Teradata Corporation (TDC) is a leading provider of connected multi-cloud data platforms, offering enterprise-scale analytics and data management solutions. The company has evolved from an enterprise database company to an enterprise analytics platform provider, serving some of the world's largest organizations across various industries.

In the fiscal year 2023, Teradata reported annual revenue of $1.833 billion and net income of $62 million. The company generated annual operating cash flow of $375 million and free cash flow of $355 million, showcasing its strong financial performance and ability to generate substantial cash flows.

Business Overview

Teradata's core business revolves around providing its customers with comprehensive data analytics and management solutions. The company's flagship offering, Teradata Vantage, is a cloud-based analytics and data platform that enables enterprises to harness the power of their data, drive business insights, and accelerate innovation.

Teradata's solutions cater to a diverse range of industries, including financial services, healthcare, telecommunications, retail, and manufacturing, among others. The company's focus on delivering enterprise-scale analytics, trusted AI, and cloud-native deployment options has positioned it as a leader in the data and analytics market.

Financials

In the first quarter of 2024, Teradata reported total revenue of $465 million, a 2% decrease compared to the same period in the previous year. This decline was primarily driven by a 38% decrease in perpetual software licenses, hardware, and other revenue, as well as a 7% decrease in consulting services revenue. However, the company's recurring revenue, which includes subscription software licenses and services and other revenue, remained flat year-over-year.

The company's gross profit margin in the first quarter of 2024 was 61.1%, down from 63.4% in the same period of 2023. This decrease was mainly due to a higher mix of cloud revenue compared to on-premises revenue, partially offset by continued expansion in the company's cloud margin rate.

Teradata's operating expenses increased by 6% in the first quarter of 2024 compared to the same period in 2023, primarily due to higher stock compensation and reorganization expenses. As a result, the company's operating income was $48 million in the first quarter of 2024, compared to $79 million in the first quarter of 2023.

Net income for the first quarter of 2024 was $20 million, compared to $40 million in the same period of the previous year. The company's effective tax rate for the quarter was 37.5%, up from 31.0% in the first quarter of 2023.

Teradata's Segmental Performance

Teradata manages its business under three geographic regions: Americas, EMEA, and APJ. In the first quarter of 2024, the Americas region generated revenue of $277 million, a 5% decrease compared to the same period in 2023, primarily due to a 5% decline in recurring revenue and a 10% decrease in consulting revenue.

The EMEA region reported revenue of $125 million, a 7% increase year-over-year, driven by a 14% increase in recurring revenue, partially offset by a 71% decrease in perpetual software licenses, hardware, and other revenue. Consulting revenue in the EMEA region remained relatively flat.

The APJ region's revenue decreased by 6% to $63 million in the first quarter of 2024, with a 2% decline in recurring revenue and a 15% decrease in consulting revenue. The decline in APJ revenue was primarily impacted by Teradata's strategic decision to wind down its direct operations in China during the prior year.

Teradata's Cloud and Recurring Revenue Performance

One of the key focus areas for Teradata is its cloud business, which has been a significant driver of the company's growth. In the first quarter of 2024, Teradata's Cloud Annual Recurring Revenue (Cloud ARR) reached $525 million, up 36% year-over-year on a constant currency basis.

The company's total Annual Recurring Revenue (Total ARR), which includes subscription, cloud, software upgrade rights, and maintenance revenue, was $1.48 billion at the end of the first quarter of 2024, down 1% year-over-year on a constant currency basis. This decline was primarily due to specific on-premises erosions and lower annual upfront software subscription revenue associated with on-premises subscription software, as the company continues its strategy of migrating on-premises customers to the cloud.

Teradata's cloud net expansion rate remained strong at 123% in the first quarter of 2024, indicating that existing cloud customers are continuing to expand their usage of the company's cloud offerings. Approximately 75% of Teradata's cloud customers are operating in a hybrid environment, leveraging both cloud and on-premises solutions.

Outlook

For the full year 2024, Teradata is maintaining its previously provided outlook ranges for Annual Recurring Revenue (ARR) and revenue, but the company currently expects to come in at the low end of these ranges. This is primarily due to lower total ARR expansion as on-premises customers continue to migrate to the cloud.

However, the company remains confident in the midpoint of its Cloud ARR guidance range, driven by a strong pipeline of customers planning to migrate and expand with Teradata in the cloud. Teradata anticipates acceleration of cloud and total ARR dollar growth throughout the year, with the fourth quarter expected to be the strongest quarter and deliver 50% or more of the growth, in line with historical seasonality.

The company also provided updated modeling assumptions for 2024, including a year-over-year headwind of approximately 230 basis points on revenue due to foreign currency fluctuations, a non-GAAP tax rate of approximately 24.2%, and other expense of approximately $50 million.

For the second quarter of 2024, Teradata expects non-GAAP diluted earnings per share to be in the range of $0.46 to $0.50, with a non-GAAP tax rate of approximately 24% and weighted average shares outstanding of 98 million.

Teradata's Strategic Initiatives and Competitive Positioning

Teradata continues to invest in areas that will drive long-term growth, including artificial intelligence (AI), demand creation, and brand perception. The company recently announced the integration of the DataRobot AI Platform with Teradata VantageCloud and ClearScape Analytics, enhancing enterprises' AI capabilities by offering greater flexibility and scalability in building and deploying AI models.

Additionally, Teradata has expanded its partner ecosystem, including collaborations with Alphabet's Google Cloud, Microsoft, and Amazon Web Services, to accelerate cloud migration, enhance data analytics modernization, and maximize AI opportunities for customers.

Teradata's technology leadership has been recognized by industry analysts, with Forrester recently naming the company a leader in its report on enterprise data fabric. The report highlighted Teradata's superior roadmap, which focuses on AI and large language models, as well as its strong partnership ecosystem that supports large, complex fabric deployments.

Conclusion

Teradata's position as a leading provider of enterprise-scale analytics and data management solutions positions the company well to capitalize on the growing demand for data-driven insights and trusted AI. While the company faced some headwinds in the first quarter of 2024, its focus on cloud migration, expansion, and strategic partnerships, as well as its commitment to innovation and operational excellence, suggest a promising outlook for the future.

As Teradata continues to execute on its key priorities and leverage its differentiated technology offerings, the company is well-positioned to drive long-term growth and deliver value to its shareholders.