Informatica Inc

NYSE:INFA

Earnings Call Transcript 2021-Q3

[Operator]

Good morning, everyone, and welcome to Informatica’s Third Quarter 2021 Earnings Conference Call. My name is Lauren, and I’ll be your event specialist today. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions]

I would now like to introduce our host, Victoria Hyde-Dunn, Vice President of Investor Relations. Victoria, please go ahead.

[Victoria Hyde-Dunn, Vice President of Investor Relations]

Thank you, Lauren. Good morning, and thank you for joining us to review Informatica’s third quarter 2021 earnings results. With me on the call today are Amit Walia, Chief Executive Officer; and Eric Brown, Chief Financial Officer. Before we begin, we have a couple of reminders. Our earnings press release and slide presentation are available on our Investor Relations website at investors.informatica.com.

During this call, we will be making comments of a forward-looking nature. Actual results may differ materially from those expressed or implied as a result of various risks and uncertainties. For more information about some of these risks, please review the company’s SEC filings, including the section titled Risk Factors included in our IPO prospectus dated October 26, 2021. These forward-looking statements are based on information as of today, and we assume no obligation to publicly update or revise our forward-looking statements, except as required by law.

Additionally, we will be discussing certain non-GAAP financial measures. These non-GAAP financial measures are in addition to, and not substitute for measures of financial performance prepared in accordance with GAAP. A reconciliation of these items to the nearest U.S. GAAP measure can be found in this morning’s press release and on our slide deck available on our Investor Relations website.

With that, it’s my pleasure to turn the call over to Amit.

[Amit Walia, Chief Executive Officer]

Thank you, Victoria. Good morning, everyone. It is definitely early morning here for all of us on the West Coast. We are excited to host our first earnings call on the heels of a strong third quarter and a very successful initial public offering. I would like to thank our employees, customers, strategic partners, sponsors and investors, all of whom helped us achieve this important milestone.

Now before I share our Q3 results, I would like to provide an overview of the market opportunity and our unique position in the market driven by our product-led innovation. Informatica is the leader in the cloud data management, purpose-built for cloud native, multi-cloud and hybrid workloads. Our vision is to be a cloud-neutral single source of good data management platform for the enterprise. The rise of digital transformation, the increase in data volume, data types, data latency, data fragmentation and the adoption of multi-cloud and hybrid architectures have changed how organizations gather, share and use data for decision-making and running their businesses.

Businesses today have tremendous fragmentation and complexity in a multi-cloud hybrid world. SaaS apps such as Salesforce, ServiceNow, Adobe and work based cloud platforms such as AWS, Azure and GCP, cloud data platforms such as Snowflake and Databricks and many cloud databases are all in the router, but many on-prem legacy apps are still operational. A hand coded on a limited single-point solution simply cannot fulfill the needs of a modern digital enterprise that wants to move fast in its data-led digital transformation.

So five years ago, we had Informatica undertook a product innovation-led approach to solve these complexities of data management and set out an ambitious strategy to transform our business from an on-prem, single product-centric software company to a cloud-native technology platform supporting multi-cloud and hybrid work environments. We re-architected from ground up a modern metadata centric data management platform that is cloud-native, API enabled, leverages many open source technologies and uses a micro services-based architecture, which can be deployed on-prem or in the public cloud.

We built our AI engine CLAIRE that is embedded in the platform to drive intelligence and automation at scale. We call this platform the Intelligent Data Management Cloud, or IDMC. As we transform our financial model from a perpetual license and maintenance revenue model to a subscription-based revenue model with cloud revenue as the fastest-growing component, these significant initiatives were all completed ahead of the IPO.

With that as background, I would like to now discuss how Informatica has emerged as a leader in data management and our strategies for continued growth. I will provide an overview of five key unique attributes and discuss our business updates, first and most important is product innovation. We’ve always had this clarity to focus on data management category, and have dedicated significant resources, including over $1 billion in cumulative R&D spending over the last five years.

These investments have resulted in best-of-breed solutions on the industry’s only AI-powered data management platform, IDMC, for multi-cloud and hybrid workloads. We are a rare software company that is a leader in every Gartner Magic Quadrant it competes in. And in 2021, it marked the sixth straight year that Informatica was named a leader in all of our five data management magic quadrants. IDMC platform runs at a substantial scale. We processed over 23 trillion cloud transactions per month as of September quarter end, with an unparalleled breadth of over 50,000 metadata-aware connectors. And our new product innovation represented 85% of our subscription ARR in Q3.

Second, it’s our vendor neutrality. We call ourselves the [indiscernible] of data, and we believe in winning together with our partners. Enterprises across the globe have invested in a heterogenous infrastructure and expect vendor neutrality. We sell our solutions through a direct global sales team, which is enhanced and complemented by relationship and collaboration with strategic partners, including hyperscalers, global system integrators and channel partners. Our partner strategy is focused on delivering a complete end-to-end solution for our customers, driving general awareness of our platform, and broadening our distribution and reach to new customers.

Third, we participate in a $44 billion addressable market, with cloud increasingly growing faster than on prem workloads. Accelerated adoption of cloud, digitization, expanded need for intelligent analytics and large-scale disruption in data warehouses and databases is fueling the demand for data management solutions that are cloud leader and delivered on a platform versus silo best of refarming.

Fourth is our strong global customer base. The effectiveness of our go-to-market strategy is evident with our 5,000-plus customers in more than 100 countries and territories worldwide. Our platform is used globally by organizations of all sizes across a broad range of industries, including government agencies and high-profile brands that trust us with their data management needs. We are well represented in nine of the Fortune 10 and 84 of the Fortune 100.

Our Net Promoter Score is 55, and we are honored to be recognized recently for an outstanding customer service experience by J.D. Power in Certified Technology Service and Support Program 2021.

Finally, we have the additional opportunity to migrate our maintenance customers to cloud subscription revenue. The majority of our $551 million of maintenance ARR comes from traditional data integration products. Three quarters ago, we started a cloud migration program to support customers’ migration efforts based on their demand cycles. Today, only 1% of our installed base is migrated to the cloud, and we believe this is a long-term incremental opportunity for us.

With that as background, now let me share the summary of our Q3 results. In Q3, total annual recurring revenue or ARR growth accelerated 17% year-over-year to $1.3 billion. This was fueled by subscription ARR of $736 million, growing at 36% year-over-year. Now, as I said before, 85% of this subscription ARR comes from our net new products on IDMC. Cloud ARR growth accelerated to 44% year-over-year. And total revenue grew 11% year-over-year to $362 million, driven by subscription revenue of $194 million, growing at 31% year-over-year.

Next, let me provide some business highlights from the third quarter to accentuate the numbers. Starting with product innovation, we extended our IDMC platform with several product releases. In Q3, we delivered a unified cloud-native data governance and catalog SaaS offering with integrated data VI covenants and, CLAIRE, our AI engine, powered intelligent automation.

Second, we accelerated our customers’ MDM deployment with an enhanced no-code application composer and CLAIRE powered customer record matching recommendations that simplify and enhance user experience and dramatically improve productivity.

And lastly, in support of our data warehouse and data like environment and our customer sites, we extended our Informatica Cloud Mass Ingestion solution, providing customers with a very simple result approach to ingest data from SaaS and on-prem apps to support application synchronization and analytics in the cloud. We also introduced Informatica’s petabyte scale ELT processing that now delivers up to 10 times faster performance for Snowflake, Big Query and Databricks Sequel, enabling users beyond IT to leverage the performance and scale of these cloud-native iPhones. We have additional plans to expand IDMC capabilities in the fourth quarter and look forward to sharing future updates.

Now turning to our strategic partners, our partnership with cloud hyperscalers, including AWS, Microsoft Azure, Google Cloud, Snowflake and Databricks, continues to grow. In Q3, we observed a 60% sequential quarter-over-quarter growth in core sections. IDMC is also available on AWS, Azure and Google Cloud marketplaces. And in Q3, we delivered over – rather we achieved over 150% sequential quarter-over-quarter growth in marketplace transaction volume. A very valued ecosystem partner is SnowFlake.

In September, we announced with an on-prem cloud monetization program to help our joint customers modernize our traditional power-centric ETL and ELT workloads to the cloud 12 times faster than before with 90% or greater automation conversion to the Snowflake Data Cloud. One of the largest global pharmaceutical companies intends to migrate 25,000 mappings power-centric data mappings to IDMC and repoint the data cloud to Snowflake Data Cloud.

Turning to customers. In Q3, we added 11 net new subscription customers that spent more than $1 million in subscription ARR, ending the quarter with a record 127 customers and 44% year-over-year growth. We’re also introducing a new metric, customers that spend more than $100,000 in subscription ARR, which totaled 1,577 customers, an increase of 28% year-over-year. Enterprise demand remains strong and we sell into accounts. We win with our single technology cloud platform offering, IDMC. 55% of subscription customers are net new with great results from our go-to-market strategy.

As customers see the value of our offering for their initial use cases, they often expand into additional use cases across the organization, and we have seen that in our overall average ARR per customer roughly doubled over the last three years. This expansion is also aided by a recent introduction of consumption-based pricing for our cloud products. In fact, our average ARR per customer was $208,000 in Q3, double where it was three years ago, with an active base of more than 3,500 subscription customers.

Let me give you three customer examples to enhance these. One of the new logos this quarter was Prudential Financial. It’s a Fortune 500 Finserve leader, with more than $1.5 trillion in assets under management across the globe. Prudential chose Informatica’s data coverage solutions and cloud data quality to help build Prudential’s model enterprise data platform hosted in the plant. The trusted data foundation will help them drive strategic initiatives around customer centricity, application modernization and cloud data analytics.

Informatica was a critical component of Prudential’s global data strategy. This partnership enables Prudential to discover and cover data wherever it resides, accelerating its cloud migration and unlocking new efficiencies across its high-performing organization. Now we also continue to observe great traction among our customers to land and expand model. I give you two examples. CVS Health, a global Fortune 100 health care leaders that operates an integrated mode over 10,000 pharmacies, tens of millions of Aetna health insurance members and a growing network of community health up clinics.

As CVS modernizes its IT infrastructure in the cloud, it needed a partner to help improve data quality and accelerate the migration of legacy systems with minimal impact on service times of business disruption. Informatica data quality replaces work done by 20 full-time data managers using AI-powered quality checks to reduce potential errors by 99% and accelerate client reporting from six months to two to three days.

CVS continues to invest in its partnership with Informatica, most recently in Q3 going through an expanded deal for Data-as-a-Service, which enriches address and geocoding data. And finally, another customer of ours is our international customer, Gras Savoye, a leading insurance brokerage firm in France and a subsidiary of Willis Towers Watson. The key challenges included manually intensive data quality checks, delayed delivery of reporting and analytics and missing connections between cloud, on-prem and partner data stores. Gras Savoye chose Informatica’s cloud integration solution as a central platform for all its data management needs to improve operational efficiency and its alignment with Willis Towers Watson, eliminating layers of legacy tech debt and migrating essential services without business disruption. Now Gras Savoye’s recent subscription to our cloud solution follows their existing Business 360 partnership they have with us, which started in 2020, which helped them launch their KYC or Know Your Customer data foundation in less than five months while working remotely during the pandemic.

Now in terms of our Board, we were also excited to appoint Betsy Rafael to our Board of Directors and the Chair of our Audit Committee. Betsy is a globally recognized finance executive with more than 30 years of experience in the technology industry, and we are excited to welcome Betsy to our Board.

So as I summarize, I believe Informatica is truly a unique company. We have fully completed our business model transformation to our recurring revenue business model. Q3 subscription ARR is growing at 36% year-over-year and Cloud ARR growth accelerating to 44% year-over-year. We have established ourselves as a clear leader of a $44 billion addressable market with a large innovation lead in the market, processing over 23 trillion cloud transactions per month on our IDMC platform.

We have a proven land-and-expand model with more than 5,000 customers and upmarket focus on large enterprises. And finally, we have solidified strong profitability through our innovation-led transformation and see strong momentum with multi-cloud and hybrid deployments as they continue to help customers with their cloud migration cores.

With that context, let me now turn the call over to Eric. Eric?

[Eric Brown, Chief Financial Officer]

Thank you, Amit, and good morning, everyone. We appreciate you joining us on our first earnings call following our October 27 IPO. Our third quarter results were better than what we initially forecasted, or consistent with the midpoint of the preliminary ranges we filed in our final S-1 last month. We had an excellent third quarter with strong revenue growth, increasing mix shift to ratable revenue and subscription expansion with cloud ARR growth accelerating to 44% year-over-year.

Before discussing our Q3 earnings results and our financial outlook for the fourth quarter and full year 2021, I’d like to first review some important aspects of our financial model, considering that some of you may be new to the Informatica story. Let me start with the background of our revenue drivers. Our subscription revenue is recognized ratably for our SaaS offerings and partially recognized upfront for our self-managed offerings per ASC606. We provide guidance and disclosure on ARR metrics to provide an enhanced view of our business as ARR closely tracks the recurring cash flow characteristics of our business.

Maintenance represents the ratable revenue on support contracts for a pre-existing installed base of perpetual license and professional services revenue reflects typical consulting and education revenue, which is recognized as work is performed. Finally, perpetual license revenue has now become an insignificant percent of our total revenue, declining from roughly $300 million annually several years ago to around $45 million today on a trailing 12 months basis. Prospectively, we have largely stopped selling perpetual licenses, except for pre-existing contractual commitments and smaller distribution-led geographies like Southeast Asia. The majority of our product development and go-to-market efforts are focused on all things related to subscription and cloud.

As of today, for example, we estimate that over 80% of R&D efforts are related to cloud products. As a result of this focus, subscription revenue grew 31% year-over-year, and now 92% of our GAAP revenue is recurring in Q3. This gives us P&L predictability and leverage at the bottom line. This is demonstrated by a non-GAAP operating income margin of 25% through the first nine months of 2021. Our subscription products are sold with contracts primarily with a one, two or three-year term, with an average new contract from slightly over two years, a duration that has been relatively constant over the last few years.

Now moving on to our third quarter financial results. Total revenues grew 11% year-over-year to $361.8 million. The increase in total revenue growth versus Q2 is driven by the strong growth in subscription revenue, increasing 31% year-over-year to $193.7 million and representing 54% of total revenues.

Total recurring revenues of $331.3 million is 92% of Q3 GAAP revenues. As Amit mentioned earlier, we saw strong demand for our IDMC Cloud platform and continued execution on our land-and-expand strategy. Maintenance and professional services revenues were flat year-over-year and represented 46% of total revenues in Q3. Stand-alone maintenance revenue represented 38% of total Q3 revenues. Consulting and education revenue make up the difference and fluctuates based on customer requirements, representing 8% of total Q3 revenues.

Perpetual license revenue was down to $2.8 million in Q3 and represented less than 1% of total revenues and only 3% of total revenues on a trailing 12-month basis. Please keep in mind that we are not actively signing perpetual licenses to new customers and expect this to remain an insignificant percentage of total revenues. We also expect that maintenance will gradually decline as we continue to emphasize net new business in the form of subscription and cloud.

From a growth standpoint, we believe the best way to think about revenue growth is the trends in subscription revenue. As customers move to the cloud, we expect the current 58%, 42% mix between subscription and maintenance revenues will continue to improve over time, with subscription revenue growing faster as a percentage of total revenues. We continue to see strong demand for our solution offerings internationally.

Revenue from the U.S. grew 9% year-over-year to $228.8 million, representing 63% of total revenue. Revenue from outside the U.S. grew 13% year-over-year to $132.9 million, representing 37% of total revenue. We are still in the early stages of our international expansion of the cloud, and we see a significant opportunity in front of us as countries outside the U.S. catch up in terms of cloud adoption.

We also focus on ARR as an important metric for understanding our business since it tracks the annualized cash value collected over 12 months for all our recurring contracts, irrespective of whether it’s a maintenance contract, a ratable cloud contract or a self-managed term-based subscription license. ARR expansion is a function of upsell, cross-sell on our large installed base for sales to net new logos.

For the third quarter, total ARR increased 17% year-over-year to $1.3 billion. Subscription ARR increased 36% year-over-year to $735.7 million and represented 57% of total ARR, up almost 8 percentage points from a year ago and up 2 percentage points sequentially. This is a healthy growth rate for a $0.75 billion subscription business.

Cloud ARR growth accelerated to 44% year-over-year to $287.2 million versus 39% year-over-year growth last quarter. Cloud ARR now represents 39% of total subscription ARR, up 2 percentage points from a year ago and up 1 percentage point sequentially. We intend to continue emphasizing cloud in favor of self-managed new ARR bookings to drive more overall cloud ARR mix over time. As enterprises extend their data management platform to the cloud, we believe we are well-positioned to capitalize on the secular trend of cloud migration.

And lastly, maintenance ARR declined, as expected, 1% year-over-year to $551.7 million and represented 43% of total ARR. The decline is directly related to the fact that we have significantly reduced our perpetual license sales by design to $44.6 million on a TTM basis ending Q3 2021, compared to $94.3 million a year ago. We are past peak maintenance ARR as we have completed the shift to a recurring revenue model.

Another important metric of customer success is the subscription net retention rate for subscription NRR. In Q3, subscription NRR was 116% compared to 113% a year ago. This improvement was driven by strong renewals and upsell across our expanded subscription offering on the IDMC platform. We’ve seen quarterly fluctuations in subscription NRR in the past, and we expect the fluctuation to continue, due in part to the timing of large initial deal sizes expanding in the first year and the transition of our cloud business to usage-based billing. Notwithstanding that, we are operationally focused on driving subscription NRR above 120% as a longer-term goal.

Before moving to our profitability metrics, I would like to point out that I will be discussing non-GAAP results going forward, unless otherwise stated. Q3 gross margin was 82.9% and consistent with a long-term model between 82% to 84%. Operating income was $94.7 million, resulting in an operating margin of 26.2% compared to 30.6% a year ago. The year-over-year change is largely driven by the fact, we accelerated our investments in all functional areas to capture the significant momentum we’re seeing in the market, and we had increased expenses heading into our IPO.

Rounding out our profitability metrics, adjusted EBITDA was $100.9 million, net income was $57.1 million and net income per diluted share was $0.23 based on 249.3 million diluted shares outstanding. The basic share count for Q3 was 244.7 million shares.

Turning to the balance sheet, as of September 30, 2021, we had cash and cash equivalents of $417 million, with another $34.8 million of short-term investments. After net proceeds from the IPO and the full exercise of the greenshoe, we raised $915.7 million net that was used to pay down debt versus a net cash utilization of $30.2 million.

On a pro forma basis, as of September 30, 2021, we had cash and cash equivalents of $386.8 million. Factoring in short-term investments of $34.8 million, net debt was $1.45 billion, and with a trailing 12-month adjusted EBITDA of $401.3 million, this results in a net leverage ratio of 3.6 times. On a pro forma basis, as of September 30, 2021, this is a deleveraging of approximately 2 turns versus last year and in line with targets for post-IPO deleveraging that we communicated on the IPO road show.

Going forward, we believe the business will naturally delever due to our healthy cash margins, and we intend to steadily reduce our net leverage ratio over the next two to three years to approximately 2 times. Unlevered free cash flow after tax was $62.9 million as of September 30, 2021, and it was $227.7 million for the nine-month ending period. Year-to-date GAAP operating cash flow is $142.4 million, an increase of 60% year-over-year due to top line growth and working capital management.

Now before guiding for the fourth quarter and full year 2021, I would like to provide some additional color on certain financial assumptions. First, let me provide an update on shares outstanding. As I mentioned earlier, in Q3, we reported a basic and fully diluted share count of 244.7 million and 249.3 million shares, respectively.

For the fourth quarter, we expect weighted average basic and fully diluted shares outstanding of 269 million and 278 million shares, respectively, taking into account the post-IPO grants we made in mid-Q4. Looking at the full year 2021, we expect ending basic shares outstanding to be 278 million shares. The year-end increase in share count includes Q4 post-IPO RSU grants for our global workforce as well as the IPO and the fully exercised greenshoe.

Second, let me discuss our expectations for P&L tax rates. We reported Q3 2021 non-GAAP net income and a non-GAAP tax rate of 22% and expect to use the same 22% non-GAAP tax rate in Q4 2021 as we believe this is a good approximation for full year cash taxes. We have also presented the 2020 non-GAAP P&L with the same 22% non-GAAP tax rate. Next year, we are estimating a 23% non-GAAP tax rate for the fiscal year 2022. And looking at fiscal 2023 and beyond, we expect a long-term steady-state non-GAAP tax rate of 24%, which reflects where we expect cash taxes to settle based on our structure and geographic distribution of operational activity.

Third, we expect a sequential step down in GAAP net income due to the previously communicated branch of employee stock options post IPO and debt refinancing activities in October. In terms of Q4 charges, we expect GAAP-only stock comp charges of approximately $30 million, onetime GAAP only fees of $31 million on the debt refinancing and $23 million of non-GAAP expense and the other income and expense line consisting primarily of interest expense.

To assist with modeling, for Q4, we expect non-GAAP net income in the range of $51.7 million to $56.7 million. This considers the 22% non-GAAP tax rate and excludes refinancing and stock comp charges. And we expect a GAAP net loss range of approximately $63 million to $68 million in Q4.

Now taking this all to account, we are establishing guidance for the fourth quarter of 2021 ending December 31, 2021, as follows. We expect GAAP total revenues in the range of $393 million to $398.5 million, representing approximately 5% year-over-year growth. We expect subscription ARR in the range of $795.5 million to $800.5 million, representing approximately 31% year-over-year growth.

We expect cloud ARR in the range of $314.5 million to $319.5 million, representing approximately 40% year-over-year growth. And we expect non-GAAP operating income in the range of $90 million to $95 million. Taking into account the over performance in Q3 and flowing this through to the end of the year, the guidance for Q4 assumes a modest increase in our full year expectations for subscription ARR, total ARR and GAAP revenue.

This translates into the following full year 2021 guidance assumptions. We expect GAAP total revenues in the range of $1,430.8 million to $1,435.8 million, representing approximately 8% year-over-year growth. We expect subscription ARR in the range of $795.5 million to $800.5 million, representing approximately 31% year-over-year growth. We expect Cloud ARR in the range of $314.5 million to $319.5 million representing approximately 40% year-over-year growth. We expect non-GAAP operating income in the range of $347.5 million to $352.5 million, and we expect unlevered free cash flow after tax in the range of $288.7 million to $298.7 million.

Please note that Q4 revenue and non-GAAP operating income will in part be dependent upon the mix of Q4 ARR additions of cloud versus self-managed. A lower relative mix on new self-managed will lead to lower GAAP revenue and operating income.

In closing, our strong third quarter results underscore our ability to execute against a large addressable market. We’re excited to now be operating as a public company as we focus on building long-term success for our customers, strategic opportunities for our partners, long-term value for our shareholders and making Informatica a great place to work for our global employees.

With that, Amit and I are ready to take your questions.

[Operator]

Thank you. [Operator Instructions] Our first question comes from the line of Kash Rangan from Goldman Sachs. Kash, please proceed.

[Kash Rangan, Goldman Sachs]

Hi. Good morning and congratulations on the first quarter as a public company. This go around and nice to see the transition to the business model. I had a question for you, Amit. When you look at the quarter, are there good tangible proof points for customers that are moving their data warehouses to the cloud? Because I think the perception is that there’s a significant amount of on-prem technology. But if you could just disabuse that perception, talk to proof points in the quarter and also your broader view as to how we should be looking at Informatica as it pertains to data warehouses moving to the cloud? And how specifically is Informatica positioned for that opportunity?

And then secondly, if you do have the time, the maintenance installed base is a wonderful asset for the company. How should we be thinking about how you could find ways to monetize installed base and help those customers embark on a cloud journey so you could achieve a lift to your subscription revenues longer-term? Thank you so much.

[Amit Walia, Chief Executive Officer]

Kash, good talk to you again. So if I take the first question, first of all, all of the – if you think about the modern data warehouses and the modern data lakes, pretty much all of our new products, which is 85% of the subscription ARR, is all tied to the new workloads that are happening in the cloud, whether it’s Snowflake, whether it’s BigQuery, whether it’s Azure, whether it’s Redshift, none of that is tied to any legacy data warehouse. The legacy data warehouse attach was our legacy product PowerCenter. So pretty much 100% of our new products on IDMC are geared towards that. So there’s none of that attached to anything legacy, so just one good thing to clarify.

And in that, obviously, fits not only new workloads, which is what pretty much 100% of the growth was in the last couple of years, now starts the journey to migration, which is what we talked about as we started three quarters ago very much an infancy. And I think to your question, look, I think we’ve done a great job of, first of all, making sure we get that deck ready. We make sure that it’s heavily automated. I talked about 90% automation and make sure that it’s as risk proof for our customer, has reduced time to migration, so on and so forth, so that customers can – because these are operational workloads that customers are moving.

So in that context, obviously, we are making sure, and as we’re working with the hyperscalers as well as Snowflake, I give you the example of that pharmaceutical company that we moved to Snowflake data cloud with our cloud data integration offering at the same time, moving away from the legacy data warehouse and a legacy PowerCenter. That I think it’s a infancy. And I think, Kash, we are going to do everything to make sure it reduced the risk for our customers. But at the same time, meet the customer where they are.

I continue to see accelerated momentum over there, but that’s going to remain a medium to long-term opportunity. As I said, we’re going to do our best to make sure the customer is risk proof because it’s not a ad-hoc analytical workloads, it’s too operational workload. So once again, I think in the context of all of the work that we do with IDMC, and our new offering is pretty much only tied to the next-gen data warehouses of Snowflake, Databricks, BigQuery, Azure or AWS, none of that is tied to anything legacy.

[Kash Rangan, Goldman Sachs]

Great to clarify that. Thank you. And then the maintenance installed base and programs where you could offer incentives for your customers to move to the subscription business model, not to mention the cloud as well? Thank you.

[Amit Walia, Chief Executive Officer]

Well, is that an additional question?

[Operator]

Apologies, Kash’s line is now muted.

[Amit Walia, Chief Executive Officer]

Okay.

[Operator]

[Operator Instructions] Our next question comes from the line of Mark Murphy from JPMorgan. Mark, please proceed.

[Mark Murphy, JPMorgan]

Yes. Thank you very much. And I’ll add my congrats on a great performance. Amit, first of all, wondering if you could update us on the effectiveness of your AI and machine learning capabilities, which are embedded into your CLAIRE product. I’m wondering about the amount of automation that, that can handle right off the bat? And how important is that as a differentiator for Informatica when you are in competitive sales cycles recently?

[Amit Walia, Chief Executive Officer]

Thanks for the question, Mark. Hope you’re doing well. First of all, I think a couple of dimensions. When we look, I think as I mentioned to you during the road show, we conceived of care many years ago when I think nobody even part of what CLAIRE could be in the world of data management. It’s a huge differentiator for us. I mean, first of all, I think, again to level CLAIRE is our embedded AI technology on the platform embedded in every product, and it comes out in different ratios of form for automation and intelligence. And when I talked about – I give two different examples, but Kash asked me the question about maintenance. When we talk about 90% automation of migrating the traditional on-prem workload to cloud, that automation comes from CLAIRE, because CLAIRE who understands the metadata and it understands all the complex business logic that’s written, and which, to be honest, it’s practically impossible for anybody to keep opening one by one. The 25,000 mapping example I gave of a customer that’s moving to the cloud and automates that migration to the cloud. So that’s a tremendous amount of automation, tremendous amount of reducing the risk, and so that’s one example.

On the other hand, when I gave you the example of some of the customer examples, if you look at what I talked about, whether it was a CVS Health or whether it was Prudential, when we think about reducing potential errors, back in the old days, when you look at rules-based things, you can only get to whatever 85%, 90% or sometimes even less than 80%, with CLAIRE, we’re able to get to 99% over there. So that’s the ability for CLAIRE to run a tale across an enterprise and with its massive amount of intelligence to not only, first of all, track things, but fix it in the context of that particular use case. So that’s the kind of scale that’s what we see. And when you – when I talk about the IDMC platform under 23.3 trillion cloud transactions per month running, all of them are basically get CLAIRE is looking at it, processing it, helping customers get better at scale and intelligent. So those are the examples that we see. So it becomes a huge differentiator for us in the context of customer use.

[Mark Murphy, JPMorgan]

Okay. I see. As a quick follow-up for – maybe for Eric and possibly Amit as well. When we observe this hyper growth that you have in your cloud ARR and then also accelerated, I’m curious to what extent do you see signs of the major SIs such as Deloitte and Accenture increasingly recommending Informatica as part of their own standard digital transformation package or possibly advising that companies should be executing on a data transformation as a part of the digital transformation and kind of automatically pulling Informatica into those kind of discussions? Is there much pull-through there?

[Amit Walia, Chief Executive Officer]

Yes. So Mark, let me add color on that one. First of all, as I mentioned before, all the key large SIs have dedicated practices on Informatica, which includes tens of thousands of trained developers. They have, obviously – which, obviously, on all of our new technologies, and all of them have a next-gen reference architecture in which the IDMC platform and its core competence are part of that next-gen architecture, I mean you think of the Accenture and Deloitte’s the world, which are obviously very, very close strategic partners of ours. That’s what they’re talking to a customer about their data-led digital transformation and they’re having a strategic dialogue. We are part of that business and technical reference architecture.

And then, obviously, the other way where we see – the relationship becomes a relief is, as I mentioned during the road show is, the trifecta of us with a system integrator and a hyperscaler, large transformation initiatives customers want us to go together, that reduces their risk, that increases – reduces the time to value. And that’s where also the SIs, the hyperscalers that us have a deeper partnership as we go in together.

[Mark Murphy, JPMorgan]

Understood. Thank you very much.

[Operator]

Our next question comes from the line of Alex Zukin from Wolfe Research. Alex, please proceed.

[Alex Zukin, Wolfe Research]

Congrats on a great IPO and first quarter out of the box. Maybe the first question, you mentioned NRR is being driven by broader product adoption across the entire IDMC platform. You saw that improved 20 basis points in the quarter. Your goal is to get that north of 120%. Can you talk to maybe which products are resonating the most with customers? And how you expect platform adoption to trend over the next few years?

[Amit Walia, Chief Executive Officer]

Let me let me take the first one and I don’t want to be growth that you’ve seen over there. See, I think, it’s good to talk to you. First of all, it’s the black form. For us, we have key journeys. We talk about analytics, Business 360 and data governance and privacy. And as I mentioned even during the road show, customers can land in any journey and expanding in that journey as they expand the use case or expand across journeys, and pretty much every end device customer is doing all of those three journeys.

So if you are moving analytics to the cloud, let’s say, this example I gave of a large pharmaceutical company with us and Snowflake Data Cloud, they pretty much want to do data governance on above across an enterprise. So those become very natural. So our expansion opportunities come from both, increased use case of a particular use case that customer starts in, whether it’s analytics or anything else, or going from a use case to another with under link.

Our goal is to help the customers adopt the platform, get business value from it across multiple products of ours. It is still that context also that we reduced consumption-based pricing this year to reduce the barriers for the customers to adopt any of the technology of the platform. So that’s how we see it. Even the customer examples I gave you to take grass a lot, they were a Business 360 customers last year, and they expanded into modernization and analytics this year. That’s literally how it goes.

I’ll let Eric add more to the growth of NRR.

[Eric Brown, Chief Financial Officer]

Yes. The other thing I would point to is that it’s – this is kind of broad-based progress. And so we highlight our $1 million-plus subscription NRR is a metric. We’ve also introduced 100,000 or better subscription NRR customers as a metric just to punctuate the fact that we have a broad base of participation here. The other thing that I would point to is just the overall average subscription across the stock and higher installed base of 3,500-plus subscription customers. That’s over 200,000 to 208,000 to be more precise. It’s basically doubled over the last several years.

So it gives you an indication of the ability of the IDMC platform, to Amit’s point, we can land in one particular use case, but invariably, people will get into data quality, data governance and most everyone is now excited about the data catalog itself. So again, this is the advantage of having best of products on one single integrated IDMC platform.

[Alex Zukin, Wolfe Research]

That’s very helpful. And I guess, Amit, you touched on the consumption-based pricing. Talk to us a little bit about how relevant is that motion today within your customer base? How fast do you expect it to scale? And maybe which products or which SKUs do you find it having the most resonance on with customers?

[Amit Walia, Chief Executive Officer]

Alex, great questions again. So early days, we started it this year, probably I think one of the big differentiators are assets we’ve become – the cloud was coming that we are very good about learning, we iterate, we try things, we learn and we keep it win. So connection is pricing is something that we started this year.

Great early traction. First of all, it’s across the platform. Again, as I said, think of it is – it’s a great win for the customer. We all understand because they can begin from anything and go to anything. The other one important for us is that it reduces the barriers to consume any technology on the platform. So if you’re a customer, you begin with some, now I want to ingest some data from SaaS into my data lake as an example. Oh, I did that.

Now I actually want to use your – and for that, I use your mass investment capability. But to quick to go and go and start and I certainly feel like it’s a good operational use case, I want to do some data quality on top of it. Oh, by the way, I did that – but I’m going to say now I brought some more data from data bases, I want to use some database integration – and data integration capability. Or suddenly, I want to put some governance on top of it or catalog completely reduces the barriers to use different technologies. And of course, drives more consumption because we have much more to offer on the platform for customers to use. So great early traction, we’re learning from it. Fully expect that to continue to scale and grow in the coming years. So we’ll talk more about it, but so far great learnings from our customers and good adoption.

[Alex Zukin, Wolfe Research]

Perfect, thank you guys so much.

[Operator]

We now have a question from Andrew Nowinski from Wells Fargo. Andrew, please proceed.

[Andrew Nowinski, Wells Fargo]

Great, thank you for taking the questions. So I want to start with a question on your announcement with Snowflake, where customers can use Informatica to make the conversion to cloud, I think, 12 times faster. Is Snowflake bringing Informatica into deals where the customer was already considering Snowflake, but since you make it easier to convert to their cloud-based solution, the customer also chooses Informatica? I’m just wondering if that relationship is more of a pull versus push where Snowflake is pulling Informatica into deals?

[Amit Walia, Chief Executive Officer]

We have a really deep strategic partnership with Snowflake. Frankly I chatted a couple of weeks ago and I think, in fact, we had a huge customer rank where their Chief Product Officer, Christian; and my Chief Product Officer, Jitesh, they did a joint webinar for our joint customers. In fact, the large pharmaceutical company, as I talked about, was showcased on that webinar. We have two types of partners with then, very strong deep product technical partnership and of course, a very strong go-to-market partnership. And it’s a bidirectional one.

We’re jointly going to customers. There’s a lot of work happening in the sea as we speak now, helping customers both at scale. We see great traction with them. They see great traction with us. It’s a very strong mutual product and go-to-market collaborative partnership between the two companies. And as I said, the other way I’ll add is that I keep saying, I think the question was asked before, in a lot of cases, it becomes a track factor, system integrators have practices on us, and they have practices on Snowflake, and they want to work with both of us because large digital transformation initiatives immediately requires modernizing the data warehouse, modernizing data management, infrastructure and larger systems and proceeds around it. So the tri-factor makes it even more deeper for us.

[Andrew Nowinski, Wells Fargo]

Okay, thank you. Amit, maybe just another question as it relates probably more to competition. I think you noted this morning that you had a 23.3 trillion transactions per month or the capability to process that many up from about 13.6 last year. I guess as more customers join the platform and add more data to the platform, I guess we should assume that goes up every quarter. But I guess the question is really, is that metric important to prospective customers when they evaluate Informatica as a potential solution? Or are they – are there other factors that they’re looking at when they compare Informatica to other competitors?

[Amit Walia, Chief Executive Officer]

Multiple factors. Obviously, that metric is a good indicator of the usage of our platform. I think that’s a good way to understand because that’s the scale at which it’s not at that we are selling. Our metric is customers are adopting and using. We are big believers in customer success and making sure customers get business value, not just technical value. So when customers evaluate us, obviously, they’re evaluating us on, hey, this is the only at-scale cloud data management like with AI and have the full breadth of all the offerings we need for data management, which are our best of breed also.

I talked about the Magic Quadrant that’s product innovation. That’s the one thing. Second is our huge focus on customer success. We’ve – we just don’t only focus on technical value, but business value creation. That’s a big shift as a company that we made in the last many years. And the third one is partnerships. I think we touched on that before. The partnerships with the hyperscalers and the SIs because customers want – these are complex registers, and they want to view and they want to make sure they can get to that faster.

And lastly, neutrality, customers are in a multi-cloud and they will be in that is getting more and more complex over there. They expect us – wants us to be the vendor neutral player, and we are vendor neutral to make sure that they can manage this complex environment. That’s what we guess.

[Andrew Nowinski, Wells Fargo]

Got it. Thank you.

[Operator]

Our next question comes from Koji Ikeda from Bank of America. Koji, please proceed.

[Koji Ikeda, Bank of America]

Hey Amit and Eric, congrats on the journey back to the public markets and nice results here. Just a couple of questions from me. First one, I recently saw a press release about this cloud data marketplace solution announcement. I found it so interesting. It seems like it helps to unlock customer data even further. So a couple of questions on it. Number one, how does IDMC and CLAIRE AI engine help curate what data appears in that marketplace? And then number two, was this a customer-driven product innovation? And then I guess lastly on the cloud data marketplace. How should we be thinking about pricing or maybe an ARR uplift potential there?

[Amit Walia, Chief Executive Officer]

So it’s a great innovation from the team, first of all. I think when we talked about even if there’s no show that we want to ensure we can help democratize data. One of the biggest challenges we heard from large enterprise is that everybody wants tomorrow’s data yesterday to make their business decision today. So we want to democratize data. But the challenge for enterprises for democratizing is that you can make it a wild west. So our goal has been there. We have been working on that for the past many years actually.

And to your question, actually, it was both ways customer driven, as well as us seeing it. And so marketplace division is a simple like an Amazon marketplace. You go do marketplace, and basically, you can get access to any data across an enterprise. And [indiscernible] if you see it is extremely consumerize. It’s meant for a user like U&I. Encourage you can go there and just simply shop for data, and you have shopping cart, you can drag and drop data in it. But the beauty is under the covers it’s all kind of CLAIRE and all kinds of governance because it knows what data access you are provisioned for or not. And if you’re not, you can ask for that access And it immediately routes the operational workflow, all of that completely automating it.

And as said, experience is extremely simplified. So to us, in fact, I was talking to a large bank last week and they literally – this is the biggest pain point they have, and they’re actually looking forward to adopting this one as soon as possible. So these are capabilities that are extensions of our overall data governance and pricing product thought mindset because that’s another last mile to in a governed way of provisioning data. So expect more growth to come from these new capabilities. I mean I go back again. We have 44 billion TAM across these seven product market categories. We’ll keep adding more capabilities as tremendous room to continue to drive more growth through more capabilities of the platform.

And if you talk about AI, last question to you, under the covers, what we have to clear is understanding the social graph of data like Facebook or LinkedIn, understanding the full relationship of the data that is coming from where it’s going, understanding figuring out data sitting in different databases quoted differently. So when you ask for customer data, or you type anything in plain English using natural language processing, it can go back and convert that into technical language. All of those things get simplified in a very consumerized UI through the marketplace.

[Koji Ikeda, Bank of America]

Got it. Thanks, Amit. And just 1 follow-up here for either Eric or Amit, you mentioned longer-term NRR goal of 120%. Just trying to understand, maybe, I guess, how should we think about the newer consumption-based pricing model playing as a driver towards that target? Thank you so much.

[Eric Brown, Chief Financial Officer]

Right. Yes. So we’re at 116% today. And under the covers in self-managed, we have this interesting product category called DaaS, or Data-as-a-Service, which is oftentimes used just for discrete projects. And so as much as we’d like to renew it indefinitely, it tends to have a kind of a 12 or 24-month discrete project-based term. And that represents $50 million, $60 million of total ARR. If we abstract DaaS overall subscription mix and then recompute NRR, we’re already at approximately 120%. And so we know that our plans call for adding more net new cloud and more net new self-managed in areas other than DaaS. And so I think, naturally, over time, just given the characteristics of higher NRR rates and everything other than DaaS, we’ll get to that 120%.

[Koji Ikeda, Bank of America]

Got it. Thanks, Eric. Thank you so much.

[Operator]

[Operator Instructions] Our next question comes from the line of Karl Keirstead from UBS. Karl, please go ahead.

[Karl Keirstead, UBS]

Thanks a lot. Hey, Eric, a question on your subscription ARR guide for 4Q 801 at the high end. That implies sequential ARR growth of $65 million. That’s, in fact, exactly what you did in 4Q last year despite the greater scale. So at first blush, that strikes me as a bit conservative. So perhaps you could just talk through that and maybe there are some factors impacting that compare that you’d like to highlight? Thanks a lot.

[Eric Brown, Chief Financial Officer]

Yes. I think that – look, we’re taking a kind of a realistic measure view. We’re feeling good about the quarter. We feel like we have a better overall product portfolio year-over-year. And I would say that the fact that it’s sequentially about the same as last year, it wouldn’t read too much into that 1 way or the other. But what we’re looking for is to increase the mix of cloud relative to the overall subscription ARR. And I think we’ve been making progress there, one point of mix sequentially 2 percentage points year-over-year. And so we look as much to the cloud composition inside of subscription ARR as the overall kind of guide for a total subscription ARR.

[Karl Keirstead, UBS]

Yes. Okay. That’s clear. I’ll keep it to one question. Thanks a lot.

[Operator]

Our next question comes from the line of Patrick Colville from Deutsche Bank. Patrick, please go ahead.

[Patrick Colville, Deutsche Bank]

Thanks you for squeezing me in. I just want to double click on the cloud ARR growth, I mean, which undoubtedly was probably the star show this quarter. I mean 44% growth is pretty impressive, which, if I’m right, is a five-point acceleration sequentially on growth and I think kind of mid-teens year-over-year. Just help me understand, versus last quarter or probably more potently versus a year ago, what is in that SaaS line that is causing this acceleration in 2021? Is the product suite broader than you had a year ago? Is the customer kind of demand at SaaS now, whereas a year ago, they weren’t there? Just help to understand that kind of acceleration dynamic? Thank you.

[Amit Walia, Chief Executive Officer]

Yes, let me take that. All of the above, as you mentioned. So clearly, I think as we even mentioned during the roadshow, we have been aggressively scaling our SaaS offerings on the IDMC platform. So obviously, maturity of that and more offerings on the SaaS platform, SaaS version of IDMC, and then customer demand. I mean, look, we serve enterprise customers. They are cloud first, multi-cloud the also hybrids.

And so customers are also getting more and more aggressively move into the cloud, all that explain into that growth number. Going forward, that’s what we’re looking at. We are basically investing more in the cloud. We are absolutely cloud-first by all measures. But at the same time, I obviously for interfaces, we’re going to meet the demand when the customer is, which is product. So we’re going to be cloud first, but help customers.

As I said, I was just talking to a large bank last week and they’re like, "Hey, we want to do these things in the cloud. We’re going to be hybrid. So make sure that we can get there in a hybrid way. We’re just not going to be leading – if I want to catalog everything, I’m not going to catalog it in the public cloud tomorrow. I’ll get there over a period of time. And that’s what we see in our business cloud first, but with hybrid, work load support, but we see accelerated movement in towards all things to, which is what is as you called and hey, more and more of product innovation centric towards that. You see all announcements, all of those things are center towards driving more cloud innovation and accelerated adoption of our cloud offerings within our customers and demand as well.

[Patrick Colville, Deutsche Bank]

Excellent. Thank you so much taking my questions.

[Operator]

Our next question comes from Matt Headberg from RBC Capital Markets. Matt, please go ahead.

[Matt Headberg, RBC Capital Markets]

Hey guys, thanks for taking my question and I’ll offer my congrats on the IPO as well. There’s been some questions on the maintenance program here. And obviously, it seems like one of the – one of your biggest sort of call options of, I’d say, converting maintenance to cloud. Do you foresee a time in the future where you might get more aggressive with incentives or investor education or whatever it might be to sort of drive faster conversion of that maintenance base?

[Amit Walia, Chief Executive Officer]

Let me take that, and Eric, you can chime in as well. First of all, we are absolutely going to be helping our customers move to the cloud, and in that context, move our maintenance to cloud. Yes. Having said that, I think the biggest thing I remind – reminded everybody in the roadshows that these are operational workloads. Somebody is running a 10-K, 10-Q from that, as an example. Some of your big – I mean, these are running a proper business on that. So when a customer thinks of migrating that, we wanted to make sure that we continue to make sure that we can de-risk and reduce the time to migration by automating secreting migration utilities. We read out there in the last three quarters, and we have not only seen great traction in selling, but also traction in implementing, making sure we’ve learned from that.

We’re going to work with GSIs, like we talked a lot about to then accelerate that program. You saw an announcement Snowflake working with the hyperscalers to accelerate those acts. So absolutely from our side, our goal is to accelerate the adoption of cloud from maintenance. Having said that, I think in the early days, we – Eric and I have been thoughtful and cautious about it because we want to make sure that we learn and we help the customer get there without disrupting that business. So make no mistake on this one. We have an idle focus, and we’re going to continue to find every lever to accelerate that, make that as maybe a German expressly where there are no speed limit at some point.

[Eric Brown, Chief Financial Officer]

Yes. I would just add two things. One, what kind of incentives can we create? It’s really through cloud-based product innovation. So every quarter, there’s more features that makes it that much more attractive for a customer to consider that cloud modernization opportunity itself. The other thing, two, is that in terms of our long-range place is we can’t predict the rate at which customers will want to voluntarily engage in this. We’ve taken a prudent view of what the conversion ratio is over time. One of the things we’ve reported is the conversion ratio, 1.8x, in other words, dollar – maintenance converts to $1.80 a cloud. In our internal modeling, we’re closer to a 1.3x assumption, which is pretty close to net margin neutrality. Because if we can’t forecast that rate accurately, we don’t want to be surprised in terms of margin impact. And so that’s the way we’re looking at this internally over the next three to five years.

[Matt Headberg, RBC Capital Markets]

Thanks a lot guys.

[Operator]

Our next question comes from the line of Tyler Radke from Citi. Tyler, please proceed.

[Tyler Radke, Citi]

Hey thank you. Good morning. Thanks for taking my question. Wanted to just ask you about the hiring environment. Obviously, there’s a lot of headlines just around the challenges out there. It looks like operating expenses grew pretty nicely here in the quarter. Curious if that’s a good kind of barometer for headcount growth and just what you’re seeing on the hiring environment? Thank you.

[Amit Walia, Chief Executive Officer]

Hiring environment, and, Eric, you can touch on the economic impact. I mean look, we are hiring across the board, we’re growing in every function across the company. And I think a it’s all those environments we’ve created – we operate in a very innovative market. We have a lot to offer and we are in lot. So I think we are, obviously, seeing – participating in a very aggressive hiring environment for sure. I think, in some ways, we’ve been able to manage it relatively quite well because we are quite well dispersed across the globe.

For example, take engineering. We have global sectors of excellence and none of them are across the globe, whether it’s U.S. or Europe or India. And so we’ve been able to manage it well. But yes, it is definitely, I see when I talk to my peers across different companies, everybody is looking at that. So far, we’ve been able to manage it quite well. Keep our fingers crossed and make sure the key things are going are growing across the board.

[Eric Brown, Chief Financial Officer]

Yes, I’d say that the 1 kind of improvement or opportunity we now have as a public company is twofold. We touched upon the fact that we’ve done broad-based equity grants across almost the entire organization, not 100%, but pretty close to complete. And so that’s something we have available to us now that we didn’t have previously as a private company. We’ve also rolled out ESPP, which, again, is – again, a big positive change for us. So I think we’ve – kind of quarter-over-quarter, we’ve improved our posture as far as that goes notwithstanding that in tech there’s a lot of competition for high-grade talent.

[Operator]

We now have a follow-up question from Kash Rangan from Goldman Sachs. Kash, please proceed.

[Kash Rangan, Goldman Sachs]

My questions are answered. Thank you very much, I’ll save you the time.

[Operator]

Okay. We currently have no further questions. I will now hand back over to Amit for any closing remarks.

[Amit Walia, Chief Executive Officer]

Thank you. Thank you, everyone, for your time today. I’m pleased with our results, the team delivered and believe we are very well positioned for future growth. We’re off to a great start post IPO and a huge thank you to our team here, our customers and our shareholders for their support. Have a good day, everyone. Thank you again.

[Operator]

This concludes today’s call. Thank you for joining, and I hope you have a lovely rest of your day. You may now disconnect your lines.