Teradata Management Discusses Q2 2012 Results - Earnings Call Transcript

Teradata (TDC)

Q2 2012 Earnings Call

August 02, 2012 8:30 am ET


Gregg Swearingen - Former Vice President of Investor Relations

Michael F. Koehler - Chief Executive Officer, President, Director and Member of Executive Committee

Stephen M. Scheppmann - Chief Financial Officer, Principal Accounting Officer and Executive Vice President


Kathryn L. Huberty - Morgan Stanley, Research Division

Wamsi Mohan - BofA Merrill Lynch, Research Division

Jesse Hulsing - Pacific Crest Securities, Inc., Research Division

Raimo Lenschow - Barclays Capital, Research Division

Joseph K. Radigan - KeyBanc Capital Markets Inc., Research Division

Edward Parker - Lazard Capital Markets LLC, Research Division

James Derrick Wood - Susquehanna Financial Group, LLLP, Research Division

Aaron Schwartz - Jefferies & Company, Inc., Research Division



Welcome to the Q2 2012 Teradata Earnings Call. My name is Kim, and I will be the operator for today's call. [Operator Instructions] Later, we will conduct a question-and-answer session. Please note that this conference is being recorded.

I will now turn the call over to Mr. Gregg Swearingen. Mr. Swearingen, you may begin.

Gregg Swearingen

Good morning, and thanks for joining us for our 2012 second quarter earnings call. Mike Koehler, Teradata's CEO, will begin today by summarizing Teradata's Q2 results. Steve Scheppmann, Teradata's CFO, will then provide more details regarding our financial performance as well as our increased guidance for 2012. Darryl McDonald, Teradata's EVP of Applications, Business Development and CMO, is also in the room.

Our discussion today includes forecast and other information that are considered forward-looking statements. While these statements reflect our current outlook, they are subject to a number of risks and uncertainties that could cause actual results to vary materially. These risk factors are described in Teradata's 10-K and other filings with the SEC.

On today's call, we will also be discussing certain non-GAAP financial information, which excludes stock-based compensation expense and other special items as well as other non-GAAP items, such as free cash flow and constant currency revenue comparisons. A reconciliation of our non-GAAP results to our reported GAAP results and other information concerning these measures is included in our earnings release and on the Investor page of Teradata's website, which can be found at teradata.com. A replay of this conference call will also be available later today on our website. Teradata assumes no obligation to update or revise the information included in this conference call whether as a result of new information or future results.

I'll now turn the call over to Mike.

Michael F. Koehler

Thanks, Gregg, and good morning, everyone. Teradata had another strong quarter in Q2, with revenue growth of 14% as reported and 18% in constant currency. And for the first half, revenue was up 20% in constant currency while going against last year's record first half revenue growth of 17% in constant currency.

Non-GAAP operating income grew 31% in the quarter to $188 million, and non-GAAP EPS of $0.77 was up 28% over prior year. Non-GAAP operating margin of 28.2% was 390 basis points higher than the previous best quarter of 24.3%, which was achieved in Q2 of 2011. The record operating margin was driven by solid execution across the company and a significantly favorable revenue mix.

In the quarter, higher-margin product revenue grew faster than services revenue. And within the product revenue, higher-margin EDWs grew faster than the appliances. And within the services revenue, higher-margin maintenance grew faster than Consulting. It is rare when all 3 revenue mixes line up favorably like this in a quarter. Overall, we were pleased with our better-than-expected second quarter results and where we stand at the end of the first half.

Turning to the regions, the Americas reported revenue growth of 17% and was up 18% in constant currency. For the first half, the Americas was up 22% as reported and in constant currency. Q2 marked the 10th consecutive quarter of double-digit growth, with 7 of those quarters growing more than 20%.

The Americas had a large number of new customer wins in the quarter, including Groupon, which will be implementing a data warehouse to manage large-scale web log data and differentiate offers by location and subscriber; Mutual of Omaha, which purchased a data warehouse to integrate data from across finance, marketing, insurance and retirement services to provide better information to their users; the State of Indiana Family and Social Services Administration will be using our Enterprise Data Warehouse to better manage care for their citizens; and Machinima, the #1 entertainment channel on YouTube, purchased both a data warehouse and Aster to analyze online viewer behavior and optimize placement of advertising.

Aprimo new customer wins in the Americas included a leading university, which will use Aprimo to better track and optimize marketing spend and to improve its marketing workflow. Constellation Energy, which is a Teradata customer and purchased Aprimo for campaign management; and at Amsterdam Printing, a leading promotional products company, which purchased Aprimo to gain better insight into its customers and prospects.

Expansions and upgrades included Sears Holding, which will -- upgraded and expanded their analytics environment to the hybrid storage 6690 EDW; and the Royal Bank of Canada, which also deployed our hybrid storage 6690. Other upgrades and expansions in the quarter included Boeing, TIAA-CREF, Winn-Dixie and PRODABEL in Brazil.

Europe, Middle East and Africa had an exceptional second quarter, with revenue up 16% as reported and up 27% in constant currency. This was better than we expected given the macroeconomic environment and the strong prior year comparable when revenue grew 34% in Q2 of 2011. For the first half, EMEA revenue was up 13% as reported and up 20% in constant currency. Although we are experiencing some lengthening of sales cycles and delays in purchases, it is currently being offset by increased pipelines across most of the region and strong revenue growth in newer markets such as Russia, where we have been steadily adding territories the past 4 years.

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