Teradata Corp (TDC) 2008 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Teradata Q4 2008 earnings release conference call.

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

Later we will conduct a question-and-answer session.

Please note that this conference is being recorded.

I will now turn the call over to Mr.

Gregg Swearingen.

Mr.

Swearingen, you may begin.

Good morning, and thanks for joining us for our 2008 fourth quarter earnings conference call.

Mike Koehler, Teradata's CEO, will lead our discussion, highlighting Teradata's fourth quarter results.

After Mike's remarks, Steve Scheppmann, Teradata's Chief Financial Officer, will provide more details relating to our fourth quarter and full year 2008 performance.

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 10K and other filings 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 nonrecurring items, a reconciliation of a reported GAAP EPS to our non-GAAP EPS, as well as forecasted non-GAAP results, and other information concerning these measures are included in our earnings release and on this investor page of Teradata's website at www.teradata.com.

A replay of this conference call will also be available later today on Teradata.com.

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.

Now I will turn the call over to Mike.

Thanks, Gregg, and good morning, everyone.

Teradata finished the year on a strong note with revenues up 6% in the fourth quarter and up 9% in constant currency.

Overall we had a successful and very productive year in 2008.

We extended our technology lead, launched a new innovative family of purpose-built data warehouse platforms and added sales territories to broaden our market reach.

Operating margins were up slightly in the quarter and earnings per share grew 15% on a non-GAAP basis in the quarter, and also for the full year.

Looking at the results by region, the Americas grew 13% in the fourth quarter, following a slow start in 2008.

As anticipated, opportunities that have been deferred or delayed earlier in the year began closing in Q3 and to a much larger degree in Q4.

The Americas had significant increases in new account wins, which included International Hotel Group, or IHG, the parent company of Intercontinental, Holiday Inn and Crowne Plaza hotel brands.

Navistar International, a manufacture of heavy-duty trucks, Rogers Communications, the second largest provider of Internet and home phone services in Canada, a US fortune 500 biotech company, and Land Cargo, one of Latin America's leading air freight carriers.

In the Americas we also saw broad customer upgrade activity including Dell and three of the largest technology manufacturers in the world.

A number of the top 10 banks and financial services companies, three of the leading telecos, including AT&T, insurers from fortune 500 including Guardian Life Insurance and Unum group, the Center for Medicare and Medicaid services, and Panda Zucar, the second largest retailer in Brazil.

Overall just an excellent quarter for the Americas EMEA also saw growth in the quarter with revenues up 2% inconstant currency.

Some significant new account wins we can name included GKV, [spitsen fairbound], a major new German insurance organization created to oversee the country's health plans.

This strategic new account was a joint win with our partner, [SAS].

They chose Teradata and SAS to check, analyze, and benchmark complex data sets from 70 million German citizens.

And at O2, the United Kingdom's largest mobile operator this win with SAS and other partners will support the marketing, revenue assurance and finance organizations.

We also saw notable upgrades at Deutsche Post World Net or DHL, HSBC, United Credit Bank Austria, which is consolidating data from six countries from central and eastern Europe into a centralized enterprise data warehouse for risk management, accounting, and the controller's function.

And Swisscom, which is extending their Teradata system into a full enterprise data warehouse, and it is also leveraging our SAS partnership to achieve their first fully integrated view of their wireline and wireless businesses encompassing customers, product, the and revenues.

In APJ revenue was also up low single digits in Q4 and for the full year.

Notable new customers included KDDI, Japan's second largest telco , three China telecom provinces, [Dia], one of Japan's largest retailers, and [Shinwa] Bank.

Overall new account wins across the region were strong throughout the second half of the year.

And most new account wins represent a head-to-head win against competition, as well as replacement of competitor's systems.

As we have added new and large customers over the past couple years and grown the customers that are in our installed base, we have not been expanding our market coverage in parallel.

As a result, less resources were available to focus on new account opportunities, and we now have approximately 90% of our revenues coming from our installed base versus 85% in previous years.

With the investment in new territories and the expanded platform family, we are now looking to increase our new account wins and revenues.

Now I would like to provide some color on the full year performance of our four largest industries.

Financial services was our highest growth industry in 2008, with all three regions reporting double-digit growth.

While 2009 will be challenging for financial services institutions, and the number of companies is declining with consolidation, we believe that data architecture, integration, and governance will continue to remain a priority due to the need for granularity and visibility of customers and products, risk management and cost take-out opportunities as well.

This is where Teradata can help.

Manufacturing also had double-digit growth for the full year.

The number and quality of new account was encouraging, confirming our value propositions for the various manufacturing segments we are targeting.

Teradata is well positioned to help manufacturers address cost reduction opportunities, such as in consumer goods using customer point of sale data in order to improve supply chains, early detection of warranty and quality issues which have proven to be significant cost reduction opportunities for both auto and high-tech manufacturers, and companies with oracle and SAP ERP systems who are using Teradata and enterprise data warehousing to consolidate and integrate analytical data.

The communications industry, which was our fastest growing industry in 2007, was up slightly for the full year.

The quantity and quality of new account wins was good, especially internationally.

In addition, we have already secured three 1550 extreme data warehouse appliance wins in the com industry to date which is our new purpose-built platform that allows companies to analyze massive amounts of data sets in a cost-effective data warehouse environment.

The 1550 is currently being utilized to analyze high volumes of call detail records and network data in telecos as well as web click stream data in the e-businesses.

New wins in the quarter included real networks and one of India's largest telcos.

And finally our retail industry had a difficult 2008 with double-digit declines for the year with the entire decline coming in the US.

The US is by far our largest retail market, and we still generated significant revenues in 2008, and we continue to have good new account wins that will help position us for the longer term.

There are two key areas we're focused on with retailers.

First is to better understand the rapidly changing customer preferences in spending, and improve promotions and customer specific offers.

And second is to quickly understand and predict changes in product sales to improve supply chains and optimize inventory levels, and to do all this in near real time, with data that is minutes or hours old through active data warehousing.

Information based on data that is days or weeks old is not good enough in retail any more.

We ended 2008 with the following revenue splits by industry, which is based on approximate product and professional services revenues.

Financial services, which for us includes banks, capital markets, credit card and insurance companies, was 29%.

The communications industry, which includes telecommunications, e-business, media and entertainment companies was 28%.

Retail was 16%, manufacturing 11%, travel and transportation 6%, government 5%, healthcare 4%, and other 1%.

The investments we have been making in financial services and manufacturing have helped to increase the size of those industries.

In addition, our investments in eastern Europe and Asia are adding meaningful revenue to both our banking and telecom segment results as well.

We also extended our technology lead in 2008, as evidenced by the leading analysts.

Our active enterprise data warehouse solution was the major contributor to our number one position in the newest [Gartner] server evaluation model for data warehousing, and it is the major contributor to our position in Gartner data warehouse magic quadrant as well.

And just last week Teradata was named number one in the new [Forrester] wave for enterprise data warehouse platforms.

Teradata was also named as one of the elite global dozen companies that matter most to intelligent enterprises in intelligent enterprise in 2009 editor's choice awards.

Finally, in 2008, we saw good success with our purpose-built platform family with both new and existing customers.

For example, 2550 new account wins in Q4 included United Rentals, Navistar, Intercontinental Hotel Group, and a major Internet information provider.

The 2550, 1550, and 551 appliances have allowed us to position Teradata at multiple price points and functionality and to more easily win new account in the global 3000 and beyond and to capture new opportunities in existing accounts.

Turning to 2009, we won't be providing guidance at this time due to the uncertain economic environment and lack of visibility.

Although we have over 30% of our revenue that is recurring coming from maintenance and subscription, the majority of our revenue comes from product sales and professional services which operate with limited backlogs.

Overall activity levels are good, but vary across the regions.

Currently our EMEA pipeline is strong but is facing significant currency headwinds at current exchange rates.

Our APJ pipeline is strong in Asia Pacific, but we are seeing softness in Japan, our second largest country in Teradata.

And in the Americas, although overall activity is good, the amount of mature opportunities in the US pipeline is down following the strong Q4.

We are broadening our market opportunity with the addition of over 40 new sales territories in 2008 and with our platform family as well, which will help us -- help position us for growth longer term.

The challenge for us in 2009 will be to accelerate the productivity of these investments, mature the opportunities in our pipeline faster and focus on the fastest ROI and cost take-out opportunities for our customers to drive as much revenue as possible for Teradata.

We have lots of work to do in 2009, but keep in mind 90% of our revenue comes from our installed base.

And although this can lead to deferrals and lumpiness in our revenue shorter term, the growth of data and the demand for better enterprise intelligence in our installed base doesn't stop.

Looking at our expense structure entering 2009, our cost initiatives have positioned us for flat to down SG&A versus 2008, while absorbing the new territory costs added from 2008 and also being added in 2009.

R&D expense will increase over 2008 but will be below 2007 levels.

We'll continue to monitor and scrutinize our overall selling expense in 2009, as well as tightly managing our professional services cost structure and keeping it in line with revenue.

We've been fairly efficient with our G&A and marketing costs with only 11% of our Teradata headcount residing in these organizations.

But we do have some smaller opportunities we're working on there as well.

Before I turn it over to Steve Scheppmann, I would like to summarize by saying that 2009 will be a challenging year.

However, we are encouraged by our Q4 performance, our continued leadership position in data warehousing, and the increased opportunities with our platform family, expanded sales territories, and our partners.

In addition, we have a strong balance sheet with plenty of cash, no debt, and good free cash flow generation.

And our team is energized to meet the challenge in 2009 and focused on meeting the needs of our customers.

Now I will turn it over to Steve who will provide more specifics on our fourth quarter and 2008 performance as well as 2009.

Thanks, Mike.

And good morning, everyone.

Customers gravitate towards working with financially stable and well positioned partners and our Q4 2008 results clearly reflect that movement.

Teradata's Q4 2008 revenue of $493 million was up 6% from the fourth quarter of 2007, or 9% in constant currency.

Our Q4 revenue increase was driven by strong performance in the Americas region where revenues were up 13%.

From a revenue segmentation perspective, product revenue increased 4% to $250 million in the fourth quarter from the same period in 2007.

For the full year, product revenue declined 4% to $849 million.

Services revenue increased 8% to $243 million in the fourth quarter of 2008.

For the full year, services revenue increased 12% to $913 million.

The increase in services revenue for the full year was driven by a 17% increase in the maintenance services.

Our annuity revenue stream consisting of maintenance and subscription revenue and just as a reminder, subscription revenue is recorded as component of product revenue, accounts for more than 30% of our total revenue.

This is a strong foundation for the consistency in our recurring revenue model.

Professional insulation related services, which is the other component of our services business increased 5% in the quarter and 8% for the year.

We saw services revenue increase in all three regions in the quarter and the year.

Before I get into this discussion of our margins and how they compare to 2007, I want to remind everyone of the nonrecurring items we had in 2007 and 2008, so that we can reconcile to and then speak to the non-GAAP numbers.

In the fourth quarter of 2007 we had a $2 million spin-off related costs and a $6 million beneficial tax adjustment related to the spin-off.

For the full year 2007, we had $17 million of spin-off related costs as well as $11 million of net tax adjustment expense.

In 2008, we took a $3 million charge to write down our basis in a prior equity investment and had a $3 million tax adjustment expense related to our 2007 tax return.

Excluding these items, our non-GAAP EPS in Q4 2008 was $0.45 versus $0.40 excluding the items in the fourth quarter 2007.

For the full year, excluding these items, non-GAAP EPS was $1.42 in 2008, versus $1.24 in 2007, a 15% increase.

To see the effect of excluding these non-operating items from our reported GAAP results please see the reconciliation of GAAP to non-GAAP measures benefit posted on our website.

Gross margin in the fourth quarter of 2008 was 54.6% compared to 56% in the fourth quarter 2007.

Gross margin in Q4 '07 was very strong.

As we pointed out a year, a due to a favorable mix of product revenue and services gross margin.

As a reference point, gross margin in the fourth quarter 2006 was 53.2% versus the 54.6% in Q4 2008.

In the fourth quarter of 2008, our revenue contained, one, a number of floor sweeps, which takes place when a customer replaces an older Teradata system, and the result is a higher mix of hardware revenues, as the customers receive the newer version of the software at no significant additional costs, assuming they purchase our database software via our subscription model or option.

Secondly, we also had an unfavorable mix of third party product in our Q4 rules, which may include storage and/or other applications, which we resale as a component of our overall solution.

And third, currency headwind, which created pressure on our margin in Q4 '08 by approximately 50 basis points.

For the full year, gross margin 2008 was roughly the same as that generated in 2007 at 53.9%.

The strength of our maintenance services and the currency benefit we saw earlier in the year offset the Q4 items I just mentioned.

Product gross margin declined 4.3 points to 63.6% in the fourth quarter due to the items that I previously mentioned.

For the full year product gross margin declined 30 basis points to 64.4% compared to 64.7% in 2007.

On the other hand, services gross margin improved 190 basis points to 45.3% in Q4 and improved 190 basis points to 44% for the full year.

The improvement was largely due to the increase in our maintenance services.

Moving to a geographical view, where we have a very diversified business model, 56% of our 2008 revenue came from the Americas, 26% from EMEA, and roughly 18% from APJ.

Americas revenue of $285 million was up 13% for the quarter, despite a slow start in 2008 with a revenue decline in the first half of the year.

Revenue was up 2% for the year.

In addition to a solid funnel of deal activity, we saw the majority of the deferrals that we referenced in previous quarters close by year end.

For the quarter, gross margin in the Americas region was down approximately three points to 57.2%, again, due to the unfavorable revenue mix that I previously discussed that impacted the Americas.

For the year, gross margin in the Americas was down .9%, again, due to the unfavorable revenue mix.

In EMEA, revenue declined 7% to $114 million in the fourth quarter, but was up 2% in constant currency.

For the full year, revenue increased 6% or 3% in constant currency.

Gross margin in the EMEA region was 51.8%, 180 basis point improvement from the 50% generated in the fourth quarter of 2007.

The increase in gross margin was due to a favorable deal mix and higher maintenance revenue offsetting the currency impact.

Gross margin for the full year in EMEA was up almost 360 basis points due to the higher product gross margin, due to a favorable deal mix and the currency benefit.

In our Asia Pacific Japan region we reported 3% revenue growth in the quarter, with two points of currency benefit.

For the full years our APJ region, revenue grew 7% but down 2% in constant currency.

Gross margin in APJ was 50%, down from the 52.7% in Q4 2007, and this decline was due to lower proportion of product revenue as well as lower service margin.

For the year, gross margin in APJ was 48.3%, down from 50% in 2007.

Again, due to the lower proportion of product revenue.

Now I will turn to our expense structure.

SG&A increased to $137 million from the $131 million reported in Q4 2007.

Excluding the $2 million of nonrecurring spin-off costs in Q4 2007, SG&A increased $8 million from the last year's fourth quarter.

However, included in the fourth quarter of 2008, SG&A was -- reflected $5 million of increased sales expense from our new territory initiative.

For the full year, SG&A was $508 million, an increase of $38 million from the $470 million reported in 2007.

Included in the 2007 number was $17 million of one-time spin-off related costs.

Excluding these costs, SG&A in 2008 was $55 million higher than 2007.

Keep in mind, however, that included in our SG&A for 2008 was $19 million of incremental recurring costs associated with Teradata operating as an independent publicly traded company, $10 million of investment for new 2008 sales territories, and an FX impact of approximately $7 million.

In total, incremental new company costs in 2008 were $29 million, $1 million lower than expected.

In total in 2007 and 2008, newco costs were $37 million versus the $38 million we had previously projected.

Specific to the $29 million of incremental new company costs absorbed in 2008, $10 million of the incremental stand-alone costs were recorded in cost of products and services while $19 million was included in operating expenses.

In Q4, R&D expenses on the income statement decreased $4 million to $30 million, and this is largely the result of variable compensation.

For the full year, R&D was $18 million lower than in 2007, for the most part due to the timing of the capitalization of software development costs related to our recently announced Teradata 13, and this is per the requirements under FAS 86, and another component was variable compensation for the year.

We expect to see an increase in R&D expenses in 2009 with the majority of the increase in Q1 2009 as it relates to the FAS 86 capitalization timing difference.

For 2009, for the full year, R&D expenses are expected to be higher than the $108 million in 2008 but lower than the $126 million in 2007.

In the quarter, Teradata's operating margin was 20.7% versus 20.6% reported in Q4 2007, or 21% excluding the spin-off costs in Q4 of 2007.

For the full year, operating margin was 18.9% versus the 18.8% as reported in 2007.

Again, excluding the $17 million of nonrecurring spin-off costs operating margin was 19.8% in 2007.

The slight operating margin decline was primarily due to the $29 million of incremental recurring public company costs and the $10 million higher sales costs relating to our -- from the increased sales territory initiative.

This was offset somewhat by the lower R&D expense.

Given the unprecedented scale of the global economic turmoil and uncertainty it's more important than ever that we have a well defined executable strategy given the wide range of possible scenarios that this market may create.

The disruption in our current and potential customer status quo environment is bound to happen and this has historically played into Teradata's hand.

Our game plan calls for us to continue to shift and add resources where we see the best opportunities to ensure that we are positioned to capture future growth through new sales territories and focused R&D efforts.

In addition, we expect to continue our cost discipline throughout our operating model, from cost of revenue through our operating expenses, including salary related costs, restricted hiring, travel, and various non-customer facing programs.

Below the operating income line Teradata had $1 million of other income in the quarter, which was down $2 million in Q4 '07 due to lower interest income in part to lower interest rates.

For the year, other income was $5 million in 2008 versus $2 million in 2007 due to higher interest income on a higher cash balance but in a lower interest rate environment.

For Q4 2008, our effective tax rate was approximately 23.3%, which includes the impact of the retroactive restatement of the US research tax credit.

The tax rate in the fourth quarter 2007 was 19.4%.

For the full year 2008, our effective tax rate was 26% or 25.2% when you exclude the previously disclosed discrete item recorded in the third quarter related to 2007.

For the full year 2007 our tax rate was 37.9% or 33.3% excluding the previously disclosed items that impacted the 2007 tax rate.

Based on the analysis to date, we expect our annual effective tax rate for 2009 to approximate 26% to 27%.

The forecasted effective tax rate is heavily dependent on our geographical mix of taxable earnings.

Quarterly, the company refines the estimates used to build the annual effective tax rate.

Stock-based compensation included in our 2008 results was approximately $21 million versus $17 million in 2007.

We expect 2009 stock-based compensation expense to be similar to the 2008 amount.

During the fourth quarter, we repurchased 2.9 million shares of our stock for approximately $39 million.

Repurchases for the full year 2008 totaled 8.5 million shares for approximately $176 million.

As such, we have $82 million remaining on our board authorization for share repurchases.

Again, we expect that our rate of buyback will continue to fluctuate each quarter taking into account, among other things, our stock price, alternative uses of cash, and other cash management strategies.

Turning to the cash flow statement, in the fourth quarter we generated cash from operating activities of $118 million, up 20% from the $98 million in the fourth quarter 2007.

After using $13 million for capital expenditures we generated $105 million of free cash flow which favorably compares to the $67 million of free cash flow in Q4 2007.

For the full year 2008, we generated cash from operating activities of $440 million, up $53 million from 2007.

The Teradata model is driven by our operating strength and our continued focus on managing our working capital.

After using $71 million for capital expenditures during the year we generated $369 million of free cash flow which is 26% increase from the $292 million of free cash flow in 2007.

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

To summarize, one of the strengths of the business model is cash flow generation, and we grew cash flow from operations 14% and free cash flow 26% on revenue growth of 4%.

Turning to the balance sheet, as of December 31st, 2008, we had $442 million of cash and short-term investments, a $64 million increase from the end of September.

After -- even after using the $39 million for share repurchases in the fourth quarter.

Our cash continues to be invested very conservatively, generally in overnight government securities.

For the year, we increased our cash and short-term investments by $172 million from the end 2007, despite repurchasing $176 million worth of Teradata shares.

DSO, the days sales outstanding, was 93 days as of December 31st, 2008, compared to 109 days as of December 31st, 2007.

Deferred revenue as of December 31st, 2008, grew slightly from the same date in 2007.

In an effort to provide further transparency around currency movement and the potential impact on our revenue, we have provided additional detail on our website regarding how currency is moved in 2008, and how this movement is expected to impact our year-over-year revenue comparisons in 2009.

Assuming the spot rates on February 9th, we expect currency to create a four-point headwind for us in 2009 and a six-point headwind in Q1 of 2009.

With respect to currency impact on our gross and operating margins, that continues to be tough to precisely calculate due to the difficulty of specifically determining how much of the currency impact was captured in the pricing of a particular transaction or how it was addressed in our sourcing product and services activities.

However to help you understand the impact currency translation has on our operating margins, roughly 40% of the currency movement flows through to operating margins or income.

If we can adjust our pricing models to the currency movements in the short term we might be able to get closer to the 30% flow-through which is more representative of our existing operating model.

Looking forward, from my perspective, it is not prudent to expect that the macro economic environment will improve in 2009.

As a result, visibility into 2009 and beyond is very limited.

Until we can gain better visibility on how our customers are react to the economic environment, we will not provide specific revenue or EPS guidance for 2009.

Hopefully as we move into the year, visibility will improve.

To provide further perspective on how our year-over-year earnings is likely to trend in 2009 versus 2008, again, beyond the effect of the economy and the likely impacts on our revenues, weapon want to reiterate that the currency, based on the current spot rates, is creating a headwind for us on both the top line and on margins as I discussed earlier.

R&D expense hitting the P&L is expected to be higher as we continue to divest in our core R&D.

Again, the 2009 expense is expected to be more than 2008 levels but less than 2007 levels.

Again, the Q1 2009 year-over-year change is expected to be the most significant increase as primarily driven by the timing of our capitalization of FAS 86.

Incremental selling expenses as a function of our strategic decision to increase the investment in our sales territories again is expected to increase by approximately $13 million in 2009 for the full year impact of -- from the class of 2008, and the layering in of the expense from the class of 2009.

But again, our total SG&A is expected to be flat or down after absorbing these costs.

I am encouraged that although we are feeling the headwind of the strengthening of the US dollar and the impact of the global economic slowdown, the unfortunate pain that a slowing economy creates is not all bad for Teradata.

It can and does open opportunities for us as the status quo of IT infrastructures in place at many companies is now perceived to be not good enough, and companies become more open and more motivated about investing in enterprise analytics.

We are clearly not immune from the effects of a weak global economy, but our solutions allow our diverse portfolio of stable and strong customers to not only reduce their IT spend but also gain a much better, deeper transparency and view into their business at the same time.

In addition, we are entering the year in a very strong financial position.

Our balanced geographical business model provides a basis of resiliency with respect to our overall financial model during this period.

As previously stated, our maintenance and subscription business provide a healthy foundation, which creates stability in our model and our cash flow.

In conclusion, we feel that Teradata is well positioned for the current but difficult economic environment.

We like our technology leadership, our competitive advantage, our strong financial position, and most importantly the passion that our team has to win by staying laser focused on our fundamental business strategies.

And with that, operator, we are ready to take some questions.

Thank you.

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

(Operator Instructions) Our first question comes from John DiFucci from JPMorgan.

Please go ahead.

Thank you.

Mike, I was wondering if you could comment a little more on your comments about the Americas.

You said looks like things went well this quarter but you said the mature pipeline was down going forward.

I was wondering if you could provide any more commentary around that, either something quantitative or even qualitative around those comments.

John, what I was referring to is, in 2008, we had deferrals and delays that we were experiencing from the first quarter to second quarter to third quarter, and as a result, the amount of mature opportunities in the pipeline, in other words, opportunities that we're looking to close, we closed out a significant number of them in the fourth quarter.

So the overall activity in the Americas is good, as we entered the first quarter, but the amount of opportunities that are mature or in the closing stages was reduced by the high number of opportunities that we closed in the fourth quarter.

Okay.

So it sounds like the fourth quarter you had -- sounded like you had a lot of opportunities that were mature, more -- I don't want to put words your mouth, but was it more than normal?

And at this point, recognize there's a lot of uncertainty out there for everyone.

Is it -- how does it look today versus what would be called, I guess, normal in the past, other than the last quarter?

Historically, the seasonality of our business, you can see it in the past results.

The first quarter historically overall for Teradata, the seasonality of the first quarter, it's a lower quarter, okay.

That said, the visibility, or lack of, that we've got at this time, we're not giving guidance for the year.

The opportunity that we have, and what we're focused on doing, is accelerating the maturity of the opportunities that are in the pipeline.

So the overall activities there, it's the acceleration of the opportunities that we have in the activity and to mature them as soon as possible.

Okay.

Thanks.

And a quick question for Steve.

Deferred revenue, you had a nice uptick in this quarter after declining in the last two quarters.

And I was just wondering if you could comment on that at all.

Is there anything we should be reading into that?

No, John, again, that's coming into some of the timing of some of our annual maintenance renewals, and if you go back, look at the third to fourth quarter last year, we had an uptick in there, approximately $10 million, and this uptick was somewhat similar, and nothing unusual in that increase.

Okay.

Thanks, guys.

Our next question comes from Matt Summerville from KeyBanc.

Please go ahead.

A couple questions.

First, I want to talk about the sales additions planned for '09.

How many territories, I guess, are you contemplating adding?

If your business were to deteriorate beyond your comfort zone, I would suppose, how much flexibility is there to cut that number meaningfully?

And then third, on the same topic, how does the payback now on these net sales -- territory creation differ than several years ago when you didn't have as broad of a product offering that you have today?

Matt, we added over 40 sales territories in 2008.

Our plan is to exit 2009 with 60 additional sales territories.

The pace at which we're adding the sales territories, we will slow down to a degree, but the opportunity for us, when you look at this thing overall, is to broaden our market reach and balancing the long term objectives of the company to get after sustained long-term revenue growth.

Now, in the existing territories, we're continually optimizing that, and we're looking at -- and continually looking at the resource alignment with the productivity yields, and the overall headcount we have in the existing territories.

There's also opportunities.

We have attrition, historically, and how we backfill and to what degree and how rapidly we do that.

So we're simultaneously -- we want to broaden the number of territories we have, but at the same time, we want to optimize the current expense that is in the existing sales territories, and that's an opportunity that we have ongoing, not just now, but ongoing, that we've got to turn the heat up on.

As far as the yield goes, if you look at the territories we've added some commentary, 10 of them are in new countries or emerging marks for us, like in eastern Europe and parts of Asia, and those types of territories we get a pretty quick yield from, and we did yield revenue in 2008, and we'll continue to yield revenue in 2009.

Some of the other new territories that we're adding in three of our largest countries is to go after mid market opportunities.

And in mid market opportunities, we're focused on shorter sales cycles and greater focus with our product platform family, the expanded family with the appliance and so forth, and we've come out with packages and bundles beyond the appliance itself that includes professional services, applications, and it's a solution for a particular customer and a particular industry segment, and we've also added to that with lead generation and telemarketing and everything else going into the mid-market.

So as I look at the return on the sales territories, there's some pretty good opportunities in things we're doing, in particular in the emerging markets and in the mid markets, where we're going after shorter sales cycles and going after quicker ROIs or quicker revenue.

In the more traditional territories, which enhe compass some of the large major fortune 1,000 companies, fortune 3,000, we're driving to look at the highest, fastest ROI opportunities specifically to an industry segment, to a customer set, and at the most significant cost take-out opportunities.

Once again, to increase the productivity cycle in these territory additions.

In terms of the broadened product line, how much are your -- how much of your revenue now would you say is being derived from the new product you launched in 2008?

And then just another question in terms of the pace of deals thus far in the year.

Is the closure rate you've experienced up until now materially different than the closure rate you've experienced on a year-to-date basis looking back several years?

Regarding the revenues, Matt, on the new product platform family of appliances, it's not huge, it's not significant.

To give you a little bit of color, we have sold over 20 systems of specifically the 2550 and the 1550.

The 1550, which is the extreme data warehouse appliance, was only announced in October, and we have had a number of wins, as I mentioned in our prepared remarks, and we're encouraged by that because it has such a -- it solves such a large data problem at such a low price point, and the activity we're seeing there is high.

And the close rates are fairly quick, when you look at the sales cycles we have for that.

But overall, I'm pretty encouraged by the number of systems we have sold.

The second question you had regarding our close rates, I would say when you look at new account opportunities, we actually had a pretty good increase in new account wins in the second half of the year.

I don't see much of a change in the sales cycles in new accounts.

We did have a number of mature opportunities with new accounts that were growing in the pipeline that closed out in the third and fourth quarters, but overall the sales cycle's not much difference with new customers.

The bigger challenge for us is so much revenue comes in our user base.

It's up to 90% now, and that's the challenge.

So the deferrals and any deferrals, delays, and so forth that we experience in the user base, that's extending the sales cycles, and that has the bigger impact on the business.

Okay.

Just two more questions.

You provided, Mike, in your prepared remarks some general high-level color on what you are seeing across the three geographical regions.

I was wondering if you could go one layer deeper and talk about kind of what you highlighted in the context of the major verticals that you serve.

And then the other question I have is more around pricing, if you are seeing any additional price competitiveness in the markets, just given what's happened in the macro environment.

We look at it by verticals, as far as what the activity we're seeing today that I gave commentary on geographically.

Let me go to the markets where we're seeing some softness.

So in Japan, clearly softness in manufacturing with the large auto manufacturers and tech manufacturers, softness in retail and Japan.

And when you turn to the US, as we reported on the industry segments for 2008, softness in retail.

Globally, our activity in the financial services sector has been good.

I would say globally when you take a look at it, in that view by industry, manufacturings, we're seeing some softness, retail, some softness, and, yes to a much lesser degree, financial activity okay and telecommunications.

And then my question on pricing?

On pricing, there's been more pricing pressure overall for sure, any company, every company in the world is looking to reduce OpEx, CapEx, everything else.

But I would say the biggest pricing pressure is more related to new account opportunities when you get some competitors in there that -- it can be driven by that kind of behavior more so than the overall environment with the customers.

I would say the bigger impact on pricing, as it relates to our business is less in the margin rates, the product gross margin rates, but it's more on the volume.

The less dollars being spent, that pressure, making opportunities smaller, or delaying opportunities and hitting the volume is the bigger pressure that shows up on our business results than the actual margin rates.

Thanks, Mike.

Our next question comes from Nabil Elsheshai from Pacific Crest.

Please go ahead.

Hi, guys, can you hear me?

Sure.

I'm on an unusual phone, so.

First, real quick, how many sales teams did you guys end the year with?

I think I missed that.

We added over 40, Nabil.

Okay.

And then on the business in Q4, and the upside, did you get a sense -- not really budget flush, but people were kind of stocking up on capacity, and, if you will, squirreling away additional capabilities in anticipation of lower budgets in '09?

Did that potentially drive some of the strength in Q4?

Nabil, it's Mike.

Regarding the territories, the starting point, as we entered 2008 was 385, and we're up now up over 425.

Great, thank you.

Yes.

On the territories.

Regarding, as you coined it, budget flush in Q4, I believe we saw some of that.

There was some of that that contributed to the results.

But like I said before, the amount of deferrals and delays throughout 2008, eventually they come to fruition, and the budget flushing of people with some uncertainty over budgets in 2009, spending in 2008, there was some of that that contributed to it.

Okay.

And then if you look at the 2550 and the 1550, are those deals that you talked about -- I know there's not a ton of them yet, but are you finding those opportunities primarily in your installed base at this point, or are they new customer opportunities, getting your foot in the door?

They're in both, Nabil.

I will say, though, the number of new account engagements and competitive engagements outside the user base picked up since we've released the family.

Some of those engagements result in the sale of an enterprise data warehouse, or the 5550, but since we've repositioned ourselves in the market, with platform family that addresses a multitude of different customers, the number of new engagements we have has increased, and simultaneously, in our user base, there clearly has been opportunities that we were able to go address that normally -- some that we would not have addressed previously.

Okay.

And then on the competitive front, just to follow up, have you guys run into the new Oracle machine, and if so, any commentary about it?

Not yet.

I'm aware of one or two customers that are looking at it, or working with it.

Okay.

And last question on the partnership front, I think you mentioned a large deal tied to Sas from.

From a revenue driver perspective I think you had set the expectation that that would take a while.

Can you give us any commentary on how the pipeline is building with regards to that partnership, and do you see that becoming a significant driver in '09?

Overall activity with SAS has been increasing.

The amount of wins we've had to date partnering and going to customers with a joint solution has increased significantly, and it's resulted in wins that we've had together.

It's a little bit subjective to quantify or qualify exactly how much of that was due precisely to SAS, or not being partnered with SAS, but overall it just has resulted in a lot of joint wins together, and has broadened our activity.

We continue to work together, codevelopment, getting more of SAS' offerings running in database.

We have a road map we're executing to, and as that -- as the number of analytical applications and other things run native on Teradata, the amount of revenue and the partnership will just be that much better.

Thank you very much.

Thank you.

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

Please go ahead.

Yes.

Good morning, and thank you for taking my questions.

Wondered if you could comment on your sales growth goals, operating margin goals, earnings goals that you had set forth, whether or not you have made any changes to those, or are sticking with what you think you can do over the long term.

Well, we're not providing, obviously, guidance for 2009.

If I think I have your question right, it's have we changed our longer term goals.

Right.

Okay, thanks for the clarification.

And the answer is no.

We have not changed our longer term goals.

We're taking actions to increase the longer term goals.

The question, of course that everyone has is when will we get through the current down cycle, and putting that aside, the longer term our goals remain the same, and we're taking actions to increase the longer term goals.

Okay.

And relative to the stimulus and healthcare coming out of the Obama administration, is there anything in there that would be a benefit to folks like you, specifically Teradata on the enterprise data warehouse?

Overall, I would characterize it as minimal, or not significant.

Okay.

And do you have the employee count as of the end of the year?

It was roughly 6,400 people, I believe.

Okay.

And you may not be complete with this, given that your K is not out yet, but how underfunded is your pension liability, and what do you expect the expense to be for 2009?

The underfunded pension liability, as you've indicated, will be disclosed in the K.

The expense for 2009 will be closely approximated to the 2008 expense numbers.

And what was that if you could remind us?

I believe they were around $9 million, $8 million to $9 million.

Would you anticipate an increase in the underfunding, given the market?

It all just depends on the actuarial methods and the valuations, but I don't anticipate anything that would materially distort our numbers going forward.

And one last one relative to competition, the HPs and the [tisas] of the world, how would you characterize the environment?

Has anyone become more or less of a threat or competitive to your own offering?

No material change.

No material change.

Okay, listen, I want to thank everyone for joining our call.

It's all the time that we have this morning.

In closing, I would like to thank all of you for joining us.

And just as we were saying, 2009 is going to be a challenging year.

I can assure you our team is energized to go after the challenge, and we're very encouraged by our Q4 performance, the clear leadership position we have in the data warehouse industry, and the opportunities that we have underway to broaden our position in the market in 2009 and for the longer term.

So once again, thank you, everybody.

Thank you, ladies and gentlemen.

This concludes today's conference.

Thank you for participating.

You may all disconnect.