Teradata Tops, Outlook Raised

Today before the market opened, Teradata Corporation (TDC - Snapshot Report), the largest provider of data warehousing and enterprise analytics services, reported earnings for the third quarter of fiscal year 2009. The company beat the Zacks Consensus Estimate of 29 cents per share.

Excluding $5 million, or 2 cents of impairment charge, the company reported earnings of 38 cents per share in the third quarter of 2009, compared to a net income of 36 cents per share in the year-ago quarter.

However, total revenue fell 3.2% to $425 million from the year-ago quarter, primarily due weakness in product revenue, which fell 10.3% year over year to $191 million. This was offset by an increase in Services revenue, which rose 3.5% to $234 million in the quarter, driven by strength in the professional services business. Revenue includes a 1% negative impact from changes in foreign exchange rates.

On a regional basis, the company witnessed strong growth from the Europe, Middle East and Africa (EMEA) region, which grew 3% in the quarter, or 9% when adjusted for currency. This was offset by a 2% year-over-year decline in revenue from the Americas. The Asia Pacific region was deeply hurt, falling 14% -- 17% when adjusted for currency.

Operating Performance

Operating income increased 2.3% year over year to $88 million due to improvement in the Services’ gross margin and lower SG&A expense, which more than offset the incremental investment in sales and the negative impact of currency translation.

Gross margin decreased to 53.4% in the quarter from 54.0% in the third quarter of 2008 due to lower product gross margin which fell to 62.3% from 64.3% in the year-ago period. However, Services gross margin improved to 46.2% from 44.2% in the year-ago quarter due to higher professional services margin. Amortization of software development costs was higher compared to the prior-year quarter, in line with expectations.

Balance Sheet

Teradata’s balance sheet remains strong with no debt. The company exited the quarter with $704 million in cash, a $66 million increase from the previous quarter. During the quarter, the company generated $96 million of cash from operating activities. Capital expenditures in the quarter were $21 million. As a result, the company generated $75 million of free cash flow in the quarter. In addition, the company used approximately $21 million of cash to repurchase approximately 830,000 shares.
 
Outlook Raised
 
Management raised its outlook for fiscal 2009 due to continued focus on operational execution, which is driving growth. On a non-GAAP basis, excluding 2 cents of impairment charge, earnings per share are expected to be in the $1.34 - $1.38 range, up from its previous outlook of $1.22 - $1.28. Revenues for the full year are expected to be down 1% to 3% on constant currency basis. Although the company expects SG&A expenses to be down from 2008, selling expense, research and development expenses as well as amortization of capitalized software costs are expected to be higher in the fourth quarter of 2009.