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Q2 2013 Earnings Call
August 01, 2013 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
Edward Maguire - Credit Agricole Securities (USA) Inc., Research Division
Raimo Lenschow - Barclays Capital, Research Division
Wamsi Mohan - BofA Merrill Lynch, Research Division
Kathryn L. Huberty - Morgan Stanley, Research Division
Gregory Dunham - Goldman Sachs Group Inc., Research Division
Philip Winslow - Crédit Suisse AG, Research Division
Shebly Seyrafi - FBN Securities, Inc., Research Division
Jesse Hulsing - Pacific Crest Securities, Inc., Research Division
Aaron Schwartz - Jefferies LLC, Research Division
Alex Kurtz - Sterne Agee & Leach Inc., Research Division
Joseph K. Radigan - KeyBanc Capital Markets Inc., Research Division
Previous Statements by TDC
» Teradata Corporation (TDC) Management Discusses Q2 2013 Results (Webcast)
» Teradata Management Discusses Q1 2013 Results - Earnings Call Transcript
» Teradata's Management Presents at Morgan Stanley Technology, Media & Telecom Conference (Transcript)
Good morning, and thanks for joining us for our 2013 second quarter earnings call. Mike Koehler, Teradata's CEO, will begin today by summarizing Teradata's second quarter results. Steve Scheppmann, Teradata's CFO, will then provide more details regarding our financial performance, as well as our guidance for 2013.
Our discussion today includes forecasts 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 in other filings with the SEC.
On today's call, we will also be discussing certain non-GAAP financial information, which excludes such items as 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 made good progress on several fronts during the second quarter. Revenue of $670 million was up 2% in constant currency and was our third-highest quarter ever, and non-GAAP EPS of $0.76 was our third-largest non-GAAP EPS quarter ever. We also achieved record gross margin rates for services in the quarter, and our non-GAAP operating margin rate was the second highest ever for a quarter.
Most encouraging was that the U.S. bounced back in Q2 with 7% revenue growth over prior year after experiencing an 8% decline in Q1. As anticipated, the number of large deals in the U.S. increased in Q2 from Q1, and we have a healthy funnel entering Q3.
For the first half of 2013, Teradata's revenue was down 2% as reported and down 1% in constant currency. As discussed at the start of the year, we had expected revenue growth in the first half to be challenging. This was primarily driven by 2 headwinds we were seeing at that time: first, a reduction of large deal opportunities in the Americas, which had been impacting us since Q3 last year; and second, the challenge of the first half prior year comparison. Teradata grew revenue 20% in constant currency during the first half of 2012. In addition, our International region revenue growth for the first half came in lower than we had expected at the start of the year.
Overall, although we are not satisfied with our results for Q2 and for the first half, we saw a good improvement from Q1 to Q2, and we are now in a position for further progress in our results during the second half of 2013.
Turning to the regions. The Americas reported 2% revenue growth for the quarter. As I mentioned before, the U.S. grew revenue 7%, while the rest of the Americas declined, mainly due to lumpiness and timing of opportunities. For the first half, revenue in the Americas was down 3%. The growth in the Americas sales funnel, coupled with the less-challenging prior year comparables in Q3 and Q4, provide a good opportunity for strong revenue growth in the second half of the year.
New wins in the Americas this quarter included a major U.S. telco, which is expanding its Unified Data Architecture by adding Aster to analyze common paths to churn and to gain millions of dollars per year of call center efficiencies. Revionics, a provider of retail software solutions, is performing advanced predictive analytics with Teradata to drive its customer value reporting. A top health insurer in the U.S. has selected Teradata to help members use data to better manage their health. Banco Crédito, a Teradata customer in Chile, is now implementing our integrated marketing management and Digital Messaging Center solutions in our cloud to optimize marketing campaigns. And Ace Hardware is adding our Digital Messaging Center solution with its Teradata Warehouse to improve its campaign capabilities and support its digital marketing strategy.
Upgrades and expansions in the quarter for the Americas included CVS, Macy's, U.S. Air Force, U.S. Naval Air Systems Command, United Continental Holdings, State of Ohio, Banco Bradesco in Brazil, and Grupo Bimbo in Mexico.