Teradata (TDC) Q3 Earnings Lag Estimates, Revenues Fall Y/Y

Teradata TDC reported third-quarter 2019 adjusted earnings of 32 cents per share, which missed the Zacks Consensus Estimate by 20% and decreased 11.1% year over year.

Revenues of $459 million also lagged the consensus mark by 5.5% and declined 12.7% year over year. At constant currency (cc), revenues declined 11%.

Moreover, the company revised its fourth-quarter and full-year 2019 guidance for revenues and earnings downward. Additionally, Teradata announced that its chief executive officer stepped down from his position on Nov 5.

Following the disappointing third-quarter results as well as the revised guidance, shares of the company declined 21.3% in pre-market trading.

Top-Line Details

Recurring revenues (74.7% of revenues) increased 9.9% year over year (up 11% at cc) to $343 million. The segment includes revenues from subscription-based transactions and perpetual license-related maintenance and upgrade rights.

The growth was driven by faster transition to a subscription-based business model. Notably, subscription-based transactions comprised 90% of bookings in the reported quarter.

Perpetual software license and hardware revenues (3.5% of revenues) plunged 79.2% from the year-ago quarter (down 78% at cc) to $16 million.

Consulting services revenues (21.8% of revenues) declined 27% from the year-ago quarter (down 26% at cc) to $100 million.
 
Revenues from Americas decreased 7.6% year over year (down 7% at cc) to $256 million. Europe, Middle East & Africa (EMEA) revenues declined 15.1% from the year-ago quarter (down 12% at cc) to $118 million. Revenues from Asia-Pacific (APAC) declined 22.7% from the year-ago quarter (down 21% at cc) to $85 million.

Total annual recurring revenues (ARR) at the end of the quarter increased 12% year over year (up 14% at cc).

Teradata Corporation Price, Consensus and EPS Surprise

Teradata Corporation Price, Consensus and EPS Surprise

Teradata Corporation price-consensus-eps-surprise-chart | Teradata Corporation Quote

Operating Details

Non-GAAP gross margin expanded 310 basis points (bps) year over year to 56%. Americas and EMEA gross margin expanded 470 bps and 430 bps, respectively.

Recurring revenues gross margin contracted 230 bps to 67.9% from the year-ago quarter due to lower margins from subscription-based revenues.

Perpetual software license and hardware margin declined from 44.2% in the year-ago quarter to 43.8%.

Consulting services operating income was $7 million, reflecting a decline of 36.4% year over year.

Non-GAAP operating margin contracted 130 bps on a year-over-year basis to 9.4%.

Balance Sheet & Other Details

As of Sep 30, 2019, Teradata had cash and cash equivalents of $528 million compared with $635 million as of Jun 30, 2019. Total debt (including current portion), as of Sep 30, 2019 was $596 million compared with $580 million as of Jun 30.

In the third quarter, Teradata generated $10 million of cash from operating activities compared with $33 million in the previous quarter. The company’s third-quarter free cash outflow came in at $27 million, while free cash flow was $42 million in the previous quarter.

Moreover, Teradata repurchased around 1.9 million shares worth approximately $64 million.

Guidance

For 2019, Teradata expects ARR to increase at least 8% and recurring revenues to grow between 8% and 9%.

The Zacks Consensus Estimate for revenues is currently pegged at $1.97 billion, indicating decline of 8.8% from last year’s reported figure.

The company expects a perpetual year-over-year revenue decline of roughly $250 million due to the continued shift to subscription-based bookings, which is expected to be completed by the end of 2019.
 
Teradata now expects 2019 consulting revenues to decline 25% year over year from its previously provided guidance of 20% decline.

Non-GAAP earnings are projected between 95 cents and $1 per share.

The Zacks Consensus Estimate for 2019 earnings is currently pegged at $1.48 per share.

For fourth-quarter 2019, recurring revenues are expected between $348 million and $350 million.

Non-GAAP earnings are expected between 13 cents and 18 cents per share.

The Zacks Consensus Estimate for fourth-quarter 2019 earnings is currently pegged at 56 cents per share.

Zacks Rank & Stocks to Consider

Currently, Teradata carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader technology sector include Alteryx, Inc. AYX, Instructure, Inc. INST and Fortinet, Inc. FTNT. 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.

Long-term earnings growth rate for Alteryx, Instructure and Fortinet is currently pegged at 39.9%, 30% and 14%, respectively.

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