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Tax Reform to Boost Teradata’s Free Cash Flow

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Free cash flow analysis 

Leading analytics and consulting service provider Teradata (TDC) reports strong free cash flow despite its regular share repurchase program and increased capital expenditures.

In the last five years, Teradata has maintained free cash flow above the amount spent on share repurchases. This trend suggests that the company utilizes its excess cash flow to buy back shares rather than using debt to finance its repurchase goals.

In the chart above, we can see the free cash flow trend in the last five years. Teradata maintained an average free cash flow of nearly $413.0 million every year. In fiscal 2014, the company generated its highest free cash flow. In fiscal 2017, it produced the lowest free cash flow.

Teradata (TDC) exited fiscal 2017 with $237.0 million in free cash flow compared to $328.0 million generated in fiscal 2016. It also outpaced its previous guidance. Teradata projects free cash flow in fiscal 2018 to be around $200.0 million.

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Catalysts and headwinds

Teradata believes that the solid free cash flow generation in fiscal 2017 was primarily driven by the increase in early payments by the customers that otherwise would have been collected in fiscal 2018 and beyond. The implementation of the new US tax reform, leading to lower tax rates, also contributed to strong free cash flow generation in 2017.

The company continues to invest in new product development and business models, which in turn may impact its cash flow. Among Teradata’s industry peers, ServiceNow (NOW) and Citrix (CTXS) generated free cash flows of $492.0 million and $827.0 million, respectively, in fiscal 2017.

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