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Informatica Corporation (NASDAQ:INFA)

Q1 2014 Earnings Conference Call

April 24, 2014, 5:00 PM ET

Executives

Stephanie Wakefield - Vice President, Investor Relations

Sohaib Abbasi - Chief Executive Officer

Earl Fry - Chief Financial Officer

Analysts

Mark Murphy - Piper Jaffray

Brent Thill - UBS

Raimo Lenschow - Barclays Capital

Michael Nemeroff - Credit Suisse

Ed Maguire - CLSA Credit Agricole Securities

Matt Hedberg - RBC Capital

Aaron Schwartz - Jefferies & Company

Jobin Mathew - Deutsche Bank

Abhey Lamba - Mizuho Securities

Steve Koenig - Wedbush

Derrick Wood - SIG Susquehanna

Jesse Hulsing - Pacific Crest Securities

Matt Williams - Evercore

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 Q1 2014 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 first quarter 2014 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 second 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 Form 10-K. 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 non-GAAP financial measures. A reconciliation of GAAP to non-GAAP results is provided in today's earnings press release and in the Supplemental Metrics section of our Investor Relations website. We have also included quarterly financial highlight presentation with historical financials in the Supplemental Metrics section of our Investor Relations website. We hope you find it helpful.

And with that, I will turn it over to Sohaib.

Sohaib Abbasi

Thank you, Stephanie. The highlights of the first quarter included strong subscription revenue growth of 49% and improving sales operational discipline in Europe. Our Q1 results further underscore our opportunity for sustainable, profitable, double-digit growth. In Q1, total revenue grew by 13% to $243.1 million and software revenue grew by 17% to $103 million. Our non-GAAP quarterly earnings per share of $0.35 was the first quarter record.

Over the past nine years, we achieved a compound annual growth rate for software revenue of 17%, more than twice that achieved by the broader enterprise software market. And over the past four quarters, we have attained operating margin percentages in the mid-20s. We continue to report sustained and profitable growth as a result of increasing customer demand and our innovations, which have allowed us to benefit from the secular disruptive trends that are redefining the economics and value of business computing, the nature of data security and the breadth of next-generation analytics.

Our opportunities were well articulated by one of our top IT services partners in the meeting last month. Our partner said, data is front and center of our customer projects and will be even more critical in the future. And he concluded that data is the foundation of what is possible for our customers and requires a good data practice.

Turning to regional performance, I will outline the key demand drivers. In North America, customer centricity, regulatory compliance and big data analytics projects grow deals across a broad spectrum of verticals. In EMEA, we made encouraging progress by keeping results that were consistent with our expectations. We are more effectively winning opportunities as a result of last year's leadership and operational changes. Top opportunities included analytics for data integration, customer centricity for MDM and omni-channel commerce booked in. In Asia-Pacific and in Latin America, our opportunities included regulatory compliance, post-merger installation, data privacy and customer centricity initiatives.

Turning to product results, adoption of our new products beyond our core PowerCenter, PowerExchange and Data Quality products continues to diversify our software revenues. In fact, 11 of our 13 deals over $1 million included these newer products. Overall, the customer usage of our new products has increased consistently from 12% in 2007 to 42% of the active projects in Q1 2014.

Among our newer products, key high growth categories included Informatica Cloud, MDM and ILM Data Security. According to industry analyst, Gartner, the annual growth rate of cloud is 23% and of MDM is 19%. In each product category, I will describe a key customer win and our opportunity to benefit from sector-defining secular disruptions.

First in cloud integration, a leading postal network selected Informatica Cloud and PowerCenter to deliver better customer service. By integrating and analyzing cloud sales data and on-premise financial data using Informatica's unique hybrid solution, the postal network plans to grow revenues by offering services that better match its customer requirements. In cloud integration, we continue to benefit from the economic disruptive changes of cloud computing. With cloud computing, customers can rent services instead of buying computers and software.

As we noted 10 years ago, this economic disruption opens up new opportunities for Informatica. 10 years later, Gartner refers to it as Enterprise Integration Platform as a Service and Forrester Research named it Hybrid Integration. Last quarter, Gartner ranked Informatica as a leader in their first ever Magic Quadrant for Integration Platform as a Service. And also in Q1, Forrester listed Informatica as a leader in all four hybrid integration scenarios, Wide Integration, Deep Integration, Hybrid Integration and Internet of Things Integration.

Second, in MDM, one of the UK's top casualty insurance leader selected Informatica for its divestiture. The customer will master the golden source of customer data from policy claims and sales systems using Informatica MDM. With personalized multi-channel experiences and tailored offerings, the insurer expects to improve customer lifetime value.

In the new world of IT, social computing is disrupting the value of computing. With social media, businesses can gain more value than just improving productivity to now even facilitating brand management and better customer experience. In this new world of IT, the most authoritative source of people data is not limited only to on-premise HR applications like PeopleSoft or to cloud services like Workday, but must also include data from social services such as LinkedIn and Facebook. Given the greater diversity in data, there is a strong need for a golden source of various domains of data. In the new world of IT, universal MDM will become more critical as the golden source of all data and relationships.

In MDM, last quarter, Informatica was again ranked as a leader by Forrester. The report noted that Informatica was one of the top vendors that set the bar as a true multi-platform MDM leader and that Informatica's strength is universal MDM. As evidenced, the diverse facility of our multi-domain MDM offering, a recent customer survey identified usage across 85 different data domains, including customer data, product data, supplier data, employee data and even wellhead at an oil and gas firm.

Third, in ILM data security, a leading car leasing company selected Informatica Data Masking to ensure data privacy. Using Informatica, this firm will obfuscate sensitive personal identification data to mitigate their risk of data breach during application migration and testing. In ILM data security, we plan to gain from the user experience disruption of cloud computing, mobile devices and the internet of things. To enable a pervasive computing experience for mobile devices, sensors and faceless control systems, there are no IT parameters. The old approach to secure the perimeter and keep intruders out is no longer sufficient. This borderless hybrid computing environment and heightened priority to prevent data breaches open up new opportunities for Informatica and data security.

To expand beyond our fast growing ILM Data Masking offerings, we are increasing our investments to develop a new product codenamed Secure at Source. Please join us for our announcement at Informatica World next month.

Fourth, in our core data integration category, a leading US bank selected Informatica Big Data Edition for timely analytics at a lower cost. Using PowerCenter Big Data Edition, the bank plans to consolidate data from expensive legacy mainframe databases to a landing zone using low-cost Hadoop clusters. Data from the landing zone will be consumed in a timely manner by digitalization and analysis tools.

In Data Integration and Data Quality, we expect to advance our lead by leveraging disruptions in next-generation analytics and big data platforms. Next-generation analytics enable more types of analyses, operational, real time, agile and predictive to name a few and require multiple tools for IT developers and separate multiple tools for business users. For IT developers, the choices include data warehousing like Teradata, analytic databases such as Greenplum, in-memory databases such as SAP HANA, and cloud analytic services like Amazon AWS Redshift and open source Hadoop.

And for business users, the choices include traditional reporting tools such as IBM Cognos and modern digitization tools like (inaudible). The old approach for IT developers to prepare the data repeatedly for each tool is not productive. With no universal connectivity and with a comprehensive Data Integration and Data Quality platform, Informatica enables IT developers to prepare data once for all types of analytics from operational to predictive.

To expand beyond IT developers, we are increasing investments to build a new self-service cloud offering for business users to directly access and prepare data for analysis. Please stay tuned for our announcement at Informatica World.

Turning to our partnering system, we continue to strengthen our partnerships in the new world of IT that is being shaped by the disruptive forces that we have outlined. Our partner of the year, Cognizant, has broadly adopted the Informatica platform including data integration, big data, data quality, master data management, ILM data security and archiving. Cognizant solutions featuring the Informatica platform include BigDecisions, Securities Central, TD Maxim and Cognizant Active Data.

In cloud, we recently expanded our portfolio for Amazon AWS with a new PowerExchange connector for customers to move on-premise data to the cloud analytic service Redshift. In addition for Amazon AWS developers, we offer Vibe Data Stream and HParser for streaming and parsing machine data.

At the upcoming Informatica World user conference in Las Vegas, we will announce exciting new products. Next-generation data security for the new borderless hybrid IT world and self-service data preparation for business users. We will also demonstrate our latest advances in Universal MDM in data integration for big data and in the next generation analytics. We look forward to welcoming you to Informatica World and the Annual Financial Analyst Meeting on May 13th.

Lastly, I'd like to welcome the newest member of the Informatica board, Hilarie Koplow-McAdams. Hilarie brings more than 25 years of both on-premise and Software as a Service go-to-market experienced gained during high growth years of industry leaders, Oracle and salesforce.com.

To recap, our Q1 results reflect the same demand the strength of our differentiated solutions. And as we described, we are well positioned for sustained double-digit growth by benefiting from the disruptive changes of several secular technology trends.

Now I'll turn it over to Earl.

Earl Fry

Thank you, Sohaib. Our first quarter revenues were $243.1 million, up 13% from last year and near the high end of our guidance range. Software revenues were up 17% to $103 million, with the license component up 13% to $88.5 million and subscriptions up 49% to a record $14.5 million. Service revenues were up 11% to $140.1 million, with maintenance revenues up 14% to $109.3 million and consulting and education revenues up only 1% to $30.8 million.

We booked 76 deals over $300,000 in the quarter and 13 deals over $1 million. This compares to 62 deals over $300,000 and 19 deals over $1 million in the first quarter of 2013. And despite the lower number of $1 million deals, our first quarter record number of deals over $300,000 drove our overall average transaction size for orders of $100,000 up to $411,000, a slight increase from the $409,000 a year ago.

North America represented 63% of our total revenue in the first quarter, while EMEA represented 25% and the rest of the world came in at 12%. This compares to a year-ago first quarter results, where North America was 67%, Europe was 22% and the rest of the world was 11% of total revenue. So we are encouraged by the increased contribution from Europe, particularly in the major European markets where we are starting to see early returns on the changes that we made during the last 12 months to improve our sales discipline and productivity.

Financial services, healthcare and government were top contributors to license bookings this quarter. Our non-GAAP gross profit in Q1 was $201.2 million. As a percentage of total revenue, gross margins were 83%, consistent with the prior year. And software margins were 97% with service margins coming in at 72% in Q1.

Our total non-GAAP operating expenses were $144.5 million or 59% of revenue in the quarter, which resulted in non-GAAP operating income of $56.7 million and in operating margin of 23.3%. So while we are pleased with the growth in earnings, as we've consistently stated over the past few quarters, our top priority is to drive EPS through increased revenue growth rather than by margin expansion, especially as we continue to experience rapid growth in our subscription business.

GAAP net income from Q1 was $24.9 million, so $0.22 per diluted share. Non-GAAP net income for Q1 was $39.5 million or $0.35 per diluted share and came in at the very high end of our guidance range. Total headcount at the end of Q1 was 3,340, up 106 from the end of Q4 and up almost 498 from a year ago. Sales and marketing represented most of the sequential increase with headcount in sales and marketing at the end of Q1 at 1,119, up 59 from Q4 and up 123 from a year ago. As a reminder, our expectation is that with our growth and innovation plan, we continue to expect to add headcount in all critical functions throughout the remainder of 2014.

Cash and balance sheet metrics were strong again this quarter. We ended the quarter with over $730 million in cash and investments, up from $677 million in Q4. In Q1, we used $23 million in cash to repurchase 582,000 shares of our stock and we ended the quarter with 111.9 million shares outstanding on a fully diluted basis. We generated nearly $63 million in cash from operations during Q1, which is down from $76 million in the year-ago first quarter. Our Q1 cash flows were negatively impacted by having to pay over $10 million more in higher tax payments in Q1 compared to a year ago as well as experiencing a six day increase in DSOs. DSOs for Q1 came in at 60 days, up from 54 days a year ago, but well within our target range of 55 to 65 days.

So based on our Q1 orders, our potential future revenues, which I'll remind you includes deferred revenue balances as well as license orders not yet taken into revenue, as of March 31st, was more than $339 million, up 14% from last year. And total deferred revenues were a record $312 million, up 17% from last year.

Our tax rate for the quarter was 34% on a GAAP basis and approximately 31% on a non-GAAP basis. We continue to expect our income tax provision 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. We are targeting a tax rate of approximately 34% on a GAAP basis and approximately 33% on a non-GAAP basis throughout the 2014.

So turning to guidance, as we have consistently stated for the past few quarters, our top priority is to drive increased revenue growth by continuing to invest both in innovation and in the stronger sales organization. Additionally we expect our investment in R&D in particular, excluding stock-based comp, to remain at approximately 17% of total revenue for at least the next two quarters. And we also continue to believe that the overall macroeconomic environment will continue to be constructive for our business for the remainder of 2014.

So based on these assumptions for the year 2014, we are modestly raising our expected full year revenue range to $1.02 to $1.07 billion and maintaining our non-GAAP EPS in a range of $1.55 to $1.65. For the next quarter, we are setting Q2 revenue guidance in a range of $245 million to $255 million with Q2 non-GAAP earnings per share guidance in a range of $0.32 to $0.36. As a reminder, our non-GAAP EPS targets do not include the after-tax impact of an estimated $0.04 per share per quarter charge for the amortization of intangibles, tax expense and applied technology, but tax impact of stock comp of approximately $0.10 per share per quarter and any major acquisition cost and expenses.

So with that, I will open it up for questions. As a reminder, please limit yourselves to a single question. Operator, may we have the first question?

Question-and-Answer Session

Operator

And your first question is from the line of Mark Murphy.

Mark Murphy - Piper Jaffray

I am calculating 18% growth in software bookings. And so that is a noticeable acceleration there and also an acceleration in the license bookings. So I'm curious as you look at the deal pipeline, do you think that that solid double-digit growth could continue for total software revenue, I guess, even as you ahead into some tougher comparisons here?

Earl Fry

Yeah, I think we do feel good about where we're starting the year and not only from the kind of P&L results that we posted, but also having a nice strong increase in deferred revenues. The other point maybe to make, you could see it in our headcount metrics, we added quite a number of people across the company, but particularly in sales and sales and marketing in Q1. So we're heading into Q2 and the remainder of the year in a very strong sales capacity position, much better than we were a year ago. And a lot of that hiring actually, particularly in sales and marketing, happened early in the quarter. So from a capacity perspective, we feel pretty good about them going into Q2.

Mark Murphy - Piper Jaffray

Sohaib, I had a quick follow-up. We had heard some widespread feedback in the partner ecosystem that your win rates versus IBM had improved noticeably. So I'm just wondering do you think that's due to deal flow you're getting on the big data side, or does that something to do with the differentiation you have in the cloud products or is there some other factor coming into play that's maybe just more execution-oriented?

Sohaib Abbasi

We have not seen any significant changes in the competitive landscape. In terms of our win rates against specific competitors, clearly the breadth of the offerings has a lot of this to distinguish ourselves, as well as our neutrality distinguishes against some of the industry giants. I am particularly pleased with the success that we're having against some of our traditional competitors in our core markets, both in data integration, data quality. And clearly, cloud and hybrid deployment is a very big differentiator that we have against them.

Operator

And your next question is from Brent Thill.

Brent Thill - UBS

Sohaib, you mentioned you're encouraged by what you're seeing in Europe, and I know many investors have been kind of patiently waiting for this segment to turn around. Can you give us just a sense of where you think this rebound this if you kind of had to put a milestone on where you're at versus where you really could be in terms of hitting full stride there, that'd be helpful?

Sohaib Abbasi

Brent, I believe that we have the right team in place. I spent a couple of weeks over the last few quarter. And I was very impressed by the caliber of the leadership team that we have. The improvements are clearly evident in the numbers that we just reported and we are very much focused on making sure that we can sustain the momentum that we have built. As Earl commented on in the major European markets, central, both north and south, we continue to see very strong results.

Earl Fry

Maybe a way to think about it is we're very encouraged by the results, notwithstanding some of the distribution regions, particularly, Russia, Eastern Europe which actually had a very tough quarter. So even given that, we had a good strong quarter kind of across the board in the rest of the major markets. But even then, we're still nowhere near at the kind of productivity levels that we could be at or that we've seen either historically in Europe or that we've been at more recently in North America. So I think we're on the right track. I think we're feeling good about the changes that have been made, the team that's there. But there's a lot of room on that run rate.

Operator

And the next question is from the line of Raimo Lenschow.

Raimo Lenschow - Barclays Capital

Just two questions from my side, first a more strategic one. So as you think about the development of the industry in terms of going more towards the cloud, the need of what you do with your subscription or cloud integration offerings should be going higher. But how part of that business will be you long term? So how do you think about scaling that up versus the rest of the business.

And then second question was just on the volume side, so the larger deals were not as big as the quarter reported, that suggests to me that it's getting broad in terms of number of fields out there that you're kind of closing. Do I take that as another supporting data point? It seems like it's getting better out there?

Sohaib Abbasi

Raimo, let me talk about two big prints, one of which is the move of our transactional applications to cloud services whether it's salesforce.com or Workday, are offering economic alternatives to the previous transactions (inaudible) applications. And at the same time, we're seeing the next-generation analytic platform that is being largely developed on-premise at this stage. So whether you look at in memory databases or in Hadoop, now what creates are two opportunities for Informatica. One is to provide the bridge in terms of the old transactional applications that continue to be on-premise, perhaps order management with the new modern cloud services like sales automation. And that is obviously reflected in the 49% growth we reported for subscription revenue. And I expect that that will continue.

Now at the same time on the on-premise side, we see a variety of different next-generation analytics that are being offered. And that is creating a resurgence of interest in terms of the most traditional use of our products, which is to ingest high-quality data for more variety of analysis. So I expect that we'll continue to be a beneficiary both of the adoption of cloud and big data and analytics technologies.

The second question that you asked was about the large deals and the composition of our deals, clearly we had a rocket number of deals over $300,000, and that's a very good indication that there is broader usage of our technology across a broad range of initiatives that we've been talking about. And the other encouraging part is the broad adoption of our product portfolio. And clearly, it bodes well for us.

Operator

And your next question is from Michael Nemeroff.

Michael Nemeroff - Credit Suisse

Looking at the sales and marketing headcount, the growth in the quarter was up about 12% year-over-year in Q1. That's versus 6% in all of 2013. I know you mentioned that you had a good quarter of hiring. Was that just a good quarter of hiring or is that an indication of what you see in terms of demand out there? And at the year, what kind of sales and marketing headcount growth are you targeting and if you could please provide some color around that please?

Earl Fry

Yeah, we are seeing it from a demand perspective obviously, which is why we're doing the hiring. I might also mention that our turnover rates have improved significantly from where they'd been over the last couple of years, which alter results kind of in the net number of headcount being up. As you might guess, the heaviest quarter of hiring is typically Q1, but we are continuing to hire and will continue to hire throughout the remainder of the year, although I would guess that the mix of hiring at least for the next couple of quarters may end up tilting a little heavier toward the development side of the equation than it was in Q1. It wouldn't surprise me to have kind of other customer-facing functions and development functions be a more significant part of the hiring as opposed to sales and marketing, but still expect to continue hiring throughout the remainder of the year.

Michael Nemeroff - Credit Suisse

Sohaib, the number of larger deals this quarter, the $1 million deals was down year-over-year, but the average for the deals greater than $300,000 was up. Is there anything different in the large deal environment that you see out there that's changed over the last couple of months? Or do you expect it to remain pretty strong throughout the year?

Sohaib Abbasi

I don't think that there has been any significant change. And as we commented on, it's hard to rely on very large transactions in a predictable manner. And we are very encouraged by the fact that despite having the mix that we did, the average deal size did go up, the deals over $300,000 did go up. And the diversification that we've talked about, about adoption across the broader product line in the cloud offering, MDM, data security, all of that is very encouraging.

Operator

And your next question is from Ed Maguire.

Ed Maguire - CLSA Credit Agricole Securities

Sohaib, you've talked a lot about the six flavors of analytics. And as you look forward, the used cases that your customers are looking at in the future, where do you see the most traction near term and where are you on the other hand investing really longer term to build out the portfolio?

Sohaib Abbasi

Ed, it is 30 days to predict who the winners and the losers will be in this space. I believe that there will be many winners in this space. And the reason is that the breadth of analysis that our customers are conducting is much more than it has ever been. Now in terms of actual deployment, it shouldn't surprise for me to note that data warehousing continues to be where most of the existing customers are. In terms of the newer technologies, Hadoop has been around for much longer than some of the other technologies, and we see very good growth in Hadoop adoption. Still early days. We partner very closely with Cloudera, Hortonworks, MapR. And obviously with the changes that are going on, our neutrality ensures that our customers are not logged into any single Hadoop distribution vendors. And clearly we're partnering with BI vendors, Tableau and Qlik. So we will continue to track and we will continue to work closely and provide our customers the choices. And we believe it will end up being many different analytic technologies for IT developers and even more analytic technologies that empower business users directly.

Operator

And your next question is from Tom Roderick.

Unidentified Analyst

Yes, hi. (inaudible) for Tom today. A quick question on both the sales hiring and the larger deal flow. Could you give us any more details in terms of the geographic mix and how the improvements that you're seeing in Europe maybe coincide with some of these larger deals?

Earl Fry

Actually a lot of the sale hiring happened on more proportionally in North America, where we're building capacity. A little smaller portion of that came from Europe, where we actually have more latent capacity. Then as far as the larger deal flow, we did have, I believe it was, three of the $13 million transactions came in through and one of them was actually in Asia-Pac. So we had a good, healthy mix kind of reflecting the overall business in terms of the large transaction. So again, a very, very balanced and solid contribution, both geographically by product line kind of in Q1.

Operator

And your next question is from Matt Hedberg.

Matt Hedberg - RBC Capital

The partner referred revenue was, I believe, 44%, which was the lowest, because over four years. I'm wondering is there something unique that drove that or should we expect that to return more to the 60% level going forward?

Earl Fry

So, Matt, there're a couple of things, I guess, going on in Q1. Q1 is always a quarter where that number is typically a little lighter. Q1 we typically have a higher proportion of our revenue and new orders coming from existing customers. And this quarter, I think we had 83% of our new orders coming from existing customers. So when you do that and when you the kind of upsell and cross-sell opportunities that we have, I don't want to say you don't need partners as much, but you're already in the account and have the reputation. So it's less likely that you'll need kind of the partner referral co-sell in it.

The other part of the equation in Q1, we achieved the strong contribution from Europe despite having a very tough quarter in kind of Russia and the Eastern European markets, which would be all distributor or partner-related revenues. So the combination of those things put it down a little bit in Q1. I would expect that we will get seasonal lift in Q2 and for the remainder of the year.

Operator

And your next question is from Aaron Schwartz.

Aaron Schwartz - Jefferies & Company

Just had a question on the subscription business. You've been able to sort of maintain overall margin profile here despite what presumably is the lower margin revenue stream coming into the mix here. Is that expected to continue, or is the subscription sort of scales or the mix shift continues to shift toward subscription? Should we expect any impact on the margin here this year or next year? And then sort of related to that question, I don't know, Earl, if you can provide any insight on this. But if you look at the average deal size just for the subscription element, can you provide any color on what you're seeing there?

Earl Fry

Sure. Yeah, I think that's something that internally we debate quite frequently in terms of how this kind of target margins and what profile to maintain. As we continue to see opportunities in the subscription business and as that grows larger, just the business model is relatively challenging to maintain the kind of level of profitability or operating margins that we're at. That said, we've been pretty consistent over the last year-plus about we're going to grow EPS, but don't expect a lot of movement on the operating margins. Now if we decided that we had the opportunity to further accelerate the subscription business, then and that would result in something different from a margin perspective, we'd be signaling that pretty hard. Right now, I think the way we're looking at it is with a good consistent strong growth we're seeing in subscriptions that we think we can continue to kind of do that balancing act, where we'll get good double-digit growth in the core business, we'll continue to see outside growth in the subscription business and relatively consistent performance on the margin line. But that is something that as we see kind of opportunity shaping up, that's something that we are definitely keeping a very close eye on.

Aaron Schwartz - Jefferies & Company

Just wondering on the deal flow and subscription, is it materially different or if you're going to have any color to just add element of the business regarding deal flow?

Earl Fry

So deal size, we've seen modest increases in the average transaction size for our subscription business over the last two years. Clearly, it's significantly smaller than our overall average transaction size, but some of them are relatively needy transactions. In fact, five of the $13 million deals had a reasonable element of subscription business in them. So again, we're getting some good (inaudible) transactions in the mix in our subscription business. So again, that's a good healthy kind of balanced mix book of business that we're developing there.

Operator

And your next question comes from Steve Ashley.

Unidentified Analyst

Hi. This is (inaudible) in for Steve. I was just curious, it looks like North American license growth actually lagged international for the first time in a couple of quarters. I was just wondering if there was anything to read into that? Is there any changes in the macro backdrop or perhaps her own sales execution here in the US?

Sohaib Abbasi

North America continues to perform on par. And we saw strength in commercial sectors last quarter. The only reason why the mix has shifted is because of the strong performance in Europe. There has not been any change in terms of demand drivers. We continue to see very strong customer demand in North America for all of our products.

Operator

And your next question is from Karl Keirstead.

Jobin Mathew - Deutsche Bank

Hey, guys. This is actually Jobin Mathew sitting in for Karl. Just looking at the last question again, it seems like Europe has come back in a better way, but North America, if my math is right, kind of grew 7% this quarter. And you mentioned that you're adding more of your sales reps in North America. And you also mentioned that the addition of Hilarie on the call today is obviously a great senior hire. Putting all of this in context, are you in the process of either contemplating a major change in the way your sales operations in North America is run? Or is there something else that you're doing in terms of your hiring in North America?

Sohaib Abbasi

Let me provide you with the context. We are building an organization that would allow us to scale to $2 billion and even beyond that. And as we embark on this next phase of our growth, we continue to actually ask ourselves what are the right perspectives that we need to have either at the board level and what are the changes that we need organizationally to make? And we've continuously refined it. Please keep in mind that North America did have harder comparison to a year ago compared to Europe. And of course, we are very pleased with the progress that we are making in Europe. Given just one quarter's results, we continue to be very confident about our business prospects in North America as well as in international markets.

Earl Fry

Again, just reiterating Sohaib's comments. I wouldn't take one quarter as a strong indicator. Recall that throughout last year, we had excellent performance in North America. As a result of that, of getting productivity levels up very high, we've added a fair amount of resources. So as those new resources start to get productive, then I think you start to see better and clearer gains out of North America as we go into the back half of the year. So again, think about it and that ties with my comment earlier about a disproportionate amount of the sales and marketing hiring in Q1 came as a result of trying to build capacity in North America.

Operator

And your next question is from Abhey Lamba.

Abhey Lamba - Mizuho Securities

Earl, what are the puts and takes for you to hit the high end of your guidance for full year versus the low end and do you think (inaudible) needs to further improve from here for you to hit the high end, or can current trajectory get you to that area?

Earl Fry

Obviously if we continue to make the kind of progress that we make in Europe that we started seeing in Q1, that will help. As we start to see some of the new hires particularly in North America, that could get productive, that will help. And I do think Informatica World, where Sohaib mentioned we'll have a number of exciting announcements, because that's also happening earlier in the quarter than it was in Q2 a year ago, I think that should also serve to kind of spur demand and potentially act as a closing event for us. So if all of those things worked well, then clearly we'll do better than if they don't work.

Operator

And your next question is from Steve Koenig.

Steve Koenig - Wedbush

A bit of background question here. I'm wondering if you could just elaborate real briefly on your go-to-market subscription business. Are we looking at inside sales, web sales, component direct deals, SaaS partners, how does that mix differ from the other businesses, and how is that going to evolve? And then kind of related, I'm also curious, the big picture in terms of your sales hiring, not just for your subscription business, but overall this quarter, qualitatively composition of that, what kinds of hiring did you focus on most, (inaudible) managers, et cetera?

Sohaib Abbasi

Let me just confirm I heard the question correctly. It was about go-to-market for our subscription business?

Steve Koenig - Wedbush

Yeah.

Sohaib Abbasi

We are seeing a shift in terms of our subscription business in that more and more of our customers are deploying in a hybrid IT environment. Over the last several year, I would say the mix of our revenue coming from subscription was largely (inaudible) transactions used for cloud data. And what we're beginning to see now is a much broader range of transactions. And in fact, some of the larger deals, as Earl commented on earlier, included subscription as a part of the larger transaction. So even though I'd say that traditional subscription business lends itself to sales and inside sales, but the more recent transactions that are more strategic are similar to the ones that we have for our traditional products.

Earl Fry

Yeah. And as far as kind of the makeup of the sales hiring, that was pretty balanced in terms of capacity, quota-carrying reps, specialists in particular product areas, as well as some of the other whether it's inside sales or things related to subscription business. So it's pretty balance in Q1.

Sohaib Abbasi

One of the comments I have regarding the channels is that we are looking at key ecosystems. We have been focused on salesforce.com and we are very excited about the possibilities with Amazon AWS. So we will continue to explore the right channel partners for each of those ecosystems.

Operator

And your next question is from (inaudible).

Unidentified Analyst

I'm in for Pat Walravens. Now, as you mentioned, you guys had a nice quarter in EMEA despite disruption in Eastern Europe. I was wondering if you could talk maybe a bit more about how you're viewing any macro changes in Europe versus changes in the competitive environment versus just pure sales execution?

Sohaib Abbasi

I would attribute our success to primarily better sales execution. Our results were strong in Northern Europe. We saw good customer demand. We had good execution, a good linearity through the quarter. We also saw good execution in Southern Europe as well. And in fact, we also saw good execution in central. And I would attribute that to the fact that our team is executing much better. We have the right team in place. The customer demand continues to be very strong, and we continue to be more effective selling our broader product portfolio.

Operator

And your next question is from Derrick Wood.

Derrick Wood - SIG Susquehanna

I'll be curious to get your view on the MDM market as a whole. We're hearing that it's getting a lot more awareness out there. And I guess just curious here what you guys think about how the market is expanding and what the drivers are in master data management.

Sohaib Abbasi

Some of the key drivers that we've talked about for master data management adoption are around know your customer, customer-centricity initiatives in retail loyalty cards in hospitality business, in financial services, in healthcare around providers as well as patients. And in addition to know your customer, there are regulatory reviews such Frank Dodd, knowing what the exposure is (inaudible) identifier. So there're many different drivers that are leading to customers taking a much more disciplined approach for managing their most strategic information assets and the relationship among them. And we have a lot of documented cases about how customers obtained value out of it, large multinationals saving tens of millions of dollars in purchasing, a wealth management giant that increased productivity by 10%. So those customers' successes continue to position us strongly.

Now adoption of cloud is creating a new type of a driver that now the master data is fragmented in cloud sources as well as in on-premise. So there are business drivers as well as technology drivers. And I expect that MDM will continue to do very well.

Derrick Wood - SIG Susquehanna

Okay. And I guess on big data, are we in structured data projects and what you're doing in PowerCenter? Are we close to seeing a little bit more materiality in terms of that being a revenue contributor? Just trying to get a sense for the maturity of Hadoop and big data and how that may be impacting your business?

Sohaib Abbasi

Still early days. We've had good successes by many customers that have chosen Informatica. It provides them with better productivity as opposed to writing things, coding things and Hadoop or use program language, even better performance. I stated one of the examples of the US bank that is using Informatica to create a Hadoop-based data lake that in turn will keep digitization tools. And all those success stories make it that much easier for us to position the product more broadly. We partner very closely with all the Hadoop distribution vendors. We have our programs with Cloudera. We partner closely with HortonWorks as well as with MapR. And Big Data Edition is getting more and more traction. We're well positioned for growth in big data.

Operator

And your next question is from Jesse Hulsing.

Jesse Hulsing - Pacific Crest Securities

I wanted to dive in a little bit on the vertical side. Healthcare has been one of your stronger verticals for the last year. Can you walk us through your expectation for that vertical over the next year and maybe give us some color on what is driving the strength in that vertical and maybe what product lines are driving the strength?

Sohaib Abbasi

Healthcare was one of our best performing verticals in the US last year. The drivers behind it clearly are the Affordable Reform Act was a very big part of it. It created two types of opportunities for us. One was in public sector at the state level for the states to build health exchanges to provide citizens the choice in terms of insurance carriers. And it also put the spotlight on the providers to improve both efficiency and quality of care. And that led to a number of initiatives, both at the state level as well as at the provider level. I expect that those initiatives will continue. There are a number of modernization initiatives that are going on within healthcare providers. Data quality, data migration is a very big part of it. We will be a beneficiary of it. And as those healthcare providers look at the quality of care, they will be deploying a variety of analytic technologies, and Informatica will be a key enabler to it. So I expect healthcare will continue to be a very significant business for us.

Jesse Hulsing - Pacific Crest Securities

And then one quick follow-up on your cloud business. When you look at the mix of transactions that are tied to the salesforce ecosystem versus others, how fast is that make shifting, and maybe highlight some other solutions or kind of cloud ecosystems that you're seeing a lot of growth opportunity around.

Sohaib Abbasi

I believe that Amazon AWS will become one of our most strategic partnership opportunities. There is a tremendous adoption of Amazon AWS. I personally spent a couple of hours with the AWS management team, and I was very impressed by the opportunities that are available for our two organizations to work very closely. We announced the connector for Redshift that is gaining very good traction, but that's only the beginning. And I expect that we will have a significant business around the AWS ecosystem. We also partner very closely with NetSuite. They have announced a two-tier ERP approach, where they will provide the satellite ERP for small divisions and they will synchronize data with an on-premise SAP or (inaudible) business for the corporate operations. Informatica plays a very critical role in that. We're also working very closely with Workday. Our strategy is to continue to be the neutral provider on our integration for all of the cloud ecosystems.

Operator

And our final question comes from Kirk Materne.

Matt Williams - Evercore

It's Matt Williams actually in for Kirk. One vertical that we haven't heard a whole lot about would be the retail opportunity. And I'm just curious if you could provide an update on Heiler and how that positions you for the e-commerce and omnichannel opportunity, which seems to be getting a lot of interest these days?

Sohaib Abbasi

Heiler or specifically our PIM product line continues to do very well. We continue to achieve the results that are consistent with our own internal expectations. It is opening up a lot of opportunities for us, as you point out, omnichannel commerce where more retailers are offering the same services across online, mobile, social and brick and mortar, essentially is placing a priority on managing the product information specifically the product information cycle management. And we are very positioned, particularly when you look at the differentiation that we offer against others, while having the scope of products or data quality for B2B data exchange, (inaudible), I expect that Heiler will continue to play an increasing role in our product portfolio.

To sum up, we are well positioned for sustained growth with our broadest ever product portfolio and our innovation roadmap that is well aligned with customer priorities up to date and tomorrow. Thank you.

Operator

Thank you. And this does conclude today's conference call and you may now disconnect.

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