- Recurring revenue increased 10%, 11% in constant currency, from
the third quarter of 2018(1)
- Annual recurring revenue (ARR) increased 12%, 14% in constant
currency, year-over-year(1)
- Subscription-based bookings mix increased more than expected to
90% in the third quarter
Teradata Corp. (NYSE: TDC) continues its successful
transformation to a recurring revenue model with subscription-based
transactions comprising 90% of the company’s bookings mix in the
third quarter. Recurring revenue increased 10%, 11% in constant
currency(1), from the third quarter of 2018. ARR increased 12%, 14%
in constant currency(1), from the prior-year period. As the company
shifts to a recurring revenue model and focuses its consulting
resources on strategic engagements that drive increased software
consumption within its targeted customer base, perpetual revenue
and consulting revenue declined versus the prior-year period, as
expected. Total third-quarter revenue was $459 million, compared to
2018 third-quarter total revenue of $526 million. Currency
translation had a two percentage point negative impact on the
third-quarter total revenue comparison(1).
Teradata reported 2019 third-quarter net income of $10 million
under U.S. Generally Accepted Accounting Principles (GAAP), or
$0.09 per diluted share, which compared to net income of $18
million, or $0.15 per diluted share, in the third quarter of 2018.
Non-GAAP 2019 third-quarter net income, which excludes stock-based
compensation expense and other special items, was $36 million, or
$0.32 per diluted share, as compared to $43 million, or $0.36 per
diluted share in the third quarter of 2018(2).
“We are pleased that Teradata had a strong quarter with
customers moving to subscription at a record rate, demonstrating
our strategy in action,” said Vic Lund, Interim CEO, Teradata.
“We’ve made significant progress as we invested in an even stronger
future for Teradata—delivering outstanding technology innovation,
including moving forward in the cloud, strengthening our
go-to-market capabilities, and expanding our market reach. We are
focused on accelerating our execution, and are well positioned as
we end this year and look to a great 2020.”
Gross Margin
2019 third-quarter gross margin reported under GAAP was 53.8%
versus 50.2% for the third quarter of 2018. On a non-GAAP basis,
excluding stock-based compensation expense and other special items,
2019 third-quarter gross margin was 56.0%, versus 52.9% in the
prior-year period(2). The gross margin rate was higher
year-over-year primarily due to a higher mix of recurring
revenue.
Operating Income
2019 third-quarter operating income reported under GAAP was $10
million compared to $14 million in the third quarter of 2018. On a
non-GAAP basis, excluding stock-based compensation expense and
other special items, 2019 third-quarter operating income was $43
million versus $56 million in the third quarter of 2018(2). The
decrease in non-GAAP operating income was due to a higher
subscription-based bookings mix which resulted in a significant
decline in perpetual revenue, as well as a decline in consulting
revenue consistent with our strategy.
Income Taxes
Teradata’s 2019 third-quarter tax rate under GAAP was negative
150%, compared to negative 80% in the third quarter of 2018.
Excluding special items, Teradata’s non-GAAP 2019 third-quarter tax
rate was 2.7% versus 17.3% in the third quarter of 2018(2). The
difference in the tax rate period-over-period was primarily driven
by the reversal of a tax contingency in the third quarter of
2019.
Cash Flow
During the third quarter of 2019, Teradata used $10 million of
cash from operating activities compared to using $33 million in the
same period of 2018. The Company’s transition to a
subscription-based model changes the timing of billings and cash
collections, therefore year-over-year comparisons may be less
meaningful during the transition. During the quarter, Teradata used
$17 million for capital expenditures and additions to capitalized
software development costs, versus using $35 million in the third
quarter of 2018. Teradata’s 2019 third-quarter free cash flow
improved year-over-year to negative $27 million, compared to
negative $68 million in the third quarter of 2018(3). The company
used approximately $8 million of cash in the third quarter of 2019
related to reorganizing and restructuring its operations and
go-to-market functions to align to its strategy, reducing free cash
flow.
Balance Sheet
Teradata ended the third quarter of 2019 with $528 million in
cash. During the third quarter of 2019, Teradata repurchased 1.9
million shares of the Company’s common stock for approximately $64
million. Year-to-date, the company repurchased 6.2 million shares
for approximately $239 million. At the end of the third quarter,
Teradata had approximately 112 million shares outstanding.
As of September 30, 2019, the Company had total debt of $596
million, including $108 million of outstanding finance lease
obligations. Net finance lease obligations increased $30 million in
Q3. There were no funds drawn on the company’s $400 million
revolving credit facility as of September 30, 2019.
Guidance
For the full-year, Teradata expects ARR to increase at least 8%
and recurring revenue to increase approximately 8% to 9%. Teradata
now expects approximately a $250 million decline in perpetual
revenue as the shift to subscription-based bookings continues to
exceed the company’s expectations. As the company continues to
realign its consulting business to focus on higher-value consulting
services that increase consumption, Teradata now expects consulting
revenue to decline approximately 25%, more than the 20% it
previously expected.
Teradata expects 2019 full-year GAAP loss per share to be in the
$(0.21) to $(0.16) range. On a non-GAAP basis, which excludes
stock-based compensation expense and other special items, the
Company now expects earnings per share in the $0.95 to $1.00
range(2).
Recurring revenue in the fourth quarter of 2019 is expected to
be in the $348 million to $350 million range.
GAAP loss per share in the fourth quarter of 2019 is expected to
be in the $(0.20) to $(0.15) range. Fourth quarter Non-GAAP
earnings per share, excluding stock-based compensation expense and
other special items, is expected to be in the $0.13 to $0.18
range(2).
Earnings Conference Call
A conference call is scheduled today at 2:00 p.m. PT to discuss
the Company’s 2019 third-quarter results. Access to the conference
call, as well as a replay of the conference call, is available on
Teradata’s website at investor.teradata.com.
Supplemental Financial Information
Additional information regarding Teradata’s operating results is
provided below as well as on Teradata’s website at
investor.teradata.com.
1.
The impact of currency is determined by calculating the
prior-period results using the current-year monthly average
currency rates (except for currency impact on ARR which is
calculated using month-end rates). See the foreign currency
fluctuation schedule on the Investor Relations page of the
Company’s web site at investor.teradata.com, which is used to
determine revenue on a constant currency (“CC”) basis.
Revenue
(in millions)
For the Three Months ended
September 30
2019
2018
% Change as Reported
% Change in CC
Recurring revenue
$343
$312
10%
11%
Perpetual software licenses and
hardware
16
77
(79%)
(78%)
Consulting services
100
137
(27%)
(26%)
Total revenue
$459
$526
(13%)
(11%)
Americas
$256
$277
(8%)
(7%)
EMEA
118
139
(15%)
(12%)
APAC
85
110
(23%)
(21%)
Total revenue
$459
$526
(13%)
(11%)
For the Nine Months ended
September 30
2019
2018
% Change as Reported
% Change in CC
Recurring revenue
$1,012
$926
9%
12%
Perpetual software licenses and
hardware
76
243
(69%)
(68%)
Consulting services
317
407
(22%)
(20%)
Total revenue
$1,405
$1,576
(11%)
(8%)
Americas
$794
$828
(4%)
(3%)
EMEA
353
415
(15%)
(10%)
APAC
258
333
(23%)
(19%)
Total revenue
$1,405
$1,576
(11%)
(8%)
As of September 30
2019
2018
% Change as Reported
% Change in CC
Annual recurring revenue
(“ARR”)*
$1,389
$1,240
12%
14%
* Annual recurring revenue is defined as
the annual value at a point in time of all recurring contracts,
including subscription, software upgrade rights, maintenance and
managed services.
2.
Teradata reports its results in accordance with GAAP. However,
as described below, the Company believes that certain non-GAAP
measures such as non-GAAP gross profit, non-GAAP operating income,
non-GAAP net income, and non-GAAP earnings per diluted share, or
EPS, all of which exclude certain items (as well as free cash flow)
are useful for investors. Our non-GAAP measures are not meant to be
considered in isolation or as substitutes for, or superior to,
results determined in accordance with GAAP, and should be read only
in conjunction with our condensed consolidated financial statements
prepared in accordance with GAAP.
The following tables reconcile Teradata’s actual and projected
results and EPS under GAAP to the Company’s actual and projected
non-GAAP results and EPS for the periods presented, which exclude
certain specified items. Our management internally uses
supplemental non-GAAP financial measures, such as gross profit,
operating income, net income and EPS, excluding certain items, to
understand, manage and evaluate our business and support operating
decisions on a regular basis. The Company believes such non-GAAP
financial measures (1) provide useful information to investors
regarding the underlying business trends and performance of the
Company’s ongoing operations, (2) are useful for period-over-period
comparisons of such operations and results, that may be more easily
compared to peer companies and allow investors a view of the
Company’s operating results excluding stock-based compensation
expense and special items, (3) provide useful information to
management and investors regarding present and future business
trends, and (4) provide consistency and comparability with past
reports and projections of future results.
Teradata’s reconciliation of GAAP to
non-GAAP results included in this release.
For the
Three Months
For the
Nine Months
(in millions, except per share data)
ended September 30
ended September 30
Gross Profit:
2019
2018
% Chg.
2019
2018
% Chg.
GAAP Gross Profit
$247
$264
(6%)
$707
$737
(4%)
% of Revenue
53.8%
50.2%
50.3%
46.8%
Excluding:
Stock-based compensation expense
4
3
11
11
Acquisition, integration, reorganization
related, and other costs
(1)
-
4
3
Amortization of capitalized software
7
11
28
38
Non-GAAP Gross Profit
$257
$278
(8%)
$750
$789
(5%)
% of Revenue
56.0%
52.9%
53.4%
50.1%
Operating Income
GAAP Operating Income
$10
$14
(29%)
$15
$20
(20%)
% of Revenue
2.2%
2.7%
1.1%
1.3%
Excluding:
Stock-based compensation expense
23
15
59
50
Amortization of acquisition-related
intangible assets
1
1
5
4
Acquisition, integration, reorganization
related, and other costs
2
15
28
24
Amortization of capitalized software
7
11
28
38
Non-GAAP Operating Income
$43
$56
(23%)
$135
$136
(1%)
% of Revenue
9.4%
10.6%
9.6%
8.6%
Net Income
GAAP Net Income / (Loss)
$10
$18
(44%)
$(1)
$15
(107%)
% of Revenue
2.2%
3.4%
(0.1%)
1.0%
Excluding:
Stock-based compensation expense
23
15
59
50
Amortization of acquisition-related
intangible assets
1
1
5
4
Acquisition, integration, reorganization
related, and other costs
2
15
28
24
Amortization of capitalized software
7
11
28
38
Income tax adjustments*
(7)
(17)
(23)
(33)
Non-GAAP Net Income
$36
$43
(16%)
$96
$98
(2%)
% of Revenue
7.8%
8.2%
6.8%
6.2%
For the Three Months
ended September 30
For the Nine Months
ended September 30
Earnings Per Share:
2019
2018
2019
2018
2019 Q4
Guidance
2019 FY
Guidance
GAAP Earnings / (Loss) Per Share
$0.09
$0.15
$(0.01)
$0.12
$(0.20) - $(0.15)
$(0.21) - $(0.16)
Excluding:
Stock-based compensation expense
0.20
0.12
0.51
0.41
0.18
0.69
Amortization of acquisition-related
intangible assets
0.01
0.01
0.04
0.03
0.01
0.04
Acquisition, integration, reorganization
related, and other costs
0.02
0.12
0.24
0.20
0.17
0.42
Amortization of capitalized software
0.06
0.09
0.24
0.31
0.05
0.29
Income tax adjustments*
(0.06)
(0.13)
(0.20)
(0.27)
(0.08)
(0.28)
Non-GAAP Diluted Earnings Per Share
$0.32
$0.36
$0.82
$0.80
$0.13 - $0.18
$0.95 - $1.00
* Represents the income tax effect of the
pre-tax adjustments to reconcile GAAP to Non-GAAP income based on
the applicable jurisdictional statutory tax rate of the underlying
item in addition to the tax impact for U.S. tax reform. Including
the income tax effect assists investors in understanding the tax
provision associated with those adjustments and the effective tax
rate related to the underlying business and performance of the
Company’s ongoing operations. As a result of these adjustments, the
Company’s non-GAAP effective tax rate for the third quarter of 2019
was 2.7% and 17.3% in the third quarter of 2018.
3.
As described below, the Company believes that free cash flow is
a useful non-GAAP measure for investors. Teradata defines free cash
flow as cash provided by / used in operating activities less
capital expenditures for property and equipment, and additions to
capitalized software. Free cash flow does not have a uniform
definition under GAAP and therefore, Teradata’s definition may
differ from other companies’ definitions of this measure.
Teradata’s management uses free cash flow to assess the financial
performance of the Company and believes it is useful for investors
because it relates the operating cash flow of the Company to the
capital that is spent to continue and improve business operations.
In particular, free cash flow indicates the amount of cash
generated after capital expenditures for, among other things,
investment in the Company’s existing businesses, strategic
acquisitions, strengthening the Company’s balance sheet, repurchase
of the Company’s stock and repayment of the Company’s debt
obligations, if any. Free cash flow does not represent the residual
cash flow available for discretionary expenditures since there may
be other nondiscretionary expenditures that are not deducted from
the measure. This non-GAAP measure is not meant to be considered in
isolation, as a substitute for, or superior to, results determined
in accordance with GAAP, and should be read only in conjunction
with our condensed consolidated financial statements prepared in
accordance with GAAP.
(in millions)
For the Three Months
For the Nine Months
ended September 30
ended September 30
2019
2018
2019
2018
Cash (used in) / provided by operating
activities (GAAP)
$(10)
$(33)
$94
$257
Less capital
expenditures for:
Expenditures for property and
equipment
(16)
(34)
(43)
(92)
Additions to capitalized software
(1)
(1)
(3)
(5)
Total capital expenditures
(17)
(35)
(46)
(97)
Free Cash Flow (non-GAAP measure)
$(27)
$(68)
$48
$160
Teradata used $8 million of cash in the
third quarter of 2019, and $54 million of cash year-to-date related
to reorganizing and restructuring its operations and its
go-to-market functions to align to its strategy.
Note to Investors
This news release contains forward-looking statements within the
meaning of Section 21E of the Securities and Exchange Act of 1934.
Forward-looking statements generally relate to opinions, beliefs
and projections of expected future financial and operating
performance, business trends, and market conditions, among other
things. These forward-looking statements are based upon current
expectations and assumptions and involve risks and uncertainties
that could cause actual results to differ materially, including the
factors discussed in this release and those relating to: the global
economic environment and business conditions in general or on the
ability of our suppliers to meet their commitments to us, or the
timing of purchases by our current and potential customers; the
rapidly changing and intensely competitive nature of the
information technology industry and the data analytics business;
fluctuations in our operating results, including as a result of the
pace and extent to which customers shift from perpetual to
subscription-based licenses; our ability to realize the anticipated
benefits of our business transformation program or other
restructuring and cost saving initiatives; risks inherent in
operating in foreign countries, including foreign currency
fluctuations; risks associated with data privacy, cyberattacks and
maintaining secure and effective internal information technology
and control systems; the timely and successful development,
production or acquisition and market acceptance and quality of new
and existing products and services; tax rates; senior management
changes, workforce turnover and the ability to attract and retain
skilled employees; protecting our intellectual property;
availability and successful exploitation of new alliance and
acquisition opportunities; recurring revenue may decline or fail to
be renewed; the impact on our business and financial reporting from
changes in accounting rules; and other factors described from time
to time in Teradata’s filings with the U.S. Securities and Exchange
Commission, including its annual report on Form 10-K, as amended by
its Form 10-K/A, and subsequent quarterly reports on Forms 10-Q, as
well as the Company’s annual report to stockholders. Teradata does
not undertake any obligation to publicly update or revise any
forward-looking statements, whether as a result of new information,
future events or otherwise, except as required by law.
About Teradata
Teradata transforms how businesses work and people live through
the power of data. Teradata leverages all of the data, all of the
time, so you can analyze anything, deploy anywhere, and deliver
analytics that matter most to your business. And we do it
on-premises, in the cloud, or anywhere in between. We call this
pervasive data intelligence, powered by the cloud. It’s the answer
to the complexity, cost and inadequacy of today’s approach to
analytics. Get the answer at teradata.com.
Teradata and the Teradata logo are trademarks
or registered trademarks of Teradata Corporation and/or its
affiliates in the U.S. and worldwide.
Schedule A
TERADATA CORPORATION CONDENSED
CONSOLIDATED STATEMENTS OF INCOME (LOSS) (in millions,
except per share amounts - unaudited)
For the Period Ended September
30
Three Months
Nine Months
2019
2018
% Chg
2019
2018
% Chg
Revenue Recurring
$
343
$
312
10
%
$
1,012
$
926
9
%
Perpetual software licenses and hardware
16
77
(79
%)
76
243
(69
%)
Consulting services
100
137
(27
%)
317
407
(22
%)
Total revenue
459
526
(13
%)
1,405
1,576
(11
%)
Gross profit Recurring
233
219
689
655
% of Revenue
67.9
%
70.2
%
68.1
%
70.7
%
Perpetual software licenses and hardware
7
34
16
79
% of Revenue
43.8
%
44.2
%
21.1
%
32.5
%
Consulting services
7
11
2
3
% of Revenue
7.0
%
8.0
%
0.6
%
0.7
%
Total gross profit
247
264
707
737
% of Revenue
53.8
%
50.2
%
50.3
%
46.8
%
Selling, general and administrative expenses
151
166
447
481
Research and development expenses
86
84
245
236
Income from operations
10
14
15
20
% of Revenue
2.2
%
2.7
%
1.1
%
1.3
%
Other expense, net
(6
)
(4
)
(16
)
(12
)
Income (loss) before income taxes
4
10
(1
)
8
% of Revenue
0.9
%
1.9
%
(0.1
%)
0.5
%
Income tax benefit
(6
)
(8
)
-
(7
)
% Tax rate
(150.0
%)
(80.0
%)
-
(87.5
%)
Net income (loss)
$
10
$
18
$
(1
)
$
15
% of Revenue
2.2
%
3.4
%
(0.1
%)
1.0
%
Net income (loss) per common share Basic
$
0.09
$
0.15
$
(0.01
)
$
0.13
Diluted
$
0.09
$
0.15
$
(0.01
)
$
0.12
Weighted average common shares outstanding Basic
113.2
118.7
115.2
119.9
Diluted
114.2
120.7
115.2
121.8
Schedule B
TERADATA CORPORATION CONDENSED
CONSOLIDATED BALANCE SHEETS (in millions - unaudited)
September 30,
December 31,
September 30,
2019
2018
2018
Assets Current assets
Cash and cash equivalents
$
528
$
715
$
768
Accounts receivable, net
328
588
372
Inventories
36
28
45
Other current assets
86
97
99
Total current assets
978
1,428
1,284
Property and equipment, net
333
295
226
Capitalized software, net
42
72
84
Right of use assets - operating lease, net
53
-
-
Goodwill
394
395
396
Acquired intangible assets, net
11
16
17
Deferred income taxes
67
67
54
Other assets
101
87
75
Total assets
$
1,979
$
2,360
$
2,136
Liabilities and stockholders'
equity Current liabilities Current portion of
long-term debt
$
25
$
19
$
13
Current portion of finance lease liability
42
17
7
Current portion of operating lease liability
19
-
-
Accounts payable
103
141
95
Payroll and benefits liabilities
115
224
147
Deferred revenue
408
490
384
Other current liabilities
60
118
86
Total current liabilities
772
1,009
732
Long-term debt
460
478
484
Finance lease liability
66
30
15
Operating lease liability
41
-
-
Pension and other postemployment plan liabilities
101
113
109
Long-term deferred revenue
68
105
102
Deferred tax liabilities
4
3
4
Other liabilities
139
127
130
Total liabilities
1,651
1,865
1,576
Stockholders' equity Common stock
1
1
1
Paid-in capital
1,517
1,418
1,397
Accumulated deficit
(1,063
)
(823
)
(745
)
Accumulated other comprehensive loss
(127
)
(101
)
(93
)
Total stockholders' equity
328
495
560
Total liabilities and stockholders' equity
$
1,979
$
2,360
$
2,136
Schedule C
TERADATA CORPORATION CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (in millions -
unaudited)
For the Period Ended September
30
Three Months
Nine Months
2019
2018
2019
2018
Operating activities Net income (loss)
$
10
$
18
$
(1
)
$
15
Adjustments to reconcile net income (loss) to net cash
provided by operating activities: Depreciation and amortization
36
31
113
95
Stock-based compensation expense
22
15
59
50
Deferred income taxes
1
(5
)
1
(11
)
Changes in assets and liabilities: Receivables
49
(3
)
260
182
Inventories
(1
)
(17
)
(8
)
(15
)
Current payables and accrued expenses
(1
)
23
(156
)
(8
)
Deferred revenue
(104
)
(83
)
(119
)
7
Other assets and liabilities
(22
)
(12
)
(55
)
(58
)
Net cash (used in) provided by operating activities
(10
)
(33
)
94
257
Investing activities Expenditures for property and
equipment
(16
)
(34
)
(43
)
(92
)
Additions to capitalized software
(1
)
(1
)
(3
)
(5
)
Net cash used in investing activities
(17
)
(35
)
(46
)
(97
)
Financing activities Repurchases of common stock
(64
)
(49
)
(239
)
(206
)
Repayments of long-term borrowings
(6
)
-
(12
)
(40
)
Repayments of credit facility borrowings
-
-
-
(240
)
Payments of finance leases
(9
)
(1
)
(18
)
(1
)
Other financing activities, net
4
5
40
23
Net cash used in financing activities
(75
)
(45
)
(229
)
(464
)
Effect of exchange rate changes on cash and cash equivalents
(6
)
(2
)
(6
)
(17
)
Decrease in cash, cash equivalents and restricted
cash
(108
)
(115
)
(187
)
(321
)
Cash, cash equivalents and restricted cash at beginning of
period
637
883
716
1,089
Cash, cash equivalents and restricted cash at end of
period
$
529
$
768
$
529
$
768
Supplemental cash flow disclosure: Non-cash
investing and financing activities: Assets acquired by finance
leases
$
30
$
-
$
78
$
-
Assets acquired by operating leases
$
1
$
-
$
5
$
-
Schedule D
TERADATA CORPORATION CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS (in millions -
unaudited)
For the Three Months Ended
September 30
For the Nine Months Ended
September 30
2019
2018
% Change As Reported
% Change Constant Currency
(2)
2019
2018
% Change As Reported
% Change Constant Currency
(2)
Segment Revenue Americas
$
256
$
277
(8
%)
(7
%)
$
794
$
828
(4
%)
(3
%)
EMEA
118
139
(15
%)
(12
%)
353
415
(15
%)
(10
%)
APAC
85
110
(23
%)
(21
%)
258
333
(23
%)
(19
%)
Total segment revenue
459
526
(13
%)
(11
%)
1,405
1,576
(11
%)
(8
%)
Segment gross profit Americas
158
158
473
459
% of Revenue
61.7
%
57.0
%
59.6
%
55.4
%
EMEA
62
67
169
184
% of Revenue
52.5
%
48.2
%
47.9
%
44.3
%
APAC
37
53
108
146
% of Revenue
43.5
%
48.2
%
41.9
%
43.8
%
Total segment gross profit
257
278
750
789
% of Revenue
56.0
%
52.9
%
53.4
%
50.1
%
Reconciling items(1)
(10
)
(14
)
(43
)
(52
)
Total gross profit
$
247
$
264
$
707
$
737
% of Revenue
53.8
%
50.2
%
50.3
%
46.8
%
(1) Reconciling items include stock-based
compensation, capitalized software, amortization of
acquisition-related intangible assets and acquisition, integration
and reorganization-related items. (2) The impact of currency is
determined by calculating the prior period results using the
current-year monthly average currency rates.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20191107006067/en/
INVESTOR CONTACT Nabil Elsheshai 858-485-2125 office
nabil.elsheshai@teradata.com
MEDIA CONTACT Jennifer Donahue 858-485-3029 office
jennifer.donahue@teradata.com
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