Teradata Corporation 10-Q Summary
Business Context and Reporting Period
This filing is a Quarterly Report on Form 10-Q for Teradata Corporation for the period ended March 31, 2009. Teradata provides data warehousing hardware and software solutions. The company operates in three geographic segments: Americas, EMEA (Europe, Middle East, and Africa), and APJ (Asia Pacific and Japan).
Key Financial Metrics
| Metric | Q1 2009 | Q1 2008 |
|---|---|---|
| Total Revenue | $367 million | $375 million |
| Product Revenue | $157 million | $165 million |
| Service Revenue | $210 million | $210 million |
| Gross Margin | 54.5% | 51.7% |
| Operating Income | $60 million | $53 million |
| Net Income | $45 million | $42 million |
| Diluted EPS | $0.26 | $0.23 |
| Cash and Cash Equivalents (End of Period) | $506 million | $339 million |
| Free Cash Flow | $145 million | $123 million |
| Debt | $0 | $0 |
Material Changes vs. Prior Period
- Revenue Decline: Total revenue decreased 2% year-over-year. This decline included a 7% adverse impact from foreign currency fluctuations. Product revenue fell 5%, primarily in the Americas region due to the weak U.S. economy. Service revenue remained flat.
- Margin Expansion: Gross margin improved to 54.5% from 51.7%. This was driven by better utilization of internal resources, lower third-party costs, and reduced travel expenses in the services business, as well as a favorable product mix.
- Operating Expenses: Selling, general, and administrative (SG&A) expenses decreased by $6 million due to lower travel and corporate costs. Research and development (R&D) expenses increased by $5 million, primarily due to $5 million less in capitalized software development costs.
- Segment Performance: Americas revenue declined 2%, EMEA revenue declined 6% (impacted by 18% currency headwinds), and APJ revenue increased 5%.
Outlook, Risks, and Contingencies
- Guidance and Outlook: Management expects approximately 5 percentage points of negative impact from currency translation on 2009 revenue. The company anticipates lengthening sales cycles for enterprise data warehousing in the U.S. due to economic conditions but sees opportunities with new purpose-built data warehouse appliance platforms.
- Share Repurchases: The company repurchased 1.3 million shares in Q1 2009. Subsequent to the quarter end (May 4, 2009), the Board authorized an additional $300 million for share repurchases, extending the program through February 2012.
- Legal Proceedings: The U.S. Department of Justice is investigating the propriety of arrangements regarding certain federal contracts and the adequacy of pricing disclosures related to the General Services Administration Federal Supply Schedule. The company has accrued approximately $2 million for potential liability but cannot determine the full extent of liability at this time.
- Risks: Macroeconomic downturns, credit crises, and competitive pricing pressures pose risks to future results. The company notes that large customer orders can significantly impact quarterly results.
Investor Verification Checklist
- Verify the sustainability of gross margin improvements given the economic downturn and potential for future pricing pressure.
- Monitor the outcome of the Department of Justice investigation regarding federal contracts and pricing disclosures.
- Assess the impact of foreign currency fluctuations on future revenue, as management projects a 5% negative impact for the full year 2009.
- Review the pace of new sales territory expansions and their time-to-productivity, as these investments may weigh on short-term expenses.
- Confirm the company's ability to maintain strong free cash flow generation amidst potential capital expenditure increases for new platform development.