Teradata Corporation
Q2 2009 Earnings Call Transcript

Published: 6 Aug 2009

[Operator:]

Welcome to the Teradata second quarter 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 Gregg Swearingen.

[Gregg Swearingen:]

Thanks for joining us for our 2009 second quarter conference call. Mike Koehler, Teradata’s CEO will lead our discussion highlighting Teradata’s second quarter results. After Mike’s remarks Steve Scheppmann Teradata’s Chief Financial Officer will provide more details relating to our Q2 performance as well as our full year guidance. Darryl McDonald Teradata’s Chief Marketing Officer who is responsible for strategy and business development is also in the room to answer questions. Our discussion today includes forecast 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 10K 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 and 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 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 call whether as a result of new information or future results. I’ll now turn the call over to Mike.

[Michael Koehler:]

Teradata finished the second quarter with $421 million in revenue down 2% in constant currency from Q2 of 2008 and earnings per share of $0.36 versus $0.38 prior year. Gross margins improved 60 basis points driven by a strong professional services performance in the quarter. Expenses were down $8 million while absorbing increased investments in R&D, market coverage and partnerships. Given the economic environment we are operating in, overall I was pleased with our performance of the team for the quarter and for the first half of 2009. On a region basis, the America’s revenue was down 1% in constant currency in the quarter. We had some very significant new customer wins including

[Stephen M. Scheppmann:]

Teradata’s business model focused on driving the strategic value of analytics throughout the enterprise, continued to deliver very efficient margin returns and free cash flow in a continuing challenging economic environment. Teradata’s Q2 2009 revenue of $421 million was down 2% in constant currency from the second quarter of 2008, down 7% as shown in US dollars. Mike walked us through the revenue performance in US dollars and in constant currency. I’ll move directly in to our revenue from a product segmentation perspective. Product revenue of $185 was down 16% from the second quarter of 2008. In constant currency product revenue was down 12%. As we’ve seen from other IT companies, product revenues is generally where the blunt of the cap ex headwind is felt. But, services continued to be more resilient. Services revenue in the quarter was up 1% to $236 million from last year’s second quarter. In constant currency services revenue increased 6% from the second quarter of 2008. Maintenance revenue which includes maintenance of our software and hardware solutions was $109 million or up 1% from the second quarter of 2008. Currency headwind had negative impact on our year-over-year maintenance revenue comparison. On a constant currency basis maintenance revenue increased 6%. Professional and installation related services which is the other component of our services business was up 1% in US dollar and increased 7% in constant currency. Once again, we drove gross margin improvement despite the challenging business environment and the negative impact of currency headwind. Gross margin in the second quarter of 2009 was 55.3% compared to 54.7% in the second quarter of 2008. This was due in large part to the strong performance in our professional services business which more than offset the negative impact from currency translation. Product gross margin of 64.3% although down from the 66.1% in Q2 was still solid. For the six months ended June 30, 2009 product gross margin was 64.9% versus 65% last year so basically flat year-over-year where 2008 included one of our highest quarter’s product gross margin performance. The drivers for the year-over-year change is primarily due to volume and currency. Services gross margin improved 430 basis points to a record 48.3% and a record dollars of services gross profit margin generated. As was the case in Q1 we drove meaningful improvement in the services margin in Q2 as we gained better utilization of our internal professional services resources, lowered our third party service costs, lowered our travel and continued leveraging our offshore capabilities. Behind the total services gross margin we generated a margin improvement in both maintenance and professional services. Moving to a geographical view of gross margins, in the America’s region gross margin improved to 58.1% for the quarter due in large part to improved professional services margin. Gross margin in the EMEA region improved 110 basis points to 54.2% from 53.1% in the second quarter of 2008 driven primarily by significant improvement in professional services margins. Gross margin in APJ was 48.6% a 90 basis point decline from 49.5% in Q2 2008 as higher professional services margin were offset by lower product revenue volume compared to the strong Q2 revenue performance in 2008. Turning to our expense structure, we lowered our SG&A expense in Q2 2009 by $10 million to $122 million. Beyond the currency benefit on SG&A lower G&A expense more than offset the incremental investment in sales territories. As we see sales territory expense increase the further we move in to 2009 we continue to expect our ability to report meaningful reductions in the year-over-year SG&A to be more challenging but we are still firmly on the path to report SG&A at or below our 2008 levels while absorbing the expense of our strategic initiatives including sales territory expansion and investment in our partnerships. As we discussed during our last quarterly conference call, we expect R&D expenses to increase in 2009. In Q2 2009 R&D was $27 million versus $25 million in Q2 2008. For the full year, we still expect R&D expenses to be closer to the 2007 R&D levels than the 2008 levels which means R&D may be running at approximately $10 million higher in the second half of the year than it did in the first half. As we have previously communicated, the timing of this R&D expense is related to the requirements capitalizing certain software development expenses under FAS 86. In addition, when we amortize previously capitalized software development costs, the amortization is recorded in cost of product on the income statement and as a result approximately $10 million more of amortization will be recorded in the second half of 2009 and will have the effect of reducing our product gross margins versus the first half due to [GCAing] of Teradata 13. So, to summarize, we will have approximately $10 million more in R&D expense and we’ll have about $10 million more cost via amortization hitting the product gross margin in the second half of 2009. Even though this will hit our operating margin a bit in the second half of the year and in 2010, we have anticipated this in our prior earnings comments for 2009. As a result of all these items just discussed, Teradata’s operating margin in the second quarter was 20%, about the same as the 20.2% reported in Q2 2008. Below the operating income line, other income declined $2 million from the second quarter of 2008 as interest income was not sufficient to offset fees associated with the company’s operational financing type activities. The lower interest rate environment negatively impacted interest income despite Teradata having $271 million more in cash and short term investments than it had at the end of the second quarter of 2008. For Q2 2009 our effective tax rate was approximately 26.2% roughly the same as the 26.6% used in the second quarter of 2008. For the full year, we continue to expect our annual effective tax rate for 2009 to approximately 26% to 27%. Our tax rate continues to reflect our intention to permanently reinvest foreign earnings outside the United States, however we can repatriate this cash if needed but that would generate additional income tax expense and corresponding payable. During the second quarter we repurchased 1.4 million shares of stock for approximately $30 million. Year-to-date we have used approximately $50 million to repurchase 2.7 million shares. Since the initial share repurchase authorizations were approved at the beginning of 2008 we have repurchased 11.2 million shares of stock or approximately 6% of our weighted average shares outstanding for approximately $226 million. Including the additional $300 million share repurchase authorization from our board last quarter we have approximately $340 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 the economic and market conditions. Turning to cash flow generations, one of the strengths of our business model, we generated cash from operating activities of $103 million in Q2 2009, up 21% from $85 million the second quarter of 2008. After using $20 million for capital expenditures versus $23 million in the second quarter of 2008, we generated $83 million of free cash flow, an increase of 34% from the $62 million of free cash flow in Q2 2008. During the first six months of 2009 Teradata generated $286 million of cash from operating activities compared to $228 million in the prior year comparable period. Capital expenditures in the first half of 2009 were $40 million compared to $43 million in the same period of 2008. Year-to-date 2009, Teradata generated $228 million of free cash flow versus $185 million the same period in 2008. Teradata defines free cash flow as cash flow from operating activities less capital expenditures for property and equipment and additions to capitalized software. Turning to the balance sheet, as of June 30, 2009 we had $638 million of cash a $67 million increase from the end of the first quarter and a $271 million increase from the end of Q2 2008. Approximately 50% of this cash is available in the US. With respect to our accounts receivable, DSO was 73 days as of June 30, 2009 compared to 93 days as of December 31, 2008 and compared to 94 days as of June 30, 2008. Deferred revenue at the end of the quarter was $302 million compared to $283 million at the end of Q2 2008, an increase of 7%. As we did last quarter, in an effort to provide further transparency around currency movement and the potential impact on our revenue, we’ve provided additional detail on our website regarding how currencies move in 2008 and how this movement is expected to impact our year-over-year revenues in 2009. Assuming the spot rates at the end of July, we expect currency to create a two point headwind in Q3 and a tailwind in Q4 resulting in what is expected to be a three point headwind for us in 2009. Mike provided some revenue and EPS guidance earlier in the call but I wanted to give a little more color on some of the specific items and the [inaudible] between the first half results and what we expect in the second half. Although we had good results in Q2, predictability continues to be a challenge not only for the full year but also for the third quarter. I’ll reiterate currency based on the current spot rates is expected to continue to create a headwind for us in Q3 on both the top line and on margins discussed earlier while creating a lesser positive impact on operating expenses. R&D expense hitting the P&L is expected to be higher in 2008 as we continued to invest in our core R&D. In 2009 R&D expenses is expected to revert back to a normalized level more comparative to the 2007 level of $126 million. Expense management as well as some help from currency successfully offset the incremental selling expense related to the strategic decision we have made to increase the investment in our sales territories. With our performance in first half of 2009, we are on track for our objective of SG&A to be flat or down from 2008 even after absorbing approximately $17 million of incremental sales territory costs. Beyond the normal increase and expense that we see in the typical year second half versus first half, we will also see approximately $10 million of incremental R&D expense in the second half 2009 and approximately $10 million of higher amortization of capitalized software development costs in the second half. Furthermore, we expect sales territory expense to increase in the second half versus the first half of 2009. As a result of the higher R&D and sales territory expenses in the second half along with the additional software amortization hitting gross margin, it is likely that our EPS in the second half of the year will be similar to up to our EPS we reported in the first half of the year assuming a revenue performance of -1% to -3% in constant currency for the year. In closing, Teradata continues to be well positioned in this market driven by its technology leadership position, it’s strong customer base and relationship, the global 3000, strong recurring revenue model from our existing customer base and our annuity business, our strong capital position $638 million in cash no debt and strong free cash flow model, our new expanded product family and our geographical diverse business model. Teradata continues to be a good cash flow model, since June 30, 2008 cash increased $271 million despite using $154 million for share repurchases during the last 12 months. Again, thank you for joining us this morning and we look forward to seeing many of you over the next coming weeks. With that operator, we’re ready to take questions.

[Operator:]

(Operator Instructions) Your first question comes from Kathryn Hubert – Morgan Stanley.

[Kathryn Hubert:]

To get to the midpoint of your EPS guidance for the year we need to assume that gross margins come down from the levels in June. Are there any other headwinds other than the amortization of the Teradata 13 R&D expense that you talked about that hits the COGS in the second half of the year?

[Stephen M. Scheppmann:]

No, the primary headwind is that capitalized R&D that we’re going to start amortizing in the second half and that will be kind of adversely impacting our product gross margin in the second half. We had strong yields on the professional services side with the leveraging that Mike spoke to of all those components. We’ll continue to work with that leverage but again it was a record services margin quarter so we’ve got to continue our focus on generating that margin in the services sector because we did have a record second quarter in that area. Those will be the two things that I would point out.

[Kathryn Hubert:]

As it relates to the higher professional services revenue this quarter, does that indicate anything about early stage new customer projects or is that just a matter of the team doing a better job of selling consulting services.

[Michael Koehler:]

The majority of the revenues related to billable activities in and around the user base I wouldn’t say it’s a huge positive but it is somewhat positive as it relates to the opportunities going forward. Any time you’re generating more consulting activity in and around your customer base and then with new prospective customers it’s more beneficial or more positive than anything else.

[Kathryn Hubert:]

Then just lastly, do you know how many deals you did with SAP in the quarter and how that compared to a year ago?

[Darryl McDonald:]

On the SAP front we’re continuing to partner with SAP today, prior to the release of the ported solution so we’ve got activity with SAP that we’re actually driving integration through partnerships and deals so we’re not tracking the specific deals and reporting them until we get the full port. But, we are having good traction, we’ve had a lot of uptick in interest from the current SAP customers that are looking to either consolidate or roll out new versions of SAP and are now looking at Teradata as a platform as part of that architecture. Things are going well with the partnership but we’re really waiting for the port to be completed to see an uptick in the business opportunity in the first half of next year.

[Operator:]

Your next question comes from [Anthony Kerr] – Keybanc Capital Markets.

[[Anthony Kerr]:]

A couple of quick questions, can you just comment on the strong service gross margins as it pertains to Europe? I think the comment was they were substantially up there and how that factors in to your full year guidance and expectations for the second half of the year?

[Michael Koehler:]

A lot of the EMEA business margins was driven by deal mix as well as our yield on the product margins so the services business though was up substantially with the margins. When you get in to things like resource utilization, optimization of resources, leveraging the offshore resources, [inaudible] professional services business as well as just pure execution in EMEA. The other piece in EMEA that’s been growing is managed services and they’ve done well with that and that’s also added to the margin rates. Looking forward at this, you asked about the second half and the EMEA margins, we would expect similar margins except for the piece that’s professional services. The professional services is a little less predictable and it would remain a little bit more of a question as we look out at the second half of the year. Nothing negative but it is a little bit less predictable but generally speaking, we feel pretty good about the margins there in the second half.

[Stephen M. Scheppmann:]

We’ve had professional services improvement in all three regions in Q2 so it was strong across all three regions including EMEA.

[[Anthony Kerr]:]

The next question is just around the software capitalization amortization expense obviously hitting you in the second half of the year, can you provide any color on sort of timing moving to 2010, I know these things are kind of cyclical right when you come out with new databases but how does that roll off or is there any sort of logic to look for in 2010 on how that might impact the year next year?

[Darryl McDonald:]

Anthony our historical practice on amortization, under FAS 86 the criteria tells you that you have to track the revenue from these releases. We typically have a major release call it every 18 months for this conversation. Historically, to track that we’ve generally amortized, we’re on an accelerated method which would equate to amortizing more of that in the front half and typically we amortize it over a three year period. More of that would be amortized in the front half in theory to match the revenue generated from it so you would expect to see it up in the second half, you would expect to see it up in 2010 if you use a three year basis that would be the half way mark through 2010. So, there would be more amortization coming through in that first half on our traditional historical model on an accelerated method. That’s why we referred to in 2009 and in to 2010 that amortization would be up. If you look at our 10K schedules where we track capitalized software you will see the additions going through it on a quarterly basis on the cash flow and you can build that and then that period basically has to amortize off through a reduction of our product gross margin or an increase in our product costs.

[[Anthony Kerr]:]

Then just last question, if you might be able to comment on any changes positive or negative on the competitive landscape in respect to I know Netezza just came out with its new product but what your customers are saying about that and maybe the EXIData and competitors and now that ORACLE has been talking a little bit more aggressively about that.

[Darryl McDonald:]

Let me make a couple of comments, I can imagine it must be confusing to yourself and a lot of people around all of the hype that’s in the market place around 10 times faster, 100 times faster, 50% cheaper. I like the ones that are actually 50% cheaper than themselves, that’s pretty funny. But, from a Teradata perspective, we’re very confident in our technology. If you look at what we’ve done over the last couple of years we’ve improved that technology leadership with the announcement of the platform family, more importantly with the new generation of Teradata 13 and the capabilities you heard Mike talk about. We’re really focused on handling the enterprise data warehouse and the active enterprise intelligence space from a Teradata perspective and we’re still the leader in being able to handle complex queries, currency with lots of users, work load management which is critical in that environment, act developments customers need real time loading and real time access in this competitive environment today. All of these things along with systems management capabilities are things that we’re the best at, we’re investing in and we’re still the market leader in. All of the new announcements are really not attacking or going after our leadership position in that area. They’re really going after the data marts and coming up with cheaper, faster solutions in that area. Our platform family allows us to compete in that area so we are getting a chance to do that. I would say we’re seeing similar traction with ORACLE EXIData across the board that we saw since they announced the product, we’re primarily seeing it in their user base as you can imagine talking to their users about upgrading ORACLE platforms to the new ORACLE EXIData. When we get a chance to compete we have a very high win rate. Our opportunity is to get out there and make sure that we’re getting in front of those and getting Teradata on the table instead of just assuming upgrading to EXIData is the right path so we’re confident in being able to compete there. On the Netezza front we’re continuing to compete with Netezza at the data mart and appliance level. We think our platform family can handle that. We still think the ability to upgrade to the EDW is our value proposition so we’re very confident in our ability to win and compete there too so we’ll keep evaluating the competition and the claims out there but we’re very comfortable that we’re in the leadership position and our new platform and products are strong and we’re also very confident in some of the new things we’re doing around the 1550 and the new data spaces and the new extreme data applications that people are looking to do around compliance, around near lying storage capabilities or on call detail records. Those things we think are innovative that we’re going to continue to lead on there as well. We’ll continue to track the competition, we respect them all but currently we don’t see anything that’s announced that we think is a threat to our overall strategy of being the leader in the enterprise data warehousing.

[Operator:]

Your next question comes from Brian Denyeau – Oppenheimer & Co.

[Brian Denyeau:]

Just a quick question on the sales force build out, I believe you said in your prepared remarks you expect $17 million of incremental expense this year. If I go back last quarter I believe you had said it’s $13, does that imply that you guys are hiring ahead of schedule in terms of hiring reps this year?

[Stephen M. Scheppmann:]

No Brian, we’re still on target. We had committed to 60 territories by the end of 2009. As you know we added the 40 in 2008 and we’re still on target and the hiring is still as we expected in 2009 and the incremental costs of $17 million for 2009 is on top of the costs we had in 2008 of $10 million. Everything is as what we had expected.

[Brian Denyeau:]

Then on the professional services side not to beat a dead horse here, last quarter you said one quarter didn’t a trend make in terms of higher utilization and resource rationalization, now that you’ve got two quarters and you think you’ve reached a level where assuming you continue to block and tackle like you have that you can keep that type of professional services margin?

[Michael Koehler:]

First of all, the question is are our PS margins are they sustainable at the current levels and I would say clearly the trend and what we’re executing to is at a level that will be better than the PS margins we saw in 2008 as we go forward. The one variable is this year we aren’t hiring, we’re not really growing much and when looking forward, when we are hiring and we are growing which is what we want to do that has a drain on utilization, training, ramping and things like that and that’s the one negative headwind I see which is actually a good thing. Back when we were growing our PS business and our overall revenues and hiring and staffing that there will be an impact on utilization, that will be a drag on the margins. The blocking, tackling and the efficient utilization of resources, that should stay with us. I can argue we have opportunity to improve the margins with further offshore utilization and with our managed services business. But, the only headwind I see going forward will be when we’re growing again.

[Brian Denyeau:]

Lastly, just on the resale business domestically we finally got some nice wins this quarter, how is that trending and how are you feeling about that in the second half of the year?

[Michael Koehler:]

The retail business and in particular in the US it was actually up for the first half of the year and we’re feeling pretty good about the retail segment, the retail industry for Teradata overall and primarily driven in the US. We got hit pretty hard last year in retail industry in the US. It looks like as we stand now it’s bottomed out and things are stabilized from here and hopefully we have an opportunity to continue to grow the retail business here as we get in to the second half.

[Operator:]

Your next question comes from Nabil Elsheshai – Pacific Crest Securities.

[Nabil Elsheshai:]

Could you give me the guidance on revenue again? I missed that and I just want to make sure I get it right.

[Stephen M. Scheppmann:]

Guidance on revenue Nabil is -1% to -3% in constant currency. That assumes a 3% currency headwind for the year and we expect a 2% headwind in Q3 and a 2% tailwind in Q4 to basically relatively flat in the second half in constant currency. Those are the assumptions that we’ve made.

[Nabil Elsheshai:]

Any color you can give me on what the product assumptions are as part of that? Are you expecting growth in the second half, any color there?

[Michael Koehler:]

We expect product revenue to grow sequentially from the first half to the second half if that’s your question.

[Nabil Elsheshai:]

Whatever is built in to the revenue guidance I just wanted to get some color on that? On the other verticals, any color you can provide on telecom and financial services and how they performed in the quarter?

[Michael Koehler:]

Well we typically like to go over these results Nabil on a year basis, they can be a little bit lumpy on a quarterly basis and even on a six month basis. But, you asked the question and I’ll answer it but I just want to give you the caveat that I wouldn’t jump to any conclusions. Financial services is actually down in the first half, com is down in the first half, retail globally overall for the first half is really kind of flattish, it’s up in the US and manufacturing was significantly down, the manufacturing industry in the first half. Some of the smaller segments where we’re getting a lot of traction were up significantly in the first half. Once again I wouldn’t call it a trend but it’s a good result. Our healthcare industry was up a ton for the first six months of the year, small numbers but up a ton. You heard in my prepared remarks a number of these wins were masked but big wins particularly in the US in the healthcare segment and our government business was up quite a bit in the first half. That can kind of give you a feel and kind of a picture to where we sit on the first six months.

[Stephen M. Scheppmann:]

Coming back to your question on product revenue in the second half first half again, Mike indicated sequentially up. We have a tough Q4 comp coming from last year on top of the [inaudible] on the product revenue side so I would say based on our performance through the first six months product revenue down 11% it should be down from second half ’08 to second half ’09 also.

[Nabil Elsheshai:]

Then what was the portion, I think you guys usually give this, the portion of revenue from installed base?

[Stephen M. Scheppmann:]

It still remains, still running, there’s been no significant change in that, about 90% range of revenue coming from that existing customer base.

[Nabil Elsheshai:]

Then just a follow up on the competitive question, specifically on ORACLE, when you guys do compete with them what have you seen them doing on the pricing front and how aggressive have they been there?

[Michael Koehler:]

We’ve seen some very bipolar sort of reactions on the pricing side with them. Interesting enough, when we do get involved we have seen some instances where it seems like they’re trying to buy the account or buy a reference especially as we compete with them so we’ve seen some pretty drastic reductions in their price to try and get I think footprints and a reference list. That will level out hopefully from a customer perspective but again, kind of crazy pricing is probably the biggest thing we’ve seen. Again, I think our opportunity is making sure we can get the market aware that if they consider EXIData that Teradata really is an alternative to that solution and growth. If they have aspirations to try to not only improve performance but look at how they can improve data integration and business value then Teradata is definitely an alternative that will be equal in price but better in performance.

[Nabil Elsheshai:]

Just kind of compared to say 12 months ago, do you compete more or less or the same with IBM?

[Michael Koehler:]

I would say it’s about the same.

[Nabil Elsheshai:]

Last question, I probably should have started with this one but just from a macro perspective, if I missed this I apologize, have you seen close rates improve or any source of sign that things are loosening up for the second half?

[Michael Koehler:]

You’re asking did we see any signs of close rates improving?

[Nabil Elsheshai:]

I was just trying to get a sense from a macro and spending perspective have you seen close rates improve maybe near the end of the quarter or signs that maybe spending is loosening up for the second half?

[Michael Koehler:]

The sales cycles, the close rates and everything else I would characterize it we’ve been in some parts of the world like the US, we’ve been in this delay long sales cycle now for well over a year and a half. More recently in APJ it seems to be hitting us a little bit later than when it hit us in the US a year and a half ago. By in large, I characterize it as the sales cycle are longer, the close rates are the same but in a way, it’s stable. I wouldn’t call it good but it’s stable.

[Operator:]

Your next question comes from Alex Kurtz – Merriman Curhan Ford & Co.

[Alex Kurtz:]

Can you give us a little more color on what the linearity was in Q2, just sort of how deals paced out during the quarter?

[Stephen M. Scheppmann:]

As Mike said we’ve been in this cycle now for 18 plus months and what I would call this now is we are probably in the new normal at least for this economic environment. So, we really didn’t see anything unusual in the second quarter. It played out very consistent with the prior quarters, items in the pipeline came through, some deferred, some got picked up from the prior quarter so there wasn’t really anything unusual or new with respect to the process in Q2 compared to the prior quarters.

[Alex Kurtz:]

Just a little bit more color on the last question about customer budgets going in to the back half of the year, no commentary back from your install base saying budgets are starting to get loosened up and they feel they can get a little more aggressive with projects heading in to 2010? It seems like from your last comment that things seem pretty much stable with what you saw last quarter. Just a little bit more color there.

[Michael Koehler:]

As far as the actual customer budgets go I really can’t speak to that or comment on that. The thing I would say is it’s encouraging projects that involve Teradata seem to get a little bit of a higher priority than the other things the IT organizations are looking at. I can’t give you a forward looking view on whether we anticipate it or if we’re seeing it pick up or decline. Going in to the second half here it’s pretty static.

[Alex Kurtz:]

Just a couple of more questions here and then I’ll pass it, the ORACLE EXIData solution, can you just give us a sense of what kind of environment that you’re engaging EXIData and sort of what they’re sales strategy has been engaging you guys?

[Darryl McDonald:]

I would say their strategy is not to engage us. ORACLE has a large install base so they have a lot of market share that they can go and try to upgrade and I think that’s where they’ve targeted. I would say that’s where they primarily focused on where they have customers that are pushing the limits. As you can imagine, a lot of the upgrading and migrations of data marts that we do are migrating ORACLE data marts in to an enterprise data warehouse and we continue to do that with a lot of our users. As you think about our install base growth, we’re constantly moving applications and existing ORACLE marts in to the enterprise data warehousing given them an integrated view of the data as well as a lower cost of ownership. I would say on the whole I think they’re primarily targeting where they have performance issues with their current platform and then they’re offering does all for performance of ORACLE in that area. But, I think when customers get a chance to evaluate the cost to do that and look at Teradata, it’s becoming a nice alternative for them to consider. Again, there hasn’t been a lot of head to heads or engagements still with ORACLE. I would say it’s been constant since they announced but it hasn’t picked up tremendously so far from an enterprise data warehouse standpoint.

[Alex Kurtz:]

It sounds like they’re not necessarily going after your install base at this point, they’re just sort of upgrading their existing solutions so you’re not really running in to them too much. Are you running in to them at new opportunities at this point for new customers out in the market?

[Darryl McDonald:]

In some of those yes, in some of the new ones they are considering it given all the marketing that ORACLE has been doing around it but I would say on the whole –

[Michael Koehler:]

If I can add, our user base does look at it and we have engaged with them with some of our customers but by in large and overall we’ve done very well.

[Alex Kurtz:]

Just two quick questions, just a follow up here, the 2550 you mentioned the number of systems sold last quarter, did you provide that again this quarter? And also, the last question would be just sort of looking in to your pipeline for your support and services organization heading in to Q3, how does that pipeline look right now? Do you see a lot of upside potential there?

[Michael Koehler:]

We’re not going to get in to disclosing details and numbers and everything else on units sold across the product platform family each quarter. The comment I’ll make is our activity is up and we’re pleased with the results. However, one thing I want to point out, when you look at Teradata overall and how significant and large our enterprise data warehouse solution data architecture is the appliances by in large the average selling price is a third of what we get when we’re in an enterprise data warehouse environment. So, overall we’re fine and seeing sales and activity on the rise. The second question was?

[Alex Kurtz:]

The pipeline for the support organization, you have a lot of big opportunities in the current quarter, so what’s your view of it right now?

[Michael Koehler:]

Pipeline on services, I assume we’re talking specifically on our consulting services because the maintenance is an annuity and everything else. The pipeline is solid. As we enter the second half of the year it’s solid. Quite frankly, in this environment as we entered the year and everything else I’m pleasantly surprised not just in the margin rate improvement but our ability to grow the professional services business in this environment and entering the second half of the year the pipeline is good.

[Operator:]

Your next question comes from Douglas Reid – Thomas Weisel Partners.

[Douglas Reid:]

I wanted to just quickly circle back to this growth opportunity in the appliance and data mart opportunity. You’re not providing the numbers for the 2550 or the 1550 any longer but I’m just wondering if it’s far to assume that because of the crazy pricing that you cited from ORACLE that you’re stepping away from a greater number of opportunities that you might have anticipated a few months ago? Would that be fair?

[Darryl McDonald:]

The answer is no, I would say that if anything with our platform family and I think to clarify what Mike was saying is we wanted to give you an update last quarter on the platform family announcement so what we’ll do is periodically give you updates and some specific numbers on a yearly basis but not being a big portion of our business, we don’t want to focus all of our time on those every call. But, regarding the deals and the traction, we’re very comfortable in the platform family, the 2500 competing with ORACLE EXIData and Netezza so that is the platform we go to market with to compete with them and we’re seeing like I said earlier, the activity is up and I think as you can imagine creating interest in that space gives us an opportunity to also insert that platform and compete for that business.

[Michael Koehler:]

The other thing I’d mention is there is a lot more engagements and activity going on generally around the world as a result of all this entrance and new competitors and new products and everything else and a lot of this results in 5550s. In other words we get engaged in these data marts, smaller data warehouses and everything else and we have the platform family and we go there. A lot of times what you wouldn’t see in the numbers when we’re talking about appliances is we’re selling our enterprise data warehouse class product the 5550 as a result of an engagement in a data mart appliance small data warehouse engagement which is a good thing. It’s actually helping us in the EDW space as well.

[Operator:]

Your final question comes from Gregory Halter – Great Lakes Review.

[Gregory Halter:]

I was wondering if you could comment given the fact that the cash is building very nicely here on either M&A opportunities, share repurchase although the stock is at $26 so it’s had a nice increase there, or the initiation of a dividend?

[Stephen M. Scheppmann:]

That is constantly in our strategic discussion, all of the three elements that you’ve mentioned and we’ll continue to be active in the third quarter with respect to our strategic opportunities for our cash. I feel comfortable with that statement.

[Gregory Halter:]

Was there any sort of either deal pull forward or push back in to the current quarter, the third quarter?

[Michael Koehler:]

No, it was the normal deferrals. We’re in a longer sales cycle and the deferrals, pull forwards and so forth it’s all be running the same quarter-to-quarter, very similar.

[Gregory Halter:]

One last one, I think you touched on the SAP but on the SAS side and I think you said you had a win along with SAS in EMEA, any other commentary on how that relationship has been developing since you announced it over a year ago?

[Darryl McDonald:]

Yes, things are going extremely well with SAS. Our end database initiative with them as well as our application build out with them went well. We’ve released as I’ve talked on the previous calls three solutions already with SAS driving the end database initiative and we’re also looking to make some announcements here at our partners event coming up on some new solutions that we’re releasing with SAS as well. So, things are going well, the activity is going well, we’ve got some great customer wins that we’ll continue to highlight along the way. As we mentioned, in the Teradata 13 database release, we built specifically in their capabilities, Mike referenced it a bit with the geospatial but just an example of what we’re doing with SAS to allow SAS’ data mining and analytical models to run in the database which is going to drive just tremendous performance value and cost efficiency for our joint customers. With that release and our new solutions we’re continuing to see great results and opportunity with SAS in the market place.

[Michael Koehler:]

Before we close the call, one more thing I’d like to invite all of you to attend this year’s Teradata partner conference being held October 18th through the 22nd in Washington DC. This is the largest data warehouse conference in the world and it is sponsored and run by Teradata customers and it’s a great opportunity to get to hear from them and meet them and so forth. If you’re interested, for more details please contact Gregg Swearingen. Once again, thanks for joining the call this morning.

[Operator:]

This concludes today’s conference. Thank you for participating. You may now disconnect.