Businesses typically announce layoffs when sales slow down, but Informatica Inc. broke the mold this week by announcing results Wednesday that beat the high end of its guidance across all quarterly metrics while at the same time saying it would lay off 10% of its workforce — or 545 people — and reduce its global real estate footprint.

The integration giant said the simplicity of the cloud-only, consumption-driven strategy it adopted when it returned to the public market two years ago “enables the company to deliver continued artificial intelligence-powered product innovation and strong cloud subscription annual recurring revenues growth with a lower expense base and higher operating margins.”

That’s cloud economics, Chief Executive Amit Walia (pictured) said in an interview with SiliconANGLE. “Our restructuring has nothing to do with the macro environment or performance,” he said. “We moved to a cloud-only model and for the last five or six years we’ve been building out the new while we were supporting the old. We basically simplified the business and this is the last mile of that journey.”

Stock surges

Wall Street liked the story. Informatica stock surged over 17% on Thursday and stands at a 12-month high. The company reported a 15% increase in subscription annualized recurring revenue to $1.08 billion in the quarter and a 37% increase in cloud subscription ARR, to $550 million. It also raised its full-year guidance for operating income and adjusted unlevered free cash flow for the second time this year after announcing an earlier upward revision a quarter ago.

Total quarterly revenue of $408.5 million was up nearly 10% year-over-year and ahead of analyst estimates of $401 million. Earnings per share of 27 cents beat consensus estimates by four cents.

With the shift to a cloud-only model now complete, the company is stepping up efforts to coax its legacy on-premises customers to migrate. In May it announced a cloud modernization initiative to help customers transition from its on-premises PowerCenter to the cloud-based Intelligent Data Management Cloud. Customers have responded enthusiastically, Walia said. “A third of our deals in Q3 were Power Central Cloud edition for migration,” he said. “We think the majority of them will be that in Q4.”

Still, enterprise migrations can be a glacial process. Informatica said just 5% of its on-premises customers have successfully moved to the cloud, up from 4.5% the previous quarter. Although the overall figure is low, “the slope of the curve is actually accelerating,” Walia said. “We’ve been very thoughtful about migrations. These are mission-critical workloads.” The company continues to rely on its partner network for much of the heavy lifting in moving customers to the cloud.

Going forward, Informatica is focused on rolling out a new version of its Claire intelligent metadata automation engine with generative pretrained transformer technology. Walia said GPT will dramatically simplify the way customers interact with its enterprise data management products and broaden the base of potential users and applications.

Customers are intrigued by the potential of AI but aren’t rushing to roll out new applications just yet, he said. “Large enterprises I have been talking to are spending time to build a framework,” he said. “They’re asking what is the reference architecture to go with, what are some of the production use cases and what is the governance framework? Next year, I’m fully expecting enterprises to have their first use cases go into production.”

Walia said Informatica is well positioned to benefit from the AI gold rush given the volumes of data that are needed to train machine learning and large language models. While economic uncertainty and geopolitical factors make long-term forecasts difficult, he said the company’s cloud business is growing far faster than the 8% overall information technology spending growth Gartner Inc. expects in 2024. “At 37% growth in cloud subscriptions, we are growing multiples of that,” he said. “Our goal is to continue to maintain that growth rate as we scale our business.”

Photo: Informatica