Teradata Reports 2018 First Quarter Results

Operating loss reported under GAAP in the first quarter of 2018 was $(4) million compared to breakeven in the first quarter of 2017. On a non-GAAP basis, excluding stock-based compensation expense and special items, operating income was $35 million in the first quarter of 2018, versus $59 million in the first quarter of 2017⁽²⁾. As expected, non-GAAP operating income was lower due to the shift to subscription and strategic transformation investments as compared to the prior year.

Income Taxes

Teradata's GAAP tax rate was 12.5 percent for the first quarter of 2018, as compared to 0 percent in the first quarter of 2017. Excluding special items, Teradata's non-GAAP tax rate was 25.8 percent in the first quarter of 2018 versus 35.1 percent in the first quarter of 2017.⁽²⁾ The decrease in the non-GAAP effective tax rate was largely due to the decrease in the U.S. statutory rate effective in 2018 as a result of recently enacted U.S. tax reform.

Cash Flow

Teradata generated $184 million of cash from operating activities in the first quarter of 2018, compared to $248 million in the same period in 2017.  In the first quarter of 2018, Teradata generated $156 million of free cash flow (cash from operating activities less capital expenditures and additions to capitalized software), compared to $230 million in the first quarter of 2017.⁽³⁾ The expected decrease in cash from operating activities and free cash flow was due to the company's ongoing transition to subscription-based purchasing options, which result in the company collecting less cash in the current period as customers pay over time, the higher expense run rate from prior-year strategic transformation investments, and timing of cash collections.    

Balance Sheet

Teradata ended the first quarter of 2018 with $939 million in cash. As of the end of the first quarter of 2018, the company repatriated cash to pay off its revolving credit facility and fund share repurchases. Teradata plans to repatriate the majority of its remaining offshore cash across the balance of 2018 to fund share repurchases and to retain the remainder for general corporate purposes. 

As of March 31, 2018, Teradata had total debt of $525 million, all of which was outstanding under a term loan. Teradata had no borrowings under its $400 million revolving credit facility as of March 31, 2018.

During the first quarter of 2018, Teradata repurchased $76 million of the company's common stock, or approximately 2.1 million shares.

Guidance

Due to higher than expected bookings mix shift to subscription-based transactions, where revenue is recognized over time rather than up front in the current period, Teradata now expects 2018 full year revenue to be approximately $2.15 billion to $2.18 billion. Also, due to the accelerating shift in mix to subscription, Teradata expects revenue in the second quarter of 2018 to be in the $520 million to $530 million range.

Teradata also now expects full-year 2018 GAAP earnings per share to be $0.58 to $0.64 as a result of the faster than anticipated shift of bookings mix to subscription-based transactions. On a non-GAAP basis, which excludes stock-based compensation expense and special items, earnings per share is expected to be in the $1.40 to $1.46 range⁽²⁾.  GAAP (loss)/earnings per share in the second quarter of 2018 is expected to be in the $(0.02) to $0.00 range. Non-GAAP earnings per share in the second quarter is expected to be in the $0.17 to $0.19 range⁽²⁾. 

Earnings Conference Call

A conference call is scheduled today at 2:00 p.m. (PT) to discuss the company's first quarter 2018 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

Additional information regarding Teradata's operating results is provided below as well as on the Investor Relations page of Teradata's website.

1. 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 web site at investor.teradata.com, which is used to determine revenue on a constant currency ("CC") basis.

2. 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 profit, non-GAAP operating income, non-GAAP net income, and non-GAAP earnings per diluted share, or EPS, all of which exclude certain items (as well as 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 determined in accordance with GAAP, and should be read only in conjunction with our condensed consolidated financial statements prepared in accordance with GAAP.   

The following tables reconcile Teradata's actual and projected results and EPS under GAAP to the company's actual and projected non-GAAP results and EPS for the periods presented, which exclude certain specified items. Our management internally uses supplemental non-GAAP financial measures, such as gross profit, operating income, net income and EPS, excluding certain items, to understand, manage and evaluate our business and support operating decisions on a regular basis. The company believes such non-GAAP financial measures (1) provide useful information to investors regarding the underlying business trends and performance of the company's ongoing operations, (2) are useful for period-over-period comparisons of such operations and results, that may be more easily compared to peer companies and allow investors a view of the company's operating results excluding stock-based compensation expense and special items, (3) provide useful information to management and investors regarding present and future business trends, and (4) provide consistency and comparability with past reports and projections of future results.

Teradata's reconciliation of GAAP to non-GAAP results included in this release.

(in millions, except per share data)
		For the Three Months
		Ended March 31
Gross Profit:		2018		2017		% Chg.
GAAP Gross Profit		$ 223		$ 225		(1%)
% of Revenue		44.1%		45.8%
Excluding:
Stock-based compensation expense		4		3
Acquisition, integration and reorganization related costs		3		2
Capitalized Software ASC 985-20		15		21
Non-GAAP Gross Profit		$ 245		$ 251		(2%)
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