Teradata Corp. (TDC) reported fourth quarter 2011 earnings of 62 cents per share, beating the Zacks Consensus Estimate by three cents. Earnings, including stock-based compensation of four cents, grew 24.0% from 50 cents per share in the year-ago quarter.
Quarter Details
Revenue increased 23.0% year over year to $673.0 million, surpassing the Zacks Consensus Estimate of $639.0 million. This improvement was primarily driven by a year-over-year growth of 24.0% in product revenue (software and hardware) and a 22.0% year-over-year upside in services revenue.
Region wise, Teradata achieved strong growth from the Americas in the quarter. Revenue increased 22.0% year over year to $415.0 million on a reported basis. Teradata witnessed 22.0% year-over-year growth in the Europe, Middle East and Africa (EMEA) region to $145.0 million, while Asia-Pacific/Japan revenue increased 28.0% year over year to $113.0 million.
During the quarter, gross profit jumped 25.0% year over year to $381.0 million. Gross margin increased 90 basis points (bps) to 56.6%. The increase in gross margin was due to higher product margins, arising from favorable deal mix and improved consulting margins.
Operating expenses climbed 28.2% year over year to $241.0 million. The year-over-year increase was attributable to higher selling, general and administrative expense (SG&A), which surged 24.2% year over year to $185.0 million. Research and development expense also surged 43.6% year over year to $39.0 million.
Despite incurring higher operating expenses, the company witnessed a 24.0% rise in non-GAAP operating income to $145.0 million, in the quarter. Operating margin came in at 21.5%, up 40 bps year over year, based on strong revenue growth in the quarter.
Balance Sheet
Teradata exited the quarter with $772.0 million in cash versus $691.0 million in the previous quarter. As of December 31, 2011, Teradata had total debt of $290.0 million.
Outlook
For fiscal 2012, Teradata expects year-over-year revenue growth of 10.0% to 12.0%. Earnings are expected in the range of $2.56 to $2.66 per share. The Zacks Consensus Estimate for fiscal 2012 was pegged at $2.44 per share at the time when the company came up with its results.
Recommendation
We believe that new customer wins and strengthening relationships with large vendors will be the primary drivers of revenues as well as profits over the long term. We expect long-term growth to come from new strategic partnerships as well.
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, higher R&D expenses and an increase in the number of competing products from big names, such as Oracle Corp. (ORCL), are resulting in continued pricing pressure that will likely limit margin expansion going forward. Moreover, a volatile macro economic condition in Europe (a key market for Teradata) and a sluggish IT spending environment may hurt growth in the near term.
We maintain our Neutral recommendation on the stock over the long term (6-12 months). Currently, Teradata has a Zacks #4 Rank, which implies a Sell rating on a short-term basis (1-3 months).
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