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Teradata (TDC) Q1 Earnings Beat, Revenues Decline Y/Y

Zacks Equity Research

Teradata TDC reported first-quarter 2019 adjusted earnings of 22 cents per share, which increased 15.8% year over year and beat the Zacks Consensus Estimate by 3 cents.

However, revenues of $468 million lagged the Zacks Consensus Estimate of $487 million and declined 7.5% year over year. At constant currency (cc) revenues declined 4%.

Top-Line Details

Recurring revenues (70.7% of revenues) increased 9.6% year over year (up 13% at cc) to $331 million. The segment includes revenues from subscription-based transaction and perpetual license related maintenance and upgrade rights.

Perpetual software license and hardware revenues (6.6% of revenues) plunged 55.1% from the year-ago quarter (down 54% at cc) to $31 million.

Consulting services revenues (22.7% of revenues) declined 21.5% from the year-ago quarter (down 17% at cc) to $106 million. The company continues to shift its focus on market of “megadata” companies that hampered growth.

Revenues from Americas increased 1.9% year over year (up 3% at cc) to $269 million due to rapid transitioning to subscription-based business model.
 

Teradata Corporation Price, Consensus and EPS Surprise

 

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

Revenues from Europe, Middle East & Africa (EMEA) plunged 24.2% from the year-ago quarter (down 19% at cc) to $113 million.

Revenues from Asia-Pacific (APAC) declined 7.5% from the year-ago quarter (up 3% at cc) to $86 million.

Total Annual Recurring Revenues (ARR) at the end of the quarter increased 9.4% year over year (up 12% at cc). Moreover, Teradata exited the quarter with a backlog of $2.5 billion, an increase of 43% year over year.

Operating Details

Non-GAAP gross margin expanded 310 basis points (bps) year over year to 51.5%. Americas and APAC gross margin expanded 450 bps and 30 bps, respectively.

Gross margin for recurring revenues contracted 220 bps to 68% due to lower margins from subscription-based revenues.

Perpetual software license and hardware margins declined from 30.4% in the year-ago quarter to 19.4% in the reported quarter.

Consulting services gross loss was $7 million compared with loss of $10 million in the year-ago quarter.

Non-GAAP operating margin expanded 180 bps on a year-over-year basis to 8.8%.

Balance Sheet & Other Details

As of Mar 31, 2019, Teradata had cash and cash equivalents of $723 million compared with $715 million as of Dec 31, 2018. The company exited the quarter with total debt (including current portion) of $559 million.

In the first quarter, Teradata generated $49 million of cash from operating activities compared with $184 million in the year-ago quarter. Free cash flow was $33 million compared with $156 million in the year-ago quarter

Moreover, Teradata repurchased around 1.2 million shares worth approximately $58 million. At the end of the first quarter, the company had approximately $230 million of share repurchase authorization.

Guidance

For 2019, Teradata expects 70% or more of its bookings to be subscription based. Moreover, the company expects ARR to increase 11-12% and recurring revenues to grow approximately 10-11%.

Teradata expects perpetual revenues to decline at the high end of its previously provided range of $150-$200 million compared to the year-ago quarter.

Teradata now expects 2019 consulting revenues to decline at the high end of its previous guidance range of 15-20% year over year.

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

For second-quarter 2019, recurring revenues are expected between $336 million and $340 million.

Non-GAAP earnings are expected between 28 cents and 30 cents per share.

Zacks Rank and Stocks to Consider

Teradata currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader technology sector include Guidewire Software GWRE, Upland Software UPLD and MongoDB MDB. All the three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

While long-term earnings growth rate for Guidewire Software and MongoDB is pegged at 8%, Upland Software is expected to grow at 20%.

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