Welcome to the Q1 2013 Teradata Earnings Conference. My name is Trish, and I will be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded. I would now like to turn the call over to Gregg Swearingen. You may begin.

Good afternoon. Thanks for joining us for our 2013 first quarter earnings call. Mike Koehler, Teradata's CEO, will begin today by summarizing Teradata's first quarter 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'll also be discussing certain non-GAAP financial information, which excludes such items such as 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 that 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, Greg, and good afternoon, everyone. Teradata got off to a slow start in 2013 as we expected, with Q1 revenue declining 4% versus prior year and 3% in constant currency. Non-GAAP earnings per share of $0.43 was down 28% from prior year due to the lower revenue coupled with our increased investments for growth, which we plan to continue. The Americas revenue declined 9%, which was a little more than we have anticipated. And international's revenue came in lower as well, primarily due to lumpiness in Japan and the devaluation of the yen. Since the Americas region represents 60% of our revenue and approximately 2/3 of our gross margin dollars, I would like to provide some additional color to better understand Q1, and directionally, where we are headed for the balance of the year. The challenge in the Americas continues to be the belt-tightening in our customer base, which first surfaced in the third quarter last year. Customers continue to add capacity to their data warehouses in smaller increments or delay purchases. The number and the size of large purchases the past 3 quarters have been well below our historical averages. We closely monitor the data warehouse opportunities that are greater than $5 million because they often require C-level approvals. And in the case of the Americas, these large CapEx transactions account for 1/4 of their total revenue on average. By contrast, our international region's large CapEx transactions as a percent of their total revenue averaged mid-single digits. This makes the Americas much more sensitive to any belt-tightening by customers on large CapEx spending. The growth rates we saw in the Americas starting in the second half of last year was primarily driven by the decline of large CapEx transactions. And the revenue decline in the first quarter was…

Thanks, Mike. As we anticipated, we get off to a slow start to the year. And as we suggested, it could be the case on our Q4 earnings call, revenue was down from Q1 2012. First quarter revenue of $587 million was down 4% from the first quarter of 2012 and down 3% in constant currency. But keep in mind, we are comparing against a very strong comparable period in Q1 2012 when revenue grew 21% from Q1 2011. Economically sensitive market conditions continued to pressure larger transactions, particularly in the United States. In the first quarter of 2013, the Americas revenue declined 9% from a very strong Q1 2012 when our Americas team increased their revenue 26%. And again, that was over a strong Q1 2011 when our Americas team grew revenue 22%. Our international team grew revenue 3% and 5% in constant currency during the quarter. Product revenue of $249 million declined 19% from the first quarter of 2012, both reported and in constant currency. Services revenue of $338 million was up 11% from the first quarter of 2012, up 12% and in constant currency. Within services revenue for the quarter, Consulting Services revenue was $186 million, up 13%, up 14% in constant currency. And maintenance services revenue was $152 million, up 9%, up 10% in constant currency. During my discussion today, except where otherwise noted, I'll 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 on our Investor page on our website. Gross margin of 53.3% in the first quarter of 2013 versus 55.9% in the first quarter of 2012. The decline in gross margin was largely driven by a shift in our…

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

Mike, can you address the relative increase in consulting revenue here versus products? We had seen a similar trend back in the '08, '09 downturn with customers trying to optimize capacity. Just trying to see if you can draw any similar trends to that at this point.

One clarification, Wamsi. We do have our eCircle revenue. A lot of that this going into the services revenue. So when we look at the Consulting Services growth year-on-year, it's actually lower than that. That said, we are growing our Consulting Services and services revenue at a pretty decent rate, net-net of that.

So are you seeing anything in terms of customers trying to optimize capacity?

Yes. So you're on a good point. In previous years, what we've seen is, as customers looked to sweat their data warehouse assets, in fact, it involves a lot of tuning and a lot of consulting work done together with us to fine tune the data warehouses to free up capacity to meet some additional demand. So in other words, some of the service levels response times for different users or different applications, you can tune the performance back a little. In return, you free up capacity, and in turn, it actually delays expansions and add-ons and product purchases.

And that's what you're seeing now or not?

We're seeing it to a degree, yes.

Our next question comes from Katy Huberty from Morgan Stanley.

Assuming that services growth remains in the range from the first quarter through the remainder of 2013, that would put product revenue growth roughly flat to get to the low end of your guidance. So just curious if that's how you think it plays out, and if so, why are we seeing flat product growth given the expansion of your customer base and the product portfolio and the priorities around big data that you talked about?

Well, Katy, this is Steve. I'll answer on the services side. As Mike indicated, that services revenue number includes the acquisition that we made last year in May. And so the first quarter of this 1 has, for year-over-year has that growth in it. And when we did the acquisition, we said it would be about 1% of growth for the second half of 2012. And so roughly, you can do the math on that for the quarterly impact. We get year-over-year comparables starting somewhat in Q2 and then the second half. So you would have to factor that out in order to -- that will drive some additional to revenue growth on the product side.

Yes, and on the product side, Katy, for the full year, we would have some product revenue growth. If you look at it more from a trending on the data warehouse product revenue, we started off in Q1 with a pretty good decline. And if you trend this thing out, what is in our guidance is that we'll be growing product revenue and data warehouse revenue over double digits the second half of the year.

Okay. And then just to clarify, the weakness in product's revenue growth in the first quarter, in the first half, is that a fewer number of customers that are buying or is this mostly deal sizes that are smaller, but the same number of customers are making purchases?

It's a little bit of both. So we do have customers that are delaying purchases, so they get moved out. They're delaying expansions to their data warehouses. But clearly, the size of the purchases are much smaller. So in the first quarter, the revenue from data warehouse transactions that were more than $5 million were down $69 million. I mean, this was significant. And so that is what happened in the first quarter. So it's the number of transactions, as well as the size of the transactions. Now on a more positive note, and most of these comments I'm making are regarding the Americas, on a more positive note, I'm very, very encouraged what we're seeing in the Americas versus what we were seeing 90 days ago. So the number of data warehouse opportunities and the size of the data warehouse opportunities have increased very significantly from Q1 to Q2. The variable in the Americas is in this environment, we can't put our hands on exactly what will close in the second quarter versus the third quarter. But when you look at the trend of what's going on, in aggregate, it is a good trend that we see when you look at Q2 and Q3 collectively in the Americas. That's for data warehouse product revenue.

[Operator Instructions] Our next question comes from Matt Summerville from KeyBanc.

Just a question on the adoption rate of UDA versus your expectations, if you can talk about that, Mike. And then how you would characterize the value of a customer adopting that versus your legacy systems.

I would say the adoption in UDA has gone at a more rapid rate than we had anticipated. What we saw was an opportunity to help get some clarity with customers around what should the overall data architecture look like in terms of what types of workload should be done where. And it's a very practical approach in that Hadoop is a key part of it because we have these large volumes and varieties of data coming into play, and Hadoop is very well suited at handling that workload of big data ingestion and transformation and storing. And at the same time, it helps put clarity as to what type of workload should be put on data warehouses, whether it's ours or someone else's, and what type of analytics are best served, done where. And with this UDA and the adoption of UDA, what we've seen is a very big acceleration in our Aster Data sales as it is going hand-in-hand as the Discovery platform, along with the Hadoop environments that customers are standing up. So the quicker we can help the market and our customers get to clarity as to Hadoop and what is best at doing what, the sooner it benefits us on the data warehousing side, as well as bring along our Aster Data SQL-MapReduce analytics, as well as our related services along with Hadoop. The other part of it is we have many partners that have joined in the UDA environment, an architecture that we're -- that our partners that have joined, and the adoption is really, really seeing strong momentum.

Our next question comes from Jesse Hulsing from Pacific Crest.

When you look at the belt-tightening within your customer base, was there a particular vertical, or maybe if you were going to segment it by top 5%, top 10% of customers that you're seeing more of a pullback?

If we look back, the belt-tightening, Jesse, started occurring in Q3. I mean, this is -- Q1 was the third quarter we've been dealing with this. So 3 quarters, it's hard to look at segments and call out meaningfully which ones may -- are doing -- have done more belt-tightening than others. There are a couple of segments such as the public sector where we've -- it's smaller revenue dollars for us, but we have seen pretty good declines in our data warehouse revenue there. But overall, it's been pretty broad-based, pretty broad-based.

Our next question comes from Phil Winslow from Credit Suisse. Philip Winslow - Crédit Suisse AG, Research Division: I just want to follow up on a comment from the last couple of calls, which is the idea of people running just the data warehouses hotter and was the combined effect also of the smaller deal sizes and just the buying in smaller increments. So what are you seeing there in terms of, just call it, the hotness of the EDWs out there from customers? You talked about 9, maybe 15 months of working through this. Where do you think you stand on that right now?

What we've seen historically is 12 months, and sometimes, it may go a little bit longer, customers will sweat the assets, continue to tune, fine-tune the capacity that they do have and try to free up capacity. At this juncture, we don't know the answer yet as to when the pent-up demand from holding back on adding capacity will show up. We're starting to see some signs. But it's trickling in right now. The bottom line is, we think we'll see something in the second half. As we look at the full year guidance, we've included a little bit of that. But it's hard to project exactly when we'll see it hit. The one positive thing is the amount of activity, and now, I'm back into the Americas. Our activity is good in international, too, especially in EMEA. But the activity in the Americas is building. And that's kind of the first step that we see in terms of some of the pent-up demands surfacing. I do want to add, I'm pretty sure we hit bottom in Q1 in the Americas. That, I'm pretty sure of.

Our next question comes from Brent Thill from UBS.

I just wanted to be clear on the pipeline of deals that -- from what you're seeing, you've still been technically awarded these later stage contracts. But many of these deals in Q1 just slipped or are you just seen a broader deterioration of the pipeline where it's hard to tell if these are going to be in your funnel or not? And I had a quick follow-up for Steve.

Okay, Brent. Regarding Q1 slips, if you will, every quarter, there's some puts and takes, and there's always some slips and everything else like a -- I would say, as it relates to the Americas, we did not see, in particular, more slips than normal. I think what we did see as we entered the first quarter is some of the opportunities shrunk in size. So that's another phenomena we run into with this belt-tightening. As they run through the approval process and receive further scrutiny, it's kind of like can we still get by with doing a little bit less. And in the Americas, we saw the size of some opportunities decline in size. And that was probably more of the issue than actual deals slipping, if you will. We had a little bit of it in APJ, a little bit more slippage than in the puts and the takes. But overall, not a factor. The other question was for Steve?

Yes, and this is a question from investors. You missed earnings by $0.10, so your policy on preannouncing versus waiting on them, can you just walk through just so we're clear about the policy going forward?

Yes, Brent. What we have going forward, we do not provide specific quarterly guidance. Our guidance is on an annual basis. And from my perspective, since we were still within the regional ranges, although we were more specific to lowering within our original range, we felt that we had no obligation to update at that point in time.

Our next question comes from Keith Bachman from Bank of Montréal.

I had 2 questions, 1 is on the guidance and then 2 is on the competition. First, on the guidance, if you could just clarify for me, again, what you think product revenues will be in the June quarter, because you indicated that total revenues in the first half will be flat to slightly down. I'm unclear about what product revenues will be because, if I kind of model that out, you're guiding to the low end of the range. I look at it, your sequential growth over the next 3 quarters has to be extraordinary to even hit the low end. So I'm wondering why you didn't lower guidance more than the 6% kind of number.

Well, Keith, if we look at what we said, we'd be possibly flat to slightly down in the first half. And with respect to the comment on the services side with the eCircle transaction coming through, you can anticipate that the product revenue in the second quarter, by doing that math, will be slightly down from last year, I would anticipate, in that type of modeling construct.

If I could just add to that, Keith. In our business, when we start looking at quarters, and Steve said slightly down in product revenue, and that's probably the best guess we have as we stand right now, but for us to get another $20 million or $30 million in a deal in a quarter from 1 or 2 customers, all this opportunity's there. Unfortunately, it can also go sometimes in the other way. We feel very good about the size and the number of deals we have, that we're going to do a heck of a lot better in Q1, but it don't take much. And when you look at our full year guidance, consistent with what we've always said every year when we get to this Q1 earnings call, we really don't have good visibility on the data warehouse product revenue that's going to occur in -- as we get into the second half. And typically, we update guidance once we get into the Q2 earnings call. And the activity and the funnel and what we have right now is at a -- has increased to the point where we feel pretty good as we get down into the second half of the prior year comparables that we will have a good double half. We have every opportunity to grow double digits in the second half. And what's laying out there the second half of the year, this is only April, all it takes is 3 or 4 or 5 deals of $100 million to show up. It's the nature of our business. It can show up and the whole thing is at a different end of the guidance.

If I could just tease that out for a second then. In that context, are you seeing different competition? And specifically, it sounds like Oracle is certainly getting more aggressive on price, and Exadata 3 sounds like it actually has some better capabilities. But could you talk a little bit about your win rates and the competitive landscape as you evaluate that pipeline? And that's it for me.

Sure, Keith. And the clear answer's our win rates are consistent with what they've been the past 3 years. Competition, the same. We continue to advance our lead technologically. The thing that we're competing for right now is budget. And that is the force of work. There is no other thing that's moving stuff away from Teradata or substituting what normally would be on Teradata at the end of the day. And it's corporations are looking for investments and capital that are smaller, that can deliver a quick ROI. And some of these larger projects, whether it's data warehousing or another big mammoth project, they're not starting them right now. That's what we're seeing.

Our next question comes from Aaron Schwartz from Jefferies. Aaron Schwartz - Jefferies & Company, Inc., Research Division: I believe you said you had a pretty good or pretty healthy new customer growth for Q1. And the question I have is, are the buying patterns for those new customers any different or is it sort of cannibalizing sales of maybe your higher end products? I know the mix shift to the 2000 Series maybe was a function of just weak large deal flow, but can you just talk to the buying patterns of the newer customers? And can those emerge as large deal customers over time?

The buying patterns of our new customers is pretty consistent. So when we introduced the 2000 Series appliance, it is a good way for a new customer to get started. They use -- some of them use our logical data models and, in effect, it is a small enterprise data warehouse. But the percentage of new customers starting with 2000 versus a 6000 class EDW remain very much the same, the mix of new customers between the 2 different product lines. And in terms of the -- starting with the 2000 Series product line, we have close to 10 customers now that have either added a 6000 or -- class machine or have migrated to a 6000 class machine. So it's working out very well.

Our next question comes from Matt Hedberg from RBC Capital Markets.

With the low end of your range now, 6%, could you remind us what your longer-term assumptions are for kind of your core EDW market growth?

Well, Matt, what I'd say, we're still very consistent with our long-term objectives of revenue growth, 10-plus percent. So -- and we're still fairly consistent, particularly for 2013, with the appliances, 2000 Series in that 10% to 15% range. So no real changes for that type of dynamic at this point in time, Matt.

Yes, if I could add to it, our long-term view of the business does not change at all. We've had these timeouts before, some of them we've had in like good environments. Like we started having declines in data warehouse product revenue in the fourth quarter of 2007 and into 2008. We've seen this before. There's fundamentally no forces at work other than we're dealing with tight budgets right now.

Our next question comes from Greg Dunham from Goldman Sachs.

Just one follow-up on the funnel commentary that you've talked about and just putting it in context. When you talk about the back half of the year and kind of hitting that guidance, do you need your close rates to improve materially to do so?

The -- our close rates are so high, that's not the issue. It's having the opportunities and having the funding and the budget to go get them executed. Our opportunities have business cases and ROIs with them. Sometimes, the length of time for the ROI is longer and it may not get done. Sometimes, we have opportunities with closer -- shorter paybacks. At the end of the day, it's the budget.

I guess one clarification. I mean, when -- are these deals, are they getting hung up in procurement or legal, or is it even well before you get there?

There hasn't been a change. We've been dealing with this since the third quarter here in the U.S., I'm talking about. And we haven't had much of a change in international, not so much a change in buying processes. Some of these slowdowns, the customer changes their buying process and puts on other layers of scrutiny. It's a little bit different this time. We're not seeing a change in the buying process, it's more about the money and the budget. And even when customers do have budget, when it gets to the various C level approvals, sometimes they shrink in size or still don't get done.

Our next question comes from Ed Maguire from CLSA. Edward Maguire - Credit Agricole Securities (USA) Inc., Research Division: Could you comment on the mix of the products and services that you see coming in deals, whether that's changing? And I'm what thinking of is just to understand how your customers are looking at the Aster, the Aprimo and really, the use cases of the technology, whether they're -- whether you're seeing any mix shift there looking forward?

In this environment, Ed, since Aster and our integrated marketing solutions and those related services that are coming with them, they are smaller dollar amounts in terms of our opportunities. So that is why -- we think that's a big factor in why that part of our business continues to perform well. I don't know if that answered the question. Edward Maguire - Credit Agricole Securities (USA) Inc., Research Division: Sure. Yes, and just thinking about the mix of, as you see opportunities, whether you've -- certainly, there's a trajectory of faster growth for those, but whether customers are looking at a -- whether there are considerations have changed in any fashion looking forward?

Ed, I don't think so. I mean, longer term, we're going to see the trajectory for data warehousing and integrated marketing like we have been seeing in the past couple of years. Aster, on the other hand, is on a huge trajectory. It should be close to triple in revenues this year, and it was close to double in revenues in 2012 or 2011. That trajectory for Aster should run faster and at a higher growth rate than the rest of the business, especially as more and more Hadoop and big data analytics comes in the party, like it is.

And at this time, we are at our allotted time, so I'll now turn the call back over to Mike Koehler.

Okay, listen, I would like to thank everyone for joining us here today, and I hope you all have a good remainder of the day or evening. Thank you.

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