Founded out of Caltech in 1979 by a team of researchers, Teradata (NYSE:TDC) is best known for helping Wal-Mart analyze its business on a mass scale by deploying the world's first 1 terabyte "data warehouse" in 1992. Today, the company partners with top tier consulting firms such as Computer Sciences, IBM, and Wipro, among others, in order to serve a vast and growing base of information-starved clients.
A data warehouse is a lot like it sounds: Gather up bits of information from across a network of different sources into a digital storage facility for later analysis. Marketing data sits next to customer data, which sits next to finance data, and so on. Think of it as a personal Internet from which business intelligence and analytics tools draw insight.
Teradata generates revenue from a combination of software and services, with maintenance contracts accounting for slightly more than 50% of revenue in most quarters. Sales of data warehousing technology comprises a substantial portion of the haul, of course.
But as more companies become interested in analyzing patterns in their businesses, Teradata has also taken to selling more tools -- including the algorithmically astute Aster Data, which handles unstructured information such as documents. Teradata acquired Aster in 2011 after taking a partial stake earlier. Combining traditional data warehousing with advanced tools for analysis has kicked up growth in recent years.
The case for Teradata
Given its fairly lengthy history, you wouldn't necessarily think of Teradata as home to cutting-edge technology. And yet it is. Employees laud Teradata's friendly and helpful teammates, excellent work-life balance, and professional growth opportunities. Not bad for a 33-year-old tech company that hasn't enjoyed much independence since its early days, especially when you consider that the employee rolls have ballooned by 50% over the past five years.
And yet Teradata could do better. In an industry that offers rich benefits and sometimes even unlimited vacation time, the company pays 2% below market on average, according to PayScale. What's more, those who rate the company highly tend to cite job security and management talent rather than compensation and benefits.
Teradata went public in 1987 -- a year after Fortune named its signature technology "Product of the Year" -- only to be acquired by NCR (NYSE:NCR) in December 1991. The company would remain a division of NCR for the next 16 years, three of those under the leadership of current Oracle co-president Mark Hurd. Throughout, Teradata would compete with Silicon Valley rivals from the dingy confines of Dayton, Ohio.
NCR granted Teradata its independence 20 years after its IPO, in 2007, and customers have come knocking in increasing numbers since. Not only is Wal-Mart still a client, but 25 organizations including Apple, Dell, and Verizon now trust more than a petabyte -- equal to 1 million gigabytes -- of sensitive corporate data to Teradata systems.
More than 1,300 clients use the software in some form today. What's that mean practically? Under Koehler's leadership, Teradata has grown revenue 9% annually and profit per share by more than twice that over the past five years. Gross margin -- at 56.2% -- is as high it's been since the company returned to the public markets as an independent entity. Returns on capital have declined over the same period but remain strong at 19.8% over the trailing 12 months.
Shareholders have enjoyed the performance. Shares of Teradata have more than doubled since coming public, a period during which the S&P 500 fell about 2%. The stock has also dramatically outperformed those of its closest peers: IBM, Oracle, and SAP.
Corporate performance isn't the only area where Teradata stands out. More than any of its peers -- or, frankly, the vast majority of publicly traded entities -- the company takes its role as a steward seriously.
The company has implemented a variety of energy-saving techniques that have allowed it to dramatically reduce its energy and emissions intensity. Employees are granted four working days per year for giving back, and so far, more than 2,300 have participated. The 2011 "Teradata Cares" awards singled out workers who helped with wildfire relief in Texas and education for underprivileged children in India, among other things. Teradata added to these efforts with undisclosed financial gifts.
The Foolish bottom line
Teradata's combination of strong positioning, proven business performance, employee satisfaction, and enduring commitment to the wider world affirm Teradata as one of America's best businesses.
Fool contributor Tim Beyers owns shares of Apple and International Business Machines. The Motley Fool recommends Apple and Teradata. The Motley Fool owns shares of Apple, International Business Machines, and Oracle. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.