Teradata (TDC) Q2 Earnings Match Estimates, Y/Y Revenue Drop – August 5, 2022

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Teradata (PMH Free Report) reported non-GAAP earnings of 33 cents per share in the second quarter of 2022, in line with Zacks’ consensus estimate. The metric was down 55.4% year over year and 49.2%, sequentially.

The figure is comfortably above Teradata’s guided range of 26 to 30 cents per share.

Revenue of $430 million decreased 13.3% sequentially. The same was also down 12% year over year on a reported basis and 8% on a constant currency (cc) basis. The year-over-year decline was due to lower recurring, perpetual and consulting revenue.

Total annual recurring revenue (ARR) at the end of the second quarter increased 1% on a cc basis, but decreased 3% year over year to $1.39 billion. The decline is the result of the closure of its business operations in Russia.

Public cloud ARR jumped 68% on a reported basis and 75% cc year-over-year to $234 million. Growth was driven by increased cloud transactions. The strong momentum in all three geographies also pulled ARR from the public cloud.

However, continued macroeconomic challenges and continued currency headwinds affected quarterly performance.

Front line details

Recurring revenue (representing 80% of revenue) decreased 8% year-over-year (down 5% at cc) to $345 million.

Perpetual software and hardware revenue (2% of revenue) was down 53% year over year (down 50% at cc) to $8 million.

Advisory services revenue (18% of revenue) decreased 21% from a year ago (down 16% at cc) to $77 million.

Recurring and perpetual revenue from software licensing and hardware, as well as revenue from consulting services missed Zacks’ consensus estimate of $383.4 million, $9.9 million, and $88.2 million , respectively.

Americas revenue decreased 9% year-over-year (down 8% at cc) to $249 million. Europe, Middle East and Africa (EMEA) revenue fell 20% from a year ago (down 13% cc) to $103 million . Asia Pacific and Japan (APJ) revenue was down 12% from a year ago (down 3% at cc) to $78 million.

Operation details

Gross margin on a non-GAAP basis was 61.2%, contracting 360 basis points (bps) year-over-year.

Selling, general and administrative (SG&A) expenses increased 1.2% year-over-year to $163 million. Research and development (R&D) expenses were $81 million, up 2.5% from the year-ago quarter level. As a percentage of revenue, SG&A rose 512 basis points year over year to 37.9%, while R&D rose 275 basis points to 18.8%.

Non-GAAP operating margin was 12.8%, down 1,100 basis points from the prior year quarter level.

Balance sheet and other details

As of June 30, 2022, Teradata had cash and cash equivalents of $545 million, compared to $404 million as of March 31, 2022.

Total debt (including current portion) as of June 30, 2022 was $497 million, compared to $399 million as of March 31, 2022.

In the second quarter, Teradata generated $105 million of cash from operating activities, compared to $151 million in the prior quarter.

Teradata’s quarterly free cash flow was $102 million, compared to $150 million in the first quarter.

TDC repurchased 2.1 million shares worth $67 million during the quarter under review.

Tips

For the third quarter of 2022, non-GAAP earnings are expected between 27 cents and 31 cents per share.

For 2022, non-GAAP earnings are expected between $1.55 and $1.65 per share. The Zacks consensus estimate for earnings is currently pegged at $1.58 per share.

Public cloud ARR is expected to increase 80% year-over-year.

Total ARR is expected to decline year over year in the low to mid-single digit range.

Teradata expects recurring revenue to decline to a low-single-digit mid-single-digit range from the 2021 level.

TDC expects total revenue to fall year-over-year in the mid- to high-single digit range on a reported basis. The metric is expected to decline in the low single-digit range at CC from the 2021 level.

Cash flow from operations is expected to be $425 million, while free cash flow is projected at $400 million.

Zacks Ranking and Stocks to Consider

Currently, Teradata carries a Zacks rank #3 (Hold). Investors interested in the broader Zacks Computer & Technology sector may consider some higher-ranked stocks like Keysight-Technologies (KEYS free report), ASE Technology (ASX free report) and Asure Software (ASUR Free Report), each carrying a Zacks Rank #2 (Buy) at present. You can see the full list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Keysight Technologies has lost 19.9% ​​since the start of the year. KEYS’ long-term earnings growth rate is currently projected at 9.1%.

ASE technology has lost 23.2% since the start of the year. The long-term earnings growth rate for ASX is currently projected at 23.1%.

Asure Software has lost 32.1% since the start of the year. The long-term earnings growth rate for ASUR is currently projected at 14%.

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