Informatica Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
February 14, 2024

There are 14 speakers on the call.

Operator

Good afternoon, ladies and gentlemen. Thank you for joining today's Informatica 4th Quarter 2023 Earnings Conference 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 It is now my pleasure to introduce your host, Victoria Hyde Dunn, Vice President of Investor Relations. Please proceed.

Speaker 1

Thank you. Good afternoon, and thank you for joining Informatica's 4th 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.

Speaker 1

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 10 Q and 10 ks filing for the full year 2023.

Speaker 1

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 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.

Speaker 1

It is my pleasure to turn the call over to Amit.

Speaker 2

Well, thank you, Victoria, and thank you, everyone, for joining us today. I will start today's call by summarizing 3 key points. 1st, Informatica closed an outstanding fiscal 2023, outperforming all the top and bottom line guidance metrics for the Q4 and the full year. This was driven by a relentless focus on executing 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.

Speaker 2

2nd, At our December Investor Day, we shared Informatica's innovation journey to deliver the best data management product 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 3rd, 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.

Speaker 2

In the Q4, cloud subscription ARR grew 37% year over year to $617,000,000 subscription ARR increased 40% year over year to $1,100,000,000 and total ARR rose 7% year over year to $1,600,000,000 For the full year, total revenue grew 6% year over year to $1,600,000,000 non GAAP operating income increased 32% year over year to 4 $2,000,000 and adjusted unlevered free cash flow after tax rose 56% year over year to 451,000,000 We are pleased to have delivered a net debt leverage ratio of less than 2 times, which is ahead of our IPO commitment by 1 full year. We also achieved 2 new annual milestones. We grew subscription revenues to $1,000,000,000 and cloud subscription revenue to 0.5 1,000,000,000. At our December Investor Day, we shared early thoughts on 2024 guidance. We are raising full year non GAAP operating income operating income margin expectations and reaffirming all remaining metrics, including that we should expect cloud subscription ARR growth of 35% for the full year of 2024.

Speaker 2

Our level of engagement with enterprise customers is stronger than ever, supported by a growing partner ecosystem, customer success initiatives and healthy cloud pipeline. 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 through our industry sales and enablement teams and partners. Customers spending more than $1,000,000 in subscription ARR increased 17% year over year to 2 40 customers. We had a record number of customers spending more than $5,000,000 in subscription ARR, which grew 57% year over year.

Speaker 2

We pride ourselves on being the Switzerland of data and have accelerated ecosystem co selling with Microsoft Azure, AWS, GCP, Snowflake and Databricks 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 re:Invent, 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.

Speaker 2

With both Microsoft and AWS, we showcased GiniAct solutions at Microsoft Azure Open AI and Amazon Bedrock, demonstrating how a trusted data foundation with IDMC enables customers to deliver enterprise grade Gen AI conversational apps. With Snowflake, we announced the general availability of SuperPiper Snowflake integrating complex ERP and CRM data to 3.5x faster than previous approaches and a public preview of our 1st 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. GSI has continued to expand their data and AI practices by enabling their practitioners at scale on IDMC.

Speaker 2

They also showed interest in taking solutions to market with IDMC. Last week, Deloitte announced that they have partnered with Informatica and Workiva to launch a simplified ELC compliance offering By combining Informatica's AI powered IDMC, Workiva's cloud based regulatory reporting offering and Deloitte's technology, operational and domain experience. Sourced wins where partners bring Informatica into new opportunities increased to 31% of new business in 2023 As small partners double down and build their data and AI practices on Informatica, translating into more mindshare and partners recommending Informatica more often. Our partnered migration factory program continues to perform strongly to continue to accelerate our modernization strategy. We now have over 50 partners, including 8 of our GSIs certified as part of our program and strong interest in Power Center Cloud Edition.

Speaker 2

We also launched an MDM modernization program and began training the 1st partners during the quarter. In Q4, We added many new product innovations to IDMC. I'll just try to summarize a few and 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 S4HANA.

Speaker 2

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 QuickLook for sharing information and providing data intelligence insights. Our advanced scanner connectivity now includes Oracle, Qlik Cloud and TiVo Spotfire with increased depth of Microsoft Power BI scanning and understanding of data workflows.

Speaker 3

In Gen AI,

Speaker 2

the Clair metadata foundation enables collecting and high quality metadata from each organization. Let me remind, IDMC is the metadata system of 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 Clair 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. Clair Copilot now has masking recommendations for auto classified sensitive columns and Clair based automapping recommendations for no code users in InfoCore.

Speaker 2

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 And just 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. Now that innovation always translates into great customer stories and let me few. An outstanding new customer is Royal Caribbean Group, a leader in the vacation cruise line industry offering cruises throughout the world.

Speaker 2

As a part of system wide modernization effort, we are investing in new financial, loyalty and reservation systems, which requires a modern master data management solution to ensure success. We have selected our MDM SaaS to support their 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, Pela 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. Engen is a leading global health tech company that offers a full suite of products and services across the entire healthcare value chain.

Speaker 2

They chose to partner with us, with our MDM and broader IBM C 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 It's in Australia, the University of Sydney, Australia's oldest university and home to approximately 75,000 students. The university has been a long standing Informatica power center and MDM customer for over 2 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.

Speaker 2

Informatica is a leader in the 2023 Gartner Magic Quadrant for data integration tool support. This marks the 18th Consecutive time, we have been positioned highest on the ability to execute access and furthest on the completeness of vision 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 the 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.

Speaker 2

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 pick. 2nd, we have the only AI powered data management platform in the market called IDMC, which is powered by our API Clear. And 3rd, we support extremely difficult mission critical workloads that are Multi vendor, multi cloud and hybrid to 1 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.

Speaker 2

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 86,000,000,000 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 3 ways. The first is through ongoing digital transformation.

Speaker 2

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 an adaptive end to end data management platform that treats data strategically to drive digital transformation. 2nd, we are unique to have $1,000,000,000 of on prem maintenance and self managed ARR. Migrating customers to the cloud is a very important priority.

Speaker 2

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.

Speaker 2

There is no Gen AI without data. And for data to have value, it needs core data management such as holistic data, clean data, Govern data, accessible data, guess what, all of that is data management driven by IDMC. And clear our AI 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 connections and now leveraging 40 terabytes of active metadata in the cloud. Clear copilot is live today. Clear 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.

Speaker 2

Today, private preview customers use Clear GPT for data discovery, metadata exploration cases, finding the right datasets for analytics and AI. We are making significant progress towards an expected launch in the Q2. 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. They're fighting on all cylinders in a $62,000,000,000 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 Clear, solving complex mission critical workloads that are multi cloud, multi vendor and hybrid while delivering significant value to our customers.

Speaker 2

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 I'm 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.

Speaker 2

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.

Speaker 4

Thank you, Amit, and good afternoon, everyone. Q4 was another solid financial quarter across the board with key growth and profitability metrics exceeding our expectations, delivering a strong close to 2023. I'll begin the review of our Q4 results by reminding everyone how to best understand Informatica's ARR and GAAP revenues. Our ARR and revenue fall into 3 major categories: Cloud subscriptions, which delivered 37% ARR growth in FY2023, self managed subscriptions, which we no longer actively sell and are therefore and maintenance on on premise perpetual licenses, which is also in gradual decline. As I discussed at our December Investor Day, The trajectories of these 3 categories of ARR and revenue, that is the strong growth of our cloud business and the gradual decline of our self managed subscriptions and maintenance are the direct result of our cloud only strategy and we expect more of the same in FY 'twenty four and beyond.

Speaker 4

With that in mind, let's start with total ARR, which was $1,630,000,000 in Q4, an increase of 7% over the prior year. This was driven primarily by new cloud workloads, strong net expansion with existing customers and steady renewal rates. We added $109,000,000 in net new total ARR versus the prior year. Foreign exchange negatively impacted total ARR by $7,000,000 on a year over year basis. Cloud subscription ARR at the end of Q4 was $617,000,000 a 37% increase year over year and $8,000,000 above the midpoint of our November guidance.

Speaker 4

Cloud subscription ARR now represents 38% of our total ARR, up from 30% a year ago. Foreign exchange negatively impacted cloud subscription ARR by approximately $2,300,000 on a year over year basis. New cloud workloads, strong net expansion with existing customers and steady cloud renewal rates drove cloud subscription net new ARR of 166,000,000 year over year $67,000,000 quarter over quarter. Approximately 75% of fiscal 2023's cloud net new ARR came new cloud workloads and expansion of existing cloud engagements, with the remaining 25% coming from on premise customer migrations. Our cloud subscription net retention rate at the end user level was 119% in the 4th quarter, up 2 percentage points year over year and up 1 percentage point versus quarter.

Speaker 4

As we discussed at our December Investor Day, this metric defines the customer cohort for NRR at the beginning of the year ago period At the end user customer level, if we instead define the measurement cohort at the global parent level, our Q4 NRR was 125%, up 2 percentage points year over year and 1% sequentially. Self managed subscription ARR declined in the as expected to $516,000,000 This was down 2% sequentially and down 5% year over year. This was a slightly slower decline than we forecast in November. Subscription ARR, which is simply the sum of cloud ARR and self managed ARR grew by 14% year over year to 1,130,000,000 which was $25,000,000 above the midpoint of our November guidance. Foreign exchange negatively impacted subscription ARR by approximately $5,600,000 on a year over year basis.

Speaker 4

We saw good growth in our average subscription ARR per customer, which reached over $298,000 in Q4, a 13% increase year over year. The 3rd component of total ARR is maintenance for on premise perpetual licenses sold in the past, which now represents about 30% of total ARR. Maintenance ARR was down approximately 6% year over year to $494,000,000 in line with expectations. As Amit discussed, the migration of our on premise customer base to IDMC in the cloud is a large opportunity for us. Introduction of Power Center Cloud Edition in Q3 of last year has helped accelerate the volume of signed migrations of our Power Center maintenance space.

Speaker 4

We're also seeing momentum from our self managed base migrating to our cloud and our on premise MDM customers are beginning to migrate their on prem solutions. So as a result, we are updating our migration reporting metric to include our entire on prem base, not just maintenance. As of the end of Q4, we have migrated 4.8% of our maintenance and self managed ARR base to cloud, up from 3.7% last quarter. We have a life to date average 2:one ARR uplift ratio on these migrations, including power center and MDM. Including only maintenance migration, as we have historically reported, our migrated base in Q4 was 6.5%, up from 5% last quarter.

Speaker 4

These 3 ARR components summed to 7.2 percent total ARR growth year over year. Cloud subscription ARR growth of 37% drove this increase, offset by gradual declines in self managed subscription and maintenance ARR. We expect similar trends to continue in 2024 as a direct and intentional result of our cloud only consumption driven strategy. Now I'd like to review our revenue results for the 4th quarter. GAAP total revenues were $445,000,000 an increase of 12% year over year.

Speaker 4

This exceeded the midpoint of our November guidance range by $15,000,000 due primarily to a slower than expected decline in self managed revenue. Revenue from our Privitar acquisition was not material in the quarter. Foreign exchange positively impacted total revenues by approximately $2,600,000 on a year over year basis. As we have previously discussed, the accounting impact of our mix shift to cloud subscription sales and away from self managed on premises sales creates a headwind to GAAP revenues. If our cloud versus self managed new bookings mix were the same this quarter as it was in Q4 of last year, total revenues would have been approximately 28,000,000 higher than we reported.

Speaker 4

For the full year, revenue would have been $72,000,000 higher. Subscription revenue increased 26% year over year $300,000,000 representing 67 percent of total revenue compared to 60% a year ago. Our quarterly subscription renewal rate was approximately 89%, down 3.7 percentage points year over year due to lower self managed subscription renewal rates offset by higher cloud subscription renewal rates. For the full year, our subscription renewal rate was 92%. Maintenance and professional services revenues $143,000,000 representing 32 percent of total revenue in Q4, in line with expectations.

Speaker 4

Maintenance revenue represented 27% of total revenue for the quarter. Our maintenance renewal rate in the quarter was 95%, in line with prior periods. Implementation, consulting and education revenues comprised the remainder of this category, down $7,000,000 year over year consistent with last quarter. And I have one additional call out to revenue. Starting this quarter, we will be disclosing GAAP revenue from cloud subscriptions in our quarterly reports.

Speaker 4

In Q4, cloud subscription revenue was $140,000,000 or 47 percent of subscription revenues, growing 39% year over year. For the full year, cloud subscription revenue was $500,000,000 also growing 39% year over year. As a reminder, due to the timing differences between revenue and ARR recognition, the relative growth rates of these two metrics will differ from period to period. Turning to the geographic distribution of our business, U. S.

Speaker 4

Revenue grew 7% year over year to $279,000,000 representing 63% of total revenue, While international revenue grew 21 percent to $166,000,000 using exchange rates from Q4 last year, international revenue would have been approximately $7,000,000 lower in the quarter, representing international revenue growth of 16% year over year. Turning to consumption based IPUs, approximately 45 percent of 4th quarter cloud new bookings were IPU based deals. IPUs now represent 47% of cloud subscription ARR, up 2 percentage points sequentially. The remainder of our Q4 cloud bookings were primarily for customer or supplier records for our MDM products, which is also a multiyear committed consumption based pricing model. Now I'd like to move on to our profitability metrics.

Speaker 4

Please note that I will discuss non GAAP results unless otherwise stated. In Q4, our gross margin was 83%, up 1 percentage point year over year, and operating expenses were consistent with expectations. As part of our November 2023 restructuring plan, we incurred non recurring restructuring charges of approximately $32,000,000 in the Q4 of 2023. We expect approximately $3,000,000 to $5,000,000 of restructuring expenses to be incurred in the Q1 of 2024 consistent with the range we provided in November. We continue to estimate the cost savings benefit of these restructuring actions in 2024 will be approximately $84,000,000 on a GAAP basis and approximately $70,000,000 on a non GAAP basis.

Speaker 4

Operating income was $162,000,000 in the 4th quarter, growing 42% year over year and exceeding the midpoint of our November guidance range by $22,000,000 Operating margin was 36.4 percent, an 8 percentage point improvement From a year ago, adjusted EBITDA was $166,000,000 and net income was $97,000,000 Net income per diluted share was $0.32 based on approximately 305,000,000 outstanding diluted shares. Basic share count was approximately 293,000,000 shares. And please note that we did not repurchase any Class A common stock as part of the $200,000,000 share repurchase authorization we announced in November. 4th quarter adjusted unlevered free cash flow after tax was $155,000,000 $31,000,000 better than expectations due to higher operating income performance and cash collections. Adjusted unlevered free cash flow after tax margin was 35% and grew about 12 percentage points year over year.

Speaker 4

Cash paid for interest in the quarter was $38,000,000 in line with expectations. We ended the 4th quarter in a strong cash position with cash plus short term investments of $992,000,000 an increase of $276,000,000 year over year. Net debt was $850,000,000 and trailing 12 months of adjusted EBITDA was 479,000,000 This resulted in a net leverage ratio of 1.8 times at the end of December. I'm pleased to share that we delivered on our IPO deleveraging commitment of less than 2 times 1 year early. Turning now to 2024 guidance.

Speaker 4

We are reaffirming the 2024 pre guidance we shared at our December Investor Day. We expect our cloud subscription ARR to grow by 35% year over year in 2024 off of a higher base than we expected in early December. We expect total ARR and GAAP total revenue growth to inflect in 2024 and grow faster than in 2023, also off of a higher base than originally forecast. And we expect to grow our non GAAP operating income margin by 4 20 basis points from our FY 'twenty three guidance margin of 27.8 percent, which is a 300 basis point increase from our actual full year 2023 margin of 29%. Taking all this into account, we are establishing the following guidance for the full year ending December 31, 2024.

Speaker 4

Note that all growth rates refer to the midpoint of the guidance range. We expect GAAP total revenues to be in the range of $1,685,000,000 to 1 point $705,000,000,000 representing approximately 6.3 percent year over year growth. We expect total ARR to be in the range of 1,718,000,000 $1,772,000,000 representing approximately 7.3 percent year over year growth. We expect subscription ARR to be in the range of 1 point $261,000,000,000 to $1,295,000,000 representing approximately 12.8% year over year growth. We expect cloud subscription ARR to be in the range of $826,000,000 to $840,000,000 representing approximately 35.1% year over year growth.

Speaker 4

We expect non GAAP operating income to be in the range of $533,000,000 to $553,000,000 representing approximately 17 point 5% year over year growth and we expect unadjusted unlevered free cash flow after tax to be in the range of $535,000,000 to $555,000,000 representing approximately 20.8% year over year growth. Our guidance for the Q1 ending March 31, 2024 is as follows. We expect GAAP total revenues to be in the range of $375,000,000 to $395,000,000 representing approximately 5.4% year over year growth. We expect subscription ARR to be in the range of $1,135,000,000 to $1,155,000,000 Representing approximately 12.2% year over year growth, we expect cloud subscription ARR to be in the range of $645,000,000 to $655,000,000 representing approximately 34.5 percent year over year growth. We expect non GAAP operating income to be in the range of $97,000,000 to $117,000,000 representing approximately 26.2 percent year over year growth.

Speaker 4

Now for modeling purposes, I'd like to provide a few more pieces of additional information. First, we expect adjusted unlevered free cash flow after tax for the Q1 to be in the range of $102,000,000 to 122,000,000 We expect quarterly free cash flow linearity in FY 2024 to be similar to FY2023. 2nd, we estimate cash paid for interest will $39,000,000 in the Q1 and approximately $144,000,000 for the full year using forward interest rates based on 1 month SOFR. For tax rates, we reported a 2023 non GAAP tax rate of 23% and we expect that rate to continue for fiscal 2024. Looking at fiscal 2025 beyond, we expect a long term steady state non GAAP tax rate of 24%, which reflects where we expect cash taxes to eventually settle based on our structure and geographic distribution of operational activity.

Speaker 4

Cash taxes in 2024 are expected to be consistent with 2023. Lastly, our share count assumptions. For the Q1 of 2024, we expect basic weighted average shares outstanding to be approximately 297,000,000 shares and diluted weighted average shares outstanding to be approximately 310,000,000 shares. For the full year of 2024, We expect basic weighted average shares outstanding to be approximately 302,000,000 and diluted weighted average shares outstanding to be approximately 315,000,000. Summary, we are very pleased with our strong performance in 2023.

Speaker 4

We successfully transitioned to our cloud only consumption driven strategy and solidify the foundation upon which we will deliver accelerating total growth in 2024 and beyond. Operator, you can now open the line for questions. Thank you.

Operator

We will now begin the Q The first question comes from the line of Matt Hedberg with RBC Capital Markets. Please proceed.

Speaker 3

Great guys. Thanks for taking my questions. Congrats on a really strong end of the year and a great outlook for 2024. A lot of things to digest here. I guess maybe to start with, you've made comments on growth in new cloud workload is really exciting to hear and it feels like it's sort of powering a lot of people, but you guys included.

Speaker 3

I guess I'm wondering, could you double click on that a little bit more? Where are you seeing that growth in workload? Is it a particular customer segment? Is it digitally native customers, is it more mainstream? Any more color on sort of and I don't know if there's any like Jenny I focus on some of the new workloads, but any additional color there would be helpful.

Operator

Victoria, you are now into the call.

Speaker 4

Hi, everybody. I think we're back with you. Operator, you can go ahead and open the line to the calls to the questions.

Operator

Absolutely. We will now begin the Q The first question comes from the line of Matt Hedberg with RBC Capital Markets. Please proceed.

Speaker 3

Great, guys. I think I already asked a question, but maybe we lost you guys in that. Well done on the quarter and the guide. Really good to see Such a strong exit rate and a lot of opportunities in 'twenty four. A lot of things to think about on the call.

Speaker 3

You guys talked about growth in new cloud workload, which is good to hear. I'm wondering if you could double click on that. Like where is that coming from? Is it particular verticals? Is it anything driving that comment?

Speaker 3

Because that's really exciting to see just from an overall industry perspective and it feels like you guys are well positioned to monetize that.

Speaker 2

Hey, Matt, thanks for the question. Sorry, we lost the call. We're back. Look, I think here is what I think I saw as we exited the year and told the second half of the year. I mean, look, Digital transformation is not done.

Speaker 2

And the beauty is that digital transformation transitioning to Genya transformation is all bleeding over. And what we are seeing is our top markets, Enterprise customers have come back when they were in a lot more cut defense mode, are back into while Efficiency, automation, those things have not gone away. But they are basically going back into funding transformation initiatives And they all become data initiatives. So for example, and I talked about some of the customers in this call, is figuring out growth. How do you create customer loyalty programs?

Speaker 2

How do you think about making sure you can create better supply chain. So those transformation initiatives that I would say argue I would argue that when we ended last year, 2022, was somewhat on the back burner where people are a lot more on defense that come back on the offense and we are seeing investments in those.

Speaker 3

Got it. That's helpful. And then the launch of Power Center Cloud in August felt like a real inflection point, I guess, I'd say for the company terms of really modernizing the base, and I think maybe Mike or I don't know, I mean, you pointed out that I think you said 60% of cloud modernization deals were driven by Power Center Cloud. I'm wondering, is that an uplift to customer spend When they migrate to that, just sort of curious on the kind of the economics of that because it feels like that's another big opportunity given your large base.

Speaker 2

Yes. So, Matt, don't think of it as an uplift. The uplift has stayed consistent. Think of it this way, increasing the velocity. So with Power Center Cloud Edition, The time to migrate the workloads actually accelerates dramatically.

Speaker 2

And with that also the customers can do that a lot more at their own pace, so it de risks their migration, which allows more customers to enter their migration journeys with a lot less risk and a lot higher velocity. So that increases the velocity and conversions. Uplift has stayed pretty consistent for us. So I would not look at it as uplift, more as increasing the velocity and de risking that program.

Speaker 4

And just to be super clear, every migration, whether it's the prior style migration that It took up to 2 years in some cases to recover some of our cloud edition, which dramatically shortens that to 6 months or less. There is an uplift for every one of those migrations regardless of the size. So we've historically seen about 2 to 1 uplift between the migration ARR that we had been earning and the Cloud ARR we earned after the migration and that's consistent so far with PowerCenter Cloud Edition.

Speaker 3

Got it. Thanks guys.

Speaker 5

Thanks. Bye.

Operator

Thank you. Next question comes from the line of Brad Zelnick with Deutsche Bank. Please proceed.

Speaker 6

Great. Thanks so much for taking my questions and I'll echo my congrats to a strong finish to the year. Amit, I wanted to ask about go to market. Coming out of sales kickoff, what were the key themes in the playbook for 2024 This year and maybe specific just following Matt's question around Power Center Cloud Edition, what specifically are you doing to incentivize both direct sales and partners to sell that product because it just seems like such a tremendous opportunity to unlock and modernize the existing on prem base?

Speaker 2

Brad, thanks for the question. I couldn't agree more. It's a great opportunity. I'll tell you the 2 words I used at OxyContin was focus and execution. Mean in some ways the pivot to cloud only consumption driven that we started last year as you see went very well.

Speaker 2

And this year there is no change in strategy. We have to just kind of continue to scale, which is focus and execution. And so I think that was those are the 2 words. I think people are pretty excited. And what we've done is, of all, on migration, Powerfintech cloud edition is a tremendous accelerant.

Speaker 2

Everybody is super excited about that one. Of course, as you know, we talked about the numbers in Q4, but you can imagine the pipeline build that's happening is all as in the momentum of that one. We continue to incent our reps More than a normal deal for migrations because it takes a little bit of extra work, so that's always an extra incentive for our reps. And thirdly, all the hard work we've done with partners has started paying off now. Pretty much every migration deals goes to partners.

Speaker 2

We talked about our migration factory program. All of the large partners have built, by the way, migration factories within their Informatica practices to basically take these migrations and run it through their factories. And remember, for them, migration is one step to a larger End to end modernization journeys they can have in the practice would give them a higher multiple on that migration than a classic software project. So all of those things are basically bearing fruit right now.

Speaker 6

Thanks for that, Amit. Maybe just as a follow-up, I want to pull on that Partner thread, a lot of new and exciting and expanded partnerships you talked about. But specific to the SIs, I think you said I think it was 33% of new bookings sourced from SIs, I could have that wrong. Is it unreasonable to think that we could get to 50% maybe even year? And what kind of commitments do you have from the largest SI in terms of investing in certifications and capacity building even more around Informatica.

Speaker 6

Thank you.

Speaker 2

I think, first of all, 31% is a very good number. It was 31%. And I think we I think they're in a good ZIP code. Think of it this way, we have a lot of larger numbers. So I think I look at it like that.

Speaker 2

The place that I'll point to is and what makes me very excited is that all the large SIs, Pretty much if you look at where the growth is coming from them, data and AI practices for them are pretty much driving growth. And when you think of anybody's data and AI practice, they pretty much have largely 5 or 6 partners. They end up being the 3 hyperscalers, the 2 data warehouse and data lake companies and us. And uniquely, we are the only one that works with all of them in the world where customers are, they would be using 1 or 2 of those 5, but they end up using us for data management and we work with all of them. So that makes it very unique.

Speaker 2

And our platform being all the products, best products makes it very easy for the GSIs to not have to go do a lot of hard work. So we are part of the reference architecture. That momentum is bearing fruit. In large transformational projects, customers want somebody at scale like us, best products, a platform and the ability to drive customer success and value creation for customers.

Speaker 4

And let me just clarify the data a little bit. That 31% is deals that were brought to us by the partner. So they were sourced. If you look at the amount of our bookings that are co sold with or where we're side by side with a partner in selling the deal, regardless of who sourced it, that's roughly 70%, a little more than 70% as we disclosed at our Investor Day in December. So The partners source a lot of business for us and more than a majority, we're shoulder to shoulder with them delivering and selling it in the field.

Speaker 6

Thanks for that, Mike, and thank you guys. Great job.

Speaker 1

Thank you.

Operator

The next question comes from the line of Alex Zukin with Wolfe Research. Please proceed.

Speaker 7

Hey guys, thanks for taking the question. The large deal activity customers over $1,000,000 really stood out this quarter. Can you maybe talk about did you see evidence of some sort of a budget flush, competitive displacements, are you seeing kind of now a return to a more normalized buying environment? And then I've got a quick follow-up.

Speaker 2

Sure, Alex. Thanks. I think the way I would say that the buying environment, I would say, we've seen the same For the last couple of months, I would not say that the buying environment has probably dramatically changed in a meaningful way, early days. I would say that what's happening is I'll put them into a couple of categories, Alex, for you. Number 1 is, the COCD strategy of having All the data management best products on one platform with consumption based pricing makes it very easy for customers to make a very simple decision of actually consolidating a lot of the bespoke tools spend they were doing because that creates more risk, in fact creates more spend for them.

Speaker 2

So that is definitely playing to our favor. 2nd is, we talked about partnerships. Most of the transformational deals and the big deals we're talking about, like I said, customers are definitely pivoting towards defense to more often in a way that we are still trying to conserve cost by automating efficiency, but they are funding what I call growth initiatives. And in those transmission initiatives, our partnerships going hand to hand with the GSI or the hyperscaler and us, this large Auto company in U. K, massive EV project.

Speaker 2

It was literally 1 hyperscaler, 1 ecosystem player, 1 GSI and us because they needed that to give them the confidence that is coming to our benefit. And thirdly, which is the very uniqueness of our platform that We can do a traditional digital transformation project. The same product and the same platform allow them to do Gen AI project. So they can fund their Gen AI initiatives on the same platform using IPUs and they can get going and experimenting and starting on that end, not having to do 2 different things. So those are all playing to an advantage.

Speaker 7

Perfect. And then maybe tying into that, I guess, maybe a little bit on Matt's question. Are you seeing the Gen AI initiative funding kind of migrate from the experimentation phase to the kind of production phase yet? If not, how many quarters do you think that takes when customers are ready to do that? And how durable or sustainable is this, I would say, bump that a lot of companies are getting when Partnering with 1 of the hyper scalers and being able to offer customers multiple ways to retire their core consumption credits with those hyper on a plethora of services, how durable is that trend as well?

Speaker 2

So two different questions, Alex. I'll go through the second one first. I think I don't look at it from a durability point of view. The thing is that that was excess capacity sold by the hyperscalers that customers had to draw down. In our case, they need the stuff we bring to them because these are mission critical workloads.

Speaker 2

So they were able to allocate those dollars over here. We end up always being in mission critical must have workloads. So the customers over a period of time always end up with us doing things that they want to do and have to do and must do, which is why look, you've seen we've never gone belly up or belly down. We've been very steady. So I would look at it like that.

Speaker 2

I don't look at it as It's something that will go away over

Speaker 4

a period of time. We don't see anything like that. Yes. You should not think of our growth or our sales as Being driven to any material degree by excess commits at the hyperscalers that the customers have to spend and therefore they figure let's just spend it on Informatica even though we don't need it. That's not what's driving it.

Speaker 2

And then to your first question on Gen AI, look, I think this is a year where I would say More in the second half, you will see the workloads turning into 1st production go lives to some extent. And I can remember, when I say production go live for G2K kind of customer, these are non material very critical go live. It's not like you can just run a data science experiment and if it goes wrong, it goes wrong. That's how I define a production go live. I do expect those to happen.

Speaker 2

I think a lot of work is happening right now, you know, first just Experimenting on a small scale, then trying to take it to a bigger scale, then trying to make sure you can truly run it without hallucinations, wrong inferences. You can't if you're running it You know, customer sat kind of environment you can't get that wrong. So I do see some of them going into production in the second half of this year. And of course as it goes over there, customers start thinking about the governance and other things that become very important, especially if they're in a regulated industries. So we see that.

Speaker 2

Lot of work going on in that area with our customers. I see that in cleft GPT Private Preview, the kind of stuff they are doing, feel pretty good about it.

Speaker 7

Thank you, guys. Congrats.

Speaker 2

Thanks, Alex.

Operator

Thank you. The next question comes from the line of Kash Rangan with Goldman Sachs. Please proceed.

Speaker 8

So tailor made. It's so difficult to go after ZELVIC and Zukin because they ask such good questions, but I'm going to try. I'm going to try. So first of all, congrats on the quarter and the finish of the year. Yes, it is tough to go after the Dell and I can say okay, yes.

Speaker 8

But I'm going to try. So when you look at the cloud business, I mean, you're on track to finishing up close to $1,000,000,000 run rate somewhere in Calendar 'twenty four, early 'twenty five. And you got there in a relatively short period of time. Whereas the on prem, I fondly remember the founding of Informatica in 94, I'm sitting with Dias. So congratulations on your 30th anniversary.

Speaker 8

It took 30 years to get the on prem business to a certain scale, right? When you look at the cloud, if the cloud does extend the growth path to a greater level of durability and longer level of growth Versus the Ankra, which took 30 years to get here, what are the things that will enable the cloud journey to be a longer journey? And if you could offer some proof points, Amit and Mike, on why you are if you are underrepresented with respect to your cloud Wallet share as you begin this journey, that would be great. And then finally, not to be out then, as you look at the Existential risks of this category, not of the company, how do you think about framing the risk posed by And the cloud data warehousing companies that have their own native ETL tools are in a world that promises maybe to be ETL, No ETL or ETL Electric, how does Informatica thrive in that world? Thank you so much once again and congratulations.

Speaker 2

Thanks, Kash. I think I'll comment on the first one first. I couldn't agree more. I said that at the Investor Day that the pace of innovation To get us to $1,000,000,000 of subscription and now getting towards $1,000,000,000 of cloud, it has happened in less than Less than a third of the time frame that the company took to reach a $1,000,000,000 of license revenues, so I couldn't agree more than we are definitely firing on all cylinders and the platform strategy is working. Your second question, I mean, I'll break it into a couple of parts.

Speaker 2

First of all, Avcash, I will respectfully remind everybody that Informatica is not an ETL only company. I think this goes back again to the question that we'll have to maybe continue to remind. ETL is a very small component of what we do. We have 7 product categories, data integration and data engineering, data quality, app integration and API management, data catalog, MDM apps, data governance, data marketplace. In data integration sits ETL, ELT, mass ingestion, I can go on and on and on.

Speaker 2

Actually ETL is a very, very small component of the world. And in fact, when we gave out the free services, we actually genuinely believe that the Small companies who came out with just ingestion only capabilities will basically run out of business. We are not an ETL company anymore, We do larger data management in which no data warehouse by the way, all those data warehouses, you can have 10 connectors which creates a simple ETL. But when you think of the metadata, when you think of quality, when you think of governance, when you think of the broader elastic, When you think of ELP at scale, push down performance, when you talk about SAP, when you talk about those complex, it's a whole different world. We just don't see that.

Speaker 2

That part is where Informatica thrives and grows. I would ETL is immaterial to Informatica's growth today and has zero bearing on how we will grow tomorrow. We have moved beyond that in a significant way. So I think I'll just kind of almost Echo that for the larger group and you, that's not what I worry about where Informatica is and where Informatica is going. And I'll circle back to the first part of

Speaker 4

your question where you talked a little bit about wallet share and so forth. The data management market is still very fragmented. And if you remember back to Investor Day, we showed the IDCTAM growing at 27% through 2027 and Getting to north of $60,000,000,000 and our cloud right now on a revenue basis is only $500,000,000 as we disclosed for the first time in Our release today. So we don't have a big share of that TAM, although we are the leading provider. But we think that because we have the best data management products delivered on the industry's only platform that serves multi vendor, multi cloud and hybrid workloads, that we at least will maintain our market share and we think we're going to grow it and the build up to the 35% growth that we I think we're going to deliver in 24 between net new expansion net new customers and expansion of existing workloads and migrations is just not heroic based on what the TAM is growing by and our share of that TAM.

Operator

The next question comes from the line of Patrick Colville with Scotiabank. Please proceed.

Speaker 5

All right. Thank you so much for taking my question. And I want to go back to generative AI. I mean, you touched on it in the prepared remarks and you touched on it in the Q and A, but can you just give us, I guess, the 101? It's like How does Informatica benefit from generative AI?

Speaker 5

And when do you see this generative AI benefit hitting the financial model?

Speaker 2

Yes. So I think, 2 part question. So I think think about this way, what is GeniEye? So first of all, in the GeniEye world, as we all know, Right now, the models are being put out there and everyone wants to train the models to do something of value, very simplistic, keep it. And I think in that world, There is no value in the model without good data going in and good inference coming up.

Speaker 2

A little bit like you all live in the world of Excel And Excel by itself doesn't deliver any value. When you basically create a good model and put good data in that Excel model, in this conversation you get data from us, it The biggest opportunity in front of us and we are seeing that is that customers have realized in fact Data management or data is becoming a business process in itself. They need to make sure that they have good data, holistic data, clean data. They understand the context of that data, which is lineage, they understand the governance of that data, they can make sure that in that context, democratization happens in a very much more governed way. All of those things are basically what we do and we see that is happening as we speak.

Speaker 2

The new stack, everybody wants to get that in order As the experiments on the side become more and more and more operational, there's a lot of other stuff that's happening using the internet data that's when you have to use your company data to do all that stuff we talked about, and that's where we are. In fact, the clear GPT preview that's going on, We see some of the great things, customers' data discovery, classifying data, automating data quality. We see classifications improve by 60%. You know, data quality of data is growing by 100x. Things of that is what is automation and what Clear is being able to do.

Speaker 2

That's where we come into play. And the other one is that it's a complex part of the data stack to do all these things. Customers don't want to have 20, 30 bespoke who's doing it because then you can't figure out what's happening where, basically consolidating it on a platform, which again gives them consumption based pricing and makes it a ton easier. That's where we are seeing a lot of value. And I think this year, we are going to see the early tailwinds of that.

Speaker 2

It's kind of baked into our model. And I think I do see that basically the next few years digital transformation will become nothing else but Geni Hai driven digital transformation.

Speaker 5

Yes, exciting times. And I guess the ClairAI GPT, the kind of your Informatica's co pilot, Is that a charged the Incomatic charges for or will that be kind of part of the core product offering?

Speaker 2

Part of the core product offering, it's IPU consumption. So we want they are basically driving more IPU consumption, no separate SKUs out there, basically it is going to be part and part and parcel of what the individual products are and what customer do with them and they will basically draw down IPU usage and increase IPU consumption.

Speaker 5

Terrific. Exciting times for Intermanica. Thank you. Thanks, Matt.

Speaker 9

Thank you. Our next question comes from the line of Koji Akita with Bank of America. Please go ahead.

Speaker 10

Hey, guys. Thanks for taking the question. When I think about Informatica and taking it back to the IPO and the results and the execution since then, the IPO, it really seems like it's just been business as usual, good execution as usual, But maybe not platform as usual. And what I mean by that is the platform, the offering, IDMC has definitely gotten bigger and better since the IPO. A lot of new announcements over the past year, you know, Clare GPT, IPU pricing model, I mean, a lot has been announced.

Speaker 10

So Yes. I guess the question here is, what are you most excited for within all the announcements over the past years as growth drivers over the medium term?

Speaker 2

Damn, Koji. What a tough question. You asked me, you want me to pick My most favorite kid in all this stuff, I'll attempt. But look, I'll go back. I'll put it in 3 things.

Speaker 2

It's not one because it's always the power of things that come together. 1 is the innovation strategy. We not only bet on the platform because we knew that, as Mike said, it's a very fragmented market. There are hundreds of bespoke tools running around and we knew that, by the way, Not all of them were best of breed also as much as they said that. So we had best of breed products on one platform.

Speaker 2

So the consolidation, has worked and that allowing customers to manage their hybrid multi vendor landscape, which is true for every enterprise. 2nd is, IP pricing is killer. It reduces the whole selling cycle of talking about so many different pricing models that exist and Makes the conversation strategic and value driven. You go drive value, mister customer, guess what, you can go low, you can go high. In fact, more often than not, customer wants to then say, oh, geez, I know I'm going to do this mission critical workload.

Speaker 2

I want to do this more with you. Beautiful. So we have a very strategic dialogue. 3rd one is The whole strategic partner ecosystem that we have built with the hyperscalers, the Snowflakes and the Databricks and the GSIs, it's very important Because large G2K transformation projects basically do not happen by one tool doing a small corner project. That happens with scale vendors going in and helping customers drive value.

Speaker 2

The tri factor of this is what is bearing

Speaker 10

Thank you so much.

Speaker 9

Thank you. Our next question comes from the line of Howard Ma with Guggenheim. Please go ahead.

Speaker 11

Great. Thank you. I also want to add my congratulations on a strong finish to the year that had no lack of challenges. So, Amit, I wanted to ask you about the expanded cloud technology partnerships that you had called out. So I'm talking specifically Microsoft Fabric and the SuperPipe with Snowflake, Databricks' Unity catalog, The integration of MDM with MongoDB, can you give us a sense of the organizational alignment that it takes to establish these partnerships?

Speaker 11

And how much of a barrier to entry do you think it is to competitors? And so that's one part. And then the second part is, if we were to think about the data and the amount of revenue that Informatica generates from these partnerships, so across hyperscale, there's stuff like Databricks, MongoDB versus other data sources and destinations, is that former group, is that going to approach 100% at some point in the near term? Thank you.

Speaker 2

Sure, Robert. So I think, Howard, first question, look, Rome wasn't built in a day. These partnerships for us have not They didn't start yesterday. In fact, many, many years ago, we started working with Azure, we started working by the way, we were the partner we launched partners with Redshift Redshift came out with AWS and with GCP, when BigQuery came out and with Snowflake, very, very early days of Snowflake, so and Databricks. So we've been working with them from very early days.

Speaker 2

And I think while it is becoming a lot more visible now, every time something new comes out, we are design partners. We won the design partner of the year with AWS. We've been working with them for so many years. We're the design partner for Microsoft Fabric. So you can see, we are there at the table with them when they're So these partnerships have come from a long time And it has built technology trust, go to market trust, customer trust.

Speaker 2

So it comes from that place and hence they multiply. And today we are seeing the snowball effect of that one. So that's the way to think about it. Secondly, I think look at the 100% comment we shared at our Investor Day. The way to think about that is clearly the new workloads are growing.

Speaker 2

But when you think of an enterprise, the reason why I hesitate on the 100% thing, If you look at a data warehousing project in an enterprise, data is still coming from old sources and new sources. So in that context, IDMC is pulling data from the old mainframe, but also from the new Microsoft or the new MongoDB database or the new Snowflake, so on and so forth. It's going to be both. Of course, the latter will continue to grow bigger in size as more and more data gets housed there as an example, but the but the Old ones will not become 0 because data is still sitting over there as that stuff gets retired. Naturally, it won't matter to us.

Speaker 2

Our job is to bring make sure that we can connect and manage the entire data landscape of the enterprise. Hence, I hesitate to talk about the 0 sum game. But of course, all our growth and all our As you can see, it's pivoted towards the future and that's what we invest in.

Speaker 11

Thank you.

Speaker 2

Sure.

Speaker 9

Thank you. Our next question comes from the line of Fred Dave Meyer with Macquarie. Please go ahead.

Speaker 3

Thank you very much and congratulations to the team for a really strong quarter here. Wanted to ask about the transactions that you're seeing flowing through cloud. I mean, 6% to 2% year over year growth in transactions is really impressive. And as you're ramping, of course, rather continuing to grow cloud, how should we think about this Overall, like cloud metric, is it something illustrative here just in general showing that you have a tremendous increase in usage? Or is this something that we should be considering as like a perhaps proxy related to IPUs?

Speaker 3

Thank you.

Speaker 2

So think about it as usage. So I would not correlate into the ARR at all. The best indicator of that is that it is It means there is more activity, more usage of our products on our IPU cloud, 2 IPUs on our platform. So obviously customers are doing more and more and more work And I look at it, that's what it is. So that's by the way, we track that very, very closely.

Speaker 2

We see exactly what action is happening. So That it's a directional sense to say, every activity, which means that we don't have products sitting on shelf. People go, use it. And that covers a broad swath of usage. It could be governance usage, it could be master data management usage, it could be EELT usage, it could be pure data quality usage, all of those kind of things are baked into this transaction metric that we shared.

Speaker 9

Thank you. Our next question comes from the line of Tyler Radke with Citi. Please go ahead.

Speaker 12

Yes, thanks for taking the question. You talked about how you're seeing kind of a greater appetite from customers to do transformations. And earlier this week, we heard from Care Data Some pressure on some large customer losses, and it does seem like as IT budgets are picking up, the move to the cloud is accelerating. I'm wondering, I guess first, if I look at your non cloud business, the on prem subscription ARR and maintenance, those were A bit stronger than expected. So, could you just unpack again what was driving that?

Speaker 12

And then secondly, if we are seeing this broader shift to the cloud, How do you kind of think about the timing of when that happens to your on prem base? Is it tied to these large core system migrations? Or is it completely independent event? Thank you.

Speaker 4

Hey, Tyler. So you're right. The Self managed subscription portion of our 3 buckets of ARR and revenue did outperform our expectations for 2023. Maintenance was pretty close to in line and cloud outperformed also as you can see based on the results versus the guide. But the self managed did end up higher than we thought.

Speaker 4

And it turns out that there are a meaningful number of customers out there that are Federal government that are agencies that have difficulty moving to the cloud in the short term. We have Tertiary geographies that are not cloud ready and those customers still need our product and still get a tremendous amount of value out of our product. So much of the outperformance was some of those customers adding on to their existing implementation because they need more, not because they don't want to go to the cloud eventually, but they just can't. Now it's a small number. So forecasting it has a high standard deviation around it, and just ends up that landed higher than we thought.

Speaker 4

We still Do not emphasize that we don't actively sell it as being because it is end of sale. And frankly, We're happy with it because it means we have a lot of happy customers that want to stay with us as a company and as a brand and those will eventually become cloud customers for us in the future. Now with respect to the pace of that migration, I think that was the second part of your question. It is accelerating And you can see it in the year over year compare of 2022 to 2023 and you can see it in the quarterly progression Q3 and Q4 after we introduced PowerCenter Cloud Edition. So we do expect an accelerated pace in 2024.

Speaker 4

The majority of our cloud growth will continue to be the strong majority of Cloud growth will continue to be new customers and expansions of existing cloud workloads, not migrations, but migrations are accelerating too and will have a somewhat greater contribution to our total growth in 2024.

Operator

Our

Speaker 9

last question comes from the line of Stefan Schwartz With Wells Fargo, please go

Speaker 13

Hey, I'm on for Andy Nowinski. Thanks for fitting me in. Wanted to ask relative to your commentary on cloud workloads. Past quarter, the hyperscalers talked about Cost optimization coming to an end. Are you seeing similar trends in your cloud ARR pipeline for this upcoming year, Maybe a similar kind of inflection?

Speaker 2

I wish we had optimizations in our business. We went belly up, so we have to be worried about going belly down. No, look, tongue and cheek, sorry. I mean, look, we've always been focused on mission critical workloads. We didn't see, as you see during those times where our performance has been very steady, we didn't see significant We're getting ahead in terms of selling excess capacity to be very honest.

Speaker 2

When we sell IPOs, we are maniacal about selling it against critical workloads and our customer success team make sure that customers get into business value creation ASAP. So I think that we haven't seen We don't we didn't run into those to be very honest, if I could use that word of cost optimizations for us. Yes, we do see for on the other hand what is happening towards there and that I see. We've been very steady in terms of selling to mission critical workloads across our platform and hence we've been in somewhat Solid growth, but steady growth.

Speaker 4

And part of that is the fact that unlike some of those companies that Stop working from optimization in 20232022, we have multi year committed contracts with our customers. So They pay us a year in advance. They're multi year commitments. They're not month to month. Your bill changes based upon how much you use.

Speaker 4

So to that extent, simply structurally, we're not as subject to the swings of optimization versus expansion.

Speaker 13

Very helpful. Thank you.

Speaker 9

Thank you. There are no additional questions waiting at this time. I would like to pass the conference back to the management team for any closing remarks.

Speaker 2

Thanks, operator. Well, look, I know we are a little bit over time. Thank you for staying back. Well, look, I think as you can see, we're pretty excited about where we are with cloud only consumption of a strategy. Year 1 of that was obviously executed very well.

Speaker 2

We are into year 2 and with this stage basically. And like I said, It's all about continuing to maintain our focus and execution. We have a great place in the market. Ongoing digital transformation, migrations and of course now Gen AI continually the 3 vectors driving our growth. We look forward to continuing our execution this year and for a lot of you hopefully you'll see you at Informatica work in May this year.

Speaker 2

Thank you.

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Key Takeaways

  • Informatica outperformed all top- and bottom-line guidance in Q4 and FY2023, with cloud subscription ARR up 37% YoY to $617 M, total ARR up 7% to $1.6 B, revenue up 6% to $1.6 B, non-GAAP operating income up 32% to $420 M, free cash flow up 56% to $451 M, and net debt leverage under 2× one year early.
  • A relentless cloud-only consumption-driven strategy underpins three growth engines—ongoing digital transformation, on-premises-to-cloud migrations (with PowerCenter Cloud Edition driving 60%+ of these deals) and emerging Gen AI workloads—targeting 35% cloud subscription ARR growth in 2024.
  • Continuous innovation in the AI-powered IDMC platform and CLAIRE engine added features like auto cataloging, data quality observability, intelligent metadata matching, Clair Copilot enhancements, and a private preview of Clair GPT with 300+ customers.
  • Expanded ecosystem partnerships with Microsoft Azure (native IDMC service, Fabric design partner), AWS (HealthLake, S3 Access Grants), Snowflake (SuperPiper, native app), Databricks (Unity Catalog), and MongoDB, resulting in 70% of deals co-sold and 31% of new business sourced by partners.
  • For full-year 2024, Informatica reaffirmed guidance for ~6.3% GAAP revenue growth to $1.685–1.705 B, total ARR up ~7.3%, subscription ARR up ~12.8%, cloud subscription ARR up ~35%, non-GAAP operating income up ~17.5%, and free cash flow up ~20.8%.
AI Generated. May Contain Errors.
Earnings Conference Call
Informatica Q4 2023
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