It has been about a month since the last earnings report for Teradata (TDC). Shares have lost about 6.6% 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 the most recent earnings report in order to get a better handle on the important drivers.
Teradata Q1 Earnings Beat Estimates, Revenues Fall Y/Y
Teradata reported first-quarter 2020 adjusted earnings of 27 cents per share, which beat the Zacks Consensus Estimate by 22.7% and also increased year over year by the same percentage.
Revenues of $434 million, however, missed the consensus mark by 4%. The top line also declined 7.3% year over year. At constant currency (cc), revenues were down 6%.
Coronavirus negatively impacted Teradata’s quarterly results. The company withdrew its full-year guidance due to uncertainties emanating from the pandemic.
Recurring revenues (79.5% of revenues) increased 4.2% year over year (up 6% at cc) to $345 million.
Perpetual software license and hardware revenues (3.2% of revenues) plummeted 54.8% from the year-ago quarter (down 55% at cc) to $14 million.
Consulting services revenues (17.8% of revenues) dropped 29.2% from the year-ago quarter (down 28% at cc) to $75 million.
Revenues from Americas decreased 9.3% year over year (down 9% at cc) to $244 million. Europe, Middle East & Africa (EMEA) revenues rose 4.4% from the year-ago quarter (up 6% at cc) to $139 million. Revenues from the Asia-Pacific (APAC) were down 16.3% from the year-ago quarter (down 13% at cc) to $72 million.
Total annual recurring revenues (ARR) at the end of the first quarter increased 6.3% year over year (up 8% at cc) to $1.40 billion.
Non-GAAP segment’s gross margin expanded 270 basis points (bps) year over year to 54.1%. Americas, EMEA and APAC gross margins expanded 70 bps, 740 bps and 210 bps, respectively.
Recurring revenues gross margin expanded 380 bps on a year-over-year basis to 3.8%.
However, perpetual software license and hardware margin declined 10 bps to 1.2%.
Consulting services operating loss was $5 million compared with loss of $7 million in the year-ago quarter.
Selling, general & administrative (SG&A) as well as research & development (R&D) expenses, as a percentage of revenues, increased 410 bps and 20 bps, on a year-over-year basis.
Non-GAAP operating margin contracted 140 bps on a year-over-year basis to 7.4%.
Balance Sheet & Other Details
As of Mar 31, 2020, Teradata had cash and cash equivalents of $394 million compared with $494 million as of Dec 31, 2019.
Total debt (including current portion) as of Mar 31, 2020 was $610 million compared with $479 million as of Dec 31, 2019.
In the first quarter, Teradata generated $10 million of cash from operating activities compared with the year-ago quarter’s $49 million. The company’s quarterly free cash outflow came in at $2 million against the free cash flow of $33 million in the year-ago quarter.
Moreover, Teradata repurchased 3.7 million shares for $75 million. At the end of the first quarter, the company had approximately $432 million remaining under its share buyback authorization. However, due to coronavirus-induced uncertainties, the company suspended its share buyback program.
For second-quarter 2020, recurring revenues are expected between $348 million and $352 million. Non-GAAP earnings are expected between 19 cents and 22 cents per share.
How Have Estimates Been Moving Since Then?
Fresh estimates followed a downward path over the past two months. The consensus estimate has shifted -94.07% due to these changes.
At this time, Teradata has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Charting a somewhat similar path, 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.
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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