tdc-20240331

SEC Form 10-Q filed by Teradata Corporation

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2024


☐			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 001-33458

TERADATA CORPORATION

(Exact name of registrant as specified in its charter)


Delaware						75-3236470
(State or other jurisdiction of						(I.R.S. Employer
incorporation or organization)						Identification No.)

17095 Via Del Campo

San Diego, California 92127

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (866) 548-8348

Securities registered pursuant to Section 12(b) of the Act:

Title of each class:

Trading Symbol

Name of Each Exchange on which Registered:

Common Stock, $0.01 par value

TDC

New York Stock Exchange

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. Yes ý No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation 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). Yes ý No ¨

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.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

☐

Emerging growth company

☐

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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ý

At April 26, 2024, the registrant had approximately 96.7 million shares of common stock outstanding.

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PART I—FINANCIAL INFORMATION




	Description	Page

Item 1.	Financial Statements

	Condensed Consolidated Statements of Income (Unaudited) Three Months Ended March 3 1 , 202 4 and 202 3	4

	Condensed Consolidated Statements of Comprehensive Income (Unaudited) Three Months Ended March 3 1 , 202 4 and 202 3	5

	Condensed Consolidated Balance Sheets (Unaudited) March 3 1 , 202 4 and December 31, 2023	6

	Condensed Consolidated Statements of Cash Flows (Unaudited) Three Months Ended March 3 1 , 202 4 and 202 3	7

	Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) Three Months Ended March 3 1 , 202 4 and 202 3	8

	Notes to Condensed Consolidated Financial Statements (Unaudited)	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28

Item 4.	Controls and Procedures	29

PART II—OTHER INFORMATION

	Description	Page

Item 1.	Legal Proceedings	29

Item 1A.	Risk Factors	29

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds .	30

Item 3.	Defaults Upon Senior Securities	30

Item 4.	Mine Safety Disclosures	30

Item 5.	Other Information	31

Item 6.	Exhibits	32

	Signatures	33

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Part 1—FINANCIAL INFORMATION


Item 1.			Financial Statements.

Teradata Corporation

Condensed Consolidated Statements of Income (Unaudited)


	Three Months Ended March 31,
In millions, except per share amounts	2024		2023
Revenue
Subscription software licenses	$	90	$	104
Services and other	298		285
Total recurring	388		389
Perpetual software licenses, hardware and other	8		13
Consulting services	69		74
Total revenue	465		476
Cost of revenue
Subscription software licenses	5		6
Services and other	107		92
Total recurring	112		98
Perpetual software licenses, hardware and other	8		11
Consulting services	61		65
Total cost of revenue	181		174
Gross profit	284		302
Operating expenses
Selling, general and administrative expenses	161		153
Research and development expenses	75		70
Total operating expenses	236		223
Income from operations	48		79
Other expense, net
Interest expense	(8)		(7)
Interest income	4		7
Other expense	(12)		(21)
Total other expense, net	(16)		(21)
Income before income taxes	32		58
Income tax expense	12		18
Net income	$	20	$	40
Net income per common share
Basic	$	0.21	$	0.39
Diluted	$	0.20	$	0.39
Weighted average common shares outstanding
Basic	97.4		101.4
Diluted	100.1		103.8

See Notes to Condensed Consolidated Financial Statements (Unaudited).

Teradata Corporation

Condensed Consolidated Statements of Comprehensive Income (Unaudited)


	Three Months Ended March 31,
In millions	2024		2023
Net income	$	20	$	40
Other comprehensive income (loss):
Foreign currency translation adjustments	(10)		3
Unrealized gain (loss) on cross-currency net investment hedge, before tax	3		(1)
Unrealized gain (loss) on cross-currency net investment hedge, tax portion	(1)		—
Total currency translation adjustments	(8)		2
Derivatives:
Unrealized gain (loss) on derivatives, before tax	5		(6)
Unrealized gain (loss) on derivatives, tax portion	(1)		1
Unrealized gain (loss) on derivatives, net of tax	4		(5)
Defined benefit plans:
Defined benefit plan adjustment, before tax	2		2
Defined benefit plan adjustment, tax portion	(1)		—
Defined benefit plan adjustment, net of tax	1		2
Other comprehensive loss	(3)		(1)
Comprehensive income	$	17	$	39

See Notes to Condensed Consolidated Financial Statements (Unaudited).

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Teradata Corporation

Condensed Consolidated Balance Sheets (Unaudited)


In millions, except per share amounts	March 31, 2024		December 31, 2023
Assets
Current assets
Cash and cash equivalents	$	337	$	486
Accounts receivable, net	311		286
Inventories	16		13
Other current assets	105		84
Total current assets	769		869
Property and equipment, net	227		239
Right of use assets - operating lease, net	7		9
Goodwill	396		398
Capitalized contract costs, net	59		68
Deferred income taxes	204		221
Other assets	83		69
Total assets	$	1,745	$	1,873
Liabilities and stockholders’ equity
Current liabilities
Current portion of long-term debt	$	25	$	19
Current portion of finance lease liability	64		66
Current portion of operating lease liability	5		6

Accounts payable	119		100
Payroll and benefits liabilities	92		130
Deferred revenue	573		570
Other current liabilities	105		105
Total current liabilities	983		996
Long-term debt	474		480
Finance lease liability	57		63
Operating lease liability	4		6
Pension and other postemployment plan liabilities	94		102
Long-term deferred revenue	13		22
Deferred tax liabilities	8		8
Other liabilities	58		61
Total liabilities	1,691		1,738
Commitments and contingencies (Note 8)
Stockholders’ equity
Preferred stock: par value $0.01 per share, 100.0 shares authorized, no shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively	—		—
Common stock: par value $0.01 per share, 500.0 shares authorized, 98.3 and 97.9 shares issued at March 31, 2024 and December 31, 2023, respectively	1		1
Paid-in capital	2,103		2,074

Accumulated deficit	(1,918)		(1,811)
Accumulated other comprehensive loss	(132)		(129)
Total stockholders’ equity	54		135
Total liabilities and stockholders’ equity	$	1,745	$	1,873

See Notes to Condensed Consolidated Financial Statements (Unaudited).

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Teradata Corporation

Condensed Consolidated Statements of Cash Flows (Unaudited)


	Three Months Ended March 31,
In millions	2024		2023
Operating activities
Net income	$	20	$	40
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	27		28
Stock-based compensation expense	34		28
Deferred income taxes	12		7
Loss on Blue Chip Swap	2		—
Changes in assets and liabilities:
Receivables	(25)		23
Inventories	(3)		1
Current payables and accrued expenses	(30)		(41)
Deferred revenue	(6)		41
Other assets and liabilities	(4)		(18)
Net cash provided by operating activities	27		109
Investing activities
Expenditures for property and equipment	(6)		(4)



Other investing activities, net	(2)		—
Net cash used in investing activities	(8)		(4)
Financing activities
Repurchases of common stock	(124)		(84)




Payments of finance leases	(20)		(20)
Other financing activities, net	(6)		(7)
Net cash used in financing activities	(150)		(111)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(17)		(10)
Decrease in cash, cash equivalents and restricted cash	(148)		(16)
Cash, cash equivalents and restricted cash at beginning of period	486		571
Cash, cash equivalents and restricted cash at end of period	$	338	$	555

Supplemental cash flow disclosure:
Assets acquired under operating lease	$	—	$	1
Assets acquired under finance lease	$	11	$	30

Reconciliation of cash, cash equivalents and restricted cash to the Condensed Consolidated Balance Sheets:


	March 31, 2024		December 31, 2023
Cash and cash equivalents	$	337	$	486
Restricted cash	1		—
Total cash, cash equivalents and restricted cash	$	338	$	486

See Notes to Condensed Consolidated Financial Statements (Unaudited).

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Teradata Corporation

Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)


	Common Stock			Paid-in		Accumulated		Accumulated Other Comprehensive
In millions	Shares	Amount		Capital		Deficit		Loss		Total
December 31, 2023	98	$	1	$	2,074	$	(1,811)	$	(129)	$	135
Net income	—	—		—		20		—		20
Employee stock compensation, employee stock purchase programs and option exercises, net of tax	3	—		29		—		—		29

Repurchases of common stock, retired	(3)	—		—		(127)		—		(127)
Pension and postemployment benefit plans, net of tax	—	—		—		—		1		1
Unrealized gain on derivatives, net of tax	—	—		—		—		4		4
Currency translation adjustment	—	—		—		—		(8)		(8)
March 31, 2024	98	$	1	$	2,103	$	(1,918)	$	(132)	$	54


	Common Stock			Paid-in		Accumulated		Accumulated Other Comprehensive
In millions	Shares	Amount		Capital		Deficit		Loss		Total
December 31, 2022	101	$	1	$	1,941	$	(1,565)	$	(119)	$	258
Net income	—	—		—		40		—		40
Employee stock compensation, employee stock purchase programs and option exercises, net of tax	3	—		21		—		—		21

Repurchases of common stock, retired	(2)	—		—		(88)		—		(88)
Pension and postemployment benefit plans, net of tax	—	—		—		—		2		2
Unrealized loss on derivatives, net of tax	—	—		—		—		(5)		(5)
Currency translation adjustment	—	—		—		—		2		2
March 31, 2023	102	$	1	$	1,962	$	(1,613)	$	(120)	$	230

See Notes to Condensed Consolidated Financial Statements (Unaudited).

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Notes to Condensed Consolidated Financial Statements (Unaudited)

1. Basis of Presentation

These statements have been prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission ("SEC") and, in accordance with those rules and regulations, do not include all information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). In the opinion of management, the condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary to fairly state the results of operations, financial position and cash flows of Teradata Corporation ("Teradata" or the "Company") for the interim periods presented herein. The year-end 2023 condensed consolidated balance sheet data was derived from audited financial statements but does not include all disclosures required by GAAP. The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make use of estimates and assumptions that affect the reported amounts and disclosures. Actual results may vary from these estimates.

These condensed consolidated interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in Teradata’s most recent Annual Report on Form 10-K for the fiscal year ended December 31, 2023 (the "2023 Annual Report"). The results of operations for any interim period are not necessarily indicative of the results of operations to be expected for the full year.

2. New Accounting Pronouncements

In November 2023, the FASB issued ASU No. 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures." This standard requires disclosure of significant segment expenses and other segment items by reportable segment. This ASU becomes effective for annual periods beginning in 2024 and interim periods in 2025. We are assessing the impact of this ASU and upon adoption expect that any impact would be limited to additional segment expense disclosures in the footnotes to our Consolidated Financial Statements.

In December 2023, the FASB issued ASU No. 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures." This standard enhances disclosures related to income taxes, including the rate reconciliation and information on income taxes paid. This ASU becomes effective January 1, 2025. We are assessing the impact of this ASU and upon adoption may be required to include certain additional disclosures in the footnotes to our Consolidated Financial Statements.

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3. Revenue from Contracts with Customers

Disaggregation of Revenue from Contracts with Customers

The following table presents a disaggregation of revenue:


	Three Months Ended March 31,
in millions	2024		2023
Americas
Recurring	$	244	$	256
Perpetual software licenses, hardware and other	5		5
Consulting services	28		31
Total Americas	277		292
EMEA
Recurring	99		87
Perpetual software licenses, hardware and other	2		7
Consulting services	24		23
Total EMEA	125		117
APJ
Recurring	45		46
Perpetual software licenses, hardware and other	1		1
Consulting services	17		20
Total APJ	63		67
Total Revenue	$	465	$	476

Rental revenue, which is included in recurring revenue in the above table, was as follows:


	Three Months Ended March 31,
in millions	2024		2023
Rental revenue*	$	55	$	51

*Rental revenue includes hardware maintenance.

Contract Balances

The timing of revenue recognition, billings and cash collections results in billed accounts receivable, contract assets, and customer advances and deposits (deferred revenue or contract liabilities) on the condensed consolidated balance sheet. Accounts receivable include amounts due from customers that are unconditional. Contract assets relate to the Company’s rights to consideration for goods delivered or services completed and recognized as revenue but billing and the right to receive payment is conditional upon the completion of other performance obligations. Contract assets are included in other current assets on the balance sheet and are transferred to accounts receivable when the rights become unconditional. Deferred revenue consists of advance payments and billings in excess of revenue recognized. Deferred revenue is classified as either current or noncurrent based on the timing of when the Company expects to recognize revenue. These assets and liabilities are reported on a contract-by-contract basis at the end of each reporting period.

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The following table provides information about receivables, contract assets and deferred revenue from contracts with customers:


	As of
in millions	March 31, 2024		December 31, 2023
Accounts receivable, net	$	311	$	286
Contract assets	$	11	$	9
Current deferred revenue	$	573	$	570
Long-term deferred revenue	$	13	$	22

Revenue recognized during the three months ended March 31, 2024 from amounts included in deferred revenue at the beginning of the period was $150 million.

Transaction Price Allocated to Unsatisfied Obligations

The following table includes estimated revenue expected to be recognized in the future related to the Company's unsatisfied (or partially satisfied) obligations at March 31, 2024:

The amounts above represent the price of firm orders for which work has not been performed or goods have not been delivered and exclude unexercised contract options outside the stated contractual term that do not represent material rights to the customer. Although the Company believes that the contract value in the above table is firm, approximately $1,297 million of the amount is under contracts that are subject to customer-only general cancellation for convenience terms that the Company is contractually obligated to perform unless the customer notifies us of cancellation. The Company expects to recognize revenue of approximately $582 million in the next year from contracts that are non-cancelable. The Company believes the inclusion of this information is important to understanding the obligations that the Company is contractually required to perform and provides useful information regarding remaining obligations related to these executed contracts.

4. Contract Costs

The Company capitalizes sales commissions and other contract costs that are incremental direct costs of obtaining customer contracts if the expected amortization period of the asset is greater than one year. These costs are recorded in capitalized contract costs, net on the Company’s balance sheet. The capitalized amounts are calculated based on the annual recurring revenue and contract value for individual multi-term contracts. The judgments made in determining the amount of costs incurred include whether the commissions are in fact incremental and would not have occurred absent the customer contract. Costs to obtain a contract are amortized as selling, general and administrative expenses on a straight-line basis over the expected period of benefit, which is typically around four years. These costs are periodically reviewed for impairment. The following table identifies the activity relating to capitalized contract costs:


in millions	December 31, 2023		Capitalized		Amortization		March 31, 2024
Capitalized contract costs	$	68	$	—	$	(9)	$	59


in millions	December 31, 2022		Capitalized		Amortization		March 31, 2023
Capitalized contract costs	$	92	$	2	$	(10)	$	84

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5. Supplemental Financial Information


	As of
In millions	March 31, 2024		December 31, 2023
Inventories
Finished goods	$	14	$	11
Service parts	2		2
Total inventories	$	16	$	13

Deferred revenue
Deferred revenue, current	$	573	$	570
Long-term deferred revenue	13		22
Total deferred revenue	$	586	$	592


	Three Months Ended March 31,
In millions	2024		2023
Other expense
Foreign currency losses	$	9	$	18
Other	3		3
Total Other expense	$	12	$	21

Argentina Blue Chip Swap Transaction

The Central Bank of Argentina maintains currency controls that limit our ability to access U.S. dollars in Argentina and remit cash from our Argentine operations. There is a foreign exchange mechanism known as Blue Chip Swaps, which effectively results in a parallel U.S. dollar exchange rate. During February of 2024, we entered into a Blue Chip Swap transaction in order to remit cash from our Argentine operations that resulted in a pre-tax loss on investment of $2 million during the first quarter of 2024.

6. Income Taxes

Income tax provisions for interim periods are based on estimated annual income tax rates, adjusted to reflect the effects of any significant infrequent or unusual items which are required to be discretely recognized within the current interim period. The Company expects that a majority of its foreign earnings will be repatriated back to the United States ("U.S."). As a result, the effective tax rates in the periods presented are largely based upon the forecasted pre-tax earnings mix and allocation of certain expenses in various taxing jurisdictions where the Company conducts its business.

The effective tax rate is as follows:


	Three Months Ended March 31,
In millions	2024		2023
Effective tax rate	37.5	%	31.0	%

For the three months ended March 31, 2024, the Company recorded $1 million of net discrete tax expense, a majority of which related to additional tax expense from stock-based compensation vesting.

For the three months ended March 31, 2023, the Company recorded $2 million of net discrete tax benefits, a majority of which related to the excess tax benefit derived from stock-based compensation vesting.

Effective January 1, 2024, many jurisdictions where we conduct business, including several European Union members and G20 countries, have enacted a 15% global minimum tax on the income generated in each of the

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jurisdictions in which we operate, referred to as "Pillar Two" of the Global Anti-Base Erosion rules framework that was undertaken by the Organization for Economic Co-operation and Development ("OECD"). We are continuing to monitor developments and evaluate the impacts of the Pillar Two rules, however, as of the date of this Report on Form 10-Q, we do not expect the Pillar Two rules to have a material impact to our annual effective tax rate.

The Company estimates its annual effective tax rate for 2024 to be approximately 26.0%, which takes into consideration, among other things, the forecasted earnings mix by jurisdiction and the impact of discrete tax items to be recognized in 2024. Under U.S. tax law, U.S. shareholders are subject to a tax on global intangible low-taxed income ("GILTI") earned by certain foreign subsidiaries. The Company has elected to provide for the tax expense related to GILTI in the year in which the tax is incurred. Effective on January 1, 2022, the U.S. tax law changed and now requires R&D expenses to be capitalized and amortized for tax purposes under Internal Revenue Code Section 174, which increases the Company's GILTI tax liability. The Company is currently forecasting approximately $3 million of tax expense related to GILTI in our marginal effective tax rate for 2024.

7. Derivative Instruments and Hedging Activities

As a portion of Teradata’s operations is conducted outside the U.S. and in currencies other than the U.S. dollar, the Company is exposed to potential gains and losses from changes in foreign currency exchange rates. In an attempt to mitigate the impact of currency fluctuations, the Company uses foreign exchange forward contracts to hedge transactional exposures resulting predominantly from foreign currency denominated inter-company receivables and payables. The forward contracts are designated as fair value hedges of specified foreign currency denominated inter-company receivables and payables and generally mature in three months or less. The fair values of foreign exchange contracts are based on market spot and forward exchange rates and represent estimates of possible value that may not be realized in the future. Across its portfolio of contracts, Teradata has both long and short positions relative to the U.S. dollar. As a result, Teradata’s net exposure is less than the total contract notional amount of the Company’s foreign exchange forward contracts.

Gains and losses from foreign exchange forward contracts are fully recognized each period and reported along with the offsetting gain or loss of the related hedged item, either in cost of revenues, operating expenses or in other income (expense), depending on the nature of the related hedged item.

During June 2022, Teradata entered into a cross-currency swap designated as a net investment hedge, to hedge the Euro currency exposure of its net investment in certain foreign subsidiaries. This agreement is a contract to exchange fixed-rate payments in one currency for fixed-rate payments in another currency. Changes in the fair value of this swap are recorded in Accumulated Other Comprehensive Loss in the same manner as foreign currency translation adjustments. In assessing the effectiveness of this hedge, the Company used a method based on changes in spot rates to measure the impact of the foreign currency exchange rate fluctuations on both its foreign subsidiary net investment and the related swap.

The cross-currency swap contract has an expiration date of June 29, 2026. At maturity of the cross-currency swap contract, the Company will deliver the notional amount of €143 million and will receive $150 million from the counterparty. The Company will receive monthly interest payments from the counterparty based on a fixed interest rate until maturity of the agreements.

In June 2022, Teradata refinanced its long-term debt and its associated interest rate swap ("Prior Interest Rate Swap"), which were due to mature in June 2023. As a result, Teradata terminated its five-year London Interbank Offered Rate ("Libor") interest rate swap that had a $500 million initial notional amount to hedge the floating interest rate of its Libor term loan. On June 28, 2022, Teradata executed a five-year Secured Overnight Financing Rate ("SOFR") interest rate swap, to fix the interest rate on approximately 90% of the principal balance of the $500 million term loan, with an initial notional amount of $450 million. 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. The notional amount of the hedge steps down according to the amortization schedule of the term loan. The notional amount of the hedge was $450 million as of March 31, 2024.

The Company performed an initial effectiveness assessment on the interest rate swap and the net investment hedge foreign currency swap, and the hedges were determined to be effective. The hedges are being evaluated qualitatively on a quarterly basis for effectiveness. Changes in fair value are recorded in Accumulated Other Comprehensive

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Loss and periodic settlements of the swap will be recorded in interest expense along with the interest on amounts outstanding under the term loan.

The following table identifies the contract notional amount of the Company’s derivative financial instruments:


	As of
In millions	March 31, 2024		December 31, 2023
Contract notional amount of foreign exchange forward contracts	$	34	$	178
Net contract notional amount of foreign exchange forward contracts	$	3	$	1
Contract notional amount of foreign currency exchange (net investment hedge)	$	150	$	150
Contract notional amount of interest rate swap	$	450	$	450

All derivatives are recognized in the condensed consolidated balance sheets at their fair value. The notional amounts represent agreed-upon amounts on which calculations of dollars to be exchanged are based and are an indication of the extent of Teradata’s involvement in such instruments. These notional amounts do not represent amounts exchanged by the parties and, therefore, are not a measure of the instruments. Refer to Note 9 for disclosures related to the fair value of all derivative assets and liabilities.

The Company does not hold or issue derivative financial instruments for trading purposes, nor does it hold or issue leveraged derivative instruments. By using derivative financial instruments to hedge exposures to changes in foreign exchange and interest rates, the Company exposes itself to credit risk. The Company manages exposure to counterparty credit risk by entering into derivative financial instruments with highly rated institutions that can be expected to fully perform under the terms of the applicable contracts.

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8. Commitments and Contingencies

Legal Proceedings. In the ordinary course of business, the Company is subject to proceedings, lawsuits, governmental investigations, claims and other matters, including those that relate to the environment, health and safety, employee benefits, export compliance, intellectual property, tax matters, shareholder matters, and other regulatory compliance and general matters. It is not currently a party to any litigation, nor is it aware of any pending or threatened litigation against it that the Company believes would materially affect its business, operating results, financial condition or cash flows, other than the following.

On June 19, 2018, the Company and certain of its subsidiaries filed a lawsuit (the "TD-SAP 1" suit) in the U.S. District Court for the Northern District of California against SAP SE, SAP America, Inc., and SAP Labs, LLC (collectively, "SAP"). In the TD-SAP 1 lawsuit, the Company alleged, among other things, that SAP misappropriated certain of the Company’s trade secrets within the Company’s enterprise data analytics and warehousing products and used such trade secrets to help develop, improve, introduce, and sell one or more competing products. The Company further alleged that SAP employed anticompetitive practices using its substantial market position in the enterprise resource planning applications market to pressure the Company’s customers and prospective customers to use one or more of SAP's competing products and reduce or eliminate customers' and prospective customers' use of the Company's offerings. The Company sought an injunction barring SAP’s alleged conduct, monetary damages, and other available legal and equitable relief. In July 2019, SAP filed patent infringement counterclaims against the Company based on five of SAP’s U.S. patents. On August 31, 2020, the Company filed a second lawsuit against SAP (the "TD-SAP 2" suit) in the U.S. District Court for the Northern District of California, in which the Company alleged infringement by SAP of four of the Company's U.S. patents. On February 16, 2021, SAP filed additional patent infringement counterclaims against the Company in response. On the same day, SAP also filed a lawsuit in Germany (the "TD-SAP 3" suit) for infringement of a single German patent. In November 2021, the district court dismissed the Company’s antitrust claims and most of its trade secret claims in the TD-SAP 1 suit. In December 2021, the Company appealed that decision to the U.S. Court of Appeals for the Federal Circuit in Washington, D.C. That Court ruled the appeal should be heard by the Ninth Circuit Court of Appeals; the appeal was transferred to the Ninth Circuit and the court heard oral arguments on February 12, 2024, and the parties are awaiting the Court's ruling. In the meantime, the Company and SAP have entered into a partial settlement agreement that has resulted in full dismissal of all claims and counterclaims in the TD-SAP 2 suit in California and the TD-SAP 3 suit in Germany as well as a stay of all claims and counterclaims remaining in the TD-SAP 1 suit pending resolution of the Company’s appeal. Currently, it is not possible to determine the likelihood of a loss or a reasonably estimated range of loss, if any, pertaining to any of SAP’s remaining patent counterclaims in the TD-SAP 1 lawsuit.

Other Contingencies. The Company provides its customers with certain indemnification rights. In general, the Company agrees to indemnify the customer if a third party asserts patent or other infringement on the part of the customer for its use of the Company’s offerings. The Company has indemnification obligations under its charter and bylaws to its officers and directors, and has entered into indemnification agreements with the officers and directors of its subsidiaries. From time to time, the Company also enters into agreements in connection with its acquisition and divestiture activities that include indemnification obligations by the Company. The fair value of these indemnification obligations is typically not readily determinable due to the conditional nature of the Company’s potential obligations and the specific facts and circumstances involved with each particular agreement. As such, the Company has generally not recorded a liability in connection with these indemnification arrangements. Historically, payments made by the Company under these types of agreements have not had a material effect on the Company’s consolidated financial condition, results of operations or cash flows.

Concentrations of Risk. The Company is potentially subject to concentrations of credit risk on accounts receivable and financial instruments such as hedging instruments, and cash and cash equivalents. Credit risk includes the risk of nonperformance by counterparties. The maximum potential loss may exceed the amount recognized on the balance sheet. Exposure to credit risk is managed through credit approvals, credit limits, selecting major international financial institutions (as counterparties to hedging transactions) and monitoring procedures. Teradata’s business often involves large transactions with customers, and if one or more of those customers were to default in its obligations under applicable contractual arrangements, the Company could be exposed to potentially significant losses. However, management believes that the reserves for potential losses were adequate at March 31, 2024 and December 31, 2023.

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The Company is also potentially subject to concentrations of supplier risk. Our hardware components are assembled primarily by Flex Ltd. ("Flex"). Flex procures a wide variety of components used in the manufacturing process on behalf of the Company. Although many of these components are available from multiple sources, Teradata utilizes preferred supplier relationships to provide more consistent and optimal 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 for components that may be in excess of demand.

9. Fair Value Measurements

Fair value measurements are established utilizing a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets for identical assets or liabilities; Level 2, defined as significant other observable inputs, such as quoted prices in active markets for similar assets or liabilities, or quoted prices in less-active markets for identical assets; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

The Company’s assets and liabilities measured at fair value on a recurring basis include money market funds, interest rate swaps, foreign currency swaps and foreign currency exchange contracts. A portion of the Company’s excess cash reserves are held in money market funds which generate interest income based on the prevailing market rates. Money market funds are included in cash and cash equivalents in the Company’s balance sheet. Money market fund holdings are measured at fair value using quoted market prices and are classified within Level 1 of the valuation hierarchy.

When deemed appropriate, the Company minimizes its exposure to changes in foreign currency exchange rates through the use of derivative financial instruments, specifically, foreign exchange forward contracts. Additionally, in June 2022, Teradata executed a five-year interest rate swap with a $450 million initial notional amount in order to hedge the variable interest rate on its term loan and a four-year cross-currency swap with initial notional amounts of €143 million/$150 million, as a net investment hedge to hedge the Euro currency exposure of our net investment in certain foreign subsidiaries. The fair value of these contracts and swaps are measured at the end of each interim reporting period using observable inputs other than quoted prices, specifically market spot and forward exchange rates. As such, these derivative instruments are classified within Level 2 of the valuation hierarchy. Fair value of unrealized gains for open contracts are recorded in other assets and the fair value of unrealized losses are recorded in other liabilities in the Company's balance sheet. The fair value of foreign exchange forward contract assets and liabilities at March 31, 2024 and December 31, 2023 was not material. Realized gains and losses from the Company’s fair value and net investment hedges net of corresponding gains or losses on the underlying exposures were immaterial for the three months ended March 31, 2024 and 2023.

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The Company’s other assets and liabilities measured at fair value on a recurring basis and subject to fair value disclosure requirements at March 31, 2024 and December 31, 2023 were as follows:


			Fair Value Measurements at Reporting Date Using
In millions	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Money market funds at March 31, 2024	$	45	$	45	$	—	$	—
Money market funds at December 31, 2023	$	152	$	152	$	—	$	—

Interest rate swap at March 31, 2024	$	13	$	—	$	13	$	—
Interest rate swap at December 31, 2023	$	8	$	—	$	8	$	—



Liabilities


Foreign currency swap at March 31, 2024	$	5	$	—	$	5	$	—
Foreign currency swap at December 31, 2023	$	8	$	—	$	8	$	—

10. Debt

On June 28, 2022, the Company entered into a Credit Agreement that provides for (i) a five-year unsecured term loan in an aggregate principal amount of $500 million (the "Term Loan"), and (ii) a five-year unsecured revolving credit facility in an aggregate principal amount of up to $400 million, including a $50 million sublimit for the issuance of standby letters of credit and a $50 million sublimit for swingline loans (the "Revolving Facility" and, collectively with the Term Loan, the "Credit Facility"). The Credit Facility replaces the Company's prior revolving credit agreement in the maximum principal of $400 million and its prior term loan agreement in the initial principal amount of $500 million, both of which were entered into in 2018 (the "Prior Agreements"). In connection with the execution of the Credit Facility, the $400 million term loan outstanding under the Prior Agreements was repaid in full.

All outstanding borrowings pursuant to the Revolving Facility are due and payable on June 28, 2027, however, the maturity date of the Revolving Facility may be extended by agreement of the parties for up to two additional one-year periods. The Term Loan is payable in quarterly installments, which commence on June 30, 2024, with 1.25% of the initial principal amount due on each of the first twelve payment dates, with all remaining principal due on June 28, 2027. Under the terms of the Credit Facility, Teradata from time to time and subject to certain conditions may increase the lending commitments under the Credit Facility in an aggregate principal amount up to an additional $450 million, to the extent that existing or new lenders agree to provide such additional commitments. The outstanding principal amount of the Credit Facility bears interest at a floating rate based upon, at Teradata’s option, a negotiated base rate or an adjusted term SOFR rate, plus in each case, a margin based on the Company's leverage ratio. As disclosed in Note 7, in June 2022, Teradata entered into an interest rate swap to hedge approximately 90% (or $450 million as of March 31, 2024) of the floating interest rate of the total $500 million Term Loan and a cross currency swap to hedge a portion of Euro currency exposure of its net investment in certain foreign subsidiaries.

The Credit Facility is unsecured but is guaranteed by certain of Teradata’s material domestic subsidiaries and contains certain customary representations and warranties, default provisions, and affirmative and negative covenants, including, among others, covenants regarding the maintenance of a leverage ratio and covenants relating to financial reporting, compliance with laws, subsidiary indebtedness, liens, sale and leaseback transactions, mergers and other fundamental changes, and entry into certain restrictive agreements. Most of the covenants are subject to materiality, thresholds, and exceptions. On September 21, 2023, the Credit Agreement was amended to establish key performance indicators with respect to certain environmental, social, and governance ("ESG") targets, pursuant to which certain positive or negative adjustments would be made to various fees and applicable margin based on Teradata’s performance against such ESG targets.

As of March 31, 2024, the Company had no borrowings outstanding under the Revolving Facility, leaving $400 million in borrowing capacity available under the Revolving Facility and the Term Loan principal outstanding

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was $500 million. The Term Loan is recognized on the Company's balance sheet at the unpaid principal balance, net of deferred issuance costs, and is not subject to fair value measurement. The Company was in compliance with all covenants under the Credit Facility as of March 31, 2024.

For the three months ended March 31, 2024 and March 31, 2023, the blended all-in interest rate on the Credit Facility was 4.31% and 4.26%, respectively.

11. Earnings per Share

Basic earnings per share is calculated by dividing net income by the weighted average number of shares outstanding during the reported period. The calculation of diluted earnings per share is similar to basic earnings per share, except that the weighted average number of shares outstanding includes the dilution from potential shares resulting from stock options, restricted stock awards and other stock awards. The components of basic and diluted earnings per share are as follows:


	Three Months Ended March 31,
In millions, except per share amounts	2024		2023
Net income attributable to common stockholders	$	20	$	40
Weighted average outstanding shares of common stock	97.4		101.4
Dilutive effect of employee stock options, restricted stock and other stock awards	2.7		2.4
Common stock and common stock equivalents	100.1		103.8
Net income per share:
Basic	$	0.21	$	0.39
Diluted	$	0.20	$	0.39

Options to purchase

in millions

Total at March 31, 2024

Year 2 and Thereafter

Remaining unsatisfied obligations