Teradata Corporation (TDC)

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Teradata (TDC)

Q3 2012 Earnings Call

November 01, 2012 8:30 am 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

Darryl D. McDonald - Chief Marketing officer and Executive Vice President of Applications & Business Development

Analysts

Wamsi Mohan - BofA Merrill Lynch, Research Division

Kathryn L. Huberty - Morgan Stanley, Research Division

Bhavan Suri - William Blair & Company L.L.C., Research Division

Raimo Lenschow - Barclays Capital, Research Division

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

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

Gregory Dunham - Goldman Sachs Group Inc., Research Division

Brent Thill - UBS Investment Bank, Research Division

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

Edward Parker - Lazard Capital Markets LLC, Research Division

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

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

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

Presentation

Operator

Welcome to the Third Quarter 2012 Teradata Earnings Conference Call. My name is Christine, and I'll be your operator for today's conference. [Operator Instructions] Please note today's conference is being recorded. I will now turn the call over to Gregg Swearingen. Sir, you may begin.

Gregg Swearingen

Good morning, and thanks for joining us for our 2012 third quarter earnings call. Mike Koehler, Teradata's CEO, will begin today by summarizing Teradata's Q3 results. Steve Scheppmann, Teradata's CFO, will then provide more details regarding our financial performance, as well as our guidance for 2012. Darryl McDonald, Teradata's EVP of Applications, Business Development and CMO, is also in the room.

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 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 the call today, whether as a result of new information or future results. I'll now turn the call over to Mike.

Michael F. Koehler

Good morning, everyone. And for those of you impacted by the storm, I hope that you're all doing okay.

Overall, I was pleased with Teradata's execution in Q3 given the macroenvironment. Revenue of $647 million was generally in line with what we had expected, growing 7% as reported and 10% in constant currency. From a region perspective, EMEA and APJ came in higher than we had anticipated and the Americas lower.

We had strong yield on revenue in Q3 with non-GAAP operating income of $166 million, which was up 16% over prior year, and non-GAAP EPS of $0.69, which was up 17%.

Longer-term, we believe we are well positioned for a sustained double-digit revenue growth. We have market-leading technology and solutions to build upon in 3 large and growing markets: data warehousing, big data analytics and Integrated Marketing Management. These are market opportunities that will continue to be top priorities for corporations as they look to gain competitive advantage from big data and the big data channels such as social networks, the web, mobile and sensor.

Shorter-term, we are feeling the impacts of the macroenvironment but to varying degrees in each of the 3 regions.

In EMEA, we continue to generate double-digit organic constant currency revenue growth overall, but our results would be better if not for the macro headwinds. In APJ, we are now closing deals in China that were delayed from the first half. Japan is growing again, and overall, APJ is on track for decent growth for the year.

But in the Americas, we are now seeing slower growth and 3 factors that are contributing to this. First, we are seeing a little belt tightening and uncertainty on spending with some of our customers. Second, 95% of our revenue comes from our user base on average each year. The Americas' strong product revenue growth the past 2.5 years has added a lot of capacity to many of our customers, which gives them some flexibility as to when to add capacity, especially in times of uncertainty. And third, the prior year comparables, such as the 28% revenue growth we had in Q3 last year.

Although we experienced some minor lumpiness, overall, we believe these are the 3 key headwinds we saw in Q3 and also for what we are seeing in Q4 in the Americas.

The Americas' third quarter revenue of $384 million was up 2% and up 3% in constant currency over prior year. Year-to-date, revenue was up 15% as reported and also in constant currency. The win rates remained strong as evidenced with the Americas Q3 data warehouse new customer wins, which was the second highest for any quarter dating back to the year 2000.

New customers joining Teradata included Fruit of the Loom, which will use our data warehouse to provide a consolidated view of the supply chain and financial metrics across all of their brands; Aviva, one of the fastest-growing life insurance companies in the U.S., which is adding Teradata for predictive analytics; 24/7 Media, which will use Teradata to power its digital forecasting solution; The Men's Wearhouse which will consolidate its data markets into an integrated data warehouse for improved analytics; and Monroe Energy, a new oil refining company that will use Teradata as its foundation for integrated data and analytics.

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