to support these companies with the design and implementation of next generation secure, multi-cloud data and analytics ecosystems. We have tailored Teradata's offerings to provide flexibility and choice of deployment environments, whether on-premises or in one of the top public clouds, alongside portability of licenses, allowing companies to de-risk their investments.
Our Strategy. Teradata’s strategy is based on our differentiated value proposition for the top 10,000 largest enterprises in the world. Our strategy is to provide a multi-cloud data warehouse platform, Teradata Vantage. Teradata Vantage is a scalable, secure, highly concurrent and resilient data warehouse platform that is designed to help companies solve complex data challenges at scale. We enable enterprises with a data management solution to support their data and analytic ecosystems. Furthermore, as demand in the data warehouse market shifts to the cloud, we provide customers with the ability to migrate their data warehouse to a cloud-based platform.
We believe we are differentiated by providing our platform offering across a secure, multi-cloud ecosystem. This includes the ability to simplify the management of an ecosystem that spans on-premises or private cloud platform instances, alongside deployments in any of the top public cloud offerings including Amazon Web Services, Microsoft Azure, and Google Cloud. Furthermore, we augment these offerings with our "pay as you go" consumption pricing to provide flexibility for customers to expand capabilities on an as-needed basis. The multi-cloud capability and consumption pricing combine to enable our customers to de-risk their investments and buying decisions, as well as provide public cloud vendor flexibility. With cloud elasticity and our multi-dimensional scalability, we provide a fast path for customers to grow analytics to scale, delivering robust business outcomes.
As customers seek to increasingly grow their footprint in cloud, our strategy supports existing and new on-premises customers on that journey with the fastest path to migration that is enabled through license portability, same software enabled in all environments, as well as data and workload migration tools and services. Through this differentiated set of offerings for our target market, we help customers build for the future, now.
By prioritizing the fundamental capabilities of a modern multi-cloud data warehouse, we are resetting expectations and market perceptions. We are enabling a competitive and compelling total cost of ownership by building out best-in-class capabilities that provide an easy experience for ingestion, exploration, development, consumption and operationalization of data and analytics. With an outstanding user experience and the flexibility of cloud, we are attracting new customers to grow from demos and trials, to scale.
Furthermore, with increasingly fragmented ecosystems consisting of best-of-breed tools, our strategy drives an open platform approach, enabling integration into cloud and partner ecosystems. This integration extends the data and analytical capabilities of our offerings, allowing our customers greater flexibility to leverage the tools of their choice, deployed on top of a scalable and robust data warehouse platform. By empowering customers and partners to build how they like, we enable hundreds of business outcomes and solutions.
Our strategic objectives are to:
•Strengthen our multi-cloud data warehouse offering by building out next generation cloud capabilities,
•Reset market perceptions to establish Teradata’s position in the cloud market,
•Enable end-to-end business outcomes through a seamless cloud user experience,
•Expand our product capabilities through deeper integration with cloud ecosystems,
•Focus on partner enablement to drive solution execution on Teradata Vantage,
•Accelerate our transition to the cloud by supporting our customers on their migration journeys,
•Expand strategic public Cloud Service Provider relationships,
•Expand our go-to-market reach through new customer acquisition, vertical investments, expanding customer success programs and strengthening our partner relationships, and
•Deliver operational excellence through efficient cost management and execution.
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.
Customers. Teradata concentrates on enterprise companies, the 10,000 largest businesses in the world, which view data as a strategic asset, with focus on both business users and technology buyers. We have an additional focus on the following industries: Financial Services, Government, Healthcare, Manufacturing, Retail, Telecommunications, and Travel/Transportation. We believe that these industries provide a good fit for our analytic solutions and services as they typically have the greatest analytic potential with large and growing data volumes, as well as complex data management requirements, and large and varied groups of users. When looking at new customer acquisition, we aim to drive adoption of our Teradata Vantage software. In addition, we are targeting our existing customer base to increase the consumption of Teradata's software, and in particular, supporting our customers with their journeys to the cloud and to exploit new uses of data and analytics.
The extent to which any given customer contributes to our revenues has historically varied significantly from year to year and quarter to quarter, although we currently do not have any customer who represents 5% or more of our total revenue. We have been highly successful in converting customers from perpetual to subscription-based purchasing options, which results in more ratable revenue recognition and we believe this will increase the predictability of our revenue and the durability of our cash flows in the future. Due to the size and complexity of our sales transactions, the sales cycle can often be long.
Seasonality. Historically, our deal volume is seasonal, in line with customer spending patterns, with lower volume typically in the first quarter and higher volume generally in the fourth quarter of each calendar year. Such seasonality causes our working capital cash flow requirements to vary from quarter to quarter depending on the variability in the volume, timing, and mix of platform sales. As we have transitioned the business to subscription-based transactions, the business is becoming less seasonal as subscription renewals are more evenly distributed throughout the year. This is impacting timing of cash collection and billings. However, typical of the enterprise software market, Teradata will continue to have significant deal volume seasonality that skews to the fourth quarter. Historically, cash provided by operating activities is higher in the first half of the year due to collections of the higher receivable balances at December 31 driven by the higher volumes in the fourth quarter and receipts from annual renewals of our maintenance support agreements. In addition, deal volume in the third month of each quarter
has historically been significantly higher than in the first and second months. These factors, among others as more fully described in Item 1A, Risk Factors, elsewhere in this Annual Report, make forecasting more difficult and may adversely affect our ability to accurately predict financial results.
Backlog. Our backlog was approximately $2.9 billion at December 31, 2020, an increase from $2.7 billion on December 31, 2019. Approximately $1.5 billion of the backlog at December 31, 2020 is expected to be recognized as revenue in 2021. Backlog consists of firm contracts for work that has not yet been performed or goods that have not been delivered. Backlog includes $537 million at December 31, 2020 and $533 million at December 31, 2019 for backlog that had been invoiced, and therefore, was included in deferred revenue. Although we believe that the contract value included in backlog is firm, some contracts may provide that the Company is contractually obligated to perform but gives the customer the right to cancel for convenience by giving notice to Teradata.
Sales, Marketing and Partners
Sales and Marketing. We primarily sell and market our solutions and services through a direct sales force. We have greater than 80% of our employees in customer-facing and/or revenue-driving roles (including sales, marketing, consulting, customer service, and product engineering).
We support our sales force with marketing and training programs that are designed to:
•Grow awareness and increase perception of Teradata as a multi-cloud leader, highlighting our technology leadership, differentiation, cloud and analytics expertise;
•Lead customers on their cloud journeys with the benefits of multi-cloud and hybrid cloud capabilities;
•Create demand for and adoption of our Teradata Vantage data warehouse platform;
•Educate and enable the sales force with the skills and knowledge to deliver our value proposition; and
•Provide a robust set of tools for use by our sales teams.
Teradata focuses our brand messaging on the Company’s strength as a multi-cloud data warehouse platform provider. To support the Company’s growth objectives, we employ a broad range of marketing strategies, including programs to inform, educate and generate demand with customers and prospects, as well as keep our leading technology position at the forefront of the media, industry analysts, academics, and other influencers. These strategies include targeted account-based marketing, our global website, digital marketing, demos and trials of our software, webinars, virtual conferences and events now, and physical events when again safe to do so, post the global pandemic, public and media relations, social media, and an extensive customer reference program.
Strategic Partnerships. We seek to extend our sales and marketing reach by partnering with cloud service providers, alliance partners (including independent software vendors and open-source software distributors), leading global and regional systems integrators, consultants, and universities that we believe complement our differentiated offerings. Strategic partnerships are a key element in our ability to leverage the value and expand the scope of our data warehouse offering in the marketplace.
•Cloud Service Providers: Teradata has established partnerships with the top three global public cloud service providers: Amazon Web Services ("AWS"), Microsoft Azure, and Google Cloud, so that Teradata can provide companies around the globe access to Teradata’s Vantage offering in the public cloud, both in a Do-It-Yourself or As-A-Service mode to accommodate customer preferences.
•Alliance Partners: Teradata has a focus on working collaboratively with independent software vendors in several areas, including tools, data and application integration solutions, data mining, analytics, business intelligence, and specific analytic and industry solutions. Our goal is to provide choices to our customers with partner offerings that are optimized and certified to work with Teradata Vantage to deliver end-to-end data warehouse analytic solutions and to provide comprehensive capabilities that support the customer’s analytic ecosystem.
•Systems Integrators and Consultants: We also work with a range of systems integrators and consultants who engage in the design, implementation, and integration of data warehouse and analytic solutions and analytic applications for our joint customers. Our strategic partnerships with select global consulting and
systems integration firms provide broad industry and technology expertise in the design of business solutions that leverage Teradata technology to enable enterprise analytics.
Competition. We compete in a large and growing data management and analytics market that is attractive to both current and new competitors. Participants in our general market include traditional data warehouse competitors such as IBM, Oracle, SAP, as well as new cloud-only data warehouse vendors (such as Amazon, Google, Snowflake), and open-source providers. We believe our focus on multi-cloud ecosystem simplification, solving for the most scalable and complex workloads and delivering business outcomes enables us to successfully compete within our target market. We believe that our Teradata Vantage platform is highly differentiated, delivers substantive scale and integration, and is uniquely positioned to provide significant business value to our customers. Furthermore, we provide our customers with the opportunity to de-risk their buying decisions with access to deploy across the top public clouds, private cloud and on-premises, coupled with flexibility in purchasing and portable licensing. For more information on competition, see Item 1A, Risk Factors, in this Annual Report.
We believe that the principal competitive factors for our products and services include: data and analytics experience; business outcome delivery; multi-cloud offerings and experience; customer references; technology leadership; product quality; performance, scalability, availability, and manageability; support and consulting services capabilities; management of technologies in a complex analytical ecosystem; industry knowledge; and total cost of ownership. We believe we have a competitive advantage in providing complete, integrated, and optimized data warehouse platform capabilities and analytic services that address customers’ business, technical, and architectural requirements. Our differentiation is especially strong in our target market of the world’s leading enterprises and their mission-critical, complex, large-scale environments and requirements.
Research and Development ("R&D"). We remain focused on designing and developing data warehouse technologies that anticipate our customers' evolving needs and support our customers in solving their most complex business challenges. Our teams are focused on extending our Teradata Vantage data warehouse platform to have differentiated capabilities for our customers’ multi-cloud and hybrid ecosystems. This includes simplifying the journey to cloud, as well as enabling a transformative cloud experience. With a focus on opening up the platform, we are building out deep integration with cloud data and analytic ecosystems, including advanced analytics and artificial intelligence tools. Furthermore, with a strong focus on partnerships, our R&D team is extending our platform to enable deeper partner integration with a broader range of solution and services providers.
We believe our extensive and deeply talented R&D workforce is one of our core strengths. Our R&D team is located in multiple locations around the world to take advantage of global engineering talent. We anticipate that we will continue to have significant R&D expenditures, which may include complementary strategic acquisitions, to help support the flow of innovative, high-quality cloud-based offerings with a superior user experience, as well as services, which are vital to our leading competitive position. For information regarding the accounting and costs included in R&D activities, see "Note 1-Description of Business, Basis of Presentation and Significant Accounting Policies" in the Notes to Consolidated Financial Statements elsewhere in this Annual Report.
Intellectual Property and Technology. The Company owns 648 patents in the United States and 6 patents in foreign countries. The foreign patents are generally counterparts of the Company’s United States patents. The Company also is the exclusive licensee of four additional patents in the United States and three additional patents in foreign countries. Many of the patents that we own are licensed to others, and we are licensed to use certain patents owned by others. While our portfolio of patents and patent applications in aggregate is of significant value to our Company, we do not believe that any individual patent is by itself of material importance to our business.
In addition, the Company owns copyrights and trade secrets in our code base that comprises all of the Teradata software offerings, including analytic data platforms and analytic applications. Teradata’s software offerings reflect the investment of hundreds of person-years of development work.
The source code versions of our offerings are protected as trade secrets and, in all major markets, as unpublished copyright works. We take great efforts to protect our rights in all software offerings and related intellectual property; however, there can be no assurance that these measures will be successful. The Company owns the Teradata® word and logo trademarks, which are registered in the United States and in many foreign countries, as well as other trade names, service marks, and trademarks.
Sources of Materials. Our hardware components are assembled and configured by Flex Ltd. ("Flex"). Our platform line is designed to leverage the components from manufacturers that we believe are industry leaders. Our data storage devices and memory components utilize industry-standard technologies but are selected and configured to work optimally with our software and hardware platform. Flex also procures a wide variety of components used in the assembly process on our behalf. Although many of these components are available from multiple sources, Teradata utilizes preferred supplier relationships to better ensure more consistent quality, cost and delivery. Typically, these preferred suppliers maintain alternative processes and/or facilities to ensure business continuity of supply. Given our strategy to outsource product assembly activities to Flex and to source certain components from single suppliers, a disruption in production at Flex or at a supplier, or a global shortage of components, could impact the timing or profitability of customer shipments. In addition, a significant change in the forecasts to any of these preferred suppliers could result in purchase obligations for components that may be in excess of demand. Although the Company has not experienced significant disruptions in its supplier relationships due to the COVID-19 pandemic, the ongoing pandemic continues to present potential supply chain uncertainty, and the Company has implemented programs to mitigate these potential risks. For more information, see Item 1A Risk Factors in this Annual Report.
Teradata’s human capital management objectives are to attract, retain, and develop the highest quality of talent, which allows our employees to thrive while positioning us as to execute our Company strategy and drive profitable growth. Our future success depends on our ability to attract and retain the services of senior management and key personnel in all functional areas of our Company, with a heightened focus on sales and cloud talent. Competition for acquiring top talent and retaining our highly skilled personnel is intense throughout the IT industry. Our programs are designed to align to our core principles and focus on meaningful work, enabled management, a positive and inclusive workplace environment, career growth opportunities, and transparent and trustworthy leadership. We also provide competitive pay and offer comprehensive health and wellness benefits and programs.
As of December 31, 2020, we had approximately 7,543 employees globally, with approximately 30% employed in the United States and 70% across the rest of the world. Our global workforce is critical to our overall business strategy across target markets. During fiscal 2020, our overall headcount decreased by approximately 10% as we continued to align our talent needs to drive our Company’s cloud-first, profitable growth strategy, including through both voluntary and involuntary workforce rationalization measures.
Diversity, Equity, and Inclusion. Teradata’s core strength is our people, and creating an inclusive workplace where everyone feels safe and welcome being their genuine and authentic selves is a key focus for us. We are an equal opportunity employer, committed to sustaining a world-class team by providing an environment that is intentionally inclusive and fully encourages and leverages diversity in all aspects of our business.
We have many people and culture initiatives, with a strong focus on diversity, equity, and inclusion ("DEI").
•Our executive team has signed a pledge committing to DEI and racism.
•We created a DEI Advisory Board to support the Company’s mission to eradicate racism and inequality in the workplace.
•We provide resources and tools for our employees to help them engage within culturally- and geographically-dispersed work teams to enable a culture of growth, learning, and collaboration. In 2020, we launched our Culture Learning Lab, Inclusive Leadership Learning Lab, and Diversity Dialogues programs, all of which deliver interactive learning that heightens the behaviors and insights that build and support an inclusive culture and strive to erase bias.
•We continue to empower our Inclusion Communities, which are networks of employees who unite based on shared characteristics, life experiences, or common interests. These communities are designed to provide support, networking and enhanced career and personal development. These networks include Teradata Alliance of Black Employees, Blend, Veterans Community, Teradata Pride, HISPA (Hispanic and Latin Allies), Women of Teradata, Green Team, Terabytes (work-life integration), and Toastmasters International.
•In further support of the communities where we operate and live, we launched a Diversity in Technology Scholarship Program for underrepresented minorities who are pursuing STEM-related degrees; and
•Teradata earned a score of 90 out of 100 in the Human Rights Campaign 2021 Corporate Equality Index (CEI), a benchmarking survey and report that measures corporate policies and practices related to LGBTQ equality.
We believe that a diverse workforce is critical to the Company’s success, and we will continue to focus on the hiring, retention and advancement of underrepresented minorities and women in technology.
Health, Safety, and Wellness. We are committed to the health, safety, and wellness of our employees. We provide our employees and their families with access to a variety of flexible and convenient health and wellness programs. In 2020, in response to the COVID-19 pandemic, we took several actions to promote the health and well-being of our employees, as described below under "COVID-19 Update" in Item 7, Management Discussion and Analysis Of Financial Condition and Results of Operations ("MD&A").
Compensation and Benefits. A key to our attraction, retention, and engagement strategies are the robust compensation and benefit programs we provide that are designed to meet the varied and evolving needs of a diverse workforce globally. In addition to our base pay scheme, these programs (which vary by country/region) include sales incentive, annual bonuses, stock awards, an Employee Stock Purchase Plan, a 401(k) Savings Plan, healthcare and insurance benefits, paid time off, family leave, and paid parental leave.
Talent Development. Teradata is continuously focused on promoting the professional development of our employees and providing tools that enable employees to manage their careers. Our talent development programs provide employees with the resources to advance their careers, build leadership skills, and lead within their organizations. We have launched on-demand learning resources, such as LinkedIn Learning and Country Navigator. Our Learning Labs focus on Understanding Culture, Inclusive Leadership and Creating Your Personal Brand. We also provide executive and management development programs.
Community Engagement. We believe that building connections between our employees, their families, and our communities creates a more meaningful, fulfilling, and enjoyable workplace. We support local STEM education programs to ensure emerging leaders in our communities have opportunities to explore their interests. Our Teradata Cares program empowers our employees to help build strong and vibrant communities, improve quality of life, and make a positive difference where we live and work through volunteerism and giving. We support our employees’ giving and volunteer efforts by providing matching donations for employee contributions to qualified not-for-profit agencies, project grants, Annual Days of Caring, and supporting communities where we have employee populations. To further enable employees to support the charity of their choice, we afford every employee four days a year, during normal working hours, for volunteer efforts of their choice.
Properties and Facilities. Our corporate headquarters is located in San Diego, California. As of December 31, 2020, we operated 79 facilities in 35 countries throughout the world. We own our San Diego complex, while all other facilities are leased.
Information About Our Executive Officers. The following table and biographies sets forth information as of February 26, 2021 regarding the individuals who are serving as our executive officers.
|Stephen McMillan||50||President and Chief Executive Officer|
|Hillary Ashton||49||Chief Product Officer|
|Todd Cione||51||Chief Revenue Officer|
|Mark Culhane||61||Chief Financial Officer|
|Kathleen Cullen-Cote||56||Chief Human Resources Officer|
|Martyn Etherington||59||Chief Marketing Officer|
|Daniel Harrington||57||Chief Services Officer|
|Margaret Treese||54||Chief Legal Officer|
Stephen McMillan. Stephen McMillan is the Company’s President and Chief Executive Officer and has served in this role since joining the Company in June 2020. Mr. McMillan has served on the Company’s Board of Directors since June 2020. Previously, he served as the Executive Vice President of Global Services for F5 Networks, Inc., a transnational company that specializes in application services and application delivery networking, from October 2017 when he joined F5 until May 2020. Prior to joining F5, from September 2015 until October 2017, he was Senior Vice President, Customer Success and Managed Cloud Services at Oracle, where he was responsible for developing, overseeing, and expanding a customer success organization focused on the company’s strategic SaaS portfolio .From May 2012 to September 2015, he served as Senior Vice President, Managed Cloud Services at Oracle. Prior to joining Oracle, Mr. McMillan spent 19 years at IBM, where he held a number of leadership roles focused on global managed services, consulting, and IT.
Hillary Ashton. Hillary Ashton is the Company’s Chief Product Officer and has served in this role since August 2020. Prior to that Ms. Ashton served as the Executive Vice President of Teradata Products from November 2019, when she joined the Company, until August 2020. Prior to joining Teradata, she served as Executive Vice President and General Manager of PTC’s Augmented Reality (AR) business unit from July 2018 until November 2019. In this role, she was responsible for all operational aspects of the Vuforia business and its product lines, including executive leadership and vision, strategy, sales, and marketing. From 2014 to 2018, she served as SVP of Analytics SaaS solutions at Manthan and as Director, Customer Intelligence Solutions at SAS from 2003 to 2014.
Todd Cione. Todd Cione is the Company’s Chief Revenue Officer and has served in this role since joining Teradata in January 2021. Mr. Cione served as the Head of U.S. Enterprise Accounts for Apple, Inc., from the time he joined the company in July 2017 until December 2020. Prior to joining Apple, from 2016 until 2017, he was Senior Vice President, Oracle Digital, North America Applications, and from 2013 to 2015, he served as Chief Revenue Officer at Rackspace. Prior to joining Rackspace, Mr.Cione spent 15 years at Microsoft, where he most recently served as the Asia-Pacific Chief Operating Officer, based in Singapore.
Mark Culhane. Mark Culhane is the Company’s Chief Financial Officer and has served in this role since joining Teradata in November 2017. He served as the Chief Financial Officer for Lithium Technologies, a software applications company, from 2012 to 2016, and as Executive Vice President and Chief Financial Officer at DemandTec, a provider of a cloud-based collaborative optimization network for retailers and consumer products companies that was acquired by IBM in 2012, from 2001 to 2012. He currently serves on the board of directors of a private cloud-based software company, UserZoom, Inc. From June 2010 until its acquisition in April 2018, he served on the board of directors of Callidus Software, Inc., a cloud software company and global leader in sales performance management software, where he was the chair of its audit committee. From 2016 until November 2017, Mr. Culhane ran Culhane Advisory Services which provided management consulting services to venture- and private-equity-backed cloud software companies.
Kathleen Cullen-Cote. Kathleen Cullen-Cote is the Company’s Chief Human Resources Officer and has served in this role since joining Teradata in July 2019. Prior to joining Teradata, Ms. Cullen-Cote served in human resource leadership roles at PTC Inc., a global computer software and services company, from 2002 to June 2019, including Executive Vice President and Chief Human Resources Officer from April 2019 to July 2019; Corporate Vice President, Human Resources from 2012 until March 2019; Senior Vice President, Human Resources, from December 2010 to 2012; and Vice President, Human Resources, from October 2009 until December 2010. Prior to that, Ms. Cullen-Cote served in human resource leadership roles at Imark Communications, Johnson and Johnson, Raytheon, and Barry Controls.
Martyn Etherington. Martyn Etherington is the Company’s Chief Marketing Officer and has served in this role since joining Teradata in March 2018. Prior to joining Teradata, from 2015 to 2017, he served as the Chief Marketing Officer, IoT Cloud, at Cisco Jasper, a global market leader for Internet of Things connectivity management. From 2012 to 2015, he served as Executive Vice President, Chief Marketing Officer, and Chief of Staff for Mitel Networks Corporation, a telecommunications company. Mr. Etherington served as Chief Marketing Officer and Vice President, Business Operations at Tektronix/Danaher from 2002 to 2012 with responsibility for companywide strategy development and deployment, global marketing and business operations.
Daniel Harrington. Daniel Harrington is the Company’s Chief Services Officer and has served in this role since 2012. Previously, from 2007 to 2012, Mr. Harrington served as Executive Vice President, Technology and Support
Services of Teradata. Prior to joining Teradata, he served as Vice President, Customer Services, Teradata Division of NCR Corporation, from 2005 until 2007. From 1999 to 2005, he was Vice President, Northern Europe, Teradata Division at NCR with responsibility for European sales. Prior to that, Mr. Harrington held a number of positions of increasing responsibility in the areas of sales, marketing and product management at NCR since joining the company in 1985.
Margaret Treese. Margaret Treese is the Company’s Chief Legal Officer and has served in this role since November 2020. Previously, from 2018 until January 2020, she served as Teradata’s Deputy General Counsel and Secretary. From 2007 until 2018, she served as the Chief Corporate and Governance Counsel and Assistant Secretary and was named Corporate Secretary of Teradata in 2018. Prior to joining Teradata, from 1995 to 2007, Ms. Treese held positions of increasing responsibility at NCR, including Law Vice President and Chief Americas Region Counsel for the Teradata Division Law Group, Chief Corporate Counsel and Assistant Secretary.
There are no family relationships between any of the executive officers or directors of Teradata.
There are no contractual obligations regarding the election of our executive officers or directors.
Information. Teradata makes available through its website, free of charge, its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K, and all amendments to such reports, as soon as reasonably practicable after these reports are electronically filed or furnished to the U.S. Securities and Exchange Commission ("SEC") pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act"). These reports and other information are available, free of charge, at www.sec.gov. Teradata will furnish, without charge to a security holder upon written request, the Notice of Meeting and Proxy Statement for the 2020 Annual Meeting of Stockholders. Teradata will furnish the Code of Conduct and any other exhibit at cost (the Code of Conduct is also available through Teradata’s website at http://www.teradata.com/code-of-conduct/). Document requests are available by calling or writing to:
Teradata - Investor Relations
17095 Via Del Campo
San Diego, CA 92127
Item 1A. RISK FACTORS
You should carefully consider each of the following risk factors and all other information set forth in this Annual Report. Based on the information currently known to us, we believe that the following information identifies the most significant risk factors affecting our company in each of these categories of risks. However, the risks and uncertainties our Company faces are not limited to those set forth in the risk factors described below. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business.
In addition, past financial performance may not be a reliable indicator of future performance, and historical trends should not be used to anticipate results or trends in future periods.
If any of the following risks and uncertainties develops into actual events or occurrences, these events could have a material adverse effect on our business, financial condition or results of operations. In such case, the trading price of our common stock could decline.
RISKS RELATED TO OUR BUSINESS AND OPERATIONS
Our failure to successfully execute our cloud-first strategy and achieve the anticipated benefits of our business transformation could have a material adverse effect on our business, financial condition, results of operations and cash flows.
The successful implementation of our cloud-first strategy and completion of our business transformation presents organizational and infrastructure challenges. We may not be able to implement and realize some or all of the
anticipated benefits from our strategy or our business transformation plan on a timely basis, or at all. Events and circumstances, such as financial or unforeseen difficulties, delays and unexpected costs, may occur that could result in our not realizing desired outcomes. Any failure to substantially implement the transformation of the Company in accordance with our expectations could have a material adverse effect on our financial results. Even if the anticipated benefits and savings are substantially realized, there may be unforeseen consequences, internal control issues, or business impacts. Additionally, because of our restructuring efforts in connection with our business transformation, we may experience a loss of continuity, loss of accumulated knowledge or loss of efficiency during transitional periods. Reorganization and restructuring may require a significant amount of management and other employees' time and focus, which may divert attention from operating activities and growing our business. Failure to achieve some or all of the expected benefits of these activities could have a material adverse effect on our competitive position, business, financial condition, results of operations and cash flows.
A core component of our strategy is to expand and enhance our offerings for cloud environments. It is uncertain whether these new offerings and deployment models will prove successful or whether we will be able to develop the necessary business models, infrastructure and systems to support the business. This includes acquiring, retaining and developing the right human capital to execute our business strategy in a competitive job market. In addition, market acceptance of new product and service offerings will be dependent in part on our ability to include functionality and usability that address customer requirements, and to optimally price our offerings and services to meet customer demand and cover our costs. Our go-to-market, cloud and multi-cloud cloud strategies also must adjust to customers' changing buying preferences, and there can be no assurance that our go-to-market approach will adequately and completely address such preferences. New product and services offerings may increase our risk of liability and cause us to incur significant technical, legal or other costs. If we are unable to correctly respond to these issues, our business could be harmed.
As part of our business strategy, we also continue to dedicate a significant amount of resources to our research and development ("R&D") efforts in order to maintain and advance our competitive position, including our initiatives to provide and improve our offerings for cloud environments. However, we may not receive significant revenues from these investments for several years, if at all. R&D expenses represent a significant portion of our discretionary fixed costs. If we do not receive some or all of the expected benefits of our substantial investments in R&D, our results of operations could be adversely affected.
Our success depends on our product innovation, particularly with respect to the advancement of our cloud-based technologies. If we are unable to successfully develop and launch cloud-based products and product enhancements and/or enable our data warehouse platform to operate effectively in cloud environments, our business, financial condition, and results of operations could be harmed.
To succeed in the intensely competitive IT industry, we must continually improve, refresh and expand our product and service offerings to include newer features, functionality, and deployment options and to keep pace with price-to-performance gains. This is particularly the case in the demand for analytic solutions in a cloud-based environment. The successful execution of our cloud-first strategy is dependent on the advancement of our cloud-based technologies. In furtherance of this strategy, we are focusing a significant amount of our R&D activities and resources to the development of cloud-based products and product enhancements and to enable our data warehouse platform to operate effectively in cloud environments. If we are unable to successfully develop and launch cloud-based products and product enhancements and/or enable our data warehouse platform to operate effectively in cloud environments, our business, financial condition, and results of operations could be harmed.
Shortened product life cycles due to customer demands and competitive pressures impact the pace at which we must introduce and implement new technology. This requires a high level of innovation by both our software developers and the suppliers of the third-party software components included in our solutions. In addition, bringing new offerings to the market entails a costly and lengthy process, and requires us to accurately anticipate customer needs and technology trends. If we are unable to respond to market demands, develop leading technologies, timely deliver offerings to the market, and maintain leadership in analytic data solutions performance and scalability, our business operations may be adversely affected.
Because of these and other factors, our ability to introduce new or improved solutions could be adversely impacted. There can be no assurance that our innovations will be profitable, and if we cannot successfully market and sell both existing and newly developed solutions, our business and operating results could be impacted.
As we develop new offerings with greater capacity, delivery and performance capabilities, the increased difficulty and complexity associated with producing these offerings may increase the likelihood of reliability, quality or operability issues.
Our offerings may contain undetected errors or security flaws, which may be found after the offerings are introduced and delivered. This risk is enhanced when offerings are first introduced or when new versions are released, as well as when we develop offerings with more advanced technology, since the increased difficulty and complexity associated with producing these offerings may increase the likelihood of reliability, quality or operability issues. Due to such complexities, our products may also fail to perform to the full specifications and expectations of our customers. Additionally, third-party components that we integrate in our solutions may have undetected quality issues that may impact the performance of our offerings. The correction and detection of errors may cause delays, lost revenues, and incremental costs. Errors in our software offerings could also affect their ability to work with other components of our offerings, could delay the development or release of new offerings, and could adversely affect their market acceptance. We may not be able to detect or remedy all errors, including those that may be deemed critical by our customers, prior to release or deployment. Such reliability, quality and operability issues may negatively impact our ability to retain current customers, including due to customer cancellations or non-renewals, as well as our ability to obtain new customers.
Our customers who rely on our solutions for business-critical uses are more sensitive to errors, which could expose us to liability, performance and warranty claims, as well as harm our reputation. These and other risks associated with new offerings may have a material adverse impact on our results of operations and future performance.
If our existing customers fail to renew, or cancel, their subscription license arrangements or support agreements, or if customers do not renew on terms favorable to us, our business could be adversely affected.
Teradata’s platform offerings have been expanded to include a variety of subscription options, which impact the timing of when revenues are recognized and related cash flows are collected. In addition, due to the recent transition to subscription revenues, we currently derive a significant portion of our overall revenues from subscription services in which we have limited renewal experience, which carries additional risk. The IT industry generally has been experiencing increasing pricing pressure from customers when purchasing or renewing support agreements. Mergers and acquisitions in certain industries that we serve could result in a reduction of the software and hardware being supported and put pressure on our subscription and support terms with customers who have merged. Given these factors, there can be no assurance that our current customers will renew their subscription and/or support agreements or agree to the same terms when they renew, which could result in our reducing or losing subscription and/or support fees which could adversely impact operating results.
Unanticipated delays or accelerations in our sales cycles makes accurate estimation of our revenues difficult and could result in significant fluctuations in our quarterly operating results.
The length of our sales cycle varies depending on several factors over which we may have little or no control, including the size and complexity of a potential transaction, the level of competition that we encounter in our selling activities and our current and potential customers’ internal budgeting and approval process, as well as overall macro-economic conditions. Because of a generally long sales cycle, we may expend significant effort over a long period of time in an attempt to obtain an order, but ultimately not complete the sale, or the order ultimately received may be smaller than anticipated. The long sales cycle for our products also makes it difficult to predict the quarter in which sales will occur. Delays in sales could cause significant variability in our results for any particular period.
We may experience variability in our operating results based on the purchasing behavior of our customers.
As part of our strategy, our business has substantially shifted from traditional, perpetual pricing and revenue model to a subscription-based model in which less revenue is recognized upfront at the time the customer enters into a transaction. The pace and extent to which customers will continue to purchase and renew our offerings on a subscription basis is variable and therefore has impacts on our results and operations. In addition, we have recently
introduced flexible pricing options for our cloud customers, including consumption-based, "pay as you go" pricing. Under such a pricing model, we generally recognize revenue based on consumption. To the extent that customers opt for such a flexible pricing model, we may not be able to accurately forecast the timing of customer consumption of our offerings. As a result, our actual results may differ from our projections. Furthermore, our on-premises subscription arrangements may provide the customers with the right to cancel our agreement upon certain notice periods, which we may change in the future. Such arrangements may impact the timing of revenue recognition for these customers and result in fluctuations in our quarterly operating results.
Demand for the offerings and services we sell could decline if we fail to maintain positive brand perception and recognition.
We operate a portfolio of brands with a commitment to customer service and innovation. We believe that recognition and the reputation of our brands are key to our success, including our ability to retain our existing customers and attract new customers. Operational factors such as failure to deliver high quality offerings or services, uncompetitive pricing, failure to meet delivery or performance promises or business interruptions could damage our reputation.
External factors, such as negative public remarks or accusations, could also be damaging. Damage to the perception or reputation of our brands could result in, among other things, declines in customer loyalty, customer cancellations or non-renewals, lower employee retention and productivity and vendor relationship issues, all of which could materially affect our revenue and profitability.In addition, given our history as an on-premises platform provider, one of our strategic objectives is to reset market perceptions to establish our position in the cloud market. A misperception in the market regarding our cloud capabilities could negatively impact our ability to migrate existing on-premises customers to our cloud-based solutions and/or acquire new customers for our cloud business.
Our future results depend in part on our relationships with key suppliers, strategic partners and other third parties.
Our development, marketing and distribution plans depend in part on our ability to form strategic alliances with third parties that have complementary offerings, software, services and skills. Our strategic partners include consultants and system integrators, software and technology providers, hardware support service providers, and indirect channel distributors in certain countries. These relationships involve risks, including our partners changing their business focus, entering strategic alliances with other companies, being acquired by our competitors, failing to meet performance criteria or improperly using our confidential information. If we fail to maintain or expand our relationships with strategic partners, or if we are forced to seek alternative technology, or technology for new solutions, that may not be available on commercially reasonable terms, our business may be adversely affected.
Third-party vendors provide important elements to our solutions; if we do not maintain our relationships with these vendors or if these vendors cease to be going concerns, interruptions in the supply of our offerings may result. There are some components of our solutions that we purchase from single sources due to price, quality, technology or other reasons. For example, we rely on Flex as a key single source contract manufacturer for our on-premises hardware systems. In addition, we buy servers from Dell Technologies Inc. and storage disk systems from NetApp, Inc. Some components supplied by third parties may be critical to our solutions, and several of our suppliers may terminate their agreements with us without cause with 180-days notice. In addition, we rely on certain vendors for hardware support services and parts supply. If we were unable to purchase necessary services, parts, components or offerings from a particular vendor and had to find an alternative supplier, our shipments and deliveries could be delayed. Also, quality issues, a disruption in our supply chain or the need to find alternative suppliers could impact the costs and/or timing associated with procuring necessary offerings, components and services. In any case, our operations could be adversely impacted. Similarly, our suppliers’ offerings and services have certain dependencies with respect to their own supply chain networks, and supply issues among our suppliers’ suppliers may also adversely impact our business.
As part of our cloud-first strategy, the growth of our business is dependent on our relationships with public cloud service providers, Amazon, Google, and Microsoft. Our strategic partnerships with Amazon, Google and Microsoft for our cloud offerings on AWS, Google and Azure, respectively, require significant investments to ensure that our solutions are optimized in these cloud environments. In addition, these cloud service providers maintain
relationships with certain of our competitors, and may in the future establish relationships with additional competing cloud data warehouse platform providers. Any of these cloud service providers may decide to modify or terminate our business relationship, or may otherwise enter into preferred relationships with one or more competing cloud data warehouse platform providers. If we are unsuccessful in meeting performance requirements or obtaining future returns on these investments, or if we are otherwise unable to maintain adequate relationships with any of these cloud service providers, our financial results may be adversely impacted.
The Company's business, results of operations, and financial condition have been adversely affected, and could in the future be materially adversely affected, by the COVID-19 pandemic.
As more fully described elsewhere in this Annual Report on Form 10-K, our business, results of operations, and financial condition have been adversely affected by the COVID-19 pandemic. The degree to which the COVID-19 pandemic in the future affects our business, financial condition, and results of operations will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to, the duration and spread of the unprecedented pandemic, its severity, the actions to contain the virus or respond to its impact, the successful distribution of vaccines and their effectiveness, and how quickly and to what extent normal economic and operating conditions can resume. The COVID-19 pandemic or any other adverse public health development could also inhibit our ability to execute our strategic initiatives including, without limitation, improving the experience of our customers, investing identified strategic growth platforms and shifting the mix of revenue in our business to cloud as well as subscription revenue.
Furthermore, negative economic conditions related to the COVID-19 pandemic have impacted, and may in the future impact, our ability to close transactions and/or collect receivables from customers on a timely basis, or at all, and may also impact our customers' willingness to maintain or increase spending on data analytics, their ability to obtain adequate financing for the purchase of our products and services, or the amount of disposable income available to consumers, which may adversely impact the businesses of our customers in consumer-facing industries.
Additionally, governmental restrictions and public perceptions of the risks associated with the COVID-19 pandemic have caused, and may continue to cause, consumers to avoid or limit gatherings in public places or social interactions, which could adversely affect the businesses of our customers in certain industries, such as transportation, entertainment and hospitality. Such customers have experienced, and may continue to experience,
significant near-term working capital and cash flow adverse impacts as a result of the COVID-19 pandemic, which, in turn, could adversely impact our ability to maintain or increase revenue from such customers. In addition, the global supply chain risks present a level of uncertainty due to the international and domestic pandemic recovery efforts. The uncertainty of an increase in the number of COVID-19 infections in areas where our suppliers source their parts could present sourcing challenges to our suppliers. Further, if countries in which we do business close their borders, it may impact the timing of closing sales transactions or the ability to service our customers in select geographies.
As a result of the COVID-19 pandemic, including related governmental guidance or directives, we have required most employees to work remotely. We may experience reductions in productivity and disruptions to our business routines while our remote work policy remains in place.
Governmental authorities in the United States and throughout the world may increase or impose new income taxes or indirect taxes, or revise interpretations of existing tax rules and regulations, as a means of financing the costs of stimulus and other measures enacted or taken, or that may be enacted or taken in the future, to protect populations and economies from the impact of the COVID-19 pandemic. Such actions could have an adverse effect on our results of operations and cash flows.
While we have implemented programs to mitigate the impact of these risks on our results of operations, there can be no assurance that these programs will be successful and there are many aspects of this pandemic, particularly its impact on our customers, that are beyond our control. The spread of COVID-19 has caused us to modify our business practices, such as employee work locations, and we may take further actions as may be required by government authorities or that we determine is in the best interests of our employees, customers, distributors, suppliers and contractors. There is no certainty that such measures will be sufficient to mitigate the risks posed by the virus, and our ability to perform critical functions could be harmed. Moreover, these measures, and similar
measures at our customers, have resulted in, and in the future may result in, installation and payment delays. In addition, we have experienced, and expect to continue to experience, delays and cancellations of consulting projects due to work from home and shelter-in-place orders and also because of the discretionary nature of consulting projects which may be delayed or suspended as a result of more conservative spending patterns by our customers in light of the economic impacts of the pandemic.
Even after the COVID-19 pandemic has subsided, we may continue to experience adverse impacts to our business as a result of the economic recession that has occurred and any economic recession that may occur in the future. The COVID-19 pandemic could also exacerbate or trigger other risks, any of which could have a material adverse effect on our business, results of operations and financial condition.
A breach of security, disruption, or failure of our information systems or those of our third-party providers could adversely impact our business and financial results.
Our operations are dependent on our ability to protect our computer equipment and the information stored in our databases (and the computer equipment and database information of certain suppliers and other third parties) from damage by, among other things, earthquake, fire, natural disaster, cyber-attacks, power loss, telecommunications failures, unauthorized intrusions, malicious or unintended insider actions that cause loss of data or loss of systems, including phishing schemes, and other events. The occurrence of one or more of these events could result in system failures and other interruptions in our operations, which could have a material adverse effect on our business, financial condition or results of operations. Additionally as a result of the COVID-19 pandemic, including related governmental guidance or directives, we have required most employees to work remotely. This increases vulnerability to our systems as additional endpoints need to be managed.
Prior to our transition to a subscription-based business, our customers generally purchased or leased on-premises hardware systems used in connection with our software solutions, which our customers deployed and operated. With respect to these types of customer on-premises solutions, the customer, directly or through its selected services providers, manages all aspects of the data controls and security with respect to any confidential, private or otherwise sensitive information stored or processed through these solutions, including any personally identifiable data or information, such as non-public data regarding our customers’ employees, customers' customers, consumers, data subjects, individuals’ identities, individual financial accounts and health information. By contrast, our software-as-a-service or cloud offerings generally require us to deploy or operate solutions for our customers, directly or through the use of third-party services providers, either on-premises at customer-selected data center facilities, or at third-party-hosted data center facilities. With respect to these cloud and software-as-a-service offerings, we and such service providers have increased roles, responsibilities and risk exposures regarding some or all aspects of the data controls and security with respect to any confidential, private or otherwise sensitive information stored or processed through these solutions on our systems or those of selected third-party providers. If unauthorized access to or use of such information or systems occurs, despite data security measures and third-party commitments to protect them, our results of operation, reputation, and relationships with our customers could be adversely impacted.
Experienced computer programmers, Nation State Sponsored Advanced Persistent Code ("NSSAPC") attackers (from countries such as Iran, China, Russia and certain European Eastern Bloc countries) and hackers may be able to penetrate our network security or that of our third-party providers and misappropriate or compromise our intellectual property or other confidential information or that of our customers, create system disruptions or cause shutdowns. Computer programmers and hackers also may be able to develop and deploy viruses, worms, and other malicious software programs that attack our offerings or otherwise exploit any security vulnerabilities of our offerings. In addition, phishing-scheme-perpetrators may be able to lure employees or contractors into providing such perpetrators with information that may enable them to avoid some of our network security controls or those of third-party providers which could result in system disruptions or a loss of confidential and proprietary information.
We have been subject to actual and potential cyber-attacks, and there can be no assurance that our defensive measures will be adequate to prevent them in the future. There is risk that these types of activities will recur and persist, that one or more of them may be successful in the future, that one or more of them may have been or will be successful but not detected, prevented, remediated or mitigated by us, and the costs to us to eliminate, detect, prevent, remediate, mitigate or alleviate cyber or other security problems, viruses, worms, malicious software
programs, phishing schemes and security vulnerabilities could be significant, and our efforts to address these problems may not be successful and could adversely impact our future results of operations.
Inadequate internal control over financial reporting and accounting practices could lead to errors, which could adversely impact our ability to assure timely and accurate financial reporting.
Internal control over financial reporting, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control objectives will be met. These inherent limitations include system errors, the potential for human error and unauthorized actions of employees or contractors, inadequacy of controls, temporary lapses in controls due to shortfalls in transition planning and oversight or resources, and other factors. Consequently, such controls may not prevent or detect misstatements in our reported financial results as required under SEC and NYSE rules, which could increase our operating costs or impair our ability to operate our business. Controls may also become inadequate due to changes in circumstances, and it is necessary to replace, upgrade or modify our internal information systems from time to time. In addition, unforeseen risks may arise in connection with financial reporting systems due to inefficient business processes, business process reengineering projects, or changes in accounting standards.
If management is not successful in maintaining a strong internal control environment, material weaknesses could occur, causing investors to lose confidence in our reported financial information. This could lead to a decline in our stock price, limit our ability to access the capital markets in the future, and require us to incur additional costs to improve our internal control systems and procedures.
Our business is affected by the global economies in which we operate and the economic climate of the industries we serve.
Our business and results of operations are affected by international, national and regional economic conditions. In particular, the IT industry in which we operate is susceptible to significant changes in the strength of the economy and the financial health of companies and governmental entities that make spending commitments for new technologies. Accordingly, adverse global economic and market conditions, including in certain economic sectors in which many of our customers operate (such as retail, manufacturing, financial services or government), may adversely impact our business. For example, adverse changes to the economy could impact the timing of purchases by our current and potential customers or the ability of our customers to fulfill their obligations to us. In addition, decreased or more closely scrutinized spending in our customers’ businesses and in the industries we serve, may adversely impact our business. Uncertainty about future economic conditions may make it difficult for us to forecast operating results and to make decisions about future investments. The Company’s success in periods of economic uncertainty may also be dependent, in part, on our ability to reduce costs in response to changes in demand and other activity.
Generating substantial revenues from our international operations poses several risks.
In 2020, the percentage of our total revenues from outside of the United States was 50%. We have exposure to more than 30 functional currencies. The risks associated with the geographic scope of our business operations include, among other things the following:
•Cultural and management challenges associated with operating in developing countries;
•Longer payment cycles for sales in foreign countries and difficulties in enforcing contracts and collecting accounts receivable;
•Fluctuations in the value of local currencies;
•Tariffs or other restrictions on foreign trade or investment;
•US-China trade disputes or other international trade disputes may adversely affect sales of our solutions and services and may result in longer sales cycles;
•The continued economic and legal uncertainty around how the United Kingdom's exit from the European Union (known as Brexit) will impact the United Kingdom’s access to the EU Single Market, the related regulatory environment, the global economy and the resulting impact on our business; and
•The impact of catastrophic weather or other negative effects of climate change and public health crises (such as the COVID-19 pandemic), on our facilities, operations and/or workforce, as well as those of our customers, supply chains and distribution channels, throughout the world, particularly those in coastal areas.
Any of these events, among others, could materially and adversely affect our financial condition and operating results.
Our offerings are subject to United States export controls and, when exported from the United States, or re-exported to another country, must be authorized under applicable United States export regulations. Changes in our offerings or changes in export regulations may create delays in the introduction of our offerings in international markets, prevent our customers with international operations from deploying our offerings throughout their global systems or, in some cases, prevent the export of our offerings to certain countries or customers altogether. Any change in export regulations or related legislation, shift in approach to the enforcement or scope of existing regulations, or change in the countries, persons or technologies targeted by these regulations could result in decreased use of our offerings by, or in our decreased ability to export or sell our offerings to, existing or potential customers with international operations.
There is active enforcement and ongoing focus by the SEC and other governmental authorities on the United States Foreign Corrupt Practices Act, the U.K. Bribery Act of 2010 and similar anti-bribery, anti-corruption laws in other countries. Given the breadth and scope of our international operations, we may not be able to detect improper or unlawful conduct by our international partners and employees, despite our high ethics, governance and compliance standards, which could put the Company at risk regarding possible violations of such laws and could result in various civil or criminal fines, penalties or administrative sanctions, and related costs, which could negatively impact the Company's business, results of operations or financial condition.
RISKS RELATED TO OUR INDUSTRY
The IT industry is intensely competitive and evolving, and competitive pressures could adversely affect our pricing practices or demand for our offerings and services.
We operate in the intensely competitive IT industry, which is characterized by rapidly changing technology, evolving industry standards and models for consuming and delivering business and IT services, frequent new product introductions, and frequent price and cost reductions. In general, as a participant in the data analytic solutions market, we face:
•Changes in customer IT spending preferences and other shifts in market demands, which drive changes in the Company's competition;
•Changes in pricing, marketing and product strategies, such as potential aggressive price discounting and the use of different pricing models by our competitors;
•Rapid changes in product delivery models, such as on-premises solutions versus cloud solutions;
•Rapid changes in computing technology and capabilities that challenge our ability to maintain differentiation at the lower range of business intelligence analytic functions;
•New and emerging analytic technologies, competitors, and business models;
•Continued emergence of open source software that often rivals current technology offerings at a much lower cost despite its limited functionality;
•Changing competitive requirements and deliverables in developing and emerging markets; and
•Continuing trend toward consolidation of companies, which could adversely affect our ability to compete, including if our key partners merge or partner with our competitors.
Our competitors include established companies within our industry, including Amazon, Google, IBM, Oracle, Microsoft, and SAP, which are well-capitalized companies with widespread distribution, brand recognition and penetration of platforms and service offerings. The significant purchasing and market power of these larger competitors, which have greater financial resources than we do, could allow them to surpass our market penetration and marketing efforts to promote and sell their offerings and services. In addition, many other companies participate in specific areas of our business, such as enterprise applications, analytic platforms and business intelligence software. In some cases, we may partner with a company in one area of our business and compete with them in another. In particular, in delivering our Vantage platform in a cloud environment to certain of our customers, we partner with each of Amazon, Google, and Microsoft, which are public cloud service providers. The status of our business relationships with these companies can influence our ability to compete for analytic data solutions opportunities in such areas. In addition, we see additional competition from both established and emerging companies such as Cloudera, MongoDB, Pivotal Software and Snowflake. Failure to compete successfully with new or existing competitors in these and other areas could have a material adverse impact on our ability to generate additional revenues or sustain existing revenue levels.
Privacy concerns and laws such as the European Union’s General Data Protection Regulation, evolving regulation of cloud computing, cross-border data transfer restrictions and other domestic or foreign regulations may limit the use and adoption of our solutions and services and adversely affect our business.
Regulation related to the provision of services over the Internet is evolving, as federal, state and foreign governments continue to adopt new, or modify existing, laws and regulations addressing data privacy and the collection, processing, storage, transfer and use of data. In some cases, new data privacy laws and regulations, such as the European Union’s General Data Protection Regulation that took effect in May 2018, the California Consumer Privacy Act, which took effect in January 2020, and an amended Act on the Protection of Personal Information in Japan, expected to take effect in spring 2022, impose new obligations directly on the Company as both a data controller and a data processor, as well as on many of our customers. These new laws may require us to make changes to our solutions and services to enable Teradata and/or our customers to comply with the new legal requirements and may also increase our potential liability exposure through higher potential penalties for non-compliance. Further, laws such as the European Union’s proposed e-Privacy Regulation are increasingly aimed at the use of personal information for marketing purposes, and the tracking of individuals’ online activities. These new or proposed laws and regulations are subject to differing interpretations and may be inconsistent among jurisdictions. These and other requirements could reduce demand for our solutions and services, require us to take on more onerous obligations in our contracts, restrict our ability to store, transfer and process data or, in some cases, impact our ability to offer our solutions and services in certain locations or our customers' ability to deploy our solutions globally. For example, legal challenges in Europe regarding how companies transfer personal data from the European Economic Area to the United States could result in further limitations on the ability to transfer data across borders, particularly if governments are unable or unwilling to reach new or maintain existing agreements that support cross-border data transfers, such as renewing the EU-U.S. and Swiss-U.S. Privacy Shield framework. Additionally, certain countries have passed or are considering passing laws requiring local data residency. The costs of compliance with, and other burdens imposed by, privacy laws, regulations and standards may limit the use and adoption of our solutions and services, reduce overall demand for our solutions and services, make it more difficult to meet expectations from or commitments to customers, lead to significant fines, penalties or liabilities for noncompliance, or slow the pace at which we close sales transactions, any of which could harm our business.
In addition to government activity, privacy advocacy and other industry groups have established or may establish new self-regulatory standards that may place additional burdens on our ability to provide our solutions and services globally. Our customers expect us to meet voluntary certification and other standards established by third parties, such as related International Organization for Standardization ("ISO") standards. If we are unable to maintain these certifications or meet these standards, it could adversely affect our ability to provide our solutions to certain customers and could harm our business
Furthermore, concerns regarding data privacy may cause our customers’ customers to resist providing the data necessary to allow our customers to use our solutions and services effectively. Even the perception that the privacy
of personal information is not satisfactorily protected or does not meet regulatory requirements could inhibit sales of our offerings or services and could limit adoption of our cloud-based solutions.
RISKS RELATED TO HUMAN CAPITAL
We depend on key employees and face competition in hiring and retaining qualified employees.
Our employees and access to talent are critical to our success. Our future success depends on our ability to attract and retain the services of senior management and key personnel in all functional areas of our Company, including engineering and development, marketing and sales professionals, and consultants. Competition for highly skilled personnel and acquired talent in the IT industry is intense. Furthermore, to advance our cloud-first strategy, we are required to attract and retain talent with expertise in cloud-based technologies, particularly with respect to our engineering and development teams. No assurance can be made that key personnel will remain with us, and it may be difficult and costly to replace such employees and/or obtain qualified talent who are not employees. Our failure to hire, retain and replace our key personnel could have a material adverse impact on our business operations.
RISKS RELATED TO LEGAL AND REGULATORY MATTERS
We face uncertainties regarding legal proceedings, complex and changing laws and regulations, and other related matters.
In the normal course of business, we are subject to proceedings, lawsuits, claims and other matters, including those that relate to the environment, health and safety, employee benefits, export compliance, intellectual property, a variety of local laws and regulations, and other regulatory compliance and general matters. See "Note 10-Commitments and Contingencies" in the Notes to Consolidated Financial Statements elsewhere in this Annual Report. Because such matters are subject to many uncertainties, their outcomes are not predictable. There can be no assurances that the amounts required to satisfy alleged liabilities from such matters will not impact future operating results.
In addition, we are subject to diverse and complex laws and regulations, including those relating to corporate governance, public disclosure and reporting, which are rapidly changing and subject to many possible changes in the future. From time to time, we may conduct internal investigations in connection with our efforts to ensure compliance with such laws and regulations, the costs or results of which could impact our financial results. In addition, we may be subject to unexpected costs in connection with new public disclosure or other regulatory requirements that are issued from time to time. Laws and regulations impacting our customers, such as those relating to privacy, data protection and digital marketing, could also impact our future business. Because we do business in the government sector, we are generally subject to audits and investigations which could result in various civil or criminal fines, penalties or administrative sanctions, including debarment from future government business, which could negatively impact the Company’s results of operations or financial condition.
In addition, our facilities and operations, including former facilities and former operations for which we may have liabilities, are subject to a wide range of environmental protection laws. There can be no assurances that the costs required to comply with applicable environmental laws will not adversely impact future operating results.
Management time and resources are spent to understand and comply with changing laws, regulations and standards relating to such matters as corporate governance, accounting principles, public disclosure, SEC regulations, Basel III and the rules of the New York Stock Exchange ("NYSE") where our shares are listed. Rapid changes in accounting standards, and federal securities laws and regulations, among others, may substantially increase costs to our organization, challenge our ability to timely comply with all of them and could have an impact on our future operating results.
Inadequate protection of Teradata’s intellectual property or infringement of intellectual property that is owned by others could impact our business and financial condition.
As a technology company, our intellectual property portfolio is crucial to our continuing ability to be a leading multi-cloud data warehouse platform provider. We strive to protect and enhance our proprietary intellectual property rights through patent, copyright, trademark and trade secret laws, as well as through technological
safeguards. These efforts include protection of the offerings and application, diagnostic and other software we develop.
If we are not successful in protecting our intellectual property, our business could be materially adversely impacted. We may be unable to prevent third parties from using our technology without our authorization or independently developing technology that is similar to ours, particularly in those countries where the laws do not protect our proprietary rights as fully as in the United States (such as Iran, China and certain European Eastern Bloc countries who may use NSSAPC to advance their own industries). With respect to our pending patent applications, we may not be successful in securing patents for these claims, and our competitors may already have applied for patents that, once issued, will prevail over our patent rights or otherwise limit our ability to sell our offerings.
While we take steps to provide for confidentiality obligations of employees and third parties with whom we do business (including customers, suppliers and strategic partners), there is a risk that such parties will breach such obligations and jeopardize our intellectual property rights. Many customers have outsourced the administration and management of their data warehouses to third parties, including some of our competitors, who then have access to our confidential information. Although we have agreements in place to mitigate this risk, there can be no assurance that such protections will be sufficient. In addition, our ability to capture and re-use field-based developed intellectual property is important to future business opportunities and margins.
We have seen a trend towards aggressive enforcement of intellectual property rights as the functionality of offerings in our industry increasingly overlaps and the volume of issued software patents continues to grow. As a result, we have been, and in the future could be, subject to infringement claims which, regardless of their validity, could:
•Be expensive, time consuming and divert management attention away from normal business operations;
•Require us to pay monetary damages or enter into non-standard royalty and licensing agreements;
•Require us to modify our product sales and development plans; or
•Require us to satisfy indemnification obligations to our customers.
Regardless of whether these claims have any merit, they can be burdensome to defend or settle and can harm our business, reputation, financial condition and results of operations.
A change in our effective tax rate can have a significant adverse impact on our business.
A number of factors may adversely impact our future effective tax rates, such as:
•The jurisdictions in which our profits are determined to be earned and taxed;
•The resolution of issues arising from tax audits with various tax authorities;
•Changes in the valuation of our deferred tax assets and liabilities;
•Adjustments to estimated taxes upon finalization of various tax returns; and
•Changes in available tax credits, especially surrounding tax credits in the United States for our research and development activities.
Tax rules may change in a manner that adversely affects our future reported results of operations or the way we conduct our business. Further changes in the tax laws of foreign jurisdictions could arise as a result of the base erosion and profit shifting project that was undertaken by the Organization for Economic Co-operation and Development ("OECD"). The OECD, which represents a coalition of member countries, recommended changes to numerous long-standing tax principles related to transfer pricing. Our income tax obligations are based in part on our corporate structure and inter-company arrangements, including the manner in which we develop, value, and use our intellectual property and the valuations of our inter-company transactions. Tax authorities may disagree with certain positions we have taken and assess additional taxes. We regularly assess the likely outcomes of these audits to determine the appropriateness of our tax provision, however, there can be no assurance that we will accurately predict the outcomes of these audits, and the actual outcomes of these audits could have a material impact on our financial condition or results of operations.
RISKS RELATED TO OUR FINANCIAL CONDITION
Our indebtedness could adversely affect our financial condition and limit our financial flexibility.
The Company's indebtedness could:
•Expose us to interest rate risk;
•Increase our vulnerability to general adverse economic and industry conditions;
•Limit our ability to obtain additional financing or refinancing at attractive rates;
•Require the dedication of a substantial portion of our cash flow from operations to the payment of principal of, and interest on, our indebtedness, thereby reducing the availability of such cash flow to fund our growth strategy, working capital, capital expenditures, share repurchases and other general corporate purposes;
•Limit our flexibility in planning for, or reacting to, changes in our business and the industry; and
•Place us at a competitive disadvantage relative to our competitors with less debt.
Further, our outstanding indebtedness is subject to financial and other covenants, which may be affected by changes in economic or business conditions or other events that are beyond our control. If we fail to comply with the covenants under any of our indebtedness, we may be in default under the loan, which may entitle the lenders to accelerate the debt obligations. To avoid defaulting on our indebtedness, we may be required to take actions such as reducing or delaying capital expenditures, reducing or eliminating stock repurchases, selling assets, restructuring or refinancing all or part of our existing debt, or seeking additional equity capital, any of which may not be available on terms that are favorable to us, if at all.
In addition, the United Kingdom’s Financial Conduct Authority, which regulates the London Interbank Offered Rate ("LIBOR"), announced that it intends to phase out LIBOR by the end of 2021 or, for certain tenors of United States Dollar LIBOR, by the end of 2023. We have certain financial contracts, including our revolving credit agreement, term loan agreement, and interest rate swaps, that are indexed to LIBOR. The U.S. Federal Reserve has begun publishing a Secured Overnight Funding Rate, which is intended to replace U.S. dollar LIBOR. Plans for alternative reference rates for other currencies have also been announced. At this time, we cannot predict how markets will respond to these proposed alternative rates or the effect of any changes to LIBOR or the discontinuation of LIBOR. If LIBOR is no longer available or if our lenders have increased costs due to changes in LIBOR, we may experience potential increases in interest rates on our variable rate debt, which could adversely impact our interest expense, results of operations and cash flows.
|Item 1B.||UNRESOLVED STAFF COMMENTS|
As of December 31, 2020, Teradata operated 79 facilities in 35 countries consisting of approximately 1.4 million square feet throughout the world. Approximately 33% of this square footage is owned and the rest is leased. Within the total facility portfolio, Teradata operates 11 research and development facilities totaling approximately 400 thousand square feet, of which approximately 54% is owned. The remaining approximately 1 million square feet of space includes office, repair, warehouse and other miscellaneous sites, and is 24% owned and 76% leased. Teradata believes its facilities are suitable and more than adequate to meet its current needs. Teradata’s corporate headquarters is in San Diego, California.
|Item 3.||LEGAL PROCEEDINGS|
The information required to be set forth under this Item 3 is incorporated by reference to Note 10, Commitments and Contingencies—Legal Proceedings of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.
|Item 4.||MINE SAFETY DISCLOSURES|
|Item 5.||MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES|
Teradata common stock trades on the New York Stock Exchange under the symbol "TDC." There were approximately 28,287 registered holders of Teradata common stock as of February 4, 2021.
Teradata has not paid cash dividends and does not anticipate the payment of cash dividends to holders of Teradata common stock in the immediate future. The declaration of dividends in the future would be subject to the discretion of Teradata’s Board of Directors.
The information under the caption "Stock Ownership" and the caption "Current Equity Compensation Plan Information" in Part III, Item 12 of this Annual Report on Form 10-K is also incorporated by reference in this section.
The following graph compares the relative performance of Teradata stock, the Standard & Poor’s ("S&P") 500 Stock Index and the S&P Information Technology Index. This graph covers the five-year period from December 31, 2015 to December 31, 2020. In each case, assumes a $100 investment on December 31, 2015, and reinvestment of all dividends, if any.
|As of December 31,|
|S&P 500 Index||$||100||$||112||$||136||$||130||$||171||$||203|
|S&P Information Technology Index||$||100||$||114||$||158||$||158||$||237||$||341|
Purchases of Equity Securities by the Issuer and Affiliated Purchases
Section 16 officers occasionally transfer vested shares earned under restricted stock awards to the Company at the current market price to cover their withholding taxes. For the year ended December 31, 2020, the total of these purchases was 200,685 shares at an average price of $23.32 per share.
The following table provides information relating to the Company’s repurchase of common stock for the year ended December 31, 2020:
of Shares Purchased
as Part of
Offset Program (1)
as Part of
Repurchase Program (2)
|First quarter total||3,656,766||$||20.52||208,078||3,448,688||$||1,317,522||$||432,248,874|
|Second quarter total||—||$||—||—||—||$||4,374,148||$||432,248,874|
|Third quarter total||—||$||—||—||—||$||7,538,584||$||432,248,874|
|Fourth quarter total||1,149,424||$||21.75||429,440||719,984||$||1,368,549||$||416,253,939|
|2020 Full year total||4,806,190||$||20.81||637,518||4,168,672||$||1,368,549||$||416,253,939|
1.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 ESPP to offset dilution from shares issued pursuant to these plans.
2.The general share repurchase program authorized by the Board allows the Company to repurchase outstanding shares of Teradata common stock. Share repurchases made by the Company are reported on a trade date basis. On July 28, 2019, Teradata's Board of Directors authorized an additional $500 million to be utilized to repurchase Teradata common stock under this share repurchase program. The general share repurchase program expires on July 27, 2022.
|Item 6.||The Company has applied the amendment to Regulation S-K Item 301, which became effective on February 10, 2021.|
|Item 7.||MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ("MD&A")|
You should read the following discussion in conjunction with the consolidated financial statements and the notes to those statements included elsewhere in this Annual Report on Form 10-K ("Annual Report"). This Annual Report 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 several factors, including those discussed in other sections of this Annual Report. See "Risk Factors" and "Forward-looking Statements."
Teradata Corporation is a leading multi-cloud data warehouse platform provider focused on helping companies leverage their data across an enterprise to uncover real-time intelligence, at scale. In doing so, we enable companies to find answers to their toughest business challenges. Our platform enables 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 platform is composed of our data warehouse platform – Teradata Vantage – enabled to run across on-premises, private cloud and public cloud environments. This platform is supported by business consulting and support services that enable customers to extract insights from across a company’s entire data and analytics ecosystem. Teradata’s strategy is discussed under Part I, Item I of this Annual Report on Form 10-K.
To drive operational excellence within Teradata, we are in the process of realigning and streamlining our operations as we pursue our business transformation and strategy to become a cloud-first growth company. As part of these activities, on November 2, 2020, the Company approved a plan to realign and reduce its workforce and rationalize its real estate footprint. The workforce measures involved involuntary headcount reduction actions. Separately, in September 2020, we offered a voluntary separation program ("VSP") to specific tenured employees as part of our efforts to improve our cost structure. For more information regarding the VSP, see Note 16 to Notes to Consolidated Financial Statements. The rationalization of the Company’s real estate footprint involves terminating leases relating to certain of the Company’s offices globally and transitioning impacted employees to a permanent virtual working environment, co-working space or facility, depending on business need. This is also consistent with the industry trend of working from a home-hybrid model.
We are continuing to execute on our key priorities, including significant product expansion of our Teradata Vantage multi-cloud data warehouse platform offering, expanding our footprint with existing customers and adding net new customers, increasing our focus on diversity and inclusiveness, and driving operational excellence and agility across the company.
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 and managed services.
•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.
During the twelve months ended December 31, 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, which impacted our revenue and cash flow results for the first quarter. However, during the back half of 2020, we recovered from this impact, and as a result, we experienced a more favorable trend with meaningful ARR growth, strong cash flows and recurring revenue growth generated in these quarters, although we continued to see COVID-19 negatively impact our consulting business as described below.
In response to the pandemic, we have taken actions to manage expenses and costs appropriately in light of the uncertainty COVID-19 has created, which has had a positive impact on our operating performance. We continue to keep a watchful eye on COVID-19 impacts to our business and have undertaken additional expense management and cost measures to further drive our operating performance and provide agility in the event of an unforeseen reduction in demand should it occur. During 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 this period. We expect continued volatility in foreign currency exchange rates in 2021.
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. Our customers’ reduction in discretionary spending in light of COVID-19 uncertainties has also impacted our consulting business, with consulting projects being delayed or suspended by our customers. We implemented several employee engagement and communication programs designed to support employees’ health and well-being while also enhancing their productivity during the pandemic.
Our priorities in formulating and implementing our response to the COVID-19 pandemic and related 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, while continuing to help them gain real business value from their data assets,
•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 the COVID-19 pandemic ends.
As of the date of this Annual Report on Form 10-K, 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 I, Item 1A of this Annual Report on Form 10-K.
2020 FINANCIAL OVERVIEW
As more fully discussed in later sections of this MD&A, the following are the financial highlights for 2020:
•Revenue of $1,836 million decreased by 3% in 2020 as compared to 2019, with an underlying 7% increase in recurring revenue primarily driven by our transition from perpetual to subscription-based transactions. The increase in recurring revenue was more than offset by a 31% decrease in perpetual software licenses and hardware revenue and a 28% decrease in consulting services revenue. The decline in consulting service revenue is in alignment with our strategy as well as due to the impact of COVID-19 as discussed above.
•Gross margin was 55.5% in 2020, an increase from 50.3% in 2019, primarily due to a higher recurring revenue mix as compared to the prior year.
•Operating expenses in 2020 increased by 6% as compared to 2019, primarily due to expenses related to the VSP offered to employees, an increase in investments in cloud transformation, and employee stock-based compensation expense.
•Operating income was $16 million in 2020, up from $10 million in 2019.
•Net income was $129 million in 2020 versus a net loss of $20 million in 2019, primarily due to discrete tax items. Net earnings per share was $1.16 in 2020 compared to net loss per share of $0.18 in 2019.
RESULTS FROM OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018
In July 2019, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update 2019-07, "Codification Updates to SEC Sections-Amendments to SEC Paragraphs Pursuant to SEC Final Rule Releases No. 33-10532, Disclosure Update and Simplification", which makes a number of changes meant to simplify certain disclosures in financial condition and results of operations, particularly by eliminating year-to-year comparisons between prior periods previously disclosed. In accordance with the relevant aspects of the rule covering the current year annual report, we now include disclosures on results of operations for fiscal year 2020 versus 2019 only. For discussion of fiscal year 2019 versus 2018 see "Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report filed with the SEC for the fiscal year ended December 31, 2019.
|% of||% of|
|Perpetual software license and hardware||73||4.0||%||106||5.6||%|
2020 compared to 2019 -Total revenue decreased $63 million, or 3%, in 2020. Recurring revenue grew 7%, primarily driven by our movement to subscription-based transactions from perpetual software licenses and hardware transactions, consistent with our strategy. Under subscription models, we recognize revenue over time as opposed to the upfront recognition under the perpetual model. Better than expected ARR growth also contributed to the increase in recurring revenue. For full year 2021, we expect ARR growth and recurring revenue growth at a mid- to high-single digit percentage increase as compared to 2020. Public cloud ARR is expected to increase by at least 100% year-over-year. 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 revenue is expected to grow at a low-single-digit percentage in 2021 as compared to 2020.
Revenues from perpetual software licenses and hardware decreased 31% in 2020 as customers continue to transition to subscription-based offerings.
Consulting services revenue decreased 28%, 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 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 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 January 31, 2020, Teradata is expecting two percentage points of positive impact from currency translation on our 2021 full-year total revenues.
Included below are financial and performance growth metrics for 2020:
•ARR was $1.587 billion at the end of 2020, a 11% increase from $1.427 billion at the end of 2019
•Public cloud ARR was $106 million at the end of 2020, a 165% increase from $40 million at the end of 2019
•Total backlog grew 7% to $2.921 billion
Our ARR is composed of three main categories: (1) ARR related to subscription and public cloud software licenses, (2) ARR related to our legacy perpetual maintenance and software upgrade rights, and (3) ARR related to subscription-based managed services. At December 31, 2020, our ARR consisted of:
•$960 million of subscription and public cloud-related ARR, up 37%;
•$508 million of perpetual license maintenance and software upgrade rights-related ARR, down 17%; and
•$119 million of subscription-based managed services ARR, up 6%.
This decline in our maintenance and software upgrade-related ARR, compared to 2019 was expected as the Company completes its transition to a subscription model and customers increasingly purchase Teradata on a subscription and/or public cloud basis.
The rate of our transition to a recurring revenue model has been significantly faster than expected, and we believe it is reflective of the value our customers see in our subscription model and cloud offerings.
Teradata will be realigning its ARR and revenue disclosures beginning the first quarter of 2021, removing managed services and third-party software from subscription-based ARR and recurring revenue. Managed services revenue will be included in "Consulting services revenue" in 2021 and third-party software will be moved to "Perpetual software licenses, hardware and other revenue."
The Company often uses specific terms and definitions to describe variances in gross profit. The terms and definitions most often used are as follows:
•Revenue Mix - The proportion of recurring, consulting, and perpetual software licenses and hardware that generates the total revenue of the Company. Changes in revenue mix can have an impact on gross profit even if total revenue remains unchanged.
•Recurring Revenue Mix - The proportion of various recurring revenue offerings that comprise the total of recurring revenue. For example, a higher mix of subscriptions including hardware rentals could have a negative impact on total recurring gross profit.
•Deal Mix - Refers to the type of transactions closed within the period that generate the total perpetual software license and hardware revenue. For example, a higher mix of hardware versus software or the mix of Teradata versus third-party products can impact profitability.
Gross profit for the following years ended December 31 was as follows:
|% of||% of|
|Perpetual software licenses and hardware||34||46.6||%||22||20.8||%|
|Total gross profit||$||1,019||55.5||%||$||955||50.3||%|
2020 compared to 2019 - The decrease in recurring gross profit as a percentage of revenue was primarily driven by a higher mix of subscription-based revenue as compared to the prior-year period. Subscription-based transactions
are typically lower margin as compared to the recurring revenue from legacy software maintenance and software upgrade rights, due to the higher mix of rental hardware.
The increase in perpetual software licenses and hardware gross profit as a percentage of revenue was primarily driven by deal mix as compared to the prior year.
Consulting services gross profit as a percentage of revenue increased as compared to the prior year primarily due to improved resource mix utilization as well as increased price realization and our continued strategic focus to improve consulting margins. The Company continues to refocus our consulting organization on Vantage-oriented offerings and reduce our footprint in non-core consulting engagements.
As part of our restructuring actions, we have moved to a more variable consulting cost structure starting in 2021, which is designed to improve the profitability of our consulting business.
|% of||% of|
|Selling, general and administrative expenses||$||669||36.4||%||$||618||32.5||%|
|Research and development expenses||334||18.2||%||327||17.2||%|
|Total operating expenses||$||1,003||54.6||%||$||945||49.8||%|
2020 compared to 2019 - The SG&A expense increase was primarily driven by an increase in stock-based compensation expense, the VSP, amortization of capitalized sales compensation, as well as additional investments in our go-to-market and customer success teams.
R&D expenses increased primarily due to the VSP and a re-prioritization of our R&D organization on strategic initiatives and reduced spending on de-prioritized initiatives, while increasing investments in Cloud transformations.
Other Expense, net
|Total Other Expense, net||$||(40)||$||(23)|
Other expense, net in 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 as well as benefit costs for our pension and postemployment plans. Other expense, net increased compared to the prior year primarily due to lower interest income generated on investments due to lower invested balances and lower interest rates, increased benefit costs for our pension and postemployment plans, and losses resulting from foreign currency transactions.
Provision for Income Taxes
The effective income tax rate for the following years ended December 31 was as follows:
|Effective Tax Rate||637.5||%||(53.8)||%|
The 2020 effective tax rate included a net $157 million of discrete tax benefit. Discrete tax benefit of $157 million, was recorded related to the transfer of foreign intellectual property as more fully described below. In addition, the Company recognized a net $13 million of tax benefit resulting from the CARES Act of 2020, which allows U.S.
corporations a one-time opportunity to claim income tax refunds by allowing a 5-year net operating loss ("NOL") carry-back for taxable losses incurred in the tax year 2020. Teradata intends to carry back its 2020 NOL to claim a refund for taxes it paid in 2015, which created a one-time income tax benefit for the difference between the 35% 2015 carry back tax rate and the current 21% federal statutory rate. These tax benefits were partially offset by $9 million tax expense related to stock-based compensation and $4 million of incremental global intangible low-taxed income ("GILTI") tax. These discrete net tax benefits resulted in full-year total income tax benefit in 2020 of $153 million, on a pre-tax net loss of $24 million, causing a tax rate of 637.5%.
The 2019 effective tax rate was impacted by $3 million tax expense related to stock-based compensation and $3 million of incremental GILTI tax, which resulted in a full-year income tax expense in 2019 of $7 million, on a pre-tax net loss of $13 million, causing a negative tax rate of 53.8%.
The Company is expecting its full-year effective tax rate for 2021 to be approximately 29%, which takes into consideration, among other things, the forecasted earnings mix by jurisdiction and the estimated discrete items to be recognized in 2021. The forecasted tax rate is based on the overseas profits being taxed at an overall effective tax rate of approximately 23%, as compared to the federal statutory tax rate of 21% in the U.S.
Revenue and Gross Profit by Operating Segment
Teradata manages its business under three geographic regions, which are also the Company’s operating segments: (1) Americas region (North America and Latin America); (2) EMEA region (Europe, Middle East, and Africa) and (3) APJ region (Asia Pacific and Japan). For purposes of discussing results by segment, management excludes the impact of certain items, consistent with the manner by which management evaluates the performance of each segment. This format is useful to investors because it allows analysis and comparability of operating trends. It also includes the same information that is used by Teradata management to make decisions regarding the segments and to assess financial performance. The chief operating decision maker, who is our President and Chief Executive Officer, evaluates the performance of the segments based on revenue and multiple profit measures, including segment gross profit. For management reporting purposes, assets are not allocated to the segments. Our segment results are reconciled to total company results reported under GAAP in Note 14 of Notes to Consolidated Financial Statements.
The following table presents revenue and operating performance by segment for the years ended December 31:
|% of||% of|
|Total segment revenue||$||1,836||100||%||$||1,899||100||%|
|Segment gross profit|
|Total segment gross profit||$||1,072||58.4||%||$||1,013||53.3||%|
2020 compared to 2019
Americas revenue decreased 3% and included a 1% negative impact from foreign currency fluctuations. An increase in recurring revenue of 1% was offset by a decrease of 5% 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 an overall higher mix of recurring revenue.
EMEA revenue decreased 1%, which included a 1% favorable impact from foreign currency fluctuations. An increase of 19% in recurring revenue was offset by a decrease of 47% in perpetual software licenses and hardware revenue and a decrease in consulting revenue of 31%. Segment gross profit as a percentage of revenues was higher primarily due to a higher mix of recurring revenue.
APJ revenue decreased 7%, which included no impact from foreign currency fluctuations. An increase in recurring revenue of 11% was offset by a decrease of 44% in perpetual software licenses and hardware revenue and a decrease in consulting revenue of 24%. Segment gross profit as a percentage of revenues was higher primarily due to a higher mix of recurring revenue.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Teradata ended 2020 with $529 million in cash and cash equivalents, a $35 million increase from the December 31, 2019 balance, after using approximately $100 million for repurchases of Company common stock during the year. Cash provided by operating activities increased by $119 million to $267 million in 2020 compared to 2019. Teradata used approximately $58 million of cash in 2020 for reorganizing and restructuring its operations and go-to-market functions to align to its strategy, as compared to $63 million in 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 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, these extensions are not significant in aggregate. 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 define free cash flow as net cash provided by operating activities less capital expenditures for property and equipment and additions to capitalized software. Free cash flow is one measure of assessing the financial performance of the Company, and this may differ from the definition used by other companies. The components that are used to calculate free cash flow are GAAP measures taken directly from the Consolidated Statements of Cash Flows. 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 repurchase 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 for the following periods:
|Net cash provided by operating activities||$||267||$||148|
|Expenditures for property and equipment||(44)||(54)|
|Additions to capitalized software||(7)||(5)|
|Free cash flow||$||216||$||89|
Financing activities and certain other investing activities are not included in our calculation of free cash flow. There were no other investing activities in 2020 and 2019.
Teradata’s financing activities for the year ended December 31, 2020 primarily consisted of cash outflows of $100 million for share repurchases, repayment of existing term loan of $25 million and $70 million of payments on finance leases, partially offset by $9 million net inflows from other financing activities.
Teradata’s financing activities for the year ended December 31, 2019 primarily consisted of cash outflows of $300 million for share repurchases, repayment of existing term loan of $19 million and $33 million of payments on finance leases, partially offset by $44 million net inflows from other financing activities.
The Company purchased 4.8 million shares of its common stock at an average price per share of $20.81 in 2020 and 8.5 million shares of its common stock at an average price per share of $35.38 in 2019.
Share repurchases were made under two share repurchase programs initially authorized by our Board of Directors in 2008. The first of these programs (the "dilution offset program") authorizes 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. As of December 31, 2020, under the Company’s second share repurchase program (the "general share repurchase program"), the Company had approximately $416 million of authorization remaining to repurchase outstanding shares of Teradata common stock. Share repurchases made by the Company are reported on a trade date basis.
Proceeds from the ESPP and the exercise of stock options, net of tax paid for shares withheld upon equity award settlement, were $9 million in 2020 and $44 million in 2019. These proceeds are included in other financing activities, net in the Consolidated Statements of Cash Flows.
Our total cash and cash equivalents held outside the United States in various foreign subsidiaries was $342 million as of December 31, 2020 and $344 million as of December 31, 2019. The remaining balance held in the United States was $191 million as of December 31, 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 $400 million available under the Credit Facility will be sufficient to satisfy future working capital, research and development activities, capital expenditures, pension contributions, and other financing requirements for at least the next twelve months. The Company principally holds its cash and cash equivalents in bank deposits and highly-rated money market funds.
The Company’s ability to generate positive cash flows from operations is dependent on general economic conditions, competitive pressures, and other business and risk factors described elsewhere in this Annual Report. If the Company is unable to generate sufficient cash flows from operations, or otherwise to comply with the terms of the credit facility and term loan agreement, the Company may be required to seek additional financing alternatives.
Long-term Debt. Our long-term debt and minimum debt obligations as of December 31, 2020 are discussed in Note 12 of Notes to Consolidated Financial Statements.
Leases. In the normal course of business, the Company enters into operating and finance leases that impact, or could impact, our liquidity. Leases and minimum lease obligations as of December 31, 2020 are described in detail in Note 13 of Notes to Consolidated Financial Statements.
Contractual and Other Commercial Commitments. In the normal course of business, we enter into various contractual obligations that impact, or could impact, our liquidity. The following table and discussion outline our material obligations at December 31, 2020, with projected cash payments in the periods shown:
|Total transition tax and purchase obligations||$||337||$||95||$||188||$||54||$||—|
Transition tax is the remaining payable balance as of December 31, 2020 of the one-time tax on accumulated foreign earnings resulting from the Tax Act. The payments associated with this deemed repatriation will be paid over seven years ending in 2025. Purchase obligations are committed purchase orders and other contractual commitments for goods and services and include non-cancelable contractual payments for fixed or minimum amounts to be purchased in relation to service agreements with various vendors for ongoing telecommunications, information technology, hosting and other services.
Additionally, the Company had $39 million in total uncertain tax positions recorded on its balance sheet as of December 31, 2020, of which $18 million is recorded in non-current liabilities and $21 million is reflected as an offset to deferred tax assets related to certain tax attribute carryforwards. These items are not included in the table of obligations shown above. The settlement period for the non-current income tax liabilities cannot be reasonably estimated as the timing and the amount of the payments, if any, will depend on possible future tax examinations with the various tax authorities. However, it is not expected that any payments will be due within the next 12 months.
We also have product warranties and guarantees to third parties, as well as postemployment and international pension obligations that may affect future cash flow. These items are not included in the table of obligations shown above. The Company is also potentially subject to concentration of supplier risk. Our hardware components are assembled exclusively by Flex Ltd. ("Flex"). Flex procures a wide variety of components used in the manufacturing process on our behalf. Although many of these components are available from multiple sources, Teradata utilizes preferred supplier relationships to better ensure more consistent quality, cost, and delivery. Typically, these preferred suppliers maintain alternative processes and/or facilities to ensure continuity of supply. Given the Company’s strategy to outsource its manufacturing activities to Flex and to source certain components from single suppliers, a disruption in production at Flex or at a supplier could impact the timing of customer shipments and/or Teradata’s operating results. In addition, a significant change in the forecasts to any of these preferred suppliers could result in purchase obligations or components that may be in excess of demand. Product warranties and third-party guarantees are described in detail in "Note 10—Commitments and Contingencies" in the Notes to Consolidated Financial Statements. Postemployment and pension obligations are described in detail in "Note 8—Employee Benefit Plans" in the Notes to Consolidated Financial Statements.
Off-Balance Sheet Arrangements. We do not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or for other contractually narrow or limited purposes.
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.
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 paragraphs below. Teradata’s senior management has reviewed these critical accounting policies and related disclosures with the Audit Committee of Teradata’s Board of Directors. For additional information regarding our accounting policies and other disclosures required by GAAP, see "Note 1—
Description of Business, Basis of Presentation and Significant Accounting Policies" in the Notes to Consolidated Financial Statements.
On January 1, 2018, we adopted ASC Topic 606, Revenue from Contracts with Customers ("ASC 606"). This standard replaced existing revenue recognition rules with a comprehensive revenue measurement and recognition standard and expanded disclosure requirements. Refer to Notes 1 and 3, of our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K for discussion of our revenue recognition policies.
Revenue recognition for complex contractual arrangements requires judgment, including a review of specific contracts, past experience, creditworthiness of customers, international laws and other factors. Specifically, complex arrangements with nonstandard terms and conditions may require significant contract interpretation to determine the appropriate accounting. We must also apply judgment in determining all performance obligations in the contract and in determining the standalone selling price of each performance obligation, considering the price charged for each product when sold on a standalone basis and applicable renewal rates for services and subscriptions. Changes in judgments about these factors could impact the timing and amount of revenue recognized between periods.
The Company reviews the standalone selling price on a periodic basis and updates it, when appropriate, to ensure that the practices employed reflect the Company’s recent pricing experience. The Company maintains internal controls over the establishment and updates of these estimates, which includes review and approval by the Company’s management. For the year ended December 31, 2020 there was no material impact to revenue resulting from changes in the standalone selling price, nor does the Company expect a material impact from such changes in the near term.
In accounting for income taxes, we recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the tax basis of assets and liabilities. The deferred tax assets and liabilities are determined based on the enacted tax rates expected to apply in the periods in which the deferred tax assets or liabilities are expected to be settled or realized. The Company made an accounting policy election in 2018 related to the Tax Act to provide for the tax expense related to GILTI in the year the tax is incurred.
Prior to the enactment of the Tax Act in December 2017, the Company had not provided for taxes on the undistributed earnings of its foreign subsidiaries as the Company either reinvested or intended to reinvest those earnings outside of the United States. Because of the 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. The Company has recorded $2 million of deferred foreign tax expense with respect to certain earnings that are not considered permanently reinvested. Deferred taxes have not been provided on earnings considered indefinitely reinvested.
We account for uncertainty in income taxes by prescribing thresholds and attributes for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. We may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. We record any interest and/or penalties related to uncertain tax positions in the income tax expense line on our Consolidated Statements of Income. As of December 31, 2020, the Company has a total of $39 million of unrecognized tax benefits, of which $18 million is included in the other liabilities section of the Company’s consolidated balance sheet as a non-current liability. The remaining balance of $21 million of uncertain tax positions relates to certain tax attributes generated by the Company which are netted against the underlying deferred tax assets recorded on the balance sheet.
We regularly review our deferred tax assets for recoverability and establish a valuation allowance if it is more likely than not that some portion or all of a deferred tax asset will not be realized. We have recorded $51 million in 2020 and $45 million in 2019 for valuation allowances, a majority of which offset our California R&D tax credit carryfoward, as the Company expects to continue to generate excess California R&D tax credits into the foreseeable future.
On January 1, 2020, we transferred certain of our intellectual property among our wholly-owned subsidiaries, which resulted in the recognition of deferred tax assets of $157 million. The recognition of deferred tax assets from intra-entity transfers of intellectual property required us to make significant estimates and assumptions to determine the fair value of such intellectual property. Significant assumptions in valuing the intellectual property include, but are not limited to, internal revenue and expense forecasts, and the discount rate. The sustainability of our future tax benefits is dependent upon the acceptance of these valuation estimates and assumptions by the taxing authorities.
We measure compensation cost for stock awards at fair value and recognize compensation expense over the service period. In addition, we issue performance-based awards that vest only if specific performance conditions are satisfied. The number of shares that will be earned can vary based on actual performance. No shares will vest if the threshold objectives are not met. In the event the objectives are exceeded, additional shares will vest up to a maximum payout. The cost of these awards is expensed over the performance period based upon management’s estimate and analysis of the probability of meeting the performance criteria. Because the actual number of shares to be awarded is not known until the end of the performance period, the actual compensation expense related to these awards could differ from our current expectations. We account for forfeitures as they occur instead of estimating forfeitures at the time of grant and revising those estimates in subsequent periods if actual forfeitures differ from our estimates.
Goodwill and Acquired Intangible Assets
The Company reviews goodwill for impairment annually and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. For 2019, the Company performed a quantitative impairment test. In this test, the Company compares the fair value of each reporting unit to its carrying value. The Company typically determines the fair value of its reporting units using a weighting of fair values derived from the income and market approaches. Under the income approach, the Company calculates the fair value of a reporting unit based on the present value of estimated future cash flows. The market approach estimates fair value based on market multiples of revenue and earnings derived from comparable companies with similar operating and investment characteristics as the reporting unit. If the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that unit, goodwill is not impaired. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, then the company records an impairment loss equal to the difference. In the fourth quarter of 2020, the Company performed its annual impairment test of goodwill and determined that no impairment to the carrying value of goodwill was necessary.
Determining the fair value of goodwill and acquired intangibles is judgmental in nature and involves the use of significant estimates and assumptions. These estimates and assumptions include revenue growth rates and operating margins used to calculate projected future cash flows, discount rates and future economic and market conditions. The company’s estimates are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable. These valuations require the use of management’s assumptions, which may not reflect unanticipated events and circumstances that may occur.
On January 1, 2019, the Company adopted ASU No. 2016-02, "Leases (Topic 842)", which requires leases with durations greater than twelve months to be recognized on the balance sheet. We determine if a contract contains a lease at inception. Our material operating leases consist of automobiles in certain countries and real estate, including office, storage and parking space. Our operating leases generally have remaining terms of 2-6 years. Our finance leases primarily consist of equipment financed for the purpose of delivering services to our customers and generally have terms of 3 years.
Operating lease assets and liabilities are recognized at the lease commencement date. Operating lease liabilities represent the present value of lease payments not yet paid. Operating lease assets represent our right to use an underlying asset and are based upon the operating lease liabilities adjusted for prepayments or accrued lease payments, initial direct costs, lease incentives, and impairment of operating lease assets. To determine the present value of lease payments not yet paid, when available, the we use the rate implicit in the lease. However, real estate
leases do not typically provide a readily determinable implicit rate. Therefore, we estimate the incremental borrowing rate to discount the lease payments based on information available at lease commencement. The incremental borrowing rate used in the calculation of the lease liability is based on the secured rate associated with financed lease obligations for each location of leased property. Many of our leases include variable rental escalation clauses which are recognized when incurred. Some of our leases also include renewal options and/or termination options that are factored into the determination of lease payments and lease terms when it is reasonably certain that the Company will exercise these options. Lease agreements do not contain any material residual value guarantees or material restrictive covenants. Leases with an initial term of 12 months or less are not recorded on the balance sheet. Changes in judgments and estimates, such as the likelihood of renewal options, impairments, or the incremental borrowing rate could impact the amounts of assets or liabilities recorded or could impact the amount of cost or expense recognized between periods.
Pension and Postemployment Benefits
We measure pension and postemployment benefit costs and credits using actuarial valuations. Actuarial assumptions attempt to anticipate future events and are used in calculating the expense and liability relating to these plans. These factors include assumptions we make about interest rates, expected investment return on plan assets, total and involuntary turnover rates, and rates of future compensation increases. In addition, our actuarial consultants also use subjective factors such as withdrawal rates and mortality rates to develop our valuations. We review and update these assumptions on an annual basis at the beginning of each fiscal year. We are required to consider current market conditions, including changes in interest rates, in making these assumptions. The actuarial assumptions that we use may differ materially from actual results due to changing market and economic conditions, higher or lower withdrawal rates, or longer or shorter life spans of participants. These differences may result in a significant impact to the measurement of our pension and postemployment benefit obligations and to the amount of pension and postemployment benefits expense we have recorded or may record. For example, as of December 31, 2020, a one-half percent increase/decrease in the discount rate would change the projected benefit obligation of our pension plans by approximately $13 million, and a one-half percent increase/decrease in our involuntary turnover assumption would change our postemployment benefit obligation by approximately $9 million.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
A discussion of recently issued accounting pronouncements is described in "Note 1—Description of Business, Basis of Presentation and Significant Accounting Policies" in the Notes to Consolidated Financial Statements elsewhere in this Annual Report, and we incorporate such discussion by reference.
|Item 7A.||QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK|
The Company employs a foreign currency hedging strategy to limit potential losses in earnings or cash flows from adverse foreign currency exchange rate movements. Foreign currency exposures arise from transactions denominated in a currency other than the Company’s functional currency and from foreign denominated revenue and profit translated into U.S. dollars. The primary currencies to which the Company is exposed include the euro, the British pound, the Japanese yen, the Australian dollar, the Chinese yuan, the Canadian dollar and other Asian and South American currencies. Exposures are hedged with foreign currency forward contracts with maturity dates of twelve months or less. The potential loss in fair value at December 31, 2020, for such contracts resulting from a hypothetical 10% adverse change in all foreign currency exchange rates is approximately $3 million. This loss would be mitigated by corresponding gains on the underlying exposures.
In June 2018, Teradata executed a five-year interest rate swap with a $500 million initial notional amount to hedge the floating interest rate of its Term Loan, as more fully described in "Note 12 - Debt" in the Notes to Consolidated Financial Statements elsewhere in this Annual Report. The Company uses interest rate swaps to manage interest rate risks on future interest payments caused by interest rate changes on its variable rate term loan facility. The notional amount of the hedge will step-down according to the amortization schedule of the term loan. The fair value of these contracts and swaps are measured at the end of each reporting period using observable inputs other than quoted prices, specifically market spot and forward exchange rates. The fair value of interest rate swaps recorded in other
liabilities at December 31, 2020 was $27 million. A hypothetical 50 basis point increase/decrease in interest rates would result in a increase/decrease to the fair value of the hedge of approximately $5 million.
For additional information regarding the Company’s foreign currency hedging strategy and interest rate swaps, see "Note 9 - Derivative Instruments and Hedging Activities" in the Notes to Consolidated Financial Statements elsewhere in this Annual Report.
|Item 8.||FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA|
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Teradata Corporation
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Teradata Corporation and its subsidiaries (the “Company”) as of December 31, 2020 and 2019, and the related consolidated statements of income (loss), of comprehensive income (loss), of changes in stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2020, including the related notes and schedule of valuation and qualifying accounts for each of the three years in the period ended December 31, 2020 listed in the index appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Changes in Accounting Principles
As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019 and the manner in which it accounts for revenues from contracts with customers in 2018.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Revenue Recognition - Evaluation of Nonstandard Terms and Conditions with Customers
As described in Notes 1 and 3 to the consolidated financial statements, the Company has $1,836 million of total revenue for the year ended December 31, 2020, of which a significant portion is generated from revenue with contracts which contain multiple performance obligations. When the Company enters into contracts with multiple performance obligations, management allocates the contract’s transaction price to each performance obligation using the relative standalone selling price of each distinct good or service in the contract. As disclosed by management, revenue recognition for complex contractual arrangements requires judgment, including a review of specific contracts and other factors. Specifically, complex arrangements with nonstandard terms and conditions may require significant contract interpretation to determine the appropriate accounting, including the determination whether promised goods or services are capable of being distinct and distinct within the context of the contract. If these criteria are not met, the promised goods or services are combined with other goods or services and accounted for as a combined performance obligation.
The principal considerations for our determination that performing procedures relating to revenue recognition, specifically related to the evaluation of nonstandard terms and conditions with customers, is a critical audit matter are the significant judgment by management in evaluating the impact of nonstandard terms and conditions with customers on revenue recognition and determining the appropriate revenue recognition. This in turn led to a high
degree of auditor judgment, subjectivity, and effort in performing procedures to evaluate the impact of nonstandard terms and conditions on revenue recognition.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the revenue recognition process, including controls over the evaluation of the impact of nonstandard terms and conditions with customers on revenue recognition. These procedures also included, among others (i) evaluating and testing management’s process for determining whether the criteria for revenue recognition have been met based on the specific terms and performance under the arrangement, and (ii) examining revenue arrangements on a test basis, which included evaluating the impact of nonstandard terms and conditions with customers on revenue recognition.
Valuation of Intra-Entity Transferred Intellectual Property that Give Rise to Deferred Tax Assets
As described in Note 6 to the consolidated financial statements, on January 1, 2020, the Company transferred certain of its intellectual property among its wholly-owned subsidiaries, which resulted in the recognition of deferred tax assets of $157 million. The recognition of deferred tax assets from intra-entity transfers of intellectual property requires management to make significant estimates and assumptions to determine the fair value of such intellectual property, using a discounted cash flow model. Significant assumptions in valuing the intellectual property include, but are not limited to, internal revenue and expense forecasts and the discount rate.
The principal considerations for our determination that performing procedures relating to valuation of intra-entity transferred intellectual property that give rise to deferred tax assets is a critical audit matter are (i) the significant judgment by management in determining the fair value of the intellectual property transferred, which was used by management as the basis for recognizing the deferred tax assets, (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to internal revenue and expense forecasts and the discount rate, (iii) the evaluation of audit evidence available to support the fair value of the intellectual property transferred is complex and resulted in significant auditor judgment as the nature of the evidence is highly subjective, and (iv) the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to deferred tax assets, including controls over management’s valuation of the intellectual property transferred and controls over development of the internal revenue and expense forecasts and the discount rate used in the valuation of the intellectual property. These procedures also included, among others, (i) testing management’s process for developing the fair value estimate of the intellectual property transferred; (ii) evaluating the appropriateness of the discounted cash flow model used to estimate the fair value; (iii) testing the completeness and accuracy of data used in the model; and (iv) evaluating the significant assumptions used by management related to internal revenue and expense forecasts, and the discount rate. Evaluating management’s assumptions related to internal revenue and expense forecasts involved evaluating whether the assumptions used by management were reasonable considering current and past performance of the business and evaluating the accuracy of management’s historical forecasting, as well as industry results and projections. The discount rate was evaluated by considering the cost of capital of comparable businesses and other industry factors. Professionals with specialized skill and knowledge were used to assist in the evaluation of the Company’s model and the discount rate assumption.
|/s/ PricewaterhouseCoopers LLP|
|February 26, 2021|
We have served as the Company’s auditor since 2007.
Consolidated Statements of Income (Loss)
In millions, except per share amounts
|For the Years Ended December 31|
|Subscription software licenses||$||$||$|
|Services and other|
|Perpetual software licenses and hardware|
|Cost of revenue|
|Subscription software licenses|
|Services and other|
|Perpetual software licenses and hardware|
|Total cost of revenue|
|Selling, general and administrative expenses|
|Research and development expenses|
|Total operating expenses|
|Income from operations|
|Other expense, net|
|Total other expense, net||(||(||(|
|(Loss) income before income taxes||(||(|
|Income tax (benefit) expense||(||(|
|Net income (loss)||$||$||(||$|
|Net income (loss) per weighted average common share|
|Weighted average common shares outstanding|
The accompanying notes are an integral part of the consolidated financial statements.
Consolidated Statements of Comprehensive Income (Loss)
|For the Years Ended December 31|
|Net income (loss)||$||$||(||$|
|Other comprehensive loss:|
|Foreign currency translation adjustments||(||(|
|Unrealized loss on derivatives, before tax||(||(||(|
|Unrealized loss on derivatives, tax portion|
|Unrealized loss on derivatives, net of tax||(||(||(|
|Defined benefit plans:|
|Reclassification of loss to net income (loss)|
|Defined benefit plan adjustment, before tax||(||(||(|
|Defined benefit plan adjustment, tax portion|
|Defined benefit plan adjustment, net of tax||(||(||(|
|Other comprehensive loss||(||(||(|
|Comprehensive income (loss)||$||$||(||$|
The accompanying notes are an integral part of the consolidated financial statements.
Consolidated Balance Sheets
In millions, except per share amounts
|At December 31|
|Cash and cash equivalents||$||$|
|Accounts receivable, net|
|Other current assets|
|Total current assets|
|Property and equipment, net|
|Right of use assets - operating lease, net|
|Capitalized contract costs, net|
|Deferred income taxes|
|Liabilities and stockholders’ equity|
|Current portion of long-term debt||$||$|
|Current portion of finance lease liability|
|Current portion of operating lease liability|
|Payroll and benefits liabilities|
|Other current liabilities|
|Total current liabilities|
|Finance lease liability|
|Operating lease liability|
|Pension and other postemployment plan liabilities|
|Long-term deferred revenue|
|Deferred tax liabilities|
|Commitments and contingencies (Note 10)|
Preferred stock: par value $
Common stock: par value $
|Accumulated other comprehensive loss||(||(|
|Total stockholders’ equity|
|Total liabilities and stockholders’ equity||$||$|
The accompanying notes are an integral part of the consolidated financial statements.
Consolidated Statements of Cash Flows
|For the Years Ended December 31|
|Net income (loss)||$||$||(||$|
|Adjustments to reconcile net income (loss) to net cash provided by operating activities:|
|Depreciation and amortization|
|Stock-based compensation expense|
|Deferred income taxes||(||(||(|
|Changes in assets and liabilities:|
|Account payables and accrued expenses||(|
|Other assets and liabilities||(||(||(|
|Net cash provided by operating activities|
|Expenditures for property and equipment||(||(||(|
|Additions to capitalized software||(||(||(|
|Other investing activities, net|