Teradata Corp: Form 10-Q for the period ended Jun 30, 2023

You should read the following discussion in conjunction with the Condensed Consolidated Financial Statements (Unaudited) and the notes to those statements included elsewhere in this Quarterly Report on Form 10-Q. This Quarterly Report on Form 10-Q contains certain statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. Certain statements contained in the MD&A are forward-looking statements that involve risks and uncertainties. The forward-looking statements are not historical facts, but rather are based on current expectations, estimates, assumptions and projections about our industry, business and future financial results. Our actual results could differ materially from the results contemplated by these forward-looking statements due to a number of factors, including those discussed in other sections of this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 (the "2022 Annual Report"). The Company does not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Overview

Teradata Corporation ("we," "us," "Teradata," or the "Company") is the leading connected multi-cloud data platform for enterprise analytics, focused on helping companies leverage all their data across an enterprise, at scale. In doing so, we help companies to find answers to their toughest business challenges. All of our efforts are in support of our purpose of transforming how businesses work and people live through the power of data. Our platform is composed of our data platform – Teradata Vantage – which is designed to run across public cloud, private cloud and on-premises environments. This platform is supported by business consulting and support services that enable customers to extract insights from across a company’s entire data and analytics ecosystem.

We are continuing to execute on our key priorities, including migrating existing customers to the cloud, expanding our Teradata Vantage multi-cloud data platform product offering (which includes VantageCloud, VantageCloud Lake, VantageCloud Enterprise and ClearScape Analytics), adding new customers and expanding our footprint with existing customers, increasing our focus on diversity and inclusiveness, and driving operational excellence and agility across the Company.

To allow for greater transparency regarding the progress we are making toward achieving our strategic objectives, we utilize the following financial and performance metrics:

• Total Annual Recurring Revenue ("ARR") - annual value at a point in time of all recurring contracts, including subscription, cloud, software upgrade rights, and maintenance. ARR does not include managed services and third-party revenue.
• Public Cloud ARR (included within total ARR) - annual value at a point in time of all recurring contracts related to public cloud implementations of Teradata VantageCloud and does not include ARR related to private or managed cloud implementations.
• Cloud Net Expansion Rate - Teradata calculates its last-twelve months dollar-based cloud net expansion rate as of a fiscal quarter end as follows:
• Identify ARR for active cloud customers in the fiscal quarter ending one year prior to the given fiscal quarter (the "base period");
• Identify Public 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;
• Cloud net expansion rate is calculated by taking the ARR from the current period and dividing by the ARR from the base period (all quarterly-dollar based); and
• 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.

COVID-19 Update

There have not been any material changes to the COVID-19 Update previously disclosed in 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 2022 Annual Report.

Second Quarter Financial Overview

As more fully discussed in later sections of this MD&A, the following were significant financial items for the second quarter of 2023:

• At the end of the second quarter of 2023, ARR was $1.523 billion compared to $1.390 billion in the second quarter of 2022, increasing 10% as compared to the second quarter of 2022, including a 1% positive impact from foreign currency translation.
• At the end of second quarter of 2023, Public Cloud ARR was $414 million compared to $234 million in the second quarter of 2022, increasing 77% as compared to the second quarter of 2022, including a 1% positive impact from foreign currency fluctuations.
• Total revenue was $462 million for the second quarter of 2023, a 7% increase compared to the second quarter of 2022, with an underlying 8% increase in recurring revenue. Perpetual software licenses, hardware and other revenue increased 63%, and consulting services revenue increased 1%. Foreign currency fluctuations had a 3% adverse impact on total revenue for the quarter compared to the prior year.
• Gross margin decreased to 59.7% in the second quarter of 2023 from 60.0% in the second quarter of 2022, primarily due to the impact of adverse foreign currency fluctuations, offset in part by improving Public Cloud and on-premises recurring margin rates year-over-year.
• Operating expenses for the second quarter of 2023 were relatively flat compared to the second quarter of 2022, as slightly higher selling, general and administrative expenses were offset by lower research and development expenses in the second quarter of 2023.
• Operating income was $33 million in the second quarter of 2023, compared to $14 million in the second quarter of 2022.
• Net income in the second quarter of 2023 was $17 million, compared to a net loss of $4 million in the second quarter of 2022.
• Cloud Net Expansion Rate for the second quarter of 2023 was 121%, compared to 117% for the second quarter of 2022.

Results of Operations for the Three Months Ended June 30, 2023

Compared to the Three Months Ended June 30, 2022

Revenue

In millions

Total revenue increased $32 million, or 7%, in the second quarter of 2023, including a 3% negative impact from foreign currency fluctuations. Recurring revenue increased by 8%, including a 2% negative impact from foreign currency fluctuations. The recurring revenue increase was due primarily to multiple large expansion deals across various industry verticals. Revenues from perpetual software licenses, hardware and other increased 63%, or $5 million in the second quarter of 2023, primarily due to the timing of deals and a low prior year comparison. Consulting services revenue increased 1% in the second quarter of 2023, including a 4% adverse impact from foreign currency fluctuations, reflecting a consulting business that is stabilizing its revenue run-rate, as anticipated.

Financial and Performance Measures

Our ARR is composed of three main categories: (1) Public Cloud ARR, (2) ARR related to on-premises subscription-based contracts and private cloud ("Subscription ARR"), and (3) ARR related to our legacy perpetual maintenance and software upgrade rights. At June 30, our ARR consisted of:

In millions

At the end of the second quarter of 2023, total ARR increased 10% as compared to the second quarter of 2022, including a 1% positive impact from foreign currency fluctuations. At the end of second quarter of 2023, Public Cloud ARR increased 77% as compared to the second quarter of 2022, including a 1% positive impact from foreign currency fluctuations. Public Cloud ARR grew in all three geographic regions year-over-year. Public Cloud ARR growth in the second quarter of 2023 was driven by customer demand. This resulted in organic expansion activity from an increasing number of existing customers adding new, incremental workloads onto our platform, as well as expansions and migrations of customers that are new to the cloud with Teradata (i.e., migration from current on-premises Vantage platform). Many of these customers are adding incremental workloads onto our Vantage cloud platform while also maintaining hybrid environments on Teradata.

In the second quarter, we saw the following trends:

• Increasing number of existing cloud customers who are adding new, incremental workloads to the cloud.
• Customers expanding into additional cloud capabilities when they migrate to VantageCloud as compared to the capabilities they had in an on-premises environment.
• Existing on-premises customers are adding new, incremental cloud workloads when expanding into hybrid environments.

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, 2023, Teradata is estimating a 1.25%-to-1.75% negative impact from currency translation on our 2023 full-year total reported revenues.

Teradata re-affirms the following outlook for the full year 2023:

• Public cloud ARR is expected to increase in the range of 53% to 57% year-over-year.
• Total ARR is expected to increase in the range of 6% to 8% year-over-year.
• Total recurring revenue is expected to increase in the range of 4% to 7% year-over-year.
• Total revenue is expected to increase in the range of 1% to 4% year-over-year.

Gross Profit

In millions

The decrease in recurring revenue gross profit as a percentage of revenue was primarily due to negative currency impact, as well as a higher mix of cloud revenues as compared to the prior-year period. Gross margin increased on a dollar basis due to both higher volumes and improving cloud and on-premises margin rates year-over-year.

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

Consulting services gross profit as a percentage of revenue increased as compared to the prior year primarily due to cost discipline, the start of our consulting business stabilizing its revenue run-rate, and the continued strategic development of our partner ecosystem.

Operating Expenses

In millions

The selling, general and administrative expense ("SG&A") increase was primarily driven by higher direct selling expenses. Research and development ("R&D") expense decreased year over year due to continued cost discipline.

Other Expense, net

In millions

Other expense, net in the second quarter of 2023 and 2022 is comprised primarily of interest expense on long-term debt and finance leases, losses resulting from foreign currency transactions, as well as benefit costs on our pension and postemployment plans, partially offset by interest income earned on our cash and cash equivalents. Other expense is lower in 2023 primarily due to decreased foreign currency losses of $2 million as compared to the prior period.

Provision for Income Taxes

Income tax provisions for interim periods are based on estimated annual income tax rates, adjusted to reflect the effects of any significant infrequent or unusual items which are required to be discretely recognized within the current interim period.

The effective tax rates for the three months ended June 30, 2023 and 2022 were as follows:

For the three months ended June 30, 2023, the Company had no material discrete tax adjustments.

For the three months ended June 30, 2022, we recorded $4 million of net discrete tax expense, a majority of which related to the recording of a valuation allowance against the current tax receivable and deferred tax asset balance that were not expected to be realized as a result of the discontinuation of our business in Russia in the first quarter of 2022. As a result of this tax expense, our effective tax rate for the quarter was 972%.

Effective on January 1, 2022, the U.S. tax law changed to require that R&D expenses be capitalized and amortized for tax purposes under Internal Revenue Code Section 174; as a result of this law change, we are currently forecasting approximately $2 million of tax expense related to GILTI in our marginal effective tax rate for 2023.

We expect that a majority of our foreign earnings will be repatriated to the U.S. As a result, the effective tax rates in the periods presented are largely based upon the forecasted pre-tax earnings mix between the U.S. and other foreign taxing jurisdictions where we conduct our business.

We estimate that the full-year effective tax rate for 2023 will be approximately 34%, which takes into consideration, among other things, the forecasted earnings mix by jurisdiction, the estimated impact to GILTI tax as a result of the requirement to capitalize R&D for tax purposes, and the estimated discrete items to be recognized in 2023. The forecasted tax rate is based on the foreign profits being taxed at an overall effective tax rate of approximately 25%, as compared to the U.S. federal statutory tax rate of 21%.

Revenue and Gross Profit by Operating Segment

Teradata manages its business under three geographic regions, which are also our 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 our 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 30:

In millions

Americas

Americas revenue increased 8% as compared to the prior year, including a 2% adverse impact from foreign currency fluctuations. The increase in revenues was due to an increase in recurring revenue of 7%, and a consulting revenue increase of 13% ($4 million), as compared to the prior year. Segment gross profit as a percentage of revenues was relatively flat as compared to the prior year period.

EMEA

EMEA revenue increased 15%, and was not significantly impacted by foreign currency fluctuations. The overall increase in EMEA revenue included an increase of 19% in recurring revenue, an increase of 67% ($2 million) in perpetual software licenses, hardware and other revenue, and a decrease of 4% ($1 million) in consulting revenue. Segment gross profit as a percentage of revenues was higher primarily due to a higher mix of recurring revenues in the period.

APJ

APJ revenue decreased 3%, including a 5% adverse impact from foreign currency fluctuations. Recurring revenue decreased by 5% ($3 million), perpetual software licenses, hardware and other revenue increased by 150% ($3 million), and consulting revenue decreased by 10% ($2 million). The decline in total revenue was primarily impacted by our strategic decision to wind-down direct operations in China. Segment gross profit as a percentage of revenues was lower primarily due to reduced revenues and a lower mix of recurring revenue in the period.

Results of Operations for the Six Months Ended June 30, 2023

Compared to the Six Months Ended June 30, 2022

Revenue

In millions

Total revenue increased $12 million, or 1%, in the first six months of 2023, and included a 4% adverse impact from foreign currency fluctuations. Total revenue was adversely impacted by the loss of the partial period of revenue recognized from the Company's Russia operations in 2022, prior to exiting that business late in the first quarter of 2022. Recurring revenue increased 4%, including 3% of negative impact from foreign currency fluctuations. The recurring revenue increase was due primarily to an increase in Public Cloud revenue from expansions and migrations. Recurring revenue also included a benefit from annual upfront software subscription revenue associated with on-premises subscription software of approximately 1% compared to the first six months of 2022.

Revenues from perpetual software licenses, hardware and other were down 24% in the first six months of 2023, including 6% of adverse impact from foreign currency fluctuations, as customers continue to transition to subscription-based offerings, consistent with our overall strategy.

Consulting services revenue decreased 6% in the first six months of 2023, including a 6% negative impact from foreign currency fluctuations. Our consulting business is starting to stabilize its revenue run-rate, following our strategic realignment to focus 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 services revenue was also impacted by ceasing our operations in Russia.

Gross Profit

In millions

The increase in recurring revenue gross profit as a percentage of revenue was primarily due to upfront revenue and an increase in expansions associated with on-premises subscription software renewals partially off-set by negative currency impact.

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

Consulting services gross profit as a percentage of revenue increased as compared to the prior year primarily due to cost-reduction efforts in headcount-related and third-party costs. We continue to refocus our consulting organization on Vantage-oriented offerings and reduce our footprint in non-core consulting engagements.

Operating Expenses

In millions

SG&A expenses were relatively unchanged from the prior-year period.

R&D expenses decreased for the first six months of 2023 as compared to prior year, due to continued cost discipline.

Other Expense, net

In millions

Other expense, net for the six months of 2023 and 2022 is comprised primarily of interest expense on long-term debt and finance leases, losses resulting from foreign currency transactions, and benefit costs associated with our pension and postemployment plans, partially offset by interest income earned on our cash and cash equivalents. Other expense is higher in 2023 primarily due to $10 million higher losses resulting from foreign currency transactions compared to the prior period.

Provision for Income Taxes

The effective tax rates for the six months ended June 30, 2023 and 2022 were as follows:

For the six months ended June 30, 2023, the Company recorded $2 million of net discrete tax benefits, a majority of which related to the excess tax benefit derived from stock-based compensation vesting.

For the six months ended June 30, 2022, the Company recorded $1 million of net discrete tax benefits, a majority of which related to the excess tax benefit derived from $6 million of stock compensation vesting, offset by $5 million of discrete tax expense associated with valuation allowances against the current tax receivable and deferred tax receivable and deferred tax asset balance that is not expected to be realized as a result of the discontinuation of the Company's business in Russia in the first quarter of 2022.

Revenue and Gross Profit by Operating Segment

The following table presents segment revenue and segment gross profit for the Six Months Ended June 30,:

In millions

Americas

Americas revenue was up 4% as compared to the prior year, and included 2% of negative impact from foreign currency fluctuations. Recurring revenue was up 5%, while perpetual software licenses, hardware and other revenue decreased 47% ($7 million). Perpetual software licenses, hardware and other was down primarily due to the timing of transactions in the period. Consulting revenue increased 5% ($3 million). Segment gross profit as a percentage of revenues was somewhat higher due to the gross profit associated with upfront revenue compared to the prior period.

EMEA

EMEA revenue increased 1%, which included a 6% adverse impact from foreign currency fluctuations. The overall increase in revenue included an increase of 7% in recurring revenue, a 13% decrease in consulting revenue and a 14% decrease in perpetual software licenses, hardware and other revenue. Overall revenue was impacted by the negative effects of foreign currency and ceasing operations in Russia. Segment gross profit as a percentage of revenues improved due to a higher mix of recurring revenue, offset in part by the negative impact of ceasing operations in Russia.

APJ

APJ revenue decreased 8%, which included a 7% adverse impact from foreign currency fluctuations. The overall decrease in revenue included a decrease in recurring revenue of 8% and a decrease in consulting revenue of 11%, offset in part by an increase in perpetual software licenses, hardware and other revenue of 20% ($1 million). Segment gross profit as a percentage of revenues was negatively impacted by reduced revenues, which include the wind-down of direct operations in China that started earlier this year.

Financial Condition, Liquidity and Capital Resources

Cash provided by operating activities was $158 million, which decreased by $98 million in the six months ended June 30, 2023 compared to the six months ended June 30, 2022. The decrease in cash provided by operating activities was primarily due to a $50 million tax refund received the first quarter of 2022 related to our Cares Act carryback claim and incremental cash taxes of $35 million in the second quarter of 2023. Teradata used approximately $23 million of cash in the first six months of 2023 for reorganizing and restructuring its operations and go-to-market functions to align to its strategy, as compared to $16 million in the first six months of 2022.

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:

In millions

Financing activities and certain other investing activities are not included in our calculation of free cash flow. There were no other material investing activities for the six months ended June 30, 2023 and 2022.

Teradata’s financing activities for the six months ended June 30, 2023 and 2022 primarily consisted of cash outflows for share repurchases and payments on our finance leases. At June 30, 2023, we had no outstanding borrowings on our $400 million Revolving Facility (as defined below).

We have two share repurchase programs that were authorized by our Board of Directors:

• The dilution offset share repurchase program allows us to repurchase Teradata common stock to the extent (i) cash is received from the exercise of stock options and (ii) employees' purchase Teradata stock pursuant to the Teradata Employee Stock Purchase Plan ("ESPP"). The purpose of the dilution offset share repurchase program is to offset dilution from shares issued pursuant to the exercise of stock options and shares purchased under the ESPP.
• Our open market share repurchase program provides for the repurchase of Teradata stock 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 open market share repurchase program will expire on December 31, 2025. On November 1, 2021, our Board of Directors authorized an additional $1 billion for share repurchases under the open market share repurchase program. There is a total authority of $689 million remaining under the open market share repurchase program as of June 30, 2023.

In the aggregate under the dilution offset share repurchase program and the open market share repurchase program, we repurchased approximately 3.9 million shares of common stock at an average price per share of $40.65 in the six months ended June 30, 2023.

Share repurchases are reported on a trade date basis. Our share repurchase activity depends on factors such as our working capital needs, our cash requirements for capital investments, our stock price, and economic and market conditions.

Other financing activities, including net share settlement for the payroll tax liability of section 16 officers (as discussed in Item 2. Unregistered Sales of Equity Securities and Use of Proceeds), offset by proceeds from the ESPP and the exercise of stock options, net of tax was a net outflow of $1 million for the six months ended June 30, 2023 and a net inflow of $1 million for the six months ended June 30, 2022. The ESPP proceeds are included in other financing activities, net in the Condensed Consolidated Statements of Cash Flows (Unaudited).

Our total cash and cash equivalents held outside the United States in various foreign subsidiaries was $370 million as of June 30, 2023 and $405 million as of December 31, 2022. The remaining balance held in the United States ("U.S.") was $134 million as of June 30, 2023 and $164 million as of December 31, 2022. The Company expects that a majority of its foreign earnings will be repatriated to the U.S. Effective January 1, 2018, the U.S. moved to a territorial system of international taxation, and as such will generally not subject future foreign earnings to U.S. taxation upon repatriation in future years.

Management believes current cash, cash generated from operations and the $400 million available under the Credit Facility will be sufficient to satisfy future working capital, research and development activities, capital expenditures, pension contributions, and other financing requirements for at least the next twelve months. The Company principally holds its cash and cash equivalents in bank deposits and highly-rated money market funds.

The Company’s ability to generate positive cash flows from operations is dependent on general economic conditions, competitive pressures, and other business and risk factors described in the 2022 Annual Report and elsewhere in this Quarterly Report on Form 10-Q. If the Company is unable to generate sufficient cash flows from operations, or otherwise comply with the terms of the Credit Facility or its term loan agreement, the Company may be required to seek additional financing alternatives.

Long-term Debt. On June 28, 2022, we entered into a Credit Agreement that provides for (i) a five-year unsecured term loan in an aggregate principal amount of $500 million (the "Term Loan"), and (ii) a five-year unsecured revolving credit facility in an aggregate principal amount of up to $400 million, including a $50 million sublimit for the issuance of standby letters of credit and a $50 million sublimit for swingline loans (the "Revolving Facility" and, collectively with the Term Loan, the "Credit Facility"). The Credit Facility replaces our prior revolving credit agreement in the maximum principal of $400 million and our prior term loan agreement in the principal amount of $500 million, both of which were entered into in 2018 (the "Prior Agreements"). In connection with the execution of the Credit Facility, the $400 million term loan outstanding under the Prior Agreements was repaid in full. Our long-term debt is discussed in Note 10 of Notes to Condensed Consolidated Financial Statements (Unaudited). In addition, as disclosed in Note 7 of Notes to Condensed Consolidated Financial Statements (Unaudited), Teradata entered into an interest rate swap to hedge approximately 90% of the floating interest rate of the total $500 million Term Loan and a cross currency swap to hedge a portion of Euro currency exposure of its net investment in certain foreign subsidiaries.

Contractual and Other Commercial Commitments. There has been no significant change in our contractual and other commercial commitments as described in the 2022 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 30, 2023 and through the date of this report. The accounting matters assessed included, but were not limited to, our allowance for doubtful accounts, stock-based compensation, the carrying value of our goodwill and other long-lived assets, financial assets, valuation allowances for tax assets and revenue recognition.

In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require significant management judgment in its application. There are also areas in which management’s judgment in selecting among available alternatives would not produce a materially different result. The significant accounting policies and estimates that we believe are the most critical to aid in fully understanding and evaluating our reported financial results are discussed in the 2022 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 months ended June 30, 2023.

New Accounting Pronouncements

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

There have not been any material changes to the market risk factors previously disclosed in Part II, Item 7A of the 2022 Annual Report.

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 30, 2023, 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 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

There have not been any material changes to the risk factors previously disclosed in Part I, Item IA of the 2022 Annual Report.