Informatica (INFA) - 2021 Q3 - Quarterly Report

Part I. Financial Information Financial Statements The company's unaudited Q3 2021 financial statements show total assets of $4.78 billion, liabilities of $3.67 billion, and a net loss of $33.6 million on $1.04 billion revenue, reflecting improved performance Condensed Consolidated Balance Sheet Data (Unaudited) | (In thousands) | September 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $416,967 | $344,004 | | Total current assets | $919,731 | $965,121 | | Goodwill | $2,389,185 | $2,419,501 | | Total assets | $4,780,958 | $5,073,406 | | Liabilities and Stockholders' Equity | | | | Total current liabilities | $723,056 | $860,584 | | Long-term debt, net | $2,733,104 | $2,777,812 | | Total liabilities | $3,666,160 | $3,906,819 | | Total stockholders' equity | $1,114,798 | $1,166,587 | Condensed Consolidated Statements of Operations (Unaudited) | (In thousands) | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Subscriptions Revenue | $517,955 | $407,794 | | Perpetual license Revenue | $19,085 | $37,582 | | Total revenues | $1,037,345 | $946,571 | | Gross profit | $800,132 | $711,384 | | Income (loss) from operations | $61,103 | $(7,630) | | Net income (loss) | $(33,597) | $(135,127) | | Basic Net income (loss) per share | $(0.14) | $(0.55) | Condensed Consolidated Statements of Cash Flows (Unaudited) | (In thousands) | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $142,393 | $89,211 | | Net cash used in investing activities | $(22,365) | $(44,090) | | Net cash (used in)/ provided by financing activities | $(46,673) | $77,776 | | Net increase in cash, cash equivalents, and restricted cash | $70,465 | $114,027 | - On October 29, 2021, the company completed its IPO, issuing 29,000,000 shares at $29.00 per share, with net proceeds of $915.7 million after discounts and commissions[35][161] Note 1. Organization and Description of Business Informatica Inc. became the top-tier entity after a September 2021 restructuring, completed its IPO in October 2021, and provides an AI-powered software platform for data management - The company completed restructuring on September 30, 2021, establishing Informatica Inc. as the top-tier entity[34] - Post-restructuring, the company completed its IPO on October 29, 2021, issuing 29,000,000 shares at $29.00 per share for $915.7 million in net proceeds[35] - The company's core business is an AI-powered software platform that connects, manages, and unifies data across multi-cloud, hybrid systems at an enterprise scale[36] Note 6. Borrowings As of September 30, 2021, the company reported total debt of $2.79 billion and net long-term debt of $2.73 billion, consisting of Dollar and Euro term loans, while remaining in compliance with all covenants Long-Term Debt Composition (in thousands) | | September 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Dollar term loan | $2,238,150 | $2,251,575 | | Euro term loan | $547,406 | $583,066 | | Total debt | $2,785,556 | $2,834,641 | | Less: Discount and issuance costs | $(28,995) | $(33,054) | | Total debt, net | $2,756,561 | $2,801,587 | - In February 2020, the company refinanced its debt, borrowing $1.79 billion in a First Lien Dollar Term Facility, €480.0 million in a First Lien Euro Term Facility, and $425.0 million in a Second Lien Term Facility[95] - As of September 30, 2021, the company was in compliance with all covenants under its Credit Agreements[107] Note 7. Disaggregation of Revenue and Costs to Obtain a Contract For the nine months ended September 30, 2021, total revenue reached $1.04 billion, with subscription revenue growing to $518.0 million (50% of total), and capitalized contract costs increasing to $143.4 million Revenue by Type (in thousands) | Revenue Type | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Subscription | $517,955 | $407,794 | | Perpetual license | $19,085 | $37,582 | | Total software revenues | $537,040 | $445,376 | | Maintenance | $420,888 | $421,124 | | Professional services | $79,417 | $80,071 | | Total revenues | $1,037,345 | $946,571 | Revenue by Geographic Location (in thousands) | Region | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | North America | $698,972 | $645,218 | | EMEA | $225,781 | $199,394 | | Asia Pacific | $87,980 | $81,556 | | Latin America | $24,612 | $20,403 | | Total revenues | $1,037,345 | $946,571 | - Capitalized costs to obtain a contract (deferred commissions) increased from $136.6 million at year-end 2020 to $143.4 million as of September 30, 2021[111] Note 9. Stockholders Equity, Equity Incentive Plan and Deferred Compensation Post-September 30, 2021 restructuring, the company's equity structure includes Class A, B-1, and B-2 common stock, with $9.9 million in stock-based compensation expense and $100.8 million in total unrecognized compensation expense for options - On September 30, 2021, the company's restructuring resulted in issuing 200,768,636 Class A, 44,049,523 Class B-1, and 44,049,523 Class B-2 common shares[125] Stock-Based Compensation Expense (in thousands) | | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Cost of revenues | $302 | $782 | | Research and development | $1,344 | $3,148 | | Sales and marketing | $1,453 | $3,323 | | General and administrative | $934 | $2,665 | | Total | $4,033 | $9,918 | - As of September 30, 2021, total unrecognized stock-based compensation expense for unvested options was $46.8 million for service-based, $42.9 million for performance and market, and $11.1 million for performance and service conditions[137][138][139] Note 13. Subsequent Events Post-quarter, on October 29, 2021, the company completed its IPO, raising $967.2 million gross, used to repay $2.8 billion debt with a new $1.875 billion term loan and a $250.0 million revolving credit facility - On October 29, 2021, the company completed its IPO, raising $967.2 million in gross proceeds ($915.7 million net)[161][162] - Post-IPO, the company repaid $2.8 billion of outstanding First and Second Lien Term Facilities using IPO proceeds and a new $1.875 billion term loan facility[162][163] - A new $250.0 million revolving credit facility was established, maturing on October 29, 2026[162] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's transition to an AI-powered subscription model, with total ARR growing to $1.29 billion and subscription ARR to $735.7 million, resulting in a narrowed net loss of $33.6 million on $1.04 billion revenue Key Business Metrics and Non-GAAP Financial Measure Key business metrics highlight strong subscription growth, with total ARR reaching $1.29 billion, Subscription ARR at $735.7 million, Cloud ARR at $287.2 million, and a 116% Subscription Net Retention Rate Key Business Metrics (as of September 30) | (in thousands, except percentages) | 2021 | 2020 | | :--- | :--- | :--- | | Total Annual Recurring Revenue | $1,287,472 | $1,099,637 | | Maintenance Annual Recurring Revenue | $551,723 | $558,348 | | Subscription Annual Recurring Revenue | $735,749 | $541,289 | | Cloud Annual Recurring Revenue | $287,246 | $199,994 | | Subscription Net Retention Rate | 116% | 113% | Adjusted EBITDA (Non-GAAP, in thousands) | | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | GAAP net income (loss) | $(33,597) | $(135,127) | | Adjusted EBITDA | $276,203 | $274,502 | - The average subscription ARR per customer doubled from $98 thousand at year-end 2018 to $208 thousand as of September 30, 2021[184] Results of Operations For the nine months ended September 30, 2021, total revenues increased 10% to $1.04 billion, driven by 27% subscription revenue growth, resulting in an operating income of $61.1 million and a narrowed net loss of $33.6 million Revenue Comparison (in thousands) | | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | % Change | | :--- | :--- | :--- | :--- | | Subscriptions | $517,955 | $407,794 | 27% | | Perpetual license | $19,085 | $37,582 | (49)% | | Total software revenues | $537,040 | $445,376 | 21% | | Maintenance and professional services | $500,305 | $501,195 | 0% | | Total revenues | $1,037,345 | $946,571 | 10% | - Cost of software revenues increased by 49% for the nine months ended September 30, 2021, primarily due to a $10.6 million increase in third-party hosting fees and a $4.2 million increase in personnel expenses[248] - Research and development expenses increased 11% to $186.9 million for the nine months ended September 30, 2021, driven by a $21.4 million increase in personnel costs[253] - Restructuring charges decreased by 99% for the nine months ended September 30, 2021, as the 2020 workforce reorganization was largely completed[261] Liquidity and Capital Resources As of September 30, 2021, the company held $453.5 million in cash and equivalents, with operating cash flow at $142.4 million, and post-quarter, completed its IPO, raising $915.7 million net, and refinanced $2.8 billion in debt - Cash provided by operating activities increased to $142.4 million for the nine months ended September 30, 2021, up from $89.2 million in the prior year[273] - Post-quarter, the company completed its IPO, raising $915.7 million in net proceeds, and fully repaid $2.8 billion of outstanding debt under its First and Second Lien Term Facilities[269][291] - The company established a new $1.875 billion term loan facility and a new $250.0 million revolving credit facility after the IPO[163][269] Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from interest rate fluctuations and foreign currency changes, with a 0.25% interest rate change impacting annual expense by $4.0 million, and a 10% FX change impacting nine-month results by $8.9 million - A hypothetical 0.25% change in interest rates would alter annual interest expense by $4.0 million on the company's variable-rate debt[299] - The company utilizes interest rate swaps with a total notional value of $1.32 billion to hedge against interest rate volatility[300] - A hypothetical 10% change in foreign currency exchange rates would have impacted nine-month results ended September 30, 2021, by approximately $8.9 million[303] Controls and Procedures Management concluded the company's disclosure controls and procedures were effective at a reasonable assurance level as of September 30, 2021, with no material changes to internal control over financial reporting during the quarter - Management concluded that the company's disclosure controls and procedures were effective at the reasonable assurance level as of the period end[308] - No material changes in internal control over financial reporting occurred during the quarter[309] Part II. Other Information Legal Proceedings The company is not currently party to any legal proceedings expected to have a material adverse effect on its business, financial condition, or results of operations - The company is not currently a party to any legal proceedings management believes would materially adversely affect its business or financial condition[312] Risk Factors The company outlines various material risks, including customer retention, reliance on subscription renewals, security incidents, cloud transition challenges, intense competition, substantial indebtedness, and the controlling influence of private equity sponsors Risks Related to Our Business and Industry This section details operational and market risks, including customer attraction and retention, renewal rates, security incidents, cloud transition challenges, intense competition, R&D success, and reliance on key personnel - The business depends on attracting and retaining customers, and failure to do so could harm future results[317] - High renewal rates for both subscription and maintenance contracts are critical, as customers have no obligation to renew[319][322] - The market is highly competitive, facing competition from hand-coded solutions, point solution vendors, CSPs, and large stack vendors[340][342] - The transition to a cloud- and subscription-based model presents challenges in forecasting revenue mix and may not develop as anticipated[330][332] Risks Related to Our Indebtedness The company's substantial post-IPO indebtedness of approximately $1.875 billion poses significant risks, including difficulty satisfying obligations, limited financing, and restrictive covenants that could lead to liquidity problems - The company has substantial indebtedness of approximately $1.875 billion following its IPO and refinancing[476] - High debt levels require a substantial portion of cash flows for debt service, limiting funds for working capital, acquisitions, and other corporate purposes[476] - The credit agreements contain restrictive covenants limiting the company's ability to incur more debt, pay dividends, sell assets, and engage in mergers[484][485] Risks Related to Ownership of Our Class A Common Stock and Our Capitalization Structure Risks for stockholders include stock price volatility, potential share dilution from restricted stock sales, the controlling influence of private equity sponsors holding 87.2% voting power, and potential exclusion from major stock indices due to the multi-class share structure - The company's sponsors (Permira and CPP Investments) control approximately 87.2% of combined voting power, giving them controlling influence over stockholder approval matters[499][513] - The multi-class share structure may result in the company's exclusion from major stock indices, potentially affecting stock valuation and liquidity[504] - The company's bylaws designate Delaware courts as the exclusive forum for most stockholder disputes, potentially limiting a stockholder's choice of judicial forum[507] Unregistered Sales of Equity Securities and Use of Proceeds From July 1 to September 30, 2021, the company granted options for 2,211,143 shares and issued 278,188 shares upon exercise, and post-quarter, completed its IPO, receiving $915.7 million net proceeds used partly for debt repayment - During Q3 2021, the company granted options for over 2.2 million shares and issued over 278,000 shares upon exercise, all exempt from registration[527][528][529] - The company received net proceeds of $915.7 million from its IPO, which occurred after the quarter end on October 26, 2021[530] - A portion of the IPO proceeds was used to repay outstanding indebtedness under the First and Second Lien Credit Agreements[531]