Teradata Corp (TDC) 2007 Q4 法說會逐字稿

Good morning and welcome to Teradata's fourth quarter 2007 earnings release conference call.

At this time, all participants are in a listen-only mode.

After the presentation, we will conduct a question-and-answer session.

(OPERATOR INSTRUCTIONS) Today's conference is being recorded.

If you have any objections you may disconnect at this time.

I would now like to turn the call over to Mr.

Gregg Swearingen.

Sir, you may begin.

Welcome and thanks for joining us today for our 2007 Q4 earnings call.

I'm joined today by Mike Koehler, Teradata's President and CEO, who will lead a discussion of Teradata's fourth quarter results, and after Mike's remarks, Steve Scheppmann, Teradata's CFO, will discuss Teradata's financial results.

Also in the room this morning is Bob Fair, who leads Teradata's field operations.

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 uncertainty that could cause actual results to vary materially.

These risk factors are described in Teradata's Form 10 registration statement and the company's other periodic reports filed with the SEC.

On today's call we will also be discussing certain non-GAAP financial information such as free cash flow and results excluding the impact of certain non recurring items.

Reconciliations of non-GAAP financial results to our reported and forecasted GAAP results and other information concerning such measures are included in our earnings release and are available on the investor page of Teradata's website.

A replay of this conference call will be available later today on Teradata's website which can be accessed at www.teradata.com.

For those listening to the replay of this call, please keep in mind that information discussed is as of February 12th, 2008 and 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.

Thanks, Gregg, and good morning everyone.

2007 was a busy and successful year for Teradata.

We completed our spinoff from NCR, delivered good revenue growth, and continued to expand our technology and market leadership and now look forward to our first full year as a publicly traded company.

For the full year, Teradata had revenue growth of 10%.

I'm especially pleased with this result, given all the work surrounding the spinoff from NCR.

I want to thank everyone on the Teradata team for all their hard work and extra effort in 2007.

I would also like to thank all of those at NCR who helped ensure that Teradata had a successful spinoff.

Before I provide some highlights on 2007, I want to point out, as disclosed in our earnings release, that we revised the 2006 results included in our Form 10 as a result of correcting an error relating to a complex transaction previously included in our Q4 2006 results.

It was determined that the transaction did not meet the criteria for revenue recognition until the first quarter of 2007.

We also had a similar transaction in terms of timing, size, and structure with the same customer in Q4 of 2007 that we expect to be included in our Q1 2008 results.

The movement and timing of these two transactions when looked at together had minimal impact to our year-over-year growth rate and profitability.

Steve Scheppmann will talk more about this topic later on the call.

2007 revenue growth was driven by strong results in our Asia-Pacific, Japan and EMEA regions.

Full year revenue of $964 million in the Americas region was up 5% versus 2006, up 4% in constant currency, a little bit lower than what we had expected.

Revenue in EMEA grew 18% to $424 million, up 11% on a constant currency basis and in the Asia-Pacific Japan region, revenue of $314 million also increased by 18%.

On a constant currency basis, revenue increased 15% for the year.

As we anticipated entering the quarter, our Q4 revenue mix improved and our gross margin improved significantly.

It was up 380 basis points sequentially from Q3 of 2007.

On a year-over-year basis gross margin in Q4 was 56%, up from 53.2% in the fourth quarter of 2006.

Teradata's gross margin in 2007 was 53.8%, an improvement from 53.6% in 2006.

Although we have seen lower gross margins earlier in the year, largely due to revenue mix, our strong results in Q4 enabled us to deliver gross margin above 2006 full year gross margins.

Teradata's operating income in 2007 was $320 million, an increase from $302 million in 2006.

I was generally pleased with our operating income results, which included $17 million of one-time costs related to the spinoff from NCR.

On a non-GAAP basis, excluding the non-recurring spin related items, operating income was $337 million, or 20% of revenue.

With that, I'm going to now highlight some of our fourth quarter customer activity that we can disclose by name.

We continue to see strong growth in the financial services industry in the fourth quarter and as we saw throughout 2007.

Some of the new financial customer wins and significant upgrades this quarter included new account wins at BBVA, Spain's second largest bank, upgrades at Barclays, Lloyd's, Shanghai Stock Exchange and Swedbank.

In the manufacturing sector we added new accounts and saw significant upgrades in every region in the fourth quarter.

A new win at Daimler, the world's number three automaker, an upgrade at Repsol, one of Spain's largest international integrated oil and gas companies, a significant new account win from earlier in the year we can now mention at Nokia, and an upgrade at 3M where they continue to expand their Teradata Enterprise Data Warehouse.

In the communications industry, here too, Teradata had a strong quarter as well as an excellent year in terms of revenue growth.

We added new customers and had significant upgrades which included China Telecom, Optus in Australia, Swisscom and Vodafone.

In the healthcare segment, we saw upgrades at Kaiser Permanente, Blue Cross/Blue Shield in North Carolina, Highmark and WellPoint.

Other significant upgrades in other various industry segments included eBay, DHL and Sears.

This is a representative list of customers that we work with together to drive innovation and to improve business performance.

With that, I would now like to turn the call over to Steve Scheppmann, who will discuss our financial results in greater detail.

Steve?

Thanks, Mike.

And good morning.

First of all, let me address the timing and the handling of the transactions that Mike mentioned earlier.

During our fourth quarter close process, we determined that a significant transaction that we had previously anticipated to be included in our results for the fourth quarter 2007 did not meet the criteria for inclusion in those results.

Realizing we had a similar transaction in the fourth quarter of 2006, we went back and looked at it as well and determined that the transaction booked in that quarter when Teradata was part of NCR had been improperly included in those results.

As a result, we correctly did not include the more recent transaction in our Q4 '07 results and we are correcting the timing of the transaction that had been included in our fourth quarter 2006 results.

The company will file the retrospective revision to prior period financial statements to reflect this change.

Let me explain in a little greater detail.

The company does not consider this error to be material with respect to the 2006 and 2007 full year results.

However, given the relative impact of the error on Teradata's results as it specifically relates to the first quarter of 2007, we will make the corresponding revisions as appropriate to our 2006 and 2007 results the next time we file those statements.

Based on our retrospective treatment, we revised the revenue in 2006 to be $1.547 billion, or $13 million lower than previously stated in Teradata's Form 10 filed in August.

The transaction that we had anticipated being included in our Q4 results that we expect will be included in our Q1 2008 results is similar in size and structure to the 2006 transaction.

To help you better understand the timing and the impact of these transactions, when looked at together, 2007 revenue growth was roughly the same before and after the movement of these two transactions.

The financial information shown for 2006 in this earnings release reflects the changes being described and should be used for 2007 year-over-year comparisons.

Now I will discuss our financial results in greater detail.

Specifically for the fourth quarter and reflecting the revision just described, revenue of $466 million increased 3% from the fourth quarter of 2006.

The fourth quarter revenue comparison was difficult due to a strong fourth quarter in 2006, as well as some of the timing of some of the deals that aided our 17% revenue growth in the third quarter of 2007 as was discussed in our last quarter's conference call.

Fourth quarter revenue growth was largely driven by strong results in our Asia-Pacific Japan region.

Revenue of $253 million in the Americas region was down 3% from the fourth quarter 2006 as we began to see some softness in the Americas at the end of the quarter.

Revenue in EMEA grew 5% to $122 million which included 7 points benefit from currency.

The strong performance in EMEA delivered in Q3 '07 where revenue grew 32% included some deals we had had originally anticipated in Q4.

In the Asia-Pacific Japan region, revenue grew 21% to $91 million or 14% on a constant currency basis.

The increase was primarily driven by growth in our product revenue.

We reported GAAP net income of $79 million or $0.43 per diluted share for the quarter.

However, included in the numbers was approximately $2 million of pretax non recurring spinoff related costs and a $7 million tax benefit which consisted of $6 million of one-time tax benefit related to the utilization of certain tax attributes associated with foreign sourced income and the tax impact of the one-time spin cost associated with the spinoff from NCR.

Excluding these items, net income was $74 million, or $0.40 per share.

This compares to $0.34 in Q4 2006.

For the full year, in addition to the $17 million in non recurring spinoff costs recognized in the third and fourth quarters and the fourth quarter tax adjustment, we had approximately $10 million related to a tax rate change in Germany during the third quarter, and a $7 million Q2 '07 tax adjustment made when Teradata was part of NCR.

The net after tax result for the full year was $26 million of charges being recorded on our income statement or approximately $0.14 per share.

The non recurring spinoff costs were recorded in SG&A above the operating income line while the tax items were recorded through our income tax provision expense.

Excluding these items, 2007 full year non-GAAP EPS was $1.24 per share, which compared to the GAAP EPS of $1.06 in 2006.

GAAP EPS in 2007 was $1.10 per share.

To analyze Teradata's operational performance without the effect of non recurring items, please see the supplemental financial schedules on the investor page of our website that reconciles GAAP to non-GAAP measures which Gregg referred to previously.

For the remainder of my comments during today's call, I will exclude the impact of these special items on our adjusted operating income and adjusted EPS.

Our Q4 gross margin was 56%, compared to 53.2% in the fourth quarter of 2006.

Gross margin improved due to a higher product mix and service gross margins and improved overall revenue mix.

On a regional basis, fourth quarter gross margin in the Americas was 60.9%, 1 point improvement from the 59.9% in Q4 2006, led by higher product margin and higher mix of support services revenue.

Gross margin in EMEA was 50%, a 340 basis point improvement from the 46.6% gross margin generated in EMEA in Q4 2006.

Improved gross margin was primarily due to higher product margins and improved revenue mix.

Gross margin in APJ was 53.8, up 580 basis point improvement from the 48% gross margin in the prior year period.

The increase was due to higher margins in both product and services.

For the full year, gross margin in the Americas was 58.1 versus 59.2 in 2006.

Gross margin in the Americas was affected by the unfavorable mix we saw earlier in the year as well as lower service margins.

Gross margin in the EMEA region was 48.8%, an increase from 46.7% generated in EMEA in 2006.

The improved gross margin was due to both product and services margins.

Gross margin in APJ was 50.6%, up from the 47.2% in the prior period.

The improvement was due to improved product margins and a favorable revenue mix.

Adjusted operating income of $98 million in Q4 '07 improved from $96 million in the fourth quarter of 2006.

As expected, we had $8 million of recurring incremental costs that impacted operating income in the fourth quarter as Teradata began to operate as an independent publicly traded company.

In addition, we had $4 million of increased R&D cost primarily associated with FAS 86 and $5 million of incremental stock based compensation in Q4 '07.

For the full year, adjusted operating income was $337 million in 2007, up from $302 million in 2006.

Teradata had $2 million of other income in the quarter from interest income earned on Teradata's cash balance.

Other income for the full year was also $2 million, as Teradata did not have its own cash balance upon which to earn interest prior to the completion of the spinoff on October 1st, 2007.

The effective tax rate in the fourth quarter of 2007 GAAP results was 19.4%, which included a $7 million one-time tax benefit relating to the utilization of certain tax attributes associated with foreign sourced income and $1 million related to tax effect of the spin related costs.

Excluding this one-time tax benefit, the effective tax rate in Q4 2007 was 26%.

The effective tax rate for the full year was 37.9%.

The full year tax rate included the impact of a tax adjustment in the second quarter, when Teradata was part of NCR, and an adjustment made in the third quarter related to the tax rate change in Germany, and the one-time tax benefit and the tax effect of a spinoff related cost in Q4.

Excluding these items, Teradata's tax rate would have been 33.4% for the full year.

Teradata expects its full year tax rate for 2008 to be approximately 30%.

Now I would like to turn to the balance sheet.

We finished the year with $270 million of cash, an increase of $74 million from September 30th, 2007.

Although we have no outstanding debt, we put in place a $300 million credit facility during the quarter which is available for general corporate purposes.

Subsequent to the end of the year, our Board of Directors approved two share repurchase programs, a two year, $250 million share repurchase authorization, and an ongoing self funding employee stock plan dilution offset program.

We will opportunistically use these authorizations over the next two years to offset dilution from stock based incentive plans and lower overall share count.

We had $6 million of stock based compensation expense in the quarter and $17 million for the year.

Now I would like to move to the cash flow statement.

In the fourth quarter, Teradata generated $98 million of cash from operating activities in the fourth quarter versus $53 million in Q4 of 2006.

After using $31 million for capital expenditures, we generated $67 million of free cash flow, which compares to $33 million of free cash flow in Q4 of '06.

For the full year, we generated $387 million of cash from operating activities versus $219 million in 2006.

After $100 million of capital expenditures, we generated $287 million of free cash flow in 2007, up significantly from the $151 million in 2006.

Teradata defines free cash flow as cash flow from operating activities less capital expenditures for property, plant and equipment and additions to capitalized software.

Now I would like to discuss our 2008 guidance.

We are establishing our guidance for 2008 full year revenue growth at 5 to 8%.

We continue to see strong demand for our market leading technology.

Included in our EPS guidance is approximately $38 million of incremental costs associated with Teradata operating as an independent publicly traded company.

We had originally expected new company costs to be in the $25 million to $30 million range on an annualized basis.

The increase in the incremental costs is primarily due to Teradata bearing more actual costs of benefit plans than previously expected when these allocated costs were identified between Teradata and NCR.

Just to be clear, because we already included $8 million of these costs in 2007, so the actual increase in these annualized costs for 2008 over 2007 is $30 million.

Assuming a 30% effective tax rate and $184 million of fully diluted weighted average shares outstanding, we expect full year 2008 GAAP EPS of $1.35 to $1.45.

This EPS guidance range does not include any unforeseen non operational items that we may incur during 2008.

This compares to the $1.24 of non-GAAP earnings per diluted share in 2007.

With that, I'll hand things back to Mike.

Thanks, Steve.

As I mentioned earlier, 2007 was a good year for Teradata.

We completed the spinoff.

We drove 10% revenue growth, delivered on our EPS commitment, kicked off our strategic partnership with SAS, and once again Gartner positioned Teradata as the leader in data warehousing.

Although we're pleased that Teradata has been recognized as the leader in Enterprise Data Warehousing for the past several years, we're not standing still.

We continue to invest in our technology to drive innovation and to distance ourselves from our competitors.

Before we move on to Q&A, let me just say that our 5 to 8% revenue growth guidance has some conservatism in it, due to the potential macroeconomic headwinds in the U.S.

The Americas accounts for 57% of our revenue.

However, I want to make it clear, our longer term view of our business and the fundamentals remains the same.

We continue to feel good about our long-term revenue growth target of 7 to 9% and we're constantly assessing opportunities to increase those targets.

We're excited about our future.

Our position in the market and the quality of the team we have assembled.

We are passionate about continuing to deliver the best technology, solutions and services for our customers and the best value for our shareholders.

With that, operator, we're ready to take some questions.

Thank you.

We will now begin the question-and-answer session.

(OPERATOR INSTRUCTIONS) One moment, please.

Matt Summerville of KeyBanc, your line is open.

Couple questions.

First, some for Steve.

Can you be more specific about what you were referring to in that incremental $8 million to $13 million of ongoing public company costs related to benefit plans?

The $8 million, primarily, Matt, those costs were initially allocated to the business units on a per head basis and there was also credits that were allocated on an annual basis.

And as we look at actual cost, say 401K on an actual cost basis, or the health benefits on an actual cost basis per head, we found that our actual costs are higher than the previously allocated amounts and some of the credits that we were anticipating were lower in our estimates for 2008.

That's the primary drivers.

Okay.

And then you mentioned the revenue impact of moving that transaction from 4Q '06 into 1Q '07.

Just to be clear, what would the operating profit impact have been from that discrete item?

You would see the -- by going back and reconciling the two, you would see $10 million of operating profit, operating income.

And you would anticipate similar types of top and bottom line numbers then on this transaction that's now going to be booked in 1Q '08 versus 4Q '07, correct?

That we expect to book in Q1 '08 would be similar.

Okay.

I think -- one of you mentioned that towards the end of the fourth quarter you saw maybe a little bit of softness in the Americas.

Can you get more specific in terms of kind of when you started to see that?

What verticals and/or customer segments that may have been specific to?

And then also speak to I guess how that compares to current tempo that you're seeing in the three major regions as we sit here right now.

Hi, Matt.

It's Mike Koehler.

Yes, what I was commenting on is we saw some softness in the Americas at the close of the fourth quarter, so we had some deals getting tighter scrutiny with budgets and budget constraints that were delayed.

As far as industry segments, and this is all in the U.S., we had three or four in the manufacturing industry vertical and we had a much smaller number, maybe one in the financial services segment that carried over outside of the fourth quarter.

So as we enter into 2008 here in the Americas, I am a little cautious and have a little conservatism in the guidance, based on the closing in the Americas in the fourth quarter, what we saw there.

Good activity moving forward for the year across all the industry segments in the U.S., but once again, a little bit more conservatism.

And then the other question is can you talk about the overall tempo in the business, having closed January at this point, that you're seeing in the three geographic regions?

Because it sounds like things are still pretty strong in EMEA and Asia-Pac.

I just want a little more detail on that.

Entering the year, Matt, we saw obviously -- we had good activity last year in the international regions and good momentum and good activity in the international regions.

As we stand now, in the U.S.

-- once again, good activity, not to the level of what we're seeing in the international regions.

Similar to what we saw in 2007.

As we think about 2008, I guess, what would be your implicit operating margin guidance embedded in your EPS guidance?

And then I guess Steve, what are your thoughts on how much free cash flow Teradata can generate in 2008?

With respect to the free cash flow, Matt, we generally will look at free cash flow to be very similar to roughly equal to net income on a going forward modeling perspective.

The operating margins because of the incremental new company costs, we expect them to remain relatively consistent.

With the $38 million of ongoing costs, and I understand it's $30 million on a pure incremental basis, I guess what's your longer term view on that number?

Are there things that you can do to meaningfully reduce that, looking out a couple years?

Yes.

I mean, Matt, that is -- that's pure overhead.

What we would like at a minimum to be able to keep that as a step basis as we grow revenue.

But as we continue to look at our cost structure, that is going to be one that will be closely looked at because we have the incremental pieces of it now on a stand-alone basis.

We have visibility into those specific line items versus allocations and we control that.

And so we will continue to leverage that on a step basis and continue to look at ways to improve the efficiency of those costs.

Okay.

Maybe just one or two more.

I guess, Mike, can you be a little more specific, either talking regionally, actually more helpful to talk by vertical what your expectations are for 2008.

Do you still see financial services holding up?

I mean, you're only talking about five deals that you maybe thought were going to close in the fourth quarter that got pushed.

I guess to me that doesn't seem all that dramatic.

Have you seen -- I guess as the calendars turn an acceleration in that type of number or is that remaining more stable?

Matt, you're exactly right.

I think I need to put a balance on all this, which you've done.

We're talking about three or four transactions at the end of the fourth quarter.

That said, it had an impact and the Americas came in lighter than what we were expecting and you marry that together with a macroeconomics headwinds that we're hearing and seeing, it does cause a little bit of conservatism.

When you look at this on an industry basis, first of all, we don't give guidance by industry and there is some lumpiness.

But I would have to say, what I referred to as some transactions slipping at the end of the fourth quarter in the manufacturing industry vertical, I don't see anything different going forward in the manufacturing industry as I do across all the verticals that we work in.

As you're talking to CIOs or other C level executives that are signing off on these type of purchasing decisions, are you seeing any major shift in mentality or prioritization around EDW?

In light of potentially some macro softness?

Not at this time, Matt.

Okay.

Thanks, that's all I have.

Our next question comes from Nabil Elsheshai of Pacific Crest Security.

Your line is now open.

If I could beat that dead horse one more time.

On the macro level, can you give me any color in terms of you talk about them being delayed or these projects getting cancelled?

Do you think they could close in Q1 or Q2?

And then are they kind of new projects or are they upgrades of existing situations or additional capacity that you're seeing delayed?

We had three or four upgrades and a new customer and none of them are lost or whatever.

It's basically just a delay.

Okay.

And then on the competitive side of things, any changes there?

Are you seeing HP and/or Netezza more or any of the start-ups, the start-ups that are out there?

This is Bob Fair.

I'll take that one.

We don't see any real change in the competitive landscape as it relates to Netezza activities, is consistent.

We actually have replaced Netezza in a few places.

We're starting to see that some of the Netezza early accounts are looking for an expansion of the analytics, more enterprise data warehousing like in workload, and so we're involved in these accounts.

On HP, we have seen them in several accounts.

Most customers feel that it's not ready just yet.

Where we have competed, we've won.

The very few Teradata customers that HP has announced they have or agreed to have a Neoview system -- these customers continue to buy Teradata and expand their Teradata footprints.

So no real change in the competitive landscape.

Okay.

And then just circling back to the previous question on the manufacturing side, is there anything operationally that you guys think you need to do internally on that side?

Because I think that's not historically been your strongest vertical anyway.

I may be incorrect there.

Is it purely macro or are there any changes organizationally you think you need to do to improve performance there?

You're correct.

Manufacturing, traditionally, if you go back over the years, Teradata didn't have a strong presence.

The industry verticals where Teradata got entrenched earlier on were retail, telecommunications, travel, transportation and then at a later point financial services.

In the manufacturing segment we had invested in quite a bit over the past two or three years and we saw a very good impact in terms of revenue growth and activity over the past couple of years.

And really I'm just referring to at the end of the fourth quarter, we saw some slowness in the -- some softness in the quarter ending Q4 with some manufacturing customers in the U.S.

Going forward, we've got good broad-based activity in the manufacturing segment, some nice new account wins that I mentioned earlier, like with Nokia and Daimler.

And overall, we're pretty pleased with our progress there.

But once again, it's a lumpy kind of thing and you might have a quarter where a particular vertical is off a little.

Okay.

And then last, I think I may have missed this earlier but on retail, you would expect to see that be one of the areas of weakness.

I don't think you mentioned that.

Is that area holding up for you guys so far?

In 2007, the retail industry for us was relatively flat, okay?

But that was more due to customer specific situations, cycles when they upgrade and things like that and less of any economic reasons that we saw in 2007.

So as we look forward to 2008, the retail industry worldwide and when we look at the U.S.

is running at a good clip.

Okay.

Great.

Thank you very much.

Our next question comes from Greg Halter of Great Lakes Review.

Your line is open.

Good morning, guys.

Good morning.

Wondered if you could provide some status on the relationship with SAS and when you expect some tangible figures coming out of that relationship.

Hi, Greg.

This is Bob Fair.

I think you probably recall back in October we announced the partnership with SAS where SAS will port and optimize their comprehensive portfolio to Teradata.

And at that time we announced a broad, strategic partnership that included the technology road map for optimization.

It included field center of expertise, joint selling, marketing, et cetera.

So since that time, we made progress on the road map.

We expect the first deliverable this year, and in that deliverable we're basically porting and optimizing base SAS functions into Teradata.

So as an example, a highly used function in SAS is a frequency count.

So customers will -- and a frequency count would be something like tell me how many customers are below this type of risk threshold.

What will happen in the first deliverable is an end user will actually be able to exercise that function, but instead of having to move data out of Teradata, that function will be exercised inside of Teradata.

And there's more functions on the road map.

So we're making good progress in the actual technology work.

We're expected to deliver the first deliverable this year.

In addition to that, the funnel is building around the globe.

We see good activity in finance, insurance, in communications, et cetera, and we have a handful of small early wins where SAS has been selected with their pieces of the portfolio to go against Teradata.

So there's benefit on both sides.

What I would say is this is a multi-year initiative to get the two portfolios fully integrated and optimized.

But we're executing pretty well on getting people trained, staff delivering, working on the deliverables and getting the activity up.

Okay.

Great.

And Steve, looking at the tax rate at 30%, I know you mentioned that for around that area for 2008.

Do you view that as a sustainable type of tax rate going forward?

Greg, the primary drivers on that tax rate is the split between the international and U.S.

revenue.

I should say pretax income.

And as long as the U.S.

stays at the relatively consistent rates, yes.

It also is a factor.

The primary factor of that is driving -- is our ability to retain cash abroad from repatriating back to the United States.

If I have to repatriate it back to the United States, I have to repatriate it back at the statutory tax rate.

In this, I made some business modeling decisions based on our future views of our cash needs to retain cash internationally that aided that 30% target.

So if our cash needs do not change domestically and our income percentages remain consistent, I expect that we should be able to sustain that over this next year, two years.

Okay.

Great.

And speaking about cash, where is Teradata's cash currently in terms of country exposure I guess and what is it invested in?

We're invested in very low risk, high quality overnight investments at this point in time.

It's split rather equally between domestic and internationally abroad.

And we do not have any of the exposures, any of the significant exposures into the asset backed overnight investments where you saw people having some write-downs.

We feel we're at a very good spot with respect to our overnight investments and our cash balances.

Okay.

And looking at the share repurchase, the $250 million at today's current price is about 12 million shares and I know you mentioned that's over a two-year period.

But how would you view that being used going forward?

Well, first of all, we need to make sure we have adequate cash in the business and I feel we are in a very adequate position at this point in time to address our opportunities.

As we have said before in the past, the best driver to increasing our EPS is organic growth and we'll continue to look at the opportunities that we have to invest and drive that organic growth.

We'll continue to do the tuck-in acquisitions that we have historically done in the past for industry deep analytics or leading into new markets.

So we'll continue to look at those type of opportunities.

And then we'll evaluate from an opportunistic perspective our free cash to see what's the best return for our shareholders at those points.

So we do have a two year authorization.

It is $250 million.

It's in that Safe Harbor zone to preserve our tax free spin with the IRS.

And so we feel it's a good tool to have available to us to leverage EPS growth.

Okay.

And looking at more cash items, what are your expectations for capital spending and I guess capitalized software as well as depreciation and amortization for 2008?

We expect capitalized or the fixed assets and capital -- in addition to capitalized software to be in the $75 million to $85 million range.

And we expect depreciation -- you saw the additions coming up, so we expect depreciation and amortization increase from our 2007 levels.

Okay.

And probably for Mike, I guess, on the sales force side, what you're doing there, what kind of expansion plans you may have or may not?

And then what you're doing relative to anything that may be happening in terms of working with the government, closer.

We are looking at -- we're always looking at expanding the sales force at a greater rate than we have in the -- that we baked into our longer term model.

We feel really good about the long-term opportunities for Teradata.

We just grew 10% last year.

There's just a lot of opportunity out there in the market and this is something that we're always taking a look at.

And we're assessing right now, taking a look at expanding our coverage so that when we get out in the 2009 to 2010 and beyond, we can extend our reach and add some top line revenue growth to the company.

Steve mentioned, we do tuck-in acquisitions.

We always and always will continue to invest in our technology to maintain our leadership position there.

And one of the best returns for us is our organic growth and we want to take a look at that.

It wouldn't be anything that would change much materially in 2008, but we've got to get out ahead of ourselves or out of where we're at and go increase our longer term targets that we set there.

So we'll share a little bit more about this at the Q1 earnings call.

This is work in progress.

Okay.

And the transaction that you've talked about quite a bit here on the call, is that something that's a normal or common occurrence or is this something that was just abnormally complex -- I guess I'll put it that way?

It was uniquely complex and working through it, so I would not anticipate that on a recurring basis.

It's a complex, isolated transaction.

And the fourth quarter '06 change, is it fair to say that that -- the change there is what went into the first quarter of '07?

That is correct.

Okay.

And one last one, I believe, relative to your guidance on the $1.35 to $1.45 in earnings per share.

The $38 million in costs, which I think is about $0.14 a share, I want to be sure that's included in that $1.35 to $1.45.

That is correct.

Okay.

Thank you.

Mike Marburg of Ramsey, your line is open.

Hi, guys.

I think the competitive landscape at least with Netezza is pretty well understood and in the last six months HP has really ramped up their offering pretty aggressively, at least if you define it by the size of their overlay sales force.

Have you started to see any -- can you comment on whether your sales guys are starting to see price pressure?

Do your gross margins next year incorporate any increased competitive environment, given at least one player's recent emergence in this space?

This is Bob.

As it relates to HP, we have seen them show up in several accounts and again, as I said earlier, where we've actually competed, we win.

So I'm confident of our ability to address that challenge.

At the same time, the very few accounts that they've announced that have Teradata that have either put in a Neoview system or agreed to put it in, those accounts continue to buy from Teradata.

So we feel very good about that position.

As it relates to pricing pressure, I think you saw our gross margins, product gross margins hold up and improve.

Again, we feel pretty good about our position here.

And I'll just comment on the gross margins, as we look into 2008, we see that relative performance continuing, not the percentage increases but the gross margins at the levels they're at now continuing into 2008 on a relative basis, on an overall basis.

The mix shift, obviously it was slightly higher on the services side which would be lower gross margins, so must come from the product side.

What specifically, when you say the mix shift was positive, do you mean by that?

What we're anticipating seeing is the mix of product coming back, offsetting the growth in the Professional Services.

So from an overall perspective, if I'm looking at gross margins for the year, they would be slightly -- very consistent with 2007.

But I mean, is -- when you say the mix of product, I mean, is it that you -- it's a higher margin when you sell -- what's the difference in the types -- the product mix shift?

How does that --

in the product shipped?

In the product mix shift.

See more coming through the hardware software side than the Professional Services.

Got you.

Okay.

Thank you.

Matt Summerville of KeyBanc, your line is open.

Couple more questions.

First, Mike, I would like to hear what your current thoughts are on potentially Teradata addressing the lower end of the market going forward.

It's something we're always looking at.

It's a question of prioritizing where we want to invest our time, energy, and money.

Clearly there's an opportunity there.

We're constantly looking at the opportunity, Matt.

We just have to stack it up to the opportunities that we see in the Global 3000 and with Enterprise Data Warehousing.

So I guess in terms --

I would add that as far as customers starting small, the way we configure Teradata today with customers when they get started, we configure it in such a way that it is smaller and it is less expensive and so forth.

But as far as programmatically investing and going after it -- it doesn't have the same ROI as an Enterprise Data Warehouse type of focus in the Global 3000.

Have you done the analysis internally and maybe you can sort of describe it, if you decide to migrate towards a lower end appliance, how much that could add to your revenue growth versus detract from the longer term margin, operating margin potential of Teradata?

Hey, Matt.

This is Bob.

Let me try and comment on it.

We don't view the appliance thing per se as a big deal.

If you take a look at our focus, we're focused on creating the demand for EDW and for getting customers on the road map to Enterprise Data Warehousing.

As Mike said earlier, we can configure up and down the chain based on customer requirements, whether that be simple, small, load and go starter kits at a very small SMP level, all the way up to and through massive enterprise data warehouses doing very complex workload including active warehousing.

So for us, today in our motion, we have entry level offers and we can meet the requirements to go do that.

What we're evaluating always is whether or not we can have a different configuration that might give us a better performance at a more narrow, specific workload.

And we do -- we're very customer driven and customer focused and so we've got work going on with customers in this space.

But again, we view it as our motion today is trying to get customers on the road map of EDW.

We deliver solutions up and down that spectrum.

And whether we end up with a physically different configuration, we'll evaluate that and make those decisions.

But we're still focused on making it easier for customers to go achieve an Enterprise Data Warehouse at a point in time.

That's all I have.

Thank you.

I'd like to thank everyone for joining us here today and we look forward to talking to you after Q1.

Thank you.

That concludes today's conference call.

You may disconnect at this time.