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Teradata (TDC) Q3 Earnings and Revenues Beat, Decline Y/Y

Teradata Corporation TDC third-quarter 2017 results beat the Zacks Consensus Estimate but compared unfavorably with the year-ago comparable period.

The company reported adjusted earnings of 29 cents per share, which plunged 58% from the year-ago quarter’s earnings of 69 cents. Adjusted earnings however beat the Zacks Consensus Estimate of 21 cents.

Notably, shares of Teradata gained 36.4% year-to-date, outperforming the industry’s 25% rally.

Revenue Details

Total revenue of $526 million beat the Zacks Consensus Estimate of $510.5 million. However, it plunged 4.7% on a year-over-year basis. This was mainly due to the company’s ongoing business transformation activity, under which its large customers have begun shifting to subscription-based offerings.

Products and Cloud revenues decreased 18% year over year to $172 million. Services revenues increased 4% on a year-over-year basis to $354 million. Revenues from Americas Data and Analytics decreased 8% year over year in constant currency (cc) while that from International Data and Analytics declined 1% from the prior-year quarter.

Margin

Non-GAAP gross margin contracted 540 basis points (bps) from the year-ago quarter to 51.7%.

The company reported non-GAAP operating income of $50 million, down from $121 million reported in the prior-year quarter. Non-GAAP operating margin declined to 9.5% from 21.9% reported in the year-ago quarter mainly due to lower revenues, shrinking gross margin and higher operating expenses to support the company’s strategic initiatives.

Balance Sheet & Share Repurchase

Teradata exited the quarter with $1.025 billion in cash and cash equivalents, compared with $1.085 billion at the end of the previous quarter. Teradata had long-term debt (excluding current portion) of $493 million at the end of the third quarter compared with $508 million at the end of second-quarter 2017.

In the third quarter, Teradata recorded net cash outflow from operations of $8 million and free cash flow of $40 million. Year to date, the company generated $301 million of cash flow from operational activities and $235 million of free cash flow.

Teradata repurchased 6.3 million shares for $200 million during the third quarter.

Guidance

Teradata expects 2017 revenues to decline 5%, compared with the earlier projected range of 5% to 7%.

Teradata also provided earnings outlook for the full year. Non-GAAP earnings are estimated to come in the range of $1.26 to $1.31 per share, up from the prior guided range of $1.22 and $1.27.

For the fourth quarter, revenues are projected to be in the range of $600-$620 million. Non-GAAP earnings per share are estimated to come between 47 and 52 cents.

Teradata Corporation Price, Consensus and EPS Surprise

Teradata Corporation Price, Consensus and EPS Surprise | Teradata Corporation Quote

To Conclude

Teradata revenues are being adversely impacted by the company’s ongoing business transformation. Also, restructuring related costs, a sluggish spending environment in the domestic market and increasing competition will continue to weigh on its financials.

However, we expect growth to come from new strategic partnerships as Teradata has long-standing business relationships with large organizations such as Accenture ACN, Capgemini, Deloitte, Cognizant CTSH, IBM IBM, Wipro Limited, among others in the same niche market. We believe that new customer wins and strengthening relationships with large vendors will primarily drive revenues and profits.

The company is expected to benefit from transition to the subscription-based revenue model in the long run.

Zacks Rank

Teradata carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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