Teradata Corp (TDC) 2012 Q4 法說會逐字稿

Welcome to the Q4 2012 Teradata earnings call.

My name is John and I'll be your Operator for today's 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. Greg Swearingen.

Mr. Swearingen, you may begin.

Good morning, and thanks for joining us for our 2012 fourth-quarter earnings call.

Mike Koehler, Teradata's CEO will begin today by summarizing Teradata's fourth quarter and full-year results.

Steve Scheppmann, Teradata's CFO, will then provide more details regarding our financial performance as well as our guidance for 2013.

Our discussion today includes forecasts and other information that are considered forward-looking statements.

While these statements reflect our current outlook, they are subject to a number of risks and uncertainties that could cause actual results to vary materially.

These risk factors are described in Teradata's 10-K and other filings with the SEC.

On today's call we'll also be discussing certain non-GAAP financial information, which excludes such items as stock -based compensation and other special items.

We'll also be talking about other non-GAAP items, such as free cash flow and constant currency revenue comparisons.

A reconciliation of our non-GAAP results to our reported GAAP results and other information concerning these measures is included in our earnings release and on the investor page of Teradata's website, which can be found at Teradata.com.

A replay of this conference call will also be available later today on our website.

Teradata assumes no obligation to update or revise the information included in this conference call whether as a result of new information or future results.

I'll now turn the call over to Mike.

Thanks, Greg, and good morning, everyone.

Teradata finished the year with a solid fourth quarter.

Revenue grew 10% over prior year, and was up 11% in constant currency.

And non-GAAP earnings per share of $0.79 was up 20% from Q4 2011.

For the year, revenue of more than $2.6 billion was up 13% as reported, and 15% in constant currency.

Non-GAAP earnings per share of $2.85 increased 23% over 2011.

Overall, a very good year.

Turning to the regions, the Americas fourth quarter revenue grew 8% as reported, and 9% in constant currency.

And for the full year, revenue was up 13% as reported and in constant currency.

New customer wins in the Americas during the fourth quarter included O'Reilly's Auto Parts; USDA Food Safety and Inspection Service; the state of Ohio, which will use Teradata for health and Medicaid spending analytics; the Ministry of Social Development in Brazil, which will be using Teradata to detect fraud and ensure that families benefit from the best use of public resources; Christus Health, which is integrating it's clinical data across facilities to improve the quality of patient care; [bankview] will be using Teradata for sales, click stream, and marketing analytics; Pacific Gas & Electric, which is implementing Teradata for its smart meter data warehouse; Nautilus the global fitness company has purchased the Aprimo campaign management solution to support its marketing; and we added two Fortune 100 customers in the US with plans to build out large-scale EDWs.

Expansions and upgrades in the Americas included the US Defense Commissary Agency; Hospital Corp of America, which has added clinical applications to support healthcare reform requirements; Harvard Pilgrim Health Care will use Teradata to help them expand from B2B into B2C.

And Mohegan Sun Casino, which is using Teradata to support it's 360-degree view of customer initiative.

Several Teradata customers in the Americas added Aster, Aprimo, and eCircle solutions in the quarter, such as Comcast, which added our Aster big analytics appliance as their data discovery platform for Big Data.

This recently released appliance integrates Aster and Hadoop into a single appliance.

Dell is implementing Teradata's integrated marketing management solution as well as the Aster big analytics appliance for analysis of multiple types of data.

And GoDaddy.com, which is implementing our integrated marketing management and eCircle digital messaging applications to integrate call-center and web interactions.

Turning to EMEA, fourth quarter revenue grew 21% as reported and 24% in constant currency.

For the full year, revenue increased 16% and 23% in constant currency.

Excluding the benefit of eCircle revenue in 2012, EMEA's organic constant currency revenue growth was in the high teens, which was a strong performance given the economic climate there.

For Teradata, overall, eCircle contributed a little over one point of revenue growth in 2012.

Fourth quarter new customer wins in EMEA included the Dutch Tax Authority; HSBC Turkey; and Turkcell, which plans to load 12 billion records of network probe data per day into its network operations data warehouse, which will enable analytics around its network and the customer experience.

Customer expansions and upgrades included Media-Saturn, Europe's leading consumer electronics retailer, which has added a 6690 Active Data Warehouse with virtual storage and solid-state drives; TNT Express, which added a hybrid storage 6690 as well.

And at DHL; Ettika; Air France-KLM; the National Traffic Department of Spain; and one of the leading telcos in EMEA added an Aster system.

And finally, Asia-Pacific/Japan grew revenue 2% as reported and 2% in constant currency, going against the prior-year Q4 which had 28% revenue growth.

For the full year, revenue was up 8% as reported and 9% in constant currency.

China had strong revenue growth in the quarter and for the second half as expected.

New data warehouse customer wins included FAW Group, a top three auto manufacturer in China, and Sumitomo Mitsui Card, one of the largest credit card companies in Japan.

And APJ also had new customer wins with applications, such as Michael [Hu] Jewelers which is implementing our Demand Chain Management application.

And at one of the telcos in China, which is deploying our Aprimo Integrated Marketing Management solution.

Major upgrades and expansions in APJ included ANZ Bank, which is using Teradata as its private cloud to quickly provision services to the business while reducing costs.

Industrial and Commercial Bank of China; China Securities Depository and Clearing Corporation; Bank of Tokyo-Mitsubishi; and Detak in Thailand.

Some additional comments regarding 2012.

First, we added 49 new sales territories in 2012.

This was above the 35 to 45 range we targeted for 2012 and higher than the 45 we added in 2011.

We ended the year at 569 sales territories, which was up close to 50% from the 385 we had at the start of 2008.

We plan to add another 20 to 30 territories in 2013, as well as additional sales and consulting specialists for our Aster and Integrated Marketing solutions.

Second, we achieved several key milestones in 2012 with our Aprimo, eCircle, and Aster solutions.

We expanded our Aprimo Integrated Marketing applications global presence with wins in China, Brazil, and in Eastern Europe.

We had our first eCircle digital messaging wins here in the US as well as in Australia.

We expanded our Aster presence into Europe.

We released our integrated Aster Hadoop appliance in October and have had five wins already.

In addition, we had a record Aster new customer wins in the fourth quarter including five Fortune 500 companies.

And we have a growing number of customers who have implemented our integrated marketing, Aster, and data warehouse solutions.

And third, we released the Teradata Unified Data Architecture last October.

As many of you may know, there's a lot of confusion in the marketplace around Big Data, how to extract value from it, and what role Hadoop plays, as well as data warehouses, and the entire analytical ecosystem.

The Teradata Unified Data Architecture, or UDA, helps companies build out their architectures and eliminate the confusion.

The key components are Hadoop, with its ability to ingest, transform and store Big Data in a very economical manner.

Aster, as a discovery platform for Hadoop.

And workload specific data warehouses for strategic and mission-critical analytics for companies to run business.

We have partnered with the leading open-source Apache Hadoop distributors such as Hortonworks which bears the same unified data architecture vision that we do.

Although Hadoop by itself represents minimal revenue potential for Teradata, it has an important role to play with our customers.

And it also pools solutions such as Aster, large multi- structured data discovery analytics, unity for data movement and synchronization, as well as our services.

In addition, the UDA helps to get our data warehouse platforms positioned properly with our customers.

We saw more than 20 customers adopt our UDA in just the past three months and we see this momentum continuing in 2013.

Turning to 2013, we made some organizational changes that were effective January 1. One of those changes was combining the EMEA and APJ regions into one international region that will be led by Hermann Wimmer, previously head of EMEA.

This scaled international region will have greater critical mass and leverage of resources for deployment of our Integrated Marketing Management, Big Data Analytics, and Data Warehouse solutions.

As well as possess more knowledge and depth for our numerous consulting and support services office.

Going forward, we will still provide the EMEA and APJ revenue performance in the supplemental schedules on our website.

Additional changes we announced were that Darryl McDonald will be leading Teradata Applications which includes our Integrated Marketing Management solution and Aprimo and eCircle acquisitions.

Bob Fair who will be now leading marketing, business development, and strategy as well as IT.

And Dan Harrington, who will be leading both consulting services and customer services.

This will help to better leverage resources to execute and support our managed services and our software as a service offerings.

Turning to 2013 guidance, Teradata had a pretty good run from 2010 to 2012.

And there's no reason we can't continue these types of results longer-term.

But as we enter into 2013, some of the macroeconomic headwinds that we were not able to out run in the second half of 2012, especially in the Americas, are continuing.

Customers in the Americas are continuing to tighten their belts, delay purchases, or buy in smaller increments.

This is evident by the number and the size of large deals in the Americas, which are down significantly from Q1 prior-year.

An additional factor in Q1 is the prior year comparable when revenue grew 26%, and product revenue grew 32% in constant currency.

On the other hand, as we look at the first half of 2013 for our international region, we expect to grow low double digits and to continue to out run the macro headwinds in Europe at least for the first half.

Net net, given the slow start in the Americas, we expect Teradata's revenue to grow in a range of 6% to 10% for the full-year in 2013.

The Americas will most likely have a decline in revenue in Q1.

And depending by how much, Teradata's total revenue could be below Q1 prior-year as well.

For the first half, we expect to be at the low end of the revenue range or slightly below it.

We are more optimistic about the second half of 2013, when the Americas will have lower prior-year comparables.

And, that after four quarters of delays or purchasing in smaller increments in the Americas, potential demand to add performance and capacity may surface.

Consistent with prior years, once we get more visibility into the second half, we will adjust guidance appropriately.

Given the 6% to 10% revenue growth range we are targeting for 2013, we're expecting to yield $3.05 to $3.20 non-GAAP EPS for the year.

We're riveted on reaching the high end of the 6% to 10% revenue growth range in 2013.

However, I want to point out that even at the lower end of the revenue and EPS guidance, we will be maintaining our growth investments, which will benefit Teradata's longer-term growth.

I want to emphasize that our competitive position has never been stronger in data warehousing, Big Data analytics, and integrated marketing management.

Now, I'd like to turn the call over to Steve for more details on Q4 and 2013.

Steve?

Thanks, Mike, and good morning.

Teradata generated fourth quarter revenue of $740 million, which was up 10% from the fourth quarter of 2011, and up 11% in constant currency.

This was a solid result, given the backdrop of the macroeconomic uncertainty the tech industry experienced, particularly in the latter part of 2012.

For the year, revenue was up 13%, 15% in constant currency.

The influence of the macroeconomic drivers, particularly in the US, resulted in a sharp contrast over the course of 2012.

As reflected in our revenue growth for the first half versus second half, particularly in the Americas.

In the first half of 2012, we grew 18%, 20% in constant currency.

Versus 9% or 10% in constant currency in the second half of the year.

In the Americas, we grew 22% in the first half versus 5% in the second half of 2012.

Product revenue of $362 million was up 9% from the fourth quarter in 2011, up 10% in constant currency.

For the year, product revenue was up 16%, up 17% in constant currency.

In the first half, product revenue was up 25%, compared to 8% in the second half of 2012.

Services revenue was $378 million was up 11% from the fourth quarter of 2011, both reported and in constant currency.

For the year, services revenue was up 10%, up 12% in constant currency.

Within services revenue for the quarter, consulting services revenue was up 14%, up 15% in constant currency, and maintenance services revenue was up 6%, up 7% in constant currency.

For the year, consulting services was up 12%, up 14% in constant currency aided by acquisition activity.

And maintenance services revenue was up 9%, up 10% in constant currency.

Now, I'd like to furnish some color on how our industry verticals influence our 2012 revenue.

As a reminder, these comments are based on data warehouse and consulting services revenue and do not include maintenance revenue.

Financial services grew 19% for the year and contributed 30% of Teradata's revenue, with the strongest growth coming in the Americas and APJ.

Communications declined 3% from 2011, but still contributed 21% of revenue.

Growth in the Americas and the EMEA regions was offset by declines in APJ.

The media and entertainment segment, within the communications industry, was down going against a very strong 2011.

While the telecommunication segment grew.

Retail grew 14% and contributed 16% to the data warehouse revenue.

Manufacturing was up 10% and contributed 12%.

We added 2 of the top 10 global manufacturers in 2012, giving us now 7 out of the top 10.

Healthcare had a growth of 13%, and contributed 7% to total revenue.

Government grew 9% and contributed 6%.

Travel and transportation was up 28% and contributed 6%.

And finally, energy and utilities and other grew 12% in 2012 and contributed 2% to total revenue.

During my discussions today, except where otherwise noted, I will be addressing margins and expenses on a non-GAAP basis, excluding stock -based compensation and other special items.

A reconciliation from GAAP to non-GAAP measures, identifying these items, is available in our earnings release and also on the investor page of our website.

For the year, we had solid operating execution and improvements across the gross margin categories as well as in operating margins.

Gross margin of 56.4% in the fourth quarter of 2012 was about the same as in Q4 2011.

Gross margin for the year was 56.9%, a 100 basis point improvement from 55.9% in 2011, led by improved product margins and a greater proportion of product revenue.

Product gross margin in the fourth quarter was 68.2%, up 30 basis points from the 67.9% in the fourth quarter of 2011.

Product gross margin for the year was 69.2%, 150 basis point increase from 67.7% in 2011.

The improvement was primarily driven by a favorable revenue mix with less 1000 series appliance revenue in 2012.

As a percentage of total product revenue, our 2000 series appliance revenue in Q4 2012 was 14%.

Again, in the 10% to 15% expected range we had discussed previously.

For the full-year, the 2000 series appliance revenue was approximately 12% of total product revenue.

Services gross margin in the quarter was 45.1%, slightly lower than the 45.5% in Q4 2011.

Services gross margin for the full-year was 45.4%, a little better than the 45.1% in 2011.

Turning to our operating expense profile, SG&A expense of $195 million increased $20 million, or 11% from Q4 2011.

For the year, SG&A was $674 million, up 10% from 2011.

We absorbed $60 million of increased SG&A and still improved operating margins by 200 basis points.

The increase in SG&A for the quarter and the year were primarily driven by increased direct sales investments as well as the addition of acquisition related SG&A.

Research and development in the quarter was $46 million versus $52 million in the fourth quarter 2011.

The decline was largely due to increased capitalization for software development expenses, as well as lower annualized and variable compensation expense in the quarter.

For the year, R&D increased to $169 million, compared to $161 million in 2011.

As we've mentioned before, we invest more in the R&D activities than what is reported on the R&D operating expense line on our income statement.

Total R&D spend for the fourth quarter, which includes R&D expense plus the additions to capitalized software development costs from the cash flow statement, less capitalization of internally developed software, was approximately $66 million, or approximately 18% of our product revenue.

This compared to the approximately $63 million in Q4 2011.

As a reminder, these capitalized costs when amortized are then added back to the income statement as product cost of revenue which reduces product gross margin.

For the year, total R&D spend was $244 million or approximately 19% of our product revenue versus $224 million in 2011.

As a result of all these items, operating margin for the quarter was 23.9%, a 100 basis point increase over the 22.9% yield in Q4 2011.

For the full year, operating margin was 25.4% versus 23.4% in 2011.

For both the quarter in the year, the contribution from higher revenue and improved product mix offset the increased operating investments.

On a GAAP basis, our effective tax rate in Q4 2012 was 25% versus 26% in Q4 2011.

On a full-year basis our GAAP effective tax rate was 28% versus 27% in 2011.

Our non-GAAP effective tax rate for the fourth quarter was 23%, compared to 27% for the same period in 2011.

For the full year, our non-GAAP effective tax rate was 28% in both 2012 and 2011.

We expect our 2013 GAAP and non-GAAP effective tax rates to approximate 26% and 28% respectively.

In terms of earnings per share, our Q4 GAAP EPS was $0.66 versus $0.57 in Q4 2011.

For the full-year, GAAP EPS was $2.44 versus $2.05 in 2011.

Non-cash stock-based compensation expenses included in our GAAP EPS.

During the quarter stock-based compensation expense was approximately $12 million, or approximately $0.06 per share.

For the full-year, stock-based compensation expense was $43 million, or $0.17 per share.

We expect stock -based compensation expense to be a approximately $58 million, or approximately $0.22 per share in 2013.

Also included in Teradata's fourth quarter and full-year 2012 non-GAAP net income, as reported, included approximately $4 million of an income tax benefit related to the 2012 R&D tax credit.

This benefit was not reflected in the GAAP results in 2012 since the American Taxpayer Relief Act of 2012 was not enacted until January of 2013.

Adjusting for stock-based compensation, the R&D credit, and other special items, which equated to $0.13 in Q4, our non-GAAP EPS was $0.79 in Q4 2012, compared to $0.66 in Q4 2011, for a year over year increase of 20%.

For the year, and non-GAAP EPS was $2.85, compares to $2.32 in 2011 for a 23% increase in non-GAAP EPS for the year.

Turning to cash flow.

Net cash provided by operating activities was $124 million in Q4 2012, versus $126 million in the fourth quarter of 2011.

For the year, cash from operations was $575 million, an increase of 12%.

After $39 million of capital expenditures, which include additions to capitalized software development cost and expenditures for property and equipment, versus $23 million in the fourth quarter of 2011, we generated $85 million of free cash flow, versus $103 million of free cash flow generated in Q4 2011.

The decline in free cash flow for the quarter was net due to increased investments in property and equipment and capitalized software development expenses in Q4 2012 versus the same period as last year.

The increase in receivables was offset by changes in other operating activities, including but not limited to increasing in current payables and accrued expenses.

On a full-year basis, free cash flow was $427 million, increasing $24 million on a year over year basis.

Turning to the balance sheet, we had $729 million of cash as of December 31, 2012, down $180 million from the $909 million at the end of the third quarter.

The lower cash balances was primarily due to our share repurchase activity in the fourth quarter when we invested approximately $240 million to repurchase 3.9 million shares.

During the year, we invested $281 million to repurchase 4.5 million shares.

This compares to the $127 million used in 2011 to repurchase 2.5 million shares.

In December 2012, our Board of Directors approved an additional $300 million share repurchase authorization.

This was in addition to the $300 million authorization they approved in February 2012.

Despite being very active in purchasing our shares in Q4, we still had approximately $376 million of share repurchase authorization remaining at the end of the year.

Due to our use of US cash for share repurchase activity in 2012, only approximately 30% of our cash is available in the US, with the remainder being held offshore.

As I've said before, we expect that the rate of our share repurchase activity will continue to fluctuate each quarter and year over year, taking into account among other things our working capital needs, stock price, alternative uses of cash, US cash balances, and economic and market conditions.

With respect to accounts receivable, day sales outstanding was 91 days as of December 31, 2012, compared to 74 days at September 30, 2012, and 76 days as of December 31, 2011.

The primary driver of the increase in accounts receivable was the timing of the product revenue transactions during Q4 2012 versus Q4 2011.

Transactions in Q4 2012 on the average occurred later in the quarter versus the prior year period.

However, to demonstrate the effect of this timing, we collected $57 million more in receivables cash in January 2013 then in January 2012.

With respect to deferred revenue, the total deferred revenue short-term and long-term was $405 million as of December 31, 2012, which was up $23 million from September 30, 2012 and up $42 million or 12% from December 31, 2011.

Deferred maintenance and subscriptions revenue continues to increase at a rate consistent with our expectations.

The other component of deferred revenue relating to product transactions as of December 31, 2012 was within the historical range, which is based on the last 16 quarters.

With respect to currency movement, to provide further transparency around currency movement and the potential impact on future revenue, we provide a schedule on our website detailing how currency has impacted the fourth quarter of 2012, and how this movement is expected to impact our year over year revenue comparisons for 2013.

Assuming the currency exchange rates as of the end of January, we do not expect currency to have a significant impact on our year over year revenue comparisons in 2013.

Mike provided 2013 revenue and EPS guidance earlier.

But I want to give a little more color on some of the specifics.

As it relates to revenue, as a result of the impact that the macroeconomic environment is having on overall business activity around the world, and more specifically on capital expenditures, we expect growth of our reported revenue for 2013 to be in the 6% to 10% range.

We will be comparing against some pretty tough comps during the Q1 and Q2.

And therefore, we expect our growth rates to be stronger in the second half of the year.

Although we have good activity in our sales funnel, the macro economy is clearly having an impact on capital spending in the first half.

There are fewer big deals expected in the first half.

And on the average, the deals that are expected are smaller in size than what we typically see.

We see the opportunity for better growth in the second half of the year.

But obviously, that creates a back end loaded type scenario, which we do not like to count on.

So we've provided some conservatism, and therefore, a wider range in our revenue guidance.

We think this conservative approach is appropriate, even though we feel great about our technology leadership, our competitive differentiation, the continued demand for analytics, the growing activity for Big Data analytics via our Aster's solutions, and our partnership with Hortonworks and others.

As it relates to EPS, we expect GAAP EPS to be in the $2.64 to $2.79 range.

The GAAP EPS is expected to include approximately $0.22 a share of stock -based compensation expense; $0.16 a share of amortization of acquired intangible assets; $0.05 a share of transaction and integration costs; and $0.02 income tax benefit for the 2012 R&D tax credit.

Excluding these non operational items, or special items, we expect our non-GAAP EPS to be in the $3.05 to $3.20 per share range for the full-year 2013.

As it relates to Q1, as Mike said earlier, we face continued macroeconomic uncertainty as well as tough comps that will have a negative impact on our revenue growth rates in 2013, particularly in the Americas in Q1 and Q2.

And since our expense run rate from increased investments in sales territories and other growth initiatives, including R&D and M&A, is about $20 million higher than our Q1 2012, which is consistent with the last couple of year over year comparisons.

And as Mike said, we are currently continuing this investment strategy.

Therefore, our Q1 2013 non-GAAP EPS is likely to be down from Q1 2012, primarily driven by our Q1 revenue performance which could be below Q1 2012.

In closing, despite the increased downdraft in the global economic environment in the second half of the year, particularly the US, we continue to deliver solid performance.

In large part, due to the demand for Teradata, the continued emphasis of business analytics, the performance of the Teradata team, and most importantly, the continued support and working partnerships we have with our customers.

We realized good growth across all three of our geographic regions, despite continued uncertainty in the worldwide economy.

We have done this by consistently investing in our technology, solutions, services, and our go-to-market strategy.

And we will continue to be disciplined in managing our operations and capital.

However, in the short term, specifically in the first half of 2013, the macro uncertainties make it a little bit more difficult for large IT, CapEx investments to be approved and we have reflected this in our guidance for 2013.

Longer-term, we remain confident in our ability to leverage our business model and the big analytical opportunities that lay ahead of us.

And as a result, we are well-positioned for these opportunities.

And with that, Operator, we are ready to take questions.

Thank you.

We will now begin the Question-and-Answer session.

(Operator Instructions)

Katy Huberty; Morgan Stanley.

Thanks.

Good morning.

There were a number of promising metrics in the fourth quarter, consulting growth, accelerated offset of the loads in June, deferred revenue was better than seasonal.

It looks like you invested the revenue upside in more sales heads.

And just based on the DSOs, it looks like you saw strength in December, similar to what EMC and others have commented on.

So, can you help us better reconcile those metrics, which would suggest that a good growth rate continues with your more cautious comments on the first half?

I understand there are tough compares, but what are you really seeing that would offset those metrics that suggest that you are set up for a pretty good 2013?

Thanks.

Thanks, Katy.

This is Mike.

I think what you are alluding to, if you look at the fundamentals in the Company, the fundamentals are very, very sound.

And we're going to continue to invest at a rate that we've been investing the past several years.

And longer-term, we see a very good picture for Teradata.

Basically, what's happened shorter term is the economic uncertainty, and then, in particular, the number of large deals that we currently have in play and the size of those large deals are down in the Americas.

So, that is the one metric when you step back and look at everything that has caused a conservatism in our guidance when you look at the entire year for 2013.

Just as a quick follow-up, did you also see weak, or lower number, of large deals in the fourth quarter?

We definitely did in the third quarter.

The fourth quarter in the Americas actually came back a little bit.

There might have been just a little bit of budget flushing.

So the number of large deals and the size of the deals in Q4 were down, but not to the degree they were in the third quarter.

And not what we are apparently seeing right now.

But I just want to comment that this is what we are seeing right now.

Everything is subject to change.

And we'll adjust guidance appropriately, if in fact anything does change here in the near future.

Okay.

Thank you.

Matt Summerville; KeyBanc Capital Markets.

This is Joe Radigan on for Matt.

With respect to your 2013 outlook, how much revenue growth do expect to come from the legacy business versus the new product lines that you have added over the last several years?

Joe, I would say at this point in time, it is all based on our normal evolution product cycle.

So it's all just rolling so there is really no distinction between legacy and old or the new stuff.

It's all just on the recurring cycle.

Nothing unusual in those revenue numbers or estimates.

Everything is really consistent to what we have seen in the past.

And Aprimo is, as we expected, it's kind of built now down into the core application business.

And Aster is small in the prior year's and we're not anticipating any great upside in 2013.

But progress is being made in the Aster area.

Great.

Thanks.

Phil Winslow; Credit Suisse.

Hi.

Thanks, guys.

Just want to dive into the Q3 call.

I think from your comments about just excess capacity in customer service, I misunderstood by some of the investment community.

I wonder if you can clarify this.

But also kind of put that into the context of what you're saying folks just running their data warehouse higher in buying in smaller increments and how that is affecting you are thinking about the first half versus second half growth rates?

Yes.

This is good.

I want to clarify this because what we didn't talk about on the third quarter was that there is excess capacity.

And let me try to explain it this way.

When the customers are adding capacity, they are adding performance capabilities that come from the CPUs and IO that they are adding in order to accommodate new applications, more users and more queries.

Right?

And the Teradata EDW's are designed to run at 90% to 100% utilization all the time.

So, in effect, they are really, theoretically is never excess capacity.

Each time a customer needs to add more user application or queries to their enterprise data warehouses, they have choices.

They can choose to add more capacity, and by the way they can do it in small increments because Teradata has this coexistence capability that you can bolt on small increments to older types of technology.

Or they can choose to throttle back performance, or response times, selectively for existing users, or applications, or queries, and this in turn frees up capacity to meet the new demand.

That's the choice they have to make.

Teradata has great technology.

We have this workload management software that allows customers to do this and they can pinpoint the throttling back of performance with precision for specific users, applications, and queries.

The comment about the Americas adding a lot of capacity, what happens is when customers have added a significant amount of capacity over a couple year period, this means that there has been a lot of users applications and queries added to their EDW's.

This in turn means there's more places to choose from to throttle back the performance.

And there was versus a couple years earlier in order to free up performance capacity.

So, basically, customers have the option right now, when they need to add capacity to tune their existing environment, there'll be users and applications that can live with slower response times.

It is not mission critical to operate the Company on seconds type of decisions and responses.

And they will do that in lieu of adding the capacity.

So then the question gets into how long can the user base to tune their EDW's and wring out more capacity by throttling back response times and performance.

Typically, with most customers, we see this can take, typically what we see is around a 12 month period.

And this is why we're very more optimistic, or bullish on the second half of the year because if the Americas, which started this slowdown in the expansions and adding capacity in the third quarter, that's when it would be a 12 month period.

And we are hoping this is a tipping point and we'll have a lot of pent-up demand in the second half of the year to go add more capacity into the user base in the Americas.

Got it.

Thinking about is as a rubber band, you can stretch it out, but eventually it's got to snap back.

And you think the snap back is at 12 months.

Exactly.

And what happens is we are aware of some customers where the business users are starting to make a lot of noise because they would like a faster response time and a better SLA with their utilization of the data warehouses.

So over time, the noise gets a little louder and louder and in some cases it impacts the business.

And the customers got to add the capacity.

Great.

Thanks.

Vamsi Mohan; Bank of America.

Yes.

Thank you.

Good morning.

Mike, the 6% to 10% growth range, can you give us some color how that compares to what you think the overall market is growing at?

Or perhaps some color on if you're still taking share or is there other pockets where you are actually losing share there?

As far as how it compares to market, I am not aware of data that is something that we could hang our hat on, or compare our results and our growth rates with.

The only thing I can comment on is we win a significant number of new customers every week, every month, every year.

And when we do that, we're replacing competition.

When we expand our EDW's, we are wiping out data marts and competitors small data warehouses, if you will.

And our share in our win rates, they're the same as what they've been and they are extremely high.

I think when you step back and look at it, what we are competing with in our enterprise data warehouses, what we're competing with, is we are competing for budget.

And when the budget isn't growing, we can't get our chunk of the budget.

So that is the biggest issue.

We don't really have competitors in the Enterprise Data Warehouse space to speak of.

It is more of a budget thing.

We need to gain market share of the customer's budget.

If you will.

Thanks, Mike.

As a quick follow-up, can you talk about the territory expansion plan of 2013?

When we look back a few years ago back in '08, '09 time from you invested aggressively in sales territories which in hindsight proved to be the right decision.

So the deceleration, I know you're still investing in adding 20 to 30, but what's the reason to step that down from the 35 to 45 that you've been doing over the last couple of years?

Thanks.

The 20 to 30, Vamsi, we would be adding this amount whether we were guiding a higher number or a lower number of revenue.

It all gets at, we're moving Aster, Aprimo, and eCircle globally.

And this is a heck of a market opportunity.

You look at eCircle with a leading market position in Europe and now we have wins in the US.

And we're coming in the US.

And eCircle has leading digital messaging technology.

Similarly with Aprimo, heavily concentrated in the US when we acquired them.

Now we are growing footprints out into Europe and into China and we're going to grow that all over the world.

And would you look at Aster, there are early adopters of Hadoop, Big Data and analytics are in the US.

Now we are expanding Aster into Europe as well as Asia.

So, what we have done is we are investing into selling expense, consulting expense, demand creation expense, at the same rate we were over the years, but we are adding more sales specialists, consultants, subject matter experts in the different parts of the world where these solutions aren't heavily penetrated.

So it's a trade-off of traditional Teradata data warehouse territories.

Or they are Teradata territories that sell everything and adding more specialist to get after the deployment of these solutions globally, which is a great opportunity for us.

Thanks, Mike.

Greg Dunham; Goldman Sachs.

Thanks for taking my question.

I did want to follow-up on this 4Q to 1Q dynamic.

Given December was strong, were close rates better than expected in December?

And what are your assumptions for close rates going into 1Q in terms of your commentary?

Thanks.

Greg, there is no difference in close rates.

That's not the issue at all.

It really gets down to the number of large deals and the size of the large deals in the Americas.

That is basically it.

The close rates, no different.

The amount of the budgets and the uncertainty in our customer base that's helping to drive to less large deals is the factor.

Then the follow-up, it sounds like the pipeline is smaller in 1Q.

Can you comment on the pipeline overall?

Is it a more backend loaded pipeline?

Or is it the acceleration growth driven by easier comparison in the back half?

It's a little counter intuitive, but the size of our funnel is actually up.

So that's good news.

The overall activity, the number but opportunities, the value of all the opportunities is up.

The short-term issue we have is the number of large opportunities and the size of the opportunities that are in the closing state in the first quarter.

And as we look out to the second quarter we would like to see another uptick.

This is just a, we believe it is a short-term type of thing.

Companies just aren't committing to large CapEx expenditures.

And I can add companies aren't committing to large projects when you look at consulting and some of these other things.

I think we are in an environment where everyone is looking at buying in smaller chunks and doing projects in smaller pieces.

And when I make this comment, it's not just specific to Teradata, but it's what we hear from other companies as well.

Okay.

Thank you.

Brent Thill; UBS.

Thanks.

Good morning.

Mike, if you could just comment a little bit about what you're seeing in the financial services market for the year?

Your pipeline?

And your assumption on some of the close rates going forward?

That'd be helpful.

Thank you.

Brent, the financial services is actually had good growth in 2012.

And on top of good growth in '11 and 2010 and it continues to be a extremely good vertical for us.

And our activity there is good.

Our value prop is very much in line with what a lot of these financial services institutions are trying to get.

Specifically in 2012 financial services grew.

Strong growth, and one of the stronger growths in all the industry verticals.

Right.

So, Brent, we see financial services behaving very well.

Okay.

So you don't see any type of material slowdown in terms of your pipeline in financial services for 2013?

Currently, when you look at the number of large deals in the size of those deals, it is down some but not to the degree that we are seeing overall.

Okay.

Thanks for the color.

Sure.

Thanks, Brent.

Raimo Lenschow; Barclays Capital.

You focused a lot on the Americas but can you talk a little bit about Asia?

If you look at the growth rates you are achieving there, it looks subpar compared to the opportunity.

I know we talked about some of the already changes you're doing there to help you there.

But can you talk about that region a little bit in more detail?

Thank you.

Yes.

Asia-Pacific Japan does represent a good opportunity for Teradata to increase our performance there if you look back over the past couple of years in how the Company is doing overall.

We feel good about how we're positioned in China, and very, very good growth we had the second half of the year.

And Japan tailed off a little bit at the end of the year.

So we've got this dynamic and Japan had some currency going against them as well in the fourth quarter.

But when you look at Asia-Pacific Japan, we need to keep China going on the right track.

We've got to good Japan which had good growth overall for the year.

We need to keep Japan growing because those two markets are so large.

And we've got a very large position in Australia that we've got to maintain or grow.

And it really gets into a lot of the other parts of Asia and Southeast Asia, and so forth that we need to get growing at a faster rate.

So, I think what we have done, and we're loading more expertise, injecting more expertise into the region.

We think we will be able to hopefully pick up the pace there in Asia-Pacific Japan.

But, to your point, this is an opportunity for Teradata.

Okay.

Thank you.

Ed Maguire; CLSA.

Hi.

Good morning.

Could you comment on the momentum you've seen particularly around the 2000 series, what you expect in terms of adoption?

Whether that's reflected in customers buying smaller chunks and what the competitive landscape has been around your appliances?

Thank you.

Appliance, Ed, is growing at a rapid rate but its coming from a smaller baseline if you will.

Our win rates are very high.

We see no change in the win rates.

We've had a recent release with significant performance enhancements to it.

And overall, it helps us get customer's wallet share and it helps us acquire new customers.

And it has been very, very successful and beneficial to the Company.

In addition, we now are seeing and have had a number of companies that have added a 6000 class EDW to their 2000 environment.

Not necessarily replacing it, the 2000 goes into test in development or DR or a different use.

So it has worked out extremely well.

Jesse Hulsing; Pacific Crest Securities.

Thanks, guys.

A couple questions.

First, you may have mentioned this, but what are your plans for services hiring in 2013?

On the customer services side, Jesse, we'll hire to cover the demand for the increase in our footprint as we expand our presence around the world.

On the consulting services side, we will throttle our headcount and hiring with the revenue growth.

It is consistent with what we have done over the years.

Okay.

And then turning back to Aprimo, how satisfied are you with how that business is trending?

How integration is coming with the rest of your business?

And do you expect the Aprimo business to trend meaningfully above the growth rate of the rest of your business in 2013?

Jesse, what I would like to comment on is Aprimo has performed as expected, financially, and I would say, overall, in metrics beyond the financial metrics.

Is there opportunities to do better?

Absolutely.

Are we trying to do better?

Absolutely.

It's a market-leading solution.

If you look at some of the analysts publishing's in the marketing resource management area, we have a huge lead.

And I would love for us to get this planted in more customers around the world as soon as we can.

Great.

Thanks.

Thank you.

Derrick Wood; Susquehanna Financial Group

Thanks.

I wanted to drill back down into the large deal dynamic.

In Q1, and aside from the cautious CapEx spend out there, I'm curious if there are other factors in place.

First, are server upgrade cycles having any impact to timing of capacity upgrade purchases with Teradata software?

And then second, are you seeing any meaningful mix shift in your pipeline with regards to a higher percentage from the 2000 appliance?

Thanks.

Derek, the server cycles don't impact Teradata.

And it is because of our coexistence capability and our customers know this.

And the performance attributes going from one generation of a server to a next or a point, is not that meaningful.

The answer is no on the server cycles.

And on the 2000 mix, the business is running consistent with what it has been doing the past two or three years, where we're looking for a 10% and 15% type of product mix of the 2000 in our overall product revenue.

And it has been very consistent.

So those two items you can rule out as impacts on what we're seeing right now on the large deals.

Great.

Thanks.

Okay.

I want to thank, everyone, again, for joining us here this morning.

And hope you all have a great day.

Thank you.

Thank you, ladies and gentlemen.

This concludes today's conference.

Thank you for participating.