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Why Is Teradata (TDC) Down 19.8% Since Last Earnings Report?

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A month has gone by since the last earnings report for Teradata (TDC - Free Report) . Shares have lost about 19.8% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Teradata due for a breakout? 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 catalysts.

Teradata Q1 Earnings Beat, Revenues Decline Y/Y

Teradata reported first-quarter 2019 adjusted earnings of 22 cents per share, which increased 15.8% year over year and beat the Zacks Consensus Estimate by 3 cents.

However, revenues of $468 million lagged the Zacks Consensus Estimate of $487 million and declined 7.5% year over year. At constant currency (cc) revenues declined 4%.

Top-Line Details

Recurring revenues (70.7% of revenues) increased 9.6% year over year (up 13% at cc) to $331 million. The segment includes revenues from subscription-based transaction and perpetual license related maintenance and upgrade rights.

Perpetual software license and hardware revenues (6.6% of revenues) plunged 55.1% from the year-ago quarter (down 54% at cc) to $31 million.

Consulting services revenues (22.7% of revenues) declined 21.5% from the year-ago quarter (down 17% at cc) to $106 million. The company continues to shift its focus on market of “megadata” companies that hampered growth.

Revenues from Americas increased 1.9% year over year (up 3% at cc) to $269 million due to rapid transitioning to subscription-based business model.
 
Revenues from Europe, Middle East & Africa (EMEA) plunged 24.2% from the year-ago quarter (down 19% at cc) to $113 million.

Revenues from Asia-Pacific (APAC) declined 7.5% from the year-ago quarter (up 3% at cc) to $86 million.
 
Total Annual Recurring Revenues (ARR) at the end of the quarter increased 9.4% year over year (up 12% at cc). Moreover, Teradata exited the quarter with a backlog of $2.5 billion, an increase of 43% year over year.

Operating Details

Non-GAAP gross margin expanded 310 basis points (bps) year over year to 51.5%. Americas and APAC gross margin expanded 450 bps and 30 bps, respectively.

Gross margin for recurring revenues contracted 220 bps to 68% due to lower margins from subscription-based revenues.
 
Perpetual software license and hardware margins declined from 30.4% in the year-ago quarter to 19.4% in the reported quarter.

Consulting services gross loss was $7 million compared with loss of $10 million in the year-ago quarter.

Non-GAAP operating margin expanded 180 bps on a year-over-year basis to 8.8%.

Balance Sheet & Other Details

As of Mar 31, 2019, Teradata had cash and cash equivalents of $723 million compared with $715 million as of Dec 31, 2018. The company exited the quarter with total debt (including current portion) of $559 million.

In the first quarter, Teradata generated $49 million of cash from operating activities compared with $184 million in the year-ago quarter. Free cash flow was $33 million compared with $156 million in the year-ago quarter

Moreover, Teradata repurchased around 1.2 million shares worth approximately $58 million. At the end of the first quarter, the company had approximately $230 million of share repurchase authorization.

Guidance

For 2019, Teradata expects 70% or more of its bookings to be subscription based. Moreover, the company expects ARR to increase 11-12% and recurring revenues to grow approximately 10-11%.

Teradata expects perpetual revenues to decline at the high end of its previously provided range of $150-$200 million compared to the year-ago quarter.

Teradata now expects 2019 consulting revenues to decline at the high end of its previous guidance range of 15-20% year over year.

Non-GAAP earnings are projected between $1.45 and $1.55 per share.

For second-quarter 2019, recurring revenues are expected between $336 million and $340 million.

Non-GAAP earnings are expected between 28 cents and 30 cents per share.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -24.92% due to these changes.

VGM Scores

Currently, Teradata has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

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

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. It's no surprise Teradata has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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