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Teradata Reports 2014 Second Quarter Results

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- Revenue increased 1 percent in the second quarter, as reported and in constant currency1
- International revenue increased 14 percent in the second quarter
- GAAP EPS $0.60, non-GAAP EPS $0.72 2
- Cash from Operations for the first six months increased 26 percent versus prior year

Teradata Corp. (NYSE: TDC) reported revenue of $676 million for the quarter ended June 30, 2014, an increase of 1 percent from $670 million in the second quarter of 2013. Revenue in the second quarter increased 1 percent when compared in constant currency.1

Gross margin was 54.9 percent, as reported under U.S. Generally Accepted Accounting Principles (GAAP), versus 56.6 percent in the second quarter of 2013. On a non-GAAP basis, excluding stock-based compensation expense and the other special items described in footnote #2, gross margin was 56.1 percent, versus 57.9 percent in the second quarter of 2013.2

Teradata reported second quarter net income of $96 million, or $0.60 per diluted share, which compared to net income of $108 million, or $0.65 per diluted share, in the second quarter of 2013. Stock-based compensation expense and other special items reduced Teradata's second quarter net income by $18 million (or 12 cents of EPS) as reported under GAAP.(2) Excluding stock-based compensation expense and the other special items detailed in footnote #2, non-GAAP net income in the second quarter of 2014 was $114 million, or $0.72 per diluted share, versus $126 million, or $0.76 per diluted share, in the second quarter of 2013.2

"We made good progress in several areas of our business in the quarter, and for the first half. New data warehouse customer wins were the second highest ever recorded for a Q2 and for a first half. International revenue was up 14 percent in the second quarter, and up 10 percent for the first half," said Mike Koehler, president and chief executive officer, Teradata Corporation. "We continue to experience strong activity with our Unified Data Architecture, Teradata Aster and big data-related solutions and services, as customers build out their analytical ecosystems."

Operating Income

Second quarter operating income of $133 million decreased from $147 million reported in the second quarter of 2013. On a non-GAAP basis, operating income was $159 million versus $174 million in the second quarter of 2013.2 The difference was primarily due to lower margins from increased amortization of previously capitalized software development costs, lower service margins, and higher operating expenses including increased research and development expense.

Cash Flow

During the second quarter of 2014, Teradata generated $138 million of cash from operating activities, which compared to $140 million in the prior-year period. Teradata generated $113 million of free cash flow (cash from operating activities less capital expenditures and additions to capitalized software)3 in the second quarter of 2014, versus $102 million in the same period in 2013.

Year to date, Teradata generated $481 million of cash from operating activities, compared to $383 million in the prior-year period. Teradata generated $423 million of free cash flow3 in the first six months of 2014, a 33 percent increase from $318 million generated in the same period in 2013.

Balance Sheet

Teradata ended the quarter with $934 million in cash, a $12 million increase from March 31, 2014. During the quarter, Teradata purchased approximately 2.5 million shares of its stock for approximately $104 million during the quarter. Year to date, through July 31, Teradata purchased 4.5 million shares for approximately $190 million.

As of June 30, 2014, Teradata had total debt of $263 million outstanding under a term loan. Additionally, Teradata has $300 million available through a pre-arranged credit facility; however, no funds were drawn from the credit facility.

2014 Outlook

Teradata continues to expect full-year 2014 revenue to grow at the lower end of its original 3-7 percent guidance range. Based on currency rates at the end of July 2014, currency translation is not expected to have a meaningful impact on Teradata's full-year revenue comparison.1 Teradata also continues to expect 2014 non-GAAP earnings per share (which excludes stock-based compensation expense and other special items) to be at the lower end of the $2.85-$3.00 range.2

2014 Second Quarter Earnings Conference Call

A conference call is scheduled today at 8:30 a.m. (ET) to discuss the company's second quarter 2014 results. Access to the conference call, as well as a replay of the call, is available on Teradata's web site at investor.teradata.com.

Supplemental financial information regarding Teradata's operating results is also available on the Investor Relations page of Teradata's web site.

1. The impact of currency is determined by calculating the prior-period results using the current-year monthly average currency rates. See the foreign currency fluctuation schedule on the Investor Relations page of the company's web site at investor.teradata.com, which is used to determine revenue on a constant currency (CC) basis.

2. Teradata reports its results in accordance with GAAP. However, as described below, the company believes that certain non-GAAP measures (such as non-GAAP gross margin, non-GAAP operating income, non-GAAP net income, and non-GAAP earnings per diluted share, or EPS, which exclude certain items as well as free cash flow) are useful for investors. Our non-GAAP measures are not meant to be considered in isolation or as substitutes for, or superior to, results determined in accordance with GAAP, and should be read only in conjunction with our condensed consolidated financial statements prepared in accordance with GAAP.

Special items included in Teradata's 2014 second quarter GAAP operating income results as reported in this release included $13 million of stock-based compensation expense; $11 million of amortization of acquisition-related intangible assets; and $2 million of acquisition, integration and reorganization expenses. In addition to the special items included in Teradata's 2014 second quarter GAAP operating income, Teradata's GAAP net income also included a $1 million impairment of an equity investment.

Teradata's year-to-date 2013 GAAP net income included a $4 million income tax benefit related to the 2012 U.S. Research & Development tax credit. This benefit was included in Teradata's non-GAAP results in the fourth quarter of 2012, since the benefit related to the 2012 tax reporting period. However, Teradata could not include the tax benefit in its GAAP results in the fourth quarter of 2012 due to the American Taxpayer Relief Act of 2012 not being enacted until January 2013. As a result, the $4 million tax benefit was included in Teradata's 2013 GAAP net income, but was excluded from the company's non-GAAP net income.

3. As described above, the company believes that free cash flow is a useful non-GAAP measure for investors. Teradata defines free cash flow as cash provided/used by operating activities less capital expenditures for property and equipment, and additions to capitalized software. Free cash flow does not have a uniform definition under GAAP and therefore, Teradata's definition may differ from other companies' definitions of this measure. Teradata's management uses free cash flow to assess the financial performance of the company and believes it is useful for investors because it relates the operating cash flow of the company to the capital that is spent to continue and improve business operations. In particular, free cash flow indicates the amount of cash generated after capital expenditures for, among other things, investment in the company's existing businesses, strategic acquisitions, strengthening the company's balance sheet, repurchase of the company's stock and repayment of the company's debt obligations, if any. Free cash flow does not represent the residual cash flow available for discretionary expenditures since there may be other nondiscretionary expenditures that are not deducted from the measure. This non-GAAP measure is not meant to be considered in isolation, as a substitute for, or superior to, results determined in accordance with GAAP, and should be read only in conjunction with our condensed consolidated financial statements prepared in accordance with GAAP.

Teradata Deutschland

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