INFA - NYSE

Good afternoon, and thank you for attending today's Informatica Inc. Fiscal Year Third Quarter 2024 Conference Call. My name is Cameron and I will be your moderator for today. [Operator Instructions] I would now like to pass the conference over to your host Victoria Hyde-Dunn, Vice President of Investor Relations. You may proceed.

Thank you. Good afternoon, and thank you for joining Informatica's Third Quarter 2024 Conference Call. Joining me today are Amit Walia, Chief Executive Officer; and Mike McLaughlin, 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. Our prepared remarks will be posted on the Investor Relations website after the conference call concludes. During the 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 most recent 10-Q and 10-K filing for the full year 2023. These forward-looking statements are based on information as of today, and we have 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 a 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 afternoon's press release and our slide presentation available on Informatica's Investor Relations website. With that, it is my pleasure to turn the call over to Amit.

Thank you, Victoria, and everyone, for joining us today. I will start today's call by summarizing three key points. First, we are pleased to report another solid quarter. Third quarter results exceeded the midpoint of our guidance ranges, driven by continued customer momentum and consistent execution of a cloud-only consumption-driven strategy. Second, we achieved a historic milestone, surpassing 100 trillion processed cloud transactions per month. This speaks to IDMC's incredible scale and product capabilities as the industry's only AI-powered cloud platform processing mission-critical data management use cases. And third, with a comprehensive IDMC platform and GenAI capabilities, including expanding CLAIRE GPT's global footprint, we believe Informatica is even more well-positioned to strategically support enterprises and empower customers to use AI for data readiness and simplify their data estate. Starting with third quarter results. Total revenues grew 3.4% year-over-year, and total ARR grew 6.7% year-over-year, and both were above the midpoint of our guidance ranges. Cloud subscription ARR grew 36% year-over-year and came in at the high end of our guidance range. We strengthened our cash position and grew non-GAAP operating income by 18% year-over-year exceeding the high end of our guidance range. Now looking into the fourth quarter, we are reaffirming full year guidance, and our focus remains on executing plan to conclude 2024 strongly. The macro environment remained stable during the third quarter, consistent with our observations throughout the year. Approximately 76% of our cloud net new ARR in the trailing 12 months came from new cloud workloads and expansion. We are attracting new customers and expanding opportunities in the G2K market, supported by a robust partner ecosystem and healthy cloud pipeline. Customers have spent more than $1 million in subscription ARR increased 18% year-over-year and customers that spend more than $5 million in subscription ARR almost doubled year-over-year. We saw continued strong growth in average subscription ARR per customer, which reached over $327,000, a 15% increase year-over-year. Our cloud business is very well diversified. Approximately half of the cloud subscription ARR is from integration, which comprises of data integration and app and API integration solutions. And the other half comes from master data management, data catalog and data governance use cases. These solutions cover a broad set of customer use cases focusing on both the technical and business users across a digital enterprise, addressing everything from the front end, customer revenue generation to back-end business productivity-oriented use cases. We are seeing healthy growth across these solutions as customers create significant value using the IDMC platform. And for that, let me share a few great customer stories. SUBARU implemented our cloud data integration service to enable cross departmental management of product life cycle data from card development and manufacturing to sales and maintenance. Now enhanced card quality drives higher productivity and customer sat. Citizens employed our master data management capabilities to build a single customer view, enabling real-time personalization across many touch points. The architecture built on AWS and IDMC reduces data onboarding and democratizes access to trusted data. To create exceptional experiences, Holiday Inn Club Vacations unified its customer data with our cloud master data management, data governance and data quality solutions. With a 360-degree view of every member, the company will drive greater personalization across online and offline touch points, including building long-term live. Abodrola, a global energy leader top wind power producer and 1 of the largest electricity companies is enhancing its partnership with Informatica's IDMC platform to launch a global data governance project. This initiative aims to standardize its data strategy across its subsidiaries across the globe, in U.K., Spain and in the U.S., incorporating its technical ecosystem of AWS and Azure. I had the pleasure of meeting is from Dr. Anish from Dr. Reddy iLabs, India iLabs 20-year celebration last month. To keep pace with digital therapeutics and forensic regulations, Dr. Reddy's reimagined its cloud data strategy for the AI era, now the team uses Informatica's IDMC platform to automate data governance and quality across its data integration and engineering pipelines, speeding up project delivery and clinical AI use cases. Next, approximately 24% of cloud net new ARR in the trailing 12 months came from on-prem to cloud migrations. This is still a very small portion of our on-prem installed base but it enables us to modernize our customers' mission-critical workloads and, of course, leads to then platform expansion opportunities for us. We see strong customer adoption of PowerCenter Cloud Edition, which now represents over 90% of all modernization deals in Q3. For example, Lumen Technologies, a global integrated network solutions provider has successfully modernized their on-prem power center workloads to IDMC accelerating time to value and minimizing migration costs and effort in its expansion to the cloud. Our leading global food snack and beverage corporation is modernizing the power center footprint to IDMC. And expanding the users to include master data management and data governance. This will allow them to create a comprehensive enterprise AI-powered data management platform powered by Informatica with Azure as part of its global digital transformation. Turning to our ecosystem partners. We are pleased to be recognized by Oracle Cloud as a Global ISV Business Impact Partner of the Year, reflecting the rapid growth and success of our strategic partnership with Oracle. We announced expanded governance support for the OCI ecosystem with new GoldenGate scanners, the availability of power center cloud addition on OCI and our generative AI Blueprint for Oracle Generative AI and Oracle Database 23ai. As we become the Switzerland of GenAI, we have launched GenAI Blueprints for all six strategic ecosystems, including AWS, Azure, Databricks, Google CLoud, Oracle and Snowflake. For Databricks, we GA support for Databricks enable functions, we have native [indiscernible] push down and will showcase the blueprint and our latest Databricks integrations and innovations at the Databricks world tours. With our GSI partners, we saw continued strong progress from our partners with Informatica, enjoying a prominent place in their data and AI practice. For example, Capgemini launched a solution to help customers modernize Databricks using Informatica. Additionally, we celebrated 25 years of partnership with Deloitte, our most successful global partner with a practice of 6,000 Informatica trained and certified professionals. The partnership has never been stronger, and we launched a joint plan to accelerate our growth together and take advantage of the opportunity to help our customers modernize and get their data ready for AI. We are the innovators in our industry. and we're pleased to be named a leader in The Forrester Wave Enterprise Data Catalogs Q3 2024 report. We also achieved the highest rating possible in the Dresner Advisory Services Data Catalog Market Study and Master Data Management Market Study 2024. For the fourth consecutive year, we were certified by J.D. Power for outstanding customer service experience in a Certified Assisted Technical Support Program. We were also pleased to receive two 2024 awards from the Technology & Services Industry Association, or TSIA, for Leveraging AI in the Revenue Generation Workflows and Innovation in Knowledge Categories. This recognition is third-party confirmation of Informatica's core value proposition to customers. We have the best data management product in the industry offered on the only cloud native AI powered platform serving the multivendor, multicloud and hybrid needs of enterprise customers. In September, we crossed a historic milestone, in less than 10 years, IDMC has now grown to process 200 billion cloud transactions per month to 101 trillion cloud transactions per month. This remarkable journey demonstrates our component of product innovation, customer centricity, vendor neutrality and productivity at scale across hundreds of enterprise systems with gearing latencies and formats. Now we turn to GenAI. Informatica is an enterprise's path to AI-ready data management. Our efforts to assist customers with their AI strategic initiatives are twofold. Informatica for GenAI and GenAI from Informatica, both available on the IDMC platform. Let me give you more color. In Informatica for GenAI, which is where all of our solutions on IDMC are critical to drive GenAI projects, we offer the only Switzerland of data and AI platform with -- native integration across all cloud ecosystems and data platforms. As a system of record for metadata across an enterprise, IDMC allows users to seamlessly build and scale GenAI apps across different clouds, ensuring flexibility and future-proofing the data estate. Customers are choosing IDMC to build enterprise GenAI app using a no-cord low-code interface, eliminating the need for specialized skills. We've introduced GenAI recipes, prebuild for common patterns like RAG, prompt engineering and AI agents, which have seen rapid adoption. Hundreds of customers have downloaded them in just a month with recipes for AWS, GCP, Azure and Oracle available now and Snowflake and Databricks coming later. Real life customer stories include: one, a leading multinational biopharmaceutical company leveraging GenAI with contextualized data from IDMC to accelerate its clinical trials, ensuring optimal patient and site selection for successful outcomes. In Latin America, our retail giant is enhancing its customer experiencing using IDMC with OpenAI delivering personalized product recommendations that improve overall customer engagement and boost their sales. A major U.S.-based global event management company is using IDMC and open AI to speed up future development of the SaaS platform by automating client feedback into technical specs, significantly improving efficiency and reducing the time to value. Now to the second part. GenAI from Informatica, we've expanded clear GPT capabilities, including support for complex data lineage craft queries. Data lineage is one of the most popular use cases for our cloud data governance and catalog solutions. Additionally, clear GPT aggregate metadata exploration capabilities will help our data governance towards better understand the data landscape, which is a huge need within an enterprise, making it easy to manage complex, fragmented data landscape with natural language queries. Hundreds of our customers are using CLAIRE GPT today and the usage is expanding briskly. Recent CLAIRE GPT customer stories include a consumer finance company using CLAIRE GPT with their executive leadership and management teams to obtain answers to their ad hoc natural language queries on Snowflake without any need to know [indiscernible] pipeline. And appliances company in Mexico is using CLAIRE GPT with cloud data governance and data catalog to understand critical data elements identify the stakeholders for those developments that understand the linage of that data. We are excited to announce that we plan to expand CLAIRE GPT to EMEA, Asia Pacific and Canada later this quarter. Informatica for GenAI and GenAI from Informatica, both are driving more use cases and IP consumption on the IDMC platform, which is a tailwind for us for many, many years to come. We believe that the need for effective cloud data management is only increasing, driven by growing data complexity, fragmentation, evolving decision requirements and proliferation of this fragmented data across a mind of system, including warehouses, lakes, databases, apps, data science and GenAI and many, many more. We excel in this area more than any other company in the market today and at enterprise scale. So as I wrap up, I want to thank all of my Informatica colleagues our partners, our customers and shareholders for the support. We are pleased with our performance and remain focused on executing a cloud-only strategy as we close the year. With that, let me turn the call over to Mike. Mike, please take it away.

Thank you, Amit, and good afternoon, everyone. Q3 was another solid financial quarter across the board with all key growth and profitability metrics within or above our guidance metrics. I'll begin by reviewing our Q3 results, focusing first on Informatica's annual recurring revenue or ARR. As a reminder, our total ARR falls into three categories: cloud subscriptions, which increased by 36% year-over-year self-managed subscriptions, which we no longer actively sell and are, therefore, gradually declining and maintenance from on-prem perpetual licenses, which we are no longer actively selling and are gradually declining. With that in mind, let's start with total ARR, which was $1.68 billion, an increase of 6.7% over the prior year. This growth was driven primarily by new cloud workloads, strong cloud net expansion with existing customers and steady self-managed subscription and maintenance renewal rates. Foreign exchange rates positively impacted total ARR by $1.4 million on a year-over-year basis. Now let's break down total ARR into its three components. First, cloud subscription ARR was $748 million, a 36% increase year-over-year and $4.8 million above the midpoint of our July guidance New cloud workloads and strong net expansion with existing customers drove cloud subscription net new ARR of $198 million year-over-year and $45 million sequentially. Cloud subscription ARR now represents over 44% of total ARR, up from 35% a year ago. Foreign exchange positively impacted cloud subscription ARR by about $300,000 on a year-over-year basis. Our cloud subscription net retention rate remained very strong in Q3. At the end-user level, it was 120%, up 2 percentage points year-over-year and up 1 percentage point versus last quarter. Cloud subscription net retention rate at the global parent level was 126%, up 2 percentage points year-over-year and flat versus last quarter. The second category of total ARR is self-managed subscription ARR, this category declined in the quarter to $471 million. This was down approximately 5% sequentially and down 11% year-over-year, slightly better than our expectations coming into the quarter. The decline of this category is driven by two factors: First, what we refer to as natural churn, which is the attrition of customers due to typical reasons like use case termination, M&A events, et cetera, and migration churn, which are customers who have migrated their workloads from Informatica self-managed deployments to our IDMC cloud platform. Both the natural churn and migration churn of our self-managed ARR were in line with our expectations. And the third component of total ARR's maintenance for on-premise perpetual licenses sold in the past, which now represents 28% of total ARR. Maintenance ARR was down approximately 7% year-over-year to $463 million, in line with our expectations. As with self-managed subscriptions, the decline in this category is due to both natural churn and the migration of on-prem workloads to Informatica's IDMC cloud platform. Subscription ARR, one of our quarterly guidance metrics is simply the sum of cloud subscription ARR and self-managed ARR, it grew 3% year-over-year to $1.219 billion. This was approximately $10 million above the midpoint of our July guidance. Foreign exchange rates positively impacted subscription ARR by approximately $900,000 on a year-over-year basis. Modernizing or migrating our on-premise customer base to Informatica's Intelligent Data Management Cloud is a large opportunity for us. As of the end of Q3, we have migrated 6.8% of our maintenance and self-managed ARR base to cloud, up from 6.1% last quarter. We have a life-to-date average 2:1 ARR uplift ratio on these migrations including power center and master data management migrations. The introduction of Power Center Cloud Edition a year ago has helped accelerate the volume of side migrations of our PowerCenter maintenance and self-managed customer bases this year. So to summarize our Q3 ARR performance, total ARR summed to 6.7% ARR growth year-over-year driven by cloud subscription ARR growth of 36%, offset by gradual self-managed and maintenance ARR declines. We expect similar trends to continue in future quarters as a direct result of our cloud-only strategy. Now I'd like to review our revenue results for the third quarter. GAAP total revenues were $422 million, an increase of 3.4% year-over-year, in line with expectations. Foreign exchange rates negatively impacted total revenues by approximately $1.2 million on a year-over-year basis. Subscription revenue, which includes cloud subscriptions and self-managed subscriptions, increased 10% year-over-year to $288 million, representing 68% of total revenue compared to 64% a year ago. Our quarterly subscription renewal rate was 89%, down 4.7 percentage points year-over-year due to lower self-managed subscription renewal rates, offset by higher cloud subscription renewal rates. Our subscription renewal rates have been largely consistent with our expectations this year. Cloud subscription revenue was $176 million or 61% of subscription revenues growing 37% year-over-year. As a reminder, due to the timing difference between revenue and ARR recognition, the relative growth rates of these two metrics may differ from period to period. Revenues in our maintenance and professional services category were $135 million, a decline of 8% year-over-year. Maintenance revenue of $115 million represented 27% of total revenue for the quarter. Our maintenance renewal rate was 94%, down 1% year-over-year and consistent with our expectations this year. Professional services revenues, which includes implementation consulting and education, make up the remainder of this category and are down $3 million year-over-year. As expected, our implementation services revenue has been declining year-over-year as our services partners assume a greater share of that work for our customers, and we back this trend to continue in the fourth quarter. Turning to the geographic distribution of our business. U.S. revenue declined 1% year-over-year to $262 million and represented 62% of total revenue. The decline in U.S. revenue growth is primarily attributable to the year-over-year decline in self-managed license and support services. International revenue grew 11% year-over-year to $161 million, representing 38% of total revenue U.S. exchange rates from Q3 last year using exchange rates from Q3 of last year, international revenue would have been approximately $1.2 million higher in the quarter. Now I'd like to move on to our profitability metrics. Please note that I will discuss non-GAAP results unless otherwise stated. In Q3, our gross margin was 83%, an increase of 70 basis points year-over-year we remain focused on maintaining healthy gross margins as our business transitions to the cloud. Operating expenses were consistent with expectations Operating income was $151 million, growing 18% year-over-year, exceeding the midpoint of our July guidance by over $6 million. Operating margin was 35.8%, a 4.4 percentage point improvement from last year. Adjusted EBITDA was $155 million, and net income was $89 million. Net income per diluted share was $0.28 based on approximately 313 million outstanding diluted shares. Basic share count was approximately 304 million shares. Adjusted unlevered free cash flow after tax was $144 million, better than expected due to faster cash collections and other working capital dynamics. Cash paid for interest in the quarter was $36 million, consistent with expectations. We ended the third quarter in a strong cash position with cash plus short-term investments of $1.24 billion, an increase of $371 million year-over-year, Net debt was $588 million and a trailing 12 months of adjusted EBITDA was $551 million. This resulted in a net leverage ratio of 1.1x at the end of September. Now turning to guidance, starting with the full year 2024. We are pleased with our execution in the third quarter and are comfortable reaffirming all previously issued guidance for the full year. This reflects confidence in our cloud-only consumption-driven strategy supported by strong customer momentum and steady renewal rates. Similar to the dynamics we've observed year-to-date, we expect cloud subscription ARR and revenue to grow, while self-managed and maintenance ARR and revenue are expected to decline sequentially and on a year-over-year basis. For the fourth quarter of 2024, we are establishing guidance as follows. We expect GAAP total revenues to be in the range of $448 million to $468 million, representing approximately 2.9% year-over-year growth at the midpoint of the range. We expect subscription ARR to be in the range of $1.265 billion to $1.299 billion, representing approximately 13.2% year-over-year growth at the midpoint of the range. We expect cloud subscription ARR to be in the range of $829 million to $843 million, representing approximately 35.5% year-over-year growth at the midpoint of the range. and we expect non-GAAP operating income to be in the range of $162 million to $182 million, representing approximately 6.3% year-over-year growth at the midpoint of the range. For modeling purposes, I'd like to provide a few more pieces of additional information. First, we expect adjusted unlevered free cash flow after tax for the fourth quarter to be in the range of [indiscernible] and approximately $144 million for the full year using forward interest rates based on 1 month [indiscernible]. Third, with respect to, our Q3 non-GAAP tax rate was 23%, and we expect that rate to continue for the full year of 2024. And lastly, our share count assumptions. For the fourth quarter, we expect basic weighted average shares outstanding to be approximately 307 million shares -- diluted weighted average sharing to be appreciate 315 million shares. For the full year at we expect basic weighted average shares outstanding to be approximately 303 million shares and diluted weighted average shares outstanding to be approximately 313 million shares. Now before opening the line for Q&A, I have two additional items to discuss. Yesterday, our Board of Directors approved a new share purchase authorization that enabled us to buy up to $400 million of our Class A common stock through privately negotiated transactions with individual holders or in the open market. This new authorization replaces the prior $200 million purchase authorization. No repurchases have been made under the existing authorization. Our committee of the Board will determine the timing, amount and terms of any repurchase. While we do not currently have any specific plans to purchase shares, this authorization gives us the opportunity to move quickly if and when opportunities arise. Next, beginning in fiscal 2025, we will modify our ARR disclosure to provide clarity to investors and better align with our cloud-only strategy. First, we will no longer provide quarterly guidance or quarterly reporting of subscription ARR. As you know, subscription ARR is simply the sum of our 2 -- of two of our other reported ARR metrics cloud subscription and self-managed subscription. Now subscription error was a useful metric during the IPO process and in our initial years as a public company. But following the adoption of our cloud-only strategy last year, the subscription AR metric became superfluous. Therefore, starting in Q1 '25, we will begin providing quarterly and annual guidance for cloud subscription era and total ARR dropping subscription ARR. We'll also continue to provide quarterly reporting of cloud subscription ARR, self-managed ARR and maintenance era. If you're interested in following subscription ARR in 2025, you can simply add together cloud subscription ARR and self-managed era. And second, we will no longer report the subscription net retention rate at the end user level and the cloud net retention rate at the end user level. Last year, we introduced cloud net retention rate at the global parent level, and we'll continue to report this metric, which we believe is consistent with the net retention rate reporting of our public market peers. In summary, we are very pleased with our third quarter performance, and we're focused on exceeding our cloud -- executing our cloud-only strategy and delivering our 2024 guidance. Operator, you can now open the line for questions.

[Operator Instructions] The first question is from the line of Koji Ikeda with Bank of America Merrill Lynch.

A couple for me here. So when I look at the deck and I look at the medium-term expectations of a 31% to 33% cloud subscription ARR growth between fiscal '23 and '26. That was given a year ago. And so we're essentially a 1/3 of the way through it, and you guys have been performing well above that range. So when I look at that CAGR, it does imply that cloud ARR begins to decelerate here pretty soon. But it has been a year since you've given that medium-term expectation. So curious to hear what you've learned over the past year that's given you more confidence in that medium-term target? And what could happen from here that could drive that medium-term growth CAGR higher?

Well, I'll start and then maybe Amit can chime in with other qualitative observations. But we feel as though we're tracking very much in line with the expectations we set when we offered that guidance last December. The growth we're delivering this year is consistent with our '24 guidance, and everything we can see for '25 and '26 given where we sit here in October of 2024, it gives us confidence that, that medium-term guidance is still the right expectation for the market. We won't, of course, offer formal 2025 guidance until we report Q4 earnings. But everything is on track, and our goal of consistently executing against the expectations we set is how we've been operating so far this year and expect to in 2025. Amit, anything to add?

I think Mike said it very well. I think we will have -- we will talk more about it as we come in February of next year and talk about Q4 fiscal year 2024, and we'll layer on 2025 guidance at that point, and we'll give you more color on that part [indiscernible]. Right now, we couldn't be more happy and excited about what we set out last year for medium-term guidance in that context of 2024, we have continued to not only deliver but I would say out deliver that, and that gives us tremendous confidence against what we have in front of us.

Got it. And just a follow-up here. When I look through all the metrics, everything looks pretty good, except for one, and I was hoping to get a little bit of color on it. When I look at the 1 million-plus customers, it's $264 million. I know that's up 18% year-over-year. But when I look at it compared to the second quarter, it's down a little bit sequentially from 272. So could you help walk us through that a little bit, please?

Sure. I’ll take that one. Drawing a line in the sand at $1 million or $500,000 or $2 million isn’t a great way to evaluate our performance, particularly in any particular quarter. It was down on a sequential basis, and – we expected the question. So we’ve looked into it carefully to see exactly what happened. A number of those were state and local customers who had COVID use cases that don’t exist anymore. So they downsized themselves a little bit and dropped across that in artificial one. We have some customers that completed large migrations and the maintenance during the migration period rolled off and you understand how that accounting world works. And so they dip below the $1 billion line. Look, our average ARR per subscription customer grew by 15% year-over-year. The growth in customers over $100,000 grew very nicely. And this isn’t a metric that we will regularly disclose, but our customer is about $5 million in the quarter. So it’s not something that indicates anything we’re concerned about. It’s just the idiosyncrasies of having an artificial line in the sand and customers tipping one way or another over that line.

The next question is from the line of Will Power with Baird.

Okay. Great. Mike, maybe just starting on results in the quarter and guidance, it looked like some slight upside in the quarter and continued strong cloud trends that you reaffirmed the full year guidance. And I just wonder if there's anything you're recalling out any sort of caution around with respect to Q4 or any changes in tone of conversations or linearity kind of as you move through the quarter that might be informing kind of Q4 versus Q3.

Well, I'll start it again if there's anything qualitative that I missed, Amit can chime in. But the tone feels very consistent, both with last quarter and with last year. And if you do some of the implied math around the NARR required in Q4 to get us to our guidance and the linearity that implies for the year, it's all very consistent with what we saw last year. And it all -- that all adds up to comfort with being on track to meet or beat that full year guidance. So it really is steady as she goes well.

I think that's about it. It's a conversation with customers. As I said and I talked about in my prepared remarks, Bill, on macro, very stable, very consistent with what we saw last quarter or the quarter before. So we feel pretty consistent about where we've been before in Q4.

Okay. That's great. And then maybe just any kind of qualitative commentary you can provide on the cloud growth breakdown, I know you noted 50% of the growth of the ARR split between, I guess, data integration and the other half, at least that was a big chunk of it, they have MDM, catalog, governance. Anything to call out with respect to trends you're seeing in either of those buckets? And one or the other that you think could be a bigger growth driver as you move forward here?

I think, well, I would generally don’t look at one quarter dictating anything because it’s a full year. And I think each quarter, there’s some product area or some category has a story of its own. But philosophically, like I highlighted, the beauty that we are seeing is that customers definitely are – they have moved from what I call defensive cost-cutting productivity use cases to also going after what I call offensive transformational use cases. And we serve the entire digital enterprise. So it could very well be that, hey, like I give you examples about how do you figure out grabbing a bigger share of the wallet with our existing customers and acquiring new customers. We get to see those kind of use cases coming up as well as, so 360-degree view of a customer becomes important, whether you do a managing your churn, getting a bigger share of the wallet of your customers or getting new customers. And at the same time, when you have an existing customer and you’re basically getting more and more of analytics, governance becomes very important, also becomes important as customers are thinking about taking their pilots of GenAI, and try to expand that into the pilot going into even a small operationalization before it becomes enterprise. So we’re seeing pretty well diversified growth. I didn’t see anything one necessarily spike over the other. And that’s kind of like the best way to highlight that. The other thing I'll also highlight is remember, all o’ our use cases end up being multiproduct. So even if it’s integration for a warehouse or a lake, it’s integration, it could be data integration, some API, some data quality. It’s MDM, its MDM plus integration plus quality, so on and so forth. So they all end up being multiproduct.

Next question is from the line of Matt Hedberg with RBC.

It seems like both cloud native wins as well as cloud migrations are doing well, and it really does feel like PowerCenter cloud is driving some pretty significant momentum there. I'm wondering, as we think about going into Q4 and into '25, are there mechanisms in place to drive even faster migrations there now that a lot of the technology -- and the sort of the cloud-first sales focus is in place?

Yes. I mean we all want the same outcome, right, Matt, thanks for the question. I mean, look, I think we had a pretty solid start to the year. If you remember, we always think of the year as an annual year. Yes, we have to go report every quarter. We all know that. But if you remember, the first half of the year was a pretty solid growth on migrations, and we see the momentum of PowerCenter cloud [indiscernible], continue to hum very strongly and don't see any reason to think differently. I think as we think about not just Q4, we think about next year, we have many things that we are evaluating, talking to our customers also. And to be kind of one of the things that we are also doing in particular is, and I always say we balance a character mistake, I'm a believer in balancing it both for customers. is that really getting our customers to understand that if they really want to get the power of GenAI, they have to digitize. For digitizing, they have to modernize. So sometimes that makes it an easier conversation and that is totally resonating with our customers that they can get to GenAI they are not the models, IDMC architecture, leveraging the power of CLAIRE. And we see that messaging as we run those campaigns quite a bit in the second half of the year, actually getting deeper and deeper. And that allows our customers to start planning for next year because these are not necessarily, I can do something instantly. We allow our customers to plan for that. So we're seeing that traction and seeing that learning coming in and the conversation of having customers are realizing that. So we expect those kind of things to trickle into next year for sure.

Got it. And then maybe Mike, one for you. You had a really strong quarter and you reiterated guidance, which, I mean, I think you talked about stable macros. It feels like a conservative guide for 4Q. I guess my question is when I look back last -- to last 4Q, you guys had a really strong quarter. And I don't know if there was a function of like budget flush last year that you saw and you're not anticipating it this quarter -- or this year, I should say. I'm just sort of curious if you could maybe talk about like what you normally see from a budget flush -- December budget flush. Are you anticipating any of that this year?

It’s too early to tell. You only know in the last couple of weeks of the quarter, frankly, you can maybe start to get hints in December, but that would be after we’ve already entered our quiet period. It feels like I say, similar sitting here on October 30 to how it fell end of October last year. It’s certainly possible that there could be a budget for us that we don’t see but we’re expecting a solid quarter, delivering north of 35% of our – 38% of our bookings or whatever it is linearly for the year in the fourth qua’ter. So it's’always a big quarter and a lot of work to do to deliver it. So we feel this is the prudent place to be in terms of guidance, and we’ll just have to see if there’s a budget flush that comes out of the woodwork.

The next question is from the line of Kash Rangan with Goldman Sachs. The next question comes from the line of Alex

This is Patrick on for Alex. I wonder if you can just sort of talk through any of the changes and trends you've seen. Around budgets for data initiatives so far this year? And maybe how that compares to your expectations heading into the year? And then how do you expect those budgets to trend into the fourth quarter and into next year?

Yes. I think as I was sharing earlier to Matt’s question, I think definitely, what we have seen is – I’ll bifurcate into be different things. One is customers have moved very consistently in the last couple of quarters from what I call defensive productivity, cost saving initiatives to also transformational offensive initiatives. And they end up becoming data [indiscernible] in general, like I gave the example of, hey, if I was worried about customer churn, I’m now excited about doing new customer acquisitions, new product launches, new offers to new customers, things of that nature. So we definitely see that. And customers are becoming more and more and more ambitious or comfortable to do those growth-oriented initiatives. Number two, obviously, GenAI, and GenAI is embedded in every conversation. Needless to say, there’s a whole amount of CapEx spending happening everywhere, the freeways I think laid out, where we said we see the pilots happening whether it’s IDMC for GenAI or even our GenAI from us like CLAIRE GPT. The customers using it. I gave you examples of customers. So absolutely, the GenAI pilots or small areas where customers are trying to roll it out to test it and then basically make it bigger and bigger. We see those happening. All our conversations are like, “Hey, I want to do GenAI and the beauty is an IDMC, you can do non-GenAI digital transformation and GenAI digital transformation, the customers benefit from that and they can use Ips for anything, including running Ips to do CLAIRE GPT queries, those conversations up front, et cetera. We had our AI Summit in New York a couple of weeks ago, I forget a month or so ago, it was a tremendous success. So we see that as well. So I think, I’m seeing definitely. Now having said that, the third thing I see is that definitely data and AI and cyber are the two areas where customers are parking their spend. Definitely, those areas spend are happening. I had the CIO to tell me that security that defense spend in data as an offensive spend concerns. So we see these kind of things across global customers. Thank you.

The next question is from the line of Pinjalim Bora with JPMorgan.

Great. This is Jaiden on for Pinjalim. To follow up on an earlier question, can you talk a little bit more about any trends you saw in the public sector customers in the quarter?

Sure. I mean, Q3 is always a big public sector quarter as we all know their fiscal year. Pretty robust. We saw, obviously, our public sector business kind of as always, outdelivered the Q3 or the Q4 which is our Q3. And trends remain the same. I do see public sector now. So first of all, very well done across a broad area of different kind of customers that we serve within public sector, state and local and the agencies and all that stuff. We absolutely see the public sector customers getting to more and more of digital transformation and accelerated one state and local ad in a different phase. They obviously have rest, less intense compliance and regulatory situation than the federal or the 3-letter agencies. But I absolutely see the conversations we are having and even the ones I was engaged in more and more desire to do accelerated digital. GenAI’s top of their mind, of course, you can imagine that there is so much that they have to put a box around GenAI are to do it the right way, but everybody is having that conversation. But definitely, digital and modernization, by the way. A lot of our public sector customers are moving towards the cloud, definitely. We saw a big push towards modernization happening over the course of the year. So we’re seeing some of those kind of trends within our broad public sector business.

The next question is from the line of Tyler Redke with Citi.

Amit, I'm curious, for customers where you've seen adoption of Open Table formats like Iceberg. Have you noticed any meaningful changes either positively in terms of Informatica utilization or IPU credits or too early to tell, just would just love your perspective on that theme based on the customers that you've worked with.

Sure. Very early. And in fact, what we see is, like I've always said, look, Open Tables don't just happen to fill themselves. Actually, what we are seeing is customers actually needing to do ESP on Open Table, preparing the data getting data from different operational systems and making sure that the five formats are organized, quality has happened, and we are seeing some of that stuff customers getting ready for that. In fact, Databricks and us have been in strong partnership in that area. We are collectively helping customers figure that out. But we see the need for ELT, see the need for data preparation, see the need for quality to even get the Open Tables to be populated for them to then be in some operational use absolutely be there, which is why we continue to benefit because that's more IP consumption and usage. That's where things are right now.

And I would emphasize is you would note if you've listened carefully to our remarks or seen of our press releases that we support very deeply the Iceberg table format for all the cloud service providers and [indiscernible] our warehouse providers. So we are there to be the most efficient and effective partner to manage and transform the data that is going into those tables.

Great. I appreciate the answer there. And Mike, if I look at your updated guidance for the full year, you took up cloud ARR, which is good to see solid performance in the quarter. Subscription it looked like it stayed the same and self-managed did decline a bit more sequentially than you've seen recently. So is the way to think about that incremental cloud subscription rates, is that kind of coming more from migrations? Or is it hey, you're just seeing a bit more falloff on the self-managed business, but you're more than offsetting that or offsetting that just on the strength of new business. Just help us understand kind of the puts and takes there.

Yes. And just to clarify, we didn’t change our full year guidance at all. We established Q4 guidance for the first time, which because when you report Q2 and give Q3 guidance and the year, there’s an implied Q4 in there. So I think what you’re talking about is puts and takes of how the math works out of what the implied Q4 was 3 months ago versus what the actual Q4 guidance is today. And I wouldn’t look at it as particular strength or weakness in any of the categories it’s simply on track to deliver what we always thought was going to be the full year starting out and then feathering in the up the raise of the cloud we did after Q2 and the non-GAAP OpEx free cash flow raise that we gave after Q2. We still think that cloud is going to grow north of 35%. We still think that for the year, that self-managed is going to decline about 13%, and we still think that maintenance for the year is going to decline about 7%. So no big changes in mix shift assumptions are net new versus migration or anything like that.

The next question is from the line of Patrick Colville with Scotiabank.

Congrats on all the momentum you guys are seeing. I guess I just want to ask Amit and Mike about the 2024 guidance. So I guess what was implied for 4Q both on the cloud ARR line and on the total ARR line, I guess the guidance for 4Q implies kind of a net new ARR, sequential net new ARR, but we haven't -- Informatica has never reported before. I mean if my math is correct, it points to $53 million of net new total ARR and $88 million of net new cloud ARR. So I guess what gives you confidence going into 4Q to guide to those levels?

Yes. Look, it's bigger than ever because we are bigger than ever. It's off a base that's 35% higher than it was coming out of Q3 last year. It's actually -- it's kind of as simple as that. we have more go-to-market. We have more pipeline. We have more prospects and more renewal base to work with than we did in Q3 of last year. I think the right way to think about it and the format your own judgment about how attainable it is, is just to look at what percentage the net new ARR represents in Q4 of the full year in 2024 versus the same look in 2023. And you'll see that as a percentage of the year as the percentage of sequential growth that it's all very consistent with what we actually delivered in Q3 of 2023 -- or sorry, Q4 of 2023 versus Q3 of 2023.

And just to add to what Mike said, I may think -- we also look at, obviously, our pipe create pipe coverage and things of that nature and those have consistently be better each quarter and each year. So hope we feel good about that.

Great. Okay. Yes, that's very clear. I guess I want to ask just for my follow-on, please, around migrations versus net new ARR. I mean what many investors like about Informatica is you have both of those kind of pickers. But specifically on the migrations, the disclosure Informatica provides this quarter, on a TTM basis, 24% of new ARR from migrations, very impressive, but I guess a slight downtick versus last quarter. Why would migration, net new ARR contribution downtick, given the launch of [indiscernible] a year ago. Like I would have expected a net uptick. So any color you could provide there would be super helpful.

Yes, sure. It's quarter-to-quarter variability, Patrick. I mean, your math is right. It wasn't a blowout quarter for migrations. But some will be blowout, some will be a little bit below expectations. But over the year, we continue to see really strong acceleration. And continue to expect a contribution of migrations to the total net new ARR in the cloud in the 25% to 30% range. for the year. And over time, we would expect that to grow to maybe as big as 1/3 of the contribution. But as I've said before, the most important value creator for Informatica shareholder is winning net new, winning new customers, winning new workloads from existing customers, Migration is great, and it's going to provide a very long tail of opportunity to increase the value footprint with our customers and therefore, our shareholder value. But the net new is doing what we expect it to is the strong majority of what we do, and the migration continues to be healthy, but you'll see some quarter-to-quarter variability.

The other thing I'll add to that is that adding to what Mike just said is that look, we feel very good about how we balance our business, and it's net new customers or net new workloads in cloud. The other engine that used to be smaller, but as we've shared about, and you can see in our NRR is consistently outperformance becoming bigger and bigger expansions expansion of our business with existing customers once they buy the IPUs and then, of course, migration and modernization. So we have a healthy and we'll never want to be a one-trick pony to just do one thing or the other. And hence, we -- at the end of the day, it's growing the total cloud ARR is what matters. And we feel good about we have many vectors to get there.

There are no additional questions waiting at this time. I would like to pass the conference back over to the management team for any closing remarks.

Thank you. Well, look, I really appreciate everybody taking the time to join on the call today. As you can see, we feel very good about where we are for the year-to-date as much as it [indiscernible] about Q3. I mean growing our cloud business, which has been a paramount growth strategy, which you can see growing 36% cloud ARR, cloud platform growing up to 101 trillion transactions a month and to our subscription ARR per customer growing at healthy 15%, and we feel very good about where we are. And of course, while we are growing all of that to continue to be growing our operating margin and maintaining a gross margin of growing that. So it’s a very well balanced across the board, P&L that we are managing, and we feel very good about it. So once again, I really want to thank each and every Informatica employee and our partners and customers who are partnered with us. And thank you all for taking the time today and for your questions. So thank you very much.