A month has gone by since the last earnings report for Teradata (TDC). Shares have added about 11.3% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Teradata due for a pullback? 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 catalysts.
Teradata Q3 Earnings Beat Estimates, Revenues Flat Y/Y
Teradata reported third-quarter 2024 non-GAAP earnings of 69 cents per share, which beat the Zacks Consensus Estimate by 23.21%. The bottom line increased 64% year over year.
Revenues of $440 million beat the Zacks Consensus Estimate by 5.02%. The figure was flat year over year on a reported basis and 2% on a constant-currency (cc) basis.
Total annual recurring revenues (ARR) at the third-quarter end declined 3% year over year to $1.482 billion. The figure fell 4% at cc.
Public cloud ARR increased 26% on a reported basis and 24% at cc year over year to $570 million. The growth was driven by increasing demand for its cloud solutions.
The cloud net expansion rate was 120%, reflecting ongoing customer engagement and expansion within existing accounts.
TDC Top Line in Detail
Recurring revenues (contributing 84.5% to revenues) increased 3% year over year on a reported basis (increased 5% at cc) to $372 million.
Perpetual software license and hardware revenues (1.6% of revenues) aligned year over year (up 2% at cc) to $7 million.
Consulting services’ revenues (13.9% of revenues) fell 14% year over year (down 12% at cc) to $61 million.
Revenues from Product Sales increased 3% year over year on a reported basis (up 5% at cc) to $379 million.
In the third quarter, Teradata strengthened its customer pipeline, achieving new deals with major enterprises like a U.S. insurance company and a large Asia-Pacific bank, which chose Teradata for high-performance data needs.
TDC’s advancements in AI capabilities, such as enhancements to its ClearScape Analytics platform, were well-received. The introduction of “bring-your-own-language models” and integration with NVIDIA’s AI platform also positioned Teradata as a strategic AI partner for its customers.
TDC Operating Details
The gross margin on a non-GAAP basis was 61.6%, expanding 130 basis points (bps) year over year.
Selling, general & administrative (SG&A) expenses declined 12.2% year over year to $137 million. Research & development (R&D) expenses were $73 million, down 3.9% year over year.
As a percentage of revenues, SG&A contracted 450 bps year over year to 31.1%, whereas R&D contracted 160 bps year over year to 16.6%.
The non-GAAP operating margin was 22.5%, up 810 bps year over year.
TDC Balance Sheet
As of Sept. 30, 2024, Teradata had cash and cash equivalents of $348 million compared with $301 million as of June 30, 2024.
Long-term debt as of Sept. 30, 2024, was $461 million compared with $467 million as of June 30, 2024.
In the third quarter, TDC generated $77 million in cash from operating activities compared with the previous quarter’s $43 million.
The company generated a free cash flow of $69 million in the reported quarter.
TDC Initiates 2024 Guidance
For fourth-quarter 2024, non-GAAP earnings are expected to be between 40 and 44 cents per share.
For 2024, TDC expects non-GAAP earnings between $2.30 and $2.34 per share.
Public cloud ARR growth is projected to be between 18% and 22% on a year-over-year basis.
Total ARR is expected to decline 2-4% year over year.
Teradata expects recurring revenues to remain flat at a loss of 2% year over year.
The company expects total revenues to be down 2-4% from the year-ago reported figure.
Cash flow from operations is expected to be between $290 million and $310 million.
Free cash flow is anticipated to be in the $270-$290 million range.
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 -11.27% due to these changes.
VGM Scores
At this time, Teradata has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Charting a somewhat similar path, 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 B. 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 these revisions 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.
Performance of an Industry Player
Teradata is part of the Zacks Computer- Storage Devices industry. Over the past month, Western Digital (WDC), a stock from the same industry, has gained 7.3%. The company reported its results for the quarter ended September 2024 more than a month ago.
Western Digital reported revenues of $4.1 billion in the last reported quarter, representing a year-over-year change of +48.9%. EPS of $1.78 for the same period compares with -$1.76 a year ago.
Western Digital is expected to post earnings of $1.91 per share for the current quarter, representing a year-over-year change of +376.8%. Over the last 30 days, the Zacks Consensus Estimate remained unchanged.
Western Digital has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of C.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
