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Q2 2013 Earnings Call
August 01, 2013 4:30 pm ET
Jamie Andelman - Investor Relations Director
Stephen J. Wiehe - Chairman, Chief Executive Officer and President
Rudy C. Howard - Chief Financial Officer, Principal Accounting Officer and Secretary
Richard H. Davis - Canaccord Genuity, Research Division
Brendan Barnicle - Pacific Crest Securities, Inc., Research Division
Tom M. Roderick - Stifel, Nicolaus & Co., Inc., Research Division
Terrell Frederick Tillman - Raymond James & Associates, Inc., Research Division
Jeffrey Van Rhee - Craig-Hallum Capital Group LLC, Research Division
Matthew J. Kempler - Sidoti & Company, LLC
Jeffrey L. Houston - Barrington Research Associates, Inc., Research Division
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Thank you, Lindsay, and good afternoon, everyone. Thank you for joining us to review SciQuest's second quarter 2013 results. Hosting today's call are Stephen Wiehe, SciQuest's Chief Executive Officer; and Rudy Howard, our Chief Financial Officer. On today's call, Steve and Rudy will deliver prepared remarks, after which, we will hold a question-and-answer session.
During this call, we may make comments related to our business that are considered forward-looking statements under the Federal Securities laws. Words such as, but not limited to, plan, expects, anticipates, believes, goal, estimate, potential, may, will, might, could and similar words will identify forward-looking statements. These statements reflect our views only as of today and are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations.
For a discussion of the material risks and important factors that could affect our actual results, please refer to our SEC filings available on the EDGAR system and our website. SciQuest expressly disclaims any obligations or undertakings to publicly release any updates or revisions to any forward-looking statements made herein, except as required by law.
Additionally, we will be discussing non-GAAP financial measures during this conference call. When possible, SciQuest provides all information required in accordance with GAAP, but believes evaluating its ongoing operating results may not be as useful if an investor is limited to reviewing only GAAP financial measures. Please see today's press release for reconciliations of the non-GAAP financial measures for which we are able to provide the most directly comparable GAAP financial measures.
The press release is available in the Investor Relations section of our website at www.sciquest.com. Lastly, please note that a streaming replay of today's call will be available shortly after we conclude. And now, I'd like to turn the call over to Steve.
Stephen J. Wiehe
Good afternoon, and thank you for joining us to discuss second quarter performance. We generated financial results with the upper end of our quarterly guidance ranges as we executed against our priorities. In the second quarter, non-GAAP revenue was $22 million, up 45% against the second quarter of 2012, and near the top of our guidance range. Revenue growth was augmented by the Upside Software and Spend Radar acquisitions we made in the second half of 2012. Market conditions remain consistent with what we've seen over the past year with customers remaining cautious about spending while recognizing the ROI that our solutions generate.
Despite strong reported results, we reduced full year 2013 expectations for 2 reasons. First, we lost a significant amount of sales momentum during our recent sales leadership transition; second, we have taken a conservative position that 2 of our state customers will stop making payments in the third quarter.
Guiding a little deeper into each of these. In May, we announced that Doug Keister, a technology sales veteran, would be joining my team as our new Senior Vice President of Worldwide Sales. While Doug is off to a great start and has helped garner some significant commercial wins in the second quarter, we underestimated the impact that the sales leadership transition would have in terms of significantly slowing sales momentum during the quarter. It's important to point out that we believe this loss of momentum is attributable to sales execution rather than customer budgets or loss of deals to competitors. In fact, our pipeline is at its highest level ever. We're excited about Doug's energy, rigor and culture, and we expect these attributes to proliferate through his team. Doug has already begun to make some changes to process, team membership and organizational alignments. We expect these changes to be implemented by early Q4.
As a result, we expect steady increase in bookings momentum over the coming months and a return to our normal bookings tempo this year.
Turning to the states. We have 2 customers that are facing a combination of budget pressures and significant turnover in their procurement departments. Included in the departures were key members of these clients' implementation teams, in addition to the champions who helped us initially win the business. To date, neither of these 2 states, which became customers in 2011, has gone live with a full set of solutions they purchased. They have recently notified us that they're seizing implementation work and currently are not intending to make future payments. If we're unable to alter their current position or reach a negotiated settlement, we will pursue all available remedies. Given the uncertainty we face with regards to the 2 states and the slow bookings momentum in Q2, we're reducing our expectations for non-GAAP revenue and adjusted free cash flow in the second half of the year. Rudy will discuss this, in addition to how we are maintaining our outlook for profitability during his comment.