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Teradata Reports 2015 Third Quarter Results And Updates Key Initiatives

The following excerpt is from the company's SEC filing.

Third quarter revenue of $606 million, down 3% in constant currency

Non-GAAP EPS of $0.55

Full year revenue is now expected to be flat to down 2% in constant currency

Full-year non-GAAP EPS now expected to be in the $2.00 - $2.20 range

Transformational changes targeting improved performance

Aligning the Data & Analytics business for the evolving market

Exiting the Marketing Applications business

Cost rationalization initiatives and the exit of the Marketing Applications business are estimated to provide a benefit of approximately $120 million in operating income in 2016

Teradata Corporation (NYSE: TDC) reported revenue of $606 million for the third quarter ended September 30, 2015 versus $667 million reported in the third quarter of 2014. Revenue in the third quarter decreased 9 percent, down 3 percent when compared in constant currency.

Gross margin in the third quarter was 50.7 percent, as reported under U.S. Generally Accepted Accounting Principles (GAAP), versus 52.5 percent in the third quarter of 2014. On a non-GAAP basis, excluding stock-based compensation expense and the other special items described in footnote #2, gross margin was 52.1 percent, down from 53.8 percent in the third quarter of 2014, due to overall lower revenue and revenue mix, as well as lower service margins in the Marketing Applications business.

Teradata reported GAAP net income of $78 million in the third quarter, or $0.55 per diluted share, which compared to net income of $94 million, or $0.60 per diluted share, in the third quarter of 2014. Excluding stock-based compensation expense and the other special items detailed in footnote #2,

non-GAAP net income in the third quarter of 2015 was also $78 million, or $0.55 per diluted share, versus $111 million, or $0.71 per diluted share, in the third quarter of 2014.

“We remain confident in Teradata’s technology, our roadmaps and competitive leadership position in the market and we are taking actions to increase shareholder value. We are making transformative changes to the company for longer term success, and are also aligning our cost structure for near term improvement,” said Mike Koehler, chief executive officer, Teradata Corporation.

“Our Marketing Applications team has made great progress this year, and has market leading solutions. As part of our business transformation, we determined it best to exclusively focus our investments and attention on our

core Data and Analytics business. We are therefore selling our Marketing Applications business. As we go through this process, we will work closely with our customers and employees for continued success.”

“In parallel, we are launching key transformation initiatives to better align our Data and Analytics solutions and services with the evolving marketplace and to meet the needs of the new Teradata going forward.”

Segment Revenue Performance

(in millions)

For the Three Months Ended September 30

% Change as Reported

% Change in Constant Currency

Total Revenue

For the Nine Months Ended September 30

$1,668

$1,814

$1,811

$1,971

Operating Income

Teradata reported $77 million of GAAP operating income in the third quarter of 2015, which compared to $123 million of operating income in the third quarter of 2014. On a non-GAAP basis, operating income was $107 million versus $150 million in the prior-year period.

The year-over-year decline in non-GAAP operating income was primarily due to lower revenue.

Cash Flow

During the third quarter of 2015, Teradata generated $68 million of cash from operating activities compared to $102 million in the prior-year period. Teradata generated $33 million of free cash flow

(cash from operating activities less capital expenditures and additions to capitalized software)

in the third quarter of 2015, compared to $66 million in the same period in 2014. The year-over-year decline was primarily due to the lower net income.

Balance Sheet

As of September 30, 2015, Teradata had $874 million of cash and total debt of $710 million. Additionally, Teradata has $290 million available on its $400 million in a revolving credit facility.

Share Repurchase Activity

During the quarter, Teradata purchased approximately 8.5 million shares of its stock worth approximately $250 million. Year to date through September 30, Teradata purchased 15.5 million shares, worth approximately $548 million.

Teradata has approximately $667 million of remaining authorization for share repurchases under its general share repurchase program. The stock is anticipated to be repurchased on an ongoing basis in open market transactions at management’s discretion, in accordance with applicable securities rules regarding issuer repurchases.

Business Transformation

Teradata is in the process of making transformational changes to improve the long-term performance of the company, including offering more flexibility and options in the way customers buy Teradata products such as a software-only version of Teradata as well as making Teradata accessible in the public cloud. The initial cloud version of Teradata will be available on Amazon’s Web Services in the first quarter of 2016.

Teradata is also rationalizing its cost structure to better align its infrastructure, research and development and go-to-market resources for improved efficiency, effectiveness and profitability. Additionally, Teradata plans to exit the Marketing Application business to allow the company to focus exclusively on improving and growing its Data and Analytics business. Combining the cost reduction initiatives and the exit of the Marketing Applications business, Teradata currently expects a benefit of approximately $120 million in operating income in 2016, exclusive of one-time costs.

More information regarding these initiatives as well as other aspects of the company’s 2016 expectations will be provided after the company concludes its transformational review process, which is expected to be completed in the first part of 2016.

Guidance

As a result of the third quarter results and an updated outlook for the fourth quarter, Teradata is lowering its full-year revenue guidance to...


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