Teradata Corp. (TDC) reported earnings of 84 cents per share in the fourth quarter of fiscal 2013, which beat the Zacks Consensus Estimate by a nickel. Earnings per share increased 15.1% from the year-ago quarter.
Excluding stock-based compensation, amortization of acquisition related intangible assets, transaction and integration & reorganization related costs and net loss on equity investments, earnings were 88 cents per share, up 11.4% on a year-over-year basis.
Quarter Details
Revenues increased a modest 3.9% from the year-ago quarter to $769.0 million, which beat the Zacks Consensus Estimate of $743.0 million.
Services revenues increased 5.0% from the year-ago quarter to $397.0 million, driven by strong maintenance revenues (up 11.7% year over year) in the quarter. Consulting revenues remained almost flat with the year-ago quarter.
Region-wise, America’s revenues increased 3.3% year over year to $464.0 million. America comprised 60.3% of revenues in the fourth quarter. International accounted for 39.7% of revenues and increased 4.8% from the year-ago quarter to $305.0 million.
Gross margin (including stock-based compensation expense but excluding other one-time items) expanded 70 basis points (bps) from the year-ago quarter to 57.1%, primarily due to favorable business mix.
Product gross margin increased 40 bps from the year-ago quarter, while services gross margin improved 110 bps in the last quarter.
Selling, general and administrative expense (SG&A) as a percentage of revenues increased 30 bps on a year-over-year basis to 23.8%. Research and development (R&D) expense decreased 30 bps from the year-ago quarter to 5.6%.
Operating margin (including stock-based compensation expense but excluding other one-time items) expanded 310 bps from the year-ago quarter due to higher gross margin base and lower-than-expected growth in SG&A expense.
Net income margin (including stock-based compensation expense but excluding other one-time items) was 17.8% compared with 16.9% in the year-ago quarter.
Teradata exited the quarter with $695.0 million in cash versus $862.0 million in the previous quarter. As of Dec 31, 2013, Teradata had total long-term debt of $248.0 million compared with $255.0 million as of Sep 30, 2013.
Teradata generated cash flow from operations of $63.0 million in the quarter compared with $64.0 million in the previous quarter. Free cash flow generated in the quarter was $25.0 million compared with $29.0 million in the previous quarter.
Guidance
For full-year 2014, Teradata expects revenues to grow 3.0% to 7.0% on a year-over-year basis. Earnings are expected to be in the range of $2.85 to $3.00 per share, which is much higher than the Zacks Consensus Estimate of $2.79.
Our Take
We believe new customer wins and strengthening relationships with large vendors will be the primary revenue drivers, going forward. We also believe 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, a sluggish spending environment in the domestic market and increasing competition from EMC Corp. (EMC), NetApp (NTAP) and Fusion-IO (FIO) are resulting in continued pricing pressure that will likely limit margin expansion, going forward.
Currently, Teradata has a Zacks Rank #4 (Sell).
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