TERADATA CORPORATION Third quarter revenue of $606 million, down 3% in constant currency(1)
Full year revenue is now expected to be flat to down 2% in constant currency(1)
Full-year non-GAAP EPS now expected to be in the $2.00 - $2.20 range(2)
Transformational changes targeting improved performance
Aligning the Data & Analytics business for the evolving market
Cost rationalization initiatives and the exit of the Marketing Applications business are estimated to provide a benefit of approximately $120 million in operating income in 2016
Gross margin in the third quarter was 50.7 percent, as reported under U.S. Generally Accepted Accounting Principles (GAAP), versus 52.5 percent in the third quarter of 2014. On a non-GAAP basis, excluding stock-based compensation expense and the other special items described in footnote #2, gross margin was 52.1 percent, down from 53.8 percent in the third quarter of 2014, due to overall lower revenue and revenue mix, as well as lower service margins in the Marketing Applications business. (2)
Teradata reported GAAP net income of $78 million in the third quarter, or $0.55 per diluted share, which compared to net income of $94 million, or $0.60 per diluted share, in the third quarter of 2014. Excluding stock-based compensation expense and the other special items detailed in footnote #2, non-GAAP net income in the third quarter of 2015 was also $78 million, or $0.55 per diluted share, versus $111 million, or
$0.71 per diluted share, in the third quarter of 2014. (2)
'We remain confident in Teradata's technology, our roadmaps and competitive leadership position in the market and we are taking actions to increase shareholder value. We are making transformative changes to the company for longer term success, and are also aligning our cost structure for near term improvement,' said Mike Koehler, chief executive officer, Teradata Corporation.
'Our Marketing Applications team has made great progress this year, and has market leading solutions. As part of our business transformation, we determined it best to exclusively focus our investments and attention on our core Data and Analytics business. We are therefore selling our Marketing Applications business. As we go through this process, we will work closely with our customers and employees for continued success.
'In parallel, we are launching key transformation initiatives to better align our Data and Analytics solutions and services with the evolving marketplace and to meet the needs of the new Teradata going forward.'
Segment Revenue Performance
(in millions)
2015 | 2014 | % Change as Reported | % Change in Constant Currency(1) | ||||
Data and Analytics | $557 | $614 | -9% | -4% | |||
Marketing Applications | 49 | 53 | -8% | 0% | |||
Total Revenue | $606 | $667 | -9% | -3% | |||
For the Nine Months Ended September 30 | |||||||
2015 | 2014 | % Change as Reported | % Change in Constant Currency(1) | ||||
Data and Analytics | $1,668 | $1,814 | -8% | -2% | |||
Marketing Applications | 143 | 157 | -9% | -2% | |||
Total Revenue | $1,811 | $1,971 | -8% | -2% | |||
Teradata reported $77 million of GAAP operating income in the third quarter of 2015, which compared to $123 million of operating income in the third quarter of 2014. On a non-GAAP basis, operating income was $107 million versus $150 million in the prior-year period. (2) The year-over-year decline in non- GAAP operating income was primarily due to lower revenue.
During the third quarter of 2015, Teradata generated $68 million of cash from operating activities compared to $102 million in the prior-year period. Teradata generated $33 million of free cash flow (cash from operating activities less capital expenditures and additions to capitalized software)(3) in the
third quarter of 2015, compared to $66 million in the same period in 2014. The year-over-year decline was primarily due to the lower net income.
As of September 30, 2015, Teradata had $874 million of cash and total debt of $710 million. Additionally, Teradata has $290 million available on its $400 million in a revolving credit facility.
During the quarter, Teradata purchased approximately 8.5 million shares of its stock worth approximately $250 million. Year to date through September 30, Teradata purchased 15.5 million shares, worth approximately $548 million.
Teradata has approximately $667 million of remaining authorization for share repurchases under its general share repurchase program. The stock is anticipated to be repurchased on an ongoing basis in open market transactions at management's discretion, in accordance with applicable securities rules regarding issuer repurchases.
Teradata is in the process of making transformational changes to improve the long-term performance of the company, including offering more flexibility and options in the way customers buy Teradata products such as a software-only version of Teradata as well as making Teradata accessible in the public cloud. The initial cloud version of Teradata will be available on Amazon's Web Services in the first quarter of 2016.
Teradata is also rationalizing its cost structure to better align its infrastructure, research and development and go-to-market resources for improved efficiency, effectiveness and profitability. Additionally, Teradata plans to exit the Marketing Application business to allow the company to focus exclusively on improving and growing its Data and Analytics business. Combining the cost reduction initiatives and the exit of the Marketing Applications business, Teradata currently expects a benefit of approximately
$120 million in operating income in 2016, exclusive of one-time costs.
More information regarding these initiatives as well as other aspects of the company's 2016 expectations will be provided after the company concludes its transformational review process, which is expected to be completed in the first part of 2016.
GuidanceAs a result of the third quarter results and an updated outlook for the fourth quarter, Teradata is lowering its full-year revenue guidance to approximately 6 - 8 percent revenue decline year over year on a reported basis, and approximately flat to down 2 percent on a constant currency basis. Teradata expects approximately 4 percentage points of currency headwind in the fourth quarter.
2015 full-year GAAP earnings per share is now expected to be approximately $(0.71) - $(0.51). Non- GAAP earnings per share (which excludes stock-based compensation expense, goodwill impairment and other special items) for the full-year is now expected to be approximately $2.00 - $2.20. (2)
2015 Third Quarter Earnings Conference Call
A conference call is scheduled today at 8:30 a.m. (ET) to discuss the company's third quarter 2015 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 regarding Teradata's operating results is also available on the Investor Relations page of Teradata's website.
(in millions) | For the Three Months | For the Nine Months | ||||||||
Ended September 30 | Ended September 30 | |||||||||
Revenue | 2015 | 2014 | % Chg As Rpt'd | % Chg In CC | 2015 | 2014 | % Chg As Rpt'd | % Chg In CC | ||
Products | ||||||||||
(software/hardware) | $240 | $294 | -18% | -14% | $737 | $867 | -15% | -10% | ||
Consulting services | 194 | 200 | -3% | 5% | 560 | 592 | -5% | 3% | ||
Maintenance services | 172 | 173 | -1% | 7% | 514 | 512 | 0% | 6% | ||
Total Services | 366 | 373 | -2% | 6% | 1,074 | 1,104 | -3% | 4% | ||
Total Revenue | $606 | $667 | -9% | -3% | $1,811 | $1,971 | -8% | -2% | ||
By segment | ||||||||||
Data and Analytics | $557 | $614 | -9% | -4% | $1,668 | $1,814 | -8% | -2% | ||
Marketing Applications | 49 | 53 | -8% | -0% | 143 | 157 | -9% | -2% | ||
Total Revenue | $606 | $667 | -9% | -3% | $1,811 | $1,971 | -8% | -2% | ||
The impact of currency is determined by calculating the prior-period results using the current-year monthly average currency rates. See the foreign currency fluctuation schedule on the Investor Relations page of the company's website at investor.teradata.com, which is used to determine revenue on a constant currency (CC) basis.
Teradata reports its results in accordance with GAAP. However, as described below, the company believes that certain non- GAAP measures (such as non-GAAP gross margin, non-GAAP operating income, non-GAAP net income, and non-GAAP earnings per diluted share, or EPS, which exclude certain items as well as goodwill impairment and free cash flow) are useful for investors. Our non-GAAP measures are not meant to be considered in isolation or as substitutes for, or superior to, results
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