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 ~~June~~September 30, 2021


☐			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 ~~July 30,~~October 29, 2021, the registrant had approximately ~~109.1~~108.5 million shares of common stock outstanding.

TABLE OF CONTENTS

PART I—FINANCIAL INFORMATION




	Description	Page

Item 1.	Financial Statements

	Condensed Consolidated Statements of Income (Loss) (Unaudited) Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2021 and 2020	4

	Condensed Consolidated Statements of Comprehensive Income ~~(Loss)~~(Unaudited) Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2021 and 2020	5

	Condensed Consolidated Balance Sheets (Unaudited) ~~June~~September 30, 2021 and December 31, 2020	6

	Condensed Consolidated Statements of Cash Flows (Unaudited) ~~Six~~Nine Months Ended ~~June~~September 30, 2021 and 2020	7

	Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2021 and 2020	8

	Notes to Condensed Consolidated Financial Statements (Unaudited)	910

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1920

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2931

Item 4.	Controls and Procedures	2931

PART II—OTHER INFORMATION

	Description	Page

Item 1.	Legal Proceedings	2931

Item 1A.	Risk Factors	2931

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2932

Item 3.	Defaults Upon Senior Securities	3032

Item 4.	Mine Safety Disclosures	3032

Item 5.	Other Information	3032

Item 6.	Exhibits	3133

	Signatures	3234

Table of Contents

Part 1—FINANCIAL INFORMATION


Item 1.			Financial Statements.

Teradata Corporation

Condensed Consolidated Statements of Income (Loss) (Unaudited)


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
In millions, except per share amounts	In millions, except per share amounts	2021		2020		2021		2020		In millions, except per share amounts	2021		2020		2021		2020
Revenue	Revenue									Revenue
Subscription software licenses	Subscription software licenses	$	81	$	55	$	174	$	103	Subscription software licenses	$	64	$	52	$	238	$	155
Services and other	Services and other	295		268		574		531		Services and other	288		277		862		808
Total recurring	Total recurring	376		323		748		634		Total recurring	352		329		1,100		963
Perpetual software licenses, hardware and other	Perpetual software licenses, hardware and other	17		25		40		48		Perpetual software licenses, hardware and other	18		25		58		73
Consulting services	Consulting services	98		109		194		209		Consulting services	90		100		284		309
Total revenue	Total revenue	491		457		982		891		Total revenue	460		454		1,442		1,345
Cost of revenue	Cost of revenue									Cost of revenue
Subscription software licenses	Subscription software licenses	4		7		8		15		Subscription software licenses	2		6		10		21
Services and other	Services and other	83		82		169		167		Services and other	93		90		262		257
Total recurring	Total recurring	87		89		177		182		Total recurring	95		96		272		278
Perpetual software licenses, hardware and other	Perpetual software licenses, hardware and other	11		18		22		33		Perpetual software licenses, hardware and other	12		13		34		46
Consulting services	Consulting services	83		94		166		195		Consulting services	78		91		244		286
Total cost of revenue	Total cost of revenue	181		201		365		410		Total cost of revenue	185		200		550		610
Gross profit	Gross profit	310		256		617		481		Gross profit	275		254		892		735
Operating expenses	Operating expenses									Operating expenses
Selling, general and administrative expenses	Selling, general and administrative expenses	161		165		310		323		Selling, general and administrative expenses	166		163		476		486
Research and development expenses	Research and development expenses	79		83		156		156		Research and development expenses	79		90		235		246
Total operating expenses	Total operating expenses	240		248		466		479		Total operating expenses	245		253		711		732
Income from operations	Income from operations	70		8		151		2		Income from operations	30		1		181		3
Other expense, net	Other expense, net									Other expense, net
Interest expense	Interest expense	(7)		(7)		(14)		(14)		Interest expense	(6)		(7)		(20)		(21)
Interest income	Interest income	2		1		3		3		Interest income	1		1		4		4
Other expense	Other expense	(6)		(5)		(9)		(8)		Other expense	(6)		(5)		(15)		(13)
Total other expense, net	Total other expense, net	(11)		(11)		(20)		(19)		Total other expense, net	(11)		(11)		(31)		(30)
Income (loss) before income taxes	Income (loss) before income taxes	59		(3)		131		(17)		Income (loss) before income taxes	19		(10)		150		(27)
Income tax expense (benefit)	Income tax expense (benefit)	15		40		34		(142)		Income tax expense (benefit)	2		(9)		36		(151)
Net income (loss)	Net income (loss)	$	44	$	(43)	$	97	$	125	Net income (loss)	$	17	$	(1)	$	114	$	124
Net income (loss) per common share	Net income (loss) per common share									Net income (loss) per common share
Basic	Basic	$	0.40	$	(0.40)	$	0.89	$	1.14	Basic	$	0.16	$	(0.01)	$	1.05	$	1.13
Diluted	Diluted	$	0.39	$	(0.40)	$	0.86	$	1.13	Diluted	$	0.15	$	(0.01)	$	1.01	$	1.12
Weighted average common shares outstanding	Weighted average common shares outstanding									Weighted average common shares outstanding
Basic	Basic	109.0		108.5		108.9		109.4		Basic	108.9		109.1		108.9		109.3
Diluted	Diluted	112.7		108.5		112.7		110.6		Diluted	113.4		109.1		113.1		110.9

See Notes to Condensed Consolidated Financial Statements (Unaudited).

Teradata Corporation

Condensed Consolidated Statements of Comprehensive Income ~~(Loss)~~ (Unaudited)


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
In millions	In millions	2021		2020		2021		2020		In millions	2021		2020		2021		2020
Net income (loss)	Net income (loss)	$	44	$	(43)	$	97	$	125	Net income (loss)	$	17	$	(1)	$	114	$	124
Other comprehensive income (loss):	Other comprehensive income (loss):									Other comprehensive income (loss):
Foreign currency translation adjustments	Foreign currency translation adjustments	7		2		(1)		(17)		Foreign currency translation adjustments	(10)		6		(11)		(11)
Derivatives:	Derivatives:									Derivatives:
Unrealized gain (loss) on derivatives, before tax	Unrealized gain (loss) on derivatives, before tax	3		1		7		(13)		Unrealized gain (loss) on derivatives, before tax	3		3		10		(10)
Unrealized gain (loss) on derivatives, tax portion	Unrealized gain (loss) on derivatives, tax portion	(1)		0		(2)		3		Unrealized gain (loss) on derivatives, tax portion	(1)		(1)		(3)		2
Unrealized gain (loss) on derivatives, net of tax	Unrealized gain (loss) on derivatives, net of tax	2		1		5		(10)		Unrealized gain (loss) on derivatives, net of tax	2		2		7		(8)
Defined benefit plans:	Defined benefit plans:									Defined benefit plans:
Defined benefit plan adjustment, before tax	Defined benefit plan adjustment, before tax	3		1		5		4		Defined benefit plan adjustment, before tax	3		3		8		7
Defined benefit plan adjustment, tax portion	Defined benefit plan adjustment, tax portion	(1)		0		(1)		(1)		Defined benefit plan adjustment, tax portion	(1)		(1)		(2)		(2)
Defined benefit plan adjustment, net of tax	Defined benefit plan adjustment, net of tax	2		1		4		3		Defined benefit plan adjustment, net of tax	2		2		6		5
Other comprehensive income (loss)		11		4		8		(24)
Comprehensive income (loss)		$	55	$	(39)	$	105	$	101
Other comprehensive (loss) income										Other comprehensive (loss) income	(6)		10		2		(14)
Comprehensive income										Comprehensive income	$	11	$	9	$	116	$	110

See Notes to Condensed Consolidated Financial Statements (Unaudited).

Table of Contents

Teradata Corporation

Condensed Consolidated Balance Sheets (Unaudited)


In millions, except per share amounts	In millions, except per share amounts	June 30, 2021		December 31, 2020		In millions, except per share amounts	September 30, 2021		December 31, 2020
Assets	Assets					Assets
Current assets	Current assets					Current assets
Cash and cash equivalents	Cash and cash equivalents	$	684	$	529	Cash and cash equivalents	$	613	$	529
Accounts receivable, net	Accounts receivable, net	299		331		Accounts receivable, net	290		331
Inventories	Inventories	20		29		Inventories	17		29
Other current assets	Other current assets	143		155		Other current assets	144		155
Total current assets	Total current assets	1,146		1,044		Total current assets	1,064		1,044
Property and equipment, net	Property and equipment, net	325		339		Property and equipment, net	300		339
Right of use assets - operating lease, net	Right of use assets - operating lease, net	27		38		Right of use assets - operating lease, net	29		38
Goodwill	Goodwill	399		401		Goodwill	397		401
Capitalized contract costs, net	Capitalized contract costs, net	97		98		Capitalized contract costs, net	99		98
Deferred income taxes	Deferred income taxes	208		222		Deferred income taxes	205		222
Other assets	Other assets	43		51		Other assets	40		51
Total assets	Total assets	$	2,245	$	2,193	Total assets	$	2,134	$	2,193
Liabilities and stockholders’ equity	Liabilities and stockholders’ equity					Liabilities and stockholders’ equity
Current liabilities	Current liabilities					Current liabilities
Current portion of long-term debt	Current portion of long-term debt	$	62	$	44	Current portion of long-term debt	$	75	$	44
Current portion of finance lease liability	Current portion of finance lease liability	87		75		Current portion of finance lease liability	81		75
Current portion of operating lease liability	Current portion of operating lease liability	13		15		Current portion of operating lease liability	13		15

Accounts payable	Accounts payable	91		50		Accounts payable	104		50
Payroll and benefits liabilities	Payroll and benefits liabilities	119		170		Payroll and benefits liabilities	137		170
Deferred revenue	Deferred revenue	544		499		Deferred revenue	464		499
Other current liabilities	Other current liabilities	82		99		Other current liabilities	81		99
Total current liabilities	Total current liabilities	998		952		Total current liabilities	955		952
Long-term debt	Long-term debt	374		411		Long-term debt	349		411
Finance lease liability	Finance lease liability	73		70		Finance lease liability	58		70
Operating lease liability	Operating lease liability	20		28		Operating lease liability	20		28
Pension and other postemployment plan liabilities	Pension and other postemployment plan liabilities	143		152		Pension and other postemployment plan liabilities	141		152
Long-term deferred revenue	Long-term deferred revenue	41		38		Long-term deferred revenue	28		38
Deferred tax liabilities	Deferred tax liabilities	6		6		Deferred tax liabilities	8		6
Other liabilities	Other liabilities	119		136		Other liabilities	118		136
Total liabilities	Total liabilities	1,774		1,793		Total liabilities	1,677		1,793
Commitments and contingencies (Note 8)	Commitments and contingencies (Note 8)	0		0		Commitments and contingencies (Note 8)	0		0
Stockholders’ equity	Stockholders’ equity					Stockholders’ equity
Preferred stock: par value $0.01 per share, 100.0 shares authorized, 0 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively		0		0
Common stock: par value $0.01 per share, 500.0 shares authorized, 108.9 and 108.8 shares issued at June 30, 2021 and December 31, 2020, respectively		1		1
Preferred stock: par value $0.01 per share, 100.0 shares authorized, no shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively						Preferred stock: par value $0.01 per share, 100.0 shares authorized, no shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively	—		—
Common stock: par value $0.01 per share, 500.0 shares authorized, 108.4 and 108.8 shares issued at September 30, 2021 and December 31, 2020, respectively						Common stock: par value $0.01 per share, 500.0 shares authorized, 108.4 and 108.8 shares issued at September 30, 2021 and December 31, 2020, respectively	1		1
Paid-in capital	Paid-in capital	1,743		1,656		Paid-in capital	1,776		1,656

Accumulated deficit	Accumulated deficit	(1,138)		(1,114)		Accumulated deficit	(1,179)		(1,114)
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(135)		(143)		Accumulated other comprehensive loss	(141)		(143)
Total stockholders’ equity	Total stockholders’ equity	471		400		Total stockholders’ equity	457		400
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	2,245	$	2,193	Total liabilities and stockholders’ equity	$	2,134	$	2,193

See Notes to Condensed Consolidated Financial Statements (Unaudited).

Table of Contents

Teradata Corporation

Condensed Consolidated Statements of Cash Flows (Unaudited)


		Six Months Ended June 30,					Nine Months Ended September 30,
In millions	In millions	2021		2020		In millions	2021		2020
Operating activities	Operating activities					Operating activities
Net income	Net income	$	97	$	125	Net income	$	114	$	124
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	Depreciation and amortization	76		85		Depreciation and amortization	113		126
Stock-based compensation expense	Stock-based compensation expense	52		52		Stock-based compensation expense	79		79
Deferred income taxes	Deferred income taxes	9		(149)		Deferred income taxes	10		(152)
Changes in assets and liabilities:	Changes in assets and liabilities:					Changes in assets and liabilities:
Receivables	Receivables	32		59		Receivables	41		77
Inventories	Inventories	9		5		Inventories	12		17
Current payables and accrued expenses	Current payables and accrued expenses	15		(32)		Current payables and accrued expenses	45		(24)
Deferred revenue	Deferred revenue	48		26		Deferred revenue	(45)		(13)
Other assets and liabilities	Other assets and liabilities	(3)		(31)		Other assets and liabilities	(1)		(23)
Net cash provided by operating activities	Net cash provided by operating activities	335		140		Net cash provided by operating activities	368		211
Investing activities	Investing activities					Investing activities
Expenditures for property and equipment	Expenditures for property and equipment	(9)		(23)		Expenditures for property and equipment	(19)		(34)

Additions to capitalized software	Additions to capitalized software	(2)		(4)		Additions to capitalized software	(2)		(6)

Net cash used in investing activities	Net cash used in investing activities	(11)		(27)		Net cash used in investing activities	(21)		(40)
Financing activities	Financing activities					Financing activities
Repurchases of common stock	Repurchases of common stock	(121)		(75)		Repurchases of common stock	(176)		(75)
Repayments of long-term borrowings	Repayments of long-term borrowings	(19)		(13)		Repayments of long-term borrowings	(32)		(19)

Payments of finance leases	Payments of finance leases	(44)		(25)		Payments of finance leases	(68)		(43)
Other financing activities, net	Other financing activities, net	18		6		Other financing activities, net	24		7
Net cash used in financing activities	Net cash used in financing activities	(166)		(107)		Net cash used in financing activities	(252)		(130)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	Effect of exchange rate changes on cash, cash equivalents and restricted cash	(4)		(7)		Effect of exchange rate changes on cash, cash equivalents and restricted cash	(11)		(3)
Increase (decrease) in cash, cash equivalents and restricted cash		154		(1)
Increase in cash, cash equivalents and restricted cash						Increase in cash, cash equivalents and restricted cash	84		38
Cash, cash equivalents and restricted cash at beginning of period	Cash, cash equivalents and restricted cash at beginning of period	533		496		Cash, cash equivalents and restricted cash at beginning of period	533		496
Cash, cash equivalents and restricted cash at end of period	Cash, cash equivalents and restricted cash at end of period	$	687	$	495	Cash, cash equivalents and restricted cash at end of period	$	617	$	534

Supplemental cash flow disclosure:	Supplemental cash flow disclosure:					Supplemental cash flow disclosure:
Assets acquired under operating lease	Assets acquired under operating lease	$	3	$	5	Assets acquired under operating lease	$	9	$	6
Assets acquired under finance lease	Assets acquired under finance lease	$	58	$	39	Assets acquired under finance lease	$	62	$	58
Annual variable incentive payout settled in equity	Annual variable incentive payout settled in equity	$	17	$	0	Annual variable incentive payout settled in equity	$	17	$	—

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


		June 30, 2021		December 31, 2020			September 30, 2021		December 31, 2020
Cash and cash equivalents	Cash and cash equivalents	$	684	$	529	Cash and cash equivalents	$	613	$	529
Restricted cash	Restricted cash	3		4		Restricted cash	4		4
Total cash, cash equivalents and restricted cash	Total cash, cash equivalents and restricted cash	$	687	$	533	Total cash, cash equivalents and restricted cash	$	617	$	533

See Notes to Condensed Consolidated Financial Statements (Unaudited).

Table of Contents

Teradata Corporation

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


		Common Stock			Paid-in		Accumulated		Accumulated Other Comprehensive					Common Stock			Paid-in		Accumulated		Accumulated Other Comprehensive
In millions	In millions	Shares	Amount		Capital		Deficit		Loss		Total		In millions	Shares	Amount		Capital		Deficit		Loss		Total
December 31, 2020	December 31, 2020	108	$	1	$	1,656	$	(1,114)	$	(143)	$	400	December 31, 2020	108	$	1	$	1,656	$	(1,114)	$	(143)	$	400
Net income	Net income	—	—		—		53		—		53		Net income	—	—		—		53		—		53
Employee stock compensation, employee stock purchase programs and option exercises, net of tax	Employee stock compensation, employee stock purchase programs and option exercises, net of tax	4	—		52		—		—		52		Employee stock compensation, employee stock purchase programs and option exercises, net of tax	4	—		52		—		—		52
Repurchases of common stock, retired	Repurchases of common stock, retired	(3)	—		—		(85)		—		(85)		Repurchases of common stock, retired	(3)	—		—		(85)		—		(85)
Pension and postemployment benefit plans, net of tax	Pension and postemployment benefit plans, net of tax	—	—		—		—		2		2		Pension and postemployment benefit plans, net of tax	—	—		—		—		2		2
Unrealized gain on derivatives, net of tax	Unrealized gain on derivatives, net of tax	—	—		—		—		3		3		Unrealized gain on derivatives, net of tax	—	—		—		—		3		3
Currency translation adjustment	Currency translation adjustment	—	—		—		—		(8)		(8)		Currency translation adjustment	—	—		—		—		(8)		(8)
March 31, 2021	March 31, 2021	109	$	1	$	1,708	$	(1,146)	$	(146)	$	417	March 31, 2021	109	$	1	$	1,708	$	(1,146)	$	(146)	$	417
Net income	Net income	—	—		—		44		—		44		Net income	—	—		—		44		—		44
Employee stock compensation, employee stock purchase programs and option exercises, net of tax	Employee stock compensation, employee stock purchase programs and option exercises, net of tax	0	—		35		—		—		35		Employee stock compensation, employee stock purchase programs and option exercises, net of tax	—	—		35		—		—		35
Repurchases of common stock, retired	Repurchases of common stock, retired	0	—		—		(36)		—		(36)		Repurchases of common stock, retired	—	—		—		(36)		—		(36)
Pension and postemployment benefit plans, net of tax	Pension and postemployment benefit plans, net of tax	—	—		—		—		2		2		Pension and postemployment benefit plans, net of tax	—	—		—		—		2		2
Unrealized gain on derivatives, net of tax	Unrealized gain on derivatives, net of tax	—	—		—		—		2		2		Unrealized gain on derivatives, net of tax	—	—		—		—		2		2
Currency translation adjustment	Currency translation adjustment	—	—		—		—		7		7		Currency translation adjustment	—	—		—		—		7		7
June 30, 2021	June 30, 2021	109	$	1	$	1,743	$	(1,138)	$	(135)	$	471	June 30, 2021	109	$	1	$	1,743	$	(1,138)	$	(135)	$	471
Net income													Net income	—	—		—		17		—		17
Employee stock compensation, employee stock purchase programs and option exercises, net of tax													Employee stock compensation, employee stock purchase programs and option exercises, net of tax	—	—		33		—		—		33
Repurchases of common stock, retired													Repurchases of common stock, retired	(1)	—		—		(58)		—		(58)
Pension and postemployment benefit plans, net of tax													Pension and postemployment benefit plans, net of tax	—	—		—		—		2		2
Unrealized gain on derivatives, net of tax													Unrealized gain on derivatives, net of tax	—	—		—		—		2		2
Currency translation adjustment													Currency translation adjustment	—	—		—		—		(10)		(10)
September 30, 2021													September 30, 2021	108	$	1	$	1,776	$	(1,179)	$	(141)	$	457

Common Stock Paid-in Accumulated Accumulated Other Comprehensive
In millions Shares Amount Capital Deficit Loss Total
December 31, 2019 111 $ 1 $ 1,545 $ (1,143) $ (141) $ 262
Net income — — — 168 — 168
Employee stock compensation, employee stock purchase programs and option exercises, net of tax 1 — 22 — — 22
Repurchases of common stock, retired (4) — — (75) — (75)
Pension and postemployment benefit plans, net of tax — — — — 2 2
Unrealized loss on derivatives, net of tax — — — — (11) (11)
Currency translation adjustment — — — — (19) (19)
March 31, 2020 108 $ 1 $ 1,567 $ (1,050) $ (169) $ 349
Net loss — — — (43) — (43)
Employee stock compensation, employee stock purchase programs and option exercises, net of tax 1 36 — — 36
Pension and postemployment benefit plans, net of tax — — — — 1 1
Unrealized gain on derivatives, net of tax — — — — 1 1
Currency translation adjustment — — — — 2 2
June 30, 2020 109 $ 1 $ 1,603 $ (1,093) $ (165) $ 346

Table of Contents


	Common Stock			Paid-in		Accumulated		Accumulated Other Comprehensive
In millions	Shares	Amount		Capital		Deficit		Loss		Total
December 31, 2019	111	$	1	$	1,545	$	(1,143)	$	(141)	$	262
Net income	—	—		—		168		—		168
Employee stock compensation, employee stock purchase programs and option exercises, net of tax	1	—		22		—		—		22
Repurchases of common stock, retired	(4)	—		—		(75)		—		(75)
Pension and postemployment benefit plans, net of tax	—	—		—		—		2		2
Unrealized loss on derivatives, net of tax	—	—		—		—		(11)		(11)

Currency translation adjustment	—	—		—		—		(19)		(19)
March 31, 2020	108	$	1	$	1,567	$	(1,050)	$	(169)	$	349
Net loss	—	—		—		(43)		—		(43)
Employee stock compensation, employee stock purchase programs and option exercises, net of tax	1			36		—		—		36

Pension and postemployment benefit plans, net of tax	—	—		—		—		1		1
Unrealized gain on derivatives, net of tax	—	—		—		—		1		1
Currency translation adjustment	—	—		—		—		2		2
June 30, 2020	109	$	1	$	1,603	$	(1,093)	$	(165)	$	346
Net loss	—	—		—		(1)		—		(1)
Employee stock compensation, employee stock purchase programs and option exercises, net of tax	—	—		29		—		—		29
Pension and postemployment benefit plans, net of tax	—	—		—		—		2		2
Unrealized gain on derivatives, net of tax	—	—		—		—		2		2
Currency translation adjustment	—	—		—		—		6		6
September 30, 2020	109	$	1	$	1,632	$	(1,094)	$	(155)	$	384

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 2020 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, 2020 (the "2020 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.

Prior period amounts have been revised to conform to the current year presentation. At the beginning of the first quarter of 2021, the Company changed its historical presentation for certain components within its revenue and cost categories. To better reflect the strategy and shift in the business, the Company adopted and revised the presentation beginning in the first quarter of 2021, including reclassifying managed services revenue of ~~$27~~$28 million and ~~$52~~$80 million for the three and nine months ~~and six~~ ended ~~June~~September 30, 2020 and costs of $21 million and ~~$41~~$62 million for the three and ~~six~~nine months ended ~~June~~September 30, 2020 from Recurring to Consulting services. The Company also reclassified third party revenue of $8 million and ~~$17~~$25 million for the three and ~~six~~nine months ended ~~June~~September 30, 2020 and costs of $6 million and ~~$13~~$19 million for the three and ~~six~~nine months ended ~~June~~September 30, 2020 from Recurring to Perpetual software licenses, hardware and other. This change in presentation does not affect the Company's total revenues, total costs of revenues or overall total gross profit (defined as total revenue less total cost of revenue).

2. New Accounting Pronouncements

Reference Rate Reform. In March 2020, the Financial Accounting Standards Board ("FASB") issued new guidance to provide relief to companies that will be impacted by the expected change in benchmark interest rates, as participating banks will no longer be required to submit London Interbank Offered Rate ("LIBOR") quotes by the U.K. Financial Conduct Authority. The new guidance allows companies to, provided the only change to existing contracts are a change to an approved benchmark interest rate, account for modifications as a continuance of the existing contract without additional analysis. For new and existing contracts, companies may elect to apply the amendments as of March 12, 2020 through December 31, 2022. The Company is currently evaluating this new guidance to determine the impact it may have on our condensed consolidated financial statements or related disclosures.

Recently Adopted Guidance

Accounting for Income Taxes. In December 2019, the FASB issued new guidance to simplify the accounting for income taxes. The new guidance changes various subtopics of accounting for income taxes including, but not limited to, accounting for "hybrid" tax regimes, tax basis step-up in goodwill obtained in a transaction that is not a business combination, intra-period tax allocation exception to incremental approach, ownership changes in investments, interim-period accounting for enacted changes in tax law, and year-to-date loss limitation in interim-period tax accounting. We adopted the guidance in the first quarter of 2021. The adoption did not have a material impact on our condensed consolidated financial statements or related disclosures.

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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 June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
in millions	in millions	2021		2020		2021		2020		in millions	2021		2020		2021		2020
Americas	Americas									Americas
Recurring	Recurring	$	233	$	204	$	451	$	400	Recurring	$	210	$	203	$	661	$	603
Perpetual software licenses, hardware and other	Perpetual software licenses, hardware and other	4		13		11		20		Perpetual software licenses, hardware and other	5		16		16		36
Consulting services	Consulting services	37		42		75		83		Consulting services	34		42		109		125
Total Americas	Total Americas	274		259		537		503		Total Americas	249		261		786		764
EMEA	EMEA									EMEA
Recurring	Recurring	86		75		187		148		Recurring	90		79		277		227
Perpetual software licenses, hardware and other	Perpetual software licenses, hardware and other	7		8		20		21		Perpetual software licenses, hardware and other	10		5		30		26
Consulting services	Consulting services	35		35		68		67		Consulting services	33		31		101		98
Total EMEA	Total EMEA	128		118		275		236		Total EMEA	133		115		408		351
APJ	APJ									APJ
Recurring	Recurring	57		44		110		86		Recurring	52		47		162		133
Perpetual software licenses, hardware and other	Perpetual software licenses, hardware and other	6		4		9		7		Perpetual software licenses, hardware and other	3		4		12		11
Consulting services	Consulting services	26		32		51		59		Consulting services	23		27		74		86
Total APJ	Total APJ	89		80		170		152		Total APJ	78		78		248		230
Total Revenue	Total Revenue	$	491	$	457	$	982	$	891	Total Revenue	$	460	$	454	$	1,442	$	1,345

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


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
in millions	in millions	2021		2020		2021		2020		in millions	2021		2020		2021		2020
Rental revenue*	Rental revenue*	$	48	$	25	$	87	$	44	Rental revenue*	$	36	$	28	$	123	$	72

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

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		As of				As of
in millions	in millions	June 30, 2021	December 31, 2020		in millions	September 30, 2021	December 31, 2020
Accounts receivable, net	Accounts receivable, net	299	$	331	Accounts receivable, net	290	$	331
Contract assets	Contract assets	16	11		Contract assets	12	11
Current deferred revenue	Current deferred revenue	544	499		Current deferred revenue	464	499
Long-term deferred revenue	Long-term deferred revenue	41	38		Long-term deferred revenue	28	38

Revenue recognized during the ~~six~~nine months ended ~~June~~September 30, 2021 from amounts included in deferred revenue at the beginning of the period was ~~$250~~$445 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 ~~June~~September 30, 2021:


in millions	in millions	Total at June 30, 2021		Year 1		Year 2 and Thereafter		in millions	Total at September 30, 2021		Year 1		Year 2 and Thereafter

Remaining unsatisfied obligations	Remaining unsatisfied obligations	$	2,611	$	1,542	$	1,069	Remaining unsatisfied obligations	$	2,524	$	1,550	$	974

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 ~~$1,500~~$1,423 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 ~~$441~~$481 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	in millions	December 31, 2020		Capitalized		Amortization		June 30, 2021		in millions	December 31, 2020		Capitalized		Amortization		September 30, 2021
Capitalized contract costs	Capitalized contract costs	$	98	$	20	$	(21)	$	97	Capitalized contract costs	$	98	$	35	$	(34)	$	99


in millions	in millions	December 31, 2019		Capitalized		Amortization		June 30, 2020		in millions	December 31, 2019		Capitalized		Amortization		September 30, 2020
Capitalized contract costs	Capitalized contract costs	$	91	$	14	$	(17)	$	88	Capitalized contract costs	$	91	$	23	$	(25)	$	89

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5. Supplemental Financial Information


		As of					As of
In millions	In millions	June 30, 2021		December 31, 2020		In millions	September 30, 2021		December 31, 2020
Inventories	Inventories					Inventories
Finished goods	Finished goods	$	10	$	18	Finished goods	$	7	$	18
Service parts	Service parts	10		11		Service parts	10		11
Total inventories	Total inventories	$	20	$	29	Total inventories	$	17	$	29

Deferred revenue	Deferred revenue					Deferred revenue
Deferred revenue, current	Deferred revenue, current	$	544	$	499	Deferred revenue, current	$	464	$	499
Long-term deferred revenue	Long-term deferred revenue	41		38		Long-term deferred revenue	28		38
Total deferred revenue	Total deferred revenue	$	585	$	537	Total deferred revenue	$	492	$	537

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 June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
In millions	In millions	2021		2020		2021		2020		In millions	2021		2020		2021		2020
Effective tax rate	Effective tax rate	25.4	%	(1,333.3)	%	26.0	%	835.3	%	Effective tax rate	10.5	%	90.0	%	24.0	%	559.3	%

For the three months ended ~~June 30, 2021, the Company had 0 material discrete tax adjustments.~~

~~For the six months ended June~~September 30, 2021, the Company recorded a total of $4 million of net discrete tax benefits, of which $5 million of tax benefit was related to true-up adjustments to reconcile the Company’s 2020 U.S. tax return as completed in the third quarter of 2021 versus the preliminary estimate as booked in its tax provision for the year ended December 31, 2020. In addition, the Company recognized $1 million of incremental tax benefit related to stock-based compensation vesting. These tax benefits were partially offset by $2 million of discrete tax ~~benefit,~~expense related to adjustments to the Company’s accrual for unrecognized tax benefits in accordance with FIN 48. As a ~~majority~~result of these discrete items the Company recorded income tax expense of $2 million on a pre-tax income of $19 million for the three months ended September 30, 2021, resulting in an effective income tax rate of 10.5%.

For the nine months ended September 30, 2021, the Company recorded $7 million of net discrete tax benefits, of which $5 million of tax benefit was related to the ~~excess~~true-up adjustments to reconcile the Company’s 2020 U.S. tax return as completed in the third quarter of 2021 versus the preliminary estimate as booked in its tax provision for the year ended December 31, 2020. In addition, the Company recognized $4 million of incremental tax benefit ~~derived from~~related to stock-based compensation ~~vesting.~~vesting and $1 million incremental tax benefit from true-ups to its forecasted marginal annual rate for 2021 based on revised full-year forecasted earnings. These tax benefits were partially offset by $3 million of discrete tax expense related to adjustments to the Company’s accrual for unrecognized tax benefits in accordance with FIN 48. The Company recorded income tax expense of $36 million on a pre-tax net income of $150 million for the nine months ended September 30, 2021, resulting in an effective income tax rate of 24.0%.

For the three months ended ~~June~~September 30, 2020, the Company recorded ~~$39~~$9 million of discrete tax ~~expense,~~benefit, a majority of which related to the adjustment of the marginal tax rate from the ~~first~~second quarter ~~of 2020~~ based on revised full-year forecasted earnings. As a result, the Company recorded income tax ~~expense~~benefit of ~~$40~~$9 million on a pre-tax net loss of $3$10 million for the three months ended ~~June~~September 30, 2020, resulting in an effective income tax rate of ~~(1,333.3)%~~90.0%.

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For the ~~six~~nine months ended ~~June~~September 30, 2020, the Company recorded ~~$113~~$122 million of discrete tax benefit. The year to date discrete tax expense of ~~$39~~$29 million recorded ~~in the second quarter of 2020 described above~~for marginal tax rate adjustments based on revised full year forecasted earnings was offset by $152 million of discrete tax benefit recorded in the first quarter, ~~of 2020,~~ a majority of which related to an intra-entity asset transfer of certain of the Company's intellectual property ("IP") to one of its Irish subsidiaries, which occurred on January 1, 2020. As a result, ~~of these discrete items,~~ the Company recorded ~~$142 million of~~ income tax benefit ~~on a~~of $151 million on a pre-tax net loss of ~~$17~~$27 million for the ~~six~~nine months ended ~~June~~September 30, 2020, resulting in an effective income tax rate of ~~835.3%~~559.3%.

The Company estimates its annual effective tax rate for 2021 to be approximately ~~30%~~27%, which takes into consideration, among other things, the forecasted earnings mix by jurisdiction and the impact of discrete tax items to be recognized in 2021. 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. The Company does not expect a material amount of tax expense related to GILTI based on our forecasted marginal effective tax rate for 2021.

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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 involvement 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.

In June 2018, Teradata executed a five-year interest rate swap with a $500 million initial notional amount to hedge the floating interest rate of its term loan, as more fully described in Note 10. 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 ~~$437~~$425 million as of ~~June~~September 30, 2021.

The Company performed an initial effectiveness assessment in the third quarter of 2018 on the interest rate swap, and the hedge was determined to be effective. The hedge is being evaluated qualitatively on a quarterly basis for effectiveness. Changes in fair value are recorded in Accumulated Other Comprehensive 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					As of
In millions	In millions	June 30, 2021		December 31, 2020		In millions	September 30, 2021		December 31, 2020
Contract notional amount of foreign exchange forward contracts	Contract notional amount of foreign exchange forward contracts	$	161	$	90	Contract notional amount of foreign exchange forward contracts	$	80	$	90
Net contract notional amount of foreign exchange forward contracts	Net contract notional amount of foreign exchange forward contracts	$	137	$	29	Net contract notional amount of foreign exchange forward contracts	$	46	$	29
Contract notional amount of interest rate swap	Contract notional amount of interest rate swap	$	437	$	456	Contract notional amount of interest rate swap	$	425	$	456

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

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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 and other regulatory compliance and general matters. We are not currently a party to any litigation, nor are we aware of any pending or threatened litigation against us that we believe would materially affect our 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 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 lawsuit, the Company alleges, 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 them to help develop, improve, introduce, and sell one or more competing products. The Company further alleges that SAP has 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 SAP’s one or more competing products and reduce or eliminate customers' and prospective customers' use of the Company's offerings. The Company may seek 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 Teradata based on ~~five~~5 of SAP’s U.S. patents ~~(one~~(1 of which has since been dismissed from the suit), and the Company is vigorously defending against these counterclaims. On August 31, 2020, the Company filed a second lawsuit against SAP in the U.S. District Court for the Northern District of California. In this lawsuit as it currently stands, Teradata alleges infringement by SAP of ~~four~~4 of Teradata’s U.S. patents and seeks an injunction barring SAP from further infringement, monetary damages, and other available legal and equitable relief. On February 16, 2021, SAP filed additional patent infringement counterclaims against Teradata based on ~~six~~6 additional U.S. patents. On the same day, SAP also filed a lawsuit in Germany for infringement of a single German patent. 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 patent counterclaims in the United States or its German 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 divesture 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

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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 ~~June~~September 30, 2021 and December 31, 2020.

The Company is also potentially subject to concentrations of supplier risk. Our hardware components are assembled exclusively 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

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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 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 2018, Teradata executed a five-year interest rate swap with a $500 million initial notional amount in order to hedge the floating interest rate on its term loan. 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 ~~June~~September 30, 2021 and December 31, 2020 was not material. Realized gains and losses from the Company’s fair value hedges net of corresponding gains or losses on the underlying exposures were immaterial for the three and ~~six~~nine months ended ~~June~~September 30, 2021 and 2020.

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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 ~~June~~September 30, 2021 and December 31, 2020 were as follows:


				Fair Value Measurements at Reporting Date Using									Fair Value Measurements at Reporting Date Using
In millions	In millions	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		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	Assets									Assets
Money market funds at June 30, 2021		$	207	$	207	$	0	$	0
Money market funds at September 30, 2021										Money market funds at September 30, 2021	$	207	$	207	$	—	$	—
Money market funds at December 31, 2020	Money market funds at December 31, 2020	$	16	$	16	$	0	$	0	Money market funds at December 31, 2020	$	16	$	16	$	—	$	—
Liabilities	Liabilities									Liabilities
Interest rate swap at June 30, 2021		$	20	$	0	$	20	$	0
Interest rate swap at September 30, 2021										Interest rate swap at September 30, 2021	$	17	$	—	$	17	$	—
Interest rate swap at December 31, 2020	Interest rate swap at December 31, 2020	$	27	$	0	$	27	$	0	Interest rate swap at December 31, 2020	$	27	$	—	$	27	$	—

10. Debt

In June 2018, Teradata replaced an existing 5 year, $400 million revolving credit facility with a new $400 million revolving credit facility (the "Credit Facility"). The Credit Facility expires in June 2023, at which point any remaining outstanding borrowings would be due for repayment unless extended by agreement of the parties for up to 2 additional one-year periods. In addition, under the terms of the Credit Facility, Teradata from time to time

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and subject to certain conditions may increase the lending commitments under the Credit Facility in an aggregate principal amount up to an additional $200 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 a Eurodollar rate plus, in each case, a margin based on Teradata’s leverage ratio. In the near term, Teradata would anticipate choosing a floating rate based on LIBOR. The Credit Facility is unsecured but is guaranteed by certain of Teradata’s material domestic subsidiaries and contains certain representations and warranties, conditions, affirmative, negative and financial covenants, and events of default customary for such facilities. As of ~~June~~September 30, 2021, the Company had 0no borrowings outstanding under the Credit Facility, leaving $400 million in borrowing capacity available under the Credit Facility. The Company was in compliance with all covenants under the Credit Facility as of ~~June~~September 30, 2021.

Also, in June 2018, Teradata closed on a new senior unsecured $500 million five-year term loan, the proceeds of which plus additional cash-on-hand were used to pay off the remaining $525 million of principal on its previous term loan. The term loan is payable in quarterly installments, which commenced on June 30, 2019, with 1.25% of the initial principal amount due on each of the first eight payment dates; 2.50% of the initial principal amount due on each of the next four payment dates; 5.0% of the initial principal amount due on each of the next three payment dates; and all remaining principal due in June 2023. The outstanding principal amount of the term loan bears interest at a floating rate based upon a negotiated base rate or a Eurodollar rate, plus in each case, a margin based on the leverage ratio of the Company. As of ~~June~~September 30, 2021, the term loan principal outstanding was ~~$437~~$425 million. As disclosed in Note 7, Teradata entered into an interest rate swap to hedge the floating interest rate of the term loan. As a result of the swap, Teradata’s fixed rate on the term loan equals 2.86% plus the applicable leverage-based margin as defined in the term loan agreement. As of ~~June~~September 30, 2021, the all-in fixed rate is 4.36%. The Company was in compliance with all covenants under the term loan as of ~~June~~September 30, 2021.

Teradata’s term loan is recognized on the Company’s balance sheet at its unpaid principal balance, net of deferred issuance costs, and is not subject to fair value measurement. However, given that the loan carries a variable rate, the Company estimates that the unpaid principal balance of the term loan would approximate its fair value. If measured at fair value in the financial statements, the Company’s term loan would be classified as Level 2 in the fair value hierarchy.

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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 June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
In millions, except per share amounts	In millions, except per share amounts	2021		2020		2021		2020		In millions, except per share amounts	2021		2020		2021		2020
Net income (loss) attributable to common stockholders	Net income (loss) attributable to common stockholders	$	44	$	(43)	$	97	$	125	Net income (loss) attributable to common stockholders	$	17	$	(1)	$	114	$	124
Weighted average outstanding shares of common stock	Weighted average outstanding shares of common stock	109.0		108.5		108.9		109.4		Weighted average outstanding shares of common stock	108.9		109.1		108.9		109.3
Dilutive effect of employee stock options, restricted stock and other stock awards	Dilutive effect of employee stock options, restricted stock and other stock awards	3.7		0		3.8		1.2		Dilutive effect of employee stock options, restricted stock and other stock awards	4.5		—		4.2		1.6
Common stock and common stock equivalents	Common stock and common stock equivalents	112.7		108.5		112.7		110.6		Common stock and common stock equivalents	113.4		109.1		113.1		110.9
Net income (loss) per share:	Net income (loss) per share:									Net income (loss) per share:
Basic	Basic	$	0.40	$	(0.40)	$	0.89	$	1.14	Basic	$	0.16	$	(0.01)	$	1.05	$	1.13
Diluted	Diluted	$	0.39	$	(0.40)	$	0.86	$	1.13	Diluted	$	0.15	$	(0.01)	$	1.01	$	1.12

For the three months ended ~~June~~September 30, 2020, due to the net loss attributable to Teradata common stockholders, potential shares that would cause dilution, such as shares resulting from employee stock options, restricted shares and other stock awards, have been excluded from the diluted share count because their effect would have been anti-dilutive. The fully diluted shares would have been ~~109.7~~111.1 million for the three months ended ~~June~~September 30, 2020.

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Options to purchase ~~0.2~~$0.2 million and ~~0.6~~$0.4 million shares of common stock for the three and ~~six~~nine months ended ~~June~~September 30, 2021 and 2.1 ~~million and 2.2~~ million shares of common stock for the three and ~~six~~nine months ended ~~June~~September 30, 2020 were not included in the computation of diluted earnings per share because the exercise prices of these options were greater than the average market price of the common shares for the period, and therefore would have been anti-dilutive.

12. Segment and Other Supplemental Information

Teradata manages its business under 3 geographic regions, which are also the Company’s operating segments: (1) Americas region (North America and Latin America); (2) EMEA region (Europe, Middle East and Africa) and (3) APJ region (Asia Pacific and Japan). For purposes of discussing results by segment, management excludes the impact of certain items, consistent with the manner by which management evaluates the performance of each segment. This format is useful to investors because it allows analysis and comparability of operating trends. It also includes the same information that is used by Teradata management to make decisions regarding the segments and to assess financial performance. The chief operating decision maker, who is the Company's President and Chief Executive Officer, evaluates the performance of the segments based on revenue and multiple profit measures, including segment gross profit. For management reporting purposes, assets are not allocated to the segments.

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The following table presents segment revenue and segment gross profit for the Company:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
In millions	In millions	2021		2020		2021		2020		In millions	2021		2020		2021		2020
Segment revenue	Segment revenue									Segment revenue
Americas	Americas	$	274	$	259	$	537	$	503	Americas	$	249	$	261	$	786	$	764
EMEA	EMEA	128		118		275		236		EMEA	133		115		408		351
APJ	APJ	89		80		170		152		APJ	78		78		248		230

Total revenue	Total revenue	491		457		982		891		Total revenue	460		454		1,442		1,345
Segment gross profit	Segment gross profit									Segment gross profit
Americas	Americas	185		161		367		305		Americas	157		165		524		470
EMEA	EMEA	80		67		168		128		EMEA	81		69		249		197
APJ	APJ	53		41		98		71		APJ	44		43		142		114

Total segment gross profit	Total segment gross profit	318		269		633		504		Total segment gross profit	282		277		915		781
Stock-based compensation costs	Stock-based compensation costs	5		4		8		8		Stock-based compensation costs	4		5		12		13
Acquisition, integration, reorganization and transformation-related costs	Acquisition, integration, reorganization and transformation-related costs	3		4		8		4		Acquisition, integration, reorganization and transformation-related costs	3		12		11		16
Amortization of capitalized software costs	Amortization of capitalized software costs	0		5		0		11		Amortization of capitalized software costs	—		6		—		17
Total gross profit	Total gross profit	310		256		617		481		Total gross profit	275		254		892		735
Selling, general and administrative expenses	Selling, general and administrative expenses	161		165		310		323		Selling, general and administrative expenses	166		163		476		486
Research and development expenses	Research and development expenses	79		83		156		156		Research and development expenses	79		90		235		246

Income from operations	Income from operations	$	70	$	8	$	151	$	2	Income from operations	$	30	$	1	$	181	$	3

13. Reorganization and Business Transformation

2020 Workforce Reduction and Real Estate Rationalization Measures

In September 2020, the Company offered a voluntary separation program ("VSP") to certain tenured employees. This global program was generally made available to active employees in good standing who (1) were at least 55 years old as of October 1, 2020 and (2) had at least ten years of service with Teradata. This program was implemented as part of the Company's efforts to improve its cost structure. On November 2, 2020, the Company approved a plan to realign and reduce its workforce and rationalize its real estate footprint. The workforce measures

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involve involuntary headcount reduction actions. These actions are separate from the VSP. The rationalization of the Company’s real estate footprint involves terminating leases relating to certain of the Company’s offices globally and transitioning impacted employees to a permanent virtual working environment, co-working space or a smaller facility, depending on business need. The Company is continuing to evaluate and implement additional measures that would be expected to result in further cost savings.

The costs relating to these workforce reduction and real estate rationalization measures include one-time employee separation benefits, transition support, outside services and other exit-related costs. The Company expects that it will incur total costs and charges related to these actions in the range of approximately ~~$55~~$54 to ~~$59~~$58 million, consisting primarily of the following:

•$13 to $14 million for employee severance and other employee-related costs, which is separate from the ~~$29~~$28 to ~~$30~~$29 million for costs related to the VSP,

•$6 to $7 million charge for facilities lease related costs, and

•$7 to $8 million for outside service, legal and other associated costs.

The Company incurred $13 million of these costs and charges in the first ~~six~~nine months of 2021 and $42 million in 2020 with the remaining costs and charges expected to be incurred in the ~~second half~~fourth quarter of 2021 upon completion of

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these actions. Cash expenditures related to these actions are estimated at approximately $59 to ~~$66~~$63 million. Approximately $12 ~~million~~ to $13 million of the cash expenditures relate to cash payments to international employees, ~~and~~ which are not expected to have a material impact on the Company's Condensed Consolidated Statements of Income due to the Company accounting for its International postemployment benefits under Accounting Standards Codification 712, Compensation - Nonretirement Postemployment Benefits ("ASC 712"), which uses actuarial estimates and defers the immediate recognition of gains or losses.

The Company recognized costs of $13 million ($910 million cash and $4$3 million non-cash) in the first ~~six~~nine months of 2021 for the VSP, employee separation benefits, facilities lease related costs, outside service, legal and other associated costs. Certain benefits are being expensed over the time period that the employees are required to work to earn them to the extent the required service period extends beyond the nominal period. $3$4 million of these costs were recorded to costs of revenue, $7$6 million were recorded to selling, general and administrative expenses and $3 million were recorded to research and development expenses. There was no impact to the segment gross profit.

Cash paid related to the actions described above was ~~$33~~$35 million in the first ~~six~~nine months of 2021 and $23 million in 2020. Not included in the table below are approximately $8$9 million in the first ~~six~~nine months of 2021 and $2 million in 2020 of cash payments for international employees, which did not have a material impact on the Condensed Consolidated Statements of Income.

The 2021 activity and the reserves related to these workforce reduction and real estate rationalization measures are as follows:


In millions	In millions	Balance at December 31, 2020		Expense accruals		Cash payments		Balance at June 30, 2021		In millions	Balance at December 31, 2020		Expense accruals		Cash payments		Balance at September 30, 2021
VSP	VSP	$	16	$	3	$	(17)	$	2	VSP	$	16	$	3	$	(18)	$	1
Employee severance and other employee-related costs	Employee severance and other employee-related costs	2		4		(6)		0		Employee severance and other employee-related costs	2		4		(5)		1
Facilities lease related costs, outside service, legal and other associated costs	Facilities lease related costs, outside service, legal and other associated costs	0		2		(2)		0		Facilities lease related costs, outside service, legal and other associated costs	—		3		(3)		—
Total	Total	$	18	$	9	$	(25)	$	2	Total	$	18	$	10	$	(26)	$	2

In addition, the Company incurred non-cash costs not reflected in the table above of $1 million in the first ~~six~~nine months of 2021 and $2 million in 2020 for stock-based compensation for accelerated vesting tied to the VSP and $3$2 million in 2021 and ~~$2 million in~~ 2020 for accelerated amortization of right-of-use assets and fixed assets associated with the termination of leases relating to certain of the Company’s offices globally. The remaining lease liability is included in our operating lease obligations as of ~~June~~September 30, 2021 and is not included in the table above.

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Item 2. 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 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 Annual Report on Form 10-K for the fiscal year ended December 31, 2020 (the "2020 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.

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Overview

Teradata Corporation ("we," "us," "Teradata," or the "Company") is the leading connected multi-cloud data platform for enterprise analytics at scale. Our connected multi-cloud data platform, Teradata Vantage, allows customers to integrate and simplify their multi-cloud data and analytic ecosystems, streamline access and management of their data, and use analytics to derive business value from diverse data types. Our Teradata Vantage platform is designed and built to run across on-premises, private cloud and public cloud environments. This platform is supported by business consulting, support services and partner networks that enable customers to extract insights from across a company’s entire data and analytics ecosystem.

Teradata’s strategy is based on our differentiated value proposition for the top 10,000 largest organizations in the world. Our strategy is to provide a connected multi-cloud data platform, Teradata Vantage, that supports the needs of enterprises from start to scale. Teradata Vantage is an effective platform for driving business outcomes, with a partnering approach, embracing modern ecosystems and enabling users to build how they want.

We are continuing to execute on our key priorities, including significant product expansion of our Teradata Vantage multi-cloud data platform offering, expanding our footprint with existing customers and adding new customers, driving focus on modern cloud partner ecosystems and driving operational efficiency and agility across the company. Our strategy is further supported by various people initiatives to drive a growth-oriented culture, as well as an increased focus on diversity, equity and inclusiveness, to attract and support high performing, top talent, and diverse teams.

~~To allow for greater transparency regarding the progress we are making toward achieving our strategic objectives, we utilize the following~~Teradata uses various financial and performance ~~metrics:~~metrics to track its progress and performance, including:

•Annual Recurring Revenue ("ARR") - annual contract value for all active and contractually binding term-based contracts at the end of a period. ARR includes maintenance, software upgrade rights, public cloud and on-premises subscription-based transactions.

•Public ~~cloud~~Cloud ARR (included within total ARR) - annual contract value for all active and contractually binding term based contracts at the end of a period that are operated in a public cloud ~~environment;~~environment.

•Cloud Net Expansion Rate - Teradata calculates its last-twelve months dollar-based cloud net expansion rate as of a fiscal quarter end as follows. We identify the ARR for active (revenue generating) cloud customers in the fiscal quarter ending one year prior to the given fiscal quarter (the "base period"). We then identify the cloud ARR in the given fiscal quarter (the "current period") from the same set of active cloud customers as the base period, including increases in usage, as well as reductions and cancellations, and additional conversions of on-premises revenues to the cloud for customers active in the base period, all in constant currency. The quarterly dollar-based, cloud net expansion rate is calculated by taking the ARR from the current period and dividing by the ARR from the base period. The last twelve-month dollar-based cloud net expansion rate is calculated by taking the average of the quarterly dollar-based cloud net expansion rate from the last fiscal quarter and the prior three fiscal quarters.

•Remaining performance obligation ("RPO")/Backlog - the price of firm orders for which work has not been performed or goods have not been delivered and which the Company is contractually required to perform.

COVID-19 Update

See Part I, Item 1A. "Risk Factors" and Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the 2020 Annual Report for a discussion related to risks and impact of COVID-19 on the Company. As of the date of this Quarterly Report on Form 10-Q, we are continuing to execute our pandemic response plan, and the Teradata Pandemic Response Team is refining and executing return-to-office

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plans with "safety first" considerations. Customer-facing teams are also proactively working to identify ways to assist customers, meet service level commitments, and engage with customers via virtual events.

Despite these efforts, there remains a fair degree of uncertainty regarding the potential impact of the pandemic on our business, from both a financial and operational perspective, and the scope and costs associated with additional measures that may be necessary in response to the pandemic going forward, particularly in light of the potential

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impact of one or more COVID-19 variants. We will continue our diligent efforts to monitor and respond as appropriate to the impacts of the pandemic on our business, including the status of our workforce, supply chain, customers, suppliers, and vendors, based on the priorities described above. Our actions will continue to be informed by the requirements and recommendations of the federal, state or local authorities. We will remain agile and have contingency plans in place to appropriately respond to conditions as they continue to unfold.

~~Second~~Third Quarter Financial Overview

As more fully discussed in later sections of this MD&A, the following were significant financial items for the ~~second~~third quarter of 2021:

•At the end of the ~~second~~third quarter of 2021, ARR was ~~$1.426~~$1.437 billion, increasing 9%7% as compared to the ~~second~~third quarter of 2020, including a 2%1% positive impact from foreign currency translation, as compared to the ~~second~~third quarter of 2020. At the end of ~~second~~third quarter of 2021, Public ~~cloud~~Cloud ARR was ~~$139~~$148 million, increasing ~~157%~~83% as compared to the ~~second~~third quarter of 2020, including a 4%1% positive impact from foreign currency fluctuations.

•Total revenue was ~~$491~~$460 million for the ~~second~~third quarter of 2021, a 7%1% increase compared to the ~~second~~third quarter of 2020, with an underlying ~~16%~~7% increase in recurring revenue. Perpetual software licenses, hardware and other revenue decreased ~~32%~~28%, and consulting services revenue decreased 10%. Foreign currency fluctuations ~~had a 3% positive~~did not have an impact on total revenue for the quarter compared to the prior year.

•Gross margin increased to ~~63.1%~~59.8% in the ~~second~~third quarter of 2021 from ~~56.0%~~55.9% in the ~~second~~third quarter of 2020, primarily due to a higher recurring revenue mix as compared to the prior period.

•Operating expenses for the ~~second~~third quarter of 2021 decreased by 3% compared to the ~~second~~third quarter of 2020, primarily due to a lower employee cost base resulting from the workforce reduction measures in 2020 offset by an increase in investments in cloud transformation and variable incentive compensation expense.

•Operating income was ~~$70~~$30 million in the ~~second~~third quarter of 2021, compared to $8$1 million in the ~~second~~third quarter of 2020.

•Net income in the ~~second~~third quarter of 2021 was ~~$44~~$17 million, compared to net loss of ~~$43~~$1 million in the ~~second~~third quarter of 2020.

•Cloud Net Expansion Rate for the third quarter of 2021 remains in excess of 130%.

•Total backlog of ~~$2.611~~$2.524 billion at the end of the ~~second~~third quarter of 2021, ~~was up 1%~~down 2% from the ~~second~~third quarter of the prior year.

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Results of Operations for the Three Months Ended ~~June~~September 30, 2021

Compared to the Three Months Ended ~~June~~September 30, 2020

Revenue


				% of				% of					% of				% of
In millions	In millions	2021		Revenue		2020		Revenue		In millions	2021		Revenue		2020		Revenue
Recurring	Recurring	$	376	76.5	%	$	323	70.8	%	Recurring	$	352	76.5	%	$	329	72.5	%
Perpetual software licenses, hardware and other	Perpetual software licenses, hardware and other	17		3.5	%	25		5.5	%	Perpetual software licenses, hardware and other	18		3.9	%	25		5.5	%
Consulting services	Consulting services	98		20.0	%	109		23.9	%	Consulting services	90		19.6	%	100		22.0	%
Total revenue	Total revenue	$	491	100.0	%	$	457	100.2	%	Total revenue	$	460	100.0	%	$	454	100.0	%

Total revenue increased ~~$34~~$6 million, or 7%1%, in ~~second~~the third quarter of ~~2021 and included a 3% positive impact from foreign currency fluctuations.~~2021. Recurring revenue grew ~~16%~~7%, including a 3%1% positive impact from foreign currency fluctuations. Recurring revenue increased ~~due~~as we continued to abuild on the higher base and favorable mix of recurring revenue. Additionally, during the quarter there was an approximate net negative $10 million impact related to upfront recurring revenue ~~driven~~from revenue recognized upfront in prior quarters, generally in-line with our expectations. This amount was partially offset by ~~continued growth in public cloud and subscription ARR~~a modest amount of positive renewal or expansion arrangements with upfront recurring revenue impact during 2020 and continued growth in public cloud ARR in 2021. Additionally, on-premises customer transactions involving substantive long-term commitments resulted in revenue being recognized on a recurring annual basis rather than a recurring quarterly basis and drove approximately $22 million of revenue into the ~~second quarter from these arrangements versus ratably across four quarters.~~current quarter. For full year 2021, we expect a mid- to high-single digit percentage increase in total ARR growth. Public Cloud ARR is expected to increase by approximately 90% year-over-year, or approximately $200 million, for full year of 2021 as compared to 2020. Recurring revenue is expected to grow at a high-single-digit to low-double-digit percentage compared to 2020. Public cloud ARR is expected to increase by at least 90% for the third quarter of 2021as compared to the same period in 2020 and increase by at least 100% year-over-year for full year of 2021 as compared to 2020. Taking into consideration the expected growth in recurring revenue, partially offset by anticipated reductions in perpetual software licenses, hardware and other revenue and consulting services revenue, we expect that total revenue will grow at low-single-digit to mid-single-digit percentage in 2021 as compared to 2020.

Revenues from perpetual software licenses, hardware and other were down ~~32%~~28% in the ~~second~~third quarter of 2021, including a 1% positive impact from foreign currency fluctuations, as customers continue to transition to subscription-based offerings, consistent with our overall strategy.

Consulting services revenue decreased 10% in the ~~second~~third quarter of 2021, ~~including a 4% positive impact from foreign currency fluctuations,~~ as we are realigning and focusing our consulting resources on higher-margin engagements, both direct engagement with customers and joint engagement with partners that drive increased software consumption within our targeted customer base. Consulting revenue was also impacted by the transition to work from home and shelter-in-place orders that went in effect late in the first quarter of 2020 in response to COVID-19 as well as delays and/or cancellations of consulting projects due to customers’ reduced spending in light of COVID-19.

As a portion of the Company’s operations and revenue occur outside the United States, and in currencies other than the U.S. dollar, the Company is exposed to fluctuations in foreign currency exchange rates. Based on currency rates as of ~~July 31,~~October 29, 2021, Teradata is expecting approximately one to ~~two~~one and half percentage points of positive impact from currency translation on our 2021 full-year total revenues.

Gross Profit


				% of				% of					% of				% of
In millions	In millions	2021		Revenue		2020		Revenue		In millions	2021		Revenue		2020		Revenue

Recurring	Recurring	$	289	76.9	%	$	234	72.4	%	Recurring	$	257	73.0	%	$	233	70.8	%
Perpetual software licenses, hardware and other	Perpetual software licenses, hardware and other	6		35.3	%	7		28.0	%	Perpetual software licenses, hardware and other	7		38.9	%	12		48.0	%
Consulting services	Consulting services	15		15.3	%	15		13.8	%	Consulting services	11		12.2	%	9		9.0	%
Total gross profit	Total gross profit	$	310	63.1	%	$	256	56.0	%	Total gross profit	$	275	59.8	%	$	254	55.9	%

The increase in recurring revenue gross profit as a percentage of revenue was primarily driven by a higher amount of recurring revenue at an improved gross margin rate driven by greater subscription and cloud efficiencies versus

~~Table~~ prior year, as well as a lower employee cost base resulting from the 2020 reorganization efforts. This was partially offset by the negative impact from upfront revenue arrangements pulled forward from the third quarter into the first half of ~~Contents~~

~~prior year. Upfront revenue recognition of certain renewed and expanded customer arrangements, discussed above, also had a positive impact on recurring revenue gross margin.~~fiscal 2021.

The ~~increase~~decrease in perpetual software licenses, hardware and other gross profit as a percentage of revenue was primarily driven by deal mix.

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Consulting services gross profit as a percentage of revenue increased as compared to the prior year primarily due to improved resource mix utilization, increased revenue realization, ~~and~~ our continued strategic focus on higher-value ~~projects.~~projects and higher reorganization costs in the prior period compared to the current period.

Operating Expenses


				% of				% of					% of				% of
In millions	In millions	2021		Revenue		2020		Revenue		In millions	2021		Revenue		2020		Revenue

Selling, general and administrative expenses	Selling, general and administrative expenses	$	161	32.8	%	$	165	36.1	%	Selling, general and administrative expenses	$	166	36.1	%	$	163	35.9	%
Research and development expenses	Research and development expenses	79		16.2	%	83		18.3	%	Research and development expenses	79		17.3	%	90		19.9	%

Total operating expenses	Total operating expenses	$	240	48.9	%	$	248	54.3	%	Total operating expenses	$	245	53.3	%	$	253	55.7	%

The selling, general and administrative expense ("SG&A") increase was primarily driven by higher variable incentive tied to performance, higher cloud sales compensation expense, and additional investments in go-to-market operations, partially offset by a combination of lower cost structure and continued cost discipline. The research and development ("R&D") expense ~~decreases were primarily~~decrease was driven by a lower employee cost base resulting from the 2020 reorganization efforts and ~~a focus~~continued cost discipline, partially offset by increased spend on ~~efficient operational execution.~~cloud.

Other Expense, net


In millions	In millions	2021		2020		In millions	2021		2020

Interest income	Interest income	$	2	$	1	Interest income	$	1	$	1
Interest expense	Interest expense	(7)		(7)		Interest expense	(6)		(7)
Other	Other	(6)		(5)		Other	(6)		(5)
Other expense, net	Other expense, net	$	(11)	$	(11)	Other expense, net	$	(11)	$	(11)

Other expense, net in the ~~second~~third quarter of 2021 and 2020 is comprised primarily of interest expense on long-term debt and finance leases as well as benefit costs on our pension and postemployment plans, partially offset by interest income earned on our cash and cash equivalents.

Provision for Income Taxes

The Company expects that a majority of its foreign earnings will be repatriated to the U.S. ~~The~~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 the Company conducts its business. The Company estimates its full-year effective tax rate for 2021 will be approximately ~~30%~~27%, which takes into consideration, among other things, the forecasted earnings mix by jurisdiction and the estimated discrete items to be recognized in 2021. The forecasted tax rate is based on the overseas profits being taxed at an overall effective tax rate of approximately 24%, as compared to the U.S. federal statutory tax rate of 21%.

The effective tax rate for the three months ended ~~June~~September 30, 2021 and 2020 were as follows:

2021 2020
Effective tax rate 25.4 % (1,333.3) %


	2021		2020
Effective tax rate	10.5	%	90.0	%

For the three months ended ~~June~~September 30, 2021, the Company ~~had no material~~recorded a total of $4 million of net discrete tax ~~adjustments.~~benefits, of which $5 million of tax benefit was related to true-up adjustments to reconcile the Company’s 2020 U.S. tax return as completed in the third quarter of 2021 versus the preliminary estimate as booked in its tax provision for the year ended December 31, 2020. In addition, the Company recognized $1 million of incremental tax benefit related to stock-based compensation vesting. These tax benefits were partially offset by $2 million of discrete tax expense related to adjustments to the Company’s accrual for unrecognized tax benefits in accordance with FIN 48. As a result of these discrete items the Company recorded income tax expense of $2 million on pre-tax income of $19 million for the three months ended September 30, 2021, resulting in an effective income tax rate of 10.5%.

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For the three months ended ~~June~~September 30, 2020, the Company recorded a net ~~$39~~$9 million of discrete tax ~~expense,~~benefit, a majority of which related to the true-up of the marginal tax rate from the ~~first~~second quarter based on revised full-year

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forecasted earnings. As a result, the Company recorded income tax ~~expense~~benefit of ~~$40~~$9 million on a pre-tax net loss of $3$10 million for the three months ended ~~June~~September 30, 2020, resulting in an effective income tax rate of ~~(1,333.3)%~~90.0%.

Revenue and Gross Profit by Operating Segment

Teradata manages its business under three geographic regions, which are also the Company’s operating segments: (1) Americas region (North America and Latin America); (2) EMEA region (Europe, Middle East, and Africa) and (3) APJ region (Asia Pacific and Japan). For purposes of discussing results by segment, management excludes the impact of certain items, consistent with the manner by which management evaluates the performance of each segment. This format is useful to investors because it allows analysis and comparability of operating trends. It also includes the same information that is used by Teradata management to make decisions regarding the segments and to assess financial performance. The chief operating decision maker, who is our President and Chief Executive Officer, evaluates the performance of the segments based on revenue and multiple profit measures, including segment gross profit. For management reporting purposes, assets are not allocated to the segments. Our segment results are reconciled to total company results reported under GAAP in Note 12 of Notes to Condensed Consolidated Financial Statements (Unaudited).

The following table presents segment revenue and segment gross profit for the Company for the three months ended ~~June~~September 30:


				% of				% of					% of				% of
In millions	In millions	2021		Revenue		2020		Revenue		In millions	2021		Revenue		2020		Revenue
Segment revenue	Segment revenue									Segment revenue
Americas	Americas	$	274	55.8	%	$	259	56.7	%	Americas	$	249	54.1	%	$	261	57.5	%
EMEA	EMEA	128		26.1	%	118		25.8	%	EMEA	133		28.9	%	115		25.3	%
APJ	APJ	89		18.1	%	80		17.5	%	APJ	78		17.0	%	78		17.2	%
Total segment revenue	Total segment revenue	$	491	100	%	$	457	100	%	Total segment revenue	$	460	100	%	$	454	100	%
Segment gross profit	Segment gross profit									Segment gross profit
Americas	Americas	$	185	67.5	%	$	161	62.2	%	Americas	$	157	63.1	%	$	165	63.2	%
EMEA	EMEA	80		62.5	%	67		56.8	%	EMEA	81		60.9	%	69		60.0	%
APJ	APJ	53		59.6	%	41		51.3	%	APJ	44		56.4	%	43		55.1	%
Total segment gross profit	Total segment gross profit	$	318	64.8	%	$	269	58.9	%	Total segment gross profit	$	282	61.3	%	$	277	61.0	%

Americas

Americas revenue ~~increased 6%~~decreased 5% as compared to the prior year. Recurring revenue was up ~~14%~~3% and perpetual and other revenue was down 69% ($911 million). Consulting revenue decreased ~~12%~~19% as compared to the prior year. Segment gross profit as a percentage of revenues was ~~higher primarily due~~flat as compared to ~~an overall higher mix~~the third quarter of ~~recurring revenue.~~2020.

EMEA

EMEA revenue increased 8%16%, which included a 9%1% favorable impact from foreign currency fluctuations. The overall increase in revenue included an increase of ~~15%~~14% in recurring revenue, ~~a reduction~~an increase of ~~13%~~100% ($5 million) in perpetual and other revenue and ~~flat~~increase of 6% in consulting revenue. Segment gross profit as a percentage of revenues was higher primarily due to a higher mix of recurring revenue.

APJ

APJ revenue ~~increased 11%, which~~was flat as compared to third quarter of 2020 and included a 7%2% favorable impact from foreign currency fluctuations. An increase in recurring revenue of ~~30% and an increase~~11% was offset by decrease in perpetual and other revenue of ~~50%~~25% ($21 million) ~~was partially offset by~~and a decrease in consulting revenue of ~~19%~~15%. Segment gross profit as a percentage of revenues was higher primarily due to a higher mix of recurring revenue.

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Results of Operations for the ~~Six~~Nine Months Ended ~~June~~September 30, 2021

Compared to the ~~Six~~Nine Months Ended ~~June~~September 30, 2020

Revenue


				% of				% of					% of				% of
In millions	In millions	2021		Revenue		2020		Revenue		In millions	2021		Revenue		2020		Revenue
Recurring	Recurring	$	748	76.2	%	$	634	71.2	%	Recurring	$	1,100	76.3	%	$	963	71.6	%
Perpetual software licenses, hardware and other	Perpetual software licenses, hardware and other	40		4.1	%	48		5.4	%	Perpetual software licenses, hardware and other	58		4.0	%	73		5.4	%
Consulting services	Consulting services	194		19.7	%	209		23.4	%	Consulting services	284		19.7	%	309		23.0	%
Total revenue	Total revenue	$	982	100.0	%	$	891	100.0	%	Total revenue	$	1,442	100.0	%	$	1,345	100.0	%

Total revenue increased ~~$91~~$97 million, or ~~10%~~7%, in the first ~~six~~nine months of 2021 and included a 3%2% positive impact from foreign currency fluctuations. Recurring revenue grew ~~18%~~14%, and was positively impacted by a higher base of revenue driven by continued growth in public cloud and subscription ARR during 2020 and continued growth in public cloud and subscription ARR in the first ~~six~~nine months of 2021. Additionally, on-premises customer transactions involving substantive long-term commitments resulted in revenue being recognized on a recurring annual basis rather than a recurring quarterly basis and drove revenue into the first ~~six~~nine months of 2021 from these arrangements versus ratably across four quarters.

Revenues from perpetual software licenses, hardware and other were down ~~17%~~21% in the first ~~six~~nine months of 2021, as customers continue to transition to subscription-based offerings, consistent with our overall strategy.

Consulting services revenue decreased 7%8% in the first ~~six~~nine months of 2021, including a 4%3% positive impact from foreign currency fluctuations, as we are realigning and focusing our consulting resources on higher-margin engagements, both direct engagement with customers and joint engagement with partners that drive increased software consumption within our targeted customer base. Consulting revenue was also impacted by the transition to work from home and shelter-in-place orders that went in effect late in the first quarter of 2020 in response to COVID-19 as well as delays and/or cancellations of consulting projects due to customers’ reduced spending in light of COVID-19.

Gross Profit


				% of				% of					% of				% of
In millions	In millions	2021		Revenue		2020		Revenue		In millions	2021		Revenue		2020		Revenue

Recurring	Recurring	$	571	76.3	%	$	452	71.3	%	Recurring	$	828	75.3	%	$	685	71.1	%
Perpetual software licenses, hardware and other	Perpetual software licenses, hardware and other	18		45.0	%	15		31.3	%	Perpetual software licenses, hardware and other	25		43.1	%	27		37.0	%
Consulting services	Consulting services	28		14.4	%	14		6.7	%	Consulting services	39		13.7	%	23		7.4	%
Total gross profit	Total gross profit	$	617	62.8	%	$	481	54.0	%	Total gross profit	$	892	61.9	%	$	735	54.6	%

The increase in recurring revenue gross profit as a percentage of revenue was primarily driven by a higher amount of recurring revenue at an improved gross margin rate driven by improved operating efficiencies of our subscription and cloud offerings partially offset by the higher mix shift to cloud. Upfront revenue recognition of certain renewed and expanded customer arrangements, discussed above, also had a positive impact on recurring revenue gross margin.

The increase in perpetual software licenses, hardware and other gross profit as a percentage of revenue was primarily driven by deal mix and opportunities with lower hardware mix as compared to prior year.

Consulting services gross profit as a percentage of revenue increased as compared to the prior year primarily due to improved resource mix utilization as well as increased revenue realization and our continued strategic focus to improve consulting margins by focusing on higher-value projects. The Company continues to refocus our consulting organization on Vantage-oriented offerings and reduce our footprint in non-core consulting engagements.

Operating Expenses

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				% of				% of					% of				% of
In millions	In millions	2021		Revenue		2020		Revenue		In millions	2021		Revenue		2020		Revenue

Selling, general and administrative expenses	Selling, general and administrative expenses	$	310	31.6	%	$	323	36.3	%	Selling, general and administrative expenses	$	476	33.0	%	$	486	36.1	%
Research and development expenses	Research and development expenses	156		15.9	%	156		17.5	%	Research and development expenses	235		16.3	%	246		18.3	%

Total operating expenses	Total operating expenses	$	466	47.5	%	$	479	53.8	%	Total operating expenses	$	711	49.3	%	$	732	54.4	%

The SG&A expense decrease was primarily driven by a lower employee cost base resulting from the workforce reduction measures in 2020, lower travel and marketing spend as compared to the prior year pre-pandemic period and continued cost discipline as compared to prior year. This was partially offset by higher variable incentive tied to performance, higher cloud compensation expenses and additional investments in go-to-market operations.

R&D expenses ~~were flat~~decreased for the first ~~six~~nine months of 2021 as compared to prior year. R&D expenses were impacted ~~by an increase in spending focused on accelerating our cloud initiatives as well as higher variable incentive compensation expense, which was offset~~ by a lower employee cost base resulting from the workforce reduction measures initiated in 2020 and continued cost discipline as compared to the prior ~~year.~~year partially offset by an increase in spending focused on accelerating our cloud initiatives as well as higher variable incentive compensation expense.

Other Expense, net


In millions	In millions	2021		2020		In millions	2021		2020

Interest income	Interest income	$	3	$	3	Interest income	$	4	$	4
Interest expense	Interest expense	(14)		(14)		Interest expense	(20)		(21)
Other	Other	(9)		(8)		Other	(15)		(13)
Other expense, net	Other expense, net	$	(20)	$	(19)	Other expense, net	$	(31)	$	(30)

Other expense, net in the ~~second quarter~~first nine months of 2021 and 2020 is comprised primarily of interest expense on long-term debt and finance leases as well as benefit costs associated with our pension and postemployment plans, partially offset by interest income earned on our cash and cash equivalents.

Provision for Income Taxes

The effective tax rate for the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020 were as follows:

2021 2020
Effective tax rate 26.0 % 835.3 %


	2021		2020
Effective tax rate	24.0	%	559.3	%

For the ~~six~~nine months ended ~~June~~September 30, 2021, the Company recorded $7 million of net discrete tax benefits, of which $5 million of tax benefit was related to the true-up adjustments to reconcile the Company’s 2020 U.S. tax return as completed in the third quarter of 2021 versus the preliminary estimate as booked in its tax provision for the year ended December 31, 2020. In addition, the Company recognized $4 million of incremental tax benefit related to stock-based compensation vesting and $1 million incremental tax benefit from true-ups to its forecasted marginal annual rate for 2021 based on revised full-year forecasted earnings. These tax benefits were partially offset by $3 million of discrete tax ~~benefit, a majority of which~~expense related to adjustments to the ~~excess~~Company’s accrual for unrecognized tax benefits ~~derived from stock-based compensation vesting.~~in accordance with FIN 48. The Company recorded income tax expense of $36 million on a pre-tax net income of $150 million for the nine months ended September 30, 2021, resulting in an effective income tax rate of 24.0%.

For the ~~six~~nine months ended ~~June~~September 30, 2020, the Company recorded ~~$113~~$122 million of discrete tax benefit. The year to date discrete tax expense of ~~$39~~$29 million recorded ~~in the second quarter of 2020 described above~~for marginal tax rate adjustments based on revised full year forecasted earnings was offset by $152 million of discrete tax benefit recorded in the first quarter, ~~of 2020,~~ a majority of which related to the ~~transfer of~~ intra-entity ~~IP.~~IP transfer. As a result, the Company recorded income tax benefit of ~~$142~~$151 million on a pre-tax loss of ~~$17~~$27 million for the ~~six~~nine months ended ~~June~~September 30, 2020, resulting in an effective income tax rate of ~~835.3%~~559.3%.

Revenue and Gross Profit by Operating Segment

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The following table presents segment revenue and segment gross profit for the Company for the ~~Six~~Nine Months Ended ~~June~~September 30:


				% of				% of					% of				% of
In millions	In millions	2021		Revenue		2020		Revenue		In millions	2021		Revenue		2020		Revenue
Segment revenue	Segment revenue									Segment revenue
Americas	Americas	$	537	54.7	%	$	503	56.5	%	Americas	$	786	54.5	%	$	764	56.8	%
EMEA	EMEA	275		28.0	%	236		26.5	%	EMEA	408		28.3	%	351		26.1	%
APJ	APJ	170		17.3	%	152		17.1	%	APJ	248		17.2	%	230		17.1	%
Total segment revenue	Total segment revenue	$	982	100	%	$	891	100	%	Total segment revenue	$	1,442	100.0	%	$	1,345	100.0	%
Segment gross profit	Segment gross profit									Segment gross profit
Americas	Americas	$	367	68.3	%	$	305	60.6	%	Americas	$	524	66.7	%	$	470	61.5	%
EMEA	EMEA	168		61.1	%	128		54.2	%	EMEA	249		61.0	%	197		56.1	%
APJ	APJ	98		57.6	%	71		46.7	%	APJ	142		57.3	%	114		49.6	%
Total segment gross profit	Total segment gross profit	$	633	64.5	%	$	504	56.6	%	Total segment gross profit	$	915	63.5	%	$	781	58.1	%

Americas

Americas revenue increased 7%3% as compared to the prior year. Recurring revenue was up ~~13%~~10% and perpetual software licenses, hardware and other revenue was down ~~45%~~56%. Consulting revenue decreased ~~10%~~13% as compared to the prior year. Segment gross profit as a percentage of revenues was higher primarily due to an overall higher mix of recurring revenue.

EMEA

EMEA revenue increased ~~17%~~16%, which included a 7%4% favorable impact from foreign currency fluctuations. The overall increase in revenue included an increase of ~~26%~~22% in recurring revenue, ~~and a 1%~~15% increase ~~in consulting revenue partially offset by a 5% decrease~~ in perpetual software licenses, hardware and other revenue and 3% increase in consulting revenue. Segment gross profit as a percentage of revenues was higher primarily due to a higher mix of recurring revenue.

APJ

APJ revenue increased ~~12%~~8%, which included a 8%6% favorable impact from foreign currency fluctuations. An increase in recurring revenue of ~~28%~~22% and perpetual software licenses, hardware and other revenue increase of ~~29%~~9% was partially offset by a decrease in consulting revenue of 14%. Segment gross profit as a percentage of revenues was higher primarily due to a higher mix of recurring revenue.

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Financial Condition, Liquidity and Capital Resources

Cash provided by operating activities was ~~$335~~$368 million, which increased by ~~$195~~$157 million in the ~~six~~nine months ended ~~June~~September 30, 2021 compared to the ~~six~~nine months ended ~~June~~September 30, 2020. The increase in cash provided by operating activities was primarily due to increased net income (net of non-cash items such as depreciation and amortization, stock-based compensation expense and deferred income taxes), ~~strong~~improved cash collections and favorable working capital dynamics. Teradata used approximately ~~$30~~$36 million of cash in the first ~~six~~nine months of 2021 for reorganizing and restructuring its operations and go-to-market functions to align to its strategy, as compared to ~~$21~~$32 million in the first ~~six~~nine months of 2020.

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:


		Six Months Ended June 30, 2021					Nine Months Ended September 30, 2021
In millions	In millions	2021		2020		In millions	2021		2020
Net cash provided by operating activities	Net cash provided by operating activities	$	335	$	140	Net cash provided by operating activities	$	368	$	211
Less:	Less:					Less:
Expenditures for property and equipment	Expenditures for property and equipment	(9)		(23)		Expenditures for property and equipment	(19)		(34)
Additions to capitalized software	Additions to capitalized software	(2)		(4)		Additions to capitalized software	(2)		(6)
Free cash flow	Free cash flow	$	324	$	113	Free cash flow	$	347	$	171

Financing activities and certain other investing activities are not included in our calculation of free cash flow. There were no other investing activities for the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020.

Teradata’s financing activities for the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020 primarily consisted of cash outflows for share repurchases and payments on the Company's finance leases and long-term debt. At ~~June~~September 30, 2021, the Company had no outstanding borrowings on its $400 million revolving credit facility entered into in June 2018 (the "Credit Facility"). The Company repurchased approximately ~~3.4~~4.5 million shares of its common stock at an average price per share of ~~$35.31~~$39.67 in the ~~six~~nine months ended ~~June~~September 30, 2021, and 3.7 million shares at an average price per share of $20.52 in the ~~six~~nine months ended ~~June~~September 30, 2020 under the two share repurchase programs that were authorized by our Board of Directors. The first program (the "dilution offset program") allows the Company to repurchase Teradata common stock to the extent of cash received from the exercise of stock options and the Teradata Employee Stock Purchase Plan ("ESPP") to offset dilution from shares issued pursuant to these plans. On July 28, 2019, Teradata's Board of Directors authorized an additional $500 million to be utilized to repurchase Teradata common stock under the Company's second share repurchase program (the "general share repurchase program"). As of ~~June~~September 30, 2021, the Company had ~~$321~~$275 million of authorization remaining under this program to repurchase outstanding shares of Teradata common stock.

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On November 1, 2021 Teradata's Board of Directors authorized an additional $1 billion to be utilized to repurchase Teradata common stock under this share repurchase program. The Company now has a total of $1.3 billion authorized for share repurchases under this share repurchase program. The stock may be repurchased periodically on an ongoing basis in open market transactions, through 10b5-1 programs, through accelerated share repurchase programs, in privately negotiated transactions, or through the use of derivative instruments, in accordance with applicable securities rules regarding issuer repurchases. The increased share repurchase authorization is effective immediately and the program expires on December 31, 2025. Share repurchases made by the Company 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.

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Proceeds from the ESPP and the exercise of stock options, net of tax, were ~~$18~~$24 million for the ~~six~~nine months ended ~~June~~September 30, 2021 and $6$7 million for the ~~six~~nine months ended ~~June~~September 30, 2020. These 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 ~~$463~~$445 million as of ~~June~~September 30, 2021 and $342 million as of December 31, 2020. The remaining balance held in the United States was $~~221~~172 million as of ~~June~~September 30, 2021 and $191 million as of December 31, 2020. The Company considers a majority of its foreign earnings will be repatriated to the United States. Effective January 1, 2018, the United States moved to a territorial system of international taxation, and as such will generally not subject future foreign earnings to United States 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 2020 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. There has been no significant change in our long-term debt as described in the 2020 Annual Report. Our long-term debt is discussed in Note 10 of Notes to Condensed Consolidated Financial Statements (Unaudited).

Contractual and Other Commercial Commitments. There has been no significant change in our contractual and other commercial commitments as described in the 2020 Annual Report. Our commitments and contingencies are discussed in Note 8 of 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 ~~June~~September 30, 2021 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.

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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 2020 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 ~~six~~nine months ended ~~June~~September 30, 2021.

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New Accounting Pronouncements

See discussion in Note 2 of Notes to Condensed Consolidated Financial Statements (Unaudited) for new accounting pronouncements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

There have not been any material changes to the market risk factors previously disclosed in Part II, Item 7A of the 2020 Annual Report.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Teradata maintains a system of disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) that are designed to provide reasonable assurance that information required to be disclosed in its reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including, as appropriate, the Chief Executive Officer and the Chief Financial Officer, to allow timely decisions regarding required disclosures. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

Based on their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of ~~June~~September 30, 2021, our disclosure controls and procedures were effective to provide reasonable assurance that the information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting that occurred during the fiscal quarter ended ~~June~~September 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We have not experienced any material adverse impact to our internal controls over financial reporting as a result of most of our employees working remotely due to the COVID-19 pandemic. We are continually monitoring and assessing the COVID-19 situation on our internal controls to minimize the impact on their design and operating effectiveness.

Part II—OTHER INFORMATION

Item 1. Legal Proceedings.

The information required to be set forth under this Part II, Item 1 is incorporated by reference to Note 8, Commitments and Contingencies—Legal Proceedings of the Notes to Condensed Consolidated Financial Statements (Unaudited) included in this Quarterly Report on Form 10-Q.

Item 1A. Risk Factors.

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There have not been any material changes to the risk factors previously disclosed in Part I, Item IA of the 2020 Annual Report, as updated by Part II, Item 1A in the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2021.

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

Purchases of Company Common Stock

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From time to time, the Company's Section 16 officers sell to the Company shares of the Company's common stock received upon vesting of restricted share units at the current market price to cover their withholding tax obligations. For the ~~six~~nine months ended ~~June~~September 30, 2021, the total of these purchases was ~~281,036~~367,338 shares at an average price of ~~$38.35~~$41.11 per share.

The following table provides information relating to the Company’s share repurchase programs for the ~~six~~nine months ended ~~June~~September 30, 2021:


		Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Dilution Offset Program (1)			Total Number of Shares Purchased as Part of Publicly Announced General Share Repurchase Program (2)	Maximum Dollar Value that May Yet Be Purchased Under the Dilution Offset Program			Maximum Dollar Value that May Yet Be Purchased Under the General Share Repurchase Program				Total Number of Shares Purchased			Average Price Paid per Share				Total Number of Shares Purchased as Part of Publicly Announced Dilution Offset Program (1)		Total Number of Shares Purchased as Part of Publicly Announced General Share Repurchase Program (2)	Maximum Dollar Value that May Yet Be Purchased Under the Dilution Offset Program		Maximum Dollar Value that May Yet Be Purchased Under the General Share Repurchase Program
Month	Month						Month
January 2021	January 2021		1,131,893				$	25.18				54,817				1,077,076		$	799,586			$	389,254,180		January 2021	1,131,893	$	25.18	54,817		1,077,076	$	799,586	$	389,254,180
February 2021	February 2021	318,878		$	31.49	100,000			218,878	$	15,944,217		$	383,254,259	February 2021		318,878			$	31.49			100,000		218,878	$	15,944,217	$	383,254,259
March 2021	March 2021	1,137,133		$	41.08	377,814			759,319	$	3,379,199		$	351,832,159	March 2021		1,137,133			$	41.08			377,814		759,319	$	3,379,199	$	351,832,159
First Quarter Total	First Quarter Total	2,587,904		$	32.94	532,631			2,055,273	$	3,379,199		$	351,832,159	First Quarter Total		2,587,904			$	32.94			532,631		2,055,273	$	3,379,199	$	351,832,159
April 2021	April 2021	488,434		$	42.99	94,986			393,448	$	1,767,405		$	334,833,096	April 2021		488,434			$	42.99			94,986		393,448	$	1,767,405	$	334,833,096
May 2021	May 2021	358,859		$	41.89	30,979			327,880	$	1,954,604		$	321,236,126	May 2021		358,859			$	41.89			30,979		327,880	$	1,954,604	$	321,236,126
June 2021	June 2021	—		$	—	—			—	$	4,074,322		$	321,236,126	June 2021		—			$	—			—		—	$	4,074,322	$	321,236,126
Second Quarter Total	Second Quarter Total	847,293		$	42.52	125,965			721,328	$	4,074,322		$	321,236,126	Second Quarter Total		847,293			$	42.52			125,965		721,328	$	4,074,322	$	321,236,126
July 2021															July 2021		—			—				—		—	5,786,645		321,236,126
August 2021															August 2021		447,943			53.08				113,660		334,283	4,906,607		303,404,671
September 2021															September 2021		636,177			53.76				104,761		531,416	1,410,950		275,145,619
Third Quarter Total															Third Quarter Total		1,084,120			$	53.48			218,421		865,699	$	1,410,950	$	275,145,619

(1) The dilution offset program allows the Company to repurchase Teradata common stock to the extent of cash received from the exercise of stock options and purchases under the ESPP to offset dilution from shares issued pursuant to these plans.

(2) The general share repurchase program authorized by the Board allows the Company to repurchase outstanding shares of Teradata common stock. Share repurchases made by the Company are reported on a trade date basis. On ~~July 28, 2019,~~November 1, 2021 Teradata's Board of Directors authorized an additional ~~$500 million~~$1 billion to be utilized to repurchase Teradata common stock under this share repurchase program. The Company now has a total of $1.3 billion authorized for share repurchases under this share repurchase program. The general share repurchase program expires on ~~July 27, 2022.~~December 31, 2025.

Item 3. Defaults Upon Senior Securities.

None

Item 4. Mine Safety Disclosures.

None

Item 5. Other Information.

None

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Item 6. Exhibits.



Reference Number per Item 601 of Regulation S-K						Description

3.1						Amended and Restated Certificate of Incorporation of Teradata Corporation as amended and restated on September 24, 2007 (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K dated September 25, 2007 (SEC file number 001-33458)).

3.2						Amended and Restated By-Laws of Teradata Corporation, as amended and restated on July 26, 2016 (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K dated August 1, 2016).

4.1						Common Stock Certificate of Teradata Corporation (incorporated by reference to Exhibit 4.1 to the Quarterly Report on Form 10-Q dated November 13, 2007 (SEC file number 001-33458)).

10.1*						~~Offer~~Separation Letter ~~from Teradata Corporation to Claire Bramley dated May 18,~~between Mark Culhane and the Company executed on September 11, 2021.

10.2*						~~Restricted Share Unit Agreement (Graded Vesting) Inducement Grant to new CFO.~~

10.3*						~~Executive Severance Plan Participation Agreement to new CFO.~~

10.4*						~~Teradata 2012 Stock Incentive Plan (Amended and Restated as~~Release of ~~March 1, 2021) (incorporated by reference from Appendix A to the Proxy Statement of Teradata Corporation filed with the SEC on March 18 2021~~).

10.5*						Teradata Employee Stock Purchase Plan (Amended and Restated as of February 1, 2021) (incorporated by reference from Appendix B to the Proxy Statement of Teradata Corporation filed with the SEC on March 18, 2021 ).

10.6*						~~Amendment to Offer Letter~~Claims between ~~Kathy Cullen-Cote~~Mark Culhane and the Company ~~dated~~ ~~July 30~~,executed on September 11, 2021.

31.1						Certification pursuant to Rule 13a-14(a), dated ~~August 6,~~November 5, 2021.

31.2						Certification pursuant to Rule 13a-14(a), dated ~~August 6,~~November 5, 2021.

32						Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated ~~August 6,~~November 5, 2021.

101						Inline interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Condensed Consolidated Statements of Income (Loss) for the three and ~~six~~nine months period ended ~~June~~September 30, 2021 and 2020, (ii) the Condensed Consolidated Statements of Comprehensive Income ~~(Loss)~~ for the three and ~~six~~nine months period ended ~~June~~September 30, 2021 and 2020, (iii) the Condensed Consolidated Balance Sheets at ~~June~~September 30, 2021 and December 31, 2020, (iv) the Condensed Consolidated Statements of Cash Flows for the ~~six~~nine months period ended ~~June~~September 30, 2021 and 2020, (v) the Condensed Consolidated Statements of Changes in Stockholders' Equity for the ~~six~~nine months period ended ~~June~~September 30, 2021 and 2020 and (vi) the Notes to Condensed Consolidated Financial Statements.

104						Cover page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

* Management contract or compensatory plan, contract or arrangement.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

TERADATA CORPORATION

Date: ~~August 6,~~November 5, 2021

By:

/s/ Claire Bramley

Claire Bramley
Chief Financial Officer

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