Teradata Corporation Q1 2009 Earnings Call Transcript

May. 7.09 | About: Teradata Corporation (TDC)

Teradata Corporation (NYSE:TDC)

Q1 2009 Earnings Call

May 7, 2009 8:30 am ET

Executives

Gregg Swearingen - IR

Mike Koehler - CEO

Steve Scheppmann - CFO

Darryl McDonald - CMO

Analysts

Katie Huberty - Morgan Stanley

Brian Denyeau - Oppenheimer

Nabil Elsheshai - Pacific Crest Securities

Anthony Kure - KeyBanc

Greg Holter - Great Lakes Review

Doug Reid - Thomas Weisel Partners

Operator

Good morning, ladies and gentlemen, and welcome to the Teradata Q1 2009 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded.

I will now turn the call over to Mr. Gregg Swearingen. Mr. Swearingen, you may begin.

Gregg Swearingen

Good morning and thanks for joining us for our 2009 first quarter Earnings Call. Mike Koehler, Teradata's CEO, will lead our discussion, highlighting Teradata's first quarter results. After Mike's remarks, Steve Scheppmann, Teradata's Chief Financial Officer, will provide more details relating to our Q1 performance. Darryl McDonald, Teradata's Chief Marketing Officer, who is also responsible for strategy and business development is in the room as well.

Our discussion today includes forecasts and other information that are considered forward-looking statements. While these statements reflect our current outlook, they are subject to a number of risks and uncertainties that could cause actual results to vary materially. These risk factors are described in Teradata's 10-K and other filings with the SEC.

On today's call, we will also be discussing certain non-GAAP financial information, such as free cash flow and revenue comparisons in constant currency. A reconciliation of our non-GAAP results to our reported GAAP results, and other information concerning these measures, is included in our earnings release and on the Investor page of Teradata's website, which can be found at www.teradata.com.

A replay of this conference call will also be available later today on our website. Teradata assumes no obligation to update or revise the information included in this conference call, whether as a result of new information or future results.

I will now turn the call over to Mike.

Mike Koehler

Thanks, Gregg, and good morning, everyone. Teradata got off to a good start in 2009, with constant currency revenues up 5% and earnings per share growth of 13% in the first quarter.

Operationally, we executed well. Both gross margins and operating margins improved meaningfully over the prior year.

SG&A expense was down 5% and overall expenses were down, while absorbing key ongoing investments we are making to build for our future R&D, adding new sales territories and strategic partnerships.

Looking at our performance by region on a constant currency basis, EMEA grew 12% over prior year, APJ grew 9% and the Americas was up 1% over prior year, which was a solid performance given that the Americas was coming off of a strong Q 4 where revenues grew 14%.

Overall, we saw good user base activity in the first quarter. Customers continue to value and invest in Teradata to help operate their businesses more efficiently, reduce costs, find new sources of revenue, and enhance their customer relationships.

Upgrades included Delta, Continental, Air Canada, and Qantas, as the airline industry looks to improve fuel management, revenue yield management, and to personalize customer communication and marketing.

Retailers, such as Carrefour, the world's second-largest retailer, upgraded its Teradata environment to enable marketing activities for over 14 million households in France, and to achieve a 360-degree real-time view of its customers across multiple customer contact channels.

JD Williams in the UK, who is now doing customer analytics across all channels, including the web, to market the customers in near real-time. Trunk call activity included China Mobile, Vodafone Australia, Q-Star, the UK's leading telco, and Bouygues Telecom in France which is reducing costs while consolidating numerous data marks into its Teradata active enterprise data warehouse.

Upgrades at financial services institutions included UniCredit Group in Italy, Caixa Galicia in Spain, and Huishang Bank in China, which is integrating customer financial data and operations data, in addition to providing timely and accurate reporting for compliance.

Also, the US Government Centers for Medicare and Medicaid Services expanded its data warehouse in Q1. Some new accounts that we can name included The Limited Stores, which was one of our 2550 appliance new account wins in the quarter; Banque Accord in France, which was one with our partner, SAS and Informatica, and included extensive benchmarks against numerous competitors; and the state of Maryland, which chose Teradata in partnership with Accenture to recover unpaid tax revenue.

Our tax solution has already helped five states in the US collect over $1 billion in additional revenues. While Q1 was a good start for 2009, we still have work to do. We have set our sights on reducing SG&A expense and aggressively managing all of our costs to deliver the best results possible during this difficult economic environment.

But, in parallel, we are investing and working to expand our market position, technology leadership, and strategic partnerships to position us to be stronger longer term. First, we are adding more sales territories to extend our market reach. We added 40 sales territories in 2008 and we will end 2009 with 60, which puts us on plan to add 90 new territories by the end of 2010.

As previously communicated when we announced this initiative last year, we do not expect meaningful revenues from these new sales territories until 2010. Second, we continue to enhance and expand our purpose-built platform family. The technology investments we make here are core to our business and have allowed Teradata increase our data warehouse leadership position as well as extend our market reach by offering data warehouses with multiple uses, functionality, and price points.

The adoption rate of our 2550 and 1550 data warehouse appliances continues to ramp, with 15 systems being sold in the first quarter. Our total funnel for the two appliances is also up significantly from Q4 as well. 12, 2550 data warehouse appliances were sold in Q1 and we experienced strong win rates as well, winning nine of 10 decisions where we competed head-to-head with appliance competitors. The opportunity we have is to increase the number of deals in which we are competing.

One 2550 customer win Rail Inc. has massive amounts of data that is generated and must be exchanged between railroad companies in order to help the North American rail system to work more effectively. Rail Inc. is the intermediary that provides these services and is creating an information portal to provide business intelligence for its members. Teradata's 2550 scalability allows Rail Inc. to implement applications with a good initial ROI and then grow it as needed to accommodate future requirements.

Another new customer win, a retailer whose name we cannot share, is a good example of how our platform strategy plays out. Competing against another appliance vendor, we proposed both our 2550 data warehouse appliance and our 5550 active enterprise data warehouse platform. Having both solutions allowed our team to focus on customer requirements both short-term and also longer term and then objectively educate the customer on the options.

In this case, the customer selected the 5550 due to the additional functionality business benefits and higher ROI provided in an enterprise data warehouse environment for both, the initial project as well as the longer term opportunities and requirements, versus the lower cost appliances from both Teradata and our competitor.

The opposite holds true as well. There are cases where companies evaluated both an appliance and enterprise data warehouse solution and the ROI made sense to implement the 2550 appliance. And third, we have been investing to increase and deepen our strategic partnerships. This in turn helps us to increase the number of solutions for our customers and also helps expand our market reach. These strategic partnerships require investments in R&D, as well as the normal go to market and program investments.

We announced our strategic partnership with SAS a year and a half ago and we are starting to see the benefits of integrating the strengths of both companies. We have developed joint horizontal offers for in-database processing, scoring accelerator, and optimization services. As well as financial industry offers for any money laundering and credit risk. These solutions are being used to help with customer churn, claims processing, product forecasting, risk and fraud detection. Customers such as O2, (inaudible) and others are seeing where model deployments that used to take weeks can now be done in days. Processing and scoring that took days can now be done in hours driving new value faster while reducing cost.

We have a joint road map that we will continue to bring additional solutions to market for the years to come. In last week, we announced an expanded strategic partnership with SAP whereby customers will be able to run SAP NetWeaver BW on Teradata. This will provide SAP BW, business objects and Teradata solution that will consolidate enterprise data and analytical needs into a single enterprise data warehouse. Today SAP runs primarily on Oracle and IBM databases. Customers who have an SAP BW implementation and have Teradata enterprise data warehouse implementation in effect have two data warehouses.

These customers need to replicate and move data between SAP and Teradata. Customers will now benefit by having one data warehouse instead of two and the associated cost reduction, speed and simplicity that comes with it as a result. General availability is planned for Q 1 2010 and we are excited about the opportunity it brings for customers, SAP and for Teradata.

We also have been investing and growing our professional services business as a fourth initiative. Our PS revenue grew double digits the past several years, leading up to the economic downturn. Our focus has now shifted to cost containment, but we are still seeing some of the benefits from these past investments.

In Q1, professional services revenues were up 7% in constant currency and gross margins were up as well. In addition to investing in tools and education, we open four offshore consulting centers to augment our onshore consultants. This has reduced our costs and blended rates to enable us to compete for more business, as well as operate more efficiently overall and improve margins.

Our managed services business, for example, is leveraging offshore resources to provide new and more cost-effective offers to customers, such as remote DBA and operations support. Although small in size, it has been growing at a rate of 15% to 20% the past two years.

Professional services is strategic to growing our data warehouse business. It helps increase our market coverage and presence with customers, helps stimulate demand, and is also a key differentiator for Teradata versus our data warehouse competitors. We will continue to prioritize our professional services focus on managing costs during this economic downturn, but we believe we have positioned ourselves better to deal with the downturn and perform better longer-term as a result of these past investments.

Turning to our view for 2009, we are off to a good start. However, the continued uncertain economic environment and the lack of visibility that we have for the second half of the year and, in particular, our product revenue makes giving guidance extremely difficult.

However, I would like to provide some context as to what we are seeing in Q 2. We have a very challenging quarter in terms of top-line revenue versus prior year. We are currently facing a 7% currency headwind, and we are going against very strong prior year performances in EMEA and APJ.

EMEA had its largest quarter ever in Q2 last year, when it grew 33% and APJ had its third-largest quarter ever in Q2 2008. In the Americas, the total funnel is up and the overall activity is good, but due to the current economic environment, the number of mature opportunities is still not where we need it to be.

SG&A expense will be down from Q2 prior year, but it will be up sequentially from Q1 due to the normal seasonality of the business. The key major variable in the quarter will be our product revenue volume and its deal mix.

In summary, 2009 will be a challenging year in terms of the economy and we are riveted on reducing costs and keeping SG&A flat to down versus 2008. However, we feel very confident about the future for Teradata. We will continue to invest prudently in R&D, sales coverage and partners, and position the company for revenue growth longer-term and increase shareholder value.

With that, I'll turn the call over to Steve Scheppmann who will provide more details on Q1 and also the overall business. Steve?

Steve Scheppmann

Thanks for joining us this morning. Thank you for your continued interest in Teradata. We are committed to actively working with our customers to re-architect their information, to allow them to aggressively pursue opportunities in the areas of cost reduction, risk management, asset management, and revenue generation.

We had another good quarter, and we were encouraged by the resiliency of our business model given the tough macroeconomic conditions. Our flexibility created by our strong capital structure and our free cash flow model allows us to pursue our four key strategic initiatives that Mike referred to earlier, even in this economy.

Now for a closer look at our financial results for the quarter. Teradata's Q1 2009 revenue of $367 million was up 5% in constant currency from the first quarter of 2008, but down 2% as shown in US dollars. By region, revenue in Americas was down 2% as shown in US dollars. EMEA was down 6%, while APJ was up 5%.

Our constant currency revenue increase was driven by good performance in EMEA region and the APJ region where revenues were up 12% and 9% respectively.

From a revenue segmentation perspective, product revenue of $157 million was down 5% from first quarter of 2008. In constant currency, product revenue was up 2% from the first quarter of 2008.

Services revenue in the quarter was basically unchanged from the $210 million generated in last year's first quarter. In constant currency, services revenue increased 7% from the first quarter of 2008.

Maintenance revenue was $104 million, which includes maintenance on software and hardware solutions. This was a 1% increase from the first quarter of 2008. Currency headwind had a meaningful negative impact on our year-over-year maintenance revenue comparison. On the constant currency basis, maintenance revenue increased 6%.

Professional and installation-related services, which is the other component of our services business, is shown in US dollar is relatively unchanged from the prior year, is increased 7% in constant currency.

We drove solid gross margin improvement in each region, despite a challenging business environment. Gross margin in the first quarter of 2009 was 54.5%, compared to 51.7% in the first quarter of 2008, due to good performance in both product and service margins, which more than offset currency headwind on our margins.

Our product gross margin improved 200 basis points to 65.6% in the first quarter, primarily due to fewer floor sweeps in Q1 2009 in the Americas and the higher-yielding product or hardware mix.

Services gross margin improved 380 basis points to 46.2%. Driving our improvement in services margin was better utilization of our internal services resources, lower third-party service costs, lower travel expenses, and continued leveraging of offshore capabilities. We generated margin improvement in both maintenance and professional services.

Moving to a geographical view; Americas revenue of $205 million was shown as down 2% for the quarter, but was up 1% from Q1 2008 on a constant currency basis. We continue to see solid pipeline of deal activity, but closure rates continue to be difficult to predict as customers are proceeding through 2009 very cautiously and decisions are being protracted, as we have referenced in previous quarters.

For the quarter, gross margin in the Americas region was up 280 basis points to 57.1% due to improved service margins for both professional services and maintenance services.

In EMEA, we reported a revenue decline of 6% to $97 million in the quarter, but revenue was up 12% in constant currency. Gross margin in the EMEA region was 54.6%, up 410 basis point improvement from the 50.5% in the first quarter of 2008. The increase in gross margin was driven equally by higher product and service margins.

In our Asia Pacific/Japan region, we reported 5% revenue growth in the quarter. In constant currency, revenue in APJ was up 9%. Gross margin in APJ was 46.2%, a 100 basis point improvement from 45.2% in Q1 2008. This improvement was due to higher professional services margins.

Turning to our expense structure; our Q1 2009 SG&A expenses was better by 5%, driven by our continued focus on expense management and the benefit from a stronger dollar. I want to highlight that we achieved this while executing our strategic initiatives to increase our market coverage through additional sales territories and partners.

Specific actions included salary-related costs, restricted hiring and travel, and cost management initiatives that were specific to Q1 2009, including canceling non-customer-related programs. We continue to execute on our operational plan to increase our efficiency and drive more variability into our organizational expense structure.

From a trending perspective you should not expect the same level of improvement in SG&A over the next three quarters. Given the current FX environment and our cost management actions we continue to expect that our SG&A will be at or below our 2008 levels. While absorbing our strategic initiative as it relates to sales territory expansion and partners.

As we discussed during our last quarterly conference call, R&D expenses in Q1 increased versus the prior year. In Q1 '09 R&D was $30 million, $5million higher than the prior year, as we capitalized $5 million less, in Q1 '09 than we did in Q1 '08. This is all related to FAS 86 as we have discussed at length during the last several conference calls. R&D expense will return to the levels that approaches but may not quite reach the 2007 level when R&D was $126 million. As a reminder, R&D expenses in 2008 were primarily lower due to the timing of the capitalization of software development costs per the requirement of FAS 86 and a lower variable compensation expense.

The resulting impact in the quarter on Teradata's operating margin was 16.3%, a good improvement from 14.1% in Q1 2008. As a reminder Q1 is typically our smallest quarter of the year and yield the lowest margins due to seasonably lower revenues. Below the operating income line, other income in the quarter was down $3 million from Q1 '08 due to lower interest income as a result of lower interest rate environment. This is despite having $232 million more cash in short-term investments than a year ago.

For Q1 2009, our effective tax rate was approximately 25%, the same as in the first quarter of 2008. For the full year, we continue to expect our annual effective income tax rate for 2009 to approximate 26% to 27%. Our tax rate reflects our intention to permanently reinvest foreign earnings outside the United States. We can however repatriate the cash if needed but that would generate additional income tax expense and a corresponding current payable. Stock-based compensation expense included in our Q1 2009 results was approximately $5 million, or $3 million net of tax or approximately $0.02 per share, same as in Q1 last year.

We expect our full year 2009 stock-based compensation expense to be similar to the 2008 amount, which was $20 million before tax. During the first quarter we repurchased 1.3 million shares of our stock for approximately $20 million. Since the initial share repurchase authorizations were approved a little over a year ago we have repurchased 9.8 million shares of our stock or approximately 5% of our weighted average shares outstanding for approximately $196 million.

We announced earlier today that our Board has approved an additional $300 million of share repurchase authorization. As such, we have $365 million remaining on our board open market authorization for share repurchases. As we have said before, we expect that the rate of our buyback will continue to fluctuate each quarter taking in account among other things our working capital needs, our stock price, alternative uses of cash, and economic and market conditions.

Turning to the cash flow statement, in the first quarter we generated cash from operating activities of $165 million, up 15% from $143 million in the first quarter of 2008. After using $20 million for capital expenditures, the same as last year, we generated $145 million of free cash flow, which favorably compares to the $123 million of free cash flow in Q1 of 2008. Teradata defines free cash flow as cash flow from operating activities less capital expenditure for property and equipment and additions to capitalized software. One of the real strengths of this business model is cash flow generation. In Q1 we grew cash from operations 15% and free cash flow 18% on a 2% revenue decline.

Turning to the balance sheet, as of March 31st, 2009, we had $571 million of cash in short-term investments. $129million increase from $442 million at the end of 2008, even after using $20 million for share repurchases during the quarter. With respect to accounts receivable, sales outstanding was 75 days as of March 31, 2009 compared to 93 days as of December 31st, 2008 and 89 days as of March 31, 2008. Deferred revenue at the end of the quarter was $321 million compared to $300 million at the end of Q1 2008.

As we did last quarter, in an effort to provide further transparency around currency movement and the potential impact on our revenue we provided additional detail on our website, regarding how currencies moved in 2008 and how this movement is expected to impact our year-over-year revenue comparisons in 2009. Assuming the spot rates at April 28, 2009, we expect currency to create a 5% headwind for us for the full year 2009 and a seven point headwind in Q2, the same as we saw in Q1 2009. As we said last quarter, roughly 40% of the currency movement flows through our operating statement and affecting our operating margin and income. Our goal is to adjust our pricing models to the currency movements in the short-term in order to reduce the flow through impact to approximately 30%.

To summarize, although we had good results in Q1, visibility continues to be limited not only for the full year but also for the second quarter. Therefore, until we can gain better visibility on how our customers are reacting to the economic environment, it is difficult to provide specific revenue or EPS guidance. Even our customers tell us they still do not have firm CapEx budgets for the year. That said, we were please with Q1 performance and that provides a solid start to the year. We reiterate currency based on the current spot markets is creating a headwind for us on both the top line and the margins as we discussed earlier, while creating a lesser positive impact on our operating expenses.

Currency is expected to create the same headwind in Q2 as it created in Q1. Given the current markets, R&D expense hitting the P&L is expected to be higher as we continue to invest in our core R&D. In 2009 R&D expenses are expected to revert back towards a normalized level. In 2007 R&D expense was a $126 million. Expense management successfully offset the incremental selling expense related to the strategic decision we have made to increase the investment in our sales territories.

As demonstrated in Q1, SG&A is expected to be flat to down from 2008 even after absorbing the incremental sales territory costs. By this time you probably heard every phrase from companies and from prognosticators to describe the current economic situation so I won't pile on here. With your understanding of the economic environment, I remain encouraged that the present market conditions create and nurture an environment that will continue to drive companies to pursue better business intelligence from non-traditional sources.

This need for increased intelligence including enhanced visibility and transparency across the enterprise will create tremendous pressure on the existing transaction processing base data warehouse environments and the status quo of IT infrastructures will be perceived to be not good enough.

Generally companies need a change agent, a crisis, or a burning platform to drive transformational change, in the current economic climate in some cases may be that change agent. As a result, companies become more open and motivated to leverage enterprise analytics and Teradata is the most robust platform to integrate disparate sources of information into a cohesive platform. To enable companies to extract the most value from their proprietary data and to aggressively compete, grow, and manage costs and risk in this market.

The points I would like for you to remember include that Teradata is well positioned in this market driven by its technology leadership position, its strong customer base and relationships, strong recurring revenue model from existing customer base and our annuity businesses; strong capital position, $571 million of cash, no debt, and a strong free cash flow model; our new expanded product family and our geographical model.

Most importantly, our team is passionately focused on driving value and competitive advantage for our customers in the most efficient manner.

With that, operator, we are ready to take some questions.

Question-and-Answer Session

Operator

(Operator Instructions). Our first question comes from Katie Huberty from Morgan Stanley. Please go ahead.

Katie Huberty - Morgan Stanley

Thanks. Good morning. So, obviously a phenomenal March quarter after a strong December. So, I guess, the question is, whether you think you have stolen revenue in earnings from later this year, or if, these fundamentals are just a clear sign that data warehousing is facing different spending patterns than the rest of technology this year?

Mike Koehler

Katie, this is Mike Koehler. We had the normal deferrals and spillovers from Q4 to Q1, Q1 to Q 2, so I don't think there's anything indicative there as far as any movement of revenues, okay?

The challenge that we've got is the lack of visibility going forward. Clearly, we have some pretty strong activity going, in particular, in Europe and other places of the world, not as strong. So, at this juncture, it's a little too early to tell and like the visibility isn't there as far as getting a picture for where this thing is headed.

Katie Huberty - Morgan Stanley

Can you expand on some of the qualitative commentary around the pipeline of deals and maybe the number of conversations you're having with new customers today versus where you were at exiting the fourth quarter, understanding that some of those are 12-plus month lead times?

Mike Koehler

I would say activity is very similar to what we saw coming out of the fourth quarter. So if you go back to what we said back in February, and what we were seeing in terms of activity around the world, it's very similar. EMEA continues to have extremely strong activity. They have a good pipeline.

The challenge we have in EMEA like we had in the first quarter is about a 17% currency headwind and the thing that is a little bit different about Q2, well, actually, it's significantly different in Q2, as EMEA had biggest quarter ever last year in the second quarter and they grew revenues 33%. That said, the EMEA activity in the pipeline is very good, new customers as well as everything across the board.

In Asia Pacific/Japan, once again the activity in the pipeline is good outside of Japan. What we saw coming out of the fourth quarter was softness in Japan, outside of Japan. The overall activity in pipeline remains strong.

The Americas coming out of the fourth quarter, what we said was the number of mature opportunities in the pipeline was lagging. It was down sequentially from the fourth quart as you'd expect with the big fourth quarter that we had in the Americas. Going into the second quarter, once again the amount of mature deals in the Americas are still lagging where we need them to be.

That said, the overall metrics in the Americas, the new funnel activity, is up. The amount of dollars in the funnel related to new accounts is up in the Americas funnel, but the economic conditions continue to delay and push out the maturity of some of these deals and the closures.

Katie Huberty - Morgan Stanley

Okay. Then just lastly, I understand the run rate may change if the economy worsens from here, but given what you know today, how quickly do you expect to put the additional $300 million of share buybacks to work?

Steve Scheppmann

This is Steve. As we said before, we'll still be prudently active in the market. I used all the qualifiers, working capital needs, other alternative uses, etcetera. So we will still be prudently active. Given the lack of visibility into 2009, I want to make sure we still maintain a balanced capital structure. So, this additional authorization gives us more flexibility and we'll operate with that flexibility on a prudent basis through 2009 and 2010.

Operator

Our next question comes from Brian Denyeau from Oppenheimer. Please go ahead.

Brian Denyeau - Oppenheimer

We could drill into the services margin for a second. You did a good job of laying out what you have done there to improve the cost. How sustainable is that and have you sort of reset the bar on what services margin can be going forward?

Mike Koehler

Brian, as I look at services margin, I mean, this is a very good indicator of the result of the lumpiness of the Teradata model. We had a very good yield on our revenue in Q1, if you look at that yield compare to Q1 last year. Again, the Teradata model, depending upon the deal mix, depending upon the quality of the deals can generate some of the lumpiness in that margin yield.

At this point in time, that's how I would classify it. It's something that we will experience time to time, something that we are going to have to, that we recognized as being challenging in some other times. So, I won't read anything into the trend on the PS margin at this point in time other than the mix of some of the deals coming through. But, it is something that we are constantly focused on.

Brian Denyeau - Oppenheimer

Okay, that's helpful. For a second on EMEA, very good growth there, and certainly you guys are outperformed relatively to your peers in that market. Can you help me understand what's going on in terms of how you are getting now a demand generated, but getting the deals actually done?

Mike Koehler

We are getting good growth in the emerging markets. We have been adding resources there as well. We've had good results across the boards and across all the geographies. We are very strong in telcos there, which in this environment is a decent industry relative to some of the other ones. We've also had very good success in financial services as companies looked to get more visibility and granularity into their information systems.

So, it's been growth that's occurring on a geographic basis within Europe and growth that's been occurring across a couple industry segments, key industry, large industry segments in Europe. It's benefitted us very well.

Brian Denyeau - Oppenheimer

Lastly, can you just talk about what you're seeing in the retail vertical so far this year and your expectations going through the rest of the year? Thanks.

Mike Koehler

Good question. The two industry segments that saw the biggest growth for us in the first quarter, and once again a first quarter isn't a trend but you cobble it together with what we saw last year, financial services was up quite a bit in the first quarter.

The other industry segment that was up was retail by quite a bit. Once again that quarter doesn't make a trend. However, retail, the largest geography for our retail business is in the US. In 2008, retail, we saw some pretty significant declines in revenue.

Typically, the retailers what we have seen over the past history and some downturns seem to get out ahead of this cost and savings in an advance of an economic downturn. We got pretty hit hard in the retail in the US. So, this year, I am a little optimistic that on the retail side that we may bounce back a bit and we had a good first quarter in the retail industry.

Operator

Next question comes from the Nabil Elsheshai from Pacific Crest Securities.

Nabil Elsheshai - Pacific Crest Securities

So I guess to continue with the vertical stuff, any commentary on telco in the quarter and what you're seeing going forward there?

Mike Koehler

Once again, in a quarter, I don't think it sets a trend Nabil but you asked a question. The answer is, financial services and retail were up quite a bit. Communications overall globally was down, and manufacturing we had a pretty good drop off in the first quarter. Those are the four major industry segments for the Teradata business. Of the four, I would say the one we see the most softness in overall around the world would be in the manufacturing industry segment, outside of the high-tech sector, those other manufacturing industry segments.

Nabil Elsheshai - Pacific Crest Securities

Could you give me the percent of revenue that came from the installed base?

Steve Scheppmann

Nabil, we are typically, historically we said the 85% to 90%. We didn't see anything outside in Q1 that would indicate that not to hold true.

Nabil Elsheshai - Pacific Crest Securities

Because I think you gave us a 90% on the Q4 call. On the SAP relationship, could you give a little bit more detail on, when that will be supported? If there's any joint go to market plans there? What kind of time frame that would take place?

Darryl McDonald

Sure, Nabil. This is Darryl McDonald. With the announcement with SAP, we currently are working with customers to design the integrated solution that we are going to be going to market with. as you know. The announcement was primarily that SAP BW will run on Teradata. So we have a large number of joint customers today that have both business warehousing and Teradata. So we are working with them now on plans to try to migrate and integrate those. We are looking for the timeframe, is early beta customers in Q4 of 2009 and then GCA in Q1 of 2010. We are currently doing the port and working with customers on activities to try to get to that solution.

Nabil Elsheshai - Pacific Crest Securities

They are working with you to identify potential joint customers and go to market together?

Darryl McDonald

Correct. SAP is working with us. We are identifying joint customers together and the opportunity is that it's going to be a sale with model between Teradata and SAP. So we are both going to be working with customers, hand-in-hand, who will sell their software or migrating their software onto the Teradata platform which will support the selling and the work around that. It's also our intent to work with the major systems integrators to do this work as well. So we think there will be great opportunity in us ramping up and training the systems integrators in the ability to help with these migrations as well.

Operator

Next question comes from Anthony Kure from KeyBanc.

Anthony Kure - KeyBanc

Just a quick question on the tone of conversations and if that change with your financial customers we have heard from other folks saying that there could be a 20 basis points special assessment from FDIC and that was impacting some of their capital decision making. I am just wondering if you have seen any conversations or have heard any change in tone based on that dynamic.

Mike Koehler

This is Mike Koehler. No, none that we are aware of, that I'm aware of.

Anthony Kure - KeyBanc

On the Oracle's acquisition of Sun, how do you feel that's impacted the marketplace both with those two companies or with Oracle specifically and then how Oracle's relationship with HP on their competitive product, wondering how that dynamic has played out as far as your conversations with customers and the competitive landscape.

Mike Koehler

As far as the overall impact on the market, overall I won't comment on that. As far as it relates to data warehousing and Teradata, at the end of the day, Oracle is a database that we compete with and they have added a hardware component to it to try to address a piece of the problem in conjunction with HP. What they do with exit data that relates to Sun we don't know but at the end of the day it's a database and there's a hardware component to it whether it's Sun or whether it's HP whereas on the other hand Teradata is all software.

Anthony Kure - KeyBanc

Have you encountered the exit data solutions anymore in pilots or in customer sites any more than last quarter?

Mike Koehler

We haven't seen too much of exit data to date. There is one customer where we did get heavily engaged and there were benchmarks done. We performed exceptionally well versus exit data, and that's about the extent of it. So there's been maybe three or four accounts where we are engaged with exit data and only one to a detail, what I call a detailed degree. That said Oracle's got a huge market presence. They've got a lot of relationships and everything else and we are very respectful, of them as a competitor. From a technology perspective, we feel very confident about Teradata.

Darryl McDonald

This is Darryl. I just want to add one other comment again to your point about the Sun-Oracle. I think to Mike's point there's probably more impact to other quality key competitors in the marketplace than there is to us because from our perspective we have been competing with Oracle and Sun for quite some time. We still feel very comfortable in our ability to compete and win against those two products in the marketplace.

Anthony Kure - KeyBanc

Just given the results of the first quarter I know you talked about visibility being clouded and you gave a little color on the second quarter but I just wondered if there's any possible way you can maybe provide some sort of full year parameters for EPS expectations.

Steve Scheppmann

Anthony, as I've said, the current market conditions and the visibility in the second half particularly as it relates to our product revenue makes extremely difficult to provide specific guidance around 2009 revenue and EPS. On top of the traditional Teradata lumpiness that we have all come to love and hate, it makes it difficult. If I really look at our internal sites and I say, okay focusing on flat revenue and constant currency, with our sites on flat revenue in constant currency and that's adjusting for 5% FX headwind. That would translate into an EPS of approximately $1.10 to $1.20. you know, given those metrics. Again with the visibility being tough, to give specific guidance at this time would be extremely difficult.

Operator

Next question comes from Greg Holter from Great Lakes Review.

Greg Holter - Great Lakes Review

I wondered if you could comment and I know you have made some commentaries earlier about the DSOs but just wondered if you could comment about your accounts receivable quality overall on [agents] and so forth.

Mike Koehler

The accounts receivable quality on [aging], we continue to see improvement on the DSO. Our accounts receivable base is a global 3,000. and one comment that I can make on there is that we have not seen anything significant increase in any of the write-offs on it. We believe we have taken an adequate reserve position at this point in time given the macro economic conditions and we haven't seen any significant deterioration out of the unusual or out of the normal on that receivable base. We have seen improvement in the DSO through March 31st, 2009.

Greg Holter - Great Lakes Review

Is your allowance still around $11 million?

Mike Koehler

Yes the allowance is still around about the $10 million range where we are at 12/31/08. I should say the reserve.

Greg Holter - Great Lakes Review

What would you anticipate your capital spending all in to be for 2009?

Steve Scheppmann

Capital spending, again we traditionally have said $75 million to $85 million including capitalized software. I would anticipate that to be very similar.

Greg Holter - Great Lakes Review

Looking at the competitive environment, any significant changes there that you can comment on, or would like to comment on?

Darryl McDonald

This is Darryl McDonald. Not really. I think the competitors that we have been competing with for the last six to 12 months remain the same. I think we feel very confident now that we have our platform family, that we have both the platforms and the price performance to compete at all levels from the entry level to appliances to the enterprise data warehouse. So, I'd say, at this point in time, we are just in a great position to compete and nothing has really changed on that landscape for us.

Greg Holter - Great Lakes Review

Okay. I missed early in the call, Michael, where I think you indicated how many new systems were sold, was that 12?

Darryl McDonald

It was a total of 15. There were 12 2550s and three 1550s in Q1.

Greg Holter - Great Lakes Review

And one last one. I noticed that the company has had more releases in the past with Winn-Dixie and Juroku Bank and BVBA in publics and so forth. Are these new, are they expansions? How should we are looking on the outside gauge these announcements?

Darryl McDonald

We typically denote in the press releases if it's a new customer or system expansion. So what you're seeing in each quarter is a combination of both. So, typically around some of the big events like we just had our Teradata EMEA Universe, there might be a larger number that gets produced as a part for that event.

But it really just coincides with the selling and then getting alignment with the customer to do press release. Sometimes, they are in the quarter. Sometimes, they lag the quarter, really just depends upon their willingness to let us promote that.

Operator

You have a follow-up question from Nabil Elsheshai. Please go ahead.

Nabil Elsheshai - Pacific Crest Securities

Just real quick. On the sales of the 2550s, could you comment a little bit about the type of customer in terms of installed base and how that broke down versus new customers and installed base customers?

Mike Koehler

In the first quarter, Nabil, three 2550s went to new customers and nine went into our user base.

Nabil Elsheshai - Pacific Crest Securities

Okay, great. Thank you.

Operator

Our next question comes from Doug Reid from Thomas Weisel Partners. Please go ahead.

Doug Reid - Thomas Weisel Partners

Thanks for taking my question. Congratulations on the strong results. Really question is on the 2550. Hoping to understand how margins on that compare to your other products in your mix and whether or not those margins held constant during the quarter?

Mike Koehler

The margins across the platform family are pretty consistent from high-end to low-end to 1550 to 2550.

Doug Reid - Thomas Weisel Partners

Okay, great. Actually my other question was just answered. Thank you.

Mike Koehler

Okay, thank you. I think that's it. Well, we have time for one more question.

Gregg Swearingen

Operator, any more questions left

Operator

I am showing that we have no further questions.

Mike Koehler

I want to thank everyone for joining us this morning. We are pretty pleased about the first quarter. We are very encouraged. One quarter doesn't necessarily make a year. We have a lot of work to do, but nevertheless we are off to a good start in Q 1, from which to build on for 2009, and more importantly, to also keep investing in our future. So thank you everyone.

Operator

Thank you, ladies and gentlemen. This concludes the Teradata Q1 2009 earnings call. Thank you for participating. You may all disconnect.

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