Teradata has issued its earnings report for Q1/2015 showing that revenue was $582 million or 7% lower than the same period last year ($628 million). The company said it had spent $273 million buying back 6.3 million shares and the board of directors had authorised a further $300 million to continue the share buy back programme.

The news is not all bad

At first glance, the accounts do not look good but not everything should be taken at face value. The earnings release comparing Q1 2015 with Q1 2014 shows:

  • GAAP Gross Margin $277 million vs $333 million down 17%
  • GAAP Operating Income $30 million vs $89 million down 66%
  • GAAP Net Income $22 million vs $59 million down 63%
  • Diluted earning per share $0.15 vs $0.37

The latter figure will not please shareholders especially with 2015 GAAP full year guidance in the range of $1.97-$2.17. To make matters worse, the earnings report states that the reality is likely to be at the lower end of the scale rather than the upper end. Adding further to shareholder woe is the fact that the detailed accounts show shareholder equity has fallen by over $400 million over the last year.

All of this is likely to be at the core of why the board of directors have authorised additional revenue for share buyback.

The devil is in the detail

Looking through the details of the consolidated reports there are reasons for shareholders to be patient. While product and services revenue were both down, services fared much better with just a 4% drop. Gross margin for services was down just 0.3% which suggests that the recovery is likely to be services rather than product led.

On a more positive note, when compared to Q4 2014, current assets are up slightly. While goodwill and intangible assets dragged the total assets number lower, big ticket items such as property were up slightly.

Is Teradata building a war chest?

Like many companies, Teradata seems to be taking advantage of historical low interest rates. It announced that it has refinanced its existing $600 million loan with a new five-year unsecured load due in March 2020. It has also replaced its existing revolving credit facility with a new five year facility for an additional $400 million.

Taking all of this into account, the company reported that it had $881 million in cash or cash equivalents. With no sign of imminent meltdown for the company, this should provide enough of a buffer for the company to take advantage of any acquisition targets that it believes it will need.

Teradata is talking about 2015 likely to be a year of consolidation which should rule any acquisition. With $881 million available, it I not unthinkable that it might be tempted into another acquisition. If it does go down that route it may find shareholder support will depending on it being able to convince them that they will see quick benefits from any deal.

There is another possibility here and that is the risk of being acquired by one of its competitors with deeper pockets. At that point, shareholders may elect to take any profit from selling their shares rather than wait for a recovery in 2016.


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