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Teradata (TDC) Q2 Earnings & Revenues Top, View Retained

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Teradata Corp. (TDC - Free Report) reported second-quarter 2016 results wherein adjusted earnings per share of 65 cents and revenues of $599 million easily topped the Zacks Consensus Estimate of 51 cents and $560.4 million, respectively. On a year-over-year basis, adjusted earnings grew 38.3% but revenues fell 3.9%. The company reiterated its earnings and revenue guidance for 2016.

The company reported non-GAAP earnings of 71 cents a share, up 34% on a year-over-year basis. Excluding the divested Marketing Applications business, revenues came in at $564 million, down 4%.

Quarterly Segment Details

Products revenues decreased 11% year over year to $228 million. Services revenues however grew 1% on a year-over-year basis to $371 million. Consulting revenues were down 1% from the year-ago quarter to $192 million while Maintenance services increased 3% year over year to $179 million.

TERADATA CORP Price, Consensus and EPS Surprise

Margin                              

Non GAAP gross margin contracted 130 basis points (bps) from the year-ago quarter to 53% due to unfavorable deal mix.

Non-GAAP operating margin was 23.2% compared with 17.2% reported in the prior-year quarter.

Balance Sheet

Teradata exited the quarter with $909 million in cash and cash equivalents compared with $839 million as on Dec 31, 2015. Teradata had a long-term debt of $552 million at the end of the quarter compared with $567 million as on Dec 31, 2015.

In the first half, Teradata generated cash flow from operations of $350 million compared with $302 million in the comparable year-ago period. Free cash flow generated was $297 million compared with $243 million in the comparable year-ago period.

Guidance

Revenues are expected to be in a range of $2.250 billion to $2.320 billion in 2016. This guidance excludes revenues from the Marketing Applications business. Including Marketing Application revenues of approximately $69 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 the data warehousing market backed by a strong product portfolio, customer wins, strategic partnerships and accretive acquisitions.

In the past few months, Teradata extended Think Big Analytics consulting services to customers for enterprise data link design and deployment and will also provide consulting services to help customers include Apache Spark in their Big Data environments. We believe these initiatives will help Teradata to increase its share in the lucrative big data market. According to the IDC report (May 2016), global Big Data revenues and business analytics are expected to be $187 billion by 2019. Teradata has been categorized as a leader in Gartner’s Magic Quadrant for Data Warehouse Database Management Systems, followed by Oracle and IBM. 

Moreover, the company recently divested its Marketing Application business (for $75 million in net proceeds) 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, Oracle and IBM Corporation can weigh on its financials.

Currently, Teradata has a Zacks Rank #4 (Sell).

Zacks Rank

Better-ranked stocks in the tech space are Facebook Inc , Quantum Corporation and Seagate Technology plc (STX - Free Report) . While Facebook and Quantum Corporation sport a Zacks Rank #1 (Strong Buy), Seagate carries a Zacks Rank #2 (Buy).

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