VideoIt's a rare CFO who has had much fun during the recession. Earl Fry, who heads up finance for Informatica, a vendor of enterprise data-integration software, certainly isn't one. And that's despite the possibility that the economic ills ultimately will prove to be quite fortuitous for the company.
If there's one thing the recession has done, it's forced companies to rethink processes in a quest to wring out efficiencies. That provides hope for many software firms. Behooving Informatica, companies long afflicted by inertia in their approach to accessing their myriad data silos may at last take a new tack, Fry says. There is pent-up demand — especially, he believes, in the financial-services sector, which comprises about 20% of the company's business.
But there has been no shortage of angst along the way. In the depths of the downturn, the company's previously strong growth pace moderated considerably as large orders fell off. A planned expansion in Europe stalled. A convertible bond offering made in 2006, with the first put option scheduled to come due the year after next, was transformed from a brilliant strategy to a potential bust as Informatica's stock price tumbled.
Fry, Informatica's CFO since 1999, actually noticed the winds of change back in early 2007 and took steps then to slow down the company's spending. He credits his membership on the board of Central Pacific Bank in his native Hawaii with helping to provide him with a bird's-eye view of the unfolding financial crisis.
After the economy melted down last fall, it was gut-check time. Fry recalls going home one evening in late 2008, sharing a bottle of wine with his wife, and feeling somewhat depressed over the many decisions that needed to be made based on "very imperfect" information about business prospects. Finally he said to himself, "Buck up, Fry — this is what you've trained for all your life."
Following is an edited version of Fry's interview with CFO.com, in which he touches on lessons learned from the recession, prospects for recovery, his company's changing liquidity picture, the upcoming rewrite of revenue-recognition rules, and more.
A lot of your business is with financial-services organizations. What are you seeing in that sector?
In the U.S. banking environment, we actually started to see customers being a little more cautious on spend and not being as willing to do large transactions in the first half of 2007. Looking at those early indicators from our sales pipeline, and with what I was being exposed to on the bank board, I said, wait a minute. Things could be setting up for a very tough environment, at least in the United States, for some time, so you'd better be cautious about how you're deploying resources.
- "Don't get too caught up in the income statement and looking at EPS growth."
Informatica's Earl Fry
As early as March of this year, we started to see signs of our sales pipeline building in domestic — though not international — financial services. Certain customers, typically the larger, more successful, better financed ones, know they're going to survive and be the consolidators, so they're getting back to business. Our domestic financial-services business had double-digit growth year over year in the first quarter, and even greater growth in the second quarter.
By consolidation, you're talking about banks that are looking for acquisitions and therefore will have to integrate their data with that of other banks?
Yes, and that's already happening, of course. For example, both JPMorgan and Washington Mutual are customers of ours, and guess what — JPMorgan is spending more on data consolidation and integration now than it was a year ago.
Were the lessons learned from this recession different from those learned from the dot-com bust nine years ago?
Fundamentally those were very different downturns. For the dot-com bust I don't even use the word downturn, because it wasn't broad-based. There was a technology bubble, it burst, and there was a retooling and retrenchment primarily in the technology and software business.
This recession was caused by a massive real estate and financial-driven bubble that built up over the last seven or eight years, or you could even say a couple of decades. The magnitude of this recession is significantly greater.
But one lesson that applies to any downturn is that you have to plan for it. Things are never as good as they seem in an upturn, and if you think about it that way, then you'll be prepared for a downturn and will be able to continue investing in your products and people. Informatica was formed in 1993 around the building of data warehouses. From 2001 through 2004 we stopped growing, but during that time we broadened the technology so it could perform in real time and access more data types. If we had stayed as just a tool for automating data warehouses, even when a recovery happened growth prospects would not have been great.
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