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Executives

Earl Fry - Chief Administrative Officer, Chief Financial Officer, Principal Accounting Officer, Executive Vice President of Global Customer Support and Secretary

Stephanie Wakefield - Vice President of Investor Relations

Sohaib Abbasi - Chairman, Chief Executive Officer and President

Analysts

Eric Hess - Longbow Research LLC

Brent Thill - UBS Investment Bank, Research Division

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

Jobin Mathew - Deutsche Bank AG, Research Division

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

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

Curtis Shauger - Caris & Company, Inc., Research Division

Karl Keirstead - BMO Capital Markets U.S.

Jesse Hulsing

Edward Maguire - Credit Agricole Securities (USA) Inc., Research Division

Kirk Materne

Michael Turits - Raymond James & Associates, Inc., Research Division

Mitesh Dhruv - BofA Merrill Lynch, Research Division

Matthew J. Coss - Piper Jaffray Companies, Research Division

Raimo Lenschow - Barclays Capital, Research Division

Informatica (INFA) Q4 2011 Earnings Call January 26, 2012 5:00 PM ET

Operator

Good afternoon. My name is Gemaria, and I will be your conference operator today. At this time, I would like to welcome everyone to the Informatica Corporation Fourth Quarter Earnings Conference Call. [Operator Instructions] Thank you. I would now like to turn the conference over to our host, Ms. Stephanie Wakefield, Vice President of Investor Relations. Madame, you may begin your conference.

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 Q4 2011 results and to talk about our outlook for the business. I'll read the Safe Harbor and then hand it over to Sohaib for some of his comments.

Some of the comments we will make today are forward-looking statements, including statements concerning our projected financial results for future periods, our growth and operational strategies, our market and growth opportunities, our technology leadership and product development, our product portfolio and opportunities, customer adoption of and demand for our products and services including product upgrades, new releases and new products, the expected use of and benefits from our products and services, the expected benefits from our partnerships and acquisitions, our effective tax rates, our hiring plans, the impact of our recent acquisitions and our expectations regarding 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 our quarterly report on Form 10-Q for the quarter ended September 30, 2011, for detailed description of our risk factors that may affect our results. Copies of these documents may be obtained from the SEC or by contacting our Investor Relations department.

During this afternoon's discussion, we will be using GAAP and non-GAAP numbers. Our GAAP results and the reconciliation of the GAAP results to the non-GAAP results are attached to the earnings press release and are also available in the Supplemental Metrics section of our Informatica Investor Relations website at www.informatica.com/investor.

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 the Informatica Investor Relations website. 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. Thank you. Sohaib?

Sohaib Abbasi

Thank you, Stephanie. Informatica achieved 2 major milestones with our record results in Q4 2011. For the first time, we attained quarterly revenues above $225 million and annual total revenues in excess of $780 million. Informatica continues to consistently deliver on our stated objective of sustained revenue growth and much higher profitability growth. We are in the early phases of a multi-year product-adoption-led growth opportunity.

In Q4 2011, total revenue grew by 15% year-over-year to a new record up $227.1 million. License revenue grew to a record $112.1 million, representing 4% growth compared to Q4 2010 and 57% growth compared to Q4 2009. With non-GAAP operating margin of 33% and non-GAAP EPS of $0.47, we achieved the most profitable quarter to date.

For the full year 2011, total revenues grew by 21% to $783.8 million and license revenue grew by 20% to $353.7 million.

I would like to recognize and thank the Informatica team for their remarkable contributions to obtain these results despite the continuing macroeconomic uncertainty.

With compound annual growth rate over the past 6 years for software license revenue up 20% and the non-GAAP operating income of 36%, Informatica continues to consistently deliver. Our singular mission, focused growth strategy, clear vision and the team's operational discipline are driving record results in all economic times.

The priority and urgency of data integration IT projects are higher than ever as organizations aspire to become data-centric enterprises to better adapt to an ever-changing macroeconomic environment. The demand for data integration software is higher than ever, fueled by increasing volumes, variety and velocity of data as a result of the technology [indiscernible] Big Data.

Our value proposition is to maximize return on data by increasing the value of data and decreasing the cost of data. As measured by our results in all major geographic regions, our value proposition is well aligned with our customers' top priorities.

In the Americas, with our compelling value proposition, we obtained our best-ever results last quarter with successes across multiple vertical segments, including important wins in financial services, technology, public sector and transportation.

In Europe, we continued to deliver strong results. Our sustained strong results in Europe reflect the team's remarkable operational discipline and increasing adoption of our broadest-ever product portfolio.

In Asia-Pacific including Japan, we obtained record quarterly and annual results by regaining growth momentum in the second half after a slow start affected by the natural disasters. In 2011, we added almost 90 new customers in Asia Pacific.

With 350 new customers in 2011, we now have 4,633 customers around the world. With our international expansion, 1/2 of our customers, almost 2,300 customers, are outside of North America. To pursue the ever increasing customer demand globally, we continue to expand our operations and strengthen our team across all major geographic regions.

Our expansive product portfolio is driving both upsell opportunities with broader usage and cross-sell opportunities of our newer products. In other words, our opportunities are not limited to customer upgrades to Informatica 9, the latest version of our core products. In fact, our bigger cross-sell opportunity is a result of our sustained pace of innovation that has notably expanded our portfolio beyond the core products, PowerCenter, PowerExchange and Data Quality. The expanded portfolio includes newer products such as MDM, IMM and Ultra Messaging.

The customer usage of these newer products has increased consistently from 4% in 2007 to 34% of the active projects in 2011, signifying both growing adoption and, more importantly, a bigger, yet to be tapped cross-sell opportunity. In other words, our cross-sell opportunities include 66% of our customers that have not yet adopted even one of our newer products.

More encouragingly, our cross-sell opportunities are even greater as no single new product category is yet used in more than 10% of active customer projects. Simply put, we are in the early innings of a multi-year product-adoption-led growth base.

As one example of such cross-sell and upsell opportunities, a global insurance leader adopted Informatica B2B Data Exchange and Informatica IMM as one that's expanded their use of Informatica MDM. The customer plans to utilize Informatica for data privacy; insurance industry standard of core-based data exchange; as well as Master Data Management initiatives, including enterprise-wide Data Quality, to reduce IT costs.

As another example, in financial services vertical segment, 1 of our top 10 customers made a multimillion dollar decision to standardize on our Ultra Messaging product with the lowest latency trading infrastructure with the goal to become the industry's #1 leader in trade execution.

As these examples showcase, our growing product portfolio represents a significant incremental cross-sell opportunity within our base of more than 4,600 successful customers. With more customers adopting more than one Informatica product category and just beginning to expand adoption within each of the 8 product categories, Informatica will continue to benefit from cross-sell and standardization decisions for years to come.

By delivering differentiated business critical value, Informatica is now an even more strategic IT partner to our customers. As an example, in France, Société Générale named Informatica one of its strategic IT partners for some of its top business imperatives, including business adaptability to the changing macro economic environment, as well as compliance to the new regulatory regimes, including Dodd-Frank Act and European Banking Association's recommendations. To facilitate business adaptability and agility, Soc Gen plans to retire legacy applications and implement MDM for 3 different domains. MDM initiatives will enable profitability analysis to adapt the organization to the local economic conditions.

As yet another example, our strategic partner in Japan, NEC, adopted the Informatica Platform and its system development tool. By automating large data information projects using Informatica, NEC expects to power a strategic customer centricity and Big Data initiatives.

Another illustrative example of our value proposition, maximize return on data. Over the past 5 years, our opportunity has grown from enabling a single discretionary data warehousing IT project to being selected from multiple high-priority operational data integration IT projects. These emerging high-priority projects include Big Data, as one of hybrid cloud IT initiatives. As a result of this trend, 62% of our deals, over $100,000, were with customers that plan to use Informatica for more than data warehousing.

In addition, in Q4, 84% of our professional services fees were from consulting engagements beyond traditional data warehousing.

To sum up, our record Q4 results, yet again, reaffirm our growth strategy and demonstrate the team's operational discipline.

Now I will turn it over to Earl to give you more details on our financial results. After Earl's comments, I'll discuss our multi-year plan to exceed $1 billion in revenues.

Earl Fry

Thanks, Sohaib. Our Q4 total revenues of $227.1 million came in at the high end of our guidance range, up 15% compared to last year and up well over 50% compared to 2 years ago. This record total revenue was achieved despite a sequential $5 million currency headwind due to changes in exchange rates since mid-October.

License revenues were a record $112.1 million, up 12% compared to last year and, again, up over 50% compared to 2 years ago. Service revenues were another record at $115.1 million, up 18% year-over-year. And breaking down the components of service's revenues, maintenance revenues were $84.5 million, up 20% year-over-year; and consulting, education and subscription revenues came in at $30.6 million, up 12% year-over-year.

Deal metrics in the quarter were solid as existing customers contributed 90% of our license order value, up from 87% in the year ago fourth quarter and up from 85% last quarter. We had a record number of transactions in Q4 and did license business with 455 existing customers, while adding a record 107 new customers during the quarter.

We booked a record 22 transactions over $1 million and we closed a record 128 deals over $300,000. Our average transaction size for orders over $100,000 came in at a solid 437k and the average transaction size for orders over $50,000 came in at a healthy 323k. 22% of our license orders came from the indirect channel and an additional 39% of our direct orders in Q4 were referred by partners or resellers. The overall total of indirect and referred orders was 61% compared to 64% last quarter and 70% in the year ago quarter. 20% of our license revenue came from the indirect channel in Q4.

We had strong, consistent contribution across all major geographies in Q4. From a new license orders perspective, North America orders as a percentage of total license orders were 57% consistent with the year ago fourth quarter and the mix of orders from EMEA and the rest of the world was 43%, also consistent with the fourth quarter a year ago. From a total revenue perspective, North America contributed 64% of total revenue and EMEA and the rest of the world contributed 36% total revenue in Q4.

We continue to see contribution from a broad range of vertical industries. The financial services industry continues to be our largest contributor to new license orders, followed by healthcare, public sector and manufacturing.

Non-GAAP gross profit, which excludes amortization of acquired technology and stock compensation, was a healthy 86% of the total revenue in Q4, consistent with the year ago fourth quarter and up from 84% in Q3. License margins were 99% in Q4, consistent with both Q3 and the year ago fourth quarter. Service margins were 73%, relatively consistent with Q3 and the year ago fourth quarter, and continued to be driven by better than 95% maintenance renewal rates and continued growth in our install base.

As a percentage of revenue, non-GAAP operating expenses were 53% of revenue for the fourth quarter, better than 57% last quarter and better than 55% in the year ago quarter. We generated a record $74.5 million in non-GAAP operating income, up 23% from a year ago. And as a percentage of revenue, non-GAAP operating income in Q4 was 32.8%, up 211 basis points from a year ago.

Bottom line, despite concerns over the macro environment, despite investor concerns over large deal exposure and despite the very real currency headwinds we had during the quarter, we delivered another record quarter with GAAP fully diluted EPS of $0.38 and non-GAAP fully diluted earnings per share of $0.47, which was a full $0.02 per share better than the high end of our guidance range.

Based on 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, will be an all-time record $251.3 million, up $28.9 million sequentially and up $35.4 million compared to a year ago. And this increase in potential future revenues was also achieved despite a currency headwind of nearly $3 million.

Total headcount was 2,554 at the end of Q4, an increase of 76 from the end of Q3 and up by 428 compared to a year ago. Sales and marketing headcount ended the quarter at 869, an increase of 32 from last quarter and up by 149 from the year ago fourth quarter.

Cash flow and balance sheet metrics were solid across the board. We generated over $44 million in cash flow from operations, up sequentially and consistent with cash flow generated in the fourth quarter a year ago. And we ended the quarter with over $602 million in cash and investments, a $48.5 million increase from Q3. For the full year 2011, we generated $174 million in cash flow from operations, a 33% increase from 2010.

DSOs were 71 days in Q4, up 3 days from a year ago and seasonally above our target DSO range of 55 to 65 days. Our DSOs do reflect the strong order volume we experienced in the second half of the fourth quarter, as well as a slightly higher mix of international business, which typically has slower cash collection cycles.

Our deferred revenue balance increased to a record $214.6 million and is comprised of $208 million in current deferreds and $6.6 million in long-term deferreds. Deferred revenue was not only up over $35 million on a year-over-year basis but was also up nearly $15 million, sequentially. Again, despite a $2 million currency headwind in the quarter.

We ended the quarter with 112.2 million shares outstanding on a fully diluted basis. And during the fourth quarter, we repurchased 100,000 shares of our stock for $4.4 million.

Moving on to taxes. Our quarter-to-quarter income tax provision has some variability and will continue to be very sensitive to our quarterly geographic mix of earnings. Our effective tax rate has included an approximate 2 percentage point benefit from the R&D tax credit. If the R&D tax credit is not renewed, in 2012, we would expect our effective tax rate to increase from the historical approximately 30% to something closer to 32% on both a GAAP and non-GAAP basis. Again, before the impact of certain discrete tax items.

On a macro level, while we do acknowledge the uncertainty in the overall macro economic environment and the near-term currency headwinds, we do see a vast majority of our customers and prospects placing an increasingly high priority on investing in data-driven initiatives, and we see an expanding opportunity to cross-sell many of our newer technologies into our growing existing customer base. We will continue to focus on delivering strong revenue growth in 2012 and beyond and in delivering measured improvement in operating margins.

Based on these expectations, as well as our own internal indicators, for the first quarter, we are setting a revenue target range of $187 million to $197 million with non-GAAP EPS in a range of $0.31 to $0.34.

For the year 2012, despite the currency headwinds, we are maintaining our revenue guidance for the year in a range of $880 million to $910 million. And while we are making no changes to our target operating model, for now, we are assuming that the R&D tax credit will not be renewed in 2012 and are therefore adjusting our non-GAAP earnings per share guidance for the year to a range of $1.54 to $1.64 to reflect losing the benefit of the tax credit.

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 and acquired technology, the facility's restructuring charge of roughly $0.005 per share per quarter and the tax-affected impact of stock-based compensation of approximately $0.07 to $0.08 per share per quarter, and does not include any major acquisition costs and expenses.

With that, I will turn it back over to Sohaib.

Sohaib Abbasi

Thanks, Earl. Our confidence in our near-term growth plan and our conviction in our long-term opportunity are firmer than ever, given our expansive addressable market and the emerging opportunities driven by secular technology trends of cloud computing and Big Data. As a reminder, our relentless pace of innovation has expanded our addressable market more than 5 fold. And our pioneering leadership in cloud computing and innovations in Big Data are further expanding our market opportunities.

Six years ago, the boundaries of the data integration market were limited to a single technology, ETL, to integrate on-premise data across multiple departmental database applications like ERP and CRM. This core ETL addressable market was estimated at $10 billion in 2006 as measured by IT spend on software and services. The growth of our core ETL products accelerated in the past 2 years driven by increasing priority and urgency of regulatory compliance and risk management initiatives.

More importantly, by advancing the boundaries of data integration to encompass 7 additional categories beyond the core ETL category, we increased our addressable market 5 fold, estimated to be $50 billion by 2014 as measured by IT spend on software and services, of which nearly $8 billion will be spent on software.

And as I commented earlier, this represents a huge cross-sell opportunity and 66% of our customers have not yet adopted even one of our newer products.

Cloud computing is fueling further demand for the Informatica Platform. Adoption of cloud computing is driving the next wave of data fragmentation beyond the enterprise. Informatica's pioneering innovation in cloud data integration enables hybrid IT by combining data in on-premise applications with data in the cloud.

In addition to the growing base of Informatica cloud customers, we are establishing new partnerships with emerging cloud computing category leaders. For example, a leading provider of human capital management software to service solution selected Informatica to expedite the process to on-board new customers. Using Informatica B2B data exchange, the vendor expects to reduce the time required by its customers to update and process HIPAA EDI Form 834 to the various insurance pairs [ph] such as Aetna and Sigma.

Big Data is further expanding our market opportunity. Big Data represents higher volumes, broader variety and higher velocity of data. As a reminder, Big Data is a confluence of 3 technology trends: Big transaction data, Big interaction data and Big Data processing. Big transaction data is represented by the traditional OLTP databases and the modern analytic databases like EMC Greenplum, Teradata, Aster Data, HP Vertica and SAP HANA.

Big interaction data is represented by the popular social media services such as Facebook and LinkedIn, as well as sensor and location data for mobile devices. And Big Data processing is represented by the latest open source technology, Hadoop.

Each of these trends is driving further demand for both our core and newer products. Recently, at the industry event Hadoop World, a senior IT executive in financial services remarked that his company's adoption of Hadoop had increased its usage of our core Informatica products by 30%.

As another example, a leading social media vendor selected one of our newer products, Fast Clone, to replicate data from Teradata and other [ph] databases to the Hadoop file system, HDFS.

Realtime replication capabilities of Fast Clone and scalability of Hadoop will enable analysis of web-locked data and third-party customer data to understand the trends and relevance of the topic area across the user community.

As yet another example, a leading online dating service, eHarmony, selected Informatica PowerExchange for Hadoop and our latest product, HParser, to replace its existing solution that it had coded in a programming language, Ruby.

To keep up with data volumes growing by up to 400% annually, this dating service will use Informatica HParser to extract relevant data from the massive volumes of low density JSON files that record all user interactions on its web properties. The relevant data will be loaded into a data warehousing appliance, Netezza, for specialized marketing campaigns, including targeted product offerings.

Some people have speculated that Hadoop may be an alternative to ETL. In fact, Hadoop, in general, and Map and Reduce, are yet another programming environment and yet another data silo to integrate. With proven productivity, Informatica Platform offers the competitive advantage to do more with less.

With near universal connectivity, Informatica Platform empowers organizations to integrate all their data and leverage the cost-effective tower computing framework of Hadoop for analysis.

To sum up, with the increasingly critical role of our expansive product portfolio and the emerging opportunities driven by secular megatrends of cloud computing and Big Data, Informatica is in the strongest ever position for our long-term growth plans beyond $1 billion.

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

Operator, may we have the first question?

Question-and-Answer Session

Operator

[Operator Instructions] Your first question will come from the line of Brent Thill with UBS.

Brent Thill - UBS Investment Bank, Research Division

Earl, we saw the DSO tick up for a number of the software vendors that we cover, so the DSO tick-up is not unreasonable. But can you just give a sense of what happened with linearity? It felt like it was a little more back-end loaded. And your perspective on kind of how you're starting the year?

Earl Fry

Yes, so you're right. That is a good read-through to linearity during the quarter, which basically says we had a higher percentage of our transactions close in the back half of the quarter and, particularly, it was a very busy December. So I think that's -- it seasonally is that way. Q4 is always the quarter where we have our highest DSOs. And it's similar to what we had a year ago. I think we were 68 days in Q4 a year ago. So linearity was not quite as good as it was in Q4 '10. But again, we did have a large amount of business that closed in the month of December. I think what that says going forward, I think the read-through is that -- and I think you've seen this from a couple of other vendors as well, saying that, yes, there are cases where customers needed additional sign-offs. It says that a number of customers are learning their Gartner lessons well. They are waiting until the end of the quarter to see if they can get a better deal. And I think in this quarter, as expected, we didn't see quite the same kind of budget flush that we had seen in Q4 '10, which just meant that things kind of pushed toward the back part of the quarter a little bit more. I think going into next year, I think what it does say is I think we feel good about the pipelines as we're going into 2012. And I think we have a pretty good handle on, not only the pipeline, but the sign-off levels required in our customer base.

Operator

Your next question will come from the line of Tom Ernst with Deutsche Bank.

Jobin Mathew - Deutsche Bank AG, Research Division

This is Jobin Mathew on behalf of Tom. Can you talk about the macro in terms of what you saw 3 months ago versus your expectations and your confidence heading into 2012?

Sohaib Abbasi

The macro environment varies by region. What we observed was that our customers are being more cautious in making their decisions and they're reprioritizing their IT initiatives. They're paying a lot more attention to return on investment. And our value proposition, which is to maximize return on data, is resonating extremely well. And examples of those include a financial services leader that prioritized use of our MDM product for them to comply with Dodd-Frank regulations higher than a lot of other initiatives that they had. So as a result of it, we are benefiting from a much higher priority being assigned to data information initiatives.

Operator

Your next question will come from the line of Tom Roderick with Stifel Nicolaus.

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

So curious, as you comment on the quality of your pipeline going into this year and, particularly, the amount of opportunities in MDM, ILM and Ultra Messaging, how do you think about the pace of sales force hiring this year? How many would you sort of anticipate adding or maybe just on a percentage level? And how do you structure the organization now with respect to these additional products? Do all sales guys have all the products in their bag or do you split it up? Maybe just some commentary on the structure and pace of growth of the sales force going forward.

Sohaib Abbasi

Tom, as you know, one of our strength is the breadth of our product offering. We are starting this year with a lot more sales reps that are fully ramped on our product offering. We have focus to ensure that we succeed in each of the primary product areas. We've had good success with both MDM and ILM, and those are 2 high-growth opportunities that we will continue to focus on. We also had a very strong year in Informatica. In fact, it was our fastest growing business. So we're starting the year with more fully ramped reps than we had a year ago. And let me also ask Earl to provide his commentary on our sales and marketing.

Earl Fry

Yes, so we had slightly slower hiring in Q4. I actually think we're going to ramp that up a little bit in the first half of the year. And that will be skewed much more to people generating revenue or lead generations. So sales and marketing and professional services headcount are the areas that we're going to be focusing on very heavily in the first half of the year. So I actually would expect, at a minimum, the same level of headcount adds that we had in Q4 and maybe a little higher.

Operator

Your next question will come from the line of Mitesh Dhruv with Bank of America Merrill Lynch.

Mitesh Dhruv - BofA Merrill Lynch, Research Division

One for Earl, one for Sohaib. Earl, first, if I look at the 2012 guidance, it's very encouraging that you've maintained the guidance despite the currency headwinds. And if I just do a ballpark, I come up with about 1 to 2 percentage points of incremental headwind from when you first guided the October quarter. So I was wondering if you can just clarify what would be the incremental headwind had the currency not turned southwards? And second, for Sohaib. It was very clear that you do see Hadoop longer term as a big opportunity for Informatica. And you also highlight some customers, eHarmony, what have you. But near term, what's your sense on the -- when you get a pulse check from your field, are you seeing any kind of pause or sales cycles lengthening when customers are trying to figure out how Hadoop plays in Informatica?

Earl Fry

Yes, Mitesh. I think you pegged it kind of about right in that kind of 1% to 2% headwind vis-a-vis where we were when we initially gave guidance back in October. And just to be clear, I think the biggest factor for us, kind of October to January, is there's been about a 2% to -- about a 3% move in the euro. And that's the main driver of the headwind for us.

Sohaib Abbasi

Mitesh, Hadoop is an incremental opportunity for Informatica. Our customers have continued to use Informatica technology, the entire platform, for the traditional usescapes, many of which I commented on. And as they embark on net new projects, where they're exploring Big Data, the promise of Big Data, and specifically utilization of Hadoop, these are incremental opportunities. So they don't really have an impact in terms of lengthening any of our existing sell cycle. Because, by definition, these are new initiatives that they're embarking on. And it opens up a new set of opportunities for Informatica, similar to the ones that I showcased with some of my examples.

Operator

Your next question will come from the line of Raimo Lenschow with Barclays Capital.

Raimo Lenschow - Barclays Capital, Research Division

In Q3, you talked about -- gave some more detail on the financial services sector, and Europe was actually driving it for you there. Could you just help us, given all the nervousness around your name in the last few weeks, give us an idea how the financial service sector is playing out for you?

Earl Fry

Sure. The financial services sector continues to be our largest vertical, continues to be like it was in Q3, kind of 20% to 25% of our new license orders. And so, from that perspective, very consistent on a sequential basis. From a year-over-year perspective and over the last 2 years, we've seen the financial services vertical grow by about 75% from where we were in '09. Now I'm kind of skipping the Q4 2010 because we had a very strong atypical budget flush, particularly in financial services. So that's always been a tough compare for us. So if you're going to look -- if you look at Q4 '11 versus Q4 '10, financial services was actually down a little bit on a year-over-year basis. That said, I think we feel we have very good visibility, stability in the financial services vertical. We see very good pipeline going into Q1. And I think -- as I think longer term, not only in Q1 but in 2012, I think with the management change that we made in our vertical leadership, financial services vertical leadership in North America, as well as the -- just the more stability and better strength in the domestic macroeconomic environment, I think we're going to see we'll have much easier compares as we go through the year here, kind of overall, but particularly in financial services and even more particularly in domestic financial services.

Operator

Your next question will come from the line of Steve Ashley with Robert W. Baird.

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

I just want to ask a question on average deal size. I see that it was down year-over-year in the fourth quarter for deals both larger than 50,000 and 100,000, and I'm just wondering if you could give us a little more color on that?

Earl Fry

Yes, that's what happens when you get the second-best average deal size in your history and you're comparing it with your best ever in Q4 in 2010. I actually think that was -- it's a good metric where we didn't set a record there. Because I think what it says is the record number of deals over 300k, a good number of transactions and just barely a record of deals over $1 million, I actually feel good about the transaction sizes where they are. And I think that's a good place for us to -- I would be happy, quite frankly, if we kind of stayed there and just grew the number of transactions. The other thing maybe to point out is what typically drives, what can skew the average deal size would be very large deals or the mix of deals over $1 million. And again, I think what we had in Q4 was a much healthier mix, where I think it was 14 of the 22 transactions were under $2 million. We only had one transaction which was a little over $5 million. So again, a much, what I would call, more sustainable and replicable mix of transactions in Q4.

Operator

Your next question will come from the line of Karl Keirstead with BMO Capital Markets.

Karl Keirstead - BMO Capital Markets U.S.

A question for Earl. I'm just thinking about the license growth over 2012. And I'm just wondering how confident you feel that the 12% license growth you just put up in the fourth quarter is the bottom and whether you feel comfortable it should begin accelerating as early as Q1?

Earl Fry

Yes, I think the way I'd think about that, Karl, is if you look at our -- we don't give license guidance specifically, but if you look at our overall revenue guidance, in a sense we're kind of bracketing, let's call it plus or minus 15% total revenue growth, and our expectation is that we should be able to grow license revenues faster than overall service revenues in 2012.

Operator

Your next question will come from the line of Ed Maguire with CLSA.

Edward Maguire - Credit Agricole Securities (USA) Inc., Research Division

I'd like to step back a little bit and get your thoughts on what correlation there may be between the sales of your traditional PowerCenter platform and sort of the expansion of different vendors in the data warehouse and the data warehouse appliance market, as well as the expansion of some of these no-SQL databases. What impact, whether direct or indirect, that may be having on your current business and your outlook?

Sohaib Abbasi

It bodes extremely well for Informatica's growth opportunities. As customers deploy some of the more modern analytic database appliances, including HP Vertica, Aster Data from Teradata, our customers are utilizing Informatica in more ways to load those databases. And they're also using some of our newer technologies like Fast Clone to replicate data in order for them to leverage analytics. We have over 100 customers that are now using Informatica in conjunction with some of those special built-for-purpose appliances for analytic databases. And in general, the more databases there are, the more opportunities there are for Informatica.

Operator

Your next question will come from the line of Michael Turits with Raymond James.

Michael Turits - Raymond James & Associates, Inc., Research Division

Two questions. One, mechanical. Earl, can you just maybe specify exactly what the year-over-year dollar impact was on revenue from FX? And the quarter-over-quarter impact on deferred revenue? And then I have a question about license.

Earl Fry

Yes, year-over-year impact from currency was actually negligible on the P&L. And on a -- but it did have a year-over-year impact of about, on the balance sheet, of about $3 million on deferred revenue, negative impact, and negative impact of a couple million dollars on deferreds and about $3 million on future revenues. That same headwind that we saw -- and all of that headwind really happened in Q4. So sequentially, versus -- Q4 versus Q3, we had about a $3 million headwind on future revenues and about a $2 million headwind on deferreds.

Michael Turits - Raymond James & Associates, Inc., Research Division

Okay. And you said year-over-year, the revenue impact was negligible?

Earl Fry

That was negligible. The P&L impact was negligible year-over-year.

Michael Turits - Raymond James & Associates, Inc., Research Division

Okay. And then I got dropped, so I don't know if I missed this, and I'd come back on. But did you comment on any of your thoughts on the license growth rate in the first quarter? You did 12%, and you were looking for double digits. But what do you think in how that trends through the year?

Earl Fry

Yes, I didn't specifically call out anything in the first quarter. I did give a little bit of color in terms of we do expect license revenue to grow faster than service revenues and, therefore, then overall revenues as we go forward here.

Michael Turits - Raymond James & Associates, Inc., Research Division

Any reason not to think it grows at, at least this current rate of low-double digits in the first quarter?

Earl Fry

I think that's probably the implication.

Operator

Your next question will come from the line of Jesse Hulsing with Pacific Crest Securities.

Jesse Hulsing

Can you provide some insights on the competitive environment and maybe provide some color on win rate trends?

Sohaib Abbasi

The competitive environment remains the same. The majority of our deals are not contested by any commercial vendor. Majority of the deals, we are evangelizing the value of buy versus build, do more with less. The most common competitor that we encounter in 15% to 20% of our deals is IBM. Our win rates continue to be very high, over 75% against IBM and other Tier 1 competitors.

Operator

Your next question will come from the line of Mark Murphy with Piper Jaffray.

Matthew J. Coss - Piper Jaffray Companies, Research Division

This is Matt Coss calling in for Mark Murphy. Just a quick question on the macro. What are you guys going to be looking for from your customers as far as their behavior goes that will make you either say: a, we're more confident in our business, or what will cause you to -- what kind of behavior will they exhibit that will kind of make you be less confident in things going forward?

Sohaib Abbasi

Well, we certainly remember the lessons that we learned during the great recession. And certainly, we're not in a macroeconomic environment that is quite as challenging as it was. One of the things that we learned was to ensure that we have the operational discipline to monitor our business. Another lesson that we learned was that we needed to quantify our value for our customer. And as we are observing, our customers are a lot more cautious, and they're weighing return on investment in order to prioritize their IT initiatives. We believe that our value proposition to maximize return on data and its applicability to business-critical initiatives, including regulatory compliance and operational efficiency, will help ensure that we are among their top IT partners.

Operator

Your next question will come from the line of Derrick Wood with Susquehanna International.

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

So if you look at the percentage of $100,000 deals outside of data warehousing, but it seems like that's topped out a bit about at the 60% level over the last couple of years. Is there some structural element that prevents that from going higher? Or is there something you can do to reaccelerate that? And just a second question, just hoping that you could clear up, what changes have been made now in the sales organization and what other changes, if any, do you have planned as you enter 2012?

Sohaib Abbasi

We have seen our core products grow at a faster pace than before. PowerCenter and PowerExchange are utilized more broadly. The usage has gone up. And as a result of it, we saw some of the highest growth in the last couple of years. Part of it is focused on regulatory compliance that is driving a lot more revenue. Another is risk mitigation, which of course is also used in a lot more data warehousing initiatives. So clearly, the fact that we have great growth in our core products bodes extremely well. There are 2 metrics that I would watch. One of which is, of course, where we said 62% of our customers are now using Informatica for more than data warehousing. Now within that, each customer ends up using Informatica for 1 of 9 additional use cases. So we have a lot of opportunity for us to continue to upsell broader usage. The other metric that we're also paying attention to is cross-sell, introducing new product capabilities, some of which is applicable for data warehousing, others that are applicable to other broader operations, which Fast Clone, the example that I gave of a social media leader that is now using Fast Clone, that was in the context of a data warehousing initiative. Now the metric there that I communicated was 34% of our customers are now using one of our newer product, the upsell opportunity. So we have both cross-sell as well as upsell opportunities that are available to us.

Operator

Your next question will come from the line of Curtis Shauger with Caris & Company.

Curtis Shauger - Caris & Company, Inc., Research Division

If I could, I know it's a small piece of your business, but can you drill down into the cloud data products and maybe give us a sense of the magnitude in the growth there?

Sohaib Abbasi

Data integration is our fastest growing product line. Now obviously, it's growing off of a much smaller number. Cloud is important to us for a variety of reasons. Not only is Informatica a pioneer by delivering Informatica Cloud which, by the way, was recognized as the #1 integration platform for salesforce by salesforce.com's customers on AppExchange for the 4th consecutive year, it also allows us to strengthen our platform. Most of our customers view the cloud as an not alternative to [indiscernible] computing but rather as a means to augment on-premise. In other words, many of our customers are evolving to a hybrid IT organization, having Informatica provide some of the comprehensive solution that allows them to combine Informatica, their data on-premise with the data in the cloud. It's a very big differentiator that we have against some of our traditional competitors. It also opens up new partnership opportunities. In fact, this last quarter, we had 10 new partnership opportunities that we were able to close around Cloud and Integration. So it's both an incremental new opportunity, it strengthens and differentiates our core product and it opens a lot of partnership opportunities.

Earl Fry

And it's kind of grown over the last year to be a contributor for our subscription business in total. Kind of moved from the, let's call those a low-single digit millions of dollars of revenue per quarter to the mid-single digit millions of dollars of revenue per quarter.

Operator

Your next question will come from the line of Matt Williams with Evercore Partners.

Kirk Materne

It's actually Kirk Materne. I guess as you guys go into 2012, you're obviously positioned around a lot of really powerful secular trends right now. I guess, has your thought process on M&A, I guess, changed at all over the last 12 months? You didn't do a whole lot of deals last year, you have a lot of cash on your balance sheet. I guess, as you're thinking about being able to capitalize or monetize on some of these broader secular trends, should we be expecting to potentially see some more tuck-in deals as we head into 2012?

Sohaib Abbasi

Our criteria for M&A remains the same. We have been very disciplined in expanding our product portfolio with more data-centric technologies like MDM and more information-centric technologies like Ultra Messaging, and that filter will remain the same. We will continue to look for acquisition opportunities to accelerate our technology roadmap, as we have done in the past. Now as we evaluate our opportunities, certainly, we are factoring in the impact of the secular technology trends in specific technology categories. As an example, Big Data is driving a lot of the growth in our core data integration category. Similarly, social media is opening up new opportunities for us to consider in Master Data Management. So the overall filter and criteria landscape remains the same, but we are looking at the impact of secular technology [indiscernible].

Operator

Your next question will come from the line of Eric Hess with Longbow Research.

Eric Hess - Longbow Research LLC

I'm calling in for Steve Koenig. Can you give us some sense of where you're seeing relative strength or weakness in data warehousing, operational data integration, MDM and data quality?

Sohaib Abbasi

We'll restate the question because the audio was not very clear. Was the question, what are we seeing in the different product categories in integration, MDM, and ILM?

Eric Hess - Longbow Research LLC

Correct, yes.

Sohaib Abbasi

In data integration, we -- as I mentioned, we are very pleased that both in 2010 and 2011 we obtained much higher growth rates than we have done in a decade. And part of the reason is that there is a greater focus on Big Data initiatives which is driving more higher volumes. Another is business-critical initiatives that are driving the use of our technology, including regulatory compliance, as well as risk management. In the case of MDM, we are seeing very strategic IT initiatives, one that I gave as an example, Legal Entity Identifier initiative, which is required for [indiscernible] of initiatives that is driving our customers to have a single view of all of their counter party data. Similarly, we've seen a focus, particularly in retail around customer centricity, driving demand for our MDM offering for customer centricity. And Informatica, of course, uniquely provides a multi-domain solution, MDM solution, which is applicable across the various domains that I mentioned. In the case of ILM, with the growing volumes associated with Big Data, more of our customers are looking for a cost effective way of archiving the data. And another usescape that is driving ILM is data privacy. Data privacy is a much higher priority for our customers and that, in turn, is driving demand for ILM.

Operator

We have ended the allotted time for questions and answers at this time, I would now like to turn the call over to Mr. Sohaib Abbasi for closing remarks.

Sohaib Abbasi

For 2012, our singular mission remains the same: Advance Informatica as the clear leader in data integration. With the increasingly critical role of our expansive product portfolio for both the existing and emerging computing platforms, Informatica is in the strongest ever position to grow to $1 billion and beyond. Thank you.

Operator

Ladies and gentlemen, thank you for your participation in today's Informatica Corporation Fourth Quarter Earnings Conference Call. You may now disconnect.

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