Informatica (ticker: INFA), a leader in enterprise cloud data management, reported a robust second quarter in 2024, with strong growth in cloud subscription annual recurring revenue (ARR) and total ARR. The company's performance met or exceeded its guidance, prompting an upward revision of its full-year outlook.
Informatica's strategic focus on data-driven digital transformation, cloud modernization, and Generation AI (GenAI) initiatives has been paying off, with notable growth in subscription ARR and cloud subscription ARR. The company also launched new GenAI capabilities and introduced CLAIRE GPT, a GenAI-powered data management assistant, while continuing to invest in research and development.
Key Takeaways
- Total revenue grew by 6.6% year-over-year (YoY).
- Subscription ARR and cloud subscription ARR increased by 15% and 37% YoY, respectively.
- Informatica raised guidance for cloud subscription ARR, subscription ARR, non-GAAP operating income, and adjusted unlevered free cash flow after-tax for 2024.
- The company's cloud subscription revenue accounted for 61% of subscription revenues, growing by 35% YoY.
- U.S. revenue and international revenue increased by 7% and 5% YoY, respectively.
- Informatica added three new services to its IDMC platform, now offering 36 data management capabilities.
- Gross margin improved to 82% YoY, and operating income grew by 31% YoY.
Company Outlook
- Informatica raised its cloud subscription ARR guidance by $3 million and subscription ARR by $4 million for 2024.
- The company lowered total revenue guidance by approximately $25 million due to lower professional services revenues and exchange rate fluctuations.
- Non-GAAP operating income for 2024 is expected to be between $538 million and $558 million.
- Adjusted unlevered free cash flow after-tax is projected to be between $545 million and $565 million.
- For Q3 2024, GAAP total revenues are expected to be between $412 million and $428 million.
Bearish Highlights
- Professional services segment is expected to decline by $10-12 million this year.
- Total revenue guidance for 2024 has been reduced by about $25 million due to lower professional services revenues and exchange rate fluctuations.
Bullish Highlights
- The company continues to focus on three key strategic initiatives: data-driven digital transformation, modernizing legacy data estates, and delivering GenAI capabilities for data management.
- 26% of cloud ARR came from migrations this quarter, with expectations for migrations to contribute up to a third of total ARR in the long term.
- The company supports open data formats and connectors, which is seen as a net positive for the data integration space.
Misses
- There were no specific misses reported during the earnings call.
Q&A Highlights
- The raise in cloud ARR guidance is a measure of prudence and risk management.
- Informatica's Data Catalog is unique and serves a broader range of use cases than Databricks' Unity (NYSE:U) Catalog, which has recently been open-sourced.
- Migration deals are expected to contribute 30% to 33% to net new ARR in the future, surpassing the average cloud growth rate.
Informatica's second-quarter results and optimistic outlook reflect the company's successful execution of its strategic initiatives and its ability to adapt to the evolving needs of the digital economy. The introduction of new GenAI capabilities and the growth in cloud subscription services underscore Informatica's commitment to innovation and customer success in the data management sector. Despite challenges in the professional services segment and currency fluctuations, the company remains poised for continued growth in the remainder of the year.
InvestingPro Insights
Informatica's (ticker: INFA) second quarter of 2024 has shown impressive results, and the company's financial health and market performance offer additional insights. InvestingPro Tips indicate that Informatica is expected to see net income growth this year, which aligns with the company's upward revision of its full-year outlook. Moreover, Informatica boasts impressive gross profit margins, which have contributed to the positive financial outlook presented in the article. These margins are a testament to the company's operational efficiency and pricing power within the enterprise cloud data management sector.
InvestingPro Data provides further context to Informatica's market standing. With a market capitalization of $7.21 billion and a high price-to-earnings (P/E) ratio of 45.37, Informatica is valued significantly by the market, reflecting expectations of future growth. However, the adjusted P/E ratio for the last twelve months as of Q1 2024 is markedly higher at 224.72, suggesting that investors are pricing in robust future earnings. The company's gross profit for the same period stands at $1.29 billion, with a gross profit margin of nearly 80%, reinforcing the company's strong profitability mentioned in the article.
Furthermore, Informatica's revenue growth of 7.3% over the last twelve months highlights steady progress, while the quarterly revenue growth of 6.34% for Q1 2024 underscores consistent performance. These figures complement the article's note on the company's revenue growth and provide a quantifiable measure of Informatica's financial trajectory.
While the article outlines Informatica's strategic focus and optimistic outlook, the InvestingPro Tips and Data add a layer of understanding about the company's financial health and market perception. For readers interested in a deeper dive, there are 11 additional InvestingPro Tips available for Informatica, which can be found at https://www.investing.com/pro/INFA, offering a comprehensive analysis of the company's performance and potential investment opportunities.
Full transcript - Informatica Inc (INFA) Q2 2024:
Operator: Good afternoon. Thank you for joining today’s Informatica Fiscal and Q2 2024 Lender Call. My name is Cole, and I’ll be the moderator for today’s call. All lines will be muted during the presentation portion of the call with an opportunity for questions-and-answers at the end. [Operator Instructions] I’d now like to turn it over to Victoria Hyde-Dunn, Vice President of Investor Relations. You may proceed.
Victoria Hyde-Dunn: Thank you. Good afternoon. And thank you for joining Informatica’s second quarter 2024 earnings 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 IR 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 including 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 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 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.
Amit Walia: Thank you, Victoria, and everyone for joining us today. I will start today’s call by summarizing three key points. First, we had a solid second quarter. Our results were within or above all second quarter guidance metric ranges. This was driven by continued strong customer momentum and consistent execution from our cloud-only, consumption-driven strategy. Second, we continue to deliver the best data management products on the industry’s only AI-powered platform. After a 12-month extensive private preview, we launched CLAIRE GPT, our generative AI chat interface, on the IDMC platform. Informatica is now the industry’s only cloud data management platform with AI and GenAI capabilities for modern enterprises, and it is the Switzerland of Data and now, as well as for AI. Third, given our strong execution in the first half of the year, we are raising cloud subscription ARR, subscription ARR, non-GAAP operating income and adjusted unlevered free cash flow after-tax guidance for the full year. We remain focused on supporting our customers’ digital transformation, cloud modernization and now their GenAI initiatives. Starting with our second quarter results, total revenue grew 6.6% year-over-year. Subscription ARR grew 15% year-over-year and cloud subscription ARR grew 37% year-over-year, both exceeding the high end of our guidance range. We delivered a record $703 million in cloud subscription ARR, exceeding the $700 million mark for the first time. We strengthened our cash position and grew non-GAAP operating income by over 31% year-over-year, above the midpoint of the guidance range. The macro-environment remained stable in the second quarter, consistent with the prior quarter. Approximately 74% of cloud net new ARR in the trailing 12 months came from new cloud workloads and expansion. We are attracting new customers, expanding opportunities with existing customers and driving new workloads in the G2K market, supported by our robust partner ecosystem and healthy cloud pipeline. Customers that spend more than $1 million in subscription ARR increased 28% year-over-year to 272 customers. Customers spending more than $5 million in subscription ARR grew 30% year-over-year. We saw continued strong growth in our average subscription ARR per customer, which reached $321,500, a 17% increase year-over-year. Let me share two customer stories. American Airlines (NASDAQ:AAL) is the largest airline in the world offering safe, dependable and friendly air transportation to its’ customers along with numerous loyalty services. Dedicated to making every flight something special, American Airlines purchased Cloud Data Quality to improve real-time customer experience and retention through excellent loyalty program incentives such as low fare options, mileage redemption, in-flight entertainment and more. One of the world’s largest graphics processing unit suppliers or GPU suppliers selected Informatica’s IDMC platform, which includes MDM, Data Quality, Data Integration and Data Governance capabilities. Next, approximately 26% of cloud net new ARR in the trailing 12 months came from on-premise to cloud migrations or modernizations, as we say. This is still a very small portion of our on-premise install base, but it continues to provide us with the opportunity to modernize our customers and grow our cloud business. We see strong customer adoption of PowerCenter Cloud Edition, representing over 80% of all modernization deals in Q2. Let me share two customer stories. Westpac, which is Australia’s first bank and a major player in New Zealand, managing numerous legacy applications following acquisitions. To support its business strategy, which focuses on data-driven decision-making, automation and AI, the bank has expanded its partnership with Informatica, transitioning from PowerCenter to the IDMC platform. This will help Westpac reduce data management costs, expedite automation initiatives and elevate the customer experience across branches, online platforms and call centers. As a leading medical technology company, Siemens Healthineers is committed to improving access to healthcare for underserved communities worldwide and is striving to overcome the most threatening diseases. The company is principally active in the areas of imaging, diagnostics, cancer care and minimally invasive therapies, augmented by digital technology and AI. Siemen Healthineers opted to modernize their on-premise Informatica Data Governance and Catalog Solutions to IDMC and further expand their footprint to include Cloud Data Quality to address regulatory requirements and provide trustworthy data to the enterprise. At Informatica World earlier in May this year, we welcomed thousands of global customers, prospects, ecosystem partners and GSI partners. They had the opportunity to engage, collaborate and see firsthand how Informatica empowers enterprises to democratize data. They also heard testimonials about how the powerful combination of data and AI can deliver unprecedented business outcomes. We featured Scott Guthrie, EVP of Cloud+AI Group Microsoft (NASDAQ:MSFT), as a mainstage speaker. We announced the public preview of IDMC as an Azure Native ISV service, the private preview of our Data Quality Native app for Microsoft Fabric and the general availability of our Cloud Data Access Management support for Azure. We also featured Sridhar Ramaswamy, CEO of Snowflake (NYSE:SNOW), on mainstage and announced our Gen AI Blueprint for Snowflake Cortex and our new Native SQL ELT for Snowflake. At Snowflake Summit, we announced the general availably of our Snowflake Native app, the Enterprise Data Integrator for high-speed replication of critical enterprise data to Snowflake, expansion of our Native SQL ELT to support Snowflake GenAI functions, and our Cloud Data Access management support for Snowflake integrated with Snowflake Horizon governance capabilities. We were awarded Databrick’s 2024 Data Integration Partner of the Year at their Data and AI Summit, where we announced our GenAI Blueprint for Databricks DBRX, full verification of Unity Catalog support across IDMC, our new Native SQL ELT capability for Databricks and the availability of our Cloud Data Integration no-cost service tier via Databricks Partner Connect. We were awarded MongoDB’s 2024 Partner -- Build with Partner of the Year. We launched our Cloud Data Governance and Catalog service natively on Oracle (NYSE:ORCL) Cloud. We also expanded or rather extended our support for open table formats in Apache (NASDAQ:APA) Iceberg. Iceberg adoption is in the early stages of growth across our cloud data ecosystem partners, from Snowflake to AWS and Microsoft Fabric, and now, with the acquisition of Tabular by Databricks. Informatica’s new open table format connectors support advanced data ingestion and integration use cases to drive large-scale data engineering operations for high-performance analytic and ML projects. Turning to GSI partners, some of our largest partners have experienced significant growth within their Informatica practices and are expanding their data and AI practices. We have seen growing interest in developing and taking solutions to market based on IDMC. For instance, LTIMindtree (NS:LTIM) launched a solution to assist non-Informatica businesses with legacy, on-premises Data Integration products in modernizing and transitioning to IDMC. As part of our ongoing strategy, we are seeing more partners assume a greater role in implementation services work supporting our customers, and we welcome that. We continue to be the leading innovators in our industry. Over the years, we’ve invested over a $1 billion in R&D and are the biggest investors in data management engineering in our space. We’ve innovated many categories in data management. We were pleased to be recognized by IDC as the market share Leader in the 2023 Worldwide Report for both the data integration and data intelligence markets. We were also recognized as Champions in the Bloor Research 2024 MarketUpdate reports for Data Fabric, Data Quality and Test Data Management. Now, let me turn to GenAI, which is at the top of customers’ minds. As I speak with CDOs, CIOs and digital leaders across the globe, there is a universal agreement that, everyone is ready for GenAI, except your data. Data management brings AI to life, ensuring trust, responsibility, ethical use and value creation. Our efforts to assist customers with their AI strategic initiatives are two-fold, Informatica for GenAI and GenAI from Informatica, both available on the IDMC platform. Now, Informatica for GenAI includes all of IDMC capabilities, Data Integration, Data Governance, Data Quality, Master Data Management, App Integration and Cataloging, which are critical to processing mission-critical workloads. In June, IDMC processed 97 trillion cloud transactions per month, growing 59% year-over-year. At Informatica World, we unveiled new features and product enhancements, including building no-code GenAI apps with prompt engineering, RAG and ReAct AI agent support. We support popular LLMs and VectorDBs with enterprise-grade scalability and governance. We included new capabilities for contextualizing LLMs on enterprise data, including chunking, embedding and ingestion into Vector DBs. IDMC will add support sources for documents, images and video sources, with full integration across cloud data access management policies, data quality rules, catalog and integration pipelines. IDMC is LLM agnostic, future-proofed and has out-of-the-box connectors for easy navigation of any model, from hyper-scalers to smaller providers. A few fantastic real-life use cases include. A California-based credit union uses IDMC to optimize sentiment analysis with customer support training. It provides proactive customer service by identifying customer support KPIs, reducing customer handling time through automated analysis of large volumes of phone interactions and providing decision support using OpenAI. A large marketing company uses IDMC to build GenAI-based incident management, alleviating the burden on the incident management team by automating incident risk, incident assessment and providing actionable insights with sentiment analysis using LLM with the RAG framework. A large pension firm in Canada is using IDMC to build a GenAI-based intelligent chatbot, improving employee productivity by reducing the processing time for queries on insurance proposals and claims through automated analysis and decision support using locally hosted LLM. Now turning to GenAI from Informatica, we launched CLAIRE GPT, the first GenAI-powered data management assistant grounded by enterprise metadata intelligence leveraging core IDMC capabilities. In May, we announced general availability in North America after an extensive 12-month preview program. CLAIRE GPT is ChatGPT for enterprise data, providing capabilities like data discovery, metadata exploration, finding data quality, data lineage and even creating ELT pipelines. Along with CLAIRE GPT, we also have Claire copilot capabilities, embedded in all the products that sit on IDMC providing in-context product data assistant with Claire-generated classifications. One of Informatica’s key differentiators is its metadata system of record, which provides valuable insights into data assets’ location, quality and relevance for analytics and data science use cases. This is more than just Informatica metadata; it is metadata across the enterprise, data warehouses, applications, BI tools or mainframes from trained LLMs and SLMs. CLAIRE, our AI engine, is now leveraging over 49 petabytes of active metadata in the cloud. Customers are in the early stages of piloting CLAIRE GPT. Since its launch, over 150 enterprise customers have consumed IPUs on CLAIRE GPT usage, primarily for data discovery and exploration use cases. To give you a few examples, SSM Healthcare uses CLAIRE GPT to enhance data literacy with a natural language interface for data discovery, examine data lineage and thoroughly assess data quality. With CLAIRE GPT, they provide a self-service interface for Medical Information Officers to effortlessly get insights on their data, such as the number of orthopedic providers in the network, ensuring appropriate patient coverage. A global supply chain company’s data analysts use CLAIRE GPT to monitor, maintain and report on product movements, such as receipt, dispatch and storage, without needing SQL. These examples provide just a glimpse into the real-life use cases and stories that customers share feedback with us. To further show our commitment to helping enterprise customers embrace trusted and holistic data for their AI initiatives, we are introducing a new promotion in August to drive broad CLAIRE GPT adoption. This offer is for eligible North American customers to use CLAIRE GPT at no additional cost through the end of 2024. Now, looking ahead to the second half of the year, we are pleased to raise four guidance metrics for the full year, including cloud subscription ARR to 35.5% from 35% earlier. We had good execution and momentum in the first half of the year and believe our operational health remains strong, as evidenced by our predictable cloud subscription revenue business model, our strong customer base, healthy cloud pipeline and retention rates, and growing unlevered free cash flow. Our growth priorities continue to center around three key strategic initiatives outlined at Investor Day. First, data-driven digital transformation is crucial for our customers to achieve digital leadership. In fact, with GenAI on the horizon, customers are accelerating those. Second, modernizing legacy data estates to help enterprises harness the advantages of being a digital business. And lastly, delivering GenAI capabilities and assisting customers in exploring the intersection of data and AI for data management. These important initiatives for modern enterprises are a tailwind to Informatica for many years to come. As I wrap up, I want to thank all my Informatica colleagues, our partners, our customers and our shareholders for their ongoing support. With that, let me turn the call over to Mike. Mike, please take it away.
Mike McLaughlin: Thank you, Amit, and good afternoon, everyone. Q2 was another solid financial quarter across the Board, with all key growth and profitability metrics within or above our guidance metrics. I’ll begin my discussion of Q2 results with a quick review of the components that make up Informatica’s annual recurring revenue or ARR. Our ARR falls into three categories; cloud subscriptions, which grew 37% year-over-year; self-managed subscriptions, which we no longer actively sell and therefore are gradually declining; and maintenance for on-premises perpetual licenses that we no longer actively sell, which is also in gradual decline. With that in mind, let’s start with total ARR, which was $1.67 billion, an increase of 7.8% over the prior year. This growth was driven primarily by new cloud workloads, strong cloud net expansion with existing customers and stable self-managed subscription and maintenance renewal rates. Foreign exchange rates negatively impacted total ARR by $2 million. Cloud subscription ARR was $703 million, a 37% increase year-over-year and 10%, sorry, $10.6 million above the midpoint of our May guidance. New cloud workloads and strong net expansion with existing customers drove cloud subscription net new ARR of $190 million year-over-year and $50 million sequentially. Cloud subscription ARR now represents 42% of total ARR, up from 33% a year ago. Foreign exchange negatively impacted cloud subscription ARR by about $720,000. Our cloud subscription net retention rate remained very strong in Q2. At the end-user level, it was 119%, up 3 percentage points year-over-year and flat versus last quarter. Cloud subscription net retention rate at the global parent level was 126%, up 4 percentage points year-over-year and up 2 percentage points versus last quarter. Self-managed subscription ARR declined in the quarter, as expected, to $494 million. This was down 2% sequentially and down 7% year-over-year, somewhat better than our expectations coming into the quarter. Subscription ARR, which is simply the sum of cloud ARR and self-managed ARR, grew 15% year-over-year to $1.2 billion, which was $18.5 million above the midpoint of our May guidance. Foreign exchange rates negatively impacted subscription ARR by approximately $1.1 million. The third component of total ARR is 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 $472 million. This was in line with our expectations for the quarter. Modernizing our on-premise customer base to Informatica’s Intelligent Data Management Cloud is a large opportunity for us. As of the end of Q2, we have migrated 6.1% of our maintenance and self-managed ARR base to cloud, up from 5.5% last quarter. We have a life-to-date average two-to-one ARR uplift ratio on these migrations, including PowerCenter and Master Data Management migrations. In Q2, we closed a similar number of cloud modernization deals as in Q1. In the first half year of this year, the number of modernization deals grew 58% year-over-year and in the second half of the year, we expect modernization growth to be above our average cloud subscription ARR growth rate. To summarize our Q2 ARR performance, the three components of our ARR summed to 7.8% total ARR growth year-over-year. cloud subscription ARR growth of 37% drove this increase, offset by gradual self-managed subscription and maintenance ARR declines. We expect similar trends to continue throughout the second half of 2024 as a direct result of our cloud-only strategy. Now, I would like to review our revenue results for the second quarter. GAAP total revenues were $401 million, an increase of 6.6% year-over-year. Foreign exchange rates negatively impacted total revenues by approximately $1.6 million on a year-over-year basis. Our revenues were approximately $1.4 million below the midpoint of our May guidance due to two primary factors. First, as a direct result of our strategy to shift more of our customers’ implementation and support work to our professional services partners, professional service revenues were lower than our original forecast. This is a positive development for Informatica, as our services partners are an important go-to-market channel and the services related to our software are an attractive business for those partners. To illustrate the importance of this channel, for the first half of the year, closed wins in which partners brought Informatica into the opportunities represented more than 30% of total bookings. The second factor impacting our GAAP total revenue this quarter was a somewhat lower average term length of self-managed subscription renewals. This resulted in less upfront-recognized self-managed subscription revenue per the ASC 606 accounting standard than our previous forecast. As most of you know, ASC 606 accounting for self-managed subscription revenue does not impact ARR, billings or cash flow. Shorter term lengths on renewals mean less GAAP revenue is recognized up-front per ASC 606, but ARR, billings and cash flow are not affected. We expect these two trends, lower professional services revenue and shorter self-managed renewal terms to continue for the remainder of the year, and therefore, we are lowering our full year 2024 GAAP total revenue forecast accordingly, as we will discuss in a moment. Subscription revenue which includes cloud subscriptions and self-managed subscriptions increased 16% year-over-year to $264 million, representing 66% of total revenue, compared to 61% a year ago. Our quarterly subscription renewal rate was 90%, down 2 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 so far this year. Revenues in our maintenance and professional services category were $136 million. Maintenance revenue of $116 million represented 29% of total revenue for the quarter and our Maintenance renewal rate was 96%, up 2 percentage points year-over-year. Professional services revenues, which include implementation, consulting and education, make up the remainder of this category and are down almost $4 million year-over-year. As I mentioned a moment ago, our implementation services revenue has been declining as our services partners assume a greater share of that work for our customers and we expect this trend to continue in the second half of the year. Cloud Subscription revenue was $161 million or 61% of subscription revenues, growing 35% 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. Turning to the geographic distribution of our business, U.S. revenue grew 7% year-over-year to $256 million, representing 64% of total revenue, while international revenue grew 5% to $144 million. Using exchange rates from Q2 last year, international revenue would have been approximately $1.6 million higher in the quarter, representing international revenue growth of 6.5% year-over-year. Informatica’s consumption-based pricing unit, the IPU, represented approximately 58% of second quarter cloud new bookings. The remainder of cloud -- of Q2 cloud bookings were primarily for customer or supplier records for our MDM products, which is also a multiyear committed, consumption-based pricing model. We added three new IPU services, including CLAIRE GPT to our IDMC platform this quarter. We now have 36 data management capabilities that our customers can access and consume on our unified platform using IPUs. Now, I would like to move on to our profitability metrics. Please note that I will discuss non-GAAP results unless otherwise stated. In Q2, our gross margin was 82%, an increase of over 1.6 percentage 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 $115 million, growing 31% year-over-year and exceeding the midpoint of our May guidance by almost $2 million. Operating margin was 28.7%, a 5.4 percentage point improvement from a year ago. Adjusted EBITDA was $119 million and Net Income was $71 million. Net income per diluted share was $0.23, based on approximately 315 million outstanding diluted shares. Basic share count was approximately 301 million shares. Adjusted unlevered free cash flow after tax was $71 million, better than expected due to faster cash collections and other working capital dynamics. Combined with Q1 results, unlevered free cash flow for the first half 2024 was in line with historical linearity. I will update our expectations for the full year in a moment. Cash paid for interest in the quarter was $38 million, in line with expectations. In June, we repriced our $1.8 billion outstanding term loan, reducing the applicable margin by 50 basis points and eliminating the Credit Spread Adjustment related to the transfer from LIBOR to SOFR. This repricing will save approximately $11 million in pre-tax interest expense on an annual basis. We ended the second quarter in a strong cash position with cash plus short-term investments of $1.13 billion, an increase of $307 million year-over-year. Net debt was $704 million and trailing 12 months of adjusted EBITDA was $529 million. This resulted in a net leverage ratio of 1.3 times at the end of June. Now, I will turn to guidance, starting with the full year 2024. We are very pleased with our execution in the first half of 2024 and we have good momentum going into the second half of the year. This reflects confidence in our cloud-only, consumption-driven strategy, supported by strong customer momentum and renewal rates. Therefore, we are raising FY 2024 cloud subscription ARR by $3 million and subscription ARR by $4 million at the midpoint. We now 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. We now expect subscription ARR to be in the range of $1.265 billion to $1.299 billion, representing approximately 13.2% year-over-year growth. We are reaffirming total ARR to be between $1.718 billion and $1.772 billion, representing approximately 7.3% year-over-year growth. Turning to total revenues, we expect the same dynamics regarding professional services and self-managed renewal duration as we saw in Q2 to continue for the remainder of the year. We estimate this impact to be approximately $21 million, about evenly split between these two dynamics. Additionally, due to the recent strengthening of the U.S. dollar against the euro, pound and yen, we now expect increased FX-related headwinds -- revenue headwinds of approximately $4 million compared to previous assumptions. Taking this all together, we are updating GAAP total revenues downward by approximately $25 million to the range of $1.66 billion to $1.68 billion, representing approximately 4.7% year-over-year growth at the midpoint of the range. It is very important to understand that this reduction in total revenue guidance does not reflect any changes in our expectations for our core recurring revenue software business. Lower expectations for lower -- for low margin professional services revenues and lower up-front self-managed revenue recognition pursuant to ASC 606, along with FX, are the cause. We delivered better-than-expected bottomline results and are raising guidance for non-GAAP operating income by $5 million and adjusted unlevered free cash flow after tax by $10 million at the midpoint. We now expect non-GAAP operating income to be in the range of $538 million to $558 million, representing approximately 18.5% year-over-year growth at the midpoint and we now expect adjusted unlevered free cash flow after-tax to be $545 million to $565 million, representing 23% year-over-year growth. Turning to the third quarter, we are establishing guidance for the third quarter ending September 30, 2024, as follows. We expect GAAP total revenues to be in the range of $412 million to $428 million, representing approximately 2.8% year-over-year growth at the midpoint of the range. We expect subscription ARR to be in the range of $1.199 billion to $1.219 billion, representing approximately 12.2% year-over-year growth. We expect cloud subscription ARR to be in the range of $738 million to $748 million, representing approximately 35.2% year-over-year growth. We expect non-GAAP operating income to be in the range of $139 million to $151 million, representing approximately 13.2% year-over-year growth. All of those growth rates are at the midpoint. For modeling purposes, I would like to provide a few more pieces of additional information. First, we expect total ARR for the third quarter to be in the range of $1.66 billion to $1.69 billion, representing approximately 6.3% year-over-year growth at the midpoint of the range. Second, we expect unadjusted, sorry, we expect adjusted unlevered free cash flow after-tax for the third quarter to be in the range of $110 million to $130 million. Third, we estimate cash paid for interest will be approximately $36 million in the third quarter and approximately $146 million for the full year, using forward interest rates based on one-month SOFR. Fourth, with respect to taxes, our Q2 non-GAAP tax rate was 23% and we expect that rate to continue for the full year 2024. And lastly, our share count assumptions. For the third quarter, we expect basic weighted-average shares outstanding to be approximately 304 million shares and diluted weighted-average shares outstanding to be approximately 312 million shares. For the full year, we expect basic weighted-average shares outstanding to be approximately 302 million shares and diluted weighted-average shares outstanding to be approximately 313 million shares. In summary, we are very pleased with our second quarter performance and the first half of the year. We are focused on executing our cloud-only, consumption-driven strategy and delivering our 2024 guidance. Operator, you can now open the line for questions.
Operator: [Operator Instructions] Our first question is from Matt Hedberg with RBC (TSX:RY). Your line is now open.
Matt Hedberg: Oh! Great. Thanks for taking my questions, guys. I guess, and maybe for either of you, congrats on the results. I think, obviously, Mike, you called out some of the revenue items that impacted you guys, but I think, it certainly looks like core underlying strength and subscription in cloud ARR was strong. I guess I wanted to ask a little bit more about your increased cloud ARR guidance. What are the primary reasons for this optimism? I mean, I think, you mentioned maybe pipeline, just general customer interest. Is there a macro element to this as well? Just sort of curious on that because it certainly would look good to us?
Amit Walia: Sure. Thanks for the question, Matt. Look, I think, we -- macro, I said, like we look, the macro looked appeared to be the same to us in last quarter as in Q1. I think what we are seeing is definitely pipeline has been very healthy. This year Informatica World, some of you were there, was the biggest Informatica World ever. And coming out of the pipeline of that Informatica World was the biggest pipeline that we’ve ever had. And going back to the three initiatives that customers are spending on, ongoing digital transformation, modernization and now GenAI, it’s actually become a Venn diagram. I think I said that before. To get to GenAI, customers have to modernize even faster and they have to get to digital faster, and then only they get the benefit of GenAI. And of course, the early innings in GenAI are also playing a role. People have to set their data states in place. So, and with IDMC, they can do the current initiative that they are currently on and they can start experimenting GenAI. That has allowed customers to be feel very future-proofed in what they are implementing here. All of those are we are seeing as being the tailwind to pipe create and healthy deal closure. And also, you see big deals, like the $5 million-plus deals we talked about, ARR, as well as the $1 million, pretty healthy growth over there.
Matt Hedberg: Got it. That makes sense. And then, Mike, just maybe one for you on the strategic shift to more PS revenue going to partners. I guess I’m curious, is there a benefit to your margins over time due to this? And I guess secondarily, can you give us a sense for, after this updated assumption, how much of your PS revenue is left, I guess, as we think, towards calendar 2025 and beyond?
Mike McLaughlin: Yeah. Sure. So, it’s going to be essentially margin-neutral. We’re a software company, not a professional services company. And while we have a great professional services organization, and we’re really proud of them, it’s not a profit center for us. It’s there to ensure the successful implementation of the software and to ensure that the customers realize the value that they should from the software once they own it. So, we’re very happy for our GSI and regional services partners to do that business instead of us, if our customers want them to. We don’t pay commissions to our salespeople to sell PS. It’s more of a pull from our customers when they want it. So, this decline is a natural trajectory. It’s gone a little faster than we expected. It’s declined over the last three years and we thought this year was going to be the bottom, but it’s actually declining faster than that. And so, we lowered guidance accordingly. I think the number, if you look last year for our professional services, including our education services, was $97 million, and we had thought it was going to be about flat and we were taking it down, as I said in the remarks, by low-double digits, $10 million, $11 million $12 million for the year.
Matt Hedberg: Thanks a lot, guys.
Operator: Our next question is from Alex Zukin with Wolfe Research. Your line is now open.
Unidentified Analyst: Hey. This is Patrick [ph] on for Alex. Just wanted to clarify, maintenance renewal rates are going higher, but duration is down. So, can you just explain the dynamics there? Are self-managed customers renewing, but you’re just seeing more one-year and two-year deals versus three-year -- two-year and three-year deals prior? I’m curious as to how or if you can try to further accelerate that migration story? Thanks.
Mike McLaughlin: Yeah. Sure, Patrick. So, let’s start with a clarification, because it’s important to keep maintenance, which is on on-prem perpetual licenses and self-managed, which is essentially on-prem subscriptions separately, because the dynamics in terms of renewal are a little different. Maintenance contracts are almost all one year. They have been since the dawn of time and the renewal rate there is very constant. The term of those renewals actually doesn’t matter, because maintenance is recognized readily, because it is a service, not a software license. It’s all in the self-managed piece, which is on-prem subscription contracts and that the amount that’s recognized up front per ASC 606 is hefty, and a change in the duration from three years to two years to one year or anywhere in between has a remarkably large impact on the GAAP revenue recognition. So, we had expected it to come down. It’s a natural thing as we end of sale the product and more and more folks are preparing themselves to move to the cloud, if not today, maybe at the next renewal, and we see that trend of reduced renewal term actually as a confirmation that migrations are going to continue to move rapidly and hopefully move even faster, because the customers are setting themselves up to move as indicated by voting with their feet, as you will, by shorter durations on the self-managed contracts. So, it’s all self-managed on-prem, not maintenance, and the revenue -- the GAAP revenue reduction that we’ve established puts it, we think, a realistic level for the rest of the year, and I can’t end this answer, though, by reminding everybody that it doesn’t affect ARR, it doesn’t affect billings, it doesn’t affect cash flow. As you can see, we’ve actually increased our bottomline guidance despite the fact that GAAP revenue is coming down.
Unidentified Analyst: And then a quick follow-up, if you don’t mind, in terms of what is contemplated in the implied second half net new cloud ARR guide, any way to directionally think about whether there’s more or less migration baked into that number given the implied ramp? Thanks.
Mike McLaughlin: So, we haven’t sort of explicitly changed our expectations for the pace of migrations through the year. As I mentioned in my remarks, we expect the growth of our migration, both in terms of deals and dollars, year-over-year, to be faster than our average cloud subscription growth. We’re guiding to 35.5% cloud subscription overall. Migrations will grow faster than that, reflecting all the things we’ve talked about over time, including PowerCenter Cloud Edition, making it easier, faster, less risk for our customers to move and we remain confident in that forecast. We’re optimistic that it will maybe go faster than that, and particularly in 2025, we see lots of reasons to be optimistic, but for now, we’re not changing our explicit expectations for migrations for the rest of the year.
Unidentified Analyst: That’s right. Thanks and congrats on the results.
Mike McLaughlin: Thank you.
Operator: We have a question from Kash Rangan with Goldman Sach. Your line is now open.
Kash Rangan: Hey. Thank you very much. Congrats on the quarter. It looks like the cloud momentum is picking up. So, Amit, high-level question for you. As you approach 2025 with cloud ARR firmly above 20% of total ARR and with the cleanup done with respect to the ASC 606 revenue recognition of the on-prem, then lowering the guide is the right thing to do. But how does this set you up for accelerating revenue growth rate potentially into double digits for next year? Thank you so much and that’s it for me.
Amit Walia: Look, I think, it sets us up well for accelerating revenue growth, but double digits in 2023, this isn’t official guidance, but…
Victoria Hyde-Dunn: 2025…
Amit Walia: … 2025, so thank you, is probably not realistic, but accelerating revenue growth we do feel good about and that’s all consistent with what we talked about last December or yesterday when we set out our medium-term guidance. We still feel good with that medium-term guidance, and that, as you may recall, was calling for double-digit revenue growth by the end of 2026 or into 2027 with double-digit ARR growth in 2026. So, that all still feels good to us. Kash, if you’re there, you may be on mute.
Kash Rangan: No. That was it. Thank you so much. That was the question that I had. Appreciate it.
Amit Walia: Okay. Good. Thanks, Kash.
Operator: We have a question from Koji Ikeda with Bank of America (NYSE:BAC). Your line is now open.
Koji Ikeda: Yeah. Hey. Great. Thanks guys for taking the question. A couple from me. So, I am looking at your investor presentation, Slide #48. It’s the maintenance to cloud migration illustrative example. I think this is a new slide and it does give the -- in your prepared remarks, you did talk about 20%, 6% of net new cloud ARR coming from migrations, but in this slide, it talks about the effects of credits. And so, I guess the question here is, is there a way to maybe qualitatively or quantitatively talk about how much higher the percentage of net new ARR would have been this quarter or maybe on a trailing 12-month basis if there were not credits given and the effect to cloud ARR?
Mike McLaughlin: Yeah. Well, thank you for digging all the way to Page 48 into the deck. It is a new slide and we produced it because we got so many questions on this, and it’s hard to answer well without a little bit of a visual aid. You’ve got it right that the credits that are offered for existing maintenance, and in some cases, professional services for migration lower the ARR that we recognize in cloud during the term of the initial cloud deal, sort of average two and a half years, some are two years, some are three years, some are longer, and then the full ARR is not fully realized or unlocked, as we say internally, until that first renewal. There’s really not a great way for you to model it. You can certainly try and we can give you some things to think about. Primarily, the fact that it’s six months is the PowerCenter Cloud Edition transition period, so we give folks credit for their maintenance in full for that six months of maintenance. That’s the primary variable. And so you certainly can take a stab at modeling and we model it internally, but it gets complicated and the lines are spread, so you get pretty complex pretty fast.
Koji Ikeda: That’s very helpful. Thank you for that. And follow-up here, you did talk about CLAIRE GPT being available now on IPUs, so great to see your customers have a low-friction adoption way for CLAIRE GPT. I guess the question here is that will you be able to see usage of CLAIRE GPT through the IPU, and is there the potential for CLAIRE GPT to be broken out as a percentage of IPUs in the future? Thank you.
Amit Walia: The first answer is yes. Customers can consume CLAIRE GPT through the IPU model. That’s the intent, which is why I mentioned that, and the examples I gave you are the examples of customers who started using CLAIRE GPT with the IPU model. So our goal right now is to obviously drive as much adoption of the CLAIRE GPT service because that in general obviously will be driving more of IDMC services and its usage, and we feel very good about it. I think, Koji, for now, we’re not looking to break that at all. I mean, we don’t break any of our services in general in the IPU model. Obviously, when we come to the next any session, we can keep giving you guys more information around where we are headed in that direction and more things, but right now, we don’t have any plans to break the CLAIRE GPT IPU consumption from regular IPU consumption like we haven’t broken for any other service.
Koji Ikeda: Got it. Thank you, Amit. Thanks guys for taking the questions.
Amit Walia: Sure.
Operator: Our next question is from Andrew Nowinski with Wells Fargo (NYSE:WFC). Your line is now open.
Andrew Nowinski: Thank you. Good afternoon, everyone. So, I want to ask a question on your cloud ARR is clearly very strong this quarter and your guidance for cloud ARR was also very impressive, which seems to be the opposite of what we saw from Azure tonight. Does that signify the durability of your cloud ARR segment and how it can continue growing at a high pace despite some of the weakness we’re seeing at the hyperscalers?
Amit Walia: Thanks, Andrew, for the question. Look, I think if you step back, one of the things that we’ve always said, first of all, the uniqueness for Informatica is that we serve every hyperscaler platform, every data platform, every use case across the industry. So, it’s not necessary that whether an Azure or a GCP or an AWS or a Snowflake or a Databricks, any of their individual things directly impact us quarter in or day in, day out. Obviously, we serve a broad ecosystem. So, obviously, our strength and durability is that we serve across all of the Switzerland of Data, as I said, and as you heard from me, becoming the Switzerland of AI in the new world. And that’s the strength of the durability of the business. And customers, the other one is that, look, we’re a very unique place. We’ve got the best of breed products. We’re the only platform that brings it all together and with AI, GenAI, and that. In our industry, which is massively fragmented in data management, there isn’t even one that remotely comes to us and I think that’s another thing that’s obviously benefiting us, and not forgetting modernization. So, I think all of those are playing into the momentum we are seeing.
Andrew Nowinski: Okay. Thank you. And just to follow up, maybe just a clarification, I guess it is, that you cited, I think, a new stat. You said 26% of cloud ARR came from migrations this quarter. Was that an improvement relative to last quarter? How has that changed? Thank you.
Amit Walia: It’s actually not a new stat. We introduced it at our Investor Day in December and we’ve mentioned it on our calls the last or at least in Q1 and this is the second call of the year. So, back in, at our Investor Day, I think that stat was 17%, maybe 18%, and it was 24% in Q4 and it’s 26% now. So, it’s going up. There’s quarter-to-quarter volatility in that and it’s -- in any given quarter, a lot of small numbers, relatively speaking. So, but it continues to be very strong and that -- and our medium-term expectations, we’ve also talked about, is we expect the contribution from migrations over the multiyear period to be 30% to maybe as much as a third of our total ARR.
Andrew Nowinski: Got it. Thank you very much.
Operator: We have a question from Pinjalim Bora with JPMorgan (NYSE:JPM). Your line is now open.
Pinjalim Bora: Oh! Great. Thanks for taking the questions. Congrats on the quarter. Amit, I want to ask you a high level question. There seems like there’s some confusion among the investor base around kind of table formats and how the adoption of table formats might or might not impact the data integration space. I know it’s early and there are kind of three different formats at this point, but I’d love to hear if you think, how do you think of it? Is it a net positive, neutral, negative to the overall integration space?
Amit Walia: Pinjalim, back to the question. Net positive. So I think, look, overall for us, it has -- it’s a net positive. For us, any time anything new has come, it creates more work to be done. New table format does not change the need that there is a massive amount of data sits within a large enterprise. Look, we serve the enterprise, right? Fragmented, large, complex infrastructure running around multiple databases, multiple instances of those databases with transactional data, non-transactional data. Even if you have to bring into one of these tables for analytic purposes, they have to be prepared. They have to be formatted. They have to be put in the right quality. And then only some analytic work can happen whether these tables are in a warehouse or a lake. The second one is that, remember, it’s a constant piece of work to be done. When the core system keeps adding new data, a new thing, they have to be constantly updated and prepared to bring it back to this table again for any analytic workload to happen. And then from there, just to continue the workflow within an enterprise, data has to be taken out of these tables to pass it to the BI layer for visualization, which we also participate in. And then, of course, that’s just a core pipelining data integration part. Don’t forget that governance and all of those things sits on top of it. So we look at this as a net positive. We already support it. We have the connectors that support it, connectors to bring data in, take data out, support the open data formats, all of those things. So that’s how we look at it at a very high level Pinjalim. I’m happy to share more, but we are -- we don’t see this at -- and we see this as a net positive overall.
Pinjalim Bora: Got it. Thank you. One follow-up for Mike. Mike, can you talk about the IPU cohort that renewed this year, how has been the adoption rate across products and is there any difference in the expansion characteristics with that cohort of customers using IPUs versus non-IPUs?
Mike McLaughlin: Well, as time goes on, we have more and more IPU renewal experience. We only began selling IPUs, I don’t know, three and a half years ago, something like that, maybe four years. And so last year, the number of IPU renewals was not a lot of deals, but it’s a really good about our experience. We have a good handle on what utilization, both absolute levels and patterns lead to high probability of renewal, and we have a pretty good handle on what the early warning indicators are in the utilization data that we can see that suggest we should get a customer success person into that account well in advance of renewal so that we can help them get value out of the software and improve the chance of renewal when the time comes. So I wouldn’t say that we have a, there’s not a cohort difference in 2024 versus 2023 renewals that we can see. They’re both in line with expectations. We think they’re very good, both on a relative and an absolute basis. And we’re getting better at it every day as we learn more and more from the telemetry we get from the usage of IPUs.
Amit Walia: The only thing I’ll add to that is to what Mike was saying is that we, with the bigger, broader base of IPUs out there right now that we end up renewing, the thing that we are very pleased to see is that expansion of those IPUs is definitely increasing. So we see more expansion happening to customers who bought IPUs, which allow, which basically both cross-sell upsell, and that definitely, we are seeing an increase in momentum this year and last year. So that clearly more IPUs, better renewals, better usage, more expansion. That’s the, that’s what we are seeing as a trajectory of our business.
Mike McLaughlin: And I’ll just add, when we use the word expansion, we mean in-term expansions, so not a renewal.
Amit Walia: Correct.
Mike McLaughlin: So, this is between -- this is before the renewal comes up, the customer’s doing great using lots of IPUs and they come back to us and ask for more, and that’s a really low cost to market. It’s a really high value sale for us and for them and the momentum there is super encouraging.
Pinjalim Bora: Got it. Very helpful. Thank you.
Operator: Our next question is from Will Power with Baird. Your line is now open.
Will Power: Great. Thanks. Amit, I wonder if you could kind of talk about the nature of your customer conversations in this climate where there’s a lot of questions around the health of software spend broadly. How they’re thinking about the prioritization around data and AI spend, and obviously, your IDMC platform specifically. I mean, the cloud numbers suggest that that continues to be prioritized, but just, it’d be great to kind of hear your perspective on what -- how customers are thinking about prioritizing their spend in the current environment?
Amit Walia: Thanks for the question. I think I’d separate that into two categories. So one is the broader customer spend environment and what the, how they are prioritizing data and AI, and then particularly tied to us. Look, I think without doubt, I think customers have realized that they have to spend in this area. And I’ve said that many before that customers are moving more towards spending offensively in transformational projects, but that doesn’t mean that customers are net increasing their overall IT spend by a very wide margin. Customers are obviously looking within their spend area and saying, hey, I got to prioritize these couple of things, but then that means that I have to be find a better way to be more effective in the existing spend I have, and of course, in some cases, deprioritization also happens. Absolutely, we see that, but data and AI remains definitely a top three spend category along with security in particular. The unique thing we are seeing is that, that the data layer is becoming a key enabler for GenAI and anything to do in that area. There’s tremendous mindshare for that. Everybody wants to do. That’s not a matter of if, it’s a matter of when. And number two is that in our case, what’s very unique is customers don’t have to look left and right. The same IDMC platform allows them to do GenAI work and the existing three GenAI digital transformation that’s going on. So they’re very future-proof and with IPU, they can seamlessly start experimenting gen AI workloads while they are running the current project. They don’t have to make an either or decision. And as I said, within IDMC, they can use IDMC for GenAI. We shared that at Informatica World, some of the demos, and now CLAIRE GPT is also available on the IPU model in the same platform to basically do next new GenAI projects. So that definitely is a very unique thing to us. That’s obviously showing up in our cloud pipeline and the strong cloud AI adversaries.
Will Power: That’s helpful. Thanks. And maybe if I could just ask a second one for Mike, anything to call out with respect to linearity? I know you all indicated the macro was pretty stable in Q2, but anything to call out in June and maybe even into July versus trends you might’ve seen in April and May?
Mike McLaughlin: Hey, Will. Very consistent with last year. Almost on the screws. It’s software. Our business usually isn’t that predictable, but it’s been, again, very similar to last year. We think the macro feels similar, deal cycle feels similar and pipeline build also looks very similar.
Will Power: Okay. Thank you.
Operator: We have a question from Howard Ma with Guggenheim. Your line is now open.
Howard Ma: Great. Thanks for taking the question. I have one for Mike and a follow-up for Amit. For Mike, I think you might have kind of already answered this in the last response, but it’s on the cloud ARR top side and the raise. So by raising less than the beat, I just want to be clear, is that just a matter of being prudent? And then perhaps in reality, there’s less risk in the back half and especially given migrations are likely to step up or is there potentially something more nefarious that you’re seeing in the future?
Mike McLaughlin: I would say it’s prudence and derisking. There’s nothing more to it than that. Okay, Howard.
Howard Ma: Okay. Great. Great. I just wanted to be clear. And for Amit, I want to ask you about another type of catalog, so not open table formats, but around Databricks open sourcing their Unity Catalog. So really, how impactful is this on the entire Data Catalog space and on Informatica specifically? So is it more of like a rising tide lifts all boats situation and then you expect it to increase overall awareness of the importance of Data Catalogs or could this be a threat to Informatica? Thank you.
Amit Walia: Howard, we created the Data Catalog category, and I think, I’ve always said that our catalog is a very different catalog. It’s a catalog of catalogs. When enterprises look for a catalog provider, they look at one metadata system record creator, which is what we become. Data doesn’t sit only in Databricks, only in Snowflake. In fact, more data sits out of Databricks and not all data will go to Databricks. We love them. We partner with them, but that’s just practical reality. We support Unity, so customers can have metadata catalog within Unity. It’s like everybody has to have that. I think sometimes we get confused about the same word. Like I’ve said, databases have to have Data Governance too. That’s a very different governance for databases. Without that, a database does not become a database, but Data Governance at the CDO level across an enterprise is a very different thing. So words can be very different, although they can be used very similarly. Unity is open source now. I think that’s what I last I checked is what Databricks has done, which is good for the Databricks ecosystem, but we absolutely see our catalog growing very, very strongly because the use cases we serve, no other catalog is even remotely close to what we serve, because it’s not just a catalog. It serves enterprise-grade governance, enterprise-grade metadata system record on which an enterprise GenAI initiative will sit and that’s what we’re seeing the deal went to us.
Howard Ma: Thanks, Amit. That’s excellent color. Thanks so much.
Operator: We have a question from Patrick Colville with Scotiabank (TSX:BNS). Your line is now open.
Patrick Colville: Good afternoon and thank you for squeezing me in. So, Mike, the disclosure you guys give on the proportion of net new ARR from migrations is super helpful. So, 26% of TTM net new ARR this quarter. Last quarter, it was a tad higher. It was 28%. Why would that be? Would it kind of kick down very slightly versus last quarter?
Mike McLaughlin: Yeah. Thanks for reminding me. I misquoted that earlier in the call. I thought it was 23%. Look, it’s quarter-to-quarter variability. You’ll also notice in my script that I mentioned that the number of migration deals this quarter was about the same as what we saw last quarter, whereas last quarter, it was more than double on a year-over-year basis. So it’s quarter-to-quarter variability is what it is and that’s why we use a TTM number instead of a quarterly number, because we don’t want folks to get confused or panicked about what may be noise, not signal. We -- and as I said, we expect that contribution to -- or the growth of the migrations on a year-over-year basis in terms of contribution to NAR to grow faster than our average cloud growth rate. So, it’s all consistent with what we expected during the year and I would just encourage you not to get too obsessed with quarter-to-quarter volatility. I know it’s hard, but do your best.
Patrick Colville: Okay. Okay. And -- but I guess the key message and this is your answer to Andy’s question earlier, is you expected the increase from here, right? I think you said 30% to 33% of net new ARR is expectation in the future.
Mike McLaughlin: Yeah. That’s our medium-term expectation of the steady state through the 2026 medium-term period.
Patrick Colville: Okay. Very clear. Thank you so much.
Mike McLaughlin: Okay.
Operator: We’re out of time for questions, so I’ll pass the call back to the management team for any closing remarks.
Amit Walia: Well, thank you. Well, look, I really appreciate everyone taking the time today. As you can see, we’re extremely thrilled with our solid performance in Q2 and obviously over the course of first half. First half is an important checkpoint for the year where we are. We remind everybody we run an annual business, not a quarterly business, so we feel very good, which is why when we look at the second half and we look at the year, we’ve raised our guidance for cloud ARR, subscription ARR, non-GAAP op-in [ph] and unlevered free cash flow after tax. So we feel very good about the business where we sit. All the three vectors of growth, whether it’s digital transformation, modernization of GenAI, continue to help increase pipeline and drive our business. We look forward to obviously Q3 and rest of the year, but I think we’re in great shape and we remain confident to close out a strong year. Thank you very much.
Operator: That concludes today’s call. Thank you all for your participation. You may now disconnect your line.
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