Teradata Corporation

05/06/2026 | Press release | Distributed by Public on 05/06/2026 10:39

Quarterly Report for Quarter Ending March 31, 2026 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A").
You should read the following discussion in conjunction with the Condensed Consolidated Financial Statements (Unaudited) and the notes to those statements included elsewhere in this Quarterly Report on Form 10-Q. This Quarterly Report on Form 10-Q 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 a number of factors, including those discussed in other sections of this Quarterly Report on Form 10-Q and in our 2025 Annual Report. The Company does not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
Overview
At Teradata Corporation ("we," "us," "Teradata," or the "Company"), we are focused on helping organizations activate the intelligence in their enterprise and turn the insights from across their organization into outcomes. We believe that we have architected our platform for autonomous AI operations and organizations' toughest data and analytics challenges, particularly as enterprises are evaluating how to cost effectively deploy agentic AI. We've also seen an emergence of hybrid environments that reflected a growing understanding of how enterprises can best leverage both on-premises and cloud deployment options to meet their diverse organizational needs.
With our AI and knowledge platform, underpinned by our extensive patented workload management optimization technology, we believe we are well positioned to help enterprises become more autonomous, while enabling our customers to focus on managing, securing, and providing trustworthy data for AI and analytics across hybrid and multi-cloud environments.
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 value at a point in time of recurring contracts.
•Total Annual Recurring Revenue ("Total ARR") - annual contract value for all active and contractually binding term-based contracts at the end of the period, including cloud, recurring AI services, subscriptions, hardware rental, maintenance and software upgrade rights.
•Public Cloud ARR (included within Total ARR) - annual contract value for all active and contractually binding term-based contracts at the end of the period that are operated in a public cloud environment.
First Quarter Financial Overview
As more fully discussed in later sections of this MD&A, the following were what we view as the more significant financial items for the first quarter of 2026:
•At the end of the first quarter of 2026, Total ARR was $1.492 billion compared to $1.442 billion at the end of the first quarter of 2025, increasing 3% as compared to the first quarter of 2025, including a 1% positive impact from foreign currency fluctuations.
•At the end of the first quarter of 2026, Public Cloud ARR was $686 million compared to $606 million at the end of the first quarter of 2025, increasing 13% as compared to the first quarter of 2025, with a 1% positive impact from foreign currency fluctuations.
•Total revenue was $444 million for the first quarter of 2026, increasing by $26 million compared to the first quarter of 2025, with recurring revenue up 12%. Perpetual software licenses, hardware and other revenue reduced by 90%, and consulting services revenue decreased 14%. Foreign currency fluctuations had a 2% positive impact on total revenue for the quarter compared to the prior year.
•Gross margin increased to 62.2% in the first quarter of 2026 from 59.3% in the first quarter of 2025, primarily due to a greater mix of recurring revenue in the period.
•Operating expenses for the first quarter of 2026 increased 71% compared to the first quarter of 2025, largely from legal fees related to the SAP Settlement Agreement, partially off-set by lower employee compensation expense in the first quarter of 2026, due to the impact of restructuring actions taken in the prior year.
•The Company saw an operating loss of $36 million in the first quarter of 2026, compared to operating income of $66 million in the first quarter of 2025.
•Net income in the first quarter of 2026 was $335 million, compared to $44 million in the first quarter of 2025. Net income for the first quarter of 2026 included $280 million of after-tax net proceeds from the SAP Settlement Agreement.
Results of Operations for the Three Months Ended March 31, 2026
Compared to the Three Months Ended March 31, 2025
Revenue
% of % of
In millions 2026 Revenue 2025 Revenue
Recurring $ 400 90.1 % $ 358 85.7 %
Perpetual software licenses, hardware and other 1 0.2 % 10 2.4 %
Consulting services 43 9.7 % 50 11.9 %
Total revenue $ 444 100 % $ 418 100 %
Total revenue increased $26 million, or 6%, in the first quarter of 2026, including a 2% positive impact from foreign currency fluctuations. Recurring revenue increased 12% as compared to the first quarter of 2025 including a 3% positive impact from foreign currency fluctuations. Recurring revenue for the first quarter of 2026 included growth from higher annual upfront software subscription revenue associated with on-premises subscription software and public cloud revenue growth, which contributed to the year-over-year growth rate as we experienced continued interest in our hybrid platform. Revenue from perpetual software licenses, hardware and other decreased $9 million year over year. Consulting services revenue decreased 14% or $7 million in the first quarter of 2026, with a 1% positive impact from foreign currency exchange rate fluctuations. The consulting services revenue decrease is primarily the result of lower order performance from the second half of 2025.
Financial and Performance Measures
Our Total ARR is composed of three main categories: (1) Public Cloud ARR, (2) ARR related to on-premises subscription-based contracts and private cloud ("Subscription ARR"), and (3) ARR related to our legacy perpetual maintenance and software upgrade rights. At March 31, 2026 and 2025 our Total ARR consisted of:
In millions 2026 2025
Public Cloud $ 686 $ 606
Subscription 729 741
Maintenance and Software upgrade rights 77 95
Total ARR $ 1,492 $ 1,442
At the end of the first quarter of 2026, Total ARR increased 3% as compared to the first quarter of 2025, including a 1% positive impact from foreign currency fluctuations. At the end of the first quarter of 2026, Public Cloud ARR increased 13% as compared to the first quarter of 2025, with a 1% positive impact from foreign currency fluctuations. Public Cloud ARR growth in the first quarter of 2026 was primarily driven by customer demand of our Public Cloud offering and customer migrations. The decreases in subscription ARR and maintenance and software upgrade rights ARR were primarily driven by customer migrations to Public Cloud ARR and on-premises erosions.
In the first quarter of 2026, we experienced the following trends:
•Customers expanding into additional cloud capabilities as they see value when they migrate to our Public Cloud offering.
•Customer interest in AI-driven use cases continues to grow across various industries.
•Some customers implementing cloud migration projects on a staged basis over time.
•Continued macroeconomic and geopolitical uncertainty, including evolving global trade and tariff policy and elevated interest rates, contributing to elongated customer decision cycles and staged purchasing decisions.
As a portion of the Company's operations and revenue occur outside the United States, and in currencies other than the United States ("U.S.") dollar, the Company is exposed to fluctuations in foreign currency exchange rates. Based on currency rates as of March 31, 2026, Teradata is now estimating 0.0%-0.5% positive impact from currency translation on our 2026 full-year total reported revenues.
We expect expansion and to a lesser degree, migration activity as the primary contributors for Public Cloud ARR growth in 2026.
Gross Profit
% of % of
In millions 2026 Revenue 2025 Revenue
Recurring $ 277 69.3 % $ 250 69.8 %
Perpetual software licenses, hardware and other 1 100.0 % 1 10.0 %
Consulting services (2) (4.7) % (3) (6.0) %
Total gross profit $ 276 62.2 % $ 248 59.3 %
The decrease in recurring revenue gross profit as a percentage of revenue was primarily due to unfavorable on-premises deal mix, and a higher mix of Public Cloud revenues versus on-premises revenue as compared to the prior-year period, offset in part by continued improvement in our Public Cloud margin rate.
Perpetual software licenses, hardware and other gross profit as a percentage of revenue increased as compared to the prior-year period primarily due to deal mix.
Consulting services gross profit as a percentage of revenue increased as compared to the prior year primarily due to cost reduction efforts taken over the past year.
Operating Expenses
% of % of
In millions 2026 Revenue 2025 Revenue
Selling, general and administrative expenses $ 240 54.1 % $ 116 27.8 %
Research and development expenses 72 16.2 % 66 15.8 %
Total operating expenses $ 312 70.3 % $ 182 43.5 %
Selling, general and administrative ("SG&A") expense increased year over year due to the impact of the $121 million of expenses incurred in connection with the SAP litigation and related settlement and an increase stock compensation expense partially offset by continued budget discipline focused on cost reductions across the Company. Research and development ("R&D") expense increased year over year due to investments in Public Cloud and AI-related technology opportunities offset in part by continued cost reduction initiatives.
Other Income (Expense), net
In millions 2026 2025
Interest income $ 3 $ 3
Interest expense (6) (7)
Other 476 (4)
Other income (expense), net $ 473 $ (8)
Other income (expense), net in the first quarter of 2026 and 2025 is comprised primarily of, legal expenses, interest expense on long-term debt and finance leases, losses resulting from foreign currency transactions, as well as benefit costs on our pension and postemployment plans, generally partially offset by interest income earned on our cash and cash equivalents and other income. Other income (expense) has improved by $481 million year-over-year primarily due to the receipt of the SAP Settlement Amount as disclosed in more detail in Item 1. Financial Statements to this Quarterly Report on Form 10-Q for the quarter ended March 31, 2026 (the "Form 10-Q") (see Note 5. Supplemental Financial Information and Note 8, Commitments and Contingencies).
Provision for 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 effective tax rates for the three months ended March 31, 2026 and 2025 were as follows:
2026 2025
Effective tax rate 23.3 % 24.1 %
For the three months ended March 31, 2026, the Company recorded $79 million of discrete tax expense related to the tax expense impact from the receipt of the SAP Settlement Net Proceeds.
For the three months ended March 31, 2025, the Company recorded $1 million of net discrete tax benefit, a majority of which related to tax benefits from uncertain tax position reversals due to the Company's completion of its IRS audit related to its 2020 federal tax return, which was largely offset by incremental tax expense from stock-based compensation vesting. The Company received a final no change audit ruling from the Congressional Joint Committee on Tax in early February of 2025.
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 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; we do not expect the Pillar Two rules to have a material impact to our annual effective tax rate.
We expect that a majority of our foreign earnings will be repatriated to the U.S. As a result, the effective tax rates in the periods presented are largely based upon the forecasted pre-tax earnings mix between the U.S. and other foreign taxing jurisdictions where we conduct our business.
We estimate that the full-year effective tax rate for 2026 will be approximately 25%, which takes into consideration, among other things, the forecasted earnings mix by jurisdiction, the estimated impact to NCTI tax, and the estimated discrete items to be recognized in 2026. We are currently forecasting approximately $0.2 million of tax expense related to NCTI in our marginal effective tax rate for 2026. In addition, the Company has recorded $16 million of NCTI tax expense as a discrete item in the first quarter of 2026 related to the impact from the SAP Settlement Agreement.
The forecasted tax rate is based on the foreign profits being taxed at an overall effective tax rate of approximately 17%, as compared to the U.S. federal statutory tax rate of 21%.
Revenue and Gross Profit by Operating Segment
On August 5, 2024, Teradata announced that it realigned its sales function and initiated global restructuring to optimize operations. Due to these organizational changes, Teradata now manages its business under two segments, which are also the Company's operating segments: (1) Product Sales and (2) Consulting Services. Teradata's Product Sales segment represents the results for the Recurring Revenue and Perpetual Software Licenses, Hardware and Other line items and the Consulting Services segment represents the Consulting Services line item, each as disclosed in the Company's financial statements and in the tables in this Form 10-Q. As the revenue and gross margin trends for these business categories are already discussed in the sections above, there is no separate segment discussion presented here. Our segment information is presented in Note 12, Segment and Other Supplemental Information, of the Notes to Condensed Consolidated Financial Statements (Unaudited).
Financial Condition, Liquidity and Capital Resources
Cash provided by operating activities was $401 million, which increased by $393 million in the three months ended March 31, 2026 compared to the three months ended March 31, 2025. $359 million of the increase was due to the SAP Settlement Net Proceeds received as a result of the SAP Settlement Agreement as discussed in Note 5, Supplemental Financial Information, and Note 8, Commitments and Contingencies of the Notes to Condensed Consolidated Financial Statements (Unaudited) of this Form 10-Q. Teradata used approximately $11 million of cash in the first three months of 2026 for severance payments, as compared to $5 million in the first three months of 2025.
Teradata's management uses a financial measure called "free cash flow," which is not a measure defined under GAAP. We use free cash flow (which we define as net cash provided by operating activities less investing activities related to capital expenditures for property and equipment and additions to capitalized software) as one measure of assessing the financial performance of the Company, and this may differ from the definitions used by other companies. The components that are used to calculate free cash flow are GAAP measures taken directly from the Condensed Consolidated Statements of Cash Flows (Unaudited). 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 repurchases 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 net cash used in investing activities related to capital expenditures, along with free cash flow, for the following periods:
Three Months Ended March 31,
In millions 2026 2025
Net cash provided by operating activities $ 401 $ 8
Less:
Expenditures for property and equipment (10) (1)
Additions to capitalized software (1) -
Free cash flow $ 390 $ 7
As disclosed in Note 5, Supplemental Financial Information, of the Notes to Condensed Consolidated Financial Statements (Unaudited), during the three months ended March 31, 2026, we received $480 million cash from the SAP Settlement Agreement and paid $121 million in related expenses, that was reported as an operating activity for cash flow purposes.
Financing activities and certain other investing activities, are not included in our calculation of free cash flow. There were no material other investing activities for the three months ended March 31, 2026.
Teradata's financing activities for the three months ended March 31, 2026 and 2025 primarily consisted of cash outflows for share repurchases and payments on our finance leases. At March 31, 2026, we had no outstanding borrowings on our $400 million Revolving Facility (as defined below).
We have two share repurchase programs that were authorized by our Board of Directors:
•The dilution offset share repurchase program allows us to repurchase Teradata common stock to the extent (i) cash is received from the exercise of stock options and (ii) employees' purchase Teradata stock pursuant to the Teradata Employee Stock Purchase Plan ("ESPP"). The purpose of the dilution offset share repurchase program is to offset dilution from shares issued pursuant to the exercise of stock options and shares purchased under the ESPP.
•On November 17, 2025, the Board approved a share repurchase program (the "Repurchase Program") authorizing the Company to repurchase up to $500 million of its common stock. The Repurchase Program became effective on January 1, 2026, does not have an expiration date, and will continue until otherwise modified, suspended, or terminated. The purchases under the Repurchase Program may be made from time to time in the open market, in privately negotiated transactions, or by other means, including through Rule 10b5-1 trading plans, in accordance with applicable securities law and other regulatory requirements. The Repurchase Program does not obligate the Company to repurchase any shares under the authorization and the timing and amount of any repurchases will depend on a variety of factors, including the price of the Company's common stock, general business and market conditions, and other investment considerations. There is a total authority of $470 million remaining under the Repurchase Program as of March 31, 2026.
In the aggregate under the dilution offset share repurchase program and the Repurchase Program, we repurchased approximately 1.2 million shares of common stock at an average price per share of $29.03 in the three months ended March 31, 2026.
Share repurchases are reported on a trade date basis. Our share repurchase activity depends on factors such as our working capital needs, our cash requirements for capital investments, our stock price, and economic and market conditions.
Other financing activities, including net share settlement for the payroll tax liability of section 16 officers (as discussed in Item 2. Unregistered Sales of Equity Securities and Use of Proceeds), offset by proceeds from the ESPP and the exercise of stock options, net of tax was a net outflow of $5 million for the three months ended March 31, 2026 and a net outflow of $2 million for the three months ended March 31, 2025. The ESPP proceeds are included in other financing activities, net in the Condensed Consolidated Statements of Cash Flows (Unaudited).
Our total cash and cash equivalents held outside the United States in various foreign subsidiaries was $450 million as of March 31, 2026 and $462 million as of December 31, 2025. The remaining balance held in the U.S. was $366 million as of March 31, 2026 and $32 million as of December 31, 2025. The Company expects that a majority of its foreign earnings will be repatriated to the U.S. Effective January 1, 2018, the U.S. moved to a territorial system of international taxation, and as such will generally not subject future foreign earnings to U.S. 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 in the 2025 Annual Report and elsewhere in this Quarterly Report on Form 10-Q. If the Company is unable to generate sufficient cash flows from operations, or otherwise comply with the terms of the Credit Facility or its term loan agreement, the Company may be required to seek additional financing alternatives.
Long-term Debt. On June 28, 2022, we 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"). Our long-term debt is discussed in Note 10, Debt, of the Notes to Condensed Consolidated Financial Statements (Unaudited). In addition, as disclosed in Note 7 Derivative Instruments and Hedging Activities, of the Notes to Condensed Consolidated Financial Statements (Unaudited), Teradata entered into an interest rate swap to hedge approximately 90% (or $411 million as of March 31, 2026) of the floating interest rate of the outstanding principal of the $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. As of March 31, 2026, 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 was $450 million.
On September 21, 2023, the Credit Agreement was amended to establish key performance indicators with respect to certain 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.
Contractual and Other Commercial Commitments. There has been no significant change in our contractual and other commercial commitments as described in the 2025 Annual Report. Our commitments and contingencies are discussed in Note 8, Commitments and Contingencies, of the Notes to Condensed Consolidated Financial Statements (Unaudited).
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. We assessed certain accounting matters that generally require consideration of forecasted financial information in context with the information reasonably available to us as of March 31, 2026 and through the date of this report. The accounting matters assessed included, but were not limited to, our allowance for doubtful accounts, stock-based compensation, the carrying value of our goodwill and other long-lived assets, financial assets, valuation allowances for tax assets and revenue recognition.
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 2025 Annual Report. Teradata's senior management has reviewed these critical accounting policies and related disclosures and determined that there were no significant changes in our critical accounting policies in the three months ended March 31, 2026.
New Accounting Pronouncements
See discussion in Note 2, New Accounting Pronouncements, of the Notes to Condensed Consolidated Financial Statements (Unaudited) for new accounting pronouncements.
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