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spk10: Thank you for attending the Informatica Corporation Fiscal Q1 2023 conference call. My name is Alyssa and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question, please press star 1 on your telephone keypad. It is now my pleasure to pass the conference over to our host, Victoria Hyde-Dunn, Vice President of Investor Relations. You may now proceed, Victoria.
spk01: Thank you. Good afternoon, and thank you for joining us to review Informatica's first quarter 2023 earnings results. Joining me on today's call are Amit Walia, Chief Executive Officer, and Mike McLaughlin, Chief Financial Officer. Before we begin, we have a couple of reminders. Our earnings press release and slide presentation are available on our investor relations website at investors.informatica.com. Our prepared remarks will be posted on the IR website after the conference call concludes. During the call, we will be making comments of a forward-looking nature. Actual results may differ materially from those expressed or implied as a result of various risks and uncertainties. For more information about some of these risks, please review the company's SEC filings. including the section titled Risk Factors included in our most recent 10Q and 10K filing for the full year 2022. These forward-looking statements are based on information as of today, and we assume no obligation to publicly update or revise our forward-looking statements except as required by law. Additionally, we'll 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. 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's my pleasure to turn the call over to Amit.
spk11: Thank you, Victoria. Good afternoon, everyone, and thank you for joining us for the call today. Q1 results were strong, and we're off to a great start to the year. Key financial metrics exceeded the high end of our guidance range, driven by traction from enterprise customers purchasing new cloud workloads. Subscription ARR grew 20% year-over-year and cloud subscription ARR grew 41% year-over-year. Importantly, approximately 90% of cloud new bookings came from new workloads with the remaining coming from migrations of on-prem maintenance customers. Total revenues increased 1% year-over-year due to slower than expected decline in maintenance revenue and strong renewal rates. Non-GAAP operating income was $85 million. We continue to execute across all of our strategic initiatives. The resilience and durability of our business are demonstrated by consistent 93% plus renewal rates, strong net retention rates, and 80% plus gross margins. We continue to deliver balanced, profitable growth as we accelerate our complete transition to a cloud platform. And with our very strong cash position, we expect to reduce our net debt leverage ratio to approximately two times by the end of this year, which is six to 12 months ahead of our commitment at the time of the IPO. We are encouraged by the early momentum of our cloud-only consumption-driven strategy. Our strategy continues to gain interest as seen in the sales mix shift from self-managed to cloud net new ARR and closing new cloud views. Over 90% of the new business pipeline is comprised of cloud opportunities. We're also seeing early adoption of our new flexible ITU consumption program. And keeping to our commitments, we are introducing a new cloud subscription net retention rate beginning this quarter to provide more visibility into our cloud strategy. Mike will share that statistic later in the call. We're also well positioned to help our customers, no matter where their data resides. Through our IDMC platform, we serve multi-hybrid environments, which include on-premise and multi-cloud workloads. Customers with their own speed and strategy will move data into a full public cloud or a hybrid cloud. We have the technology capabilities to serve our customers' data environments and support their digital transformation journey from on-time to cloud through a single cloud data management platform, IDMC. We are bringing an enterprise-grade data management platform with best-of-breed solutions combined with the simplicity and flexibility of consumption-based pricing for our customers. Now looking at the macro environment, like last quarter, we continue to observe elongated sales cycles for new deals, deal scrutiny, and to a lesser extent year-over-year foreign exchange headwinds. Cloud adoption remains healthy while customers and prospects continue to be measured in how they purchase given the macro environment. We expect this to continue for the remainder of the year. Taking this all in, we are reiterating our full year 2023 guidance. It is appropriate to remain prudent this early in the year as we navigate an uncertain macroeconomic environment while transitioning to a cloud-focused new sales model. Now turning to our Q1 business highlights, we continue to deliver product differentiation and innovation that matters to our customers. Our unique IDMC platform advantage includes a best-in-class suite of solutions, processing mission-critical workloads at a scale with 50,000 metadata-aware connections, now leveraging 23 petabytes of active metadata in the cloud. To give you some examples, some recent product innovation highlights. First, in our analytic services, we launched the industry's only free cloud data loading integration and ELT and ETL service with Informatica cloud data integration free and paid out. These services allow us to entry into departmental ingestion and integration use cases and target data practitioners and non-technical users in marketing, sales, and revenue operation teams to build data pipes within minutes. Next, we launch new data services on IDMC that process industry standards and custom messages for healthcare, retail, manufacturing, and FinServ solutions. These data services can use HIR and FHIR standards to exchange messages with healthcare partners. The NACHA standard to exchange messages with financial services partners. and the EDIFACT and EDI X12 standards to exchange messages with manufacturing and retail partners. Turning to MDM and the MDM 360 app services, we announced the availability of MDM SaaS on the Google Cloud platform. We continue to scale our customer 360 solution by launching extensions to master legal entities to support regulatory compliance requirements like Basel III and FATCA, helping banks comply with global legal entity identifier foundations. And lastly, in data governance, data quality, and data marketplace services, we introduced a new data quality accelerator bundle for Sensor, data profiling capabilities for the SAP ecosystem, bulk data enrichment and curation capability in data governance and catalog, and expanded UI customization and search in data marketplace. Now, AI has been a part of our DNA. Actually, since 2017, when I launched AI Claire, RAI Claire at Informatica Worlds, The ITMC platform powered by Clare AI, which in the last couple of years has continued to scale and grow as we've curated thousands of machine learning algorithms under the cover of AI, Clare, today processes 54 trillion mission-critical cloud transactions per month as of March, a 69% increase year-over-year, demonstrating strong customer usage of our platform. Last week, we unveiled our latest innovation, Clare Generated Classifications, a groundbreaking solution designed to streamline data classifications for automated data governance in organizations. Clare automates the complex process of creating data classifications, saving both time and resources for organizations by using an organization's metadata and data patterns. As a result, we estimate a 70% plus reduction in time required to curate and create classifications. To give you a real-life example, A leading automotive company witnessed the transformative power of Clare's generated classifications I just talked about firsthand. Previously, this company had a team of 10 data domain curators working for two years to create 200 data classifications. With the help of Clare, they generated 400 classifications, 200 of the original, and an incremental 200 in a matter of minutes. This remarkable outcome demonstrates the power of Clare's driving automation at operational scale. Our consistent focus and commitment to delivering product differentiation and innovation has won us recognition from industry analysts and thought leaders. Informatica is recognized as a leader in the inaugural IDC Marketscape Worldwide Cloud Integration Software and Services 2023 Vendor Assessment Report. We were also recognized as a leader in the Forrester Wave Data Management for Analytics Q1 2023 report. And we are proud again to be named to CRN's Cloud 100 2023 list for the second consecutive year. And we also recently published our inaugural sustainability report, which speaks to our commitments to environmental, social, and governance matters. This report reflects how we continually strive to support our customers, communities, and colleagues. Our cloud-native AI-powered data management platform continues to resonate in the market with enterprise customers. In Q1, Customers spending more than $1 million in subscription ARR increased by 27% year-over-year to 208 customers. Customers spending more than $100,000 in subscription ARR increased 11% year-over-year to 1,921 customers as we continue to process new workloads and drive ARR growth across customers of all sizes. Our global sales and customer success teams have done a terrific job unlocking value for our customers increasing customer engagement through mission-critical workloads, and upselling with new use cases leveraging our modern IDMC platform. I'll give you a few examples. Gilead Sciences is a biopharmaceutical company that focuses on antiviral drugs, advancing innovative medicines to prevent and treat life-threatening diseases including HIV, viral hepatitis, and cancer. Building on its existing MDM usage, Gilead is expanding with new use cases to leverage IDMC's cloud data governance and catalogs data integration, data marketplace, and additional MDM solutions to evolve the critical business systems, centrally manage the data, and help them scale for the future. Cathay Pacific Airlines, the flagship carrier of Hong Kong, they are supporting the new operations model, and they've adopted a cloud modernization strategy. The Cathay Pacific team recognized that the cloud strategy would require a holistic, modern integration platform capable of handling operational cloud and hybrid integration, application integration, as well as data catalog and data governance. A power center customer for over a decade, Cathay Pacific expanded the partnership with Informatica to modernize the data integration of the cloud. We also see success with that ability to sign new cloud logo wins. Daimler Truck, headquartered in Germany, is one of the world's largest commercial vehicle manufacturers with over 40 production sites across the globe and more than 100,000 employees. They manufacture trucks and buses such as the Mercedes-Benz, Freightliner, Western Star, and Farmers Build Buses brand names. In addition to financing, leasing, fleet management, investments, and insurance brokerage services, Daimler Truck chose Informatica's IDMC platform for their global data marketplace project. They will leverage the IDMC capabilities to build a bridge between data producers on one side and data consumers on the other side, maximizing data's value, increasing productivity, and supporting business initiatives. We continue to expand our ecosystem with increased partner engagement momentum. We recently launched a new Microsoft Azure Pod in Dubai to scale our market reach in the Middle East and partner with regional customers as they grow their data management environment. We also expanded our departmental low-friction service offerings for our new cloud data integration free and pay-go that I talked about with support for Amazon Redshift, Microsoft Synapse Analytics, Google BigQuery, Snowflake, and Databricks. And Informatica was a launch partner for Snowflake's Telecom Data Cloud. Our GSI partners are creating solutions with the help of Informatica practitioners to accelerate customers' data-driven strategies on IDMC. Current solutions that are being marketed jointly include MDM as a service with Deloitte, Medicare Medicaid with KPMG, and Rapid Reference Data with Cognizant. Many other solutions are in process of being created with GSI and larger boutique services partners. Our migration factory program has expanded to more than 45 partners. Almost half are already delivering projects and have been awarded work. Today, we have migrated 4% of our legacy base over to IDMC, up from 3.6% last quarter at a 2.1 conversion ratio. In summary, we're pleased with our execution in Q1. We are focused on maintaining our business for a balanced, profitable growth, and delivering on a cloud-only consumption-driven strategy and our business priorities. We crossed a very important milestone in the first quarter, which is $1 billion in subscription ARR. And as we walk into the second quarter, we expect to cross half a billion in cloud subscription ARR. These significant milestones validate that the product innovation and the go-to-market investments that we've made over years resonate with enterprises across the globe while we continue to deliver continuous profitability and cash flow growth. As I wrap up, I'd like to thank all of my Informatica colleagues across the globe for the hard work and continuous commitment. I would also like to thank our partners, customers, and shareholders for supporting Informatica. We look forward to hosting many of you next week at Informatica World User Conference in Las Vegas. With that, let me turn the call over to Mike. Mike, take it away.
spk03: Thank you, Amit, and good afternoon, everyone. Q1 was a solid financial quarter across the board with key growth and profitability metrics exceeding our expectations entering the quarter. I'd like to begin my review of our Q1 results with annual recurring revenue, or ARR. Informatica's total ARR is comprised of three components, cloud subscription ARR, self-managed subscription ARR, and maintenance ARR on perpetual licenses. Substantially, all of our new software sales are subscriptions, so we also sum the first two categories into the subscription ARR metric. Our total ARR was 1.53 billion at the end of Q1, an increase of 10% over the prior year, driven by new cloud workloads and strong real rates. We added over 136 million in net new total ARR versus the prior year. Foreign exchange negatively impacted total ARR by approximately 3.4 million on a year-over-year basis, somewhat better than expectations when we set our guidance in February. Turning now to the subscription components of our ARR, cloud subscription ARR was $483 million, a 41% increase year over year, and $15 million above the high end of our February guidance. Cloud subscription ARR represents 47% of our total subscription ARR, up from 40% a year ago. Our cloud subscription ARR growth of $140 million year over year was driven by new workloads and strong renewal rates. Notably, approximately 90% of the quarter's cloud new bookings came from new workloads, with approximately 10% coming from migrations of on-premise maintenance customers. Self-managed subscription ARR declined versus last quarter, as expected, to $538 million. This was down 1% sequentially and up 6% year over year. Given our focus on new cloud sales, we expect self-managed subscription ARR to continue to decline throughout the year. Our total subscription ARR, which is simply the sum of our cloud and self-managed ARR, grew by 20% year-over-year to $1.02 billion, $5 million above the high end of our February guidance range. Subscription ARR now represents 67% of total ARR. Foreign exchange negatively impacted total subscription ARR by approximately $1.2 million on a year-over-year basis. The third component of our total ARR is maintenance, which now comprises 33% of total ARR. Maintenance ARR was down 6% year-over-year to $513 million, in line with our guidance. Maintenance renewal rates were strong at 96%, consistent with the year-ago period, demonstrating continued stickiness in our customer base. As a reminder, we have intentionally reduced perpetual license sales to an insignificant amount in favor of subscription offerings. Therefore, we expect maintenance on perpetual licenses to continue to gradually decline since we're not adding new maintenance customers each period. Stepping back, you can see that our total ARR growth of 10% for the quarter was driven by very strong growth in our cloud subscription ARR, offset by gradual declines of our self-managed subscription ARR and maintenance ARR. These dynamics are the direct result of our cloud-only consumption-driven strategy, and we expect these trends to continue in future quarters. We saw good growth in our average subscription ARR per customer in the first quarter. It grew to approximately $270,000, a 17% increase year over year. We had 3,780 active subscription customers in Q1, an increase of 106 subscription ARR customers year over year. Our subscription net retention rate in Q1 was 110% versus the prior year's rate of 113%. As we have described before, this net retention rate decline is driven by the self-managed subscription component of ARR as we focus on new cloud sales. To help you better understand our net retention rate, we are pleased to begin disclosing this quarter our cloud subscription net retention rate as an additional key business metric. For Q1, cloud subscription net retention rate was 118%, versus the prior year's rate of 116%. In the press release we filed this afternoon, you can find more details on cloud subscription NRR, including data for the past nine quarters. Now I'd like to review our revenue results for the quarter. GAAP total revenues were $365 million in the first quarter, an increase of 1% year over year. This exceeded the high end of our February guidance range by over $3 million due to a slower than expected decline in maintenance revenue and strong renewals, partially offset by lower professional services revenues. Foreign exchange negatively impacted total revenues by approximately $7 million on a year-over-year basis, in line with February expectations. As discussed last quarter, our strategic shift to cloud creates a revenue headwind for us in the short term. This is due to the differing accounting treatment of new cloud subscription sales compared to new self-managed subscription sales. In last quarter's call, I highlighted the expected impact of this next shift on FY23 revenue guidance to be approximately $80 million. As expected, the new sales mix this quarter was more heavily weighted to the cloud than it was a year ago. Therefore, we experienced the expected accounting-driven revenue headwind. To give you an idea of its magnitude, if our mix of cloud versus self-managed new bookings was the same this quarter as it was in Q1 2022, Total revenues would have been approximately $24 million higher this quarter than we reported, which would have increased our year-over-year revenue growth rate to approximately 7%. Subscription revenue increased 8% year-over-year to $214 million, representing 59% of total revenue, compared to 55% a year ago. Our quarterly subscription renewal rate was 93% flat year-over-year. Maintenance and professional services revenue were $151 million, representing 41% of total revenue in Q1, driven by lower-than-expected professional services revenues and the gradual decline of our maintenance revenue. Standalone maintenance revenue represented 34% of total revenue for the quarter. Implementation, consulting, and education revenues comprised the remainder of this category, representing 7% of total revenue. Turning to the geographic distribution of our business, U.S. revenue grew 1%, year-over-year to $233 million, representing 64% of total revenue. International revenue made up the remainder and was flat year-over-year at $132 million. Using exchange rates from Q1 last year, international revenue would have been approximately $7 million greater in the quarter, representing international revenue growth of 5% year-over-year. Consumption-based IPUs are a frictionless way to access the IDMC platform and are a core part of our strategy. We are pleased to report that approximately 45% of first quarter cloud new bookings were IPU-based consumption deal. IPUs now represent 41% of total cloud subscription ARR of three percentage points sequentially. As Amit mentioned, we launched a new flexible IPU consumption pricing model at the end of January, and we are shifting our sales efforts to focus more on consumption-based engagements. We continue to expect IPU adoption to increase during the year. Now I'd like to move to our profitability metrics. Please note that I will discuss non-GAAP results unless otherwise stated. In Q1, our gross margin was 80%. We've been pleased to maintain a stable 80-plus percent gross margin for more than two years, even as our subscription sales mix shifts to the cloud. Operating expenses were consistent with expectations, which included $27 million of GAAP non-recurring restructuring expenses related to January's workforce reduction. Looking at Q2, we expect a sequential increase in sales and marketing costs as a result of travel and event expenses related to Informatica World. Operating income was approximately 85 million for the quarter, exceeding the high end of our February guidance range. Operating margin was 23.2% flat to last year. Adjusted EBITDA was 89 million, and net income was 45 million. Net income for diluted share was 15 cents, based on approximately 289 million outstanding diluted shares. The basic share count in Q1 was approximately 285 million shares. Q1 adjusted unlevered free cash flow after tax was approximately 123 million, better than expectations. This is due to higher collections and other favorable working capital dynamics. Adjusted unlevered free cash flow after tax margin was 34%, up 10 percentage points year over year. Cash paid per interest in the quarter was approximately 34 million. We ended the first quarter in a strong cash position with cash plus short-term investments of $798 million. Net debt was $1.06 billion, and our trailing 12 months of adjusted EBITDA was $372 million. This resulted in a net leverage ratio of 2.8 times. We expect the business to naturally deleverage to approximately two times by the end of 2023, which is six to 12 months ahead of our commitment at the time of the IPO. Now I will turn to guidance, and I'll start with the full year. While we delivered better than expected results in Q1, we are taking a prudent approach and reiterating our full-year 2023 guidance. We're early in the year during a continued period of macroeconomic uncertainty, and our transition to a cloud-only consumption-driven sales model continues. Therefore, we think it is prudent to maintain our previously announced full-year guidance. You can find the details of our full-year guidance in the press release we filed this afternoon. Next, turning to our guidance for the second quarter, I'll begin by highlighting that we expect our sales mix to continue to shift from self-managed to the cloud. In Q1, 81% of subscription net new ARR was from cloud. In Q2, we expect cloud subscription ARR to continue to grow, while self-managed ARR is likely to decline on both a sequential and year-over-year basis. With this in mind, we're establishing guidance for the second quarter ending June 30th, 2023 as follows. We expect GAAP total revenues to be $355 million to $365 million, representing approximately a 3% year-over-year decrease. We expect subscription ARR to be in the range of $1.02 billion to $1.03 billion, representing approximately 14% year-over-year growth. We expect cloud subscription ARR to be in the range of $501 million to $507 million, representing approximately 35% year-over-year growth. And we expect non-GAAP operating income to be in the range of $67 million to $77 million, representing approximately a 3% year-over-year increase. Now, for modeling purposes, I'd like to provide some additional information. First, we expect adjusted, unleveraged free cash flow after tax to be in the range of $60 million to $80 million. And as a reminder, our full year unleveraged free cash flow guidance remains unchanged at $340 million to $360 million. Second, let me provide some color on our interest expense expectations. For the second quarter, we estimate cash paid for interest will be approximately $37 million. And for the full year, we estimate cash paid for interest will be approximately $145 million. This is based upon forecast average one month LIBOR of approximately 5% for the second quarter plus the 2.75% interest rate spread on our outstanding term loan. Beginning in July, we'll transition our term loan debt to SOFR, and our interest rate spread on one month SOFR will be approximately 2.86%. Our expected full year interest rate based on a blend of one month LIBOR and SOFR is 4.9%, and inclusive of the credit spread, we expect an interest rate of approximately 7.8% for the full year. Keep in mind, all of our debt bears interest at a variable rate, and therefore our forecast interest costs are based on forward curve estimates of LIBOR and SOFR, which may materially change due to future market conditions. Third, let me discuss our expectations for income taxes. Our Q1 non-GAAP tax rate was 23%, and we expect that rate to continue for the full year 2023. We estimate full year 2023 cash taxes to be approximately $100 billion. On a GAAP basis, we expect continued volatility of our income tax provision and rate. Lastly, our share count assumptions. For the second quarter of 2023, we expect basic weighted average shares outstanding to be approximately 287 million shares and diluted weighted average shares to be approximately 291 million shares. For the full year 2023, we expect basic weighted average shares outstanding to be approximately 288 million shares and diluted weighted average shares to be approximately 293 million shares. Before starting the Q&A session, I'd like to share some closing thoughts. Over the past four months, I've had the chance to be on the road to meet some of our analysts and investors. And I appreciate the depth in which you follow the company and the understanding you have of the underlying fundamentals of our business. I've received a lot of constructive feedback in these meetings on the positioning and instrumentation of our business, and many of you have expressed your desire to learn even more about our strategy and longer-term business trajectory. To that end, I am pleased to announce that we plan to host an Investor Day on Tuesday, September 5th in San Francisco, and we hope many of you are able to join us in person. Please stay tuned. for more details as they become available. Operator, you can now open the line for questions.
spk10: We will now begin the question and answer session. If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason you would like to remove that question, please press star followed by two. Again, to ask a question, press star one. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking your question. We will pause here briefly as questions are registered. Our first question comes from the line of Andrew Nowinski with Wells Fargo. You may proceed.
spk06: Okay, thank you. Congrats on a nice quarter, good start to the fiscal year. I want to ask a question first, I guess, on the sales cycle elongation. I know you said you've been seeing this historically and expect to continue going forward. But other vendors have talked about seeing more of maybe a spike in that or a change in that dynamic in the last few weeks of the quarter. Just wondering if you saw anything similar.
spk11: Yeah, I think, Andrew, good to talk to you. no change to what we said as we walked into the year. What we saw in Q4 is what we walked into the year, which is what we picked into our guidance for this year. And we saw Q1 execute against that. We didn't see anything get better or getting worse, basically exactly where it was. So nothing new to report over there than what we saw walking into the year and what we have shared with you as we put the guide for the year.
spk06: Okay, very good. And then I just had a question on the large customer momentum you guys talked about. I mean, it looks like you only added about five customers that spent over $100,000 in ARR and two that crossed that million-dollar threshold score, which looks like one of the lower sequential changes that we've seen over the last few years. Is there more to the momentum that you're talking about maybe that we're not seeing in those numbers?
spk11: I think the way to think about that, Andrew, is that You know, internally, Q4 to Q1 is a very fundamentally different way to look at it. Q4 is the biggest quarter. Q4 is the smallest quarter. So we never look at Q4 to Q1 as anything operationally that we track. To us, we look year over year. We have classic linearity for the year, and we track like that. Q to Q from Q4 to Q1 is something that is kind of comparing apples to oranges, given our biggest quarter and our smallest quarter.
spk09: Okay, fair enough. Thank you.
spk10: Thank you. Our next question comes from the line of Matt Hedberg with RBC. Your line is now open.
spk02: Great guys. Thanks for taking my questions and yeah, echo the success in cloud. It's great to see. I guess the question, you know, one of the, one of the topics that we hear a lot from is cloud cost optimization. And I'm curious, you know, how do your customers think about that and how does Informatica really play into, you know, perhaps that trend?
spk11: Yeah, I think it's a tale of two cities. What you hear of cloud optimization from the large hyperscalers, effectively, customers obviously have massive spends that are spanning multi-year, which is very different to what they do with us because those end up being across the stack matters, you know, like infrastructure, platform, applications, things of that nature. I'll say two things. One, we've been net beneficiaries in some ways because customers can draw down the hyperscaler commits through marketplace by buying Informatica products. and uh which is all of our products available on their marketplace and not just availability on the marketplace but at deep integrations with the hyperscaler product allows customer to actually not just draw it on but use it very effectively so that's kind of been helping us and you know we've talked about how that is in an area of uh growth for us secondly you know we talked about execution of the quarter raw demand and i think i'm gonna loop back to what even andrew asked when we think of raw conversations that they're having with customers. And I've been traveling quite a bit. Those are happening at pretty good scale. In fact, we're headed into Informatica World next week. It's actually two or three weeks earlier this year. And, you know, the attendance over there is at 2019 levels. And so effectively, you're still seeing, of course, we maintain the prudence on conversion into deals, all the stuff that I talked about. But in terms of the raw interest and the conversations, those are pretty healthy. I'd add one more thing, Matt.
spk03: Hi, it's Mike. Keep in mind that our consumption model is somewhat different than what you would see from the hyperscalers themselves or even someone like a Snowflake. When a customer buys our cloud platform product, they buy it most of the time with IPUs, sometimes with MDM records. But it's not a direct drive, month-to-month consumption model where our revenue or the amount they pay us goes up and down based upon their usage. They pay us an annual fee for a number of IPUs that they can then deploy across any of the capabilities of the platform. And at renewal time, they decide whether to buy more. And in the meantime, if they use more than their allocation, they can pay us overdues also. So we're not really subject in this sort of shortwave volatility in month-to-month consumption spend for cloud providers. So what we do is we watch the IPU usage and consumption very closely to make sure that we've sold the right amount to our customers and they're still using them. And those trends continue to be very favorable.
spk02: Got it. That's helpful. And then maybe just a quick one on it. You know, you guys have been talking about AI and Claire for a long time now. Is there a generative AI angle to Informatica's kind of AI strategy going forward as well?
spk11: Matt, we are a couple of days away from Informatica World. I think you may be coming there. Just stay tuned.
spk02: Love it. Thank you.
spk10: Thank you, Mr. Hedberg. Our next question comes from the line of Pinjalim Bora with JP Morgan. Your line is now open.
spk12: Oh, great. Thanks for taking the questions and congrats on the quarter. I want to go back to the bookings trend. Seems like you're seeing consistent bookings trends in Q1. Help us understand how does the environment look to you through May now? Have you seen any change after kind of the financial sector turmoil at all?
spk11: pendulum, no change. For us, as I said before, I'll repeat that. What we saw as we ended last year and what we baked into giving the guidance for this year is what we saw in Q1, is just what we see now. We haven't seen anything get worse or better. So basically, we're just being consistently seeing what we thought would be the case for the year and right now, so far, it has been that. So in April, no change to what we saw in the last quarter.
spk12: Okay, understood. And on IPUs, I believe Q1 marked a big cohort of renewal for IPU-based customers. Maybe help us understand how did you end up executing that? Where are the renewal rates? And more specifically, we have been hearing that IPUs dramatically reduced the friction of using the platform. Is there a difference in characteristic with respect to expansion rates on IPU-based customers alone versus overall cloud retention rate?
spk11: I'll give you the philosophical in IPU and then Mike will dump it into a lot of other operational stuff. It does. I think I've always said that. In fact, it's the biggest, most dramatic simplification of a technology platform. When you see the breadth of our IDNC platform, And pretty much customers, even if they buy one ICU, they actually have entitlement to every service. And there are so many services on the IDMC platform that you can see punch them. So yes, it dramatically eases that. And to be candid, it just plays out into renewal also because you know very well customers can go from use case A to use case B to use case C. And sometimes customers in the middle of the course decide, you know what, I thought six months ago use case A was important. Along the way, you know what, I want to do use case B. They don't have to come back and run a data procurement cycle. They can immediately move into use case B with all those capabilities. So dramatically simplifies, reduces the friction, and we see that in the ease of usage for IPO customers. I'll hand it over to Mike to give you some more details on the IPO consumption.
spk05: Yeah.
spk11: Hi, Pedro.
spk03: You're right. This was the first meaningful cohort of IPO renewals that we had up. That being said, I wouldn't call it a big cohort. It was still a relatively small number compared to the available to renew in our cloud ARR overall for the quarter, but it was meaningful. And the good news is that it renewed almost at exactly the same rates that we saw the rest of our cloud subscription ARR renew. So, so far, so good. We feel real good about the result, and the size of that IPU renewal cohort will continue to grow gradually as the year goes on.
spk12: Got it.
spk10: Thank you. Thank you. Our next question comes from the line of Howard Ma with Guggenheim Securities. You may proceed.
spk07: Okay, great.
spk16: Thanks for taking the question. I have one for Mike and then one for Amit as well. First for Mike, so it's encouraging to see the outperformance in both total and subscription ARR, but if you look at the mix, so fully managed ARR outperforms, or rather, I'm sorry, fully managed cloud ARR outperforms, right, but self-managed underperforms the implied guidance. I'm just wondering, is that due to Informatica's better than expected success in encouraging more self-managed customers to expand on cloud, or is it a function of perhaps less demand? And the follow-on to that is, so what gives you the confidence in the mix for annual guidance? If you can go one layer deeper into the inputs that go into forecasting that mix, that'd be really helpful. Thank you.
spk03: Yeah, sure, Howard. It wasn't that the self-managed customers were shifting over to cloud. As we mentioned, 90% of the new bookings for cloud in the first quarter were new workloads. It wasn't moving from maintenance ARR and It wasn't moving from self-managed ARR. It was new sales to either new or existing customers that wanted to do new stuff with the IDMC platform. What we saw and the reason why cloud outperformed our expectations versus guidance and self-managed underperformed our expectations versus guidance was that our cloud-only sales motion, where in our developed countries we sell essentially only cloud, worked even better than we expected. And to some extent, where we exceeded in cloud, we underperformed a little bit in self-managed, but the total subscription, as you can see, was better. So there was more in the cloud bucket than the self-managed bucket than we expected, but there was more in the overall bathtub than we expected, too. So it wasn't movement from left pocket to right pocket. It was just more new sales into the cloud.
spk16: So Mike, I understand that it's new. It's not migrations. It's just new. It's expansion. Self-managed customers expanding on cloud. But if that continues to happen, could that cause the mix to shift even more to cloud exiting the year? I guess it could.
spk15: Sure.
spk03: Yeah. We expect the mix to continue to increase more in the cloud as the year goes on. I think we cited the statistic that if you look at the net new ARR that you can calculate in Q1, 81% of it was cloud. If we look at our pipeline, close to 90% of it is cloud. So that's what we're working on. That's what we're selling, and we expect the next to trend towards that.
spk11: And Howard, to add to that, what just Mike said, it's just Q1. I wouldn't read into it. I would read into one quarter as to what extrapolation for the year is. As we just said, we feel comfortable for the guidance for the year. So, I mean, there can be Q over Q volatility on a number like that, and I don't think that we feel like that's a reflection of the full year yet.
spk16: Okay. Amit, thank you for the additional color. I have one quick follow-up for you. So, we've been hearing about enterprise customers that are under-consuming There are a lot of enterprises that are under-consuming relative to their hyperscaler commitments. So do you think, or perhaps, do you have any evidence that maybe Informatica could be benefiting from these excess credits? And if that is the case, maybe it's not, but if it is, which product families do you think could stand to benefit the most?
spk11: Yeah, I wouldn't look into product families. I think the simplest way I can describe it to you, obviously, can't speculate as to what the hyperscaler... because they sell end-to-end stack. I'm selling infrastructure, server, storage, compute. I'm selling platform stack. I'm selling a whole set of compute. I'm also selling a whole set of commits. Where it benefits us is that, like I said, because all of our products, IDMC is fully available on the marketplace. So customers who had commits can draw down their commits by leveraging Informatica products. And because we have native integration to them, and we have such tight alignment with them, and by the way, and the partnerships are so tight, They also encourage that. Of course, customers want that, and of course, we encourage that. And the GSIs also lead the way in such transformative projects. So we benefit from those drawdowns, and that allows customers to draw down the big commit dollars against hyperscalers.
spk16: Okay, that's super helpful, Kalar. Thank you. I'll cede the floor.
spk10: Thank you. As a reminder, to ask a question, press star one on your telephone keypad. To remove that question, press star two. In the interest of time, please limit yourself to one question. You may re-queue to ask any follow-up questions. Our next question comes from the line of Fred Lee with Credit Suisse. Your line is now open.
spk04: Hey, very nice cloud ARR quarter. There's actually impressive underlying acceleration here on a two-year stack. You know, this might be splitting hairs a little bit, but considering the various economic mini crises in the quarter, were there any changes in bookings linearity in the quarter in Q1 versus historical trends? And secondly, I was wondering if you could offer some color on how the tone of conversations with customers have changed at all in Q1 versus the prior two quarters. Thank you.
spk11: Yeah, no change. I would say just the answer to both of the questions, no change. We, in classic linearity that we see, I mean, we are an enterprise software company. So that classic linearity that we at Informatica have seen, we saw that in Q1. So that was no difference to what we saw here that we would have seen differently in Q1 of last year or the year before. And as I said, I think the discussions, I've said that many times, I'm going to repeat myself. We've been a very thoughtful, prudent company. What we saw in Q4 of last year, we baked that into when we walked into this year, when we gave the guide for the year. And I'll reiterate that we continue to see the same thing. And that allows us to, and any overperformance of Q1 just allows us to de-risk the year. And we feel, allows us to hold the guide for the year. We don't see, we haven't seen anything worse off or better off given where the world is right now.
spk04: Thank you. I'll jump back into Q.
spk10: Thank you, Mr. Lee. Our next question comes from the line of Fred Havemeyer with Macquarie. Your line is now open.
spk13: Hi, thank you very much. I wanted to ask about the competitive landscape and also where some of the upstarts are coming into some of the conversations. I think I've seen lately, and this might speak more towards where VC funding has been going, but more advertisements for API integration companies and data integration companies that can be rather bespoke. on subways and everywhere than I think I've ever seen before. So we'd just like to get an update about what Informatica sees and who potentially you're seeing in your competitive landscape and whether overall win rates may have changed or if there's just anything to call out at all. Thank you.
spk11: Yeah, great question. I've always said that, and I'll begin by saying I always have always and always focused on what the customer wants. At the end of the day, if we all focus on what the customer wants, competition can come and go. In my lifetime here, I've seen many competitors come in, the competitive cycles have changed. There were different competitors seven years ago that changed for three years ago and now they're different now. And what has been consistent is that they have come and gone and we've just stayed. So I'll repeat that we focus on what customers want. Having said that, look, I think when you talked about the whole VC thing, look, tremendous growth in this landscape. Hence, you see a lot of investment, right? And of course, it happens, right? Every VC invests in a particular and then you suddenly see tremendous number of small companies mushroom, and then over a course of time, many of them dissolve, and that is a very natural evolution cycle of startups, and you're going to see that in this space also. What I feel good about is that our focus on mission-critical workloads with a platform that has two things, best-of-breed solutions, as well as a single platform with consumption-based pricing where customers can start and scale, and with the addition of PAYGO and free actually, we've gone to the departmental level also that you can really, really start very easy. We're giving customers tremendous amount of choice. And that resonates. And that is something that you're going to keep pushing down on. And at the end of the day, the other one is that our partnership with the hyperscalers, you know, our enterprise great presence across the globe, our adherence to so many different industry verticals that I talked about, gives large companies the ability to start very quickly. So those are all the things that are to us to continue to drive penetration, demand, and stickiness of our products.
spk13: Thank you very much.
spk10: Thank you. Our next question comes from the line of Patrick Colville with Scotiabank. You may proceed.
spk09: Hey, thank you so much for taking my question. Can I just circle back to the IPU question earlier? Because I think the consumption model is most, you know, of us on the sell side and most investors in the buy side know best is, you know, the likes of Snowflake and others. I think what you are articulating earlier is that the Informatica consumption model is slightly different. You know, you pay a commit and you have different allowances. So would you mind just talking through, I guess, the similarities and differences, and then also, you know, in terms of accounting and, you know, when do you record revenue? Do you record revenue when the consumption happens or when the deal is signed?
spk03: Yeah, sure, Patrick. Let me give that a shot. Fairly complicated answer, or it could be a fairly complicated answer. I'll try to be brief. So yes, our model is very different in that the customer is engages in a multi-year commitment with us. Our average new business term is 2.4 years. More and more of our deals are three plus, so that's growing. And they commit to a fixed payment to us annually in advance. So they pay us once a year, three times if it's a three-year contract in advance, and that buys them a certain number of IPUs. Then they can use those IPUs if it's a traditional IPU. They have those IPUs to use every month. And if they don't use them that month, then the clock resets and they get the same number of IPUs to use the next month. If they go over, there's overages and they can buy extra from us and we would recognize extra revenue at that time. FlexIPUs are exactly the same except the bucket renews once a year. So if you're a seasonal business like a retailer and you've got a big Black Friday and you need a lot of IPUs around that week but not so much in January, then the FlexIPU model is for you. But it's still a three-year deal. You pay a fixed price annually advance, and if you go over, you pay us when that happens. As far as revenue recognition, it's recognized just like any other SaaS company that would have a fixed contract, fixed multi-year contract. If it's cloud SaaS, we recognize it radically monthly as the term goes on, and if it's self-managed, which is effectively on-prem, it's recognized as on-prem. Companies are recognized under ASC 606, which is a Majority of the total contract values recognized upfront and then the rest of it is amortized over the over the period And that's you know, we're selling very little of that. So it's becoming less and less relevant. Does that does that answer your question?
spk09: I Mean does a terrific answer. So thank you so much. And I guess Victoria cooler won't be happy with me asking a second question, but I'll sneak one in if the customer doesn't consume for whatever reason, what happens then? Do you push the credits out or do you recognize the revenue?
spk03: We recognize the revenue for sure. If it's a three-year contract for $100 a year, we're going to recognize $100 radibly every year for three years, irrespective of what happens, unless we're in breach and the customer sues us, which never happens. The only thing that can happen during that three years is they buy more. And then at renewal, if they haven't used anywhere near the amount that they thought they were going to, then they might try to negotiate a new deal at a lower usage level. That's why we're watching so carefully the IPU usage of our customers that are coming into the renewal cycle for the first time this year. I'm so far so good on that. But there's really no downside risk, again, unless we're in breach or whatever.
spk09: Great. Thank you, Michael. Thank you, Victoria. Thank you all, Matt.
spk10: Thank you. Our next question comes from the line of Brad Zelnick with Deutsche Bank. Your line is now open.
spk00: Hey, guys. It's Jamie. I'm for Brad. I just wanted to quickly follow up on the cloud marketplace question. How much does it account for as percent of bookings mix? And I guess, where do you expect this to go from here? And finally, is there any changes to incentives for the salespeople at the CSPs to sell Informatica's solution set? Thanks.
spk03: You know, we don't disclose the exact amount that goes through the marketplaces versus those that doesn't. For us, we're completely happy with either channel. And in terms of the incentives for us to work together with those cloud service providers, we do have mutual incentives. We incentivize our folks and they incentivize their folks. So when we sell together and we both win, not only do we win as companies, but the individual sales reps involved win too. But the actual, you know, specific mix of how much is marketplace versus not is not something that we disclose.
spk00: Understood. Thank you.
spk10: Thank you. Our next question comes from the line of Alex Zukin with Wolf Research. Your line is now open.
spk05: Hey, guys. This is Alan on for Alex. Congrats on the strong results. i got a quick question to follow up if i may um i want to start off with the new disclosure of cloud nrr could you just unpack the key drivers for that to be improving for the second straight quarter here along with kind of how you'd high level think about that for the year yeah so mathematically it's the same as our existing nrr which would be the same as what you would see from most other companies uh it is simply
spk03: The customers that we had a year ago in the same period, how much did that same set of customers, cloud customers, not including self-managed maintenance, but cloud customers only, how much did that set of cloud customers a year ago, how much are they buying now? And they were buying $100 a year ago. They're now buying $118. And that is mostly driven by probably almost 100% driven by new workloads because, as you know, the IP model is one where you generally buy more when you buy a new workload. It doesn't go down when you use less because we've got a fixed minimum for every year of the contract. And folks usually buy enough ICU so that they think they can stay within their purchase level and not have to buy overdue. So you can think of that 18% as cross-sell, up-sell into that cloud cohort that we had a year ago. Does that answer the question?
spk05: Yeah, it's hard to follow up on that. Specifically, what are the drivers for the cloud NRR number to be coming up? A quarter ago, it was 117. Q3 is 115. Here, it's 118. What are you seeing in the customer base? Perhaps that is driving that upwards.
spk11: It's the breadth of the platform. A customer could have begun with an analytics use case, and now they can go add governance, they can add quality, they can do many more things. They may have begun with a simple ingestion or ETL use case. They can add ESD. They could have been doing cloud only. They can add hybrid. So it's the breadth of the capabilities on the platform that allow the customer to then expand into broader use cases. That's what is basically the tailwind.
spk05: Okay. Understood. I'll keep it there. Thank you. Sure.
spk10: Thank you, Mr. Zukin. Our next question comes from the line of Koji Ikeda with Bank of America. You may proceed.
spk14: Hey, guys. Thank you for taking the questions. Jumping over from a couple of calls here, so apologies if this topic was covered, but I did want to ask you a question on data governance and privacy, and specifically within the generative AI world. You know, just thinking about the products that you have available today, What is Informatica's role, or maybe even expanding role, as all these enterprises all over the world are trying to grasp and tackle the data that feeds these AI models that everyone's talking about today? Thanks, guys.
spk11: Sure, Koji. Good to hear from you. I think we'll cover a lot of that next week at Informatica World. If you're there, obviously, we'll cover a lot of detail. I'll give you – I mean, there's so much to cover on that topic. I'll give you a simple snippet. to actually leverage AI, generative AI, to do something within an enterprise, it actually will become more and more paramount to have good data. I mean, if you're going to let something automated happen on the shop floor of a manufacturing plant, you can't afford to get it wrong. So data becomes very important. And just think of two very simple things. It's not just bringing data from many places. The quality of data becomes very important, right? Because you're going to make a decision out of a data model, and then you will basically let that run at scale. So data quality becomes incredibly important. So that's how we believe that this will all be a tailwind to us. And I'll say, what large language models are on the Internet? Ultimately, metadata will become the data language model within an enterprise. And we'll talk a lot about that next week when you come to that Informatica world, and we absolutely see that as nothing else but tailwinds.
spk07: got it thank you looking forward to next week guys thanks for taking the question absolutely thank you our next question comes from the line of tyler radke with city you may proceed thanks for taking the question uh just a couple quick uh questions on on the numbers here i guess first in terms of the self-managed ARR with the sequential decline, is it right to think about the roughly $5 million of sequential decline as converting to cloud in the quarter, or did that go somewhere else? And then I'm just curious, as you think about the second quarter, Amit, obviously you rightly pointed out that Q1 is seasonally the weakest quarter from a bookings perspective, but it looks like you're you're guiding to add less incremental ARR on cloud in Q2 than Q1. So just curious if maybe there was some overperformance in Q1 that caused some deals to close earlier, just kind of the factors in the Q2 outlook. Thank you.
spk03: Hey, Tyler, it's Mike. So first on the self-managed ARR decline of ARR in Q2, you should think about that as normal churn for a component of the business where we're not focusing our efforts to sell new into that bucket. Uh, you know, we're a cloud only consumption driven company. Now all of our go to market efforts and sales incentives are focused around selling the cloud platform. Uh, and we are consciously, uh, allowing that, uh, self managed subscription bucket to decline as customers churn as they would have. Anyway, it's just, we're not selling new into that bucket. Uh, there's not a meaningful amount of movement from self managed ARR to a cloud ARR, at least not that we've seen so far. You're right with respect to the cloud net new for next quarter. The NAR as we call it for Q2 is modest. But look, we run the business on an annual basis. Enterprise software is inherently volatile from quarter to quarter. Long sales cycles, big deals, uncertain deal, closed timing. And we're really thinking about the year in the context of the 35% cloud growth guide that we've put out there and that we still feel good about. Q1 came in really strong and we're setting Q2 at a level that we think is prudent based upon our expectation for the full year. We're not trying to signal that second half is going to be some sort of economic rebound is going to be better or Q2 is going to be materially worse. It's just that in the context of what we think is going to happen for the full year, This feels like the prudent thing to dive to. And I would point you just to last year. If you look at last year, Q1, Q2 were good quarters. Q3 was a disappointment. And then Q4 came back with gangbusters. And that's just the kind of volatility that you'll see in enterprise software like us. So don't read too much into the Q2 number. All right.
spk07: Thanks for the color. We'll see you next week.
spk10: Thank you, Mr. Radke. Our next question comes from the line of Jeff Hickey with UBS. You may proceed.
spk15: Hey, everyone. Thanks for taking the question. I'll be quick on this. I'm kind of back to maybe Andrew's point at the top of the call on just customer count. Understand Q4 and Q1 might be apples to oranges, but maybe looking over a longer-term time horizon, I think you guys now disclosed 5,500-plus customers, and I think that's down from $5,700 during the IPO and $5,600 in the 10K. So I'm just curious how we should think about that figure. Thanks.
spk11: I think we can follow up on that question. I don't think it's declined customers.
spk02: I don't know.
spk11: I think $5,700 going down to $5,500. I think we should just follow up on that one, to be very honest, Jeff, with Victoria, and we can answer because we don't see any decline. and in fact if anything we've been very very transparent with our customer numbers and we'll be very transparent that hey within that subscription customers and uh so and you know there is because the overall pool of the customers is that our subscription and maintenance and then we are very clear about who amongst them are subscription only customers so we're happy to answer we don't see any decline uh so 5700 that's like a surprise to me we're happy to clarify separately
spk15: Got it. Got it. And then maybe one just quick follow-up might just be on vertical mix and exposure that you guys have to financial services. Any color there? I know when Pendulum was asking earlier, you said you saw kind of no change in March and April timeframe, but I'm curious if there are any figures you can throw out there that help us think about the exposure. Thanks.
spk03: Sure. Our exposure to financial services is less than 20%, and that includes insurance, not just banks and credit unions and so forth. And we haven't seen any material impact to our business due to the regional banking turmoil.
spk15: Got it. Thank you. I'll see you before.
spk10: Thank you. There are no additional questions waiting at this time. I would like to pass the conference back over to the management team for closing remarks.
spk11: Well, thank you. Well, as you can see, we were pretty excited about how Q1 ended, strong results. We are excited about holding our guide for the year. I'm actually looking forward to next week. It's always fun to be with customers, which actually matters the most in a world like this, more than competition, more than anything else. I'm looking forward to seeing many of you there at the user conference, and you will see not only a lot of cool demos, I think a lot of questions that got asked. I think my lips are a little bit sealed right now because we can unveil them next week. And of course, as Mike said, we will do our analyst day on September 5th. So look forward to hosting you all on that day. So thank you all for joining today and next week and then later in the year on analyst day.
spk10: That concludes today's call. Thank you for your participation. You may now disconnect your lines.
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