Teradata Corporation (TDC) Q4 2011 Earnings Report, Transcript and Summary

Welcome to the Q4 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 Fourth Quarter Earnings Call. Mike Koehler, Teradata's CEO, will begin today by summarizing Teradata's Q4 results. Steve Scheppmann, Teradata's CFO, will then provide more details regarding our financial performance, as well as our guidance for 2012. Darryl McDonald, Teradata's EVP of Applications, Business Development & 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, which excludes stock-based compensation expense and other special items, as well as other non-GAAP items such as free cash flow and constant currency revenue comparisons. A reconciliation of our non-GAAP results to our reported GAAP results and other information concerning these measures is included in our earnings release and on the Investor page of Teradata's website, which can be found at teradata.com. A replay of this conference call will also be available later today on our website. Teradata assumes no obligation to update or revise the information included in 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 ended 2011 with the highest revenue growth ever achieved for a quarter during the past decade. Q4 revenue of $673 million was up 23% over prior years reported and in constant currency. And non-GAAP earnings per share of $0.66 grew 25%. Product revenue increased 24% in Q4, which was well above the 20% growth rate we have averaged in 2010 and 2011. Services revenue continued its strong growth at 22%, and our non-GAAP gross margin rate improved 70 basis points to 56.5%. New customer wins were at record levels in Q4, making this one of the finest quarters ever achieved for Teradata. For the full year, revenue finished at $2.36 billion, and non-GAAP earnings per share finished at $2.32. Revenue growth of 22% as reported and 19% in constant currency was by far the highest annual growth rate for Teradata. We were particularly pleased with the growth of our core Data Warehouse business in 2011, which grew 16% net of currency and acquisitions. Our previous highest growth rate was in 2010 when revenue grew 12% in constant currency. For the year, we also had a record number of Data Warehouse new customer wins, and Aprimo was close to their all-time record for new customer wins as well. Among the new customers joining Teradata in 2011 were 18 companies that are in the Fortune 500. And finally, our new sales territories finished well above the $120 million revenue target we set for 2011. With this increased demand, we chose to add more resources into the existing new territories to capture the revenue opportunity. In addition, we consolidated or reduced some of the existing new territories added from previous years to optimize the return on our investments. As a result, we exited the year with 45 net new territories versus the increased target of 60 we set in July, well above the original target of 30 we set at the beginning of the year. Overall, Q4 and 2011 were the best quarter and the best year ever for Teradata. Turning to the regions, all 3 regions grew more than 20% in constant currency in Q4. The Americas fourth quarter revenue was up 22% as reported and in constant currency, and for the full year grew revenue 21% as recorded and in constant currency to a total of $1.44 billion. The Americas set records for new customer wins for the year and in the quarter, including: One of the largest military medical agencies, which is implementing Aster Data to unify and analyze huge volumes of multi-structured, clinical and patient data to improve treatments while reducing the cost of care; AARP selected Aprimo Marketing Studio On Demand to increase coordination of various marketing functions, with the intent of improving their member experience; and at one of the largest financial services companies, which is installing an integrated data warehouse to increase operational efficiencies, better understanding risks and reducing fraud. This customer is also a user of Aprimo. MDIC, the Brazilian Ministry of Development and Foreign Trade, is building an integrated data warehouse to get new insights into international trading, internal commerce and the development of the variety of services to promote a more competitive Brazil. Synergistic new customer wins for Aprimo included, with Teradata customers, the American Red Cross, Caesars Entertainment, CBS and the Sports Authority. The Americas also had strong activity with existing customers such as PepsiCo, where Teradata's becoming the foundation for its mobile business intelligence and geospatial applications, one of the largest mobile providers, which is now using Teradata for their network operations. That's in addition to integrating data from marketing, retail, finance and customer care. We now have 2 telcos using Teradata for their network operations, which is a good growth opportunity for Teradata to expand our business with our telco customers. And that one of the largest consumer packaged goods companies in the world, which is expanding its Teradata system to provide additional analytic insights and is expected to reduce out of stocks by 2%, which would increase revenue by $300 million per year. EMEA match the Americas with fourth quarter revenue growth of 22% as recorded and in constant currency. For the full year, revenue increased 24% as reported and 18% in constant currency to a total of $548 million. New customer wins for the year were at the highest level since 2002. Fourth quarter new customer wins included one of the leading oil and gas companies in the Nordics, which will use Teradata to analyze seismic data and improve oil recovery. This company will use Teradata analytics to improve extraction levels; just a small increase in oil recovery is worth millions of dollars. This is a significant opportunity for oil and gas companies and also for Teradata. Sainsbury's, one of the largest retailers in the UK, chose Teradata to replace multiple competitor systems. Their integrated data warehouse environment will enable them to gain new analytic insights from their food and nonfood operations to reduce operating costs, enhance supply chains and improve their retail operations. And at one of the largest global car manufacturers, which is implementing our Aprimo marketing solution to allow their local dealers to participate in marketing activities. By integrating data from the dealers, the companies can create more effective, personalized, marketing campaigns. Customer expansions and upgrades included, Komercní Banka, the third largest bank in the Czech Republic, recently added solid state drives to their data warehouse environment. Komercní has transformed itself from a company with no systemized information flow to one that is adept at managing data and saves EUR 19 million as a result. Other EMEA upgrades included Belgacom, the largest telco in Belgium; Centrica, a leading utility based in the UK; BBVA in Spain; and DMB in Norway. Asia Pacific Japan had a very strong quarter and led all the regions with fourth quarter revenue growth of 20% and 26% constant currency growth. For the full year, revenue grew 15% to $378 million and was up 8% in constant currency. New customer wins were at their highest levels since 2004. Fourth quarter new customers included Korea Power Exchange, which is implementing Teradata to improve the reliability of its service; and BII bank, one of the largest bank in Indonesia, which has installed Teradata and Aprimo to integrate information throughout the company and enhance marketing effectiveness and campaign management. Upgrades and expansions in APJ included: Daiei, Japan's third-largest general merchandise retailer, which has now consolidated 300 data marts into its EDW to reduce costs and provide insights into the business; and at Credit Saison, Fuji Xerox, Nissen Holdings and NTT in Japan. Additional upgrades included China Mobile, and Jiangxiu Filex [ph] Hung Young Securities [ph] in China; and MYOB Limited in Australia. Overall, we were very pleased with the performances across all the regions this past year. Now I'd like to provide the revenue contribution by each of the industries for 2011. As a reminder, these results are for Data Warehouse only and do not include Maintenance revenue. Financial services, which includes banks, capital markets, credit card and insurance companies accounted for 28% of total revenue. Communications, which includes telecommunications, cable, e-business and media and entertainment companies finished at 24%. Retail was at 16%; manufacturing 12%; healthcare 7%; government 6%; travel and transportation 5%; and energy, utilities and other 2%. Industry growth rates for 2011 were as follows: Financial services grew 21% for the year, with all regions growing double digits. We continually align Teradata's solutions consulting and our focus with the various industry and customer-specific parties on an ongoing basis. In the case of the financial services industry, most of our activities have been centered on that industry's top initiatives and priorities such as cost reduction, regulatory reform and providing detailed insights across their company around customers, products and risks. Our integrated data warehouse architecture, logical data models and platform family also provide the agility and flexibility for all of the customers we serve to respond quickly to tomorrow's unknown challenges and do it cost-effectively. The communications industry grew 20% in 2011; retail 15%; manufacturing 14%; government 5%; travel and transportation 10%; and healthcare had a very strong year with growth of 42% with all regions contributing double-digit growth. New regulations and demands for better quality of care at lower cost have accelerated this market's adoption of integrated analytic data solutions. Turning to our strategic growth initiatives, it has now been 4 years since we started increasing investments to grow and scale Teradata. These investments have helped to extend our lead in the data warehouse market, as evident in the Gartner Magic Quadrant that was published Monday and has also helped to drive the record revenue growth and new customer wins recorded in 2011. We have increased the number of our data warehouse consultants by over 60%, the number of partners by 50%, our R&D spend by close to 40% and the number of sales territories from 385 to 520 since the end of 2007. We also made key acquisitions with Claraview for BI Consulting; xkoto to provide the interoperability foundation for our platform family; Kickfire for data warehouse performance acceleration; Aprimo for integrated marketing management applications; and software-as-a-service and cloud capabilities; and Aster Data for big data Analytics. With these investments and acquisitions over the past 4 years, we have grown our customer base by more than 50%, our revenue by close to $600 million and our market cap has almost doubled. Looking to the future, we are well positioned in 3 large and growing markets: Data warehousing, big data analytics and integrated marketing management. And we will continue to focus investments in these 3 areas. We now have 3 core competencies to address these market opportunities with our consulting and support services, our SaaS, cloud and applications capabilities and our data warehouse technology including big data analytics. From a business model perspective, our growth in subscriptions, maintenance, Managed Services and now software-as-a-service has increased our recurring revenue mix to 37%, and we plan to gradually increase that over time. The explosion of data and new data types will continue to benefit Teradata. It is evident in our business today. Just last year, the number of Teradata customers with a data warehouse greater than a petabyte increased by 150%. And the number of 100 terabyte data warehouse customers increased 120% in 2011. Having the right data foundation and data analytics solutions continues to increase as a priority for business. The companies that can manage the complexity and cost from the volumes and diversity of data and extract value from it will have a significant competitive advantage. The leading corporations in the world are gaining competitive advantage by equipping their business with superior and innovative analytics. They are moving to get an integrated view of what's important for success at any given moment and make it leverageable across the enterprise. Teradata has the best knowledge, technology and people to provide this capability, and we are already doing this today together with our customers. Turning to guidance, we're expecting revenue to increase 10% to 12% in 2012, which includes 1 percentage point of currency headwind. So we expect to grow 11% to 13% in constant currency versus the 16% organic constant currency growth we had in 2011. As of today, our sales activity and pipeline is very strong and we expect to have good revenue growth in the first quarter. Consistent with previous years, as we get more detailed visibility into our sales pipeline for the other quarters, we will provide updated guidance in our quarterly earnings releases as appropriate. We expect our non-GAAP earnings per share for the year to be in the $2.56 to $2.66 range. Now I will turn it over to Steve, who'll provide more details on the quarter, the full year and our 2012 expectations. Steve?

Thanks for joining us this morning. We just completed one of the, if not the best, years in Teradata's history. Highlighted by 22% revenue growth, non-GAAP operating margin of 23.4% and increased non-GAAP earnings per share by 25%. In addition, free cash flow was greater than $400 million, all while adding new sales territories and a new record number of new customers. The fourth quarter was one of Teradata's strongest. Fourth quarter revenue of $673 million was up 23% from the fourth quarter of 2010, also up 23% in constant currency. Product revenue of $331 million was up 24% from the fourth quarter of 2010, also up 24% in constant currency. Services revenue of $342 million was up 22%, up 21% in constant currency. Within our services revenue, Consulting Services was up 26% and up 25% in constant currency. And maintenance services was up 16% in the quarter and also up 16% in constant currency. For the full year, total revenue was up 22% to $2.36 billion. In constant currency, total revenue was up 19% from 2010. Product revenue for the year was $1.12 billion, up 20% from 2010, up 18% in constant currency. Services revenue of $1.24 billion was up 24% and up 20% in constant currency. Within services, Consulting Services revenue was up 30%, up 25% in constant currency and maintenance revenue was up 17%, up 14% in constant currency. During 2011, we had a number of special items largely related to our acquisition activity as well as stock-based compensation expense. We have discussed the special items in prior quarters, so I won't go through them today. However, the special items are detailed in the footnotes to our earnings release for your review and analysis. Additionally, we have reconciliation schedules in our earnings release as well as on our website to show the bridge between our GAAP and non-GAAP results. On a non-GAAP basis, gross margin in the fourth quarter of 2011 was 56.5%, up from 55.8% in the fourth quarter of 2010. The increase in gross margin was driven by a favorable deal mix and leverage from increased revenue as well as the improved consulting margins. Gross margins for the year was 55.9% versus 56.4% in 2010. The decrease in gross margin for the full year was primarily due to a higher mix of consulting revenue. Product gross margin in the fourth quarter was a record for the fourth quarter at 67.9%, up 200 basis points from the fourth quarter of 2010, fueled by a favorable deal mix and growth leverage. Product gross margin for the year was a record 67.7%, a 50 basis point increase from 67.2% for the full year 2010. For both the quarter and the year, revenue from our 2,000 series appliance was approximately 13% of our Data Warehouse product revenue, in line with our prior expectations in the 10% to 15% range for 2011. Services gross margin in the quarter was 45.5% versus 46.3% in Q4 2010. Services gross margin for the full year was 45.1% versus 46.3% in 2010. The significant increase in Consulting Services revenue changed the mix of our overall services business more towards consulting for both the quarter and the full year, which naturally comes with a lower gross margin versus maintenance gross margin. Turning to our operating expense structure and on a non-GAAP basis, SG&A expense of $175 million in Q4 2011 increased $33 million from the same period last year. For the year, we absorbed $108 million increase in SG&A and still improved operating margin 60 basis points. The increases in SG&A for the quarter and the year were primarily driven by the acquisition-related impact or effect, increased number of sales territories, increased sales opportunities and increased variable compensation. As we discussed from the previous quarters, we expect the continued increase in our selling expense in 2012, as we incur the full year or annualized cost of the new sales territories. R&D in the quarter was $52 million versus $39 million in the fourth quarter of 2010. As we have discussed for the last few quarters, we are increasing our investments in R&D, in particular through enhancements to our core database technology, as well as continuing to improve the capabilities of our product family. For the full year, R&D was $161 million, and this compares to $144 million in 2010. For 2012, we estimate that R&D expense should grow slightly less than 10% over the prior year. As we've mentioned before, we invest more in our R&D activity than what is reported on the R&D operating expense line on our income statement. Total R&D expense for 2011 before capitalization of internally developed software, which is included in the line item additions to capitalized software in the statement of cash flows, was approximately $224 million in 2011 compared to approximately $188 million in 2010 or a 19% increase. As a reminder, these capitalized software costs are then amortized back to the income statement as product cost of revenue, which reduces product gross margin. As a result of these items, Teradata's operating margin in the fourth quarter was 22.9% versus 22.8% in Q4 2010. The contribution from higher revenue offset the increased investments in sales related activities and R&D. For the full year, operating margin was 23.4% versus 22.8% in 2010. Again, a 60 basis points improvement. Our GAAP effective tax rate in Q4 2011 was 26% as compared to the 27% effective tax rate applied in the fourth quarter of 2010. However, on a full year basis, our GAAP effective tax rate was 27% in both 2010 and 2011. Our non-GAAP effective tax rate for the fourth quarter and for the full year 2011 was approximately 1 percentage point higher than the associated GAAP effective tax rate, as the non-GAAP pretax earnings were weighted more to the U.S. We expect the effective tax rates to be similar in 2012 with the same 1% differential. Q4 GAAP EPS was $0.57 versus $0.50 in Q4 of 2010. For the full year, GAAP EPS was $2.05 versus $1.77 in 2010. Noncash stock-based compensation expense is included in our GAAP EPS. During the quarter, stock-based compensation expense was approximately $10 million, or approximately $0.04 per share. For the full year, stock-based compensation expense was $35 million or approximately $0.13 per share compared to $0.09 per share in 2010. We expect stock-based compensation expense to be approximately $40 million or approximately $0.15 per share in 2012. This reflects the normal increase in stock-based compensation expense as well as the full year increase related to adding the Aprimo and Aster Data teams during 2011. As I mentioned earlier, a number of primarily acquisition-related items were also included in our GAAP results. These items are described in the footnotes of our earnings release on our website. Excluding stock-based compensation expense and the acquisition-related and other special items, our non-GAAP EPS was $0.66 in Q4 2011 compared to $0.53 in Q4 2010, a 25% increase. And for the full year, non-GAAP EPS was $2.32 versus $1.86, also a 25% increase. We provide this non-GAAP information because we use this information internally to manage the business and compare our results to our peers. Turning to cash flow. We had a good quarter in terms of net cash provided by operating activities, generating $126 million in Q4 2011. However, this is actually a decline from the $148 million generated in the fourth quarter of 2010. The fourth quarter of 2010 was benefited from the timing of payments relating to Q4 2010 revenue. Payments made within the quarter, whereas Q4 2011 was more of a normal cycle of payment activity. For example, January 2012 cash receipts exceeded January 2011 cash receipts by approximately $45 million. After $23 million of capital expenditures, which included additions to capitalized software and development costs and expenditures for property equipment versus $21 million in the fourth quarter 2010, we generated $103 million of free cash flow versus the $127 million free cash flow generated in Q4 2010. During 2011, Teradata generated $513 million of cash from operating activities compared to $413 million in 2010. Capital expenditures in 2011 were $110 million compared to $83 million in the prior year, yielding $403 million of free cash flow for the year versus $330 million in 2010. As a reminder, Teradata defines free cash flow as cash flow from operating activities, less capital expenditure for property and equipment and additions to capitalized software. Turning to the balance sheet. We have $772 million of cash as of December 31, 2011, an $81 million increase from the end of the third quarter. During the quarter, we used approximately $32 million to repurchase approximately 635,000 shares. During the year, we invested $127 million to repurchase 2.5 million shares. This compares to the $88 million used in 2010 to repurchase 2.9 million shares. Our Board of Directors approved a new $300 million share repurchase authorization. The prior share repurchase authorization is replaced by this new 3-year authorization. Approximately 25% of our cash balance is available in the U.S., with the remainder being held offshore. With respect to our accounts receivable, days sales outstanding, or DSO, was 76 days as of December 31, 2011 compared to 76 days as of December 31, 2010. With respect to foreign currency, to provide further transparency around currency movement and the potential movement on our future revenue, we provide a schedule on our website detailing how currencies moved in 2011 and how this movement is expected to impact our year-over-year revenue comparisons in 2012. Assuming the currency exchange rates as of the end of January and assuming the currency exchange rates do not change throughout 2012, we expect currency to provide an approximate 1-point headwind for us in 2012 and a similar headwind into Q1 2012. Mike provided our revenue and EPS guidance earlier, but I want to give a little more color on more -- on some of the specific items. We had another solid quarter in Q4, and we are looking at a healthy pipeline. We are guiding 10% to 12% revenue growth in 2012 or 11% to 13% in constant currency. And as Mike referred to, we are positioned for a good start in Q1 2012. Again, as Mike mentioned, as is typically the case due to the nature of our sales pipeline, we have less predictability into the timing and size of transactions for the other quarters. However, we have better predictability relating to our Services revenue for 2012, which we anticipate should grow in the low double digits on a constant currency basis over 2011. Behind the aggregate services revenue growth rate, we have anticipated that the maintenance revenue will grow at high single digits in constant currency, which is similar to 2011's maintenance revenue organic growth rate. Turning to EPS. Specifically, we anticipate the following: Headwind on product gross margin due to higher disk drive cost and increased amortization of capitalized software; to be partially mitigated by our internal initiatives, resulting in approximately 1 percentage point decline in gross product margin in 2012 versus 2011; higher R&D expense, up approximately 10% in 2011; G&A expense to only increase by only approximately 3%; higher selling expense, primarily from the new territories added in 2011 and anticipated to be added in 2012 and higher variable incentive compensation and presale consulting expense from the new territories as productivity improves across all of our sales organizations. The effective tax rates for 2012 will be consistent with 2011, which assumes that the federal R&D tax credit which expired at the end of 2011 will be retroactively installed for the full year 2012. Incorporating all of these factors into our EPS guidance, we expect GAAP EPS guidance up $2.27 to $2.37. However, this includes approximately $40 million or $0.15 of EPS of stock-based compensation expense. $2 million or $0.01 per share of estimated purchase accounting adjustments related to our previous acquisitions. $29 million or $0.10 per share of amortization of previously acquired intangible assets and transaction integration costs of approximately $8 million or $0.03 per share. These items may be refined throughout the year. Excluding these nonoperational items, we expect non-GAAP EPS of approximately $2.56 to $2.66 per share in 2012. In closing, we are very pleased with our 2011 results, and we are confident in our ability to execute and drive our business model to leverage our opportunities in 2012. And with that, operator, we are ready to take questions.

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

Mike, the 45 net new territories that you spoke about, it sounded like you doubled down on some and exited others. Can you talk a little bit about the dynamic in each case? How much time were you there in some of these territories which you're deciding not to pursue? And whether it's sort of a competitive reason? In what were the gross adds in 2011?

Well first of all, Wamsi, when you take a look at what we did regarding the new additional sales territories in 2011, we did hire close to 60 industry consultants and technical consultants, which is -- really was the target for the number of new territories we're going to have. So the dynamics of what happened is the increased demand in existing new territories that we'd added over the past 2, 3 years picked up -- the activity picked up, and we prioritized the hiring of these ICs and TCs to get some of them aligned into some of the previous territories, which left some of the new territories we were adding short. The dynamics in this relative to consolidations of territories is really not related to competition. It's more related to -- after a territory's been in existence for 2 or 3 years, you take a look at the yields and the dynamics and the opportunities that are going on in the territory, and it's -- you might find it's more efficient to consolidate 2 territories into 1 or 3 territories into 2. And that's just a normal ongoing process that we do all the time. We also have other dynamics or there's mergers, acquisitions that are occurring and a lot of those kinds of things that continually go on. I think this year, not to blow it out of proportion, we had a higher number of consolidations than in the previous 2 or 3 years, simply because we've added so many territories now that are 2 or 3 years old, that you have the opportunity to optimize more than we did in the previous years. The other dynamic is we're very selective about the people we hire, as I'm sure all companies are. But particularly in the case of getting the right account exec, the right client rep based on the accounts and opportunities in a given territory, we don't rush and pressure ourselves to hit a certain number of territories. We do it very thoughtfully and making sure that we have the right people. The other thing I would add is when you look at this year, we have such an opportunity in the additional 135 or so territories that we've added over the past 3 years to go drive more business there. We do want to balance resources we're bringing it into the company to make sure we're maximizing the yield and the existing newer territories that we've added, along with adding additional territories in 2012. So I would characterize this more as it's an ongoing exercise to optimize what you have and expand the number of territories as quickly as we can.

Mike, that's really helpful color. And a quick follow-up for Steve. Gross margin in EMEA in the past couple of quarters were in the high 40s relative to the low 50s for several quarters prior to that. And again, is this a function of more competitive nature, where you're seeing more of pricing pressure maybe perhaps from the [indiscernible]? Or is it just the fact that you have a higher services mix because clearly, your revenue growth has been pretty, pretty strong in that region?

Yes, Wamsi, it's the latter. It's the higher services mix. There isn't anything unusual underneath the numbers, but continued strength on the services side.

Our next question comes from Katy Huberty from Morgan Stanley.

In the past, you've said that when revenue growth stabilizes in the 10% range, that EPS growth will track sort of 1.5x the 2x revenue growth. Is this the year that you think growth stabilizes, just given your guidance is 10 to 12 and you begin to optimize for margin expansion? Or do you feel like you want to remain in investment mode? And in that regard, what's the plan for number of sales teams you hire in 2012?

Katy, thank you for the comments on the quarter. We definitely want to stay in investment mode. We've got a great market opportunity in markets that are growing and large. And so we want to concentrate -- we want to continue to invest back into the business. Regarding the additional sales territories for 2012, we're planning that somewhere between 35 and 45. We'll see how it goes, it might end up we had more but as it stands today, the plan we've got is to add another 35 to 45 and balancing that with adding additional resources into some of the newer existing territories.

Yes, Katy, I'd just add a little color on the operating margin side. We've said post-spend 22% to 23% is kind of our long-term goal. We feel very comfortable in that range and getting back to what Mike said, continue in the investment mode. What -- our focus is driving that operating income, the actual dollars that should yield that EPS growth. So again, I wouldn’t expect significant margin expansion. It's always our objective to try to drive margin expansion, but we're comfortable in that 22% to 23% range to allow us to be able to stay in the investment mode and drive the operating income growth in absolute dollars.

And as it relates to the segments that you think drive top line growth in 2012, you've mentioned that banks and communications and healthcare all grew north of 20% in 2011. The other segments grew at a slower pace. Do you expect those 3 segments to also drive outside growth in 2012? Or are there other segments that you think you can see a stepped up growth rate?

There's a lot of subsegments in those industries that have various growth rates and opportunity for us. The oil and gas we think is a great opportunity for us. We see utilities as a great opportunity. And actually, they've been growing quite a bit, but it's all in very small numbers. Healthcare continues to accelerate for us, and there's a lot of subsegments in there. Financial services and the ones you mentioned, Katy, that have been pretty strong -- consistently strong in the past 2 or 3 years, we do expect a decent growth out of them. The communications industries, because there's so many large companies in a more narrow vertical, it can be lumpy year-to-year based on a couple of our large customers there. But generally speaking, financial services, telecommunications, as well as healthcare have been good markets. And we have great additional market opportunities in those 3 industries. Inside of manufacturing, we've been investing heavily there and we have very good presence. It varies geographically as well as in the industry subsegments. We have very strong presence in manufacturing in the U.S. and in particular, in consumer packaged goods and the high-tech manufacturers. And then globally, we've been increasing and growing in the auto and some of the other verticals. And we see manufacturing as representing a very large growth opportunity for us, if you look at this longer-term. If you look at our market position and the revenue we're producing in the manufacturing industries relative to the percent of IT spend that manufacturing represents, we're at a -- one of our lower penetrations there, and it's just a huge market opportunity.

And then just finally, Steve, on gross margin, the trend was far better than a lot of people feared, given the HCD pricing concerns. Can you talk about whether higher HCD costs did impact you in the December quarter and how much bigger of an impact you had seen in the first quarter and the rest of this year?

Yes, Katy, no real impact in Q4. In the prepared remarks, I cautioned or gave some color around that with respect to the EPS where we do expect some pressure from the disk drive pricing and then mitigating that from some internal side to where overall we'll probably have a 1% -- looking at 1% to 6% decline in our product gross margin between years from those factors. But again, it's something that the entire industry is experiencing. And again, with our customers, we're in for this for the long haul and that's why we're being cautious on our guidance for 2012 with respect to that impact.

[Operator Instructions] And our next question does come from Matt Summerville from KeyBanc.

I just wanted to ask a question on the Asia Pacific region. The last couple of years, you've seen quite a bit of volatility there. You had huge organic growth in the fourth quarter. And I think you had sort of hinted to that on your Q3 call that you expected a pretty good year-end there. I guess I'm curious as to are you seeing something you in Japan? Is demand there sustainably improved? Or was this just sort of more of a timing type of event? And I guess, how should we think about that region on a go forward basis?

Yes, Matt. We were really pleased to see APJ's performance in the fourth quarter, and we do have good momentum in APJ going into the first quarter. A couple of comments about APJ. They also were not a benefactor when you look at the growth results in the regions to any degree from the Aprimo and the Aster acquisition. So given that, they had a pretty good performance not only in the fourth quarter, but when you step back and look at the year. The Japan performed well in 2011 and as I've commented before, Japan is the largest country in Asia Pacific Japan. It produces the most revenue. It's the second largest country in Teradata globally, in terms of revenue. And it's very key to our performance in d Asia Pacific Japan. And when you look at 2012, we feel very comfortable that Japan isn't going to be a negative factor in 2012.

Our next question comes from Rahul Bhangare from William Blair & Company.

I just want to ask about Aster Data. How did it perform relative to your expectations in the fourth quarter? And then looking out to 2012, how do you expect pretty material acceleration? And how much are you investing in the business?

Aster Data -- the performance of Aster in 2012 -- or 2011, excuse me, was good. The bigger thing about Aster Data is our vision and opportunity that we have for big data analytics longer term. So on a short-term basis, the primary reason for the acquisition wasn't to drive short-term revenue and operating income short term. It was more about the technology, the intellectual property and building use cases and how we can take big data into the mainstream market outside of the e-business companies that are doing most of the work with the big data today. And from that regard, we're extremely pleased with how we've been able to advance not just the Aster technology and the platforms that Teradata has, but in developing the use cases on how big data can be applied into the mainstream market in the major industry segments we serve.

Our next question comes from Bill Shope from Goldman Sachs.

I have one quick clarification in Thailand, then my main question. Can you give us a little more color on what some of those levers are that you mentioned that you have to mitigate the HCD cost increases near term? Is that primarily product pricing, given everybody's experiencing this issue right now?

No, Bill, I wouldn't say more product pricing; I would say more product configuration. Our engineers are working to design around the potential supply chain issues, so it's more probably in the configuration, what we can do internally.

Okay. Got you. And then digging into the verticals commentary before, can you comment on which verticals may be seeing any change in competitive activity? Or is competitive activity fairly constant across all of the business right now?

It's been fairly consistent the past couple of years, so no changes there.

Our next question comes from Ed Maguire from CLSA. Edward Maguire - Credit Agricole Securities (USA) Inc., Research Division: I just wanted to see if you can clarify a bit of your expectations on maintenance. How your renewals have been tracking, whether there's any room to affect price increases across the customer base, and that really goes for all products.

Regarding maintenance, our renewal rate is literally 100%. And regarding pricing, we price competitive to the market. And the biggest headwind we have is the whole price-performance advances that we continually make and a customer replacing a system -- or replacing part of a system in EDW that is 3, 4, 5 years old. They're going to replace it with something that is half its size, if not less. That's how rapidly our price-performance capabilities advance. And when that happens, the maintenance is less than what it was 3 or 4 years ago for the same horsepower.

Our next question comes from Brent Thill from UBS.

You highlighted substantial improvement in your new customer wins. And I was wondering if you can just give us all a sense of where your sales cycles are trending on new wins as well as what you're seeing in your average selling price on these initial transactions.

The new customer wins pretty much are coming across the board. And from -- what I mean by that is its existing territories, its new territories. And with the breath of our product family, we do have -- we have shortened the sales cycle in some cases as we get into smaller types of customers and -- or larger customers looking for a smaller entry point. As far as average selling price, there hasn't been any material change in the new customer wins. The mix of customers, if you get more larger customers, this year we had 18 Fortune 500 customers as new customer wins. Those tend to be larger. But at the same time, we've gone into the mid-market in the U.S. and those tend to be small. So on the balance, it's roughly the same.

Our next question comes from Derrick Wood from Susquehanna.

I just wanted to the drill down on the product question or the ASP question. How do you see your demand -- I mean, you guys are somewhat in a product cycle with the new mix storage platform. So if you look at 2012, what do you think the ASP uplift is from that product? And what do you think the -- kind of the penetration you're going to see out of your installed base? And then I guess just offsetting that is the 2000 series seems to be growing, in terms of percentage of revenues and probably due to good new customer accounts. How do you expect that to track in terms of percentage of revenues?

Well starting backwards, on the appliances, Derrick, and specifically the 2000 Data Warehouse Appliance, our revenues grew right around 100% in 2011. And that came on top of the 2000 revenues growing 90% the year before. And it's clearly -- when you look at win rates and competition and everything, the 2000 Appliance is having tremendous success in the marketplace. We do see the percentage of revenue in the revenue mix coming -- participating from the -- contributing from the 2000 Data Warehouse Appliance moving up to probably 15% in 2012 and continuing it's good growth. The first question was around the solid-state drives and potential uplift and average selling price?

Yes.

Okay. Derrick, I don't know if we can quantify what that will be. It'll just -- it'll end up with better price performance versus our competitors by being able to mix and match solid state drives along with our conventional drives and just give us that much superiority in our offering versus competition.

Is there -- I mean, so you're saying that it doesn't have a major impact in terms of average selling price?

I don't know if we can attribute it or quantify exactly what that would be. Maybe when we step back and look at the results at the end of next year, we might be able to see something. But by and large, it's just going to expand our market position and our Enterprise Data Warehouse offering.

Our next question comes from Raimo Lenschow from Barclays Capital.

I just wanted to dig a little bit deeper into the competitive dynamic. Obviously you had Oracle kind of having to tone down their Exadata growth prospects a little bit. IBM sounded very infused about Netezza. Can you just talk a little bit what do you see in terms of dynamics between the Netezza, the Greenplums and the Exa machines versus you?

Our win rate is growing -- our win rate is sitting at 90% or higher across the board, relative to our competitors. And the one thing I'd like to point out is we don't include upgrades and expansions when we win those with our customers that are not contested. And most of our upgrades and expansions are mostly uncontested, and we don't count those. So these are pure, head-on competitions. And the win rates remain 90% and higher. The other thing I can add is when you see -- the revenue growth rate I just cited for our 2000 appliance -- our 2000 Data Warehouse Appliance is what we compete with the companies you mentioned 99% of time, and it's growing 100%.

Our next question comes from Shebly Seyrafi from FBN securities.

So your product gross margin is guided to decline plan by roughly 1 percentage point over the next year. I don't know if you made any comments about your Services gross margin expectation going forward. And related to that, in the latest quarter, Consulting grew maintenance sequentially. And Consulting has a lower gross margin, yet your Services gross margin did increase, maybe you can talk about the dynamics there?

Well we're still expecting the rates underneath them to improve. We had improvement in 2011. What's going to be is the overall mix in the Consulting Services. Again, we're still very committed to invest in that area for us on the Consulting Services side. And that'll continue to raise that percentage of the total revenue that could put pressure on the Services margin going forward. But in absolute dollars from a gross profit perspective, it's growing. So you'll continue to see -- in my prepared remarks, I said maintenance would be growing high single digits in constant currency in 2012. And you -- I mentioned the overall Services growth rate, so you can do the math and you can just find that provisional services as we're anticipating in 2012. On a constant currency basis, we'll be growing greater than that maintenance side. So again, you'll have that distortion in the total mix for 2012 on the services gross margin line.

Our last question comes from Brad Reback from Oppenheimer. Brad Reback - Oppenheimer & Co. Inc., Research Division: Mike, [indiscernible] to 1Q in the first half of the year. The new [indiscernible] could be [indiscernible] looks similar to what you experienced in 2011?

Brad, could you repeat that? You're breaking up a little bit. Brad Reback - Oppenheimer & Co. Inc., Research Division: Sorry about that. The gist of the question is does the new customer activity in the pipeline for the first half of the year look similar to 2012?

For the first quarter and the first half, Brad, I wouldn't say it's similar only because we have a tougher prior year comparable this year than we did a year ago. The activity is very, very strong.

We have no further questions at this time.

Okay. Listen, I want to thank everybody for joining us here this morning. And we're very pleased with our results here in 2011. And we're looking forward to having another great year in 2012. Thanks for joining us, and have a good day.

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