Informatica Q1 2009 Earnings Call Transcript

Apr.24.09 | About: Informatica Corporation (INFA)

Informatica Corp. (NASDAQ:INFA)

Q1 2009 Earnings Call

April 23, 2009 05:00 AM ET

Executives

Stephanie Wakefield - Investor Relations

Sohaib Abbasi - Chairman and Chief Executive Officer

Earl E. Fry - Executive Vice President and Chief Financial Officer

Analysts

Thomas Ernst - Deutsche Bank

Tom Roderick - Thomas Weisel Partners

Mark Murphy - Piper Jaffray

Bradley Whitt - American Technology Research

Nathan Schneiderman - Roth Capital Partners

Derrick Wood - Wedbush Morgan Securities

Nabil Elsheshai - Pacific Crest

Brent Williams - Benchmark Capital

Daniel Cummins - Soleil - Lime Rock Research

Operator

Good day ladies and gentlemen and welcome to the Informatica First Quarter 2009 Earnings Conference Call.

My name is Mary, and I will be your coordinator for today. At this time, all participants are in listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today's call Ms. Stephanie Wakefield, Senior Director of Investor Relations. Please proceed.

Stephanie Wakefield

Good afternoon and thank you for joining us today.

I am here with Sohaib Abbasi, CEO; and Earl Fry CFO to discuss our Q1 2009 results and to talk 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 strategy, our projected financial results for future periods, opportunities for growth in the data integration market, the expected benefit to our customers and products of the acquisition of Applimation or integration of Applimation, its employees and its technology, 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 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 recent SEC filings including the 2008 Form 10-K for detailed description of the risk factors that may affect our results. Copies of these documents maybe obtained from the SEC on our website 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 metric 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 our website at www.informatica.com/investor.

I would also like to ask you when we get to the question-and-answer period to please confine yourself to just one question. We will allow additional questions if time permits.

With that, I'll turn it over to Sohaib.

Sohaib Abbasi

Thank you, Stephanie.

I am pleased to announce that in Q1 2009 we attained record first quarter revenues and record first quarter operating income, our 17th consecutive quarter of record non-GAAP operating income.

This afternoon, I will present the highlights of our record first quarter results. After Earl's presentation of our financial results, I will comment on our business outlook and key initiatives.

Total revenues grew by 5% year-over-year to $109.1 million despite negative impact of substantial changes in currency exchange rate. New license revenues were consistent with the Q1 2008 results at $44 million. Without the negative impact of changes in currency exchange rates, total revenues would have grown by 11% and new license revenues by 6%.

Total non-GAAP operating income grew by 28% year-over-year with non-GAAP operating margins up 21.6%, an increase of 380 basis points in operating margin.

With non-GAAP EPS of $0.18, we achieved the most profitable first quarter to date. Our record Q1 results reaffirmed yet again our sound strategy and the Informatica team's exceptional operational discipline particularly in light of the current global economic recession.

As reported extensively by others, the economic recession now increasingly affects almost all geographic regions. As evidenced by our sustained results, the Informatica team has progressively adapted our go-to-market approach and operational discipline with these times of economic turmoil.

These two trends increasingly global recession and progressively better operational discipline of the Informatica team are reflected in our regional results.

In the Americas, over the last two years, our team refined the operational discipline to better manage our business with improved timing and execution.

In Europe, our team continues to adapt processes to deal with the more recent economic downturn. In Asia Pacific including Japan, we benefited from relatively consistent customer demand.

Across all major geographic regions, the recession continues to shake the core primary business survival strategies of our customers, reduced cost through operational efficiency, diversified through globalization, scale with industry consolidation and compliant with all regulatory regimes.

By enabling these business survival strategies of our customers, data integration now has a greater purpose and a greater sense of urgency than ever before as illustrated by our customers wins around the world.

In the Americas, the U.S. National Railroad Corporation, Amtrak selected Informatica to drive greater operational efficiency. Amtrak launched their strategic asset management program to modernize their IT infrastructure.

Informatica will now be the standard with their associated integration competency center to modernize their operational and strategic applications as well as build a new supplier of data hub. Also in the Americas, the Brazil based global mining leader, Vale chose Informatica to further consolidate and improve the efficiency of their global operations.

Using Informatica, Vale plans to integrate data for 100,000 personnel from 30 different regional human resources systems into one global data hub. Enabling greater flexibility to manage and leverage their workforce across regional boundaries, this global personnel data hub will be instrumental for Vale's globalization imperative.

In Europe, Germany's second largest bank, Commerzbank, selected Informatica for post-merger integration with Dresdner Bank. To facilitate merger related cost synergies of million of dollars, using Informatica, Commerzbank plans profile and improve quality of data from hundreds of applications.

In Asia-Pacific, the preeminent investment bank, Nomura selected Informatica to expedite post acquisition integration of Lehman Brothers operations in Europe and Asia-Pacific. In addition, Nomura chose Informatica's B2B data exchange for processing swift transactions as part of the risk management system.

As illustrated by these representative customer wins, we continue to expand our addressable market beyond the traditional data warehousing category. In other words, our opportunity is not limited to a single discretionary IT budget item, but spend many business critical IT budget items.

As a result of this growing trend, 51% of our deals over $100,000 were with customers that plan to use Informatica for more than data warehousing. In addition in Q1, more than 70% of our professional services fees were from consulting engagement beyond traditional warehousing projects, particularly data migration projects.

Our continual innovations have expanded our product portfolio well beyond the traditional ETL category to now spend five infrastructure software categories. Enterprise data integration, data quality, B2B data exchange, application information, lifecycle management or ILM, and could computing data integration.

Leveraging the scope of our broadest ever product profit portfolio, last quarter, we announced our latest offering Informatica platform with well differentiated value, comprehensive, unified, open and economical. In the data integration category, with our value proposition to do more with less, the initial response to Informatica platform has been encouraging.

Our technology category leader chose the Informatica platform to benefit from the comprehensive capabilities including data integration and unified data quality. This technology leader expects to drive operational efficiency by automating a variety of data integration projects.

Additionally, they plan to improve the effectiveness of multiple MDM projects, customer, vendor, financial and product data hubs through their use of Informatica data quality.

In Q1, more than 75% of PowerCenter transactions over $300,000 included either Informatica platform or premium price additions, real time and advanced and 75% included add-on options.

In the data quality category, customer adoption of our latest products continues to grow substantially. Last quarter, 57% of the transactions over $300,000 included data quality products. For example, Utah Department of Health selected Informatica Identity Resolution for their 100 million record all payer database, known as APD.

While protecting patient privacy, APD will reduce healthcare IT costs by eliminating duplicate records through more accurate patient identity matching. In the B2B Data Exchange category, several important customer decisions showcase our compelling value proposition.

As an example, an insurance leader selected Informatica to modernize their accord feed configuration hub to exchange data with their agents. By automating accord data conversion, Informatica will help this customer realize a $15 million opportunity and deliver 100% return on investment in the first year.

In the new application ILM category, we attained our internal target associated with our acquisition of Applimation, an increasing number of customers including British Telecom, Adelphia (ph) and General Dynamics adopted the new Informatica application ILM product to reduce storage and database costs associated with inactive or test data.

As an example, Ricoh selected Informatica ILM to cost effectively manage the growth of data in their Oracle e-business application. Using Informatica ILM, Ricoh expects to initially to reduce its storage capacity of the test databases by 50%. At the later phase, Ricoh plans to reduce the production database size by 50% while also improving application performance.

Finally, in the on-demand data integration category for cloud computing, Informatica was ranked the best data integration tool by salesforce.com customers. In Q1, we registered one of the largest increases in our internal operational metrics representing growing customer adoption of our pioneering data integration services for cloud computing.

Now more than 100 companies use Informatica On Demand to integrate our premise data managed by salesforce.com. Also in Q1, we established a new partnership with Concur, the world's leading provider of on-demand employee spend management services.

Using Informatica, our joint customers can now integrate our premise trial based data managed by Concur and on-premise data managed by internal business applications such as financials, job costing, and human resources.

Finally, together with our partners, we further advance our market leadership through key competitive wins. With Accenture, we won over IBM and Business Objects at Yale University. With Wipro, we won customer decisions at Honeywell Aerospace and Southern Water (ph) in the UK.

As the largest independent neutral bid integration leader, Informatica established new OEM partnerships with seven vendors, including the leading healthcare IT company in Canada, Tenet Health Systems.

To sum up, our record Q1 results reaffirm yet again our sound strategy and the team's exceptional operational discipline particularly in light of the current global economic recession.

Now, I will turn it over to Earl to give you more details on our financial results. After Earl's presentation, I'll comment on our business outlook and key initiatives.

Earl E. Fry

Thanks, Sohaib.

Despite the challenging macroeconomic environment, total revenues, as Sohaib mentioned for Q1 were $109.1 million, up 5% on a year-over-year basis and solidly within our guidance. These results did include a currency headwind of over $6.3 million, holding currencies constant with Q1 2008 rates, our Q1 revenue would have been $115.4 million or up 11% over the 103.7 million recorded in Q1 last year.

License revenues were roughly flat year-over-year at 44.1 million. On a constant currency basis compared to Q1 2008, license revenues would have been up $3 million or over 6% higher versus the 44.2 million recorded last Q1.

Service revenues were 65 million, up 9% year-over-year, but down 3% sequentially. Breaking down the component of service revenues, maintenance revenues remained a highlight at 49.2 million, up 19% year-over-year while consulting and education revenues continued to be impacted by macroeconomic slowdown and came in at 15.8 million, down 13% year-over-year and down 6% sequentially.

Our geometrics were solid. Existing customers contributed 80% of our license order value, up from 78% in the fourth quarter and down slightly from 85% in the first quarter of 2008. We did license business with 190 existing customers and added a first quarter record, 59 new customers during the quarter. We booked two transactions over $1 million, one less than we did a year ago. We closed a first quarter record; 39 deals over $300,000, up from 32 in the year ago first quarter.

Our average transaction sizes for orders over 100K came in at $292,000 and the average transaction price for orders over $50,000 came in at $219,000, roughly comparable to where they were a year ago. 79% of our license orders came from our direct reps and 21% of our orders were from indirect channel. In addition to the 21% sold indirectly, we had 35% of our direct orders in Q1 influenced by partners and resellers.

The overall total of indirect and influenced orders was 56%, down slightly from 64% last quarter and down from 61% a year ago. License revenue from our direct business was 74% in Q1 with 26% of our license revenue coming from the indirect channel.

Now moving to geographic mix, international orders as a percentage of total license bookings were 36%, the same as a year ago and seasonally down from 41% in the fourth quarter.

International revenue was 34% of total revenue in Q1, up slightly from 33% a year ago and the same in fourth quarter. The negative impact from currency was essentially offset by the continued growth and contribution from our Latin America and Asia operations.

From a vertical industry perspective, financial services continued to be our largest followed by high-tech communications, government and healthcare. Non-GAAP gross profit, which excludes $1.6 million in amortization of acquired technology and 531K of share-based comp came in at $90.4 million or 83% in Q1, better than our target range of 80 to 82%.

License margins were 98% in Q1, consistent with both the prior and year-ago quarters. Service margins driven by 95% maintenance renewals and an increasing installed base were 72%, down just slightly from 73% last quarter was up notably from 68% a year ago.

Excluding charges for share-based payments, facilities restructuring and amortization of intangible assets of 6.5 million, Q1 non-GAAP operating expenses were $66.8 million, down from the 69.6 million in the fourth quarter and up only modestly from 65.3 million in the year ago first quarter.

As a percentage of revenue, non-GAAP operating expenses were 61% of revenue for the first quarter, an improvement from 63% a year ago. As a result of higher revenues and increased cost discipline in Q1, we generated a first quarter record $23.6 million in non-GAAP operating income, up 28% from a year ago.

As a percentage of revenue, non-GAAP operating income was 21.6%, 380 basis points better than the 17.8% non-GAAP operating income reported a year ago and reflects our continued commitment to grow operating margins.

We generated about $886,000 of net interest and other income in the first quarter, but nearly all of the net interest and other income was due to an FX translation gain and a gain on the repurchase of our convertible bonds. Interest income, net of interest expense was roughly zero in the first quarter as investment yields continue to decline significantly.

Our tax provision, both on a GAAP and non-GAAP basis was a little under 31% in the first quarter, reasonably consistent with our expectations.

Bottom-line, despite the currency headwinds, which negatively impacted revenue by 6.4 million year-over-year and operating income by over $800,000, our strong operating performance allowed us to deliver GAAP net income of 11.1 million and achieve GAAP fully diluted EPS of $0.12 in the first quarter and on non-GAAP fully diluted basis, we came in above the high end of our earnings range and generated a first quarter record EPS of $0.18.

Now based on our Q1 orders, our future revenues disclosure, which includes deferred revenue balances as well as orders not yet taken for revenue as of March 31, will be 140.4 million, down 5% seasonally, but up $3.9 million or 3% compared to a year ago.

On a constant currency basis, compared Q1 '08, future revenues would have been 147.2 million or up 8% or over $10 million higher than the 136.5 million reported a year ago.

Total headcount was 1,666 as of March 31, an increase of 55 from the end of Q4 and this is entirely due to the acquisition of Applimation. Sales and marketing headcount ended the quarter at 604, an increase of 32. We continue to expect to add headcount very selectively over the remainder of the year.

We generated 12.9 million in cash from operations in Q1; and during the quarter, we used 5.9 million to repurchase 457,000 shares of our stock, used $19.2 million to retire outstanding convertible debt under our existing repurchase authorization and paid for the Applimation acquisition.

DSOs were 55 days in Q1, better than the 64 days in Q4, up from 40 days a year ago and at the low end or the better end of our target DSO range of 55 to 65 days.

Our deferred revenue balance increased to a first quarter record 127.7 million, and it's comprised of 121.5 million in current deferred and 6.2 million in long term deferrals. Deferred revenues are up 7% from a year ago and down 2% sequentially. Deferred revenue balances were also impacted by a $6.5 million currency headwind compared to a year ago.

On a constant currency basis compared to Q1 2008, deferred revenues would have been 134.2 million or up 13% versus the 119.1 million a year ago. On a non-GAAP basis, we ended the quarter with 100.8 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 and due to lower interest rate, we expect net interest and other income to be roughly zero for the remainder of the year. We expect our income tax provision to continue to be very sensitive to our geographic mix of earnings and we expect our effective tax rate will be roughly 31% on a non-GAAP basis before the impact of any discrete tax items.

While the current macroeconomic and financial environment is still challenging and is having an impact on our business, we are somewhat encouraged by some early signs of stabilization in our domestic business and optimistic about our growth prospects and in Latin America and Asia.

We have made and we'll continue to make changes in our operations to deal with the range of scenarios. In this environment, we believe the consensus expectations for 2009 revenue growth are reasonable and continue to expect 2009 revenue to grow by a mid single digit percentage.

And even after accounting for the modest dilutive impact of Applimation acquisition, we are committed to achieving non-GAAP operating margin of at least 23% in 2009. Further, we continue to expect non-GAAP EPS to grow at slightly faster rate than the revenue in 2009.

For the second quarter of 2009, we expect some seasonal lift and expect domestic buying patterns... domestic customer buying patterns to be more constructive. As such, we are targeting Q2 '09 revenue of 114 to 120 million with non-GAAP EPS in a range of 17 to $0.19.

Just as a reminder, our non-GAAP EPS targets do not include the after-tax impact of... an estimated $0.025 per share per quarter charge for the amortization of intangibles in acquired technology, the facilities restructuring charge of approximately $0.015 per share per quarter and the tax affected impact of stock option expense of approximately $0.03 per share per quarter.

With that, I'll turn it over to Sohaib.

Sohaib Abbasi

Thanks Earl.

Our sustained results underscored the merits of our singular focus on data integration. As we noted before, data matters even more in these uncertain times of economic turmoil.

The current global economic recession continues to influence industry analyst projection as well as customer IT priorities and budgets. With our singular focus and track record of continual innovation, we are well positioned with the compelling value proposition.

Our strongest ever product portfolio enables our customers to do more with less while aligning IT with top business imperatives. Industry analyst, Forrester, recently revised downwards their U.S. IT spending growth estimate from an increase of 1.6% to a decrease to 3.1% in 2009.

Forrester cited worsening U.S. economic environment and outlook for this division. Interestingly, this has promising positive implications for Informatica. With reduced budget and greater executive scrutiny, IT departments must do less and be better aligned with their business imperatives.

A recent survey of top IT executives by CIO magazine identifying... aligning IT initiatives with business goals as their top priority. Top business imperatives mandate timely, holistic and trustworthy data. More importantly, Gartner estimates that the data integration category will grow twice as fast as the overall enterprise software market.

To further advance our technology leadership, late this year, Informatica will release version 9, which will offer even more value to our customers in three areas: IT business collaboration, pervasive data quality, and innovative SOA based data services.

Comprehensive, simple to use analyst tools designed for business users will enhance overall productivity in IT business collaboration. Unified pervasive data quality services will improve the trust worthiness of all data throughout the data integration process. An open SOA based data services will enable even more types of operational data integration projects including data virtualization and data provisioning.

To reiterate, by enabling the business survival strategies of our customers, data integration now has an even greater purpose, priority and urgency. And this bodes well for Informatica, the largest independent leader in data integration with the proven track record of continual innovation and with even more to look forward to.

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

Question-and-Answer Session

Operator

(Operator Instructions). Our first question comes from the line of Tom Ernst of Deutsche Bank.

Thomas Ernst - Deutsche Bank

Good afternoon. Thank you for taking my question, apologize for the background noise.

Sohaib Abbasi

Hi, Tom.

Earl Fry

Hi, Tom.

Thomas Ernst - Deutsche Bank

You've talked here about lately last few quarters about a high level of the business coming from repeat customers, and you've also told us about your focus on integration competency centers and helping the customers organize those.

How... do you have a sense for how much of the customers' purchases or the key customers' purchases are in fact by extra competency centers versus how many are kind of new projects by divisional units that are sort of a new engagement each time?

Sohaib Abbasi

Thanks for the question, Tom. We have enjoyed a very high percent our business coming from existing customers and that is a great testament to the success that they have already obtained with Informatica in a variety of projects. Our customers are increasingly using Informatica for operational data integration projects in these days typically associated with operational efficiency. I sighted one of the examples, Amtrak that is driving operational efficiencies by modernizing their systems. They are using Informatica. There are several such other examples.

Given the macro economic environment, our customers are making decisions to standardize on Informatica, but typically they are also looking at specific projects that need to be funded that are very time critical. And as we've commented in the past and it's reflected in some of the very large deal metrics, there were fewer deals of over $1 million and yet we had a record number of first quarter deals over $300,000 and that is a measure that our customers are using it selectively for specific projects that are associated with their top business imperatives.

Thank you, Tom.

Earl Fry

And you see Tom, as the increased usage of Informatica outside of the core warehousing market; and those trends, in specific, continue to be very strong, kind of up into the right. So I think that's another indicator of how customers are continuing to standardize around our integration technology.

Operator

Your next question comes from the line of Tom Roderick, Thomas Weisel Partners.

Tom Roderick - Thomas Weisel Partners

Thanks and good afternoon. Sohaib and Earl, I was hoping you could perhaps add some commentary around the linearity and the flow of business throughout the quarter. So in other words, did you see the environment improve as you got into the back of the quarter and were closed rates consistent with your expectations? And then if you could just add some commentary around the pipeline, it seems like you're getting more bullish on the business in North America and Latin America. So just some commentary on the pipeline would be helpful? Thank you.

Sohaib Abbasi

Thanks Tom. I am going to respond to most of your questions, and I'm going to also ask Earl to provide his commentary on it as well. The pipeline reflects a very strong demand. More and more of our customers are using Informatica for more than data warehousing. We have the broadest ever product portfolio that enables our customers to leverage Informatica across a broad range of projects, modernization, operational efficiencies, post merger integration and our pipeline reflects that.

Q1 is fully one of the most challenging quarters. And given the economic environment, Q1 was no different. Now we have taken several measures over the years in order for us to improve linearity by setting targets by week, by region. And what we experienced in Q1 of course varies of high region.

As I commented on earlier, our business in the America is stabilizing. In Europe, given the more recent economic turmoil, we are continuing to adapt our cost receipts (ph). And in Asia-Pacific as well as in Latin America, we continue to enjoy consistent demand. So overall, the demand is very high. We have opportunities beyond data warehousing, and we have the broadest product portfolio to pursue those opportunities.

And let me ask Earl for his comments.

Earl Fry

Maybe just a little more color on some of that. I think linearity was probably a little tougher than it might have been a year ago, but it ended being fine. What's kind of interesting is that, as Sohaib mentioned, it was little tougher quarter, I think as we really anticipated in EMEA.

However, the closed rates... closed rates in the last few weeks for the quarter were actually noticeably better, domestically than they have been for quite some time. So I think that's what gives us some hopeful early indication that as our customers businesses are starting to stabilize as their budgets are starting to stabilize, they've gone past seeing kind of major shock to their business or shock to their environment. They're settling down and getting on with business and on with projects that help them run more efficiently.

We think we are going to be able to get back to get back to closing a higher percentage of what we have in our pipeline. And again as Sohaib mentioned, we had a very, very good quarter in terms of pipeline generation and lead generation, so we feel good about that.

Sohaib Abbasi

Thank you Tom.

Operator

Your next question comes from the line of Mark Murphy, Piper Jaffray.

Mark Murphy - Piper Jaffray

Thank you. Sohaib, I was just wondering if you can get your thoughts on the Oracle proposed acquisition of Sun Microsystem. It's potentially a big change to the hardware and software ecosystem. Do you think you can leverage that via your... some of your Oracle partnerships and do something larger, and also just, any assessment of the percentage of PowerCenter deployments that are running on Solaris these days?

Sohaib Abbasi

Sure. As you know, Mark, both Oracle and Sun are very good partners of Informatica. And I would expect that we will continue to enjoy very strong partnerships with Oracle. With most of their acquisitions, we have found ways to expand the partnership that we have enjoyed with Oracle. As you know, we have a long-term partnership with Siebel, with Hyperion to name just two. And I would expect that we will continue to partner very closely with Oracle.

Now, Obviously the announcement has done very interesting implications in there acquisition of Sun. Oracle announce their goal of becoming a one stop shop from application to disk. And this ambition of course raises the bar and up the anti for the other industry giants such as IBM, HP, Cisco, Microsoft. And at States of course, as the new leadership order in the traditional IT industry.

Now, I expect that each of those industry giants will respond in some way and that will create even greater uncertainty. And with these uncertainty, Informatica would be able to distinguish ourselves at the trusted neutral provider. We don't have any hidden agendas to promote one technology stack over another one. So this would yet one more way for us to distinguish the value of our new product. Again, we have a very strong partnership with Oracle as we do with Microsoft and SAP and in fact, Oracle, Microsoft and SAP all partner with Informatica and each one of them invests and ships Informatica products. Thank you very much.

Operator

Your next question comes from the line of Frad with Broadpoint AmTech.

Bradley Whitt - American Technology Research

Hey guys, thanks for taking my question. The early maintenance revenue look particularly strong there, and if you can provide any additional color on that whether you hit any push back from customers and then they... it sounds like the professional service was a little weak. I don't know, if that's what you'd expect down 13%, but maybe give a little color there and seeing pressure on service rates or weather people are assuming less folks or training that kind of thing?

Sohaib Abbasi

Brad, let me comment a little bit about our overall service numbers and then I'll ask Earl's comment on the specific numbers for the U.S. The maintenance number is a reflection of the fact that Informatica continues to enjoy very high customer satisfaction and customer loyalty rating. As we've commented on earlier every year, we have a third party survey, not just our customers, but those are some of the other companies in our space. And for the third consecutive year, Informatica has enjoyed number one loyalty ratings, and that is reflected in the very high renewal rates, 95% renewal rates for maintenance.

And let me ask Earl to comment a little bit about the Q1 results.

Earl Fry

As Sohaib mentioned, we continued to get 95% kind of the dollars renewed every quarter. So that was consistent in Q1. Q1 tends to be seasonally the toughest quarter. So having good performance there, I think we feel like we are setting up very well for the remainder of the year. And yes, we did highlight the fact that over the last couple of quarters, we started to see customers cut back on how much they are spending both on education and on consulting services. We're not immune to that. So we had some deterioration there year-over-year and sequentially. But as you know, that's also the lowest margin proportion of the business, and it's also one that's probably the most easy to kind of right size to make sure that you're tracking along way with revenue levels. So while, maybe a slight headwind in terms of revenue, it clearly has had a very little if any impact in terms of impacting our margins.

Sohaib Abbasi

Thanks Brad.

Operator

Your next question comes from the line of Nathan Schneiderman, Roth Capital.

Nathan Schneiderman - Roth Capital Partners

Hi, thanks very much. I had some questions for you related to Applimation. I was hoping you can give us a breakdown of license contribution during the quarter, the services contribution. How much of the deferred revenue with was Applimation and then how much of the off balance sheet license was Applimation?

Sohaib Abbasi

We were very pleased by the results that we have seen with Applimation. As you know, we closed our the deal... our acquisition of Applimation sometime in the middle of the quarter. We did not expect that it would have a substantial impact to our Q1 results. However, we have set certain goals that we did attain. We were able to validate the value proposition that... we found particularly attractive in these economic times and the very proposition very simply with Applimation's application ILM product is for customers, who would use the storage and database cost associated with dormant or inactive data or test data. And we had several wins that validated that. And then in times like this, allowing our customers to do more with that, reducing the storage cost, reducing the database cost would turn out to be a very compelling value proposition, and overall very pleased with what we obtained with Applimation.

Earl Fry

So, as Sohaib said, the expectation for Q1 there, I should start with... they are absolutely tracking according what we expected. We already started to see some good cross selling and lead generation efforts that we think will... as we expect will helping us here in the next few quarters. But relative to Q1 very nominal, I mean let's call it less than $1 million worth of license revenue contribution and then in total revenue not much more than that, so kind of nominal contribution in Q1 from a revenue perspective.

And as you know, Nat, when you do... the way we report our GAAP results, we'd hit the pretty significant haircut and that's most significant in the first quarter after the acquisition. So the net deferred adds was again very nominal and kind of in the kind of 1 to 2% range in terms if you're looking at the overall had an add to deferred maintenance or very small at.

Sohaib Abbasi

Thanks, Nathan.

Operator

Your next question comes from Frank Sparacino, First Analysis. Frank, your line is opened. Please check your mute button. Hello Frank? We'll go to the next question. Next question comes from the line of Derrick Wood from Wedbush Morgan Securities.

Derrick Wood - Wedbush Morgan Securities

All right, thanks guys. Earl, you said close rates improved dramatically at the end of the quarter. Has this been short lived or are you seeing the security through to-date in April. And I guess as a follow up, you did flat year-over-year license growth. Do you see this as a low point in your model?

Sohaib Abbasi

So, the comment relative to growth rate was specifically to the domestic business. And yes, we did see that pick up and at the end of the quarter, and I think as we build pipeline and as we looked at that's something that I think we believe we hope that our teams will be able to sustain here going forward. And there's... we're getting some indications that that maybe the case. As far as the license revenues in Q1, that clearly is... it's kind of a probably our most challenging point. We start to have maybe slightly less currency impact beginning in Q2.

And given some of the pipeline build and I think kind of incorporated in our guidance is I guess maybe some cautious optimism about Q1, always being the toughest quarter. And since we came through that in reasonably good shape, I think we still need to execute obviously going forward towards... we're feeling like our sales team our marketing organization is very well aligned to the current environment. We like what we're seeing out of regeneration with some of the newer product. I would integrate the already done I think... team has done a great job of integrating the Applimation folks. I think we are hitting the ground running.

Stephanie Wakefield

Operator, we'll take the next question, please.

Operator

Your question comes from the line of Nabil Elsheshai, Pacific Crest.

Nabil Elsheshai - Pacific Crest

Pacific Crest Securities:} Hi guys, nice quarter. Just a follow up on that Applimation thing, you still think that 10 to 15 million for this year, now that you've had a little time to integrate it or what's been the... your thoughts since the integration of that acquisitions?

Sohaib Abbasi

Yeah, I do think that's tracking according to plan. And in addition to kind of those revenue initial expectation just as reminder... we did expect that to be... and it was diluted by about a penny in Q1, expect that to continue to be dilutive by about a penny in Q2 and then make sum of that pack in Q4 this year. So in my mind, I think we're... the teams are tracking very well with that.

Nabil Elsheshai - Pacific Crest

Thank you.

Operator

Thank you. Your next question comes from Brent Williams, Benchmark Company.

Brent Williams - Benchmark Capital

Hi. I wanted to just look at sort of demand in terms of what people are doing as they're kind of enduring the slowdown and as they are working to cutting costs. Has there been any shifts in sources or destinations for data that in PowerCenter? Any sort of qualitative change on what people are connecting to what? One of the areas I'd love to hear about within that is how the mainframe based products are going there, PowerExchange and so forth.

Are people continuing to try to seek advantage of change data capture since that's kind of a relatively different architectural approach? Are people doing harder things, are they just doing... are they going for low hanging fruit, kind of saving harder or more ambitious projects or any thoughts on that and maybe also anything on the sales force and hosted world's... that's maybe tracking a little differently than you are expecting?

Sohaib Abbasi

Brent, the demand continues to be very strong, the strongest ever. And one of the best indicators is the repot that was published by Gartner in Q1 of 2009 that show that their projection for data integration category growth is about twice that of the entire software market. What is driving that demand is customers using our technology for operational data integration projects. And those are being driven for a variety of business reasons.

One, they... prominent one is operational efficiency, where customers are modernizing their systems in order to gain the operational efficiency. Amtrak, I gave as an example of modernization project. They are using Informatica in order to migrate to the modern applications.

They are also building customer supply a hub in order for them to do a better job in terms of the purchasing expense. And in that case, clearly the fact that we have universal data accessing including the best for mainframe sources is a key technical advantage we have. Now another business imperative, it relates... likely to the economic environment, which is that there is increased mergers and acquisitions in financial services among others segments.

I gave two examples; Nomura that acquired Lehman Brothers operations in Asia Pacific and Europe. And in that case, it's not so much mainframe access. It's the fact that we support all of the discrete sources of data. And we could do that in real time as well.

So our technology advances that we have talked about in prior earnings call, are helping us win business. Universal access to data, tiny access changed the capture of you mentioned is a very critical technology to support real time access, and we support the whole continue to ensure that if the right time, not just the real time, but right time data integration. So our technology advantages are helping us win more and more of those opportunities as customers automate more of their broader data integration operational data integration. And as we commented earlier, our opportunity is really to take the market from build to buy in the data integration category. Thank you very much.

Operator

The next question comes from Dan Cummins, Lime Rock.

Daniel Cummins - Soleil - Lime Rock Research

Thank you very much. I just wanted to ask about the revenue guidance. Could you confirm that the high majority of the incremental revenue quarter-over-quarter... let's say you've got to the midpoint of your range, but the high majority of that is organic. And I just had a follow up question about the domestic picture. Thanks.

Sohaib Abbasi

I think the way you would work through that is, is you would have to infer that most of the revenue growth would be organic, Dan.

Operator

Thank you. Your next question comes from the line of Brad Mills, Barclays Capital.

Unidentified Analyst

Hey guys, Brad Mills here. Just a question on the verticals; you mentioned some of the wins there, but just overall in terms of demand within the major vertical. Did you notice any particular strength or weakness across the board there in the major verticals?

Sohaib Abbasi

We continue to enjoy a universal demand across many verticals. Financial services continues to be one of our top vertical. In addition to that, we continue to do very well in public sector as well as in healthcare and high tech and telecommunications. More and more organizations across the various verticals are focused on operation efficiency. And in addition to that in many verticals organizations are scaling through consolidation. And in both those business imperatives, there are data integration projects and we're enjoying growth in those.

Informatica not only has the technology that we have talked about, but we also have the track record of success. We have a lot of mark key customers that have had good success automating post-merger integration activities in attaining operational efficiencies. So our technology and our track record of success has positioned us extremely well across a whole range of verticals.

Earl Fry

Yeah, and maybe just some further color; I think the... I may have shared with over the last quarter some thoughts on how we thought the macro might affect things. And it did turn out reasonably close to what we anticipated, i.e. while financial services continue to be clearly our largest vertical. We had roughly the same mix kind of just slightly more of the mix coming from international than from the U.S.

U.S. was up year-over-year, but the mix of international was skewed, where the real growth in international was coming from Latin America and Asia Pacific. And as you might guess, it's kind of mirrored your roll map for environment of the tougher quarter for European financial services. And that said after that vertical, pretty nice distribution; call it, plus or minus around 10% contribution from each of high tech communication public sector split basically between domestic and international. And then as Sohaib also mentioned, healthcare continued to be a nice contributor. And quite frankly, given the macro environment, I would expect kind of more of the same here over next couple of quarters.

Sohaib Abbasi

Thank you.

Operator

And we have a follow up question from Dan Cummins of Lime Rock.

Daniel Cummins - Soleil - Lime Rock Research

Thank you. Could you give us the reported and the constant currency growth rates for Europe and for Asia Pacific year-over-year if you would?

Sohaib Abbasi

I don't know that I've got that broken down the... between Asia-Pac and Europe. Again I do think there's about 5 to 6% headwind from the combination of international. As far and away, the biggest chunk of that on a constant currency basis, call it, 80% plus of that is from India, whether it's from sterling or whether it's from the Europe. But I don't have the specific numbers in front of me, Dan.

Thank you.

Operator

Thank you. There are no other questions. I would like to hand the call to Sohaib Abbasi for closing remarks.

Sohaib Abbasi

For the remainder of 2009 and beyond, our mission remains similarly focused. And thus, Informatica as the clear leader in one of the highest growth enterprise software segments data integration. We are well prepared to pursue our strategy and increase operating income in the quarters to come. Thank you.

Operator

Thank you for your participation in today's conference. This concludes the presentation and you may now disconnect. Have a great day.

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