Q2 2023 Informatica Inc Earnings Call
Informatica second quarter 'twenty to 'twenty three.
It is now my pleasure to introduce your host Victoria, Hyde Dunn, Vice President of Investor Relations.
Good afternoon, and thank you for joining Informatica second quarter 2023 earnings Conference call. Joining me today are <unk>, Chief Executive Officer, and Mike Mclaughlin, Chief Financial Officer before we begin we have a couple of reminders our earnings press release and slide presentation.
Are available on our Investor Relations website at investors Dot Informatica Dot 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 Risk factors included in our most recent 10-Q and 10-K filing for the full year 2022.
These forward looking statements are based on information as of today, and we assume no obligation to publicly update or revise our forward looking statements except as required by law. Additionally, we will be discussing certain non-GAAP financial measures. These non-GAAP financial measures are in addition to and not a substitute for measures of financial performer.
<unk> prepared in accordance with GAAP a reconciliation of these items to the nearest U S. GAAP measure can be found in this afternoon's press release, and our slide presentation available on <unk> Investor Relations website, and with that my pleasure to turn the call over tonnage well. Thank you Victoria. Thank you everyone for joining us today.
Socrates caused by summarizing the key points.
We exceeded Q2 guidance across top and bottom line metrics driven by strong customer momentum from a cloud only consumption driven strategy.
Second we are expanding our cloud native AI powered ibm's platform capabilities to be the enterprise standard put data management.
Our own product innovation and with the integration of our recent acquisition of <unk>, which is all about data access management and programmatic solutions. We believe that IBM is becoming the most comprehensive and unique platform for data management and enterprises globally.
This is especially important with the rise of we are driving further democratization of data and is informatica differentiation in the market simply for.
There is no AI without holistic data.
Quality data and government data.
And clearly given our strong execution in the first half of the year, we are raising our non-GAAP operating income and adjusted Unlevered free cash flow or protect guidance after tax guidance for the full year.
<unk> committed to delivering balanced profitable growth, while driving forward with our strategic initiatives.
With that now let me discuss these topics in more detail.
Turning to Q2 results.
<unk> revenue grew 1% year over year with subscription ear are growing 16% year over year and cloud subscriptions are growing 37% year over year.
We delivered a record $530 million in cloud subscription we are really proud of that one because that exceeded the half a billion dollars cloud mark for the first time.
We strengthened our cash position and beat the high end of guidance for non-GAAP operating income.
The macro environment remained stable in the second quarter versus the prior quarter. The sales mix shift for the self managed to cloud subscription thereof is tracking as expected as cloud subscription IRR now represents 49% of subscription.
Up from 42% a year ago.
Approximately 85% of the quarter's cloud new bookings came from new cloud workloads and expansion with the remainder from on Prem customer migration, which saw a nice uplift in the quarter.
Our customers are adopting the IBM Z platform for new users and new use cases across organizations in.
In the second quarter customer spending more than $1 million in subscription MLR increased by 22% year over year to over two per 213 customers.
Customer spending more than $100000 of subscription.
Increased 8% year over year to 1940 customers.
Now we have customized ibm's to deliver industry specific needs and recently launched IBM Z for ESG sustainability to support environmental social and governance use cases.
This follows previous launches of IBM Z for state and local government financial services insurance life Sciences, and retail and CPG verticals.
Let me show you shared with you a few customer stories.
PNM group represented by peer in bank in Western Australia in <unk> Bank in New South Wales, and South East Queensland has created a digital transformation strategy that aims to deliver more personalized banking for their customers across Australia, while at the same time, ensuring the protection and integrity of customer data.
In partnership with Snowflake, they selected Informatica vibe DMT platform would be the ingestion data integration data governance and catalog and data quality solutions to complement their digital transformation strategy as they modernize their analytics to the cloud.
Jaguar land Rover is at the forefront of the rapidly changing automotive industry with a focus on electrification and digital services and data range Rover discovery and defend the collections will each have a pure electric model, while Jaguar wellbeing dielectric <unk>.
The company is undergoing a digital transformation that will cease operations, including manufacturing and supply chain strengthened by becoming more data driven.
They selected <unk> platform for data discovery curation and catalog use cases, including data quality data and application integration together with the master data management SaaS.
Holiday Inn club vacations incorporated is a resort real estate travel and vacation ownership company with a mission to be the most loved brand in families travel. They are undergoing total digital transformation, which includes tech modernization digital strategies for sales and marketing that consolidation efforts and beta rationalization.
And a joint partnership with Deloitte selected Informatica Master data management, SaaS and cloud data governance and catalog solutions to implement their digital transformation strategy.
And <unk> will be working with the UK Ministry of defense to provide data governance and cataloging solutions.
<unk> customer success stories highlight the customer adoption of Ibm's cloud solutions across the globe.
Next we continue accelerating product innovation on Ibm's cloud native AI power platform to improve productivity and deliver trusted data to our customers and partners.
We hosted thousands of global customers prospects and partners and our Informatica World user conference in May earlier this year.
It was an incredible opportunity to engage with us to engage with our community and see firsthand, how informatica as helping democratize data as part of an organization's digital transformation journey.
Our discussions with many CIO cdos cdos looking to standardize on IBM Z. They all want pure point solutions. They wanted to reduce a bit of complexity and simplify the operations within the data architecture to deliver immediate ROI and lower tissue.
We also unveiled many industry leading capabilities in IBM Z.
So let me just share some thoughts on AI, which I know remains top of mind and every conversation today.
Let me begin by saying.
I firmly believe that there is no value in the high <unk>.
Our holistic.
Usable data that can be managed and governed at scale.
Look to get data into AI to create value we need data management.
Bringing all of the fragmented data across an enterprise in one place.
Making sure it's a high quality garbage in gives us coverage out making sure that as governance and so on and so forth.
That's what <unk> all about.
In fact, our journey with AI is not new we launched our AI clear back in 2017 at Informatica World that year.
AI is already embedded in all our solutions, leveraging MLR gardens, and MLP on meta data to drive intelligence and productivity accessing 50000 metadata with connections now leveraging 35 petabytes of active metadata in the cloud and processing 61 trillion mission critical cloud cloud transactions as of June .
Our metadata system of record Black from IBM Z has the foundation to realize AI powered digital transformation and the exponential impact it can have on all of our customers and an organization.
And now we are amplifying and taking all of the AI journey with clear copilot and care GPT, allowing us to take a significant step over to Jenny.
Informatica AI differentiation in this market comes from three factors.
First is an understanding of the enterprise data ecosystem.
If you vendors can claim and understanding of an enterprise's data ecosystem, which comes from being able to have a metadata inventory, but beyond that being an independent and neutral and at scale vendor in this space.
The second is training llm's on metadata from thousands of data management projects again, only a handful of vendors if any.
Do that at scale.
Third as comprehensive data management capabilities when enterprises King of data management.
Don't think of ELT pipelines or EPL pipelines are just data catalog adjust data quality in isolation.
In enterprise data management project requires all of these capabilities working in tandem and on top of a metadata powered platform, which is only available with IBM seat.
Clearly co pilot is available now and clear GPT will be available in private preview of this quarter as a <unk> service utilizing informatica processing units to drive usage and help customers Democratizers simplifies data management.
Our consistent focus and commitment to delivering product differentiation and innovation have bonus recognition from industry analysts in pockets.
In Idc's worldwide data integration and intelligence software market share 2020 to report.
Informatica ranked number one for the seventh consecutive year.
Our consistent performance and track record had been recognized in five Submarkets data ingestion and transformation quality did intelligence Master data management and dynamic data movement there.
We are pleased to be named a leader in the polyester wave for Master data management Q2, 2020, Threep for the fifth consecutive time.
Now as a product innovation capabilities increased our partnerships have grown and continue to grow and deepen with hyperscale and ecosystem partners, such as Microsoft AWS, TCP Snowflake and <unk> let.
Let me give you a glimpse of some of those with.
With Microsoft We announced <unk> is an azure native ISP service.
Rich will provide azure customers with advanced capabilities seamless access and data management normally reserved for first party agile services.
We announced the availability of our cloud data governance and catalog natively in the agile as well.
Also announced the private preview of seamless integrations with Microsoft fabric as one of the first ISP design partners for this offering.
With AWS, we announced the availability of our cloud data integration free service directly from Amazon redshift user console informatica as the only ISP partner with this native integration.
We also launched Informatica secured Asian, private Lincoln, AWS and launched a port in Japan to scale, our market reach in that accretion.
With GCB, we announced the availability of a SaaS MDM service and the expansion of our footprint with the port in EMEA.
At the Snowflake summit, we announced the public previews of supervisor and a native application for enterprise data integration, our new cloud data integration free service, we have snowflake partner connect and added support for Apache Iceberg tables.
At the data breach data and AI summit, we added support for unity catalog data bricks connect and either brick sequel, we added support for DWP digitally for a power center to <unk> migration program.
Turning to our GSI partners, we had record attendance levels at our partner summit at Informatica were not yet this year.
We expanded our partnership with <unk>, a global management consulting firm to embed <unk> cloud data center platform for life Sciences.
A brand new partner portal to make it easier for partners to find the critical content needed for sales enablement.
We also made all our enablement bootcamp free on the portal and since launch more than 7000 people have become certified to a cloud data integration boot camp and MDM SaaS champions Bootcamp and this will only grow from here.
We see enterprises moving ahead with multi year digital transformation projects to improve data intelligence and achieve better business outcomes.
We have migrated migrated four 5% of our legacy maintenance base over to <unk> up from 4% last quarter and a $2 one conversion ratio.
We saw continued progress with our migration factory program with many of our GSI partners, helping our customers to modernize and move to <unk>. We are excited about our cloud monetization program, which we will make generally available. This quarter. This new program gives customers the ability to accelerate modernizing on prime power center assets to IBM.
But significantly lower migration time, lower cost and lower risk.
Now, let me discuss Florida, while we will come to the product team to Informatica family earlier in July .
<unk> brings deep industry skills and expertise in security the access privacy and policy management to strengthen our cloud capabilities.
Our shared vision to offer customers the ability to create new mission critical workloads and use cases of Ibm's aircraft data governance data cataloging the privacy the quality at MDM offerings.
This will enable our customers to allow data sharing and management, while maintaining control and security to trusted and secure data.
Good progress on our integration plans and once fully integrated we believe the IMC platform will become the most comprehensive and differentiated cloud data management platform in the market expanding the product innovation lead over legacy and single point solution vendors because of its scalability efficiency and unique offerings.
Now as I wrap up.
Im thrilled and pleased to raise our non-GAAP operating income and adjusted Unlevered free cash flow after tax guide pretty good.
We are managing the business for long term durable growth and continued profitability, while focusing on executing on our cloud only consumption driven strategy.
We are building a best in class AI powered platform at scale and see a long runway ahead in displacing legacy and single point solution vendors I am excited about our future opportunities for cloud growth I want to thank.
All of my Informatica colleagues for the hard work and continued commitment I would also like to thank our partners.
Customers and shareholders for supporting Us.
With that let me turn over the call to Mike to take you through more details Mike take it away.
Thank you Amit and good afternoon, everyone Q2 was a solid financial quarter across the board with key growth and profitability metrics exceeding our expectations I'll.
I'll begin the review of our Q2 results by reminding everyone how to best understand <unk>.
And GAAP revenue.
Our <unk> and revenue fall into three major categories cloud subscriptions, which we have guided to <unk> growth of 35% in the full year fiscal 'twenty, three self managed or on Prem subscriptions, which we no longer actively sell in which we have guided to decline year over year in fiscal 2023 and maintenance from perpetual licenses sold in the past.
Which we also expect a decline going forward.
We also earn a relatively small amount of revenue from implementation in education services, which we expect to decline slightly this year as our professional services partners perform more of that work for our customers service revenue is not counter of that era.
With that in mind I'll walk through the components of our annual recurring revenue total <unk> was $1 55 billion, an increase of 8% over the prior year, driven by new cloud workloads and steady renewal rates, we added $111 million in net new <unk> versus the prior year foreign exchange negatively impacted total IRR by approximately one.
$9 million on a year over year basis in line with expectations. When we set our guidance in may.
Turning now to the components of IRR cloud subscription <unk> was $513 million or 37% increase year over year and $6 million above the high end of our may guidance.
Loud subscription <unk> represents 49% of our total subscription <unk>.
Up from 42% a year ago.
New workloads and strong renewal rates drove cloud subscription <unk> growth of $139 million year over year, approximately 85% of the quarter's cloud new bookings came from new cloud workloads and expansions with the remainder from on premise customer migrations cloud subscription net retention rate was 116.
<unk> for the quarter flat year over year.
Self managed subscription <unk> declined slightly in the quarter as expected $2 $530 million. This was down 1% sequentially and up 1% year over year, given our focus on new cloud sales. We expect self managed subscription <unk> to continue declining throughout the year and show year over year declines starting next quarter.
Subscription <unk>, which is simply the sum of cloud and self managed subscription <unk> grew by 16% year over year to 1.04 billion, which was more than $12 million above the high end of our May guidance subscription. There are now represents over 67% of total <unk> up from 62% a year ago Foreign exchange negative.
Impacted subscription IRR by approximately $1 5 million on a year over year basis in line with expectations. When we set our guidance in may.
The third component of total IRR is maintenance, which represents 33% of total IRR.
Maintenance <unk> was down 7% year over year to $505 million in line with expectations.
As a reminder, we no longer sell a meaningful amount of perpetual licenses as a result, we expect maintenance on perpetual licenses to continue declining gradually at a fairly constant rate.
In total these three components of total <unk> yielded 8% growth for the quarter, which was driven by solid growth in our cloud subscription are offset by gradual declines as we expected of self managed subscription IRR and maintenance are these.
The 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 <unk> per customer in the second quarter growing to over $275000, a 13% increase year over year, we have over 3780 active subscription customers an increase of 94 subscription <unk> customers year on year.
Now I'd like to review our revenue results for the second quarter GAAP total revenues were $376 million, an increase of 1% year over year. This exceeded the high end of our may guidance range by $11 million due to a slower than expected decline in maintenance revenue and strong renewals, partially offset by lower professional services revenues foreign exchange <unk>.
<unk> impacted total revenues by approximately $2 2 million on a year over year basis in line with May expectations.
Informatica shift to cloud subscription sales and away from self managed on Prem sales is progressing as expected as I. Previously described this creates an accounting driven GAAP revenue headwind in the short term.
If our mix of cloud versus self managed new bookings were the same this quarter as they were in Q2 last year total revenues would have been approximately $22 million higher than we reported this quarter, increasing our year over year revenue growth rate to approximately 7%.
Subscription revenue increased 10% year over year to $228 million, representing 61% of total revenue compared to 56% a year ago, our quarterly subscription renewal rate was 92% down two percentage points year over year due to a decline in self managed renewal rates.
Maintenance and professional services revenues were $148 million, representing 39% of total revenue in Q2. This was due to lower than expected professional services revenues and the gradual decline of maintenance revenue.
Standalone maintenance revenue represented 33% of revenue for the quarter implementation consulting and education revenues comprised the remainder of this category down 7 million year over year, representing 6% of total revenue.
Turning to the geographic distribution of our business U S revenue declined one 6% year over year to $239 million, representing 64% of total revenue while international revenue grew 6% year over year to $137 million using exchange rates from Q2 last year international revenue would've been approximately $2 million greater in the quarter.
Representing international revenue growth of 8% year over year.
Consumption based IP user or a frictionless way to access the IMC platform and are a core part of our strategy approximately 51% of second quarter cloud bookings were IP based deals <unk> now represent 43% of total cloud subscription <unk> up.
Two percentage points sequentially.
Our new flexible ICU consumption model is also gaining traction and we expect <unk> adoption to increase during the year.
Now I'd like to move on to our profitability metrics. Please note that I will discuss non-GAAP results unless otherwise stated.
In Q2, our gross margin was 80% consistent year over year, even as our software sales mix shifts to the cloud operating expenses were consistent with expectations.
Operating income was approximately $88 million for the quarter growing 25% year over year and exceeding the high end of our May guidance range operating margin was 23, 3% a 401 five percentage point improvement from 18, 8% a year ago, adjusted EBITDA was $92 million and net income was $48 million.
Net income per diluted share was <unk> 17 based on approximately $291 million outstanding diluted shares basic share count was approximately 287 million shares.
Q2, adjusted Unlevered free cash flow after tax was approximately $77 million better than expectations due to higher collections and other favorable working capital dynamics adjusted Levered free cash flow. After tax margin was 25% cash paid for interest in the quarter was approximately $37 million.
Keep in mind that our free cash flow from quarter to quarter can be quite volatile based on working capital fluctuations and other non linear cash items such as tax payments.
We ended the second quarter in a strong cash position with cash plus short term investments of $821 million net debt was $1.03 billion and trailing 12 months of adjusted EBITDA was $388 million. This resulted in a net leverage ratio of two seven times, we expected us to naturally delever to below two times by the end of 2020.
<unk>, which is six months to 12 months ahead of our commitment at the time of the IPO.
To summarize our year to date results. We are pleased to have executed at or ahead of the guidance, we laid out at the beginning of the year across our business.
Now I'll turn to full year guidance, we delivered better than expected bottom line results in Q1, and Q2 and are raising guidance for non-GAAP operating income and adjusted Unlevered free cash flow after tax.
We reaffirm our previously issued guidance for revenue and <unk> metrics, reflecting confidence in our cloud only consumption driven strategy. Despite the continued uncertain macro economy.
We expect the acquisition of <unk> to be immaterial to both revenue and earnings in 2023, therefore, it does not impact our guidance.
With this in mind, we are raising guidance for the full year ending December 31, 2023 as follows we now expect non-GAAP operating income to be in the range of $420 million to $440 million, representing approximately a 23% year over year increase at the midpoint. We now expect adjusted Unlevered free cash flow after tax to be in the range of 370 <unk>.
$390 million, representing approximately a 32% year over year increase at the midpoint you can find the details of our full year guidance in the press release, we filed this afternoon as mentioned we are reaffirming reaffirming our previously issued revenue guidance for the full year.
Next turning to the guidance for the third quarter, we expect our sales mix to continue to shift from self managed to the cloud.
Therefore in Q3, we expect cloud subscription net new <unk> to grow while self managed net new IRR is expected to decline on both a sequential and year over year basis.
And as expected maintenance revenue and Arrow will continue to decline steadily with.
With this in mind, we are establishing guidance for the third quarter ending September 32023 as follows we expect GAAP total revenue to be in the range of $395 million of $405 million, representing approximately 8% year over year growth at the midpoint of the range.
We expect subscription IRR to meet a range of $1 5 billion to $1 6 billion, representing approximately 13% year over year growth at the midpoint of the range, we expect cloud to be in the range of 537 million to $543 million, representing approximately 35% year over year growth at the midpoint of the range we.
non-GAAP operating income to be in the range of $110 million to $120 million, representing approximately 37% year over year growth at the midpoint of the range.
For modeling purposes, I would like to provide a few more pieces of additional information first we expect adjusted Unlevered free cash flow after tax for the third quarter to be in the range of $65 million to $85 million.
Second we estimate cash paid for interest will be approximately $39 million in the third quarter and for the full year, we estimate cash paid for interest will be approximately $149 million.
Third with respect to income taxes, our Q2 non-GAAP tax rate was 23% and we expect that rate to continue for the full year 2023, we estimate full year 2023 cash taxes to be approximately $100 million.
On a GAAP basis, we expect the significant volatility of our income tax provision and rate to continue for the full year 2023, we expect a GAAP tax provision in line with our cash taxes.
And lastly, our share count assumptions for the third quarter of 2023, we expect basic weighted average shares outstanding to be approximately 289 million shares and diluted weighted average shares outstanding to be approximately 294 million share.
For the full year 2023, we expect basic weighted average shares outstanding to be approximately 288 million shares and diluted weighted average shares outstanding to be approximately 293 million shares.
And finally before starting the Q&A session I am pleased to announce that we have rescheduled our inaugural Investor day to Tuesday December 5th in San Francisco, We hope that many of you can join us in person.
Later, you can now open the line for questions.
Absolutely.
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Our first question comes from Matt Hedberg with RBC. Please proceed.
Thanks for taking my questions maybe.
Maybe just to start from a macro perspective. It sounds like you saw fairly stable results, which is good to hear maybe just double clicking on that a little bit more could you talk about some of the trends maybe towards the end of the quarter and kind of the first month.
Q3.
Kind of continued stability is that does that kind of what youre seeing despite obviously some macro.
Macro uncertainty.
Hey, Matt good to hear from you, Yes, I would say that as I said that Q2 was pretty stable we didn't see anything.
Computer at or anything like that.
We entered the year and I think I would say we saw July in a similar fashion. So I think the environment.
As stable I wouldn't say that it has.
Significantly improved or anything it's pretty stable. So I think we feel.
Hence we feel good about where we are in.
<unk> the second half of the year would be.
Got it and then following.
Your user events and obviously you talked on this call about.
Clinical pilot and clearer GPT.
Could you talk a little bit more about like obviously, you probably haven't assumed much from either this year.
And estimates but.
Do you expect that to be a monetization effort.
24, just how should we think about sort of these gen AI products flowing into growth.
Yes, I think many people enterprises Mac I think flip it for three months because I think today, you can dig chat GBT and could put it on the worldwide web and wherever you are.
But that's really different from <unk> Enterprises, Inc.
I will then I've traveled across the globe in the last few months since the conference as well and I think I would say that the thing.
I use the phrase journey II is.
<unk>.
Most or hype in the short term tremendously undervalued, if a doctor so enterprises that in that way, it's a conversation topic everywhere everybody's figuring out their first second third use case, how do you begin and I think the question that everybody's mind, if I do that and what's the governance privacy implications around it. So I think everybody's marching down that path is figuring out the youth.
Cases.
A reference architecture and the implications around it I think I see that as a 2014 and general enterprises of course things are starting to happen, we have kept GPP and preview and customers are using it to figure things out of that and but proper use cases go increasing value will be put enterprises would be more 2024.
Got it thanks, a lot guys congrats in the quarter.
Thank you.
Our next question comes from Fred have Meyer with Macquarie. Please proceed.
All right.
Thank you very much I think I wanted to follow up a bit on the generative that.
Topical question.
Related but not directly on claris, GPT, which is releasing products you see coming up.
But just generally how are you seeing enterprises trying to adopt generative AI where are they struggling what are the key problems, they're trying to address especially with their own data and is there any way that perhaps it <unk> generally your ability to add governance players over data can help enterprise adoption of generative AI.
Yes, that's a great question. So I think I'll give you. Some examples of used cases. One example is.
We have a.
The large healthcare premium dispersal and think about this way that there are two issues the customer side tissue of their trajectory return on a claim and it has already indicated there actually.
My team and I think they're experimenting.
In that context, basically improving that hole.
Reducing the bad games, and also making sure that Brightcove will get approved and then efficiency rate on improvement rates have gone from low to high $90 Theyre playing around with that think about that that's a massive revenue opportunity for that customer as much and speed up productivity on the other hand, basically when customers are thinking about.
<unk>.
A large campaign in the context of our intent understanding churn how quickly can you.
Help off Jenny can you bid.
Infrastructure and think about frameworks on top of it whether it's good quality data, so that simple and brand campaign or an E. Mail campaign improvement can go from low single digits to high single digits. So maybe the very high single digits. Those are all the things that we are seeing customers doing that by the way in case management customer service front for <unk>.
Office, that's where the first use cases are emerging very rapidly. We're seeing all of them are profit enterprises that can happen.
As I talk to customers happening as we speak by using the first use cases.
Turning to put them adopt.
Biggest issues for enterprises.
As they looked at it.
You can always <unk> boy I can democratize, all the stuff and put it in the hands of so many users that come to the biggest issue for Jimmy I for everybody.
<unk> creates a governance Janet.
The right person and accessing the right information and the right Skus and Patrick data access manager became very important these software without a lot of those large customers trying to help them solve that problem embedding them in ibm's, even further accelerate allowing IBM seem to use by many many many users across an enterprise. So access manager it becomes a very fundamental part of.
Governance and privacy, so we see that doesn't accelerate.
Excellent.
Thank you very much for that.
A follow up here.
Regarding the.
So Brian the transactions per month that are being processed it was really impressive seeing that theres, 58% year over year growth. You are now translating almost 61 trillion transactions per month.
Which would love to get some context around how that relates overall to your.
Our progress in cloud it seems that you have substantial momentum is this rise in transaction volume something related to your.
Your ICU consumption model or just generally customers doing a lot more in cloud and with the IBM Z platform. Thank you.
All of the above ultimately see all on net new sales are driven by IPO, obviously customers who are non IPO before also using the cloud. So of course, if that's what it is but it's basically customers.
All workloads in our cloud that's what it is and we want that number to be absolutely.
Higher and higher in fact.
Beginning to see that number to be higher than even thought of yet that tells you that customers that wanted to hey, Matt. That's a good thing and that obviously means that more IBU usage more workload usage.
And more operational workload usage, so that's a great indicator and we pay a lot of attention to that.
Thank you.
Our next question comes from Andrew Zielinski, Our Nowitzki excuse me with Wells Fargo. Please proceed.
Thank you and good afternoon.
Congrats on a nice quarter I wanted to go back to your comments on the macro I think you said a number of times the prepared remarks that remains stable.
And you said it also looks pretty stable heading into Q3 here.
So what other trends concerns you enough to not roll through the beats that you saw in Q2 into your annual guidance for the year.
Sure Andrew I think.
Stable I didn't say that everybody is opening the first string and spending as if there was no tomorrow that so I think we got to be thoughtful look I think.
You've probably seen by now.
Doing earnings calls for almost one and a half goes we're very prudent and thoughtful company.
I don't want to get ahead of ourselves we closed a good first half I think on the other hand I can expect somebody asking the question in a second half is bigger than the first half how do you think that youll be this the second half and I think what we just did is basically a step in that direction of Derisking. The second half. We had teams performed really well first top of a big transition year. I think we are our strategy continues to.
We believe that the over performance on the top and allows us to actually navigate the second half as you mean that the world doesn't change.
Fundamentally.
Good or bad but at the same time looking to say, how many cloud transition happen.
And I'll repeat that how many cloud transitions in the world that happen, but the.
Companies that actually have accretive bottom line.
Alright last I checked it was almost agnostic so after raising the bottom line actually as a show of strength that we feel very strongly about our overall business model and how we are executing.
Okay that makes sense. Thank you Amit.
Just a follow up question I just wanted to get a clarification maybe on your IRR cloud on IRR was our was.
Very consistent I would say within the historical range that we've seen but maybe the total subscription and our dropped below that coveted.
110% level down to $107. So just is there any more color you can provide on maybe what drove the.
The overall subscription on our dropdown to 107.
Yes, sure Andrew it's just the weighted average impact of the decline in self managed E on crown.
Subscription retention, because we're not selling anything new into the top of the funnel, but it's not a meaningful amount.
We're not selling new on prem to existing on Prem customers. So our net retention rate is going to fall below 100% at some point.
As we've tried to be very very clear in guiding you all.
Our total subscription IRR is going to begin to decline next quarter, both on a quarter over quarter basis, but also on a year over year basis percentage basis.
Exactly as we've expected it totally running the plant.
And it's just it's just the blended impact of that on the total rate.
Yes, so you didn't lose those customers you just didnt sell anything new that what youre, saying.
Well there is some churn in there of course in any subscription based in any period you have some churn, but if you take normal churn without selling new on top of it that's how you get.
Degrading net retention rate.
Okay. Thanks, guys.
For Us I think.
Mike said that very well in that it broke down the <unk> focus on the cloud number that's the only growing number.
That's a number that's growing one ultimately that's why we carve out the cloud and hot out earlier this year and for you to see all of the dynamics of that business. The rest of the business that comes up mathematical average weighted average of one of our cloud gives Florida the Florida. The one that is given that at all.
Basically that UK, yes, and maybe to put that in yet another way to think about it.
We're not asking you to ignore everything about the cloud because.
The rest of this is part of what you all when you buy the stock, but net retention rate becomes a meaningless metric in our business youre not selling into we don't give you net retention for maintenance, because we're not selling new perpetual licenses.
Just becomes about the churn rate in both maintenance and Thats whats happening in the self managed part of our subscription business. So <unk> the only meaningful metric to focus on his clock so that makes sense.
Yes. It does thank you.
Our next question comes from Brad Zelnick with Deutsche Bank.
Please proceed.
Great. Thanks, so much it's good to see the stability and it's really great to see the profitability progress in the business, which Mike I wanted to ask you about on the cash flow Guide I think you talked about.
Benefits from from working capital can you just double click for us all the various components that get you to raise the full year and really what I guess I'm trying to better understand is things that maybe repeat and things that don't.
Cash taxes for example, what should we think about as we then maybe model the out year for free cash flow. Thank you.
Yes, so on a yearly basis, our unlevered free cash flow.
All the puts and takes that you see quarter to quarter, and working capital and taxes tend to smooth themselves out.
And with that said I would.
Wouldn't encourage you to think about there being any different dynamics in terms of things like cash cycle days and cash tax rate and so forth when youre thinking about the out year versus this year.
The.
Fluctuations are really quarterly collections.
Days payable those sorts of things in a given quarter, but the year to year dynamics as you can see by how we raised our unlevered free cash flow guide by more or less the same amount we raise.
Operating non-GAAP operating income.
Or nothing.
No no real change.
Okay I appreciate that help and maybe just for you a minute I know, we're well into it but.
Any comments just in terms of how reps are adjusting to the cloud only and IP led sales motion.
What's may be tracking as you would expect along that journey and maybe what still remains to happen.
As.
As the field kind of shifts and adapts to this.
Yes, I think that.
Team has shifted many well obviously first half is supposed to have a meaningful to come up I think I would say.
Quite important pleased by how the field teams have.
Taken this and run with that as I said earlier this year that this actually gives simplification, but obviously any simplification takes some time to type in output, but I think the team is actually if anything have been very pleased with this.
Sort of enablement is gone and we were ready for this so I think so far so good results.
There can be seen in our goal is to make sure that we do all the things to accelerate this and make sure you are basically the go forward with it so I feel pretty good about how the sales teams are leading with it and I think as Mike and I've said that before so we continue to see this as the.
Yeah.
Also the further simplification of our business model I think there is room over there as we think about our overall company and we continue to become more and more cloud only to continue to basically further simplify other parts of the company to make sure we have it.
Go faster and much more at a much more accelerated pace.
Great. Thanks, so much for taking my questions.
Absolutely.
Our next question is from Alex Zukin with Wolfe Research. Please proceed.
Yeah.
Hey, guys. This is Ethan <unk>. Thank you for taking my question I guess I just wanted to ask Matts question a different way can you just talk a little about the shape of the quarter and it should begin to began to saw a little bit of budget on mark towards the end of the quarter and then a little round like cloud migration like the rate of change has accelerated two consecutive quarters I was just.
Wondering if you could point to anything that's driving that migration activity, whether it's just folks wanting to ICU consumption and better spend visibility people werent sitting just im curious how that migration activities performing relative to your expectations.
I think the migration I said that.
That migration is these are operational teams and needless to say we've put in a lot of effort to make sure that those are pushing towards can migrate at an accelerated pace auto and tech. We obviously led with our own services to create playbooks or what I talked about how we are enabling partners to go lead with it some partner enablement does happen further simplification.
The migration process all of those things take time and I think.
Gradually bearing fruit and you can see that all of that stock. It's a snowball effect at stocks stocks compounding over a period of time I feel very good about the fact that.
What we launched the next migration technology innovation that will come out later. This fall is another step in that direction. So we continue to see that look the reality is at the end of the day, our customers are running operational on Prem workloads on power Center.
The more that worked like a charm demoed that these are the industrial grade workloads, then they look at our cloud to basically see those capabilities and more and they are very excited to go over there. We just have to continue to make this journey from to a lot more faster lower risk and cheaper and we've been.
Focused on that point, so all of those efforts are bidding bearing fruit and look once the customer landed I've always said.
If you're running mission critical workloads in the cloud other nice to have workloads get subsumed by with it.
I'll begin with nice to have workloads.
You guys talked a little bit so I think we land deals we have tremendous runway to then consolidate many other things that are running across an enterprise.
I Gotcha that makes sense and then just a quick follow up I can appreciate the prudence in our.
Our guidance I guess.
If you think about like what you are factoring in the guide in terms of macro trends I know you said <unk> has been very stable versus basically what you've seen throughout the beginning.
<unk> hundred 23, I was just curious if you're embedding for things to get a little worse at down click just curious how we think about that.
If there is any directional.
Way to think about where credit cloud NR can trend in the back half the year.
I think on the guide a simple assumption is that the world, where you need to get better not worse I think if you remember when we were all here talking a couple of months ago. When we started that we gave a guide and then I remember when we were talking a couple of months ago, the holdback and many banking clients that have happened and everybody thought would it get worse would it get better and we said look we just holding.
When I say stable Ics table in the context of an opinion has gotten worse.
<unk> gotten materially better and.
Enterprises still remain.
Cautious in enterprise spending I think us executing better is what his showing up here and I don't think that I think it'd be very non prudent of me to get ahead of myself and assumed some things turning around and making it a lot better walking into the second half I think that's not what we're assuming and in that context, yes, I think let's take the first Talbot would achievement.
And.
Derisk the second half for now and continue to watch things carefully and keep executing when we meet here in a few months later, we'll share more but I feel very good about where we are and how the a potbelly guided for the top line.
And auto question, sorry, if im correct and not others.
And I would add is always up and down but you can never guide to and that out every quarter. You. All noted and that are can be flat, although under the cover of the cloud grew because we could've been acquiring a lot of first time, new cloud customers that are not accretive.
So when we think of an already said we shared with you a number we look at it in a holistic one year basis on a quarter to quarter basis, we don't get too caught up in it because remember I pick a cloud customer as long as the Claudia orders going if I'm getting a new customer with sito addictive to cloud.
Invaluable customer for me so.
So I look at it that way, so I wouldn't get caught up on the cloud and not on a quarter to quarter basis.
Patrick Congrats again.
Thank you.
Our next question is from pendulum Bora with J P. Morgan. Please proceed.
Great Hey, guys. Thanks for taking the question.
One more philosophical question for you on <unk>.
On AI.
One of your customers we spoke to.
Informatica as putting itself in a place of power with with open Apis, which is an interesting comment, but when I when I talk to investors a lot of people kind of bring about.
Companies like database.
Which are doing a lot of things and it seems like Theres a tussle between also when I talk to customers. There's a tussle between the people who wants to use informatica.
And the data science, the developers want to write Python scripts.
On top of data mix like how do you think of that puzzle kind of plays out over time.
So excellent.
I think you talked to the customer obviously.
Actually its adobe put assets with a position of power because what we're doing with our platform is really unique.
We never look at anything like that is a tougher look you asked me a philosophical question I'll give you a philosophical answer we all live in a fairly big.
We all have a tremendous amount of opportunity that is in the world of peg that is all it is a slight overlap some of the other are at anything and everything.
The entire security industry has some overlap with Microsoft, but they all access right. So I would just say that I look at it this way that there is.
All of these in some area you will find some overlap database with a great partner.
You saw what I shared about integrating with unity. The sequel days delay, but we are doing a lot of migration workload moving inhibit <unk> is leveraging ideas to the customer's going to Delta Lake.
So I look at the World is such a big Tam and we have so much to do that as such also when I look at our Pam <unk>.
Part of workload being written but then I have MDM I have governance cataloguing at so much more.
Tremendous stuff to do there is always going to be a corner case that it must be like some of these competitive.
But that's not technically true arguably data breach was super competitive to Microsoft Azure, because the Lakers compete with Azure data Lake.
So when you look at the world They live in over there. So I would just say that's how I see the word a philosophical answer back to a much broader question you asked but.
Have a great partner.
Yeah.
Yep Yep.
I think thats a thoughtful answer.
One question on <unk>. Obviously, you came in ahead of where people were expecting but when I was looking at kind of net new it.
It seems like it's it's on cloud it seems like you had kind of the same amount versus a year ago.
So.
Maybe I'm thinking this wrong, but as you are kind of leaning in on cloud you are no longer selling self manage shouldn't you be adding more cloud versus versus a year ago on an FTE basis.
Well, yes on a on a yearly basis, that's how we're looking at it quarter to quarter volatility.
It makes that.
A little dicey to.
We're all extrapolation from one quarter's performance.
And as you can see from our guide.
Third quarter versus Q4, this will be another backend loaded year as 22 was <unk> 21 was.
And in fact on a <unk> basis.
Little bit more backend loaded than it was last year even that.
So, yes, we expect <unk> to grow on a cloud basis.
For the full year for sure.
And we have high confidence in how it's going to unfold for the rest of the year based upon what we see in the pipeline based upon what we see it.
The products and the go to market sort of maturing in hitting our stride now.
Now that we've announced that we're at sort of the third quarter of our cloud only journey.
Understood. Thank you.
Okay.
Thanks Peter.
Our next question comes from call Jackie <unk> with Bank of America. Please.
Please proceed.
Hey, this is not only how on for <unk>. Thanks for taking my question.
Looks like sales execution was pretty good in the quarter. We wanted to ask have you made any adjustment in the go to market strategy or can you provide more color on what efforts have helped increase close rates and what will help sustain that through the end of the year.
Natalie I think.
That obviously a lot of work going on to make sure there would be transition to this new model effectively.
I would say that it all goes down to our focus on the right to use cases for the enterprise and.
Above.
Commercial customers.
Ibm's generally plays a tremendous value creation for them and obviously, making sure that we have other things. The team has done a good job of it is orienting towards used cases, a lot of and obviously, that's an area that customers.
Obviously resonate a lot and I'll focus on the Cdos.
The value prop going towards the CBO is because in some cases feeders of connect budget in some cases, even if they don't have they have a big influence. So all of those things between our in our go to market organization and our maniacal focus on operational execution, I think Mike mentioned pipeline create bucy pretty healthy pipeline create.
So I think all of those things are bearing fruit and I think we obviously have a big second half in front of us and the teams like <unk>.
Heads down focused on that right now.
Awesome. Thank you.
Yeah.
Our next question comes from Howard MA with Guggenheim. Please proceed.
Thank you and great to see the team executing according to plan.
Okay.
Building on some of your previous responses.
Questions on NII as well given the importance of data quality data governance data privacy to building and training AI and ml models, including to NII or are you starting to see a ramp in pipeline conversion for these products for these specific products and product skus or are they still on the come in.
And a related question is are there barriers to adoption near term.
We can't help but wonder if there are such.
Such as and barriers might not be something that might be out of your control right. So it could be budget constraints.
Not accommodating the demand or I guess in other words, not be able to justify that the business case or where maybe.
On your end, maybe you needed to make additional investments in sales enablement.
It's hard to argue against Informatica its unique position in data integration and intelligence.
Yes, we're all just trying to figure out how to how does it how does the realisation habit right.
The cadences.
Okay.
Absolutely Howard.
I think obviously nobody else want us I would say that absolutely. It's been I was like literally Informatica World post after that I was in Europe and that was in.
Traveling across multiple cities in the U S as well and I think all <unk> customers have a dialogue with us is that he absolutely they want to do things with Jimmy I had there as I said all enterprise customers are right in a few industry working on how do they get there. What's the first use case, what's the second use case with the reference architecture.
And they get comfort from the fact that they can execute on one platform. So in fact that our sales teams. It opens up the door for them because those are all conversation starters for us and second is no customer wants to invest in technology, but if you look at that data and then starting in AI. So that makes a great entry point.
For us even if in the short term, let's say, they're trying to do a lake House project.
Which maybe has nothing to do with AI as an example, but they know that they do all the work on us on our platform they can leverage.
Our next journey.
<unk> project, that's how it becomes and conversation starter to be expired line has deep closures, even if the customer is in the month of August not going to go through a journey that project, but Dino that Dave and they're investing in us come January when they want to do something it is not at all of those things are happening and that's how I see the opportune.
80 shipping us far.
The point I guess, we don't see any how does that look.
As I said take out the individual user use cases enterprise wide use cases end up being complex and those are all in the grant award of farming in shipping and you will see a lot of them happening in 2024.
So I guess just super quick follow up.
We are really long question can you comment on are you seeing increased pipeline conversion for for data quality and data governance privacy like for those specific skus that debt.
I think we established and have called that.
And I think they are all of our research that.
You do get good data quality and governance privacy right for cordless models.
Is it manifesting today or is it maybe more back half event or 2024.
Oh, absolutely so data quality or data governance and <unk> was.
Very very fast growing.
Capability for us in the second half and even for the full first half to be very honest to that specific question and.
And I think.
And then when you think of <unk> that acquisition lends us in that journey also because in the AI world and Jenny I democratization of happening.
Prices are getting very nervous about data access management. So that was that acquisition was very much centered in that context.
Okay. Thank you.
Thank you for your.
Questions.
There are no other questions waiting in queue. So I will pass the management team for any closing remarks.
Well. Thank you well look I appreciate everybody joining today and I just want to wrap up today's call by sharing my mic.
My perspective on <unk> look as we Informatica continue to accelerate our innovation led cloud business model transformation, which as many of you know it's not necessarily the easiest and takes a lot of hard work I couldnt be more part of our success.
Transformations are not easy, but we have been unique in doing that by not only growing our cloud business.
We're also growing our profitability and cash flow that's what I was essentially what Andrew asked the question that Im very very very few companies got to able to do both and that is all because we've had a long term strategic focus on building, our <unk> platform and working tirelessly to make <unk> IV MTB powered by AI cleared, which we launched back in 2000.
Today <unk> followed by a <unk>.
<unk> has become the data management platform of choice for enterprises across the globe and I couldnt be more throughput that we have a lot of work ahead of us.
Couldnt be more proud and thankful to be informatica team for bringing us here middle of the year. Thank you everyone.
That will conclude today's conference call.
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