Teradata Corporation (TDC) Q4 2012 Earnings Report, Transcript and Summary

Welcome to the Q4 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 Fourth Quarter Earnings Call. Mike Koehler, Teradata's CEO, will begin today by summarizing Teradata's fourth quarter and full year results. Steve Scheppmann, Teradata's CFO, will then provide more details regarding our financial performance, as well as our guidance for 2013. Our discussion today includes forecasts and other information that are considered forward-looking statements. While these statements reflect our current outlook, they are subject to a number of risks and uncertainties that could cause actual results to vary materially. These risk factors are described in Teradata's 10-K and other filings with the SEC. On today's call, we will also be discussing certain non-GAAP financial information, which excludes such items as stock-based compensation and other special items. We'll also be talking about 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 finished the year with a solid fourth quarter. Revenue grew 10% over prior year, and was up 11% in constant currency, and non-GAAP earnings per share of $0.79 was up 20% from Q4 2011. For the year, revenue of more than $2.6 billion was up 13% as reported and 15% in constant currency. Non-GAAP earnings per share of $2.85 increased 23% over 2011. Overall, a very good year. Turning to the regions. The Americas fourth quarter revenue grew 8% as reported and 9% in constant currency, and for the full year, revenue was up 13% as reported and in constant currency. New customer wins in the Americas during the fourth quarter included: O'Reilly Auto Parts; USDA Food Safety and Inspection Service; the state of Ohio, which will use Teradata for health and Medicaid spending analytics; the Ministry of Social Development in Brazil, which will be using Teradata to detect fraud and ensure that families benefit from the best use of public resources; CHRISTUS Health, which is integrating its clinical data across facilities to improve the quality of patient care; Bankview will be using Teradata for sales, click stream and marketing analytics; Pacific Gas & Electric, which is implementing Teradata for its smart meter data warehouse; Nautilus, a global fitness company, has purchased the Aprimo campaign management solution to support its marketing; and we added 2 Fortune 100 customers in the U.S. with plans to build out large-scale EDWs. Expansions and upgrades in the Americas included: the U.S. Defense Commissary Agency; Hospital Corp. of America, which has added clinical applications to support healthcare reform requirements; Harvard Pilgrim Health Care, who used Teradata to help them expand from B2B into B2C; and Mohigan Sun Casino, which is using Teradata to support its 360-degree view of customer initiative. Several Teradata customers in the Americas added Aster, Aprimo and eCircle Solutions in the quarter such as Comcast, which added our Aster Big Analytics Appliance as their data discovery platform for big data. This recently released appliance integrates Aster and Hadoop into a single appliance. Dell is implementing Teradata's integrated marketing management solution, as well as the Aster Big Analytics Appliance for analysis of multiple types of data. And GoDaddy.com, which is implementing our integrated marketing management and eCircle digital messaging applications to integrate call center and web interactions. Turning to EMEA. Fourth quarter revenue grew 21% as reported and 24% in constant currency. For the full year, revenue increased 16% and 23% in constant currency. Excluding the benefit of eCircle revenue in 2012, EMEA's organic constant currency revenue growth was in the high teens, which was a strong performance given the economic climate there. For Teradata overall, eCircle contributed a little over 1 point of revenue growth in 2012. Fourth quarter new customer wins in EMEA included: the Dutch tax authority; HSBC Turkey; and Turkcell, which plans to load 12 billion records of network probe data per day into its network operations data warehouse, which will enable analytics around its network and customer experience. Customer expansions and upgrades included: Media-Saturn, Europe's leading consumer electronics retailer, which has added a 6690 Active Data Warehouse with virtual storage and solid-state drives; TNT Express, which added a hybrid storage 6690 as well; NDAC, DHL, Ettika, Air France KLM, the National Traffic Department of Spain and one of the leading telcos in EMEA added an Aster system. And finally, Asia Pacific Japan grew revenue 2% as reported and 2% in constant currency, going against the prior year Q4, which had 28% revenue growth. For the full year, revenue was up 8% as reported and 9% in constant currency. China had strong revenue growth in the quarter and for the second half as expected. New data warehouse customer wins included: FAW Group, a top 3 auto manufacturer in China; and Sumitomo Mitsui Card, one of the largest credit card companies in Japan. And APJ also had new customer wins with applications such as: Michael Hill Jewellers, which is implementing our demand chain management application; and at one of the telcos in China, which is deploying our Aprimo integrated marketing management solution. Major upgrades and expansions in APJ included: ANZ Bank, which is using Teradata as its private cloud to quickly provision the services to the business while reducing costs; Industrial and Commercial Bank of China; China Securities Depository and Clearing Corporation; Bank of Tokyo-Mitsubishi; and dtac in Thailand. Some additional comments regarding 2012. First, we added 49 new sales territories in 2012. This was above the 35 to 45 range we targeted for 2012 and higher than the 45 we added in 2011. We ended the year at 569 sales territories, which is up close to 50% from the 385 we had at the start of 2008. We plan to add another 20 to 30 territories in 2013, as well as additional sales and consulting specialists for our Aster and integrated marketing solutions. Second, we achieved several key milestones in 2012 with our Aprimo, eCircle and Aster solutions. We expanded our Aprimo integrated marketing application's global presence with wins in China, Brazil and in Eastern Europe. We had our first eCircle digital messaging wins here in the U.S. as well as in Australia. We expanded our Aster presence into Europe. We released our integrated Aster Hadoop appliance in October, and have had 5 wins already. In addition, we had a record Aster new customer wins in the fourth quarter, including 5 Fortune 500 companies. And we have a growing number of customers who have implemented our integrated marketing, Aster and data warehouse solutions. And third, we released the Teradata Unified Data Architecture last October. As many of you may know, there's a lot of confusion in the marketplace around big data, how to extract value from it and what role Hadoop plays, as well as data warehouses and the entire analytical ecosystem. The Teradata Unified Data Architecture or UDA helps companies build out their data architectures and eliminate the confusion. The key components are: Hadoop with its ability to ingest, transform and store big data in a very economical manner; Aster, as a discovery platform for Hadoop; and workload specific data warehouses for strategic and mission-critical analytics for companies to run a business. We have partnered with the leading open-source Apache Hadoop distributors such as Hortonworks, which bears the same unified data architecture vision that we do. Although Hadoop by itself represents minimal revenue potential for Teradata, it has an important role to play with our customers, and it also pools solutions such as Aster large multi-structure data discovery analytics, Unity for data movement and synchronization, as well as our services. In addition, the UDA helps to get our data warehouse platforms positioned properly with our customers. We saw more than 20 customers adopt our UDA in just the past 3 months, and we see this momentum continuing in 2013. Turning to 2013. We made some organizational changes that were effective January 1. One of those changes was combining the EMEA and APJ regions into 1 international region that will be led by Herman Wimmer, previously head of EMEA. This scaled international region will have greater critical mass and lever the resources for deployment of our integrated marketing management, big data analytics and data warehouse solutions, as well as possess more knowledge and depth for our numerous consulting and support services offers. Going forward, we will still provide the EMEA and APJ revenue performance in the supplemental schedules on our website. Additional changes we announced were that Darryl McDonald will be leading Teradata Applications, which includes our integrated marketing management solution and Aprimo and eCircle acquisitions; bob Fair, who will be now leading Marketing Business Development and Strategy, as well as IT; and Dan Harrington, who will be leading both Consulting Services and Customer Services. This will help to better leverage resources to execute and support our managed services and our software as a service offerings. Turning to 2013 guidance. Teradata had a pretty good run from 2010 to 2012 and there is no reason we can't continue these types of results longer term. But as we enter into 2013, some of the macroeconomic headwinds that we were not able to outrun in the second half of 2012, especially in the Americas, are continuing. Customers in the Americas are continuing to tighten their belts delay purchases or buy in smaller increments. This is evident by the number and the size of large deals in the Americas, which are down significantly from Q1 prior year. An additional factor in Q1 is the prior year comparable when revenue grew 26% and product revenue grew 32% in constant currency. On the other hand, as we look at the first half of 2013 for our international region, we expect to grow low double digits and to continue to outrun the macro headwinds in Europe, at least, for the first half. Net-net, given the slow start in the Americas, we expect Teradata's revenue to grow in a range of 6% to 10% for the full year in 2013. The Americas will most likely have a decline in revenue in Q1, and depending by how much, Teradata's total revenue could be below Q1 prior year as well. For the first half, we expect to be at the low end of the revenue range or slightly below it. We are more optimistic about the second half of 2013 when the Americas will have lower prior year comparables, and that after 4 quarters of delays or purchasing in smaller increments in the Americas, potential demand to add performance and capacity may surface. Consistent with prior years, once we get more visibility into the second half, we will adjust guidance appropriately. Given the 6% to 10% revenue growth range we are targeting for 2013, we are expecting to yield $3.05 to $3.20 non-GAAP EPS for the year. We are riveted on reaching the high end of the 6% to 10% revenue growth range in 2013. However, I want to point out that even at the lower end of the revenue and EPS guidance, we will be maintaining our growth investments, which will benefit Teradata's longer-term growth. I want to emphasize that our competitive position has never been stronger in data warehousing, big data analytics and integrated marketing management. Now I'd like to turn the call over to Steve for more details on Q4 and 2013. Steve?

Thanks, Mike, and good morning. Teradata generated fourth quarter revenue of $740 million, which was up 10% from the fourth quarter of 2011 and up 11% in constant currency. This was a solid result given the backdrop of the macroeconomic uncertainty that tech industry experienced, particularly in the latter part of 2012. For the year, revenue was up 13%, 15% in constant currency. The influence of the macroeconomic drivers, particularly in the U.S., resulted in a sharp contrast over the course of 2012, as reflected in our revenue growth for the first half versus second half, particularly in the Americas. In the first half of 2012, we grew 18%, 20% in constant currency versus 9% or 10% in constant currency in the second half of the year. In the Americas, we grew 22% in the first half versus 5% in the second half of 2012. Product revenue of $362 million was up 9% from the fourth quarter of 2011, up 10% in constant currency. For the year, product revenue was up 16%, up 17% in constant currency. In the first half, product revenue was up 25% compared to 8% in the second half of 2012. Services revenue of $378 million was up 11% from the fourth quarter of 2011, both reported and in constant currency. For the year, services revenue was up 10%, up 12% in constant currency. Within services revenue for the quarter, consulting services revenue was up 14%, up 15% in constant currency, and maintenance services revenue was up 6%, up 7% in constant currency. For the year, Consulting Services was up 12%, up 14% in constant currency, aided by acquisition activity. And maintenance services revenue was up 9%, up 10% in constant currency. Now I'd like to furnish some color on how our industry verticals influenced our 2012 revenue. As a reminder, these comments are based on data warehouse and consulting services revenue, and do not include maintenance revenue. Financial services grew 19% for the year, and contributed 30% of Teradata's revenue with the strongest growth coming in the Americas and APJ. Communications declined 3% from 2011, but still contributed 21% of revenue. Growth in the Americas and the EMEA regions was offset by declines in APJ. The media and entertainment segment within the communications industry was down, going against a very strong 2011 while the telecommunications segment grew. Retail grew 14% and contributed 16% to the data warehouse revenue. Manufacturing was up 10% and contributed 12%. We added 2 of the top 10 global manufacturers in 2012, giving us now 7 out of the top 10. Healthcare had a growth of 13% and contributes 7% to total revenue. Government grew 9% and contributed 6%. Travel and transportation was up 28% and contributed 6%, and finally, energy and utilities and other grew 12% in 2012 and contributed 2% to total revenue. During my discussions today, except where otherwise noted, I will be addressing margins and expenses on a non-GAAP basis, excluding stock-based compensation and other special items. A reconciliation from GAAP to non-GAAP measures identifying these items is available in our earnings release and also on the Investor page of our website. For the year, we had solid operating execution and improvements across the gross margin categories, as well as in the operating margin. Gross margin of 56.4% in the fourth quarter of 2012 was about the same as in Q4 2011. Gross margin for the year was 56.9%, a 100 basis point improvement from 55.9% in 2011, led by improved product margins and a greater proportion of product revenue. Product gross margin in the fourth quarter was 68.2%, up 30 basis points from the 67.9% in the fourth quarter of 2011. Product gross margin for the year was 69.2%, a 150 basis point increase from 67.7% in 2011. The improvement was primarily driven by a favorable revenue mix with less 1000 series appliance revenue in 2012. As a percentage of total product revenue, our 2000 series appliance in Q4 2012 was 14%, again, in the 10% to 15% expected range we have discussed previously. For the full year, the 2000 series appliance revenue was approximately 12% of total product revenue. Services gross margin in the quarter was 45.1%, slightly lower than the 45.5% in Q4 2011. Services gross margin for the full year was 45.4%, a little better than the 45.1% in 2011. Turning to our operating expense profile. SG&A expense of $195 million increased $20 million or 11% from Q4 2011. For the year, SG&A was $674 million, up 10% from 2011. We absorbed $60 million of increased SG&A, and still improved operating margin by 200 basis points. The increase in SG&A for the quarter and the year were primarily driven by increased direct sales investments, as well as the addition of acquisition-related SG&A. Research and Development in the quarter was $46 million versus $52 million in the fourth quarter 2011. The decline was largely due to increased capitalization for software development expenses, as well as lower annualized variable compensation expense in the quarter. For the year, R&D increased to $169 million compared to $161 million in 2011. As we've mentioned before, we invest more in the R&D activities than what was reported on the R&D operating expense line on our income statement. Total R&D spend for the fourth quarter, which includes R&D expense plus the additions to capitalized software development costs from the cash flow statement less capitalization of internally developed softwares, was approximately $66 million or approximately 18% of our product revenue. This compares to the approximately $63 million in Q4 2011. As a reminder, these capitalized costs when amortized are then added back to the income statement as product cost of revenue, which reduces product gross margin. For the year, total R&D spend was $244 million or approximately 19% of our product revenue versus $224 million in 2011. As a result of all these items, operating margin for the quarter was 23.9%, a 100 basis point increase over the 22.9% yield in Q4 2011. For the full year, operating margin was 25.4% versus 23.4% in 2011. For both the quarter and the year, the contribution from higher revenue and improved product mix offset the increased operating investments. On a GAAP basis, our effective tax rate in Q4 2012 was 25% versus 26% in Q4 2011. On a full year basis, our GAAP effective tax rate was 28% versus 27% in 2011. Our non-GAAP effective tax rate for the fourth quarter was 23% compared to 27% for the same period in 2011. For the full year, our non-GAAP effective tax rate was 28% in both 2012 and 2011. We expect our 2013 GAAP and non-GAAP effective tax rates to approximate 26% and 28%, respectively. In terms of earnings per share, our Q4 GAAP EPS was $0.66 versus $0.57 in Q4 2011. For the full year, GAAP EPS was $2.44 versus $2.05 in 2011. Noncash stock-based compensation expenses included our GAAP EPS. During the quarter, stock-based compensation expense was approximately $12 million or approximately $0.06 per share. For the full year, stock-based compensation expense was $43 million or $0.17 per share. We expect stock-based compensation expense to be approximately $58 million or approximately $0.22 per share in 2013. Also included in Teradata's fourth quarter and full year 2012 non-GAAP net income, as reported, included approximately $4 million of an income tax benefit related to the 2012 R&D tax credit. This benefit was not reflected in the GAAP results in 2012 since the American Taxpayer Relief Act of 2012 was not enacted until January of 2013. Adjusting for stock-based compensation, the R&D credit and other special items which equated to $0.13 in Q4, our non-GAAP EPS was $0.79 in Q4 2012 compared to $0.66 in Q4 2011 for a year-over-year increase of 20%. For the year, non-GAAP EPS was $2.85, compares to $2.32 in 2011 for a 23% increase in non-GAAP EPS for the year. Turning to cash flow. Net cash provided by operating activities was $124 million in Q4 2012 versus $126 million in the fourth quarter of 2011. For the year, cash from operations was $575 million, an increase of 12%. After $39 million of capital expenditures, which include additions to capitalized software development costs and expenditures for property and equipment versus $23 million in the fourth quarter of 2011, we generated $85 million of free cash flow versus $103 million free cash flow generated in Q4 2011. The decline in free cash flow for the quarter was net due to the increased investments in property and equipment and capitalized software development expenses in Q4 2012 versus the same period as last year. The increase in receivables was offset by changes in other operating activities, including but not limited to, increasing in current payables and accrued expenses. On a full year basis, free cash flow was $427 million, increasing $24 million on a year-over-year basis. Turning to the balance sheet. We had $729 million of cash as of December 31, 2012, down $180 million from the $909 million at the end of the third quarter. The lower cash balances was primarily due to our share repurchase activity in the fourth quarter when we invested approximately $240 million to repurchase 3.9 million shares. During the year, we invested $281 million to repurchase 4.5 million shares. This compares to the $127 million used in 2011 to repurchase 2.5 million shares. In December 2012, our Board of Directors approved an additional $300 million share repurchase authorization. This was in addition to the $300 million authorization they approved in February 2012. Despite being very active in purchasing our shares in Q4, we still had approximately $376 million of share repurchase authorization remaining at the end of the year. Due to our use of U.S. cash for share repurchase activity in 2012, only approximately 30% of our cash is available in the U.S. with the remainder being held offshore. As I've said before, we expect that the rate of our share repurchase activity will continue to fluctuate each quarter and year-over-year, taking in account among other things, our working capital needs, our stock price, alternative uses of cash, U.S. cash balances and economic and market conditions. With respect to accounts receivable. Day sales outstanding was 91 days as of December 31, 2012, compared to 74 days at September 30, 2012, and 76 days as of December 31, 2011. The primary driver of the increase in accounts receivable was the timing of the product revenue transactions during Q4 2012 versus Q4 2011. Transactions in Q4 2012 on the average occurred later in the quarter versus the prior year period. However, to demonstrate the effect of this timing, we collected $57 million more in receivables cash in January 2013 than in January 2012. With respect to deferred revenue. The total deferred revenue, short term and long term, was $405 million as of December 31, 2012, which was up $23 million from September 30, 2012, and up $42 million or 12% from December 31, 2011. Deferred maintenance and subscriptions revenue continues to increase at a rate consistent with our expectations. The other component of deferred revenue relating to product transactions as of December 31, 2012, was within the historical range, which is based on the last 16 quarters. With respect to currency movement. To provide further transparency around currency movement and the potential impact on future revenue, we provide a schedule on our website detailing how currencies impacted the fourth quarter of 2012 and how this movement is expected to impact our year-over-year revenue comparisons for 2013. Assuming the currency exchange rates as of the end of January, we do not expect currency to have a significant impact on our year-over-year revenue comparisons in 2013. Mike provided 2013 revenue and EPS guidance earlier, but I want to give a little more color on some of the specifics as it relates to revenue. As a result of the impact that the macroeconomic environment is having on overall business activity around the world and more specifically on capital expenditures, we expect growth of our reported revenue for 2013 to be in the 6% to 10% range. We will be comparing against some pretty tough comps during the Q1 and Q2, and therefore, we expect our growth rates to be stronger in the second half of the year. Although we have good activity in our sales funnel, the macro economy is clearly having an impact on capital spending in the first half. There are fewer big deals expected in the first half, and on the average, the deals that are expected are smaller in size than what we typically see. We see the opportunity for better growth in the second half of the year, but obviously, that creates a back-end-loaded type scenario, which we do not like to count on so we provided some conservatism, and therefore, a wider range in our revenue guidance. We think this conservative approach is appropriate even though we feel great about our technology leadership, our competitive differentiation, the continued demand for analytics, the growing activity for big data analytics via our Aster solutions and our partnership with Hortonworks and others. As it relates to EPS, we expect GAAP EPS to be in the $2.64 to $2.79 range. The GAAP EPS is expected to include approximately $0.22 a share of stock-based compensation expense, $0.16 a share of amortization of acquired intangible assets, $0.05 a share of transaction and integration costs and a $0.02 income tax benefit for the 2012 R&D tax credit. Excluding these nonoperational items or special items, we expect our non-GAAP EPS to be in the $3.05 to $3.20 per share range for the full year 2013. As it relates to Q1. As Mike said earlier, we face continued macroeconomic uncertainty as well as tough comps that will have a negative impact on our revenue growth rates in 2013, particularly in the Americas in Q1 and Q2. And since our expense run rate from the increased investments in sales territories and other growth initiatives, including R&D and M&A, is about $20 million higher than our Q1 2012, which is consistent with the last couple of year-over-year comparisons. And as Mike said, we are currently continuing this investment strategy. Therefore, our Q1 2013 non-GAAP EPS is likely to be down from Q1 2012, primarily driven by our Q1 revenue performance, which could be below Q1 2012. In closing, despite the increased downdraft in the global economic environment in the second half of the year, particularly the U.S., we continued to deliver solid performance in large part due to the demand for Teradata, the continued emphasis of business analytics, the performance of the Teradata team and most importantly, the continued support and working partnerships we have with our customers. We realized good growth across all 3 of our geographic regions despite continued uncertainty in the worldwide economy. We have done this by consistently investing in our technology, solutions, services and our go-to-market strategy. And we will continue to be disciplined in managing our operations and capital. However, in the short term, specifically in the first half of 2013, the macro uncertainty is making it a little bit more difficult for large IT CapEx investments to be approved, and we've reflected this in our guidance for 2013. Longer term, we remain confident in our ability to leverage our business model and the big analytical opportunities that lay ahead of us. And as a result, we are well positioned for these opportunities. And with that, operator, we are ready to take questions.

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

There were a number of promising metrics in the fourth quarter. Consulting growth accelerated off of the lows in June. Deferred revenue was better than seasonal. It looks like you invested the revenue upside in more sales heads. And based on the DSOs, it looks like you saw strength in December similar to what you've seen and others have commented on. So can you just help us better reconcile those metrics, which would suggest that a good growth rate continues with your more cautious comments on the first half? I understand there's tough compares, but what are you really seeing that would offset those metrics that suggest that you're set up for a pretty good 2013?

Thanks, Katy. This is Mike. Yes, I think what you're alluding to, if you look at the fundamentals in the company, the fundamentals are very, very sound, and we're going to continue to invest at a rate that we've been investing the past several years. And longer term, we see a very, very good picture for Teradata. And basically, what's happened shorter term is the economic uncertainty, and then, in particular, the number of large deals that we currently have in play and the size of those large deals are down in the Americas. So that is the one metric when you step back and look at everything that has caused the conservatism in our guidance when you look at the entire year for 2013.

And did you just -- as a quick follow-up, did you also see weak or lower number of large deals in the fourth quarter?

We definitely did in the third quarter. The fourth quarter in the Americas actually came back a little bit. There might have been just a little bit of budget flushing. So the number of large deals and the size of the deals in Q4 were down, but not to the degree they were in the third quarter, and not what we're currently seeing right now. And I just want to comment that this is what we're seeing right now. Everything is subject to change, and we'll adjust guidance appropriately if, in fact, anything does change here in the near future.

Our next question comes from Matt Summerville from KeyBanc Capital Markets.

This is Joe Radigan, on for Matt. With respect to your 2013 outlook, how much revenue growth do you expect to come from the legacy business versus the new product lines that you've added over the last, I guess, several years? .

Joe, I would say at this point in time, it's all based on a normal evolution product cycle so it's all just rolling. So there's really no distinction between legacy and old or the new stuff. It's all just on a recurring cycle. Nothing unusual in those revenue numbers or our estimates. Everything is really consistent to what we have seen in the past. And Aprimo is as we expected, and it's kind of built now down into the core application business. And Aster's small in the prior years, and we're not anticipating any great upside in 2013, but progress is being made in the Aster area.

Our next question comes from Phil Winslow from Credit Suisse. Philip Winslow - Crédit Suisse AG, Research Division: I just want to actually go back into the Q3 call. I think from your comments about just excess capacity, your customers were kind of -- are misunderstood by some of the investment community. I wonder if you can clarify those. But also, kind of put that into the context of what you're saying about folks just running their data warehouse higher and buying in smaller increments, how that's kind of affecting your thinking about sort of those first half versus second half growth rates?

Yes, so this is good. I want to clarify this because what we didn't talk about on the third quarter was that there's excess capacity, and let me try to explain it this way. When the customers are adding capacity, they're adding performance capabilities that come from the CPUs and the IO that they're adding in order to accommodate newer applications, more users and more queries, right? And Teradata EDWs are designed to run it at 90% to 100% utilization all of the time. So in effect, they're really theoretically is never excess capacity. So each time a customer needs to add more users application or queries to their enterprise data warehouses. They got choices. They can choose to add more capacity. And by the way, they can do it in small increments because Teradata has this coexistence capability that you can bolt on small increments to older types of technology or they can choose to throttle back performance or response time selectively for existing users or applications or queries, and this in turn frees up capacity to meet the new demand. So that's the choice they have to make. Teradata has great technology. We have this Workload Management software, allows customers to do this, and they can pinpoint the throttling back of performance with precision for specific users, applications and queries. Now the comment about the Americas adding a lot of capacity, what happens is when customers have added a significant amount of capacity over a couple year period, this means that there has been a lot of users, applications and queries added to their EDWs. This, in turn, means there's more places to choose from to throttle back the performance than there was versus a couple of years earlier in order to free up performance capacity. So basically, customers have the option right now when they need to add capacity to tune their existing environment. There'll be users and applications that can live with slower response times. It's not mission-critical to operate the company on seconds-type of decisions and responses, and they'll do that in lieu of adding the capacity. So then the question gets into, "Well, how long can the user base tune their EDWs and bring out more capacity by throttling back response times and performance?" And so typically, with most customers we see, this can take -- typically, what we see is around a 12-month period. And this is why we're very more optimistic or bullish on the second half of the year because at the Americas, which started to slow down in the expansions in adding capacity in the third quarter, that's when -- with a 12-month period, and we're hoping this is a tipping point, and we'll have a lot of pent-up demand in the second half of the year to go add more capacity into the user base in the Americas. Philip Winslow - Crédit Suisse AG, Research Division: Got it. So I mean, thinking of it like a rubber band, you can stretch it out, but eventually it's got to snap back, and you think the snap back is kind of that 12-month period before you have to snap it back.

Exactly. And what happens is -- I mean, we're aware of some customers where the business users are starting to make a lot of noise because they would like a faster response times and a better SOA with their utilizations of the data warehouses. So over time, the noise gets a little louder and louder and in some cases, it impacts the business and then, yes, the customer's got to add the capacity.

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

Mike, the 6% to 10% growth range, can you maybe give us some color how that compares to what you think the overall market is growing at, or perhaps some color on if you're still taking share or is there -- are there pockets where you're actually losing share there?

Wamsi, as far as how it compares to market, I'm not aware of data that is something that we could hang our hat on or compare our results and our growth rates with. The only thing I can comment on is we win a significant number of new customers every week, every month, every year and when we do that, we're replacing competition. When we expand our EDWs, we're wiping out data marts and competitors' small data warehouses, if you will. And our share and our win rates are -- they're the same as what they've been and they're extremely high. I think when you step back and look at it, what we're competing with -- in our enterprise data warehouses, what we're competing with is we're competing for budget. And when the budget isn't growing, we can't get our chunk of the budget so that is the biggest issue. We don't really have competitors in the enterprise data warehouse space to speak of and it's more of a budget thing. We need to gain market share of the customer's budget, if you will.

And as a quick follow-up, can you talk about the territory expansion plan of 20 to 30 in 2013? I mean, when we look back a few years ago, back in '08, '09 time frame, you invested quite aggressively in sales territories, which in the hindsight, proved to be the right decision. So there's deceleration. I know you're still investing and still adding 20 to 30, but what's the reason to step that down from the 30 -- 35 to 45 that you've been doing over the last couple of years?

The 20 to 30, Wamsi, we would be adding this amount, whether we were guiding a higher number or a lower number of revenue. It all gets at we're moving Aster, Aprimo and eCircle globally, and this is a heck of a market opportunity. You look at eCircle with a leading market position in Europe and now we have wins in the U.S. and we're coming in the U.S., and that eCircle has leading digital messaging technology. Similarly with Aprimo, heavily concentrated in the U.S. when we acquired them. Now we're growing footprints out into Europe and into China, and we're going to grow that all over the world. And then when you look at Aster, the early adopters of Hadoop, big data and analytics are in the U.S. Now we're expanding Aster into Europe as well as Asia. So what we've done is we're investing into selling expense, consulting expense, demand creation expense at the same rate we were over the years, but we're adding more sales specialists, consultants, subject matter experts in the different parts of the world where these solutions aren't heavily penetrated. So it's a trade-off of traditional Teradata, data warehouse kind of territories, or -- well, they're Teradata territories that sell everything and adding more specialists to get after the deployment of these solutions globally, which is a great opportunity for us.

Our next question comes from Greg Dunham from Goldman Sachs.

I did want to follow-up on this kind of 4Q to 1Q dynamic. Given December was strong, were close rates better than expected in December? And what are your assumptions for close rates going into 1Q when -- in terms of your commentary?

Gregg, there's no difference in close rates. That's not the issue at all. It really gets down to the number of large deals and the size of the large deals in the Americas. That is -- basically the close rate's no different. The amount of the budgets and the uncertainty in our customer base that's helping to drive to less large deals is a factor.

Then the follow-up. It sounds like, obviously, the pipeline is smaller in 1Q. Can you maybe comment on the pipeline just overall? I mean, is it a more back-end-loaded pipeline? Or is this the acceleration in growth driven by easier compares in the back half?

It's a little counterintuitive, but the size of our funnel is actually up. So that's good news. So the overall activity, the number of opportunities, the value of all the opportunities is up. The short-term issue we have is the number of large opportunities and the size of the opportunities that are in the closing state in the first quarter. And as we look out to the second quarter, we'd like to see another uptick. This is just a -- we believe it is a short-term type of thing. Companies just aren't committing to large CapEx expenditures, and I can add companies aren't committing to large projects when you look at consulting and some of these other things. So I think we're in an environment where everyone's looking at buying in smaller chunks and doing projects in smaller pieces. And when I make this comment, it's not just specific to Teradata, but it's what we hear from other companies as well.

Our next question comes from Brent Thill from UBS.

Mike, if you can just comment a little bit about what you're seeing in the financial services market for the year, your pipeline and your assumption on some of the close rates going forward. That will be helpful.

Brent, the financial services actually had good growth in 2012. And on top of good growth in '11 and 2010, it continues to be an extremely good vertical for us, and our activity there is good. Our value prop is very much in line with what a lot of these financial services institutions are trying to get done. Specifically, in 2012, financial services grew...

It was strong growth, and one of the stronger growths within all the industry verticals.

Right. So Brent, we see financial services behaving very well.

Okay. So you don't see any type of material slowdown in terms of your pipeline in financial services for 2013?

Currently, when you look at the number of large deals and the size of these deals, it's down some, but not to the degree that we're seeing overall.

Our next question comes from Raimo Lenschow from Barclays Capital.

We focus a lot on the Americas, but can you talk a little bit about Asia? If you look at the growth rates you're achieving there, it looks subpar compared to the opportunity. I know you talked about some of the already -- the changes you are doing there to kind of maybe try help there, but can you just talk about that region a little bit in more detail?

Yes, Raimo. Asia Pacific/Japan does represent a good opportunity for Teradata to increase our performance there if you look back over the past couple of years and how the company is doing overall. We feel good about how we're positioned in China and the very, very good growth we had at the second half of the year. And Japan tailed off a little bit at the end of the year. So we've got this dynamic -- and Japan had some currency going against them as well in the fourth quarter. But when you look at Asia Pacific/Japan, we need to keep China going on the right track. We got to get Japan -- which had good growth overall for the year. We need to keep Japan growing because those 2 markets are so large. And we've got a very large position in Australia that we got to maintain or grow. And it really gets into a lot of the other parts of Asia and Southeast Asia and so forth that we need to get growing at a faster rate. So I think what we've done, and we're loading more expertise, we're injecting more expertise into the region, we think we'll be able to hopefully pick up the pace there in Asia Pacific/Japan. But to your point, this is an opportunity for Teradata.

Our next question comes from Ed Maguire from CLSA. Edward Maguire - Credit Agricole Securities (USA) Inc., Research Division: Could you comment on the momentum you've seen, particularly around the 2000 series? What you expect in terms of adoption, whether that's reflected in customers buying smaller chunks and what the competitive landscape has been around the -- around your appliances?

The appliance, Ed, is growing at a rapid rate, but it's coming from a smaller baseline, if you will. Our win rates are very high. We see no change in the win rates. We've had a recent release with significant performance enhancements to it. And overall, it helps us get customer wallet share, and it helps us acquire new customers and it's been very, very successful and beneficial to the company. In addition, we now are seeing and have had a number of companies that have added a 6000-class EDW to their 2000 environment. Not necessarily replacing it. The 2000 goes into test and development or DRs or different use. So it's worked out extremely well.

Our next question comes from Jesse Hulsing from Pacific Crest Securities.

A couple of questions. First, you may have mentioned this, but what are your plans for services hiring in 2013?

We -- on the customer services side, Jesse, we'll hire to cover the demand and cover the increase in our footprint as we expand our presence around the world. On the consulting services side, we will throttle our headcount and our hiring with the revenue growth. So it's kind of consistent with what we've done over the years.

Okay. And then turning back to Aprimo. How satisfied are you with how that business is trending, how integration is coming with the rest of your business? And do you expect the Aprimo business to trend meaningfully above the growth rate of the rest of your business in 2013?

Jesse, what I'd like to comment on is Aprimo has performed as expected financially, and I would say overall in metrics beyond the financial metrics. Is there opportunities to do better? Absolutely. Are we trying to do better? Absolutely. It's a market-leading solution. If you look at some of the analysts' publishings in the marketing resource management area, we have a huge lead. And I would love for us to get this planted in more customers around the world as soon as we can.

Our last question comes from Derrick Wood from Susquehanna Financial.

I wanted to drill back down into the large deal dynamic in Q1. And aside from the cautious CapEx spend out there, I'm curious if there's other factors in play. So first, are server upgrade cycles having any impact to kind of timing of your -- of capacity upgrade purchases with Teradata software? And then, I guess, second, are you seeing any meaningful mix shift in your pipeline with regards to maybe a higher percentage from the 2000 appliance?

Derrick, the server cycles don't impact Teradata, and it's because of our coexistence capability. And our customers know this and the performance attributes going from one generation of a server to a next or a point where we sent it is not that meaningful. So the answer is no on the server cycles. And on the 2000 mix, the business is running consistent with what it has been doing the past 3 or 4 -- 2 or 3 years where we were looking for a 10% to 15% type of product mix of the 2000 in our overall product revenue and it's been very consistent. So those 2 items, you can rule out as impacts on the -- what we're seeing right now on the large deals. Okay. So I want to thank everyone again for joining us here this morning, and hope you all have a great day. Thank you.

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