Welcome to the Q1 2011 Teradata Earnings Call. My name is John, 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 2011 first quarter earnings call. Mike Koehler, Teradata's CEO will begin today by summarizing Teradata's 2011 Q1 results. Steve Chapman, Teradata's Chief Financial Officer will then provide more details regarding our financial performance, as well as our increased guidance for 2011. Darryl McDonald, Teradata's Executive Vice President of Applications, Business Development and CMO 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 will also be discussing certain non-GAAP financial information, such as earnings per share excluding stock-based compensation expense, acquisition-related items, as well as free cash flow and constant-currency revenue comparisons. A reconciliation of our non-GAAP results to our reported GAAP results and other information concerning these measures is included in our earnings release and on the Investor page of Teradata's website at teradata.com. A replay of this conference call will also be available later on today on the 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.

Good morning, everyone, and thanks for joining us. Teradata got off to a good start in 2011, with Q1 revenue of $506 million, up 18% over Q1 of 2010. Non-GAAP operating income was up 27% over prior year and non-GAAP EPS of $0.48 was up 17%, despite a much higher effective tax rate. Our increased focus and investments in R&D, Consulting Services, partnerships and sales territories are helping Teradata to accelerate revenue growth and increase new account wins. New customer wins in the first quarter were the highest ever recorded during the past 10 years. In addition to the 4 key growth initiatives we have been executing the past 3 years, we have now added 2 strategic platforms for future growth with our recent acquisitions: Aster Data for unstructured big data and Aprimo for integrated marketing management and applications. Turning to the region results. The Americas revenue was up 22% over a strong Q1 in 2010, when revenues grew 23%. The Americas also had a record Q1 for data warehouse new customer wins. Wins included some of the largest companies in financial services, healthcare, retail and travel. United Airlines is replacing a large competitor's data warehouse with Teradata to improve real-time customer interactions and enhance revenue management. A leading healthcare solutions company is implementing Teradata to drive new insights, enhance collaboration and speed the exchange of critical patient information. Another great new customer win was one of the largest retailers in the U.S. We now have 8 of the top 10 global retailers relying on Teradata for operational and strategic insights. Retail was strong in the U.S. and also globally in the quarter. Other wins included one of the largest rental car companies, Blue Cross and Blue Shield of Minnesota and Royal Sun and Alliance Insurance (sic) [Royal & Sun…

Thanks, Mike, and thanks for joining us this morning. We had another strong quarter in Q1 driving revenue growth of 18% that yield growth in non-GAAP earnings per share of 17%. Product revenue of $235 million improved 18% from the first quarter of 2010 and increased 16% in constant currency. Services revenue of $271 million grew 18% and was up 16% in constant currency. Within our services revenue, Consulting Services increased 24% and maintenance services improved 13% in the quarter. Before I get into more of the operational details, let me discuss the special items we incurred in the first quarter of 2011. As I mentioned last quarter, we were required to make purchase at cap price, accounting adjustments associated with Aprimo's deferred revenue on our opening balance sheet. These adjustments will negatively impact our operating results on a comparative pro forma basis. Under U.S. GAAP, we were required to reduce Aprimo's deferred revenue and related activity by approximately $7 million or $0.02 per share. This adjustment had a rippling effect throughout our income statement, negatively impacting GAAP operating margins and EPS. Transaction, integration and reorganization cost of approximately $7 million or $0.03 per share, amortization of acquisition-related intangibles of approximately $3 million or $0.01 per share, and finally, non-cash stock-based compensation expense of approximately $9 million or $0.04 per share. Given that these special items impact several line items throughout our income statement and to limit my commentary and leave more time for Q&A, my discussion, unless highlighted differently, will focus on the relevant income statement line items on the non-GAAP basis, excluding the impact of the before-mentioned special items. For further transparency, we have added a GAAP to non-GAAP reconciliation schedule to our earnings release format. This schedule, which has been posted to our website in the past,…

[Operator Instructions] And our first question comes from Wamsi Mohan from Bank of America.

Can you help us understand of the $506 million in GAAP revenue, how much of that was from Aprimo in calendar 1Q?

Wamsi, yes, what you'll see in the Aprimo transaction is revenue for 2 months because of the close was late January and it approximates $10 million on a GAAP basis. Now if you remember, we had the non-GAAP adjustment, and so in total, what you'll see on the GAAP financial statement is approximately $10 million for those 2 months.

Okay, great, thanks. So that would suggest about 15% growth, x M&A, including FX, and 13% organic, so it's fair to say that your organic growth is continuing to accelerate here?

We had a very positive and strong first quarter organically, yes.

Okay, thank you. And your product margin also expanded in the quarter, and Steve, I think you alluded to the fact that 10% of revenues were still from appliances. Does that suggest that the mix of appliances were skewed towards smaller-size? And can you comment on how material appliance sales were to the middle market?

The appliance sales, Wamsi, from an overall perspective, we're slightly above low-teens growth on the appliances in Q1. Nothing that was unusual that we saw in the pipeline. The margin dynamics, against, stayed pretty consistent than what we've seen, so there wasn't really anything unusual in the product margin. It's very typical on Teradata from that product margin performance. With respect to what I've seen of it going forward, I commented on the large Extreme Data Appliance possibly in Q2. But again, I don't see anything unusual in the appliance margins in Q1. And I don't think -- I think it was -- we've said in the past that our average ticket on the appliances was about $500,000 with margin dynamics are lower than the EDW on the 2000 series. But again, nothing was unusual in that performance in Q1.

The product margins were basically in-line with what we saw for 2010, when you look at the whole year. And Q1 of last year, we had a lumpiness downwards in product margin.

Our next question comes from Katy Huberty from Morgan Stanley.

I have a couple of questions on the quarter, but I first want to ask one on your go-to-market strategy. We've started to hear from value-added resellers that analytics is now a driver of their business with lower-priced appliances. What, if any, plans do you have to work more closely with channel partners to complement the direct sales strategy?

Katy, this is Mike. We've been working with SIs and other channels for the past several years. We work with the global SIs, as well as local SIs in various countries and geographies around the world. A lot of it is a sell-with model because of the depth of our Consulting Services organizations. But we've had good success, generally speaking, around the world.

Is it fair to say there's more interest from those partners? Or would you characterize it as similar to the past few years?

Overall, I would say it's somewhat similar.

Okay. And then on the quarter, there was a huge jump in deferred revenue, both sequentially and year-on-year in the March quarter, can you just talk about whether you view that as an forward indicator of a strong revenue growth? Or were there some drivers of lumpiness in margins?

Yes, Katy, the biggest driver was the addition of the Aprimo transaction. Even though we had a purchase price accounting adjustment to write down the deferred revenue, there was still a significant amount of deferred revenue, that did in fact we were able to retain in our balance sheet. In addition, the total of what I've usually shared is -- subs and maintenance still represent greater than 70% of that deferred revenue balance, so nothing unusual. And some of it -- we continue to have maintenance growth from the strong product growth last year flowing through. So again, the biggest indicator is the Aprimo transaction. Overall, I'm still plus -- in excess of 70% on maintenance and subs in that deferred revenue balance, so nothing really unusual other than the maintenance growth that we had off the product revenue growth from last year.

Okay. And then lastly, the increased revenue guidance appears to be entirely currency driven, the 4-point versus expectation of a 2-point benefit previously. And that's best despite the first quarter beat and the strong uptake of the 1000 series appliance that you discussed. How should we read into that as it relates to your view of the pipeline for the remainder of the year?

When we look at the pipeline, Katy, where we sit right now, we feel good about being at the higher end of the revenue guidance for the first half. And currently, what we've modeled in for the second half is more towards the lower end of the guidance range. It's not being driven by anything other than, we've got a very good handle on the services part of our business. And on the product side, as you know, we operate with not a lot of backlog. And given that, we've taken a more conservative view of probably -- of somewhere around double-digits on the product revenue growth as we get into the second half.

Okay. And so it's fair to say that the pipeline remains strong. The only issue is visibility and on timing of closing. And as you see that visibility you'll reflect as the guidance as we go through the year?

Correct. Pipeline remains strong across the entire platform family, so from EDW to the 2000 to the 1000 -- and that's correct.

Our next question comes from Nabil Elsheshai from Pacific Crest.

A couple of things, one, you've mentioned and highlighted the partnership with SAP, a couple initial customers and several more in the pipeline. I was wondering if you could talk about the characteristics of those deals and those opportunities. Are they typical of traditional EDW-type of deals? Are they larger, smaller? What do they look like?

I think, Nabil, this is Darryl, I think it’s 2 looks. One, is it is where Teradata -- a couple of the accounts is where Teradata has an EDW and they want to take advantage of putting BW on there with the other non-SAP data. We are also seeing in some of the new accounts that we're landing -- that our SAP companies -- customers and they may be upgrading to the new suite. They're looking to implement this as a new footprint. Again, the value they see in BW on Teradata is one, it increased performance, and then two, the ability to integrate the non-SAP data with the SAP data for more insight on their analytics.

Okay. And then switching gears, you guys had a good consulting quarter and you've been hiring aggressively -- any color on what type of growth rate you think, I mean we've talked in the past about how that correlates with product growth, but do you see that accelerating to keep up with product growth? Or does it continue to lag in that area?

The correlation with product growth isn't clear. Separate of the product growth, Nabil, we are seeing very good demand for Consulting Services. We're also driving demand for Consulting Services. And we've increased the number of our offers over the past couple years in the area of BI Consulting, as well as Managed Services. And basically, the demand to have better data architectures, better environments for the data, the demand is very strong. And we did that have an excellent quarter in terms of Consulting Services’ revenue growth. We're continuing to hire and ramp, and we do have the opportunity in the Consulting Services to do a mid-double-digits-type of growth in 2011.

And then last one on – you guys did your annual product refresh but you changed the product number so that seemed to indicate that what you guys consider a fairly major refresh of the flagship EDW products. So number one, is it possible that, that could drive a stronger than normal upgrade cycle? And two, what kind of interest are you getting from the SSD version of the next 2000 series?

The product you're referring to, Nabil, is the 6680 that we just released 2 or 3 weeks ago. And the reaction in the market, quite frankly, has been overwhelming. It's a game changer. It not only utilizes different storage devices, but it automatically places data based on its usage between hot, warm and cold storage media. And then -- and the key is it does it automatically, because the usage of data varies depending on who the users are, what applications it is and everything else. And to get the maximum performance out of an integrated data warehouse environment, you want to have as much solid-state-type of technology in play as possible, but it's very expensive. And you want to mix that with less used data with a less-expensive type of storage medium. So there is strong demand. And could we get an uptick? There is that possibility, and the reception by customers and analysts has been extremely strong.

And for that version of it, do you see -- when you look at the pipeline, since it's so new is it more customers looking to migrate their existing or to -- you have to do floor sweeps so that they have a solid state drive configuration or is it new customers and new opportunities that are grabbing it?

It's both. But in case of a new customer that's starting off into an integrated data warehouse-type of environment with a meaningful number of users’ applications and so forth, it's a no-brainer, because the cost performance of it surpasses everything in the industry, including ourselves. In the user base, it does create some interest because most of our users -- well, all of our users are on one type of storage medium, either all solid state or, in the vast majority, all conventional storage. The other thing is the software that automatically places data, that is Teradata virtual storage, and that is a key piece that we have that no one else in the market has.

The other thing, Nabil, that's unique on this platform and this software is that, the environments are very dynamic. So if you think about analytics, new data, new users, new applications, it's constantly changing. And so the ability to automate that brings a lot of efficiency to organizations, they don't need as many people but yet they’re constantly tuning their environment for performance, which allows them to get more performance at a lower cost.

Our next question comes from Bhavan Suri from William Blair & Company. Bhavan Suri - William Blair & Company L.L.C.: Just a couple of follow-ups on Nabil's question there. If an existing customer is looking at the 6680, is that -- can you add that on to the existing system? Or would that typically require a floor sweep?

Yes, with the new platform, it will require them to look at going with the new platform going forward and then coexist with future generations of the 6000. Bhavan Suri - William Blair & Company L.L.C.: But it wouldn't it back -- integrate with the 5500 series?

No.

That's a good question because we do coexistence across our whole EDW family. And this one is such a game-changer and unique in its technology. We'll continue to offer the conventional, all-conventional storage platform so our customers can continue coexisting and building out their EDWs without a floor sweep but you're correct, to take advantage of this technology, it's a floor sweep.

Yes, the 5000 is still available for customers who want to continue to grow that footprint. Bhavan Suri - William Blair & Company L.L.C.: Sure, sure. And on a competitive front, have you heard much or -- have you ran into the Hana appliance from SAP? And sort of how does that play in with this concept of BW on Teradata when SAP is thinking of sort of a data warehouse appliance too?

Yes, we do see Hana in the marketplace, working with SAP and their customers. We think that it's a perfect add-on or addition to the ecosystem. So we think that there's a place for the EDW. We think there's a place for BW, and we think there's a place for where Hana plays in the enterprise. So as we consult with customers, we position it for the right technology, for the right business and technology solution that the customer should drive. Bhavan Suri - William Blair & Company L.L.C.: And then just one last one from me. Any concerns about the LSI acquisition and potential pricing changing on that front? Or do you have sort of contracts in place that would manage that?

We don't have any concerns at all, and NetApps will be a great partner with us just like LSI was.

Our next question comes from Matt Summerville from KeyBanc.

Just a question on Teradata and Aprimo. Could you guys talk a little bit about in the quarter the deal flow you saw there? And Mike, you talked about it a little bit in your prepared remarks, how much of that right now is coming from kind of the core Aprimo funnel versus build-out of that funnel as a result of now being under the Teradata umbrella? I guess I'm trying to get an early read on 4 months into the deal or so, the kind of success you're having in driving that funnel, now that it's part of the organization.

Most activity is coming from the Aprimo funnel, pre-Teradata, and we're very cognizant to keep that flow going. And Aprimo will continue to build that. What we're very encouraged about is the amount of additional activity and wins we've had with Aprimo into the user -- Teradata user base. And I called out a couple of those that we could name by name in the prepared remarks. So overall, working exceptionally well there.

And then, Steve, on a non-GAAP basis, I think originally you were a little bit hesitant to give more specifics on anticipated accretion from Aprimo in 2011. Now that that's closed, is there any sort of more detailed number you can give us on that?

No, Matt. We basically -- as I said, when we -- a couple of months ago, basically breakeven, slightly accretive in 2012. We just basically incorporated that right into the guidance range. There's really not much movement that it's still basically breakeven on a non-GAAP basis that we built into the guidance that we gave at $2.13 to $2.23. We basically raised the guidance $0.06 in theory, and minus a $0.03 dilution, estimated dilution from Aster Data, so the net increase was $0.03 to incorporate that into our guidance. So Aprimo is still basically tracking at where we thought it would be with our acquisition model it was being basically breakeven on non-GAAP.

Our next question comes from Ed Maguire from CLSA. Edward Maguire - Credit Agricole Securities (USA) Inc.: I had a couple of questions. On the region, it seems like Europe really is rebounding pretty healthy, but Asia continues to lag. And I know you mentioned that Japan was not a big issue in the quarter, but could you comment more broadly in terms of your sense of tone of business in both of those regions? And where you also see potential for Aprimo and Aster outside of the U.S.?

On the core Teradata Data Warehouse business, Ed, over the years we've seen a little bit of lag in market adoption outside the U.S. as it relates to Integrated Data Warehousing or Enterprise Data Warehousing and so forth. And sometimes international tends to trail the U.S. And we're seeing very strong pickup in EMEA, as you said. And in APJ, we have been lagging. Now in APJ, there's different countries, different sells, different factors. And we have been talking about the softness in Japan as it relates to Teradata the past year or so. And we were encouraged, Japan grew their business in the first quarter and it looks like they'll be growing in 2011. APJ, overall, we think in constant currency, there's a big currency benefit there. At this point, we think there's a very good opportunity to get up into the higher-single-digits, and we realize that trails the rest of the world, but we're making headway there. Regarding Aprimo and Aster Data, the concentration of their revenues is primarily in the U.S. and that presents a great opportunity for us to expand outside the U.S. and in particular, we have good activity with Aprimo in EMEA, and we've had some nice wins there since the acquisition.

[Operator Instructions] Our next question is from Brad Reback from Oppenheimer. Brad Reback - Oppenheimer & Co. Inc.: So, Mike, as you talked about sort of the acceleration demand out there in this explosion of new data sources, et cetera. Could you maybe help us understand why you're not hiring more sales teams?

We're hiring, Brad, a rate of – we’ll hire, at a minimum, 30 more teams this year, put in place, at a minimum, 30 more teams this year. We do have the opportunity to add more. You can see the uptick in our SG&A in the first quarter. It's basically all selling expense. We are trying to balance a little bit what the operating income yield is on the revenue growth that we're experiencing, and it's worthy of consideration. I think it's a fair question, and it's something we're always looking at. Brad Reback - Oppenheimer & Co. Inc.: Great. And then just one follow-up on this big deal that you're working on, the 1000 series in the quarter, could you give us any sense of how that customer intends to use the product?

They'll be using it with big data so...

Yes, it's a big data project. And I think as Mike talked about some of the areas that we’re seeing in the consulting side is we're seeing more and more customers experimenting with big data in their enterprises, how to leverage that immediately and also long-term in their initiatives. So it's centered around that type of a project.

If I can add Brad, this is a large Enterprise Data Warehouse customer. It's really why we're starting to refer more and more to an integrated data warehouse, because not everything in the enterprise belongs being in integrated. So this is data that's specific to a certain limited number of users. It's not valid across the entire organization. And basically, it's a several petabyte data mart that's dealing with big data analytics. And we see good -- great market opportunity for this. It's our -- what we call our Extreme Data Appliance. Brad Reback - Oppenheimer & Co. Inc.: Does this deal include Aster as well? Or is there an opportunity to pull Aster through?

This does not deal with Aster. Aster gets at working directly with Hadoop.

Yes, there's -- I mean in the future, there might be an opportunity to leverage it, but right now, this is a Teradata solution that we've been working on prior to the Aster acquisition.

Okay, that concludes -- I'd like to thank everyone for joining the call today. We're off to a very strong start in 2011. And I think more importantly, we feel very good about the foundations we've laid for future revenue growth, and not just about 2011, but looking at the opportunity for Teradata longer-term. So thanks everyone. We look forward to talking to you again next quarter. Have a good day.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.