Informatica Corporation Q4 2008 Earnings Call Transcript

Informatica Corporation (INFA)

Q4 2008 Earnings Call

January 29, 2009 5:00 pm ET

Executives

Stephanie Wakefield – Senior Director of Investor Relations

Sohaib Abbasi – Chief Executive Officer

Earl E. Fry – Chief Financial Officer

Analysts

Tom Ernst - Deutsche Bank Securities

Tom Roderick - Thomas Weisel Partners

Mark Murphy - Piper Jaffray

[Unidentified Analyst] - Roth Capital Partners LLC

Michael Nemeroff - Wedbush Morgan Securities Inc.

Nabil Elsheshai - Pacific Crest Securities

Brent Thill - Citigroup

[Dan Cummings] – Lime Rock Research

Brian Denyeau - Oppenheimer & Co.

[Unidentified Analyst] - Broadpoint AmTech

Frank Sparacino - First Analysis Corp.

Presentation

Operator

Good day ladies and gentlemen and welcome to the Informatica fourth quarter 2008 conference call. My name is [Misal] and I will be your operator for today. (Operator Instructions) As a reminder this call is being recorded for replay purposes. I would now like to turn the call over to Miss Stephanie Wakefield, Senior Director of Investor Relations. Please proceed ma’am.

Stephanie Wakefield

Good afternoon and thank you for joining us. I’m here with Sohaib Abbassi, CEO and Earl Fry, CFO to discuss our Q4 2008 and full year 2008 results and to talk to you about our outlook for the business.

Some of the comments we will make today are forward-looking statements, including statements concerning our being well positioned to pursue our growth strategies; our projected financial results for future periods; opportunities for growth in the data integration market; the planned use of our products by some customers for more than traditional data warehousing projects; the strength of customer demand for our products; customer adoption of our latest product lines; efforts being conducted with strategic partners; and our expectations regarding future industry trends and macroeconomic developments.

All forward-looking statements are based upon current expectations and beliefs. However, actual results could differ materially. There are many reasons why actual results may differ from our current expectations. These forward-looking statements should not be relied upon as representing our views as of any subsequent date, and Informatica undertakes no obligation to update forward-looking statements to reflect events or circumstances after the date that they are made.

Please refer to our SEC filings including the 2007 Form 10-K and the third quarter 2008 Form 10-Q for detailed descriptions of the risk factors that may affect our results. Copies of these documents may be obtained from the SEC or by contacting our Investor Relations department. During this afternoon’s discussion we will be using GAAP and non-GAAP numbers. Our GAAP results and the reconciliation of the GAAP results to the non-GAAP results are contained in the earnings press release and in the supplemental section of our Informatica Investor Relations website.

Before I hand it off to Sohaib I’d like to remind you that this call is being webcast and will also be available for replay at www.informatica.com/investor. I would also like to ask you when we get to the question-and-answer period please confine yourself to just one question. We will allow additional questions if time permits. Thank you. Sohaib.

Sohaib Abbasi

Thank you Stephanie. I am pleased to report that we attained record quarterly operating results to round out our fourth consecutive record year. In the context of the [inaudible] economic environment I will highlight the key accomplishments of the quarter and the full year 2008. After Earl’s presentation of our financial results, I will comment on our outlook and initiatives for 2009.

For the full year 2008, total revenues grew by 16% to a new record of $456 million and license revenue grew by 12% to $196 million. In 2008 non-GAAP operating income increased by 43% and we obtained non-GAAP operating margin of 22%. In Q4 2008 total revenue grew by 9% year-over-year to a quarterly record of $124.4 million. Quarterly license revenue grew by 4% over the previous all-time record set a year ago.

In Q4 non-GAAP operating income grew by 41% year-over-year. With non-GAAP operating margin of 29%, Q4 2008 was our most profitable operating quarter to date. Our sustained results are further evidence that data matters even more in uncertain times. And as the largest independent leader in data integration over four years, Informatica doubled revenues and grew operating income by more than 770%. Our focused growth strategy has succeeded even in the current recessionary environment.

As a reminder, we have a three-pronged growth strategy. First, diversify beyond our primary geographic market. Second, grow our [addressable] market beyond the traditional data warehousing segment. And third, expand our product portfolio beyond the traditional ETO technology. Guided by our strategy in 2008 we adapted our go-to-market approach for the changing economic environment.

As in prior quarters, our customer’s priorities and purchasing processes were progressively more influenced by the recession, first in the U.S. and later in parts of Western Europe and Japan. Public sector Latin America and parts of Asia Pacific were in comparison less affected by the economic turmoil. Our customer wins illustrate these trends.

In the Americas, TRICARE part of the U.S. military health system selected Informatica as the standard for data integration and data quality. TRICARE will consolidate data from more than 50 sources and modernize IT systems to manage health information of all military personnel. Informatica products including B2B Data Exchange for Hl7 Healthcare [centered] will help lower their IT costs.

Also in the Americas, Banco Santander, the sixth largest bank in the world, acquired Banco Real in Brazil to diversify and grow their operations across Latin America. Banco Santander expanded their use of Informatica to expedite the post-merger integration of Banco Real. The combination will double their market share in Brazil and help increase their profits by 60% in two years. Using Informatica, they expect to reduce both the costs and time of the post-merger integration IT project by 50%.

In Europe, Schneider Electric plans to reduce their IT expenses by consolidating multiple regional SAT application instances and additional applications into a single, global SAT application. Schneider Electric chose Informatica over SAP and IBM. Using Informatica, Schneider expects to reduce their annual expenses by several million euros in this important initiative, spanning 130 countries and 400 business units.

In Asia Pacific, a leading manufacturer of factory automation equipment plans to increase their business agility and improve their operational efficiency. To pursue these goals, this industry leader chose Informatica as a data integration standard across a broad range of initiatives to modernize their IT infrastructure. These initiatives will enable just in time manufacturing, grow greater agility, and purchasing optimization for greater operational efficiency.

Given the integral and critical role, they simply refer to Informatica as the data highway infrastructure for all their business critical applications. As these examples illustrate, our customers chose Informatica as a key technology partner for their top business imperative; globalization, post-merger integration, greater operational efficiency, and regulatory compliance. With such broader customer adoption, we have grown our addressable market beyond the data warehousing category.

In Q4 a record 52% of license transactions over $100,000 were with customers that plan to use Informatica for projects beyond data warehousing. In addition, more than 70% of our professional services fees were from consulting engagements beyond data warehousing for broader data integration projects. Along with expanding customer usage for broader data integration projects, growing adoption of all product categories contributed to our top license results.

In our core data integration category, customer adoption of the latest PowerCenter real-time edition has been encouraging. These capabilities enable a broad range of operational data integration projects that require data movement in real time. As an example, a leading broker of exchange traded futures and options plans to use PowerCenter real-time edition for timely key business indicators and regulatory compliance reporting.

In Q4, 69% of PowerCenter transactions over $300,000 included the premium priced editions, real-time and advanced, and 61% included add-on options. In Q4 we won several key customer decisions with latest releases of our Data Quality products including Identity Resolution. A leading insurance company, Unum, chose Informatica Data Quality over offerings from IBM and SaaS Data Plus. Informatica Data Quality will be used to support an initiative named Simply Unum to help expedite new product introductions and enable cross-selling opportunities.

As another example, a major European government selected Informatica Identity Resolution for national security purposes to match information on international travelers against watch lists of suspects. The initial pilot program planned for major airports will combine biometric technology with biographic matching, using the latest Informatica Identity Resolution technology.

In Q4 75% of the transactions over $1 million and 47% of the transactions over $300,000 included Data Quality products. Important competitive wins showcase the critical role of B2B Data Exchange products to enable data sharing among trading partners. Last quarter [Walter Sclure] selected Informatica B2B Data Exchange to gather point-of-sale prescription data using the healthcare HIPA standard from thousands of pharmacies. High quality aggregate information delivered by Walter Scure is used by pharmaceutical companies to determine the compensation of their sales people.

Similarly, customers across multiple industries benefit from broad built-in support for overriding of industry specific XML standards such as HIPA for healthcare, ACORD for insurance, and Swift for financial services.

Lastly, in Q4 we introduced our fourth offering for plot computing, Informatica On Demand Data Synchronization service for Salesforce.com. Simply using only a web browser, our customers can synchronize on-premise data with off-premise data in Salesforce.com. The initial customer response by new subscribers has been encouraging.

Finally, we made important progress in further strengthening our partner ecosystem with several notable OEM agreements. In Q4, we announced our strategic agreement with the pre-eminent technology leader in Japan, NEC Corporation. Under this agreement, NEC will market PowerCenter in Japan under its own brand, supported by a dedicated engineering team.

Also this quarter the leading business process outsourcing vendor for human resources departments, Hewitt Associates extended and expanded their partnership with Informatica to support hundreds of customers. With more than 50 OEM partnerships, Informatica is the most trusted neutral partner.

To sum up, we are pleased with the record quarterly operating results that rounded out our fourth consecutive record year. Our record 2008 results again demonstrate the operational discipline of the Informatica team to navigate the economic turmoil.

Now I will turn it over to Earl to give you more details on our financial results.

Earl E. Fry

Thanks Sohaib. Despite the very difficult macroeconomic environment, total revenues for Q4 came in at an all-time record $124.4 million, up 9% on a year-over-year basis. We had a larger than anticipated currency headwind of $5.6 million in Q4. Holding currencies constant our Q4 revenue would have been $130 million and our original revenue guidance was in the range of $125 to $130 million.

License revenues were at an all time record at $57.2 million, up 4% year-over-year and represented 46% of total revenues. Service revenues were $67.2 million, up 14% year-over-year but down 1% sequentially. Breaking down the components of service revenues, maintenance revenues were a clear highlight of the quarter and an all-time record $50.3 million, up 22% year-over-year while consulting and education revenues were impacted by the macroeconomic slowdown and came in at $16.9 million, down 4% year-over-year and down 11% sequentially.

Our geometrics while good also reflected the more difficult economic environment. Existing customers contributed 78% of our license order value, up from 76% in the third quarter and down from 83% in the fourth quarter of 2007. We did some business with 279 existing customers and added 84 new customers during the quarter.

We booked eight transactions over $1 million, down from ten in the year-ago fourth quarter. We closed 59 deals over $300,000, down from 78 in the year-ago fourth quarter. Our average transaction sizes for orders over $100,000 came in at $340k and the average transaction size for orders over $50,000 came in at $244k. Average transaction sizes while healthy were down slightly from a year ago, reflective of the current environment.

Seventy-six percent of our license orders came from our direct reps and 24% of our orders were from the indirect channel. In addition to the 24% sold indirectly, we had 40% of our direct orders in Q4 influenced by partners or resellers. The overall total of indirect and influenced orders was 64%, relatively consistent with 66% last quarter and up from 48% a year ago. Eight of the top ten deals this quarter were influenced by our partners. License revenue from our direct business was 77% in Q4 with 23% of our license revenue coming from the indirect channel.

Now moving to a geographic mix, international orders as a percentage of total license bookings were 41%, up from 35% a year ago and up from 36% in the third quarter reflecting seasonality and strong contribution as Sohaib mentioned from our Latin America operations. International revenue was 34% of total revenue in Q4, down from 37% a year ago and down from 40% in the third quarter reflecting the significant currency headwinds which affected the contribution from our India operations.

In constant currency, international revenue would have been 37% of our total revenue in Q4, the same as a year ago. The vertical sectors that have contributed most to our Q4 orders were financial services, healthcare, energy and utilities and government.

Non-GAAP gross profit which excludes $1.3 million in an amortization of acquired technology and $489k of share-based comp came in at $105.2 million or 85% in Q4, above the high end of our target range of 80 to 82% and an all time record. License margins were 98% in Q4 consistent with the prior quarter and year-ago quarter. Service margins driven by 95% maintenance renewals and an increasing install base were an all time record 73% in Q4, up from 71% last quarter and from 69% a year ago.

Excluding share-based payments, facilities restructuring, amortization of intangible assets and benefits from patent related litigation proceeds, net of [inaudible] contingency accruals of

$5.7 million, Q4 non-GAAP operating expenses were $69.6 million up modestly from $67.8 in the third quarter and essentially flat with a year ago. As a percentage of revenue, non-GAAP operating expenses were 56% of revenue for the fourth quarter, measurably improved from 60% in Q3 and 61% in the year-ago fourth quarter.

As a result of higher revenues and tighter cost controls in Q4, we generated an all time record

$35.6 million in non-GAAP operating income, up 41% from a year ago. As a percentage of revenue, non-GAAP operating income was almost 29%, a full 650 basis points better than the 22% non-GAAP operating income reported a year ago and reflects our continued commitment to grow operating margins.

We generated about $914,000 of net interest and other income in the fourth quarter as investment yields continued to decline significantly. Net interest income was $0.5 million in Q4. Included in net interest and other income is a $1 million gain on the repurchase of our convertible bonds, partially offset by an FX translation loss of over $0.5 million.

In addition, during the quarter we recorded a net $11.5 million gain from patent-related proceedings and a $5 million accrual for certain tax audit contingencies. We have not included the $2 million after tax benefit from these one time items in our non-GAAP results.

Our non-GAAP tax provision in the fourth quarter was $13.1 million and was higher than we originally anticipated. Revenue and income from operations in lower tax jurisdictions, specifically India, came in below our original projections due to the dramatic movement in currencies during the fourth quarter.

Our original projections and anticipated higher contributions from [EMEA] which we anticipated would result in a non-GAAP tax rate of 29%. The currency headwinds impacted our EMEA operations and resulted in a tax rate for the entire year of 31%. As such we needed to true up the tax rate for the entire year, resulting in more than $2 million in additional tax accruals in the fourth quarter.

In summary, the Q4 non-GAAP tax provision reflects the changes necessary to true up the non-GAAP effective tax rate to 31% for the year compared to the 29% accrued for the first three quarters.

Bottom line, despite the increase in taxes, the lower interest income and the currency headwinds which negatively impacted revenue by $5.6 million and operating income by $1.6 million, our strong operating performance allowed us to deliver GAAP net income of $19.9 million and achieve GAAP fully diluted EPS of $0.21 in the fourth quarter. And on a non-GAAP basis, we still came in at the high end of our earnings range and generated non-GAAP diluted EPS of $0.24.

Now based on our Q4 orders, our future revenues disclosure which includes deferred revenue balances as well as orders not yet taken for revenue, as of December 31 will be $148.1 million. This is an increase of $7.7 million or 6% above the level of a year ago and up $14.4 million or 11% sequentially. On a constant currency basis, future revenues would be $151 million.

Total headcount was 1,611 at December 31, an increase of 51 from the end of Q3. Sales and marketing headcount ended the quarter at 572, an increase of 21. We anticipated headcount to remain relatively flat in the near future.

We generated an all time record $47.8 million in cash from operations in Q4. During the quarter we used almost $20 million to repurchase 1.5 million shares of our stock and used almost

$8 million to retire outstanding convertible debt under our existing repurchase authorization.

DSO’s were 64 days in Q4, up from 48 days in Q3 and 58 days reported a year ago, and still within our target DSO range of 55 to 65 days. DSO’s increased in large part due to strong maintenance renewals and billings in December. Our AR aging remains consistent with the prior quarter and year ago levels.

Our deferred revenue balance increased to an all time record $129.7 million. It is comprised of $120.9 million in current deferred and $8.8 million in long term deferred. Deferred revenues are up 15% from a year ago and up over 12% sequentially. On a non-GAAP basis we ended the quarter with 102 million shares outstanding on a fully diluted if converted basis.

Now, looking forward, from a share count perspective we expect shares outstanding to remain relatively flat for a few quarters. And due to the lower interest rates we expect to generate only about $250,000 in net interest and other income per quarter. We expect our income tax provision to continue to be very sensitive to our geographic mix of earnings and we now expect our effective tax rate will be roughly 31% on a non-GAAP basis before the impact of any discrete tax items.

The current macroeconomic financial environment is clearly in a state of turmoil and we expect it will continue to have an impact on our business. However, the timing and extent of this impact is extremely difficult to quantify. We have made and will continue to make changes in our operations to deal with a wide range of scenarios.

In this environment we believe it is more prudent to expect 2009 revenue to grow by a mid-single digit percentage and we are committed to achieving non-GAAP operating margins of 23.5% in 2009. Thus despite the negative impact of lower interest income and a higher tax rate, we continue to expect non-GAAP EPS to grow at a slightly faster rate than revenue in 2009.

For the first quarter of 2009 we expect typical seasonality and expect customer buying patterns will continue to be influenced by the macro-environment. As such we are setting Q1 ’09 guidance in a somewhat wider range than normal and are targeting revenue of $104 to

$111 million with non-GAAP EPS in a range of $0.15 to $0.17.

Our non-GAAP EPS targets do not include the after tax impact of an estimated $0.02 per share per quarter charge for the amortization of intangibles and acquired technologies, the facilities restructuring charge of approximately $0.05 per share per quarter, and the tax effective impact of stock option expense of approximately $0.03 per share per quarter.

With that I’ll turn it back over to Sohaib.

Sohaib Abbasi

Thank you Earl. Two-thousand-and-eight results underscore the merit of our singular mission, to further advance Informatica as the clear leader in data integration. Last month we announced that Dr. Gerry Held joined our Board of Directors. With more than 30 years experience, Gerry is an industry veteran and a database technology pioneer.

As Senior Vice President of Oracle’s Server Product Division, Gerry led Oracle’s database business during Oracle’s rapid growth from $1.5 billion to $6 billion in annual revenues. Before joining Oracle, during his 18 year tenure, Gerry helped lead Tandem Computers from a start up to a $2 billion company. We will benefit from Gerry’s deep technology expertise and broad industry experience.

In 2009 our strategy remains the same as we continue to adapt our go-to-market processing and our financial model for a challenging economic environment with particular attention on profitability. Both the economic environment and outlook remain challenging. Economists at IMF now predict that developed economies will shrink and growth of emerging economies will slow down dramatically. To cope with this dire economic outlook, organizations are scrutinizing expenses. IT expenses are no exception.

The industry analysts now project that overall IT spending will be at a similar level or more likely lower in 2009 compared to 2008. Yet to manage businesses in these times of uncertainty demands in IT will grow. To do more with less, IT departments must reprioritize their projects. IT departments have already done that. According to Gartner, data integration is now one of IT organizations highest priorities, even ahead of security.

To reiterate, data matters even more in times of economic distress. To survive in this economic environment; organizations are pursuing strategies to diversify across multiple economic regions; to scale with acquisitions; to reduce expenses; and to comply with various regulatory regimes. Each of these survival strategies mandates timely, realistic and accurate data. In other words, data integration now has an even greater sense of purpose and urgency and this bodes well for Informatica, the largest independent leader in data integration.

By putting leveraging the scale and scope of our broad technology portfolio, in Q1 we will deliver a new offering, Informatica Platform. And our marketing campaigns will promote the tower of the platform, Comprehensive, Unified, Open and Economical. The value proposition for our customers is simply to do more with less. Informatica offers the lowest up front costs and the lowest total cost of ownership for customers who leverage their most valuable IT asset, data.

Data matters even more in times of economic uncertainty. To sum up, our strategy remains the same, expand across all geographic regions with higher contributions from international regions; grow beyond data warehousing by helping customers in their business survival strategies; advance technology innovation with the power of the Informatica Platform.

So with that I will open it up for your questions. As Stephanie said earlier, we would appreciate it if you confine yourselves to one question. Thank you. Operator, may we have the first question?

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Tom Ernst - Deutsche Bank Securities.

Tom Ernst - Deutsche Bank Securities

My question is looking at the license and booking number I would characterize those as surprisingly strong given the challenges we’re seeing from other software companies. What surprises me in the other direction is the fall off in education consulting. So I’m curious. What drives that mismatch? Because with strong bookings and strong shipments, are you relying more on third party, perhaps integrators? Or are there just lower attach rates; less service intensive projects are what you’re selling? Or are these just delays on stuff that where customers may commit to purchase the license but late delay the services? What’s happening?

Sohaib Abbasi

Tom, as you observed, we are very pleased with the overall license bookings and [inaudible] performance given the challenging times. In terms of the services revenues, the maintenance revenue as Earl pointed out was at an all time record level. Very strong growth in our maintenance revenue. And that is a very good indicator that our customers are continuing to use Informatica software and derive a great amount of value out of it. And the best indicator of that is the fact that our renewal rates in the mid-90’s are among the highest in the industry.

And that is an indicator that our customers continue to deploy Informatica and gain great value out of it. Now we do have a very healthy partnering ecosystem and this last quarter we had almost 64% of our revenue was influenced by our partners. We have very strong partnerships with global system integrators and we also have a focus on teaming up with a lot of regional system integrators with our new inform program. Clearly our partners are working with us to insure our customers are successful.

However in this macroeconomic environment as customers scrutinize their expenses, one of the areas where we have certainly seen an impact of it is in our education business. And in these times organizations do tend to look at some of their travel and entertainment expenses, P&E expenses, as well as education expenses. And that is reflected in our business. And again to sum it up we are very pleased with what we are seeing our customers use Informatica for. Thanks Tom.

Operator

Your next question comes from Tom Roderick - Thomas Weisel Partners.

Tom Roderick - Thomas Weisel Partners

Just looking ahead at next quarter’s and next year’s guidance I guess if we step back a quarter the guidance for next year was something above 10% and now you’re ratcheting that back to the mid-single digits. Can you just walk us through your mindset there? What drove you to take a more conservative stance? Obviously the numbers from other folks who getting a view have been quite conservative as well if not negative. Talk us through your own thinking on what frames the guidance and should we be thinking about a more conservative viewpoint towards license or maintenance as what kind of pulled you back off that 10% number?

Sohaib Abbasi

Hi Tom. Let me answer that question and then I’m going to ask Earl to provide additional information related to your question. As we observed this last quarter there was a dramatic impact as a result of currency fluctuation. And as Earl commented that if you worked back for any impact of the currency fluctuation, our revenue in constant dollars came in at the high end of guidance that we provided.

So clearly there has been a significant shift in terms of - resulting from the currency fluctuations. And that all is reflected in the guidance that we provided for this coming year. Now in terms of demand, the demand is very strong. Our pipelines going into the year are very strong; in fact, stronger than they were a year ago. There were many transactions that we talked about earlier in the earnings call and many others that suggest that our customers are looking at data integration as one of their highest priorities.

Gartner in their assessment identified data integration as the second highest priority project. And the reason for it is that there is quantifiable PCO, lower cost of ownership, as well as ROI. And as an example Banco Santander that I highlighted earlier, they had estimated that it would take them about 1 million person hours in order to do the IT integration. They estimate with Informatica that it will be 0.5 million. Now that is very dramatic, very compelling value proposition and at times like this our value proposition to do more with less is very compelling.

So we are very confident about the demand and again we did make quite a few changes in our go-to-market approaches, approach for us to have even greater operational discipline to pursue that demand. Let me ask Earl to provide some additional color.

Earl E. Fry

Yes, I think just kind of two thoughts here, Tom. One the first one that’s different than maybe where we were three months ago is we at least we all say I underestimated the impact of currencies and obviously we had unprecedented volatility in the fourth quarter. So looking out in 2009 if you kind of look at where we are now, currencies have to have a meaningful impact on some of what we’re talking about in terms of ’09 in guidance.

I think the other point actually to the prior question from Tom Ernst, I think seeing our consulting and education revenue be relatively weak in Q4, we’re taking a much more conservative view on that particular line item and think it will be very challenging to grow that line in 2009. That said, I think as we look at everything and as we look at how we’re managing the business and how we’re positioned, we also feel probably more comfortable maybe even now than we were three months ago that we should be able to deliver margin improvement in this environment.

Operator

Your next question comes from Mark Murphy - Piper Jaffray.

Mark Murphy - Piper Jaffray

Sohaib I wanted to ask you any thoughts on the potential timing for PowerCenter 9? I believe April is going to be the three year anniversary for Version 8 and I guess I’m wondering what you referenced with the launch of the I think you called it the Informatica Platform. Is that essentially PowerCenter Version 9 or is there a different way to be looking at that?

Sohaib Abbasi

Mark, as you know, we have had a relentless pace of innovation and we have delivered new products almost every quarter for the last 13, 14 quarters. And our approach has been that we would like to deliver more value for our customers and not force them to have very expensive upgrades. There are clearly a lot of capabilities that are part of Version 9 that we expect to deliver in the second half of 2009.

In terms of what we announced with Informatica Platform, it is leveraging the unique breadth of offering that we have. PowerCenter as well as B2B data exchange as well as data quality offerings and provide all of that unified guaranteed to work out of the box at a very compelling entry price point.

There were several examples of wins that we’ve had where - Walter Sclure was an example where in that case the customers using B2B data exchange in order to aggregate information from pharmacy using our Data Quality products in order to improve the quality of the data they’re collecting and using PowerCenter in order to integrate the various sources across the thousands of pharmacies.

And we’re beginning to see more and more use cases like that where the customers want a comprehensive platform that is unified and that is open to all the data sources. And we uniquely are in a position to combine it all and make it available at a much lower cost than what would be required from a variety of other alternatives.

Mark Murphy - Piper Jaffray

So just as a quick follow up, I just wanted to ask you about Bank of America. I believe they have been historically a big customer for you and do you have any insights into how they plan to integrate the Merrill Lynch data kind of into the portfolio? I mean – I think what I’m really trying to get at from a bigger picture perspective is that you know given the 2008 kind of collapse in financial services, and I know the macro is extremely challenging, but is it possible that 2009 could end up being an up year in financial services just coming off the easier comparison and looking at the M&A consolidation that might be taking place?

Sohaib Abbasi

Well, let me – you highlighted Bank of America, so let me just comment on Bank of America. They are a valued customer of ours. In fact the payment hub which is the lifeblood of the bank runs using Informatica software and that’s one of many dozens of projects that Bank of America and Merrill Lynch are using Informatica for.

Now in terms of their – details about their post-integration as they are working on that they themselves are formulating what that plan is and of course we will be working very closely with all of our contacts in both those organizations. You asked very specifically about or rather more generally about the financial services segment and we continue to benefit from – in 2008 from successes in international markets, Banco Santander was one of the wins that I showcased.

And in fact overall financial services it was surprisingly one of our strongest quarters ever in Q4. Now in terms of the comparisons and how we would fare year-over-year let me actually ask Earl to provide you with those comments on that.

Earl E. Fry

So Mark I do think your general tenor is right. I think financial services has held up surprisingly well and maybe not surprisingly well given the consolidation and cost reduction efforts or risk mitigation efforts that really is some key uses for our technology. That said, I do think we’re positioned very well domestically. In fact, Q4 for domestic financial services was up year-over-year. For the year 2008 it was actually up versus ’07. So I think if I think about it geographically, I feel like we’re positioned well, especially where we are in the economic cycle domestically.

Probably we’re positioned well as we’re expanding our footprint in Latin America and maybe through Asia-Pac. I think the question mark in my mind is you know the macro factors and what’s in store for the European banking industry in 2009. And that one I think that one is one area where I’m quite frankly I’m a little less full of shock. But I think your general tenor is right. We’ve continued to see great use cases even in a tough environment. And I think overall we should do reasonably well with financial services in ’09.

Operator

Your next question comes from [Unidentified Analyst] - Roth Capital Partners LLC.

Unidentified Analyst - Roth Capital Partners LLC

What sort of pressure are you guys seeing on the medium sized deals? Are you seeing any delays, any pricing pressure? Could you talk to any significant changes or highlight anything you’ve seen within the medium sized deals? And could you also talk about any negative impact you’re seeing from competitors bundling products? Thanks a lot.

Sohaib Abbasi

In terms of purchasing patents, we have commented beginning middle of 2007 that we did see that there was a change in the customer priorities as well as the customer buying patents. And we adapted our sales processes accordingly by setting linearity targets and we’ve been very pleased with the linearity that we were able to attain as a result of that. In other words, because the measures that we took we were able to close a lot more business much earlier in the quarter.

In general though there is a lot more scrutiny in the sales process and there’s certainly are more steps that our customers are going through in terms of the processes for sales. And one indicator of that was of course Earl commented in our last earnings call that we were not expecting the typical Q4 budget plush. So clearly that was – that’s something that we did observe in Q4. So yes there is an impact on the processes; however we’ve adapted our own processes in order for us to insure that we could provide PCO, provide the ROI, provide the compelling value for our customers.

In terms of the competition, last quarter was like the last several years in that the majority of the deals were not contested by a commercial vendor. And we continue to highlight and promote the value of build versus buy. In the same way as Informatica in the very early years with data warehousing, we are convincing our customers that they’re better off automating, buying our technology to automate the process as opposed to manually doing that.

In terms of commercial vendors, there was no significant change from what we’ve seen in the prior quarters. We win the vast majority of the deals against each of our primary competitors. Thank you.

Operator

Your next question comes from Michael Nemeroff - Wedbush Morgan Securities Inc.

Michael Nemeroff - Wedbush Morgan Securities Inc.

Earl just to put a little bit of a finer point on some of the guidance, you mentioned mid-single digits on the total revenue growth for 2009. Would that imply a range maybe of somewhere in the neighborhood of 5 to 7%? Is that a proper way of thinking about that?

Earl E. Fry

Those sound like mid-single digit percentages to me I guess.

Michael Nemeroff - Wedbush Morgan Securities Inc.

And then just to clarify your expectations for what you’re building into your model in terms of license, are you expecting licenses to grow or to be flat or down in 2009?

Earl E. Fry

I think it depends how you want to think about the rest of it. I don’t want to get too granular other than reiterating that I think it will be a very tough year on the services line for consulting and education going from ’08 to ’09. I feel – I think we feel very good about how we’re positioned relative to maintenance renewals. And the unfortunate thing that we’re going to have to deal with and more significantly in the first half of the year than in the back half is going to be you know year-over-year currency headwinds. Those are some of the main factors that we’re thinking about.

Michael Nemeroff - Wedbush Morgan Securities Inc.

Other than the education revenue, are there any specific products that are more or less economically sensitive that surprised you over the – during Q4 and are there any products that you’re particularly excited about going forward in 2009?

Sohaib Abbasi

We had very strong results in Data Quality. Data Quality including Identity Resolution we talked about what our targets were for Identity Resolution in our Q2 earnings call. And we attained those results and we are very enthusiastic about the opportunities that we see in the Data Quality area. We are also seeing very enthusiastic adoption of PowerCenter Real Time. More and more of our customers are using Informatica to move data in real time, operational data integration projects. And I cited one of the examples of that.

I also expect that there will be more examples of data service bureaus as was healthcare executions and possibly even financial services that will adopt our B2B Data Exchange. I cited Bank of America’s payment hub as an example of that. Walter Sclure is an example for data services bureau and there have been several healthcare providers that are using our technology for sharing data across.

And of course there are longer term – we are very optimistic about the on demand offering. We have over 100 customers now that are using Informatica now to integrate with Salesforce.com. So those are some of the key highlights and the potential of our products. Thanks Mike.

Earl E. Fry

Thanks Mike.

Operator

Your next question comes from Nabil Elsheshai - Pacific Crest Securities.

Nabil Elsheshai - Pacific Crest Securities

So leaving aside currency on a constant currency basis do you still think – I think we had talked about last time license growth had been in the high single digits. Do you still think that’s feasible or has something changed beyond the currency on the license side of things that makes you a little bit more concerned about that?

Earl E. Fry

Well, I think if you held currencies constant that changes the picture pretty meaningfully, at least compared to where we thought. So I feel much more comfortable talking about growth on the license line when you’re holding currencies constant. Unfortunately I think I mentioned I think especially as you look at the first half of ’09 that’s going to be particularly tough comps for us and obviously for anyone.

Nabil Elsheshai - Pacific Crest Securities

And then on the partnership front, you know the numbers have held steady that last couple of quarters after being weak for a few. Any trends there that you’re seeing, either with SI’s or with some SV’s being weak or given that their weak sales or potentially weak sales?

Sohaib Abbasi

No significant change other than the fact that our partnerships continue to contribute to our results as I commented on earlier, 64% of our revenue was influenced. We have a very strong partnership with Global Systems Integrators and to some extent they’re coming under pressure themselves that is encouraging them to automate a lot of the data integration projects. So in some ways the pressure that is being placed on them is helping our partnerships. Thanks Nabil.

Operator

Your next question comes from Brent Thill – Citigroup.

Brent Thill – Citigroup

Earl on the international revenue it appears that it dramatically slowed down in the fourth quarter. Can you just walk through what you’re seeing in international markets and your expectations for the first half of the year? Do you think things potentially in these markets get a little bit worse before they get better?

Earl E. Fry

Yes, so obviously on an as reported basis with fluctuating currencies they were down 34% international revenue versus 37% a year ago. If we held currencies constant, then that’s about almost a 10% difference. We would have been at 37% flat with a year ago. So I do think the currency impact will continue to be a headwind especially when you’re doing year-over-year compares, particularly in the first half of the year.

And I think given what everyone’s seeing in terms of macro trends, I think there’s probably more caution relative to EMEA than maybe in other areas. We are seeing – we did have a very, very strong quarter coming out of Latin America. We mentioned a couple of quarters ago that we opened up a support center in Sao Paulo. So I think we’re positioned very well in Latin America to continue to show good growth there.

I think Asia-Pac even though you could say growth rates are slowing there’s still growth there. The identity acquisition that we did the middle of last year helps us probably disproportionately in Asia. And we actually had a reasonably strong Q4 coming out of Canada. So I guess on an overall basis I don’t see the international mix deteriorating from Q4 and again Q4 reflects some very significant currency headwinds. That’s how I kind of handicap all the international pieces.

Operator

Your next question comes from [Dan Cummings] – Lime Rock Research.

Dan Cummings – Lime Rock Research

I was going to ask about close rates in the global regions. Is the Latin American success something that’s you know perhaps repeatable at some level such that you can proceed with lower close rates perhaps in EMEA or Asia-Pac?

Sohaib Abbasi

Yes it is. We have – I actually went to open our new office in Sao Paulo and I had an opportunity to meet with our team over there as with a number of customers. They have done a very good job in building our business and what I observed over there are that we have a product that has universal appeal across a variety of regions. And clearly everything that we’re doing over there that is leading to success we could apply that elsewhere.

And in fact just adding a little more in terms of the various regions, over the last several years we have made changes in our organization and I have great confidence that we will be in a much better position to weather the economic turmoil in the various regions. We had a strong quarter in southern Europe. We had a strong quarter in UK as well in Europe. We had a strong year in Asia-Pacific. So we certainly have the benefit of having the strongest management team in Informatica’s history out in each of those regions.

Dan Cummings – Lime Rock Research

Could you just give us a little color on where the growth in headcount was regionally or functionally?

Sohaib Abbasi

In Q4 we added a few dozen people to total headcount and the bulk of it was in sales and services. We had a partner in Spain and Portugal in Iberia that was one of our top rated partners and we decided that it was time for us to actually combine our organizations. And we’re very excited that they’re now part of Informatica. So that was – that would be the bulk of the additional headcount in order for us to actually pursue the market opportunities there. Thank you.

Operator

Your next question comes from Brian Denyeau - Oppenheimer & Co.

Brian Denyeau - Oppenheimer & Co.

Most of my questions have been asked, but if you could just talk briefly about you added roughly 20% headcount growth in sales and marketing in the first half of ’08. Can you just talk about where you are in getting them productive and you know should they start hitting in the first quarter? Or will it be farther out into the year?

Sohaib Abbasi

We have obviously enjoyed from the strong demand that we have seen around the world and over the years we’ve pursued that demand by building capacity. We have the benefit as we start 2009 of having the most number of fully ramped reps that we’ve had in the company’s history. As I commented on earlier the pipeline is very strong going in. It’s the strongest it’s been for Q1 and we also have the benefit of having a very – of having the highest sales capacity as well. So the combination positions us extremely well for 2009. Thank you.

Operator

Your next question comes from [Unidentified Analyst] - Broadpoint AmTech.

Unidentified Analyst - Broadpoint AmTech

How would you describe your appetite for acquisitions given the state of the current market? Thanks.

Sohaib Abbasi

Brian we have been very disciplined in our M&A strategy. We’ve been singularly focused to establish Informatica as the pure leader in data integration. We have done three acquisitions over the last three years and each of them represent the kind of opportunities that we might consider. We’ve been very pleased with the success that we’ve enjoyed in all three of those. We are confident that we can continue to consider opportunities for us to accelerate our road map but we will continue to be very disciplined in looking at M&A. Thanks Brian.

Operator

Your next question comes from Frank Sparacino - First Analysis Corp.

Frank Sparacino - First Analysis Corp.

With respect to sales quota in ’09 can you just maybe provide some details? Are those staying flat or are they coming down?

Sohaib Abbasi

Well clearly we are factoring in a number of things as we set the targets in the quarters for [RCO]. One which is that the demand that exists, the pipeline, we have a very strong pipeline. We also recognize that there is greater managed scrutiny and the purchasing patterns are affected by it. Now it would be difficult for me to characterize across all the regions how the quotas would be set. However, we’re factoring all of those considerations. And for the most part we would expect the productivity would be at the same level or better.

Operator

At this time we have no additional questions in the queue. I would now like to hand the call back over to Mr. Sohaib Abbasi for any further remarks. Please proceed.

Sohaib Abbasi

In 2009 our mission remains the same; advance Informatica as the clear leader in one of the hottest enterprise software segments, data integration. We are well prepared to pursue our strategies. We’ve been objective to increase operating income in the quarters to come. Thank you.

Operator

Ladies and gentlemen thank you for your participation in today’s conference. This concludes our presentation. You may now disconnect and have a wonderful day.

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