It has been about a month since the last earnings report for Teradata (TDC). Shares have lost about 2.6% 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 Beat Estimates, Revenues Rise Y/Y
Teradata reported second-quarter 2023 non-GAAP earnings of 48 cents per share. Further, the bottom line increased 45.4% from the year-ago quarter’s figure.
Revenues of $462 million increased 7% year over year on a reported basis and 10% on a constant-currency (cc) basis.
The increase in the top line was attributed to increasing recurring, perpetual and consulting revenues. Also, strong momentum across the Americas and Europe, the Middle East & Africa (EMEA) was a plus.
Total annual recurring revenues (ARR) at the second quarter’s end increased 10% year over year to $1.523 billion. The figure increased by 9% on a cc basis.
Public cloud ARR surged 77% on a reported basis and 76% at cc year over year to $414 million.
Solid customer demand for Teradata VantageCloud was a positive.
Recurring revenues (accounting for 80% of revenues) increased 8% year over year on a reported basis (increased 10% at cc) to $371 million.
Perpetual software license and hardware revenues (3% of revenues) were up 63% year over year (up 61% at cc) to $13 million.
Consulting services’ revenues (17% of revenues) increased 1% from the year-ago level (increased 5% at cc) to $78 million.
Revenues from the Americas increased 8% year over year on a reported basis (increased 10% at cc) to $268 million. EMEA revenues rose 15% from the year-ago figure (up 15% at cc) to $118 million. Revenues from the APJ region were down 3% from the year-ago level (up 2% at cc) to $76 million.
The gross margin on a non-GAAP basis was 60.6%, contracting 60 basis points (bps) year over year.
Selling, general & administrative (SG&A) expenses increased 2.4% year over year to $167 million. Research & development (R&D) expenses were $76 million, decreasing 6.2% from the year-ago quarter. As a percentage of revenues, SG&A contracted 180 bps year over year to 36.1%, whereas R&D contracted 240 bps to 16.4%.
The non-GAAP operating margin was 15.6%, up 280 bps from the year-ago quarter’s level.
As of Jun 30, 2023, Teradata had cash and cash equivalents of $504 million compared with $551 million as of Mar 31, 2023.
Long-term debt at the end of the reported quarter was $492 million compared with $498 million at the end of the previous quarter.
In the second quarter, Teradata generated $49 million in cash from operating activities compared with the previous quarter’s $109 million.
Further, the company generated a free cash flow of $46 million in the reported quarter.
For third-quarter 2023, non-GAAP earnings are expected to be between 40 and 44 cents per share.
For 2023, the company kept its guidance for non-GAAP earnings at $1.92-$2.04.
Public cloud ARR is projected to increase 53-57% on a year-over-year basis.
Total ARR is expected to exhibit growth of 6-8% from the 2022 level.
Teradata expects recurring revenues to increase 4-7% year over year.
TDC projects total revenues to be up 1-4% from the year-ago reported figure.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates revision.
The consensus estimate has shifted 9.24% due to these changes.
At this time, Teradata has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Teradata has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Teradata is part of the Zacks Computer- Storage Devices industry. Over the past month, Western Digital (WDC), a stock from the same industry, has gained 6.1%. The company reported its results for the quarter ended June 2023 more than a month ago.
Western Digital reported revenues of $2.67 billion in the last reported quarter, representing a year-over-year change of -41%. EPS of -$1.98 for the same period compares with $1.78 a year ago.
For the current quarter, Western Digital is expected to post a loss of $1.91 per share, indicating a change of -1055% from the year-ago quarter. The Zacks Consensus Estimate remained unchanged over the last 30 days.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Western Digital. Also, the stock has a VGM Score of F.
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