Teradata Corp. reported revenue of $626 million for the quarter ended December 31, 2017, the same as the $626 million reported in the fourth quarter of 2016. Full-year 2017 revenue was $2.156 billion, which exceeded the company's guidance range.  

Due to the recent enactment of The Tax Cuts and Jobs Act of 2017 (Tax Reform Act), Teradata reported a net loss under U.S. Generally Accepted Accounting Principles (GAAP) of $(74) million in the fourth quarter, or $(0.61) per share, which compared to net income of $58 million, or $0.44 per diluted share, in the fourth quarter of 2016. For the full-year, including the impact of the charge related to the Tax Reform Act, Teradata reported a net loss of $(67) million, or $(0.53) per share, which compared to $125 million, or $0.95 per diluted share in 2016.

Non-GAAP net income in the fourth quarter of 2017, excluding the tax-related charge, stock-based compensation expense, and the special items described in footnote #2, was $72 million, or $0.58 per diluted share. Fourth quarter 2016 non-GAAP net income was $92 million, or $0.70 per diluted share, which also excluded stock-based compensation expense, and special items.⁽²⁾  Full-year 2017 non-GAAP net income was $173 million, or $1.35 per diluted share, compared to $338 million, or $2.57 per diluted share in 2016.⁽²⁾ The decline in 2017 non-GAAP earnings per share for the fourth quarter and full-year was largely due to increased investments related to the company's transformation initiatives as well as revenue from subscription-based transactions being recognized over time, versus upfront as was largely the case for Teradata's transactions in 2016.

In addition, customers continued their preference for Teradata's subscription and cloud offerings in the fourth quarter. During the full-year 2017, $255 million of equivalent value transactions occurred via Teradata's subscription and cloud offerings, more than the high-end of the company's expectations when it began the year.

"We are pleased to have delivered a strong fourth quarter, exceeding our guidance for revenue, EPS, and cash flow, while also driving increased utilization of our cloud offerings and subscription licenses," said Vic Lund, President and Chief Executive Officer, Teradata. "Our success is grounded in the unrivaled combination of our outstanding technology and consulting, our skilled and talented people, and our winning strategy. I am very proud of the Teradata team for their terrific performance in the fourth quarter and look forward to a great year in 2018."

Gross Margin

For fourth quarter 2017, gross margin was 48.9 percent, versus 50.3 percent for the fourth quarter 2016 and for the full-year, gross margin was 47.4 percent, versus 51.2 percent reported in 2016.

On a non-GAAP basis, excluding stock-based compensation expense and special items, gross margin for the fourth quarter 2017 was 51.8 percent, versus 53.7 percent in the fourth quarter of 2016.⁽²⁾ For the full-year 2017, non-GAAP gross margin was 51.5 percent, versus 55.1 percent in 2016.⁽²⁾ The decrease in non-GAAP gross margin for the quarter and full-year resulted from a higher mix of services revenue and lower services margin due to investments related to Teradata's transformation.   

Operating Income

Operating income was $59 million in the fourth quarter of 2017 compared to $98 million of operating income in the fourth quarter of 2016. Full-year GAAP operating income was $64 million in 2017, versus $232 million in 2016.

On a non-GAAP basis, excluding stock-based compensation expense and special items, operating income was $91 million in the fourth quarter of 2017, versus $131 million in the fourth quarter of 2016.⁽²⁾ Full-year 2017 non-GAAP operating income was $246 million, versus $474 million in 2016.⁽²⁾ The year-over-year decrease in non-GAAP operating income was due to investments related to Teradata's transformation, and a higher mix of subscription-based transactions. 

Income Taxes

The enactment of the Tax Reform Act resulted in a net tax charge of $126 million in the fourth quarter for GAAP reporting purposes. This charge is comprised of $145 million in tax expense related to the mandatory deemed repatriation of certain foreign earnings and profits, which the company intends to pay over an eight-year period beginning in 2018, offset by $19 million of tax benefit, a majority of which related to the re-measurement of net deferred tax liabilities arising from the new lower 21 percent corporate tax rate enacted in the legislation. As a result, Teradata's reported GAAP tax rate, which includes the tax charge, was 229.8 percent for the fourth quarter and 215.5 percent for the full-year. Excluding this tax charge, Teradata's non-GAAP tax rate was 19.1 percent in the fourth quarter 2017 versus 24.0 percent in the fourth quarter of 2016,⁽²⁾ and the full-year 2017 non-GAAP tax rate was 27.9 percent as compared to 26.0 percent in 2016.⁽²⁾ The increase in the non-GAAP effective tax rate was a result of the mix of foreign versus domestic taxable earnings and the resulting rate impact of discrete tax  items period-over-period.

Teradata continues to analyze the effects of the Tax Reform Act on its future income tax rate, but currently estimates that its 2018 tax rate to be approximately 20 percent.

Cash Flow

Teradata generated $23 million of cash from operating activities in the fourth quarter of 2017, compared to $52 million in the same period in 2016. For the full-year 2017, Teradata generated $324 million of cash from operating activities, compared to $446 million in 2016.  

In the fourth quarter of 2017, Teradata generated $2 million of free cash flow (cash from operating activities less capital expenditures and additions to capitalized software), compared to $20 million in the fourth quarter of 2016.⁽³⁾ For the full-year 2017, free cash flow was $237 million, compared to $328 million in 2016⁽³⁾. The year-over-year decrease in cash from operating activities and free cash flow was mainly due to the company's transition to subscription-based purchasing options as well as investments to support the company's transformation.   

Balance Sheet

Teradata ended the fourth quarter 2017 with $1.089 billion in cash, which was largely held outside the United States. During 2017, Teradata used $351 million of cash to repurchase approximately 11.5 million shares.  

As of December 31, 2017, Teradata had total debt of approximately $780 million, consisting of $540 million outstanding under a term loan and $240 million in borrowings under its $400 million revolving credit facility.

Teradata plans to repatriate a majority of its offshore cash as a result of the enactment of Tax Reform Act. The company intends to use repatriated funds to pay down its revolving credit facility, repurchase shares and retain the remainder for general corporate purposes. 

On February 5, 2018, Teradata's Board of Directors authorized an additional $310 million to be utilized to repurchase Teradata common stock under its open market share repurchase program. Teradata now has a total of approximately $500 million authorized for share repurchases under this share repurchase program. The stock is anticipated to be repurchased periodically on an ongoing basis in open market transactions at management's discretion, in accordance with applicable securities rules regarding issuer repurchases. The increased share repurchase authorization is effective immediately and the program now expires on February 5, 2021.

Guidance

Revenue in 2018 is expected to be approximately $2.15 billion to $2.20 billion, but will be highly influenced by the extent and pace Teradata's customers shift to subscription-based purchasing options. Revenue in the first quarter of 2018 is expected to be in the $490 million to $500 million range.

Full-year 2018 GAAP earnings per share is expected to be $0.67 to $0.77. On a non-GAAP basis, which excludes stock-based compensation expense and other special items, earnings per share is expected to be in the $1.50 to $1.60 range⁽²⁾. 

GAAP loss per share in the first quarter of 2018 is expected to be in the $(0.08) to $(0.05) range. Non-GAAP earnings per share in the first quarter is expected to be in the $0.13 to $0.16 range⁽²⁾.