Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Teradata Corporation (NYSE:TDC)

February 13, 2013 1:20 pm ET

Executives

Stephen M. Scheppmann - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

Analysts

Gregory Dunham - Goldman Sachs Group Inc., Research Division

Gregory Dunham - Goldman Sachs Group Inc., Research Division

All right. Welcome, everyone. Thanks for joining us this morning, and I want to thank Stephen Scheppmann, CFO of Teradata, for taking the time.

Question-and-Answer Session

Gregory Dunham - Goldman Sachs Group Inc., Research Division

I think probably most people know a lot about Teradata, and they hear about analytics as a big spending priority for companies. But can you just in terms of level setting the group, what is it that Teradata does to help their customers analyze their data? What -- where in the analytics paradigm do you sit?

Stephen M. Scheppmann

Well, I think, Greg, it's an interesting point within paradigm because Teradata's legacy is decision support. It's not transaction processing. And you said it another way, our legacy is analytics, and we've been -- that's how we've evolved. That's how we've been developed is really to focus on leveraging analytics or decision support. Oracle, IBM great transaction processing databases. To give you a reference point, our ERP system, our Oracle ERP system sits on top an Oracle database. Teradata's not tuned for transaction processing, we're tuned for analytics. Their databases conversely are attuned for transaction processing. And so, it's a very distinct difference as you talk about the dynamics between analytics and transaction processing. So I guess the biggest differentiation where we sit in that analytical stack or sit in that solution is our focus is analytics and the business intelligent applications and the other applications sit on top of the Teradata environment to really drive the value of their analytics or their solutions.

Gregory Dunham - Goldman Sachs Group Inc., Research Division

Yes. And so who is the buyer of these solutions today, and how has that evolved over time?

Stephen M. Scheppmann

Well, the typical buyer within the Teradata customer is the CIO. And when I'm talking about Teradata customer, it's an existing customer. 95% of our revenue is driven from our existing customer base, and that customer generally becomes the CIO as the CIO looks to build out this analytical architecture within the company. For a new customer, it's really not the CIO. It's very rare that I have a Teradata CIO take a job at a noncustomer and then initiate the sales process. Now that's a very unique, a very good opportunity. I have a handful of examples, but typically on a new customer, we come in through a business sponsor, marketing, finance, anybody who's experiencing some difficulties in really driving the value of the analytics will get support from that business sponsor within that company because the CIO within a prospective customer really is not too keen on introducing a new IT standard or architecture within their shop. Typically, they're an IBM shop, Oracle shop, and it's very difficult for them within a cost-conscious mindset or framework to say, okay, I want to add another standard within my shop and add incremental cost to support that standard. And so we'll generally come in through a business sponsor. As I said, marketing, production, product management and find that sponsor and then work to build out an analytical solution and address that sponsor's needs within that company and start building out the analytical -- Teradata analytical solution within that company.

Gregory Dunham - Goldman Sachs Group Inc., Research Division

Okay, you kind of hit on it. We hear a lot about the CMO customer service and a number of areas that are leveraging the analytics. Have you seen a change in who that sponsor is over the past couple years? And if you looked at your kind of new customer adds, what's really driving the most today?

Stephen M. Scheppmann

It's really very specific or unique to each industry vertical. Now, Greg, you mentioned the CMO, and that kind of ties into our Aprimo acquisition that we did and also the eCircle acquisition that we did most recently last year. I really haven't seen a change of the dynamics with respect to where new opportunities are becoming prevalent within targeted or prospective new customers. But the CMO is really a person that is being challenged really at the crossroads of that term big data, customer interaction with different types of data from a customer experience perspective and marrying that with the traditional data that you find in the transactional side and the traditional data warehouses or EDW solutions. And so we see the CMO really becoming a focal point at really addressing the opportunities, new customers and existing customers. Now when we looked at Aprimo, it was really driven by our existing customers' marketing departments and the CMOs talking about the challenges that they're having, trying to marry these new types of data with the traditional data. And they were trying to do it with best-of-breed technology, one-off technologies, homegrown technologies. And so they really pushed us to say hey, Teradata, we need an integrated solution. And when we looked at who we were partnering with, we had partnered with Aprimo before in the past and found that, that was a strong integrated solution, one code base supported different marketing applications within their solution and really fit how we were trying to address that opportunity from a Teradata perspective and ultimately resulted in that acquisition of Aprimo. But the CMO is -- that area is providing us good opportunities to expand even in our existing customer base and leveraging it with new customers. But from an overall perspective, it really hasn't moved the needle so much differently than other opportunities. We still see other opportunities within prospective customers in product management, in financial, in manufacturing, in financial services on the risk side. So those opportunities are still very prevalent in our new sales territories. But I would say it's pretty -- the Chief Marketing Officer does provide a good opportunity for us.

Gregory Dunham - Goldman Sachs Group Inc., Research Division

Now in that answer, you mentioned big data. We get a lot of questions on what is big data? How does Teradata -- does Teradata benefit from big data? So I guess could you define it for us? How are you positioned to address the issue, and maybe address can this be a driver to your business?

Stephen M. Scheppmann

Yes. No on big data, yes, I like to stay away from that term, but it seems to be resonating a lot with a lot of the investors and a lot of companies. But our focus is on data. What's unique and I should have mentioned that on your first question, Greg, and thanks for letting me come back to that. What's unique on Teradata is our focus is on all different types of data, all different types of information. It's not just focused on that transaction, okay? Again, a transactional database is very -- tuned very effectively to capture that transaction and report that transaction. Teradata takes the next step to analyze it. So what we really thrive on is when we look at data, it's all types of data. So it's just not what I would say is big data. When we look at data, we break down data within the volume of data, the types of data, the velocity of the data that's coming through the organization. And then we -- and our salespeople take -- the next step is really drive the value of that data. So when we look at data, pure historical, transactional data and other types of operational data and there's all these other new data elements, data types called big data, unstructured, multi-structured data we said, okay, how can we effectively leverage those data sets and really drive the value through the organization to get it with that data? So getting back to your second point, Greg, do we see an opportunity? Yes, we see an opportunity. This is an incremental opportunity for us, and this is what we've really stressed and what's resonating with the technology people in our customers and new customers is a Unified Data Architecture. You'll hear us say UDA, Unified Data Architecture. This is an architecture that brings together Hadoop, our Aster acquisition. Aster is really the ability to discover, go directly into the Hadoop clusters and use it as a discovery mechanism, a discovery platform to really drive key elements or key data out of that Hadoop cluster and then move that data into the EDW architecture in order to operationalize it. When I say operationalize it, you're going to look at that big data, that unstructured data, see what it's telling you and seeing does my operational, my transactional activity fit what that's telling me. Do I have an influencer out there on Facebook that's making wall posts or posts with respect one of my products? And as a result, do I see that influencing my product revenue? If I don't see it influencing my product revenue, I might discount that unstructured data. That might not be that relevant. But if I see a direct correlation and I see an influencer of that my product out there in this unstructured big data world of weblogs, Facebook postings, et cetera, then I can match that up with my transactional data, my historical data, my operational data and make informed decisions. That's where we see the opportunity. This Unified Data Architecture, as I said, has been resonating with the CIOs because the CIOs are saying, how do I make sense with all the stuff out here. I have Hadoop. Everybody's telling me it's a cheap file storage system. It's not a database, it's a file storage, it's a data repository. It's a very cheap and effective way to store massive amounts of data that was not economical to put into EDW. So it's all incremental data. I can use Aster as my discovery platform with Aster with the SQL-H capabilities go right into the Hadoop cluster with SQL queries and be able to extract. Aster has a very unique capability, it's a patented capability that leverages MapReduce -- converts MapReduce, SQL, SQL, MapReduce and be able to allow your SQL analyst to be able to go into that data. They're not even -- they don't even really know they're going into Hadoop cluster, but they're finding that data, being able to move that data and put in the operational EDW to operationalize it, to make decisions on it. That's where we see the opportunity for Teradata in this architecture, and we have good acceptance of this architecture in the Q4 of last year.

Gregory Dunham - Goldman Sachs Group Inc., Research Division

Now you mentioned the key dynamic is the integration of the transactional system with some of this newer technologies because one of the pushbacks I hear from investors is that some of these open source frameworks are leveraging commodity hardware to do analysis on unstructured data. And the fear is that is there a potential for that to actually encroach on your traditional space. And I think you addressed that, that only gives you one piece, but maybe address that issue as to why that's something that you think is overblown in the investor community.

Stephen M. Scheppmann

Yes. I mean, the Hadoop environment, as I said, is a very efficient tool to capture large amounts, file storage system, data repository, large amounts of data. You need data scientists when -- to be able to go in there and mine that data to try to find those gold nuggets or those valuable nuggets to be able to say, okay, this is relevant data. But you can't determine if it's relevant unless you match it up with the transactional data that you see that influences your company. And by being able to bridge that gap and bring that data into the operational, now you're able to bring it into an operational environment, make decisions on it in near realtime basis and be able to drive value through the organization, value from a customer perspective, value from a competitive differentiation perspective. And now you're able to take that data and in an integrated environment say, okay, how is it going to influence all my other operating sides of the business? Hadoop will never be that core, okay? And that's not -- I mean, we have a very strong partnership with Hortonworks, okay? We're embracing this in that, as I said, in that UDA. You listen to where Hortonworks, where they talk about where they're taking the Hadoop. This is a natural integration, a natural architecture to really address the value across all those data sets, those data areas. And that's where I think the opportunity still lies for us. This is just -- I mean, people have been kicking the tires at Hadoop for about 2 years. And this architecture is really resonating and really evolving into this is the right way to bring all these other data elements, these data sets into a company and be able to operationalize it. And that's why I say our focus is on data. It's irrelevant if it's transactional data, if it's pictures, if it's weblogs, if it's a wall post, it's all data. And what we want to do is make sure you have the right data in which to operationalize and make decisions on.

Gregory Dunham - Goldman Sachs Group Inc., Research Division

Yes. And the demand for analytics is evident. I mean, you guys have been growing double-digit rates for the last several years. As you look forward, can the market support kind of double-digit growth as you look forward? And maybe talk about the sensitivity to the macro. You had a great -- you had a good Q4. You had 15% billings growth, double-digit revenue growth, but you also talked about the macro impacting maybe your outlook for Q1 and Q2.

Stephen M. Scheppmann

Okay, yes, I mean, first of all, I'll say we're still very focused, very committed and feel very good about our ability to hit our long-term revenue growth rates of 10-plus percent. With that being said, Teradata can't defy gravity from a macro perspective. If there's macroeconomic headwinds that we're being challenged with, yes, we'll feel those, and we'll feel them from different perspectives but overall, we feel good about our 10-plus percent long-term revenue growth rates. As we -- more specifically, Greg, as we looked at Q3 and Q4, if you will -- no, I won't say it -- I was going to say we did mention in our Q2 call, we saw some softness that we think would have resonated or have materialized in Q3. And what we saw was larger deals getting deferred because of the uncertainty of the macro. That did come -- we did see that come into play in Q3. As a result of Q3, we brought down our guidance to be the lower end of our annual range for the year, and that would imply the next percentage growth rate in Q4. We beat that slightly. We finished instead of the lower end, we really finished right about in the middle of it. It wasn't a big surprise in that it didn't take that much, $10 million to $12 million, to kind of move 50 basis points to round down versus rounding up. But it did come in a little bit better than what we had seen from Q3, but there was nothing unusual in the Q4 activity that would say, okay, things have changed. We still saw it was extremely difficult for large transactions, large CapExes to get through. And as a result, since we had that void because again, we're a long sales cycle. 95% of our revenue comes from our existing customer base. And when I'm talking about large transaction, these are $10 million, $20 million, could be $50 million transaction. That creates some of the lumpiness from the Teradata perspective. And when we see those, when we had that void, particularly on that long sales cycle, that creates this void, and we see -- and we still see good deal strength in the funnel. But we don't see the large deals progress far enough to be in the first 6 months to be impacting that first 6 months. On top of that, we're coming to some -- and I'm talking about the Americas. I'm going talking about here. And on top of that, Americas is coming up against some strong comps in Q1 last year where product revenue grew 31%; and then in Q2, where product revenue grew 21%. I think the average was 25% for the first half. And so with those comps and with the large deals not being mature, we're being very conservative on our growth rate saying that the first quarter revenue could be down, EPS with $20 million of incremental investments, we're continuing to make the investments in the sales territories, continuing to make the investments in the R&D and expect a run rate of about $20 million more on the OpEx side. So if you have flat to down revenue, you can see what that does to the EPS side in Q1. What we're seeing then as we're coming into the second half, and we're not ones to be betting on a hockey stick. Teradata, we're very conservative on our guidance. But we see this hockey stick, and what's given us the -- well, first of all, I'll say that hockey stick is driving this broader range. Typically, we're about 200 basis point range when we give revenue guidance. Now we're 6 to 10 for 2013. And so that hockey stick in the second half has created this broader range on guidance. But what we're seeing in the second half is typically speaking, and again I hate this word, we start running into capacity -- our customers start running into capacity constraints because within the Teradata environment, we're a private cloud. In a private cloud, you leverage your assets to about 90% plus and when you're leveraging the assets 90% plus, doesn't really give you that much headroom or breathing space to be able to take on much more demands from your internal customer base. And so we see about a 12-month period where customers can tweak performance, can tweak utilization. And I'm not going into the capacity side because I've been burned by saying capacity. Did your customers buy excess capacity? No. But they can tweak that performance, can tweak that response time to give them some more breathing room to be able to manage through a period where they're not doing a larger purchase. And we typically see that being about a 9- to 12-month period. And since we started seeing these things in September of 2012, we're anticipating that in the second half, those customers will be back to buy those larger purchases. But just, for example, if it's a retailer with a fiscal year end, typically January or February, they may say, okay, I'm going to delay that. I'm not going to do it before the holiday season 2013, but I'm going to do it before my fiscal year end. That falls into our next calendar year of 2014. So that's just provided some broader of that range of that 6 to 10. But we do feel in that second half, particularly in Americas that, that funnel, which is still there, the activity is still there but on a longer sales cycle, we'll start coming back.

Gregory Dunham - Goldman Sachs Group Inc., Research Division

Yes. I mean to be fair, I don't know of any major software companies that have seen a lot of big deals in December. And so there's definitely a depressing effect on big deals that we see more broadly. I want to hit on that 9- to 12-month dynamic that you mentioned. How confident are you that, that is something that you have enough data on historically that gives you the visibility in the back half?

Stephen M. Scheppmann

Well, when we saw early 2000s, people would -- had bought, if they were going to buy $5 million to $10 million, their purchases came down about $2 million to $3 million. And then we saw them come back after that 12-month period to step up and really address the internal needs, growth in the data and also their internal needs on the response times. We saw it in 2008, 2009. And this is what's good -- unique about Teradata's business model is we don't have the peaks and the valleys. Somebody can say, hey, 25% revenue growth is a good peak. We feel, I mean, in a normal environment, we feel we can drive 10-plus percent revenue growth. In a moderate environment, like what we think we're going to be moderate revenue growth environment in 2013, it might be slightly under that in that 6% to 10%. But what saw in 2008, 2009, the customers continue to buy but on a smaller scale. And in 2010, 2011, started back on that path of really building out the analytical ecosystem, the analytical architecture and started getting back on the path of larger purchases and bringing in more data sets, bringing in more functional areas because as I said, what drives our growth is just not data growth. It's also new analytics, complex analytics, new customers or new internal customers that want to use -- internal users that want to use the data warehouse and new functional areas that are coming in. All those elements drive the need to build out an EDW architecture, and that's what we see our customers getting back to in the more normal growth environments. In a moderate period, a moderate macroeconomic environment or a challenging economic environment, they'll step down. But in a more normal, they're willing to make the analytical investments.

Gregory Dunham - Goldman Sachs Group Inc., Research Division

Okay, great. I have 10 minutes up and I want to -- a good-sized crowd here, so I do want to open up to the audience. If any of you guys have any questions, feel free to -- we'll start in the front here.

Unknown Analyst

You mentioned that UDA had good acceptance in the fourth quarter. Could you just talk about where you are? You're beyond the missionary period and so you're getting traction, and just maybe give us a road map of ultimately what type of penetration in your client base you see UDA getting to?

Stephen M. Scheppmann

Yes. I think Mike, our CEO, mentioned we have about 20 customers that, I think, in his terms, embraced that architecture. And I'm saying embracing the architecture, it's not going out there, even though Aster had a very good Q4 on new customer wins, the sales were relatively small. I mean, and I'll come back to that point but the initial sales maybe $250,000 to $500,000. So nothing really big to move the needle. But on the UDA, the unified data architecture acceptance it was embracing, 20 customers kind of embracing, they -- I've been waiting for this type of architecture. I've been waiting for this type of methodology in which we'd able to go back out to my -- within my company and maybe address the CEO – challenge the CEO saying, hey, there's this thing my CEO buddy has been telling me saying -- called Hadoop, cheap, free. Let's leverage that and drive down costs in my IT infrastructure. And the CIO saying, well, okay, yes, it's a data repository. But now, with this architecture methodology, they're able to go out there and have conversations say, okay, this is the methodology we're going to be adopting. We're going to be looking at leveraging Hadoop in this type of environment. We're going to be looking at deleveraging this discovery platform, i.e., Aster, and we're going to be driving it through our EDW architecture. So and the thread that's underneath that from a Teradata perspective is called Unity. Unity is an acquisition that we did of Canadian company that we've now developed the software where Unity will actually be controlling, synchronizing data throughout all of this architecture and synchronizing the data, moving the data to the relevant workloads, environments. Is it an appliance I want to move it, is it maintaining of the Hadoop environment? So Unity underneath, which is a separate software that we sell, will be effectively the thread that holds this thing together. And so this has really just been an architecture that we've been describing to our customers in Q4 of 2012. It's really driven our partnership with Hortonworks. It's really driven how we were thinking of Aster. Aster Data, we were early on, I say early on, it seems like a long time ago, but it's only been a couple years ago. We made an equity investment in Aster in 2010. So we've been thinking big data since 2008, 2009 and made that equity investment in '10 and bought them in '11. But we were saying, okay, do we merge these 2 paths, Teradata solution and the big data solution? Then we said we're coming out with a separate appliance. Now we've evolved that to where got SQL-H capabilities where Aster now goes directly right into the Hadoop cluster to be able to extract and discover data right in the Hadoop cluster. So this whole architecture is really just at the forefront, early stages of gaining acceptance at the customers. And I think it's a great way to be able to have our account execs go in there and talk about the Teradata solution, but talk about at a breadth going all the way from Hadoop all the way through the EDW architecture. So from an opportunity perspective, I think this is a normal progression that we go through in our sales processes. The Teradata account executive is really a consultative -- business consultant, a partner. And this is just one form of that, how that consultative aspect takes hold through a company. And it continues to keep Teradata fresh in a company and be able to sell this architecture. Because again from my perspective, I don't see Hadoop, getting back to Greg's point, replacing or obsoleting Teradata. I see this as being an ecosystem where everybody thrives within their particular strengths. And Teradata is the ultimate engine that drives the operational side. So again, I see a continued evolution, not a revolution of how we position the Teradata solution.

Gregory Dunham - Goldman Sachs Group Inc., Research Division

Okay.

Unknown Analyst

[indiscernible]

Stephen M. Scheppmann

Yes. But then, you're counting on a short answer.

Unknown Analyst

Of the 20 customers that have embraced this new architecture, how much more of the core EDW are they buying or are they just buying Aster at this point?

Stephen M. Scheppmann

No, it was really an architectural conversation, okay, upfront. So it's really -- it really turned the lights on, on the CIO, the chief technology officer said, wow, this is the methodology. This is the platform that I've been looking for to really start leveraging internally so that I have ability to answer that question or answer that directive. And so it's really, at this point in time, an architectural methodology discussion. Now but I don't want to take away from Aster's wins in Q4. Aster had a very good Q4. How much of that was driven by this UDA-type concept, I don't know if I could differentiate because again these business use cases that we're dealing with, with Aster have been really since the acquisition date back in April 2011. But what I can tell you, it is an architectural methodology that's resonating to where they can now finally see how this all fits together. And they're going to say, okay, how can I leverage my CapEx to really drive investments in each one, and this is where the long-winded answer is coming from me. Because in the big data set, in the Aster environment, we have a lot of use cases out there, but capital budgets haven't been allocated for big data. And when you have a period of time when capital budgets are static or not growing, it's difficult for them to pull that capital budget out from someplace else and say, okay, I'm going to commit to a production system in the big data area. Now we do have some customers that embrace this architecture and have invested now and started building out production systems in this big data environment. But it's the exception. So the real challenge is going to be can I get in a moderate growth environment, in an uncertain macro environment, can I get capital allocated for my existing IT budgets and move it into a production budget? That's why I don't see -- in 2013, I don't see Aster being a big driver of our revenue in '13. I see it more in '14 because you've got to understand, we started Aster at basically 0 in 2011 and only moderate growth particularly only Q4 in 2012. So you can imagine that revenue growth hasn't really accelerated much or anticipated accelerating much in '13 if I can't get access to that budget. And so that's where I see it it's a bigger kind of mind share.

Gregory Dunham - Goldman Sachs Group Inc., Research Division

Okay.

Unknown Analyst

My question on Aster then, and it looks like a great opportunity but then, I was surprised that the number of sales territories is down this year from last year because I would have thought it would have went up because of Aster. So that's my question. And then can you comment a little bit on competition in the low end, if there's more incremental competition in the low end of your business?

Stephen M. Scheppmann

Okay, I appreciate you having me come back to that point. That's a very good point on the sales territories, and it is Aster that's driving my answer, okay? We, over in 2008, 2009, 2011, added new 30 sales territories a year. In 2010, 45 -- or 2011, 45; 2012, 49. We said on the call it's probably going to be 20 to 30 in 2013, but we're going to spend the same amount of money. The reason being the additional investments outside -- over and above the 20 to 30 sales territories are going to be focused on sales specialists throughout the globe that can help our account execs drive more Aster and more Aprimo. So we're going to be investing in sales specialists in what we call our centers of excellence to -- because remember, that sales territory is comprised of basically 3 people: An account exec, an industry consultant and a business consultant. We're going to be spending more on these business consultants, industry consultants to really drive the value of Aster and Aprimo across the globe. Because of the success that we've been seeing, particularly on Aster and Aprimo, we think it's prudent to take sales dollars from sales territories from account execs, put them more into the sales specialists to really continue to drive the opportunities we see with Aster and Aprimo. So same dollars as we did in 2011, 2012. But instead of a new sales territory focus, it's going to be -- some are going to be focused on the sales execs. Am I -- did I come across clear or am I still leaving confusion in people's minds on that?

Gregory Dunham - Goldman Sachs Group Inc., Research Division

No, I think that's clear, and I think we've run out of time. So, Stephen, thank you so much. We really appreciate it. This is great.

Stephen M. Scheppmann

Thanks.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Teradata Corporation Presents at Goldman Sachs Technology & Internet Conference 2013, Feb-13-2013 10:20 AM
This Transcript
All Transcripts