) reported an exceptionally strong second quarter of 2012, with the
company's non-GAAP earnings surpassing the Zacks Consensus Estimate
by 17 cents per share. Revenue was also ahead of the Zacks
Consensus Estimate of $660.0 million in the reported quarter.
Revenue jumped 14.0% year over year (18% on a constant currency
basis) to $665.0 million. This improvement was primarily driven by
a 19% year-over-year growth in product revenue (23% on a constant
currency basis), 12% annual growth (14% on a constant currency
basis) in maintenance services revenue and 9% (13% on a constant
currency basis) year-over-year upside in consulting services
Region-wise, Teradata achieved strong growth from the Americas
in the quarter. Revenue increased 17% year over year (18% on a
constant currency basis) to $398.0 million on a reported basis.
Europe, Middle East and Africa (EMEA) region was particularly
strong, with revenue soaring 16% year over year (27% on a constant
currency basis) to $168.0 million. In comparison,
Asia-Pacific/Japan revenue growth was tepid, just increasing 2.0%
year over year (4% on a constant currency basis) to $99.0
Gross profit (excluding stock-based compensation expense and
other one-time items) soared 19% year over year to $390.0 million.
Gross margin expanded 260 basis points annually to reach 58.5% in
the quarter. Stock-based compensation did not materially impact
gross profits in the quarter.
The year-over-year growth in gross margin was primarily driven
by strong product gross profit (up 26% year over year) and services
gross profit (up 14% year over year) in the quarter. Product and
services gross margin expanded 380 bps and 160 bps, respectively in
Operating expenses climbed 7.8% year over year to $222.0
million. The upside was attributable to higher selling, general and
administrative expense (SG&A), which increased 8.5% year over
year to $179.0 million. Research and development (R&D) expense
increased 4.8% year over year to $43.0 million.
Despite incurring higher operating expenses, Teradata witnessed
a 31.0% rise in operating income (excluding stock-based
compensation expense and other one-time items) to $188.0 million in
the quarter. Operating margin stood at 28.2%, up 390 bps from the
year-ago quarter, based on strong revenue and gross margin growth
in the quarter. However, stock-based compensation reduced operating
income to $178.0 million in the quarter.
Teradata's second quarter net income (excluding stock-based
compensation expense and other one-time items) was $132.0 million
or 77 cents per share compared with $103.0 million or 60 cents in
the year-ago period. Including stock-based compensation, net income
reduced to $126.0 million or 73 cents compared with $98.0 million
or 57 cents in the year-ago quarter.
Teradata exited the quarter with $821.0 million in cash versus
$978.0 million in the previous quarter. As of June 30, 2012,
Teradata had total long-term debt of $282.0 million compared with
$286.0 million as of March 31, 2012.
Teradata generated cash flow from operations of $152.0 million
in the quarter, compared with $192.0 million in the previous
quarter. Free cash flow generated in the quarter was $113.0 million
compared with $162.0 million in the prior quarter. The company
bought back 545,000 shares for $37.0 million during the
Teradata revised its revenue growth guidance on a constant
currency basis for fiscal 2012. Revenue is expected to increase in
the 14% to 16% range for full year. However, unfavorable foreign
currency exchange is expected to hurt full year revenue growth by
approximately 1%. Hence, Teradata continues to expect
year-over-year reported revenue growth of 12.0% to 14.0% for fiscal
Teradata revised its full-year earnings guidance, which is now
expected to be in the range of $2.72 to $2.82 (prior guidance $2.60
to $2.70) per share.
We believe that new customer wins and strengthening
relationships with large vendors will be the primary revenue
drivers as well as increase profits over the long term. We believe
that Teradata will continue to benefit from its international
expansion, improved traction from sales force expansion, new
products and alliances, market share gains and a growing database
However, increased investment in sales, higher R&D expenses
and an increase in the number of competing products from big names,
), are resulting in continued pricing pressure that will likely
limit margin expansion going forward.
We maintain our Neutral recommendation on the stock over the
long term (6-12 months). Currently, Teradata has a Zacks #3 Rank,
which implies a Hold rating on a short-term basis (1-3 months).
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