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Teradata (TDC) Down 13.5% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research

A month has gone by since the last earnings report for Teradata (TDC). Shares have lost about 13.5% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Teradata due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Teradata Q2 Earnings Match Estimates, Revenues Down Y/Y

Teradata reported second-quarter 2019 adjusted earnings of 29 cents per share, which increased 11.5% year over year and was in line with the Zacks Consensus Estimate.

However, revenues of $478 million lagged the Zacks Consensus Estimate of $483 million and declined 12.1% year over year. At constant currency (cc), revenues declined 10%.

Top-Line Details

Recurring revenues (70.7% of revenues) increased 8.3% year over year (up 11% at cc) to $338 million. The segment includes revenues from subscription-based transaction, and perpetual license-related maintenance and upgrade rights.

Subscription-based transactions comprised 90% of bookings in the reported quarter.

Perpetual software license and hardware revenues (6.1% of revenues) plunged 70.1% from the year-ago quarter (down 69% at cc) to $29 million.

Consulting services revenues (23.2% of revenues) declined 17.8% from the year-ago quarter (down 15% at cc) to $111 million.
Revenues from Americas decreased 6.3% year over year (down 5% at cc) to $269 million.

Europe, Middle East & Africa (EMEA) revenues declined 3.9% from the year-ago quarter (flat at cc) to $122 million.
Revenues from Asia-Pacific (APAC) declined 33.1% from the year-ago quarter (down 29% at cc) to $87 million.

Total Annual Recurring Revenues (ARR) at the end of the quarter increased 11.5% year over year (up 12% at cc).

Operating Details

Non-GAAP gross margin expanded 380 basis points (bps) year over year to 52.7%. Americas and EMEA gross margin expanded 510 bps and 420 bps, respectively.

Gross margin for recurring revenues contracted 350 bps to 68.3% due to lower margins from subscription-based revenues.

Perpetual software license and hardware margins declined from 24.7% in the year-ago quarter to 10.3%.

Consulting services operating income was $2 million, flat year over year.

Non-GAAP operating margin expanded 240 bps on a year-over-year basis to 10.7%.

Balance Sheet & Other Details

As of Jun 30, 2019, Teradata had cash and cash equivalents of $635 million compared with $723 million as of Mar 31, 2019. The company exited the quarter with total debt (including current portion) of $580 million.

In the second quarter, Teradata generated $55 million of cash from operating activities compared with $49 million in the previous quarter. Free cash flow was $42 million compared with $33 million in the previous quarter

Moreover, Teradata repurchased around 3.1 million shares worth approximately $117 million. The company’s board of directors increased the authorization for share repurchases by $500 million to $620 million.

Guidance

For 2019, Teradata expects ARR to increase 11-12% and recurring revenues to grow 10-11%.

The company expects a perpetual year-over-year revenue decline at the high end of its previously provided range of $150-$200 million.

Teradata expects 2019 consulting revenues to decline 20% year over year.

Non-GAAP earnings are still projected between $1.45 and $1.55 per share.

For third-quarter 2019, recurring revenues are expected between $340 million and $344 million.

Non-GAAP earnings are expected between 38 cents and 42 cents per share.
 

How Have Estimates Been Moving Since Then?

Estimates review followed a downward path over the past two months. The consensus estimate has shifted -13.33% due to these changes.

VGM Scores

Currently, Teradata has a nice Growth Score of B, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Teradata has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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