Informatica (INFA) - 2022 Q3 - Quarterly Report

Special Note Regarding Forward-Looking Statements The report contains forward-looking statements subject to substantial risks and uncertainties that may cause actual results to differ - Forward-looking statements relate to future events or financial/operating performance, identified by words such as 'may,' 'will,' 'should,' 'expects,' 'plans,' 'anticipates,' 'could,' 'intends,' 'target,' 'projects,' 'contemplates,' 'believes,' 'estimates,' 'predicts,' 'potential' or 'continue'[9] - Key areas covered by forward-looking statements include the company's ability to attract and retain customers, upsell and cross-sell, manage future growth, transition to subscription-based offerings, demand for its platform, impact of the COVID-19 pandemic and adverse economic conditions, competition, technological changes, future financial performance, and intellectual property protection[9] - Readers are cautioned not to rely on forward-looking statements as predictions of future events, as outcomes are subject to risks, uncertainties, and other factors described in the 'Risk Factors' section[11] Part I. Financial Information Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements for the periods ended September 30, 2022 Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheets (in thousands) | Metric | Sep 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Assets | | | | Total current assets | $1,132,181 | $1,171,790 | | Total assets | $4,657,598 | $4,986,263 | | Liabilities | | | | Total current liabilities | $736,452 | $941,611 | | Total liabilities | $2,687,409 | $3,002,587 | | Stockholders' Equity | | | | Total stockholders' equity | $1,970,189 | $1,983,676 | Condensed Consolidated Statements of Operations Condensed Consolidated Statements of Operations (in thousands, except per share data) | Metric | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Total revenues | $371,951 | $361,807 | $1,106,337 | $1,037,345 | | Gross profit | $284,760 | $281,225 | $848,938 | $800,132 | | Income (loss) from operations | $2,589 | $28,657 | $(3,295) | $61,103 | | Net (loss) income | $(15,602) | $2,727 | $(49,294) | $(33,597) | | Basic Net (loss) income per share | $(0.06) | $0.01 | $(0.18) | $(0.14) | | Diluted Net (loss) income per share | $(0.06) | $0.01 | $(0.18) | $(0.14) | Condensed Consolidated Statements of Comprehensive Loss Condensed Consolidated Statements of Comprehensive Loss (in thousands) | Metric | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Net (loss) income | $(15,602) | $2,727 | $(49,294) | $(33,597) | | Total other comprehensive loss, net of tax effect | $(52,333) | $(13,696) | $(113,091) | $(23,797) | | Total comprehensive loss, net of tax effect | $(67,935) | $(10,969) | $(162,385) | $(57,394) | Condensed Consolidated Statements of Stockholders' Equity Condensed Consolidated Statements of Stockholders' Equity (in thousands) | Metric | Sep 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Total Stockholders' Equity | $1,970,189 | $1,983,676 | | Accumulated deficit | $(1,178,808) | $(1,129,490) | | Additional paid-in-capital | $3,242,107 | $3,093,232 | Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows (in thousands) | Metric | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $139,347 | $142,393 | | Net cash used in investing activities | $(115,230) | $(22,365) | | Net cash provided by (used in) financing activities | $33,991 | $(46,673) | | Net increase in cash, cash equivalents, and restricted cash | $41,767 | $70,465 | | Cash, cash equivalents, and restricted cash at end of period | $499,863 | $418,686 | Notes to Condensed Consolidated Financial Statements This section provides detailed disclosures for the condensed consolidated financial statements, covering organization and accounting policies Note 1. Organization and Description of Business - Informatica Inc. was incorporated on June 4, 2021, as part of a restructuring that made it the top-tier entity, with Ithacalux Topco S.C.A. as its predecessor[31] - The company completed its initial public offering (IPO) on October 29, 2021, issuing 29,000,000 shares of Class A common stock at $29.00 per share, generating $915.7 million in net proceeds[33] - Informatica has developed an AI-powered software platform (Intelligent Data Management Cloud, IDMC) that connects, manages, and unifies data across multi-cloud, hybrid systems, offering products for Data Integration, API & Application Integration, Data Quality, Master Data Management, Customer and Business 360, Data Catalog and Governance and Privacy[34] Note 2. Summary of Significant Accounting Policies - The financial statements are prepared in accordance with U.S. GAAP and SEC rules, reflecting all necessary adjustments for fair statement[35][36] - The company manages, monitors, and reports its operating results and financial position as a single operating segment, with its Chief Executive Officer as the chief operating decision-maker[38] - Revenue is derived from sales of cloud subscriptions, on-premises subscription licenses, subscription support, perpetual software licenses, and maintenance and professional services, recognized when performance obligations are satisfied[40][41] - Remaining performance obligations were $1.1 billion as of September 30, 2022, with approximately 69% expected to be recognized as revenues over the next twelve months[62] Note 3. Cash, Cash Equivalents, Restricted Cash, and Investments Cash, Cash Equivalents, Restricted Cash, and Investments (in thousands) | Category | Sep 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $499,863 | $456,378 | | Restricted cash | — | $1,718 | | Short-term investments | $147,785 | $40,045 | | Long-term investments | $2,981 | — | | Total cash, cash equivalents, restricted cash, and investments | $650,629 | $498,141 | Note 4. Available-For-Sale Debt Securities Available-For-Sale Debt Securities as of September 30, 2022 (in thousands) | Category | Amortized Cost | Fair Value | Unrealized Losses | | :--- | :--- | :--- | :--- | | U.S. government securities | $7,960 | $7,957 | $(3) | | U.S. government agency securities | $30,515 | $30,501 | $(36) | | Non-U.S. government securities | $3,935 | $3,916 | $(18) | | Corporate debt securities | $21,748 | $21,608 | $(140) | | Commercial paper | $35,660 | $35,605 | $(56) | | Total | $99,817 | $99,587 | $(253) | - No credit losses were recognized related to the company's debt securities for the three and nine months ended September 30, 2022, as unrealized losses are due to interest rate fluctuations rather than credit quality[83] Note 5. Fair Value Measurements - The company uses a three-level fair value hierarchy (Level 1: quoted prices in active markets, Level 2: observable inputs other than Level 1, Level 3: unobservable inputs) to measure fair value[86][87][88] Fair Value Measurement of Financial Assets and Liabilities (in thousands) as of September 30, 2022 | Category | Total | Level 1 | Level 2 | Level 3 | | :--- | :--- | :--- | :--- | :--- | | Assets: | | | | | | Total cash equivalents and investments | $509,972 | $410,386 | $99,586 | — | | Interest rate derivatives | $8,224 | — | $8,224 | — | | Total assets | $518,196 | $410,386 | $107,810 | — | | Liabilities: | | | | | | Foreign currency derivatives | $4,267 | — | $4,267 | — | | Total liabilities | $4,267 | — | $4,267 | — | - No assets or liabilities were classified as Level 3 as of September 30, 2022, and December 31, 2021[88] Note 6. Goodwill and Intangible Assets Goodwill (in thousands) | Metric | Amount | | :--- | :--- | | Ending balance as of December 31, 2021 | $2,380,752 | | Foreign currency translation adjustment | $(83,371) | | Ending Balance as of September 30, 2022 | $2,297,381 | Intangible Assets, Net (in thousands) | Category | Sep 30, 2022 (Net) | Dec 31, 2021 (Net) | | :--- | :--- | :--- | | Acquired developed and core technology | $25,670 | $54,857 | | Customer relationships | $822,159 | $948,556 | | Trade names and trademark | $17,094 | $24,042 | | Total intangible assets, net | $864,923 | $1,027,455 | - Total amortization expense related to intangible assets was $46.9 million and $61.5 million for the three months ended September 30, 2022 and 2021, respectively, and $142.1 million and $184.9 million for the nine months ended September 30, 2022 and 2021, respectively[102] Note 7. Borrowings Long-Term Debt (in thousands) | Metric | Sep 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Dollar term loan | $1,865,625 | $1,875,000 | | Total debt, net of discount and debt issuance costs | $1,844,451 | $1,851,471 | | Long-term debt, net of current portion | $1,825,701 | $1,837,408 | - The company refinanced its credit facilities on October 29, 2021, with a new Credit Agreement, borrowing $1.9 billion of dollar term loans and obtaining $250.0 million of commitments under a revolving credit facility[107] - The Term Facility matures on October 29, 2028, and is repayable in quarterly installments of 0.25% of the initial principal amount. As of September 30, 2022, approximately $1.8 billion was outstanding under the Term Facility[108][291] Note 8. Disaggregation of Revenue and Costs to Obtain a Contract Revenue by Type (in thousands) | Revenue Type | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Cloud and subscription support | $142,444 | $111,630 | $410,262 | $312,165 | | On-premises subscription license | $71,565 | $82,060 | $208,537 | $205,790 | | Subscription | $214,009 | $193,690 | $618,799 | $517,955 | | Perpetual license | $1,208 | $2,846 | $6,180 | $19,085 | | Software revenue | $215,217 | $196,536 | $624,979 | $537,040 | | Maintenance | $127,909 | $137,569 | $392,221 | $420,888 | | Professional services | $28,825 | $27,702 | $89,137 | $79,417 | | Total revenues | $371,951 | $361,807 | $1,106,337 | $1,037,345 | Revenue by Geographic Location (in thousands) | Region | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | North America | $258,557 | $245,899 | $757,489 | $698,972 | | EMEA | $74,598 | $79,050 | $231,081 | $225,781 | | Asia Pacific | $30,362 | $29,357 | $93,437 | $87,980 | | Latin America | $8,434 | $7,501 | $24,330 | $24,612 | | Total revenues | $371,951 | $361,807 | $1,106,337 | $1,037,345 | Note 9. Derivative Financial Instruments - The company uses foreign exchange forward contracts as cash flow hedges to reduce the impact of foreign currency exchange rate fluctuations, particularly for Indian rupee expenses[120] - As of September 30, 2022, a net unrealized loss of approximately $2.7 million accumulated in other comprehensive income (loss) from cash flow hedges is expected to be reclassified into earnings within the next twelve months[121] - The company has two interest rate swaps outstanding with a total current notional amount of $1.3 billion, with a fixed rate of 1.525%, designated as cash flow hedges of floating rate interest payments and maturing by December 2022[124] Note 10. Stockholders' Equity and Equity Incentive Plan - The company's capital structure includes Class A, Class B-1, and Class B-2 common stock, with Class B-1 having identical rights to Class A except for director election/removal voting, and Class B-2 having no participating rights except for director election/removal voting and a nominal annual dividend[138] Total Stock-Based Compensation (in thousands) | Period | 2022 | 2021 | | :--- | :--- | :--- | | Three Months Ended Sep 30, | $34,155 | $4,033 | | Nine Months Ended Sep 30, | $97,988 | $9,918 | - As of September 30, 2022, total unrecognized stock-based compensation expense related to unvested RSUs and PSUs was $259.5 million, expected to be recognized over a weighted-average vesting period of 3.1 years[155] Note 11. Income Taxes Income Tax Expense and Effective Tax Rate (in thousands) | Metric | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Income tax expense | $2,782 | $3,783 | $10,757 | $15,683 | | Pretax (loss) income | $(12,820) | $6,510 | $(38,537) | $(17,914) | | Effective tax rate | -22% | 58% | -28% | -88% | - The effective tax rate differs from the U.S. statutory rate of 21% primarily due to foreign income inclusion under global intangible low-taxed income (GILTI), non-deductible stock-based compensation, and valuation allowances[157] Note 12. Net (Loss) Income Per Share Net (Loss) Income Per Share (in thousands, except per share data) | Metric | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Net (loss) income | $(15,602) | $2,727 | $(49,294) | $(33,597) | | Basic EPS | $(0.06) | $0.01 | $(0.18) | $(0.14) | | Diluted EPS | $(0.06) | $0.01 | $(0.18) | $(0.14) | | Weighted-average shares (Basic) | 281,859 | 244,689 | 280,361 | 244,670 | | Weighted-average shares (Diluted) | 281,859 | 249,311 | 280,361 | 244,670 | - Potentially dilutive securities (stock options, RSUs, PSUs, ESPP) were excluded from the computation of diluted net (loss) income per share for periods where their inclusion would have been anti-dilutive[160] Note 13. Commitments and Contingencies - As of September 30, 2022, the company had long-term purchase obligations of approximately $193.7 million, primarily related to multi-year contracts for software as a service[161] - The company provides assurance-type warranties for its software products (3-6 months) and service level provisions for its cloud services, with product warranty expense and obligations being immaterial to date[162] - The company is a party to various legal proceedings and claims arising from the normal course of business, including employment and intellectual property matters, and accrues for loss contingencies when probable and estimable[169][170] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses its financial condition and operational results, highlighting the transition to a subscription-based revenue model Overview - Informatica has pioneered the Intelligent Data Management Cloud (IDMC), an AI-powered platform that connects, manages, and unifies data across any multi-cloud, hybrid system[174] - Subscription revenue grew to $618.8 million for the nine months ended September 30, 2022, representing 99% of total software revenue, up from 96% in the prior year[176] - The company employs a 'land and expand' model to increase sales to its existing customer base, as evidenced by a Subscription Net Retention Rate (NRR) of 112% for the nine months ended September 30, 2022[183] Factors Affecting Our Performance - Continued adoption of subscription products is crucial for success, with Total Subscription ARR at $936.4 million as of September 30, 2022, representing 27% growth year-over-year. Cloud ARR grew at a rate of 39% for the period ended September 30, 2022[187][189] - New customer acquisition is a key growth driver, demonstrated by 54% of subscription customers as of September 30, 2022, not having a prior maintenance contract[190] - Expansion within the existing customer base is vital, as evidenced by a Subscription NRR of 112% and an increase in average Subscription ARR per subscription customer from $208 thousand to $252 thousand year-over-year[191] - Global macroeconomic factors, including elevated inflation, global supply chain concerns, rising interest rates, foreign exchange headwinds, and geopolitical pressures (e.g., war in Ukraine), have adversely affected customer buying patterns and sales cycles, with increasing magnitude in Q3 2022[194] Key Business Metrics and Non-GAAP Financial Measure Key Business Metrics (in thousands, except percentages) | Metric | Sep 30, 2022 | Sep 30, 2021 | | :--- | :--- | :--- | | Total Annual Recurring Revenue (ARR) | $1,467,751 | $1,287,472 | | Maintenance Annual Recurring Revenue | $531,357 | $551,723 | | Subscription Annual Recurring Revenue | $936,394 | $735,749 | | Cloud Annual Recurring Revenue | $400,271 | $287,246 | | Subscription Net Retention Rate | 112 % | 116 % | Adjusted EBITDA (Non-GAAP) (in thousands) | Metric | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Adjusted EBITDA | $88,789 | $100,935 | $253,253 | $276,203 | Components of Results of Operations - Subscription revenues consist of cloud services, subscription-based on-premises licenses, and related support services. Cloud revenues are recognized ratably over the contract term, while most on-premises license revenues are recognized at a point in time[217] - Perpetual license revenues are generally recognized at a point in time upon software availability, but the company is focusing sales efforts on subscription-based offerings, expecting perpetual license revenue to remain immaterial[218][219] - Maintenance revenues for perpetual licenses are recognized ratably over the contract term and are expected to gradually decrease as customers transition to subscription models. Professional services revenues are recognized as services are performed[220][221] - Research and development, sales and marketing, and general and administrative expenses are all expected to increase in absolute dollars due to continued investment in products, customer acquisition efforts, and costs associated with operating as a public company[225][226][227] Results of Operations Total Revenues (in thousands) | Metric | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Total revenues | $371,951 | $361,807 | $1,106,337 | $1,037,345 | | Subscription revenues | $214,009 | $193,690 | $618,799 | $517,955 | | Perpetual license revenues | $1,208 | $2,846 | $6,180 | $19,085 | | Maintenance revenues | $127,909 | $137,569 | $392,221 | $420,888 | | Professional services revenues | $28,825 | $27,702 | $89,137 | $79,417 | - Total revenues increased by 3% for the three months and 7% for the nine months ended September 30, 2022, primarily due to a 10% and 19% increase in subscription revenues, respectively, partially offset by decreases in perpetual license and maintenance revenues[236][237] - Cost of software revenues increased by 27% for the three months and 28% for the nine months ended September 30, 2022, primarily due to increases in fees paid to third-party vendors for hosting services, royalties, and personnel-related expenses[250][251] - Research and development expenses increased by 27% for the three months and 28% for the nine months ended September 30, 2022, mainly driven by a $12.8 million and $43.2 million increase in salaries and other personnel-related expenses (including stock-based compensation), respectively, due to increased headcount[259][260] - Interest and other expense, net, decreased by 30% for the three months and 55% for the nine months ended September 30, 2022, primarily due to a decrease in interest expense on interest rate swaps and a lower debt balance, along with an increase in interest income, partially offset by a decrease in revaluation gains on euro term loans[269][270] Liquidity and Capital Resources Cash Flows (in thousands) | Metric | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Cash provided by operating activities | $139,347 | $142,393 | | Cash used in investing activities | $(115,230) | $(22,365) | | Cash provided by (used in) financing activities | $33,991 | $(46,673) | - As of September 30, 2022, the company had $647.6 million in available cash, cash equivalents, restricted cash, and short-term investments, an increase from $498.1 million at December 31, 2021[273] - Net cash provided by operating activities for the nine months ended September 30, 2022, was $139.3 million, primarily driven by a decrease in accounts receivable and an increase in income tax payable, partially offset by decreases in accounts payable and contract liabilities[278][279] - Net cash used in investing activities significantly increased to $115.2 million for the nine months ended September 30, 2022, primarily due to a $181.2 million in purchases of investments[281] Critical Accounting Estimates - The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect reported amounts, which are regularly evaluated[296] - No material changes to critical accounting policies and estimates were reported compared to the Annual Report on Form 10-K filed on March 24, 2022[297] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section discusses the company's exposure to market risks, primarily interest rate sensitivity and foreign currency exchange risk Interest Rate Sensitivity - The company's long-term debt of $1.84 billion is subject to interest rate risk; a hypothetical quarter-point change in interest rates would increase or decrease interest expense by approximately $5.0 million annually[299] - To reduce the financial impact of interest rate increases, the company entered into two interest rate swaps for a total notional amount of $1.3 billion, with a fixed rate of 1.525%, maturing by December 2022[300] Foreign Currency Exchange Risk - Foreign currency exchange rate fluctuations, particularly the strengthening U.S. dollar, adversely impacted reported revenue by approximately $15 million and $32 million in the three and nine months ended September 30, 2022, respectively[302][376] Foreign Exchange Forward Contracts - The company enters into foreign exchange forward contracts as cash flow hedges to reduce the impact of foreign currency exchange rate fluctuations on its largest foreign currency exposures, specifically Indian Rupee expenses[303] - As of September 30, 2022, remaining open foreign exchange contracts are hedging Indian rupee expenses and have a maturity of approximately twelve months or less, with notional amounts to buy $109.4 million of Indian rupees[304][305] Recent Accounting Pronouncements - The company does not expect the reference rate reform and the adoption of ASU 2020-04 and ASU 2021-01 to have a material impact on its consolidated financial statements and disclosures[76] Item 4. Controls and Procedures Management concludes that disclosure controls were effective as of September 30, 2022, with no material changes in internal control Evaluation of Disclosure Controls and Procedures - Management, with the participation of the Chief Executive Officer and Chief Financial Officer, concluded that the company's disclosure controls and procedures were effective at the reasonable assurance level as of September 30, 2022[308] Changes in Internal Control over Financial Reporting - There were no changes in internal control over financial reporting identified during the period that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[309] Inherent Limitations on Effectiveness of Controls - Management believes that disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance, but not absolute assurance, that objectives are met due to inherent limitations in all control systems[310] Part II. Other Information Item 1. Legal Proceedings The company is involved in various legal proceedings but none are expected to have a material adverse effect on its financials - The company is a party to various legal proceedings and claims arising from the normal course of its business activities, including employment and intellectual property related matters[312] - No current legal proceedings are deemed by management to have a material adverse effect on the company's business, financial condition, results of operations, or cash flows[312] - Litigation is subject to inherent uncertainties, and an unfavorable outcome could result in a material adverse impact on the company's financial position and results of operation[312] Item 1A. Risk Factors This section outlines significant risks that could adversely affect the company's business, including customer retention and security Risk Factor Summary - Key risks include the inability to attract and retain customers, non-renewal of subscriptions and maintenance contracts, rapid subscription revenue growth not being indicative of future growth, security breaches, and adverse macroeconomic factors (inflationary pressures, geopolitical disruptions, and the effects of the COVID-19 pandemic)[315] - Other significant risks involve challenges in successfully managing the strategy and business model transition for cloud- and subscription-based offerings, scaling operations, competing effectively, responding to technological advances, and successful research and development efforts[315][316] Risks Related to Our Business and Industry - Failure to attract and retain customers or renew subscriptions could harm future results, as customers have no contractual obligation to renew and may terminate contracts, impacting revenue growth and predictability[318][320] - Rapid subscription revenue growth in recent periods (19.5% for nine months ended September 30, 2022) may not be indicative of future growth, and sustaining it depends on factors like customer acquisition, expansion, and product development[322][323] - Security breaches or incidents may compromise product integrity, create service outages, allow unauthorized access to data, harm reputation, and lead to significant liability and costs, especially with increasing cloud product development[324][325] - Global macroeconomic factors, including inflationary pressures, geopolitical disruptions, and the COVID-19 pandemic, have adversely affected customer buying patterns, sales cycles, and payment timeliness, impacting revenue growth expectations[331] - Unsuccessful management of the cloud- and subscription-based business model transition, including the migration of traditional PowerCenter products to cloud solutions, could negatively affect results due to increased costs and potential delays[334][337] - Fluctuations in quarterly or annual operating results, particularly for on-premises subscription license and perpetual license revenues, are expected due to sales cycles, new product introductions, and economic uncertainty, making period-to-period comparisons unreliable[364] - Sales prices may decrease due to competitive pricing pressures, discounts, and unfavorable foreign currency exchange rates, which adversely impacted reported revenue by approximately $15 million in the three months and $32 million in the nine months ended September 30, 2022[375][376] Risks Related to Regulation - The effective tax rate is difficult to project and can be adversely affected by changes in applicable tax principles, increased tax rates, new tax laws, revised interpretations of existing tax laws, and adverse results of tax examinations[415] - Failure to adequately protect personal information or comply with evolving global data protection and privacy laws (e.g., EU GDPR, California CCPA/CPRA) could lead to significant fines, enforcement actions, private lawsuits, and reputational damage[420][424][431] - The company is subject to increasingly complex regulatory and compliance obligations, including anti-corruption and anti-bribery laws (FCPA, UK Bribery Act) and governmental export/import controls, which may strain resources and divert management's attention[436][439] Risks Related to Our International Operations - International operations, which accounted for approximately 32% of revenue from outside North America for the nine months ended September 30, 2022, expose the company to increased risks such as geopolitical disruption, foreign currency fluctuations, increased operating costs, and greater difficulty in protecting intellectual property[447][448] - Fluctuations in foreign currency exchange rates, particularly the general strengthening of the U.S. dollar, negatively impacted reported revenue by approximately $15 million in the three months and $32 million in the nine months ended September 30, 2022[452] - Sustaining and expanding international business requires significant management attention and financial resources, with risks including developing localized products, managing diverse legal and cultural systems, and potential delays in growth[453][454] Risks Related to Our Sales to Government Entities - Sales to government entities (historically 10% or less of revenue) are subject to challenges such as budgetary constraints, high competition, lengthy sales cycles, and unique contractual provisions that are not typical of commercial contracts[457][458][463] - Failure to comply with complex procurement laws and regulations could lead to civil and criminal penalties, administrative sanctions (e.g., termination of contracts, debarment), and serious reputational harm[464][465] - An agreement with the U.S. Department of Defense limits control over Informatica Federal Operations Corporation to maintain facility security clearances, and termination of this agreement could impact sales to U.S. government classified agencies[461][462] Risks Related to Our Intellectual Property - The use of open source software in the company's technologies could lead to unanticipated license conditions, potential litigation, and requirements to offer solutions for no cost or make source code available[470] - The company faces intellectual property infringement claims, which can be costly to defend, result in product shipment delays, or require entering into royalty or licensing agreements, potentially forcing product redesign or discontinuation[472][475] - Inadequate protection of proprietary rights (patents, copyrights, trademarks, trade secrets) could allow third parties to develop equivalent products, duplicate technology, or design around existing patents, harming sales efforts and requiring costly litigation[476][477] Risks Related to Our Indebtedness - Substantial indebtedness ($1.87 billion as of September 30, 2022) could make it difficult to satisfy obligations, limit additional financing, and require a significant portion of cash flows to be dedicated to debt service, increasing vulnerability to adverse economic conditions[481] - Inability to generate sufficient cash flow to service debt obligations could lead to substantial liquidity problems, forced asset disposals, or restructuring, potentially resulting in bankruptcy or liquidation[485][487] - Variable rate indebtedness subjects the company to interest rate risk; each quarter-point change in interest rates could result in approximately a $5.0 million change in annual interest expense on its indebtedness[494] Risks Related to Ownership of Our Class A Common Stock and Our Capitalization Structure - The market price of Class A common stock may be volatile due to various factors, including operating performance, market valuations, sales of shares, and analyst coverage, potentially leading to substantial costs from securities class action litigation[497] - Substantial future sales of Class A common stock by existing stockholders or through equity compensation plans could depress the market price and make it more difficult for the company to sell equity securities in the future[499][500] - The Sponsors (Permira and CPP Investments) control approximately 86% of the combined voting power, allowing them to significantly influence corporate actions and potentially delay or prevent a change of control, which could conflict with other stockholders' interests[501][514] - The multi-class share structure may result in a lower or more volatile market price for Class A common stock and makes the company ineligible for inclusion in certain stock indices, potentially reducing investment by passive funds[505] General Risk Factors - Being a public company strains resources, diverts management's attention, and increases legal and financial compliance costs due to reporting and corporate governance requirements, potentially harming business and prospects[519] - Operations are vulnerable to business interruptions from fire, earthquake, power loss, telecommunications failure, natural disasters, acts of terrorism, war, and other geopolitical unrest, which could disrupt operations and recovery[522] - The company may be subject to litigation (governmental, intellectual property, commercial, employment, product liability, class action, whistleblower), and unfavorable outcomes could result in substantial damages, significant costs, and diversion of management's attention and resources[525][526] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the use of IPO proceeds, primarily for repaying outstanding indebtedness, with no unregistered sales - There were no recent unregistered sales of equity securities[527] - Net proceeds from the IPO totaled $915.7 million, primarily used to repay outstanding indebtedness under the First Lien Credit Agreement and Second Lien Credit Agreement[529] - The remainder of the net proceeds, if any, is intended for working capital, other general corporate purposes, or the acquisition of, or investment in, complementary products, technologies, solutions, or businesses[529] Item 3. Defaults Upon Senior Securities This section states that there were no defaults upon senior securities - There were no defaults upon senior securities[531] Item 4. Mine Safety Disclosures This section states that mine safety disclosures are not applicable to the company - Mine safety disclosures are not applicable to the company[532] Item 5. Other Information This section states that there is no other information to report - There is no other information to report[533] Item 6. Exhibits This section provides an index of exhibits filed with the Form 10-Q, including officer certifications and XBRL documents - The exhibit index includes certifications from the Principal Executive Officer (31.1) and Principal Financial Officer (31.2), as well as certifications pursuant to 18 U.S.C. Section 1350 (32.1†)[536] - Inline XBRL documents are also included in the exhibits, covering the instance document, taxonomy extension schema, calculation linkbase, definition linkbase, label linkbase, presentation linkbase, and the cover page interactive data file[536] - Certifications attached as Exhibit 32.1† are deemed furnished and not filed with the SEC and are not incorporated by reference into other filings[537] Signatures This section contains the signatures of the company's authorized officers certifying the report's submission - The report is signed on behalf of Informatica Inc. by Amit Walia, Chief Executive Officer and Director, and Eric Brown, Executive Vice President and Chief Financial Officer, on November 10, 2022[540]