Informatica Management Discusses Q2 2012 Results - Earnings Call Transcript

Informatica (INFA)

Q2 2012 Earnings Call

July 26, 2012 5:00 pm ET

Executives

Stephanie Wakefield - Vice President of Investor Relations

Sohaib Abbasi - Chairman, Chief Executive Officer and President

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

Analysts

Brent Thill - UBS Investment Bank, Research Division

Mark R. Murphy - Piper Jaffray Companies, Research Division

Raimo Lenschow - Barclays Capital, Research Division

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

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

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

Nathan Schneiderman - Roth Capital Partners, LLC, Research Division

Stewart Materne - Evercore Partners Inc., Research Division

Karl Keirstead - BMO Capital Markets U.S.

Michael B. Nemeroff - Crédit Suisse AG, Research Division

Aaron Schwartz - Jefferies & Company, Inc., Research Division

Kash G. Rangan - BofA Merrill Lynch, Research Division

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

Shaul Eyal - Oppenheimer & Co. Inc., Research Division

Presentation

Operator

Good afternoon. My name is Christian, and I will be your conference operator today. At this time, I would like to welcome everyone to the Informatica Second Quarter 2012 Earnings Release Conference Call. [Operator Instructions] Thank you. I'll now turn over the call over to our host, Ms. Stephanie Wakefield. Madam, you may begin your conference.

Stephanie Wakefield

Good afternoon, and thank you for joining us today. I'm here with Sohaib Abbasi, our CEO; and Earl Fry, our CFO, to discuss our Q2 2012 results and to talk about our outlook for the business. I'll read the Safe Harbor and then hand it over to Sohaib for his comments. Some of the comments we will make today are forward-looking statements, including statements concerning our projected financial results for future periods, our growth and operational strategies, our key initiatives to address recent operational challenges, our marketing growth opportunities, our ability to scale our business, our technology leadership and product development, our product portfolio and product opportunities, customer adoption of and demand for our products and services, including product upgrades, new releases and new products, the expected use of and benefits of our products and services, the expected benefits from our partnerships and acquisitions, the effective tax rates and income tax provisions, our pipeline conversion rates, our hiring plans, our international and public sector businesses, and our expectations regarding industry trends and macroeconomic developments. All forward-looking statements are based upon current expectations and beliefs. However, actual results could differ materially. There are many reasons why actual results may differ from our current expectations. These forward-looking statements should not be relied upon as representing our views as of any subsequent date, and Informatica undertakes no obligation to update forward-looking statements to reflect events or circumstances after the date that they are made. Please refer to our recent SEC filings, including our quarterly report on Form 10-K and Q for our quarter ended March 31, 2012, for a detailed description of the risk factors that may affect our results. Copies of these documents may be obtained from the SEC or by contacting our Investor Relations Department. During this afternoon's discussion, we will be using GAAP and non-GAAP numbers. Our GAAP results and the reconciliation of the GAAP results to the non-GAAP results are attached in the earnings press release and are also available in the Supplemental Metrics section of our Informatica Investor Relations website. Before I hand it off to Sohaib, I'd like to remind you that this call is being webcast and will also be available for replay at www.informatica.com/investor [Operator Instructions] Sohaib?

Sohaib Abbasi

Thank you, Stephanie. As we reported earlier this month, after 31 consecutive quarters of consistent results, we fell well short of our own expectations in Q2. This afternoon, I will outline the key reasons for the disappointing Q2 results and the aggressive steps we are taking. I will then comment on the key measures to effectively scale the organization to the next level and discuss reasons for our continued conviction in the long-term opportunity.

In EMEA, we clearly did not fully anticipate the increasing impact of the macroeconomic uncertainty on the first synch cycles of our customers. Partly due to the leadership transition in EMEA, we did not exhibit the level of rigorous multi-quarter pipeline management discipline required to adapt rapidly to the changing environment.

As a consequence to the sales, pipeline conversion rate was lower than expected in Q2. With stricter purchasing controls, deals took longer than expected as evidence that our customer value proposition remains compelling. Even though deals are taking longer, deals are getting done.

In Q2, we closed a large deal with a major European government agency after a long quarter sales cycle. Informatica products will play a critical role for this agency's imperative to provide better citizen services while reducing fraud. By centralizing information for its systems, the agency will be able to offer a more efficient payment system for work incentives.

In the U.S., our results reflected the collateral impact of the European macroeconomic uncertainty, as well as changes in our sales organization. We saw several customers begin scrutinizing their purchasing cycles, with additional steps for approvals and diligence, as well as downsizing for their recurring purchases. And we now recognize that the Q1 changes in our sales organization to increase distribution capacity for growth and customer success, including changing sales territory assignments took longer than expected and affected the quality of our business pipeline.

Despite these operational challenges, customers continue to view Informatica as the most strategic partner for their top business imperatives. As an example, in Q2, a life sciences leader expanded their adoption of our product portfolio by selecting additional licenses of Informatica MDM, Data Quality and PowerCenter.

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