That sounds bad and this is where the company wants to be going. Right now we're in this dynamic Brian, where the growth of the subscription business is solid, it has to offset what's happening in the declines with the perpetual licensing business, I think what we'll start to see in , , is the perpetual licensing business is getting so small that the declines are going to be negligible and the growth that we see on the subscription side is going to become much larger because it's getting on a bigger and bigger base.
Brian Feroldi: That's exactly what I expect to happen too. It is going to be important for investors to watch that subscription-based growth revenue. If you look over the last couple of years, the company's growth in the subscription-based revenue has actually been quite strong, 34 percent as of the most recent quarter and within that subscription revenue, the Cloud is only about a third of total subscription revenue, but that's growing the fastest at about 39 percent.
However, the company actually makes revenue from four different sources currently. The first and the one that we should care of, like you said the most about is that subscription-based revenue and that's growing quickly. The second is that perpetual license revenue, which is quickly going toward essentially zero and becoming a rounding error for the company. However, beyond that, the company also makes money from maintenance revenue and professional services revenue.
That revenue can be onetime in nature, but it is still a major component of total revenue for the company. As of the most recent quarter, it's still about half of revenue and when compared to the previous period, it was basically at a standstill. We also have to factor in that. The good news is when you combine all of that together, the company's gross margin here is still pretty good.
Dylan Lewis: Yeah, it's incredible. It's in the 70 percent range. The numbers here are super-interesting because the professional services revenue, we talked about this a lot with software-as-a-service-based businesses.
To some extent, you just need it. It has to be there. It's almost support or cost of doing business and you have to accept it. It's a drag on growth rates for the most part. Sometimes it can be a drag on margins as well. In this case, it's such a large portion of the overall revenue pie that I think the real value of the subscription business isn't fully being realized yet and probably won't be for a couple of years.
You wonder if as that gets bigger and bigger, it starts to look more and more attractive as a business. Brian Feroldi: That's the hope and like you, I was also impressed with that.
Although it is worth pointing out that the company does lump together, maintenance revenue and professional services revenue.
It's hard to parse out exactly what the gross margin is on that professional services revenue. But overall, having a consolidate gross margin up in mid-'70s is really impressive. One more thing that's complicating that factor is we'll get to the company's balance sheet in a second, but including that gross margin is a pretty healthy hit for a line item that it caused amortization of acquired technology. Even including that factor, that company is still producing gross margins in the mid '70s is very impressive.
Dylan Lewis: Yeah. For a business that's doing 1. It's going to keep an eye on. I do think there's probably some margin upside for a business like this, as subscription becomes a larger portion of the pie overtime. You think as subscription becomes a larger portion of the pie overtime, Brian, the balance sheet will continue to improve because there will be more cash on hand for them to do what they want with it.
Brian Feroldi: That's the hope. That term that I just mentioned, the amortization of intangible assets, that actually shows up several different times on the income statement, and that's a pretty sizable number. For that reason, the net income statement year is not going to fully reflect the actual cash dynamics of what's happening in the business.
That's going to be something that investors need to keep in mind. If you look at the bottom line, this company is producing GAAP losses. But a lot of that are from actually non-operating events; stock-based compensation, the amortization, and the company pays a ton in interest every year. If you strip out those three non-operating costs, the business would be solidly profitable. Dylan Lewis: I imagine one of the focuses of the capital that they raise from going public will be paying down some of that debt if they're paying a lot out in interest.
Brian Feroldi: Yes, that's exactly right. But it had a total of 4. What's the delta between those two? That's not something that we love to see. That's the thing that they are amortizing. That's not all surprising considering this company was taking private by private equity, it's common for them to load up. In the S-1 that we did have, they did say a major use of the capital that they are raising is to wipe out that debt.
Doing so will significantly reduce, if not eliminate their interest expense entirely. Again, looking forward after the company comes public, the income statement should improve dramatically. Dylan Lewis: We're going to get a little bit deeper on the dynamics of a private equity firm taking the company private and bringing them public. But we have to talk about it briefly here.
Just because the financials here are looking awful a lot like a company that has been taken private. This is a rents and repeat formula that we see very often in the space. Brian Feroldi: That's correct. It's common for companies that private equity to take these companies over, lower them up with that, and then ship them back to the public markets. It did make me happy, the fact that company did call out that it's going to use the proceeds from this capital raise to essentially wipe out as much debt, which is good.
Dylan Lewis: Brian, anytime we're treading into maybe a space that we have some understanding of, we could always use a little bit more help. We always look for the folks who have a pretty good finger on the pulse in the technology space. In this case, checking in with what Gartner has to say in their Magic Quadrant for the space that the company operates in.
The company touts right on it's website. If you go right to it's website that it is a category leader in five of Gartner's Magic Quadrant categories. That's impressive that the company is a leader in so many of them. That makes sense also since this company has been around for nearly 30 years, and it also has the customer base to backup that assertion.
That also includes 84 percent of the Fortune This company has done a great job at penetrating enterprise space. Dylan Lewis: Yeah, I think the growth story for this business certainly exists with the classic tailwinds that you'd expect with. There's a lot of growth, a lot of spend in the industry that they're in. There's the added benefit because we've seen this happen so many times. Their licensed model over to the subscription model. The customers already there. You're just moving them over to a more lucrative system for you as the provider and one that probably will keep them around longer.
That's a nice floor on a company like this or an investing case like this. Brian Feroldi: It certainly is. Then just the natural tailwinds of what's going to happen to the data market over the next 10 years. Is there any doubt in your mind that data is going to become more and more important as we move forward? To me, there is no doubt.
As we've said many times with companies like this, if it doesn't work as an investment, it's not because the opportunity isn't there. We always like to be able to say that, right, Brian? Dylan Lewis: I do want to zoom in on some of the company history and just some of the ownership dynamics here. Because it is a little unique and it's a different story than we often see for companies that we talk about on the show. This company was once public.
It listed publicly in on the Nasdaq, in was taken private by Permira and the Canada Pension Plan Investment Board, which is super-interesting organization that we could do a whole show on them. But it's basically like a public arm's-length investment arm for Canadian pensions, which is fascinating.
It is now looking to come public again. It is coming public under relatively new leadership, this company Informatica.
I think this is helpful background because it explains the stakeholders of this business. So We see that in all of the S I think some additional context, Brian, that's probably helpful here is, the original founders are not in the picture for this business.
We have Gaurav Dhillon and Diaz Nesamoney. They are the co-founders of the company. They've both moved on to other ventures. You don't see them in the executive officers or really in the major stakeholders for this business.
It's called, "We left Informatica, you can too. Brian Feroldi: That is remarkable. I can't think of another instance where founders founded a company and then left to start another company.
Then saying that other company is essentially [laughs] too old to be dependent on. That is a remarkable thing that has happened. Now, that certainly noteworthy.
The role of the founders definitely matters a lot to me. Since then, the company has embarked on an overhaul of its business model. But before that could happen, the CEO had three goals for Informatica. Founded in , Informatica provides data integration products including data visualisation, data masking and data replica tools. Since it has moved from providing primarily on-premises solutions to cloud-based, software-as-a-service offerings.
DATA is our commitment to cultivate a values-driven culture. We are passionate about building and delivering solutions that accelerate data innovations. D o Good Foster an inclusive culture where we treat each other with respect, fairness and dignity. A ct as One Team Connect, communicate, and collaborate as one diverse team. T hink Customer-First Accelerate customer outcomes in everything we build and how we deliver. A spire and Innovate Continuously and fearlessly innovate through curiosity and learning.
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