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Teradata (NYSE:TDC)

Q1 2013 Earnings Call

May 02, 2013 4:30 pm ET

Executives

Gregg Swearingen - Former Vice President of Investor Relations

Michael F. Koehler - Chief Executive Officer, President, Director and Member of Executive Committee

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

Analysts

Wamsi Mohan - BofA Merrill Lynch, Research Division

Kathryn L. Huberty - Morgan Stanley, Research Division

Matt J. Summerville - KeyBanc Capital Markets Inc., Research Division

Jesse Hulsing - Pacific Crest Securities, Inc., Research Division

Philip Winslow - Crédit Suisse AG, Research Division

Brent Thill - UBS Investment Bank, Research Division

Keith F. Bachman - BMO Capital Markets U.S.

Aaron Schwartz - Jefferies & Company, Inc., Research Division

Matthew Hedberg - RBC Capital Markets, LLC, Research Division

Gregory Dunham - Goldman Sachs Group Inc., Research Division

Edward Maguire - Credit Agricole Securities (NYSE:USA) Inc., Research Division

Operator

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

Gregg Swearingen

Good afternoon. Thanks for joining us for our 2013 first quarter earnings call. Mike Koehler, Teradata's CEO, will begin today by summarizing Teradata's first quarter results. Steve Scheppmann, Teradata's CFO, will then provide more details regarding our financial performance, as well as our guidance for 2013.

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

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

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

I'll now turn the call over to Mike.

Michael F. Koehler

Thanks, Greg, and good afternoon, everyone. Teradata got off to a slow start in 2013 as we expected, with Q1 revenue declining 4% versus prior year and 3% in constant currency. Non-GAAP earnings per share of $0.43 was down 28% from prior year due to the lower revenue coupled with our increased investments for growth, which we plan to continue.

The Americas revenue declined 9%, which was a little more than we have anticipated. And international's revenue came in lower as well, primarily due to lumpiness in Japan and the devaluation of the yen. Since the Americas region represents 60% of our revenue and approximately 2/3 of our gross margin dollars, I would like to provide some additional color to better understand Q1, and directionally, where we are headed for the balance of the year.

The challenge in the Americas continues to be the belt-tightening in our customer base, which first surfaced in the third quarter last year. Customers continue to add capacity to their data warehouses in smaller increments or delay purchases. The number and the size of large purchases the past 3 quarters have been well below our historical averages. We closely monitor the data warehouse opportunities that are greater than $5 million because they often require C-level approvals. And in the case of the Americas, these large CapEx transactions account for 1/4 of their total revenue on average.

By contrast, our international region's large CapEx transactions as a percent of their total revenue averaged mid-single digits. This makes the Americas much more sensitive to any belt-tightening by customers on large CapEx spending. The growth rates we saw in the Americas starting in the second half of last year was primarily driven by the decline of large CapEx transactions. And the revenue decline in the first quarter was the result of large CapEx transactions declining by $69 million from Q1 of 2012. While the rest of the business performed fairly well with revenue growth of 12%.

We believe the Americas hit bottom in Q1. Looking forward, the funnel for large CapEx data warehouse opportunities in Q2 has increased sequentially from Q1, while the prior year, large CapEx, data warehouse revenue in Q2 declined sequentially from Q1.

Although the Americas large CapEx revenue will most likely be down in Q2 compared to prior year, it will be down to a much lesser degree than what we experienced in the first quarter. This is a positive trend that we see going beyond Q2 and into Q3. So net-net, the second quarter will be challenging for revenue growth in the Americas, but it should be a good improvement from Q1 in terms of year-over-year quarter comparisons.

With regards to the second half of 2013, we don't know the answer as to what our U.S. large CapEx revenue will be. From discussions with our customers this year, we have found that more than half of them have overall IT budgets that are down this year, which creates some headwinds for us. However, the large CapEx revenue headwinds in the Americas will be less severe in the second half of 2013 than they were in the first half. Large CapEx revenue in the second half of 2012 was less than what it was in the first half of 2012.

In addition, we expect the other parts of our business, which includes Integrated Marketing, Aster, our appliances, maintenance and consulting services to continue to perform well. And also keep in mind, the prior year comparables are more favorable in the second half when the Americas grew 2% in Q3 and 8% in Q4 in 2012 versus the Q1 prior year comparable of 26% revenue growth.

Another positive sign for the Americas during this downturn, which started in Q3 last year is new customer wins. The new customer wins this quarter was the second highest for Q1 since 2001. And in Q3 last year, we also had a near-record quarter for new customer wins. This speaks well for our valued product and future demand for Teradata in the Americas.

New customer wins in the Americas during the first quarter included one of the world's largest agricultural science companies, which is implementing Teradata to help increase crop yields; a Fortune 500 aerospace company, which will use Teradata to integrate data across multiple ERP systems with a multimillion-dollar cost-reduction goal; 2 new Blue Cross and Blue Shield entities are implementing Teradata. One is adding both a data warehouse and an Aster Discovery Platform to perform predictive analytics to reduce member costs and improve fraud detection.

White Beam Health Solutions [ph], a provider of cloud-based analytics, will use Teradata and our healthcare logical data model to allow health care providers to improve the quality of care for patients. And DIRECTV in Argentina will use Teradata for customer segmentation and retention, as well as cross-selling.

Expansions and upgrades in the Americas included the U.S. Navy Cyber Defense Operations Command; Toys "R" Us, which added an Aster appliance to provide analytics on multi-structure data to support BI and supply chain needs; Kohl's; United Rentals; Groupon, which is using our Unified Data Architecture or UDA to enhance its marketing and customer offers, and they're adding a Teradata appliance to analyze web-blog and mobile data from their Hadoop cluster. One of the world's largest e-commerce companies, which is also using our UDA, will be performing customer behavioral analytics on a new multi-petabyte Teradata appliance and enhancing risk analytics to better detect and analyze fraud. A top-5 global communications company has also adopted our UDA to improve its mobile network operations and its customer's experience and is connecting a Hadoop appliance. And a top-5 oil and gas company, which is integrating oil field production data into its EDW to improve yields and take out significant costs.

Turning to our international region, first quarter revenue grew 5% in constant currency and 3% as reported. The EMEA portion of our international region grew revenue 13% in the quarter, while APJ's revenue declined 12% as reported and declined 7% in constant currency. As I mentioned earlier, lumpiness in Japan and the weakening of the yen was a big contributor to the decline. We are expecting better results in Japan in Q2, but the currency headwinds will remain a challenge.

China, once again, had strong revenue growth in Q1 following a strong second half last year. New customer wins for international in Q1 included: China Merchants Bank, a Fortune 500 company; Hado, one of the world's largest multichannel retailers and e-commerce companies, has adopted our UDA, added Aster and upgraded it to EDW.

China Southern Airlines will use Teradata for marketing and revenue analysis; another bank in China, which is implementing a data warehouse to support data governance and Basel II; and Absa, one of South Africa's largest financial services groups.

Customer expansions and upgrades included: Korea Telecom; eircom, the largest telco in Ireland, which will be using Teradata to consolidate fixed line and mobile data environments; BNP Paribas, which is adding their financial group; and Exadata, the second largest telco in Indonesia, has also adopted our UDA, and is adding an Aster Hadoop appliance and expanding their data warehouse.

Overall, the fundamentals of our business remains solid. The number of new customer wins, competitive win rates and overall funnel are consistent with the past 3 years. Teradata's integrated marketing suite is gaining traction as companies look to become data-driven marketing organizations, and need to integrate their current marketing operations, campaigns and digital messaging, along with the new big data channels and analytics.

Our Integrated Marketing Management suite is available on the cloud or on-premise, and is a Software as a Service or a subscription model. This makes it easier for customers to purchase in this environment since it requires smaller amounts of operating expense budget and is often funded by the marketing organization versus the IT organization.

Aster continues to grow very rapidly. We are seeing strong demand for Aster as a discovery platform with its SQL-MapReduce analytics capabilities. We now have more than 70 prepackaged analytic modules. As an example, analytics modules such as mPATH enable companies to follow the path and interactions of customers over time across all channels to get a better understanding of which offers or combination of offers led to a purchase by their customer.

The number of customers using Aster has more than doubled in the past year, including the addition of 10 Fortune 500 companies within the last year. And we expect Aster revenue to nearly triple in 2013.

As with Aster, we are also experiencing strong demand for our Unified Data Architecture and Hadoop-related services. Our Unified Data Architecture is helping customers to expedite, implementing a practical analytics environment to provide analytics for all their data.

Three key components are Hadoop, Aster and Teradata data warehouses, along with our Consulting and support services. We now have 35 customers implementing our Unified Data Architecture. And Hadoop is providing to be an excellent opportunity for Teradata to grow our consulting and support revenues, along with Aster SQL analytics and our Unity data management software layer. Longer term, the volume and variety of new data coming into the Unified Data Architecture will drive more revenue for Teradata's integrated data warehouses and our appliances.

Going forward, we are reducing our non-customer facing and other discretionary spending. But we will continue to increase R&D investments to further extend our leadership positions in data warehousing, big data analytics and integrated marketing.

We will also continue to invest in our growth initiatives to drive double-digit revenue growth. We are on track to add 20 to 30 new territories this year, as well as adding more data warehouse, Aster and integrated marketing demand creation and support resources, as we said on the last call.

We're adding Consulting Services resources in line with demand, and we'll continue to invest in our partnerships.

Turning to guidance. Given our slow start to 2013 and based on what we can see today, we are most likely to finish the year at the lower end of our prior guidance ranges. Our prior full-year guidance ranges were for revenue growth of 6% to 10%, now 5% to 9% as reported due to currency changes, and non-GAAP earnings per share of $3.05 to $3.20. If pent-up demand surfaces in the Americas in the second half, we will have the opportunity to do a lot better.

Consistent with previous years, once we get more visibility into the second half, we will adjust guidance as appropriate. Longer term, Teradata is well positioned to grow revenue double-digits. We have strong intellectual property and leadership positions in 3 large and growing markets: Data warehousing, big data analytics and integrated marketing.

Now, I'd like to turn the call over to Steve for more details on Q1 and our expectations for the remainder of 2013. Steve?

Stephen M. Scheppmann

Thanks, Mike. As we anticipated, we get off to a slow start to the year. And as we suggested, it could be the case on our Q4 earnings call, revenue was down from Q1 2012. First quarter revenue of $587 million was down 4% from the first quarter of 2012 and down 3% in constant currency. But keep in mind, we are comparing against a very strong comparable period in Q1 2012 when revenue grew 21% from Q1 2011.

Economically sensitive market conditions continued to pressure larger transactions, particularly in the United States. In the first quarter of 2013, the Americas revenue declined 9% from a very strong Q1 2012 when our Americas team increased their revenue 26%. And again, that was over a strong Q1 2011 when our Americas team grew revenue 22%. Our international team grew revenue 3% and 5% in constant currency during the quarter.

Product revenue of $249 million declined 19% from the first quarter of 2012, both reported and in constant currency.

Services revenue of $338 million was up 11% from the first quarter of 2012, up 12% and in constant currency.

Within services revenue for the quarter, Consulting Services revenue was $186 million, up 13%, up 14% in constant currency. And maintenance services revenue was $152 million, up 9%, up 10% in constant currency.

During my discussion today, except where otherwise noted, I'll be addressing margins and expenses on a non-GAAP basis, excluding stock-based compensation and other special items. A reconciliation from GAAP to non-GAAP measures identifying these items is available in our earnings release and on our Investor page on our website.

Gross margin of 53.3% in the first quarter of 2013 versus 55.9% in the first quarter of 2012. The decline in gross margin was largely driven by a shift in our product versus services revenue mix, as well as lower product revenue volume and unfavorable product mix.

Product gross margin in the first quarter was 64.3% versus 67.9% in the first quarter of 2012. In addition to lower revenue volume, the margin decline was driven by product mix, more specifically, lower product revenue from our 6000 Series EDWs. As we previously discussed, the 6000 Series has a higher gross margin profile than our 1000 and 2000 Series. The larger CapEx deals that Mike mentioned earlier are usually, but not always, related to our 6000 EDWs. So when we see fewer large deals, that can also impact our product gross margin rate as well.

As a percentage of total product revenue, our 2000 Series appliance revenue in Q1 2013 was about 18% versus approximately 9% of total product revenue in Q1 2012. Due to the lack of larger transactions in Q1, which are predominantly the 6000 Series, the percent of revenue from our 2000 Series appliance was higher than the normal 10% to 15% we expect. For the full year, we expect the mix to be at the higher end of the 10% to 15% range of total product revenue.

Services gross margin in the quarter was 45.3%, up from the 44% in Q1 2012, primarily due to higher consulting margins.

Turning to our operating expense profile. SG&A expense of $164 million increased $10 million or 6% from Q1 2012. SG&A increased primarily due to the addition of sales territories since the first quarter of last year.

Research and development in the quarter was $45 million versus $43 million in the first quarter of 2012. As we've mentioned before, we invest more in our R&D activity than what is reported on our R&D operating expense line item on our income statement. Total R&D spend for the first quarter, which includes R&D expense plus the additions to capitalized software development cost from the cash flow statement, less the capitalization of internally developed software, was approximately $61 million or approximately 25% of our product revenue. This compared to approximately $59 million in Q1 2012.

As a reminder, these capitalized costs when amortized are then added back to the income statement as product cost of revenue, which reduces product gross margin.

As a result of these items, operating margin for the quarter was 17.7% versus 23.9% yield in Q1 2012. On a GAAP basis, our effective tax rate in Q1 2013 was 21.3% versus 27.8% in Q1 2012. Our non-GAAP effective tax rate for the first quarter was 29.1% compared to 29.5% for the same period in 2012.

Teradata's first quarter 2013 GAAP effective tax rate includes both the marginal rate benefit of the 2013 U.S. R&D tax credit, as well as a onetime discrete income tax benefit of approximately $4 million for the 2012 R&D tax credit.

For GAAP process, the 2012 credit was reflected in the first quarter of 2013 based on the January 2013 enactment date of the American Tax Payer Relief Act of 2012. However, for non-GAAP purposes, the $4 million discrete tax benefit was included in our net income results for the fourth quarter of 2012 since the tax benefit relates to the 2012 tax year. Accordingly, the $4 million discrete benefit is not reflected in the first quarter 2013 non-GAAP effective tax rate, which causes a larger than normal differential in our GAAP versus non-GAAP effective tax rate for the first quarter of 2013.

We expect our 2013 effective tax rates to approximate 25% for GAAP and 27% for non-GAAP. In terms of earnings per share, our Q1 GAAP EPS was $0.35 versus $0.53 in Q1 2012. Noncash stock-based compensation expense, which is included in our GAAP EPS, was during the quarter, approximately $13 million or approximately $0.05 per share.

Adjusting for stock-based compensation, the R&D tax credit and other special items, which equated to approximately $0.08 in Q1, our non-GAAP EPS was $0.43 in Q1 2013 compared to $0.60 in Q1 2012.

Turning to cash flow. Net cash provided by operating activities was $243 million in Q1 2013 versus $192 million in the first quarter of 2012. After $27 million of capital expenditures, which include additions to capitalized software development costs and expenditures for property and equipment versus $30 million in the first quarter of 2012, we generated $216 million of free cash flow versus the $162 million free cash flow generated in Q1 of 2012. The increase in free cash flow for the quarter was driven by the collection of seasonally high December 31, 2012, accounts receivable.

Turning to the balance sheet. We have $853 million of cash as of March 31, 2013, up $124 million from the $729 million at the end of December 2012. During the quarter, we invested approximately $94 million to repurchase 1.6 million shares. We continued our share repurchases during our blackout period under a predefined plan. And as a result, through the end of April, we have repurchased approximately 2.7 million shares for approximately $155 million. We currently have approximately $230 million of share repurchase authorization remaining.

With respect to accounts receivable. Accounts receivable increased $11 million, even though our revenues were lower in Q1 2013 versus Q1 2012. The primary driver of the increase in accounts receivable was the timing of the product revenue transactions during the comparable quarters.

Day sales outstanding was 71 days as of March 31, 2013, compared to 91 days as of December 31, 2012, and 74 days as of March 31, 2012.

With respect to deferred revenue. Total deferred revenue was $489 million as of March 31, 2013, which was up $84 million from December 31, 2012, and up $9 million from March 31, 2012, despite lower revenue volume in Q1 2013.

With respect to currency movement. Assuming the currency exchange rates at the end of April, we now expect a 1-point headwind from currency for the full year, and no currency impact in Q2 2013. As a reminder, we provide a schedule on our website detailing how currencies impacted the first quarter of 2013 and how this movement is expected to impact our year-over-year revenue comparisons for the remainder of 2013.

Turning to our guidance. As it relates to revenue, due to the conditions we've described, there's a higher probability that the revenue growth for 2013 may be at the lower end of our previous guidance range of 6% to 10% when measured on a constant currency basis. As we suggested during our Q4 earnings call and demonstrated in Q1, we continue to expect the challenging first half of the year, not only due to the hesitancy of companies to commit to large CapEx items, but also because we have a difficult prior-year comparison in the first half. However, we still see the opportunity for better growth in the second half of the year as more customers are anticipating expansions to their data warehouse environments and the prior year comparisons become less difficult. We expect our revenue for the first half of the year to be roughly flat to slightly down from the first half of 2012.

Correspondingly, in terms of EPS, there is also a higher probability that our EPS may be at the lower end of our prior guidance ranges of $2.64 to $2.79 on a GAAP basis, and $3.05 to $3.20 on a non-GAAP basis.

In closing, despite the short-term pause due to the sensitive economic environment and the resulting effect on large CapEx items, particularly in the U.S., customers continue to have a strategic focus and need for responsive business intelligence. However, in the near term, specifically in the first half of 2013, the market uncertainties have made it more difficult for large IT CapEx investments to be approved. And now, we have reflected that even more so in our guidance for the full year of 2013.

That said, we have never felt better about our technology leadership position, our product and services differentiation, the continued demand for analytics and the growing activity for big data analytics.

Longer term, we remain confident in our ability to leverage our business model and the big analytical opportunities that lay ahead of us. And as a result, we believe that we're well-positioned for these opportunities. And with that, operator, we're ready to take questions.

Question-and-Answer Session

Operator

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

Wamsi Mohan - BofA Merrill Lynch, Research Division

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

Michael F. Koehler

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

Wamsi Mohan - BofA Merrill Lynch, Research Division

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

Michael F. Koehler

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

Wamsi Mohan - BofA Merrill Lynch, Research Division

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

Michael F. Koehler

We're seeing it to a degree, yes.

Operator

Our next question comes from Katy Huberty from Morgan Stanley.

Kathryn L. Huberty - Morgan Stanley, Research Division

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

Stephen M. Scheppmann

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

Michael F. Koehler

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

Kathryn L. Huberty - Morgan Stanley, Research Division

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

Michael F. Koehler

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

Operator

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

Matt J. Summerville - KeyBanc Capital Markets Inc., Research Division

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

Michael F. Koehler

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

Operator

Our next question comes from Jesse Hulsing from Pacific Crest.

Jesse Hulsing - Pacific Crest Securities, Inc., Research Division

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

Michael F. Koehler

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

Operator

Our next question comes from Phil Winslow from Credit Suisse.

Philip Winslow - Crédit Suisse AG, Research Division

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

Michael F. Koehler

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

I do want to add, I'm pretty sure we hit bottom in Q1 in the Americas. That, I'm pretty sure of.

Operator

Our next question comes from Brent Thill from UBS.

Brent Thill - UBS Investment Bank, Research Division

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

Michael F. Koehler

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

Brent Thill - UBS Investment Bank, Research Division

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

Stephen M. Scheppmann

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

Operator

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

Keith F. Bachman - BMO Capital Markets U.S.

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

Stephen M. Scheppmann

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

Michael F. Koehler

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

Keith F. Bachman - BMO Capital Markets U.S.

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

Michael F. Koehler

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

Operator

Our next question comes from Aaron Schwartz from Jefferies.

Aaron Schwartz - Jefferies & Company, Inc., Research Division

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

Michael F. Koehler

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

Operator

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

Matthew Hedberg - RBC Capital Markets, LLC, Research Division

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

Stephen M. Scheppmann

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

Michael F. Koehler

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

Operator

Our next question comes from Greg Dunham from Goldman Sachs.

Gregory Dunham - Goldman Sachs Group Inc., Research Division

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

Michael F. Koehler

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

Gregory Dunham - Goldman Sachs Group Inc., Research Division

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

Michael F. Koehler

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

Operator

Our next question comes from Ed Maguire from CLSA.

Edward Maguire - Credit Agricole Securities (USA) Inc., Research Division

Could you comment on the mix of the products and services that you see coming in deals, whether that's changing? And I'm what thinking of is just to understand how your customers are looking at the Aster, the Aprimo and really, the use cases of the technology, whether they're -- whether you're seeing any mix shift there looking forward?

Michael F. Koehler

In this environment, Ed, since Aster and our integrated marketing solutions and those related services that are coming with them, they are smaller dollar amounts in terms of our opportunities. So that is why -- we think that's a big factor in why that part of our business continues to perform well. I don't know if that answered the question.

Edward Maguire - Credit Agricole Securities (USA) Inc., Research Division

Sure. Yes, and just thinking about the mix of, as you see opportunities, whether you've -- certainly, there's a trajectory of faster growth for those, but whether customers are looking at a -- whether there are considerations have changed in any fashion looking forward?

Michael F. Koehler

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

Operator

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

Michael F. Koehler

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

Operator

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

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