Teradata Misses, Raises Guidance - Analyst Blog
06 May 2011 - 3:39AM
Zacks
Teradata Corp. (TDC) reported first quarter
earnings of 44 cents per share, missing the Zacks Consensus
Estimate by 2 cents. However, Teradata raised its fiscal year 2011
guidance based on strong revenue growth in the quarter.
Operating Performance
Earnings per share (EPS), including stock-based compensation of
4 cents, grew 12.0% year over year from 39 cents. Net Income was
$76.0 million, up 13.4% year over year from $67.0 million in the
prior-year quarter.
Gross profit was $284.0 million, up 20.3% year over year from
$236.0 million in the prior-year quarter. Gross margin increased 50
basis points (bps) to 55.5% in the quarter, attributed to higher
product gross margin. Product gross margin increased to 66.4% from
64.0% in the prior-year quarter, while services margin decreased to
43.9% from 47.2% in the prior-year quarter.
Operating expenses were $173.0 million, up 15.3% year over year
from $150.0 million in the prior-year quarter. The year-over-year
growth was attributable to higher selling, general and
administrative expense (SG&A), which increased 21.1% year over
year to $143.0 million. Research and development expense increased
6.3% year over year to $34.0 million.
Despite higher increase in operating expenses, non-GAAP
operating income increased 24.4% year over year to $107.0 million
in the quarter. Operating margin was 20.9%, up 90 bps year over
year based on strong revenue growth in the quarter.
Revenue
Revenue increased 19.3% year over year to $512.0 million, which
surpassed the Zacks Consensus Estimate of $485.0 million. This was
driven by a 20.5% year-over-year growth in Product revenue
(software and hardware) to $241.0 million and an 18.3%
year-over-year growth in Services revenue.
On a regional basis, Teradata achieved strong growth from the
Americas in the quarter. Revenue increased 22.0% year over year to
$307.0 million on a reported basis. The Americas contributed 60.7%
of total revenue in the quarter.
Teradata witnessed 18.0% year-over-year growth in the Europe,
Middle East and Africa (EMEA) region to $125.0 million, while
revenue increased 4.0% year over year to $74.0 million in the Asia
Pacific/Japan (APJ) region. Currency fluctuations had a positive
impact of 3.0% on EMEA revenue growth and 7.0% impact on APJ during
the quarter.
Balance Sheet and Cash Flow
Teradata exited the quarter with $778.0 million of cash versus
$883.0 million in the previous quarter. As of March 31, 2011,
Teradata had total debt of $300.0 million under its revolving
credit facility. Recently, Teradata repaid $280 million of its
total debt.
During the quarter, Teradata generated $106.0 million of cash
from operating activities versus $148.0 million in the previous
quarter. Capital expenditures in the quarter were $27 million
versus $21 million in the previous quarter. This resulted in a free
cash flow of $79 million versus $127 million in the previous
quarter.
On April 5, 2011, Teradata acquired Aster Data Systems Inc., by
utilizing funds from a new $300.0 million long term loan facility,
which is not reflected in the balance sheet as of March 31,
2011.
Outlook
For fiscal 2011, Teradata expects revenue growth of 14.0% to
16.0% (up from previous guidance of 12.0% to 14.0%) year over year.
EPS is expected in the range of $2.13 to $2.23 (up from previous
guidance of $1.80 to $1.90). The Zacks Consensus Estimate was
pegged at $2.15 per share for fiscal 2011 at the time the company
reported results.
Recommendation
We maintain a Neutral rating on a long-term basis (6-12 months)
due to increasing competition from much larger players such as
Oracle Corp. (ORCL) and Netezza
Corp. (NZ).
Currently, Teradata has a Zacks #3 Rank, which implies a Hold
rating on a short-term basis (1-3 months).
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