Teradata Corporation (TDC)

TDC 
$42.63
*  
0.75
1.73%
Get TDC Alerts
*Delayed - data as of Jul. 25, 2014  -  Find a broker to begin trading TDC now
Exchange: NYSE
Industry: Technology
Community Rating:
 
 
Symbol List Views
FlashQuotes InfoQuotes
Stock Details
Summary Quote Real-Time Quote After Hours Quote Pre-market Quote Historical Quote Option Chain
CHARTS
Basic Chart Interactive Chart
COMPANY NEWS
Company Headlines Press Releases Market Stream
STOCK ANALYSIS
Analyst Research Guru Analysis Stock Report Competitors Stock Consultant Stock Comparison
FUNDAMENTALS
Call Transcripts Annual Report Income Statement Revenue/EPS SEC Filings Short Interest Dividend History
HOLDINGS
Ownership Summary Institutional Holdings Insiders
(SEC Form 4)
 Save stocks for next time

Teradata Corporation (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

Presentation

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. 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.

Read the rest of this transcript for free on seekingalpha.com