Teradata Corporation (TDC)

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Teradata (TDC)

Q1 2013 Earnings Call

May 02, 2013 4:30 pm ET

Executives

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

Analysts

Wamsi Mohan - BofA Merrill Lynch, Research Division

Kathryn L. Huberty - Morgan Stanley, Research Division

Matt J. Summerville - KeyBanc Capital Markets Inc., Research Division

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

Philip Winslow - Crédit Suisse AG, Research Division

Brent Thill - UBS Investment Bank, Research Division

Keith F. Bachman - BMO Capital Markets U.S.

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

Matthew Hedberg - RBC Capital Markets, LLC, Research Division

Gregory Dunham - Goldman Sachs Group Inc., Research Division

Edward Maguire - Credit Agricole Securities (USA) Inc., Research Division

Presentation

Operator

Welcome to the Q1 2013 Teradata Earnings Conference. My name is Trish, and I will be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded. I would now like to turn the call over to Gregg Swearingen. You may begin.

Gregg Swearingen

Good afternoon. Thanks for joining us for our 2013 first quarter earnings call. Mike Koehler, Teradata's CEO, will begin today by summarizing Teradata's first 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 other filings with the SEC.

On today's call, we'll also be discussing certain non-GAAP financial information, which excludes such items such 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 that 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, Greg, and good afternoon, everyone. Teradata got off to a slow start in 2013 as we expected, with Q1 revenue declining 4% versus prior year and 3% in constant currency. Non-GAAP earnings per share of $0.43 was down 28% from prior year due to the lower revenue coupled with our increased investments for growth, which we plan to continue.

The Americas revenue declined 9%, which was a little more than we have anticipated. And international's revenue came in lower as well, primarily due to lumpiness in Japan and the devaluation of the yen. Since the Americas region represents 60% of our revenue and approximately 2/3 of our gross margin dollars, I would like to provide some additional color to better understand Q1, and directionally, where we are headed for the balance of the year.

The challenge in the Americas continues to be the belt-tightening in our customer base, which first surfaced in the third quarter last year. Customers continue to add capacity to their data warehouses in smaller increments or delay purchases. The number and the size of large purchases the past 3 quarters have been well below our historical averages. We closely monitor the data warehouse opportunities that are greater than $5 million because they often require C-level approvals. And in the case of the Americas, these large CapEx transactions account for 1/4 of their total revenue on average.

By contrast, our international region's large CapEx transactions as a percent of their total revenue averaged mid-single digits. This makes the Americas much more sensitive to any belt-tightening by customers on large CapEx spending. The growth rates we saw in the Americas starting in the second half of last year was primarily driven by the decline of large CapEx transactions. And the revenue decline in the first quarter was the result of large CapEx transactions declining by $69 million from Q1 of 2012. While the rest of the business performed fairly well with revenue growth of 12%.

We believe the Americas hit bottom in Q1. Looking forward, the funnel for large CapEx data warehouse opportunities in Q2 has increased sequentially from Q1, while the prior year, large CapEx, data warehouse revenue in Q2 declined sequentially from Q1.

Although the Americas large CapEx revenue will most likely be down in Q2 compared to prior year, it will be down to a much lesser degree than what we experienced in the first quarter. This is a positive trend that we see going beyond Q2 and into Q3. So net-net, the second quarter will be challenging for revenue growth in the Americas, but it should be a good improvement from Q1 in terms of year-over-year quarter comparisons.

With regards to the second half of 2013, we don't know the answer as to what our U.S. large CapEx revenue will be. From discussions with our customers this year, we have found that more than half of them have overall IT budgets that are down this year, which creates some headwinds for us. However, the large CapEx revenue headwinds in the Americas will be less severe in the second half of 2013 than they were in the first half. Large CapEx revenue in the second half of 2012 was less than what it was in the first half of 2012.

Read the rest of this transcript for free on seekingalpha.com