Teradata Corporation — Fiscal 2021 Form 10-K Summary
Business context and reporting period
Teradata provides the Vantage connected multi-cloud data platform for enterprise analytics, supporting on-premises, private-cloud and public-cloud deployments, together with consulting and support services. This Form 10-K covers the fiscal year ended December 31, 2021; the filing is annual rather than a standalone fourth-quarter report.
Teradata generated approximately 54% of revenue from the Americas and 46% internationally. It had approximately 7,200 employees, operated in 32 countries and reported no customer representing 10% or more of revenue.
Key financial metrics
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Revenue | $1.917 billion | $1.836 billion | Up 4% |
| Recurring revenue | $1.464 billion | $1.309 billion | Up 12% |
| Perpetual software, hardware and other revenue | $77 million | $107 million | Down 28% |
| Consulting services revenue | $376 million | $420 million | Down 10% |
| Gross profit | $1.186 billion | $1.019 billion | Up 16% |
| Gross margin | 61.9% | 55.5% | Up 6.4 percentage points |
| Operating income | $231 million | $16 million | Up $215 million |
| Net income | $147 million | $129 million | Up 14% |
| Diluted EPS | $1.30 | $1.16 | Up 12% |
| Cash flow from operations | $463 million | $267 million | Up $196 million |
| Free cash flow | $432 million | $216 million | Up $216 million |
Free cash flow is a non-GAAP measure defined by Teradata as operating cash flow less property-and-equipment expenditures and additions to capitalized software.
- Year-end cash and cash equivalents were $592 million, including $401 million held outside the United States.
- Total debt principal was approximately $413 million at year-end, consisting of the term loan; $88 million was classified as current. The $400 million revolving credit facility had no borrowings outstanding.
- Teradata stated that cash, operating cash flow and available credit capacity should be sufficient for at least the next twelve months.
- ARR was $1.492 billion, up 5%; Public Cloud ARR was $202 million, up 91%. Subscription ARR was $898 million, while maintenance and software-upgrade-rights ARR was $392 million, down 20%.
- Share repurchases totaled approximately $244 million in cash, with 5.8 million shares repurchased at an average price of $41.94.
Material changes versus the prior comparable period
- Revenue growth was driven by the transition from perpetual transactions to subscription and cloud offerings. Recurring revenue represented 76.4% of total revenue versus 71.3% in 2020.
- Gross margin improved primarily because of the higher recurring-revenue mix and improved operating efficiencies in subscription and cloud offerings.
- Operating expenses declined 5% to $955 million, reflecting workforce reductions and cost discipline, partly offset by increased cloud-related investments and incentive compensation.
- Consulting revenue declined as Teradata focused its resources on higher-margin, Vantage-oriented engagements.
- Operating cash flow and free cash flow increased substantially, primarily because of improved profitability and working-capital timing.
- The 2020 results included a substantial one-time tax benefit, including a $157 million benefit related to an intra-entity intellectual-property transfer. Accordingly, the 2020 637.5% effective tax rate and $129 million net income are not directly comparable with normal operating performance. The 2021 effective tax rate was 23.4%.
- Teradata incurred approximately $13 million of 2021 costs related to workforce reduction, real-estate rationalization and other business-transformation actions.
Guidance, outlook, risks and unusual items
- For 2022, management expected recurring revenue growth in the low-to-mid-single digits and total revenue growth ranging from flat to low-single digits.
- Public Cloud ARR was expected to increase approximately 80%, with total ARR growth in the mid-to-high-single digits.
- Perpetual software, hardware and other revenue was expected to continue declining, while consulting services revenue was forecast to decline by a low-double-digit percentage.
- Management expected 2022 gross margin to be slightly below 2021, operating expenses to increase due to investments in cloud research and development, go-to-market activities and customer success, and the effective tax rate to be approximately 32%.
- Based on January 31, 2022 currency rates, management estimated a 2.0% to 2.5% negative foreign-currency translation impact on 2022 revenue.
- Key risks include execution of the cloud-first transformation, intense competition from large cloud providers and cloud-native data vendors, subscription renewals and cancellations, unpredictable sales cycles and consumption, cybersecurity and data privacy, foreign exchange, inflation, supply-chain reliance on Flex and other suppliers, talent retention, and global economic and COVID-19 uncertainty.
- At December 31, 2021, purchase obligations totaled $611 million and remaining transition-tax obligations totaled $69 million. Unrecognized tax benefits were approximately $43 million.
- Teradata and SAP remained involved in related litigation and counterclaims. The filing states that the likelihood and range of any loss from remaining SAP patent counterclaims could not be reasonably estimated.
- On February 9, 2022, Teradata entered into a $250 million accelerated share repurchase agreement and initially received approximately 3.9 million shares.
- Management and the independent auditor concluded that internal control over financial reporting was effective as of December 31, 2021. No goodwill impairment was recorded.
Important facts for investors to verify
- Whether rapid Public Cloud ARR growth converts into sustained revenue growth and durable cash generation.
- The pace of decline in perpetual, hardware and consulting revenue relative to subscription and cloud expansion.
- Renewal rates, customer cancellations, cloud net expansion and the quality of the reported ARR balance.
- Execution against 2022 guidance, including higher operating investment and the expected currency headwind.
- Debt repayment requirements, including the $88 million scheduled term-loan payment in 2022 and the remaining $325 million due in 2023.
- The final share count and cash impact of the February 2022 accelerated share repurchase agreement.
- Potential financial or operational effects from SAP litigation, tax examinations, supplier concentration, cybersecurity incidents and data-privacy regulation.