Teradata Corp (TDC) 2014 Q3 法說會逐字稿

Welcome to the Q3 2014 earnings call.

My name is Vivian, and I'll be your operator for today's call.

(Operator Instructions)

Please note that this conference is being recorded.

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

Mr. Swearingen, you may begin.

Good morning, and thanks for joining us for our 2014 third-quarter earnings call.

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

Steve Scheppmann, Teradata'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 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 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.

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, Gregg, and good morning, everyone.

Teradata finished the third quarter with revenue of $667 million, which was flat compared to prior-year and up 1% in constant currency.

Non-GAAP earnings per share of $0.71 was up 1%.

Year-to-date, Teradata's revenue has grown 2%, as reported, and 3% in constant currency.

And non-GAAP EPS and has increased 4%.

We had another strong quarter, in terms of adding new customers.

The number of new customers added in Q3 was our second-highest in a dozen years.

Year-to-date, the number of new customers added was also our second-highest in a dozen years.

This continues to validate the market opportunity for data warehousing, along with the investments we have been making for the broader analytic ecosystem.

Turning to the regions, the Americas finished Q3 with revenue of $405 million, which was down 1%.

Year-to-date, revenue in the Americas was down 1% as reported, and flat in constant currency.

Data warehouse new customer wins in the quarter included a leading US semiconductor manufacturer, which will be using our data warehouse for end-to-end traceability across yield, quality, reliability, and [warning] management.

And we added another company to our growing roster of gaming companies, which will be using Teradata to gain deeper customer insights from marketing.

Expansions included Dell, DirecTV, LexisNexis, Southwest Airlines, and one of the largest health insurance companies in the US.

The Americas continued to increase its a big data analytics activity and wins in Q3.

Wins included two Fortune 100 companies that added an Aster-Hadoop appliance and a 1000 Series appliance to their UDA environments for exploration and archiving.

Dell, which added more Aster-Hadoop to its UDA for sensor data and predictive analytics.

And [Sur America], a leading insurance provider in Latin America, has added Aster to their UDA to analyze driving behaviors and correlate them with accidents for improved risk modeling.

Cloud activity is also increasing in the Americas, with wins in the quarter that included one of the largest pharmaceutical companies that is adding our Teradata cloud and our integrated marketing cloud as part of our campaign management solution.

Netflix expanded its data warehouse cloud environment to support analytics on content, operations, and finance.

Dish is now using our Teradata cloud for data warehouse development and as a test environment.

And a Fortune 500 cable company new data warehouse win, which is replacing a competitor's on-premise data warehouse with our Teradata cloud and adding our marketing churn application.

Turning to our international region, Q3 revenue of $262 million was up 2%, as reported, and up 2% in constant currency.

Year-to-date, international revenue has grown 7%, both as reported and in constant currency.

APJ had a good Q3, with 8%, as reported, and up 9% in constant currency.

EMEA had a 1% revenue decline, as reported, and in constant currency, from prior-year.

This was roughly in-line with what we were anticipating, given the deals that closed in Q2 that we had originally expected to close in Q3.

Year-to-date EMEA revenue has grown 10%, as reported, and 9% in constant currency.

APJ is up 1%, as reported, and 5% in constant currency.

Some notable new customer wins and expansions in the quarter included Admiral Group, one of the UK's largest auto insurance providers, which selected Teradata to enhance business analytics and customer insights.

China Mobile Pakistan, which is implementing a Teradata data warehouse to gain a 360-degree view of their customers.

Magnit, a leading food retailer in Russia.

And T-Systems, the IT service provider of Deutsche Telekom, expanded their data warehouse environments as well.

International also had several big data analytic wins in the quarter, including China Unicom, the third-largest telco in China, which selected Aster for data exploration and analytics.

Vodafone New Zealand added Aster and Hadoop appliances to its Teradata environment to analyze geo-location and behavioral data to improve their customers' experience across their channels.

A global Fortune 500 chemical company that added Aster and Hadoop appliances to its GDA.

Ural Federal University, one of the largest scientific and educational institutions in Russia, selected Aster for data exploration and analytics.

And one of China's largest banks added Aster in Q3.

Looking at our big data analytics initiatives overall, in both regions, we continue to see good growth in big data analytics, which includes our Aster, Hadoop, and 1000 Series appliances, along with our UDA software, tools, and related services.

In Q3, we saw a record number of Aster new customer wins and good activity with our 1000 Series.

We are currently tracking towards $100 million of big data revenue for the year.

We continue to add solutions to our analytics cloud and, most recently, announced our Teradata Cloud for Hadoop.

We now have available in our Teradata Cloud data warehousing, Aster discovery analytics, Hadoop data management, test and development, and disaster recovery.

Our cloud data warehouse delivers the same functionality and SLAs as we do for our customers today, on-premise.

The Teradata Cloud and Integrated Marketing Cloud provide options for our customers, and it helps to expand Teradata's markets and opportunities for the mid-market as well as for larger companies.

Most of the demand to date, and our focus, has been centered in the United States, but we expect it to pick up in international over time.

Our unified data architecture, or UDA, is becoming mainstream.

Firms like Gartner, Hortonworks, and now Cloudera, are advocating that multiple analytic platforms need to work together.

And also, the importance of the role that the integrated data warehouse plays.

We continue to grow our strategic partnerships to enable tighter integration and more transparent access to open source technologies across the UDA.

We've also been adding to our UDA portfolio, with acquisitions such as with Revelytix and Hadapt, and in August, with the acquisition of Think Big Analytics.

Think Big brings Hadoop consoling capability that is critical for companies to create value from big data platforms, and we are investing to scale this capability in the US as well as globally.

These three acquisitions underscore our commitment to being a leader in helping customers to get the most value from all of their data.

In addition, we continue to add new capabilities and solutions to our own development and our own innovations.

Some of the recent announcements we've made included expanding QueryGrid to connect with Oracle databases, along with Aster, Teradata, Hadoop, and MongoDB.

We announced Connection Analytics, which is a new class of analytics that discover relationships and influences between people, products, and processes, and at a massive scale.

Teradata Loom is now available, which makes it easier for business analysts and data scientists to find, understand, track, and use data in Hadoop.

We are also expanding our consulting offers to help customers deal with the complexity of the analytical ecosystem.

We added an offer that helps customers evaluate the numerous analytic platforms, so that they can choose the right platform for the right job to meet performance requirements, and also at the optimized cost.

Overall, we have made significant investments and strong progress building out our UDA portfolio and services, through our own innovations, our partnerships, and our acquisitions.

With regard to our applications, we continue to make investments to strengthen our leadership positions.

We recently announced enhancements to our integrated marketing platform to deepen our cross-channel and digital marketing capabilities.

We have also extended our partner ecosystem with companies such as Adam, Celebrus, LiveRamp, and Urban Airship.

Earlier this year, we acquired Ozone Online Agency to enhance our customers' marketing strategy and provide creative campaign services to improve engagements with their customers.

And just last week, Gartner named us a leader in its Magic Quadrant for integrated marketing management, noting our broad set of marketing capabilities and continued market execution.

Overall, we're well-positioned with our integrated marketing solutions.

Historically, more of our focus and resources have been applied to our on-premise or hosted integrated marketing solutions and with our enterprise accounts.

We are now adding investments in R&D and demand creation, to focus on driving more revenue with our Integrated Marketing Cloud solution.

This will allow us to take better advantage of the demand we're seeing in the mid-market, as well as with some of our enterprise accounts.

Currently, we are expecting to be slightly below our 2014 total applications revenue target of $250 million, and expecting to exit the year with mid-single-digit recurring revenue growth.

Longer-term, we believe our investments and our focus on our Integrated Marketing Cloud solution will help position us for increased revenue growth rates.

Turning to guidance, we continue to expect to be at the low end of our revenue guidance range on a constant currency basis, which is now 2% to 6% revenue growth, as reported.

And we continue to be -- expect to be at the low end of our non-GAAP EPS guidance range of $2.85 to $3.00.

With that, I'll now turn the call over to Steve to provide more details on our financial results.

Steve?

Thanks, Mike, and welcome.

Currency movement during the quarter created about a 1% headwind on our Q3's overall revenue growth and, consequently, negatively impacted EPS.

Product revenue of $294 million was down 4% from the third quarter of 2013, down 3% in constant currency.

Year-to-date, product revenue was up 1%, both as reported and in constant currency.

Services revenue at $373 million was up 4% percent from Q3 2013, up 4% in constant currency.

Year-to-date, services revenue was up 4%, both as reported and in constant currency.

Within services revenue for the quarter, consulting services revenue was $200 million, flat compared to Q3 2013, up 1% in constant currency.

And maintenance services revenue of $173 million was up 8%, both as reported and in constant currency.

Year-to-date, consulting services revenue was also basically flat year-over-year, while maintenance revenue was up 8%, up 9% in constant currency.

During my discussion today, except where otherwise noted, I'll be addressing margins and expenses on a non-GAAP basis, which excludes stock-based compensation and special items, including acquisition-related and special items identified in our earnings release.

Product gross margin in third-quarter was 60.9%.

The lower-than-normal product gross margin was influenced by floor sweeps and increased 1000 Series revenue, which have lower gross margin profiles.

In addition, Q3 2014's product gross margin, compared to the prior year, was impacted by increased FAS 86 amortization of $3 million and less favorable product mix from a gross margin perspective.

Year-to-date, product gross margin was 64.9%, compared to 65.2% for the year-to-date 2013.

The 30 basis point decrease resulted from a 160 basis point headwind created from increased amortization of capitalized software development costs, offset by more favorable net COD activity from a gross [margin].

Amortization of capitalized software -- FAS 86 -- is expected to increase approximately $14 million for 2014, versus 2013, with anticipated increase of approximately $5 million in 2015.

We anticipate that Q4 2014's product gross margin will approximate a mid-60s percentage, due primarily to a more normalized deal mix.

Services gross margin in the quarter was 48.3%, flat compared to Q3 2013.

Year-to-date, services gross margin was 47.1%, compared to 47.7% year-to-date in 2013.

Overall, gross margin was 53.8% in the third quarter, compared to 55.0% in the third quarter of 2013, driven primarily by product gross margin.

Year-to-date overall gross margin was 54.9%, versus 55.5% in 2013.

Turning to operating expenses, SG&A expense of $169 million was down $1 million from the third order of 2013.

We continue to invest in direct selling and marketing activities, offset by reductions in non-customer-facing expenses.

Research and development expense in the quarter was $40 million, up 5% from the third quarter of 2013, influenced both by our recent technology acquisitions and our internal road map.

We expect our R&D expense for the year to increase approximately 10%, as investing in our R&D activities continued to be a key initiative for Teradata.

Total R&D spend for the third quarter, which includes R&D expense plus additions to capitalized software development costs from the cash flow statement, less capitalization of internally developed software, was $58 million.

This compared to $59 million in Q3 2013.

Total expenses were $649 million for the nine months ended September 30, 2014, an increase of 3% over the same period of last year.

Our 2014 plan had anticipated an approximate $30 million increase in variable compensation expense.

Based on our results year-to-date, we are relatively flat with 2013, as it relates to this variable compensation program.

As a result for all these items, operating margin for the quarter was 22.5%, versus 23.7% in Q3 2013.

Our non-GAAP effective tax rate for the third quarter was 26%, slightly lower than the 26.6% non-GAAP effective tax rate in Q3 2013.

On a year-to-date basis, our non-GAAP effective tax rate was 28.1%, versus 27.6% for the same period in 2013.

The lower tax rate in Q3 was primarily driven by the discrete impact resulting from an IRS audit settlement in Q3 2014.

However, this favorable impact was offset by the expiration of the US federal research and development tax credit on December 31, 2013, which, as a result, is not reflected in our marginal tax rate through September 30, 2014.

We are currently forecasting our full-year non-GAAP effective tax rate to be approximately 27.5%, which assumes that the US R&D tax credit will be reinstated retroactively for 2014 before December 31, 2014.

If the tax credit is not reinstated by December 31, 2014, it would increase our non-GAAP effective tax rate by 170 basis points in the fourth quarter and 40 basis points in full-year 2014.

In terms of earnings per share, our Q3 GAAP EPS was $0.60, compared to $0.59 in Q3 2013.

Adjusting for stock-based compensation and other special items, which equated to $17 million after-tax or $0.11 in the third quarter of 2014, our non-GAAP EPS was $0.71, compared to $0.70 in Q3 2013.

Turning to cash flow, net cash provided by operating activities was $102 million in Q3 2014, versus $64 million in Q3 2013.

Year-to-date, cash from operating activities was $583 million, a 30% increase from the $447 million generated during the same period in 2013.

In the third quarter, we had $36 million of capital expenditures, including capitalized software, versus $35 million in the third quarter of 2013, resulting in free cash flow of $66 million, versus $29 million generated in Q3 2013.

Free cash flow for the first nine months was $489 million, a 41% increase from the $347 million generated during the same period in 2013.

We now expect our 2014 full-year free cash flow to approximate $50 million higher than GAAP net income, above our normal plus or minus $25 million to $35 million of GAAP net income range.

However, due to the strong free cash flow performance through September 30 and, specifically, our strong cash collections in Q3, we are forecasting negative free cash flow in Q4.

Moving on to the balance sheet, we had $848 million of cash as of September 30, 2014.

This is down from the $934 million at the end of the second quarter.

Of the $848 million of cash, approximately 12% was held within the US, as we continued to utilize our domestic free cash flow for share repurchases.

During the third quarter, we bought approximately 2.4 million shares of our stock, for $102 million.

Through the nine months ended September 30, we bought approximately 6.9 million shares, for a total cost of approximately $293 million.

As of September 30, we have approximately $353 million of share repurchase authorization remaining under our general share repurchase program.

With respect to accounts receivable, as of September 30, 2014, accounts receivable decreased $24 million compared to September 30, 2013, primarily due to the timing of the cash collections.

Days sales outstanding were 70 days as of September 30, 2014, compared to 75 days as of September 30, 2013.

Total deferred revenue was $402 million as of September 30, 2014, which is up $2 million from September 30, 2013.

Turning to guidance, for the full year and on a constant currency basis, we do not see a change from our prior view of revenue growth being at the low end of our previous guidance range of 3% to 7%.

However, based on the October 31 exchange rates, we now expect reported revenue growth to be approximately a point lower, or approximately 2% revenue growth, for the full year, resulting in 2014 reported revenue of approximately $2.75 billion.

Said another way, assuming the exchange rates as of October 31, the foreign currency movement will reduce our 2014 revenue by approximately $25 million, and will be a headwind of approximately 1.5 points in 2015.

We are maintaining our prior expectation that non-GAAP EPS will come in at the lower end of our prior guidance range of $2.85 to $3.00.

But currency movement also has impact on EPS.

Historically, [only] 20% to 25% of the currency movement impact on revenue flows through to operating income.

In closing, it is clear that the market is moving to an IT architecture of multiple best-of-breed solutions working together in an analytical ecosystem, as we advocate in the unified data architecture.

Our technology and expertise enable this architecture.

Our IDW and Big Data platforms are integral components of this architecture, and are recognized by industry analysts as leaders.

Our QueryGrid software drives query execution across the analytical ecosystem, and we continue to enhance our strong consulting capabilities.

Teradata has an outstanding and compelling value proposition, focused on delivering breakthrough analytics from all data.

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

Thank you.

We will now begin the question and answer session.

We ask that you limit yourself to one question.

(Operator Instructions)

Wamsi Mohan, Bank of America Merrill Lynch.

Can you address the product gross margins in a little bit more detail, Steve?

How much of the margin contraction should we think, if any, was related to any pricing?

And how much related to mix of products?

I think Mike mentioned at least one 1000 Series deal in his commentary.

And if there were any other factors, like floor sweeps or anything else, that were atypical in the quarter driving that product margin to that level?

Hey, Wamsi.

Thanks.

From a pricing perspective in the quarter nothing unusual, okay?

I'll walk through little more detail, as you've hit most of them on there.

But I'll give you a little more color on those.

In that, there's probably a little bit over 4% in total, when we looked at a normalized quarter.

And that 4% plus is really made up of product mix, the 1000 Series that Mike referred to.

You're right -- floor sweeps were up, in a -- particularly, internationally.

International was up a good amount in Q3 and is up year-to-date.

The Americas is down less than that.

So the international increase on the floor sweeps was driving part of that margin compression on there.

The other one is deal mix.

Just normal deal mix within the quarter that we expect to normalized in Q4, and I'll finish on Q4.

And then, the FAS 86 amortization.

If you look at those four pieces, that's 4% plus, and reconciling back to a quoted normal quarter is 65% to 66%.

Now, if you look at -- when we're looking at Q4, we finished 2013 roughly around 66% product gross margin.

I see Q4, based on the more normalized deal mix, coming in right around that area.

Now, I'll qualify -- if we have a large 1000 Series transaction could reduce it.

But that's a positive thing, in total.

But those are the four key points.

And hopefully, that summarizes it for you.

Yes.

No, thanks, Steven.

And just if I could follow up -- you mentioned international floor sweeps.

Is this -- do you look at it as a trend that floor sweeps are actually picking up, and there -- the install base there is reaching some sort of critical mass that you're going to see this continue?

Or would you say this was more isolated in the quarter?

No.

I don't see it being a trend.

I wouldn't say that indicates anything, going forward.

It's just a normal evolution of their customer base.

Thank you.

Wamsi, if I can add a little bit more -- international had a spike up in Q3, okay?

So the floor sweeps have been up Q1, Q2, and they'll be up for the year.

But the spike in Q3 is what really hit us.

Okay.

We did have a pretty big floor sweep in the Americas, but it was in the federal government.

I see.

Okay, great.

Thanks for the color, Mike.

Raimo Lenschow, Barclays Capital.

Can we talk a little bit about the Big Data initiatives you are seeing?

So you started working with Hortonworks on the Unified Data Architecture.

Now, Cloudera seems to be coming around to the notion.

How do the customer engagements are working -- so are you introducing the other guys?

Or are they introducing?

And where do you see customer spending, in terms of moving ahead with that?

Or is it still exploratory territory?

Thank you.

Raimo, basically, the Unified Data Architecture -- and that vision and that solution comes from Teradata -- it's similar to what Gartner's been advocating with the Logical Data Warehouse.

And basically, what you're seeing is, we're getting the mainstream adoption in the US -- and actually, outside the US -- of this Unified Data Architecture or an analytical ecosystem.

And the role the various platforms need to play or should play -- including Hadoop, including lots of other point-specific analytic platforms as well as Teradata's offers, and integrated data warehouse, of course, is a very key piece of that and going forward.

So customers have options, as far as who they implement Hadoop with.

And Cloudera and Hortonworks are two of the larger distributors of Hadoop.

Basically, what we're doing is, we want to integrate and certify and make it easier for customers to work with all of the distribution companies that are out there.

And at the end of the day, the customer is really deciding.

We just want to make it easy, and we want to make our customers successful with the implementation of Unified Data Architecture and with the Hadoop implementation itself.

And where -- because if you see what's going on there in the field, are we in the early innings here still?

And where are they, in terms of the understanding and the project that you're seeing?

If you could clarify, Raimo, the early innings of what, specifically, with the customers or in the field -- you were saying.

Yes.

I was trying to gauge -- are you actually working on real projects there?

Or is it at the moment more proof of concept, et cetera, that are happening?

Oh, okay.

Thank you for the clarification.

It's progressed.

Outside of the Silicon Valley companies that were into it early, the rest of the market was in a exploratory phase and so forth.

And some of those customers have now moved into a production phase.

So it continues to move along.

We're engaged with a lot of these customers.

And in particular, if you look at all of the Aster wins we have, in effect, that's putting Hadoop to work in a productive environment -- production environment.

So we've had customers doing discovery and exploratory analytics on all of the various types of data in Hadoop with Aster, now, for two or three years.

Those customers are far along.

And yes.

It continues to move Hadoop into the mainstream and its role it plays in the analytical ecosystem.

Perfect.

Thank you.

Phil Winslow, Credit Suisse.

Just building on the gross margin question -- and not on the product side, but on gross margin for the services.

You guys had a pretty healthy mid-single-digit margin on services last year.

That margin has gone down a little bit this year.

How should we think about that, long-term?

Any changes in the services mix that you're seeing that's driving that?

Or just how should we think about that in particular, and then those two combined longer-term -- product and services?

Well, Phil, on -- the maintenance side has grown more in 2014.

We're up approximately 8% year-to-date.

And consulting services -- lesser extent on that flat Q3, flat year-to-date.

The maintenance is going to carry that higher mix of that margin.

I don't see maintenance continuing that growth rate.

So as a result, I would expect that weighted side would affect it, but not affecting the standalone margins itself.

But if I look at -- going into Q4, I would expect to see that coming in slightly less than year-to-date or Q3.

With the services margins -- with maintenance growth rates possibly slowing down a little bit.

But nothing -- if you look at the maintenance rates independently, it's just a mix issue.

Got it.

And then, just one quick follow-up.

You talked a lot in your prepared remarks about focus on international.

Maybe just provide us an update there.

How you feel about your go-to-market infrastructure -- lack of a better word -- internationally, and how you're thinking about that.

Not just this quarter, but over the next few quarters.

Regarding international, Phil -- you're asking about how are thinking about it, going forward?

Yes.

Okay.

Yes.

International has had a pretty good year so far.

And like I said, they were up -- for the first three quarters -- up 10%.

The go-to-market -- we continue to expand territories there.

And in addition, we continue to add resources into the growth areas, such as the Big Data analytics as well as the Integrated Marketing.

And we continue to build out those resources there.

In particular, in the big emerging markets where we've had some pretty strong growth and great market opportunity, in places like China as well as Russia and some of the other big ones.

Got it.

Thanks, guys.

Brent Thill, UBS.

Mike, you mentioned this was the second-highest quarter on new customer count, yet the product and total revenue seems to continue to lag.

What do you think the delta is, there?

And how do you expect that to play catch-up over time?

The thing about the new customer wins is, in a given year, it may only contribute 5% of the revenue.

And 95% of the revenue comes from the user base.

The key with the new customer wins is that it then goes into the user base revenue the second year, the third year, and the fourth year.

New customers are growing -- the amount of revenue -- they're growing the amount of money they're investing with us at a much higher rate than customers have been around three or four or five years.

What were seeing is, the last couple of years, we've got very strong new account wins.

And it has been contributing to our revenue growth this year, and it will continue next year and the year after.

I think you can see it, specifically, in the international results.

So if you look at international and the way they've grown -- in 2013, they were up something like 4% in constant currency.

And this year, they're headed for higher single-digits growth.

You can see it in the international results.

Where we're not seeing it is in the Americas, where it's somewhat masked by the declines we've been talking about with our large customers.

That said, the large customer declines -- the top 50 -- this year will be less than what it was in 2013.

And you look out to 2015, we expect it to be less again.

But the new customers are very important when we look at future growth longer-term.

And we've got a pretty darn good base of new customers we put up there.

I think that's basically it.

You can see it in our international results, and it's getting masked to a degree in our Americas results.

Okay.

Just as a quick follow-up on financial services.

You said, last quarter, that is key to see that come back in Americas.

I would assume, just in the comment you made, that you're not seeing that follow through in the Americas for financial?

Yes.

That's correct.

Listen, if we took a look at the year and where we think we're headed in the various industries in the Americas, the way it shapes up is -- as it stands now -- all of our industries will grow this year, except for financial services.

So financial services, which had a huge run-up in 2010, 2011, and 2012, and even into 2013, it's now our biggest vertical.

And if you get a meaningful decline, like high-single-digits or 10%, it's pretty meaningful.

But as it stands today, we think all of our industries will grow in the Americas this year, outside of financial services.

And financial services -- I don't interpret it as anything that's impacting it, other than it's a little bit cyclical, when you have a huge ramp up in investments in the data warehouse platforms that we're providing and the amount of money that's being invested the subsequent year and the year after that.

Thank you.

Ed Maguire, CLSA.

Could you discuss the -- just general business conditions.

What are sales cycles like?

And I know you're certainly experiencing the weakness among the top 50, but how would you characterize the broader deal environment for your products?

I would say, Ed, that were now in a more stable at a little bit more predictable environment.

When we look at what we're expecting for revenue in a quarter or whatever -- and I'm talking more about in the US, where the environment was a little tricky, going back a year or two -- I would say everything is a little bit more stable, predictable.

And I would call it a good environment -- not a great environment, but a good environment.

That said, we're just not seeing a big uptick in large CapEx spending in the US.

And we haven't seen it in a couple of years.

Now -- and we can't hope that it changes short-term.

Eventually, we think it will change.

So in the meantime, what we've got to do is get after all these other opportunities like we're doing in the market.

And we're seeing short sales cycle and great demand, as it relates to all of our Big Data analytics types of offers and services.

We're seeing an uptick in our cloud, although small.

The Teradata Data Warehouse Cloud offers -- we're seeing some demand, small numbers, but it will help.

Once again, we're after our Integrated Marketing revenue, and we have a good opportunity to grow that.

In the US, I think we've got a lot of levers that we're working on to accelerate revenue growth where there is good sales cycles, there is good demand.

And we'll continue to go after that.

And then we'll see what happens with the large CapEx spending, as time goes by, here.

Great.

Thank you.

(Operator Instructions)

Keith Bachman, Bank of Montreal.

I think you mentioned that you had about $250 million in applications revenue.

I was hoping you could clarify.

A, what's in that category of application revenues?

And how quickly is the aggregate -- not just the recurring part -- but how quickly is that growing?

And specifically, if you could address the Integrated Marketing packages of Aprimo and eCircle.

How are those growing within the overall context of the application space?

Thank you.

The majority of our applications revenue is Integrated Marketing management, okay?

So that is the majority.

We have some other applications in the area of demand chain management and some others in the financial services areas and everything else like that, but by and large, it's the Integrated Marketing management.

And when you take a look at the Integrated Marketing management -- and a couple of headwinds in our growth is our legacy applications outside Integrated Marketing and then, also, in the consulting area.

So when you take a look at the Integrated Marketing, basically what's happened is, we have leading innovative -- highly innovation solutions that are installed in production with some of the largest customers, companies, here in the US.

These are solutions that are implementations that integrate our campaign management, along with our digital messaging, along with our marketing resource management applications.

These are a hybrid solution.

Some of it's in the cloud.

Some of it's on-premise.

And these are leading implementations of Integrated Marketing, and I think that's reflected in the recognition we get by the analysts like Gartner and so forth.

These large enterprise customers where we've been doing a lot of activity, these are higher ASPs.

There's more PS.

There's also more customization.

But they're also longer sales cycles and implementation cycles.

The piece we need to focus on and get after is our Integrated Marketing cloud solution, which is well-suited for the mid-market as well as some enterprise customers that just want to put a piece of the Integrated Marketing suite up.

And these sales cycles are shorter, the implementations are shorter, and so forth.

So what we're doing is we're putting our focus, and we're increasing our investments, in the sales and marketing and also, the research and development as it relates to our integrated cloud offer.

As we do that, we will be selling a lot more digital messaging, along with campaign management, to the mid-market.

And so forth and so on.

So Keith, Yes.

I don't know if that --

It does.

And that's actually a lot of great color.

I guess if I tried to distill that down -- all that terrific color -- just philosophically, if you think about FY15, is the application space flat, up, or down on a growth base basis?

It sounds like, as you're trying to transition to a cloud, my interpretation is, it may still face some growth challenges as we look at 2015.

I think we have a great opportunity to increase our growth rate.

Full stop.

And the reason why is, if you take a look at what happened, the epicenter of Teradata is in large enterprise accounts.

And quite frankly, we do a great job with these large customers.

And these marketing implementations are wonderful.

We've got them on-premise, we have them hybrid, we're doing leading things.

But at the same time, these are long engagements.

These are the good engagements -- high average selling price.

But the opportunity that we need to go focus on is the pure cloud software as a service and the bigger market opportunity which comes with mid-market accounts, small business.

It comes with some enterprise customers that are looking to put a piece -- not a huge implementation.

So we have the opportunity, and that's why were investing in it, to increase our growth rate next year in 2015.

Now, can we move the needle overnight?

Probably not, but we'll get there because it's a growing market.

Alright.

Thanks very much.

Thank you.

Derrick Wood, Susquehanna.

We've seen a lot of companies struggle with close rates on large deals in Q3.

You guys did a nice execution job in Q3.

But I'm curious what you're seeing in the close rate environment for large CapEx deals.

And your guidance implies a big jump in Q4, so just wanted to get some color as to what gives you the confidence that we'll see growth rebound in Q4?

Okay.

Well, thank you, Derrick, for the comment on Q3.

What gives us the confidence is, earlier I said, what we're seeing in the US -- we're seeing a greater consistency -- so I think, predictability and consistency in the opportunities we have for large CapEx deals.

The challenge is, we don't have enough of them.

That is the challenge.

International is a different environment than the US.

We do have some lumpiness between quarters, like EMEA had deals closed that were looked at for Q3 that when into Q2.

We also had some in Q1 that when into Q2 in the wrong direction.

But anyway, I think it's more -- I feel like we're in a more predictable environment right now, Derek.

I guess, as a follow up to that, if you look at a year ago, there was a lot of disruption around Hadoop.

And maybe that's going away, and that's helping in the US.

How would you compare the level of disruption in Hadoop a year ago, where you were talking about workloads moving out, versus what the state of the market is today?

I'm glad you asked that question, Derrick, because I can almost call it night and day, between a year ago and where we're at today.

The market has really settled down, here, in the US and most of the developed markets, around the hype or whatever you want to call it and confusion around what are the capabilities of Hadoop and how should it best be used.

I think our Unified Data Architecture, along with Gartners and others that are advocating a similar type of environment, has helped companies have a rational view of everything.

And now, we have the two largest Hadoop distribution companies all in the same boat.

I feel like we have an aligned marketplace, if you will.

Not totally, and not perfect, but a much more aligned marketplace than we had a year ago.

Great.

Thanks for the color.

Brad Reback, Stifel.

Just a quick one for Steve.

Can you give us a sense, from the couple acquisitions you've done here that are more services-based, what type of contribution we should expect from them in 4Q?

On a contribution Brad, we're gearing up on those.

We're continuing to make investments, so the contribution would be deemed to be small, minimal in Q4.

We're really enhancing the infrastructure to drive the value of that Big Data consulting, so I would expect minimal contribution on a small revenue contribution.

Got it.

Thanks very much.

Yes.

If I could just add a little bit Brad.

So you look at some of the ones we've done historically -- like with Claraview, we got a BI consulting capability that was great, and it built critical mass and has grown big since we've done that.

With Ozone, we're able to provide an additional media services types of consulting and strategy and how companies run campaign, that we can build from that and move globally.

This helps differentiate us from some other offers.

With Think Big, we're just getting a great consulting capability that knows how to help companies get value out of Big Data and all these different platforms that are out there, that we can build from.

So when you look at it on a -- financially or numerically, it may not be a huge, big deal.

But strategically, these things have really helped us and worked out well.

Okay.

With that, I'd like to thank all of you for joining us here this morning.

And I hope you have a good day, and we look forward to talking to you next year.

Thank you.

Thank you, ladies and gentlemen.

This concludes today's conference.

Thank you for participating.

You may now disconnect.