Before the opening bell today, Teradata Corp. (TDC) reported fiscal first-quarter earnings of 39 cents per share, up 50% from 26 cents per share reported in the year-ago quarter. The company beat the Zacks Consensus Estimate of 31 cents per share.
 
Earnings benefited from improved operational performance, a lower tax rate, a higher gross margin and increased revenue. As a result, net margin improved to 15.6% from 12.3% in the year-ago quarter.
 
The company includes $5 million, or 2 cents per share of stock-based compensation expense in its results.
 
Total revenue increased 17% to $429 million from the year-ago quarter, driven by an increase in product revenue (software and hardware) of 27.0% year over year to $200 million. Revenue includes a 5% positive impact from changes in foreign exchange rates. Services revenue also rose 9% year over year to $229 million in the quarter, driven by strength in both the Consulting services and Maintenance services businesses.
 
On a regional basis, Teradata witnessed strong growth from the Americas, which grew 23% year over year in the quarter, or 21% when adjusted for currency. Moreover, the company witnessed strong results in international markets as well. Europe, Middle East and Africa (EMEA) region increased by 9%, or 3% when adjusted for currency. The Asia Pacific region also increased by 9% year over year, but fell 1% when adjusted for currency.
 
Operating Performance
 
Operating income increased 43.3% year over year to $86 million due to higher revenue and slight improvement in the gross margin, which more than offset higher SG&A expense and higher R&D expenses. As a result, operating margin improved to 20% in the quarter from 16.3% in the year-ago quarter.
 
Gross margin of 55% increased from 54.5% in the year-ago period due to higher services gross margin and a more favorable product mix. Services gross margin increased to 47.2% from 46.2% in the year-ago quarter. However, product gross margin declined to 64% from 65.6% in the year-ago period.
 
The effective income tax rate in the quarter was 22%, compared to a 25% in the prior-year period.
 
Balance Sheet & Cash Flow
 
Teradata’s balance sheet remains strong with no debt. The company exited the quarter with $712 million in cash versus $661 million cash in the previous quarter.
 
During the quarter, Teradata generated $138 million of cash from operating activities versus $91 million of cash generated in the previous quarter. Capital expenditures in the quarter were $21 million versus $27 million in the previous quarter. This resulted in a free cash flow of $117 million versus $64 million in the previous quarter. In addition, Teradata used approximately $70 million of cash to repurchase approximately 2.4 million shares.
 
2010 Guidance Raised
 
As a result of a record first quarter revenue and earnings, Teradata raised its guidance for the full year 2010, previously given out during the fourth quarter 2009 conference call.
 
For fiscal 2010, Teradata expects revenue to increase 8% to 10% from fiscal 2009 level, including negligible benefit from currency translation. This compares to the company’s previous guidance of a revenue growth of 7% to 9%, including 1% to 2% benefit from currency translation.
 
Despite an increase in the company’s tax rate for the full-year to 25.5% to 26.5% range, the company expects higher EPS. Earnings per share are now expected to be in the $1.60 – $1.70 range. This is up from the company’s previous guidance range of $1.54 to $1.64 per share.
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