Informatica Corporation Q1 2008 Earnings Call Transcript

Informatica Corporation (INFA)

Q1 2008 Earnings Call

April 17, 2008 5:00 pm ET

Executives

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

Sohaib Abbasi - Chairman and Chief Executive Officer

Analysts

Michael Nemeroff - Wedbush Morgan

Vikram Churamani - Lehman Brothers

Frank Sparacino - First Analysis Corp

Analyst for Tom Roderick - Thomas Wiesel Partners

Derrick Wood - Pacific Growth Equities

Nathan Schneiderman - Roth Capital Partners

Sasa Zorovic - Goldman Sachs

Nabil Elsheshai - Pacific Crest Securities

Bradley Whitt - Broadpoint Capital

Daniel Cummins – Soliel-Lime Rock Research

Patrick Walravens - JMP Securities

Brent Thill – Citi

Presentation

Operator

Welcome to the Informatica first quarter 2008 earnings conference call. (Operator Instructions) I would now like to turn the presentation over to your host for today’s conference, Earl Fry, Chief Financial Officer.

Earl E. Fry

I’m here with Sohaib Abbasi, our CEO, to discuss our Q1 2008 results, and to talk about our outlook for the business. I will be reading the Safe Harbor and then handing it over to Sohaib for his comments.

Some of the comments we will make today are forward-looking statements including statements concerning our being well-positioned to pursue our growth strategy; our projected financial results for future periods; opportunities for growth in the data integration market; the expected timing of the closing of the acquisition of Identity System, the expected financial impact of the acquisition, the expected benefits for our customers and products of the acquisition; our ability to integrate Identity System, it’s employees and its technology; the planned use of our products by some customers for more than traditional data warehousing projects; the strength of customer demand for our products; 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 2007 Form 10-K 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 earnings press release and in the supplemental metric section of our Informatica Investor Relations website at www.informatica.com/investor.

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 www.informatica.com/investor.

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

Sohaib Abbasi

This afternoon I will present the highlights of our record first quarter results. After Earl’s presentation of our financial results I will comment on the strategic acquisition we announced today.

In Q1 2008 we attained record first quarter revenues and record first quarter operating income. Total revenue grew by 19% year-over-year to a $103.7 million. License revenue grew by 18% year-over-year to $44.2 million.

Total non-GAAP operating income grew by 40% year-over-year with non-GAAP operating margin of 18%. With non-GAAP EPS of $0.16 we achieved the most profitable first quarter to-date. Q1 results are further evidenced that our strategy and the team’s operational discipline are delivering consistent record results.

As in prior quarters over the last three years we continue to execute on our three-prong growth strategy. First, the growth and diversification beyond our primary geographic market; second, growth of our [user] market beyond the traditional data warehousing category; and third advancement of our technology leadership through continual innovation.

In Q1, with our geographic diversification strategy we clearly benefited from growing contribution by international regions including Europe and Asia Pacific. Our business grew faster in international regions while business in North America reflected macro economic uncertainty.

In Q1 2008 revenue from international regions represented 33% of total revenue compared to 25% in Q1 of 2007. We believe this diversification prepares us better for the current environment.

In Europe, we are pleased by growing customer adoption of our products and services. As an example, in France BNP Paribas, the sixth largest bank in the world has standardized Informatica as their data integration platform to gain agility and greater cost efficiency within their insurance business. BNP adopted Informatica for a broad range of projects including real time data integration and B2B data exchange.

As another example in the UK, Vodafone expanded their use of Informatica to enable their three-year business transformation program that implements a single integrated model across their 17 operating company. One of their goals is to reduce costs through supplier rationalization across Vodafone.

In the Americas, Dell selected Informatica as the standard for their new enterprise data architecture foundation. Dell aims to gain greater efficiency and responsiveness to their business requirements with the associated IT simplification initiative. Using Informatica Dell’s new master data management project will deliver data required by the globalization imperative.

In Brazil, [Vale] a global leader in mining chose Informatica to gain a holistic view of information across a 150 different IT systems used by their 130 operating companies. [Vale] expects to expedite delivery of timely trustworthy information while improving IT efficiency.

As our customers wins around the world signify we continue to successfully grow our aggressive for market beyond the traditional data-warehousing category. In light of the current macro economic environment IT organizations are assigning much higher priority to projects that offer quicker return on investment and better operational efficiency.

And our [Vale] proposition to do more with less has promoted even broader usage of our products. These broader data integration projects are being driven by the top business imperatives for globalization, industry consolidation, governance and increasingly risk management. As a result of this growing trend 45% of our deals over a $100,000 were with customers that plan to use Informatica for more than data warehousing.

In addition in Q1 about 65% of our professional services fees were from consulting engagements beyond traditional data warehousing particularly data migration projects.

As a result of our continual innovations advancing our market leading products we won important customer decisions in Q1. City of San Diego in California chose Informatica for our unique near-universal data access capability to migrate data stored in IMS, VSAM and flat files towards SAP application.

Chase Paymentech, a leading global payments firm selected Informatica after attaining a five fold improvement with our flagship product, PowerCenter, in a high volume performance benchmark. As these example illustrate our continual product innovations have further advanced our technology leadership with well-differentiated value to our customers, near-universal access to data, cost effective skill ability, better price performance and IT efficiency through improved productivity.

In the data integration category almost all license transactions over a $300,000 with our flagship product PowerCenter included the latest product releases 8.1 and 8.5. 80% of these customers licensed new incrementally priced PowerCenter 8.1 options. Customers such BNP Paribas, Dell and [Vale] selected the enterprise grid option for cost effective skill ability. Customers including Chase Paymentech and BNP licensed add-on options for real-time data integration.

Customer adoption of our latest product line, Complex Data Exchange, data integration software to service and data quality continues to grow substantially. Increasing number of customers are adopting Complex Data Exchange or CDE to access unstructured data and enable business to business data exchange.

As an example a diversified financial services leader expects to reduce IT labor costs by 25% and attain $18 million ROI by using Informatica for exchanging human resources data with insurance companies.

In Q1 a number of customers, including Hartford Life Japan and Dell, licensed cost enterprise connector to salesforce.com to integrate off-premise and on-premise data. In addition several customers including SNP, Plantronics and Lincoln Financial subscribed to our on demand data integration software to service offerings.

Finally, we believe we are the fastest growing leader in data quality category. Data quality is now a critical component of our customers IT initiatives. For example American Express chose Informatica data quality for their marketing and fraud risk departments. High quality data on customers will help them better manage credit risks. In Q1 67% of the transactions over a million dollar and over 30% of the transactions over $300,000 included data quality products.

To further grow our aggress for market we are excited to announce our definitive acquire to acquire Identity Systems, a pioneer in identity resolution technology. This transaction is expected to complete by the end of May. Identity resolution enables precise identity search and matching to find all of the required critical information for an individual or organization. This strategic acquisition will extend Informatica products with innovative technology to search, match and resolve identity data about a variety of objects including people, companies and products.

Identity Systems technology will both grow our aggress for market with new opportunity for identity resolution and strengthen our comparative position within our core market with specialized dramatically rich data quality capabilities. Coupled with high growth in our data quality business we will be even better positioned to further advance our leadership in the data quality market.

To sum up we are pleased with the record Q1 results we attained despite the current macro economic uncertainty.

Now I’ll turn it over to Earl to give you more details on our financial results. After Earl’s comments I will provide you additional information on our strategic acquisition.

Earl E. Fry

Q1 was a good start to 2008. Total revenues for Q1 were a first quarter record, $103.7 million, up 19% on a year-over-year basis down 9% sequentially and seasonally and better than our guidance range of $100 million to $103 million.

License revenue for the first quarter record at $44.2 million up 18% year-over-year and down from our seasonal high in Q4. Service revenues were in all time record at $59.5 million up 20% year-over-year and up 1% sequential. Of total service revenues, maintenance revenues equaled the record $44.4 million up 20% year-over-year and consistent sequentially.

While consulting and education revenues were a record $18.1 million up 21% year-over-year and up 3% sequentially. License revenues were 43% of total revenue.

Our deal metrics were solid and reflected typical Q1 trend. Existing customers contributed 85% our license orders value up from 83% in the fourth quarter of 2007 and consistent with the first quarter of 2007. We did business with 178 existing customers and added 38 new customers in Q1.

We booked three transactions over $1 million, the same as we did a year ago. More importantly we closed a first quarter record 32 deals over $300K during the first quarter up from 27 in the year ago first quarter. Our average transaction size for orders over a $100,000 came in at $299K relatively consistent with the $303K a year ago and the average transaction sizes for orders over $50,000 came in at $208K in Q1 down slightly from $218K a year ago.

In Q1 ’08 we had a healthy 30% increase in transaction sizes between $50K and $99K reflecting an increase in international distributor transactions as well as an increase standalone PowerCenter 8 option upgrades.

72% of our license orders came from our direct reps and 28% of our orders were from the indirect channel compared to 73% direct and 27% indirect a year ago. In addition to the 28% sold indirectly we had 44% of our direct orders in Q1 influenced by partners or resellers in the US and India.

The overall total of indirect and influenced orders was 62% compared to 66% a year ago. License revenue from our direct business was 70% in Q1 with 30% of our license revenue coming from the indirect channel.

Now, looking at the geographic mix for the fourth quarter in a row we had strong contribution from our international teams. International orders as a percentage of total license booking were 36% up from 25% a year ago and up from 35% in the fourth quarter. While international revenue was 33% of total revenue in Q1 up from 25% a year ago and down seasonally from 37% in the fourth quarter.

The vertical sectors that contributed most to our Q1 orders were financial services, high tech and insurance. Non-GAAP gross profit which excludes $620K in amortization of a prior technology and $546K of share base comp came in at $83.8 million or 81% in Q1 within our target range of 80% to 82%.

License margins were 98% in Q1 consistent with 98% in Q4 and in Q1 last year. Service margins were 68% in Q1 down slightly from 69% in Q4 and consistent with Q1 a year ago.

Excluding $4.9 million of charges for share based payments, facilities, restructuring and amortization of acquired technology in intangible assets, Q1 non-GAAP operating expenses were $65.3 million down $3.8 million from $69.2 in the fourth quarter.

As a percentage of revenue non-GAAP operating expenses were 63% of revenue for the first quarter up from 61% in Q4 but measurably improved from 66% in the year ago first quarter.

As I had mentioned earlier for a detailed line-by-line reconciliation of GAAP and non-GAAP results please see the supplemental metrics section of our Investor Relations website.

We generated a solid $18.5 million in non-GAAP operating income, as a percentage of revenue non-GAAP operating income was 18% three points better than the 15% operating income reported a year ago. Our operating income performance in the first quarter was the second best in our history and was exceeded only by the seasonal record set in the fourth quarter of ’07.

We generated about $3.6 million of net interest and other income in the first quarter which included an FX translation gain of about $600,000. We recorded a tax provision of $4.8 million in the first quarter resulting in a GAAP tax rate of about 30%.

We delivered first quarter record GAAP net income of $11.2 million and achieved GAAP fully diluted EPS of $0.12 in the first quarter. Excluding adjustments for share base payments, facility restructuring charges, and the amortization of acquired technology and intangibles we came in at the high end of our earnings range and generated non-GAAP diluted EPS of $0.16.

This is up from $0.15 in the year ago first quarter and demonstrates continued operating leverage in our financial model despite the year-over-year step function increase in our tax rates.

Based on Q1 orders our future revenues disclosures which include deferred revenue balances as well as orders not yet taken to revenue as of March 31 will be $136.5 million. This is an increase of $22.2 million with 19% above the year ago level and down only $3.8 million or 3% from the fourth quarter. It’s important to note that the license portion of deferred revenues on the balance sheet is over $10 million higher than it was a year ago.

Total headcount was 1,459 at quarter end an increase of 94 during the quarter while sales and marketing headcount ended the quarter at 522 an increase of 39.

Now, turning to the balance sheet and cash flows, we generated a first quarter record $29 million in cash from operations. During the quarter we spent $1.1 on property and equipment, generated $13.8 million in cash from stock option exercises, the employee stock plan purchases, and used approximately $6.3 million to repurchase 350,000 shares of our stock.

Overall cash and investments balances increased by $38 million and we ended the quarter with just about $523 million of cash in investments. DSOs were 40 days in Q1 down seasonally from 58 days in Q4, better than the 47 days reported a year ago and better than DSO target range of 55 to 65 days.

Total deferred revenue increased sequentially by a healthy $6 million to $119.1 million and is comprised of $106.3 in current defers and $12.8 million in long deferrals. On a non-GAAP basis we ended the quarter with 104.7 million shares outstanding on a fully diluted if converted basis.

Now, looking forward to Q2 and the remainder of 2008, from a share count perspective we expect shares outstanding to remain relatively flat or potentially decline for the remainder of 2008 depending on how quickly we utilize the $75 million increase in our share repurchase program authorized by our Board this week.

Due to declining interest rate and the use of cash for the Identity Systems acquisition we expect to generate between $2.1 million and $2.4 million of net interest and other income per quarter for the remainder of 2008.

Also as we had previously anticipated as a result of our increasing profitability and full utilization of our historical net operating losses our income tax rate took a step function increase this quarter.

While our tax provision will remain highly dependent on our geographic mix of earnings we continue to expect our GAAP tax rate to be roughly 30% on a GAAP basis and on a non-GAAP basis we expect the tax rate to be approximately 29%. This could increase by about a point if the R&D tax credit is not extended in 2008.

Q1 was another good quarter for Informatica and based on our improving global performance we are particularly well positioned to execute on the acquisition of Identity Systems which we announced today. Identity Systems, as Sohaib mentioned, offers a differentiated scalable identity resolution technology that compliments our existing products.

Founded in 1986, Identity Systems employed about 55 people distributed between the US, Asia Pacific, Europe and India and we will retain essentially all of their employees. The purchase price will be $85 million and this will be a cash transaction. We expect to close this transaction in the next month or so.

In the second quarter we expect to incur typical one-time charges associated with an acquisition of this size. We expect that Identity Systems will contribute about $8 to $10 million in total revenue for the remainder of 2008 and this is after the normal purchase accounting haircut that we will need to take on deferred revenues.

From a non-GAAP EPS perspective we expect the acquisition to be dilutive to earnings by about $0.02 in Q2 neutral to $0.01 dilutive in Q3 and should become modestly accretive by the fourth quarter of 2008. In 2009 we expect Identity System to add at least $20 million to $25 million in total revenue and to be accretive to non-GAAP earnings.

Now, including the dilutive impact of the Identity Systems acquisition in the second quarter and adjusting for the close rates that we saw in Q1 we are setting Q2 ’08 revenue targets between $108 million and $111 million with non-GAAP EPS of $0.14 to $0.16.

We are raising our revenue guidance for the year 2008 to a range of $448 million to $465 million to include the acquisition of Identity Systems and we are adjusting our 2008 non-GAAP earnings per share target by only $0.01 to arrange a $0.69 to $0.75 to reflect the modest dilution expected from the acquisition in the next quarter or two.

Please remember our non-GAAP EPS targets do not include the after tax impact and estimated $0.01 per share per quarter for the amortization of intangible so this is higher than it has been in the past because of the anticipated closing of the acquisition. The facility restructuring charge of approximately $0.005 per share per quarter and the tax affected impact of stock option expense of approximately $0.03 per share per quarter.

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

Sohaib Abbasi

Q1 was a good start to 2008. To maintain a momentum we took an important step with the acquisition that we announced today. I’ll provide you some additional information on Identity Systems to showcase its future role and ongoing strategy.

Identity Systems was founded as a Search Software America, SSA in 1986 and currently is a part of Nokia, the world leader in mobility. Identity Systems offers differentiated software to search, match and resolve identification data across multiple systems and more that 60 languages.

Identity resolution is a key enabling technology for a broad range of IT initiatives including data governance, math related management, customer relationship management, government intelligence and financial obligations such as anti money laundering.

Globalization and e-commerce are leading to greater diversity of identity information in IT systems that require cross language capabilities. In addition exploding data volumes dictate far greater scalability than the traditional matching technology. Today most IP organizations hand code the IT projects dealing with identity data. It is estimated that organizations annually spend more than $450 million in such projects.

By automating the process Identity Systems offers a better alternative. Identity Systems delivers the most comprehensive set of fuzzy algorithms with built in support for more than 60 languages to enable precise identity search and matching across immense volumes of data in real time.

In fact they deliver proven and differentiated value to customers and partners, accuracy, high performance scalability and cross language support. Government intelligence agencies around the world rely on Identity Systems accuracy to meet their stringent requirements.

In addition, a leading data services bureau benefited from Identity Systems high performance scalability by processing 12 million transactions per day using 2.6 billion records stored in 18,000 files. Hewlett Packard selected Identity Systems to utilize the comprehensive cross language support for customer identity data required by their operations in 178 countries.

More than 500 customers worldwide rely on Identity Systems including leaders in public sector, financial services, law enforcement and homeland security, healthcare and telecommunications. These customers include US Internal Revenue Service, Hong Kong Customs, GE Capital, British Telecom, AT&T, Equifax and Experian. In addition Identity Systems partners include Oracle Siebel, Dun & Bradstreet and ChoicePoint.

The combination of Identity Systems and Informatica will offer the most advanced data quality products. This combination will advance our leadership in three ways. First we will offer our customers additional innovative capabilities for identity search and resolution.

Second, it will extend our data quality products with differentiated cross language identity matching capability. And third, our customers will benefit from the near-universal access of our leading data integration platform to integrate their data including identity data.

I look forward to welcoming the Identity Systems employee to Informatica upon successful close of the combination. Their impressive accomplished are testament to their creativity and hard work. Together with Identity Systems we will deliver a differentiated and compelling product to further advance Informatica’s leadership in the data integration and data quality categories.

To sum up our results are a good indicator of sustained customer demand even in these times of change and uncertainty. To pursue this promising opportunity our growth strategy remains the same. Growth and diversification beyond our primary geographic region, growth of our aggress for market and continual technology innovation in all four categories, data integration, B2B data exchange, on demand and data quality.

So, with I will open it up for your questions as we requested earlier we would appreciate if you could confine yourselves to one question.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Michael Nemeroff - Wedbush.

Michael Nemeroff - Wedbush Morgan

To clarify on the guidance, that $108 million to $111 million revenue for Q2 ’08 does that include or exclude the impact of Identity?

Earl E. Fry

It includes the impact of Identity Systems but that’s only going to be for a part of the quarter. So both the revenue and the earnings guidance includes the impact assuming the acquisition closes some time in May and it includes typical acquisition costs that we would incur specially in second quarter.

Michael Nemeroff - Wedbush Morgan

And how much in revenue exactly did you think that Identity was going to add during Q2?

Earl E. Fry

I didn’t say specifically. We expect it after the purchase accounting haircut that we are going to need to take and that haircut will be more severe in the first few months and obviously lessens over the course of the next 12 months. We said, we expect it to add about $8 million to $10 million for the year so you can guess, that’s going to be a marginal add in Q2 and then more meaningful add in Q3 and then a more meaningful add again in Q4.

Michael Nemeroff - Wedbush Morgan

Would that mean that the $108 to $111 would it be approximately $1 million added to Q2 overall?

Earl E. Fry

That’s a reasonable way to think about it Mike.

Michael Nemeroff - Wedbush Morgan

On currency, could you tell us what the impact of currency was on both the top line and the bottom line this quarter?

Earl E. Fry

Yes, it’s not what you would naturally expect on a top line standpoint on a year-over-year basis. Currency, assuming constant currency we have got help by about $2 million on the top line and then actually hurt us on the bottom line by about $400K. In large part because we have got large development organizations in India as well as in Israel and we have started to expand over the last couple of quarter our operations in the Latin America.

Michael Nemeroff - Wedbush Morgan

Sohaib did you anticipate there being much integration issues going forward with Identity?

Sohaib Abbasi

I do not. As I mentioned earlier we expect to pursue new opportunities in the area of identity resolution and we also will be working to integrate the technology to expose some of the managing capability as an extension of data quality in both cases I expect that the integration effort would be minimal.

Earl E. Fry

Plus we know where we can get some data migration and data consolidation tools that will help us on the backend integration.

Operator

Your next question comes from Vikram Churamani - Lehman Brothers.

Vikram Churamani - Lehman Brothers

Sohaib, maybe you can give us some qualitative commentary in terms of what you thought was end of the quarter in terms of linearity and what your expectations are for the US environment given the current guidance. And also internationally you are up 50%, what should be the reasonable number for this year?

Sohaib Abbasi

Clearly we were very pleased by the performance in the international regions. We continue to pursue opportunities across the various verticals. In the US we saw opportunities for us to position the unique value proposition of our product I highlighted several wins that we had across various geographic regions where our message of being able to do more with less was in line with what our customers are asking for. We had significant wins in the US.

In terms of the impact of the macro economic conditions, clearly advanced services in the US, we have reported in the prior quarters as early as Q1 of 2007 we saw some of the impact of the uncertainty. And however, across the various verticals we were able to diversify and obviously in 2007 we reported our record result in all of the regions.

In terms of specific observations in Q1 in certain situations we did see that some of our customers had some extra steps that they went through in the deal approval process. However, aside of certain segments within the US particularly in international we did not see any change. And again as I commented on earlier we remain very optimistic about our opportunities in international regions and we are also very optimistic about our ability to position our value propositions to improve operational efficiency across all geographic regions.

Operator

Your next question comes from Frank Sparacino - First Analysis Corp.

Frank Sparacino - First Analysis Corp

Well could you just quantify in terms of financial services, how it performed in the US and internationally on a year-over-year basis in Q1?

Earl E. Fry

Actually the performance that we saw in Q1 was very similar to what we have seen over the last three quarters of 2007. So, a year ago US financial services would have represented plus or minus 60% of our total financial services orders and international would have been 40%. Over the last three quarters of 2007 as well as in Q1 ’08 that relationship basically inverted.

So, we had about 55% to almost 60% of our business in financial services coming out international and the smaller amount coming out of the US. So, relative to a year ago Q1 that would be roughly like a pretty meaningful double-digit decline in US financial services and triple digit growth international financial services.

But again, be careful with the year-over-year comparison because I think once we get to Q2 then we have pretty normalized comparisons. And I would expect if trends continue the way they have over the last three or four quarters if you ask that question in Q2 then I am going to say things would look pretty similar year-over-year.

Operator

Your next question comes from Analyst for Tom Roderick - Thomas Wiesel Partners.

Analyst for Tom Roderick - Thomas Wiesel Partners

As related to your partnership with SAP, have you seen any change in that, like in the environment surrounding that since they completed the acquisition of B. Objects?

Sohaib Abbasi

Chris we have a multi faceted partnership with SAP. We have had a go to market partnership with SAP for a number of years. We have talked about our success in that aspect of our partnership over the last several quarters.

We also have a long partnership with SAP where they embed our Complex Data Exchange and branded conversion agent as an integral part of NetWeaver. And most recently in post Q2 of 2007 we announced a new OEM partnership where they were planning on embedding our data integration product as part of their business intelligence products.

Subsequent to their acquisition completion of acquisition of Business Objects, they have met with us to go over the many aspects of our partnership. And out of the first two aspects we expect to continue to partner with them, they have chosen that they will instead of embedding Informatica product that they never shift. They will be considering that is now available to them.

So overall, I expect that we will continue to partner with them. I have had several meeting with their senior management where we both are committed to our joint customers. We have over 400 joint customers.

And in fact, we continue to add new customers. City of San Diego was using Informatica in order to migrate their data to an SAP application. I expect that we will continue to have a strong partnership with SAP going forward.

Operator

Your next question comes from Derrick Wood - Pacific Growth Equities.

Derrick Wood - Pacific Growth Equities

It sounded like US had some lengthening sales cycles towards the end of quarter but you remain a pretty high priority in budget spending and that’s still pretty good overall about how the outlook is in the US. Could you just talk about that a little more?

And then international clearly a big driver for you and a bright spot overall. Can you just characterize what’s driving that growth and for any reason would you expect any slow down or do you see this continuing as you look at this year?

Sohaib Abbasi

We are very pleased with the performance of our international regions, in fact the last several quarters the international regions have consistently delivered strong results. Europe we have seen several quarters of good growth, similarly we have seen several quarters of good growth in Asia Pacific as well.

We made an investment several years ago dating back early 2005 to expand our operations in the emerging markets with an emphasis on Asia Pacific, Latin America as well as parts of Europe. And those investments started to pay off middle of last year and have consistently delivered very strong results. I do not anticipate any change in our international organization operational discipline. I expect to see strong results in all of the international regions.

In US, in light of the current macro economic environment, the IT organizations are now emphasizing and focusing on projects that have a faster return on investment and are focused on both IT efficiency as well as operational efficiency. We have the opportunity with our products to position our products for organizations do more with that. In fact, I have cited one example of Dell where they have standardized Informatica as a way for them to attain greater IT efficiency through simplification projects.

And there have been several such examples where customers that are looking for ways that they could be better aligned with the macro economic environment they are all seeking ways to do more with that and our products allow them to do just that.

Operator

Your next question comes from Nathan Schneiderman - Roth Capital Partners.

Nathan Schneiderman - Roth Capital Partners

How many deals did you have that exceeded $5 million and did you have any outsized deals where you had ratable [inaudible]?

Earl E. Fry

So, we had three deals over a $1 million. None of them was outsized deals at all. Basically one was in $2 and two of them were $1 million range. So, nothing outsized at all.

Nathan Schneiderman - Roth Capital Partners

Can you just follow up on the big deal side? You are up against an eight comp in the next quarter. As far as the seven figure deals just do you see any issues around that on the comp side in this environment? And then finally can you speak to the DSO print which was pretty good and just what were the dynamics that drove that?

Sohaib Abbasi

Nick, let me comment on the deals and the size of those transactions and I will ask Earl to perhaps share his perspective as well. It is clearly very difficult for us to anticipate how many deals over a $1 million we will close in a given quarter. Obviously we track annual report on those deals and we also track in reports on deals over $300,000. And we were pleased that we had a first quarter record with 32 deals over a $300,000.

That is probably a much better indicator of sustained customer demand as opposed to deals over a $1 million because that reflects that our customers are increasingly using Informatica for broader data integration projects and then embarking on new projects for data quality and B2B data exchange.

Overall, I expect that we will continue the benefit from the sustained customer demand that was evident in this quarter as well as prior quarters and we continue to actually position our technology in broader data integration. And then in many cases our customers are choosing Informatica as a standard.

In some cases that transfers into a single large transaction and in other cases it translates into a significant lifetime value for our customers and in some cases those customers have over a period of time licensed more Informatica products then those that might have had a single large transaction with us.

Earl E. Fry

From a DSO standpoint, yes, we had good performance. Q1 as always is going to be a seasonal low point for DSOs in large part because from the total revenue perspective our revenue and our billings are much more linear in Q1 just because there is a lower percentage of because of the license seasonality in Q1. Yes it was good; our collection group did a great job. We had a record Q1 cash flow generation as well. So, I am actually pretty happy with where we ended up in terms of DSO.

Operator

Your next question comes from Sasa Zorovic - Goldman Sachs.

Sasa Zorovic - Goldman Sachs

Could you please tell us little bit how you saw that competitive landscape change or evolve throughout the quarter please?

Sohaib Abbasi

Sasa, we did not see any significant change in the comparative landscape the majority of our deals. As we commented on prior quarter calls we are uncontested by commercial competitors. We continue to convince customers that they are better off buying software as opposed to building it themselves and with each success we end up with even more compelling story for our customers.

In terms of the commercial competitors as in prior quarters we competed against IBM for often than the other competitors. In between 15% to 20% of the deals for the last several quarters we have competed against IBM and that number has not changed significantly. We won this significant majority of our deals against IBM and in terms of the other competitors we saw the same mix of competitors and again no other competitor we saw in more than 5% or 10% of our transactions.

Sasa Zorovic - Goldman Sachs

You are fairly active or rather you benefit really from this growth of whole migration towards software as a service software delivery now. Is this marked environment do you see that on the margin accelerate any or slow just like the rest of business or you can provide us any commentary regarding that specific part of your business?

Sohaib Abbasi

We have seen a very good uptake of the product that we offer to the customers that are using some of the more popular software service offering. We have a very comprehensive offering for that customer base. We have an extension to our flagship product, PowerCenter, that provides a remote connector for customers to do off-premise and on-premise data integration and we saw good uptake of that.

We have over 50 customers, close to 60 customers, that are now using Informatica to integrate data stored in salesforce.com with on-premise and every quarter we are adding more and more logos of our customers that are using Informatica for doing cross enterprise data integration.

We also had a good uptake of our new on demand software, the service offering where we don’t require any software to be installed by the customer. And in the most recent quarter we had Lincoln Financial as well as Standard & Poor’s that signed up as a subscriber to that service.

In general we will benefit from the broader trend of the growth that the software to service vendors are experiencing. With every time a customer relies on software to service they fragment their data and they no longer have the data on-premise and have even less control over that data. And yet all of the requirements in terms of regulatory compliance as well as ensuring that they have the holistic view of all of that information require them to integrate all that data.

Given that Informatica is the only one that has not only outlined the road map but has delivered products and software services, we stand to benefit from it more than any other competitor.

Operator

The next question comes from Nabil Elsheshai - Pacific Crest Securities.

Nabil Elsheshai - Pacific Crest Securities

Could we talk about Identity Systems, could you just give us a little color on how they go to market? What kinds of projects they tend to get involved with? I have always seen them at CDI and MDM conferences And then just any color in terms of customer overlap or have you ever gone to market together, had a partnership in the past?

Sohaib Abbasi

Identity Systems has a very versatile technology and it is a very critical technology. Because in a variety of applications the questions that most customers need to ask is, do they know all there is to know about a particular customer or about a particular individual. And that is complicated by the fact that the identity of individuals is represented not just by the name but by the address, by the zip code, by the phone number, by the organization, and that changes over time.

And increasingly as globalization requires customer information to be stored in multiple languages it becomes harder and harder for organizations to be able to identify all of the relevant information about an individual or about an organization. So not only as you point out is it relevant for customers that want a single view of a customer but intelligence agencies with their watch list need to identify very quickly whether or not they are looking at the same individual or not.

Similarly in financial applications and for money laundering has a very similar requirement. When it comes to data governance very similar requirement, so it is a very versatile technology that has applications in a lot of the areas. A lot of which we mentioned earlier including customer relationship management (CRM) services as well as sales. Intelligence applications, any applications that requires knowledge of a person or an organization and obviously that’s a very broad definition of it.

Now we are particularly excited about the fact that it allows us to take our data quality products to the next level. The traditional data quality products have only dealt with quality of different columns and fields. This product has some very unique capabilities that provide semantically rich capabilities where it can actually tell based on the population what is the common name and what is not. And based I make much better matching then is possible otherwise.

[inaudible] technology we have perfected it over a period of 20 years and obviously that allows us to take data quality to the next level. So, we are very excited both of our incremental opportunities and the ways that it would complement and strengthen our leadership in data quality and data integration.

Operator

Your next question comes from Brad Whitt - Broadpoint Capital.

Bradley Whitt - Broadpoint Capital

G&A expense, the fact you dropped pretty substantially in this quarter, was there anything unusual there and should that be the base that we use for modeling purposes going forward?

Earl E. Fry

No, Brad. I think that should come back up a little bit and that line in particular will probably get hit by some incremental cost related to the acquisition so I would not use Q1 as a new base line.

Operator

Your next question comes from Daniel Cummins - Soliel-Lime Rock Research.

Daniel Cummins - Soliel-Lime Rock Research

What’s coming out of your R&D group this year organically that your sales force might be looking forward to and if you could just discuss the acquisition. If you go to the website there is four functional practices listed. And two of them I’d say appear to be heavily skewed to financial services, one being the compliance practice and the other one just being straight name and address, I’m curious about their overall revenue exposure to finished services?

Sohaib Abbasi

Our development organization has done a very impressive job of delivering new product capability for 11 of the past 12 consecutive quarters. Across the four categories that we talk about data inspiration, data quality, on demand software to service, and data quality we have a very aggressive plan to deliver new product release. In fact, we will be announcing several of the new innovations at Informatica World coming up in Las Vegas in June and we look forward to seeing all of you over there.

In all of the four categories we will be delivering new product capability. In the most recent releases we have delivered advances to have better inspiration, to have support for real-time, to have support for integration competent centers, operational efficiency being one of the key value propositions. And we will continue to organically deliver more product capability, more innovations as we have for the last 12 consecutive quarters.

Identity Systems has had good success in many verticals. You cited two of them in financial services. They have good success in public sector, government intelligence agencies around the world relying on Identity Systems, so do immigration services and custom services. They have had good success through partners Oracle Siebel and that their technology Dunn & Bradstreet embeds their technology. And a number of other vendors embed their technology.

So their technology is very versatile and suitable across multiple verticals. To some extent Informatica will be in a position to make it available to a much larger install base. And as a result of our customer base we have over 3,000 logos. We will be able to position it as part of almost all of our transactions.

Operator

Your next question comes from Patrick Walravens - JMP Securities.

Patrick Walravens - JMP Securities

What was Identity Systems 2007 revenue?

Earl E. Fry

As a product line within a subsidiary within Nokia, we won’t be disclosing all of that. I can just say that they have been relatively flat or consistent in terms of their revenue stream for the last couple of years.

Operator

Your next question comes from Brent Thill - Citi.

Brent Thill – Citi

Earl, on your guidance for the year, can you just help us to understand your assumptions. Do you expect the US to essentially be flat to on a 5% and the international markets carrying the rest of the load? How do you think of what you set forth in the guidance in terms of the recovery for the US business?

Earl E. Fry

So, I think what we are expecting is basically something fairly consistent with what we saw in Q1. So not a lot of growth in the US and most of the growth coming from our international operations, not only India but also what has been in more of our emerging areas in terms of Asia-Pac as well as Latin America. So it’s fair to assume that most of the growth that we are looking for this year is going to be international.

Operator

This concludes the Q&A session.

Sohaib Abbasi

Our Q1 results are further evidence that our strategy and the team’s operational discipline are delivering consistent record results. Our growth strategy remains the same. We look forward to seeing you at Informatica World in Las Vegas in June. Thank you.

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