Teradata Reports Strong Fourth Quarter 2018 Financial Results
SAN DIEGO--(BUSINESS WIRE)--Feb 7, 2019--Teradata Corp. (NYSE: TDC ) reported strong fourth-quarter financial results driven by the successful execution of its strategy. Subscription-based transactions comprised 87 percent of the company’s bookings mix in the quarter. Despite subscription bookings mix higher than expected, total fourth-quarter revenue of $588 million still exceeded the company’s guidance range of $555 million to $575 million. This compared to 2017 fourth-quarter total revenue of $626 million when Teradata had a higher percentage of perpetual-based transactions. As a result of the shift to subscription-based transactions, fourth-quarter recurring revenue was $328 million, up 10 percent (up 13 percent in constant currency (1) ) from the fourth quarter of 2017.
“Teradata delivered strong fourth-quarter results, exceeding our guidance on nearly every measure. Our performance illustrates the benefits of our strategy in action, as we keep our customers at the core of everything we do,” said Vic Lund, Executive Chairman of the Teradata Board of Directors. “With Oliver Ratzesberger now leading Teradata forward, I am confident of the company’s continued momentum.”
“I am honored to take the helm of Teradata as we reshape the future of analytics and increasingly create value for our shareholders,” said Oliver Ratzesberger, President and Chief Executive Officer, Teradata. “We just closed a very successful year: we refined our strategy, shifted to a subscription-based model, significantly enhanced our offerings, reframed our go-to-market approach, and revitalized our great brand. Building upon these achievements, we will continue our firm commitment to help our customers find real answers to the challenges they face in finding value in their data.”
For the full year, total revenue was $2.164 billion, an increase over the $2.156 billion reported in the prior year. Subscription-based transactions comprised 79 percent of the Company’s bookings mix for the full year, which was higher than anticipated and better than Teradata’s 65 to 70 percent expected range for the full year. Recurring revenue of $1.254 billion increased 10 percent, both as reported and in constant currency. Annual recurring revenue (ARR) at the end of 2018 was $1.308 billion, a 10 percent increase (up 12 percent in constant currency (1) ) from the end of 2017.
Teradata reported 2018 fourth-quarter net income of $15 million under U.S. Generally Accepted Accounting Principles (GAAP), or $0.13 per diluted share, which compared to a net loss of $(74) million, or $(0.61) per share, in the fourth quarter of 2017. Non-GAAP 2018 fourth-quarter net income, which excludes stock-based compensation expense and special items, was $58 million, or $0.49 per diluted share, as compared to $72 million, or $0.58 per diluted share in the fourth quarter of 2017 (3).
For the full year, net income reported under GAAP was $30 million, or $0.25 per diluted share, which compared to a net loss of $(67) million, or $(0.53) per share, in 2017. Non-GAAP 2018 full-year net income, which excludes stock-based compensation expense and special items, was $156 million, or $1.29 per diluted share, as compared to $173 million, or $1.35 per diluted share in 2017 (3).
2018 fourth-quarter gross margin reported under GAAP was 49.1 percent versus 49.0 percent for the fourth quarter of 2017. On a non-GAAP basis, excluding stock-based compensation expense and special items, 2018 fourth-quarter gross margin was 52.0 percent, versus 51.9 percent in the prior-year (3).
2018 full-year gross margin reported under GAAP was 47.4 percent versus 47.5 percent in 2017. On a non-GAAP basis, excluding stock-based compensation expense and special items, 2018 full-year gross margin was 50.6 percent, versus 51.6 percent in 2017 (3). As the company transitions to subscription-based transactions, the timing and composition of revenue mix has a short-term impact on the overall gross margin rate.
2018 fourth-quarter operating income reported under GAAP was $23 million compared to $60 million in the fourth quarter of 2017. On a non-GAAP basis, excluding stock-based compensation expense and special items, 2018 fourth quarter operating income was $74 million versus $93 million in the fourth quarter of 2017 (3).
2018 full-year operating income reported under GAAP was $43 million compared to $68 million in 2017. On a non-GAAP basis, excluding stock-based compensation expense and special items, 2018 full-year operating income was $210 million versus $252 million in 2017 (3).
Teradata’s 2018 fourth-quarter tax rate under GAAP was 21.1 percent compared to 229.8 percent in the fourth quarter of 2017. Excluding special items, Teradata’s non-GAAP 2018 fourth-quarter tax rate was 17.1 percent versus 19.1 percent in the fourth quarter of 2017 (3). Teradata’s 2018 full-year tax rate under GAAP was (11.1) percent compared to 215.5 percent in 2017. Excluding special items, Teradata’s non-GAAP 2018 full-year tax rate was 19.6 percent versus 27.9 percent in 2017 (3). The decrease in the non-GAAP effective tax rate year-over-year was largely due to the decrease in the U.S. statutory tax rate effective in 2018 because of U.S. tax reform enacted in late 2017.
For the 2018 fourth quarter, Teradata generated $107 million of cash from operating activities compared to $23 million in the same period in 2017. During the quarter, Teradata used $63 million, versus using $21 million in the fourth quarter of 2017, for capital expenditures and additions to capitalized software development costs. Teradata’s 2018 fourth-quarter free cash flow was $44 million, compared to $2 million in the fourth quarter of 2017 (2).
For the 2018 full year, Teradata generated $364 million of cash from operating activities versus $324 million in 2017. During the year, Teradata used $160 million, versus using $87 million in 2017, for capital expenditures and additions to capitalized software development costs, resulting in 2018 full-year free cash flow of $204 million compared to $237 million in 2017 (2).
Teradata ended 2018 with $715 million in cash. As previously reported, Teradata repatriated $800 million of cash previously held internationally, completing the total repatriation planned for 2018. Teradata has used and continues to anticipate using a portion of these repatriated funds for share repurchases and expects to retain the remainder for general corporate purposes.
During the fourth quarter of 2018, Teradata repurchased 2.6 million shares of the Company’s common stock for approximately $94 million. For the full year, the Company repurchased 7.9 million shares for approximately $300 million.
Teradata currently has approximately $253 million of Board authorization remaining for share repurchases.
The Company had total debt of $547 million as of December 31, 2018, including $47 million of outstanding capital lease obligations. There were no funds drawn on the company’s $400 million revolving credit facility as of December 31, 2018.
For the full-year 2019, subscription-based bookings mix is expected to be approximately 70 percent or higher, ARR or “annual recurring revenue” is expected to increase 11 percent to 12 percent, and recurring revenue is expected to increase approximately 11 percent.
Given the company’s continued transition to subscription-based transactions, 2019 perpetual revenue is expected to decline in the range of $150 million to $200 million versus 2018.
As the company shifts its consulting focus to provide higher margin / higher value consulting services to its target market of “megadata” customers, 2019 consulting revenue is expected to decline approximately 15 percent to 20 percent versus 2018.
Full-year 2019 GAAP earnings per share is expected to be $0.50 to $0.60. On a non-GAAP basis, which excludes stock-based compensation expense and other special items, earnings per share is expected to be in the $1.45 to $1.55 range (3).
Recurring revenue in the first quarter of 2019 is expected to be in the $332 million to $335 million range.
GAAP loss per share in the first quarter of 2019 is expected to be in the $(0.20) to $(0.18) range. Non-GAAP earnings per share, excluding stock-based compensation expense and other special items, in the first quarter is expected to be in the $0.18 to $0.20 range (3).
Earnings Conference Call
A conference call is scheduled today at 2:00 p.m. PT to discuss the Company’s fourth-quarter and full-year 2018 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.
Note to Investors
This news release contains forward-looking statements within the meaning of Section 21E of the Securities and Exchange Act of 1934. Forward-looking statements generally relate to opinions, beliefs and projections of expected future financial and operating performance, business trends, and market conditions, among other things. These forward-looking statements are based upon current expectations and assumptions and involve risks and uncertainties that could cause actual results to differ materially, including the factors discussed in this release and those relating to: the global economic environment and business conditions 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; the rapidly changing and intensely competitive nature of the information technology industry and the data analytics business; fluctuations in our operating results, including as a result of the pace and extent to which customers shift from perpetual to subscription-based licenses; our ability to realize the anticipated benefits of our business transformation program or other restructuring and cost saving initiatives; risks inherent in operating in foreign countries, including foreign currency fluctuations; risks associated with data privacy, cyberattacks and maintaining secure and effective internal information technology and control systems; the timely and successful development, production or acquisition and market acceptance of new and existing products and services; tax rates; turnover of workforce and the ability to attract and retain skilled employees; protecting our intellectual property; availability and successful exploitation of new alliance and acquisition opportunities; recurring revenue may decline or fail to be renewed; the impact on our business and financial reporting from changes in accounting rules; and other factors described from time to time in Teradata’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 report to stockholders. Teradata 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, except as required by law.
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