Q2 2024 Informatica Inc Earnings Call

Good afternoon. Thank you for joining today's Informatica Fiscal and Q2 2024 lender call. My name is Cole and I'll be the moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end.

Cole: My name is Cole, and I'll be the moderator for today's call. All lines will be muted during the presentation portion of the call, with an opportunity for questions and answers at the end. If you'd like to queue for a question, you can do so by pressing star one on your telephone keypad, and now I'd like to turn it over to Victoria Hyde Dunn, Vice President of Investor Relations. You may proceed. Thank you.

If you'd like to queue for a question, you can do so by pressing star 1 on your telephone keypad. I'd now like to turn it over to Victoria Hyde Dunn, Vice President of Investor Relations. You may proceed.

Cole: Good afternoon, and thank you for joining Informatica's second quarter 2024 earnings conference call. Joining me today are Amit Walia, Chief Executive Officer, and Mike McLaughlin, Chief Financial Officer. Before we begin, we have a couple of reminders.

Speaker Change: Thank you. Good afternoon, and thank you for joining Informatica's second quarter 2024 Earnings Conference Call.

Speaker Change: Joining me today are Amit Walia, Chief Executive Officer, and Mike McLaughlin, Chief Financial Officer.

Victoria Hyde: Our earnings press release and slide presentation are available on our investor relations 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. However, actual results may differ materially from those expressed or implied as a result of various risks and uncertainties.

Speaker Change: 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.informatica.com. Our prepared remarks will be posted on the IR website after the conference call concludes.

Speaker Change: 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.

Victoria Hyde: For more information about some of these risks, please review the company's SEC filings, including the section titled Risk Factors, including our most recent 10-Q and 10-K filing for the full year 2023. 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 performance prepared in accordance with GAAP.

Speaker Change: For more information about some of these risks, please review the company's SEC filings, including the section titled Risk Factors, including our most recent 10-Q and 10-K filing for the full year 2023.

Speaker Change: These four looking statements are based on information as of today and we assume no obligation to publicly update or revise our four looking statements except as required by law.

Speaker Change: 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 performance prepared in accordance with GAAP.

Victoria Hyde: 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 Informatica's investor relations website. With that, it is my pleasure to turn the call over to Amit. Thank you, Victoria, and everyone, for joining us today. I will start today's call by summarizing three key points. First, we had a solid second quarter.

Speaker Change: A reconciliation of these items to the nearest U.S. gap measure can be found in this afternoon's press release and our slide presentation available on Informatica's Investor Relations website. With that, it is my pleasure to turn the call over to Amit.

Amit Walia: Our results were within and above all second quarter guidance metric ranges. This was driven by continued strong customer momentum and consistent execution from a cloud-only consumption-driven strategy. Second, we continue to deliver the best data management product on the industry's only AI-powered platform. After a 12-month extensive private preview, we have launched ClearGPT, our generative AI chat interface on the IDMC platform.

Amit Walia: Thank you, Victoria, and everyone for joining us today. I will start today's call by summarizing three key points.

Amit Walia: First, we had a solid second quarter. Our results were within and above all second quarter guidance metric ranges.

Amit Walia: This was driven by continued strong customer momentum and consistent execution from a cloud-only consumption-driven strategy.

Amit Walia: Second, we continue to deliver the best data management product on the industry's only AI-powered platform.

Amit Walia: After a 12-month extensive private preview, we have launched ClearGPT, our generative AI chat interface on the IDMC platform.

Amit Walia: Informatica is now the industry's only cloud data management platform with AI and Gen-AI capabilities for modern enterprises, and it is the Switzerland for data and now as well as for AI. Given our strong execution in the first half of the year, we are raising cloud subscription ARR, subscription ARR, non-GAAP operating income, and adjusted unlevered free cash flow after tax guidance for the full year. We remain focused on supporting our customers' digital transformation, cloud modernization, and now the Genii Initiative.

Amit Walia: Informatica is now the industry's only cloud data management platform with AI and Gen AI capabilities for modern enterprises, and it is the switzerland for data and now as well as for AI.

Speaker Change: Third, given our strong execution in the first half of the year, we are raising cloud subscription ARR, subscription ARR, non-GAAP operating income, and adjusted unlevered free cash flow after tax guidance for the full year.

Speaker Change: We remain focused on supporting our customers' digital transformation, cloud modernization, and now the Gen AI initiatives.

Amit Walia: Starting with our second quarter results, total revenue grew 6.6% year-over-year, subscription ARR grew 15% year-over-year, and cloud subscription ARR grew 37% year-over-year, both exceeding the high end of our guidance. We delivered a record $703 million in cloud subscription ARR, exceeding the $700 million mark for the first time. We strengthened our cash position and grew non-GAAP operating income by over 31% year-over-year, above the midpoint of the guidance. The macro environment remains stable in the second quarter, consistent with the prior quarter.

Speaker Change: Starting with the second quarter results, total revenue grew 6.6% year-over-year, subscription ARR grew 15% year-over-year, and cloud subscription ARR grew 37% year-over-year, both exceeding the high end of our guidance range.

Speaker Change: We delivered a record 703 million in cloud subscription ERR, exceeding the 700 million mark for the first time.

Speaker Change: We strengthened our cash position and grew non-GAAP operating income by over 31% year-over-year, above the midpoint of the guidance range.

Speaker Change: The macro environment remained stable in the second quarter, consistent with the prior quarter. Approximately 74% of cloud net new ARR in the trailing 12 months came from new cloud workloads and expansion.

Amit Walia: Approximately 74% of cloud net new ARR in the trailing 12 months came from new cloud workloads and expansion. We are attracting new customers, expanding opportunities with existing customers, and driving new workloads in the G2K market, supported by a robust partner ecosystem and a very healthy cloud pipeline. Customers that spend more than a million dollars in subscription ARR increased 28% year-over-year to 272 customers.

Speaker Change: We are attracting new customers, expanding opportunities with existing customers, and driving new workloads in the G2K market, supported by a robust partner ecosystem and a very healthy cloud pipeline.

Speaker Change: Customers that spend more than a million dollars in subscription ARR increased 28% year-over-year to 272 customers.

Amit Walia: Customer spending more than 5 million in subscription ARR grew 30% year over year. We saw continued strong growth in our average subscription ARR per customer, which has now reached 321,500, a 17% increase year over year. Let me share two customer stories. American Airlines is the largest airline in the world, offering safe, dependable, and friendly air transportation to its customers, along with numerous loyalty services.

Speaker Change: Customer spending more than 5 million in subscription ARR grew 30% year-over-year.

Speaker Change: We saw continued strong growth in our average subscription ERR per customer, which has now reached 321,500, a 17% increase year over year.

Speaker Change: Let me share two customer stories.

Speaker Change: American Airlines is the largest airline in the world, offering safe, dependable and friendly air transportation to its customers, along with numerous loyalty services.

Amit Walia: Dedicated to making every flight something special, American Airlines purchased a cloud data quality product to improve real-time customer experience and retention through excellent loyalty program incentives such as low fare options, mileage redemption, in-flight entertainment, and more. One of the world's largest graphic processing unit suppliers, or GPU suppliers, selected Informatica's IDMC platform, which includes MDM, data quality, data integration, and data governance capability. Next, approximately 26% of cloud net new PRR in the trading 12-month period came from on-premises to cloud migrations or modernization.

Speaker Change: Dedicated to making every flight something special, American Airlines purchased a cloud data quality product to improve real-time customer experience and retention through excellent loyalty program incentives such as low fare options, mileage redemption, in-flight entertainment, and more.

Speaker Change: One of the world's largest graphic processing unit suppliers or GPU suppliers selected Informatica as IDMC platform which includes MDM, data quality, data integration, and data governance capabilities.

Speaker Change: Next, approximately 26% of cloud net new ERR in the trading 12 months came from on-prem to cloud migrations, or modernizations as we say.

Amit Walia: This is still a very small portion of our on-premises customer base, but it continues to provide us with the opportunity to modernize our customers and grow our cloud business. We see strong customer adoption of Power Center Cloud Edition, representing over 80% of all modernization deals in Q2. Let me share two customer stories here. Westpac, which is Australia's first bank and a major player in New Zealand, is managing numerous legacy apps following acquisition.

Speaker Change: This is still a very small portion of our on-prem install base, but it continues to provide us with the opportunity to modernize our customers and grow our cloud business.

Speaker Change: We see strong customer adoption of PowerCenter Cloud Edition, representing over 80% of all modernization deals in Q2. Let me share two customer stories here. Westpac, which is Australia's first bank, and a major player in New Zealand, managing numerous legacy apps following acquisitions.

Amit Walia: To support its business strategy, which focuses on data-driven decision-making, automation, and AI, the bank has expanded its partnership with Informatica, transitioning from PowerCenter to the IDMC platform. This will help FESPAC reduce data management costs, expedite automation initiatives, and elevate the customer experience across branches, online platforms, and call centers. As a leading medical technology company, Siemens Healthineers is committed to improving access to health care for underserved communities worldwide and is striving to overcome the most threatening diseases.

Speaker Change: To support its business strategy, which focuses on data-driven decision-making, automation, and AI, the bank has expanded its partnership with Informatica, transitioning from Power Center to the IDMC platform.

Speaker Change: This will help FESPAC reduce data management costs, expedite automation initiatives, and elevate the customer experience across branches, online platforms, and call centers.

Speaker Change: As a leading medical technology company, Siemens Healthineers is committed to improving access to healthcare for underserved communities worldwide and is striving to overcome the most threatening diseases.

Amit Walia: The company is principally active in the areas of imaging, diagnostics, cancer care, and minimally invasive therapies augmented by digital technology and AI. Siemen Healthineers opted to modernize their on-prem Informatica data governance and catalog solutions to IDMC and further expand their footprint to include cloud data quality to address regulatory requirements and provide trustworthy data to the enterprise. At Informatica World earlier in May this year, we welcomed thousands of global customers, prospects, ecosystem partners, and GSI partners. We had the opportunity to engage, collaborate, and see first-hand how Informatica empowers enterprises to democratize data.

Speaker Change: The company is principally active in the areas of imaging, diagnostics, cancer care, and minimally invasive therapies augmented by digital technology and AI.

Speaker Change: Siemen Healthineers opted to modernize their on-prem Informatica data governance and catalog solutions to IDMC and further expand their footprint to include cloud data quality to address regulatory requirements and provide trustworthy data to the enterprise.

Amit Walia: We also heard testimonials of how the powerful combination of data and AI can deliver unprecedented business outcomes. We featured Scott Guthrie, EVP of the Cloud and AI group at Microsoft, as a main stage speaker. We announced the public preview of IDMC as an Azure native ISV service, the private preview of our data quality native app for Microsoft Fabric, and the general availability of a cloud data access management support for Azure. We also featured Sridhar Ramaswamy, CEO of Snowflake, on the main stage, and announced a JNI blueprint for Snowflake Cortex and a new native SQL ELT for Snowflake.

Speaker Change: At Informatica World earlier in May this year, we welcomed thousands of global customers, prospects, ecosystem partners, and GSI partners.

Speaker Change: We had the opportunity to engage, collaborate, and see firsthand how Informatica empowers enterprises to democratize data. We also heard testimonials from how the powerful combination of data and AI can deliver unprecedented business outcomes.

Speaker Change: We featured Scott Guthrie, EVP of Cloud and AI group at Microsoft as a main stage speaker. We announced the public preview of IDMC as an Azure native ISV service, the private preview of our data quality native app for Microsoft Fabric, and the general availability of our cloud data access management support for Azure.

Sridhar Ramaswamy: We also featured Sridhar Ravaswamy, CEO of Snowflake on main stage, and announced a JNAI blueprint for Snowflake Cortex and a new native SQL ELT for Snowflake.

Amit Walia: At Snowflake Summit, we announced the general availability of a Snowflake native app, the enterprise data integrator for high-speed replication of critical enterprise data to Snowflake, expansion of our native SQL ELT to support Snowflake GenAI functions, and cloud data access management support for Snowflake integrated with Snowflake Horizon Governance capability. We were awarded Databricks 2024 Data Integration Partner of the Year at the Data and AI Summit, where we announced our GenAI Blueprint for Databricks DBRX, full verification of Unity catalog support across IDMC, our native SQL ELT capabilities for Databricks, and the availability of a cloud data integration, no cost service tier where Databricks partners connect.

Speaker Change: At Snowflake Summit, we announced the general availability of our Snowflake native app, the enterprise data integrator for high-speed replication of critical enterprise data to Snowflake, expansion of our native SQL ELT to support Snowflake GenAI functions, and

Speaker Change: and a cloud data access management support for Snowflake integrated with Snowflake Horizon Governance capabilities.

Speaker Change: We were awarded Databricks 2024 Data Integration Partner of the Year at the Data and AI Summit, where we announced our GenEye Blueprint for Databricks DBRX.

Speaker Change: full verification of Unity catalog support across IDMC, our native SQL ELT capabilities for Databricks, and the availability of a cloud data integration no cost service tier where Databricks partner connect.

Amit Walia: We were awarded MongoDB's 2024 Build with Partner of the Year award as well. We launched our cloud data governance and catalog service natively on Oracle Cloud. We also expanded, or rather extended, our support for open table formats in Apache Iceberg.

Speaker Change: We were awarded MongoDB's 2024 Build with Partner of the Year as well.

Speaker Change: We launched our cloud data governance and catalog service natively on Oracle Cloud.

Speaker Change: We also extended our support for open table formats in Apache Iceberg. Iceberg adoption is in its early stages of growth across our cloud data ecosystem partners, from Snowflake to AWS and Microsoft Fabric, and now with the acquisition of Tabular by Databricks.

Amit Walia: Iceberg adoption is in its early stages of growth across the cloud data ecosystem partners from Snowflake to AWS and Microsoft Fabric and now with the acquisition of Tabular by Databricks. Informatica's new OpenTable format connectors support advanced data ingestion and integration use cases to drive large-scale data engineering operations for high-performance analytic and machine learning projects. Turning to GSI partners, some of our largest partners have experienced significant growth within their Informatica practices and are expanding their data and AI practices.

Speaker Change: Informatica's new Open Table Format connectors support advanced data ingestion and integration use cases to drive large-scale data engineering operations for high-performance analytic and ML projects.

Speaker Change: Turning to GSI partners.

Speaker Change: Some of our largest partners have experienced significant growth within the Informatica practices and are expanding their data and AI practices.

Amit Walia: We have seen growing interest in developing and taking solutions to market based on IDMC. For instance, LTI Mindfree launched a solution to assist non-Informatica businesses with legacy on-premise data integration products in modernizing and transitioning to Informatica IDMC.

Speaker Change: We have seen growing interest in developing and taking solutions to market based on IDMC. For instance, LTI Mindfree launched a solution to assist non-Informatica businesses with legacy on-prem data integration products in modernizing and transitioning to Informatica IDMC.

Amit Walia: As part of our ongoing strategy, we are seeing more partners assume a greater role in implementation services work, supporting our customers, and we welcome that. We continue to be the leading innovators in our industry. Over the years, we've invested over a billion dollars in R&D and are the biggest innovators in data management engineering in our space. We have innovated many categories in data management. We were pleased to be recognized by IDC as the market share leader in the 2023 worldwide report for both data integration and data intelligence. We will also recognize the champions of the Blue Research 2024 market update reports for data fabric, data quality, and test data management.

Speaker Change: As part of our ongoing strategy, we are seeing more partners assume a greater role in implementation services work, supporting our customers, and we welcome that.

Speaker Change: We continue to be the leading innovators in our industry.

Speaker Change: Over the years, we've invested over a billion dollars in R&D and are the biggest innovators in data management engineering in our space. We've innovated many categories in data management.

Speaker Change: We are pleased to be recognized by IDC as the market share leader in the 2023 Worldwide Report for both the data integration and data intelligence markets.

Speaker Change: We will also recognize the champions of the Blue Research 2024 market update reports for data fabric, data quality, and test data management.

Amit Walia: Now let me turn to JNI, which is at the top of our customer list. As I speak with CDOs, CIOs, and digital leaders across the globe, there is a universal agreement that everyone is ready for GNI except their data. Data management brings AI to life, ensuring trust, responsibility, ethical use, and value creation. Our efforts to assist customers with their AI strategic initiatives are twofold. Informatica for Gen AI and Gen AI from Informatica, both available on the single IDMC platform.

Speaker Change: Now let me turn to JNI, which is at the top of our customers' minds.

Speaker Change: As I speak with CDOs, CIOs, and digital leaders across the globe, there is a universal agreement that everyone is ready for GENI-I, except their data.

Speaker Change: Data management brings AI to life, ensuring trust, responsibility, ethical use, and value creation.

Speaker Change: Our efforts to assist customers with their AI strategic initiatives are twofold, Informatica for Gen AI and Gen AI from Informatica, both available on the single IDMC platform.

Amit Walia: Now, Informatica for Genii includes all of IDMC's capabilities, data integration, data governance, data quality, master data management, app integration, and cataloging, which are critical to processing mission-critical workloads. In June, IDNC processed 97 trillion cloud transactions per month, growing 59% year-over-year. At Informatica World, we unveil new features and product enhancements, including building no-code GNI apps with prompt engineering, RAG, and React AI agent support. Additionally, we support popular LLMs and VectorDBs with enterprise-grade scalability and governance.

Speaker Change: Now, Informatica for Genia includes all of IDMC capabilities, data integration, data governance, data quality, master data management, app integration, and cataloging, which are critical to processing mission-critical workloads.

Speaker Change: In June , IDNC processed 97 trillion cloud transactions per month, growing 59% year-over-year.

Speaker Change: At Informatica World, we unveil new features and product enhancements, including building no-code Gen AI apps with prompt engineering, RAG, and React AI agent support. We support popular LLMs and VectorDBs with enterprise-grade scalability and governance.

Amit Walia: We included new capabilities for contextualizing LLMs on enterprise data, including chunking, embedding, and ingestion into vector DBs. IDMC will add support for documents, images, and video sources with full integration across cloud data access management policies, data quality rules, catalog, and integration pipelines. IDMC is LLM agnostic, future-proof, and has out-of-the-box connectors for easy navigation of any model from any hyperscaler to small providers. A few fantastic real-life use cases include a California-based credit union using IDMC to optimize sentiment analysis with customer support training.

Speaker Change: We included new capabilities for contextualizing LLMs on enterprise data, including chunking, embedding, and ingestion into VectorDBs.

Speaker Change: IDMC will add support sources for documents, images, and video sources with full integration across cloud data access management policies, data quality rules, catalog, and integration pipelines.

Speaker Change: IDMC is LLM-agnostic, future-proof, and has out-of-the-box connectors for easy navigation of any model from any hyperscaler to small providers.

Speaker Change: A few fantastic real-life use cases include

Amit Walia: It provides proactive customer service by identifying customer support KPIs, reducing customer handling time through automated analysis of large volumes of phone interactions, and providing decision support using OpenAI. A large marketing company uses IDMC to build GenAI-based incident management, alleviating the burden on the incident management team by automating incident risk, incident assessment, and providing actionable insights with sentiment analysis using LLM with the RAG framework. A large pension firm in Canada is using IDMC to build a GenAI-based intelligent chatbot to improve employee productivity by reducing the processing time for queries on insurance proposals and claims through automated analysis and decision support using locally hosted LLMs.

Speaker Change: A California-based credit union uses IDMC to optimize sentiment analysis with customer support training.

Speaker Change: It provides proactive customer service by identifying customer support KPIs, reducing customer handling time through automated analysis of large volumes of phone interactions, and providing decision support using OpenAI.

Speaker Change: A large marketing company uses IDMC to build GenAI-based incident management, alleviating the burden on the incident management team by automating incident risk, incident assessment, and providing actionable insights with sentiment analysis using LLM with the RAG framework.

Speaker Change: A large pension fund in Canada is using IDMC to build a JNI-based intelligent chatbot, improving employee productivity by reducing the processing time for queries on insurance proposals and claims through automated analysis and decision support using locally hosted LLMs.

Amit Walia: Now turning to Gen-AI from Informatica, we launched ClearGPT, the first Gen-AI powered data management assistant grounded in enterprise metadata intelligence, leveraging core IDMC capabilities. In May, we announced the general availability of TRGPT in North America after an extensive 12-month preview program. ClearGPT is ShardGPT for enterprise data.

Speaker Change: Now turning to Gen AI from Informatica, we launched ClearGPT, the first Gen AI powered data management assistant grounded by enterprise metadata intelligence leveraging core IDMC capabilities.

Speaker Change: In May, we announced the general availability of ClearGPT in North America after an extensive 12-month preview program. ClearGPT is ChatGPT for enterprise data.

Amit Walia: Providing capabilities like data discovery, metadata exploration, finding data quality, data lineage, and even creating ELT pipelines. Along with CLAIRE GPT, we also have CLAIRE co-pilot capabilities embedded in all the products that sit on IDMC, providing in-context product data assistance with CLAIRE-generated classification. One of Informatica's key differentiators is its metadata system of record, which provides valuable insights into data assets' location, quality, and relevance for analytics and data science use cases.

Speaker Change: Providing capabilities like data discovery, metadata exploration, finding data quality, data lineage, and even creating ELT pipelines.

Speaker Change: Along with CLAIRE GPT, we also have CLAIRE co-pilot capabilities embedded in all the products that sit on IDMC, providing in-context product data assistance with CLAIRE-generated classifications.

Speaker Change: One of Informatica's key differentiators is its metadata system of record.

Speaker Change: which provides valuable insights into data assets location, quality, and relevance for analytics and data science use cases. This is more than just Informatica metadata. It is metadata across the enterprise, data warehouses, applications, BI tools on mainframes, from trained LLMs and SLMs.

Amit Walia: This is more than just Informatica metadata. It is metadata across the enterprise, data warehouses, applications, BI tools, or mainframes from trained LLMs and SMEs. Clare RAI Engine is now leveraging over 49 petabytes of active metadata in the cloud. Customers are in the early stages of piloting Claire GPT; since its launch, over 150 enterprise customers have consumed IPUs on Claire GPT usage, primarily for data discovery and exploration use cases. To give you a few examples, SSM Healthcare uses ClearGPT to enhance data literacy with its natural language interface for data discovery, examining the lineage of the data, and thoroughly assessing data quality.

Speaker Change: Claire RAI Engine is now leveraging over 49 petabytes of active metadata in the cloud.

Speaker Change: Customers are in the early stages of piloting Clare GPT, since its launch over 150 enterprise customers have consumed IPUs on Clare GPT usage, primarily for data discovery and exploration use cases.

Speaker Change: To give you a few examples.

Speaker Change: SSM Healthcare uses ClearGPT to enhance data literacy with its natural language interface for data discovery.

Amit Walia: With ClearGPT, they provide a self-service interface for medical information officers to effortlessly get insights on the data, such as the number of orthopedic providers in the network, ensuring appropriate patient coverage. A global supply chain. Data analysts use ClearGPT to monitor, maintain, and report on product movements, such as receipt, dispatch, and storage without needing SQL. These examples provide just a glimpse into real-life use cases and stories that customers share feedback with us.

Speaker Change: examining lineage of the data and thoroughly assessing data quality. With ClearGPT, they provide a self-service interface for medical information officers to effortlessly get insights on the data, such as the number of orthopedic providers in the network, ensuring appropriate patient coverage.

Speaker Change: A global supply chain, data analysts use ClearGPT to monitor, maintain, and report on product movements such as receipt, dispatch, and storage without needing SQL.

Speaker Change: These examples provide just a glimpse into real-life use cases and stories that customers share feedback with us. To further show our commitment to helping enterprise customers embrace trusted and holistic data for their AI initiatives, we are introducing a new promotion in August to drive broad, clear GPT adoption.

Amit Walia: To further show our commitment to helping enterprise customers embrace trusted and holistic data for their AI initiatives, we are introducing a new promotion in August to drive broad, clear GPT adoption. The offer is for eligible North America customers to use ClearGPT at no additional cost through the end of 2024. Now, looking into the second half of the year, we are pleased to raise four guidance metrics for the full year, including cloud subscription ARR to 35.5% from 35% earlier.

Speaker Change: The offer is for eligible North America customers to use ClearGPT at no additional cost through the end of 2024.

Speaker Change: Now, looking into the second half of the year, we are pleased to raise four guidance metrics for the full year, including cloud subscription ARR to 35.5% from 35% earlier.

Amit Walia: We had good execution and momentum in the first half of the year and believe our operational health remains very strong, as evidenced by a predictable cloud subscription revenue business model, our strong customer base, healthy cloud pipeline and retention rates, and growing unlevered free cash. Our growth priorities continue to center around three strategic initiatives outlined yesterday. First, data-driven digital transformation is crucial for our customers to achieve digital leadership.

Speaker Change: We had good execution and momentum in the first half of the year and believe our operational health remains very strong, as evidenced by a predictable cloud subscription revenue business model, our strong customer base, healthy cloud pipeline and retention rates, and growing unlevered free cash flow.

Speaker Change: Our growth priorities continue to center around three strategic initiatives outlined in yesterday. First, data-driven digital transformation is crucial for our customers to achieve digital leadership. In fact, with Genii on the horizon, customers are accelerating those.

Amit Walia: In fact, with GenEye on the horizon, customers are accelerating. Second, modernizing legacy data states to help enterprises harness the advantages of being a digital business. And lastly, delivering Gen-AI capabilities and assisting customers in exploring the intersection of data and AI for data management. These important initiatives for modern enterprises will be a tailwind for Informatica for many years to come. As I wrap up, I want to thank all my Informatica colleagues, our partners, our customers, and our shareholders for their contributions in their own way. With that, let me turn the call over to Mike. Mike, please take it away.

Speaker Change: Second, modernizing legacy data states to help enterprises harness the advantages of being a digital business. And lastly, delivering Gen AI capabilities and assisting customers in exploring the intersection of data and AI for data management.

Speaker Change: These important initiatives for modern enterprises are a tailwind for Informatica for many years to come.

Speaker Change: As I wrap up, I want to thank all my Informatica colleagues, our partners, our customers, and our shareholders for their ongoing support.

Michael I. McLaughlin: Thank you, Amit, and good afternoon, everyone. Q2 was another solid financial quarter across the board, with all key growth and profitability metrics within or above our guidance metrics. I'll begin my discussion of Q2 results with a quick review of the components that make up Informatica's Annual Recurring Revenue, or ARR. Our ARR falls into three categories: cloud subscriptions, which grew 37% year-over-year; self-managed subscriptions, which we no longer actively sell and therefore are gradually declining; and maintenance for on-premise perpetual licenses that we no longer actively sell, which is also gradually declining.

Speaker Change: With that, let me turn the call over to Mike. Mike, please take it away. Thank you, Amit. And good afternoon, everyone. Q2 is another solid financial quarter across the board with all key growth and profitability metrics within or above our guidance metrics.

Michael I. McLaughlin: I'll begin my discussion of Q2 results with a quick review of the components that make up Informatica's Annual Recurring Revenue, or ARR.

Michael I. McLaughlin: Our ARR falls into three categories, cloud subscriptions, which grew 37% year-over-year, self-managed subscriptions, which we no longer actively sell and therefore are gradually declining, and maintenance for on-premise perpetual licenses that we no longer actively sell, which is also in gradual decline.

Michael I. McLaughlin: With that in mind, let's start with total ARR, which was $1.67 billion, an increase of 7.8% over the prior year. This growth was driven primarily by new cloud workloads, strong cloud net expansion with existing customers, and stable self-managed subscription and maintenance renewal rates. However, foreign exchange rates negatively impacted total ARR by $2 million.

Michael I. McLaughlin: With that in mind, let's start with total ARR, which was $1.67 billion, an increase of 7.8% over the prior year. This growth was driven primarily by new cloud workloads, strong cloud net expansion with existing customers, and stable self-managed subscription and maintenance renewal rates.

Michael I. McLaughlin: Cloud subscription ARR was $703 million, a 37% increase year-over-year, and $10.6 million above the midpoint of our May guidance. New cloud workloads and strong net expansion with existing customers drove cloud subscription net new ARR of $190 million year-over-year and $50 million sequentially. Cloud subscription ARR now represents 42% of total ARR, up from 33% a year ago. However, foreign exchange negatively impacted cloud subscription ARR by about $720,000. Our cloud subscription net retention rate remained very strong in Q2.

Michael I. McLaughlin: Foreign exchange rates negatively impacted total ARR by $2 million.

Michael I. McLaughlin: Cloud subscription to ARR was $703 million, a 37% increase year-over-year, and $10.6 million above the midpoint of our May guidance.

Michael I. McLaughlin: New cloud workloads and strong net expansion with existing customers drove cloud subscription net new ARR of 190 million year-over-year and 50 million sequentially.

Michael I. McLaughlin: Cloud subscription ARR now represents 42% of total ARR, up from 33% a year ago. Foreign exchange negatively impacted cloud subscription ARR by about $720,000.

Michael I. McLaughlin: At the end user level, it was 119 percent, up three percentage points year over year and flat versus last quarter. The cloud subscription net retention rate at the global parent level was 126 percent, up four percentage points year over year and up two percentage points versus last quarter. Self-managed subscription error declined in the quarter, as expected, to 494 million.

Michael I. McLaughlin: Our cloud subscription net retention rate remained very strong at Q2. At the end-user level, it was 119% up 3 percentage points year-over-year and flat versus last quarter.

Michael I. McLaughlin: Cloud subscription net retention rate at the global parent level was 126 percent up four percentage points year-over-year and up two percentage points versus last quarter

Michael I. McLaughlin: Self-managed subscription error declined in the quarter, as expected, to $494 million.

Michael I. McLaughlin: This was down 2% sequentially and down 7% year over year, somewhat better than our expectations coming into the quarter. Subscription ARR, which is simply the sum of cloud ARR and self-managed ARR, grew 15% year over year to 1.2 billion, which was 18.5 million above the midpoint of our May guidance. However, foreign exchange rates negatively impacted subscription ARR by approximately 1.1 million.

Michael I. McLaughlin: This was down 2% sequentially and down 7% year-over-year, somewhat better than our expectations coming into the quarter.

Michael I. McLaughlin: Subscription ARR, which is simply the sum of cloud ARR and self-managed ARR, grew 15% year-over-year to $1.2 billion, which was $18.5 million above the midpoint of our May guidance. Foreign exchange rates negatively impacted subscription ARR by approximately $1.1 million.

Michael I. McLaughlin: The third component of total ARR is maintenance for on-premise perpetual licenses sold in the past, which now represents 28% of total ARR. However, maintenance ARR was down approximately 7% year-over-year to $472 million. This was in line with our expectations for the quarter. Modernizing our on-premise customer base to Informatica's intelligent data management cloud is a large opportunity for us. As of the end of Q2, we have migrated 6.1% of our maintenance and self-managed ARR base to the cloud, up from 5.5% last quarter.

Michael I. McLaughlin: The third component of total ARR is maintenance for on-premise perpetual licenses sold in the past, which now represents 28% of total ARR. Maintenance ARR was down approximately 7% year-over-year to $472 million. This was in line with our expectations for the quarter.

Michael I. McLaughlin: Modernizing our on-premise customer base to Informatica's Intelligent Data Management Cloud is a large opportunity for us.

Michael I. McLaughlin: As of the end of Q2, we have migrated 6.1% of our maintenance and self-managed ARR base to cloud, up from 5.5% last quarter. We have a life-to-date average 2-to-1 ARR uplift ratio on these migrations, including PowerCenter and Master Data Management migrations.

Michael I. McLaughlin: We have a life-to-date average 2-to-1 ARR uplift ratio on these migrations, including PowerCenter and Master Data Management migrations. In Q2, we closed a similar number of cloud modernization deals as in Q1. In the first half of this year, the number of modernization deals grew 58% year over year.

Michael I. McLaughlin: In Q2, we closed a similar number of cloud modernization deals as in Q1. In the first half of this year, the number of modernization deals grew 58% year over year. And in the second half of the year, we expect modernization growth to be above our average cloud subscription error growth rate.

Michael I. McLaughlin: And in the second half of the year, we expect modernization growth to be above our average cloud subscription error growth rate. To summarize our Q2 ARR performance, the three components of our ARR summed to 7.8% total ARR growth year over year. Cloud subscription ARR growth of 37% drove this increase, offset by gradual self-managed subscription and maintenance ARR declines. We expect similar trends to continue throughout the second half of 2024 as a direct result of our cloud-only strategy.

Michael I. McLaughlin: To summarize our Q2 ARR performance, the three components of our ARR summed to 7.8% total ARR growth year-over-year.

Michael I. McLaughlin: Cloud subscription ARR growth of 37% drove this increase, offset by gradual self-managed subscription and maintenance ARR declines. We expect similar trends to continue throughout the second half of 2024 as a direct result of our cloud-only strategy.

Michael I. McLaughlin: Now I'd like to review our revenue results for the second quarter. Gap total revenues were $401 million, an increase of 6.6% year over year. However, foreign exchange rates negatively impacted total revenues by approximately $1.6 million on a year-over-year basis.

Michael I. McLaughlin: Now I'd like to review our revenue results for the second quarter. Gap total revenues were $401 million, an increase of 6.6% year-over-year. Foreign exchange rates negatively impacted total revenues by approximately $1.6 million on a year-over-year basis.

Michael I. McLaughlin: Our revenue is approximately 1.4 million below the midpoint of our May guidance due to two primary factors. First, as a direct result of our strategy to shift more of our customers' implementation and support work to our professional services partners, professional service revenues were lower than our original forecast. This is a positive development for Informatica as our services partners are an important go-to-market channel, and the services related to our software are an attractive business for those partners.

Michael I. McLaughlin: Our revenue was approximately $1.4 million below the midpoint of our May guidance due to two primary factors.

Michael I. McLaughlin: First, as a direct result of our strategy to shift more of our customers' implementation and support work to our professional services partners, professional service revenues were lower than our original forecast.

Michael I. McLaughlin: This is a positive development for Informatica as our services partners are an important go-to-market channel and the services related to our software are an attractive business for those partners.

Michael I. McLaughlin: To illustrate the importance of this channel, for the first half of the year, closed wins in which partners brought Informatica into the opportunities represented more than 30% of total book. The second factor impacting our GAAP total revenue this quarter was a somewhat lower average term length of self-managed subscription renewal. This resulted in less upfront recognized self-managed subscription revenue per the ASC 606 accounting standard than our previous forecast.

Michael I. McLaughlin: To illustrate the importance of this channel, for the first half of the year, closed wins, in which partners brought Informatica into the opportunities, represented more than 30% of total bookings.

Michael I. McLaughlin: The second factor impacting our GAAP total revenue this quarter was somewhat lower average term length of self-managed subscription renewal. This resulted in less upfront recognized self-managed subscription revenue per the ASC 606 accounting standard than our previous forecast.

Michael I. McLaughlin: As most of you know, ASC 606 accounting for self-managed subscription revenue does not impact ARR billings or cash flow; shorter term lengths on renewals mean less gap revenue is recognized upfront per ASC 606 so that ARR, billings, and cash flow are not affected. We expect these two trends, lower professional services revenue and shorter self-managed renewal terms, to continue for the remainder of the year, and therefore, we are lowering our full year 2024 gap total revenue forecast accordingly, as we will discuss in a moment.

Michael I. McLaughlin: As most of you know, ASC 606 accounting for self-managed subscription revenue does not impact ARR billings or cash flow.

Michael I. McLaughlin: Shorter term lengths on renewals means less gap revenue is recognized up front per ASC 606 that ARR, billings, and cash flow are not affected.

Michael I. McLaughlin: We expect these two trends, lower professional services revenue and shorter self-managed renewal terms, to continue for the remainder of the year, and therefore we are lowering our full year 2024 GAAP total revenue forecast accordingly, as we will discuss in a moment.

Michael I. McLaughlin: Subscription revenue, which includes cloud subscriptions and self-managed subscriptions, increased 16% year over year to $264 million, representing 66% of total revenue compared to 61% a year ago. Our quarterly subscription renewal rate was 90%, down two percentage points year over year due to lower self-managed subscription renewal rates offset by higher cloud subscription renewal rates. Our subscription renewal rates have been largely consistent with our expectations so far this year. Revenues in our maintenance and professional services category were $136 million; maintenance revenue of $116 million represented 29% of total revenue for the quarter, and our maintenance renewal rate was 96%, up two percentage points year-over-year. Professional services revenues, which include implementation, consulting, and education, make up the remainder of this category and are down almost $4 million year over year.

Michael I. McLaughlin: Subscription revenue, which includes cloud subscriptions and self-managed subscriptions, increased 16% year-over-year to $264 million, representing 66% of total revenue compared to 61% a year ago.

Michael I. McLaughlin: Our quarterly subscription renewal rate was 90%, down 2 percentage points year-over-year due to lower self-managed subscription renewal rates offset by higher cloud subscription renewal rates.

Michael I. McLaughlin: Our subscription renewal rates have been largely consistent with our expectations so far this year.

Michael I. McLaughlin: Revenues in our maintenance and professional services category were 136 million. Maintenance revenue of 116 million represented 29% of total revenue for the quarter and our maintenance renewal rate was 96% up two percentage points year-over-year.

Michael I. McLaughlin: Professional services revenues, which includes implementation, consulting, and education, make up the remainder of this category and are down almost four million year-over-year.

Michael I. McLaughlin: As I mentioned a moment ago, our implementation services revenue has been declining as our services partners assume a greater share of that work for our customers, and we expect this trend to continue in the second half of the year. Cloud subscription revenue was 161 million, or 61% of subscription revenues, growing 35% year over year. As a reminder, due to the timing difference between revenue and ARR recognition, the relative growth rates of these two metrics may differ from period to period.

Michael I. McLaughlin: As I mentioned a moment ago, our implementation services revenue has been declining as our services partners assume a greater share of that work for our customers, and we expect this trend to continue in the second half of the year.

Michael I. McLaughlin: Cloud subscription revenue was 161 million or 61 percent of subscription revenues, growing 35 percent year-over-year. As a reminder, due to the timing difference between revenue and ARR recognition, the relative growth rates of these two metrics may differ from period to period.

Michael I. McLaughlin: Looking at the geographic distribution of our business, US revenues grew 7% year over year to $256 million, representing 64% of total revenue, while international revenue grew 5% to $144 million. Using exchange rates from Q2 last year, international revenue would have been approximately 1.6 million higher in the quarter, representing international revenue growth of 6.5% year over year. Informatica's consumption-based pricing unit, the IPU, represented approximately 58% of second quarter cloud new bookings. The remainder of Q2 cloud bookings were primarily for customer or supplier records for our MDM products, which is also a multi-year committed consumption-based pricing model. We added three new IPU services, including ClearGPT, to our IEMC platform this quarter.

Michael I. McLaughlin: According to the geographic distribution of our business, U.S. revenues grew 7% year-over-year to $256 million, representing 64% of total revenue, while international revenue grew 5% to $144 million.

Michael I. McLaughlin: Using exchange rates from Q2 last year, international revenue would have been approximately $1.6 million higher in the quarter, representing international revenue growth of 6.5% year-over-year.

Michael I. McLaughlin: Informatica's consumption-based pricing unit, the IPU, represented approximately 58% of second-quarter cloud new bookings. The remainder of Q2 cloud bookings were primarily for customer or supplier records for our MDM products, which is also a multi-year committed consumption-based pricing model.

Michael I. McLaughlin: We added three new IPU services, including ClearGPT, to our IEMC platform this quarter. We now have 36 data management capabilities that our customers can access and consume on our unified platform using IPUs.

Michael I. McLaughlin: We now have 36 data management capabilities that our customers can access and consume on our unified platform using IPUs. Now, I'd like to move on to our profitability metrics. Please note, I will discuss non-GAAP results unless otherwise stated. In Q2, our gross margin was 82%, an increase of over 1.6 percentage points year over year. We remain focused on maintaining healthy gross margins as our business transitions to the cloud. Operating expenses were consistent with expectations.

Speaker Change: Now I'd like to move on to our profitability metrics. Please note, I will discuss non-GAAP results unless otherwise stated. In Q2, our gross margin was 82%, an increase of over 1.6 percentage points year-over-year. We remain focused on maintaining healthy gross margins as our business transitions to the cloud.

Michael I. McLaughlin: Operating income was $115 million, growing 31% year-over-year and exceeding the midpoint of our May guidance by almost $2 million. Operating margin was 28.7%, a 5.4 percentage point improvement from a year ago. Just-in-Depot was $119 million, and net income was $71 million. Net income per diluted share was $0.23 based on approximately 315 million outstanding diluted shares.

Speaker Change: Operating expenses were consistent with expectations. Operating income was $115 million, growing 31% year-over-year and exceeding the midpoint of our May guidance by almost $2 million.

Speaker Change: Operating margin was 28.7%, a 5.4 percentage point improvement from a year ago. Justin Dibbida was $119 million and net income was $71 million.

Speaker Change: Net income per diluted share was $0.23 based on approximately 315 million outstanding diluted shares. Basic share count was approximately 301 million shares.

Michael I. McLaughlin: Basic share count was approximately 301 million shares. Adjusted unlevered free cash flow after tax was $71 million, better than expected due to faster cash collections and other working capital dynamics. Combined with Q1 results, Unlevered Free Cash Flow for the first half of 2024 was in line with historical linearity. I'll update our expectations for the full year in a moment. Cash paid for interest in the quarter was $38 million, in line with expectations.

Speaker Change: Adjusted unlevered free cash flow after tax was $71 million, better than expected due to faster cash collections and other working capital dynamics. Combined with Q1 results, unlevered free cash flow for the first half of 2024 was in line with historical linearity. I'll update our expectations for the full year in a moment.

Speaker Change: Cash paid for interest in the quarter was $38 million, in line with expectations. In June , we repriced our $1.8 billion outstanding term loan, reducing the applicable margin by 50 basis points and eliminating the credit spread adjustment related to the transfer from LIBOR to SOFR.

Michael I. McLaughlin: In June, we repriced our $1.8 billion outstanding term loan, reducing the applicable margin by 50 basis points and eliminating the credit spread adjustment related to the transfer from LIBOR to SOFR. This repricing will save approximately $11 million in pre-tax interest expense on an annual basis. We ended the second quarter in a strong cash position, with cash plus short-term investments of $1.13 billion, an increase of $307 million year-over-year. Net debt was $704 million, and the trailing 12 months of adjusted EBITDA was $529 million.

Speaker Change: This repricing will save approximately $11 million in pre-tax interest expense on an annual basis.

Speaker Change: We ended the second quarter in a strong cash position, with cash plus short-term investments of $1.13 billion, an increase of $307 million year-over-year. Net debt was $704 million, and trailing 12 months of adjusted EBITDA was $529 million. This resulted in a net leverage ratio of 1.3 times at the end of June .

Michael I. McLaughlin: This resulted in a net leverage ratio of 1.3 times at the end of June. Now I'll turn to guidance, starting with full year 2024. We are very pleased with our execution in the first half of 2024, and we have good momentum going into the second half of the year. This reflects confidence in our cloud-only, consumption-driven strategy, supported by strong customer momentum and renewal rates. Therefore, we are raising FY 2024 cloud subscription ARR by $3 million and subscription ARR by $4 million at the midpoint. We now expect cloud subscription ARR to be in the range of $829 million to $843 million, representing approximately 35.5% year-over-year growth at the midpoint of the range.

Speaker Change: Now, I'll turn to guidance, starting with the full year 2024. We are very pleased with our execution in the first half of 2024, and we have good momentum going into the second half of the year. This reflects confidence in our cloud-only, consumption-driven strategy, supported by strong customer momentum and renewal rates.

Speaker Change: Therefore, we are raising FY 2024 cloud subscription ARR by $3 million and subscription ARR by $4 million at the midpoint.

Speaker Change: We now expect cloud subscription ARR to be in the range of $829 million to $843 million, representing approximately 35.5% year-over-year growth at the midpoint of the range.

Michael I. McLaughlin: We now expect subscription ARR to be in the range of $1.265 billion to $1.299 billion, representing approximately 13.2% year-over-year growth. We are reaffirming total ARR to be between 1.718 billion and 1.772 billion, representing approximately 7.3% year-over-year growth. Turning to total revenues, we expect the same dynamics regarding professional services and self-managed renewal duration, as we saw in Q2, to continue for the remainder of the year. We estimate this impact to be approximately $21 million, about evenly split between these two dynamics.

Speaker Change: We now expect subscription ARR to be in the range of $1.265 billion to $1.299 billion, representing approximately 13.2% year-over-year growth.

Speaker Change: We are reaffirming total ARR to be between 1.718 billion and 1.772 billion, representing approximately 7.3% year-over-year growth.

Speaker Change: Turning to total revenues, we expect the same dynamics regarding professional services and self-managed renewal duration, as we saw in Q2, to continue for the remainder of the year. We estimate this impact to be approximately $21 million, about evenly split between these two dynamics.

Michael I. McLaughlin: Additionally, due to the recent strengthening of the U.S. dollar against the euro, pound, and yen, we now expect increased FX-related headwinds, revenue headwinds of approximately $4 million compared to previous assumptions. Taking this all together, we are updating the gap total revenues downward by approximately $25 million to the range of $1.66 billion to $1.68 billion, representing approximately 4.7% year over year growth at the midpoint of that range. It's very important to understand that this reduction in total revenue guidance does not reflect any change in our expectations for our core recurring revenue software business. Lower expectations for lower-margin professional services revenues and lower upfront self-managed revenue recognition pursuant to ASC 606 along with FX are the costs.

Speaker Change: Additionally, due to recent strengthening of the U.S. dollar against the euro, pound, and yen, we now expect increased FX-related headwinds, revenue headwinds, of approximately $4 million compared to previous assumptions.

Speaker Change: Taking this all together, we are updating GAAP total revenues downward by approximately $25 million to the range of $1.66 million to $1.68 billion, representing approximately 4.7% year-over-year growth at the midpoint of that range.

Speaker Change: It's very important to understand that this reduction in total revenue guidance does not reflect any change in our expectations for our core recurring revenue software business.

Speaker Change: Lower expectations for low-margin professional services revenues and lower upfront self-managed revenue recognition pursuant to ASC 606, along with FX, are the cause.

Michael I. McLaughlin: We delivered better than expected bottom-line results and are raising guidance for our non-GAAP operating income by $5 million and adjusted unlevered free cash flow after tax by $10 million at the midpoint. We now expect non-GAAP operating income to be in the range of $538 million to $558 million, representing approximately 18.5% year over year growth at the midpoint. And we now expect adjusted unlevered free cash flow after tax to be between $545 million and $565 million, representing 23% year-over-year growth.

Speaker Change: We delivered better-than-expected bottom-line results and are raising guidance for our non-GAAP operating income by $5 million and adjusted unlevered free cash flow after tax by $10 million at the midpoint.

Speaker Change: We now expect non-GAAP operating income to be in the range of $538 million to $558 million, representing approximately 18.5% year-over-year growth at the midpoint.

Speaker Change: And we now expect adjusted unlevered free cash flow after tax to be $545 million to $565 million, representing 23% year-over-year growth.

Michael I. McLaughlin: Turning to the third quarter, we are establishing guidance for the third quarter ending September 30th, 2024 as follows. We expect total revenues to be in the range of $412 to $428 million, representing approximately 2.8% year-over-year growth at the midpoint.

Speaker Change: Turning to the third quarter, we are establishing guidance for the third quarter ending September 30, 2024 as follows.

Speaker Change: We expect gap total revenues to be in the range of $412 to $428 million, representing approximately 2.8% year-over-year growth at the midpoint.

Michael I. McLaughlin: We expect subscription ARR to be in the range of $1.199 billion to $1.219 billion, representing approximately 12.2% year-over-year growth. We expect cloud subscription ARR to be in the range of $738 to $748 million, representing approximately 35.2% year-over-year growth. We expect non-GAAP operating income to be in the range of $139 million to $151 million, representing approximately 13.2% year-over-year growth. However, all of those growth rates are at the midpoint. For modeling purposes, I would like to provide a few more pieces of additional information.

Speaker Change: We expect subscription ARR to be in the range of $1.199 billion to $1.219 billion, representing approximately 12.2% year-over-year growth.

Speaker Change: We expect cloud subscription ARR to be in the range of $738 to $748 million, representing approximately 35.2% year-over-year growth.

Speaker Change: We expect non-GAAP operating income to be in the range of $139 million to $151 million, representing approximately 13.2% year-over-year growth. All of those growth rates are at the midpoint.

Michael I. McLaughlin: First, we expect total ARR for the third quarter to be in the range of $1.66 billion to $1.69 billion, representing approximately 6.3% year-over-year growth at the midpoint of the range. Second, we expect unadjusted, sorry, we expect adjusted unlevered free cash flow after tax for the third quarter to be in the range of $110 million to $130 million. Third, we estimate cash paid for interest will be approximately $36 million in the third quarter and approximately $146 million for the full year using forward interest rates based on one month so far.

Speaker Change: For modeling purposes, I would like to provide a few more pieces of additional information. First, we expect total ARR for the third quarter to be in the range of $1.66 billion to $1.69 billion, representing approximately 6.3% year-over-year growth at the midpoint of the range.

Speaker Change: Second, we expect unadjusted, sorry, we expect adjusted, unlevered, free cash flow after tax for the third quarter to be in the range of $110 million to $130 million.

Speaker Change: Third, we estimate cash paid for interest will be approximately $36 million in the third quarter and approximately $146 million for the full year, using forward interest rates based on one month so far.

Michael I. McLaughlin: Fourth, with respect to taxes, our Q2 non-GAAP tax rate was 23%, and we expect that rate to continue for the full year 2024. And lastly, our share count assumptions. For the third quarter, we expect basic weighted average shares outstanding to be approximately 304 million shares, and diluted weighted average shares outstanding to be approximately 312 million shares. For the full year, we expect the basic weighted average shares outstanding to be approximately 302 million shares, and diluted weighted average shares outstanding to be approximately 313 million shares.

Speaker Change: Fourth, with respect to taxes, our Q2 non-GAAP tax rate was 23%. We expect that rate to continue for the full year 2024.

Speaker Change: And lastly, our share count assumptions. For the third quarter, we expect basic weighted average shares outstanding to be approximately 304 million shares and diluted weighted average shares outstanding to be approximately 312 million shares.

Speaker Change: For the full year, we expect basic weighted average shares outstanding to be approximately 302 million shares and diluted weighted average shares outstanding to be approximately 313 million shares.

Operator: In summary, we are very pleased with our second quarter performance and the first half of the year. We're focused on executing our cloud-only, consumption-driven strategy and delivering our 2024 guidance. Operator, you can now open the line for questions. If you'd like to queue for a question, you can do so by pressing star 1 on your telephone keypad.

Speaker Change: In summary, we are very pleased with our second quarter performance and the first half of the year. We are focused on executing our cloud-only, consumption-driven strategy and delivering our 2024 guidance.

Speaker Change: Operator, you can now open the line for questions.

Speaker Change: If you'd like to queue for a question, you can do so by pressing Star 1 on your telephone keypad. If for any reason you'd like to remove your question, you can press Star 2. Again, to join the question queue, please press Star 1.

Operator: If for any reason you'd like to remove your question, you can press star 2. Again, to join the question queue, please press star 1. Our first question is from Matt Hedberg with RBC. Your line is now open.

Speaker Change: Our first question is from Matt Hedberg with RBC. Your line is now open.

Matthew George Hedberg: Oh, great. Thanks for taking my questions, guys. I guess, and maybe for either of you, you know, congrats on the results.

Amit Walia: I think, you know, obviously, Mike, you called out some of the revenue items that impacted you guys, but I think it certainly looks like core underlying strength and subscription, and Cloud ARR were strong. I guess I wanted to ask a little bit more about your increased Cloud ARR guidance. What are the primary reasons for this optimism? I mean, I think, you know, you mentioned maybe the pipeline, you know, just general, you know, customer interest. Is there a macro element to this as well?

Matthew George Hedberg: Oh, great. Thanks for taking my questions, guys. I guess, and maybe for either of you, you know, congrats on the results. I think, you know, obviously, Mike, you called out some of the revenue items that...

Speaker Change: Michael McLaughlin, Amit Walia

Matthew George Hedberg: Your increased cloud ARR guidance. What are the primary reasons for this optimism? I mean, I think, you know, you mentioned maybe pipeline, you know, just general, you know, customer interest. Just, is there a macro element to this as well? Just sort of curious on that.

Amit Walia: Just sort of curious about that; certainly, it must look good to look good to us. So thanks for the question, Matt. Look, I think we can macro, I said, like we look, the macro look appeared to be the same to us in the last quarter as in Q1. I think what we are seeing is definitely, my pipeline has been very healthy. This year, Informatica World, some of you were there, was the biggest Informatica World ever.

Speaker Change: It certainly would look good to us.

Speaker Change: So, thanks for the question, Matt. Look, I think we, macro, I said, like, we look, the macro looked, appeared to be the same to us in last quarter as in Q1. I think what we are seeing is definitely, Pipeline has been very healthy.

Amit Walia: And coming out of the pipeline of that Informatica World was the biggest pipeline that we've ever had. And going back to the three initiatives that customers are spending on, ongoing digital transformation, modernization, and now Gen AI, it's actually become a Venn diagram. I think I said that before. To get to Gen AI, customers have to modernize even faster, and they have to get to digital faster. Then only do they get the benefit of Gen AI.

Speaker Change: This year's Informatica Award, some of you were there, was the biggest Informatica Award ever.

Speaker Change: And coming out of the pipeline of that Informatica award was the biggest pipeline that we've ever had.

Speaker Change: And going back to the three initiatives that customers are spending on, ongoing digital transformation, modernization, and now Gen AI, it's actually become a Venn diagram. I think I said that before. To get to Gen AI, customers have to modernize even faster, and they have to get to digital faster, and then only they get the benefit of Gen AI.

Amit Walia: And, of course, the early innings in Gen AI are also playing a role. For example, people have to set their data states in place. So, with IDMC, they can do the current initiatives that they are currently on, and they can start experimenting with Gen AI. That has allowed customers to feel very future-proofed in what they are implementing here. All of those we are seeing as being the tailwind to pipe creation and healthy deal closure. And also, you see big deals, like the $5 million-plus deals we talked about, ARR, as well as pretty healthy growth over time. I got it.

Speaker Change: And, of course, the early innings in GNI are also playing a role. People have to set their data states in place.

Speaker Change: So, and with IDMC, they can do the current initiative that they are currently on, and they can start experimenting Gen AI.

Speaker Change: That has allowed customers to feel very future-proofed in what they are implementing here. All of those are we are seeing as being the tailwind to pipe create and healthy deal closure. And also you see big deals like the $5 million plus deals we talked about, ARR, as well as the $1 million. Pretty healthy growth over there.

Michael I. McLaughlin: That makes sense. And then Mike, just maybe one for you on the strategic ship, to more PS revenue going to partners. I guess I'm curious, is there a benefit to your margins over time due to this? And, secondarily, can you give us a sense for, you know, after this updated assumption, how much of your PS revenue is left, I guess, as we think, you know, towards calendar 25 and beyond? Yeah, sure.

Speaker Change: Got it. That makes sense. And then, Mike, just maybe one for you on the strategic ship.

Speaker Change: to more PS revenue going to partners. I guess I'm curious, is there a benefit to your margins over time due to this? And I guess secondarily, can you give us a sense for, after this updated assumption, how much of your PS revenue is left, I guess as we think towards calendar 25 and beyond?

Michael I. McLaughlin: So it's going to be essentially margin neutral. We're a software company, not a professional services company. And while we have a great professional services organization, we're really proud of them. It's not a profit center for us. It's there to ensure the successful implementation of the software and to ensure that the customers realize the value that they should from the software once they own it. So we're very happy for our GSI and regional services partners to do that business instead of us, if our customers want them to. We don't pay commissions to our salespeople to sell PS.

Speaker Change: Yeah, sure. So it's going to be essentially margin-neutral.

Speaker Change: We're a software company, not a professional services company, and while we have a great professional services organization, we're really proud of them.

Speaker Change: It's not a profit center for us, it's there to ensure the successful implementation of the software and to ensure that the customers realize the value that they should from the software once they own it.

Speaker Change: So, we're very happy for our GSI and regional services partners to do that business instead of us if our customers want them to. We don't pay commissions to our salespeople to sell PS.

Michael I. McLaughlin: It's more of a pull from our customers when they want it, so this decline is a natural trajectory. It's gone a little faster than we expected. It's declined over the last three years, and we thought this year was gonna be the bottom, but it's actually declining faster than that. And so we lowered guidance accordingly. I think the number, if you look at last year for our professional services, including our education services, was $97 million.

Speaker Change: It's more of a pull from our customers when they want it. So this decline is a natural trajectory. It's gone a little faster than we expected. It's declined over the last three years, and we thought this year was going to be the bottom. But it's actually declining faster than that. And

Speaker Change: So we lowered guidance accordingly.

Speaker Change: I think the number, if you look last year for our professional services, including our education services, was $97 million, and we had thought it was going to be about flat, and we were taking it down, as I said in the remarks, by low double digits, $10, $11, $12 million for the year.

Michael I. McLaughlin: And we had thought it was going to be about flat, and we were taking it down, as I said in the remarks, by low double digits, $10, $11, $12 million for the year. Thanks a lot, guys. Our next question is from Aleks Zukin with Wolf Research. Your line is now open. Hey, this is Patrick on behalf of Aleks.

Speaker Change: Thanks a lot, guys.

Speaker Change: Our next question is from Aleks Zukin with Wolf Research. Your line is now open.

Patrick: Just wanted to clarify, maintenance renewal rates are going higher, but duration is down. So can you just explain the dynamics there? Are self-managed customers renewing, but you're just seeing more one and two-year deals versus two and three-year deals prior. I'm curious as to how or if you can try to further accelerate that migration story. Thanks. Yeah, sure, Patrick.

Speaker Change: Hey, this is Patrick on for Aleks. Just wanted to clarify, maintenance renewal rates are going higher, but duration is down. So can you just explain the dynamics there? Are self-managed customers renewing, but you're just seeing more one- and two-year deals versus

Speaker Change: Two and three-year deals prior. I'm curious as to how or if you can try to further accelerate that migration story. Thanks.

Michael I. McLaughlin: So let's start with a clarification, because it's important to keep maintenance, which is on on-prem perpetual licenses, and self-managed, which is essentially on-prem subscriptions, separately because the dynamics in terms of renewal are a little different. Maintenance contracts are almost all one year. They have been since the dawn of time.

Speaker Change: Yeah, sure, Patrick. So let's start with a clarification because it's important to keep maintenance. Thank you. Thank you.

Speaker Change: which is on on-prem perpetual licenses and self-managed which is essentially on-prem subscriptions separately because the dynamics in terms of renewal are a little different.

Speaker Change: Maintenance contracts are almost all one year. They have been since the dawn of time. And the renewal rate there is very constant. The term of those renewals actually doesn't matter because maintenance is recognized readily because it is a service, not a software license.

Michael I. McLaughlin: And the renewal rate there is very constant. The term of those renewals actually doesn't matter because maintenance is recognized routinely because it is a service, not a software license. It's all in the self-managed piece, which is the on-prem subscription contract. And that the amount that's recognized up front per ASC 606 is hefty, and a change in the duration from three to two to one or anywhere in between, as it has a remarkably large impact on the gap revenue recognition. So we expected it to come down.

Speaker Change: It's all in the self-managed piece, which is on-prem subscription contracts.

Speaker Change: And that, the amount that's recognized up front per ASC 606 is hefty, and a change in the duration from three to two to one, or anywhere in between, has a remarkably large impact on the gap revenue recognition. So thank you.

Michael I. McLaughlin: It's a natural thing as we end the sale of the product and more and more folks are preparing themselves to move to the cloud, if not today, maybe at the next renewal. [inaudible] We see that trend of reduced renewal terms actually as a confirmation that migrations are going to continue to move rapidly and, hopefully, move even faster because the customers are setting themselves up to move, as indicated by voting with their feet, as you will, by shorter durations on the self-managed contracts.

Speaker Change: We see that trend of reduced renewal term actually as a confirmation that migrations are going to continue to...

Speaker Change: Move rapidly and hopefully move even faster because the customers are setting themselves up to move, as indicated by voting with their feet, as you will, by shorter durations on the self-managed contracts. So it's all self-managed on-prem, not maintenance.

Michael I. McLaughlin: So it's all self-managed on-prem, not maintenance. And the revenue, the gap revenue reduction that we've established, you know, puts it, we think, at a realistic level for the rest of the year. And I can't..., not I can't end this answer though by reminding everybody that it doesn't affect ARR.

Speaker Change: And the gap revenue reduction that we've established, you know, puts it at what we think is a realistic level for the rest of the year. And I can't...

Speaker Change: I can't end this answer though by reminding everybody that it doesn't affect ARR, it doesn't affect billings, doesn't affect cash flow. As you can see we've actually increased our bottom line guidance despite the fact that gap revenue is coming down.

Michael I. McLaughlin: It doesn't affect billings, and it doesn't affect cash flow. As you can see, we've actually increased our bottom-line guidance despite the fact that gap revenue is coming down. And then a quick follow-up, if you don't mind, in terms of what is contemplated in the implied second half of the METNU cloud ARR guide, any way to think about whether there is more or less migration baked into that number, given the implied ramp? Thanks. So we haven't sort of explicitly changed our expectations for the pace of migration through the year.

Speaker Change: And then a quick follow-up, if you don't mind, in terms of what is contemplated in the implied second-half METNU Cloud ARR guide, any way to directionally think about whether there is more or less migration baked into that number, given the implied ramp? Thanks.

Speaker Change: So, we haven't sort of explicitly changed our expectations for the pace of migrations.

Michael I. McLaughlin: As I mentioned in my remarks, we expect the growth of our migration, both in terms of deals and dollars, year over year to be faster than our average cloud subscription growth. We're guiding to 35.5% cloud subscription growth overall. Migrations will grow faster than that, reflecting all the things we've talked about over time, including PowerCenter Cloud Edition, making it easier, faster, and less risky for our customers to move. And we remain confident in that forecast. You know, we were all optimistic that it would, you know, maybe go faster than that.

Speaker Change: through the year.

Speaker Change: As I mentioned in my remarks, we expect the...

Speaker Change: Growth of our Migration.

Speaker Change: both in terms of deals and dollars.

Speaker Change: year-over-year to be faster than our average cloud subscription growth. We're guiding to 35.5% cloud subscription overall. Migrations will grow faster than that.

Speaker Change: reflecting all the things we've talked about over time including PowerCenter Cloud Edition making it easier, faster, less risk for our customers to move and we remain confident in that in that forecast.

Speaker Change: We're optimistic that it will maybe go faster than that, and particularly in 2025, we see lots of reasons to be optimistic, but for now, we're not changing our explicit expectations for migrations for the rest of the year.

Michael I. McLaughlin: And particularly in 2025, we see lots of reasons to be optimistic. But, you know, for now, we're not changing our explicit expectations for migrations for the rest of the year. That's great. Thanks, and congratulations on the results.

Speaker Change: That's right. Thanks and congrats on the results.

Kash Ranjan: Thank you. We have a question from Kash Ranjan with Goldman. Your line is now open.

Speaker Change: Thank you.

Speaker Change: We have a question from Kash Ranjan with Goldman. Your line is now open.

Amit Walia: Hey, thank you very much. Congratulations on the quarter. It looks like the cloud momentum is picking up. So, Amit, high-level question for you, as you approach 2025 with cloud ARR firmly about 20% of total ARR, and with the cleanup done with respect to the AAC 606, revenue recognition of on-prem, lowering the guide is the right thing to do. But how does this set you up for accelerating revenue growth, potentially into double digits for next year? Thank you so much.

Kash Ranjan: Hey, thank you very much, congrats on the quarter, looks like the cloud momentum is picking up. So, Amit, high-level question for you, as you approach 2025 with cloud ARR firmly above 20% of total ARR.

Speaker Change: And with the cleanup done with respect to the AAC-606 revenue recognition of the on-prem, the lowering the guide is the right thing to do. But how does this set you up for accelerating revenue growth rate potentially into double digits for next year? Thank you so much.

Michael I. McLaughlin: And that's it. Look, I think it sets us up well for accelerating revenue growth, but double digits in 2023, this isn't official guidance, but 2025, so thank you, is probably not realistic. But accelerating revenue growth, we do feel good about, and that's all consistent with what we talked about last December or yesterday when we set out our medium-term guidance. We still feel good about that medium-term guidance, and that, as you may recall, was calling for double-digit revenue growth by the end of 26 or into 27, with double-digit ARR growth in 2026. So that all still feels good to me. Cash, if you're there, you may be on mute.

Amit Walia: Look, I think it sets us up well for accelerating revenue growth, but double digits in 2023, this isn't official guidance, but 2025, so thank you.

Amit Walia: is

Speaker Change: Probably not realistic, but accelerating revenue growth, we do feel good about, and that's all consistent with what we talked about last December , or yesterday, when we set out our medium-term guides.

Speaker Change: We still feel good with that medium-term guidance, and that, as you may recall, was calling for double-digit revenue growth by the end of 26 or into 27, with double-digit ARR growth in 2026. So that all still feels good to us.

Speaker Change: Cash, if you're there, you may be on mute.

Kash Ranjan: No, that was it. Thank you so much. That was the question that I had. I appreciate it. Take care.

Cash Ranjan: No, that was it. Thank you so much. That was the question that I had. Appreciate it.

Koji Ikeda: Thanks. We have a question from Koji Ikeda with Bank of America. Your line is now open.

Cash Ranjan: Take care. Thanks.

Speaker Change: We have a question from Koji Ikeda with Bank of America. Your line is now open.

Koji Ikeda: Yeah, hey, great. Thanks, guys, for taking the question. A couple from me.

Koji Ikeda: Hey, great. Thanks guys for taking the question. A couple from me. So I am looking at your investor presentation.

Koji Ikeda: So I am looking at your investor presentation, slide number 48. It's the maintenance to cloud migration illustrative example. I think this is a new slide.

Michael I. McLaughlin: And it does give the in your prepared remarks did talk about 20% 6% of net new cloud AR coming from migrations. But in this slide, it talks about the effects of credit. And so I guess the question here is, is there a way to maybe qualitatively or quantitatively talk about how much higher the percentage of net new ARR would have been this quarter, or maybe, on a trailing 12 month basis, if there were not credits given and the effect of cloud ARR?

Koji Ikeda: Slide number 48. It's the maintenance to cloud migration illustrative example. I think this is a new slide.

Speaker Change: And it does give the, in your prepared remarks, you did talk about 20%, 6% of net new cloud AR coming from migrations, but in this slide, it talks about the effects of credits.

Speaker Change: And so I guess the question here is, is there a way to maybe qualitatively or quantitatively talk about how much higher the percentage of net new ARR would have been?

Speaker Change: this quarter, or maybe, you know, on a trailing 12 month basis, if there were not credits given and the effect to cloud ARR.

Michael I. McLaughlin: Yeah, well, thank you for digging all the way to page 48 in the deck. It is a new slide, and we created it because we got so many questions on this, and it's hard to answer well without a little bit of a visual aid.

Speaker Change: Yeah, well thank you for digging all the way to page 48 into the deck. It is a new slide and we produced it because we got so many questions on this.

Speaker Change: And it's hard to answer well without a little bit of a visual aid. You've got it right that the credits that are offered for existing maintenance, and in some cases, professional services for migration, lower the ARR that we...

Michael I. McLaughlin: You're right that the credits that are offered for existing maintenance and, in some cases, professional services for migration lower the ARR that we, recognizing cloud during the term of the initial cloud deal, sort of average two and a half years, some are two, some are three, some are longer. And then the full AR is not fully realized or unlocked, as we say internally until that first renewal. There's really not a great way for you to model it.

Speaker Change: recognizing cloud during the term of the initial cloud deal, sort of average two and a half years, some are two, some are three, some are longer, and then the full AR is not fully realized or unlocked as we say internally until that first renewal.

Michael I. McLaughlin: You can certainly try, and we can give you some things to think about, primarily the fact that it's six months is the PowerCenter Cloud Edition transition period, so we give folks credit for their maintenance in full for that six months of maintenance. That's the primary variable. And so you certainly can take a stab at modeling, and we model it internally. But it's, you know, it gets complicated, and the lines you're spreading get pretty complex pretty fast.

Speaker Change: There's really not a great way for you to model it. You can certainly try and, you know, we can give you some.

Speaker Change: things to think about. Primarily the fact that it's six months is the Power Center Cloud Edition transition period so we give folks

Speaker Change: credit for their maintenance in full for that six months of maintenance. That's the primary variable and so you so you certainly can take a stab at modeling it. We model it internally.

Speaker Change: But it's, you know, it's it gets complicated in the lines your spreads you get pretty complex pretty fast.

Michael I. McLaughlin: No, that's very helpful. Thank you for that. And I'll follow up here.

Speaker Change: That's very helpful. Thank you for that.

Speaker Change: Follow-up here. You did talk about Claire GPT.

Speaker Change: being available now on IPU. So great to see.

Speaker Change: Your customers have a low-friction adoption way for Clear GPT.

Speaker Change: I guess the question here is that will you be able to see usage of Clear GPT through the IPU and is there the potential for Clear GPT to be broken out as a percentage of IPUs in the future?

Amit Walia: You did talk about Clear GPT being available now on IPUs. So great to see your customers have a low friction adoption way for Clear GPT. I guess the question here is whether you will be able to see usage of Clear GPT through the IPU?

Amit Walia: And is there the potential for Clear GPT to be broken out as a percentage of IPUs in the future? Thank you. So the first answer is yes, customers can consume Clear GPT through the IPO model.

Speaker Change: [inaudible]

Amit Walia: That's the intent, which is why I mentioned that. And the examples I gave you are examples of customers who started using Clear GPT with the IPO model. So our goal right now is obviously to drive as much adoption of the Clear GPT service because that, in general, obviously, will be driving more IDMC services and its usage. And we feel very good about it. I think, Koji, for now, we're not looking to break that at all.

Speaker Change: The first answer is yes. Customers can consume clear GPT through the IPU model. That's the intent, which is why I mentioned that. And the examples I gave you are the examples of customers who started

Speaker Change: using Clear GPT with the IPO model. So our goal right now is to obviously drive

Speaker Change: As much adoption of the Clear GPT service, because that in general obviously will be driving more of IDMC services and its usage, and we feel very good about it.

Amit Walia: I mean, we don't break any of our services in general in the IPO model. Obviously, when we come to the next session, we can keep giving you guys more information around where we are headed in that direction and more things. But right now, we don't have any plans to break Clear GPT IPO consumption from regular IPO consumption, like we haven't broken for any other service.

Koji Ikeda: I think, Koji, for now, we have, we're not looking to break that at all. I mean, we don't break any of our services in general in the IPU model. Obviously, when we come to the next, any session, we can keep giving you guys more information around where we are headed in that direction and more things. But right now, we don't have any.

Koji Ikeda: Any plans to break the clear GPT-IPU consumption from regular IPU consumption like we haven't broken for any other service?

Koji Ikeda: Got it. Thank you, Amit. Thanks, guys, for taking the questions.

Koji Ikeda: Thank you, Amit. Thanks, guys, for taking the questions. Sure. Our next question is from Andrew Nowinski with Wells Fargo. Your line is now open. Thank you. Good afternoon, everyone.

Koji Ikeda: Sure.

Koji Ikeda: Our next question is from Andrew Nowinski with Wells Fargo. Your line is now open.

Andrew James Nowinski: So I want to ask a question about your cloud ARR. It was clearly very strong this quarter, and your guidance for cloud ARR was also very impressive, which seems to be the opposite of what we saw from Azure tonight. Does that signify the durability of your cloud ARR segment and how it can continue growing at a high pace, despite some of the weakness we're seeing at the hyperscalers? Thanks, Andrew, for the question.

Andrew James Nowinski: Thank you. Good afternoon, everyone. So I want to ask a question on your cloud ARR is clearly very strong this quarter and your guidance for cloud ARR was also very impressive, which seems to be the opposite of what we saw from Azure tonight. Does that signify the durability of your cloud ARR segment and how it can continue growing at a high pace, despite some of the weakness we're seeing at the hyperscalers?

Andrew James Nowinski: Look, I think if you step back, one of the things that we've always said, first of all, the uniqueness of Informatica is that we serve every hyperscaler platform, every data platform, every use case across the industry. So it's not necessary that whether an Azure or a GCP or an AWS or a Snowflake or a Databricks, any of their individual things directly impact us quarter in or day in, Obviously, we serve a broad ecosystem.

Speaker Change: Thanks, Andrew, for the question. Look, I think if you step back, one of the things that we've always said, first of all, the uniqueness for Informatica is

Speaker Change: that we serve every hyperscaler platform, every data platform, every use case across the industry.

Speaker Change: So it's not necessary that whether an Azure, or a GCP, or an AWS, or a Snowflake, or a Databricks, any of their individual things directly impact us quarter in or day in, day out. Obviously, we serve a broad ecosystem.

Amit Walia: So obviously, our strength and durability is that we serve across all of the data, as I said, and as you heard from me, becoming the switcher of AI in the new world. And that's the strength of the business and customer. The other one is that, look, we're a very unique place.

Speaker Change: So, obviously, our strength and durability is that we serve across all of the switches in a lot of data, as I said. And as you heard from me, becoming the switch in AI in the new world.

Amit Walia: We've got the best of breed products. We're the only platform that brings them all together. And with AI, GNI, and that, in our industry, which is massively fragmented in data management, there isn't even one that remotely comes to us. And I think that's another thing that's obviously benefiting us. And not forgetting modernization.

Speaker Change: And that's the strength of the durability of the business and customers. The other one is that look, we're a very unique place. We've got the best of breed products.

Speaker Change: We're the only platform that brings it all together, and with AI, GNI, and that. In our industry, which is massively fragmented in data management, there isn't even one that remotely comes to us, and I think that's another thing that's obviously benefiting us, and not forgetting modernization. So I think all of those are playing into the momentum we are seeing.

Amit Walia: So I think all of those are playing into the momentum we are seeing. Okay, thank you. Um, and just to follow up, maybe just a clarification, I guess it is that you cited, I think a new stat, you said 26% of cloud ARR came from migrations this quarter. Was that an improvement relative to last quarter? How the hell is that?

Speaker Change: Okay, thank you. And just to follow up, maybe just a clarification, I guess it is that you cited, I think, a new stat. You said 26% of cloud ARR came from migrations this quarter. Was that an improvement relative to last quarter? How has that changed?

Andrew James Nowinski: It's actually not a new stat. We introduced it at our investor day in December, and we've mentioned it on our calls this year, or at least in Q1, and this is our second call of the year. So back in at our investor day, I think that stat was 17%, maybe 18%, and it was 24 in Q4, and it's 26 now. So it's going up. There's quarter-to-quarter volatility in that, and it's in any given quarter a lot of small numbers, relatively speaking.

Speaker Change: Thank you.

Speaker Change: It's actually not a new stat. We introduced it at our investor day in December and we've mentioned it on our calls the last, or at least in Q1, and this is the second call of the year.

Speaker Change: So back in, at our investor day, I think that stat was 17%, maybe 18.

Speaker Change: And it was 24 in Q4, and it's 26 now, so it's going up. There's quarter-to-quarter volatility in that, and it's in any given quarter, a lot of small numbers.

Speaker Change: Relatively speaking, so, but it continues to be very strong and that, and our medium-term expectations that we've also talked about is we expect the contribution from migrations over the multi-year period to be, you know, 30% to maybe as much as a third of our total dollar.

Andrew James Nowinski: But it continues to be very strong, and our medium-term expectations, which we've also talked about, is that we expect the contribution from migration over the multi-year period to be 30% to maybe as much as a third of our total. Thank you very much. We have a question from Pinjalim Bora with J.P. Morgan. Your line is now open.

Speaker Change: Got it, thank you very much.

Speaker Change: We have a question from Pinjalim Bora with J.P. Morgan. Your line is now open.

Pinjalim Bora: Oh, great. Thanks for taking the questions. Congratulations on the quarter.

Pinjalim Bora: Oh, great. Thanks for taking the questions. Congrats on the quarter. Amit, I want to ask you a high-level question. There seems like there's some confusion among the investor base around kind of table formats and how the adoption of table formats might or might not impact the data integration space.

Amit Walia: Amit, I want to ask you a high-level question. There seems like there's some confusion among investors around different table formats and how the adoption of table formats might or might not impact data integration. I know it's early, and there are kind of three different formats at this point, but I'd love to hear your thoughts on that, what do you think of it?

Amit Walia: Is it a net positive, neutral, or negative to the overall integration space? Pinjalim, back to the question, net positive. So I think, look, overall for us, it has been a net positive for us. Anytime anything new has come, it creates more work to be done. A new table format does not change the need that there is a massive amount of data sits within a large enterprise.

Speaker Change: I know it's early and there are kind of three different formats at this point, but I'd love to hear if you think, how do you think of it? Is it a net positive, neutral, negative to the overall integration space?

Amit Walia: Pinjalim, thanks for the question. Net positive. So I think look, overall for us it has, it's a net positive for us.

Amit Walia: Any time anything new has come, it creates more work to be done.

Amit Walia: New table format does not change the need that there is a massive amount of data sits within a large enterprise. Look, we serve the enterprise, right? Fragmented, large, complex.

Amit Walia: Look, we serve the enterprise, right? Fragmented, large, complex infrastructure running around multiple databases with multiple instances of those databases with transactional data and non-transaction data. Even if you have to bring in one of these tables for analytic purposes, they have to be prepared. They have to be formatted. They have to be put in the right quality.

Amit Walia: infrastructure running around multiple databases who've been multiple instances of those databases with transactional data, non-transaction data. Even if you have to bring into one of these tables for analytic purposes, they have to be prepared. They have to be formatted. They have to be put in the right quality.

Amit Walia: And then only some analytic work can happen, whether these tables are in a warehouse or on a lake. The second one is that, remember, it's a constant piece of work to be done. When the core system keeps adding new data, new things, they have to be constantly updated and prepared to bring it back to this table again for any analytic workload to happen. And then from there, just to continue the workflow within an enterprise, data has to be taken out of these tables to pass it to the BI layer for visualization, which we also participate in. And then, of course, that's just a core pipeline data integration part. Don't forget that governance and all of those things sit on top of it.

Amit Walia: And then only some analytic work can happen whether these tables are in a warehouse or a lake.

Amit Walia: The second one is that, remember, it's a constant piece of work to be done. When the core system keeps adding new data, new things, they have to be constantly updated and prepared to bring it back to this table again for any analytic workload to happen.

Amit Walia: And then from there, just to continue the workflow within an enterprise, data has to be taken out of these tables to pass it to the BI layer for visualization, which we also participate in. And then, of course, that's just a core pipelining data integration part. Don't forget that governance and all of those things sits on top of it. So we look at this as a net positive. We already support it.

Amit Walia: So we look at this as a net positive. We already support it. We have the connectors that support it, connectors to bring data in, take data out, support the open data formats, all of those things. So that's how we look at it at a very high level, Pinjalim. I'm happy to share more, but we don't see this as a net positive.

Amit Walia: We have the connectors that support it, connectors to bring data in, take data out, support the open data formats, all of those things. So that's how we look at it at a very high level, Pinjalim. Happy to share more, but we don't see this as a positive overall.

Michael I. McLaughlin: Mike, can you talk about the IPU cohort that was renewed this year? How has the adoption rate been across products been? And is there any difference in the expansion characteristics of that cohort of customers using IPUs as an, Well, as time goes on, we have more and more IPU renewal experience. We only began selling IPUs, I don't know, three and a half years ago, something like that, maybe four, and so last year the number of IPU renewals was not a lot of deals, but there are a lot more this year, and we feel really good about our experience.

Michael I. McLaughlin: Got it. Thank you. One follow up for Mike. Mike, can you talk about the IPU cohort that renewed this year? How has been the adoption rate across products? And is there any difference in the expansion characteristics with that cohort of customers using IPUs versus non-IPUs?

Michael I. McLaughlin: Well, as time goes on, we have more and more IPU renewal experience.

Michael I. McLaughlin: We only began selling IPUs, I don't know, three and a half years ago, something like that, maybe four. And so, last year, the number of IPU renewals was not a lot of deals, but it's a lot more this year, and we feel really good about our experience.

Michael I. McLaughlin: We have a good handle on what utilization, both absolute levels and patterns, leads to a high probability of renewal, and we have a pretty good handle on what the early warning indicators are in the utilization data that we can see that suggest we should get a customer success person into that account well in advance of renewal so that we can help them get value out of the software and improve the chance of renewal when the time comes. So I wouldn't say that there isn't a cohort difference in 24 versus 23 rules that we can see.

Michael I. McLaughlin: We have a good handle on...

Michael I. McLaughlin: White.

Michael I. McLaughlin: Utilization, both absolute levels and patterns lead to high probability of renewal and we have a pretty good handle on what the early warning indicators are in the utilization data that we can see that suggest we should get a customer success person into that account well in advance of renewal so that we can help them

Michael I. McLaughlin: You can get value out of the software and improve the chance of renewal when the time comes.

Speaker Change: So I wouldn't say that we have a...

Speaker Change: There's...

Speaker Change: There's not a cohort difference in 24 versus 23 rules that we can see. They're both.

Michael I. McLaughlin: They're both in line with expectations. We think they're very good, both on a relative and an absolute basis. And we're getting better at it every day as we learn more and more from the telemetry we get from the usage of IPS. The only thing I'd add to that, as to what Mike was saying, is that we, with the bigger, broader base of IPUs out there right now that we end up renewing, the thing that we are very pleased to see is that the number of those IPUs is definitely increasing.

Speaker Change: In line with expectations, we...

Speaker Change: I think they're very good, both on a...

Speaker Change: Relative and an Absolute Basis.

Speaker Change: And we're getting better at it every day as we learn more and more from the telemetry we get from the usage of IPAs.

Speaker Change: The only thing I'll add to that as to what Mike was saying is that we, with the bigger, broader base of IPUs out there right now that we end up renewing,

Speaker Change: The thing that we are very pleased to see is that expansion of those IPUs is definitely increasing. So we see more expansion happening to customers with Watt IPUs, which basically both cross-sell upsell.

Michael I. McLaughlin: So we see more expansion happening to customers who bought IPUs, which basically both cross-sell and up-sell, and that definitely, we are seeing an increase in momentum this year and last year. So clearly, more IPUs, better renewals, better usage, more expansion, that's what we are seeing as a trajectory of our business. And I'll just add that when we use the word expansion, we mean interim expansions, so not a renewal

Speaker Change: And that definitely, we are seeing an increase in momentum this year and last year, so that clearly more IPUs.

Speaker Change: Better Renewals, Better Usage, More Expansion, that's what we are seeing as a trajectory of our business. And I'll just add, when we use the word expansion, we mean interim expansion, so not a renewal. Correct. So this is before the renewal comes up, the customers...

Michael I. McLaughlin: Correct. So this is before the renewal comes up, the customer's doing great, using lots of IPUs, and they come back to us and ask for more. And that's a really low cost to market, it's a really high-value sale for us and for them, and the momentum there is super encouraging.

Speaker Change: doing great, using lots of IPs, and they come back to us and ask for more. And that's a really low cost to market. It's a really high value sale for us and for them. And the momentum there is super encouraging.

Speaker Change: Got it, very helpful, thank you.

Speaker Change: Our next question is from Will Power with Baird. Your line is now open.

William Verity Power: Great, thanks. Amit, I wonder... If you could kind of talk about the nature of your customer conversation. In this climate where there's a lot of questions around the health of software spend broadly, you know, how they're thinking about the prioritization around data and AI spend, and obviously your IDMC platform specifically, but the cloud numbers suggest that that continues to be prioritized. But just it'd be great to kind of hear your perspective on how customers are thinking about prioritizing their spend in the current environment. Thanks for the question. I think I'd separate that into two categories.

William Verity Power: Great, thanks. Amit, I wonder...

William Verity Power: If you could kind of talk about the nature of your customer conversations.

William Verity Power: In this climate where there's a lot of questions around the health of software spend broadly, how they're thinking about the prioritization around data and AI spend, and obviously your IDMC platform specifically, but a cloud number suggests.

Speaker Change: that continues to be prioritized. But just it'd be great to kind of hear your perspective on how customers are thinking about prioritizing their spend in the current environment.

Amit Walia: So one is the broader customer spend environment and how they are prioritizing data and AI, and then particularly tied to us. Look, I think, without a doubt, that customers have realized that they have to spend in this area. And I've said that many times before, that customers are moving more towards spending offensively in transformational projects. But that doesn't mean that they are net increasing their overall IT spend by a very wide margin.

Speaker Change: Thanks for the question. I think I'd separate that into two categories. So one is the broader customer spend environment and how they are prioritizing data and AI, and then particularly tied to us.

Speaker Change: Look, I think, without doubt,

Speaker Change: I think customers have realized that they have to spend in this area, and I've said that many before, that customers are moving more towards

Speaker Change: Spending offensively in transformational projects, but that doesn't mean that customers are net increasing their overall IT spend by a very wide margin. Customers are obviously looking within their spend area and saying, hey, I got to prioritize these couple of things, but then it means that I have to find a better way to be more effective in the existing spend I have. And of course, in some cases, deprioritization also happens. Absolutely, we see that. But data and AI remains

Amit Walia: Customers are obviously looking within their spend area and saying, hey, I got to prioritize these couple of things. But then it means that I have to find a better way to be more effective with the existing spend I have. And of course, in some cases, deprioritization also happens.

Amit Walia: Absolutely, we see that. But data and AI remain definitely a top three spend category, along with security in particular. The unique thing we are seeing is that the data layer is becoming a key enabler for Gen AI and anything to do in that area. There's tremendous mindshare for that. Everybody wants to do it.

Speaker Change: Definitely a top 3 spend category along with security in particular.

Speaker Change: The unique thing we are seeing is that

Speaker Change: that the data layer is becoming a key enabler for Gen AI and anything to do in that area. There's tremendous mindshare for that. Everybody wants to do that. That's not a matter of if, it's a matter of when.

Amit Walia: That's not a matter of if; it's a matter of when. And number two is that, in our case, what's very unique is that customers don't have to look left and right. The same IDNC platform allows them to do Gen AI work and the existing three-generation AI digital transformation that's going on. So they're very future-proof, and with IPOs, they can seamlessly start experimenting with Gen AI workloads while they are running the current project. They don't have to make an either or decision.

Speaker Change: And number two is that, in our case, what's very unique is customers don't have to look left and right. The same IDMC platform allows them to do Gen AI work and the existing three Gen AI digital transformation that's going on. So they're very future-proof. And with IPU, they can seamlessly start experimenting Gen AI workloads while they are running their current project. They don't have to make an either-or decision. And as I said, within IDMC, they can use IDMC for Gen AI. We shared that at Informatica World, some of the demos. And now, Clear GPT is also available on the IPU model on the same platform to basically who do...

Amit Walia: And as I said, within IDNC, they can use IDNC for Gen AI. We shared that at Informatica with some demos, and now ClearGPT is also available on the IPO model in the same platform to basically do next new Gen AI projects. So that definitely is a very unique thing to us, and that's obviously showing up in our cloud pipeline and strong cloud AI. That's helpful, thanks. Maybe I could just ask for a second one for Mike.

Speaker Change: So that definitely is a very unique thing to us that's obviously showing up in our cloud pipeline and the strong cloud in our results.

Speaker Change: That's helpful, thanks. Maybe if I could just ask a second one for Mike. Anything to call out with respect to linearity? I know you all indicated the macro was pretty stable in Q2, but anything to call out in June and maybe even into July versus trends you might have seen in April and May?

William Verity Power: Anything to call out with respect to linearity? I know you all indicated the macro was pretty stable in Q2, but anything to call out in June and maybe even into July versus trends you might have seen in April and May? Hey, well, very consistent with last year. Almost, you know, on the screws, uh, you know, software. Our business usually isn't that predictable, but it's been again, very similar to last year. We think the macro feels similar, the deal cycle feels similar, and pipeline build also looks very similar.

Michael I. McLaughlin: Hey, well, very consistent with last year.

Speaker Change: Almost, you know, on the screws, it's, you know, software, our business usually isn't that predictable, but it's been.

Speaker Change: Again, very similar to last year. We think the macro feels similar, deal cycle feels similar, and pipeline build also looks very similar.

Speaker Change: Okay, thank you.

Michael I. McLaughlin: Okay, thank you. We have a question from Howard Ma on Guggenheim. Your line is now open.

Speaker Change: We have a question from Howard Ma with Guggenheim. Your line is now open.

Howard Ma: Great. Thanks for taking the question. I have one for Mike and a follow-up for Amit. For Mike, I think you may have kind of already answered this in the last response, but it's on the cloud ARR top side and the raise.

Howard Ma: Great. Thanks for taking the question. I have one for Mike and a follow-up for a minute.

Howard Ma: I think you might have kind of already answered this in the last response, but it's on the cloud ARR upside and the raise. So by raising less than the beat, I just want to be clear, is that just a matter of being prudent? Or, and then perhaps in reality, there's less risk in the back half, and especially given migrations are likely to step up.

Michael I. McLaughlin: So by raising less than the beat, I just wanna be clear, is that just a matter of being prudent? Or, and then perhaps, in reality, there's less risk in the back half, and especially given migrations are likely to step up, or is there potentially something more nefarious that you're seeing in the future? I would say it's prudence and de-risking.

Speaker Change: At that core, is there potentially something more nefarious that you're seeing in the future?

Howard Ma: There's nothing more to it than that. Okay, Howard. Okay, great, great. I just wanted to be clear. And for Amit, I want to ask you about another type of catalog, so not OpenTable formats, but around Databricks open sourcing their Unity catalog. So really, how impactful is this on the entire data catalog space and on Informatica specifically? So is it more of like a rising tide lifts all boats situation?

Speaker Change #100: I would say it's prudence and de-risking.

Speaker Change #100: There's nothing more to it than that. Okay, Howard.

Speaker Change #100: Okay, great. Great. I just wanted it to be clear. And for Amit,

Amit Walia: I want to ask you about another type of catalog, so not OpenTable formats, but around Databricks open sourcing their Unity catalog.

Speaker Change #101: So really, how impactful is this on the entire data catalog space and on Informatica specifically? So is it more of like a rising tide lifts all boats situation, and then you expect it to increase overall awareness of the importance of data catalogs, or could this be a threat to Informatica? Thank you.

Amit Walia: And then, you know, do you expect it to increase overall awareness of the importance of data catalogs? Or could this be a threat to Informatica? Thank you. How have we created the data catalog category? And I think I've always said that our catalog is a very different catalog. It's a collection of catalogs.

Speaker Change #102: We created the data catalog category, and I think I've always said that our catalog is a very different catalog. It's the catalog of the catalogs.

Amit Walia: Every year, when enterprises look for a catalog provider, they look at one metadata system of record creator, which is what we have become. Data doesn't sit only in Databricks, only in Snowflake. In fact, more data sits outside of Databricks. And not all data will go to Databricks. We love them.

Speaker Change #102: Every, when enterprises look for a catalog provider, they look at one metadata system of record creator, which is what we've become. Data doesn't sit only in Databricks, only in Snowflake, in fact, more data sits out of Databricks.

Amit Walia: We partner with them, but that's just a practical reality. We support Unity, so customers can have a metadata catalog within Unity. It's like everybody has to have that.

Speaker Change #102: And not all data will go to Databricks. We love them, we partner with them, but that's just practical reality.

Speaker Change #102: We support Unity, so customers can have metadata catalog within Unity. It's like everybody has to have that. I think sometimes we get confused about the same word. Like I've said, databases have to have data governance too. That's a very different governance for databases. Without that, a database does not become a database. But data governance at the CDO level across an enterprise is a very different thing. So words can be very different, although they can be used very similarly.

Amit Walia: I think sometimes we get confused about the same word. Like I've said, databases have to have data governance, too. That's a very different thing for databases. Without that, a database does not become a database. But data governance at the CDO level across an enterprise is a very different thing. So words can be very different, although they can be used very similarly.

Amit Walia: Unity is open source now, and I think that's what Databricks has done, which is good for the Databricks ecosystem. But we absolutely see our catalog growing very, very strongly because the use cases we serve, no other catalog is even remotely close to what we serve, because it's not just a catalog. It serves enterprise-grade governance, and enterprise-grade metadata system records on which an enterprise JNI initiative will sit. And that's what we see in the table. Thanks, Amit. That's an excellent color.

Speaker Change #102: Unity is open source now. I think that's what I last I checked is what Databricks has done, which is good for the Databricks ecosystem. But we absolutely see our catalog growing very, very strongly because the use cases we serve.

Speaker Change #102: No other catalog is even remotely close to what we serve because it's not just a catalog. It serves enterprise-grade governance, enterprise-grade metadata system record on which an enterprise GNI initiative will sit, and that's what we're seeing the tailwind to us.

Speaker Change #102: Thanks, Amit. That's excellent color. Thanks so much.

Howard Ma: Thanks. We have a question from Patrick Colville with Scotiabank. Your line is now open.

Speaker Change #103: We have a question from Patrick Colville with Scotiabank. Your line is now open.

Patrick Edwin Ronald Colville: Good afternoon, and thank you for squeezing me in. So, Mike, the disclosure you guys give on the proportion of net new ARR from migrations is super helpful. So 26% of TTM net new ARR this quarter. Last quarter it was Tad Hoyt's 28. Why would that be?

Patrick Edwin Ronald Colville: Good afternoon and thank you for squeezing me in.

Speaker Change #105: Mike, the disclosure you guys give on the proportion of net new ARR from migrations is super helpful. So 26% of TTM net new ARR this quarter. Last quarter it was

Speaker Change #106: a tad higher. It was 28. Why would that be?

Michael I. McLaughlin: Would it kind of kick down very slightly versus last quarter? Yeah, thanks for reminding me. I misquoted that earlier in the call. I thought it was 0.3.

Speaker Change #107: Would it kind of kick down very slightly versus last quarter?

Speaker Change #108: Yeah, thanks for reminding me. I misquoted that earlier in the call. I thought it was 0.3.

Michael I. McLaughlin: Look, it's quarter-to-quarter variability. You'll also notice in my script that I mentioned that the number of migration deals this quarter was about the same as what we saw last quarter, whereas last quarter, it was more than doubled on a year-over-year basis. So it's quarterly variability is what it is. And that's why we use a TTM number instead of a quarterly number because we don't want folks to get confused or panic about what may be noise, not signal.

Speaker Change #109: Look, it's quarter-to-quarter variability. You'll also notice in my script that I mentioned that the number of migration deals...

Speaker Change #109: This quarter was about the same as what we saw last quarter, whereas last quarter it was more than double on a year-over-year basis, so it's quarter-to-quarter variability is what it is, and that's why we use a TTM number instead of a quarterly number because we don't want folks to get confused or

Michael I. McLaughlin: And as I said, we expect that contribution to, or the growth of, migrations on a year-over-year basis in terms of contribution to NAR to grow faster than our average cloud growth rate. So it's all consistent with what we expected during the year, and I would just encourage you not to get too obsessed with quarter-to-quarter volatility. I know it's hard, but do your best. Okay, okay. But I guess the key message, and this is your answer to Andy's question earlier, is that you expected the increase from here, right? I think you said 30 to 33% of net new ARR is the expectation in the future.

Speaker Change #109: Panicked about what may be noise, not signal.

Speaker Change #109: And as I said, we expect that contribution or the growth of the migrations on a year-over-year basis in terms of contribution to NAR to grow faster than our average cloud growth rate. So it's all consistent with what we expected during the year.

Speaker Change #109: I would just encourage you not to get too obsessed with quarter-to-quarter volatility. I know it's hard, but do your best.

Speaker Change #110: Okay, okay. But I guess the key message, and this is your answer to Andy's question earlier, is you expected the increase from here, right? I think you said 30 to 33% of net new ARR is expectation in the future.

Patrick Edwin Ronald Colville: Yeah, that's our medium-term expectation of the kind of steady state through the 2026 medium term period. Very clear. Thank you so much. You bet. We are out of time for questions, so I'll pass the call back to the management team for any closing remarks. Well, thank you.

Speaker Change #111: Yeah, that's our medium term expectation of the steady state through the 2026 medium term period.

Speaker Change #112: Okay, very clear. Thank you so much.

Speaker Change #113: You bet.

Speaker Change #114: We are out of time for questions, so I'll pass the call back to the management team for any closing remarks.

Amit Walia: Look, I really appreciate everyone taking the time today. As you can see, we are extremely thrilled with our solid performance in Q2, and, obviously, over the course of the first half. The first half is an important checkpoint for the year where we are. We remind everybody we run an annual business or a quarterly business, so we feel very good, which is why, when we look at the second half and we look at the year, we've raised our guidance for Cloud ARR, subscription ARR, non-gap hopping, and unleveraged free cash flow after tax.

Speaker Change #115: Well, thank you. Well, look, I really appreciate everyone taking the time today.

Speaker Change #116: As you can see, we are extremely thrilled with our solid performance in Q2 and obviously over the course of first half. First half is an important checkpoint for the year where we are.

Speaker Change #116: We remind everybody we run an annual business, not a quarterly business, so we feel very good, which is why when we look at the second half and we look at the year, we've raised our guidance for cloud ARR, subscription ARR, non-gap hopping, and unlimited free cash flow after tax.

Amit Walia: So we feel very good about the business where we sit. All the three vectors of growth, whether it's digital transformation or the modernization of Gen AI, continue to help increase pipeline and drive our business. We look forward to, obviously, Q3 and the rest of the year, but I think we're in great shape, and we remain confident to close out a strong year.

Speaker Change #116: So, we feel very good about the business where we sit. All the three vectors of growth, whether it's digital transformation, modernization of Gen AI, continue to help increase pipeline and drive our business.

Operator: Thank you very much. That concludes today's call. Thank you all for your participation. You may now disconnect your line.

Speaker Change #117: That concludes today's call. Thank you all for your participation. You may now disconnect your line.