Why Is Teradata (TDC) Down 16.1% Since Last Earnings Report?

A month has gone by since the last earnings report for Teradata (TDC). Shares have lost about 16.1% 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 the most recent earnings report in order to get a better handle on the important drivers.

Teradata Q4 Earnings Beat Estimates, Revenues Fall Y/Y

Teradata reported fourth-quarter 2019 adjusted earnings of 22 cents per share, which beat the Zacks Consensus Estimate by 37.5%. The reported figure, however, plunged 55.1% year over year.

Revenues of $494 million also surpassed the consensus mark by 4.4%. However, the revenue figure declined 16% year over year. At constant currency (cc), revenues were down 15%.

Top-Line Details

Recurring revenues (70.9% of revenues) increased 6.7% year over year (up 7% at cc) to $350 million.

Perpetual software license and hardware revenues (6.1% of revenues) plummeted 69.1% from the year-ago quarter (down 69% at cc) to $30 million.

Consulting services revenues (23.1% of revenues) slid 30.1% from the year-ago quarter (down 30% at cc) to $114 million.

Revenues from Americas decreased 11.7% year over year (down 11% at cc) to $263 million. Europe, Middle East & Africa (EMEA) revenues declined 19.2% from the year-ago quarter (down 19% at cc) to $139 million. Revenues from Asia-Pacific (APAC) were down 22% from the year-ago quarter (down 21% at cc) to $92 million.

Total annual recurring revenues (ARR) at the end of 2019 increased 9.1% year over year (up 9% at cc).

Operating Details

Non-GAAP segment gross margin expanded 120 basis points (bps) year over year to 53.2%. While Americas gross margin expanded 380 bps, EMEA and APAC gross margin contracted 250 bps and 140 bps, respectively.

Recurring revenues gross margin shrunk 260 bps to 66% from the year-ago quarter.

Perpetual software license and hardware margin declined from the year-ago quarter’s 40.2% to 20%.

Consulting services operating income was $11 million, reflecting a slump of 56% year over year.

Non-GAAP operating margin contracted 290 bps on a year-over-year basis to 9.7%.

Balance Sheet & Other Details

As of Dec 31, 2019, Teradata had cash and cash equivalents of $494 million compared with $528 million as of Sep 30, 2019.

Total debt (including current portion), as of Dec 31, 2019 was $479 million compared with $596 million as of Sep 30.

In the fourth quarter, Teradata generated $54 million of cash from operating activities compared with the previous quarter’s $10 million. The company’s quarterly free cash flow came in at $41 million compared with the free cash outflow of $27 million witnessed in the previous quarter.

Moreover, Teradata repurchased around 2.2 million shares worth approximately $61 million.

Guidance

For 2020, Teradata expects ARR and recurring revenues to increase at least 8%.Non-GAAP earnings are projected between $1.18 and $1.22 per share for the full year.

For first-quarter 2020, recurring revenues are expected between $353 million and $355 million. Non-GAAP earnings are expected between 22 cents and 24 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 -61.54% due to these changes.

VGM Scores

At this time, Teradata has a subpar Growth Score of D, a grade with the same score on the momentum front. However, the stock was allocated a grade of B on the value side, putting it in the second quintile 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. Notably, Teradata has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.