Teradata Corp (TDC) 2014 Q1 法說會逐字稿

Welcome to the Q1 2014 earnings call.

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

(Operator Instructions).

Please note that this conference is being recorded.

I would now like to turn the call over to Gregg Swearingen.

Mr. Swearingen you may begin.

Good morning, thanks for joining us for 2014 first-quarter earnings call.

Mike Koehler, Teredata's CEO, will begin today by summarizing Teredata's first-quarter results.

Steve Scheppmann, Teredata's CFO, will then provide more details regarding our financial 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 Teredata'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 Investors page of Teredata's website.

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

Teredata assumes no obligation to update or revise the information, including in this 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.

Teredata got off to a good start in 2014.

Q1 revenue of $628 million was up 7% as reported and up 8% in constant currency.

Product revenue grew 10% year over year and maintenance revenue grew 9%.

In addition, non-GAAP product gross margin of 68.1% was a record for a first quarter.

We also had another strong quarter with new data warehouse customer wins, adding the most new data warehouse customers for a first quarter since 2001.

These wins demonstrate the continued demand for Teredata's data warehouse and analytics portfolio.

Turning to the regions, the Americas Q1 revenue of $384 million was up 8% over prior year and up 9% in constant currency.

Some notable new customer wins included a Fortune 100 global manufacturer which added Teredata to integrate complex engineering data from multiple sources to support thousands of engineers in improving manufacturing quality.

Pioneer Hi-Bred International, a DuPont subsidiary and a world leader in agricultural science, is implementing Teredata to help them improve the world's food supply.

Century insurance, which is implementing a Teredata Integrated Data Warehouse, or IDW, and a major US department store retailer, which is also implementing a Teredata IDW.

As a note we are now referring to EDW's as IDW's because Integrated Data Warehouse is a more appropriate description of its role in our Unified Data Architecture going forward.

Significant expansions and upgrades included one of the world's largest consumer electronics manufacturers, a top five US insurance company that refreshed and expanded its IDW and expanded its UDA by adding Teredata Hadoop appliances and Teredata SQL H connectors.

One of the largest Americas communications and media companies added capacity to its IDW and integrated it with its Hadoop infrastructure.

A top five global airline added Aster to its UDA and also refreshed and expanded their IDW.

One of the largest US pharmacy providers added a Teredata Big Data appliance that includes both Aster and Hadoop for advanced behavioral analytics to improve patient health.

And Navy Federal credit Union added Teredata's Integrated Marketing solution.

Turning to our international region, Q1 revenue of $244 million was up 5% as reported and up 6% in constant currency.

The EMEA portion of international grew 10%, while APJ revenue was down 4% as reported and up 4% in constant currency.

New customer wins included a Fortune 100 chemical company which is implementing Teredata for predictive analytics to reduce supply chain risks, as well as Bank of Taiwan; Blokker Holding, a leading Dutch retailer; Agirc-Arco, a French pension fund; and a Fortune 500 bank in China.

Some notable expansions and upgrades included one of the world's top 10 telcos which is integrating call center data into its IDW to improve multichannel customer interactions; VTB24, a leading Russian bank, which is expanding its Teredata environment to improve risk; and at Unilever, Migros Switzerland and one of China's largest banks.

Overall Q1 revenue came in a little higher than we had anticipated.

This was primarily driven by the Americas closing some deals that were expected in Q2, which more than offset international revenue that came in a little lower than we had expected.

Looking at Q2 the Americas has fewer large deals in their funnel compared to what was closed in Q1.

Depending on the timing of the Q2 larger deals in play we could potentially have a sequential revenue decline from Q1 in the Americas.

On the other hand, international has a good Q2 funnel and should have a stronger quarter than they had in Q1.

Looking at the current range of outcomes for the Americas and international in Q2, we see a higher probability that total revenue will decrease versus increase in Q2 compared to prior year.

Given the softness we're seeing in Q2 we now expect to be at the lower end of our prior guidance ranges.

However, we are seeing some potential tailwinds as we look at the second half.

We currently are expecting our total services revenue to grow mid- to high-single-digits in the second half versus an estimated 4% in the first half.

And within that, consulting services is projected to grow high-single-digits in the second half versus low-single-digits in the first half.

This is primarily driven by increased data warehouse consulting backlogs and continued good services growth with Big Data and Integrated Marketing.

The Americas data warehouse consulting services revenue, which declined the second half of last year and the first half of this year, is now projected to grow mid- to high-single-digits in the second half.

Second, we expect continued good growth in our Aster, Hadoop, Big Data revenue and our Integrated Marketing revenue in the second half.

And third, we should continue to see good revenue growth in the Americas outside of the top 50 customers.

Revenue growth outside of the top 50 customers was in the mid-teens in 2013 and should be similar in 2014.

Our largest headwind for revenue growth remains with our Americas top 50 customers.

Although revenue was up over prior year in Q1, revenue is expected to be down from prior year in Q2.

I would like to provide an update again this quarter on what we're seeing in our top 50 customers and highlight some of the key factors that are contributing to our lack of revenue growth there.

The Americas top 50 customer revenue represented approximately one-third of total Company revenue in 2013.

It has been trending lower since 2012 as we continue to have good growth outside of the top 50 while revenue in the top 50 has been declining.

Overall their IT budgets continue to remain constrained.

Regarding their IDWs, some of the larger customers in the top 50 have well-built out IDWs.

The majority of their business transaction data has been centralized and integrated.

Several invested heavily to build out their IDW platforms and did floor sweeps during 2011 and 2012 and have newer technology in place.

As anticipated, some ETL workloads are being moved off of the IDWs to Hadoop.

But so far it has been less than what we had expected.

As mentioned previously, some of these customers have been deploying dependent data marks with low-cost relational databases as well as Teredata appliances to off-load some of the less sophisticated IDW workloads.

But this concept is not new to us.

Others are deploying dependent data marts with new technologies including Teredata's that are better suited to do specific workloads such as big computations for scoring and simulations or for new analytics such as [Path] Patterns and Market Basket analysis.

Outside of the IDW is where many of these customers have turned their focus, their resources and investments to building out their analytical ecosystems.

A number of these customers are innovators or early adopters of new technologies and have large and sophisticated IT organizations.

They have been experimenting with new technologies the past couple of years to find the most optimized solutions for the various analytic workloads that now exist outside of the IDW.

The non-IDW competition is different, we are competing for point solutions where specialized or good enough technologies can be used.

We have our own workload specific appliances including Hadoop that compete for many of these workloads as well.

We have seen some of our older non-IDW appliances that were doing simple workloads get replaced by good enough technologies and then redeployed to do more sophisticated workloads.

In summary, we expect that all of our top 50 customers will buy something from Teredata in 2014.

However, the non-IDW purchases have smaller deal sizes than the IDWs.

Net-net this is the biggest revenue headwind we are experiencing right now in the top 50.

We anticipate that the revenue will be down from prior year but likely to a lesser degree than the decline we saw in 2013.

Going forward our views on our UDA and the role that the IDW will play is consistent with Gartner's views.

They state that the data warehouse is continuously evolving, not being replaced by newer technologies and not going away.

The Integrated Data Warehouse will remain a critical part of an analytical ecosystem and Teredata's technology is highly differentiated with our ability to handle the concurrency and service level agreements of hundreds to thousands of mission-critical users and applications.

The importance of an IDW and Teredata's differentiation has been confirmed with its adoption by our existing customers and is also reflected in our new customer wins.

We have plenty of room for growth given that the majority of our customers have not built out their IDWs and there is plenty of room for growth from new customer acquisitions.

In addition, we have a great opportunity to help customers implement and support their analytical ecosystems.

There are benefits to having multiple analytic platforms that have different capabilities and different price points.

But our customers tell us there is significant added complexity and added costs for IT and for business as well.

The majority of our top 50 customers need help and customers outside of the top 50 with smaller IT staffs need much more help.

We see this as a big opportunity for Teredata and it is why we are investing in our UDA and our consulting which is arguably one of the best there is today at data architecture, design and implementations.

And we also see a big opportunity to make it easier for the mainstream market to do analytics on Hadoop.

Aster is one example of this, enabling customers to use SQL BI tools and existing skill sets to gain analytical value from Hadoop.

And we are working on more.

Looking to the future we will continue to focus and invest in three areas to grow our revenue; Integrated data warehousing, Big Data Analytics, and Integrated Marketing Could.

First, we believe the IDW will remain the strategic mission critical analytical foundation that companies rely on to optimize value from their data.

Our leadership position was again noted in Gartner's latest data warehousing magic quadrant in Q1.

We will continue to add IDW customers, we have plenty of room for new customer acquisition.

We are a little over 20% penetrated in the Global 3000.

Second, we are increasing our investments in big data analytics and consulting and were recently recognized by two analysts.

Forrester ranked Teredata as one of the market leaders in its Big Data Hadoop wave and noted that few vendors can match our high-performance Hadoop appliance.

And Ovum, the UK technology analyst, said our Aster Discovery platform stands out as one of the most innovative solutions on the market today.

And third, our Integrated Marketing Could offers a big growth opportunity as companies focus on improving dialogues with customers to better understand, interact and serve them at scale.

Gartner again highlighted our clear leadership and marketing resource management in the first quarter.

In summary, we will continue to be a leader and a beneficiary of this evolution in the analytics market.

We're confident we have the right technology, solutions and services today and we are excited about our R&D roadmaps and the new technologies we will be delivering.

Shorter-term Teredata's revenue growth rate could remain limited as our major customers evaluate and rationalize their analytics infrastructure.

However, once our major customers have settled on their analytic ecosystem, especially the top 50 in the Americas and have reset their spending baselines with Teredata, we believe we will then have the opportunity to grow revenue double-digits again.

And now I will turn the call over to Steve.

Thanks, Mike, welcome, everyone.

Teredata delivered a good Q1 increasing total revenue 8% in constant currency, achieving 10% product revenue growth and improving product gross margin 360 basis points, or 16% in terms of dollars.

On a non-GAAP basis operating income was up 20% and EPS was up 26%.

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 including acquisition-related and other special items that may arise from time to time.

Gross margin was a solid 54.9% in the first quarter, up 160 basis points from 53.3% in the first quarter of 2013.

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

Product gross margin in the first quarter increased 380 basis points to 68.1% compared to 64.3% in the first quarter of 2013.

The product gross margin increase was driven by favorable product mix, which offset the expected increase in FAS 86 amortization.

FAS 86 amortization is still expected to increase approximately $14 million for the year.

The increase in Q1 was approximately $6 million and we expect approximately the same increase in Q2.

Services gross margin in the quarter was 44.8%, slightly down from the 45.3% in Q1 2013.

Turning to operating expenses, SG&A expense of $175 million was 7% higher than the first quarter of 2013 due to primarily higher selling expense and variable-based compensation expense.

Research and development expense in the quarter was $45 million, flat against the first quarter of 2013, which was due to the timing of capitalization under FAS 86.

In total actual spend for R&D was up in Q1.

However, I do want to point out that our R&D expense will increase in each of the next three quarters and will increase at a higher rate as we move through the course of the year.

In total, we expect R&D expense to increase at the mid-high-teens for the full year as increasing our investment in R&D continues to be a key initiative for Teredata.

The amount may increase inorganically depending upon the nature and extent of future technology-related acquisitions we may enter into during the year.

Total R&D spend for the first quarter, which includes R&D expense plus the additions of capitalized software development costs from the cash flow statement, less capitalization of internally developed software, was $64 million.

This compared to the $61 million in Q1 2013.

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 these items, operating margin for the quarter was 19.9%, a 220 basis point increase from the 17.7% yield in Q1 2013.

The higher operating margin was driven primarily by revenue growth and improved product gross margin.

On a GAAP basis our effective tax rate in Q1 2014 was 28%, 6.7 points higher than the 21.3% in Q1 2013.

This was mainly due to the timing of the recognition of US R&D tax credits.

The research and development credit expired as of December 31, 2013.

As a result there was no tax benefit associated with the US R&D tax credit reflected in the effective tax rate for Q1 2014.

Our non-GAAP effective tax rate for the first quarter was 30.4%, 1.3 points higher than the 29.1% in the same period in 2013.

This was primarily driven by the expiration of the 2014 US R&D credit.

As a reminder, for non-GAAP purposes we called out the $4 million 2012 R&D tax credit benefit in Q1 2013, as we had previously reflected that tax benefit in Q4 of 2012 since the benefit related to the 2012 tax year.

In terms of earnings per share, our Q1 GAAP EPS was $0.37 compared to $0.35 in Q1 2013.

Adjusting for stock-based compensation and other special items, which equated to $28 million or $0.17 in the first quarter of 2014, our non-GAAP EPS was $0.54 compared to $0.43 in Q1 2013.

Turning to cash flow, net cash provided by operating activities was $343 million in Q1 2014.

This was $100 million higher than the first quarter of 2013.

After $33 million of capital expenditures versus $27 million in the first quarter of 2013, we generated $310 million of free cash flow versus the $216 million of free cash flow generated in Q1 of 2013.

The increase in free cash flow was primarily due to the change in working capital components between the reported periods, primarily current payables and accrued expenses.

As a reminder, the strength in Q1's free cash flow will likely mean that the year-over-year free cash flow comparison in the remaining quarters may be less favorable.

However, for the full year we expect free cash flow versus net income to normalize to plus or minus $25 million to $35 million as we have referred to in the past.

Moving on to the balance sheet, we had $922 million of cash as of March 31, 2014, up from the $695 million as of December 31, 2013, of which approximately 20% was held in the US.

During the first quarter we used approximately $86 million to fund share repurchases acquiring approximately 2 million shares.

Over the last 18 months we have used over $700 million to fund share repurchases.

As of March 31, we had approximately $250 million of share repurchase authorization available.

Additionally, our Board of Directors just authorized another $300 million, resulting in a current total open market share repurchase program authorization of approximately $550 million.

With respect to accounts receivable, accounts receivable increased $97 million in Q1 2014 versus Q1 2013.

Days sales outstanding was 81 days as of March 31, 2014 compared to 71 days as of March 31, 2013.

The increase was due to timing and mix of payment terms in Q1 2014 when compared to Q1 2013.

Total deferred revenue was $523 million as of March 31, 2014 which was up $34 million from March 31, 2013.

For the full year, as Mike indicated, we now expect that we will be at the lower end of our previous guidance ranges for revenue and EPS.

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

(Operator Instructions).

Wamsi Mohan.

Mike, you are alluding clearly to a weaker second-quarter.

Historically at this point in time you've said you really don't have too much visibility into the back half of the year.

So I am sort of curious if you think at this point in time that the 2Q weakness will persist into the second half or not.

And I have a quick follow-up.

Wamsi, yes, it is a little bit early in the year.

And if you go back to what we've said over the years to really have a good handle in particular on our product revenue in the second half of the year.

We do have a lot of tailwinds, as I said in my prepared remarks, around our services business and other parts of the business.

But given what we are currently looking at in the second quarter we thought it was appropriate that we take the guidance to the lower end of the range for the full year.

So it is early in the year.

Do we have upside from the guidance?

Absolutely.

But where we sit right now we think it was the appropriate thing to do.

Okay, thanks, Mike.

And can you remind us the time between floor sweeps that you have seen historically?

Is it still around three years and then should you not see the benefit of that at some point in 2014 and 2015?

I would say on average it gets more out to four or five years on floor sweeps.

You might run into isolated situations where a customer wants to double their capacity on something that is only three years old and in the coexistence they want it all to operate at the latest performance levels and you might see that.

But this lack of floor sweeps, at the same time what is happening is it is helping our maintenance revenue growth, if you kind of look at the dynamics of what is happened over the past three or four years.

Thanks, Mike.

Matt Summerville.

Just two questions.

Mike, in you're prepared remarks you indicated that the ETL offload, if you will, into Hadoop has been less than what you speculated upon earlier.

Can you sort of quantify that and remind us what your expectation was?

Sure.

What we have said previously is when we look at the amount of ETL that would be a good candidate to move off of our integrated data warehouses, what we were saying is it represented 4% to 8% of the total workload on Teredata could be impacted by that.

So what we were saying is 20% to 40% of the work being done on our Integrated Data Warehouses was ETL and 20% of that 20% to 40% of the ETL being done on our Teredata IDWs was a good candidate to move off.

So I just wanted to provide an update and I want to provide an update each quarter as things change or don't change.

And basically the update is not much has moved off over the past whatever, 12 months or so.

And then, Steve, if you can just comment given where the stock price is today what you would expect the repurchase tempo to look like for the balance of the year.

Well, Matt, we continue to be opportunistic with respect to our stock.

And always evaluate other alternatives against share repurchases.

So I would think we would be -- that strategy is going to remain consistent.

You saw us in the market about $380 million last year.

Again, everything is pretty consistent with our methodology and our logic going forward into 2014.

Great, thanks, guys.

Raimo Lenschow.

A quick one, on the top 50 customers -- I mean, how do you think about it?

So are we kind of in a way going through a process of people taking off, wasn't kind of -- shouldn't really ideally be an EDW moving that to kind of more efficient, cost efficient media as which basically means you have a time where people don't have to do the capacity upgrades because they are kind of freeing up capacity?

And then eventually, because we have data growth that should come back to the kind of normalized growth rates?

Is that the way you think about it?

And is that kind of in a way what is going on at the top 50 customers?

Raimo, it is actually partially what you are saying there, the way you are thinking about it.

I think more of the impact is kind of outside of the integrated data warehouse.

So what we are seeing is increased investments there, if you will, in the broader analytical ecosystem.

And we are competing for business there.

It is a bunch of different types of workloads.

Some of the competitors are good enough and it is point solutions and everything else and we have our Teredata data warehouse appliances there as well as other things we are doing with Hadoop and Aster and everything else.

It is way beyond Hadoop what is going on in the analytical ecosystems.

So the business we are winning, for the most part today, and really with a subset of the top 50 customers is in the analytical ecosystem.

And it comes with a much lower average selling price than when they are adding to the Integrated Data Warehouses.

The other subset of the top 50, by the way, there are still Integrated Data Warehouse expansions purchases and everything else.

But when you look at the whole thing in aggregate, our revenue declined last year and it is going to decline to a lesser degree here in the first half.

In terms of workloads coming off of the Integrated Data Warehouse, there is not much.

I cite an example of some things like for big computations like around scoring and simulations, but we have also had that over the years with SaaS where we are offloading dependent data Mart and doing -- and workloads there.

So there is a little bit of that.

There is not much ETL.

There are dependent data marts that sometimes come into play for simpler workloads that come off the data warehouse -- off of the IDW.

And we do that with our appliances as well as we are competing with some good enough types of dependent data marts, databases, if you will.

But once again, that is not new.

And when that has occurred in previous years to keep -- companies to keep costs down, a lot of times these customers will circle back and then realize the cost of duplicated data, the movement of data and everything else and it gets recentralized again.

So the net-net of it is, there is some demand for more work on the IDWs out there, it will show up eventually.

We are just not counting on it right now.

And those fundamentals are still there as we look on going forward.

I don't know if that helps with your answer, Raimo, or if you would like further clarification?

No, I think that is a good starting -- it is a good starting point.

I guess it is a process that we all have to go through.

The other quick question I'd like -- last year Asia was kind of a little bit of an issue, no more macro related.

I saw it coming back in Q1 a little bit with 4% constant currency.

Can you talk a little bit about the trends there?

Yes, in international -- first of all, the one thing I want to point out is the EMEA side, and you saw the results, they were up 10% and 8% in constant currency.

So that part of the business is performing okay, there is always room for improvement.

On the Asia side, basically what you saw in the numbers is Japan remains a headwind.

We are making improvements there and Japan did grow a little bit in constant currency in the first quarter.

And Japan made improvements last year, but it is such a big part of the revenue in Asia-Pacific, if we don't have that growing meaningfully it is hard for Asia-Pacific in aggregate to grow.

China was flattish in the first quarter, but I would call it just more of a timing thing.

And then outside of Japan and China, South Pacific and Southeast Asia in constant currency grew double-digits.

And by that I don't mean low-double-digits, it was more in the high teens and 20.

So that is kind of a picture of what is going on in Asia-Pacific.

Perfect, thank you very much.

Jesse Hulsing.

I have been at industry conferences over the last couple of quarters and it seems like there has been some indication that customers are starting to coalesce around architectural approaches and you guys have talked about that a little bit on this call.

But your commentary also indicates that customers are still kind of feeling it out.

Are you seeing signs that decision-making is still frozen because customers are still in the process of planning out their next two or three years or more of data management architecture or is a thawing starting to occur?

I think we have to segment your question a little bit.

So in a subset of our 50 largest customers in the Americas I mean we have clear innovators that have been at this a long time.

And their analytical ecosystems or their architectures are more thought out and are more in process, although I would still say not -- it is still evolving.

Then you run into another subset in the top 50, I would characterize them more as early adopters.

And they are still experimenting and they are finding out some things on their own around what some of the alternative technologies can do and what it can't do and what type of workloads -- different technologies could be good for outside of the IDW.

And then as you get out into the broader market they are still in the very early phases of looking at this.

And I wouldn't say categorically everybody, you run into smaller companies that are doing things with the newer technologies.

But the other point here is in addition to devoting a lot of resources and energy out into the analytical ecosystem we still have a lot of them in the top 50 that are building out their IDWs.

So that is going on in parallel while this is going on.

And I'm talking about the top 50 customers.

Obviously outside the top 50 customers our revenue growth and the performance of the business is pretty good.

And I guess as a follow-up to that, when you look at how your innovators, as you categorize them, are spending and their spending plans, how has that evolved over the last six months or to a year?

In some of those customers our revenues have been flattish, in others it has been down.

At the end of the day what we are looking for, because the top 50 account for a third of our revenue, is once we get to a stabilized spending point then we can grow from there.

And many customers have hit that in the top 50, but we still have a ways to go.

Thanks.

[Bohavian Suree].

I guess, Mike, if I was to look at the point solution market, maybe split the question up a little bit.

But if you look at the point solution markets in the broader ecosystem that are not Hadoop and you look at when you faced this in the past, you know when Netezza was out there and people were doing data marts on open source like Postgres or MySQL.

What seems to be the difference today and what are your win rates today versus with a point solution data mart type appliance versus sort of when you just launched that appliance or when you were dealing guys like Netezza pre-their acquisition?

I would say our win rates with our appliances are remaining fairly consistent with what they have been over the years, [Bovan].

I think the opportunity that is there that we need to participate more in is there is more granularity in some of these point solutions in the ecosystem, meaning outside of the Integrated Data Warehouse.

So there are workloads that don't require as much capability as we have in our appliances.

Or there are workloads that need different types of analytics, hence what we have with Aster.

You can see others solutions from other companies that are out there in this industry making a company and a business out of one specific solution that is going into the analytical ecosystem.

So I would characterize it more that in today's world versus back a couple years ago when there was Netezza or some of these other databases, there is more granularity of workload out there in the analytical ecosystem to be addressed than what traditional database than there has been.

And we are working hard on it, we see the opportunity and we have got a lot in development, it is a heck of an opportunity.

So, Mike, does that suggest that -- so as these workloads get really granular, right, so someone building a system just to do lead scoring for Marketo or sale scoring just for stuff on Salesforce.com or something along those lines, or revenue optimization in a very specific vertical for a specific set of companies.

Does it mean that you guys needs to potentially think about heading towards the front-end applications?

You have always had sort of -- I've got a telco data warehouse and a logical model, but you have never stepped in too much into the pure sort of application based space.

Does it make sense for you guys to head in that direction, potentially leveraging Hadoop or Aster underneath for sort of a more flexible environment?

Or even sort of the dump down appliance type database but more vertically specific applications that address a business case as opposed to a broad-based IDW?

Our focus is on the analytics portion of that and we do that with Hadoop as well as with Aster and in addition to other things to provide the analytics that support many of these different analytical -- many of these applications, if you will.

And we see a huge opportunity around the analytics for all the, if you will, specialized types of applications.

Now the one place where we have gotten out into application software is with our Integrated Marketing Cloud solution because if we had to pick a subject area for analytics and new types of analytics over the next several years, marketing would be a subject area where there is lots -- a broader amount of analytics that can be had as opposed to some of these point solutions, specific applications, that you just mentioned.

So our focus is on the analytics of everything, of all data from all of the various sources and applications that are out there, except for in the area of marketing where we are going deep on marketing applications and the analytics that go with it.

Yes, I guess it is just even -- I guess even if we just take a step back and ask a little more fundamental question which is, so the concept of the IDW was to integrate data at a granular level to drive better decision-making, and now you're seeing the top 50 sort of invest in these point solutions that are outside of the IDW, the more data mart approach.

Do you think there has been a philosophical -- a shift in these top 50 that have sort of said, we have got what we want in the IDW and then for specific use cases, they will be point solutions and we don't need to reintegrate that back at a granular level into an IDW, which we said obviously begs the question if there will be expansion in the IDW in those companies?

The IDW, as far as business transaction data in the business subject areas, will continue to go on in the world with the analytical ecosystem, such as Gartner says about data warehousing and what we are saying.

The ability of it to grow is mostly centered on the growth in business transaction data.

That said, there is new data types or incremental data that is coming in the analytical ecosystem that will get processed and refined in Hadoop and elsewhere, but where subsets of that data will be going back into the Integrated Data Warehouse.

And it will be small subsets of data, but what drives the Integrated Data Warehouse and our growth there is less about the amount of data.

It is more about the queries, the users and processing and more value that we bring to the business users.

So if you think about the amount of data going in the Integrated Data Warehouses, it will grow like it has always grown.

It won't grow at the -- like the analytical ecosystem and Hadoop that is digesting these huge data volumes.

But it will grow data at a slower rate than the rest of the analytical ecosystem.

But it will grow the types of queries, processing and users and business value that they can be gained in the IDW.

So even the customers with the well-built-out IDWs, which is the minority here when we are talking about the top 50, they will continue to come up with more uses, more information for their business users.

And the more processing, the more queries, the more users, that drives the need to add capacity to our Integrated Data Warehouses.

So we definitely see growth in the Integrated Data Warehouse in all of our customers to a lesser degree, but growth in customers with well-established IDWs which is the minority, where they have integrated the majority of the business transaction data.

Great, great.

And one last one.

You have obviously added over the last few quarters, even in Q3 last year which was a tough quarter, you seem to be adding more net new customers.

Could you just provide a little color?

Typically, those customers have had an average deal size of $1.5 million or so, and then they have typically ramped over four years to double and so on and so forth.

Do those trends remain in place or are you adding customers, as you might have mentioned, with lower ASPs?

So maybe that sort of doubling every four years or couple years from their analytical environments is less of a pattern?

Our new customer wins have been very, very good the last couple years and it continues to trend extremely well.

When we look at the mix of customers we are adding, some of them we can mention by name and we mentioned them in the prepared remarks.

We are adding at a pretty good clip what I would call global Fortune 500/Global Fortune 1000 customers and that is new customers.

And that is helping our growth outside of the top 50 in the Americas and also worldwide.

In terms of average deal sizes, I think they have remained fairly consistent, but the larger --.

The initial deals.

The initial deals.

But the larger customers that we are adding bring a lot more growth and quicker.

Okay, thanks for taking my questions, guys.

Helpful.

Before we go on I just want to ask, can you please limit your questions to one just for time's sake?

Ed Maguire.

Steve, you mentioned the ramp-up in R&D spending and I wanted to tie that into really the broader question of whether you guys believe that with these new technologies that you are competing against do you need to bulk up the products that you have got?

Where is your R&D spending going to be focused?

And are you seeing more competition particularly on the marketing cloud side that is informing this investment?

Thanks.

Well, Ed, on an overall basis we expect R&D to be for the year mid- to high-teens over last year.

And the first quarter was really offset by an increase in the capitalization of FAS 86.

we are going to continue the R&D investments in the core, Big Data and the Integrated Marketing Cloud.

So those investments -- we'll continue to redirect and reprioritize our investments in R&D with respect to our three growth areas.

So overall I see that increasing throughout the year.

Ed, it is Mike.

Your question regarding our Integrated Marketing Cloud.

Yes, just have you seen any -- there has been a lot of focus among competitors in building out marketing cloud and I was just interested in any color in terms of what you may have seen on the competitive front there.

Oh, okay.

The good news is we got there early in this opportunity with Integrated Marketing Management, Ed.

And I think the fact that other companies are building out portfolios is actually stimulating demand and pointing out the value and the need of customers investing in this area.

So overall I would call it healthy.

By getting into it early we have had an opportunity to get a little bit further along in terms of integrating the different tools and different solutions you have within the integrated marketing management suite and we have a very good position there.

Great, thank you very much.

[Joe Whitman].

A question on international, how much do you think it will grow this year?

I mean I ask because when you framed up the top 50 -- or excuse me, where you have the top 50 in the Americas that will be down, it is a third of the business.

But a nice secular growth story outside of the top 50.

So if you sum those up you are looking at Americas, it seems to be at the low end of guidance or a little bit higher even.

So what are the international expectations in 2014?

At this juncture it is a little premature, Joe, to try to lock in on a -- kind of an estimate of where we will be at.

You saw the results in the first quarter and we believe they will be better in the second quarter.

So we will see a trajectory that is probably moving constant currency into the mid- to high-single-digits type of thing.

For the second half of the year we don't see anything that would take the trajectory lower or higher.

There could be some upside as the year unfolds as it relates to emerging markets.

We have a lot of activity right now in the second quarter in emerging markets and that might provide a little bit of a tailwind there.

And finally, Steve, can you quickly just clarify the guidance?

Is R&D higher than what you thought 90 days ago rolled into the guidance?

And taxes as well if you can clarify is that higher in your expectation?

No, Joe, R&D is generally in line with the original guidance and the tax rate -- with it increasing the remainder of the year, and the tax rate is consistent with the guidance with the exception of the R&D tax credit which from a non-GAAP basis we did not bring into Q1.

But for our full-year non-GAAP tax rate we are assuming that that does get approved for 2014.

If that is the case we will recognize it in the quarter which it was approved.

Aaron Schwartz.

Just a quick question.

You mentioned a little bit in your prepared remarks about some of the point solution companies and your large customers evaluating solutions from those types of vendors.

As that evaluation continues to occur I guess the question for me is do you have all the product and technology you need to address demand from your top 50?

And you sort of made a comment on the R&D spend that something could be inorganic here.

And so, could you just sort of review what you are looking at from a product portfolio both organically and what you may be thinking about that you may need to add to the portfolio?

Thanks.

Aaron, we have the majority of the capability to provide analytics throughout the analytical ecosystem.

There are different workloads and requirements and price points that we don't necessarily address them all today.

We do have different point solutions that will be coming.

Keep in mind the average selling prices in this space are not large, but likely there is some -- we look forward to some upside here.

There are some very specific things that are beyond analytics that are applications, if you will, that come to play, so we won't cover them all.

But by and large the vast majority of all the analytics opportunities in customers today and over the next several years, we have those capabilities and we are going to add to them.

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

Thank you, operator.

One more comment I would like to make before we adjourn is I talked about our ability to grow double-digits longer-term.

And I just wanted to add to that a little bit.

The big headwind we have right now is in the top 50 in the Americas, our 50 largest customers, which is 33% or -- it is 32% of our revenue.

And last year in 2000 -- or the year before in 2012 it was 37% of our revenue.

In 2014 we are estimating it to be in the mid- to high-20s.

And I wanted to just give you a little background on why I believe we will get to double-digit growth again and that is at some point in time the top 50 customers in the Americas will be contributing something like 20% of our total revenues.

We are investing like heck in the rest of the business to grow our revenues outside of the top 50.

And if we get to a scenario where outside the top 50 we are growing 10% and we have got the top 50 at 20% of total revenues we only need the top 50 to start growing single-digits, 5% type of growth and we are at 10%.

So I just wanted to give you a little more information to modeling that we are investing and growing rapidly outside of the top 50 and we will continue to do that.

And over time the top 50 as a percent of our revenue will become smaller and once we hit the baselines in spending we will start growing from there.

So I just wanted to add that color.

So, listen, I want to thank all of you for your questions today.

It is a very exciting environment we are in with the evolution of the analytical ecosystem.

And like I said before, we think we are going to be a key contributor and beneficiary of this analytical ecosystem market opportunity.

Thank you, and have a good day.

Thank you.

Ladies and gentlemen, this concludes today's conference.

Thank you for participating.

You may now disconnect.