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TERADATA CORP /DE/ 10-K Analysis & Summary – 2/21/2025

⚠️This is not investment advice.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️

Teradata Corporation

Filing date:

02/21/2025

TLDR:

Teradata’s 2024 results show a company in transition, with revenue declining but progress in Public Cloud ARR growth. Key risks include execution of their transformation strategy, competition, and cybersecurity.

ELI5:

Teradata is like a company trying to switch from selling traditional software to cloud-based services. They’re facing challenges in making this change, but their cloud business is growing.

Accession #:

0000816761-25-000027

Published on

Analyst Summary

  • Total revenue decreased by 5% in 2024.
  • Public Cloud ARR increased 15% to $609 million.
  • Total ARR decreased 6% to $1.474 billion.
  • Gross profit margin was 60.5% in 2024.
  • Cash and cash equivalents decreased to $420 million.

Opportunities and Risks

  • Opportunity: Increasing adoption of AI/ML presents a significant market opportunity.
  • Opportunity: Focus on hybrid cloud solutions addresses complex data environments.
  • Opportunity: Strategic partnerships can expand reach and capabilities.
  • Risk: Execution of transformation strategy is a key risk.
  • Risk: Intense competition in the IT industry.
  • Risk: Cybersecurity incidents could impact reputation and financial results.
  • Risk: Global economic fluctuations could impact customer commitments.
  • Risk: Foreign operations pose risks including currency fluctuations and regulatory challenges.

Potential Implications

Company Performance

  • Execution of cloud strategy is critical for future performance.
  • Growth in Public Cloud ARR needs to accelerate.
  • Cost management is important for profitability.

Stock Price

  • Successful execution of cloud strategy could positively impact stock price.
  • Failure to grow Public Cloud ARR could negatively impact stock price.
  • CFO resignation introduces uncertainty.

Executive Summary

This report analyzes Teradata Corp’s 2024 10-K filing. The company is undergoing a transformation to become a leading hybrid cloud analytics and data platform for trusted AI. While revenue declined slightly, there was progress in Public Cloud ARR growth. Key risks include execution of the transformation strategy, competition, and cybersecurity. Overall, a cautious “Hold” rating is appropriate, pending further evidence of successful execution of the cloud strategy and AI initiatives.

Company Overview

Teradata Corporation (NYSE: TDC) is a provider of hybrid cloud analytics and data platforms. The company’s core offering, Teradata Vantage, allows organizations to leverage data across on-premises, hybrid, and cloud environments. Teradata is focused on enabling trusted AI at scale. The company operates in two segments: Product Sales and Consulting Services. Key industries served include Financial Services, Government, Healthcare and Life Sciences, Public Sector, Manufacturing, Retail, Telecommunications, and Travel/Transportation.

Detailed Analysis

Management’s Discussion and Analysis (MD&A)

Management emphasizes the company’s strategic focus on being the hybrid cloud analytics and data platform for trusted AI at scale. They highlight innovations in 2024, including Open Table Formats (OTF) support, Teradata VantageCloud Lake availability on Google Cloud, and Bring-Your-Own Large Language Model (BYO-LLM) capabilities. The MD&A acknowledges the competitive landscape and the need to adapt to changing customer preferences. The resignation of the CFO, announced shortly before this filing, introduces some uncertainty.

Financial Statement Analysis

Revenue

Total revenue decreased by 5% in 2024, with recurring revenue down 1%. This decline was primarily driven by a decrease in revenue from on-premises solutions, partially offset by an increase in Public Cloud revenue. Perpetual software licenses, hardware and other revenue decreased significantly due to the shift towards recurring revenue. Consulting services revenue also decreased.

Key Metric: Total ARR decreased 6% to $1.474 billion, while Public Cloud ARR increased 15% to $609 million.

Profitability

Gross profit margin was 60.5% in 2024, a slight decrease from 60.8% in 2023. This was primarily due to a higher mix of Public Cloud revenue, partially offset by an improvement in Public Cloud margins year-over-year. Operating income increased to $209 million, driven by lower operating expenses.

Liquidity and Capital Resources

Cash and cash equivalents decreased to $420 million. Cash provided by operating activities decreased due to lower billings. The company repurchased approximately $215 million of its common stock during the year.

Key Ratios and Trends

  • Revenue Growth: -5% year-over-year
  • Gross Margin: 60.5%
  • Public Cloud ARR Growth: 15% year-over-year
  • Cloud Net Expansion Rate: 117%

Uncommon Metrics

The filing highlights the Cloud Net Expansion Rate, indicating the company’s ability to grow revenue within its existing cloud customer base. The focus on Public Cloud ARR is also a key indicator of the company’s transformation progress.

Risk and Opportunity Assessment

Risks

  • Execution Risk: The company’s ability to successfully execute its transformation strategy, including developing and launching new cloud-based products and enabling its platform to operate effectively in various environments, is a key risk.
  • Competition: The IT industry is intensely competitive, with rapidly changing technology and frequent new product introductions.
  • Cybersecurity: A cybersecurity incident could adversely impact the company’s reputation, business, and financial results.
  • Economic Conditions: Global economic fluctuations could impact the ability of customers to meet their commitments.
  • Foreign Operations: Generating substantial revenues from international operations poses several risks, including foreign currency fluctuations and regulatory challenges.

Opportunities

  • AI Growth: The increasing adoption of AI/ML presents a significant market opportunity for Teradata.
  • Hybrid Cloud: The company’s focus on hybrid cloud solutions positions it well to address the needs of organizations with complex data environments.
  • Partnerships: Strategic partnerships with cloud service providers and systems integrators can expand the company’s reach and capabilities.

Conclusion and Actionable Insights

Teradata is in the midst of a significant transformation, with both progress and challenges. The company’s focus on hybrid cloud and AI is promising, but execution is critical. The decline in overall revenue and ARR is concerning, but the growth in Public Cloud ARR is a positive sign. The resignation of the CFO adds an element of uncertainty. Given these factors, a “Hold” rating is appropriate. Investors should monitor the company’s progress in executing its cloud strategy, growing Public Cloud ARR, and managing costs.

Financial Analysis of Teradata Corporation (TDC) – 2024

This report analyzes the financial performance of Teradata Corporation based on its 2024 10-K filing. The analysis includes key financial ratios, trend comparisons, and industry benchmarks where available. Teradata’s financial performance in 2024 shows a mixed picture. While the company improved its net income and EPS, revenue declined, and several key profitability ratios decreased slightly. The company continues to manage its liquidity and solvency effectively, but needs to focus on revenue growth and operational efficiency.

1. Financial Ratio and Metric Analysis

Profitability

  • Gross Profit Margin

    • Calculation: Gross Profit / Total Revenue = $1,058 / $1,750 = 60.46%
    • Trend: 60.46% (2024) vs. 60.8% (2023). Percentage Change: -0.56%
    • Industry: The average gross profit margin for software companies typically ranges from 60% to 80%. Teradata’s gross profit margin is at the lower end of this range.
  • Operating Profit Margin

    • Calculation: Income from Operations / Total Revenue = $209 / $1,750 = 11.94%
    • Trend: 11.94% (2024) vs. 10.15% (2023). Percentage Change: 17.63%
    • Industry: The average operating profit margin for software companies typically ranges from 15% to 25%. Teradata’s operating profit margin is below the industry average.
  • Net Profit Margin

    • Calculation: Net Income / Total Revenue = $114 / $1,750 = 6.51%
    • Trend: 6.51% (2024) vs. 3.38% (2023). Percentage Change: 92.60%
    • Industry: The average net profit margin for software companies typically ranges from 10% to 20%. Teradata’s net profit margin is below the industry average.
  • Return on Assets (ROA)

    • Calculation: Net Income / Total Assets = $114 / $1,704 = 6.69%
    • Trend: N/A
    • Industry: The average ROA for software companies typically ranges from 5% to 10%. Teradata’s ROA is within this range.
  • Return on Equity (ROE)

    • Calculation: Net Income / Total Stockholders’ Equity = $114 / $133 = 85.71%
    • Trend: N/A
    • Industry: The average ROE for software companies typically ranges from 10% to 20%. Teradata’s ROE is significantly higher than the industry average, which could be due to its lower equity base.
  • Earnings Per Share (EPS)

    • Basic: $1.18
    • Diluted: $1.16
    • Trend: Basic EPS increased from $0.62 to $1.18 (90.32% increase). Diluted EPS increased from $0.61 to $1.16 (89.84% increase).
    • Industry: EPS varies widely across the software industry. Teradata’s EPS growth is positive.

Liquidity

  • Current Ratio

    • Calculation: Current Assets / Current Liabilities = $749 / $930 = 0.805
    • Trend: 0.805 (2024) vs. 0.872 (2023). Percentage Change: -7.68%
    • Industry: A current ratio of 1.5 to 2.0 is generally considered healthy. Teradata’s current ratio is below this range, indicating potential liquidity concerns.
  • Quick Ratio (Acid-Test Ratio)

    • Calculation: (Current Assets – Inventories) / Current Liabilities = ($749 – $18) / $930 = 0.786
    • Trend: 0.786 (2024) vs. 0.856 (2023). Percentage Change: -8.18%
    • Industry: A quick ratio of 1.0 or higher is generally considered healthy. Teradata’s quick ratio is below this range, reinforcing the liquidity concerns.
  • Cash Ratio

    • Calculation: Cash and Cash Equivalents / Current Liabilities = $420 / $930 = 0.452
    • Trend: 0.452 (2024) vs. 0.488 (2023). Percentage Change: -7.38%
    • Industry: A cash ratio of 0.5 or higher is generally considered healthy. Teradata’s cash ratio is slightly below this range.

Solvency/Leverage

  • Debt-to-Equity Ratio

    • Calculation: Total Liabilities / Total Stockholders’ Equity = $1,571 / $133 = 11.81
    • Trend: 11.81 (2024) vs. 12.87 (2023). Percentage Change: -8.24%
    • Industry: The average debt-to-equity ratio for software companies typically ranges from 0.5 to 1.5. Teradata’s debt-to-equity ratio is significantly higher than the industry average, indicating high leverage.
  • Debt-to-Assets Ratio

    • Calculation: Total Liabilities / Total Assets = $1,571 / $1,704 = 0.922
    • Trend: 0.922 (2024) vs. 0.928 (2023). Percentage Change: -0.65%
    • Industry: The average debt-to-assets ratio for software companies typically ranges from 0.2 to 0.4. Teradata’s debt-to-assets ratio is significantly higher than the industry average, indicating high leverage.
  • Interest Coverage Ratio (Times Interest Earned)

    • Calculation: Income from Operations / Interest Expense = $209 / $29 = 7.21
    • Trend: 7.21 (2024) vs. 6.2 (2023). Percentage Change: 16.29%
    • Industry: An interest coverage ratio of 5.0 or higher is generally considered healthy. Teradata’s interest coverage ratio is above this range, indicating that it can comfortably cover its interest expenses.

Activity/Efficiency

  • Inventory Turnover

    • Calculation: Cost of Revenue / Average Inventory = $692 / (($18+$13)/2) = 44.65
    • Trend: N/A
    • Industry: Inventory turnover varies widely depending on the specific industry. For software companies that also sell hardware, a turnover ratio above 10 is generally considered good.
  • Days Sales Outstanding (DSO)

    • Calculation: (Accounts Receivable / Revenue) * 365 = ($234 / $1,750) * 365 = 48.78 days
    • Trend: 48.78 days (2024) vs. 56.78 days (2023). Percentage Change: -14.09%
    • Industry: The average DSO for software companies typically ranges from 30 to 60 days. Teradata’s DSO is within this range.
  • Days Payable Outstanding (DPO)

    • Calculation: (Accounts Payable / Cost of Revenue) * 365 = ($106 / $692) * 365 = 55.84 days
    • Trend: N/A
    • Industry: The average DPO for software companies typically ranges from 30 to 50 days. Teradata’s DPO is slightly above this range.
  • Asset Turnover

    • Calculation: Total Revenue / Total Assets = $1,750 / $1,704 = 1.03
    • Trend: 1.03 (2024) vs. 0.98 (2023). Percentage Change: 5.10%
    • Industry: The average asset turnover for software companies typically ranges from 0.5 to 1.0. Teradata’s asset turnover is slightly above this range.

Valuation

  • Price-to-Earnings Ratio (P/E)

    • Calculation: Stock Price / EPS = $23.32 / $1.18 = 19.76
    • Trend: N/A
    • Industry: The average P/E ratio for software companies typically ranges from 20 to 30. Teradata’s P/E ratio is slightly below this range.
  • Price-to-Book Ratio (P/B)

    • Calculation: Market Cap / Book Value of Equity = (95.1 * $23.32) / $133 = 16.66
    • Trend: N/A
    • Industry: The average P/B ratio for software companies typically ranges from 3 to 5. Teradata’s P/B ratio is significantly higher than the industry average, which could be due to its lower equity base.
  • Price-to-Sales Ratio (P/S)

    • Calculation: Market Cap / Total Revenue = (95.1 * $23.32) / $1,750 = 1.27
    • Trend: N/A
    • Industry: The average P/S ratio for software companies typically ranges from 2 to 5. Teradata’s P/S ratio is below this range.
  • Enterprise Value to EBITDA (EV/EBITDA)

    • Calculation: EV = Market Cap + Total Debt – Cash = (95.1 * $23.32) + $480 – $420 = $2,281.68 million
      EBITDA = Net Income + Interest Expense + Taxes + Depreciation & Amortization = $114 + $29 + $50 + $100 = $293 million
      EV/EBITDA = $2,281.68 / $293 = 7.79
    • Trend: N/A
    • Industry: The average EV/EBITDA ratio for software companies typically ranges from 10 to 15. Teradata’s EV/EBITDA ratio is below this range.

Growth Rates

  • Revenue Growth

    • Calculation: ($1,750 – $1,833) / $1,833 = -4.53%
    • Trend: Revenue decreased by 4.53%
  • Net Income Growth

    • Calculation: ($114 – $62) / $62 = 83.87%
    • Trend: Net Income increased by 83.87%
  • EPS Growth

    • Calculation: ($1.18 – $0.62) / $0.62 = 90.32%
    • Trend: EPS increased by 90.32%

Other Relevant Metrics

  • ARR (Annual Recurring Revenue)

    • 2024: $1,474 million
    • 2023: $1,570 million
    • Trend: ARR decreased from $1,570 million to $1,474 million, a decrease of 6.11%.
    • Analysis: ARR is a key metric for subscription-based businesses. The decrease in ARR suggests challenges in retaining or acquiring new recurring revenue streams.
  • Cloud Net Expansion Rate

    • 2024: 117%
    • 2023: 124%
    • Trend: The Cloud Net Expansion Rate decreased from 124% to 117%, a decrease of 5.65%.
    • Analysis: The Cloud Net Expansion Rate indicates the growth in revenue from existing cloud customers. A decrease suggests a slower pace of expansion within the existing customer base.
  • Remaining Unsatisfied Obligations

    • December 31, 2024: $2,301 million
    • Analysis: This represents the total revenue expected to be recognized in the future from existing contracts. It provides insight into the company’s future revenue pipeline.

2. Commentary

Teradata’s 2024 financial performance presents a mixed picture. While net income and EPS saw significant improvements, revenue declined, and key profitability ratios experienced slight decreases. The company’s liquidity position remains a concern, as indicated by its low current and quick ratios. Teradata’s high debt-to-equity and debt-to-assets ratios suggest a highly leveraged capital structure. The decrease in ARR and Cloud Net Expansion Rate indicates challenges in growing recurring revenue streams. Overall, Teradata needs to focus on revenue growth, operational efficiency, and improving its liquidity position to enhance its financial performance.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️