Informatica Corporation Q4 2007 Conference Call Transcript

| About: Informatica Corporation (INFA)

Informatica Corporation (NASDAQ:INFA)

Q4 2007 Conference Call

January 29, 2008, 5 p.m. ET


Sohaib Abbasi - Chief Executive Officer

Earl E. Fry - Chief Financial Officer

Stephanie Wakefield - Senior Director of Investor Relations


Thomas Ernst - Deutsche Bank

Mark Murphy - Broadpoint Capital

Sasa Zorovic - Goldman Sachs

Tom Roderick - Thomas Wiesel Partners

Nathan Schneiderman - Roth Capital Partners

Michael Nemeroff - Wedbush Morgan

Brendan McCabe - Oppenheimer

Nabil Elsheshai - Pacific Crest

Brent Thill - Citi

Doug Crook - Global Crown Capital

Pat Walravens - JMP Securities

Vikram Churamani - Lehman Brothers


Good afternoon ladies and gentleman and welcome to the Q4 2007 Informatica Earnings Conference call. My name is Denise and I’ll be your coordinator for today’s conference. (Operator instructions). As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today’s call, Ms. Stephanie Wakefield, Senior Director of Investor Relations. Please proceed ma’am.

Stephanie Wakefield

Good afternoon and thank you for joining us today. I’m here with Sohaib Abbasi CEO, and Earl Fry, CFO of Informatica to discuss our Q4 2007 and full-year 2007 results, and to talk about our outlook for the business. Some of the comments we will make today are forward-looking statements including statements concerning our being well-positioned to pursue our growth opportunity, our projected financial results for future periods, opportunities for growth in the data integration market, the planned use of our products by some customers for more than traditional data warehousing projects, the strength of customer demand for our products, efforts being conducted with strategic partners, and our expectations regarding future industry trends. All forward-looking statements are based upon current expectations and beliefs. However, actual results could differ materially.

There are many reasons why actual results may differ from our current expectations. These forward-looking statements should not be relied upon as representing our views as of any subsequent date. And Informatica undertakes no obligation to update forward-looking statements to reflect events or circumstances after the date that they are made. Please refer to our recent SEC filings including the form 10K for 2006 as amended and the 2007 third quarter 10Q for a detailed description of the risk factors that may affect our results. Copies of these documents may be obtained from the SEC or by contacting our investor relations department. During this afternoon’s discussion we will be using GAAP and non-GAAP numbers. Our GAAP results and the reconciliation of the GAAP results to the non-GAAP results are contained in the press release and in the supplemental metric section of our Informatica Investor Relations website at Before I hand it off to Sohaib, I would like to remind you that this call is being webcast and will also be available for replay at our investor website. I would 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 very much. At this point, I will turn it over to Sohaib.

Sohaib Abbasi

Thank you Stephanie. I am very pleased to report that Informatica obtained an important milestone in Q4. Not only was it a record quarter, it was the first time our quarterly revenues exceeded $100 million. By consistently achieving year-to-year growth rate that is 2-1/2 times higher than the enterprise software industry, 2007 was our third consecutive record year. Today, I will highlight the key accomplishments of the quarter and the full year 2007. After Earl’s presentation of our financial results, I will preview our key initiatives to maintain the growth momentum in 2008. The Q4 2007 total revenue grew by 24% year-over-year to an all-time record of $113.9 million. License revenue grew by 28% year-over-year last quarter to yet another record of $54.9 million with non-GAAP operating margin of 22%, and non-GAAP EPS of $0.25.

We achieved the most profitable quarter to date. For the full year 2007, total revenues grew by 21% to an all-time record of $391 million and license revenue grew by 20% to $175 million. By all these measures, Q4 of 2007 was our best quarter ever and capped a best year ever for Informatica. Clearly, our goal strategy is driving record results. For Informatica, 2007 was a third consecutive year with sustained annual growth of 20% or more. In other words, Informatica continues to grow organically 2-1/2 times faster than the overall enterprise software industry. We attained these record results by consistently executing on our three-pronged growth strategy.

First, expansion across all major geographic regions. Second, growth of our (inaudible) market beyond the traditional data warehousing category and third advancement of our technology leadership through continue innovation. Furthermore, our neutrality distinguishes Informatica as the most trusted partner and helps our customers better manage the uncertainty of industry consolidation.

I would like to recognize and applaud the entire Informatica team who made impressive progress on all these fronts. In 2007, we delivered record results in every major geographic region including Americas AMIA, Asia-Pacific, and Japan. In fact our business grew faster in international regions.

I will provide a brief overview underscoring the operational discipline demonstrated in each of the three regions. In Americas, as a result of our established leadership and proven execution discipline, we maintain our growth momentum. Despite a relative slowdown in the financial services sector, we attained our best results with successes across multiple industries including important wins in healthcare, retail, and communications.

In Europe, with strengthened leadership and consistent operational discipline, we are pleased with the progress toward greater sales productivity. Marketing demand generation campaigns contributed to our results in Europe. These campaigns resulted in new opportunities beyond our traditional data warehousing projects, including standardization decisions for enterprise wide integration competency centers or ICCs.

As an example, Fortis Bank, a leading bank in The Netherlands, standarized on Informatica for a new ICC. To facilitate their post merger integration with part of ABN AMRO's business, Fortis is building a data warehouse to help address (vassal) to regulatory compliance requirements for the combined entity.

In Asia-Pacific, we benefitted from the combination of strong customer demand and improved execution to obtain record quarterly results. In Q4, Asia, StarHub, and Philippine Airlines selected Informatica. In addition, last quater we added 19 new customers in Asia-Pacific.

With 239 new customers in 2007, we now have almost 3000 customers around the world. With our international expansion more than 1400 customers are outside of North America.

We have successfully grown our (inaudible) market beyond data warehousing to become the largest independent leader in the broader data integration category. These data integration projects are being driven by the top business imperatives for globalization, industry consolidation, and governance.

Global markets and competition are dictating business imperatives for modernization, world class service, effected out sourcing and efficient (inaudible).

Growth objectives are driving industry consolidation and a focus on successful post merger integration governance is mandating a focus on regulatory compliance.

In addition, the recent economic turmoil has further elevated the importance of risk management. Remarkably each of these business imperatives and the associated IT initiatives require data integration. This realization has promoted even greater usage of our products beyond data warehousing.

As an example, for their modernization imperative Juniper Networks selected Informatica to migrate data from a variety of legacy applications to a new Oracle application implementation. Juniper Networks expects to gain from the Informatica suite including Power Center, Power Exchange and Data Quality, by expediting the results, reducing costs, and most importantly improving data quality.

As a result of this growing trend 45% of our deals over a $100,000 will be customers that plan to use Informatica for more than data warehousing. In addition, in Q4 about 60% of our professional services fees were from consulting engagements beyond data warehousing projects. In 2007, we continued to benefit from continual product innovations that further fueled our product likeness growth.

In the data integration category, almost all license transactions over $300,000 with our flagship product Power Center included the latest product releases 8.1 or 8.5. Equally important, almost 80% of these customers licensed new incrementally priced PowerCenter 8.1 options. Customers such as Gaz De France, Quadcomm, and Health Net selected the enterprise grid option for cost-effective scalability. Customers including Fortis Bank and McGraw-Hill license add-on options for real-time data integration.

An increasing number of customers have adopted our latest product lines, data quality, and complex data exchange. We believe we are now the fastest growing leader in the data quality category. Data quality is becoming an even more critical part of Key BIOS. In Q4, half of the transactions over $1 million and over 40% of the transactions over $300,000 included data quality products. Several leading enterprises chose Informatica Data Quality including Juniper Networks, EDF, and CVS Caremark.

As a result of our differentiated product, complex data exchange or CDE, we are now winning more opportunities to help customers with (inaudible) data and even enable business-to-business data exchange. For example, Sierra Pacific Power will use CDE to facilitate the post-merger integration with Nevada Power, specifically by integrating customer billing and usage information that is currently stored in unstructured Adobe PDF format. In addition, we delivered on our pioneering roadmap for on-demand data integration. Growing customer adoption of offering some software service vendors such as is leading to new opportunities for cross-enterprise data integration. Increasing number of customers license our connector for including Occidental Life Insurance to integrate off-premise and on-premise data.

We added new partners such as Energy in Europe who embedded Informatica within their on-demand software service infrastructure. Only Informatica offers a comprehensive product set spanning data integration, data quality, B2B data exchange, and on-demand data integration to help enterprises gain a competitive advantage from all their data. Today, we announced our OEM partnership with Fast Search & Transfer, a leading global provider of enterprise search technologies. Fast selected Informatica PowerCenter as the embedded data integration platform within their product portfolio for data access and integration.

On neutrality across multiple operating systems databases, MidiWare, business intelligence and application software assures our partners that they can rely on Informatica to enable near-universal data access. As a result, our customers can use all their data independent of the database and application. We have no hidden agendas to promote one database over another, one application over another. In other words, the best insurance for all customers against the uncertainty of industry consolidation is our neutrality. Informatica is the most trusted neutral partner. To sum up, we are delighted with the results we achieved in our 3rd consecutive record year. Now, I will turn it over to Earl to give you more details on our financial results.

Earl Fry

Thanks Sohaib. As Sohaib indicated, we ended 2007 on a very strong note. Total revenues for Q4 were as mentioned an all-time record $113.9 million, up 24% on a year-over-year basis, up 19% sequentially, and above our guidance range of $106 million to $110 million. License revenues were an all-time record at $54.9 million, up 28% year-over-year, and up 34% sequentially. Service revenues were also an all-time record at $59 million, up 20% year-over-year, and up 7% sequentially.

Of the total service revenues, maintenance revenues were an all-time record $41.4 million, up 25% year-over-year, and up 8% sequentially, while consulting and training revenues were also an all-time record $17.5 million, up 11% year-over-year, and up 5% sequentially. License revenues were 48% up total revenue. Our deal metrics during the quarter were strong across the board. Existing customers contributed 83% of our license orders compared to 83% in the third quarter of 2007 and 87% a year ago.

We did business with 275 existing customers and added 79 new customers in Q4. We booked 10 transactions over $1 million in Q4 compared to 8 transactions over $1 million a year ago. Perhaps more importantly, we closed an all-time record 78 deals over $300,000 during the fourth quarter, up from 59 in the year ago fourth quarter.

Transaction sizes were also strong with our average transaction size for orders over $100,000 coming in at 391K and average transaction sizes for orders over $50,000 coming in at 297K in Q4. 81% of our license orders came from our direct reps and 19% of our orders were from the indirect channels, compared to 86% direct and 14% indirect a year ago. In addition to the 19% sold indirectly, we had 29% of our direct orders in Q4 influenced by partners or resellers in the U.S. and India.

The overall total of indirect and influenced orders was 48% compared to 52% a year ago. License revenue from our direct business was 78% in Q4, with 22% of our license revenue coming from the indirect channel.

Looking at the geographic mix, for the third quarter in a row, we had strong contribution from our international teams, as the investments we've made over the past couple of years are beginning to pay-off. International orders, as a percentage of total license bookings were 35%, up from 28% a year ago and down just slightly from 38% in the third quarter while international revenue was 37% of total revenue in Q4, up from 31% a year ago and up from 36% in the third quarter.

The vertical sectors that contributed most to our Q4 orders were insurance, financial services, healthcare, and energy and utilities. Insurance was our largest contributor at a little over 20% of license orders while financial services, healthcare, and energy and utilities each contributed between 10% and 15% of our license orders for the quarter.

Non-GAAP gross profit, which excludes $619,000 in amortization of acquired technology and $395,000 of share-based comp, came in at $94.4 million or 83% in Q4, better than our target range of 79% to 81%.

License margins were 98% in Q4, consistent with 98% in Q3, and up from 93% in Q4 of last year. Service margins were 69% in Q4, consistent with 69% reported in Q3 and up slightly from a year ago.

Excluding $4.2 million of charges for share-based payments, facilities restructuring, and amortization of acquired technology and intangible assets, Q4 non-GAAP operating expenses were $69.2 million, up $7.9 million from $61.3 million in the third quarter. As a percentage of revenue, non-GAAP operating expenses were less than 61% of revenue for the fourth quarter, better than 64% in Q3 and consistent with a year ago fourth quarter.

For a detailed line-by-line reconciliation of our GAAP to non-GAAP results, as a reminder; please see the Supplemental Metrics section of our Investor Relations website.

So, in the quarter filled with highlights perhaps none was more important than our generation of a record $25.2 million in non-GAAP operating income. What makes this more significant is that we not only delivered record non-GAAP to GAAP operating income as a percentage of revenue at 22% but we easily surpassed our target of generating at least 20% non-GAAP operating income for the first time in our history.

And it seemed like everything was working in the fourth quarter as we even generated a $900,000 gain from a prior minority investment and generated nearly $400,000 in FX translation gains. This contributed to our generation of about $4.9 million of net interest and other income in the fourth quarter.

We recorded a tax provision of $4.3 million in Q4, resulting in a GAAP tax rate of about 17%, which was slightly higher than we expected due to the higher-than-anticipated levels of revenue and income generated during the quarter. Our income tax provision remained very heavily dependent on our geographic mix of earnings and we continue to expect our GAAP tax rate to rise to about 30% beginning in the first quarter of 2008. We delivered record GAAP net income of $20.6 million and achieved GAAP fully diluted EPS of $0.21 in the fourth quarter.

Excluding adjustments for share-based payments, facilities restructuring charges, and the amortization of acquired technology and intangibles, we came in $0.02 better than the high-end of our non-GAAP earnings range and generated non-GAAP diluted EPS of $0.25. This is up 25% from the $0.20 in the year ago fourth quarter and demonstrates continued operating leverage in our financial model.

Based on our Q4 orders, our future revenues disclosure, which includes deferred revenue balances as well as license orders not yet taken to revenue, as of December 31st, will be at a record level, $140.4 million. This is $22.3 million or over 19% above our previous record set a year ago and up $25 million or 21% from the third quarter. It should be noted that we booked a record $11 million license transactions in Q4, which we plan to recognize over the next 12 quarters. As such, one-third of the $11 million is reflected in current deferred revenue and two-thirds is reflected in long-term deferred revenue as of 12/31/07.

Total headcount was 1,365 at year end, an increase of 39 from the end of Q3, while sales and marketing headcount end of year was 483, an increase of 20 during the quarter. We expect to add another 50 to 75 people in the first quarter.

Now let's turn to the balance sheet. We had a record quarter of cash generation and generated $39.2 million in cash from operations. During the quarter, we spent $1.5 billion on property and equipment, generated $5.3 million in cash from stock option exercises, and used approximately $8.3 million to repurchase 512,000 shares of our stock. Overall cash and investment balances increased by $36.9 million during the quarter and we ended the year with about $485 million of cash and investments.

DSOs were 58 days in Q4, up seasonally from 54 days in Q3, better than the 65 days reported a year ago, and well within our target DSO range of 55 to 65 days.

Total deferred revenue increased sequentially by almost $15 million to $113.1 million and is comprised of $99.4 million in current deferreds and $13.7 million in long-term deferreds.

On a non-GAAP basis, we ended the year with just over 104 million shares outstanding on a fully diluted if converted basis.

Looking forward to 2008, we expect shares outstanding to increase only modestly for the next few quarters, and due to declining interest rates, we expect to generate approximately $3 million of net interest and other income per quarter.

Also, as we have previously mentioned as a result of our increasing profitability and full utilization of our historical NOLs, our income tax rate will take a step function increase in 2008. In 2008, we continue to expect an increase in our GAAP tax rate to approximately 30% and our non-GAAP tax rate to increase to approximately 29%. Now this could change by about a point if the R&D tax credit is not extended to 2008.

So now, turning to guidance, despite general concern regarding the macroeconomic environment, we believe that IT spending on data integration will continue to increase. With that in mind and based on our current market position and momentum, we are raising our total revenue guidance for 2008 to a range of $440 to $455 million, up from our prior $435 to $450 million range, and raising non-GAAP earnings per share targets to a range of $0.70 to $0.76 up from the prior $0.68 to $0.75 range.

Our goal continues to be to increase non-GAAP operating income to 20% of revenue on a sustained basis by the second half of 2008. For Q1 2008, we are setting a revenue target between $100 million and $103 million total revenue and setting our non-GAAP EPS target between $0.15 and $0.16. Please remember that our non-GAAP EPS targets do not include the after tax impact of an estimated $0.015 per share quarter charge for the amortization of intangible, the facilities restructuring charge of approximately $0.015 per share per quarter, and the tax effected impact of stock option extent of approximately $0.03 per share per quarter. So, in summary, Q4 for a record quarter and our income statement, balance sheet, and cash flows have never been stronger. We are very well positioned as we start 2008.

With that I'll turn it over to Sohaib for a few additional remarks.

Sohaib Abbasi

Thanks Earl. Last year’s record results are further evidence of the strong global customer demand and of the operational discipline in all the major geographic reasons. Our sustained results are a good indicator of our customers' broader adoption and use of our market leading products.

To help prepare for the next phase of growth, we announced an important step. We are excited to welcome Godfrey Sullivan to our board of directors. Godfrey has an illustrious 25-year career in the Information Technology industry. As most of you know, Godfrey was CEO, Hyperion, a key Informatica partner and now part of Oracle. During his tenure, Hyperion annual revenues doubled to nearly $1 billion. Prior to Hyperion, Godfrey served in executive positions at Promptu, Autodesk, and Apple Computer. We will benefit tremendously from his operational expertise, industry knowledge, and business insight.

As another indicator of our growth potential, Pricewaterhouse Coopers recently conducted a survey of senior executives at large multinationals. This survey showed that the vast majority, over 70%, considered data to be one of the most valuable assets; however, only a minority around 40% believed they effectively used data for business advantage. The reason cited for the (inaudible) expanding gap is accessibility, accuracy, and timeliness of data. In other words, data matters. Our sustainable growth opportunity is to close this (inaudible) gap.

Data matters even more in times of change, changes resulting from macroeconomic conditions, industry consolidation, globalization, and regulatory regimes. In these times of change, our value proposition for our customers’ IT departments is to do more with that while realizing a competitive advantage from data. To pursue this tremendous opportunity, our growth strategy remains the same. Expansion across all geographic regions with higher contribution from international regions, growth beyond data warehousing to cover even B2B data exchange, and continue data innovation in all 4 categories, data integration, data quality, on demand, and B2B data exchange.

We are poised to maintain the momentum and increase operating profit in the quarters to come. 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 instructions). Your first question comes from the line of Thomas Ernst from Deutsche Bank. Please proceed sir.

Thomas Ernst

Good afternoon and thank you for taking my question. Guys, I guess looking at the numbers, it's hard not to be excited and it's curious that financial services is already less than 15% of revenue in a quarter and obviously investors are worried about that, but one worry of investors I think in the software industry and investing is that we are afraid in Wall Street that you haven't seen the slowdown yet, that it's coming, and that your pipeline may not materialize, close rates may not be so good. Could you help us understand that given the strength of the business now and the strength of your outlook, what have you seen in the development of your pipeline and do you feel that you have a good gauge on what might happen to closure against that pipeline if this year plays out? Thank you.

Sohaib Abbasi

Thank you Tom. We have clearly seen a shift and a diversification in our business. We commented on two such shifts and diversification. One was the international regions have contributed to a much greater extent than in the prior years and we have already reported that in the last three quarters. We have also seen a significant shift in terms of the industries, financial services that used to be at the top of our revenue opportunities, as Earl commented on, was second this last quarter to insurance. So we have already seen a slowdown in financial services, specifically in the U.S. Now last quarter, we commented on the fact that our business auto financial services in the U.S. had slowed to single digit growth, yet at the same time our growth in financial services in an international segment was growing over 25% and we continue to see that the financial service sector is in the U.S. is not quite as strong; however, we have made up for that by growing our business in international regions as well as in other industries and let me also ask Earl to comment on the shifts that we have seen in our business.

Earl Fry

One of things that is important to remember, and this is part of much longer term trend, is that as our customers are applying our technology outside of the data warehousing environment to broader forms of data integration recognizing that at earlier stage market our competition primarily is hand coding as we talked before the value proposition that we provide our customers for this broader forms of data integration are significantly higher than what we have seen in some of our older historical market. So, in most cases, what people are doing is they are applying our technology to reduce their ongoing operating expenses.

So, quite frankly I think the move to broader data integration is going to continue, it's going to continue to help us and even may be as one other anecdote we recently had our sales kickoff where we had several CIOs and VP's of IT talking about how they are using Informatica and there they made comments that quite frankly I would have hoped for a few years ago, but would have never expected. What they are basically saying, we really have an obligation and they are counting on us more than ever to provide the kind of solutions that we provide, given the uncertainty that they are seeing in their end-user market and they are seeing with software industry consolidation.

So, I think in some time, I think we have started to see an impact in terms of our pipeline in terms of the mix of business and I think the shifts that we are talking about or where our products are being positioned and used over the last couple of years really play to our strength, so as long as we have the kind of environment that we are looking at which is a fairly tough one where people are going to be looking hard at operating expenses, I think this is going to play well and in fact be much higher priority step.

Thomas Ernst

Great thank you again.


And your next question comes from the line of Mark Murphy. Please proceed sir.

Mark Murphy

Thank you Earl. I wanted to clarify with respect to the $11 million deal you referenced as having been booked. Are you saying that you did not recognize any revenue in Q4 and that all of that is deferred and the reason I ask is because Q4 would appear to be about as much off-sided surprise as we have ever seen from Informatica’s side. Personally, I would have assumed that you recognize part of that transaction.

Earl Fry

You are correct in assuming from my comment that none of that transaction was taken to the revenue in Q4 and as I said the way it was structured, we are recognizing the revenue over the next 12 quarters.

Mark Murphy

Earl, in terms of the dynamics of the deal, what was it that triggered the (inaudible) there?

Earl Fry

It really had to do with commitments or to make sure that we are maintaining and providing certain features or future features in the product, so that's what really kind of pushed that over into three-year (inaudible) and this is not the first time that we have had that. If you recall a few years ago, we had a deal with Bundes wehr, the German army, and with the Dutch Ministry of Defense where, because of specific terms in those agreements, we had to take one over two years and one over five years. So it is a similar kind of situation here.

Mark Murphy

Okay, and also, Sohaib, you mentioned the OEM partnership with Fast Search & Transfer and with that company now being acquired by Microsoft, it would appear that you're embedded into serious technology that could really proliferate rapidly into the marketplace. Any comment on how that would change the size of the opportunity or whether there is potential for a broader Microsoft relationship now?

Sohaib Abbasi

Mark, you did allude to a few aspects of the partnership that we are particularly excited about. The first one of which is Enterprise Search is one the fastest growing category within enterprise software. Fast parted with another vendor and they selected Informatica as being a better alternative for them. We have been working very closely with them and as our announcement today highlighted that Fast is now shipping Informatica as part of their product.

Clearly Fast has an offer from Microsoft that they are seriously considering. We expect that that will be an opportunity for us to perhaps broaden the partnership that we have with Fast. We have been in the conversations with the management team at Fast. Now clearly the Microsoft offer is still just that, it is not official and they are separate entities, but we have continued to have that dialogue with the Fast management team and I expect that we will use it in a way to further strengthen our partnership.

Mark Murphy

Okay, congratulations and thank you.

Sohaib Abbasi

Thanks very much Mark.


(Operator Instructions). Your next question comes from the line of Sasa Zorovic from Goldman Sachs. Please proceed.

Sasa Zorovic

Thank you. Could you give us some color if you look sort of internationally within the region of Europe and then within Asia-Pacific as well. If you sort of seen any of the sort of a slowdown of any sort or in essence we are seeing sort of growth really very typical of fourth quarter and also out looking to the first quarter that you would have otherwise just sort of expected, unlike India where you mentioned sort of the kind of financial being somewhat weaker?

Sohaib Abbasi

We have been very pleased with the results that we have attained over the last several quarters in all the international markets. Q4 was the third consecutive quarter where we've had a very strong result in Europe, as well as elsewhere in our international regions. I would attribute the strong results in Europe to much stronger leadership. We have commented on the strength of our leadership at the Indian level as well as in France as well as in Netherlands. We have commented on the strengthening of our leadership in Germany. So across all of the major regions within Europe, we have benefitted from having much stronger leadership as well as operational discipline. We also have benefitted from having much better marketing demand generation programs that I commented on.

In Asia-Pacific we have had some very high profile wins that we have talked about in the past, in China as well as in Japan and we continue to be very optimistic about our growth opportunity in all of the international regions.

Sasa Zorovic

But more specifically really just kind of beyond operations from the demand side of things, have you noticed any changes there?

Sohaib Abbasi

We have not seen any significant change in the last quarter. In fact we saw a very healthy demand going into Q4. We had a very strong pipeline and we have not seen any change at all either in terms of what you would expect from our pipeline or from a buying decision perspective. The process remains the same. We have not seen any significant change in the buying patterns or the demand for our products. It remains as strong as we expected it to at this stage.

Sasa Zorovic

Thank you.


And from Thomas Wiesel Partners, your next question comes from the line of Tom Roderick. Please proceed.

Tom Roderick

Hey guys, thanks and good afternoon. Earl, you gave a number I think it was 483 sales and marketing following the quarter and you laid out a pretty nice growth guidance of what looks to be about 14% to 18% for next year. Can you just walk us through your thinking with respect to how much more capacity in terms of sales heads you need to add to the sales force to support that sort of top line growth and ideally where would you like to put those heads. Thanks.

Earl Fry

I think may be I'll start by saying that probably I had expected to add a few more heads in Q4 than we actually did. So the 39 heads in total and the 20 heads in sales and marketing were probably a little less than what I would have hoped to add in Q4. So, I think the 50 to 75 heads that were added were (inaudible) add in Q1. Some of that reflects catching up with current hiring plans.

That said, I would expect roughly a third of those heads to come in the form of customer support, professional services, education services, or kind of customer facing, but not necessarily direct license revenue generating heads, about a third maybe in the sales and marketing area, and then about a third in development or other administrative areas.

Tom Roderick

Okay, so let me just make sure I got that that’s 50 to 75 heads and in the timeframe to add those would be how soon?

Early Fry

We are targeting to add those as early as first quarter.

Tom Roderick

Okay. On head count additions for the full year that you're targeting or have you gotten that far yet?

Earl Fry

Yes, I think a lot depends. So, our plan will be if we continue to see the kind of growth that we are looking at, I would easily expect to get another on top of what we had in Q1, another 75 to 100 heads by the end of the year.


Your next question comes from the line of Nathan Schneiderman from Roth Capital Partners. Please proceed.

Nathan Schneiderman

Thanks very much. Hi! Sohaib. Hi! Earl. I wanted to follow up a little bit on the big deal environment and also your macro assumptions. I was curious beyond that $11 million deal, how many other deals did you have that significantly exceeded $1 million in license and then in talking about your guidance, I was just curious to what extent your assumptions have changed on close rates, sale cycles, or deal sizes based on what you're hearing about the macroenvironment? Did you not adjust it all? Did you haircut 10%? Just how did you incorporate the shifts in the macro that we're hearing about?

Sohaib Abbasi

We had, as Earl commented, 10 transactions where the deal size was over $1 million and we also were particularly pleased with having 78 deals that were over $300,000. In terms of the demand, it continues to be very strong and it would be very difficult to actually point out whether it would translate into many large transactions over $1 million or whether it would be in the form of repeat customers that will come back as the requirements evolved.

Now, one of the comments that I did want to make about the very large transaction that Earl did comment with, I see that as a reflection of the high level of customer satisfaction and customer loyalty that Informatica enjoys. In fact, this transaction was with a customer with whom we already have a very large transaction. They have had such good success with the product that they are now going to use Informatica much more broadly. However, I would not use it as an indicator to say that we would see many such large transactions.

From a macroeconomic perspective, there are plans that favor larger transactions. We have seen some customers that have centralized the integration of projects in order for them to achieve economies of scale and much better results, better quality results. Cited Fortis is one example of a customer that has built an integration competency center, but there were several other customers that have made that. Now, in those cases it has resulted in a large transaction and yet there are certain other cases where customers have decided in light of the macroeconomic conditions to acquire whatever licenses were required for it.

Overall, we are very optimistic and confident about the customer demand. Earl cited several anecdotal data that we have from CIOs that continues to show that data integration will remain a very high priority for them.

Nathan Schneiderman

Just from a detailed standpoint, we had 7 of the 10 transactions over $1 million or less than $2 million and then two of them were in the kind of the $2 million to $5 million range


Michael Nemeroff from Wedbush Morgan is on the line with your next question.  Please proceed.

Michael Nemeroff

Hi good afternoon. Thanks for taking my call. Just a couple of questions, one on the competitive environment and the landscape, can you tell us how that's changed at all? It seems as if your business has actually has been accelerating over the last couple of quarters. I wanted to know if there was any change specifically between your direct competitor at IBM and then also I am curious about the relationship with Cognos and how that might change and if you could tell us are the partnerships with some of your previous partners that were acquired such as Siebel and Hyperion are they still producing revenue up to your expectation? Thanks

Sohaib Abbasi

Let me start by just reminding everyone that the majority of our deals continue to be uncontested by any commercial vendor. It is an early stage market. We have commented in the prior quarters and this quarter was no different. When we have gone up against competitors, the one that we see the most frequently between 15% to 20% of the deals is IBM. Our win rates against them have continued to remain very high 70% to 80% of the times we go up against them, we win the deal over IBM. We do not see the other competitors quite as frequently; we would see them in perhaps 5% of your deals, so we are very confident in our ability to continue to compete against them, but as I had said it is an early stage market. Our primary competitor continues to be hand coding and we are much more effective in highlighting the value of buying our software instead of building lower cost, mitigate the risk, reduce the cost, and that is particularly relevant given the macroeconomic environment today.

In terms of the industry consolidation, clearly that has resulted in a lot of uncertainty. Our customers are no longer certain who would acquire whom and what the implications would be in terms of the investment they have made. Our neutrality has allowed us to ensure that our customers continue to have the choice of selecting whatever vendor they work with. We had established partnerships last year. We continue to remain committed to the partnerships that we announced and we will continue to work with them; however, we have had conversation with the Cognos management that you referred to and we will continue to actually monitor the situation, but we will work closely with them. Hyperion and Siebel have been very good partnerships with us. In fact as a result of it, the most widely utilized data integration technology across Oracle's portfolio happens to be Informatica. Informatica is shipped with every copy of Siebel analytics. It is also shipped with every copy of Hyperion and we continue to enjoy a very strong partnership with Oracle.

Again, as I commented on, we are very confident about our competitive position and we remain committed to ensuring that we provide the most trusted partner in data integration. Thank you Michael.


Your next question come from Brendan McCabe. Please proceed Sir.

Brendan McCabe

Hey guys. A quick question for Sohaib. You mentioned a lot of growth drivers. I was wondering if there are any that are particularly specific to certain geographies?

Sohaib Abbasi

There are fairly some of the growth drivers are universal. The growth drivers for regulatory compliance are becoming more and more universal. There is obviously lot of attention to regulatory compliance in the US as well as in Europe, but given the globalization, the same is true with almost all of the regions. In terms of the differences that you might see in our business, clearly we have a very mature organization in the Americas and we are building an organization in Asia-Pacific. We started making investments a couple of years ago; we are seeing very good results from it, so the change in what we would see to some extent depends on the maturity of our business, but we continue to be very optimistic about the growth prospects across all other regions. We have commented on a (inaudible) drivers that would apply across all of the geographic regions, one of which is broader usage beyond data warehousing.

In the new emerging markets we continue to see data warehousing as being one of the main project types and in the mature markets where we are seeing a lot more growth out of the broader data integration opportunity, but we see the mix across all of the geographic regions, where our customers are using us much more broadly. Just to put it in context we have talked about an IDC survey that quantifies that the IT spend on broader data integration is five times more than data warehousing and that’s why we are particularly excited about our success in broader data integration much larger (inaudible) full market.

We also benefit from the continual product innovation. With the latest version of our products, if you look at the list price of all of our products it is about two and half times the list price that was available when we had the last major release.

So the combination of broader customer usage and a much broader portfolio has allowed us to grow faster in all of the geographic regions.

Brendan McCabe

Thanks Sohaib.

Sohaib Abbasi

Thank you Brendan.


And your next question comes from the line of Nabil Elsheshai from Pacific Crest. Please proceed.

Nabil Elsheshai

Hi guys. A couple of questions on the attach rates for the complex data integration and the data quality. It sounds like you are doing well kind of selling those alongside power center. Could you comment about selling either one of those as a standalone opportunity? Whether you have had success in the past or whether that is something that you are focused going forward. And then with the complex data I think when you guys made the acquisition you said the goal was $10 million for this year. So can you give us any color on did you exceed that goal and that type of stuff?

Sohaib Abbasi

Nabil, I heard the first part of your question, so let me answer that and then I am going to ask Earl maybe comment on the second part of the question. In terms of complex data exchange and data quality, we are very excited about the results we've achieved. We had set internal targets for both of those products and we are very pleased that we met or exceeded those targets.

We've seen very good results from those and in the case of data quality this would be the second consecutive year where we have met or exceeded the internal targets that we've set for our self. In fact we believe we are now the fastest growing leader in data quality.

We have also benefited from those two product lines in terms of strengthening our position in data integration category itself. In addition to that of course we've had success in completely new opportunities. I gave one example of Sierra Nevada of opportunity where they have the billing information in Adobe PDF format, as they emerge the two organizations they want to be able to integrate the data that happens to be in the PDF documents.

We've also talked in the past about a very significant win that we had with a financial services giant where they were in the process of modernizing the payment hub. That was independent of power center that was independent of anything that we had offered in the past. It was a B2B data exchange opportunity. We've talked about Paramount Pictures were it was also a B2B data opportunity. We've talked about the State of Mexico about their HIPAA related initiative. So those are all examples of new opportunities that did not necessarily include all of our products. But at the same time, we're equally pleased by the positive benefit that we have realized in our core market as well. So let me turn to Earl for the other…

Earl Fry

I think we did exceed our targets relative to the Itemfield acquisition. So we are very pleased with the traction that we've gotten over the first year. I think maybe just to add to Sohaib’s comment while we see a lot of transactions with a differentiator and they are driven by the differentiation around either CDE or data quality, the majority of the CDE or data quality sale will have some element of power center sold with it. So kind of the absolute standalone where you are only selling CDE or standalone where you are only selling data quality without any other pull through. That happens in a relatively small minority of cases. But I think as Sohaib indicated, many of the transactions that involve CDE or data quality are being driven by those products as opposed to what you would have expected a couple of years ago where they might just be add-ons to PowerCenter sales.


Brent Thill from Citi is on the line with your next question. Please proceed sir.

Brent Thill

Thanks and good afternoon. When you just look at the attach rate for the overall options business, how would you measure the percent attached to the current install base? Is it still in the low teens or has it gone up. Can you just give us a sense of direction where that is at today?

Sohaib Abbasi

We have commented on the adoption of our latest version. We have highlighted the opportunity that it opens up for us. We have talked about the progress that we have experienced in terms of adoption of version 8 of our products 8.1 and 8.5. The install base has upgraded; 80% of our customers are now using the latest product release. Now that opens up a lot of opportunities for us to go and upsell the new options available to them and we still have a big opportunity ahead of us to offer them all of these new options whether it is for cost-effective scalability, and grid-high availability, real-time data integration; there continues to be an opportunity available to us.

With 8.5 we introduced a lot of new capabilities, a lot of new real-time options for supporting a variety of projects as well as a number of other options and that is still an opportunity that we are looking forward to.

In terms of new deals that we had in the most recent quarter, 80% of the deals that included PowerCenter also included PowerCenter options and that is a much higher number than what we have seen in the past. So, the options continue to contribute in terms of increasing our deal size as was evident in some of the deal metrics that Earl shared and also provide us with an upsell opportunity in the coming quarters. Thank you Brent.


And your next question comes from the line of Doug Crook from Global Crown Capital. Please proceed.

Doug Crook

Hi, thank you. In listening to your commentary, it sounds like you have good clarity from the acquisitions now owned by Oracle. Cognos owned by IBM is to be monitored. I have not heard any commentary about Business Objects and wondering if you could also segment historically what portion of the data warehousing business was somehow linked to those big three business intelligence vendors? What part of the mix was from Business Objects and what part of the mix was related to Cognos and what part of the mix was related to Hyperion.

Sohaib Abbasi

It would be difficult for me to necessarily provide you with the same level of commentary about the most recent acquisitions, some of which have not even been concluded yet as we can about the ones that have already closed and we have got some experience with. So let me actually provide you with a little bit of color in terms of why we believe that we will sustain a partnership with these industry leaders.

Oracle, a little over a year ago, had an option of reconsidering whether they wanted to continue to partner with Informatica or whether they would use one of there overlapping products. They chose instead to extend the partnership agreement with Informatica for four years and expand it. The reason was very simply that our neutrality ensured that they would have acces to all of non-Oracle data, some of which maybe much harder for them individually to be able to provide. We are the neutral-most trusted partner and as a result of it, we augment and provide a lot of value to our partners.

In the case of SAPs acquisition of Business Objects, I re-announced our partnership with SAP only recently where they were going to OEM our products. That clearly has not contributed much to our results, just because we've only recently announced it. However, we have a much longer history with SAP where we've partnered with them and in fact we have assisted their customers and jointly we have over 400 customers that have had great success using Informatica, but again I would like to point out that even the customers that have made significant investment in any one of those vendors' software have a mix of software within their IT organization. Informatica is able to help them leverage all of that data regardless of where it resides. And in that manner, Informatica compliments the software available from any of those industry giants. And we would expect that we will continue to partner very well with each and every one of them. Thanks Doug.

Doug Crook

Okay, well, thank you.


And your next question comes from the line of Pat Walravens from JMP Securities. Please proceed.

Greg McDowell

Hi! Guys. This is Greg McDowell for Pat Walravens. Can you give us a little more color on your close rate assumptions? In other words, given the challenging microenvironment, are you assuming a more conservative close rate when you give us guidance? Thank you.

Earl Fry

I think as we're looking at our pipeline that does get factored in terms of how sales management is looking at things, in terms of how we're handicapping things and looking at things. That said, the environment quite frankly the business environment is not that different now than it was a month ago. The headlines may be a little different, but the business environment is not that different and we did not see a falloff in close rates coming out of Q4.

Again, as Sohaib mentioned earlier we've seen shifts in terms of which areas of business are strong. We saw the shift in financial services as early as Q1 of last year. So, I think it's a fallacy to think about this as there's just an overnight shift here because, quite frankly, the FED is finally starting to get ahead of the curve now. So, I think that said, we are being cautious about how we're handicapping things.

On the other hand, I think we would be foolish not to recognize the better execution that we're seeing and quite frankly, at a company our size the difference in execution, our own execution, far outweighs any modest shift in a macroenvironment. So, I think I've lot of what you're seeing, for example internationally is a result of our increasing execution, and quite frankly we're still not hitting on all cylinders. I mean we can do better in Asia-Pacific. We've talked about for quite a while that we still have some work to do in the UK in terms of productivity. So, I think on balance when you look at all that, you look at our product position, you look at our competitive position, and we feel pretty good about our position, about our momentum, and how we take that into our guidance.


And your final question will come from the line of Vikram Churamani from Lehman Brothers. Please proceed.

Vikram Churamani

Hi! Thank you and congratulations Sohaib and Earl. Just a quick question on Q1? Earl, when I back into your guidance for license revenue, it implies roughly about 20% sequential decline. That's a pretty dramatic decline relative to what you guys have seen in the past and also realizing the fact that you still didn't have the $10 million deal booked, was there any business that was shifted by any chance from Q1 to Q4, or anything unusual that happened? Maybe you can give us some color as to what your assumptions are for Q1 guidance and lastly when you look at '08, what shall we expect for roughly international growth versus the U.S.? Thank you and congratulations again.

Earl Fry

Thanks Vik. So, Q1 just remember that for services revenues, we typically will see an overall tendency to decline in services revenues, particularly where we see a reasonably sharp seasonal decline. It is going to be professional services and an education of services. So, I'm not sure how you're backing into the numbers but just keep that in mind that particularly in professional services, educational services there is a very strong seasonal drop from Q4 to Q1. And as far as how we're looking at things for the year, clearly we are expecting another year where international revenues will grow at a faster rate than domestic revenues. So without getting too granular on it, but let's just assume that the trends that we started seeing in Q2 of '07 we expect will continue in '08.


There are no further questions in the queue. I would now like to turn the queue back over to Sohaib Abbasi for closing remarks. Please proceed sir.

Sohaib Abbasi

In closing. 2007 was a third consecutive record year with a growth rate of 20% or more. In 2008, our growth strategy remains the same. We are well prepared to grow our market share and maintain the momentum. Thank you.


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

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to All other use is prohibited.


If you have any additional questions about our online transcripts, please contact us at: Thank you!