Teradata (TDC) shares are down sharply Friday, after the company announced disappointing financial results, and shocked Wall Street with the immediate departure of CEO Oliver Ratzesberger, who had been in the role for under a year.
For the third quarter, the business analytics software company reported revenue of $459 million, well below the Street consensus estimate of $485.6 million, with adjusted profits of 32 cents a share, below the consensus of 40 cents.
For the fourth quarter, the company sees adjusted earnings of 13 to 18 cents a share, far below the old Street consensus of 58 cents. For the full year, Teradata now sees profits of 95 cents to $1 a share, down from a previous forecast of $1.44 to $1.55 a share.
Teradata has been shifting its business to a subscription model from a perpetual license model—a shift that many software companies have made in recent years—and the transition often involves some bumpy quarters.
In its earnings announcement, Teradata says it expects recurring revenue to be up 8% to 9% for the full year, but also sees a $250 million drop in perpetual revenue “as the shift to subscription-based bookings continues to exceed the company’s expectations.” The company said it now expects consulting revenue to decline about 25% for the year, more than the 20% it previously expected.
Just as jarring as the sharp estimate reduction was the sudden departure of the CEO. On an interim basis, Ratzesberger was replaced by Victor Lund, who has lately been the executive chairman of the company, and who served as CEO until succeeded by Ratzesberger in January.
In a statement, Lund said that “the board decided that now is the right time to identify a new CEO to accelerate the execution of the transformation, in order to achieve our vision and growth strategy.”
The weak guidance and the sudden firing of the CEO has triggered deep worry on the Street. Cowen, Bank of America Merrill Lynch, and Stifel all downgraded their ratings on the stock.
Stifel’s Brad Reback is perplexed about what is going on with management and the board. “Commentary on the call suggested this transition was due to the board’s desire to be more focused on execution (e.g., being a visionary doesn’t always translate to great execution) and performance below expectations,” he writes. “We are left confused as to how the board did not have a better understanding of Mr. Ratzesberger operational execution issues given his long tenure at the company. We note 7 of the current 11 board members have been with the company since 2015. We wonder if the board is not also in need of some refreshing.” He cut his rating to Hold from Buy, with a new target of $25, down from $60.
Citigroup’s Tyler Radke, who already had a Sell rating on the stock, cut his target to $22, from $28. He is also confused about the CEO change. “Execution has been a challenge this year, but not any more so than past years, and with a number of possible impacts (restructuring, business model transition, new sales leadership) we just don’t see how this justifies such a sudden and dramatic change in leadership,” he writes. “We see risk that the CEO change could drive further fallout / upheaval and have more of a negative impact than the company realizes.”
UBS analyst Jennifer Swanson Lowe, who also has a Sell rating on Teradata, cut her target to $25, from $32. “Teradata is approaching the completion of its business model transformation, but the sudden departure of CEO Oliver Ratzesberger adds another change into the mix, while the Q3 earnings miss and reduced 2019 guidance won’t help sentiment,” she writes. “We think TDC shares continue to drift lower as investors await further news on the CEO front, and until we see more evidence that the model shift translates to an improved growth and profitability profile for the business overall.”
On Friday, Teradata shares are trading down 23%, to $24.03.