Informatica Inc.

Good afternoon, ladies and gentlemen. Thank you for joining today's Informatica fourth quarter 2023 earnings conference call. My name is Tia, 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 one on your telephone keypad. It is now my pleasure to introduce your host, Victoria Hyde-Dunn, Vice President of Investor Relations. Please proceed.

Thank you. Good afternoon, and thank you for joining Informatica's fourth quarter and full year 2023 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. 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'll 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 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. A reconciliation of these items to the nearest U.S. GAAP measure can be found in this afternoon's press release and on our slide presentation available on Informatica's Investor Relations website. It is my pleasure to turn the call over to Amit.

Well, thank you, Victoria. And thank you, everyone, for joining us today. I will start today's call by summarizing three key points. First, Informatica closed an outstanding fiscal 2023, outperforming all the top and bottom line guidance metrics for the fourth quarter and the full year. This was driven by a relentless focus on executing our cloud only consumption driven strategy and strong customer momentum. These results are a testament to the power of AI powered IDMC platform and category leadership in data management as a mission critical component of the modern data stack. Second, And at December Investor Day, we shared Informatica's innovation journey to deliver the best data management products on the industry's only AI-powered data management platform in a multi-vendor, multi-cloud hybrid approach. Last year, we executed very strongly against that strategy, and I believe we are entering Informatica's most exciting era yet. And third, our cloud-only consumption-driven strategy has multiple growth engines, ongoing digital transformation, on-premise migration to cloud, and gen AI to fuel cloud growth and drive long-term value creation. Now let's discuss these topics in more detail. Turning to results, we exceeded the high end of all our guidance metrics. In the fourth quarter, cloud subscription ARR grew 37% year-over-year to $617 million. Subscription ERR increased 14% year-over-year to $1.1 billion. And total ERR rose 7% year-over-year to $1.6 billion. For the full year, total revenue grew 6% year-over-year to $1.6 billion. Non-GAAP operating income increased 32% year-over-year to $462 million. And adjusted unlevered free cash flow after tax rose 56% year-over-year to $451 million. We are pleased to have delivered a net debt leverage ratio of less than two times, which is ahead of our IPO commitment by one full year. We also achieved two new annual milestones. We grew subscription revenues to $1 billion and cloud subscription revenue to half a billion. At our December investor day, we shared early thoughts on 2024 guidance. We are raising full-year non-GAAP operating income margin expectations and reaffirming all remaining metrics, including that we should expect cloud subscription ERR growth of 35% for the full year of 2024. Our level of engagement with enterprise customers is stronger than ever, supported by our growing partner ecosystem, customer success initiatives, and healthy cloud pipelines. In the full year, approximately 75% of cloud new bookings came from new cloud workloads and the expansion of existing cloud engagements. We are attracting new customers, expanding opportunities within existing customers, and driving new workloads in G2K markets to our industry sales enablement teams and partners. Customers spending more than $1 million in subscription ARR increased 17% year-over-year to 240 customers. We had a record number of customers spending more than $5 million in subscription ARR, which grew 57% year-over-year. We pride ourselves on being the Switzerland of data and have accelerated ecosystem co-selling with Microsoft Azure, AWS, GCP, Snowflake, and Databricks, and announced a new strategic partnership with MongoDB. We launched a Canada point of delivery on Microsoft Azure, which enables access to IDMC as an Azure native service purchased through Azure Marketplace. At Microsoft Ignite, as one of the first ISV design partners for Microsoft Fabric, we announced a new native app for Microsoft Fabric to seamlessly deliver data quality, data observability, and data integration, as well as multiple new connectors for Microsoft Fabric. At AWS reInvent, we announced certification of our AWS HealthLake integrations, including healthcare and life sciences specific data connectivity and format support, as well as master data management accelerators for provider and payer. We are a launch partner for Amazon S3 Access Grants, delivering scalable permission management for S3 Data Lakes for our cloud data marketplace and data access management capabilities, leveraging our recent Privatar acquisition. With both Microsoft and AWS, we showcased GenAI solutions with Microsoft Azure OpenAI and Amazon Bedrock, demonstrating how a trusted data foundation with IDMC enables customers to deliver enterprise-grade GenAI conversational apps. With Snowflake, we announced the general availability of SuperPipe for Snowflake, integrating complex ERP and CRM data up to 3.5x faster than previous approaches and a public preview of our first Snowflake native app, the Enterprise Data Integrator, enabling users to use SuperPipe seamlessly from within the Snowflake product experience. With Databricks, we enhanced Databricks verified Unity catalog support for our cloud data integration and cloud data integration free services. Lastly, we formed a new strategic partnership with MongoDB to deliver modern cloud-native trusted data-driven apps across financial services, insurance, and healthcare verticals. This partnership combines the benefits of MongoDB Atlas with our MDM SaaS solution. GSIs continue to expand their data and AI practices by enabling their practitioners at scale on IDMC. They also showed strong interest in taking solutions to market with IDMC. Last week, Deloitte announced that they have partnered with Informatica and Workiva to launch a simplified ESG compliance offering by combining Informatica's AI-powered IDMC, Workiva's cloud-based regulatory reporting offering, and Deloitte's technology, operational, and domain experience. Source twins, where partners bring Informatica into new opportunities, increased to 31% of new business in 2023, as more partners double down and build their data and AI practices on Informatica, translating into more mindshare and partners recommending Informatica more often. Our Partner Migration Factory program continues to perform strongly to continue to accelerate our modernization strategy. We now have over 50 partners, including eight of our GSI certified as part of our program, and strong interest in PowerCenter Cloud Edition. We also launched an MDM modernization program and began training the first partners during the quarter. In Q4, we added many new product innovations to IDMC. I'll just try to summarize a few, otherwise we'll run out of time. In master data management and 360 apps, we enhanced intelligent data matching capabilities to deliver better match outcomes and expanded our trust framework, very important for enterprise customers, and released a new connector for high volume data extraction. MDM extension for SAP enables customers to migrate to the cloud by creating a reliable version of supplier data, reducing risk and accelerating the move to SAP S4 HANA. Lastly, we added a location master extension that helps optimize the supply chain and engage more effectively with customers. Cloud data governance and catalog now supports easy use of custom workflows and UI customization. We also introduced a new web browser extension called Quick Look for sharing information and providing data intelligence insights. Our advanced scanner connectivity now includes Oracle, Qlik Cloud, and TIPCO Spotfire with increased depth for Microsoft Power BI scanning and understanding of data workflows. In Gen AI, the Clare Metadata Foundation enables collecting and preparing high-quality metadata from each organization. Let me remind, IDMC is the metadata system on record for enterprises. We added auto cataloging, making it seamless for an organization's data management metadata to be auto cataloged in the central metadata inventory. This will help Clare GPT and Copilot to work from a very rich base of prepared metadata, enabling data teams and business users to work with data more effectively. Clare Copilot now has masking recommendations for auto classified sensitive columns and Clare based auto mapping recommendations for no code users in InfoCore. These updates help gather high-quality metadata for AI, streamline the process of protecting sensitive data, and create complex data pipelines. And lastly, and I know you are anxious to hear about PrivatAR, we are on track to integrate PrivatAR's data access management capabilities into IDMC, including using IPOs to consume PrivatAR capabilities. We're excited about these capabilities and look forward to broad availability later this month. That innovation always translates into great customer stories, and let me share a few. An outstanding new customer is Royal Caribbean Group, a leader in the vacation cruise line industry offering cruises throughout the world. As a part of system-wide modernization effort, they're investing in new financial loyalty and reservation systems, which requires a modern master data management solution to ensure success. They selected our MDM SaaS to support the modern MDM strategy to support superior guest experiences and customer loyalty with the power of high-quality data. Pella Corporation is a window and door manufacturing company with operations across the United States and select regions of Canada. In partnership with Microsoft, Pella selected our MDM SaaS and cloud data quality to manage and ensure the quality of their product, customer, and supplier data to optimize their supply chain and inventory operations across the enterprise. NGEN is a leading global health tech company that offers a full suite of products and services across the entire healthcare value chain. They chose to partner with us, with our MDM and broader IBMC solutions to centralize their customer and provide master data, which will drive more administrative efficiencies and better health outcomes through care delivery and customer care. Now, a great customer expansion story is in Australia, the University of Sydney, Australia's oldest university and home to approximately 75,000 students. The university has been a longstanding Informatica Power Center and MDM customer for over two years and have successfully undergone cloud migration projects for both areas. The recent purchases for Cloud Master Data Management, Data Governance, Data Integration, and Data Quality Solutions reflect a platform expansion across the enterprise to further enable data sharing, enhance the university experience for their students and faculty, and prepare their data foundation to effectively leverage AI. We are leaders in our core markets, and our commitment to product differentiation and innovation continues to earn us formal recognition from industry analysts. Informatica is a leader in the 2023 Gartner Magic Quadrant for Data Integration Tools report. This marks the 18th consecutive time we have been positioned highest on the ability to execute access and furthest on the completeness of efficient access. We also received a strong rating in the product service and technology methodology categories for the 2023 Gartner vendor rating report, being the only data management provider that Gartner covers in that report. In research published by Forrester, Informatica received a leader rating in the inaugural Forrester Wave Cloud Data Pipelines Q4 2023 report and a leader rating in the Forrester Wave Product Information Management Q4 2023 report. This happens by building great products that help customers solve real mission critical business problems, creating value for them. Now, During Investor Day in December, we presented three reasons illustrating how we at Informatica are the data management choice for enterprises. As a reminder, we firstly built the best data management products period. Second, we have the only AI-powered data management platform in the market called IDMC, which is powered by our AI Clare. And third, we support extremely difficult mission-critical workloads that are multi-vendor, multi-cloud, and hybrid through one IDMC platform. Last year, we executed very strongly against our cloud-only strategy, and I believe we're entering Informatica's most exciting era yet. Our unwavering focus is to deliver profitable, accelerated growth while executing a cloud-only consumption-driven go-to-market strategy and enhancing our AI-powered IDMC platform capabilities. That platform, IDMC, processed 86 trillion mission-critical cloud transactions in December, growing a whopping 62% year-over-year. We have a unique and differentiated AI-powered platform, helping enterprises with automation, data intelligence, and increased efficiency to drive more workloads and many, many use cases. As I look ahead to 2024, we will fuel cloud growth in three ways. The first is through ongoing digital transformation. We are not done there yet across the globe within enterprises. Generative AI, hyper automation, data democratization, building and deploying modern digital apps, cloud databases and analytics are some of the fundamental technology initiatives driving innovation, efficiency and success in this digital era. There is a tremendous amount of work still to be done to help customers become innovative digital companies, including vendor consolidation. Enterprises need to move away from bespoke tactical tools and adapt an end-to-end data management platform that treats data strategically to drive digital transformation. Second, we are unique to have a billion dollars of on-prem maintenance and self-managed ARR. Migrating customers to the cloud is a very important priority. Approximately 25% of cloud new bookings in full year 2023 came from migrations. In the full year, we closed over 110 cloud modernization deals, which grew 35% year-over-year. Now, as a reminder, we introduced Power Center Cloud Edition in August of last year to significantly lower the time to modernize from on-prem Power Center to IDMC. In Q4, Power Center Cloud Edition was 60% plus of our modernization deals. And lastly, In very early stages is Gen AI, which is opening access to new customer opportunities. There is no Gen AI without data. And for data to have value, it needs core data management, such as holistic data, clean data, governed data, accessible data. Guess what? All of that is data management driven by IDMC. And CLAIRE RAI engine is embedded in all our solutions, leveraging ML algorithms and NLP on metadata to drive intelligence and productivity, leveraging and accessing our 50,000 plus metadata aware connections, and now leveraging 40 petabytes of active metadata in the cloud. CLAIRE co-pilot is live today. CLAIRE GPT is in private preview with 300 plus customers already signed up, and we plan to expand the preview to select partners by the end of this month. Today, private preview customers use ClearGPT for data discovery, metadata exploration cases, finding the right data sets for analytics and AI. We are making significant progress towards an expected launch in the second quarter. In summary, our strong results demonstrate that Informatica, with our AI-powered IDMC platform and category leadership in data management, is a mission-critical component of the modern data stack. We are fighting on all cylinders in a $62 billion-plus cloud market opportunity. Informatica has built the best data management products on the industry's only AI-powered data management platform, IDMC, powered by AI Clare, solving complex mission-critical workloads that are multi-cloud, multi-vendor, and hybrid, while delivering significant value to our customers. It's also a special time for the company, as we celebrate our 30 years of heritage, driven by innovation and customer centricity, I'm incredibly proud of our accomplishments and very excited about the opportunities ahead on our cloud-only consumption-driven journey. Informatica is a very special company. I completed 10 years last year myself. We are innovators, customer-centric, and we stay true to our values and our data. We look forward to sharing more product innovation at Informatica World in May and invite you to join us over there. Thank you to all our employees across the globe, our customers across the globe, and our partners across the globe for making it a remarkable year. With that, let me hand the call over to Mike. Mike, please take it away.