Teradata (TDC) Reports Better-than-Expected Q1 Earnings

Teradata Corp. (NYSE:TDC) reported first quarter 2016 adjusted earnings per share (including stock-based compensation expense but excluding other items) of 37 cents, beating the Zacks Consensus Estimate of 31 cents and up from the year-ago earnings of 22 cents.

The company reported non-GAAP earnings of 47 cents a share, up 57% on a year-over-year basis.

Revenues of $545 million came ahead of the Zacks Consensus Estimate of $525.8 million but declined 6% year over year. Excluding Marketing Applications business, revenues came in at $511 million, down 6%.

Quarterly Segment Details

Products revenues decreased 20% year over year to $194 million. Services revenues grew 3% on a year-over-year basis to $351 million. Consulting revenues were up 4% from the year-ago quarter to $179 million while Maintenance services increased 2% year over year to $172 million.

Margin

Non GAAP gross margin expanded 180 basis points (bps) from the year-ago quarter to 51.1% due to favorable deal mix and higher service margin.

Non-GAAP operating margin was 18% compared with 10.5% reported in the prior-year quarter.

Balance Sheet

Teradata exited the quarter with $917 million in cash and cash equivalents compared with $839 million as on Dec 31, 2015. Teradata had long-term debt of $560 million at the end of the quarter.

In the first quarter, Teradata generated cash flow from operations of $251 million compared with $222 million in the previous year quarter. Free cash flow generated was $225 million compared with $190 million in the year ago quarter.

Guidance

Revenues are expected to be in a range of $2.250 billion to $2.320 billion, a decrease of 2% to 5% from 2015. This guidance excludes revenues from the Marketing Applications business. Including Marketing Application revenues of approximately $70 million, the company expects revenues to be in a band of $2.320 billion to $2.390 billion.

Non-GAAP earnings per share in 2016 are expected in a range of $2.35 - $2.50.

To Conclude

Teradata is a leading provider of data warehousing and enterprise analytics. The company is well positioned to benefit from the robust growth in data warehousing market based on a strong product portfolio, customer wins, strategic partnerships and accretive acquisitions.

We believe that customer wins and strengthening relationships with large vendors will be the primary revenue drivers. Teradata’s international expansion, improved traction from sales force expansion, new products and alliances, market share gains and a growing database analytics market should be another set of positives for the company.

In the fourth quarter, the company declared its plans to exit its Marketing Application business to build up its capabilities in the growing Data and Analytics business. Simultaneously, the company is also working to optimize its cost structure and streamline its operations, which are expected to benefit the company’s financials in this year itself.

However, restructuring related costs, a sluggish spending environment in the domestic market and increasing competition from peers like EMC Corporation (NYSE:EMC) , Oracle (NYSE:ORCL) and IBM Corporation (NYSE:IBM) can weigh on its financials.

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