Teradata Corp reported total revenue of $588 million in Q4. Full year, total revenue was $2.164 billion higher than 2017 full year revenue of $2.156 billion. Recurring revenue, which includes revenue from subscription-based transactions as well as maintenance and software upgrade rights, relating to perpetual licenses was $328 million in Q4, a year-over increase of 10%. Full year recurring revenue was $1.254 billion, a 10% increase from 2017 on both a reported and constant currency basis. Perpetual software license and hardware revenue which is revenue from on-premise perpetual transactions was $97 million a year-over-year decrease of 39%.
“As we go through our transition, most customers are purchasing software on a subscription basis, but some customers continue to purchase their hardware upfront. Therefore our perpetual revenue is now predominantly hardware related. All year perpetual revenue declined 21%, to $340 million and consulting revenue, which was $163 million in Q4, decreased 4%, from Q4 2017, but was flat in constant currency. Full year consulting revenue was $570 million down 2% from 2017, as reported and in constant currency,” said Tera Data Chief Financial Officer Mark Culhane in a call with analysts.
Subscription-based transactions comprised 79 percent of the Company's bookings mix for the full year, which was higher than anticipated and better than Teradata's 65 to 70 percent expected range for the full year. Recurring revenue of $1.254 billion increased 10 percent, both as reported and in constant currency. Annual recurring revenue (ARR) at the end of 2018 was $1.308 billion, a 10 percent increase from the end of 2017.
Teradata reported 2018 fourth-quarter net income of $15 million under U.S. Generally Accepted Accounting Principles (GAAP), or $0.13 per diluted share, which compared to a net loss of $(74) million, or $(0.61) per share, in the fourth quarter of 2017. Non-GAAP 2018 fourth-quarter net income, which excludes stock-based compensation expense and special items, was $58 million, or $0.49 per diluted share, as compared to $72 million, or $0.58 per diluted share in the fourth quarter of 2017.
For the full year, net income reported under GAAP was $30 million, or $0.25 per diluted share, which compared to a net loss of $(67) million, or $(0.53) per share, in 2017. Non-GAAP 2018 full-year net income, which excludes stock-based compensation expense and special items, was $156 million, or $1.29 per diluted share, as compared to $173 million, or $1.35 per diluted share in 2017.
The company informed that in Q4, it took launched Vantage, a platform for complex enterprise scale analytics. Now, it is achieving record adoption with customers and winning against the competition. The company claimed that Vantage holds the record for the fastest customer adoption of any release in Teradata's history.
Vantage is the platform that allows customers to work with the tools and languages they prefer in order to quickly build and the use analytics they need. Vantage tightly integrates the analytical engines and functions and is fully extensible to meet the needs of megadata companies. These include descriptive, predictive and prescriptive analytics, machine learning and autonomous decision making and all deploy across public clouds on-premises and optimized to a commodity infrastructure or as a service.
Gross Margin
2018 fourth-quarter gross margin reported under GAAP was 49.1 percent versus 49.0 percent for the fourth quarter of 2017. On a non-GAAP basis, excluding stock-based compensation expense and special items, 2018 fourth-quarter gross margin was 52.0 percent, versus 51.9 percent in the prior-year.
2018 full-year gross margin reported under GAAP was 47.4 percent versus 47.5 percent in 2017. On a non-GAAP basis, excluding stock-based compensation expense and special items, 2018 full-year gross margin was 50.6 percent, versus 51.6 percent in 2017. As the company transitions to subscription-based transactions, the timing and composition of revenue mix has a short-term impact on the overall gross margin rate.
Operating Income
2018 fourth-quarter operating income reported under GAAP was $23 million compared to $60 million in the fourth quarter of 2017. On a non-GAAP basis, excluding stock-based compensation expense and special items, 2018 fourth quarter operating income was $74 million versus $93 million in the fourth quarter of 2017.
2018 full-year operating income reported under GAAP was $43 million compared to $68 million in 2017. On a non-GAAP basis, excluding stock-based compensation expense and special items, 2018 full-year operating income was $210 million versus $252 million in 2017.
Cash Flow
For the 2018 fourth quarter, Teradata generated $107 million of cash from operating activities compared to $23 million in the same period in 2017. During the quarter, Teradata used $63 million, versus using $21 million in the fourth quarter of 2017, for capital expenditures and additions to capitalized software development costs. Teradata's 2018 fourth-quarter free cash flow was $44 million, compared to $2 million in the fourth quarter of 2017.
For the 2018 full year, Teradata generated $364 million of cash from operating activities versus $324 million in 2017. During the year, Teradata used $160 million, versus using $87 million in 2017, for capital expenditures and additions to capitalized software development costs, resulting in 2018 full-year free cash flow of $204 million compared to $237 million in 2017.
Teradata ended 2018 with $715 million in cash. As previously reported, Teradata repatriated $800 million of cash previously held internationally, completing the total repatriation planned for 2018. Teradata has used and continues to anticipate using a portion of these repatriated funds for share repurchases and expects to retain the remainder for general corporate purposes.
During the fourth quarter of 2018, Teradata repurchased 2.6 million shares of the Company's common stock for approximately $94 million. For the full year, the Company repurchased 7.9 million shares for approximately $300 million.
Teradata currently has approximately $253 million of Board authorization remaining for share repurchases.
The Company had total debt of $547 million as of December 31, 2018, including $47 million of outstanding capital lease obligations. There were no funds drawn on the company's $400 million revolving credit facility as of December 31, 2018.
Guidance for 2019
For the full-year 2019, subscription-based bookings mix is expected to be approximately 70 percent or higher, ARR or “annual recurring revenue” is expected to increase 11 percent to 12 percent, and recurring revenue is expected to increase approximately 11 percent.
Given the company's continued transition to subscription-based transactions, 2019 perpetual revenue is expected to decline in the range of $150 million to $200 million versus 2018.
As the company shifts its consulting focus to provide higher margin / higher value consulting services to its target market of “megadata” customers, 2019 consulting revenue is expected to decline approximately 15 percent to 20 percent versus 2018.
Full-year 2019 GAAP earnings per share is expected to be $0.50 to $0.60. On a non-GAAP basis, which excludes stock-based compensation expense and other special items, earnings per share is expected to be in the $1.45 to $1.55 range.
Recurring revenue in the first quarter of 2019 is expected to be in the $332 million to $335 million range.
GAAP loss per share in the first quarter of 2019 is expected to be in the $(0.20) to $(0.18) range. Non-GAAP earnings per share, excluding stock-based compensation expense and other special items, in the first quarter is expected to be in the $0.18 to $0.20 range.
