Teradata Corporation (TDC) Cash Flow Statement

The extreme OCF/NI ratios, particularly the 11.02 in 2026Q2, suggest that net income is not a reliable indicator of cash generation on a quarterly basis. The 2026Q1 net income of $335 million, which was inflated by a non-operating gain, contrasts sharply with the $401 million operating cash flow, implying that cash flow is more stable than earnings. Investors should monitor the accrual components, as working capital changes have been erratic, swinging from -$88 million to +$114 million, which may distort cash conversion trends.

The FCF trajectory shows a clear upward trend from 2025Q1 to 2026Q2, with FCF margins expanding from 1.7% to 121%, driven by strong operating cash flow and minimal capex. This suggests that Teradata is generating substantial cash from its existing operations, even as revenue remains flat. However, the 2026Q2 FCF margin of 121% is unsustainably high, likely due to one-time items or working capital timing, and investors should expect normalization in subsequent quarters.

Teradata's capex-to-revenue ratio has remained consistently low, ranging from 0.2% to 2.7%, which is typical for a software company with cloud-based offerings. This low capital intensity allows for high free cash flow conversion, but it also raises questions about whether the company is investing enough in growth initiatives. The modest capex suggests that most spending is maintenance-oriented, with limited expansionary investment, which may limit future revenue growth potential.

The erratic working capital adjustments, particularly the large positive changes in 2024Q3 and 2024Q4, suggest that Teradata's cash flow is heavily influenced by the timing of collections and payables. The negative working capital changes in 2025Q1 and 2026Q2 may indicate faster collections or delayed payments, which could be a sign of improving efficiency. However, the volatility makes it difficult to assess the underlying operational cash generation, and investors should focus on the longer-term trend rather than quarterly fluctuations.

The consistent buyback activity, averaging $46 million per quarter, suggests that management is returning capital to shareholders through repurchases, which may support earnings per share. However, the absence of dividends and the significant buyback spend, especially the $124 million in 2024Q1, could be a sign of limited investment opportunities or a desire to offset dilution from stock-based compensation. Given the SBC of approximately $30 million per quarter, the buybacks may be partially neutralizing dilution rather than returning incremental capital.

The cumulative gap of $891 million between operating cash flow and net income suggests that Teradata's earnings understate its cash-generating ability, likely due to non-cash charges like depreciation and stock-based compensation. This divergence is a positive signal for cash flow quality, but it also highlights that reported profitability may be conservative. However, the 2026Q1 net income spike of $335 million, which was driven by a non-operating gain, distorts the cumulative comparison, and investors should adjust for such one-time items when evaluating the true earnings power.