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Why Is Teradata (TDC) Up 4.3% Since Last Earnings Report?

A month has gone by since the last earnings report for Teradata (TDC). Shares have added about 4.3% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Teradata due for a pullback? 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 Q3 Earnings Beat Estimates, Revenues Rise Y/Y

Teradata reported third-quarter 2023 non-GAAP earnings of 42 cents per share, which beat the Zacks Consensus Estimate by 2.44%. The bottom line increased 35.5% year over year.

Revenues of $438 million surpassed the Zacks Consensus Estimate of $432 million. The figure increased 5% year over year on a reported basis and 6% on a constant-currency (cc) basis.

The upside can be attributed to growth in recurring revenue, with a robust surge in cloud revenues leading the way. Also, strong momentum across the Americas and Europe, the Middle East & Africa (EMEA) was a plus.

Total annual recurring revenues (“ARR”) at the third quarter’s end increased 11% year over year to $1.524 billion. The figure increased by 9% at cc.

Public cloud ARR surged 63% on a reported basis and 61% at cc year over year to $454 million.

Solid customer demand for Teradata Vantage Cloud was a positive. The cloud net expansion rate was 123%.

Top Line in Detail

Recurring revenues (contributing 82.2% to revenues) increased 9% year over year on a reported basis (increased 10% at cc) to $360 million, surpassing the Zacks Consensus Estimate of $353 million.

Perpetual software license and hardware revenues (1.6% of revenues) were down 50% year over year (down 50% at cc) to $7 million, missing the Zacks Consensus Estimate of $9.10 million.

Consulting services’ revenues (16.2% of revenues) dropped 1% year over year (up 6% at cc) to $71 million, beating the Zacks Consensus Estimate of $70 million.

Revenues from the Americas increased 9% year over year on a reported basis (increased 11% at cc) to $264 million. EMEA revenues rose 8% year over year (up 3% at cc) to $113 million.

Revenues from the APJ region were down 13% year over year (down 8% at cc) to $61 million.

Operating Details

The gross margin on a non-GAAP basis was 60.3%, contracting 230 basis points (bps) year over year.

Selling, general & administrative (SG&A) expenses increased 0.6% year over year to $156 million.

Research & development (R&D) expenses were $76 million, declining 3.8% year over year.

As a percentage of revenues, SG&A contracted 160 bps year over year to 35.6%, whereas
R&D contracted 160 bps to 17.4%.

The non-GAAP operating margin was 14.4%, up 140 bps year over year.

Balance Sheet

As of Sep 30, 2023, Teradata had cash and cash equivalents of $348 million compared with $504 million as of Jun 30, 2023.

Long-term debt Sep 30, 2023 was $486 million compared with $492 million as of Jun 30, 2023.

In the third quarter, Teradata generated $41 million in cash from operating activities compared with the previous quarter’s $49 million.

The company generated a free cash flow of $36 million in the reported quarter.

Share repurchases in the third quarter amounted to $141 million.

Guidance

For fourth-quarter 2023, non-GAAP earnings are expected to be between 50 and 54 cents per share.

For 2023, the company kept its guidance for non-GAAP earnings at $2.01-$2.05.

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. The consensus mark for 2023 revenues is pegged at $1.83 billion.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review.

The consensus estimate has shifted 29.03% due to these changes.

VGM Scores

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. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

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 8.5%. The company reported its results for the quarter ended September 2023 more than a month ago.

Western Digital reported revenues of $2.75 billion in the last reported quarter, representing a year-over-year change of -26.4%. EPS of -$1.76 for the same period compares with $0.20 a year ago.

For the current quarter, Western Digital is expected to post a loss of $1.15 per share, indicating a change of -173.8% from the year-ago quarter. The Zacks Consensus Estimate remained unchanged over the last 30 days.

Western Digital has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of F.

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