Company Quick10K Filing
Quick10K
Teradata
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$37.71 117 $4,420
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-13 Quarter: 2018-03-13
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-05-02 Earnings, Regulation FD, Exhibits
8-K 2019-04-30 Officers, Shareholder Vote, Exhibits
8-K 2019-02-07 Earnings, Regulation FD, Exhibits
8-K 2019-01-14 Earnings, Officers, Regulation FD, Exhibits
8-K 2018-11-15 Officers, Exhibits
8-K 2018-11-01 Earnings, Regulation FD, Exhibits
8-K 2018-08-02 Earnings, Regulation FD, Exhibits
8-K 2018-06-14 Officers, Exhibits
8-K 2018-06-11 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-06-06 Exit Costs
8-K 2018-05-03 Earnings, Regulation FD, Exhibits
8-K 2018-04-17 Shareholder Vote
8-K 2018-02-08 Earnings, Regulation FD, Other Events, Exhibits
8-K 2018-01-31 Officers, Exhibits
MXL Maxlinear 1,780
NPK National Presto Industries 757
SP SP Plus 756
CUBI Customers Bancorp 677
DERM Dermira 569
GMRE Global Medical REIT 357
GIG GigCapital 190
BASI Bioanalytical Systems 21
NCAP Northsight Capital 0
TTLO Torotel 0
TDC 2019-03-31
Part I-Financial Information
Part 1-Financial Information
Item 1. Financial Statements.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A").
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
Part Ii-Other Information
Item 1. Legal Proceedings.
Item 1A. Risk Factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 3. Defaults Upon Senior Securities.
Item 4. Mine Safety Disclosures.
Item 5. Other Information.
Item 6. Exhibits.
EX-10.1 exh101-separationlette.htm
EX-10.2 exh102-releaseofclaims.htm
EX-31.1 tdc-20190331ex311.htm
EX-31.2 tdc-20190331ex312.htm
EX-32 tdc-20190331ex32.htm

Teradata Earnings 2019-03-31

TDC 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Document
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
 
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2019
OR 
¨
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, $0.10 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
 
ý
  
Accelerated filer
 
¨
Non-accelerated filer
 
¨
  
Smaller reporting company
 
¨
 
 
 
  
Emerging growth company
 
¨


1


If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes ¨    No  ý
At April 30, 2019, the registrant had approximately 117.1 million shares of common stock outstanding.

2


TABLE OF CONTENTS
PART I—FINANCIAL INFORMATION
 
 
 
 
 
 
 
  
Description
Page
 
 
 
Item 1.
Financial Statements
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
PART II—OTHER INFORMATION
 
 
 
 
  
Description
Page
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Item 5.
 
 
 
Item 6.
 
 
 
 

3

Table of Contents

 
Part 1—FINANCIAL INFORMATION
Item 1.
Financial Statements.
Teradata Corporation
Condensed Consolidated Statements of Loss (Unaudited)
 
Three Months Ended
March 31,
In millions, except per share amounts
2019
 
2018
Revenue
 
 
 
Recurring
$
331

 
$
302

Perpetual software licenses and hardware
31

 
69

Consulting services
106

 
135

Total revenue
468

 
506

Cost of revenue
 
 
 
Cost of recurring
106

 
90

Cost of perpetual software licenses and hardware
25

 
48

Cost of consulting services
113

 
145

Total cost of revenue
244

 
283

Gross profit
224

 
223

Operating expenses
 
 
 
Selling, general and administrative expenses
151

 
152

Research and development expenses
78

 
75

Total operating expenses
229

 
227

Loss from operations
(5
)
 
(4
)
Other expense, net
 
 
 
Interest expense
(9
)
 
(5
)
Interest income
6

 
3

Other expense
(2
)
 
(2
)
Total other expense, net
(5
)
 
(4
)
Loss before income taxes
(10
)
 
(8
)
Income tax benefit

 
(1
)
Net Loss
$
(10
)
 
$
(7
)
Net Loss per common share
 
 
 
Basic
$
(0.09
)
 
$
(0.06
)
Diluted
$
(0.09
)
 
$
(0.06
)
Weighted average common shares outstanding
 
 
 
Basic
117.1

 
121.4

Diluted
117.1

 
121.4

See Notes to Condensed Consolidated Financial Statements (Unaudited).


4


Teradata Corporation
Condensed Consolidated Statements of Comprehensive Loss (Unaudited)
 
Three Months Ended
March 31,
In millions
2019
 
2018
Net loss
$
(10
)
 
$
(7
)
Other comprehensive loss:
 
 
 
Foreign currency translation adjustments
(6
)
 
4

Derivatives:
 
 
 
Unrealized loss on derivatives, before tax
(4
)
 

Unrealized loss on derivatives, tax portion
1

 

Unrealized loss on derivatives, net of tax
(3
)
 

Defined benefit plans:
 
 
 
Defined benefit plan adjustment, before tax
1

 

Defined benefit plan adjustment, tax portion

 

Defined benefit plan adjustment, net of tax
1

 

Other comprehensive (loss) income
(8
)
 
4

Comprehensive loss
$
(18
)
 
$
(3
)
See Notes to Condensed Consolidated Financial Statements (Unaudited).


5

Table of Contents

Teradata Corporation
Condensed Consolidated Balance Sheets (Unaudited)
In millions, except per share amounts
March 31,
2019
 
December 31,
2018
Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
723

 
$
715

Accounts receivable, net
445

 
588

Inventories
52

 
28

Other current assets
82

 
97

Total current assets
1,302

 
1,428

Property and equipment, net
303

 
295

Capitalized software, net
60

 
72

Right of use assets - operating lease, net
60

 

Goodwill
396

 
395

Acquired intangible assets, net
14

 
16

Deferred income taxes
66

 
67

Other assets
85

 
87

Total assets
$
2,286

 
$
2,360

Liabilities and stockholders’ equity
 
 
 
Current liabilities
 
 
 
Current portion of long-term debt
$
25

 
$
19

Current portion of finance lease liability
21

 
17

Current portion of operating lease liability
17

 

Accounts payable
99

 
141

Payroll and benefits liabilities
103

 
224

Deferred revenue
569

 
490

Other current liabilities
80

 
118

Total current liabilities
914

 
1,009

Long-term debt
472

 
478

Finance lease liability
38

 
30

Operating lease liability
48

 

Pension and other postemployment plan liabilities
104

 
113

Long-term deferred revenue
100

 
105

Deferred tax liabilities
4

 
3

Other liabilities
139

 
127

Total liabilities
1,819

 
1,865

Commitments and contingencies (Note 9)

 

Stockholders’ equity
 
 
 
Preferred stock: par value $0.01 per share, 100.0 shares authorized, no shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively

 

Common stock: par value $0.01 per share, 500.0 shares authorized, 117.1 and 116.8 shares issued at March 31, 2019 and December 31, 2018, respectively
1

 
1

Paid-in capital
1,466

 
1,418

Accumulated deficit
(891
)
 
(823
)
Accumulated other comprehensive loss
(109
)
 
(101
)
Total stockholders’ equity
467

 
495

Total liabilities and stockholders’ equity
$
2,286

 
$
2,360

See Notes to Condensed Consolidated Financial Statements (Unaudited).

6

Table of Contents

Teradata Corporation
Condensed Consolidated Statements of Cash Flows (Unaudited) 
 
Three Months Ended 
 March 31,
In millions
2019
 
2018
Operating activities
 
 
 
Net loss
$
(10
)
 
$
(7
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
Depreciation and amortization
37

 
34

Stock-based compensation expense
15

 
19

Deferred income taxes
2

 
(5
)
Changes in assets and liabilities:
 
 
 
Receivables
143

 
83

Inventories
(24
)
 
(13
)
Current payables and accrued expenses
(171
)
 
(27
)
Deferred revenue
74

 
124

Other assets and liabilities
(17
)
 
(24
)
Net cash provided by operating activities
49

 
184

Investing activities
 
 
 
Expenditures for property and equipment
(15
)
 
(26
)
Additions to capitalized software
(1
)
 
(2
)
Net cash used in investing activities
(16
)
 
(28
)
Financing activities
 
 
 
Repurchases of common stock
(56
)
 
(60
)
Repayments of long-term borrowings

 
(15
)
Repayments of credit facility borrowings

 
(240
)
Payments of finance leases
(3
)
 

Other financing activities, net
33

 
10

Net cash used in financing activities
(26
)
 
(305
)
Effect of exchange rate changes on cash, cash equivalents and restricted cash
1

 

Increase (decrease) in cash, cash equivalents and restricted cash
8

 
(149
)
Cash, cash equivalents and restricted cash at beginning of period
716

 
1,089

Cash, cash equivalents and restricted cash at end of period
$
724

 
$
940

 
 
 
 
Supplemental cash flow disclosure
 
 
 
Non-cash investing and financing activities:
 
 
 
Assets acquired under operating lease
$
3

 
$

Assets acquired under finance lease
$
15

 
$

Reconciliation of cash, cash equivalents and restricted cash to the Condensed Consolidated Balance Sheets:
 
March 31, 2019
 
December 31, 2018
Cash and cash equivalents
$
723

 
$
715

Restricted cash
1

 
1

Total cash, cash equivalents and restricted cash
$
724

 
$
716


See Notes to Condensed Consolidated Financial Statements (Unaudited).

7

Table of Contents

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


 
Common Stock
 
Paid-in
 
Accumulated
 
Accumulated Other Comprehensive
 
 
In millions
Shares
 
Amount
 
Capital
 
Deficit
 
Loss
 
Total
December 31, 2018
117

 
$
1

 
$
1,418

 
$
(823
)
 
$
(101
)
 
495

Net loss

 

 

 
(10
)
 

 
(10
)
Employee stock compensation, employee stock purchase programs and option exercises
1

 

 
48

 

 

 
48

Repurchases of common stock, retired
(1
)
 

 

 
(58
)
 

 
(58
)
Pension and postemployment benefit plans, net of tax

 

 

 

 
1

 
1

Unrealized loss on derivatives, net of tax

 

 

 

 
(3
)
 
(3
)
Currency translation adjustment

 

 

 

 
(6
)
 
(6
)
March 31, 2019
117

 
$
1

 
$
1,466

 
$
(891
)
 
$
(109
)
 
$
467


 
Common Stock
 
Paid-in
 
Accumulated
 
Accumulated Other Comprehensive
 
 
In millions
Shares
 
Amount
 
Capital
 
Deficit
 
Loss
 
Total
December 31, 2017
122

 
$
1

 
$
1,320

 
$
(579
)
 
$
(74
)
 
668

Net loss

 

 

 
(7
)
 

 
(7
)
Employee stock compensation, employee stock purchase programs and option exercises
1

 

 
30

 

 

 
30

Repurchases of common stock, retired
(2
)
 

 

 
(77
)
 

 
(77
)
Adoption of ASC 606

 

 

 
26

 

 
26

Currency translation adjustment

 

 

 

 
4

 
4

March 31, 2018
121

 
$
1

 
$
1,350

 
$
(637
)
 
$
(70
)
 
$
644


See Notes to Condensed Consolidated Financial Statements (Unaudited).



8

Table of Contents

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 2018 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, 2018 (the “2018 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 restated to conform to the current year presentation, except for lease accounting discussed in Notes 2 and 12.
2. New Accounting Pronouncements

Fair Value Measurement.  In August 2018, the Financial Accounting Standards Board ("FASB") issued new guidance that modifies disclosure requirements related to fair value measurement. The amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Implementation on a prospective or retrospective basis varies by specific disclosure requirement. Early adoption is permitted. The standard also allows for early adoption of any removed or modified disclosures upon issuance of this update while delaying adoption of the additional disclosures until their effective date. The Company is currently evaluating this guidance to determine the impact it may have on its disclosures.

Compensation-Retirement Benefits-Defined Benefit Plans-General. In August 2018, the FASB issued new guidance that modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. For public companies, the amendments in this update are effective for fiscal years beginning after December 15, 2020, with early adoption permitted, and is to be applied on a retrospective basis to all periods presented. The Company is currently evaluating this guidance to determine the impact it may have on its disclosures.

Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. In August 2018, the FASB issued new guidance that reduces complexity for the accounting for costs of implementing a cloud computing service arrangement and aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). For public companies, the amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. Implementation should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The effects of this standard on our financial position, results of operations or cash flows are not expected to be material.


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Recently Adopted Guidance
Leases. In February 2016, the FASB issued new guidance under Topic 842, which requires a lessee to account for leases as finance or operating leases. Both types of leases will result in the lessee recognizing a right-of-use asset and a corresponding lease liability on its balance sheet, with differing methodology for income statement and cash flow recognition. For lessors, the standard modifies the classification criteria and the accounting for sales-type and direct financing leases. Entities will classify leases to determine how to recognize lease-related revenue and expense. We adopted the new standard as of January 1, 2019 using the modified retrospective adoption approach utilizing the optional transition method with prior periods not recast and have elected certain of the practical expedients allowed under the standard. The Condensed Consolidated Financial Statements for the quarter ended March 31, 2019 are presented under the new standard, while comparative years presented are not adjusted and continue to be reported in accordance with our historical accounting policy. See Note 12 for more information.
Comprehensive Income. In February 2018, the FASB issued new guidance for Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (ASU 2018-02), which allows companies to reclassify stranded tax effects resulting from the Tax Reform Act from accumulated other comprehensive income to retained earnings. The impact of applying this standard did not have a material impact on our condensed consolidated financial statements.

Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made. In June 2018, the FASB issued new guidance to clarify and improve the scope and the accounting guidance for contributions received and contributions made. The amendments are intended to assist entities in evaluating whether transactions should be accounted for as contributions (nonreciprocal transactions) or as exchange (reciprocal) transactions and determining whether a contribution is conditional. The Company adopted this guidance on January 1, 2019, which did not have a material impact on our condensed consolidated financial statements.


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3. Revenue from Contracts with Customers
Disaggregation of Revenue from Contracts with Customers
The following table presents a disaggregation of revenue:
 
Three months ended March 31,
in millions
2019
 
2018
Americas
 
 
 
Recurring
$
213

 
$
194

Perpetual software licenses and hardware
19

 
22

Consulting services
37

 
48

Total Americas
269

 
264

EMEA
 
 
 
Recurring
73

 
67

Perpetual software licenses and hardware
7

 
33

Consulting services
33

 
49

Total EMEA
113

 
149

APAC
 
 
 
Recurring
45

 
42

Perpetual software licenses and hardware
5

 
14

Consulting services
36

 
37

Total APAC
86

 
93

Total Revenue
$
468

 
$
506


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:
 
As of
in millions
March 31, 2019
 
December 31, 2018
Accounts receivable, net
$
445

 
$
588

Contract assets
$
8

 
$
14

Current deferred revenue
$
569

 
$
490

Long-term deferred revenue
$
100

 
$
105



Revenue recognized during the three months ended March 31, 2019 from amounts included in deferred revenue at the beginning of the period was $239 million.

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Transaction Price Allocated to Unsatisfied Obligations
The following table includes estimated revenue expected to be recognized in the future related to the Company's unsatisfied (or partially satisfied) obligations at March 31, 2019:
in millions
 
Total at March 31, 2019
 
Year 1
 
Year 2 and Thereafter
Remaining unsatisfied obligations
 
$
2,476

 
$
1,160

 
$
1,316



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 $1,636 million of the amount includes customer-only general cancellation for convenience terms that the Company is contractually obligated to perform unless the customer notifies us. The Company expects to recognize revenue of approximately $412 million in the next year from contracts that are non-cancelable. Customers typically do not cancel before the end of the contractual term and historically the Company has seen very little churn in its customer base. 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 Other Assets on the Company’s balance sheet. The capitalized amounts are calculated based on the total 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 four years. These costs are periodically reviewed for impairment. The following table identifies the activity relating to capitalized contract costs:
in millions
 
January 1, 2019
 
Capitalized
 
Amortization
 
March 31, 2019
Capitalized contract costs
 
54

 
7

 
(4
)
 
57


5. Supplemental Financial Information
 
As of
In millions
March 31,
2019
 
December 31,
2018
Inventories
 
 
 
Finished goods
$
40

 
$
16

Service parts
12

 
12

Total inventories
$
52

 
$
28

 
 
 
 
Deferred revenue
 
 
 
Deferred revenue, current
$
569

 
$
490

Long-term deferred revenue
100

 
105

Total deferred revenue
$
669

 
$
595


6. Goodwill and Acquired Intangible Assets


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Effective January 1, 2019, the Company implemented an organizational change to its operating segments and will report future results under the separate segments: Americas, EMEA and APAC. The following table identifies the activity relating to goodwill by operating segment.

In millions
December 31, 2018
 
Reassignment of Goodwill
 
Currency translation adjustments
 
March 31, 2019
Goodwill
 
 
 
 
 
 
 
Americas
$
253

 
$

 
$

 
$
253

International
142

 
(142
)
 

 

EMEA

 
88

 

 
88

APAC

 
54

 
1

 
55

Total goodwill
$
395

 
$

 
$
1

 
$
396



Acquired intangible assets were specifically identified when acquired and are deemed to have finite lives. The gross carrying amount and accumulated amortization for the Company's acquired intangible assets were as follows:
 
 
 
March 31, 2019
 
December 31, 2018
In millions
Amortization
Life (in Years)
 
Gross
Carrying
Amount
 
Accumulated
Amortization
and Currency
Translation
Adjustments
 
Gross
Carrying
Amount
 
Accumulated
Amortization
and Currency
Translation
Adjustments
Acquired intangible assets
 
 
 
 
 
 
 
 
 
Intellectual property/developed technology
1 to 7
 
$
35

 
$
(21
)
 
$
35

 
$
(20
)


The aggregate amortization expense (actual and estimated) for acquired intangible assets is as follows:
 
 
Three Months Ended March 31
In millions
 
2019
 
2018
Amortization expense
 
$
1

 
$
2

 
 
Actual
 
For the years ended (estimated)
In millions
 
2018
 
2019
 
2020
 
2021
 
2022
 
 
Amortization expense
 
$
7

 
$
6

 
$
4

 
$
4

 
$
2


 


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7. 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. As a result of the Tax Cuts and Jobs Act of 2017 (the "2017 Tax Act”), the Company changed its indefinite reversal assertion related to its undistributed earnings of its foreign subsidiaries and no longer considers a majority of its foreign earnings permanently reinvested outside of the United States ("U.S."). As a result, the effective tax rates in the periods presented are largely based upon the forecasted pre-tax earnings mix and allocation of certain expenses in various taxing jurisdictions where the Company conducts its business.
The effective tax rate is as follows:
 
 
Three Months Ended March 31,
In millions
 
2019
 
2018
Effective tax rate
 
%
 
12.5
%


For the three months ended March 31, 2019 and 2018, no material discrete tax items were recorded. The Company estimates its annual effective tax rate for 2019 to be approximately 18%, which takes into consideration, among other things, the forecasted earnings mix by jurisdiction. The effective tax rate in each period was impacted by recurring discrete tax items recognized in the period. Due to the impact of these recurring discrete items, there was no income tax expense on a pre-tax net loss of $10 million in the first quarter of 2019 and a $1 million tax benefit on a pre-tax net loss of $8 million in the first quarter of 2018.
The 2017 Tax Act subjects U.S. shareholders 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 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 2019.
8. 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 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 11. 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 facility. The notional amount of the hedge will step-down according to the amortization schedule of the term loan.

The Company performed an initial effectiveness assessment in the second 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

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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 facility.

See Note 10 for additional disclosures related to the fair value of the hedge and foreign exchange forward contracts.
The following table identifies the contract notional amount of the Company’s derivative financial instruments:
 
As of
In millions
March 31,
2019
 
December 31,
2018
Contract notional amount of foreign exchange forward contracts
$
200

 
$
256

Net contract notional amount of foreign exchange forward contracts
$
25

 
$
35

Contract notional amount of interest rate swap
$
500

 
$
500



All derivatives are recognized in the condensed consolidated balance sheets at their fair value. The notional amounts represent agreed-upon amounts on which calculations of dollars to be exchanged are based and are an indication of the extent of Teradata’s involvement in such instruments. These notional amounts do not represent amounts exchanged by the parties and, therefore, are not a measure of the instruments. Refer to Note 10 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.

9. Commitments and Contingencies
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.
Guarantees and Product Warranties. Guarantees associated with the Company’s business activities are reviewed for appropriateness and impact to the Company’s financial statements. Periodically, the Company’s customers enter into various leasing arrangements with a third-party leasing company as part of a revenue transaction, whereby the leasing company purchases the equipment from Teradata and leases it to the customer. In some instances, the Company guarantees the leasing company a minimum value at the end of the lease term on the leased equipment. As of March 31, 2019, the maximum future payment obligation of this guaranteed value and the associated liability balance was $3 million.
The Company provides its customers a standard manufacturer’s warranty and records, at the time of the sale, a corresponding estimated liability for potential warranty costs. Estimated future obligations due to warranty claims are based upon historical factors such as labor rates, average repair time, travel time, number of service calls and cost of replacement parts. For each consummated sale, the Company recognizes the total customer revenue and records the associated warranty liability under other current liabilities in the balance sheet using pre-established warranty percentages for that product class.

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The following table identifies the activity relating to the warranty reserve for the three months ended March 31:
In millions
2019
 
2018
Warranty reserve liability
 
 
 
Beginning balance at January 1
$
3

 
$
4

Accrual of warranties issued

 
1

Settlements (in cash or in kind)
(1
)
 
(2
)
Balance at March 31
$
2

 
$
3


The Company also offers extended and/or enhanced coverage to its customers in the form of maintenance contracts. The Company accounts for these contracts by deferring the related maintenance revenue over the extended and/or enhanced coverage period. Costs associated with maintenance support are expensed as incurred. Amounts associated with these maintenance contracts are not included in the table above.
In addition, 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 products. The Company 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 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, and as such the Company has not recorded a liability in connection with these indemnification arrangements. Historically, payments made by the Company under these types of agreements have not had a material effect on the Company’s consolidated financial condition, results of operations or cash flows.
Concentrations of Risk. The Company is potentially subject to concentrations of credit risk on accounts receivable and financial instruments such as hedging instruments, and cash and cash equivalents. Credit risk includes the risk of nonperformance by counterparties. The maximum potential loss may exceed the amount recognized on the balance sheet. Exposure to credit risk is managed through credit approvals, credit limits, selecting major international financial institutions (as counterparties to hedging transactions) and monitoring procedures. Teradata’s business often involves large transactions with customers, and if one or more of those customers were to default in its obligations under applicable contractual arrangements, the Company could be exposed to potentially significant losses. However, management believes that the reserves for potential losses were adequate at March 31, 2019 and December 31, 2018.
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 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.


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10. 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 gains for open contracts are recognized as assets and fair value losses are recognized as liabilities. The fair value of the interest rate swap recorded in other liabilities at March 31, 2019 was $12 million. The fair value of foreign exchange forward contracts recorded in other assets and accrued liabilities at March 31, 2019 and December 31, 2018, were not material. Any realized gains or losses would be mitigated by corresponding gains or losses on the underlying exposures. Gains and losses from the Company’s fair value hedges (foreign currency forward contracts and related hedged items) were immaterial for the three months ended March 31, 2019 and 2018.
The Company’s assets and liabilities measured at fair value on a recurring basis and subject to fair value disclosure requirements at March 31, 2019 and December 31, 2018 were as follows:
 
 
 
Fair Value Measurements at Reporting Date Using
In millions
Total
 
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Assets
 
 
 
 
 
 
 
Money market funds at March 31, 2019
$
290

 
$
290

 
$

 
$

Money market funds at December 31, 2018
$
246

 
$
246

 
$

 
$

Liabilities
 
 
 
 
 
 
 
Interest rate swap at March 31, 2019
$
12

 
$

 
$
12

 
$

Interest rate swap at December 31, 2018
$
7

 
$

 
$
7

 
$





11. Debt

On June 11, 2018, Teradata replaced its existing five-year, $400 million revolving credit facility with a new $400 million revolving credit facility (the “Credit Facility”). The Credit Facility ends on June 11, 2023, at which point any remaining outstanding borrowings would be due for repayment unless extended by agreement of the parties for up to two additional one-year periods. In addition, under the terms of the Revolving Credit Agreement, Teradata

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from time to time and subject to certain conditions may increase the lending commitments under the Revolving Credit Agreement 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 Revolving Credit Agreement 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 London Interbank Offered Rate (“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 March 31, 2019, the Company had no borrowings outstanding under the Credit Facility, leaving $400 million in additional borrowing capacity available under the Credit Facility. The Company was in compliance with all covenants as of March 31, 2019.

Also, on June 11, 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 existing term loan. The $500 million term loan is payable in quarterly installments, which will commence 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 on June 11, 2023. The outstanding principal amount under the term loan agreement bears interest at a floating rate based upon a negotiated base rate or a Eurodollar rate plus a margin based on the leverage ratio of the Company. As of March 31, 2019, the term loan principal outstanding was $500 million. As disclosed in Note 8, 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 March 31, 2019, the all-in fixed rate is 4.36%. The Company was in compliance with all covenants as of March 31, 2019.

Teradata’s term loan is recognized on the Company’s balance sheet at its unpaid principal balance 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.


12. Leases

Lessee
The Company adopted ASU No. 2016-02, “Leases (Topic 842),” on January 1, 2019, which requires leases with durations greater than twelve months to be recognized on the balance sheet. The Company adopted the standard using the modified retrospective approach utilizing the optional transition method. Prior year financial statements were not recast using this approach. The Company elected the package of practical expedients available for expired or existing contracts, which allowed us to carryforward our historical assessments of (1) whether contracts are or contain leases, (2) lease classification and (3) initial direct costs. Adoption of the new standard resulted in the recording of additional net lease assets and lease liabilities of approximately $68 million and $66 million, respectively, as of January 1, 2019. The standard did not materially impact our consolidated net earnings or cash flows.
The Company leases property and equipment under finance and operating leases. The Company's operating leases consist of automobiles in certain countries and real estate, including office, storage and parking spaces. The duration of these leases range from 2 to 10 years. The Company's finance leases primarily consist of equipment financed for the purpose of delivering services to our customers. For leases with terms greater than 12 months, the Company recorded the related asset and obligation at the present value of lease payments over the term. Many of our leases include variable rental escalation clauses which are recognized when incurred. Some of our leases also include renewal options and/or termination options that are factored into the determination of lease payments and lease terms when it is reasonably certain that the Company will exercise these options. Lease agreements do not contain any material residual value guarantees or material restrictive covenants. Leases with an initial term of 12

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months or less are not recorded on the balance sheet. The Company recognizes lease expense for these leases on a straight-line basis over the lease term. For leases beginning in 2019 and later, we account for lease components (e.g., fixed payments including rent, real estate taxes and insurance costs) separately from the non-lease components (e.g., common-area maintenance costs).
When available, the Company uses the rate implicit in the lease to discount lease payments to present value. However, real estate leases do not provide a readily determinable implicit rate. Therefore, the Company must estimate the incremental borrowing rate to discount the lease payments based on information available at lease commencement. The incremental borrowing rate used in the calculation of the lease liability is based on the secured rate associated with financed lease obligations for each location of leased property.

The table below presents the lease-related assets and liabilities recorded on the balance sheet.
 
 
 
As of
in millions, except weighted average calculations
Classification on the Balance Sheet
 
March 31, 2019
Assets
 
 
 
Operating lease assets
Right of use assets - operating lease, net
 
$
60

Finance lease assets
Property and equipment, net
 
67

Total lease assets
 
 
$
127

 
 
 
 
Liabilities
 
 
 
Current
 
 
 
Operating
Current portion of operating lease liability
 
$
17

Finance
Current portion of finance lease liability
 
21

Noncurrent
 
 
 
Operating
Operating lease liability
 
48

Finance
Finance lease liability
 
38

Total lease liabilities
 
 
$
124

 
 
 
 
Weighted-average remaining lease term
 
 
 
Operating leases
 
 
4.18 years

Finance leases
 
 
2.61 years

Weighted-average discount rate
 
 
 
Operating leases(1)
 
 
5.00
%
Finance leases
 
 
4.90
%

(1) Upon adoption of the new lease standard, discount rates used for existing leases were established based on the Company's incremental borrowing rate at January 1, 2019. For new leases entered after January 1, 2019, the discount rate was determined based on the Company's incremental borrowing rate at lease commencement.

Lessee Costs

The table below presents certain information related to the lease costs for finance and operating leases recognized in the Company's condensed consolidated statements of loss for the three months ended March 31, 2019:


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Three Months Ended
in millions
 
March 31, 2019
Finance lease cost
 
 
Depreciation of leased assets
 
4

Interest of lease liabilities
 
1

Operating lease cost
 
12

Sub-lease income from real estate properties owned and leased
 
(2
)
Total lease cost
 
$
15



Other Information

The table below presents supplemental cash flow information related to cash paid for amount included in the measurement of lease liabilities:

 
 
Three Months Ended
in millions
 
March 31, 2019
Operating cash flows for operating leases
 
$
6

Operating cash flows for finance leases
 
$

Financing cash flows for finance leases
 
$
3




Undiscounted Cash Flows

The table below reconciles the undiscounted cash flows for each of the first five years and total of the remaining years to the finance lease liabilities and operating lease liabilities recorded on the balance sheet as of March 31, 2019.
in millions
 
Operating Leases
 
Finance Leases
2019 (balance of year)
 
$
18

 
$
20

2020
 
21

 
24

2021
 
15

 
19

2022
 
11

 

2023
 
7

 

Thereafter
 
7

 

Total minimum lease payments
 
79

 
63

Less: amount of lease payments representing interest
 
(14
)
 
(4
)
Present value of future minimum lease payments
 
65

 
59

Less: current obligations under leases
 
(17
)
 
(21
)
Long-term lease obligations
 
$
48

 
$
38



The table below provides the undiscounted cash flows for the Company's finance lease liabilities and operating lease obligations as of December 31, 2018.


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in millions
 
Operating Leases
 
Finance Leases
2019
 
$
24

 
$
19

2020
 
20

 
31

2021
 
12

 

2022
 
11

 

2023
 
6

 

Thereafter
 
2

 

Total minimum lease payments
 
75

 
50



Lessor

The Company receives rental revenue for leasing hardware offerings to its customers. For our hardware rental offering, the Company owns or leases the hardware and may or may not provide managed services. Leases sometimes include options to renew but typically do not include lessee purchase options. The revenue for these operating leases is generally recognized straight-line over the term of the contract and is included within the recurring revenue caption. Equipment used for this revenue is reported within Property and equipment, net on the condensed consolidated balance sheet.

The following table includes estimated rental revenue expected to be recognized in the future based on executed contracts at March 31, 2019:

in millions
Rental Revenue
2019 (balance of year)
$
43

2020
45

2021
20

2022
4

2023

Total
$
112



Rental revenue for these operating leases, reported within recurring revenue on the condensed consolidated statements of loss, was $14 million for the three months ended March 31, 2019, and $10 million for the three months ended March 31, 2018.


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13. Earnings per Share
Basic earnings per share is calculated by dividing net income by the weighted average number of shares outstanding during the reported period. The calculation of diluted earnings per share is similar to basic earnings per share, except that the weighted average number of shares outstanding includes the dilution from potential shares resulting from stock options, restricted stock awards and other stock awards. The components of basic and diluted earnings per share are as follows:
 
Three Months Ended
March 31,
 
In millions, except per share amounts
2019
 
2018
 
Net loss attributable to common stockholders
$
(10
)
 
$
(7
)
 
Weighted average outstanding shares of common stock
117.1

 
121.4

 
Dilutive effect of employee stock options, restricted stock and other stock awards

 

 
Common stock and common stock equivalents
117.1

 
121.4

 
Net loss per share:
 
 
 
 
Basic
$
(0.09
)
 
$
(0.06
)
 
Diluted
$
(0.09
)
 
$
(0.06
)
 

For the first quarter of 2019 and 2018, due to the net loss attributable to Teradata common stockholders, potential common shares that would cause dilution, such as 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 118.7 million in the first quarter of 2019 and 123.4 million in the first quarter of 2018.

Options to purchase 2.1 million shares of common stock for the three months ended March 31, 2019 and 2.7 million shares of common stock for the three months ended March 31, 2018 were not included in the computation of diluted earnings per share because their 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.
14. Segment and Other Supplemental Information

Effective January 1, 2019, Teradata implemented an organizational change in which Teradata now 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) APAC 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. Prior periods have been restated to conform to the current year presentation.

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The following table presents segment revenue and segment gross profit for the Company:
 
Three Months Ended
March 31,
In millions
2019
 
2018
Segment revenue
 
 
 
Americas
$
269

 
$
264

EMEA
113

 
149

APAC
86

 
93

Total revenue
468

 
506

Segment gross profit
 
 
 
Americas
157

 
147

EMEA
50

 
63

APAC
34

 
35

Total segment gross profit
241

 
245

Stock-based compensation costs
3

 
4

Acquisition, integration, reorganization and transformation-related costs
3

 
3

Amortization of capitalized software costs
11

 
15

Total gross profit
224

 
223

Selling, general and administrative expenses
151

 
152

Research and development expenses
78

 
75

Loss from operations
$
(5
)
 
$
(4
)
    

15. Reorganization and Business Transformation
On June 4, 2018, the Company approved a plan to consolidate certain of its operations, including transitioning its corporate headquarters to San Diego, California from its location in Dayton, Ohio. This plan, which is being executed in connection with Teradata’s comprehensive business transformation from a data warehouse company to a data analytics platform company, is intended to better align the Company’s skills and resources to effectively pursue opportunities in the marketplace. The Company recognized costs of $23 million in 2018 and $11 million in 2019 for employee separation benefits, transition support, facilities lease related costs, outside service, legal and other exit-related costs. The employee separation benefit costs are being expensed over the time period that the employees have to work to earn them. The Company expects that it will incur costs and charges in the range of approximately $35 to $40 million related to the plan and expects the actions will be completed in 2019.
Cash paid in 2018 related to the plan listed above was $11 million. The 2019 activity and the reserves related to the plan are as follows:

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In millions
Balance at
December 31, 2018
 
Expense accruals
 
Cash payments
 
Balance at
March 31, 2019
Employee separation benefits costs related to headquarter transition and business transformation
$
11

 
$
4

 
$
(8
)
 
$
7

Transition support and other exit related costs for the headquarter transition and business transformation
1

 
1

 
(2
)
 

Total
$
12

 
$
5

 
$
(10
)
 
$
7


In addition, the Company incurred $6 million of accelerated amortization in the first quarter of 2019 for right-of-use assets associated with the lease on its prior corporate headquarters. The remaining lease liability is included in our operating lease obligations as of March 31, 2019 and is not included in the table above.

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 the 2018 Annual Report on Form 10-K. The Company does not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
Overview
Teradata Corporation ("we," "us," "Teradata," or the "Company") is a leading hybrid cloud analytics software provider focusing on delivering Pervasive Data Intelligence to our customers, which we define as the ability to leverage 100% of a company’s data to uncover real-time intelligence, at scale. We help customers integrate and simplify their analytics ecosystem, access and manage data, and use analytics to extract answers and derive business value from data. Our solutions and services comprise software, hardware, and related business consulting and support services to deliver analytics across a company’s entire analytical ecosystem.
Teradata’s strategy is based on our mission of transforming how businesses work and people live through the power of data. Our target market is what we call "Megadata" companies - those companies that we believe are the world's most demanding, large-scale, users of data. These Megadata companies face significant challenges including siloed data and conflicting and duplicative solutions that typically results in considerable expense to maintain and to manage the complexity. Our strategy is to provide a differentiated set of offerings to the Megadata target market through a portfolio of integrated data and analytic solutions. Teradata Vantage is a highly-scalable, secure, highly-concurrent, and resilient analytics platform that addresses the challenges that Megadata companies face. By offering customers full integration of their datasets, tools, analytics languages, functions, and engines in one analytical platform, Teradata Vantage reduces customers’ complexity, risk, and costs. Teradata Vantage embraces leading commercial and open source technologies including our market-leading integrated data warehouse engine, and it is available in hybrid environments, on-premises or in the cloud.
All subscription-based Teradata software licenses enable portability of the software license between cloud and on-premises deployment options, which can reduce risk associated with customers’ buying decisions. Customer buying behavior continues to shift from predominantly capital-intensive purchases to these subscription-based purchasing

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options. In the near term, the movement to subscription-based transactions is negatively impacting the timing of our reported revenue and our cash flows because revenue and cash related to subscription-based transactions are recognized and received over time versus upfront as was the case with the capital purchase model. However, the transition to a subscription-based model is expected to increase our recurring revenue, which should create more predictable operating results and cash flow generation. Near term impacts, however, can fluctuate based on the pace of customer adoption, which can be difficult to predict. In the longer term, we expect our reported operating results and cash flow to normalize and increase as more customers transition to these new purchasing and deployment options.
We are continuing to invest in Teradata’s future, including investments to support our cloud-based initiatives, analytical consulting and solutions, realignment of our go-to-market approach, and modernizing our infrastructure.
Teradata has introduced additional financial and performance metrics to allow for greater transparency regarding the progress we are making toward achieving our strategic objectives. These metrics include the following:
Annual Recurring Revenue ("ARR") - annual contract value for all active and contractually binding term-based contracts at the end of a period. It includes maintenance, software upgrade rights, subscription-based transactions and managed services.
Bookings Mix - subscription bookings divided by the sum of subscription bookings plus perpetual bookings.

First Quarter Financial Overview
As more fully discussed in later sections of this MD&A, the following were significant financial items for the first quarter of 2019:
Total revenue was $468 million for the first quarter of 2019, an 8% decrease compared to the first quarter of 2018, with an underlying 10% increase in recurring revenue as the Company's business shifts to subscription-based transactions offset by a 55% decrease in perpetual software licenses and hardware revenue and a 21% decrease in consulting services revenue. Foreign currency fluctuations had a 4% negative impact on total revenue for the quarter.
Gross margin increased to 47.9% in the first quarter of 2019 from 44.1% in the first quarter of 2018, primarily due to a higher recurring revenue mix as compared to the prior period.
Operating expenses for the first quarter of 2019 increased by 1% compared to the first quarter of 2018 primarily due to higher reorganization and restructuring costs including costs related to the movement of our corporate headquarters to San Diego, California from Dayton, Ohio.
Operating loss was $5 million in the first quarter of 2019, compared to $4 million in the first quarter of 2018.
Net loss in the first quarter of 2019 was $10 million, compared to $7 million in the first quarter of 2018.

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Results of Operations for the Three Months Ended March 31, 2019
Compared to the Three Months Ended March 31, 2018
Revenue
 
 
 
% of
 
 
 
% of
In millions
2019
 
Revenue
 
2018
 
Revenue
Recurring
$
331

 
70.7
%
 
$
302

 
59.7
%
Perpetual software licenses and hardware
31

 
6.6
%
 
69

 
13.6
%
Consulting services
106

 
22.7
%
 
135

 
26.7
%
Total revenue
$
468

 
100
%
 
$
506

 
100
%

Total revenue was down $38 million or 8% in first quarter of 2019 and included a 4% negative impact from foreign currency fluctuations. Recurring revenue grew 10%, which included a 3% negative impact from foreign currency fluctuations. This is driven by our movement to subscription-based transactions from perpetual software licenses and hardware transactions, which is consistent with our strategy. Under subscription models, we recognize revenue over time as opposed to the upfront recognition under the perpetual model. We expect to continue to have a significant percent of bookings be subscription-based, consistent with our overall strategy and to continue to grow recurring revenue and ARR year-over-year.

Revenues from perpetual software licenses and hardware decreased 55%, including a 1% negative impact from foreign currency fluctuations. We expect perpetual revenues to continue to decline as customers switch to our subscription-based offerings. However, some customers continue to purchase on a perpetual basis. Perpetual revenue is primarily hardware-related, as software is generally being sold on subscription. We expect that perpetual revenue will continue to decline in 2019 and will continue to be predominantly hardware-related.

Consulting services revenue decreased 21% and included a 4% negative impact from foreign currency as we are realigning and focusing our consulting resources on high value, higher margin consulting engagements in our megadata target market, which is intended to increase consumption of Vantage, our software-based analytics platform. In the first quarter we made progress towards our strategy of targeting megadata companies as we continue to finalize the go-to-market realignment plans from a consulting standpoint. We expect consulting revenue to continue to decline as the Company implements this strategic change and focus.

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 April 30, 2019, Teradata is expecting one to two percentage points of negative impact from currency translation on our 2019 full year projected revenue growth rate.
Included below are financial and performance growth metrics for 2019:
At the end of the first quarter of 2019, ARR was $1.319 billion, a 9% increase from the first quarter of 2018 including a 3% negative impact from foreign currency as compared to the first quarter of 2018.
72% of our bookings mix in the first quarter of 2019 was subscription-based and we continue to expect 70% or more of our 2019 full-year bookings mix to be subscription-based.





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Table of Contents

Gross Profit
 
 
 
% of
 
 
 
% of
In millions
2019
 
Revenue
 
2018
 
Revenue
Recurring
$
225

 
68.0
 %
 
$
212

 
70.2
 %
Perpetual software licenses and hardware
6

 
19.4
 %
 
21

 
30.4
 %
Consulting services
(7
)
 
(6.6
)%
 
(10
)
 
(7.4
)%
Total gross profit
$
224

 
47.9
 %
 
$
223

 
44.1
 %

The decrease in recurring revenue gross profit as a percent of revenue was driven by a higher mix of subscription-based revenue as compared to the prior-year period. Subscription-based transactions are typically lower margin as compared to the recurring revenue from legacy maintenance and software upgrade rights, due to the higher mix of hardware.

The decrease in perpetual software licenses and hardware gross profit as a percent of revenue was driven by a higher mix of hardware revenue as some customers continue to purchase their hardware upfront while buying the software on a subscription basis, which is recorded in recurring revenue.

Consulting services gross profit as a percentage of revenue improved as compared to the prior-year period as the Company is taking steps to focus consulting on the top megadata analytic opportunities to drive consumption of our Vantage software analytics platform and on higher value and higher margin consulting offerings. We continue to expect a decline in overall consulting bookings and revenue compared to prior periods.
Operating Expenses
 
 
 
% of
 
 
 
% of
In millions
2019
 
Revenue
 
2018
 
Revenue
Selling, general and administrative expenses
$
151

 
32.3
%
 
$
152

 
30.0
%
Research and development expenses
78

 
16.7
%
 
75

 
14.8
%
Total operating expenses
$
229

 
48.9
%
 
$