Teradata Corp (TDC) 2013 Q4 法說會逐字稿

Welcome to the 2013 fourth-quarter earnings call.

My name is Samantha and I will be your operator for today's call.

(Operator Instructions)

I will now turn the call over to Mr. Gregg Swearingen.

You may begin, sir.

Good morning and thanks for joining us for our 2013 fourth-quarter earnings call.

Mike Koehler, Teradata's CEO, will begin today by summarizing Teradata's results.

Steve Scheppmann, Teradata's CFO, will then provide more details regarding our financial performance as well as our guidance for 2014.

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

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

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

On today's call, we will also be discussing certain non-GAAP financial information, which excludes such items as stock-based compensation expense and other special items, as well as other non-GAAP items such as free cash flow and constant-currency revenue comparisons.

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

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

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

I will now turn the call over to Mike.

Thanks, Gregg, and good morning, everyone.

Teradata made progress in many areas of our business in the fourth quarter.

Total revenue of $769 million was up 5% in constant currency.

Non-GAAP operating income of $205 million was up 16%, and non-GAAP earnings per share of $0.88 grew 11% over prior year.

Non-GAAP operating margin of 26.7% was the highest ever recorded for a fourth quarter.

Product revenue of $372 million was up 4% in constant currency.

And non-GAAP product gross margin of 68.5% was the fourth highest ever achieved for any quarter.

Maintenance revenue grew 14% in constant currency in the fourth quarter, and 10% for the full year.

Our maintenance revenue tends to benefit when customers choose to sweat their existing data warehouses and add capacity to them, rather than replacing them with newer technology that comes with lower maintenance costs.

For the full year, revenue finished at close to $2.7 billion and grew 2% in constant currency, with non-GAAP earnings per share finishing at $2.76.

We had another good year of adding new data warehouse customers, surpassing 2012 levels in total wins and Global 3000 new customer wins.

The largest contributor to the slowing of our revenue growth in 2013 was the decline in revenue from our top 50 customers in the Americas.

All of these customers continued to invest in their Teradata warehouses in 2013, but collectively at a level that was below 2012, but higher than it was in 2011.

Outside of the top 50, the Americas grew revenue in the mid-teens.

The strong revenue growth outside of the top 50 is a reflection on the quantity and quality of the new customer wins we have been adding and also the investments we have been making to add territories and to increase the breadth and the strength of our solutions.

The primary driver of our lower data warehouse revenue with our largest customers was the belt-tightening with IT budgets and their decline in large CapEx transactions.

Last year we noted on our Q1 earnings call that over half of our major customers in the Americas had reductions in their total IT budgets.

Industry analysts at the time were predicting worldwide IT spending to increase 4% to 6%.

Industry analysts have since revised their estimates to be less than a 1% increase in IT spending for 2013, which was more in line with what our major customers were telling us.

This year, our survey of our top 50 customers shows a modest improvement in IT budgets over 2013.

Hadoop was also a factor with our top 50 customers in 2013, but to a much lesser degree.

The quantifiable impact was small.

The non-quantifiable impacts from Hadoop, such as evaluations and confusions in our customer base, was larger.

Approximately one-third of our top 50 customers in the Americas have Hadoop in production now, with the other two-thirds in various stages of evaluations.

The spending patterns on Teradata data warehouses for the customers that had Hadoop in production, compared to those who did not, was similar.

We work closely with these customers, and nearly half of them have adopted our Unified Data Architecture.

The total number of customers who have implemented our UDA has more than tripled, and we have several more with proof of concepts underway.

In addition, our 2013 Aster and Hadoop related revenue was close to quadruple from what it was in 2012.

We embrace Hadoop as a key part of our UDA, because we believe that, net-net, Big Data and Hadoop is a benefit for both our customers and for Teradata.

Moving on to the regions, the Americas revenue of $464 million in Q4 was up 3% as reported and 4% in constant currency.

For the full year, the Americas revenue grew 1% as reported and 1% in constant currency.

New data warehouse customer wins in the Americas were the second highest ever for a Q4.

Fortune 500 new customer wins included Murphy Oil, which is using Teradata to help integrate oilfield operations; Cummins, a designer and manufacturer of power generation equipment; a large chemical manufacturer which is implementing our UDA along with Teradata and Aster to discover trends and predict market demand.

And Banco Itau, one of the largest banks in Latin America, purchased Teradata for its data management transformation project to provide greater competitiveness through data integration.

Other new customer wins included a global equipment manufacturer, which is implementing our UDA, Teradata, and Hadoop to improve preventive maintenance with sensor data collected from its equipment around the world; an American biotech company that added Teradata to increase the precision and speed of drug safety analysis; as well as Advance Auto Parts and Colombia's Ministry of Finance.

Noteworthy expansions with Fortune 500 customers included one of the world's largest brewing companies, which is building out its UDA and adding Aster as its discovery platform for advanced research into revenue optimization; a top entertainment service provider, which added Aster for discovery analytics as part of its UDA to identify at-risk customers and reduce churn; a pharmaceutical company that expanded its UDA by adding Aster to create a one-stop analytical ecosystem for its scientists and statisticians in research and development; a top 10 global bank which purchased the Teradata data warehouse and Aster Hadoop appliance for its US division to improve customer focus and relationships with its wealth management clients.

One of the top five communications companies expanded its Aster system, which is performing behavioral analytics and adding our digital messaging solution.

In addition, we had Fortune 500 expansions at Wells Fargo and 6 of the top 20 retailers in the world.

Other customer expansions in Q4 included Amgen, HCA, and a major retailer in the Americas that upgraded its Teradata environment to add new applications from competitors.

Moving on to our international region, Q4 revenue grew 5% as reported in the fourth quarter and 8% in constant currency.

For the full year, international revenue growth was 1% as reported and 4% in constant currency.

International new customer wins during the fourth quarter included Siemens, which is implementing our UDA and adding a data warehouse, Aster, and Hadoop for data discovery in research and development.

Chunghwa Telecom in Taiwan added our UDA and Aster for Big Data analytics to better predict churn and increase upsell/cross-sell opportunities.

Banco Sabadell, a top-five bank in Spain, has started a new Big Data team based on Aster and is using Aster and Hadoop to analyze customer behavior, credit risk, and real estate.

Guangzhou Rural Commercial Bank, the largest regional bank in Southern China, selected Teradata and our financial services logical data model to integrate data from 30 source systems and improve data quality, meet regulatory requirements, and support business decisions.

And we added our first energy and utilities company in China, which is one of the top 10 largest companies in the world.

We also added one of Japan's largest wireless communications companies in the fourth quarter.

Expansions and upgrades in the international region included Telefonica Czech, which purchased Aster to implement new and more sophisticated customer churn patterns based on cross-channel consumer behavior.

Air France expanded its data warehousing environment to include operational intelligence and event-driven decision-making.

A top 10 global telco expanded its UDA with the purchase of an Aster Hadoop appliance to perform social network analysis, among other things.

Other upgrades in Q4 included DiGi Telecommunications in Malaysia, Maersk, Nordea, and Rakuten in Japan.

Some key announcements we made during Q4 included the release of our latest 1000 Extreme Data Appliance with a list price of under $2,000 per terabyte.

This appliance is ideally suited for SQL analytics on high-volume relational data such as transaction and sensor data.

We also released the Aster Big Data Discovery Platform 6, which includes an industry-first graph analytics engine to help organizations solve complex business problems, such as social network influencer analysis, fraud detection, network analysis, and money laundering.

Forrester ranked Teradata as a leader in their latest enterprise data warehouse Wave report, and Gartner recognized Teradata as a leader in their IMM Magic Quadrant report.

Although 2013 was a challenging year for Teradata, we continued to make strategic investments at similar levels as we have in prior years.

It is a top priority that we make the proper level of investments to ensure our leadership positions in data warehousing, Big Data analytics, and integrated marketing management.

In 2013, we increased R&D investments by 7%, net of bonus expense.

We added 29 territories.

We increased the number of IMM sales specialists and consultants by 12%, and we increased our investments in Big Data Centers of Expertise.

These Big Data COEs are critical to helping customers implement Big Data environments and critical to driving Teradata's Big Data revenue growth.

These COEs are staffed with many of the traditional Teradata consulting skill sets for data architecture, data integration, and data management; and also with newer skill sets that we continue to ramp, such as for Aster, Hadoop, and our UDA.

In 2014, we plan to add territories opportunistically and invest more in strengthening our existing territories, by adding industry consultants, technical consultants, and more experts with domain knowledge for our expanding data warehouse, Big Data analytics, and IMM solution portfolios.

This, along with our Big Data COEs, will help to accelerate revenue growth in our existing territories both shorter-term in 2014 and longer-term.

Longer-term, we have a good opportunity to grow revenue double digits.

First, our core data warehouse business should continue to grow.

Industry analysts project growth at a high single-digit CAGR over the next couple years.

Our user base will continue to grow.

The amount of traditional business data will continue to grow, as well as the amount of the new Big Data that lands in our data warehouses.

And the number of users and the demand for new analytics will all continue to grow.

In addition, the opportunity for Teradata to grow through new customer acquisition in the various industry verticals and geographies is huge.

Our Data Warehouse as a Service will also help us to capture more customers.

Second, our Big Data analytics business is already experiencing strong growth.

This is an exploding market where we are well positioned with our UDA, Hadoop, and Aster related software, products, and services.

And we will continue to add to it.

Third, the integrated marketing management market is growing rapidly, and Teradata is positioned as a leader in IMM and in the two key subsets of IMM, which are marketing resource management and multichannel campaign management.

Furthermore, IMM is evolving into a hotbed for complex real-time analytics and interactions with consumers, which is also a great opportunity for our Big Data analytics solutions.

Fourth, approximately 40% of our revenue is now recurring, as opposed to being in the high 20%s in 2007.

Our recurring revenue is comprised of our applications business, data warehouse subscription, maintenance, managed services, and our Data Warehouse as a Service.

Our recurring revenue is currently growing around 10% and has the potential to increase, going forward.

Shorter-term, we believe that we will continue to experience some of the same headwinds that we saw last year again in 2014.

Currently, we are expecting 2014 revenue growth of between 3% to 7% as reported, and 4% to 8% in constant currency, with non-GAAP EPS of $2.85 to $3.00.

Now I will turn the call over to Steve.

Thanks, Mike, and good morning.

Even though we got off to a very slow start in 2013, it was good to see our year-over-year product revenue comparisons improve each quarter during 2013, to the point we were back to product revenue growth in Q4.

Fourth-quarter product revenue of $372 million was up 3% from the fourth quarter of 2012, up 4% in constant currency.

For the full year, product revenue was down 5%; down 4% in constant currency.

In the quarter, services revenue of $397 million was up 5% from the fourth quarter of 2012; up 6% in constant currency.

For the full year, services revenue was up 7%; up 8% in constant currency.

Within services revenue, in the quarter consulting services revenue was $225 million, flat against Q4 2012; up 1% in constant currency.

Maintenance services revenue was $172 million, which was up 12% from the fourth quarter of 2012; up 14% in constant currency.

For the full year, consulting services was up 5%; up 7% in constant currency.

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

At this time I will provide some color on the contribution by our industry verticals to our 2013 data warehouse, Big Data, and consulting services revenue.

As a reminder, these comments do not include maintenance or applications revenue.

Financial services contributed 31% of revenue, up from 30% in 2012.

Communications was 19% of revenue, down from 21% in 2012.

Retail contributed 14% of revenue, down from 16% in 2012.

Manufacturing generated 13% of revenue, up from 12% in 2012.

Healthcare contributed 8% of revenue, up from 7% in the prior year.

Government was 6% of revenue, the same as in 2012.

Travel and transportation drove approximately 6% of revenue in both 2013 and 2012.

Energy and utilities generated a little more than 1% of revenue.

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

In addition to the items we have discussed in the past, our fourth-quarter GAAP net income also included a $14 million net loss related to previous equity investments.

Overall, in the fourth quarter our product gross margins, services gross margin, total gross margin, and operating margin all increased when compared to the fourth quarter of 2012.

Gross margin was solid at 57.3% in the fourth quarter, up 90 basis points from the 56.4% in the fourth quarter of 2012.

The increase was led by a favorable product revenue mix and higher services gross margin.

For the full year, gross margin was 56% compared to 56.9% in 2012.

The decrease for the full year was largely due to the shift in our product versus services revenue mix, as services revenue grew in the year while product revenue declined.

This comparison was especially pronounced in early 2013.

Product gross margin in the fourth quarter was a solid 68.5% compared to 68.2% in the fourth-quarter 2012.

We experienced sequential improvement from Q3 to Q4 as to COD activated versus shipped.

For the full year, product gross margin was 66.2% compared to 69.2% in 2012.

The decline was primarily the result of lower product revenue volume, product mix, and increased FAS 86 amortization.

As a percentage of total revenue, our 2000 series appliance revenue in 2013 was 14%.

This is within the 10% to 15% range we expected when we launched 2000 series appliance.

Services gross margin in the quarter was 46.9%, up 180 basis points from the 45.1% in Q4 2012.

The increase was driven by favorable revenue mix, as we saw good growth of higher-margin maintenance revenue.

Services gross margin for the full year was 47.5%, a 210 basis point increase from the 45.4% in 2012, due to improved consulting margins and higher maintenance revenues.

Turning to operating expenses, SG&A expense of $197 million was 1% higher than the fourth quarter of 2012.

Higher selling expense in the quarter was offset by lower variable incentive-based compensation.

For the full year, SG&A was $702 million, a 4% increase from the 2012 level.

The increase was largely due to adding sales teams during 2013, offset somewhat by the decrease in variable incentive-based compensation expense, as the Company did not achieve its revenue or operating income performance targets.

Research and development expense in the quarter was $39 million, down from $46 million in the fourth quarter of 2012.

For the full year, R&D decreased to $165 million from $169 million in 2012.

For both the quarter and the full year, the decrease in R&D expense was due to lower incentive-based compensation.

Total R&D spend for the fourth quarter, which includes the R&D expense just described, plus the additions to capitalized software development costs from the cash flow statement, less capitalization of internally developed software, was $60 million.

This compared to $66 million in Q4 2012.

Year-to-date total R&D spend was $237 million or 19.3% of our product revenue, versus $244 million in 2012.

As a reminder, these capitalized costs, when amortized, are classified in the income statement as product cost of revenue, which reduces product gross margin.

As a result of all of these items, operating margin for the quarter was 26.7%, a 280 basis point increase from the 23.9% yield in Q4 2012.

For the full year, operating margin was 23.8% versus 25.4% in 2012.

On a GAAP basis, our effective tax rate in Q4 2013 was 27.3%, 2.5 points higher than the 24.8% in Q4 2012, driven by a higher actual mix of US pretax earnings in 2013 than was forecasted.

The full-year 2013 GAAP tax rate of 25.8% was 1.7 points lower than the full-year 2012 GAAP tax rate, which was mainly due to the tax benefit of the US Federal Research and Development Tax Credit for which both 2012 and 2013, the credit was reflected in the 2013 tax rate due to the retroactive restatement of the credit in January 2013.

Our non-GAAP effective tax rate for the fourth quarter was 29.4%, 6.1 points higher than the 23.3% in the same period of 2012.

The fourth quarter non-GAAP tax rate was higher in the prior-year period due to the higher mix of US pretax earnings in 2013 versus 2012, as well as the timing of the recognition of the 2012 US federal tax credit.

The tax benefit associated with the 2013 tax credit was recognized ratably over the 2013 reporting period, whereas the tax benefit associated with the 2012 tax credit was recognized entirely in the fourth quarter of 2012 due to the tax credit being retroactively reinstated in January 2013.

The full-year 2013 non-GAAP tax rate of 28.2% was 50 basis points higher than the full-year 2012 non-GAAP tax rate due to the higher mix of US pretax earnings in 2013 versus 2012.

In terms of earnings per share, our Q4 GAAP EPS was $0.68, compared to $0.66 in Q4 2012.

Adjusting for stock-based compensation and other special items, which equated to $32 million or $0.20, in the quarter our non-GAAP EPS was $0.88, compared to $0.79 in Q4 2012.

For the full year, GAAP EPS was $2.27, compared to $2.44 in 2012.

Stock-based compensation and other special items negatively impacted our full-year GAAP net income by $82 million or $0.49 per share in 2013, versus $70 million or $0.41 a share in 2012.

Adjusting for these items, 2013 full-year non-GAAP EPS was $2.76 versus $2.85 in 2012.

Turning to cash flow, net cash provided by operating activities was $63 million in Q4 2013 versus $124 million in the fourth quarter of 2012.

After $38 million of capital expenditures, which include additions to capitalized software development costs and expenditures for property and equipment, versus $39 million in the fourth quarter of 2012, we generated $25 million of free cash flow versus the $85 million of free cash flow generated in Q4 2012.

The timing of sales transactions in Q4 sales cycles working capital was a more significant factor in the reduction of free cash flow in the quarter.

For the full year, free cash flow in 2013 was $372 million versus $427 million in 2012.

Lower net income in 2013 and primarily the timing of payments related to payables and accruals led to the lower free cash flow versus 2012.

Full-year free cash flow was $5 million lower than the full-year GAAP net income, which is in line with our long-term expectations that full year free cash flow should approximate a range of plus or minus $25 million to $35 million of our full-year GAAP net income.

Moving on to the balance sheet, we had $695 million of cash as of December 31, 2013, down from $729 million as of December 31, 2012.

During the fourth quarter we used approximately $195 million to fund share repurchases, acquiring approximately 4.5 million shares.

During 2013, we used approximately $382 million of cash to repurchase approximately 7.8 million shares.

This was by far the largest cash amount we have invested on an annual basis to repurchase Teradata shares since our inception.

We still have approximately $320 million of share repurchase authorization available.

With respect to accounts receivable, accounts receivable increased $49 million in Q4 2013 versus 12/31/2012.

Days sales outstanding was 97 days as of December 31, 2013, compared to 91 days as of December 31, 2012.

With respect to deferred revenue, total deferred revenue was $415 million as of December 31, 2013, which was up $10 million from December 31, 2012.

As it relates to currency, assuming the currency exchange rates at the end of January, we expect currency to have a 1% headwind to our year-over-year revenue comparisons in 2014.

Turning to 2014 guidance, as it relates to revenue, we expect reported revenue to grow in the range of 3% to 7%, or about 4% to 8% when measured in constant currency.

This would translate into revenue in the approximate range of $2.77 billion to $2.88 billion.

Correspondingly, in terms of EPS, we expect GAAP EPS in the $2.39 to $2.54 range, which translates to $2.85 to $3.00 on a non-GAAP basis, when you exclude stock-based compensation and special items.

Specifically, we anticipate the following: that revenue percentage growth in the first two quarters will approximate the midpoint of our annual revenue guidance range.

Second, increase in FAS 86 amortization of $14 million during the year, mostly occurring in the first three quarters of 2014.

We expect, number three, increase in incentive variable-compensation cost of approximately $30 million.

Fourth, full-year GAAP effective tax rate to approximately be 26.5% and non-GAAP effective tax rate to approximate 28%; and this is heavily dependent on our earnings mix.

In addition, both rates presume that the R&D tax credit, which expired as of December 31, 2013, will be retroactively reinstated for the full year of 2014.

Until such time that the credit is officially reenacted, our effective tax rate will be negatively impacted by approximately 60 basis points.

Fifth, weighted average shares outstanding for the full year to approximate 161 million shares higher in Q1.

Finally, full-year impact of 2013's increased operating expense investments, sales territories, and R&Ds, with more of the incremental effect to be experienced in the first part of 2014.

We only expect a less than $10 million operating expense decrease sequentially from Q4 2013 to Q1 2014.

In closing, although we are disappointed in our 2013 results, we maintained our levels of investments in sales territories, sales support expertise, and R&D, adding significant capabilities to drive key areas for future growth and further enhancing our technology leadership position.

And with that, we are ready to take questions.

(Operator Instructions) Raimo Lenschow, Barclays.

Hey, thanks and congrats to the great ending of the year.

Good to see that is working.

Two questions from my side.

First, can you talk a little bit about trends in the geographies in more detail?

Especially, remember in Q3 Asia was particularly weak for you, and so I just try to get a better handle on what is going on in some of the regions that you didn't mention too much on the call.

Then the other thing is, Steve, maybe talk a little bit about the OpEx number.

Historically, you have seen probably more a $30 million gap down from Q4 to Q1.

Given the growth rates we've seen this year, why do we see that much higher investment level this year?

Thank you.

Thanks, Raimo; this is Mike.

A little more commentary on the geographies and in particular around international.

APJ had a very strong Q4.

I would characterize it more as lumpiness.

They had a decline in the third quarter, and I really think that is a region where you want to take a look at it on a full-year basis.

On a full-year basis, APJ did grow 3% in constant currency.

And when you take a look at the macro environment in APJ, it was really driven more -- the lower revenue growth this year was driven more around Japan, although Japan also did come back in the fourth quarter.

So I think on the APJ side, I would characterize it more as lumpiness.

And the full year was up 3% in constant currency, and we have made some improvement in Japan, where most of the decline was this year.

In other parts like China, we had a drop in Q3, not a big one; but then China bounced back in Q4.

And if you look at China for the full year, China had good growth, but not at the rate it was in 2012.

But, here we would say once again it is more lumpiness related after very, very high growth in 2012 than other types of issues there.

I think if you look at Europe and Middle East-Africa, that part of international, we did have macros impacting us in Eastern Europe.

But once again, there I would characterize the bigger impact of lumpiness, where we had extremely strong growth in Russia back in 2012 and a slowing in that growth rate.

And then the Middle East-Africa portion I would characterize also more heavily weighted towards lumpiness in the year as opposed to macro impacts.

Raimo, with respect to your second question: yes, you are correct.

We generally have a $30 million step-down Q4 to Q1.

What we are seeing for most of the Company -- a lot of the Company is on a variable incentive compensation structure.

Sales throughout the Company.

Typically, that is higher in Q4.

We [did] meet our numbers.

And if you take a number approximately -- I said in the prepared remarks, it would go down less than $10 million.

So if you take that net difference of $20 million, approximately 60% of that in relation to the variable comp step-down that we will not experience in Q4 of 2013 going to Q1 of 2014.

So mostly tied to that variable incentive compensation for employees throughout the Company.

Okay, perfect.

Thank you.

That was clear.

Wamsi Mohan, Bank of America Merrill Lynch.

Yes, thank you.

Good morning.

Mike, can you talk a little bit about how your pipeline looks this year?

Maybe compare and contrast relative to last year at this point, from a large-deal perspective.

Are you seeing any evidence that larger deals that were pushed out in the third quarter will close here in the first half of 2014?

And I have a follow-up.

The larger deals are up as we go into the first quarter, Wamsi; but I would characterize it as not being up dramatically or much higher.

It is up.

As a data point, in the fourth quarter we actually had a pretty good decline in large deals.

And the revenue growth outside of the large deals, more than $5 million, was actually very, very strong.

So I think when we look at what we are seeing right now, I am not counting on a big boost from an increase in large CapEx transactions, or larger than $5 million, and looking more for the continued trend of our growth outside of the large CapEx transactions.

Okay, thanks, Mike.

My follow-up, you mentioned both a quantifiable and sort of unquantifiable component impact of revenue from Hadoop.

Conceptually, what are you including in that non-quantifiable part?

And are you expecting a larger net negative impact to 2014 growth from Hadoop in aggregate?

Thanks.

The quantifiable piece, we are looking strictly at measurable things like revenue or offloads.

What type of revenue impact that had.

For the most part, the customers have Hadoop in production, like we said on the last call.

The activity is around ETL and moving some of the ETL workload off of their Teradata EDWs, which we're in agreement with and which we said on the last call.

So the quantifiable impact of customers doing that was relatively small.

Now, if you look at things going forward and the impact on Hadoop, I will refer back again to what we said on the last call.

And that is, basically, we did a thorough analysis of our larger customers and basically what we saw is they averaged 20% to 40% of their workloads being done -- being used for ETL.

And of the 20% to 40% of those workloads being done with ETL, we think that 20% is a good candidate to be done with Hadoop.

So going forward, we will see more workload being moved as it relates to ETL, and we see that as the biggest impact.

That all said, the growth of and the utilization of the Teradata EDWs, we expect it to outpace that area of ETL workload moving off.

Thanks, Mike.

(Operator Instructions) Phil Winslow, Credit Suisse.

Hi, guys.

Thanks for taking my question.

I just have a question related to your maintenance line.

Obviously that was an area of strength relative to the sell-side expectations this quarter.

And you commented about some just unique aspects that are affecting that line.

When you think about your 2014 guidance, and in particular Q1 and then over the course of the year, how do you think about product versus that services growth?

And what are the factors affecting the differential in growth between the two?

The dynamics of our maintenance revenue growth are, when we run into situations where customers are sweating their assets, basically what is happening is they are adding capacity to the existing EDWs.

So, if you will, there's only pluses and not minuses.

When we get in environments where large CapEx spending starts going up again, then we will see more floor sweeps.

And when you do a floor sweep you refresh older equipment with newer equipment, and it has a lower maintenance rate.

And that is a subtraction.

So, given the environment we are in, the trend we see for the maintenance when we look at 2014 is we see something in the high single-digits type of growth.

Got it.

Thanks, guys.

Matt Summerville, KeyBanc.

Morning.

How would you characterize the penetration rate you are seeing with Aster in your existing customer base?

Then how much of your revenue would you say in 2013 is associated with either Big Data analytics or -- and integrated marketing management?

The Aster penetration, Matt, we're only at the beginning.

So where we were two years ago, we were starting with I would say less than 10, right?

So we've had a very rapid adoption in our user base.

We also have won new customers without Teradata with Aster, new account acquisitions that weren't Teradata users.

And that has gone up as well.

I think if I could give a sense of what type of revenue we are talking about, when you look at 2014 and you look at all-in on everything we are doing around Big Data analytics, and you also include our 1000 series Extreme Data Appliance, which has been doing work with Big Data such as sensor and clickstream and other types of new Big Data elements outside of a business enterprise data warehouse type of environment, we will be well over $100 million in revenue in 2014.

So, that would include our Hadoop related revenue, our Aster related revenue, our 1000 appliance going into the Big Data space, as well as all of our services.

That in 2014 will be well over $100 million in revenue.

When you look at the IMM revenue, it will be approaching -- not close to $300 million, somewhere over $250 million, in between $250 million to $300 million by the end of 2014.

Great.

Thanks, Mike.

Greg Dunham, Goldman Sachs.

Hi, yes, thanks for taking my question.

You mentioned you had -- well, I guess first off, if I look at the DSOs and the cash collections it sounds like the linearity in the quarter was a little bit more back-end loaded.

Was that relatively broad-based?

Or was that different by geo?

No, Greg, relatively broad-based and nothing unusual that we experienced in the quarter.

With respect of what we are seeing through January, Q1 2013 was a record free cash flow quarter, approximately $216 million.

I expect us to replicate -- being close to replicate that strong Q1 free cash flow and January starting off very similar in 2014.

Okay, great.

Thank you.

Jesse Hulsing, Pacific Crest.

Hey, guys.

Thanks for taking my question.

Mike, you mentioned that you think you can grow double digits in the long run and that data warehousing can grow in the high single digits, but you still have some near-term headwinds carrying over from 2013.

My question is, what alleviates those headwinds as we work through 2014 and moving forward?

Is there something that you think can shift your mix?

Or you see something improving as far as the potential spending environment or the like?

Thanks.

Jesse, there's a couple things we are doing.

One of them is we are trying to get broader in the market, so that relates to we broaden our offers in what we take to market, as well as we broaden our market coverage, and we are injecting new ways in which to acquire Teradata such as Data Warehouse as a Service and all of our applications.

The headwinds that we are seeing -- and in our top 50 major customers, I still think there is -- we are dealing with a little bit of a sorting out and some confusion as to what the capabilities of Hadoop are.

And the action there is for us to get as many customers as we can on the Unified Data Architecture.

The Unified Data Architecture is, in a way, to alleviate confusion shorter term, over the next 12, 24 months, so customers can have a logical architecture that has different components of an analytical ecosystem with logical workloads, which includes Hadoop for doing the things Hadoop is good at doing now, and includes Teradata, includes other types of platforms.

So moving forward, it is rationalizing and sorting out what is a logical ecosystem for analytics for corporations, and the UDA helps sort that out a lot.

The other part of the headwinds and especially in our top 50 largest customers is the large CapEx headwinds.

And, quite frankly, we don't have a feel for when that is going to get alleviated.

As long as we have companies -- you know, you read with layoffs and cutting back and things like that; these are headwinds that we can't predict when they are going to come to an end.

Katy Huberty, Morgan Stanley.

Hey, thanks.

Good morning.

What are the drivers that can help accelerate both top- and bottom-line growth as you move beyond the first quarter?

And when do you think you will have better visibility as to where you land in the guidance range?

As far as better visibility to where we will land, Katy, for the full year on the guidance range, it typically does not happen until we get well out into the second quarter and into the third quarter.

The drivers of what we are trying to do top line and bottom line is we're trying to get as broad as we can in the marketplace as fast as we can.

We've been doing that with the new territories.

We experienced good growth, great growth in the Americas outside of the top 50s.

We broadened our portfolio; you can see that in our results in the Americas outside of the top 50.

I actually think we have done a pretty good job at taking actions to drive top-line revenue growth outside of the top 50.

We have a lot more revenue coming from outside of our top major accounts -- a lot more revenue coming outside of our top major accounts than we did three or four years ago.

So we have got that in place.

The other thing we are going to do is we have added a lot of territories over the past six, seven years.

We had 385 territories in 2008; We have 600 today.

Over the course of time, before 2008 we didn't have that much -- many less than 385.

We have a huge opportunity to drive productivity in the existing territories that we have today.

And we are really loading up on resources to drive more productivity.

That's specialists, consultants, and everything we can add to drive -- and expertise to drive more revenue short-term out of the existing territories.

And we think that should help us in 2014.

Of course, the Big Data piece of this, we are continuing to pile investments and resources into the Big Data analytics.

Keith Bachman, Bank of Montreal.

Hi, guys.

I had related questions.

Phil asked about maintenance; I was hoping you could just speak to a little bit on how you're thinking about product revs in that 3% to 7% context.

Then as a part of that, how do you see new territories growing in calendar-year 2014 and other types -- the number of territories specifically growing in calendar-year 2014, and/or any other metrics specifically related to product investments, where you think you might make some additional -- see some additional opportunities?

Hey, Keith, I will start with the first part of that.

With respect to product revenue, on that range, we are expecting product revenue on the low end of the range to be flat to 1%, okay?

And then growing to the higher end of that range.

Underneath product revenue, product margin even on the low end of that range, that 3% range, we see product margin improving or remaining relatively flat with last year for the full year.

So even on a 3% relatively flat product gross margin, which is strong from a pricing and competitive position.

So, that gives you a little color from where product revenue growth is for that 3% to 7% range.

And I will turn it over to Mike on the sales territories.

On the new sales territories, this year we are taking an approach of doing it opportunistically.

So we constantly see opportunities to add new territories, but we don't want to commit to a number right now.

We will add territories as opportunities present themselves; but for now we want to look at how do we accelerate revenue growth in existing territories, because we think we can get a bigger impact in 2014 from them.

And we want to make sure we do that, which will also, by the way, help us longer-term as we get more territories that we have ramped up over these past several years productive.

All right.

Fair enough, guys.

Good quarter.

Thanks.

Matt Hedberg, RBC Capital Markets.

Yes, thanks for taking my question, guys.

I am curious about some early feedback from your new Data Warehouse as a Service product.

I believe that officially launched earlier in Q4.

In terms of technology, the feedback is very, very good.

In other words, the customers we have with Teradata's Data Warehouse as a Service, performance-wise and everything else and meeting requirements and expectations: excellent.

In terms of market demand, we still don't see a lot of market demand.

There are some customers that have a preference to do as much as they can in the cloud.

It is a strategic direction for the company, and those customers we work with -- we're working with.

The mid-market is -- if there is any place where there is a demand, it is more in the mid-market.

Brad Reback, Stifel.

Hey, guys.

How are you?

Very good.

Mike, could you review your existing relationship with Hortonworks, what level of integration you have there, and what type of economics occur there?

Well, first of all, Brad, we try to partner with all the players that are in our space because typically we want to work with who our customers want us to work with on a lot of things.

That said, Hortonworks is very aligned with us strategically, as it relates to a vision of the Unified Data Architecture.

And when that occurs it naturally flows through that companies -- when companies share the same visions and the same thoughts and logic of how different things should play, like in a Unified Data Architecture, it lends itself very well to partnering.

And it's very easy for the people that work in both companies as you engage customers to be on the same page.

So, I would characterize that's the biggest driver of a lot of the success we have shared together with Hortonworks.

They are a great partner, and we very much appreciate the partnership.

As far as monies or things like that, Brad, I wouldn't say there is anything unique or -- nothing there.

Okay?

Great, thank you.

Derrick Wood, Susquehanna.

Congrats on a good Q4.

Thanks for taking my question.

Mike, I wanted to touch on the UDA comment.

You said half of your top Americas customers have adopted UDA and there is more to come.

This to me suggests that they are starting to position to use Teradata for broader Big Data needs, integration into Hadoop.

So I guess would this -- is this a leading indicator for you that perhaps the delayed decision cycles are bound, kind of exploring what Hadoop can do, may loosen in 2014 as people position more on the UDA vision?

I think that is a fair observation, Derrick.

First of all, it is a little bit less than half the customers in the top 50 that have adopted a UDA.

But, the Unified Data Architecture, first of all it is an architecture, and it is not so much about the Teradata products or whatever.

Once a customer can get sorted out the logic that resides in the Unified Data Architecture and the roles that -- the different things that reside in it, such as Hadoop, the roles that each of these platforms can provide, you are correct.

From there, then it is easier to define what is the needs by the customer in different parts of the business.

And then that is an opportunity for Teradata to sell not only just Aster or Hadoop related appliances and services and things like that, but also in some cases our own data warehouses, if it is a new customer.

So, I think that is a fair way to look at it, as a potential leading indicator.

One more question, please.

Ed Maguire, CLSA.

Yes, thanks.

Good morning.

I just had a question about the Big Data and Aster businesses.

Sounds like some very encouraging trends there.

Could you comment on the relative deal sizes, profitability, and scope of the deals?

And particularly, are there different sales cycles?

And do you feel that the sales processes and structure that you have in place now is going to be appropriate really to take advantage of the opportunities within your customer base?

Thanks.

To give a general framework, Ed, first of all, the sales cycles are shorter.

The expertise required is different than in a business-related enterprise data warehouse.

So the use cases and the ROIs that are driven from EDW, although some of it might be applicable over on the Big Data side, it is really unique use cases as it relates to insights that can be gained from all the Big Data types that are coming from the Web, sensor, and everything else like that.

In terms of deal sizes, I think it is fair to categorize it as these aren't large CapEx transactions, as it relates to today.

In terms of software and in some cases related hardware revenue, these are below the $5 million types of sizes.

They do bring along a good part of consulting, as well as support services, along with them.

Okay.

With that, I would like to thank everyone for joining us here today.

And I would like to hope that you all have a good day.

Thanks for joining us.

Thank you, ladies and gentlemen.

This concludes today's conference.

Thank you for participating.

You may now disconnect.