Welcome to the Q1 2012 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 2012 first quarter earnings call. Mike Koehler, Teradata's CEO, will begin today by summarizing Teradata's Q1 results. Steve Scheppmann, Teradata's CFO, will then provide more details regarding our financial performance, as well as our increased guidance for 2012. Darryl McDonald, Teradata's EVP of Applications, Business Development and CMO, is also in the room. 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 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 GAAP result to our non-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 will now turn the call over to Mike.

Good morning, everyone, and thanks for joining us. We were pleased to get off to another strong start again in 2012. Q1 revenue of $613 million was up 21% over Q1 2011 and up 22% in constant currency. This was our highest organic constant currency revenue growth ever achieved in a quarter. Q1 was also the second-largest quarter ever next to Q4 in 2011. Product revenue increased 31% and 32% in constant currency, which set a record for product revenue growth in a quarter. Non-GAAP earnings per share grew 25%, and non-GAAP operating margin of 23.9% was our second-highest quarter ever. Turning to the regions. All 3 regions grew revenue double digits in constant currency. The Americas led the way with $388 million of revenue, which was a 26% increase over our strong Q1 in 2011. New customer wins included BlueCross BlueShield of Tennessee, which purchased a data warehouse and our healthcare logical data model to use as their foundation for their clinical healthcare analytics, along with our partner SAS. Our activity in healthcare is increasing as these organizations are looking to Teradata for advanced analytics to gain insight into clinical, patient, provider and claims information for better medical outcomes and at lower costs. JEVCO, a Canadian insurance company, became a new customer in the quarter as well. JEVCO's IT environment had evolved over the years to include many data sources, data marts and also duplication of data. Leveraging our data warehouse, financial services logical data model and our consulting services expertise, JEVCO is now centralizing and integrating data to a reduce cost and provide better information for market development, risk management and operations. Cars.com, the leading destination for online car shoppers, also selected Teradata in Q1 as their data warehouse provider. And Liverpool, Mexico's largest department store retailer selected…

Thanks, Mike, and good morning. We just completed another strong quarter driven by the heightened demand for analytics and business intelligence. This is one of the best quarters in Teradata's history, highlighted by 21% revenue growth, non-GAAP operating margin of 23.9%, non-GAAP earnings per share up 25% and 105% increase in free cash flow generated in Q1 versus the prior year period. First quarter revenue was $613 million, was up 21% from the first quarter of 2011, up 22% in constant currency. Product revenue of $308 million was up 31% from the first quarter of 2011, up 32% in constant currency. Services revenue of $305 million was up 13%, up 14% in constant currency. Within our services revenue, Consulting Services was up 14%, up 15% in constant currency. And Maintenance Services was up 11% in the quarter, up 12% in constant currency. During 2011, we had 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 the details today. However, these special items are described in the footnotes to our earnings release and are shown in the GAAP to non-GAAP reconciliation schedules in our earnings release as well as on our website. During my discussion today, I will be addressing margins and expenses on a non-GAAP basis. Gross margin in the first quarter of 2012 was 55.9%, up from the 55.7% in the first quarter of 2011. The increase in gross margin was driven primarily by a greater proportion of product revenue. The Americas and APJ regions experienced solid improvement in gross margin while the EMEA region gross margin declined primarily due to consulting revenues growing faster than the product revenue, as well as timing of transactions and deal mix. Product gross…

[Operator Instructions] And our first question comes from Katy Huberty from Morgan Stanley.

I know you don't break out metrics as it relates to the number of new customers versus revenue from existing customers. But can you just talk qualitatively around where the upside came from in the first quarter and as it relates to the higher full year guidance? Is that coming from existing customers spending more or new customer wins?

Katy, it's Mike Koehler. The revenue increase, especially on the product revenue, was pretty broad based. But the majority of it came from the user base.

Our next question comes from Wamsi Mohan from Bank of America.

Steve, you commented that appliances were at the low end of the 10% to 15% for Q1, but you expect that to move higher for the year. Are you taking any steps specifically to drive appliance sales in terms of the dedicated sales force later in the year? Just wondering why you think it ends up at the higher part of the mix for the rest of the year. And a quick clarification on your GAAP number, which moved slightly lower, were all the items because of the pending acquisition of eCircle? Or some of the acquisition and integration costs, are they turning out higher for Aprimo and Aster?

Wamsi, it's Mike Koehler. I'd like to first comment on appliances contributing closer to the 10% of product revenue. That's really more the result of the strong overall product revenue growth we had, which was 31% in the quarter, and the big product revenue growth we had in the Enterprise Data Warehouse class product. So the appliances in the 2000 had good revenue growth in the quarter, but as a percent of revenue contribution, it was at the lower end of the 10% to 15%. And regarding the sales force, we do not have dedicated sales force. We do backup our sales teams with subject matter experts, centers of expertise, if you will, as it relates to Aster Data, as it relates to all of our products. And we have a technical consultant as well that have in depth knowledge around the various products to support our sales force.

Yes. And Wamsi, with respect to GAAP to non-GAAP, yes, we did make an estimate for the acquisition-related cost for the eCircle acquisition and those estimates are in there. With respect to the prior ones, now we're running pretty consistent to what we had estimated, and so the biggest delta does relate to the anticipated costs, acquisition and specialized relating to the eCircle transaction.

Our next question comes from Ed Maguire from CLSA. Edward Maguire - Credit Agricole Securities (USA) Inc., Research Division: I had a question on Aster Data. Could you comment on at least what the revenue activity that you're seeing so far there and how that is impacting the core business? I've noticed you've had some partnerships with some of the Hadoop vendors, and I'm interested in how that's impacting the core Enterprise Data Warehouse all through as well.

Yes. Ed, this is Steve. Aster Data, as we've talked, is really purely a technology play, technology opportunity, and we're still in the very early stages from -- in terms of revenue and defining use cases. We're very pleased with the development of those use cases. But again, from a revenue perspective, still in the very early stages.

Yes. If I can add, Ed, the number of proof of concepts we're engaged in right now are very significant, pretty broad based, mostly in the U.S. And we're starting to get activity going in international as well.

Our next question comes from Aaron Schwartz from Jefferies. Aaron Schwartz - Jefferies & Company, Inc., Research Division: Given the strong product revenues seen here in the first quarter, can you just talk about your expectations for the consulting mix for the later part of the year? Will that start to pick up as sort of a tale on the strong start to the year on the product side?

Aaron, this is Mike Koehler. There isn't a direct correlation between the product and the consulting revenues. There’s more of correlation as it relates to maintenance revenues when you have a strong product revenue growth. However, with the maintenance revenue, our larger Enterprise Data Warehouse customers, as they expand and add to systems, the pricing of the maintenance on those systems as they get added to and they become larger is not linear. So although there is a correlation with maintenance with product revenue, it doesn't necessarily grow at the same rate as the product revenue. The consulting, we've taken – we’ve commented on this before between the correlations between consulting revenue and product revenue, and when you break apart our Consulting business, approximately 25% of our revenue is a leading indicator, 45% is a lagging indicator. So it's being dragged along with implementation services and everything else that we're selling as product revenue. But in addition to those 2 buckets, if you will, we have 30% of our consulting revenue that's not related to product revenue at all. It's independent. So things like our Managed Services and our BI Consulting and a lot of other things that we're doing is independent and separate. So I wouldn't draw any correlations from the strong product revenue growth with consulting revenue growth coming downstream.

Our next question comes Jesse Hulsing from Pacific Crest.

Would you say the 6000 series is driving more floor sweeps? And how has the adoption of SSD trended?

Very good question, Jesse. So the floor sweeps, even with a record 31% product revenue, the floor sweeps were very normal, if anything, a little bit less than the normal amount of floor sweeps we see in the quarter. So the 6690 and the hybrid storage EDW has not accelerated floor sweeps -- did not accelerate floor sweeps beyond what we normally see in the first quarter. As far as the adoption of the hybrid storage EDW, of roughly 50% of our EDW purchases in the first quarter were the hybrid storage data warehouses. The hybrid storage data -- for our customers with Enterprise Data Warehouses that are expanding them, most of them are doing that without adding on hybrid storage. So we still have a pretty good volume of the non-hybrid storage EDWs in the mix -- in the first quarter.

Our next question comes from Bhavan Suri from William Blair & Company. Bhavan Suri - William Blair & Company L.L.C., Research Division: Just a quick question. Mike, you've talked about sort of a couple of years ago, sort of the core EDW being the central location for all the data. And then over the last couple of years, with Unity, with the appliances, with Aster, you sort of started talking about an ecosystem approach. Could you just provide a little color on sort of how many of the customers, what percentage of your of customers have started thinking about it as an ecosystem and, I know, layering on multiple products sort of around the core EDW, whether it'd be sort of Aster and Hadoop or some of the small appliances?

Okay. The way we would characterize it is, like you said, core to Teradata was the integrated data warehouse, an Enterprise Data Warehouse. And in a way, it's a no-brainer, it's a best-in-class architecture and reduces a ton of cost by centralizing data that can give better insight into the business when it's integrated from other data across the enterprise. And it also, as I discussed earlier about our Active Data Warehouse Private Cloud, it consolidates underutilized data marts and puts them in one central location to be shared with multiple organizations, multiple users and everything else and drives a higher utilization, and as a result, reduces data center footprint and gets a ton of costs down. So for data that has better value being integrated and for data that is relevant and should be used by multiple organizations in a company, an Enterprise Data Warehouse is, without a doubt, the right architecture. Think of that as a workload. So it's a workload or data that's used by lots of people, lots of organizations and shared throughout the company to get higher utilization, lower costs, better information. So what we saw with the workload-specific data warehouses or the platform family is -- what we began to see is there's workloads such as our Extreme Data Appliance where it's lots of history, if it's archival or regulatory or it's clickstream data from the web that, that data is relevant to less people within the organization. So our 1000 series Extreme Data Appliance, we build something that has lots of storage, can have lots of data in it, but it doesn't have a lot of CPU to serve a lot of users, and in effect, we’re building a configuration that is a much lower cost per piece of data than an EDW to serve a smaller group of people that are using it. So it's workload-specific. So when you look at the Aster Data Appliance once again, in Aster Data Appliance, you're doing exploratory and discovery types of analytical analysis on big data. And you don't need a mission-critical environment similar to the 1000. You don't need all the robustness that you need in an Enterprise Data Warehouse, and you're using it with a smaller group of users. So it gets back to a workload that's more specific for a limited number of users and requirements that aren't the same as running your company on the data warehouse like our EDWs. Our customers in EDW’s side need 49s [ph] availability. It's mission-critical. The thing is critical. So we continue to slice and dice workload-specific data warehouses to address different workloads and different user sets in addition to an Enterprise Data Warehouse to integrate and share data and information across all the organizations that's required, because in that environment, that's the lower-cost solution.

Our next question comes from Brent Thill from UBS.

Just on the product revenue. You saw less seasonal headwinds in Q1 and I know Mike, you mentioned it was pretty broad based, but I was just curious if you could just confirm that there were no oversized transactions that helped skewed that as a onetime basis? And I guess as a follow-on to that, when you look at your guidance for the back half of the year given a great start, I certainly understand the FX and the comps, but it seems like a massive deceleration. Why would we see that given what you just put up in Q1?

First of all, on the first quarter, we did not have any large, super large transactions. We had a very, very, I would call it, normal mix of transactions in terms of size. I actually think we -- I'm thinking through the previous quarters last year and everything. We didn't have transactions quite the size of some of the ones we saw in the previous 4 quarters in 2011. So anyway, that's the answer to that one. I think on the full-year guidance, there's a couple of things going on. The currency headwind is for real, and some of the prior year comparables are real versus what we had in Q1 as a prior year comparable, and when you get into certain regions, right? So like in EMEA, the currency headwinds in EMEA in Q2 were 7%, and they’re estimated at 5% in Q3. When you look at EMEA's prior year Q2, the revenue produced in Q2 in EMEA of last year was the same amount EMEA produced in Q4. This was a huge prior year for EMEA in Q2 2011. In fact, the revenue growth in Q2 in 2011 was 34%. So what happens is you start to slice and dice this thing, and we've got get strong headwinds in EMEA in Q2. When you look at – and the EMEA thing is not a macroeconomic thing our business is fine. It's just we're going to run into a tough prior year comparable in EMEA in Q2 between the currency and the prior year and some currency in Q3. The only other thing we're seeing in terms of softness is in China. So we're very big in the financial services industry in China. We have 12 of the top 15 banks, and there, we are seeing delays in approvals and a slowdown in the financial services sector in China. We are seeing some. I'm not saying to a great degree, but we are seeing some there. But on the flipside, Japan we’re off to a really good start in Q1. And our activity in Japan is pretty good. We finished the year strongly in Japan. So that's kind of the mix of things. The other thing is when we look at the full year, and similar to what we said, I believe we said on the last call, the services revenue is going to be more in the lower double digits range, and that's going to have an impact on the full year.

Our next question comes from Raimo Lenschow from Barclays.

Quick question, Michael. Back to your earlier comments about when the Enterprise business, business [indiscernible] were useful, can you just kind of relate that back to the wanted trends that we are seeing at the moment, where the -- in memory [indiscernible] are coming in? And in a way kind of trying to create a decentralized environment again, while it seems like you're actually gaining good bit of traction with your customers on kind of on that notion of understanding that you want to have your data in one place, how do you think that market is playing out? Is that kind of a fall-through with your memory [indiscernible] ? How do you kind of position yourself against that?

Okay. So first of all, forget technology. In memory for solid state drives or storage or traditional, whatever, it's just technology, it gets back to the workload and what provides the best value and the lowest cost. So it gets back to -- in an Enterprise Data Warehouse, you centralize and integrate the data that should be centralized and integrated. You share it across a lot of users, organizations and so forth and so on. We virtualized our storage. So we -- and we virtualized our compute years ago, and we're agnostic to storage or memory or whatever other than we want to automatically place data on the fastest type of technology because it's more expensive. So we want to get the data that's used the most often on the fastest type of technology. And the data that's used less often, we want to get it on the less expensive type of technology. So we want to offer our customers the highest performance for the lowest cost, and you do that by virtualizing storage and automatically placing data. The notion of I want to take data out of something that's shared across multiple organizations, I want to go put it in a data mart, whether it's in memory data mart or whatever kind of data mart it is, just defies gravity. You're creating another footprint thing to put on the data center floor. You're adding to your costs. You've got to have humans run it and everything else. And I know a lot of our competitors advocate this because they cannot do what we do in an active Enterprise Data Warehouse, which, in effect, has private cloud capabilities. Darryl, I don't know if you want to...

Yes. The only other thing I would add is as a part of our strategy, to Mike's point, we will leverage every type of technology in an appropriate way that best meets sort of the price performance that customers are looking for. So today, Teradata takes advantage of -- in memory today, already is a part of its architecture. We also work with partners like MicroStrategy and SAS, and they have in memory accelerators that also works in conjunction with Teradata. So from our standpoint, it is a leverageable technology in addition to as we look at the platform family and ecosystems that we build.

And our next question comes from Derrick Wood from Susquehanna.

I was hoping you could talk a little bit more about the demand trends out of Aster. First of all, it sounds like demand has expanded beyond typical Internet companies. Just curious about what types of big data projects people are looking to use it for. And then a second part to that, you announced a partnership in cybersecurity. Is this a new area you guys plan to move into? And would this be leveraging the Aster Data products?

This is Darryl. Yes. We're seeing lots of good use cases being developed as we deploy Aster into accounts, as also as well as we talk to clients. And some of the early ones that are very hot thing to be around, digital marketing optimization, also fraud detection and prevention, as well a social network analysis. But we're also seeing a trend where people are looking at traditional analytics and how can they add more transactional data in a time series approach to understanding the bigger picture. So people are looking at going from 2 years to 10 years of history and doing analysis on it like they traditionally did to try to gain new insights. It's also a -- very often we're seeing in marketing they're leveraging big data as a part of this new digital marketing phenomenon that's going on. So if you look at some of the studies put out around impacts to CMOs, it's understanding the big data phenomenon, as well as how to monetize the social environments. And we see that as a big take-up of leveraging this technology to help them better understand how to interact with those clients, as well as how to look at that transactional data in its raw form. So those are definitely some of the areas we're seeing use case-wise in the Aster front. On the Narus, yes, it's a new relationship. We're finding that a lot of our customers want to leverage the power of the Active Data Warehouse to really look at things that come in and out of their data environment. So they start putting rules in place to spot fraud or transactional behavior that may be is not a part of the way it typically runs in their business. And they're leveraging that technology in conjunction with Teradata to spot those kinds of things on people entering and accessing the networks and moving and changing data and leveraging that as a part of their enterprise. Today, it's currently working with Teradata, and we'll continue to look at how we can leverage that across the other platforms.

Derrick, it's Mike Kohler. If I can just add, as it relates to Aster and big data, we're just not throwing technology at big data. Of course, there's some innovators and early adopters that can take raw technology and apply it. We're really focused on the use and the use cases and how you benefit from leveraging big data and the new analytics and everything that come from it. And then if we're successful on doing it and we are doing it, that's how you drive the adoption of a new capability into the mainstream market. So a lot of our energy is there, which will show up a little bit over the longer term. And of course, our investments in marketing are driven around a lot of Aster Data's customers prior to the acquisition and today are using it. The marketing organizations are using it for big data analytics, and we're working on that as integrated solutions.

We have time for one more question. And our last question comes from Alex Kurtz from Sterne Agee. Alex Kurtz - Sterne Agee & Leach Inc., Research Division: Back to your questions about -- back to the point about product growth for the rest of this year and looking at the prior year comps and your comments about Europe, would it seem like maybe this year, you're going to have more of a barbell kind of year where you're going to have a very strong March and December, but because of the tough EMEA comp and just sort of seasonality in September, we should sort of expect bigger sort of output coming out of December?

Alex, it could be. The question is, are those ability as we go beyond the rest of this quarter, then we go into the third quarter, and then we go into the fourth quarter. And you get to the fourth quarter, our visibility is just -- it's not as good on the product revenue. We get a pretty good handle on the, of course, on the maintenance and the annuity. And to a degree, on the Consulting Services, we operate with a pretty good backlog. And we do have a view on the currency in Q2 and Q3. So the things I did mention, these headwinds, and everything else, they're pretty lined up in Q2 and Q3. So there is an opportunity here in the fourth quarter when we get there. And we'll be able to provide a lot more clarity. We’ll have a lot more visibility on the next call. So with that, I would like to thank you all for joining us here this morning, and I hope that everyone has a great day. Take care.

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