Welcome to the Second Quarter 2010 Teradata Earnings Conference Call. My name is Sandra and I’ll be your operator for today’s call. At this time, all participants are in a listen-only mode. Later, we’ll conduct a question-and-answer session. Please note that this conference is being recorded. I’ll now turn the call over to Mr. Gregg Swearingen. Mr. Swearingen, you may begin.

Good morning, and thanks for joining us for our 2010 second quarter earnings call. Mike Koehler, Teradata’s CEO, will begin our discussion summarizing Teradata’s second quarter results. Steve Scheppmann, Teradata’s Chief Financial Officer, will then provide more details related to our financial performance, as well as our updated 2010 guidance. Darryl McDonald, Teradata’s Executive VP of Business Development and Marketing, is also in the room to answer questions. Our discussion today includes forecasts and other information that are considered forward-looking statements. While these statements reflect our current outlook, they are subject to a number of risks and uncertainties that could cause actual results to vary materially. These risk factors are described in Teradata’s 10-K and other filings with the SEC. On today’s call, we’ll also be discussing certain non-GAAP financial information, such as earnings per share, excluding stock-based compensation expense, free cash flow and revenue comparisons in constant currency. 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 at teradata.com. A replay of this conference call will also be available later today on our website. Teradata assumes no obligation to update or revise the information included in this conference call whether as a result of new information or future results. I’ll now turn the call over to Mike.

Thanks, Gregg. Good morning, everyone. Teradata had its best second quarter ever reporting revenues of $470 million, up 12% from Q2 of 2009 and operating income of $106 million, up 26% over the last year. Operating income, operating margin and gross margin rates were the highest of any quarter in Teradata’s history. Our platform family appliances had a strong second quarter and are now installed in over 125 customers in 20 countries. This has been accomplished in a very short timeframe of approximately two years since they were launched. Our investments in the platform family, along with our investments in new territories and focus on new account acquisitions, are going well. New customer wins for the first half of 2010 was our strongest performance in the last five years. These were also key contributors to our revenue growth for the first half, which was up 12%, and product revenue, which was up 22% in constant currency. Some highlights on a region perspective, the Americas delivered an excellent Q2 generating $281 million of revenue, up 23% from the second quarter of 2009 and product revenue up 42%. For the first half, revenue growth in the Americas was 23% with product revenue up 40% over prior year. The Americas had a strong quarter for new account wins, which included Frito-Lay where a Teradata enterprise data warehouse is replacing a competitor. Manufacturers like Frito-Lay will utilize geospatial location data to improve real-time distribution of their products. W.W. Grainger, a Fortune 500 distribution company, will use Teradata to help analyze and improve overall customer relationships and customer value. Our ongoing partnership with SAP helped in this new customer win. Oklahoma Gas & Electric which is a new data warehouse appliance customer in the utility industry and one of our growth markets. We’ve had good…

Good morning. Our solid Q2 results validated comments we made at beginning of the year that we expected a strong first half of the year particularly in the Americas. Revenue of $470 million was up 12% from the second quarter 2009 and also up 12% in constant currency. Revenue for the first half of the year was up 14% and 12% in constant currency. Product revenue up $223 million was up 21% from the second quarter of 2009 and up 24% for the first half. Services revenue up 247 million was up 5% and 7% year-to-date. Within services consulting services was up 4% in Q2 and maintenance services was up 6%. Gross margin in the second quarter was 57% compared to 55.3% in the second quarter of 2009. Higher product gross margin offset lower services gross margin in the quarter. Product gross margin of 68.2% increased from 64.3% in Q2 2009. The increase was primarily driven by positive deal mix. Product gross margins increased in all three regions. Services margin of 47% as anticipated was lower than the strong services gross margin achieved in Q2 2009 due to, as we've had previously referenced, building capacity to grow revenues. On the positive front, demand for our consulting business has increased, and we are adding more value creation resources to meet this demand. While these new resources are added, trained and working[ph] they become more fully productive and profitable, we anticipate that this will lower our services gross margins from the levels achieved in 2009 when we were not adding resources and related costs. Moving to a geographical view of gross margin. In the Americas region, gross margin was 60.9%, an improvement from 58.1% in the second quarter of 2009, driven primarily by higher product margins as well as a higher proportion…

Thank you, we will now begin the question and answer session. (Operator instructions). The first question is from Wamsi Mohan from Bank of America. Please go ahead.

Mike, can you talk a little bit about the revenue dynamics in EMEA by region you were down 2% on constant currency despite an easy compare last year, but you had a very tough compare two years ago. So, what sort of growth you expect from EMEA on a constant currency basis in the back half, and if you can share sort of exact numbers even qualitative commentary will be helpful?

Regarding EMEA, Wamsi, when we enter the year we had our sights set on the first half to get to a revenue result that was flat in constant currency, which the EMEA team executed to. The pervious year EMEA had grown 9% in constant currency and was going against that type of prior year comparable. Given the recent uncertainties there in EMEA we were looking to get out the first half with flat constant currency in terms of revenue. So, we’re pretty pleased with that result. Now that we’re into the second half of the year and in particular as we look out to the fourth quarter we expect EMEA to come back quite a bit. When we look at it for the second half of the year and a lot of it's in the fourth quarter we’re looking at mid-to-high single-digits constant currency growth for the second half.

Okay, thank you. That’s helpful. Steve, you’ve mentioned increased investments and sales resources in Q3 and Q4. Can you talk about why you’re driving these incremental investments now? I mean do you have an updated number of incremental sales territories relative to the 90 territories you had talked about previously? Also can you give us an update on what your plan as relative to the original 100 million targeted you had laid out?

Yeah, Wamsi. With respect to sales territories, we’re still on target to exit the year with the incremental 90 new sales territories. As you familiar, we had 40 in 2008, 20 in 2009 and looking at that same ramp up 30 in 2010. So, we’re still on target for that. The operating expenses with respect to increment year-over-year, you’ll see that we had $12 million of increase in the SG&A line. In the first half, we’re looking at increased costs in the second half driven by the new territories, proof of concepts, the incentive comp that I refer to you, customer events and training that when you look year-over-year and even sequentially those are the additional costs coming in. With respect to on the revenue side, if you remember our conversations, I would say a little less in the year ago, I thought we might be in 2010 about 50% of that $100 million commitment for 2010 for the new territories. We are somewhere, again I said, we’re kind of at the midpoint. My last conversations we’re at kind of the 75% of that targeted number. I still feel comfortable on the 75% to 80% to that targeted number of $100 million.

Okay, thanks Steven. Last question from me, Mike if I could. You mentioned geospatial a few times on the call, we’ve seen some press sighting RFID getting it opted at Wal-Mart. Can you talk about how we should think about these sort of opportunities, geospatial and RFID in particular? Thank you.

Geospatial and location data gives a new data dimension to analytics. So, on top of it generating more data, which is a good thing for Teradata, it gives additional analytical dimensions to new questions companies can ask about their business. So, more usage, more information, more ROI, and value for our customers. The third dimension of it lends itself to real-time type of decision making. So, with geospatial and location data, marketing offers can be made to people at a point based on location and where they’re at in what city. In the case of companies and distribution or retailers and so forth decisions in routing and everything else can be made based on precise up to the minute location of product.

Excuse me this is Darryl McDonald. The other color I would add is that it's an opportunity. As you can imagine people that were doing geospatial work in the enterprise today were really doing it on a specialized server in software with our new enhancements we put in the Teradata 13 and as planned for Teradata 14. Also with our partnerships like we announce this past with week with ESRI, were going to be able to actually load as applications in the Teradata and take the advantage of the power of Teradata, and then as Mike said apply it not only in planning and strategic and analytics but in real time analytics to understand what’s happening now and what’s happening that could be related to market conditions, weather conditions things like that. So, we look forward to be a growing data type that will start to see our user base and prospects that to bring into Teradata. Operator Thank you. The next question is from Katy Huberty from Morgan Stanley. Please go ahead.

As it relates to the strength in Americas, would you characterize that as a function of improved win rates or do you think the market stronger than we all saw it coming into the end of the year? If it is win rates could you think you improved competitively again?

In the Americas and in particularly in the US, there we are benefactor from some projects that has been delayed for the past couple of years and some pent up demand, but in there is an underlying more sustainable thing that’s going on where we do have improved win rates. The other thing is the new account acquisition has picked up and we are gaining more share of higher share of new customers, as well as bringing in new types of applications to apply in the Americas. The platform family, which I alluded to earlier in our prepared remarks, had a nice second quarter and for the first half was close the 10% of our product revenues and we are seeing a lot of utilization of that when you look at existing customers and new customer acquisition in the US. So, there is some underlying things here when you are look at a new territories which go hand in hand with the upticks and new customer winds in the US along with the more utilizations of our appliances, all these things are contributing to the strong performance in the Americas in the first half.

Is that a particular competitor that you think your win rates have improved against?

Our win rates are generally up a little from high levels across the board.

If the new customer pipeline has improved is that suggest the Americas gross margin is sustainable in the high 50s if not 50% range, Steve?

I mean we’ve had the margin dynamics on the appliances are very consistent. That continued to show in Q2. so, Katy I would stay probably with the consistency being on the margins versus any improvement on, because again the dynamics percentage bases are very similar.

Katie, I was just going to add, our product margins tend to be lumpy. We just had a good quarter and typically it's still mix driven, the previous they are down some. Our product margins I think you just have to look at them in aggregate over longer term

Yeah, four to six quarter period.

The next question is from Matt Summerville from Keybanc. Please go ahead.

Good morning, couple of questions. First, Steve, I want to get back to the some of the things you’re providing color on with regards to building out of the expense base in the back half of the year versus the first half. Based on what you’re seeing in your deal pipeline layering in with how we should factor in those expenses, is there any reason to believe that you still don’t see overall favorable earnings seasonality for Teradata in Q4, meaning that’s it is always tended to be by far the highest revenue and earnings quarter for the company?

Yes. Matt, if I give a little color on that kind of further explained my comments with respect to one of these questions. In the first of the year from a SG&A side, we saw SG&A expenses go up year-over-year $12 million. What I see based on the factors that I described earlier on the new territories proof of concepts, the incentive compensation, customer events and training. I see year-over-year the SG&A going up to low to mid 20s, okay, second half versus the second half last year driven by primarily with those items. Now, the biggest impact is going to come in Q3. Again because in my prepared remarks, I mentioned, there is a lot of fluctuation or volatility in our expense say reduction initiatives, we actually went down in SG&A Q3 over Q2. Again, that was very focused with some period cost and very focused tied to Mike's direction on managing those costs in 2009. We’re returning to more normalized levels in 2010 again being very sensitive to the pressure on Q3 versus Q4 on that expense structure. The overall message I want to leave you with, Matt, is that we’re still very focused on improving the efficiency of those SG&A expenses as a percentage of revenue. So, in 2010, you’ll see the efficiency rate, when I say efficiency rate as a percentage of expenses as it relates to revenue, improve in 2010 even over the tight austerity year in 2009. So, again, one of the key strategic drivers of our operating margin expansion is to improve the efficiency rate of SG&A and we’ve should accomplish that for 2010 even with the pressure in Q3 and the more normalized expense levels driven in Q4 driven by those five items I described. Does that help, Matt?

Yes, thank you. A follow up on your comment earlier regarding the productivity of the class of ‘08 and ‘09 driving, I think now $75 million an incremental sales this year versus your prior thought of perhaps $50 million. I guess what has happened that’s given you that additional confidence to kind of raise begin the raise that bar back up? More importantly, what is that mean relative to the original target to that to a $150 million in 2011?

Yeah, Matt, just to clarify you said incrementally it was $100 million of revenue coming from the new territories, but not incrementally in 2010, it was $100 million common from those new territories because we did have some baseline in 2009. What’s given me the comfort on that is when you look at -- we track this things territory-by-territory when you see the new customer winds coming through and the activity that they’re generating not actually revenue activity, but the how they are moving the balls on the field with respect to those opportunities you're seeing that they are doing the proof of concepts. You see that they are having the appropriate pre-sale activities commencing in those territories. So, as we look at those soft points, those intangibles, and also the performance in the first half it gives increases my confidence that we’re moving towards getting closer to that revenue target of $100 million and position us to get back on line to the closer to $150 million in 2011 from the revenue payments from those new territory. So, the movement since October of ’09, from my perspective, continues to improve that confidence level be able to deliver on those commitments.

Your next question is from Mark Kelleher from Brigantine Advisors. Please go ahead.

Great. Thanks for taking the question. I wanted to touch back on gross margins for a second just quickly. You mentioned the positive deal mix drove that product gross margin higher. Can you just tell us what's in a positive deal mix?

The positive deal mix it really relates to the types of transactions that we have coming through. We made reference in the past if you have a floor sweep or technology upgrade those might be more hardware focused versus software because you have some of the migration credits that come over. So, if you really look at the deal mix it’s the type of the deals and the margin dynamics on those deals from a product gross margin perspective that might not be diluted by a larger transaction that might be of a hardware upgrade type. So, Mark, those are the really main drivers of it.

On R&D, you are stepping that up. Can you give some indication of where you going to focus those dollars? What you're looking to do down growth?

From accounting perspective and I'll have Darryl walk you through on that technology perspective but from an accounting perspective, in the second half for the year we're into FAS 86 from the technical accounting where I capitalize it as internally developed software cost and I am going to be $5million less of my capitalization year-over-year second half 2010 compared to the second half for 2009. So, that less capitalization will put if I can capitalization I have the expense it on the R&D line, so that’s going to be $5 million of that total increase in R&D just purely timing of FAS 86. I will turn over the Darryl on the technology side.

Yeah, some of the other areas that we are investing in from an R&D perspective that we’ve been talking is about we got another a new database release coming up that we are investing. As you know there, we spent quite a bit in enhancing it’s performance and enhancing it’s feature set not only based upon customer requirements but new dimensions that are happening in our space that allow us to be able to handle that and be aggressive in incorporating those features. We also are investing in more of our platform family. So, you’ll see additional products that we will be announcing that they are becoming soon around our platform family. We have also have work that’s going on in advance development which is really looking at advanced things that we should be considering as a part of our overall stack. This could be a hardware related, software related and includes things like tuck-ins. An example there, we’ve done the couple of recent tuck-ins xqodo[ph] which is going to allow us to enhance our enterprise active intelligence capabilities, our system replication and interoperability. So that’s going to be some advanced development that you’ll see in future products that’s tied to both the data base and the platform family. We’ve also recently did a tuck-in of Kickfire which really is another set intellectual property that allows us to start looking at things like advanced pipelining and this is really going to, going to show up in areas like you’ve seen in the past with this technology. It’s been leveraged all the way from super computers all the way down to gaming devices. It really allows you to put super performance of different things into chips and or the software for acceleration in super performance. So of these are going to be things in advanced development area.

Your next question is from Alex Kurtz from Merriman & Company. Please go ahead. Alex Kurtz - Merriman & Company: Just back to an earlier question about new customer wins, how that trend in the quarter again and can you give us some specifics on what regions did well, I mean, what verticals you guys performed well with new customer wins?

We don’t disclose the exact number of customer wins, but they were at the highest level for the first half over the past five years. If you really look at what’s happened with Teradata over the past five or six years and one of the reasons why we’re investing in new territories, it wasn’t just to get after the incremental revenue, organic revenue growth from new territories, but it was add capacity across Teradata by having more sales people with time to go focus on new account acquisitions. So, it’s really added to the pace of new account wins. The new account wins were up across all three regions and we had a particularly strong quarter in the US in Q2. Our pipeline is good and this is one of the key benefits the new account wins from the added territories that we've put in the place. Alex Kurtz - Merriman & Company: Just as a follow-up a thing about the verticals, the telco space obviously there is a big macro tailwind around, mobile data growth. Have you seen a pick up with that vertical? Is there anything you can specifically point to and say, "Yeah, XYZ carrier came to us and did a major upgrade?" Can you just give us some color on that?

The communications industry for the first half is up quite a bit. So, globally, it’s up well over 30% and just had a very big Q2. Included in communications industry is also media entertainment and e-business, and e-business has been a very high growth market for Teradata especially here in the US. The traditional telcos through new account acquisitions, but also in the user base are expanding its utilization of Teradata into new spaces and this is a very good industry for us so far this year.

The couple of the areas of growth have been around getting a 360 view of the customer including network operations and looking at new growth areas like you talked about with their mobile capabilities and the services they can offer there. Alex Kurtz - Merriman & Company: So is that one is the faster growing verticals in the first half then?

Yes.

Yes, it is. Alex Kurtz - Merriman & Company: Steve, just real quick. Could you break out the stock based comp on just about what was an OpEx and what was in COGS?

Alex, we'd like to that on our website and we will have those schedules up in the next day or two. Operator, we're running out of time here. Can we limit the next callers to one question please?

Thank you. The next question is from the Nabil Elsheshai from Pacific Crest Securities. Please go ahead.

Now, I have to narrow it down. Thank you for taking my question. First of all, you guys that said on the Q1 call that some of your conservatism on the employee guidance in the second half was just to lack of visibility. Could you comment on how you are feeling about that visibility going into the second half? Then somewhat relatedly the maintenance declined from Q1 to Q2 which is a little unusual. I was wondering if you could just comment on anything in particular going on there?

Yeah, you’re absolutely right, Nabil, we have more visibility into the second half. If you take a look at our revenue guidance, first of all, in the first half, we were up 14% as reported, we were up 12% in constant currency. If you back into the high-end of the revenue growth guidance range of 8% to 10% that implies the second half would be growing 8% in constant currency. So, it would be 12% constant currency growth, the first half with a big pop from the Americas, 8% constant currency growth to second half. As we said on the last call, the total 50% of our revenue comes from services, and it's hard to move the dial meaningfully on the services in a 12-month period, and services revenues in the first half we’re up 4% in constant currency. So, the second half, we’re looking at mid-single digits growth of our services business, which is over 50% of our revenues. So, that implies the product revenue growth in the second half would be double digits as high as 12% to 13% in order to get to the high-end of the guidance. So, we think this is in a reasonable outcome for our product revenue with the low double digit growth in the second half. Your related, but also maybe not the same one question was the maintenance, Nabil. the question was our decline in Q2?

Yeah.

Nabil, we’re not seeing anything unusual more than unusual than we’ve seen in the past. There is always normal pressures on that but there is nothing unusual that occurred in Q2 that we hadn’t seen prior to that time. It’s just gets back to our performance in ’08 and ’09 on the product side and the new customer wins and we’ll continue to push that and try to position that going forward, but nothing unusual.

I would add, there is nothing unusual, but what’s been normal for the past year, yeah and half is there has been pressure from customers around our backs. We have seen maintenance customers choosing to go to a lower service level agreement and with that come some pressure on the maintenance revenues. So, although it's been similar the past year and half, there has been small hits, if you will, over time that in aggregate do add up and does present not a huge tax on our maintenance revenue growth, but there is a tax, if that helps.

Thank you. The next question is from Brad Reback from Oppenheimer. Please go ahead.

Could you give us there is any update, I know you mentioned some wins where SAP was involve, but now that Sybase is closed any visibility you gotten from SAP on that potential impact your relationship with them going forward?

Sure. We’ve had ongoing dialogue as you can imagine with SAP and our partnership. Currently, we’ve got full commitment from SAP to finish the port of BW on to Teradata in the Q4 timeframe, and then early availability in the first half of 2010. Their commitment is to continue to port and support the major database players in the market place and they’ve confirmed that there is change of plans there with us. We’ve also been looking at the part of our mobile strategy, how do we support what they are going to be doing with Sybase in providing pervasive intelligence on mobile devices and how Teradata can support that as well. We are also looking to support that with companies like MicroStrategy and Cognos as well. So, so far we are on track and we are continuing our investments and don’t see any change in that.

Thank you. The next question is from Derrick Wood from Wedbush Securities. Please go ahead.

On the appliance side you said there was a major contributor to growth in first half 2010. Can you share with us what the product deal size is there like and what the level of professional services involved or like for these types of deployment relative to your EDW platform?

Well, we don’t disclose the number deals. It was meaningful. It was close to 10% of our revenues for first half. So that gives you some color on the amount. Obviously, the average deal sizes are of the magnitude of enterprise data warehouses. The professional services content as a percentage of the deal might be similar, but a lot smaller than enterprise data warehouses. A lot of it depends on what there it’s going in as a add on application specific appliance in an existing EDW environment, like the one example we gave, and with that if might get a lower yield on professional services. However, the appliance is also been very useful for new customer wins starting with an entry level on enterprise data warehouse. The professional services requirements there might be pretty sophisticated make sure that data is right using logical data models, integrating it and get in the profit value out of an entry level enterprise data warehouse. So I hope that gives you a little bit color, Derrick, without the specifics to the questions you just asked.

Thank you. The last question will be from Greg Halter from Great Lakes Review. Please go ahead.

I am wondering if you could elaborate and the three components of your deferred revenues and what you saw happen there in quarter?

Yeah, Greg, in the quarter they reacted very consistently on what I would expect. I've used any 70% benchmark of maintenance and stuff as of total of the deferred revenue were right in line with that 70% maintenance itself comprising more than 70% of my total deferred revenue as of June 30. The movement was very consistent with what I would expect very consistent with last year also. So, nothing an usual on the balance sheet in that deferred revenue item.

Okay. Thank you for joining us this morning. In closing I’d like to invite all of you to join us at this year’s partners, users group conference in San Diego, which is by the way the home of our Teradata R&D labs. This conference which is led by our leading edge customers runs from October 24th through the 28th, and it show cases that the world's best in class utilization of enterprise analytics from our customers. So, if you are interested please contact Gregg to register, and 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.