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Informatica (NASDAQ:INFA)

Q4 2013 Earnings Call

January 23, 2014 5:00 pm ET

Executives

Stephanie Wakefield - VP, Investor Relations

Sohaib Abbasi - Chairman, CEO and President

Earl E. Fry - CFO, CAO, EVP of Global Customer Support & Service and Secretary

Analysts

Gregory Dunham - Goldman Sachs Group Inc., Research Division

Brent Thill - UBS Investment Bank, Research Division

Mark R. Murphy - Piper Jaffray Companies, Research Division

Steven M. Ashley - Robert W. Baird & Co. Incorporated, Research Division

Edward Maguire - CLSA Limited, Research Division

Raimo Lenschow - Barclays Capital, Research Division

Matthew Hedberg - RBC Capital Markets, LLC, Research Division

Jesse Hulsing - Pacific Crest Securities, Inc., Research Division

Michael B. Nemeroff - Crédit Suisse AG, Research Division

Aaron Schwartz - Jefferies LLC, Research Division

Tom M. Roderick - Stifel, Nicolaus & Co., Inc., Research Division

Steven R. Koenig - Wedbush Securities Inc., Research Division

James Wesman

Jobin Mathew - Deutsche Bank AG, Research Division

Abhey Lamba - Mizuho Securities USA Inc., Research Division

James Derrick Wood - Susquehanna Financial Group, LLLP, Research Division

Patrick D. Walravens - JMP Securities LLC, Research Division

Operator

Good afternoon. My name is Jennifer, and I will be your conference operator today. At this time, I would like to welcome everyone to the Informatica's Q4 2013 Earnings Call. [Operator Instructions] And I would now like to turn the conference over to Stephanie Wakefield, Vice President of Investor Relations.

Stephanie Wakefield

Good afternoon, and thank you for joining us today. I'm here with Sohaib Abbasi, our CEO; and Earl Fry, our CFO, to discuss our fourth quarter and full year 2013 financial results. Today's call is being webcast and will also be available for replay on our Investor Relations website at www.informatica.com/investor.

As a reminder, today's discussion will include forward-looking statements, such as our projected financial results for the first quarter and full year 2014, our marketing growth opportunities, our growth and investment strategies, our product plans, demands for our products and services, and the future effects of acquisitions and future integration efforts. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from the statements made today. For a discussion of these risks and uncertainties, you should review our SEC filings, including our most recent report on Form 10-Q. We assume no obligation and do not intend to update or revise any forward-looking statements made during this call as a result of new information or future events.

Also, during today's call, we will discuss our non-GAAP financial measures. A reconciliation of GAAP to non-GAAP results is provided in today's earnings release and in the Supplemental Metrics section of our Investor Relations website.

With that, I will turn the call over to Sohaib.

Sohaib Abbasi

Thank you, Stephanie. In Q4, total revenue grew by 18% to $276 million and software revenue grew by 19% to $134.6 million. For the full year, 2013 total revenue grew by 17% to $948.2 million and software revenue grew by 18% to $413.7 million. We also obtained record profitability as measured by non-GAAP quarterly and annual EPS results. These results demonstrate both increasing customer demand and our team's improved operational discipline.

With our singular focus on data integration over the past 9 years, we have attained a compound annual growth rate for software revenue of 17%, more than twice that of the broader enterprise software market. And again, in our most recent quarter, our software revenue grew by 19%. I will outline the reasons for our conviction in sustained growth by maintaining our singular focus and by continuing to innovate for key technology megatrends that are elevating the role of the Informatica Platform.

Across all geographic regions, the priority of data integration IP projects is higher than ever as organizations aspire to become data-centric enterprises. The related business imperatives include intelligence, customer centricity, governance, efficiency, agility and modernization. Our value proposition for customers is to put information potential to work for these imperatives.

In North America, we benefited from increasing customer demand across many verticals, particularly health care, insurance, banking, retail and state and local government. Customer centricity initiatives led to wins at Zurich, North America, selective insurance and health management systems. High priority regulatory compliance drove opportunities at CNL Financial, Mylan Pharma and State of Arkansas Health. Due to improvements in the quality of our quarterly forecasting and multi-quarter pipeline management, the North America team continues to deliver results that are consistent with our internal expectations.

In EMEA, we are encouraged by the progress in some regions. Last quarter, we obtained good results in France, Italy and Switzerland with key customer wins. With strengthened leadership in the U.K., we are positioned for better results. Top initiatives fueling opportunities included analytics, IT efficiency, data privacy, customer centricity and omnichannel commerce. As we mentioned earlier, with better operational discipline in EMEA, we expect continuing improvements in 2014.

In Latin America, our team delivered record results with important customer wins such as Caixa. The strong caliber of our team in North -- Latin America and the growing demand bode well for sustained growth. And in Asia Pacific, we obtained good results with continued strong performance in South Asia and China.

Turning to product results. The increasing contribution of our newer products beyond our core PowerCenter, PowerExchange and Data Quality products, continues to diversify our software revenue. In fact, 29 of our 32 deals over $1 million included these newer products. Overall, the customer usage of our newer products has increased consistently from 4% in 2007 to 49% of the active projects in Q4 2013, representing our progress in pursuing this large cross-sell opportunity.

Among our newer products, Informatica Cloud, MDM and ILM continue to be the fastest-growing. To illustrate some key demand drivers, I will showcase a few representative customer wins. To modernize, a leading European pharmaceutical company selected Informatica Cloud for a global rollout across 60 countries of a sales automation cloud service. Informatica Cloud is expected to both reduce IT cost by millions, while expediting this rollout by 18 months. To improve customer satisfaction and profitability, one of the largest telecom vendors in Europe selected Informatica MDM. In addition, to address the new U.S. Affordable Healthcare Act, a large diversified provider chose Informatica MDM. Using Informatica, this health care leader expects its return on investment to be tens of millions of dollars.

To ensure data privacy, one of the largest credit card issuers in the world selected Informatica ILM Masking to protect test and production data, as well as ILM Archiving to retain data.

In our core data integration category, customer interest in PowerCenter Big Data Edition continues to grow for IT projects utilizing Hadoop, as well as those utilizing built-for-purpose analytic databases such as EMC Greenplum, in-memory databases such as SAP HANA, and Agile BIs such as Tableau.

Last quarter a leading technology company selected PowerCenter Big Data Edition to manage data in a Hadoop-based data reservoir. By feeding and preparing data for our -- from a variety of sources, this Hadoop-based reservoir will allow the company's data scientists to discover patents to both better serve its customers and refine its product offerings. Using PowerCenter Big Data Edition, customers expect to be up to 5x more productive than they would have been hand-coding using Hadoop MapReduce.

And finally, adoption of Informatica Data Quality continues to grow. As last quarter, more than 80% of our deals over $1 million and more than 50% of all deals over $300,000 included these products. The demand drivers included analytics, regulatory compliance, mask data management and data governance initiatives.

Our conviction in our long-term opportunity is firmer than ever for 3 reasons: first, our increasing addressable market; second, technology megatrends that are elevating the importance of the data integration and management category; and third, our differentiated products and technology investments.

First, the leading industry analyst, Gartner, recently ranked Data Integration and Data Quality as the fastest-growing segment in infrastructure software based on projections through 2017, ahead of virtualization, security and business intelligence.

Second, the nexus of cloud computing, social computing, mobile computing and the Internet of Things is evolving the old world of business computing to the new world. The old world had a single purpose, improve business productivity by automating transactions one department at a time, accounting, manufacturing, HR, customer-facing and procurement, to name a few. As business transactions often span departments, an application suite approach eventually dominated this category, and to consistently manage it, transaction data, the SQL relational database became a standard.

In the new world, business computing has evolved beyond simple productivity. Business productivity is still important, but there is more than one way to achieve it, on-premise application suites or cloud services using cloud databases. Beyond business productivity, new social sites enable brand management with interaction data managed using Hadoop. And new mobile apps improve personal productivity by managing new types of data in technologies such as noSQL databases.

And finally, devices with control systems manage machine interaction data in proprietary-embedded databases. The new world fragments both the data persistence and the data consumption infrastructure. This new diversity in the data persistence layer include SQL databases, cloud databases, Hadoop, NoSQL and proprietary-embedded databases, each suited for a specific purpose. And the diversity in data consumption includes applications, cloud services, websites, mobile apps and control systems, each streamlined for a specific use case. All this diversity in turn introduces new complexity for enterprises to feed, prepare and provision data from an ever-more diverse variety of sources for increasingly complex purposes. In other words, the technology megatrends are elevating the role of the next-generation data integration and data management capabilities.

Third, we have a 20-year and $2 billion advantage with our differentiated Informatica product platform. Over the past 20 years, we have spent $2 billion in internal R&D and acquisitions. The Informatica Platform incorporates Vibe, the industry's first and only virtual data machine and builds beyond it. The Informatica Platform offers 3 unique capabilities that we continue to advance.

First, data speed capabilities for near universal discovery and connectivity to data in batch or realtime, regardless of where the data resides. Second, data prepare capabilities to ensure trustworthy, secure and connected data. And third, data provision capabilities for all the ways data will be consumed, from traditional computers to the latest wearable devices.

Just as we pioneered cloud data integration 7 years ago, years ahead of customer demand, we are now innovating for this next-generation data integration platform for the new world. As an example of recent innovations in data feed, we delivered 5 data streams to capture ultra-high volumes of high-velocity machine data such as sensor data, web log data, application log data and call detail record data. As another example, in data provision, we are pioneering self-service versatile technology for business users to access data once for all analytic purposes instead of the traditional way of relying on IT developers.

To sum up, our Q4 results are further evidence of the vital role of our product portfolio for the top customer priorities. We are well-positioned for sustained growth by maintaining our singular focus and by continuing to innovate for key technology megatrends that are elevating the role of the Informatica Platform.

Now I'll turn it over to Earl.

Earl E. Fry

Thank you, Sohaib. As Sohaib did discuss, we saw strength across many parts of the business in Q4, particularly in the subscription area. And in fact, in Q4, we established quarterly revenue records for licenses, subscriptions, total software, maintenance and consulting services and total revenue.

Our fourth quarter revenues of $276 million were slightly above the high end of our guidance range and up 18% against a tough and meaningful prior year comparison. Software revenues were $134.6 million, up 19%, with license revenues up 16%, and subscription revenues up 57%. Service revenues were $141.5 million, up 16%, with maintenance revenues up 16%, and consulting and education up 17%.

Many of our deal metrics continued to trend favorably. While the number of deals over 300K was lower at 124 in Q4 compared to 142 a year ago, we booked a record 32 transactions over $1 million compared to 26 a year ago, as we continued to gain traction in cross-selling multiple products. Our overall average transaction size for orders over $100k came in at $488K, up from $456K a year ago.

North America represented 68% of our total revenue in the fourth quarter, while Europe represented 22% and the rest of world represented 10%. This compares to our year-ago fourth quarter results for North America with 57%, Europe with 33%, and the rest of the world with 10% of total revenue. Europe had an especially tough comparison versus a year ago. But as Sohaib mentioned, we saw good progress in certain regions and expect broader improvements in Europe in 2014. From a vertical industry perspective, financial services, health care and government were our top contributors to new license orders this quarter.

Non-GAAP gross profit was a record $235.6 million or 85% of total revenue in Q4 compared to 86% a year ago. Software margins were 98% and service margins, 73%. Total non-GAAP operating expenses of $154.4 million represented 56% of revenue, resulting in non-GAAP operating income of $81.2 million or 29.4% of total revenue. GAAP net income for Q4 came in at $39.9 million or $0.36 per diluted share, and non-GAAP net income for Q4 was $54.8 million or $0.49 per diluted share, near the high end of our guidance range. And as we've consistently stated for the past few quarters, our top priority is to drive EPS growth through increased revenue growth rather than by margin expansion, especially as we continue to experience rapid growth in our subscription business.

Total headcount at the end of Q4 was 3,234, up 56 from the end of Q3 and up 420 from a year ago, with a majority of the sequential increase coming in R&D. Sales and marketing headcount ended the quarter at 1,060, up 15 from Q3 and up 92 from a year ago. Consistent with our growth and innovation plans, we expect to increase headcount in all critical functions throughout 2014.

Cash flow and balance sheet metrics were strong again this quarter. We ended the quarter with over $677 million in cash and investments, up from $621 million in Q3. We generated $62 million in cash from operations during Q4 and over $201 million during the full year. In Q4, we used $28 million in cash to repurchase 727,000 shares of our stock, and ended the quarter with 111.5 million shares outstanding on a fully diluted basis.

Days sales outstanding were 67 days in Q4, consistent with the previous year. Based on our Q4 orders, our potential future revenues disclosure, which includes deferred revenue balances as well as orders not yet taken to revenue as of December 31, was a record $343 million, up 16% or $46 million from last year. And total deferred revenues were a record $298 million, up 19% or $47 million -- up $47 million from last year.

Our tax rate for the quarter was 35% on a GAAP basis and approximately 33% on a non-GAAP basis. We continue to expect our income tax position, as well as both our GAAP and non-GAAP tax rates, will have some variability and will be very sensitive to our quarterly geographic mix of earnings. For the year 2014, we are targeting a tax rate of approximately 34% on a GAAP basis and approximately 33% on a non-GAAP basis.

Turning to guidance. As we've consistently stated for the past few quarters, our top priority is to drive increased revenue growth by continuing to invest in innovation and in a stronger sales organization. We expect our investment in research and development, excluding stock comp, to climb to nearly 17% of total revenue for the first half of the year, and average about 16% for the full year 2014.

We are encouraged by our recent sales execution in North America and Latin America, and expect to see better contribution from Europe in the coming quarters. We continue to believe the macroeconomic environment will be constructive for us in 2014, particularly in North America.

Based on these assumptions for fiscal 2014, we are modestly raising our expected full year revenue range to $1,015,000,000 to $1,065,000,000, and maintaining non-GAAP EPS in a range of $1.55 to $1.65. And we are setting Q1 '14 revenue guidance in a range of $235 million to $245 million, with Q1 non-GAAP earnings per share guidance in a range of $0.32 to $0.35.

As a reminder, our non-GAAP EPS targets do not include the after-tax impact of an estimated $0.03 per share per quarter charge for the amortization of intangibles and acquired technology, the tax-affected impact of stock comp of approximately $0.10 per share per quarter, and the major acquisition costs and expenses.

With that, operator, I'll open it up for questions. [Operator Instructions] Operator, may we have the first question, please?

Question-and-Answer Session

Operator

And our first question comes from the line of Greg Dunham with Goldman Sachs.

Gregory Dunham - Goldman Sachs Group Inc., Research Division

I guess first on that last point. Part of this is your success diversifying into other products in terms of having a higher R&D spend. Can you actually speak to some of the investments that you're making in the first part of this year? And really, what gives you the confidence to make higher levels of investments at this stage? And how should we think about ramping R&D over time?

Sohaib Abbasi

Greg, as we've talked about, we were one of the early pioneers in Informatica Cloud. And we're very pleased with the growing uptick -- uptake of Informatica Cloud. We will continue to invest as our customers are looking for a solution that spans both cloud as well as on-premise, with hyper data integration. In addition, there is growing interest in big data initiatives, and we have a number of investments to ensure that we're providing the Data Quality offering, as well as the Data Integration offering that is optimized for a variety of big data environments including Hadoop. And we continue to be -- do extremely well with some of our newer technologies like MDM and ILM. And we will continue to invest ahead of customer demand, and we feel very good about the long-term sustainability of our growth.

Operator

And our next question comes from the line of Brent Thill with UBS.

Brent Thill - UBS Investment Bank, Research Division

Earl, on Europe, I'm curious if you could give us your view separated between the internal Informatica sales revamp and kind of how you see that, where that is and what stage? And then contrast that with some of the macro data you're collecting in the sales funnel as you look at '14?

Earl E. Fry

Yes, so I think there is a bit of a divergence from what we saw in the back half. I do think the macro environment is getting incrementally more constructive in Europe. Again, it's not great, not as good as North America or Latin America, but I think it's more constructive. Big differences between kind of Central and Northern Europe versus Southern Europe. I think Southern Europe still has macro headwinds, although not nearly the kind of downside risk that we might have had over the last couple of years. So I think against that backdrop, obviously, this was a transition year for us. We've gone through a number of management changes. Those are all in place. In fact, the areas where we've made those changes earlier or had teams that were operating well and in place, we actually saw good progress in the back half of the year, as Sohaib commented on. So I think, we're poised, actually, well going into 2014, to see a good uptick, good increase in contribution throughout the year from our European operations.

Operator

And our next question comes from the line of Mark Murphy with Piper Jaffray.

Mark R. Murphy - Piper Jaffray Companies, Research Division

Sohaib, I'm wondering what are your multiyear aspirations in the data security area? Because we noticed you had brought on some folks with a very deep security background recently. And I'm wondering if you're seeing some kind of an opportunity to address big data as a security risk? And maybe, what that might mean product-wise in the next couple of years?

Sohaib Abbasi

Mark, we already deliver Data Masking products that are being utilized by our customers, for both traditional data projects as well as big data projects. And we continue to invest in data security. And our view is that the whole area of security is going through a significant disruptive change. There is no perimeter, with the data residing both on-premise as well as in the cloud. And increasingly, the focus of our customers is on how do they secure their most important IPS for data and arguably, we understand data better than any other vendor. And we will continue to innovate in this area.

Operator

And our next question comes from the line of Steve Ashley with Robert W. Baird.

Steven M. Ashley - Robert W. Baird & Co. Incorporated, Research Division

I'd just like to drill down a little bit on Brent's question regarding Europe. And you called out a couple of countries that had performed well and seemed to be coming up. But what countries continued in the fourth quarter to have a more difficult time? And what gives you confidence that you can see a change in those countries in 2014?

Sohaib Abbasi

Steve, I spent quite a bit of my own time in Europe throughout the year. And I have been very encouraged by the caliber of the team. What gives me great confidence is we have a very strong team led by a very capable leader in EMEA. In terms of where we are in ensuring that the operational discipline is at a level where we'd like, we started on this -- on the changes a few quarters after North America. And in the same way, as we benefited from the changes in North America, I expect that over the next couple of quarters, we will start to see that benefit in Europe as well.

Operator

And our next question comes from the line of Ed Maguire with CLSA.

Edward Maguire - CLSA Limited, Research Division

Hadoop last year was subject to a lot of confusion. But recently, I know you've been seeing a lot more constructive engagement as, certainly, with Informatica being positioned as an alternative to some of the work that your clients may be doing. Could you comment on how your partnerships may be progressing? And how some of the -- how Hadoop may have played a role in some of your deals this quarter?

Sohaib Abbasi

Well, Ed, as you know, our value proposition for Hadoop developers is we help them do more with less, productivity, up to 5x more productive than hand-coding in MapReduce. In fact, the technology leader that I referred to was an opportunity where we partnered very closely with Cloudera. Cloudera's CTO joined us at our sales kickoff meeting. We have a very close partnership with all of the major Hadoop distribution vendors, including Cloudera, Hortonworks and MAPR, and we believe that it represents yet one more growth opportunity. Now I would clarify that the big data initiatives that our customers are embarking on spanned beyond Hadoop, using a variety of alternatives as well. And we are very well-positioned to benefit from that.

Operator

Your next question is from the line of Raimo Lenschow with Barclays.

Raimo Lenschow - Barclays Capital, Research Division

A quick question for me is like so, Sohaib, at the moment you're investing nicely into the growth of the business, how do I have to think from an investor perspective in terms of how this will play out? In '14, we still have investment node? Does that mean kind of in '15, we are going to see more operating leverage? Or is this kind of, how do you think about investment and the investment levels that you have in the out-years?

Sohaib Abbasi

Let me comment on it, Raimo, and then I'll ask Earl for his perspective as well. We are -- we have a very strong conviction that in the New World, the role that our platform will play would be much broader. And as a result of it, we're making a lot of investments in both data integration, data management technologies. I commented a little bit about support, the variety of different data types, the different ways of leveraging that data. So we will continue to have a focus on innovation and ensuring that we are -- continue to advance our leadership. In addition to that, obviously, would be a move towards the cloud and moving more towards subscription, which is now more than 10% of our overall software revenue. Clearly, the profitability characteristics of their businesses are very different than of our traditional business. So there are a few factors. But again, we will -- we have a very high conviction in our opportunity, and we're making the investments today for sustained growth.

Earl E. Fry

So just to add a little more color. As Sohaib mentioned, the subscription businesses continue to grow very nicely for us. And I think we're getting to the size and scale where that part of the business is -- we're making investments behind it. It does have a different profitability model. And with that part of the business growing significantly faster, kind of a 2x, 3x or better rate than the rest of the software business, that puts -- that makes it more difficult to show total margin expansion, which is why I think for as long as we're going to expect to get significant subscription growth, which we've demonstrated recently and expect to continue for the foreseeable future, that's why we're saying don't expect a lot in terms of margin expansion. So I don't think it's just a -- I think it's wrong for investors to look at it as there's a big step function of investments and then it goes away. I think you have to look at the business model and say, over the next few years, you're going to see a significant increase in the subscription business that will have a slightly different profile, and we will have operating margin. We will -- our growth rate should be -- continue to be very good. The mix of revenues should get much better over time and with much better predictability. And we should have operating margins that may grow modestly, but not a lot, at least in the next couple of years from where we are today.

Operator

And your next question comes from the line of Matt Hedberg with RBC Capital Markets.

Matthew Hedberg - RBC Capital Markets, LLC, Research Division

I'm wondering if we can get an update on Heiler? It's been a little over a year since the deal was announced. And really how the PIM solution is complementing your broader MDM offerings?

Sohaib Abbasi

There is a growing interest among the retailers for omnichannel commerce. And clearly, many of them are concerned about the competitive dynamics, particularly with Amazon. And that is forcing the retailers to modernize their data infrastructure, and that has turned out to be a very good opportunity for Informatica, not only to position our PIM product but also some of our other products including Data Quality. The idea of endless aisles, where the suppliers are providing a lot of the part description, forces them to ensure the quality of the data in order for them to provide all of this -- all these choices to their consumers. And we've seen very good uptake of it. And in fact, Heiler is progressing according to our expectations. And I expect in 2014, we will benefit from being in a position to being even more synergy with our other products.

Operator

Your next question is from the line of Jesse Hulsing with Pacific Crest.

Jesse Hulsing - Pacific Crest Securities, Inc., Research Division

When you look at your guidance for 2014 and I guess more specifically, when you look about -- look at how you're thinking about your on-premise, if you will, license number, what are your expectations for your traditional data integration business? Do you think that can be a growth business? Are you modeling flat? Some color on there would be pretty helpful.

Sohaib Abbasi

I expect that our traditional data integration will be -- would experience healthy growth. There are 2 broad developments that are leading to a lot of demand. One of which is in the analytics area. And we've talked about the 6 different ways that our customers are doing analytics from Hadoop to Agile BI and in-memory databases, analytic databases. And each one of them creates demand for customers to have holistic data, trustworthy data. So we are very well-positioned with our new product key to support all the various alternatives for analytics. Another area is around operational data integration, with more and more customers moving towards the hybrid IT model, combining data in the cloud with data on-premise. We have an innovation roadmap that, of course, includes Informatica Cloud being an early pioneer in that area. But we've also introduced some new technology like Data Integration Hub, which is a much more productive way for customers to automate operational data integration. So both from an operational data integration and analytic data integration, I expect that we will see good demand for our core products.

Operator

And your next question comes from the line of Michael Nemeroff with Crédit Suisse.

Michael B. Nemeroff - Crédit Suisse AG, Research Division

Sohaib, for you. I joined late, so I don't know if you've mentioned this, but are there situations where you're selling both licenses and subscriptions in the same deal? And then for Earl, I think a couple of people have danced around it, but when I look at the license revenue for 2014, should we expect double-digit growth in license? Just trying to get a sense on how we should think about the breakdown on the software revenue?

Sohaib Abbasi

Michael, we are beginning to see customers that are looking at both our subscription products as well as our license products, as more and more customers view the cloud services they're utilizing as being part of their -- a critical part of the infrastructure. In fact, last quarter, we had a win in a very large insurance company that selected Informatica for all of their customer information, master data, both on-premise as well as in the cloud. And we're beginning to see those customer-use cases more frequently. Now because we have a very unique offering where we're the only vendor that offers both a cloud-based solution as well as an on-premise solution, which is based on a common architecture, we are very well-positioned for this next wave of hybrid data integration opportunities.

Earl E. Fry

Yes, and Mike, I think street consensus, as I look at it, basically does come out to kind of low double-digit growth rate for software -- excuse me, for license. Obviously, faster growth for total software, with subscriptions growing at 3x to 4x the growth rate of license. And all that sits within kind of the mid to high end of our guidance range. And those are all things that I think we're comfortable with at this early stage in the year.

Operator

And your next question comes from the line of Aaron Schwartz with Jefferies.

Aaron Schwartz - Jefferies LLC, Research Division

I had a question on the sales reinvestments, given everything you've talked about with the cloud opportunity and as some companies point to a different buying pattern or sales process around cloud versus on-prem. And I just wanted to ask you what the plans are for sale segmentation? Do you need any sort of a different team there, or overlay, or a different type of approach, as you continue to expand with cloud? Or because of that common architecture you mentioned, is it a little easier? And then as a follow-up, is there any way, Earl, that you could provide some color on the deferred revenue on the maintenance versus what is the cloud subscription?

Sohaib Abbasi

Aaron, we pioneered data integration almost 7 years ago, and at that time, there was certainly a different buying pattern that Software as a Service decisions were being made by line of business and IT was not part of it. And as a result of recognizing that it was a different buying pattern, we did have a separate sales organization. Now over the past 7 years, we've seen a shift, and that was the earlier question that Mike had asked, where our customers are recognizing that cloud computing will never replace on-premise computing. But it's rather an integral part of the IT infrastructure. So recognizing that our customers are now moving towards a hybrid model, we have been providing incentives for our field organization to engage with a specialist that know best how to position cloud. And I would expect that in 2014, we will see a lot more opportunities where our field organization would be working very closely with the cloud offering, with the cloud sales team, to position our complete solution which is unbeatable for hybrid data integration.

Earl E. Fry

Yes. And just to give you a sense, Aaron, of what's sitting in the kind of total deferreds. Again, we don't break it out specifically. But obviously, the maintenance deferred was going to be the majority of what's sitting there. There is a significant and the fastest next -- the next biggest segment is our subscription deferreds, followed by our license deferreds, and then the smallest component would be our services consulting, education deferreds. And from a growth rate perspective, as you might expect, our subscription deferreds, for example, Q4 year ended were up over 40% versus where it was a year ago. License deferreds were up 18% versus where it was a year ago. So again, those are the big drivers behind having deferreds being up 19% year-over-year.

Operator

And our next question comes from the line of Tom Roderick with Stifel.

Tom M. Roderick - Stifel, Nicolaus & Co., Inc., Research Division

Maybe just a follow-up for both of you with respect to sales structure, and maybe more of a broader question about sales structure. Last year, you kind of came into the year running the sales and marketing spend a little hot. And I know you kind of put a new overlay back on top of the MDM team. Can you talk a little bit more about any further overlays, whether it's MDM or other product lines? And in your philosophy with respect to running sales, either a little bit leaner this year, or kind of continuing to run that, as you call it, a little bit hot, like you did last year?

Sohaib Abbasi

We are clearly very pleased with the success that the newer products have enjoyed. Informatica Cloud growing at -- the subscription business growing over 60%. MDM, ILM, very good growth. I believe we have a model that has worked very well for us. And we will continue with that same model going into 2014. Our focus is on growth. And as Earl pointed out, we will remain very focused in terms of making all the investments for us to have sustained growth in our newer product areas, as well as our core products.

Earl E. Fry

Yes. So again, no real kind of structural changes in terms of how we're thinking about it. We got very good productivity gains in North America and Latin America this past year. So they're adding capacity. So that obviously will -- consider that an invest -- another investment in sales organization. Europe is in a slightly different situation where we've maintained our bets on the table. So 2014 is an area where we're looking for increased productivity gains out of our European teams.

Operator

Your next question comes from the line of Steven Koenig with Wedbush.

Steven R. Koenig - Wedbush Securities Inc., Research Division

As we talk to integrators, we hear more customer interest in pay-as-you-go type of models, usage-based models, time based models, which certainly is related to cloud usage but also as a distinct and separate business model or pricing model. And I wondered, how do you think about responding to that customer interest, if at all? And how does that affect Informatica going forward?

Sohaib Abbasi

Let me -- clearly, we offer a cloud -- a subscription offering with the Informatica Cloud. We have not seen a significant change in terms of buying preferences or buying patterns. We partner with some of the top system integrators around the world. Many of them have practices around Informatica. Many of them influence our deals. In fact, 59% of our transactions revenue was influence orders -- were influenced by partners. And we have not seen any significant change in buying patterns or preferences.

Operator

And your next question comes from the line of Michael Turits with Raymond James.

James Wesman

It's James Wesman, sitting in for Michael. Earl, taking a look when you gave the future revenue calc, it appears off balance sheet backlog declined slightly year-over-year. Was there anything unusual in the quarter that may have driven that?

Earl E. Fry

Nothing in particular. So we're relatively at the same level. And let's remember that -- keep this in perspective that deferreds are up significantly. License deferreds are up 18%. Total deferreds are up 19%. Subscription deferreds are up 42%. So total software is up 34%. So I think when you combine all of those data points, we are feeling like we're very well-positioned going into 2014.

Operator

And your next question comes from the line of Karl Keirstead with Deutsche Bank.

Jobin Mathew - Deutsche Bank AG, Research Division

This is actually Jobin Mathew sitting in for Karl Keirstead. Okay. Another question for Earl, looking at your guidance for next year, it seems like the midpoint by my math comes to around 9%. Can you talk about what are the levels of conservatism embedded within the estimates? And also, talk about your assumptions for building out the revenue model? One particular factor there to look at is, in Europe, is it just the macro worries that are concerning you? Or do feel like your execution capabilities are back to where they would have been before the issues started?

Earl E. Fry

Yes, so I think -- I try to address this a little bit with -- relative to an earlier question on growth rates. So I think consensus starts kind of at the mid to high end of our range, and if you're there -- and again, we've nudged our revenue guidance up a little bit for next year. That would put most people at a very low double-digit growth rate for licenses and slightly higher double-digit growth rate for total software revenues, which we're comfortable with. And then with regard to Europe, I want to make sure people don't misunderstand. We believe we're positioned well from an execution standpoint to see productivity gains in the coming year. We think the macro environment, while not nearly as robust as North America or even Latin America, we think it is a constructive environment that's getting better and one that I think our newly-formed teams in Europe will be able to execute well against.

Operator

And your next question is from the line of Abhey Lamba with Mizuho Securities.

Abhey Lamba - Mizuho Securities USA Inc., Research Division

Sohaib, when we look at 2014, what type of key growth factors that we should be thinking of when you got new products, goal ETL and execution improvements, in Europe, it will help if you can stacked against them in terms of how these factors should play out in Europe through 2014?

Sohaib Abbasi

I suspect that Informatica Cloud and specifically, subscription, will continue to grow much, much faster than our other products. And then within our traditional products, the newer products, MDM and ILM, will continue to see very good demand. In fact, the pipeline is very strong. And as I commented on earlier, I believe that with growing interest in big data, we're very well-positioned with our core products as well. So I expect a diversified strength across all of our different products. In terms of geographic regions, North America, we have a strong team in place that has delivered consistently. I expect that momentum will continue in North America and Latin America. And as I commented on, I expect that we'll see improvement -- improving results in Europe over the coming quarters. So I expect that we will have a very healthy, diversified business in 2014.

Operator

And the next question is from the line of Derrick Wood with Susquehanna.

James Derrick Wood - Susquehanna Financial Group, LLLP, Research Division

So there seems to be more M&A activity as well as elevated regulation burdens out there. Historically, that's been a growth driver for you guys. Do you think -- do you see these market trends as something that can be a catalyst for growth on the core PowerCenter looking into 2014?

Sohaib Abbasi

I expect to see many growth drivers for PowerCenter, and M&A activity clearly is one of them, where out of necessity, many of the business computing systems need to be consolidated and Informatica has technology that would harmonize the data and ensure they can mask the data and integrate the data. So clearly, that bodes very well for Informatica's core technology.

Operator

And your next question comes from the line of Pat Walravens with JMP Group.

Patrick D. Walravens - JMP Securities LLC, Research Division

Sohaib, how is the competitive dynamic for the Informatica Cloud different than for the on-premise solution? Are the players different?

Sohaib Abbasi

We -- Pat, as you know, we were the pioneer in cloud data integration. We embarked on this journey more than 7, 8 years ago, before there were any players or before that category even existed. What we have seen over the years is that some of our traditional competitors have acquired other technologies and offered this for technologies, one for on-premise, one for cloud, and we've also seen some newer companies that offer cloud-only solutions. Now what Informatica's unique advantage is that we have a mature product that works both in the cloud. It works on-premise as well, and in fact, it's powered by Vibe, which is the industry's first virtual data machine that firms deploy anywhere. And I think that is a very compelling value proposition because cloud is not an island and will not live as an island to itself, but rather it will be a combination. And given Informatica's complete offering, we uniquely enable the hybrid IT organization.

Operator

And we have no further questions in queue at this time, and I would like to turn the call back over to our presenters.

Sohaib Abbasi

To sum up, we are well-positioned for sustained growth with our expansive product portfolio and our innovation investments that are well aligned with the evolving customer priorities of today and tomorrow. Thank you.

Operator

Thank you. This does conclude today's conference call, and you may now disconnect.

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