Teradata's Management Presents at Morgan Stanley Technology, Media & Telecom Conference (Transcript)

Feb.26.13 | About: Teradata Corporation (TDC)

Teradata Corporation (NYSE:TDC)

February 26, 2013 11:00 am ET

Executives

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

Analysts

Kathryn L. Huberty - Morgan Stanley, Research Division

Kathryn L. Huberty - Morgan Stanley, Research Division

Good morning. Let's go ahead and get started. I'm Katy Huberty, Morgan Stanley's Tech Hardware Analyst. And with me is Steve Scheppmann, CFO of Teradata.

Question-and-Answer Session

Kathryn L. Huberty - Morgan Stanley, Research Division

We want to start by talking a little bit about end demand. It's a big topic right now for all the tech, and particularly for the analytics names. Revenue growth in the back half of 2012 flowed to high single-digit, 8% in the back half. The midpoint of guidance for this year is a similar 8% growth rate. And I think investors are trying to figure out if something has changed, if spending is moving away from data warehousing, or if this is truly just a macro slowdown. So to begin, Steve, maybe you can just talk about, are you seeing the pipeline strength? Is that why the guidance is for single-digit growth or is it just delays in deals getting done?

Stephen M. Scheppmann

Okay, now, yes, good morning. And Katy, what I'd like to say on that is our pipeline, our sales funnel, which is really a 2-year type funnel, the activity remains very solid. We haven't seen any deals fall out of the pipeline. The activity still stays consistent to where it was, but with the exception of the large deals. And when I say the exception of large deals, it's primarily a U.S. phenomenon. What we're seeing and what we're hearing from our customers is that we're not seeing the customer stand up and commit to the large deals. When I say large deals, which is the $10 million plus deals, which are very typical in a Teradata established customer base. And so when we look at the reasons for that, what we see is the uncertainty surrounding the macroeconomic environment. You have customers, our customers who may be looking at low-to-moderate growth rates particularly in the first half of 2013. So they're reluctant to really step up for that and commit on that large deal. With that said, we see -- we still see the smaller deals that are setting up with the established customers, but the large deals haven't really matured particularly for the first 6 months of 2013 with that established customer base. So we really don't see it as being any other reason right now as just being sensitive to the macroeconomic environment and being cautious on the commitment to a larger transaction, CapEx expenditure.

Kathryn L. Huberty - Morgan Stanley, Research Division

Sure. Do you see large deals in the pipeline that can convert in a better macro environment?

Stephen M. Scheppmann

Well, we see deals out in the funnel. But again, they haven't matured far enough to where we feel confident with respect to their anticipated close rate. Now as I said, that funnel is about 2 year-view, and so it would be difficult for me to say that if it stepped up, we could see any impact in the first half. I'd be cautious and say I would expect to see that in the second half. And that's kind of led to the broader range of the guidance we gave, the 6% to 10%, and you commented on 8% being the midpoint.

Kathryn L. Huberty - Morgan Stanley, Research Division

Yes, so it's a tale of 2 halves, with lower end of the growth range in the first half and potentially higher end of the grown range in the back half.

Stephen M. Scheppmann

That's correct. And you saw in 2012 we had strong growth in the first half of 2012, moderate growth in the second half of 2012. We are very cautious at our guidance in the first half of 2013. And if you take the higher end of the range for 2013, that would equate that the second half would probably be strong, not as strong as the first half of '12 but a strong second half. And that's the hockey stick effect, and that's where we tend to put our conservatism on that hockey stick. I don't like to bet on a hockey stick in the second half or even in the fourth quarter. And so we took some caution in our guidance and expanded our guidance range on the revenue from typically a 200-basis-point range to 400-basis-point range going to 6% to 10%.

Kathryn L. Huberty - Morgan Stanley, Research Division

CEO, Mike Koehler, commented on the last earnings call that customers typically delay for 12 months and then they would run into issues where they'd have to start spending again. Is that a theme that you seen in past downturns or is it a conversation that you're having with customers? What's giving you or Mike the confidence that this is a medium-term delay in large deals and spending and not something more structural?

Stephen M. Scheppmann

Yes, and we did make that comment. And what we saw, when we commented in the second quarter of 2012 as it related to Q3, was some of the deferrals of these larger transactions, particularly in Q3 2012. And in the Q4 call, we did comment that we typically see this window being 12 months. What's very unique and it's actually a strength of the Teradata environment is our private clouds with our customers, they run at a utilization rate of 90-plus percent. And that's one of the key drivers of that private cloud strategy within our customers, it's the high utilization rate. Within that utilization rate, to manage that utilization rate, they can effectively manage SLA response time, query response time, in order to keep the allocation of the system to the mission-critical applications. By doing that, you can lengthen your -- or increase your time where you do not have to do an upgrade. And all I'm saying is managing capacity, managing utilization. It's not that they bought excess capacity. We have no customers that really buy true excess capacity. But by managing that utilization rate, they can stretch or defer that purchase. And what we typically find is that if they go too long, and when I say too long, it's probably a 12-month window that we've seen in the past. But if they go too long, they start getting challenges from their internal customer saying, "Hey, my query times are too long. I can't get these ad hoc queries run because I don't have enough in the system allocation there to run those ad hoc queries." So we typically find that, that may be a 12-month phenomenon. And what I'm talking about this is really a U.S. situation that we're describing here. And so I would anticipate, and this gives us some of the reason for believing that some of these activity will be back in the second half is because we saw that started out in Q3 2012 and we figured on a 12 month basis, second half we should feel more optimistic.

Kathryn L. Huberty - Morgan Stanley, Research Division

Okay. So if you take the sales funnel that you have visibility into and the fact that you will have seen delays for almost 12 months, that's what gives you confidence in better seasonal growth in the back half of this year?

Stephen M. Scheppmann

It gives us the confidence. But again, being Teradata, we're still conservative on that with the lack of visibility and the predictability of those close rates. So again that's why we went to that 400-basis-point long range on.

Kathryn L. Huberty - Morgan Stanley, Research Division

You worked that conservatism into the guidance that you provided?

Stephen M. Scheppmann

Correct.

Kathryn L. Huberty - Morgan Stanley, Research Division

Okay. You mentioned that some of these delays are isolated to the U.S. Are there any particular verticals that are driving the delays or is it very broad-based? I know you gave at the end of the year the vertical percentages, and telecom was down, financials were up. Was that driven by the U.S. or was the weakness broad-based?

Stephen M. Scheppmann

No, the phenomenon that I was describing is purely U.S.-based. We're not seeing it in EMEA. We're not seeing it in APJ. So it's primarily U.S.-based and across all the verticals. No one vertical in particular.

Kathryn L. Huberty - Morgan Stanley, Research Division

Okay. And given some of the press around, the political, the banking issues in EMEA, the weakness in Asia, folks would be surprised to hear that you're not worried about the international business that you're seeing, the weakness only in the U.S. Can you talk about some of the investments that you've made that will allow you to go through -- grow through some of the political and economic uncertainties?

Stephen M. Scheppmann

Yes, as you guys are all aware, EMEA has probably been facing more challenges economic, macroeconomic challenges than the U.S. has been for a longer period of time. What -- we are, I would say, very well positioned in EMEA with respect to our growth cycle there. We've had significant new customer wins in EMEA. They're more on the earlier part of that growth curve with, how should I say, referenced account wins. And when you position yourself with these type of wins, you start having what I would call the domino effect. You can start having referral wins. And so EMEA is very well positioned to continue to build out the EDW architecture in the Unified Data Architecture, which I'll describe later, with those customers, and continue to effectively take on the headwinds of those macroeconomic challenges in EMEA. It's not that we're seeing them. We are seeing them. I think Mike actually commented on the call that we would actually be growing faster if it wasn't for those macro headwinds in EMEA. But that is definitely a headwind there. We feel we're very well positioned in EMEA to continue to build out those EDW and those Unified Data Architectures with those new customers. With respect to APJ, our growth rate in APJ hasn't been to where we want it this year. And that's primarily driven by Japan. And Japan has been challenged for many years. And so we continue to feel that we're still positioning ourselves in APJ, but we still have some work to do in that region to continue to get that on a growth pattern and trajectory that we want to be on, and Japan is being a drag right now.

Kathryn L. Huberty - Morgan Stanley, Research Division

Okay. And you reorganized the management team to focus a little bit more on the execution in APJ recently?

Stephen M. Scheppmann

Yes, I think the reorganization -- I won't say I think. The reorganization was really driven to get as we look at our business internationally in the U.S. and it really gives us 2 footprints that are very similar in size and being able to effectively manage those and lead those. I should say, the leader of our APJ region is still with us, okay, Peter Hand. And so it was a very positive move from an integration as the consistency of products, consistency of approaches across 2 similar geographies, the Americas and International, and be able to continue to drive our philosophies and our strategies consistently abroad.

Kathryn L. Huberty - Morgan Stanley, Research Division

Okay. You brought up the Unified Data Architecture, so I want to spend a minute on that because I sometimes hear from investors that growth is slowing, there aren't new big new data warehouse buildouts right now. And so does that mean that the spending dollars are just moving away from Teradata? It's not entirely macro. Maybe people are spending on to do, they're spending on in memory systems. Can you talk about the Unified Data Architecture message to your clients and any success you're having with that?

Stephen M. Scheppmann

Yes. In the Q4 fourth quarter call, we commented that we have approximately 20 customers kind of embraced the Unified Data Architecture methodology. When I say embrace the methodology, it's not that they went out and bought one product, but they clearly understand the methodology and the approach that we're describing here. The UDA, or Unified Data Architecture, is really embracing Hadoop, Aster Data as the discovery platform, and Teradata is the EDW architecture, to really bring a consistent approach to how you access data across the enterprise, all types of data. What Teradata feels is that as the market evolves, as the solutions evolve, it's not going after analytics. It's going after analyzing and applying analytics to a broad set of data, all types of data, structured and unstructured. And by embracing this Unified Data Architecture, we bring in the Hadoop clusters, the Hadoop solution, the Teradata Aster solution as the discovery platform to go to be able to deal with its SQL-H capabilities right into the Hadoop clusters, to be able to analyze and extract relevant data, and then migrate that relevant data into the Teradata EDW environment to operationalize it, to compare it against your historical operational data. This methodology is really resonating with CIOs across all of our industry verticals. The CIOs are trying to determine how can I best leverage these type of products, these type of solutions in the marketplace or in my company? And by advocating this methodology, they're really seeing, this is the solution I can build upon in order to drive the value of analytics, the value of information or the value of data throughout my organization. So what we find is this is a very effective methodology and what I'd is, best of my knowledge -- because I'm not a technical person, okay? I'm a finance guy -- but the best of my knowledge we're the first ones that have really offered this seamless end-to-end methodology solution of incorporating Hadoop clusters with Teradata Aster, which becomes the discovery platform, and with the EDW architecture. Bringing that altogether and managing it with Unity, our software that controls and manages the integration of data across this Unified Data Architecture, this analytical eco-system. And so when you have the Hadoop appliance, the Teradata Aster appliance, an EDW solution and our other product families, we have a 1,000 and the 2,000 appliances, and you can effectively manage, integrate, coordinate information across that environment with Unity, which is a software solution that effectively manages all the information through that environment. So again this is a methodology that has resonated very well with the CIOs in Q4. And we continue -- we expect to build up on it in 2013 forward.

Kathryn L. Huberty - Morgan Stanley, Research Division

Okay, great. I want to shift the discussion to talk a little bit about investments for growth and where you're putting your money in your bet. I want to first talk about the consulting business because it beat our estimates pretty significantly in the fourth quarter. You're expecting low teens growth in 2013, which is better than the 6% to 10% overall growth. Is this entirely driven by adding eCircle into that business and seeing that application revenue growth take off or are there other investment hiring that's driving that growth?

Stephen M. Scheppmann

Yes Katy. The simple answer is eCircle. eCircle -- and I'll do the math here for you -- eCircle we acquired in May of 2012 and it represented about 1 point of growth, overall total growth in 2012. One point of overall growth, consult and all the revenue from eCircle's being captured in the Consulting Services line. If you say Consulting Services, approximately 30% of our total revenue growth and you say, that was 1% that's basically contributing 3 points, okay? And we expect to see that in the first half of 2013 because basically mid-part of 2012 and then we'll see in the first half of 2013 contributing to that Consulting Services growth. What we see in the Consulting Services area is very consistent with what a lot of our peers have seen. There's a softening on it. We are definitely taking actions to be sensitive to our cost structure in that area. Very similar to actions that we've taken at any challenging period of time because we do have some levers that we can effectively manage, but still keeping investments focused on the growth areas that we see. But no one area outside of eCircle is really driving that, those numbers that you've just described.

Kathryn L. Huberty - Morgan Stanley, Research Division

Okay. Got it. And on the last conference call, you talked about shifting some of your sales hiring from pure new sales team to adding specialists. Can you talk about how that impacts the sales cycle? How quickly does the specialist add to revenue growth versus a sales team? And does it improve win rates? What type of deals does a specialist get you into?

Stephen M. Scheppmann

Yes. And just a little history: With the sales territories, a new sales territory, if we add a new sales territory, it will take about 2 years before they become productive. I won't say fully productive. It takes 4 to 5 years from a full quota carrying [ph]. But a new sales territory will be become productive within an average of 2 years, so it will be contributing to the sales funnel that 2-year period. So by hiring sales specialists, what we said in the call is last year, we hired 49, or invested in 49 new sales territories. Brought our sales territories up to approximately 570 or 569 sales territories. We are at the high end of our range of 35 to 45. And this year we said, 20 to 30. And we're going to invest more into sales specialists. The point I'll say here is we're going to continue to invest the same dollar amount in the aggregate, but they're going to be split between new sales territories and sales specialists. So the total dollar amount investment will be approximately the same in '13 as it was in '12. And we accelerated in the hiring of the sales territory above the 45 -- 35 to 45 mark in 2012 knowing that we're going to put more in the specialists into '13. And so if you look at it over a 2-year period, in 2008 to 2010, we averaged about 30. In '11, we did 45, in '12 at 49. So if you'd average '12 and '13, we're probably be at historical averages. But now the reason for the sales specialists is that we're seeing activity out on a global basis to -- really opportunities to drive the Aster Data activity and our Application business. Our Application business primarily consisting of Aprimo and eCircle, 2 acquisitions that we did -- eCircle last year and Aprimo in 2011. So we see tremendous opportunity to really go after and facilitate the opportunities for Aster and the Application. And more specifically on Aster, our account execs are really responsible for identifying and bringing forth an opportunity within our customer base, okay. Now by leveraging the Teradata specialist, we can then bring the specialist in and really being able to quickly and effectively operationalize or bring that opportunity to bear. The business analysts with an Aster Data emphasis will come in and, being able to identify the opportunity, put a business case around that opportunity and develop the ROI on that opportunity. The technical consultants that have the Aster Data experience can then come in and say, "Okay, this is how we can leverage the Aster Data solution to be able to effectively go after this value proposition." By doing that, what we found is that we're able to really leverage Aster as a discovery platform, being able to limit the "benchmarking competition" and being able to get this solution put in place and start driving the business value. So what we've typically seen is that this can shorten the lead time to get at an opportunity. And when I've asked our technical people, they said, "We feel we can get from a business case to an opportunity closed within the 90-month window, approximately 9-month window for an Aster Data solution." So the sales specialist from the Application side and the Aster Data side really help facilitate opportunities to drive those solutions. And I would say, it's probably more so within our existing customer base than would be for the new customers. But I'm not limiting it to just the existing customer base. But that's where we're seeing the activity right now.

Kathryn L. Huberty - Morgan Stanley, Research Division

And the typical sales cycle for an EDW could be years. So 9 months versus, it could be 1 year or 2 years, 3 years plus for an EDW?

Stephen M. Scheppmann

And now -- but if I just caution you, again, on the 9 months, what we saw in Q4 last year, we saw good activity on an Aster Data solution side. We had what we thought would happen quite a bit of activity go from proof-of-concept to product sales. Now although they were small because people basically are kind of putting their toe in the water and kind of testing it out, it was very good movement of it. I still -- still qualify my comments on the 9-month. They're still going to be smaller type purchases upfront. Because what we see in 2013 is that CapEx budgets are tight and are not growing, okay? 95% of our revenue comes from existing customer base. Good thing and a challenging thing. We have significant amount of that CapEx or that operating budget. And when we have these opportunities, we have to find opportunities in the CapEx budget to be able to move, to facilitate those ROIs. Now I'm not seeing a total shutdown on CapEx, not alluding to that, okay? But we have to be very -- work very hard with the customer to find that CapEx, to be able to drive it to this new type of solution and demonstrate the ROI. So for 2013, I'm still being cautious on Aster Data revenue but I do see a good ramping with proof of concepts in Q4 2012 closing and resulting in transactions. Very consistent when we thought it would take about 2 years for Aster to start building out those use cases and then start seeing those use cases proliferate throughout our customer base.

Kathryn L. Huberty - Morgan Stanley, Research Division

Okay. And the investment in specialists will help you convert that pipeline over time?

Stephen M. Scheppmann

Correct.

Kathryn L. Huberty - Morgan Stanley, Research Division

You mentioned the Application as another area that specialists can help with. And a couple of acquisitions that came to Teradata in the last few years. Is there a increased interest in building out an application group at Teradata? Darryl McDonald is now in charge of that group. As I said, you've made a few acquisitions, is there the opportunity to do more in that space? Or are you happy with what you have?

Stephen M. Scheppmann

We're very happy with what we have here right now and the platform we're building from. What I should -- by taking a couple of steps back, is Teradata, we're really driven by our customers' roadmaps, and where they want to go and where they see the opportunities. Couple of years ago our customers had been saying, "Hey, marketing is a key interface for us." With the deluge of information coming from social media, coming from all other aspects and their marketing departments are getting challenged with primarily homegrown solutions to be able to manage and effectively understand what this information is driving or telling us. And as a result of our customers pushing us in this area, we went out and looked at partnering, and we are partnering with Aprimo, and said this a great opportunity to bring their integrated marketing suite of products into Teradata. They look at the opportunity, very consistent how we looked at it. So we continued down that path building that out. We see marketing as a key focal point to really effectively manage these large quantities of unstructured or historically, uncaptured data. And I don't think we're the only one seeing it. I think Gartner commented that by 2017, the CMO may be spending more in IT than the CIO. And I look at some of our peers, IBM and Oracle, continue to invest in this area. So this is an area that we feel will continue to play very well into analyzing all types of data. And so we're very comfortable with our platform, our base in there, the eCircle acquisition added that digital marketing capabilities to us to be able to leverage. And I think we're comfortable in that application space. And with the Aster Data acquisition, we feel we have 3 good colors to grow on: the core EDW, big data and also marketing applications.

Kathryn L. Huberty - Morgan Stanley, Research Division

Okay. I'd be remiss if I didn't talk about competition. The question I know you get a lot. Historically, you've competed mainly with IBM and Oracle on the EDW side. But I think, yes, there's a concern in the market that your list of competitors is broadening and you're seeing Greenplum more and SAP HANA and Oracle Exadata. Is that a fair concern? I mean, are you still seeing the traditional players? Are you seeing more and more of the new players in your deals?

Stephen M. Scheppmann

No, we're seeing the traditional players. I mean IBM and Oracle are still the incumbents that we see, Teradata's traditional competitor is status quo. And with that being status quo, it's IBM and Oracle. I'm not talking about competitors from a technology solution perspective. I'm just talking pure competitors from an IT structure side. And so that we continue to see. What we're seeing more on is the comment that I made earlier is that the CapEx budgets aren't growing, okay, in 2013. So in order to get more growth from that -- 95% of our revenue comes from existing customer base -- we have to get more of that CapEx or OpEx budget, okay? And so that I'm seeing being more of a challenge in 2013 than more than the incumbents as we try to grow out the solutions. But with that being said, as I look at HANA in memory, we're not really seeing HANA out there from a competitive perspective. I can say that from an in-memory solution perspective, our Teradata Virtual Storage, we are already leveraging memory within our solution, more in the cashing process of -- we've elected go to solid state drives and larger rotational drives and that Teradata Virtual Storage solution where we can leverage various storage medias within that solution or within that architecture. If DRAM ever came down to an economical cost point, we can effectively -- I assume be able to effectively leverage that within that type of environment. But HANA, we don't see that much. With respect to Greenplum and we don't see Greenplum that active in the marketplace, at basically again, at our customer level, our prospective customer level. With respect to the Hadoop, I think there seems to be confusion in the marketplace with respect to Hadoop. Hadoop, don't get me wrong, I mean, Hadoop is a very efficient file storage system. I mean, it can ingest large amounts of data, of unstructured data, data that hasn't been captured anywhere before. And don't quote me, but maybe 95% of the data is not relevant, what you're trying to do is get to that relevant data. We feel that Hadoop again, in this Unified Data Architecture, has a key purpose in there as being this very efficient file storage system to be able to ingest large amounts of data, then you leverage the discovery platform in Teradata Aster with its SQL-H capability and the discover the relevant data, bring that data out of Hadoop clusters and then say, okay, is this Facebook wall post relevant to my current active -- in my current operational revenue? Do I find any negative Facebook post having an adverse affect in my revenue within this region? So you have to compare it to the operational data in the EDW and then what you then do is operationalize it and leverage that or make it active with your -- in your company. So if it's not having any direct correlation to your revenue in that particular area then it may just be just noise and you don't bring that in, but it does have relevancy then you need to act on it. So I mean, as I look at it, we're no different than when we go through the cycles of competitive competition. And we take all of our competitors seriously, and all their capabilities seriously, and we continue to evolve. I mean we see big data and Aster and Hadoop as being kind of the next legs to really drive analyzing all types of data not just structured data and so we continue to see Teradata evolve to be able to effectively analyze all types of data.

Kathryn L. Huberty - Morgan Stanley, Research Division

And it's a complementary solution to an EDW versus a competitive or replacement to EDW?

Stephen M. Scheppmann

Hadoop?

Kathryn L. Huberty - Morgan Stanley, Research Division

Hadoop.

Stephen M. Scheppmann

Yes, we view it very complementary, very integral in that Unified Data Architecture. And we have a partnership with Hortonworks and we just released that Hortonworks appliance. And we're very committed to that structure, that architecture.

Kathryn L. Huberty - Morgan Stanley, Research Division

Also in the competitive front, Amazon recently announced that cloud-based data warehouse analytic solutions called Redshift. Do you see a market for customers that want access to what a Teradata EDW can provide them but don't have the size, the wallet size to build out a full solution and therefore, would like to buy your services as a cloud? And is there an opportunity that you or a partner, would ever offer that?

Stephen M. Scheppmann

Well, If I can answer that question with respect to our customers and our prospective customers first. Then, I'll answer any other type of customers. Well our customers are telling us and what we're seeing from our customers and prospective customers, is that the private cloud is where they want to drive too. The ability to effectively manage their proprietary data and secure their proprietary data in a private cloud is very important for them. And our proprietary hardware solution in that really drives optimal performance and uptime scalability, et cetera. And as I mentioned before, they're already operating at a 90% utilization. So we're already getting the benefit of the cloud capabilities through their IT asset base. Another key point in our private cloud is our Consulting Services. Our Consulting Services have very good domain knowledge, industry expertise that really understand how you can architect data and to really been able to drive the business value of that data throughout the organization. So all in all, our customers have been pushing us towards really leveraging out the private cloud, driving us towards this Unified Data Architecture, really driving us towards Unity to be able to effectively manage all that. And when I'm saying effectively manage this architecture, this architecture is driven off of Hortonworks appliance, Hadoop appliance, Teradata Aster Discovery Platforms, Teradata EDW, our 2000 series appliance, which may be use for non-mission critical or what I call kind of sandbox discovery test and development. Our 1000 series, which is really called the appliance for large volumes, big data, structured data for the 1000 appliance. They also have in this environment maybe a dual active system that gives them complete redundancy, another EDW running mirroring with it to get complete redundancy. All this being managed by the Teradata Unity environment. This is where our customers are driving. Now I don't want to -- I mean, there could be opportunities where less secured information, clickstream data, that's already being captured in the cloud. They may still leave it in the cloud and being able to extract it down, which they feel is relevant on it. So that opportunity may exist for non-mission-critical data. So from our customer base, we're focused on the private cloud. Now if you go into that global 3000, that's our focus of the global 3000 customer base, if you go into that 3000 customer base, yes, you might find that there's opportunities for them to leverage it. But we feel we have so much headroom, so much runway still left on this Global 3000 customer base that our push is going to be towards the private cloud. When I say, we have approximately 1,200 customers, 750 of them are in that Global 3000. So we feel we have tremendous runway still left in the Global 3000 to build out the architecture, that Unified Data Architecture or the private cloud perspective.

Kathryn L. Huberty - Morgan Stanley, Research Division

Let me ask one more question, on margins. I'll ask you a financial question through all the technology discussion, and then we'll see if there are any questions in the audience. If you look at earnings growth in the back half of last year, it's about -- it was a little over 2x revenue growth, which compares favorably to the goal of earnings about 1.5x revenue growth. Can you just talk about what's driving that? And if you end up coming in more towards the high end of the 6% to 10% growth range, where would you expect to fall in terms of earnings leverage? And would you reinvest the upside or could we see 2x as the new normal?

Stephen M. Scheppmann

Yes, Katy, you mentioned that in the second half, one of the -- there's a minimum level of revenue growth we need in order to generate incremental operating income or EPS growth. And when you get over that minimum level of revenue, that percentage growth that you described more about 2x, it's really a function of that revenue growth going down in that second half. What I see in the first half is as we caution, revenue growth in the first quarter could be flat or down. If it's flat, I have about $20 million of additional operating expenses because we're going to continue to invest in the new sales territories. And we invested in 49 new sales territories in 2012. And we'll continue to invest in the sales specialists. I'm looking at a $20 million run rate of increased OpEx expenses in the first quarter. And if revenue is flat, you can do the math. $0.024, roughly $0.024 of the penny, call it $0.08 for round numbers so that I've got to overcome. So I see definitely in the first half and even maybe 2013 depending upon how we're challenged in the first half, we could be less than that 1.5x in 2013. And the reason I say that is because we're going to continue to invest in those sales territories and those sales specialists and the R&D investments. Now if revenue comes up to the higher end of the range, we'll look at the those sales -- those investment opportunities that we have in 2013 and look to see, are there anymore investment opportunities we can invest in or make in order to continue to position us for the top line revenue growth? But in 2013, if you do the math and you look at our guidance, we could be less than the 1.5x. So it's really a tale, as you mentioned before at the start of this discussion, it's a tale of 2 halves in '13. The first half is really going to tell us how we're going to be positioned on that hockey stick on the back half.

Kathryn L. Huberty - Morgan Stanley, Research Division

Okay. Great. Let me open it up and see if there are any questions from the audience. Any questions here?

Unknown Analyst

Do you have a feel for what within your customer base, what percentage of workloads on the Teradata private cloud are those mission-critical apps that you're talking about versus perhaps less mission-critical now that new solutions are available, they can at list shift some of the existing workloads from Teradata off perhaps?

Stephen M. Scheppmann

That's a good point. And should have clarified that in my answers. Where we see Hadoop and Aster are all virtually all incremental. We did not see many customers have non-mission-critical applications or workloads on their EDW. Where we saw, when we introduced the 2000 series, the existing customers with the EDW architecture would buy the 2000 and have non-mission-critical or specific workloads that they would put on that 2000. So it wasn't taking off a workload off the EDW, it actually provided a more focused solution to be able to bring those workloads off of our incumbents and put them down to consistent architecture. And when we look at Hadoop and we look at Aster as a discovery platform, we primarily, predominantly see those being on incremental. Information that we saw was not being captured in the Teradata environment. The Teradata environment continued to be focused on the mission-critical operational activity. And these are being viewed as predominantly incremental.

Kathryn L. Huberty - Morgan Stanley, Research Division

Another question here?

Unknown Analyst

Steve, if you look at about 2 of the last 3 years, you started off 1Q saying it could be seasonal, it could see some headwinds, but you ended up doing much better in those couple of years. And I'm just thinking now, now this year is there something different, macro-wise or whatever that you're seeing or is it really similar to last, those last couple of years but you're just consistently being conservative?

Stephen M. Scheppmann

Well, what we're seeing this year, and again I come back to the larger deals, is not seeing the larger deals mature in the pipeline. Now I'm not going to say that's been inconsistent with '08 and '09, where we saw larger deals get scaled down. If somebody who's looking at doing a $5 million deal, they maybe did $2 million to $3 million deal because the data is continuing to grow. But what is different is the maturity of the larger deals, particularly in Americas, what we're seeing is the macro uncertainty and the unwillingness to commit. Again, you can argue with me and say, hey, that's not unique to '08 and '09, I would say probably not unique to '08 and '09, but different from '10 and '11, though. How we started out '10 and '11. It's the large deal in the Americas that at this point in time it's concerning me and you said it right, we're very cautious. And so as a result, because of the lack of visibility in the back half of the year, that's why we expanded that range just being cautious on that.

Kathryn L. Huberty - Morgan Stanley, Research Division

Okay. We are out of time. Thank you very much, Steve. I appreciate it.

Stephen M. Scheppmann

Thank you, Katy. I Appreciate it.

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