Teradata Reports 2016 Third Quarter Results

ATLANTA, Oct. 27, 2016 /PRNewswire/ -- Teradata Corp. (NYSE: TDC) reported revenue of $552 million for the quarter ended September 30, 2016, versus $606 million in the third quarter of 2015. Revenue in the third quarter of 2015 included $38 million of revenue from the Marketing Applications business that Teradata sold on July 1, 2016. Excluding the Marketing Applications business, Teradata's revenue decreased 3 percent from the prior year period.⁽¹⁾ There was no currency impact on the overall third quarter revenue comparison.⁽²⁾

Gross margin was 53.3 percent, as reported under U.S. Generally Accepted Accounting Principles (GAAP), versus 50.7 percent reported in the third quarter of 2015. On a non-GAAP basis, excluding stock-based compensation expense, special items and the Marketing Applications business as described in footnote #1, gross margin was 54.0 percent, versus 53.0 percent in the third quarter of 2015.⁽¹⁾ The increase in gross margin for the quarter resulted primarily from favorable product and deal mix.

Teradata reported GAAP net income of $49 million in the third quarter, or $0.37 per diluted share, which compared to $78 million, or $0.55 per share, in the third quarter of 2015. Stock-based compensation expense, special items and the Marketing Applications business reduced Teradata's third quarter net income by $42 million, or $0.32 per diluted share. Excluding stock-based compensation expense, special items and the Marketing Applications business, non-GAAP net income in the third quarter of 2016 was $91 million, or $0.69 per diluted share.⁽¹⁾ Non-GAAP net income was $85 million or $0.60 per diluted share in the third quarter of 2015.⁽¹⁾

"In the third quarter, the Teradata team delivered revenue in line with our guidance and better than expected earnings per share while reshaping our business to deliver greater value to our customers and shareholders," said Victor Lund, president and CEO, Teradata Corporation. "We advanced our business analytic solutions, ecosystem architecture consulting and our hybrid cloud offerings with industry-first initiatives like Teradata Everywhere and Borderless Analytics, which exemplify the new Teradata.  We are accelerating execution of our strategy to better serve our customers and create new opportunities for our company."   

Operating Income

Operating income was $89 million in the third quarter of 2016 compared to $77 million operating income in the third quarter of 2015. On a non-GAAP basis, excluding stock-based compensation expense, special items and the Marketing Applications business, operating income was $122 million in the third quarter of 2016, versus $117 million in the third quarter of 2015.⁽¹⁾ The year-over-year increase in non-GAAP operating income was primarily due to the company's cost management initiatives.

Cash Flow

During the third quarter 2016, Teradata generated $45 million of cash from operating activities, compared to $68 million in the prior year period. The decrease in cash generation was largely due to the unfavorable year-over-year change in working capital.

Teradata generated $12 million of free cash flow (cash from operating activities less capital expenditures and additions to capitalized software) in the third quarter of 2016, compared to $33 million in the same period in 2015.⁽³⁾   

Year-to-date Teradata generated $309 million of free cash flow in 2016, compared to $276 million in the same period in 2015.⁽³⁾

Balance Sheet

Teradata ended the third quarter 2016 with $988 million in cash, which was substantially all held outside the United States. During the quarter, the company used $18 million of domestic cash to repurchase shares. 

As of September 30, 2016, Teradata had total debt of approximately $578 million, all of which was outstanding under a term loan.  Teradata had no borrowings under its $400 million revolving credit facility as of September 30, 2016.

Fourth Quarter Outlook

Revenue for the fourth quarter of 2016 is expected to be in the range of $620 million to $640 million.

As part of Teradata's business transformation, the company is now offering subscription pricing programs.  As a result, some of Teradata's largest customers have begun to shift to the new subscription pricing alternative which had an impact on reported revenue in the third quarter and is expected to impact reported revenue in a more meaningful way in the fourth quarter and going forward.

Teradata expects GAAP earnings per share in the fourth quarter in the range of $0.43 to $0.48. On a non-GAAP basis, which excludes stock-based compensation expense, and other special items, earnings per share is expected to be in the $0.57 to $0.62 range.⁽²⁾ 

Business Transformation Update

Teradata made a number of advancements in the execution of its business transformation plan in the third quarter. We introduced differentiated business solutions that empower companies to achieve high-impact business outcomes. Strengthening our consultative approach, we announced an agile methodology that fuses business knowledge, data science and technology in a proven process to provide clients insight into the potential business value of analytic solutions before an investment is made.  In addition, we extended our portfolio of hybrid cloud solutions, offering customers a choice and ensuring comparable Teradata database performance across public and private clouds, managed cloud, and on-premises. We are realigning our go-to-market approach to improve sales effectiveness designed to achieve better financial results. We will continue to invest and prioritize initiatives that strengthen our ability to be our customers' trusted advisor for data and analytics.

The company will provide more information regarding its plans during its Analyst Day on November 17, 2016 at Teradata's R&D facility located near San Diego, CA.  More information regarding the Analyst Day is available on Teradata's website at investor.teradata.com.

Earnings Conference Call

A conference call is scheduled today at 8:30 a.m. (ET) to discuss the company's third quarter 2016 results. Access to the conference call, as well as a replay of the 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 the Investor Relations page of Teradata's website.

1. 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 margin, non-GAAP operating income, non-GAAP net income, and non-GAAP earnings per diluted share, or EPS, all of which exclude certain items, discontinued businesses, 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 margin, 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 compensation expense, special items and transactions such as major divestitures, including the Marketing Applications business which was sold on July 1, 2016, (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.

*Represents the results of operations of Teradata's Marketing Applications business, which is an adjustment to arrive at non-GAAP results due to sale of this business on July 1, 2016. 

** Represents the impact to earnings per share as a result of moving from basic to diluted shares. See the Reconciliation of Results - GAAP to Non-GAAP for basic and diluted shares in the three and nine months ended September 30, 2016 and 2015 on the Investor Relations page of the company's website at investor.teradata.com.

2. The impact of currency is determined by calculating the prior-period results using the current-year monthly average currency 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.

3. As described above, the company believes that free cash flow is a useful non-GAAP measure for investors. Teradata defines free cash flow as cash provided/used by 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.

Note to Investors

This news release contains forward-looking statements, including statements as to anticipated or expected results, beliefs, opinions and future financial performance, within the meaning of Section 21E of the Securities and Exchange Act of 1934. Forward-looking statements include projections of revenue, profit growth and other financial items, future economic performance and statements concerning analysts' earnings estimates, among other things. These forward-looking statements are based upon current expectations and assumptions and involve risks and uncertainties that could cause Teradata's actual results to differ materially. In addition to the factors discussed in this release, other risks and uncertainties could affect our future results, and could cause actual results to differ materially from those expressed in such forward-looking statements. Such factors include those relating to: the global economic environment 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, and other general economic and business conditions; the rapidly changing and intensely competitive nature of the information technology industry and the data analytics business, including the increased pressure on price/performance for data analytics solutions and changes in customer's buying patterns; fluctuations in our operating results, unanticipated delays or accelerations in our sales cycles and the difficulty of accurately estimating revenues; failure to realize the anticipated benefits of our business transformation program, divestitures, senior management changes, or other restructuring and cost saving initiatives; risks inherent in operating in foreign countries, including the impact of economic, political, legal, regulatory, compliance, cultural, foreign currency fluctuations and other conditions abroad (including Brexit); the timely and successful development, production or acquisition and market acceptance of new and existing products and services, including our ability to accelerate market acceptance of new products and services as well as the reliability, quality, security and operability of new products because of the difficulty and complexity associated with their testing and production; tax rates; turnover of workforce and the ability to attract and retain skilled employees; availability and successful exploitation of new acquisition and alliance opportunities; our ability to execute integration plans for newly acquired entities, including the possibility that expected synergies and operating efficiencies may not be achieved, that such integration efforts may be more difficult, time-consuming or costly than expected, and that operating costs, customer loss and business disruption (including, without limitation, difficulties in maintaining relationships with employees, customers, clients or suppliers) may be greater than expected following the transaction; recurring revenue may decline or fail to be renewed; changes in Generally Accepted Accounting Principles (GAAP) and the resulting impact, if any, on the company's accounting policies; continued efforts to establish and maintain best-in-class and secure internal information technology and control systems; and other factors described from time-to-time in the company's filings with the U.S. Securities and Exchange Commission, including its annual report on Form 10-K and subsequent quarterly reports on Forms 10-Q, as well as the company's annual reports to stockholders. The company 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.

About Teradata

Teradata empowers companies to achieve high-impact business outcomes. Our focus on business solutions for analytics, coupled with our industry leading technology and architecture expertise, can unleash the potential of great companies. Visit teradata.com.

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