Teradata Corp. (
reported strong third quarter 2012 results, with earnings of 65
cents per share beating the Zacks Consensus Estimate by a couple
Revenue increased 7.0% year over year (10% on a constant
currency basis) to $647.0 million. However, reported revenue
missed the Zacks Consensus Estimate of $667.0 million.
The year-over-year improvement was primarily driven by a 7%
year-over-year growth in product revenue (9% on a constant
currency basis), 10% year-over-year growth (13% on a constant
currency basis) in maintenance services revenue and 6% (9% on a
constant currency basis) year over year upside in consulting
Region wise, Teradata achieved strong growth from the Europe,
Middle East and Africa (EMEA) in the quarter. Revenue increased
17% year over year (28% on a constant currency basis) to $156.0
million on a reported basis. Asia-Pacific/Japan region was
particularly strong, with revenue soaring 14% year over year (16%
on a constant currency basis) to $107.0 million. In comparison,
Americas revenue growth was tepid, just increasing 2.0% year over
year (3% on a constant currency basis) to $384.0 million.
Gross profit (excluding stock-based compensation expense and
other one-time items) soared 10% year over year to $361.0
million. Gross margin expanded 130 basis points from the year-ago
quarter to reach 55.8% in the quarter. Stock-based compensation
did not materially impact gross profits in the quarter.
The year-over-year growth in gross margin was primarily driven
by strong product gross profit (up 12.2% year over year) and
services gross profit (up 7.1% year over year) in the quarter.
Product gross margin expanded 350 bps, which fully offset a 40
bps year-over-year contraction in services gross margin in the
Operating expenses climbed 5.8% year over year to $218.0
million. The upside was attributable to higher selling, general
and administrative expense (SG&A), which increased 6.7% year
over year to $174.0 million. Research and development (R&D)
expense remained flat on a year over year basis at $44.0
Despite incurring higher operating expenses, Teradata
witnessed a 17.2% rise in operating income (excluding stock-based
compensation expense and other one-time items) to $143.0 million
in the quarter. Operating margin stood at 22.1%, up 180 bps from
the year-ago quarter, based on strong revenue and gross margin
growth in the quarter. However, stock-based compensation reduced
operating income to $156.0 million in the quarter.
Teradata's third quarter net income (excluding stock based
compensation expense and other one time items) was $104.0 million
or 60 cents per share compared with $87.0 million or 51 cents in
the year-ago period. Including stock-based compensation, net
income reduced to $113.0 million or 65 cents compared with $96.0
million or 56 cents in the year-ago quarter.
Teradata exited the quarter with $909.0 million in cash versus
$821.0 million in the previous quarter. As of September 30, 2012,
Teradata had total long-term debt of $278.0 million compared with
$282.0 million as of June 30, 2012.
Teradata generated cash flow from operations of $107.0 million
in the quarter compared with $102.0 million in the previous
quarter. Free cash flow generated in the quarter was $67.0
million compared with $75.0 million in the prior quarter.
Teradata revised its revenue growth guidance on a constant
currency basis for fiscal 2012. Revenue is expected to be at the
low end of its prior guidance of 14% to 16% range for full year.
Teradata continues to expect year-over-year reported revenue
growth to be at the low end of its prior guidance of 12.0% to
14.0% for fiscal 2012.
Teradata revised its full year earnings guidance, which is now
expected to be in the middle to the higher end of its prior range
of $2.72 to $2.82 per share.
We believe that new customer wins and strengthening
relationships with large vendors will be the primary revenue
drivers as well as increase profits over the long term. We
believe that Teradata will continue to benefit from its
international expansion, improved traction from sales force
expansion, new products and alliances, market share gains and a
growing database analytics market.
However, increased investment in sales, and an increase in the
number of competing products from big names, such as
Oracle Corp. (
, are resulting in continued pricing pressure that will likely
limit margin expansion going forward.
We maintain our Neutral recommendation on the stock over the
long term (6-12 months). Currently, Teradata has a Zacks #3 Rank,
which implies a Hold rating on a short-term basis (1-3
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