Q1 2023 Informatica Inc Earnings Call
Speaker 1: I I re, re re.
Speaker 2: Good afternoon. Thank you for attending the Informatica Corporation Fiscal Q1 2023 Conference call. My name is Alyssa and I will be your moderator for today's call.
Speaker 2: All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end.
Speaker 2: If you would like to ask a question, please press star 1 on your telephone keypad. It is now my pleasure to pass the conference over to our host, Victoria Hyde Dunn, Vice President of Investor Relations. You may now proceed, Victoria. Thank you. Good afternoon. And thank you for joining us to review Informatica's first quarter, 2023 earnings results. Joining me on today's calls are Amit Walia, Chief Executive Officer and Mike McLaughlin, Chief Financial Officer.
Speaker 2: Before we begin, we have a couple of reminders. Our earnings press release and slide presentation are available on our Investrelation website at investors.informatica.com. Our prepared remarks will be posted on the IR website after the conference call concludes. During the call, we will be making comments of a forward-looking nature. Actual results may differ materially from those expressed or implied as a result of various risks and uncertainties. For more information about some of these risks, please review the company's SEC filings, including the section titled RISC factors, included in our most recent 10Q and 10K filings for the full year 2022.
Speaker 3: Subscription ARR grew 20% year over year, and Cloud subscription ARR grew 41% year over year. Importantly, approximately 90% of Cloud new bookings came from new workloads with the remaining coming from migrations of one-prem maintenance customers. Total revenues increased 1% year over year due to slower than expected decline in maintenance revenue and strong renewable rates. Non-GAP operating income was $85 million. We continue to execute across all parts to teach a Gnushness. The resilience and durability of our business are demonstrated by consistent 93% plus renewable rates.
Speaker 3: strong net retention rate and 80% plus gross margins. We continue to deliver balanced, profitable growth as we accelerate a complete transition to a cloud platform.
Speaker 3: There are also well positioned to help customers, no matter where they're at. Through our IDMC platform, we serve multi hybrid environments, which include on premise and multi cloud workloads. Customers with their own speed and strategy will move data into a full public cloud or a hybrid cloud. We have the technology capabilities to serve our customers data environments and support their digital transformation journey from on time to cloud to a single cloud data management platform IDMC.
Speaker 3: We're also well positioned to help customers, no matter where they're data resides. Through our IDMC platform, we serve multi-hybrid environments, which include on-premise and multi-cloud workloads. Customers with their own speed and strategy will move data into a full public cloud or a hybrid cloud. We have the technology capabilities to serve our customers data environments and support their digital transformation journey from on-term to cloud through a single cloud data management platform IDMC. We are bringing an enterprise grade.
Speaker 3: data management platform that best of the solutions combined with the simplicity and flexibility of consumption based pricing for our customers. Now looking at the macro environment, like last quarter, we continue to observe elongated sales cycles for new deals, deals scrutiny and to a lesser extent year over year for an exchange headwinds. Cloud adoption remains healthy while customers and prospects continue to be measured in how the purchase given the macro environment. We expect this to continue for the remainder of the year.
Speaker 3: First, in our analytics services, we launched the industry's only free cloud data loading, integration and ELT and ETL service with Informatica cloud data integration free and paid out. These services allow us to entry into departmental ingestion and integration use cases and target data practitioners and non-technical users in marketing, sales and revenue operation teams to build data pipes within minutes. Next, we launched new data services on IDMC that process industry standards and custom messages for healthcare, retail, manufacturing and finserv solutions.
Speaker 3: These data services can use HIR and HIR standard 16 messages with health care partners.
Speaker 3: The NACHS standard to extreme messages with financial services partner.
Speaker 3: and the edipract and EDI, X12 standards to X3 as much as it would manufacturing and retail partners. Turning to MDM, MDM 360 Hub Services, we announce the availability of MDM SAP on the Google Cloud Platform.
Speaker 3: We continue to scale our customer 360 solution by launching extensions to master legal entities to support regulatory compliance requirements like Basel 3 and FATCA helping bank compare global legal entity identifier foundation.
Speaker 3: And lastly in data governance, data quality and data marketplace services, we introduced a new data quality accelerator bundle for sensor.
Speaker 3: data profiling capabilities for the SAP ecosystem, bulk data enrichment and curation capability in data governance and catalog, and expanded UI customization and search in data marketplace.
Speaker 3: Now AI has been a part of our DNA. At least since 2017, when I launched AI Claire, RAI Claire at Informatica World, the ITMC platform powered by Claire AI, which in the last couple of years has continued to scale and grow as it curated thousands of machine learning algorithms under the cover of the AI.
Speaker 3: Last week, we unveiled our latest innovation, CLAIRE Generated Classifications, a groundbreaking solution designed to streamline data classifications for automated data governance in organizations. CLAIRE automates the complex process of creating data classifications, saving both time and resources for organizations by using an organization's metadata and data patterns. As a result, we estimate a 70% plus reduction in time required to curate and create classifications. After leaps below 20 for the past 15 years, more than hook330 DJI took more NOTES than the U.S. duplexnoID needles put support and increased theGraph payer Pakman dot com. In this video, our beginner model, Lena Le Mateau StroreHeb trains the drivers in a twinsnow with all of theirlinearit Kiss cheapest things about life skills, she's boatmobile lbor representation characterized by brain
Speaker 3: to give you a real life example. A leading automotive company, which is the transformative power of clear generated classifications, I just talked about. First, I'll go.
Speaker 3: Previously, this company had a team of 10 data domain curators working for 2 years to create 200 data classifications.
Speaker 3: With the help of clear, they generated 400 classifications, 200 of the original and an incremental 200 in a matter of minutes.
Speaker 3: This remarkable outcome demonstrates the power of players driving automation at operational
Speaker 3: Our consistent focus and commitment to deliver a product differentiation and innovation has one of the recognition from industry analysts and thought leaders. Informatic has recognized as a leader in the inaugural IDC market scape worldwide cloud integration software and services 2023 vendor assessment report.
Speaker 3: consistent focus and commitment to deliver product differentiation and innovation has won its recognition from industry analysts and port leaders. Informatic has recognized as a leader in the inaugural IDC market scape worldwide cloud integration software and services 2023 vendor assessment report. We were also recognized.
Speaker 3: as a leader in the Forrester Wave Data Management for Analytics Q1 2023 report. And we are proud again to be named to CRM Cloud 100 2023 list for the second consecutive year. And we also recently published our inaugural sustainability report, which speaks to our commitments to environmental, social, and governance matters. This report reflects how we continually strive to support our customers, communities, and colleagues.
Speaker 3: Our cloud-native AI-powered data management platform continues to resonate in the market with enterprise customers.
Speaker 3: In Q1, customers spending more than $1 million in subscription ARR increased by 27% year-over-year to 208 customers.
Speaker 3: Customer spending more than a hundred thousand dollars of subscription are increased 11% year over year to a 1,921 customers.
Speaker 3: as we continue to process newer clothes and drive the RR growth across customers of all sizes.
Speaker 3: Our global sales and customer success teams have done a terrific job on locking value for our customers, increasing customer engagement to mission critical workloads, and upselling with new use cases, leveraging our modern ID and C platform. I'll give you a few examples.
Speaker 3: Giliite sciences is a biopharmaceutical company that focuses on antiviral drugs, advancing innovative medicines to prevent a treat life threatening diseases including HIV, viral hepatitis and cancer.
Speaker 3: Building on its existing MDM usage, Gilead is expanding with new use cases to leverage IDMC's cloud data governance of catalog, data integration, data marketplace, and additional MDM solutions to evolve the critical business systems, centrally manage the data, and help them scale for the future.
Speaker 3: Cathy Pacific Airlines, the flagship carrier of Hong Kong, they are supporting the new operations model and they have adopted a cloud modernization strategy.
Speaker 3: The Cathay Pacific team recognized that the cloud strategy would require a holistic, modern integration platform capable of handling operational, cloud and hybrid integration, application integration, as well as data catalog and data governance.
Speaker 3: A power center customer for over a decade, Catholic Pacific expanded the partnership with Informatica to modernize the data integration of the cloud.
Speaker 3: We also see success with that ability to sign new cloud logo wins. Diamond truck had ordered in Germany. He's one of the world's largest commercial vehicle manufacturers with over 40 production sites across the globe. And more than 100,000 employees, they manufacture trucks and buses such as the Mercedes-Benz, freight liner, western star, and farmer's build buses brand names. In addition to financing, leasing, fleet management, investment and insurance brokerage services,
Speaker 3: our ecosystem with increased partner engagement momentum.
Speaker 3: We recently launched a new Microsoft Azure Quad in Dubai to scale our market reach in the Middle East and partner with regional customers as they go to data management and live.
Speaker 3: We also expanded our departmental low friction service offerings for our new cloud data integration free and pay go that I talked about with support for Amazon Redshift, Microsoft Synop Paneride, Google BigQuery, Snowflake and Data Rexon.
Speaker 3: And Informatica was a launch partner for Snowflake's Telecom data cloud. Our GSI partners are creating solutions with the help of Informatica practitioners to accelerate customers data driven strategies on IDMC. Current solutions that are being marketed jointly include MDMAs of service with Deloitte, Medicare Medicaid with KPMG, and Rapid Reference data with Covenants.
Speaker 3: Many other solutions are in process of being created with GSI and large of good eC services partners.
Speaker 3: Our Migration Factory program has expanded to more than 45 partners. Almost half are already delivering projects and have been awarded work.
Speaker 3: Today, we have migrated 4% of our legacy base over to IDMC, up from 3.6% last quarter at a 2.1 conversion ratio. In summary, we are pleased with our execution in Q1.
Speaker 3: We are focused on maintaining our business for a balanced, profitable growth, and delivering on a cloud-only consumption driven strategy and our business priorities.
Speaker 3: We crossed a very important milestone in first quarter, which is a billion dollar in subscription ARR. And as we walk into the second quarter, we expect to cross half a billion in cloud subscription coming back.
Speaker 3: These significant milestones validate that the product innovation and the go-to-market investments that we have made over the years resonate with enterprises across the globe, while we continue to deliver continuous profitability and cash flow growth. As I wrap up, I'd like to thank all of my Informatica colleagues across the globe for their hard work.
Speaker 3: and continuous commitment. I would also like to thank our partners, customers, and shareholders for supporting in Samadika. We look forward to hosting many of you next week at Informatica World. I use a conference in Las Vegas. With that, let me turn the call over to Mike. Mike, take it away.
Speaker 4: Thank you Amit and good afternoon everyone. Q1 was a solid financial quarter across the board with key growth and profitability metrics exceeding our expectations entering the quarter.
Speaker 4: I'd like to begin my review of our Q1 results with annual recurring revenue or ARR. Informatica's total ARR is comprised of three components cloud subscription ARR, self-managed subscription ARR, and maintenance ARR on perpetual licenses.
Speaker 4: Substantially, all of our new software sales are subscriptions, so we also sum the first two categories into the subscription ARR metric.
Speaker 4: Our total ARR was $1.53 billion at the end of Q1, an increase of 10% over the prior year, driven by new cloud workloads and strong real rates. We added over $136 million in net new total ARR versus the prior year. For exchange, negatively impacted total ARR by approximately $3.4 million on a year prior to the pandemic.
Speaker 4: above the high end of our February guidance.
Speaker 4: cloud subscription ARR represents 47% of our total subscription ARR up from 40% a year ago.
Speaker 4: Our cloud subscription ARR growth of 140 million year over year was driven by new workloads and strong renewal rates. Notably, approximately 90% of the quarter's cloud new bookings came from new workloads with approximately 10% coming from migration to on-premise maintenance customers. Self-managed subscription ARR declined versus last quarter, as expected.
Speaker 4: managed ARR grew by 20% year over year to $1.02 billion, $5 million above the high end of our February guidance range. Subscription ARR now represents 67% of total ARR for an exchange negatively impacted total subscription ARR by approximately $1.2 million on a year over year basis.
Speaker 4: The third component of our total ARR is maintenance, which now comprises 33% of total ARR.
Speaker 4: maintenance AR was down 6% year-to-year to 513 million in line with our guidance. Maintenance real rates were strong at 96% consistent with the year-ago period demonstrating consistent continued stichiness in our customer base.
Speaker 4: As a reminder, we have intentionally reduced perpetual license sales to an insignificant amount in favor of subscription offerings. Therefore, we expect maintenance on perpetual licenses to continue to gradually decline since we're not adding new maintenance customers each period.
Speaker 4: Stepping back, you can see that our total ARR growth of 10% for the quarter was driven by very strong growth in our cloud subscription ARR, offset by gradual declines of our self-managed subscription ARR and maintenance ARR.
Speaker 4: These dynamics are the direct result of our cloud-only consumption-driven strategy, and we expect these trends to continue in future quarters. We saw good growth in our average subscription ARR per customer in the first quarter. It grew to approximately $270,000, a 17% increase year over year. We had 3,780 active subscription customers in Q1.
Speaker 4: increase of 106 subscription ARR customers year-over-year.
Speaker 4: Our subscription net retention rate in Q1 was 110% versus the prior year's rate of 113%. As we have described before, this net retention rate decline is driven by the self-managed subscription component of ARR as we focus on new cloud sales. To help you better understand our net retention rate, we are pleased to begin disclosing this quarter our current net retention rate.
Speaker 4: for the past nine quarters.
Speaker 4: Now I would like to review our revenue results for the quarter. Gap total revenues were $365 million in the first quarter, an increase of 1% year over year. This exceeded the high end of our February guidance range by over $3 million due to a slower than expected decline in maintenance revenue and strong renewal, partially offset by lower professional services revenues. Foreign exchange negatively impacted total revenues by approximately $7 million on a year.
Speaker 4: $80 million as expected the new sales next this quarter was more heavily weighted to the cloud than it was a year ago. Therefore we experienced the expected accounting driven revenue headwind.
Speaker 4: To give you an idea of its magnitude, if our mix of cloud versus self-managed new bookings was the same this quarter as it was in Q1 2022, total revenues would have been approximately $24 million higher this quarter than we reported, which would have increased our year-over-year revenue growth rate to approximately 7%.
Speaker 4: Subscription revenue increased 8% year-over-year to $214 million, representing 59% of total revenue, compared to 55% a year ago. Our quarterly subscription renewal rate was 93% flat year-over-year. Maintenance and professional services revenue were $151 million, representing 41% of total revenue in Q1.
Speaker 4: driven by lower than expected professional services revenues and the gradual decline of our maintenance revenue. Stand-alone maintenance revenues represented 34% of total revenue for the corner. Implementation, consulting, and education revenues comprised through a remainder of this category, representing 7% of total revenue.
Speaker 4: Turning to the geographic distribution of our business, US revenue grew 1% year over year to $233 million representing 64% of total revenue. International revenue made up the remainder and was flat year over year at $132 million. Using exchange rates from Q1 last year, international revenue would have been approximately $7 million greater in the quarter.
Speaker 4: representing international revenue growth of 5% year over year. Consumption-based ITUs are a frictionless way to access the IDMC platform and are a core part of our strategy. We are pleased to report that approximately 45% of first-quarter Cloud new bookings were ITU-based consumption deals.
Speaker 4: IPUs now represent 41% of total cloud subscription error of 3 percentage points sequentially.
Speaker 4: As I mentioned, we launched a new flexible IPU consumption pricing model at the end of January , and we are shifting our sales efforts to focus more on consumption-based engagements. We continue to expect IPU adoption to increase during the year. Now I'd like to move to our profitability metrics. Please note that I will discuss non-GAP results unless otherwise stated.
Speaker 4: In Q1, our gross margin was 80%. We've been pleased to maintain a stable 80 plus percent gross margin for more than two years, even as our subscription failed next shift to the cloud.
Speaker 4: Operating expenses were consistent with expectations, which included $27 million of GAAP non-recurring restructuring expenses related to January's workforce reduction. Looking at Q2, we expect a sequential increase in sales and marketing costs as a result of travel and event expenses related to Informatica World.
Speaker 4: Operating income was approximately 85 million for the quarter exceeding the high end of our February guidance range. Operating margin was 23.2 percent flat to last year.
Speaker 4: Adjusted eva doll with 89 million and net income was 45 million.
Speaker 4: An income for diluted share was 15 cents, based on approximately 289 million outstanding diluted shares, the basic share count, and Q1 was approximately 285 million shares.
Speaker 4: Q1 adjusted unlevered free cash flow after tax was approximately $123 million, better than expectations. This is due to higher collections and other favorable working capital dynamics.
Speaker 4: Adjusted unlever free cash flow after tax margin was 34% up 10 percentage points year over year. Cash paid per interest in the quarter was approximately $34 million.
Speaker 4: We ended the first quarter in a strong cash position with cash plus short-term investments of $798 million. Net debt was $1.06 billion and our trailing 12 months of adjusted EVA dollar was $372 million. This resulted in a net leverage ratio of 2.8 times. We expect the business to naturally de-lever to approximately 2 times by the end of 2023.
Speaker 4: which is 6 to 12 months ahead of our commitment at the time of the IPO.
Speaker 4: Now, I will turn to guidance and I'll start with the full year. While we delivered better than expected results in Q1, we are taking a prudent approach and reiterating our full year 2023 guidance. We're early in the year during a continued period of macroeconomic uncertainty and our transition to a cloud-only consumption-driven sales model continues.
Speaker 4: Therefore, we think it is prudent to maintain or previously announced to grow your guidance. You can find the details of our full-year guidance in the press release we filed this afternoon. Next turning to our guidance for the second quarter, I will begin by highlighting that we expect our sales mix to continue to shift from self-managed to the cloud. In Q1, 81% of subscription net new ARR was from cloud. In Q2, we expect cloud subscription ARR to continue to grow while self-managed ARR is likely to decline.
Speaker 4: on both a sequential and year-over-year basis. With this in mind, we're establishing guidance for the second quarter ending June 30, 2023 as follows. We expect gap total revenues to be $355 million to $365 million, representing approximately a 3% year-over-year decrease. We expect subscription ARR to be in the range of $1.02 billion.
Speaker 4: non-GAAP operating income to be in the range of $67 million to $77 million, representing approximately a 3% year-over-year increase.
Speaker 4: Now for modeling purposes, I'd like to provide some additional information. First, we expect adjusted, unlevered free cash flow after tax.
Speaker 4: to be in the range of $60 million to $80 million. And as a reminder, our full year unlevered free cash flow guidance remains unchanged at $340 million to $369 million.
Speaker 4: Second, let me provide some color on our interest expense expectation.
Speaker 4: For the second quarter, we estimate cash paid for interest will be approximately 37 million, and for the full year we estimate cash paid for interest will be approximately 145 million.
Speaker 4: This is based upon forecast average 1 month live or approximately 5% for the second quarter, plus the 2.75% interest rate spread on our outstanding term log. Beginning in July , we'll transition our term loan debt to silver, and our interest rate spread on 1 month so far will be approximately 2.86%.
Speaker 4: Our expected full year interest rate based on a blend of 1 month liloir and so far is 4.9% and inclusive of the credit spread we expect an interest rate of approximately 7.8% for the full year.
Speaker 4: Keep in mind all of our debt bears interest at a variable rate and therefore our forecast interest costs are based on forward curve estimates of libor and sulfur which may materially change due to future market conditions. Third let me discuss our expectations for income taxes. Our Q1 non-gap tax rate was 23% and we expect that rate to continue for the full year 2023.
Speaker 4: We estimate full year 2023 cash taxes to be approximately $100 billion. On a GAAP basis, we expect continued volatility of our income tax provision and rate.
Speaker 4: Lastly, our share count assumptions. For the second quarter of 2023, we expect basic weighted average shares outstanding to be approximately 287 million shares and diluted weighted average shares to be approximately 291 million shares.
Speaker 4: For the full year 2023, we expect basic weighted average shares outstanding to be approximately 288 million shares and the looted weighted average shares to be approximately 293 million shares.
Speaker 4: Before starting the Q&A session, I'd like to share some closing thoughts. Over the past four months, I've had the chance to be on the road to meet some of our analysts and investors.
Speaker 4: And I appreciate the depth in which you follow the company and the understanding you have of the underlying fundamentals of our business. I've received a lot of constructive feedback in these meetings on the positioning and instrumentation of our business, and many of you have expressed your desire to learn even more about our strategy and longer term business trajectory. To that end, I am pleased to announce that we planned to host an investor day on Tuesday, September 5th in San Francisco.
Speaker 5: on your telephone keypad. If for any reason you would like to remove that question please press star followed by 2.
Speaker 5: Again, to ask a question, press star one. As a reminder, if you are using a speaker phone, please remember to pick up your handset before asking your question.
Speaker 6: We will pause here briefly as questions are registered. Our first question comes from the line of Andrew Nowinski with Wells Fargo. You may proceed. Okay, thank you. Congrats on a nice quarter. Good start to the fiscal year. I want to ask a question first, I guess, on the sales cycle elongation. I know you said you've been seeing this historically and expect to continue going forward, but other vendors, you know, I've talked about seeing more of maybe a spike in that.
Speaker 6: or a change in that dynamic in the last few weeks of the quarter just wondering if you saw anything similar.
Speaker 3: Yeah, I think, Andhil, good to talk to you. No change to what we said as we walked into the year. What we saw in Q4 is what we walked into the year, which is what we picked into our guidance for this year. And we saw Q1 execute against that. We didn't see anything get better or getting worse, basically exactly where it was.
Speaker 6: Nothing new to report over there than what we saw walking into the year and what we have shared with you as we put the guide for the year. Okay very good. And then I just had a question on the large customer momentum you guys talked about. I mean it looks like you only added about five customers that spent over $100,000 in ARR and two that spent over $100,000 in ARR. What about the revenue and rent aspect of it which is also below three, you know, compared to a conservatism, five million ad cards a year almost didn't work out okay.
Speaker 3: Q4 to Q1 is a very fundamental difference to look at it. Q4 is the biggest quarter. Q4 is the smallest quarter.
Speaker 3: So we never look at Q4 to Q1 as anything operationally that we track. To us, we look year over year. We have classic linearity for the year and we track like that. Q2Q from Q4 to Q1 is something that is kind of comparing apples to oranges given our biggest quarter of last month's quarter.
Speaker 5: Okay, Faradah, thank you. Thank you. Our next question comes from the line of Matt Hedberg with RBC.
Speaker 5: Your line is now open.
Speaker 4: Great guys, thanks for taking my questions. I go, the success on cloud is great to see. I guess the question, one of the topics that we hear a lot from is cloud cost optimization.
Speaker 3: And I'm curious, how do your customers think about that? And how does Informatica really play into perhaps that trend? I think it's a tale of two cities. What you hear of cloud optimization from the large hyperscalers, effectively customers obviously have massive spends that are spanning multi-year. It's very different to what they do with us because those end up being across the stack matters.
Speaker 3: infrastructure, platform, applications, things of that nature. I'll say two things. One, we've been net beneficiaries in some ways because customers can draw down the hyperscaler commits through Marketplace by buying Informatica products, which is all of our products available on their Marketplace. And not just availability on the Marketplace, but our deep integrations with the hyperscaler product allows customers to be
Speaker 3: actually not just draw down but use it very effectively. So that's kind of been helping us. And we talked about how that is an area of growth. Secondly,
Speaker 3: We talked about execution of the portal. Raw demand, and I think I'm going to loop back to what Andrew asked. When we think of raw conversations that they're having with customers, and I've been traveling quite a bit, those are happening at pretty good scale. In fact, we're headed into Informatica World next week. It's actually two or three weeks earlier this year. And the attendance over there is...
Speaker 3: at 2019 levels. And so effectively, we're still seeing, of course, we maintain the prudence on conversion into deals, all the stuff that I talked about. But in terms of the raw interest in the conversation, those are pretty healthy.
Speaker 4: I'd add one more thing, Matt. Hi, it's Mike. Keep in mind that our consumption model is somewhat different than what you would see from the hyperscalers themselves or even someone like a snowflake. When a customer buys our cloud platform product, they buy it.
Speaker 4: most of the time with IPUs, sometimes with MDM records, but it's not a direct drive, month to month consumption model where our revenue or the amount they pay us goes up and down based upon their usage. They pay us an annual fee for a number of IPUs that they can then deploy across any of the capabilities of the platform, and at renewal time, they decide whether to buy more.
In the meantime, if they use more than their allocation, they can...
pay us overages also. So we're not really subject in this sort of shortwave volatility in month-to-month consumption spend for cloud providers. So what we do is we watch the IP usage and consumption very closely to make sure that we sold the value not to our customers and they're still using them.
and those trends continue to be very favorable. God, if that's helpful, and then maybe there's a quick one on it. You guys have been talking about AI and Claire for a long time now. Is there a generative AI angle to informaticist kind of AI strategy going forward as well?
Matt, we are a couple of days away from Informatica World. I think you may be coming there, stay tuned. Thank you. Thank you, Mr. Hedberg. Our next question comes from the line of Pindjali Bora with J.P. Morgan.
We have a couple of days away from Informatica World. I think you may be coming there to stay tuned. Thank you. Thank you, Mr. Headberg. Our next question comes from the line of Pindalim Bora with J.P. Morgan. Your line is now open. Thank you.
Oh great, thanks for taking the questions. I'm going to congrats on the quarter. I want to go back to the booking strength. Seems like you're seeing consistent booking trends in Q1. It helps us understand how does the environment look to you through May now? Have you seen any change after the financial sector turmoil at all?
As I said before, I'll repeat that. What we saw as we ended last year and what we baked into giving the guidance for this year is what we saw in Q1, is what we see now. We haven't seen anything get.
worse or better. So basically we're just being consistently seeing what we had what we thought would be the case for the year and right now so far. So in April no change to what we saw in last quarter. Okay understood and on on IPUs I believe Q1 marked a big cohort of renewal for...
alone versus overall cloud retention rate? I'll give you the philosophical and I'll give you the philosophical and I'll give you the philosophical and I'll give you the philosophical and I'll give you the philosophical and I'll give you the philosophical and then Mike will jump in and do a lot of other operational stuff. It does. I think I've always said that. In fact, it's the biggest, most dramatic simplification of our technology platform. When you see the breadth of our IDMC platform, everyone needs to follow the same Hyper workforce modelOA package. Come learn more at cloud.com.
and pretty much customers, even if they buy one ICU, they actually have entitlement to every service. And there are so many services on the IDMC platform that you can see. So yes, it dramatically uses that. And to be candid, it just plays out into the renewal also because you know very well customers can go from use case A to use case B to use case C.
Our next question comes from the line of Howard Ma with Guggenheim Securities. You may proceed. Okay, great. Thanks for taking the question. I have one for Mike and then one for Amit as well. First for Mike, it's encouraging to see the outperformance in both total and subscription ARR. If you look at the mix, fully managed ARR outperforms, or rather, I'm sorry, fully managed Cloud ARR outperformed, but self-managed underperforms the implied guidance. I'm just wondering, is that due to Informatica's better than expected success in encouraging more self-managed customers to expand on cloud? Or is it a function of...
perhaps less demand and the the following to that is so what gives you the confidence and the mix of you know for annual guide if you can go one layer deeper into the input that goes into forecasting that mix that'd be really helpful thank you.
Yeah, sure, Howard. It wasn't that the self-managed customers were shifting over to cloud. As we mentioned, 90% of the new bookings for cloud in the first quarter were new workloads. It wasn't moving from maintenance ARR and to cloud.
It wasn't moving from self-managed ARR. It was new sales to either newer existing customers that wanted to do new stuff with the IDMC platform. What we saw in the reason why Cloud performed our expectations versus guidance and self-managed under-perform their expectations versus guidance was that our...
self-managed, but the total subscription, as you can see, was better. So there was more in the cloud bucket than the self-managed bucket that we expected, but there was more in the overall bathtub than we expected too. So it wasn't movement from left pocket to right pocket, it was just more new sales into the cloud. So my god, I understand that it's new, it's not migration, it's just new, it's expansion. Self-managed customers expanding on cloud, but if that continues to happen, could that cause the mix to shift even more to cloud, exiting the year?
I guess we could. We expect the mix to continue to increase more to cloud as the year goes on. I think we cited the statistic that if you look at the net new ARR that you can calculate in Q1, 81% of it was cloud. If we look at our pipeline.
Yeah, we expect the mix to continue to increase more in the cloud as the year goes on. I think we cited the statistic that if you look at the net new ARR that you can calculate in Q1, 81% of it was cloud. If we look at our pipeline, we see that the
to 90% of this cloud. So that's what we're working on. That's what we're selling and we expect the next trend towards that. And how to add to that. What Mike said, it's just Q1. I would read into one quarter as to what extrapolation for the year is. We just said we feel comfortable for the guidance for the year. So there can be Q over Q volatility or a number like that. And I don't think that we feel like that's a reflection on the full year yet.
Okay, thank you for the additional color. I have one quick follow-up for you. So we've been hearing about enterprise customers that are under-consuming—there are a lot of enterprises that are under-consuming relative to their hyperscaler commitments. So do you think, or perhaps, do you have any evidence that maybe Informatica could be benefiting from these excess credits? And if that is the case, maybe—
I'm selling a whole set of compute. I'm also selling a whole set of commits. A varied benefit path is like I said, because all of our products, IDMC is fully available on the marketplace. So customers who had commits can draw down their commits by leveraging Informatica products. And because we have native integration to them, and we have such tight alignment with them and by the way, their own.
and the partnership are so tight, they also encourage that. Of course, customers want that. And of course, we encourage that. And the GSI is also lead to a much transformative project. So we benefit from those drawdowns. And that allows customers to draw down the big commit dollars against hyperscarers. OK, that's super helpful, color. Thank you. I'll see you before.
Thank you.
As a reminder, to ask a question, press star 1 on your telephone keypad. To remove that question, press star 2.
in the interest of time, please limit yourself to one question. You may re-queue to ask any follow-up questions.
Our next question comes from the line of Fred Lee with Credit Suisse.
Your line is now open. A very nice cloud ARR quarter. There's actually impressive underlying acceleration here on a two-year stack. You know, this like these splitting hairs a little bit, but considering the various economic mini crises in the quarter, were there any changes in booking familiarity in the quarter? I think you want this historical trend.
And secondly, I was wondering if you could offer some color on how the tone of conversations with customers have changed at all in Q1 versus the prior two quarters. Thank you.
So there was no difference to what we saw here that we would have seen differently in Q1 of last year or the year before. And as I said, I think the discussions, I've said that many times, but I'm going to repeat myself. We've been a very thoughtful, prudent company. What we saw in Q4 of last year, we baked that into when we walked into this year, when we gave the guide for the year. And I'll reiterate that we continue to see the same thing. And that allows us to...
And any over performance of Q1L just allows us to de-risk the year and allows us to hold the guide for the year. We don't see, we haven't seen anything worse off or better off than where the world is right now.
Any overperformance of Q1 just allows us to de-risk the year and allows us to hold the guide for the year. We haven't seen anything worse off or better off given where the world is right now. Thank you. I'll jump back into the queue.
Thank you, Mr. Lee. Our next question comes from the line of Fred with Macquarie. Your line is now open. Hi, thank you very much. I wanted to ask about the competitive landscape and also where some of the upstarts are coming into some of the conversations. I think I've seen lately and this might speak more towards where VC funding has been going for a long time.
Thank you.
Yeah, but thank you. Great question. I have always said that and I'll begin by saying I always have always always focused on what the customer wants at the end of the day if you all focus on what the customer want competition can come and go in my lifetime here. I've seen many competitors come in the competitive cycles of change. They were different competitors seven years ago that changed four two years ago and now they're different now.
and what has been consistent is that they have come and gone and we just stayed. So I will repeat that we focus on what customers want. Having said that, look I think when you talked about the whole VC thing, look, tremendous growth in this landscape. Hence you see a lot of investment. And of course it happens. Every VC invests in particular and then you suddenly see tremendous number of small companies mushroom. And then over the course of time many of them dissolve. And that is a very natural evolution cycle of startups. And you are going to see that in this space also.
So what I feel good about is, is that our focus on mission critical workloads, with a platform that has two things, best of read solutions, as well as a single platform with consumption based pricing where customers can start and scale and know with the addition of Pego and Pee, actually we've gone to the departmental level also that we can really really start very easy, we're giving customers tremendous amount of choice.
feel good about is that our focus on mission critical workloads with a platform that has two things best of breed solutions as well as a single platform with consumption based pricing where customers can start and scale and you know with the addition of PEGO and Sree actually we've gone to the departmental level also that you can really really start very easy we're giving customers tremendous amount of choice and and that resonates.
And that is something that we are going to keep pushing down on. And at the end of the day, the other one is that our partnership with the hyperscalers, our enterprise great presence across the globe, our adherence to so many different industry verticals that I talked about gives large companies the ability to start very quickly. So those are all the things that are relevant to us to continue to drive penetration, demand, and stickiness of our products.
Thank you very much. Thank you. Our next question comes from the line of Patrick Colville with Scotiabank. dog www. gel hydride.com
Thank you very much. Thank you. Our next question comes from the line of Patrick Colville with Scotiabank. You may proceed. Thank you.
Hey, thank you so much for taking my question. Can I just circle back to the the IPU question earlier because I think the consumption models most you know of us on the sell side and most investors in the buy side know best is you know the likes of kind of Snowflake and others. I think what you are articulating earlier is that the Informatica consumption model is slightly different.
Yeah, sure Patrick, let me give that a shot. Fairly complicated answer or could be a fairly complicated answer, I'll try to be brief. So yes, our model is very different in that the customer engages in a multi-year commitment with us.
Our average new business term is 2.4 years. More and more of our deals are three plus, so that's growing. And they commit to a fixed payment to us.
annually in advance. So they pay us once a year, three times, if it's a three-year contract, in advance, and that buys them a certain number of IPUs. Then they can use those IPUs, if it's the traditional IPU, they have those IPUs to use every month. And if they don't use them that month, then the clock resets and they get the same number of IPUs to use the next month.
If they go over, there's overages and they can buy extra from us and we would recognize extra revenue at that time. Flex-type use are exactly the same except the bucket renews once a year. So if you're a seasonal business like a retailer and you've got a big black Friday and you need a lot of IPUs around that week but not so much in January , then the Flex-type U model is for you. But it's still three-year deal. You pay a fixed price annually advance and if you go over, you pay us.
uh, uh, when that happens. As far as revenue recognition, it's recognized just like any other SaaS company that would have a fixed contract, fixed multi-year contract. If it's cloud SaaS, we recognize it radically monthly as the term goes on. And if it's self-managed, which is effectively on-prem, it's recognized as on-prem. Companies are recognized under ASC 606, which is
majority of the total contract value is recognized up front and then the rest of it is amortized over the period. And that's, you know, we're selling very little of that so it's becoming less and less relevant. Does that answer your question? That was a terrific answer. Thank you so much. And I guess, Victoria will be happy to be asking a second question but I'll sneak one in. If a customer doesn't then I'll take care of some of the masses ow. Thank you for that.
consume for whatever reason, what happens then? Do you push the credits out or do you recognize the revenue? We recognize the revenue for sure. If it's a three-year contract for $100 a year, we're going to recognize $100.
Radably every year for three years irrespective of what happens unless we're in breach and you know the customer sues us which never happens The only thing can happen during that three years is they buy more and then at renewal if they haven't used Anywhere near the amount that they thought they were going to then they might try to negotiate a new deal and a lower usage level That's why we're watching
Well, thank you, Victoria. Thank you, Amit.
Thank you.
Our next question comes from the line of Brad Zelnick with Deutsche Bank.
Your line is now open. Hey guys, this is Jamie on For Brad. I just wanted to quickly follow up on the cloud marketplace question. How much does it account for us per cent of bookings mix? And I guess where do you expect this to go from here? And finally, is any changes to incentives for the salespeople at the CSPs to sell in smith?
of the incentives for us to work together with those cloud service providers, we do have mutual incentives. We incentivize our folks and they incentivize their folks. So when we sell together and we both win, not only do we win as companies, but the individual sales reps involved win too.
the actual specific mix of how much is marketplace versus not is not something to read as well. Understood. Thank you. Our next question comes from the line of Alex Zukin with Wolf Research.
Your line is now open.
Hey guys, this is Alan on for Alex. Congrats on the strong results. I got a quick question and follow up if I may. I want to start off with the new disclosure of cloud NRR. Could you just unpack the...
to key drivers for that to be improving for the second straight quarter here, along with kind of how you'd high level think about that for the year. Yeah, so mathematically it's the same as our existing NRR, which would be the same as...
what you would see for most other companies. It is simply the customers that we had a year ago in the same period, how much did that same set of customers that cloud customers, not including self-managed or maintenance, but cloud customers only, how much does that set of cloud customers a year ago, how much are they buying now? And how much does that set of customers a year ago
They were buying 100 bucks a year ago, they're now buying 118. And that is mostly driven by, probably almost 100% driven by new workloads. Because as you know, the IP model is one where you generally buy more when you buy a new workload. It doesn't go down when you use less because we've got a fixed minimum for every year of the contract.
and folks usually buy enough licenses they think they can stay within their purchase level and not have to buy overdue. So that you can think of that 18% as a cross cell upsell into that cloud cohort that we had a year ago. Does that answer the question?
Yeah, but just if I were to follow up on that, specifically, what are the drivers for the cloud NRR number to be coming up? You know, a quarter goes 117, Q3 is 115, here it's 118. What are you seeing in the customer base? Perhaps that is driving that upwards. It's the breadth of the platform. A customer could have begun.
with an analytics use case, and now they can go add governance, they can add quality, they can do many more things. They may have begun with a simple ingestion or ETL use case. They can add ESD. They could have been doing cloud only. They can add hybrid. So it's the breadth of the capabilities on the platform that allow the customer to then
expanding to broader use cases, that's what is basically the tailwind. Okay, understood. I'll keep it there. Thank you. Thank you, Mr. Zukin.
Our next question comes from the line of Koji Ikeda with Bank of America. You may proceed.
comes from the line of Koji Ikeda with Bank of America. You may proceed.
Hey guys, thank you for taking the questions, jumping over from a couple of calls here. So apologies if this topic was covered, but I did want to ask you a question on data governance and privacy and specifically within the generative AI world. Just thinking about the products that you have available today, what is Informatica's role or maybe even expanding role?
as all these enterprises all over the world are trying to grasp and tackle the data that feeds these AI models that everyone's talking about today. Thanks guys. Sure, Koji, good to hear from you. I think we'll cover a lot of that next week and in Somatico World, if you're there, obviously we'll cover in a little detail. I'll give you, I mean, there's so much to cover on that topic, I'll give you a simple snippet.
to actually leverage AI, generative AI to do something within an enterprise, it actually will become more and more paramount to have good data. I mean if you're going to let something automated happen on the shop floor of a manufacturing plant, you can't afford to get it wrong. So data becomes very important. And just think of two very simple things. It's not just bringing data from many places. The quality of data becomes very important, right? Because you've got to make a decision out of a…
out of a data model, and then you will basically let that run at scale. So data quality becomes incredibly important. So that's how we believe that this will all be a tailwind to us. And I'll say what large language models are on the Internet, ultimately metadata will become the data language model within an enterprise. And we'll talk a lot about that next week when you come to that Informatica world, we absolutely see that as nothing else but tailwinds.
Got it. Thank you. Looking forward to next week guys. Thanks for taking the question. Absolutely. Thank you. Our next question comes from the line of Tyler Radtke with Citi.
it. Thank you. Looking forward to next week guys. Thanks for taking the question. Absolutely. Thank you. Our next question comes from the line of Tyler Radtke with Citi. You may proceed.
Thanks for taking the question. Just a couple quick questions on the numbers here. First, in terms of the self-managed ARR with the sequential decline, is it right to think about what is the
the roughly $5 million just sequential decline as is converting to cloud in the quarter or did that Did that go somewhere else and then I'm just curious as you think about the second quarter I mean obviously you you rightly pointed out that Q1 is easily the the weakest quarter from a bookings perspective, but it looks like you're
you're guiding to add less incremental ARR on cloud in Q2 than Q1. So just curious if maybe there was some overperformance in Q1 that caused some deals to close earlier, just kind of the factors in the Q2 outlook. Thank you. Hey Tyler, it's Mike. So first on the self-managed.
ARR or decline of ARR in Q2. You should think about that as normal churn for a component of the business where we're not focusing our efforts to sell new into that bucket. We're a cloud-only consumption driven company now. All of our go-to-market efforts.
that we've seen so far. You're right with respect to the cloud net new for next quarter. The NAR as we call it for Q2 is modest. But look, we run the business on an annual basis. Enterprise software is inherently volatile from quarter to quarter. Long sales cycles, big deals, uncertain deal, closed timing.
And we're really thinking about the year in the context of the 35% cloud growth guide that we put out there and that we still feel good about. Q1 came in really strong. And we're setting Q2 at a level that we think is prudent based upon our expectation for the full year.
We're not trying to signal that Q2, second half is going to be some sort of economic rebound, it's going to be better or Q2 is going to be materially worse. It's just that in the context of what we think is going to happen for the full year, this feels like the prudent thing to dive to. You know, the point you just to last year, if you look at last year, Q1, Q2 were
Thank you, Mr. Radke. Our next question comes from the line of Jeff Hickey with UBS.
Thank you, Mr. Radke. Our next question comes from the line of Jeff Hickey with UBS. You may proceed.
Hey everyone, thanks for taking the question. I'll be quick on this. I'm kind of back to maybe Andrew's point at the top of the call on just customer count. Understand Q4 and Q1 might be apples to oranges, but maybe looking over a longer term time horizon, I think you guys now disclosed 5,500 plus customers. And I think that's down from 5,700 during the IPO and 5,600 in the 10K. So, do I do a". But that gives me a second reason to... That's not enough, Andrew. That's not enough, Andrew.
Just curious how we should think about that figure. Thanks.
I think we can follow up on that question. I don't think it's declined customers. I don't know either. I think 5700 going down to 5500. I think we should just follow up on that one to be very honest with Victoria. We can answer because we don't see any decline. And in fact, if anything, we've been very, very transparent with our customer numbers. We've been very transparent that hey, within that, other side of that customers may downloading service to that existing clinic.
subscription customers and so and you know there is because the overall pool of the customers is that our subscription and maintenance and then we are very clear about who amongst them are subscription only customers so we happy to answer we don't see any decline.
So 57 under 55, that's like a surprise to me. We are happy to clarify separately. Got it. And then maybe one quick follow-up. It might just be on vertical mix and exposure that you guys have to financial services. Any color there? I know when Pendulum was asking earlier, you said you saw kind of no change in March and April time frame.
And we haven't seen any material impact to our business due to the regional banking turmoil.
Got it. Thank you. I'll see you before. Thank you. There are no additional questions waiting at this time. I would like to pass the conference back over to the management team for closing remarks.
Well, thank you. Well, as you can see, we were pretty excited about how Q1 and it's strong results. We are excited about holding our guide for the year. I'm actually looking forward to next week. It's always fun to be with customers, which actually matters the most in a world like this, more than competition, more than anything else. I'm looking forward to seeing many of you there at the use of confidence and you will see not only just a insight into the future.
A lot of cool demos. I think a lot of questions have got asked. I think my lips are a little bit sealed right now because we can unveil them next week. And of course, as Mike said, we will do our analyst day on September 5th. So I look forward to hosting you all on that day. So thank you all for joining today and next week, and then later in the year on analyst day.