Teradata Beats, Outlook Robust - Analyst Blog

Today, Teradata Corporation (TDC) reported earnings for the fourth quarter of fiscal year 2009 of 48 cents per share, up 6.7% from 45 cents per share reported in the year-ago quarter. The company easily beat the Zacks Consensus Estimate of 37 cents per share.

Earnings benefited from improved operational performance, a lower tax rate, higher gross margin and increased revenue. As a result, net margin improved to 16.9% from 16.0% in the year-ago quarter.

Total revenue increased marginally by 0.6% to $496 million from the year-ago quarter, driven by an increase in Services revenue, which rose 5.8% year over year to $257 million in the quarter, driven by strength in the professional services business. This was offset by weakness in product revenue (software and hardware), which fell 4.4% year over year to $239 million. Revenue includes a 4% positive impact from changes in foreign exchange rates.

On a regional basis, Teradata witnessed strong growth from the Americas, which grew 5% in the quarter, or 4% when adjusted for currency. This was offset by a 7% (14% when adjusted for currency) year-over-year decline in revenue from the Europe, Middle East and Africa (EMEA) region. The Asia Pacific region also fell 4%, or 9% when adjusted for currency.

Operating Performance

Operating income increased 3.9% year over year to $106 million due to higher revenue and 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 21.4% in the quarter from 20.7% in the year-ago quarter.

Gross margin of 56.0% increased from 54.6% in the fourth quarter of 2008 due to improvement in the Americas region, which witnessed a more favorable deal mix as compared to the prior-year period. While product revenues fell, product gross margin improved to 67.8% from 63.6% in the year-ago period on a lower revenue base. However, Services gross margin fell slightly to 45.1% from 45.3% in the year-ago quarter.

Balance Sheet & Cash Flow

Teradata’s balance sheet remains strong with no debt. The company exited the quarter with $661 million in cash. During the quarter, Teradata generated $91 million of cash from operating activities. Capital expenditures in the quarter were $27 million. This resulted in a free cash flow of $64 million (76% of net income) in the quarter. In addition, Teradata used approximately $103 million of cash to repurchase approximately 3.4 million shares.

Outlook Exceeds Expectations

For fiscal 2010, Teradata expects revenue to increase 7% to 9% from fiscal 2009 level, including 1% to 2% benefit from currency translation. Earnings per share are expected to be in the $1.54 – $1.64 range. This is up from the Zacks Consensus expectation of $1.47 per share. Management also said it would increase investment in 2010 to drive growth.

We remain optimistic on Teradata, as it is well positioned to benefit from the growing database analytics market. However, the data warehousing market is mature and has been dominated by large payers such as Oracle Corp. (ORCL), Netezza Corp. (NZ), International Business Machines Corp. (IBM), Microsoft Corp. (MSFT), Sybase Inc. (SY) and SAP AG (SAP).