Teradata Corporation 2020 Form 10-K Summary
Business Context and Reporting Period
Teradata provides the Vantage multi-cloud enterprise data warehouse platform, including on-premises, private-cloud and public-cloud deployments, subscription offerings, consulting and support services. The filing covers the fiscal year ended December 31, 2020; the source does not provide a separate fourth-quarter income statement summary.
Revenue was generated 56% in the Americas and 44% internationally. Teradata had approximately 7,543 employees at year-end, after reducing headcount by approximately 10% during 2020 as part of its cloud-first transformation.
Financial and Operating Metrics
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Total revenue | $1.836 billion | $1.899 billion | Down 3% |
| Recurring revenue | $1.451 billion | $1.362 billion | Up 7% |
| Perpetual software licenses and hardware | $73 million | $106 million | Down 31% |
| Consulting services | $312 million | $431 million | Down 28% |
| Gross profit | $1.019 billion | $955 million | Up 7% |
| Gross margin | 55.5% | 50.3% | Up 5.2 points |
| Operating income | $16 million | $10 million | Up $6 million |
| Net income (loss) | $129 million | $(20) million | Improved $149 million |
| Diluted EPS | $1.16 | $(0.18) | Improved |
| Operating cash flow | $267 million | $148 million | Up $119 million |
| Free cash flow | $216 million | $89 million | Up $127 million |
Recurring revenue represented 79.0% of total revenue, compared with 71.7% in 2019. The higher recurring mix supported gross-margin expansion, although subscription offerings generally carry lower margins than legacy maintenance revenue.
- Annual recurring revenue was $1.587 billion, up 11% from $1.427 billion.
- Public-cloud ARR was $106 million, up 165% from $40 million.
- Backlog was $2.921 billion, up 7% from $2.7 billion; approximately $1.538 billion was expected to be recognized within one year.
- Cash and cash equivalents were $529 million, up from $494 million.
- Capital expenditures were $44 million and capitalized software additions were $7 million.
- Teradata repurchased approximately 4.8 million shares for $100 million at an average price of $20.81. Approximately $416 million remained under the general repurchase authorization.
Debt, Liquidity and Balance Sheet
Total debt consisted primarily of a $456 million term loan, including $44 million classified as current, and finance lease liabilities of $145 million. The $400 million revolving credit facility had no borrowings outstanding, leaving $400 million of availability. The term loan matures in 2023, with $325 million of principal scheduled for repayment in 2023. The company was in compliance with its debt covenants at year-end.
Total assets were $2.193 billion and total liabilities were $1.793 billion. Deferred revenue totaled $537 million. Management stated that cash, operating cash flow and available credit were sufficient to meet operating and financing requirements for at least the next 12 months.
Material Changes Versus the Prior Comparable Period
- The company continued shifting from perpetual licenses and hardware toward subscriptions and cloud consumption, increasing recurring revenue and reducing upfront revenue from perpetual transactions.
- Consulting revenue declined because of the strategic reduction of lower-priority engagements and COVID-19-related project delays and cancellations.
- Operating expenses increased 6% to $1.003 billion, driven by the voluntary separation program, cloud-transformation investment, go-to-market and customer-success investments, and higher stock-based compensation.
- The company recorded $42 million of 2020 transformation and restructuring costs, with additional costs expected in 2021. Total estimated costs for the 2020 actions were $55 million to $65 million, with estimated cash expenditures of approximately $65 million to $75 million.
- Net income was materially affected by a $153 million income-tax benefit, including a $157 million deferred tax benefit related to an intra-company intellectual-property transfer and a $13 million CARES Act benefit. The resulting 637.5% effective tax rate is not representative of normal operating profitability.
- Cash flow improved primarily through better working-capital management, while share repurchases declined from $300 million in 2019 to $100 million in 2020.
Guidance, Outlook, Commentary and Risks
- Management expected 2021 ARR and recurring-revenue growth in the mid- to high-single-digit range, public-cloud ARR growth of at least 100%, and total-revenue growth in the low-single-digit range.
- Management expected a 2021 effective tax rate of approximately 29%.
- Teradata expected approximately two percentage points of positive foreign-currency translation impact on 2021 revenue based on exchange rates as of January 31, 2021.
- Management described the COVID-19 impact as significant during early 2020, followed by recovery in the second half. Consulting remained affected, and future impacts on customers, collections, sales cycles, supply chains and employee productivity remained uncertain.
- Key strategic risks include failure to execute the cloud-first transformation, customer non-renewals, uncertain consumption-based revenue, intense competition from major cloud and analytics providers, pricing pressure, cybersecurity and data-privacy exposure, foreign-currency volatility, reliance on public-cloud partners and supplier Flex, and the ability to retain cloud and sales talent.
- Teradata is involved in litigation with SAP concerning alleged trade-secret misuse, alleged anticompetitive conduct and patent infringement. SAP also asserted additional U.S. patent counterclaims and filed a German patent action; the filing states that the likelihood and amount of any loss cannot currently be determined.
- The company had no goodwill impairment in 2020. Its independent auditor reported that the financial statements and internal control over financial reporting were fairly presented and effective as of December 31, 2020.
Important Facts for Investors to Verify
- Whether projected 2021 cloud ARR growth of at least 100% and low-single-digit total-revenue growth were achieved.
- Subscription renewal rates, customer retention and the durability of the $1.587 billion ARR base.
- The effect of the shift to subscriptions and hardware rentals on recurring gross margins and cash conversion.
- Actual 2021 restructuring costs, cash expenditures and expected savings from workforce and real-estate reductions.
- The sustainability of tax benefits recognized in 2020, particularly the $157 million intellectual-property-transfer benefit and the $13 million CARES Act benefit.
- Progress on reducing the $456 million term loan and refinancing or repayment requirements due in 2023.
- Developments in the SAP litigation, cybersecurity matters, customer cancellations and COVID-19-related operating impacts.