Why Is Teradata (TDC) Down 7.2% Since Last Earnings Report?
A month has gone by since the last earnings report for Teradata (TDC). Shares have lost about 7.2% 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 catalysts.
Teradata Q4 Earnings Beat Mark
Teradata reported fourth-quarter 2022 non-GAAP earnings of 35 cents per share, beating the Zacks Consensus Estimate by 12.9%. However, the bottom line decreased 38.6% from the year-ago quarter’s figure.
Revenues of $452 million surpassed the Zacks Consensus Estimate of $422.7 million. The figure decreased 5% year over year on a reported basis, while remaining flat on a constant-currency (cc) basis.
The decline in the top line was attributed to decreasing recurring, perpetual and consulting revenues.
Total annual recurring revenues (ARR) at the fourth quarter-end decreased 1% year over year to $1.48 billion. The figure increased 2% on a cc basis.
Public cloud ARR surged 77% on a reported basis and 81% at cc year over year to $357 million. Growth was driven by solid customer demand for the company’s differentiated platform.
Top Line in Detail
Recurring revenues (accounting for 79% of revenues) decreased 2% year over year on a reported basis (increased 3% at cc) to $357 million.
Perpetual software license and hardware revenues (4% of revenues) were down 11% year over year (down 4% at cc) to $17 million.
Consulting services’ revenues (17% of revenues) declined 15% from the year-ago level (down 7% at cc) to $78 million.
Revenues from the Americas were flat year over year on a reported basis (increased 1% at cc) at $257 million. Europe, Middle East & Africa revenues fell 5% from the year-ago figure (up 3% at cc) to $128 million. Revenues from the Asia Pacific and Japan were down 18% from the year-ago level (down 6% at cc) to $67 million.
The gross margin on a non-GAAP basis was 59.5%, contracting 370 basis points (bps) year over year.
Selling, general & administrative (SG&A) expenses increased 2.9% year over year to $175 million. Research & development (R&D) expenses were $77 million, increasing 4.1% from the year-ago quarter. As a percentage of revenues, SG&A expanded 290 bps year over year to 38.7%, whereas R&D expanded 140 bps to 17%.
The non-GAAP operating margin was 13.7%, contracting 520 bps from the year-ago quarter’s level.
As of Dec 31, 2022, Teradata had cash and cash equivalents of $569 million compared with $506 million as of Sept 30, 2022.
Total debt (including current portion) as of Dec 31, 2022, was $565 million compared with $564 million as of Sept 30, 2022.
In the fourth quarter, Teradata generated $129 million in cash from operating activities compared with the previous quarter’s $34 million.
Further, the company generated a free cash flow of $120 million in the reported quarter.
For first-quarter 2023, non-GAAP earnings are expected between 60 cents and 64 cents per share.
For 2023, non-GAAP earnings are expected between $1.90 and $2.06 per share.
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 that reported in 2022.
Teradata expects recurring revenues to increase 4-7% year over year.
TDC projects total revenues to be up 1-4% from that reported a year ago.
Cash flow from operations is expected to be $345-$385 million, whereas the free cash flow is projected to be $320-$360 million.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended upward during the past month.
At this time, Teradata has a nice Growth Score of B, a grade with the same score on the momentum front. 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 B. 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 this revision looks promising. Notably, 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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